Monday, September 8, 2014
The Economist has an excellent article examining the criminalizing of American companies. The piece, entitled “A Mammoth Guilt Trip,” covers a lot of ground, including many of the most pressing issues in the field of corporate criminal liability today. The article begins by examining some of the incredible financial settlements we’ve seen this year. As the piece notes, while the $5.5 billion the DOJ collected in direct payments in 2013 was impressive, it will certainly be “dwarfed by this year’s tally.” Also examined in the article are issues such as the questionable and opaque ways the government spends settlement funds, the growth in regulatory crimes, the often prohibitive costs of corporate compliance, the inability of many companies to risk proceeding to trial, and, of course, the lack of individual prosecutions following the 2008 financial collapse. Finally, the article contains some great data from Professor Brandon Garrett at the University of Virginia Law School. Professor Garrett maintains a list of government actions against corporations since 2000. In total, the list contains information regarding 2,163 corporate convictions and guilty pleas, along with 313 deferred and non-prosecution agreements. It all makes for a fascinating read.
Tuesday, April 8, 2014
I had the privilege of being at an NYU Conference titled, Deterring Corporate Crime: Effective Principles for Corporate Enforcement. Hats off to Professor Jennifer Arlen for bringing together folks with some different perspectives on corporate crime. Individuals presented data, and I heard different positions presented (corporate, government, industry, judicial) on a host of topics. The individual constituent (CEO, CFO, employee) within the corporation was not a key focus, unless it was a discussion of their wrongdoing or prosecution.
From this conversation it was clear that deterring corporate wrongdoing is not easy. Penalties have increased, yet we continute to see corporate criminality. So the question is, how do we encourage corporations not to engage in corporate wrongdoing?
This is my top ten list of what I think exists and what needs to be changed -
1. Most companies try to abide by the law.
2. Complying with the law is not always easy for corporations. In some instances the law and regulations are unclear, making it difficult to discern what is legal. The array of different laws and regulations (e.g., state, federal, and international), as well as their complexity makes corporate compliance problematic.
3. Companies resort to internal investigations to get information of wrongdoing within the company. In some instances companies will threaten individuals with the possible loss of their jobs if they fail to cooperate with a corporate internal investigation. Individuals who provide information to their employers sometimes do not realize that the company may provide that information to the government and the information may then be used against them.
4. If a company is criminally charged, it typically is financially beneficial for the company to fold, work with the government, and provide information to the government of alleged individual wrongdoing within the company.
5. DOJ's incentives to a corporation that causes it to fold and provide evidence to the government against alleged individual wrongdoers may be causing more harm because it pits corporations against its individual constituents.
6. We need a stronger regulatory system. Our system is broken and one just can't blame agencies like the SEC.
7. If we expect agencies like the SEC to work, Congress needs to provide them with more money to engage in real regulatory enforcement.
8. There are many good folks in DOJ, including AG Holder, who look longterm at stopping corporate wrongdoing. But there are also individuals in DOJ who fail to see the ramifications of what may seem like short-term benefits.
9. Corporate crime can be reduced if everyone - the corporation, government, and also the individual constituents would work together.
10. It would be beneficial in reducing corporate crime if there was more transparency. We all need to hear what works - when there are declinations of prosecutions, or when an agency decides not to fine a company. We can learn from the good things companies do (anonymously) and when DOJ declines to proceed against the company.
Wednesday, June 19, 2013
SEC Chair Mary Jo White has announced an end to the SEC's blanket "does not admit or deny" settlement agreement policy. In a select number of cases involving "widespread harm to investors" or "egregious intentional misconduct" the Commission will now insist on admissions of wrongdoing on the part of civil defendants who want to settle. The blanket policy was previously eroded, in January 2012, in cases where settling defendants had already pled guilty to related criminal charges. Yesterday's Reuters story is here. Todays Thomson Reuters News & Insight analysis is here.
I strongly suspect that the tangible impact of the policy shift will be minimal. Since almost no SEC civil defendants can afford to admit wrongdoing as a condition of settlement (except in cases where a guilty plea occurred or is anticipated), we can expect the instances in which the SEC will insist on such admissions to be extremely rare. And those very rare cases will result in trials.
But the intangible impact of annually insisting on admissions of wrongdoing in three or four cases may be greater over time. First, the trials, though few in number, should be well-covered by the media. Second, the SEC will regain some much needed respect for its toughness. Third, going to trial and airing the dirty laundry accumulated by malefactors of great wealth should have salutary educational and public policy benefits. Fourth, we may actually see some deterrent effect from all this, so that companies don't automatically view SEC settlements as a cost of doing business.
We will revisit this issue as the new policy is implemented.
Wednesday, September 26, 2012
It is always interesting to see who will get a non-prosecution agreement, a deferred prosecution, or be placed in the position of pleading guilty. There are few who go to trial, but occasionally it happens. The risk of trial is enormous especially if the company is in the defense procurement area, accounting, health care, or dealing with possible collateral consequences.
According to a DOJ press release, "Tyco International Ltd - together with a subsidiary that pleaded guilty" to a criminal charge of conspiracy to violate the FCPA agreed to pay more than $26 million for the DOJ resolution and for charges from the SEC.
It seems that "an indirect, wholly owned subsidiary of Tyco" is the one pleading guilty, but near the bottom of this same press release one finds that Tyco received a non-prosecution agreement.
To what extent does the collateral consequences of the process drive the different resolutions?
Tuesday, July 3, 2012
This $3 billion settlement between GlaxoSmithKline and the government is the largest settlement in the health care fraud arena. But DOJ's focus on health care fraud is not limited to this one case.According to TRAC reports here for "FY 2011 the government reported 1,235 new health care fraud prosecutions." This is particularly noteworthy because it demonstrates a number that is "up 68.9% over the past fiscal year when the number of criminal prosecutions totaled 731" in the health care fraud area. If one looks at the percentage change from 5 years ago, it is up 134%, from ten years ago 95.7% and 20 years ago 740%. This increase in prosecution of health care fraud is incredible. And the place showing the highest amount of fraud is in the Southern District of Florida.
The government took some wrong turns initially in the GlaxoSmithKline case when they proceeded against the former VP and Associate General Counsel of the company. Lauren Stevens had been initially charged with a 6-count Indictment for the alleged crimes of obstruction (1512), falsification and concealment of documents (1519) and false statements (1001). The case was dismissed here with all kinds of revelations (like what co-blogger Sol Wisenberg noted on June 2011 - how the Maryland US Attorney refused to sign the indictment here). See also David Stout, Main Justice, Lauren Stevens: A Case the DOJ Would probably Like to Forget. To me it seemed like an indictment of a possible discovery violation, if that, by none other then the DOJ, who had its share of discovery violations in failing to provide Brady material in cases like the Ted Stevens case.
But this latest settlement with the company is an important step forward in saying that the current administration is concerned not only about providing health care to all, but also in not allowing companies to commit fraudulent acts. The GlaxoSmithKline website has its 2011 Corporate Responsibility Report on its front page here and a statement here, which includes a statement from CEO Sir Andrew Witty saying "[o]n behalf of GSK, I want to express our regret and reiterate that we have learnt from the mistakes that were made."
White collar cases can take many years to resolve and many, such as whistleblowers (see here & here), may have difficult times in the process of waiting. But it is important to congratulate the DOJ on not going for a quick "short-cut" resolution here and instead taking the time, energy, and money, to investigate a company on multiple levels. Resolving it also is a strong cost-saving measure.
(esp)(with disclosure that she received her B.S. from Syracuse - the home of TRAC).
Monday, July 2, 2012
Wednesday, June 27, 2012
A DOJ Press Release reports, Barclays Bank PLC Admits Misconduct Related to Submissions for the London Interbank Offered Rate and the Euro Interbank Offered Rate and Agrees to Pay $160 Million Penalty
Some highlights of the press release -
- "Barclays Bank PLC, a financial institution headquartered in London, has entered
into an agreement with the Department of Justice to pay a $160 million penalty
to resolve violations arising from Barclays’s submissions for the London
InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR),
which are benchmark interest rates used in financial markets around the world..."
- "To the bank’s credit, Barclays also took a significant step toward accepting
responsibility for its conduct by being the first institution to provide
extensive and meaningful cooperation to the government."
- "Barclays’s cooperation has been extensive, in terms of the quality and type of
information and assistance provided, and has been of substantial value in
furthering the department’s ongoing criminal investigation."
- "The agreement requires Barclays to continue cooperating with the department in
its ongoing investigation."
- "As a result of Barclays’s admission of its misconduct, its extraordinary
cooperation, its remediation efforts and certain mitigating and other factors,
the department agreed not to prosecute Barclays for providing false LIBOR and
EURIBOR contributions, provided that Barclays satisfies its ongoing obligations
under the agreement for a period of two years. The non-prosecution agreement
applies only to Barclays and not to any employees or officers of Barclays or any
Commentary - As a non-prosecution agreement it does not go through the courts and DOJ has the power to enforce or proceed should it believe there is a violation of the agreement. It also sounds like the white collar defense bar may have some new clients as the government has secured the cooperation of the company to go after individuals.
See also Jenna Greene, BLT Blog, Barclays Agrees to Pay $360M to Settle with CFTC, DOJ
over Interest Rate Manipulation
Thursday, May 31, 2012
Some have been claiming that corporate prosecutions are down in numbers. It certainly has not seemed that way, so I was glad to see the numbers, which demonstrate that corporate sentencings have been average over the past few years.
Lisa Rich, Director of the Office of Legislative and Policy Affairs at the United States Sentencing Commission provided the following corporate statistics for the recent Federal Sentencing Conference (although I have reworded some of what she provided): In FY 2011, there were 160 organizational cases and 151 pled guilty and 9 were convicted after jury trials. Probation was ordered in 111 cases and 31 had court ordered compliance/ethics programs. Three cases received credit for self-reporting and 44 received credit for cooperating with the government. But of the approximately 74 cases in FY2011 for which the Commission had Chapter 8 culpability information, there were no entities receiving full credit for having an effective compliance program. Not one of the 74 cases received credit under subsection (f).
These statistics do not reach the full corporate efforts by DOJ since they fail to include non-prosecution agreements or deferred prosecution agreements that have not gone through chapter 8. So some bottom line observations: 1) if the government decides to prosecute a corporation - it has an incredibly high chance of success; 2) more emphasis needs to be put into teaching corporations how to operate an effective compliance program; 3) studies need to examine whether by using deferred and non-prosecution agreements the government is increasing prosecutions against corporate individuals (it certainly seems likely that this would be the case).
Friday, May 25, 2012
The DOJ filed a motion to voluntarily dismiss (Download USA v Lindsey, etc., et al.___ecf.ca9.uscourts) in the U.S. Court of Appeals for the Ninth Circuit the FCPA case involving Lindsey Manufacturing Co., its CEO and CFO. The government had filed an appeal on December 1, 2011 following an Order of District Judge Howard Martz, who ruled that the Lindsey prosecution had been tainted by a pervasive pattern of flagrant government misconduct. Contributing Blogger Solomon Wisenberg posted here excerpts from this initial Order. By today's dismissal, the government is finally dropping this prosecution and it also ends the efforts to get the company to forfeit $24 million.
Attorney Jan Handzlik of Venable LLP stated, "This is a great day for the fair administration of justice. We couldn't be happier for Keith, Steve and the 110 loyal, hard-working employees of Lindsey Manufacturing Company. This dismissal further vindicates Dr. Lindsey's belief in our system of justice and in his innocence. Keith and Steve were steadfast in their belief that the government had not played fair and that the truth would come out."
Congratulations also go to Janet Levine (CrowellMoring), who also represented an accused in this case. Both Jan Handzlik and Janet Levine were the inaugural recipients of the White Collar Criminal Defense Award given at the NACDL White Collar Criminal Defense College at Stetson (see here).
Monday, February 6, 2012
In criticizing Judge Jed Rakoff's refusal to rubber-stamp its proposed settlement agreement with Citibank, the SEC has claimed that if it has to require companies to admit wrongdoing as a condition of settlement, there will be far fewer settlements and more trials. As a result, says the SEC, its resources would be so strained so that it would bring considerably fewer enforcement actions. The New York Times on Friday, February 3, cited unnamed "legal experts" as endorsing that view, saying that companies will be less likely to admit facts which could be used against them in shareholder lawsuits. See here.
There is a certain logic to that argument. Companies that have committed misconduct now do choose to pay the SEC rather than admit or reveal their wrongdoing to the public (and to class action lawyers). Companies that believe they have not committed misconduct sometimes decide it is less costly to pay the SEC than fight it. Few SEC cases go to trial. This settlement model works well for the SEC, which gets a check with less sweat, and for most defendants, which conceal their misconduct and/or save money.
But is that in the public good? More trials should lead to more public knowledge, promote more curative government action, and add an additional deterrent to corporate misconduct. Additionally, it should force the SEC to be more scrupulous in bringing marginal or questionable cases since they would more often be required to justify the charges in court.
I also question whether these "experts" are right in their expectation that there would be far more trials. I am not so sure that many corporate executives want public airings of the factual details of the company's wrongdoing. "Experts" predicted that the enactment of the Sentencing Guidelines would overwhelm the federal courts with trials since many more criminal defendants would exercise their right to trial because of the perceived (and actual) harshness and rigidity of the Guidelines upon a conviction. That simply has not happened. The percentage of cases settled by plea has remained relatively constant, if not increased, since the enactment of the Guidelines.
Sunday, January 15, 2012
Professors Brandon Garrett and Jon Ashley have an incredible new website that is a library of 1495 federal corporate plea agreements in which an organization was convicted. They intend to update this collection of agreements. The site has the agreements by date, U.S. Attorney Office district and name. The site also provides links to other helpful data concerning corporate convictions. This is an amazing website that provides a wealth of information.
Monday, January 9, 2012
Stop the presses. Hold the back page. Saturday's New York Times reports here on the SEC's decision to end its "does not admit or deny" policy, but only for SEC civil defendants who are also pleading guilty to criminal charges or admitting wrongdoing as part of a deferred criminal adjudication. In other words, the policy is similar in its immediate effect to Lincoln's Emancipation Proclamation, which (for the most part) merely freed slaves in rebel held territory. Why be so boastful about ending a policy that never made much sense in the first place, because it allowed individuals and entities to neither admit or deny civil allegations when they had already pled guilty to similar, and more serious, criminal charges? To hear the SEC tell it, the decision to abandon the old policy is NOT in response to Judge Rakoff's order rejecting the proposed Citigroup consent decree, as the new policy would not apply in the Citigroup case and the decision has been under consideration since Spring 2011. The decision itself may not be in response to Judge Rakoff, but it is hard to believe that its timing is not. Although Judge Rakoff should be commended for his thoughtful opinion, I am not without sympathy for Khuzami. He and the SEC are the only actors at the governmental level who appear to be systematically investigating and bringing actions against the elite financial entities largely responsible for our economic meltdown. (DOJ is on holiday.) Still, the SEC spends too much time on its public relations.
Thursday, October 13, 2011
Prosecutors have decided to drop the charges against an individual who had been arrested last year as part of "Operation Copout," a mortgage fraud investigation. The individual had initially been charged with 34 criminal charges, including multiple counts of mail and wire fraud. The case had been tried in a five month jury trial that had ended in a hung jury.
Attorney Michael Pasano, a white collar crime attorney at the law firm of Carlton Fields, who represented the client stated, "The strain on the client and his family was enormous and it is with great relief that we heard today that the Government agreed not to reprosecute and dismissed the case as to Mr. Stoll. It was a hard fought case, and I applaud the prosecutors for doing the right thing,”
It is difficult for prosecutors to be "ministers of justice" with the public outcry for retribution on mortgage fraud cases. It's nice to see that there are prosecutors out there who can do the right thing when the situation warrants it.
Wednesday, October 5, 2011
Is it my imagination, or has the DOJ been picking up its numbers in prosecutions and resolutions in white collar cases? Or is it just an increase in DOJ Press Releases? -
DOJ Press Release, Superseding Indictment Filed in $670 Million Fraud Scheme
Monday, September 19, 2011
A DOJ Press Release here reports that "Saudi Arabia-based Tamimi Global Company Ltd (TAFGA) has agreed to pay the United States $13 million to resolve criminal and civil allegations that the company paid kickbacks to a Kellogg Brown & Root Inc. (KBR) employee and illegal gratuities to a former U.S. Army sergeant, in connection with contracts in support of the Army’s operations in Iraq and Kuwait." The press release states:
"Under the terms of that agreement, TAFGA will pay the United States $5.6 million as part of a deferred prosecution and institute a strict compliance program to ensure that the company and its employees will abide by the legal and ethical standards required for government contracts. If TAFGA meets its obligations under the agreement without violation for 18 months, the United States will dismiss the criminal charges."
Sunday, July 10, 2011
It is hard to move businesses in different directions. I like to use the analogy of turning a ship around -- it takes time, dedication and a steady hand.
Corporate governance is shifting again. We had the revolution of Sarbanes-Oxley in the early 2000s and now we have a new movement afoot. It is no coincidence that aggressive changes in white collar enforcement coincide with significant changes in the corporate governance landscape.
The newest trend -- which I fully endorse -- is the creation of corporate compliance committees. For most businesses, a separate compliance committee is an effective means to focus on difficult compliance issues, demonstrate a management commitment to compliance, and facilitate communications on compliance issues within an organization. By establishing such a committee, a company sends a very clear message. But the committee has to be more than just window dressing -- it has to have the support, the resources, and dedicated members with real expertise in the compliance area.
I like to use another analogy -- a compliance committee is like your dashboard on your car, telling you how fast you are going, how much fuel you have, and allowing you to signal others on the road.
A compliance committee should help your company navigate your legal obligations by empowering your decision makers with the right information. It serves a proactive role, separate from the audit committee which has a number of critical obligations related to Sarbanes-Oxley enforcement.
The compliance committee is responsible for ensuring that the company is complying with key legal and regulatory obligations. It is your primary vehicle by which to manage risk.
The compliance committee must actively gather and disseminate information reporting on overall compliance efforts. It must also communicate compliance issues and business risks to the right people. The right people include responsible managers, who are directly responsible for significant day-to-day business decisions.
The compliance committee must include one or more independent members who understand the regulatory environment, as well as the principles of good governance. This has a number of advantages. The independent member can test reports and statements, and mine discussions for issues that may otherwise go uncovered; may be able to share broad industry information and trends; and is likely to be less susceptible to a company’s internal culture (which might be reluctant to discuss certain risks and violations).
A well-structured compliance committee is your ultimate protection against potential legal and regulatory violations. I encourage others to look at such committees as part of an overall compliance program.
Tuesday, May 31, 2011
A DOJ Press Releasereports that "EVA Airways Corporation has agreed to plead guilty and to pay a $13.2 million criminal fine for its role in a conspiracy to fix prices in the air cargo industry." The press release states that "[u]nder the plea agreement, which is subject to court approval, EVA has agreed to cooperate with the department’s antitrust investigation." This sometimes means that indictments will follow against some individuals in the corporation.
Tuesday, March 15, 2011
As noted here (KTUU.com, Weyhrauch Gets Fine, Probation in Corruption Case Plea) and also Becky Bohrer, Anchorage Daily News (AP),Weyrauch Gets Suspended Jail Sentence, $1,000 Fine , the Weyhrauch case is finally being resolved. But lets look at what is happening here -
Weyhrauch was initially charged with an individual named Kott, who is now awaiting a ruling on whether his case will be dismissed for discovery violations. Perhaps we have a preview of the reasoning of the Ninth Circuit Court of Appeals by the decision last week in the Kohring case that found that the government had failed to provide Brady material to the defense. (see here, here, and here).
Weyhrauch's case went to the Supreme Court as one of three cases being examined as part of the "honest services" doctrine that prosecutors stretched to a point that the Court decided to place new limits upon -- requiring a showing of "bribery and kickbacks." In its ruling in Skilling, the Court did not directly address the question raised in the Weyhrauch case as to whether you needed a violation of state law for a mail fraud charge that uses honest services. Rather the Court reframed the question with a new test of "bribery or kickbacks." (see also here)
Now Weyhrauch is back in court pleading to the charge noted in the articles above. In dismissing the federal case against him he filed a non-opposition to the motion to dismiss as follows:
"Weyhrauch non-opps the motion to dismiss for two reasons. First, this was a very weak case from the beginning and all the evidence the government ever really had was that Weyhrauch had participated in, aided, or abetted a lobbyist engaging as a lobbyist without being registered. See, attached Exhibit 1, Information and Plea Agreement. Now that Weyhrauch has pled to that crime in state court, there are no longer facts to support a federal indictment. Second, Weyhrauch believes there is evidence to support dismissal of the indictment because of "misconduct before the grand jury which returned the indictment against Weyhrauch." (reference to a letter filed under seal), which is filed under seal because it refers to grand jury testimony and other grand jury proceedings. If the standard is that dismissal is appropriate when the ends of justice are served, then this case qualifies by any measure."
The more important question is: Did the ends of justice warrant the federal government using the mail fraud statute to bring this alleged state case in the first place?
Friday, October 15, 2010
The Securities Exchange Commission is reporting here that Former Countrywide CEO Angelo Mozilo will pay the SEC $22.5 million to settle SEC charges "that he and two other former Countrywide executives misled investors as the subprime mortgage crisis emerged. The settlement also permanently bars Mozilo from ever again serving as an officer or director of a publicly traded company." The SEC notice also states:
"Former Countrywide chief operating officer David Sambol agreed to a settlement in which he is liable for $5 million in disgorgement and a $520,000 penalty, and a three-year officer and director bar. Former chief financial officer Eric Sieracki agreed to pay a $130,000 penalty and a one-year bar from practicing before the Commission. In settling the SEC’s charges, the former executives neither admit nor deny the allegations against them."
Some may ask - what about a criminal action?
1. Just because a civil case is proceeding with a resolution doesn’t mean that a criminal case might not be forthcoming. When the civil and criminal case are ongoing at the same time we call them parallel proceedings. But it doesn’t always mean that they have to start at the same time. In some instances, the criminal case will proceed after the civil has been ongoing for some time.
2.White collar criminal cases take a long time to investigate - they are document driven cases and as such require expertise that one doesn’t find when investigating a simple burglary or robbery case.
3. Civil cases have a different standard of proof - a much lower standard than criminal cases which require that prosecutors prove the case beyond a reasonable doubt. It is a more difficult burden and prosecutors need to assess whether they have accomplished what is needed with a civil enforcement action or if a criminal prosecution is needed. They also need to assess whether there is any criminal activity to warrant a criminal action.
4. The government needs to also determine if any conduct violates the law - or were the decisions that were made business decisions that may be wrong -- but ones that do not meet a level of criminality.
5. Hopefully prosecutors will also consider how best to spend our tax dollars.
Addendum, Gretchen Morgenson, NYTimes, How Countrywide Covered the Cracks
Monday, July 26, 2010
Mail Fraud Prosecutions Continue Despite Skilling Decision - Univision Services, Inc. to Pay One Million
Many believed that there would be difficulty in bringing mail fraud cases if the Supreme Court removed honest services from the statute. The Supreme Court did not provide that relief by its decision in Skilling, but did limit honest services to bribery or kickbacks. But what often goes unnoticed, is that most mail fraud cases are not prosecuted under section 1346, the honest services statute. Most involve a deprivation of money or property, and these cases continue to be allowed.
An example is seen in today's plea with Univision Services Inc., a wholly-owned subsidiary of Univision Communications Inc. The company agree to plead guilty to one count of conspiracy to commit mail fraud and to pay a fine or $500,000 and also $500,000 in a settlement that comes from a parallel investigation by the FCC. Implementation of a compliance plan was also required. A DOJ Press Release states:
"Univision Services admitted that executives, employees and agents of Univision Music Group conspired to commit and did commit mail fraud from approximately 2002 to September 2006. According to court documents, the mail fraud was related to a nationwide scheme in which Univision Music Group executives, employees and agents made illegal cash payments to radio station programmers and managers in exchange for increased radio broadcast time for Univision Music Group recordings. The cash payments were made without on-air acknowledgments or payment of broadcast fees to the radio stations, as required by law."