Deferred Prosecution Agreements and the Individual

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The first SEC deferred-prosecution agreement for an individual raises a couple of issues.  Here is the document itself:  SEC DPA With Herckis

First, a reminder.  A “deferred prosecution agreement” is what its name implies.  It’s an agreement between a company (and now, an individual) that puts off — for good, hopefully — prosecution on the condition that the defendant/respondent complete a certain course of action laid out in the agreement (for example, hiring an independent corporate monitor or auditor who will report to the government).

Second, there is guidance on DPAs in the United States Attorney’s Manual.  Review the 2010 Grindler Memorandum, which is an amendment to the 2008 Morford Memorandum.  The Morford Memorandum focuses on selection criteria for a corporate monitor.  From the introduction:

The Department of Justice’s commitment to deterring and preventing corporate crime remains a high priority. The Principles of Federal Prosecution of Business Organizations set forth guidance to federal prosecutors regarding charges against corporations. A careful consideration of those principles and the facts in a given case may result in a decision to negotiate an agreement to resolve a criminal case against a corporation without a formal conviction—either a deferred prosecution agreement or a non-prosecution agreement. As part of some negotiated corporate agreements, there have been provisions pertaining to an independent corporate monitor. The corporation benefits from expertise in the area of corporate compliance from an independent third party. The corporation, its shareholders, employees and the public at large then benefit from reduced recidivism of corporate crime and the protection of the integrity of the marketplace.

The purpose of this memorandum is to present a series of principles for drafting provisions pertaining to the use of monitors in connection with deferred prosecution and non- prosecution agreements (hereafter referred to collectively as “agreements”) with corporations. Given the varying facts and circumstances of each case—where different industries, corporate size and structure, and other considerations may be at issue—any guidance regarding monitors must be practical and flexible. This guidance is limited to monitors, and does not apply to third parties, whatever their titles, retained to act as receivers, trustees, or perform other functions.

A monitor’s primary responsibility is to assess and monitor a corporation’s compliance with the terms of the agreement specifically designed to address and reduce the risk of recurrence of the corporation’s misconduct, and not to further punitive goals. A monitor should only be used where appropriate given the facts and circumstances of a particular matter. For example, it may be appropriate to use a monitor where a company does not have an effective internal compliance program, or where it needs to establish necessary internal controls. Conversely, in a situation where a company has ceased operations in the area where the criminal misconduct occurred, a monitor may not be necessary.In negotiating agreements with corporations, prosecutors should be mindful of both: (1) the potential benefits that employing a monitor may have for the corporation and the public, and (2) the cost of a monitor and its impact on the operations of a corporation. Prosecutors shall, at a minimum, notify the appropriate United States Attorney or Department Component Head prior to the execution of an agreement that includes a corporate monitor. The appropriate United States Attorney or Department Component Head shall, in turn, provide a copy of the agreement to the Assistant Attorney General for the Criminal Division at a reasonable time after it has been executed. The Assistant Attorney General for the Criminal Division shall maintain a record of all such agreements.

 

Gavel and cash

Third, in general, DPAs are workable ( Podgor, Deferred Prosecution Agreements – Definitely A Plus ) but  they can be wildly expensive for defendants/respondents because the Government has the whip hand, usually (Washington Legal Foundation, Deferred Prosecution and Non-Prosecution Agreements).

 

Monopoly

Fourth, it will be fascinating to watch the development (or not) of DPAs for individuals.  For the Government, of course, the motherlode in an individual’s DPA will be the value of his or her cooperation (in Herckis’s case, for five years).  The Government gets to avoid the risk of trial; locks the individual into an acceptance of responsibility and a statement of facts; and gets his cooperation in “related” proceedings.

 


Deferred Prosecutions and Decisions Not To Indict

Two recent articles in @Dealbook are worth noting because of their discussion of what goes into two very important parts of the American enforcement system: deferred prosecution agreements and a prosecutor’s decision to not indict.

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In For a Better Way to Prosecute Corporations, Look Overseas,  Brandon L. Garrett (a professor at University of Virginia School of Law) and David Zaring (an assistant professor of legal studies at the Wharton School of the University of Pennsylvania) discuss the spread abroad of an American idea — the deferred prosecution agreement:

The favored new tool of the corporate prosecutor, the deferred prosecution agreement, is being actively exported to other countries. In these agreements, prosecutors allow large corporations to avoid a criminal prosecution entirely by agreeing to pay a fine and adopt reforms. Five years after the financial crisis, many doubt whether prosecutors have taken business crime seriously enough, and some of the blame is laid on lenient deferred prosecution agreements.

We can learn some lessons about how to better hold corporations accountable for crimes, though, from the way these types of prosecution agreements are now being used across the globe. After passing detailed legislation approving their use, the British government has circulated plans for a potentially more rigorous deferred prosecution agreement program.

One should note, however, that DPAs are not cakewalks for companies, and that they represent a great savings in prosecutorial resources (as well as allowing the Government to declare victory and go home, when it might be otherwise faced with a difficult case of proving criminal intent.

 

Open handcuffs

“Intent” is addressed in On JPMorgan and What Makes a Criminal Case,  by Peter J. Henning, a professor at Wayne State University Law School, focuses on the unreviewability of decisions not to prosecute:

The case of the so-called London Whale presents an interesting contrast in how the government pursues corporate wrongdoing. While two lower-level employees of JPMorgan Chase were formally indicted last week for their role in the credit derivatives trading that caused over $6 billion in losses, the bank itself faced only civil charges that it settled by paying $920 million. No higher level individuals were accused of violations.

The easy explanation, of course, is that the wealthy and powerful avoid their comeuppance while those less fortunate face the wrath of prosecutors. This is a common refrain when the law is enforced against some, but not others who appear to be in the same situation, whether it be mom-and-pop stores accused of food stamp fraud or drug laws used primarily against the urban poor.

The fact is that prosecutors and the police have enormous discretion over whether to bring charges against someone, with a decision not to charge a crime virtually unreviewable by the courts. The American criminal justice system puts enormous faith in those who decide how the criminal law is enforced because prosecutors do not have to disclose what went into their decision not to pursue charges.

. . .

So what standard makes a case criminal rather than civil, and when should individuals be accused of misconduct or allowed to avoid charges? The answer is left up to the prosecutor, who decides whether there is enough evidence and what is the best use of available resources.

There is no realistic prospect of judicial review of a decision not to file charges. In Inmates of Attica Correctional Facility v. Rockefeller, a case arising from the Attica prison riot in 1971 in which federal prosecutors did not file civil rights charges for the death of inmates, the United States Court of Appeals for the Second Circuit found that “the manifold imponderables which enter into the prosecutor’s decision to prosecute or not to prosecute make the choice not readily amenable to judicial supervision.” That means there is no recourse if the prosecutor decides not to pursue a case, unless another office steps in and decides to file charges on its own.

The lack of transparency over a decision not to file charges benefits those who were investigated. If prosecutors had to explain why charges were not filed, such a statement could cause significant harm to a person’s reputation with no readily available means to rebut any claimed misconduct.

Yet it remains disquieting when the same actions result in criminal charges for some but only a civil case for others, and no individuals are held responsible for misconduct at a company. In the end, we are left to trust that prosecutors have made good decisions.

Although it would be interesting to learn, on a record before a judge, why some people and companies are charged and others not, the reputational, personal and economic harm would be enormous.