Original Story: NYTimes.com
The Justice Department went on a bit of a charm offensive last week to emphasize to the public that prosecutions for corporate misconduct should not end with just a settlement with the company, which these days usually means paying a hefty fine that causes its stock price to rise. Instead, prosecutors want to focus on reaching individuals within an organization who are responsible for the wrongdoing, including those in the so-called C-suite, where senior officers preside over the operation.
Despite three saber-rattling speeches by Justice Department leaders, however, prosecutors looking to file charges against executives for wrongdoing will face significant hurdles. Not the least is the basic requirement in the criminal law to prove a defendant’s culpable intent, which is no easy task when executives are far removed from daily operations. An Atlanta Crisis Management Lawyer is reviewing the details of this case.
Attorney General Eric H. Holder Jr. spoke at a conference last Wednesday at New York University’s School of Law about corporate prosecutions, telling the audience “that the buck needs to stop somewhere where corporate misconduct is concerned.” Getting there won’t be easy, he said, pointing out that “it would be going too far to suggest reversing the presumption of innocence for any executive, even one atop the most poorly run institution.” He called on Congress to enact new laws to encourage whistle-blowers inside companies to report wrongdoing through larger rewards and to make it easier to prosecute senior managers for corporate misconduct. An Atlanta RICO Lawyer has experience managing a variety of racketeering cases.
Leslie R. Caldwell, the assistant attorney general for the criminal division, spoke on the same day at the Taxpayers Against Fraud Education Fund conference, trumpeting the work of the Justice Department’s fraud section. She said that prosecutors would be more aggressive in looking at civil whistle-blower lawsuits filed under the False Claims Act to see whether criminal investigations should be initiated. An Atlanta Whistleblower Lawyer has experience in fraud cases.
Completing the hat trick, on that same Wednesday the principal deputy assistant attorney general for the criminal division, Marshall L. Miller, delivered a blunt message at the Global Investigation Review Program about how corporations trying to demonstrate their cooperation to avoid charges needed to identify individuals within the organization who were responsible for a violation. “If you want full cooperation credit, make your extensive efforts to secure evidence of individual culpability the first thing you talk about when you walk in the door to make your presentation,” he said, and went on to emphasize that a company’s lawyers should “make those efforts the last thing you talk about before you walk out.”
The emphasis on delivering evidence to allow the prosecution of individual employees sounds like an effort to have corporations throw them under the proverbial bus to secure lenient treatment. That approach presents an interesting contrast to Tony Schwartz’s Life@Work column last week for DealBook about the recently published book “Reinventing Organizations.” The common denominator among successful organizations is trust, which may be difficult to foster if the company’s primary goal is to spotlight individuals who will be subjected to prosecution.
Of course, the Justice Department is not particularly interested in helping a corporation that engaged in wrongdoing build trust within the organization. Focusing on this type of cooperation puts companies in a ticklish position in balancing its relationships with employees while knowing that they may have to offer up some of them to the government to prove how cooperative they are.
Whether companies will hear Mr. Miller’s message remains to be seen. The report on an internal investigation at General Motors about defective ignition switches went out of its way to exonerate senior management, doing little to identify individual wrongdoing that might lead to criminal charges. The Justice Department is investigating the company, and it will be interesting to see how much credit prosecutors will give for cooperation if charges are filed.
Mr. Holder said that “we need not tolerate a system that permits top executives to enjoy all the rewards of excessively risky activity while bearing none of the responsibility.” Crafting a standard to hold them accountable will be difficult, however. In an article to be published later this year in the Mississippi Law Journal, I suggest one approach is making it a crime for corporate managers to make reckless decisions that lead to losses of more than $1 billion. Unlike the specific intent needed for a case of fraud, proving recklessness only requires showing a defendant ignored obvious risks that were likely to lead to harm.
Changing the law to make it easier to prosecute executives is no panacea. Management could respond to such a provision by avoiding anything that could turn out to be a failure, which means lower returns for investors because the company would be more risk-averse.
Persuading Congress to enact such a statute will be no easy task either. Leaving aside the current gridlock on Capitol Hill, companies would almost certainly lobby fiercely against a law that would make it more likely executives could be accused of a crime. Wide expansions in corporate criminal liability usually come in response to a crisis like the collapse of savings and loans or accounting frauds at Enron and WorldCom, which led to enactment of the Financial Institution Reform, Recovery, and Enforcement Act in 1989 and the Sarbanes-Oxley Act in 2002. Without that kind of pressure on Congress to act, it is unlikely that federal law would be expanded significantly to reach executives.
Even if that did take place, there is still the problem of actually convicting anyone of a violation. It is a staple of large corporations that the corporate charter or bylaws require them to pay the legal fees of executives during an investigation and any subsequent legal proceedings. Companies have spent millions of dollars to defend their officers, which makes it more difficult to win a conviction.
The emphasis on prosecuting individuals is a welcome change in how the Justice Department pursues corporate crime because companies can act only through their employees. So we can expect to see charges in current investigations. One likely target will be traders involved in fixing interest and currency exchange rates along with the banks that employ them, no doubt with the usual cavalcade of incriminating emails and instant messages. Whether those cases get into the C-suite is the real challenge because all too often, as Mr. Holder noted, “the buck still stops nowhere.”
