Corporate Crime Defense Bar in Unison: More Prosecutions Are on the Way
23 Corporate Crime Reporter 8, February 19, 2009

The corporate crime defense bar has no doubt: more corporate crime prosecutions are on the way.

In a Corporate Crime Reporter survey this week of more than 200 of leaders of the American Bar Associations White Collar Crime Committee, it was almost unanimous.

“In response to a major financial crisis, the public and our elected officials are demanding accountability,” said Jacob Frenkel of Shulman, Rogers in Rockville, Maryland. “That means increased enforcement. Particularly in the financial services sector, enforcement will appear similar to the running of the bulls in Pamplona.”

Ross Garber of Shipman & Goodwin in Hartford, Connecticut said that the government “must answer calls for accountability for past white collar misdeeds.”

“I don't think it will be just a matter of shifting priorities,” Garber said. “Instead, I think we should expect an overall expansion of the Department of Justice.”

Eric Sitarchuk of Morgan Lewis in Philadelphia predicted “fewer deferred prosecution style agreements, but more global resolutions with plea agreements as a component.”

Lance Cassak of Baker & Botts in New York sees “fewer pre-trial settlements and deferred prosecution until there have been enough successful prosecutions to have the desired deterrent effect and to let the public know that the Department is trying to address the problem. . .Then you may well see more pre-trial settlements.”

Benjamin Gluck of Bird Marella in Los Angeles sees fewer soft deals with the Department.

“The news is filled with reports of executives who made millions of dollars while their companies wound up hollow shells,” Gluck said. “Prosecuting them and being seen to prosecute them is a no-lose political proposition for the new administration. Thus, expect high profile financial cases and fewer ‘sweet’ settlements.”

David Douglass of Shook Hardy in Washington, D.C. sees a possible backlash coming against the use of monitors.

“My gut tells me the pendulum has begun to swing back as more questions have been raised about the practice and some of the problems of this approach have emerged,” Douglass said. “I think there will more emphasis on ensuring that compliance programs are ‘effective’ in fact and operation, more robust and transparent, perhaps under the limited oversight of a monitor who will have more circumscribed activities. Of course, for those companies that still do not have effective compliance programs, God help 'em.”

Brian Heberlig of Steptoe & Johnson in Washington, D.C. sees a “continued focus on public corruption and Foreign Corrupt Practices Act violations and a greater emphasis on antitrust and environmental matters than during the last administration.”

“It also seems inevitable that the current economic crisis and public outrage over the conduct of certain corporate executives will lead to a reallocation of FBI resources from counter-intelligence and terrorism to more traditional criminal investigations,” Heberlig said.

Thomas Hanusik of Crowell & Moring in Washington, D.C. says that while tougher enforcement is undoubtedly in the offing, “a decrease in the use of deferred or non-prosecution agreements for institutional defendants seems unlikely.”

“The government now has a stake in many of the institutions under scrutiny and it is not going to impose a corporate death penalty on entities that it just spent billions bailing out,” Hanusik said. “Look for higher fines, stricter settlement terms and a continued increase in the use of corporate monitors.”

Matthew Herrington of Steptoe & Johnson in Washington, D.C. sees the Department under Eric Holder looking to export its success in prosecuting foreign bribery to other areas.

“Arguably, however, what makes Foreign Corrupt Practices Act work is its centralization and exclusive subject matter jurisdiction within the Department,” Herrington said. “By the same token, what has stymied enforcement initiatives in other fields is the balkanization among the various US Attorneys' offices. This structural problem will be a major challenge for Attorney General Holder and his team.”

William Nugent of Kroll in Philadelphia sees more pre-trial settlements, not fewer.

“While I believe there will be significant pressure to have tougher enforcement which will lead to many trials, this trend may be tempered by the sheer volume of complex investigations and the need for efficiencies that pre-trial resolutions provide to the judicial system,” Nugent said.

Janet Levine of Crowell & Moring in Los Angeles also sees an uptick in pre-trial settlements.

“Individuals are the easiest targets of prosecutions and regulatory actions, and we can expect increased individual criminal prosecutions and regulatory actions,” Levine said. “However, as the economy creates an increased incentive to find alternate resolutions for entities, so as to avoid a ‘killing the company’ scenario, we can expect to see continued, and perhaps increased, use of deferred prosecutions and creative resolutions.”

Linda Imes of Spears & Imes in New York sees “an uptick in tax prosecutions in an attempt to generate tax revenues, an increase in antitrust prosecutions – an area neglected by the Bush administration – and, given the political climate, an increase in corporate governance criminal prosecutions, including TARP-related crimes.”

Scott Michel of Caplin & Drysdale in Washington, D.C. also sees an uptick in corporate criminal tax cases.

“I look for a particular focus in multinational companies, with the IRS looking into the bona fides of offshore structures used to defer tax and similar international issues,” Michel said. “I would also expect the Service to seek a role in the broader corporate fraud enforcement, looking for tax issues where they might appear. After all, some of the best financial investigators in the government work for the IRS Criminal Investigation Division, and their talents will be in demand even in cases that only marginally relate to pure tax issues.”

Many of the white collar attorneys surveyed see Attorney General Holder rehabilitating the Department after years of scandal and demoralization.

Wendy Wysong of Clifford Chance in Washington, D.C. was at the Justice Department during the Clinton Administration and she worked with Holder on the prosecution of Congressman Dan Rostenkowski.

“Talented attorneys and investigators who may have hesitated to join the Department or left in recent years will be attracted to public service to work with the outstanding folks who have joined Eric at the Department,” Wysong said. “If lack of resources explains the 2008 decline in the number of deferred prosecution agreements, that trend will be reversed. While the diminished numbers could also be explained and offset by the dollar value of the most recent settlements and the complexity and scope of the underlying investigations, filling vacancies with qualified and motivated people will boost those numbers in the coming years.”

Not all the respondents were jumping on the bandwagon.

David Axelrod of Deloitte Financial Advisory Services in Columbus, Ohio said that while “there certainly appears to be a lot of saber-rattling by both Congress and the administration, significant white collar investigations can be labor intensive and time consuming, and law enforcement efforts seem to have been plagued by a chronic shortage of agents in some key areas.”

“A substantial increase in white collar enforcement may depend on passage of the Schumer-Shelby bill, now pending in the Senate, which could add hundreds of new prosecutors and agents to conduct financial investigations,” Axelrod said.

“I don't know that there will be dramatic changes,” said Aitan Goelman of Zuckerman Spaeder in Washington, D.C. “Certainly a continued focus on FCPA enforcement. Increased attention to export control compliance. Because so few people really understood mortgage backed securities and related derivatives, it will hard for government to prove fraud in many of the most devastating losses, at least absent e-mails or other evidence showing the banks saying one thing internally and another externally. I do expect an uptick in good, old fashioned insider trading investigations, particularly as it relates to the hedge fund industry.”

Eric Jaso of Boies Schiller in Short Hills, New Jersey disagrees with the popular perception that the Bush administration was somehow lax on corporate and white collar crime.

“President Bush signed Sarbanes-Oxley into law, which established a new securities-fraud crime, increased penalties, and he authorized a corporate fraud task force that teamed a number of agencies that had previously operated independently and without coordination,” Jaso said. “The direct result was thousands of federal white-collar convictions over the last several years, with defendants getting very lengthy sentences. I expect Attorney General Holder to continue building on this solid foundation.”

Joel Androphy of Berg & Androphy in Houston, Texas sees an “aggressive attack” by the Obama administration on health care fraud.

“There was too much complacency under the prior administration,” Androphy said. “The only health care cases previously pursued piggybacked qui tam cases. In other words, the civil plaintiffs' bar did much of the work. Good news for whistleblowers under the False Claims Act. Bad news for pharmaceutical companies and health care providers.”

We also contacted a number of federal prosecutors who have been active in the ABA’s White Collar Crime Committee.

We got back a unified Justice Department response from Criminal Division spokeswoman Laura Sweeney.

Sweeney reminded us about something Holder said during his swearing-in ceremony.

“The Attorney General was asked by reporters after his swearing-in ceremony a few weeks ago what he would do in the face of demand for people on Wall Street to pay for recent activities that may have caused the economic downturn,” Sweeney said. “In response to that question specifically, the Attorney General said: ‘We're not going to go out on any witch hunts yet. We'll drill down and see. . .To the extent that what this nation is facing is a result of fraud or misconduct, we'll find it and we'll hold people accountable.'”

[Complete survey results will be published in the print edition of Corporate Crime Reporter over the next couple of weeks. See 23 Corporate Crime Reporter 8, February 23, 2009 and 23 Corporate Crime Reporter 9, March 2, 2009, print editions only.]



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