White Collar Crime

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One of my two former firms, King & Spalding, is hosting a free interactive web seminar on cybersecurity and M&A on February 25 at 12:30 p.m. Thought the web seminar might be of interest to some of our readers. The description is reproduced below.

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An Interactive Web Seminar

The Opportunities and Pitfalls of Cybersecurity and Data Privacy in Mergers and Acquisitions

February 25, 2016

12:30 PM – 1:30 PM

Over the last several years, company after company has been rocked by cybersecurity incidents. Moreover, obligations relating to cybersecurity and data privacy are rapidly evolving, imposing on corporations a complex and challenging legal and regulatory environment. Cybersecurity and data privacy deficiencies, therefore, might pose potentially significant business, legal, and regulatory risks to an acquiring company. For this reason, cybersecurity and data privacy are becoming integral pre-transaction due diligence items.

This e-Learn will analyze the (1) special cybersecurity and data privacy dangers that come with corporate transactions; (2) strategies to mitigate those dangers; and (3) benefits of incorporating cybersecurity and data privacy into due diligence. The panel will zero in on these issues from the vantage point of practitioners in the deal trenches, and from the perspective of a former computer crime…

The defense for Don Blankenship, former CEO of Massey Coal, rested today without putting on any witnesses.  Blankenship is on trial because he is charged with conspiring to violate federal safety standards. Investigators believe that Blankenship’s methods contributed to a mine disaster that killed 29 people at the Upper Big Branch mine in West Virginia.  

One part of the trial has an interesting business law component.  Prosecutors have tried to show the Blankenship’s interest in making more money was a key factor in cutting corners.  One West Virginia news paper reported it this way:

“The government is using his compensation package as an indication of how much production mattered to Don,” said Mike Hissam, partner at Bailey & Glasser. “They’re using his compensation to establish a motive for him lying and making false statements to investors, their theory being his compensation was so tied up with company stock he had a motive for lying to the SEC and the public to protect his own personal net worth.”

It’s possible that this is accurate, but I am leery of that line of thinking.  It’s not that I don’t think it’s possible Blankenship cut corners because it cost money…

I had the honor of being invited to speak at the annual symposium for the Wayne Law Review two weeks ago.  The event, which focused on Corporate Counsel as Gatekeepers, was well organized and attended–and also very stimulating.  Speakers included Tony West as a keynote, a few of us academics, and a bunch of current and former practitioners–prosecutors, in-house counsel, and outside counsel.

My presentation focused on a story that bugs me–a story built on an experience I had in practice.  In the story (which modifies the true facts), an executive flagrantly violates a securities trading compliance plan that I drafted in connection with a subsequent transaction that I worked on for the executive’s firm.  Specifically, the executive informs a friend about the transaction the day before it is announced, believing that the friend will never trade on the information.  The friend trades.  The incident results in a stock exchange and Securities and Exchange Commission (SEC) inquiries.  No enforcement is undertaken against the firm.  However, the executive signs a consent decree with–and pays a cash penalty to–the SEC and, together with the firm, suffers public humiliation via a front-page article in the local newspaper (since the SEC would not agree to forego a press release).  This fact pattern gnaws at me because I wonder whether there is anything more legal counsel can do to prevent an executive from violating a compliance policy to the detriment of himself and the firm . . . .

BLPB guest-blogger Todd Haugh (Indiana University – Kelley School of Business) has a new article in the Vanderbilt Law Review entitled Overcriminalization’s New Harm Paradigm. The abstract is reproduced below:

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The harms of overcriminalization are usually thought of in a particular way—that the proliferation of criminal laws leads to increasing and inconsistent criminal enforcement and adjudication. For example, an offender commits an unethical or illegal act and, because of the overwhelming depth and breadth of the criminal law, becomes subject to too much prosecutorial discretion and faces disparate enforcement or punishment. But there is an additional, possibly more pernicious, harm of overcriminalization. Drawing from the fields of criminology and behavioral ethics, this Article makes the case that overcriminalization actually increases the commission of criminal behavior itself, particularly by white collar offenders. This occurs because overcriminalization, by lessening the legitimacy of the criminal law, fuels offender rationalizations. Rationalizations are part of the psychological process necessary for the commission of crime—they allow offenders to square their selfperception as “good people” with the illegal behavior they are contemplating, thereby allowing the behavior to go forward. Overcriminalization, then, is more than a post-act concern. It is inherently criminogenic because it facilitates some…

Like many of you, I have been discussing the Volkswagen emission scandal in my business law classes.

Yesterday, Michael Horn, President and CEO of Volkswagen Group of America testified before the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations. Horn’s testimony is here. 

West Virginia University, home of co-blogger Joshua Fershee, is featured on the first page of the testimony as flagging possible non-compliance issues in the spring of 2014.

The testimony includes multiple apologies, acceptance of full responsibility, and the statement that these “events are fundamentally contrary to Volkswagen’s core principles of providing value to our customers, innovation, and responsibility to our communities and the environment.”

I plan to follow this story in my classes as the events continue to unfold. 

I think my life as a compliance officer would have been much easier had the DOJ issued its latest memo when I was still in house. As the New York Times reported yesterday, Attorney General Loretta Lynch has heard the criticism and knows that her agency may face increased scrutiny from the courts. Thus the DOJ has announced via the “Yates Memorandum” that it’s time for some executives to go to jail. Companies will no longer get favorable deferred or nonprosecution agreements unless they cooperate at the beginning of the investigation and provide information about culpable individuals.

This morning I provided a 7-minute interview to a reporter from my favorite morning show NPR’s Marketplace. My 11 seconds is here. Although it didn’t make it on air, I also discussed (and/or thought about) the fact that compliance officers spend a great deal of time training employees, developing policies, updating board members on their Caremark duties, scanning the front page of the Wall Street Journal to see what company had agreed to sign a deferred prosecution agreement, and generally hoping that they could find something horrific enough to deter their employees from going rogue so that they wouldn’t be…

Love him or hate him, you can’t deny that President Obama has had an impact on this country. Tomorrow, I will be a panelist on the local public affairs show for the PBS affiliate to talk about the President’s accomplishments and/or failings. The producer asked the panelists to consider this article as a jumping off point. One of the panelists worked for the Obama campaign and another worked for Jeb Bush. Both are practicing lawyers. The other panelist is an educator and sustainability expert. And then there’s me.

I’ve been struggling all week with how to articulate my views because there’s a lot to discuss about this “lame duck” president. Full disclosure—I went to law school with Barack Obama. I was class of ’92 and he was class of ’91 but we weren’t close friends. I was too busy doing sit-ins outside of the dean’s house as a radical protester railing against the lack of women and minority faculty members. Barack Obama did his part for the movement to support departing Professor Derrick Bell by speaking (at minute 6:31) at one of the protests. I remember thinking then and during other times when Barack spoke publicly that he would run…

If you have been following my guest posts regarding white collar crime and how white collar offenders rationalize their conduct, you likely have noticed that the discussion thus far has been largely theoretical. In this post, I’d like to offer some more concrete uses of rationalization theory and discuss how it may (should?) impact lawmakers and business people.  

But before doing that, I have to explain, just for a moment, a bit more theory. One of the most fascinating things about rationalizations, in addition to how they operate, is where they come from. Researchers have concluded that rationalizations are not created in a vacuum; offenders do not invent them in the spur of the moment. Instead, offenders find their “vocabularies of motive” within their own environments. Donald Cressey suggested that rationalizations are “taken over” from “popular ideologies that sanction crime in our culture.” He pointed to commonplace sayings that suggest wrongdoing is acceptable in certain situations: “Honesty is the best policy, but business is business” and “All people steal when they get in a tight spot.”  (Warren Buffett once called the phrase “Everybody else is doing it,” which is a clear rationalization, the five most dangerous words in business…

Although my guest blogging has been focused on white collar rationalizations, I can’t help but mention that, just about any way you cut it,* ninety days have passed since former Attorney General Holder asked U.S. Attorneys investigating the financial crisis to report back on whether they could make criminal cases against any individuals.  I’m guessing that since we didn’t hear any big announcements, there are no indictments sitting on current Attorney General Loretta Lynch’s desk.  Or maybe the currency trading guilty pleas were the announcement.  Of course, those were charges against corporations, not individuals . . . and deals with the regulators have ensured the banks will continue to basically operate as usual . . . and hinky currency trading isn’t what caused the financial crisis . . . and the banks involved weren’t the biggest players in MBS in the run up to the collapse.  You get the point.  It looks like Wall Street executives may truly and forever be off the hook for what happened in 2008.  

* If AG Holder was speaking generally, three months since his February 17 announcement was last Sunday.  If he actually meant a hard ninety days, that elapsed last Monday.  If he’s a kind boss and has been …

My last post outlined the criminological and behavioral ethics theories that help explain why corporate executives commit unethical and illegal acts.  I’d like to unpack that a bit more by providing some specific rationalizations used by white collar offenders.  This list includes the first five rationalizations to be identified by researches (sometimes called the “famous five”), and then supplements three others that are particularly relevant.  Not surprisingly, there are disagreements as to exactly how many rationalizations there are and precisely how they operate.  But, as one team of researchers put it, what is interesting about rationalization theory is what rationalizations do, “not the flavors they come in.”

Denial of Responsibility.  Called the “master account,” the denial of responsibility rationalization occurs when the offender defines her conduct in a way that relieves her of responsibility, thereby mitigating “both social disproval and a personal sense of failure.”  Generally, offenders deny responsibility by claiming their behavior is accidental or due to forces outside their control.  White collar offenders deny responsibility by pleading ignorance, suggesting they were acting under orders, or contending larger economic conditions caused them to act illegally.

Denial of Injury.  This rationalization focuses on the injury or harm caused …