Legal News

Former Enron Prosecutor: Criminal Charges Shouldn?t Be So Easy

By Amir Efrati

When the government considers prosecuting companies, it starts with this premise: a company can be criminally liable for wrongdoing committed by a single employee if the crime is intended to help the company. (See, e.g., page 2 of the McNulty Memo.)

Criminal charges against companies are relatively rare, especially after DOJ criminally prosecuted accounting firm Arthur Andersen, which was instrumental to the firm’s downfall in 2002. These days, DOJ often force companies to make sometimes significant concessions and pay hefty fines in order to avoid criminal charges, a practice known as deferred-prosecution agreements.

Because the standard for bringing criminal charges is so low, prosecutors often have the leverage to demand all sorts of cooperation from companies when they investigate employees, defense lawyers say.

Today, one of those defense lawyers argued before the 2nd Circuit that the standard — followed for nearly a century by DOJ (and courts) — is based on a fallacy. It might seem a bit ironic that the lawyer, Andrew Weissmann (pictured, center), once headed the Enron Task Force and helped bring charges against Arthur Andersen. Here’s today’s WSJ story on Weissmann’s efforts.

Weissmann (Princeton, Columbia Law ‘84) says the problem is simple: that a 1909 Scotus decision, New York Central v U.S., has been misinterpreted. As a result of the misinterpretation, he says, it’s much easier to find companies liable for wrongdoing by employees in criminal courts than in civil cases, which he says is “backwards.” As soon as he left the government, Weissmann began writing about the issue and in an effort to change the law, he wrote an amicus brief in a case under appeal in the 2nd Circuit, U.S. v Ionia Management SA.

Unfortunately for Weissmann, reports Chad Bray of DJ Newswires, today’s three-judge panel didn’t seem to bite and indicated he should save the argument for the Supremes. Judge Guido Calabresi called Weissmann’s argument an “interesting” one, saying it appealed to the judges as academics. ”Whether we should do something about this as judges is a different matter,” the judge said. If the legal effort fails, Congress could pass a law changing the standard for corporate prosecutions.

Photo: Reuters

Full post as published by Law Blog - WSJ.com on November 21, 2008 (boomark / email).