If It’s Not One Thing, It’s Another

If It’s Not One Thing, It’s Another

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There is some evidence that PBJ is an effective way to deal with speeding tickets. That’s Probation Before Judgment” and not “Peanut Butter and Jelly.” A recent study in Maryland concluded that drivers who received a deferred disposition, as opposed to a conviction, were somewhat less likely to get another ticket. At the very least, these drivers went a longer time period between tickets than convicted drivers. Psychologically, the threat of prosecution is more effective than the prosecution itself. The same thing applies in many juvenile crime matters, especially among first-time and non-violent offenders. Many kids don’t need to go to jail. They just need to change their habits, like who they associate with and where they go.

The Department of Justice evidently assumes that what’s good for the goose must be good for the gander, because the number of deferred prosecutions in corporate criminal matters has increased almost exponentially over the past two decades. But these situations may not be comparable. Take the recent Standard and Poor’s settlement. Last month, the credit rating agency agreed to pay a $1.38 billion penalty for its role in overrating toxic mortgage-backed securities. One observer scoffed at the penalty, calling it “a traffic ticket” that will not lead to any meaningful change. A cadre of bankers who nearly topple the capitalist system are, at least arguably, not in the same position as a driver who got caught doing a California stop on a neighborhood street or a menacing teen with a can of purple Krylon.

In Too Big To Jail, author Brandon Garrett takes a long look at deferred prosecutions in corporate crime, especially in the wake of the 2009 financial crisis. Whether his conclusions are good or bad largely depends on your seat assignment. Are you seated at the defense counsel table in one of your nicest suits, are you glaring at the defendant with one of those “look at what you did” stares like Hawaii Five-O’s Jack Lord perfected, or are you seated on a high perch in a black robe and trying to do what’s right?

Anatomy of a DP

I know it’s almost Opening Day, but that’s “deferred prosecution” and not “double play.” In most DP agreements, whether it’s the California stop or the destroying-capitalism thing or anything in between, the defendant must jump through a number of hoops in exchange for a dismissal.

In 2007, Deputy Attorney General Paul McNulty released the memorandum that bore his name. The McNulty Memorandum outlined the DOJ’s strategy in these matters. In addition to the fine and the admonishment to “go forth and sin no more,” a corporation needs an effective compliance department. It’s a twist on the “three ‘sorries’ and you’re in” idea. Feel sorry by paying a fine, say you’re sorry by doing what they tell you to do, and show that you’re sorry by straightening your act.

As noted earlier, and as meticulously shown by Professor Garrett, DPs have really caught on in the last several years. These arrangements are now the go-to guy in the half-court offense of criminal prosecution. As they say, the proof of the pudding is in the eating. Are these things working or not?

A Case Study

Professor Garrett basically argues that DPs can work, but the “hoops” need to be narrowed and perhaps set on fire. In other words, the fines should be stiffer, responsible individuals should also face punishment, as opposed to just the company itself, and the corporate compliance department should be closely scrutinized.

If Pfizer is any indication, the system may need more than a tune-up. The pharmaceutical company made a deal with prosecutors in 2002 to avoid prosecution over bribery charges. In 2004, it was illegal marketing activities at the same subsidiary, and another DP. The company was clean for three years, or at least didn’t get caught for another three years, and then there was more illegal marketing activity at another subsidiary. Most recently, in 2009, it was more of the same – illegal “off-label” marketing activity – and a $2.3 billion fine to go with another DP deal. Is there anyone in the Western world who actually thinks these deferred prosecution deals are any sort of deterrence?

What it Means

The DOJ likes voluntary compliance, and DPs fit very nicely into this philosophy. If your company is under grand jury scrutiny, speak with an attorney who will tell you where you stand. If the government’s evidence is weak, consider going to the mat. If the case against you is strong, consider getting out in front and offering to enter a DP arrangement. The government stops digging, and the DOJ can issue a press with a few mea culpa quotes from your attorney and a few Dirty Harry lines from an assistant AG. The system may be broken, but it’s here to stay, at least for now. Ride the wave while you can.

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