Corporate Crime Reporter
19 Corporate Crime Reporter 46(8), November 28, 2005
INTERVIEW WITH DAVID PITOFSKY, PARTNER, GOODWIN PROCTER LLP, NEW YORK, NEW YORK
David Pitofsky is a partner at Goodwin Procter in New York.
Prior to joining the firm, he was an Assistant U.S. Attorney in Brooklyn and the lead prosecutor in the Computer Associates case.
He believes that “until proved otherwise, the deferred prosecution and non prosecution approach almost is too good to be true.”
On December 15, 2005, he will be moderating a panel discussion on corporate deferred prosecutions in New York.
We interviewed Pitofsky on November 16, 2005.
CCR: What law school did you graduate from, when, and what have you been doing since?
PITOFSKY: I graduated from Georgetown University Law Center in 1991.
From 1991 to 1993, I clerked for Judge Jaime Pieras, Jr. in the federal District Court in Puerto Rico.
From 1993 to 1996, I was an associate at Donovan Leisure Newton & Irvine in New York.
CCR: What was your work there?
PITOFSKY: I was in the commercial litigation department. I worked on a large antitrust case – price fixing in the pharmaceutical industry.
I also worked on several securities cases. The rest was general commercial litigation.
In September 1996, I joined the U.S. Attorney’s office in Brooklyn.
I started out in the General Crimes section, as everyone does, for a year, learning how to be a federal prosecutor. I then spent about two years in the Narcotics section, which in many ways was a continuation of the training I got in the General Crimes section, but with more complex cases.
I then transferred to the Business and Securities Fraud section, where I was for about three years. In early 2003, I was promoted into the management of the Criminal Division, although I continued to prosecute some white-collar cases as well.
When I first arrived in the Business and Securities Fraud section, the office was dealing with the fallout from the boiler rooms that operated on Long Island in the 90s, in particular, one called Stratton Oakmont.
There was a host of prosecutions related to Stratton Oakmont because its two principles had agreed to cooperate and provide information and testimony against their many co-conspirators.
There was a case against Steve Madden, the shoe designer.
There was a case against Elliot Levine, who had been the chairman of Perry Ellis, among other things.
There was a case against an accountant from New Jersey named Dennis Gaito. He had been the accountant for Stratton Oakmont, and was also close with Bob Brennan, who had run the notorious First Jersey Securities.
I was assigned to the trial of the Gaito case. It was a challenging case to present to the jury. Its one of the few criminal cases I am aware of where the defendant was a certified public accountant. The facts involved bogus reserve accounts, a sham covenant not to compete, and a series of convoluted money laundering transactions.
CCR: What was the result?
PITOFSKY: The first trial ended in a hung jury. The second trial resulted in a conviction and a 10-year sentence. That was in around 2000 or 2001.
CCR: Is he out now, or still in?
PITOFSKY: He’s still in custody. That case was before Enron, and Jamie Olis, and Bernie Ebbers. At that time, 10 years was a pretty extraordinary sentence in a white collar case. Now, it doesn’t seem so long.
CCR: Were you involved with the Computer Associates case?
PITOFSKY: Yes, I was the lead prosecutor on that case until I left the office.
CCR: Was that your only deferred prosecution case?
PITOFSKY: It was the only case assigned to me personally that resulted in a deferred prosecution, but I also supervised cases that resulted in either deferred prosecutions or non-prosecution agreements.
CCR: You were at the U.S. Attorney’s office until when?
PITOFSKY: Until May 2005 when I joined Goodwin Procter.
CCR: What is your work there?
PITOFSKY: I’m a partner in the litigation department and specialize in two practice areas – white collar crime and government investigations and securities litigation and SEC enforcement. There is a great deal of overlap in the two areas. Basically, I represent individuals and entities who are involved in government investigations – either criminal or regulatory – as well as civil lawsuits. We also do internal corporate investigations.
CCR: Pitofsky is a famous name in white collar circles. Is your dad Robert Pitofsky?
CCR: He was chairman of the Federal Trade Commission for a number of years. Did you go into law because of your dad?
PITOFSKY: Probably. I grew up in Washington, D.C. and in D.C., not only was my dad a lawyer, but every one of my father’s friends was a lawyer. And a lot of my friends’ parents were lawyers.
Washington is a lawyers’ town, maybe in the same way that New York is a businessmen’s town. I’m not sure I understood there were other careers to go into.
CCR: Did your siblings become lawyers?
PITOFSKY: My brother went to law school, became an associate, but then decided it wasn’t for him. He went back to school and got his PhD in English literature. Now he is a college English professor.
My sister went to law school as well. She worked at the Securities and Exchange Commission for a couple of years. She left the SEC and now works for a non profit that puts after school programs into public schools.
CCR: Your dad is now a professor at Georgetown Law Center.
PITOFSKY: Yes, and also of counsel at Arnold & Porter.
CCR: How did the Computer Associates case come in the door?
PITOFSKY: The genesis of the investigation was an article written by Alex Berensen that was published in the New York Times Sunday business section. It cited unnamed former employees who raised an assortment of questions about CA’s accounting practices. A few months earlier, CA had changed its business model and switched its accounting so that it reported what it called pro-forma/pro-rata results, which were confusing and made it difficult to understand what was going on with the business and finances of the company.
Computer Associates was one of the largest companies in the district covered by the Brooklyn U.S. Attorney’s Office. After the article appeared, Eric Corngold, who was the Chief of the Business and Securities Fraud Section at the time, asked me to investigate whether there was any substance to the allegations.
CCR: And what did you find out?
PITOFSKY: We ultimately found that there had been a long-running scheme in place, over multiple quarters, to keep the books open at the end of fiscal quarters in order to report that the company had met its revenue and earnings goals.
Subsequently, we also determined that there had been an organized obstruction of our investigation designed to cover up those facts.
CCR: By the company?
PITOFSKY: By specific executives within the company, yes.
CCR: There was a switch in law firms midstream.
PITOFSKY: The first law firm involved was Wacthell Lipton, who represented the company. Later, Sullivan & Cromwell was hired by the audit committee to conduct an internal investigation. At that point, the representation effectively switched to Sullivan & Cromwell.
CCR: From the prosecutor’s point of view, was Wachtell implicated in the obstruction?
CCR: Give us a snapshot of the negotiations and push toward deferred prosecution for Computer Associates.
PITOFSKY: There came a point where the company acknowledged, based on the audit committee’s internal investigation, that there were serious problems. In about October 2003, one fairly highly-placed executive pled guilty to obstruction of justice conspiracy. A short time later, the CFO and his to top deputies pled guilty to obstruction of justice conspiracy and securities fraud conspiracy.
CCR: How many of them have been convicted so far?
PITOFSKY: Those four pled guilty. A few months later, the company’s former general counsel, Steven Woghin, pled guilty to securities fraud conspiracy and obstruction conspiracy.
CCR: The lawyer for the company who negotiated the deferred prosecution deal was Robert Giuffra from Sullivan & Cromwell?
PITOFSKY: Yes, primarily.
At that point, the company has very few options. Once a key executive has pled guilty, the company can be held criminally liable for those actions as well. When you start any sort of deferred prosecution conversation, there is no longer any question as to whether the company can be criminally convicted. The only issue is whether the company should be criminally convicted.
CCR: Do you believe that in all or most of these cases – deferred and non pros cases – the government would secure a conviction if it pursued it?
PITOFSKY: Yes. I’m not familiar with every case. But certainly in those cases where key executives have pled guilty, there is essentially no defense.
One of the absurdities of the Arthur Andersen trial was that it seemed that the cross examination of David Duncan needed to result in his conceding that he had been wrong to plead guilty – that he had pled guilty to a crime he didn’t commit. Because once a senior executive pleads guilty, the company is usually liable for that misconduct as well.
In any event, whether executives have actually pled guilty, or clear evidence has been developed that crimes have been committed, the company is seeking a deferred prosecution because it has no viable defenses.
CCR: So, as a prosecutor, why not convict them?
PITOFSKY: In certain cases, the conviction of the company will not add anything to the prosecutor’s mission. My view is that in cases in which the individuals responsible for the fraud are going to be fully prosecuted, the prosecutor has to ask what additional punishment or deterrent effect will be achieved by the prosecution of the company, particularly in light of the adverse collateral consequences that prosecution will cause innocent third parties.
CCR: If that is the case, why criminally convict any company?
PITOFSKY: There are some cases where you cannot identify and fully prosecute the responsible individuals, so the only way to obtain justice and an adequate deterrent message is to go after the company.
Arthur Andersen seems to me to have been that kind of case.
There are companies that are so corrupt to the core that they can’t be allowed to continue. They are just too dangerous to the market and to consumers.
When Jim Comey did the press conference on the Computer Associates case and the deferred prosecution agreement, he talked about companies that need to be “put down.” There are certain companies that are just so corrupt that they cannot be allowed to continue to operate.
CCR: But he didn’t name an example of such a company.
PITOFSKY: No, not during the press conference.
CCR: Could you?
PITOFSKY: Could I name an example of a company that needs to be put down?
PITOFSKY: A Fortune 500-type of company? Not off the top of my head.
CCR: C That’s the problem. People who make that argument don’t believe it. In fact, what they mean is that for big companies, there will rarely be a conviction in the era of deferred prosecutions.
Let me read to you from an August 2002 speech that Larry Thompson gave to the American Bar Association on corporate criminal prosecutions:
Large corporations develop their own methods and culture that guide employees’ thoughts and actions. That culture is a web of attitudes and practices that tends to replicate and perpetuate itself beyond the tenure of any individual manager. That culture may instill respect for the law or breed contempt and malfeasance. The organization itself must be held accountable for the culture and the conduct it promotes. Without this tool, the public would have no adequate deterrent to corporate criminal conduct because the culture that condoned, or at least acquiesced in, that behavior would be beyond the criminal law’s power to correct. Only by prosecuting the corporation itself can we insure systemic reform.
PITOFSKY: That’s all true, but by the time a company is advocating for a deferred prosecution, the process of correcting those cultural problems has already started. The company has often cleared out an entire generation of executives. It has either changed or promised to change its faulty internal controls.
And it has agreed to have its continuing reform monitored by an independent examiner or monitor for a number of years.
But I do think the prosecutor has to assess whether the company’s proclamation of reform in the present term is genuine and will be backed up by real efforts to get into the roots of the company and fixed those problems. It doesn’t achieve much for management to simply say that the culture has changed. They have to commit to the hard work of getting into the roots and make sure that the culture is really changed.
A key part of the effort is usually changing the compensation structure. The company has to send a meaningful, practical message to its employees that conduct that was once condoned, and even rewarded, will no longer be tolerated.
The aim is that with those types of elements in place, you really can get down into the roots of the company and turn things around. That may prove wrong. Very few of the recent deferral cases have matured to the point where you can look five years or ten years down the road and see whether the process worked. If, as these cases mature, it turns out that the system doesn’t work, prosecutors are going to abandon deferred prosecutions. But if it does work, deferred prosecutions will continue to be the standard for resolving charges against corporations.
CCR: Have you done a statistical analysis on the percentage of big corporate crime cases that settle with these kind of agreements?
PITOFSKY: No, but I’m not familiar with many recent cases that resulted in a corporate conviction, except for the so-called “fake debarment” cases that you have reported on recently.
CCR: And there are criminal antitrust cases and environmental cases. But you agree that these kinds of agreements are now the standard?
PITOFSKY: Yes. And they will remain the standard until one of two things happens.
First, if they don’t work and don’t fix the cultural problems.
Second, if prosecutors get the sense that companies see federal prosecution as less of a deterrent because they decide they can live with a deferred prosecution. I don’t think that will happen, but is certainly something prosecutors are keeping an eye out for.
As of now, prosecutors have immense leverage because conviction can be a corporate death sentence, and they don’t want to lose that leverage.
CCR: Throughout the 1990s, as we documented, major American companies pled guilty to serious crimes – and they are still here. It was not a death sentence. It’s a myth. Or to put it another way, why if you are convicted as a public company are you necessarily going out of business?
PITOFSKY: It may be that the market responds differently to criminal investigations and convictions than it used to, but upon the announcement of a criminal investigation, companies regularly lose half of their market value. If the price remains depressed long enough, the capital markets dry up, the ability to hire quality people dries up.
The company’s oxygen supply is cut off. Although a convicted company wouldn’t just cease to exist, with everyone thrown out of their jobs.
The more likely result is that it would have to sell itself off in whole or in parts.
But to answer your original question, I’m not as familiar with the cases from the 1990s to compare them to the recent wave of cases.
CCR: Exxon, Hoffman LaRoche, Archer Daniels Midland – Louisiana Pacific, Genentech, Pfizer – all pled guilty. All vibrant today.
PITOFSKY: You have to draw a distinction between the types of violations.
If it is a Foreign Corrupt Practices Act violation, or an antitrust or an environmental violation, that’s different than if it is an accounting fraud violation. The market receives an accounting fraud violation as a black cloud over the entire company. Investors don’t know what they are buying when they buy a share of stock of the company.
With an FCPA violation, it doesn’t undermine your confidence in the entire company, top to bottom. Its something that can be carved out. You can see that the company can go forward, that it has good products and strong finances and that it is worth investing in. But when you are talking about a securities fraud case, you really have to ask yourself – is this company a total sham? Is it a Ponzi scheme?
CCR: Do you believe that had Computer Associates been convicted it would have forced the company out of business?
PITOFSKY: I’m not a financial expert, but I do think the likely result is that it would have had to sell itself off to other companies.
CCR: What about the double standard? We don’t let individuals off the hook because of the collateral consequences to the individuals. And a powerful corporation gets to save itself because it is too big to fail.
PITOFSKY: I disagree with the premise. Every day in criminal courts individuals seek leniency based on the collateral consequences that a lengthy prison sentence can inflict upon their families and others that depend on them. This argument regularly results in a lesser punishments.
CCR: But it doesn’t result in a total shift in prosecutorial strategy where you no longer get convictions.
PITOFSKY: True, but that’s because individuals and corporations are totally different concepts. Sending a deterrent message and punishing an individual is a fairly clean process. Here is the individual. He has to be punished, and an adequate deterrent message needs to be sent to other individuals who may be considering the same crime.
Sending a deterrent message through the punishment of a corporation is much more complicated. Convicting the corporation causes negative consequences to third parties who are extremely distant from the misconduct. Also, there is another conduit – the prosecution of individuals – which in my view establishes a much stronger deterrence.
As an example, in a case like Computer Associates, the deterrent message was extremely strong, and I don’t see where the absence of the conviction of the corporation dilutes it.
The CFO was convicted and disgraced.
The general counsel was convicted and disgraced. The CEO and head of sales are scheduled to go to trial next year.
I have a hard time believing that other CFOs, CEOs and general counsels are sitting in their offices today saying – I guess I’ll take the risk of committing the crime, because even though I may be disgraced and separated from my family for 15 to 25 years, the company will get off with a deferred prosecution and only have to pay a fine and agree to reforms.
CCR: Although a major shareholder might say that – because the major shareholder is saved by the deferred prosecution agreement.
We interviewed Bill Mateja, who is now with Fish & Richardson, but was with the Corporate Fraud Task Force.
When asked to name a case where the use of the deferred prosecution agreement was inappropriate given the facts of the case, Mateja said that “of all of the deferred prosecution agreements, the closest case to my way of thinking was the Computer Associates case.”
“It is fairly well known that not only did accounting misconduct take place at Computer Associates, but that there was obstructive conduct that took place as well,” he said. “That was one case where it was a difficult call to make on whether or not to enter into a deferred prosecution versus actually prosecuting the company.”
PITOFSKY: All of the cases are difficult. A decision to have insisted on a conviction of Computer Associates would have been entirely defensible.
There is not a right or a wrong answer in these cases, which is part of what makes them so difficult. The Thompson factors never all point in the same direction. And while the Thompson factors are helpful in terms of understanding what the breadth of the analysis should be, they don’t, and they can’t, provide any guidance as to what the answer should be. That has to be left up to the individual U.S. Attorney who has to weigh all of the factors.
If the point that Bill was making is that it could have gone the other way, I agree. Every one understands that. But if the point that he was making that the decision was wrong, he may not have had access to all of the information that we had, that we based the decision on. Or he may have just a different opinion. The identity of the U.S. Attorney means something in these cases.
Ultimately, the decision falls to an individual person. In this case it was Roslynn Mauskopf– the U.S. Attorney in Brooklyn. She felt that a deferred prosecution was the right decision given all the facts and circumstances in the Computer Associates case. And I agreed with her.
CCR: You said earlier in the interview that deferred prosecutions would remain the norm unless prosecutors –
PITOFSKY: Unless they fail to achieve the intended reforms or undermine the prosecutor’s leverage.
CCR: There is no way to gauge what you lose in general deterrence – reputational damage from a conviction.
PITOFSKY: There is substantial reputational damage to companies that enter into a deferred prosecution agreement. On the one hand, prosecutors want to send the strongest deterrent message they possibly can.
If they could send the strongest deterrent message by fully prosecuting the company and not triggering collateral harm to innocent third parties, it would be a no-brainer. The challenge is balancing the deterrent message against the collateral damage that is caused. That’s just a difficult call, and is made more complicated when weighing the deterrent message resulting from the prosecution of responsible individuals.
A corporation is run by its executives and the board that oversees them. Individuals make decisions based on self interest.
While it is true that what happens to the company falls within an aspect of an individual’s self-interest, what happens to them personally is the dominant question. So, someone sitting there thinking to themselves – I may go to prison, but my company may get off a little bit easier, is not going to make any different decision than someone who says – I may go to prison, but my company may be fully prosecuted.
CCR: About half the companies in the report we will release soon will have settled with no pros agreements, and about half with deferred prosecution agreements.
How does a prosecutor decide which way to go – no pros or deferred pros agreement?
PITOFSKY: They’re practically identical. The only difference is that one results in the filing of a charging instrument and the opening of a criminal case, and the other doesn’t. Which in many ways is just elevating form over substance, but it can have some effect on collateral debarment proceedings. Companies may be obligated to report that they have been charged with a crime where they wouldn’t have to report it if it just was a non prosecution agreement.
Nonetheless, there is generally a view that there is a substantial difference between the two results – a non prosecution agreement communicates something that is substantially less harsh than a deferred prosecution agreement, even though it is not true – it is perceived that way.
In any event, it provides the prosecutor with the ability to send a graded message about the seriousness of the misconduct.
As to any sort of objective standard as to where that line is, it doesn’t exist. And trying to reverse-engineer the line based on the cases that have come out is more trouble than it’s worth. Every case is so fact specific and the judgement of individual prosecutors is variable enough, that it is almost impossible to know where the line is.
CCR: A corporate defense attorney like yourself would prefer a non prosecution agreement.
PITOFSKY: Absolutely. 100 percent. In most cases a non prosecution agreement is seen as a major victory for the company.
CCR: We reported recently that the U.S. Attorney is not releasing the non prosecution agreements in Shell and Hilfiger. Should these agreements be made public? And do you know why those two were not made public?
PITOFSKY: I don’t know why. There are two possibilities. In most U.S. Attorneys offices, there is a fairly strict line as to what is public and what is not public. What is public normally is limited to things that are in the official record. Because non-prosecution agreements are not filed in court and are not part of the public record, it could simply be the result of a conservative approach.
CCR: But other non prosecution agreements are public, out of the same office.
PITOFSKY: It is possible to write into the non prosecution agreement an agreement by the company that the document will be made part of the public record. Also, there are many instances where prosecutors don’t want certain information made public because it can affect the progress of an investigation. Whether that might be the case with Shell and Tommy Hilfiger, I don’t know.
If none of those justifications are present, however, it would seem to me that the documents should be made public, since companies and defense counsel look to these results to try to figure out Department of Justice principles and priorities.
CCR: One of the first of these was Salomon Brothers back in the early 1990s. Otto Obermaier was the U.S. Attorney in Manhattan. He is now with Weil Gotshal. I asked him for a copy of the agreement, so that we could put it in our report. And he wrote me back the following e-mail:
“My memory’s not perfect – but I don’t think there was an agreement in Salomon. I viewed my function as prosecuting or declining-period. I did not view myself as a quasi probation officer to see that persons/entities were obeying the law.”
Why not just get back to – let’s either criminal prosecute, or decline to prosecute?
PITOFSKY: The fact of the matter is that prosecutors do two things well – investigate crimes and they prosecute crimes. They are not regulatory bodies, even though sometimes they are lumped in with the group. When you look at deferred prosecution agreements, they read a lot more like civil consent decrees. Generally, it seems the better practice that regulators should regulate and prosecutors should prosecute. But there are certain circumstances in which that approach is not sufficient. The deterrent message of a civil resolution is not strong enough to correct problems in the market.
In the last five years, with Enron and WorldCom and the other cases, there was clearly a need to send the strong deterrent message that attaches to a criminal prosecution.
Over time, the equilibrium will probably be restored, but for now prosecutors have had to step up and take a more active role.
One of the reasons why the deferred prosecution agreements require a monitor to be put in place is that the prosecutor’s office has no experience or skills to analyze whether a company is reforming its internal governance practices. That’s just not something that prosecutors do.
Instead, they need to find someone who does understand corporate forms and operations, and has the time and resources to monitor the company’s progress.
CCR: Are deferred prosecution agreements filed with the court?
CCR: But there is no judicial oversight over the agreement, is there?
PITOFSKY: There is, although there is an interesting and unresolved question as to how far the court’s oversight powers extend. The agreements are made and filed with the court pursuant to the speedy trial act. There is a provision in the speedy trial act that allows for the deferral of a prosecution beyond the number of days allowed for under the speedy trial act if there is a written agreement between the prosecutor and defendant allowing the defendant the opportunity to show his good conduct.
Although it has not been addressed as far as I know, a court could rely on this provision as providing it with authority to take an active role in the oversight of the agreement.
CCR: Professor John Coffee at Columbia Law School argues that this area is ripe for prosecutorial abuse. He mentions cases like Bristol Myers Squibb – where the prosecutors demanded the company create a chair in ethics at his law school, or in the WorldCom case where the Attorney General in Oklahoma demanded a certain number of jobs in exchange for the deferred prosecution agreement.
PITOFSKY: I would agree that the government has a tremendous amount of power here. But hopefully most prosecutors when faced with that sort of power understand that the most important thing is to be skeptical about its use. You have to ask yourself whether you should use the power and why you are using it. Generally speaking a prosecutor who wants to use that power inappropriately can do it.
Let me get back to the speedy trial act issue for a second. The provision is 18 U.S.C. Section 3161(a)(2), which says that time can be excluded from the calculation of the speedy trial date for “any period of delay during which prosecution is deferred by the attorney for the government, pursuant to a written agreement with the defendant, with the approval of the court, for the purpose of allowing the defendant to demonstrate his good conduct.”
The key phrase is “with the approval of the court.” It is ambiguous.
It could mean that the court is empowered to either grant or not grant that approval, based on whether or not it thinks that the deferred prosecution agreement is in the interest of justice or not, and that the court has the power to take an active role in analyzing whether the defendant has demonstrated its good conduct or not – namely, did the company live up to its promised reforms?
On the other hand, the phrase might not be read so broadly – that it is merely a speedy trial provision and should be read as limiting the courts power to monitoring the calculation of the speedy trial clock.
But to get back to Professor Coffee’s point, prosecutors do have a tremendous amount of power. One of the problems with the process of negotiating a deferred prosecution agreement is that it is not really a negotiation. Any push back by the company on a provision that the government requests is not only going to be shot down, but the government may see it as a reflection that the company’s claimed contrition is not genuine. So, you don’t even want to make the argument for fear that it will cause the government to look at you differently and decide that a deferral isn’t appropriate. That imbalance of negotiating power may well contributes to some of these provisions that have been pointed out that have been questioned.
One argument why the court should have substantial authority to review and oversee the agreements is that there are interested parties that currently have no voice in the process.
Currently the only players represented are the corporation and the government. But investors, employees, the community – except to the degree that the prosecutor is keeping their interests in mind – they are not heard. And if the court had substantial oversight, it would give those other participants in the process some voice to influence the result.
I think part of the frustration of people who question the government’s use of deferred prosecution agreements is that the process does not include parties that may take a contrary view.
The government and the corporation are generally of the same view that deferred prosecutions are good.
Constituencies that see it differently – executives whose interests are trampled in the process, competitors who think its only fair that the company be fully punished – have no voice in the process.
CCR: What is the chance that this whole process revolves around prosecutors being hoodwinked by defense attorneys?
PITOFSKY: In what way?
CCR: Look at Riggs Bank. Major criminal money laundering involving General Pinochet. The company wanted a deferred prosecution. The prosecutor said no – serious corporate criminal activity deserves a conviction. The company would have preferred a deferred prosecution agreement because it is less restrictive. But the prosecutor said – no way.
PITOFSKY: One significant issue is the existence or perception of inconsistent results from office to office. From the perspective of business and defense lawyers, it is very aggravating that the result in Boston can be different from the result in New York, which can be different from the result in Washington. The Department of Justice has made efforts to bring some consistency to the decision making. But in a lot of respects, it is just impossible. Every case is different. The best you can do is put the guidance out there and hope there is consistency in its application. But you are going to have inconsistent application.
That having been said, it is also possible that individual prosecutors could be hoodwinked, to use your word, in a particular case, particularly with regard to the collateral consequences issue. Every defendant seeking leniency will say there are going to be horrible collateral consequences. The prosecutor has to put the company to some burden of proof – what are the consequences? What is the likelihood of those consequences coming to fruition? If you have a prosecutor who accepts without testing the claim, that could result in an incorrect decision.
CCR: But it could be there is no reasonable way to test it? Professor Coffee says – the prosecution of Andersen didn’t do Andersen in – Andersen did itself in. And for each of these cases, you can make that argument – if the company is going under, it is because the company did itself in.
PITOFSKY: That would is a easy, black and white position to take, and defensible in the abstract. But it ignores the fact that for every one guilty participant in a corporate crime there are literally hundreds of other innocent employees and shareholders whose lives are going to be damaged by a conviction of the company.
CCR: Except of course there is no guarantee the company is going to fail, number one, and if you accept that position you will never criminally prosecute a company to conviction.
PITOFSKY: The fact of the matter is, and it is immutable – prosecution of large companies carry with them massive collateral consequences.
CCR: And in every one of those cases, those companies are too big to indict.
PITOFSKY: But if the people who are truly culpable are going to be punished individually, and a full prosecution of the company is going to cause collateral harm to innocent people, why should you prosecute the company fully?
What is gained by the government, the market, or anyone else, by holding responsible, in addition to the people who are responsible, people who just aren’t?
CCR: What is gained is general deterrence against other companies. Otherwise what you are saying is that there is no need for corporate criminal liability for large companies.
PITOFSKY: What does that really mean? How do you send a deterrent message to a company? You can’t stand outside the corporate headquarters and yell at the building. You have to get your message to the individuals making the key decisions.
CCR: Defense attorneys always say a corporation is a legal fiction. But under the law, it is a person. And it gets benefits from being a person under the Constitution.
So, if we are going to say that it is going to get special treatment under the criminal law because it is not a person, then it should be stripped of its protections under the Constitution.
PITOFSKY: That overstates the point. The cases that hold that corporations get the same protections as individuals – constitutional protections, the ability to assert the attorney client privilege – struggle with the issue.
The questions are not black and white but the courts have decided, on balance, that it is the better result to extend the protections to corporations.
But you can’t jump from that grey area conclusion to a black and white view that individuals and corporations must in all respects be treated the same. That would yield to absurd results.
CCR: As an attorney for corporations, if there was going to be a global settlement, would you accept this deal – no more criminal prosecution of companies in exchange for no more constitutional protections?
PITOFSKY: I’m sure it’s not a good deal.
CCR: But it would be equitable.
PITOFSKY: My personal view – which I fully admit is biased since I was involved in these deferred prosecution decisions – is that until proved otherwise, the deferred prosecution and non prosecution approach almost is too good to be true. It allows the government to send its deterrent message without losing too much leverage, and to obtain from the company both an admission of guilt and a commitment to reform far, far more completely and quickly than taking a case to conviction and sentence.
Partly because, by the way, if the government pursues a corporation to conviction and sentence, there oftentimes is no corporation left to reform at the end of the day anyway.
CCR: Not true in the Top 100 Corporate Criminals of the 1990s.
PITOFSKY: If the claim of adverse collateral consequences is overblown and the company and its innocent constituents will not be substantially harmed by a corporate conviction, the Thompson analysis will shift toward full prosecution and conviction.
CCR: Why not get the guilty plea, and then moderate it with these fake debarments, plead out an empty shell – do what is done already, but preserve the guilty plea?
PITOFSKY: In some cases that may be the more appropriate result, but isn’t there something intellectually dishonest about that approach? It seems to me the message sent by those resolutions is that the government, with a wink and a nod, will work with the offending company to get a result that satisfies the company’s needs while still allowing the government to trumpet the fact that it got a conviction.
You may not like deferred prosecution agreements as an alternative, but they don’t pretend to be anything other than what they are.
[Contact: David Pitofsky, Goodwin Procter, 599 Lexington, New York, New York 10022. Phone: (212) 813-8972. E-mail: [email protected]]