Category Sample Interviews

Interview with David Kelley, Cahill Gordon, New York, New York

Corporate Crime Reporter
19 Corporate Crime Reporter 44(10), November 14, 2005
INTERVIEW WITH DAVID KELLEY, PARTNER, CAHILL GORDON, NEW YORK, NEW YORK

When in law school, he worked as a cop.

And as a paralegal in the U.S. Attorney’s office in Manhattan.

Then he went on to be the U.S. Attorney.

And to prosecute some pretty high profile white collar and corporate crime cases – Martha Stewart, Bernie Ebbers and the WorldCom cases, Adelphia, U.S. Foodservice.

And KPMG.

Word is, he wanted to criminally prosecute KPMG.

To take it down for obstruction of justice.

But that he was overruled by Main Justice.

David Kelley was in the belly of the beast during the height of the white collar crime wave.

Now, he’s moved uptown.

He’s a partner at Cahill Gordon in new York.

We interviewed David Kelley on November 7, 2005.

 

CCR: You graduated from New York Law School in 1986. What have been doing since?

KELLEY: While I was in law school, I worked as a police officer and as a paralegal in the U.S. Attorney’s office in Manhattan.

CCR: Are you a native of New York?

KELLEY: Yes, I’m a Long Islander.

As soon as I graduated law school, I went and clerked for U.S. District Judge T.F. Gilroy Daly in Bridgeport, Connecticut.

I clerked for Judge Daly for two years.

In October 1988, I returned to Manhattan to be an assistant U.S. Attorney under then U.S. Attorney Rudolph Giuliani.

My work there was in general crimes, narcotics, and then the organized crime unit.

In 1993, I became the deputy chief of the Organized Crime and Violent Gangs unit.

I became chief of Organized Crime and Terrorism in December of 1995. I served in that capacity until the end of December 2001.

At that point, I became Deputy U.S. Attorney.

After September 11, 2001, I was the co-chair of the Department of Justice’s 911 investigation. I was detailed in Washington, D.C. working on that investigation.

I was named acting U.S. Attorney in October 2003 when James Comey became the acting Deputy Attorney General. I was sworn in as U.S. Attorney in December 2003. I served as U.S. Attorney until September 6, 2005.
I then joined Cahill Gordon.

CCR: What is the reputation of Cahill Gordon, what is your work there?

KELLEY: Cahill is a well known firm and enjoys an incredible reputation. The firm has a large corporate client base. In this day and age, recognizing that many corporations and financial institutions have to navigate various choppy and rocky waters, given all of the new regulations and scrutiny, one of my roles will be to help our existing client base navigate those waters. So, we help to provide for them a service that each and every client will need in this age of increased scrutiny.

CCR: In searching through Cahill’s web site, I did not see a unit devoted to corporate and white collar defense.

KELLEY: Cahill is not compartmentalized. You will not find, as you will at some firms, a rigid structure with various departments. Cahill pools resources and looks at each case and then tries to identify – who has the expertise that a particular case requires?

For any particular case, depending on its demands, we can call on any number of partners and their specialities.

For some case, we may need somebody who specializes in bankruptcy, or somebody who specializes in nuances of the securities regulations. We can pull those people into that case, without having to worry about mpartmentalization.

CCR: Let’s say a company is facing a federal criminal investigation. They know that the former U.S. Attorney for the Southern District is available at Cahill Gordon. Are there other former U.S. Attorneys or criminal defense lawyers at the firm?

KELLEY: There aren’t former prosecutors. There are accomplished white collar defense lawyers, securities lawyers and corporate lawyers.

CCR: Up until a couple of years ago, you were prosecuting street crime, organized crime and terrorism cases.

KELLEY: No all that much street crime. From 1995 to 2001, I was focused primarily on terrorism and some organized crime.

CCR: Did you spend a lot of time in court while you were prosecuting those cases?

KELLEY: Yes. I tried a bunch of cases, including the Ramzi Yousef case. He was the mastermind of the first World Trade Center bombing.

CCR: When did you start prosecuting white collar crime cases?

KELLEY: When I became deputy U.S. Attorney in 2002, I was involved in a wide range of cases, not just terrorism. I certainly oversaw the terrorism efforts by my office, but I also became immersed in all of the white collar cases that we seemed to be getting hit with at about that time.

CCR: The U.S. Attorney’s office in Manhattan is white collar crime prosecution central for the country. While you were doing organized crime cases in the late 1990s, did any of the white collar crime stuff rub off?

KELLEY: If you look back at that time, I led the investigation of the mob on Wall Street cases back in 1997 and 1998. In the first case, we locked up about 20 or so mafia members and associates, who were involved in a variety of stock manipulation and pump and dump schemes on Wall Street.

CCR: How was the mob getting a foothold on Wall Street?

KELLEY: Crime waves on Wall Street followed trends in the market. At that particular juncture, we were seeing a huge increase in the small cap markets.

Much of the stuff that was being traded on NASDAQ was being capitalized on my mob members who were involved in simple pump and dump schemes, taking over boiler rooms and that kind of thing.

CCR: Did those prosecutions have a deterrent effect that you wanted? And are we done with that problem?

KELLEY: I’ve been prosecuting long enough to know that the moment you say – “we’ve conquered that problem,” it pops up again.

CCR: Okay, so what impact did those mob on Wall Street prosecutions have?

KELLEY: The immediate impact was to take a lot of bad people off the street and take them out of the markets.

Second, we exposed a dangerous trend in the market, which raised the consciousness of people in the market, but also we created an awareness in innocent investors who might be susceptible to that type of scheme.

CCR: What was your work as Deputy U.S. Attorney?

KELLEY: I served as Jim Comey’s alter ego. I worked on a whole variety of cases, whatever issues came up, trouble shooting, helping make decisions in big cases, serving as the acting U.S. Attorney when the U.S. Attorney was out of the district.

CCR: While you were there as Deputy and as U.S. Attorney, a number of high profile cases were processed through the office – Martha Stewart, Bernie Ebbers, the WorldCom cases, Adelphia, U.S. Foodservice. What role did you have in those cases?

KELLEY: Some of those cases were started under Jim when Jim was U.S. Attorney. It was my role as Deputy to help make decisions as to how those cases were to proceed. Many of those cases, including Martha Stewart, Ebbers, the Rigas brothers – were finally charged and went to trial during my tenure as U.S. Attorney. The U.S. Attorney is ultimately responsible for the work of his office, and I was very much immersed in all of those cases in varying degrees, from helping to make charging decision, to trial strategy, participating in moot arguments before they went into court – and the like.

CCR: We are putting out a report in a couple of weeks on the rise of deferred prosecution agreements where we list them all – there have been about thirty major ones in the last couple of years. What is your take on it? Why is it happening? Is it a good thing?

KELLEY: I don’t know that I would look at it as a trend, as a flavor of the month. If you look at it as a trend, you will be lulled into a sense of complacency, thinking that if my corporate entity gets into trouble, it won’t be that big of a deal, because I’ll get a deferred prosecution.

A deferred prosecution isn’t necessarily painless. While it may permit a corporation to survive, it is very painful.

You suffer damage to your reputation, you suffer likely changes to your corporate structure, you’ll have the burden of the government on your back for some time in terms of close scrutiny and monitors and the like.

So, the deferred prosecution is a pretty hefty penalty to begin with.

But getting back to your question about whether or not there is a trend, each prosecutor is going to look at each particular case and make their determination as to what works best – what the circumstances require in a particular case, weighing out all of the factors in the Thompson memo – collateral consequences, past history of conduct, whether or not prosecuting individuals is sufficient.

There are going to be cases whether the government says – well, we could do a deferred prosecution, but in this particular case, the prosecution of the entity is best.

CCR: But outside of criminal antitrust, maybe some environmental cases – the whole game has shifted. Many defense attorneys believe that if you can’t get a deferred prosecution the way the game is played now, then something is wrong.

KELLEY: A prosecutor is trying to terminate the unlawful conduct and to try to reach a shift in corporate culture, first in the entity that is specifically involved in a particular case, and then in the industry, where companies may be engaged in similar conduct.

A corporation stepping up to the plate at the outset of an investigation and trying to understand where the prosecutor is coming from is likely to do better.

For those companies that do that, they are probably more likely to reach a more favorable resolution than the death knell that most fear will toll if they are indicted.

So, the defense bar is recognizing that they need to step up to the plate, not stand back and stonewall a prosecutor, but work with the prosecutor in order to reach a result that will do the company the best in the long run.

But that’s not to say that you won’t find a prosecutor who will look at a company and say – “I’m sorry, deferred prosecution is not going to work and we are going to indict you.”

CCR: Did you see the New York Law Journal article about the KPMG case and your involvement?
KELLEY: I heard about it, but did not read it.

CCR: There have been reports in this article, in the Wall Street Journal and elsewhere that you pushed pretty hard for an indictment of KPMG.

According to the New York Law Journal, you were overruled by your colleagues at the Justice Department. It is a quite detailed article about the negotiations –

KELLEY: When you say very detailed, you are talking details from one side of the table, without the contribution of people sitting on my side of the table. It would be completely inappropriate for people to either confirm or discuss anything concerning internal discussions we had either in my office or with the Justice Department on KPMG.

What I will say is what I have said before – KPMG was a difficult case. At the end of the day, the Justice Department – Washington and New York – came forward with a just resolution of that case, with regard to the entity.

CCR: The article reports that your decision to proceed against the firm was overruled by Jim Comey, who was then the Deputy Attorney General at the Justice Department. Is that true or not?

KELLEY: Like I said, I wouldn’t confirm anything that happened at the Justice Department. But what you are getting is one side of the story.

CCR: That’s why we’re looking for the other side. But generally speaking, there is a sense of unfairness. The federal prosecutors hook up with the lawyers for the entity and say – okay, we can’t criminally prosecute to conviction the entity, because it will drive the entity out of business. So, let’s get rid of the bad actors and save the company. The individuals will pay the price, but the company won’t. And there is a sense of unfairness there.
There is a sense that these were corporate actions.

KELLEY: A corporation is a artificial entity, so when you say “corporate action,” what you are really talking about are the acts of individuals.

CCR: If that is true, then why ever convict a company?

KELLEY: There are many reasons to prosecute a company. You have to look at the extent to which management is involved over a long period of time and whether the company should suffer the consequences of a criminal prosecution, no matter how adverse they may be, including the fact that it may cause the company to collapse.

CCR: The Thompson memo said, that in the wake of the Thompson collapse, prosecutors should give a greater weight to collateral consequences. And they did. Is that your take of what happened?

KELLEY: I don’t know that people are giving them greater weight. But you do look at Andersen and see the consequences. Andersen is a reminder of what can happen. But I don’t know that it has caused people to weigh collateral consequences any more or less.

CCR: On a totally different subject, did you get a chance to watch the press conference of U.S. Attorney Patrick Fitzgerald when he announced the indictment of Scooter Libby?

KELLEY: Yes.

CCR: What was your take?

KELLEY: I won’t comment on the special counsel’s work. I have been a very close friend and colleague of Pat Fitzgerald since 1988, and I remain such. But I won’t comment on his work.

CCR: What can you say about the prosecution of Martha Stewart?

KELLEY: Her conviction is on appeal. All of the cases – Martha Stewart, Frank Quattrone, the Rigas brothers, Ebbers, Royal Ahold, Shell – they were all prosecuted by very dedicated, very hard working, very capable lawyers, who had nothing on their agenda but to do the right thing. And that was our agenda at the U.S. Attorney’s office.
That having been said, the Stewart case was not a case we were looking to make. The last thing we wanted to do was to go through all of the rigamarole that came with that case – the public uproar.

But that comes with the territory. When somebody comes in and lies to the government, something has to be done, particularly when lies are made to the Securities and Exchange Commission. Part of our role is to vindicate or protect the integrity of proceedings before the SEC. Unlike us, the SEC has no criminal law enforcement ability to prosecute those who lie to them.

So, if we don’t take action in a particular case where somebody lies or tries to obstruct an SEC investigation, what power does the SEC have to bring integrity to the marketplace, to effectively regulate?

CCR: MCI. That was one of the largest frauds in U.S. history. There was an argument to be made in that case – why let the company off the hook in that case?

KELLEY: At the time, I issued a fairly extensive statement outlining the basis for my decision in the case. I don’t have that in front of me. Obviously, it was one of the largest corporate frauds ever. But from the outset, the company helped us get the bad guys.

And that’s the first thing that a prosecutor is going to consider – is the company helping us get the bad guys. That is a good sign, or a clear sign, a good barometer of whether or not the corporation is going to make a turnaround – whether it is going to become a good corporate citizen.

WorldCom did that.

We also were able to hone in fairly quickly on the core individuals who were at the heart of the wrongdoing. And we were able to remove them, terminate the criminal conduct, and let the corporation go on purged of those bad apples. Once you did that, the corporate culture was cleansed as well. So, it was good for the public to have the benefit of that corporation. And you avoid the collateral consequences of the indictment.

They also paid a tremendous amount of money.

CCR: Guys like yourself, like Fitzgerald, you seem cut from a cloth that would allow you to be prosecutors for life. You were a prosecutor all of your professional life. Now you are on the other side of the fence. And I’m wondering how you are seeing the transition?

A lawyer is a problem solver. The skills you learn and the experience that you acquire from being a prosecutor to solve problems, often in the heat of the moment, translates well into private practice or any endeavor you might undertake.

Am I enjoying the transition? I’m loving the transition. I’m very excited about the challenges ahead. I had a great career as a prosecutor. But it’s a great time for me to move on. There wasn’t much more that I could undertake that would be new or different from what I had been doing.

And you don’t want to stay in one place too long and become stagnant. I really look forward to taking my skills and my experience and translating them into new challenges and new endeavors for the benefit of my clients.

CCR: A question of the politics of white collar and corporate crime prosecutions. Are you a Democrat?

KELLEY: A registered Democrat, yes.

CCR: At his press conference, Patrick Fitzgerald said this: “One day I read I was a Republican hack, another day I read I was a Democratic hack.

The only thing I did between those two nights was sleep.” Now, many people thought it was counterintuitive that the Bush administration would crack down on corporate crime – given that Bush was seen as so pro-business. How do politics play into prosecuting corporate and white collar crime?

KELLEY: You asked me if I was a Democrat. That’s not a question I would answer when I was a prosecutor. The reason is that politics had nothing to do with what I did. Never was I confronted with a decision where I had any political pressure put on me, or where there was any consideration relating to politics in any way, shape or form. That might have been what Fitzgerald was getting at.

Trends in corporate crime prosecutions mirror trends in the marketplace. In the early and mid-1990s, the mob was in Wall Street because that is where the money was at the time, and it was easily accessible because everyone was dumping money into penny stocks.

In the last five or six years, you had a real run on the markets. People were driven by greed and hubris, and they came up with all sorts of creative accounting techniques to try and cover losses and inflated earnings. And that’s what we responded to. So, what you see is law enforcement’s response to a criminal trend. There wasn’t a decision made by any sort of politician saying – “you know, I think we should go and attack white collar crime.” Or somebody saying – “we should lay off white collar crime.”

Instead, prosecutors and law enforcement folks realized that there was a real problem out there, the people were robbing investors blind, and they were lying about it, and something had to be done.

That’s not a political decision. That’s just a pragmatic decision. It is something that has to be done.

CCR: One goal of the prosecutions is to get bad guys off the street. Another goal is to have a general deterrent effect. Are we seeing a decrease in corporate crime as a result of all of these prosecutions?

KELLEY: I’d like to say yes. But you turn around and there is a Refco. I believe that these prosecutions do have an impact on the consciousness of the financial markets. People recognize that this is something that will
not be tolerated. You see out there corporations being more attentive to what is going on in their corporations.

Audit committees are more attentive to their need to effectively monitor what is going on.

Corporations are complaining about the cost of Sarbanes Oxley. But that comes down to a recognition of what is going to be required of them if they continue to be a participant in our markets.

Sarbanes Oxley hits them in the pocketbooks and gives them cause to be more attentive, to be more conscientious corporate citizens. It does have an impact.

Does that mean you won’t see that type of conduct again? Obviously not.

Refco is the most recent example.

Corporate criminals, unlike street criminals, are more responsive to actions of law enforcement. The pain that they suffer is pain that they don’t want repeated.

A white collar criminal usually commits crime as a deliberate act. They think about what they do. They are more in tune with law enforcement’s efforts to prevent that type of conduct. They want to avoid consequences.

They belong to country clubs. They have second homes. They have fancy cars. They don’t want to lose those things. And they will think about that the next time the morally challenged executive tries to move numbers from one ledger to another, where they don’t belong. They will think twice about what law enforcement is doing, and not suffer the pain that their colleagues have suffered.

So, prosecutions can have a greater deterrent impact in the white collar arena than in other arenas.

Let’s go back to Martha Stewart. Anecdotally, we had a lot of positive feedback from the prosecutions of Martha Stewart and Frank Quattrone, who were charged with false statements and obstruction of justice. What impact have those prosecutions had? Well, people come into the regulatory process – at the NASD and SEC – and say – “I’m going to tell you what you want to know, because I don’t want to end up like Martha Stewart.”

And that is an important result. People recognize that misleading, false statements or obstructive conduct is simply not going to be tolerated and will result in jail time.

CCR: Another issue we have been following closely is the debate over the alleged coerced waivers of corporate attorney client privilege. This grows out of the Thompson memo, which many defense attorneys see as a mandating such waivers for cooperation to be real. The Justice Department has issued a memo on this. But it doesn’t issue any real guidance. And the defense bar is up in arms. Do you have take on it?

KELLEY: I haven’t seen the most recent Justice Department memo. Corporations have difficult decisions to make. Defense lawyers should recognize a couple of things. First, waiver is not required. That is a decision for defense lawyers to make. Prosecutors are not usually looking for traditional attorney client communications, except in those cases where the corporation is asserting or plans to assert as a defense advise of counsel – in which case, the prosecutor wants to know what the corporation was told and what they believed.

But in most instances, the prosecutor is not looking to delve into the attorney client relationship. The prosecutor is trying to acquire facts that speak to the wrongdoing that they are investigating. Typically, the prosecutor sees that the corporation is best placed to get that information – and usually that is found in the internal investigation conducted by the attorney. So, it is not typically attorney client communications as much as it is work product.
But even if it is attorney client privileged, the attorney should not just have a knee jerk reaction to the privilege protection, but look at the material the prosecutor is seeking and see if there is another way to turn that over.
“The lawyer representing the corporation needs to think that – “If I can do that, perhaps I can help myself, the prosecutor and protect the corporation from adverse action.”

There is always more than one way to skin the cat.

[Contact: David Kelley, Cahill Gordon, 80 Pine Street, New York, New York 10005. Phone: (212) 701-3050. E-mail: dkelley@cahill.com]

 

 

 

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