The American Bar Association’s 25th Annual National Institute on White Collar Crime (March 2-4, 2011) featured, among other panelists, senior members from the U.S. Department of Justice ("DOJ"), various state and federal prosecutors, representatives from federal regulatory bodies, members of the federal judiciary and leading practitioners from the white collar defense bar. This Update highlights several of the most significant trends in white collar prosecution signaled by these panelists as likely to shape 2011's enforcement landscape.
This year, the government used strong rhetoric to demonstrate its intensified commitment to prosecute white collar crime with an emphasis on prosecuting individuals, not just corporations. The government is also evaluating cooperators with greater scrutiny prior to recommending any credit for them. This heightened enforcement activity is especially unfortunate for defendant corporations and their executives, given that the recent financial crisis is still fresh in the minds of the public at large, making for an unsympathetic jury pool in white collar cases.
Antitrust Enforcement: DOJ Hones in on Individual Defendants
DOJ Antitrust Division’s Deputy Assistant Attorney General Scott Hammond identified what he views as 2010's three most significant trends in criminal antitrust enforcement, most of which were echoed by in-house counsel that were also represented on the panel. Hammond highlighted the following priorities for government enforcement:
- Increased criminalization of anti-competition laws across the globe, which, in turn, will increase the likelihood that individuals will face extradition from countries that recognize illegal cartel activity as an extraditable offense;
- Continued ratcheting of sentences for criminal antitrust violations, as jail time for individual defendants has increased to 30 months on average, and the Antitrust Division keeps seeking longer terms for foreign nationals; and
- Increased individual accountability in cartel cases, with the DOJ no longer content to rely exclusively on charges against corporations. As Hammond emphasized, the Antitrust Division will seek "carve outs" to exclude from Non-Prosecution Agreements ("NPAs") those individuals who are most culpable and who do not cooperate with government investigators.
The antitrust panel also discussed the record-setting milestones achieved in the In re Air Cargo Shipping Services litigation, with conspiracy charges resulting in the highest criminal fines ever in a U.S. case—totaling approximately $1.8 billion—as well the highest number of charged defendants (21 airlines and 19 executives). The USB Ian Norris case was also highlighted as being particularly noteworthy in that Norris, a UK citizen, was sentenced to 18 months after conviction on conspiracy to obstruct justice. The Norris case involved the first instance of extradition based on antitrust offenses and also demonstrated the government’s willingness to pursue obstruction charges against foreign nationals.
Topics in SEC Settlements: Degree of Cooperation Is in the Eye of the Beholder
In a panel discussing current topics and trends in securities fraud enforcement, U.S. Securities and Exchange Commission ("SEC") Associate Regional Director for Enforcement Michelle Layne described a "disconnect" between corporations and the SEC’s staff concerning corporate cooperation efforts, explaining that actions corporations believe to be cooperative are instead viewed by the SEC to be mere—and minimal—compliance with the law, rather than extraordinary cooperation. For example, Layne noted that corporations often provide presentations of factual summaries to the SEC that are typically lacking in completeness, as well as in any semblance of objectivity. These presentations tend to hurt—rather than help—a corporation’s credibility. Layne also described a disfavored practice in which corporations inundate SEC staff with last-minute document productions immediately prior to scheduled meetings, leaving no time for staff to properly review and digest the information.
When asked whether the recent increase in judicial scrutiny of proposed SEC settlements is representative of a trend—such as Judge Jed Rakoff's rejection of the SEC’s proposed settlement with Bank of America and Judge Ellen Huvelle’s refusal to "rubber stamp" the SEC’s proposed settlement with Citigroup—Layne suggested that the handful of cases are not representative of the overall number of settlements that are approved without issue. Nevertheless, Layne noted that the SEC currently does not generally negotiate the language of the complaint when reaching settlement, typically leaving out the details of the underlying conduct. If the judicial trend moves to a more detailed complaint and supplemental briefing in order to explain the terms and conditions of each settlement, such a shift would represent a "sea change" in current enforcement practices, and one that, in Layne's view, would likely not be welcomed by most corporations that are the subject of SEC investigations and enforcement actions.
Stronger Sentencing Guidelines for Health Care Fraud: Loss-Based Offense Levels Poised to Rise
Attorneys from the federal government and private sector examined sentencing guideline amendments related to health care fraud offenses that will take effect this year, as mandated by a congressional directive to the U.S. Sentencing Commission in the Patient Protection and Affordable Care Act ("PPACA"). In enacting PPACA, Congress determined that sentences were not reflecting the seriousness of health care fraud as a crime. Eric Beste, Deputy Chief of the Major Frauds Section of the U.S. Attorney's Office for the Southern District of California, explained that DOJ supports these amendments because it has been similarly frustrated with the leniency of health care fraud sentences. The comment period for these new amendments closes on March 21, 2001, and the amendments will be effective in November 2011. Certain amendments are pre-ordained because the Sentencing Commission lacks the authority to act in any way contrary to the congressional mandate.
In the PPACA, Congress directed the Sentencing Commission to increase sentencing offense levels based on specific ranges of monetary loss to the government. The PPACA also requires the Sentencing Commission to define the government’s "loss" as the amount submitted to Medicare or Medicaid, not the amount paid out to the provider, unless the provider can overcome this presumption. For example, if a provider is convicted of a violation of the anti-kickback statute, the applicable loss could be considered the amount of all cost reports submitted to the government that are "tainted" by the kickback arrangement, including items that were not fully paid or not paid at all. This could result in enormous "loss" amounts because kickback allegations implicate a wide range of services and can last for months or years before they are identified and prosecuted.
The DOJ has also taken the position that the new amendments should not only apply to fraud on government health care programs, as the PPACA specifies, but should be expanded to private insurance fraud as well. Health care providers, including executives and officers at large health care institutions, should be aware of the government’s ever-expansive view of anti-fraud laws as they relate to health care.
Battling Juror Bias: "Rough Justice" for Executive Defendants
In a panel discussion examining "lessons learned" from several noteworthy white collar cases that went to trial in 2010, defense counsel offered a bleak outlook for executives accused of white collar crimes, due to significant juror biases against them. Defense counsel in 2010’s WebMD accounting and securities fraud case (United States v. Singer, Case No. 9:05-cr-00928) characterized the current climate as "awful" for high-level executives, indicating that jurors exhibited a strong bias against corporate executives, exacerbated by the economic downturn and a desire to hold someone accountable.
Following the return of a guilty verdict against his client in WebMD, defense counsel John Lauro reported that conversations with jurors suggested that they appeared to apply a "negligent morality" standard, focusing on whether the defendant knew—or should have known—about the alleged illegal activity. Defense counsel John Keker concurred with Lauro’s assessment, noting that he undertook an extensive survey assessing juror prejudice and found that putting the words "CEO" and "securities fraud" together yielded a juror "hatred rating" comparable to public sentiment toward Osama Bin Laden. Keker used the survey results to advocate for more extensive voir dire processes to screen out jurors with strong anti-executive feelings.
The featured panelists strongly urged that defense counsel insist on a robust voir dire process in order to protect corporate executive defendants from the risk of facing juror bias and recommended that information about potential biases be gathered through surveys and other means. The utility of motions in limine to exclude phrases that may unfairly inflame jury bias against their executive clients was also encouraged, citing examples of successfully excluded terms such as "fraud" or "Ponzi scheme." Defense counsel were also urged to consider the value of pre-trial motions in terms of increasing the judge's familiarity and understanding of key terms and concepts, further ensuring that the judge is well equipped to make rulings on complex technical issues.
Although the myriad topics and enforcement areas explored throughout the course of the three-day National Institute did not converge to form a single coherent theme for 2011, it is clear that considerable attention will continue to be drawn to corporate compliance and cooperation programs, with companies—and their defense counsel—seeking greater transparency into the factors that the government values most when assessing cooperation credit, while the government will continue to push to require corporations to cooperate meaningfully and at greater lengths. Trends across securities fraud, antitrust and health care fraud enforcement commonly indicate that, in the absence of such cooperation, prosecutors will continue to pursue increasingly tougher criminal penalties and fines for corporations, as well as harsher sentencing for individual white collar defendants, regardless of where those defendants reside.
© 2011 Perkins Coie LLP