White Collar Crime Prof Blog

Third Former General Re Executive Sentenced

See Dave Collins, (AP) Houston Chronicle, Ex-Gen Re executive gets 1 year in prison (w/ a hat tip to Bill Olis). See also Colleen McCarthy, Business Insurance Magazine, Former Gen Re finite exec gets one-year sentence

For a discussion of the two individuals previously sentenced see here and here.

(esp)(blogging from the Atlanta airport)

NACDL & Heritage: Together in Bed Again

The NACDL and Heritage joined forces together again, this time opposing the Public Corruption Prosecution Improvements Act (S49) (see here). (see previously the opposition to S. 386, the Fraud Enforcement Recovery Act here). "Although the two organizations are, as they note in their letter, often 'on opposite ends of the liberal-to-conservative spectrum,' the two organizations agree that federal prosecutors already have all the tools they need (and far more) to prosecute public corruption."

(esp)(w/ a hat tip to Jack King)

Shortcuts on FCPA Due Diligence Today Will Be Costly Tomorrow

Guest Blogger, Sharie A. Brown of DLA Piper -

The current financial crisis and market volatility understandably focuses corporate executives and their employees on corporate survival and improved financial performance. In my experience, corporate consolidations, divestitures, restructurings, and employee layoffs create organizational distractions that can distort sound judgment and reward short-term, but ill-conceived business solutions. At a recent General Counsel Forum in Chicago last week focusing on fraud prevention and anticorruption strategies, the attendees from corporate legal departments and financial functions indicated that they will be required to operate with fewer compliance and internal controls resources. None of the attendees thought their companies will be more susceptible to fraud and corruption violations this year compared to other years. Yet, my observations over the years indicate that from late 2009 through 2012, we should expect to see several currently reputable, large U.S. companies and individual corporate managers under investigation for fraud, corruption, and other criminal and civil violations. These companies and individuals will face enforcement scrutiny because they did not fight the tendency of managers and business units to shortcut legal compliance, internal controls, and due diligence procedures designed to prevent and detect financial crimes, particularly violations of the US Foreign Corrupt Practices Act ("FCPA").

One of the most important FCPA compliance and internal controls involves the conduct of appropriate, risk-based due anticorruption diligence on third party intermediaries, agents and consultants, as well as overseas joint venture partners, and international merger and acquisition target companies in high risk countries and industries for public corruption. This risk-based approach requires companies to take into account the following factors, among others: i) the reputation of the party or agent for corruption in the industry; ii) the local country’s reported reputation for public corruption; iii) whether the party is the subject of local media scandal or enforcement scrutiny, or on any international governmental lists; iv) whether the acquiring company has industry contacts that have information about the targeted party; v) the apparent competence and qualifications of the party for the project or activity contemplated; vi) whether the party was referred by a foreign official; vii) the availability and reliability of information about the targeted party in public databases, websites, and business reporting services; viii) whether the party is a foreign government official within the meaning of the FCPA, and whether there is shareholding by a foreign official in the party ; ix) whether the party is an agency or instrumentality of a foreign government; and x) whether the party or its shareholders are a relative or close associate of a foreign government official. Appropriate FCPA anticorruption due diligence would take into account and address these issues.

A more rigorous due diligence is appropriate in situations where the third party relationship or target company acquisition is highly strategic and economic, but the public corruption risks for the country and the industry are well-documented. For this important high-risk acquisition or joint venture relationship, there is no substitute for an in-country review consisting of in-person interviews of the parties and their key personnel, as well as relevant document reviews and sampling by U.S. professionals who regularly apply U.S. FCPA standards, in consultation with local professionals, to ensure that local anticorruption, data protection, and related fraud laws and rules, are recognized. Yet, during times of tight corporate finances, some companies will forgo such FCPA due diligence in favor of database reviews only, or they will rely on background or financial investigators whose reports list "FCPA" in the report title, but unfortunately those reports do not recognize or actually examine high risk FCPA/anticorruption activities. These seemingly cost-effective due diligence shortcuts actually result in expensive FCPA legal exposure for the acquiring company due to the FCPA risk items overlooked or misunderstood by the background investigators.

U.S.enforcement agencies are watching companies, and seem more determined to ensure that FCPA compliance, and other U.S.legal and financial compliance requirements continue to be fulfilled during the financial crisis. The U.S. Securities and Exchange Commission ("SEC") Office of Compliance Inspections and Examinations issued a letter to CEOs of SEC-registered firms to remind them of the important role that compliance programs play in helping companies meet their obligations under the securities laws. The SEC emphasized that even with the current financial crisis, corporate cost cutting-measures should take into account the need to maintain adequate compliance programs and internal financial controls systems. See Lori Richards, Director, Office of Compliance Inspections and Examinations U.S. Securities and Exchange Commission, Open Letter to CEO's of SEC-Registered Firms (Dec. 2, 2008) (available here). Companies should consider this SEC notice to be an early indication that the financial crisis, standing alone, will not insulate a company against U.S. enforcement actions for fraud, FCPA violations, or other financial and reporting violations arising from a high risk environment created by the failure to maintain controls, or follow FCPA procedures, and test compliance systems.

Aggressive U.S. enforcement of financial fraud, corruption, and other criminal and civil violations is also forecast as a result of Congressional efforts with respect to the Supplemental Anti-Fraud Enforcement Markets Act ("SAFE Markets Act"). This anticipated legislation seeks to materially increase funding for investigative and prosecutorial resources by $110 million for enforcement actions involving financial fraud, corruption, ring the financial crisis may be particularly challenging for companies this year. Senator Charles E. Schumer (D-NY) and Senator Richard C. Shelby (R-Ala) of the Senate Banking Committee believe that 50 new assistant U.S. attorneys and 100 new SEC enforcement employees need to be hired to investigate and prosecute financial crimes.

Further, the U.S. Department of Justice ("DOJ") and the SEC are expected to continue aggressive investigation and enforcement of the FCPA, while imposing several millions (and possibly additional billions) of dollars in fines, penalties, and disgorgements for future violations. Thus, the lesson is clear: in the practice of FCPA due diligence for agents, joint venture partners, and merger and acquisition targets, a due diligence shortcut for savings, could ultimately become the most devastating and costly strategy for companies, managers, individual employees, and corporate boards under the FCPA.

(SAB)

Noisy Withdrawal

A lawyer suddenly withdraws his appearance and "disaffirms prior oral and written representations."  This is referred to as a "noisy withdrawal."  The setting here, which is important, is an SEC matter - thus triggering Sarbanes-Oxley (SOX).  The experts seem to find that he acted correctly (see here and here). Christine Hurt of Conglomerate Blog provides an in-depth analysis of Rule 205.3 of the Securities Exchange Act (see here). And it should be noted that the "noisy withdrawal" concept was controversial from its inception.  (See letter by 79 law firms here).   

The real issue here is not whether the attorney acted correctly in withdrawing his representation of client Stanford.  Rather, the issue that needs to now be examined, in context, is whether this is a good rule to have.  Is it good to have attorneys withdraw from client representation in these types of situations, and is it good to have them announce it to the world? In the long run will we have better compliance with the law having the attorney withdraw, or will noisy withdrawals result in criminality being kept undercover?  And which way will best protect the public?

(esp)

The Future of White Collar Crime Press Investigations - Bleak

With the final edition of the Rocky Mountain News (see here), with newspapers across the U.S. closing (see here for an map that tracks the newspaper layoffs), one has to wonder about the future of white collar investigations that originate from the press.  Press investigations and exposure of corruption have lead to prosecutions.  It is frightening to see the dying press, not only because of what this means to having a well informed public, but also from the perspective of having white collar criminality exposed.

(esp)

In the News and Around the Blogosphere

Karen Gullo, Bloomberg, Bonds Steroids Trial Postponed as U.S. Appeals Evidence Ruling

DOJ Press Release, Stanford Financial Group Chief Investment Officer Charged with Obstruction

William Bender, Philly.com, Another Delco exec accused in swindle

Michael Powell, William K. Rashbaum & Banjamin Weiser, NYTimes, Morgenthau Heads for Door, Legacy Assured ; Karen Freideld, Bloomberg, Morgenthau, Manhattan Prosecutor Since 1961, Won’t Run Again

Sanjay Bhatt, Seattle Times, Mortgage-fraud defendant sentenced to seven years in prison

DOJ Press Release, N.J. Electrical Company Employee Pleads Guilty to Defrauding the Environmental Protection Agency at Superfund Site

DOJ Press Release, International Criminal Figure Pleads Guilty to $138 Million Fuel Tax Scheme After Nearly 13 Years as a Fugitive

DOJ Press Release, Miami Man Found Guilty in $13.5 Million International Money Laundering Scheme

Mike Anton, LATimes, About to do time? Meet your best pal

(esp)

Fraud is the "In" Crime

The message is loud and clear - the DOJ has a growing number of alleged fraud cases dropping in its lap. The cases in some instances show an unraveling of a house of cards.  And in many ways, the initial recent case - Madoff - can be seen as the impetus for people to start asking questions about their investments. (see discussion of Madoff  here and here),  It is no longer acceptable to just invest and be secure that the investment is safe. But the asking of questions, results in new cases (e.g., Arthur Nadell here), as people begin to find that there are no acceptable answers.  See also Tom Hays & Larry Neumeister, AP, 2 major fraud cases in NY federal court; Julie Creswell & Clifford Krauss, NYTimes, Stanford Accused of a Long-Running Scheme

(esp)

Vrdolyak Gets Probation

Former Chicago Alderman Edward Vrdolyak received a sentence of five years probation.  See Chicago Tribune, No jail for Vrdolyak; Carol Marin, Chicago Sun Times, Fast Eddie and justice -- hard to reconcile.  Vrdolyak plead guilty to a conspiracy to commit mail/wire fraud.  See Martha Nell, ABA Jrl Law News Now, Chicago Attorney and Ex-Alderman Ed Vrdolyak Pleads in Kickback Case; Huffington Post (AP), Vrdolyak to Plead Guilty: Judge.  He was represented by Attorney Michael Monico.

(esp)