Friday, July 8, 2011

"Wall Street & Prosecution" - There Are Benefits to Deferred Prosecutions

The NYTimes has a main story today, titled, As Wall St. Polices Itself, Prosecutors Use Softer Approach.  Contributing blogger Sol Wisenberg offers an important perspective to the discussion - the problem of cooperation when the enterprise itself is tainted. 

But the article itself misses some key aspects in its criticism of deferred prosecutions. It fails to look at the net result of a prosecution with and without a deferred prosecution agreement.  With a deferred prosecution agreement you have the company admitting to culpability, you have change in the company assured, you usually have monitors added to the organization to avoid future problems, and you obtain the entity's cooperation.  Does the company suffer?  Most definitely yes - they pay huge fines.  For example, Seimens - 800 million; Daimler - 185 million; SnamprogettiNetherlands BV - 240 million. And the cost for this prosecution or threat of prosecution is low  because the company is agreeing to pay the fine.  On the other hand, if the case had gone to trial there is the risk of a not guilty verdict (e.g., WR Grace; Xcel Energy, Inc.).  Even if the company is convicted it will have cost the US taxpayer a significant amount of money for the prosecution, and the net result will be - payment of a fine by the company.  The reality that is missed in this NYTimes article is that corporations cannot be put in jail. And if you put the company out of business - like Arthur Andersen LLP then you are putting many innocent workers out of a job that they were doing honestly. And maybe it's OK if it's a civil matter, like Bank of America just paying 8.5 billion to settle its problem with the money going to investors.

Deferred prosecutions do have their problems.  For example, many of the terms in the agreement are one-sided, the company often has no choice but to agree, and corporate executives can get thrown under the bus to save the company.  (See my co-authored article here). 

But calling the use of deferred prosecutions a "softer approach" is missing what gets achieved with deferred prosecutions.

(esp)

July 8, 2011 in Deferred Prosecution Agreements | Permalink | Comments (1) | TrackBack (0)

Wednesday, July 6, 2011

Not Guilty of OSHA Violations

It is not often that companies are criminally charged, and usually when it happens, regardless of the merits, we see the company enter a guilty verdict or enter into a deferred prosecution agreement (see here).  But not Xcel Energy, Inc. and Public Service Company of Colorado.  They were charged, they exercised their right to a jury trial, and were found not guilty after close to a month-long trial. 

The Justice Department brought criminal charges against this Fortune 250 public company alleging safety violations - OSHA violations - in the deaths of five contractors at a hydro-electric power plant in Colorado.  

Clearly this is an incredibly sad situation, with many families suffering and one cannot help but have the deepest sympathy for each person who has suffered here. 

But one also has to wonder whether our criminal justice system should be used for prosecutions alleging OSHA violations from industrial accidents.  Would these matters be better left for the administrative and civil process? And would our scarce resources be better spent educating companies on how best to keep workers' safe?

The company was represented by Cliff Stricklin, Chair of Holme Roberts & Owen's White Collar & Securities Litigation Group in Denver, Colorado. Stricklin also is an adjunct professor teaching white collar crime at University of Colorado School of Law.

See also John Ingold, Denver Post, Xcel Energy Found Not Guilty in 2007 Deaths of Five Workers in Colorado

(esp)

July 6, 2011 in Civil Enforcement, Civil Litigation, Deferred Prosecution Agreements, Environment, Prosecutions, Verdict | Permalink | Comments (1) | TrackBack (0)

Saturday, May 7, 2011

20th Annual National Seminar on Federal Sentencing Guidelines - Corporate Plea Negotiations and Sentencing

This panel was moderated by Jeff Ifrah (Ifrah Law), with AUSA Arlo Devlin-Brown (SDNY) and Steven Bunnell (O'Melveny & Myers) as speakers.  After the typical DOJ disclaimer that he was not speaking on behalf of DOJ, AUSA Devlin-Brown said that monitors are still in use.   Monitors, he said, are usually selected by the US Attorney, but getting input in the selection from defense counsel is something done in some cases. The panelists spoke about the lack of attorney-client privilege with the monitor.  Steven Bunnell  spoke about how expensive monitors can be. One of the items discussed is how the scope of the monitorship is negotiated.  

Steven Brunnell noted that corporate plea bargaining is a kind of begging. The corporate reputation is important. Sentencing guidelines are usually not a direct concern.  AUSA Devlin-Brown noted how the collateral consequences of charging a corporation, make a difference (I call that the Arthur Andersen effect). As a result both sides try to reach a settlement. He also spoke about the delicate interests of parallel proceedings.

Hypotheticals were used to consider some of the issues.  For example, what is the government view of the corporation indemnifying the CEO?  How do you deal with employee resistance?  One thing was clear from each hypo - the government has a lot of power.

My commentary - One topic discussed during this panel discussion concerned the level of trust between the corporation's attorney and the DOJ. It seemed to make a difference. But I have to ask the academic question -- should the trust between the private attorney and DOJ be a factor in how things progress in a criminal investigation? It is always interesting to see DOJ looking for consistency in sentencing, but then having individual US Attorneys and AUSAs making decisions on different aspects of a case that will be inconsistent based upon the AUSA or the defense attorney handling the matter.

(esp)

May 7, 2011 in Arthur Andersen, Conferences, Deferred Prosecution Agreements, FCPA, Investigations, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Monday, December 20, 2010

SEC Agrees to First Non-Prosecution Agreement in Fraud and Insider Trading

Guest Blogger - Michael Volkov (Mayer Brown)

The SEC announced that it has entered a non-prosecution agreement with Carter's Inc. under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to its Executive Vice President’s (Joseph M. Elle’s) alleged role in insider trading and financial fraud.  The non-prosecution agreement reflects the first use of the SEC’s cooperation policy announced earlier this year which seeks to incentivize cooperation in SEC investigations.

In support of its decision, the SEC cited the relatively isolated nature of the unlawful conduct, Carter's prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter's extensive and substantial remedial actions. 

According to the SEC's complaint filed in U.S. District Court for the Northern District of Georgia, Elles allegedly conducted his scheme from 2004 to 2009 while serving as Carter's Executive Vice President of Sales. The SEC alleges that Elles fraudulently manipulated the dollar amount of discounts that Carter's granted to its largest wholesale customer — a large national department store — in order to induce that customer to purchase greater quantities of Carter's clothing for resale. Elles then allegedly concealed his misconduct by persuading the customer to defer subtracting the discounts from payments until later financial reporting periods. He allegedly created and signed false documents that misrepresented to Carter's accounting personnel the timing and amount of those discounts.

The SEC further alleges that Elles realized sizeable gains from insider trading in shares of Carter's common stock during the fraud. Between May 2005 and March 2009, Elles realized a profit before tax of approximately $4,739,862 from the exercises of options granted to him by Carter's and sales of the resulting shares. Each of these stock sales occurred prior to the company's initial disclosure relating to the fraud on Oct. 27, 2009, immediately after which the company's common stock share price dropped 23.8 percent.

After discovering Elles's actions and conducting its own internal investigation, Carter's was required to issue restated financial results for the affected periods.

Under the terms of the non-prosecution agreement, Carter's agreed to cooperate fully and truthfully in action filed against any further investigation conducted by the SEC staff as well as in the enforcement Elles.

(mlv)

December 20, 2010 in Deferred Prosecution Agreements, SEC | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 18, 2010

Barclays Bank PLC Forfeiting 298 Million Dollars

Many of the recent corporate settlements with the government have focused on violations of the Foreign Corrupt Practices Act.  This one is somewhat unique in that the $298 Million Dollars being forfeited are for violations of the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA). A DOJ Press Releasestates that "[t]he violations relate to transactions Barclays illegally conducted on behalf of customers from Cuba, Iran, Sudan and other countries sanctioned in programs administered by the Office of Foreign Assets Control (OFAC)." The forfeiture was part of a deferred prosecution agreement with DOJ and the NY County District Attorney's Office. 

Barclay's press release notes that it "worked closely and constructively with the US Authorities."  They noted that "[t]he US Authorities have recognised Barclays substantial cooperation in the resolution." It sounds like 100,000 members of Barclay's staff will be going through training programs.

See also Mike Scarcella, BLT Blog, Judge Approves $298M Settlement Between DOJ, Barclays Bank; William McQuillen & Jesse Westbroook, Barclays Follows Citigroup With Court Rejection of U.S. Accord

(esp)

August 18, 2010 in Deferred Prosecution Agreements, International | Permalink | Comments (0) | TrackBack (0)

Thursday, July 8, 2010

DOJ Refines Role Between DOJ/Monitors/Corporations in Deferred Prosescution Agreements

DOJ issued a press release, dated May 25, 2010, that provides additional guidance on the use of monitors in deferred and non-prosecution agreements. Where the Morford Memorandum had outlined nine basic principles for drafting monitor-related provisions in agreements, this new release provides an additional consideration. The memo provides that "[a]n agreement should explain what role the Department could play in resolving disputes that may arise between the monitor and the corporation, given the facts and circumstances of the case."  Interestingly, the memo starts by stating that "the role that the Department plays in resolving particular types of disputes should be consistent with the fact that the Department is not a party to the contract between the company and the monitor."  The DOJ policy provides examples of language that might be included in an agreement.

(esp)

July 8, 2010 in Deferred Prosecution Agreements, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Monday, July 5, 2010

DOJ Issues Name Clearing Letter And Acknowledgment of DPA Side Agreement

In a highly unusual move, DOJ issued a letter vindicating an individual who had suffered as a result of a side agreement that had been entered with a 2007 Deferred Prosecution Agreement with American Express. Sergio Masvidal, former American Express Bank International Chair filed a suit charging that his constitutional rights had been violated when the court approved a settlement without knowledge that DOJ had a separate agreement to not employ Masvidal upon a sale of the bank or at the end of the one-year deferred prosecution agreement.  He claimed that the result was a loss of "his job, reputation and prospects in the banking industry."  DOJ filed a Motion to Dismiss this action, but Hon. William P. Dimitrouleas of the S.D. of Florida issued an opinion denying the government's motion finding "that the DOJ has not shown its entitlement to dismissal of the due process claim on the ground of privilege."  (see 2010 WL 1956734)

The DOJ has now issued a letter acknowledging that it had "entered into a separate letter agreement, which prohibited Mr. Masvidal from being employed by any entity that purchased AEBI, or from continued employment with AEBI if no purchaser were found, unless the Department of Justice consented in advance to such employment." Additionally, they acknowledged that this agreement "was not presented to the District Court that was considering the DPA." The clearing letter being issued now tells that its investigation "did not reveal any evidence that Mr. Masvidal had committed any criminal offenses or violated any banking regulations" and that it was terminating the letter agreement's restrictions. Masvidal was represented by Attorney Joseph DeMaria.

Letter - Download Final Letter (Executed)

Commentary -  It is good to see DOJ issuing this letter, but this is another indication of why terms within DPAs need to be disclosed, and why courts need to monitor the agreements. More importantly, government interference with third party contract and employment rights needs to be prohibited. Finally, seeing DOJ move to dismiss this complaint on January 11, 2010 is troubling in light of their recent admission that "[s]uch undisclosed letter agreements are not part of the Criminal Division's practice."

(esp)

July 5, 2010 in Deferred Prosecution Agreements, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Monday, March 29, 2010

Daimler Deferred Prosecution, Monitor, and More

Friday, March 19, 2010

Wachovia Bank Deferred Prosecution Agreement

The Wachovia Bank deferred prosecution agreement can be found  here. One finds the usual high fine ( $50,000,000 in this case), that is seen in many deferred prosecution agreements. Wells Fargo is said to have "repaid any and all funds that it received through" TARP. But Wachovia also has a forfeiture amount to pay and the agreed amount is $110,000,000. One also finds usual provisions on cooperation, and that a breach of the agreement rests with the government.  The agreement states "[t]he parties further understand and agree that the United States' exercise of reasonable discretion under this paragraph is not subject to review in any court or tribunal."  But what is missing from this agreement that is seen in many agreements is the appointment of a compliance monitor. 

(esp)

March 19, 2010 in Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (0)

Thursday, January 21, 2010

General Re Non-Prosecution Agreement - Commentary

DOJ and General Re have entered into a non-prosecution agreement that provides for a monetary payment of $19,500,000 to the US Postal Inspection Service Consumer Fraud Fund, as well as other payments. The agreement and details of it can be found in Andrew Longstreth's article in AMLAW Litigation titled, General Re Resolves DOJ and SEC Claims Based on Fraudulent AIG Transactions. Background on the situation can be found in Amir Efrati's article in the, WSJ, GenRe Reaches Deal With Justice Department in AIG Case.   The agreement itself has some of the typical provisions we have seen in deferred and non-prosecution agreements, but also has some that are not found in all of the agreements of the past.

  • Like the typical non-prosecution agreement, the agreement is provided by a letter between the parties and is not part of a court document.
  • Like the typical deferred and non-prosecution agreement, the DOJ has the "sole discretion" to determine if there is a failure to comply.  I should note here that in a recent co-authored article on deferred prosecutions, written with Professor Candace Zierdt , we note the contractual problems with one party having the sole discretion to determine if there is a breach of the terms in the agreement.  See Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing A court does not get to review the validity of whether there has in fact been a breach of the agreement.
  • In the cooperation section of the agreement, there is a provision providing that this cooperation section does not apply if it's a prosecution because of a breach of the agreement.  It is good to see DOJ recognizing that they can't ask a party to be their own prosecutors.
  • The agreement includes an "internal corporate remediation measures" section.  Although corporate monitors have often been seen in past agreements, this agreement has some peculiar aspects. For one the agreement has some very specific remediation statements. For example, the Berkshire Hathaway CFO and Director of Internal Audit will be attending the General Re Corporation's Audit Committee meetings.  Additionally a Complex Transaction Committee "will maintain the power to reject any proposed transaction from being written by General Re or any of its insurance or reinsurance company affiliates within the Gen Re Group."  The specifics here make one wonder to what extent the government is inserting itself within private corporate matters.  They aren't just saying you have to comply with the law, they are providing an infrastructure to make them accountable.
  • The agreement prohibits the company from making certain statements -

"General Re agrees that neither it nor its directors and executive officers, nor any person authorized to speak for them, will make, cause others to make, or acknowledge as true any factual statement inconsistent with the factual descriptions of the Agreed Statement of Facts in Attachment A. Any such public statement inconsistent with the Agreed Statement of Facts shall, subject to the cure rights below, constitute a breach of this Agreement."

  • General Re also agreed to run press releases or other prepared public statement in connection with this agreement by the DOJ, and they need to receive the seal of approval from DOJ prior to its release. Can the government include an agreement that infringes on first amendment rights? It isn't the first time that we have seen such a provision.

(esp)

January 21, 2010 in Deferred Prosecution Agreements, Settlement | Permalink | Comments (0) | TrackBack (0)

Friday, January 15, 2010

New Report on DPAs

GAO issued a third report on Deferred Prosecution Agreements (DPA) and Non-Prosecution Agreements (NPA), this time titled - DOJ Has Taken Steps to Better Track Its Use of Deferred and Non-Prosecution Agreements, but Should Evaluate Effectiveness.  The report recommends that:

"To assess its progress toward meeting its strategic objective of combating public and corporate corruption, the Attorney General should develop performance measures to evaluate the contribution of DPAs and NPAs towards achieving this objective."

There were 12 U.S. District and magistrate judges who provided comments that assisted in the report. A highlight sheet on the report states that  "prosecutors, company representatives, monitors, and judges with whom GAO spoke more frequently cited disadvantages to greater judicial involvement - such as the lack of time and resources available to judges and concerns about the separation of powers and constitutionality of increased judicial involvement -than advantages to such involvement-such as the court's ability to act as an independent arbiter of disputes, increased transparency in the DPA process, and decreased perceptions of favoritism in selecting the monitor."  

I wonder what defense attorneys would have said if they had been consulted on this question.

Prior Reports - Prosecutors Adhered to Guidance in Selecting Monitors for Deferred Prosecution and Non-Prosecution Agreements, but DOJ Could Better Communicate Its Role in Resolving Conflicts;Preliminary Observations on DOJs Use and Oversight of Deferred Prosecution and Non-Prosecution Agreements

(esp)

January 15, 2010 in Deferred Prosecution Agreements, Government Reports | Permalink | Comments (0) | TrackBack (0)

Thursday, January 14, 2010

New SEC Rules - Commentary

The SEC has instituted a new initiative to provide for greater cooperation in hopes of encouraging individuals to assist in bringing to light improper activities. (see SEC Press Release)  And cooperators may obtain a benefit of immunity in return for their cooperation (see Marketplace here).  The framework for this cooperation can be found here.  Some concerns  -

  • What if you are the last person in the chain and there is no one left to offer cooperation against - is it fair for cooperation to be a race to the SEC office?   Will individuals with more resources be the ones to receive the most benefits, while poorer folks are left to suffer the consequences of others cooperating?
  •  It is clear that the SEC gives itself enormous discretion in deciding the value of the individual's cooperation.  The four factors listed as the outline for determining "whether, how much, and in what manner to credit cooperation by individuals" sound wonderful, but the outline is clearly subject to many different interpretations.  For example, will everyone be in agreement as to "[w]hether the individual's cooperation resulted in substantial assistance to the Investigation?" Also, the SEC will be determining if the person acted with scienter.  Will those who could suffer consequences of an SEC action agree with the determination that is made?
  • And what if the individual disagrees with the level of cooperation determined by the SEC, is there any place to obtain review?  The rules explicitly state that it does not "create[] or recognize[] any legally enforceable rights for any person."
  • Does this really go beyond the powers that the SEC presently has now?  If cooperation is offered, couldn't they now decide not proceed against someone?  Is this new initiative offered for a symbolic purpose?
  • If there is a real incentive offered will it result in the possibility of misinformation being relayed to the SEC by those who desire to obtain immunity.  How will the SEC handle cooperators who lie to save themselves from the consequences that they can face for their illegal activities?
  • Until such time as a neutral third party enters this picture to evaluate the cooperation, it certainly seems like this "new"  approach is vague and perhaps just more of the same. 
  • The real question is not whether the SEC will receive information on improprieties, but rather will they do something about it when the information is received. Would this situation have brought the Madoff case to light sooner, or was Madoff brought to their attention but they failed to follow up.

For more commentary on other aspects of the SEC announcement, like the use of deferred prosecution agreements, see  Mike Koehler, FCPA Blog, Game-Changing" Day at the SEC

(esp)

January 14, 2010 in Deferred Prosecution Agreements, SEC, Securities | Permalink | Comments (0) | TrackBack (0)

Sunday, January 3, 2010

End of Year Deal - UTStarcom on FCPA

DOJ Press Release, UTstarcom Inc. Agrees to Pay $1.5 Million Penalty for Acts of Foreign Bribery in China states:

"UTStarcom Inc. (UTSI) has entered into an agreement with the Department of Justice, agreeing to pay a $1.5 million fine for violations of the Foreign Corrupt Practices Act (FCPA) by providing travel and other things of value to foreign officials, specifically employees at state-owned telecommunications firms in the People’s Republic of China."

...

"In a related matter, UTSI reached a settlement today with the U.S. Securities and Exchange Commission under which it agreed to pay an additional $1.5 million penalty and satisfy additional obligations for a period of four years."

See also David Barboza, NYTimes, Telecom Company to Pay $3 Million in China Bribe Case

(esp)

January 3, 2010 in Deferred Prosecution Agreements, FCPA | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 2, 2009

Commentary on Pfizer Settlement - "Educating Compliance"

Associate AG Perrelli states at the Pfizer Settlement Press Conference:

"today’s settlement reflects the Department of Justice working hard to protect American taxpayer dollars. This case is a great example of the Department’s commitment to fiscal accountability, combating fraud, and returning much-needed dollars back to the U.S. Treasury and state treasuries."

It is good to know that in these days of fiscal downturn, money is being obtained from a company that engaged in conduct disapproved by DOJ. (see here for background)  But wouldn't it have been better if the wrongdoing had not occurred in the first place.  I have to wonder what the government is doing pro-actively as opposed to re-actively to assure corporate compliance. Perhaps more dollars need to to be spent on "Educating Compliance"  My forthcoming article, "Educating Compliance" to be published in Georgetown's American Criminal Law Review can be found here.

(esp)

September 2, 2009 in Deferred Prosecution Agreements, Fraud, Scholarship | Permalink | Comments (0) | TrackBack (0)

Saturday, August 15, 2009

"The Tip of the Iceberg" - A Plea in the UBS Swiss Accounts

UBS entered into a deferred prosecution agreement with the government (see here).  The agreement included that UBS would provide the U.S. government "with the identities of, and account information for, certain United States customers of UBS’s cross-border business." Things initially moved slowly as an agreement needed to be reached regarding the release of information in light of privacy laws (see here). But with these two steps apparently settled according to press reports, it is not surprising to see an individual reaching a plea agreement with the government for failure to disclose UBS Swiss bank accounts to the IRS. A DOJ Press Release reports that this individual "admitted that he failed to pay at least $200,000 in federal income taxes and that he now owes the government interest and penalties."

One has to wonder if the government action of proceeding against individuals with Swiss accounts that were not properly reported to the IRS, will assist the US economy. Eileen C. Mayer, Chief of IRS-Criminal Investigation, called this prosecution "the tip of the iceberg."

(esp)

August 15, 2009 in Deferred Prosecution Agreements, Settlement, Tax | Permalink | Comments (2) | TrackBack (0)

Thursday, July 2, 2009

Beazer Homes Deferred Prosecution Agreement

Beazer Homes USA, Inc. entered into a deferred prosecution agreement with the US Attorney's Office for the Western District of North Carolina.  The company issued the following release for investors (see here). The agreement calls for an immediate payment of 10 million dollars in restitution (actually 7.5 million since it already paid 2.5 to North Carolina victims), with additional funds down the road. Additional payments to the FHA include an immediate payment of 4 million. 

It is good to see that this agreement does not explicitly include a waiver of attorney client privilege.   But there are two provisions in this agreement that cause concern. First is a statement that says that "BEAZER expressly agrees that it shall not, through its present or future attorneys, board of directors, officers, or any other person authorized to speak for the company, make any public statement, in litigation or otherwise, contradicting BEAZER'S acceptance of responsibility set forth above or the factual allegations in the criminal information filed in conjunction with this Agreement, except insofar as BEAZER contests the applicability of the factual allegations in the criminal information and/or this Agreement to a specific private civil litigant or class of litigants...." It later states that "[t]he decision of whether any public statement by any such person contradicting a fact contained in the criminal information will be imputed to BEAZER for the purpose of determining whether BEAZER has breached this Agreement shall be in the sole discretion of the United States." (emphasis added)

A second concern with this agreement also pertains to who has the authority to determine a breach of the agreement.  The Agreement states "BEAZER agrees that the decision whether conduct and/or statements of any individual will be imputed to BEAZER for the purpose of determining whether BEAZER has knowingly, intentionally and materially violated any provision of this Agreement shall be in the sole discretion of the United States."  (emphasis added) And later the same issue, "It is further agreed that in the event that the United States, in its sole discretion, determines that BEAZER has materially breached or violated any provision of this Agreement...." (emphasis added).  

It's good to see DOJ no longer seeking a waiver of attorney-client privilege, but they also need to pay closer attention to contracts and provide a fairer agreement if there is a breach by a party to the agreement.  A neutral party, as opposed to one of the parties to the agreement, should be making this call. See Candace Zierdt & Ellen S Podgor, Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing

For discussion of the deferred prosecution agreement, see also Harry R. Weber, Houston Chronicle (AP), Charges filed against Beazer; Settlement reached ; Reuters, Beazer Homes agrees to settle mortgage fraud case; Wallace Witkowski, Marketwatch WSJ,  Beazer settles with North Carolina, feds.

Beazer Settlement - Download BEAZER SETTLEMENT

Bill of Information - Download Bill of Info

Deferred Prosecution Agreement - Download Deferred Prosecution

(esp)


 

July 2, 2009 in Deferred Prosecution Agreements | Permalink | Comments (1) | TrackBack (0)

Tuesday, May 12, 2009

Novo Nordisk Deferred Prosecution Agreement

A DOJ Press Releasereports on a deferred prosecution agreement entered into by "Novo Nordisk A/S (Novo), a Danish corporation based in Bagsvaerd, Denmark."  The agreement calls for the company to pay a penalty of "$9 million penalty for illegal kickbacks paid to the former Iraqi government."  This case is part of the DOJ's investigation "into the UN Oil-for-Food program." The DOJ filed "one count of conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act (FCPA)."  The DOJ Press Release states:

"According to the agreement and the information filed today, between 2001 and 2003, Novo paid approximately $1.4 million to the former Iraqi government by inflating the price of contracts by 10 percent before submitting the contracts to the United Nations for approval and concealed from the United Nations the fact that the price contained a kickback to the former Iraqi government. Novo also admitted it inaccurately recorded the kickback payments as "commissions" in its books and records."

See also FCPA Blog here; Reuters here.

(esp)

May 12, 2009 in Deferred Prosecution Agreements, FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Monday, May 11, 2009

Wellcare - Deferred Prosecution Agreement

Back in October 2007, WellCare Health Plans, Inc. in Tampa was the subject of a search by government agents. (see here and here) Last week, the company entered into a deferred prosecution agreement. (see Bloomberg here).  A DOJ Press Release outlines the obligations of WellCare under this agreement.  It includes "consent to the civil forfeiture of $40,000,000," "pay an additional $40,000,000 in restitution to the Florida Medicaid and healthy Kids programs," "retain and pay an independent Monitor," and as usual for deferred prosecution agreements, cooperation in investigations, in this case investigations of "Wellcare executives and employees responsible for the alleged fraudulent conduct at issue."

But like so many of the recent deferred prosecution agreements, the DOJ plays a powerful position in the company's future.  In this case the U.S. Attorney's Office gets to select the "independent Monitor."  And if the "Monitor resigns or is unable to serve the balance of his or her term, a successor Monitor shall be selected by the USAO. . ." Additionally, a breach of the agreement rests in the sole discretion of the prosecution, although they do give the company time to respond to claims of a breach.  And "[r]egardless of whether the USAO pursues criminal charges against WellCare upon any breach of the DPA, any monies paid to the USAO at any time by WellCare will not be returned to WellCare and WellCare will make no claim upon such monies."  So much for contract law. (see here)

Deferred Prosecution Agreement here.

(esp)  

May 11, 2009 in Deferred Prosecution Agreements, Searches | Permalink | Comments (1) | TrackBack (0)

Sunday, April 19, 2009

Discovery, Deferred Prosecution Agreements & the Attorney-Client Privilege

The threat of indictment to a corporation is huge, and one need only look at what happened to Arthur Andersen LL.P to reach this conclusion. In the aftermath of Andersen, many corporations have entered into deferred and non-prosecution agreements with the government, paying huge fines but avoiding prosecution.  With their "backs against the wall" the companies agree to many controversial terms, including in some cases the waiver of the attorney-client privilege. The net result to the government is not only money, but also evidence that can be used to proceed against individuals within the company.

But how does this scenario play out in the long run. The case of U.S. v. The Williams Companies provides an interesting glance at what can happen when the attorney-client privilege is violated by the company. Williams, an opinion issued this past week by the DC Court of Appeals has the individual asking for discovery in the criminal case, and wanting the government to produce the discovery they received from the company.  The problem is that the company does not want the evidence to be produced to the defendant.  So the court is left to rule on "a third-party appeal of a discovery order in a criminal case compelling the government to produce 'all materials disclosed' by the third party pursuant to its cooperation with federal investigators during a criminal investigation of the third party and others." The court remands the case to the district court to assess "which documents were material to the defense."

The moral of the story is - you may think that your back is against the wall to enter into a deferred prosecution agreement, but before you agree to waive the attorney-client privilege, be aware of the long-term ramifications of this decision. 

(esp) (blogging from Chicago)

April 19, 2009 in Defense Counsel, Deferred Prosecution Agreements, Privileges | Permalink | Comments (0) | TrackBack (0)

Friday, April 10, 2009

It's Not Just the Stevens Case - DOJ Needs A Better Compliance Program

A "not guilty" verdict was returned on a drug case in Miami, but what happened during the investigation and prosecution of this case has now resulted in an award of $601,795.88 under the Hyde Amendment. The Hyde Amendment allows for attorney fees when a "prevailing criminal defendant" can demonstrate "that the position the government took in prosecuting him was vexatious, frivolous, or in bad faith." (see Order, infra, citing U.S. v. Gilbert).

Hon. Alan S. Gold, in the Southern District of Florida, issued an Order awarding these attorney fees and enjoined the US Attorneys who practice in that court from "engaging in future witness tampering investigation of defense lawyers and team members in any ongoing prosecution before [this judge] without first bringing such matters to [the judge's] attention in an ex parte proceeding." The judge also issued a public reprimand against the US Attorneys office and specifically 2 AUSAs. And it does not end there, as the judge also makes it clear that a disciplinary body needs to review this matter. (Court's Order - Download 08-20112 (Shaygan) Prosecutorial Misconduct FINAL ) 

The judge presents a thoughtful Order that gives credit to the USA's office for taking "immediate efforts to investigate" this matter when it came to light. After all, the taping of defense counsel and a defense investigator, by government informants, does present serious concerns.  The failure to disclose this material is more problematic.  The judge tells of Brady, Giglio, and Jencks issues in this case.

Hon. Alan S. Gold could not have said it better when he stated,

"It is the responsibility of the United States Attorney and his senior staff to create a culture where 'win-at-any-cost' prosecution is not permitted,  Indeed, such a culture must be mandated from the highest levels of the United States Department of Justice and the United States Attorney General.  It is equally important that the courts of the United States must let it be known that, when substantial abuses occur, sanctions will be imposed to make the risk of non-compliance too costly."

DOJ, the enforcer against corporate misconduct and the one who requests the appointment of monitors in deferred prosecution agreements, may seem to be having its own issues.  One has to give the department credit for recognizing their lack of compliance in the Stevens case and agreeing to dismiss it.  Likewise one has to give the government credit in this recent Miami case, in that the DOJ stated that they "made serious mistakes in a collateral investigation that was an offshoot of this case and stands ready to pay the additional attorneys' fees and costs incurred by the defendant as a result." Clearly the new AG Holder is taking a strong position against prosecutorial misconduct and sending that clear message to those in his office, something that is wonderful to see happening.  But if this were a corporation that had committed misconduct, would these acknowledgments and payment be sufficient? The deferred prosecution agreement would require monitoring, and there would be a need to assure that there was now compliance. Mind you, I am not suggesting that a monitor in another deferred prosecution agreement case, John Ashcroft, be appointed here. But the concern is that both of the cases mentioned here had attorneys who could present these claims.  My concern rests with the many cases that might have similar claims of misconduct but no attorney to bring the issues to light.

(esp)

April 10, 2009 in Attorney Fees, Defense Counsel, Deferred Prosecution Agreements, Judicial Opinions, Legal Ethics, Prosecutors | Permalink | Comments (8) | TrackBack (0)