Welcome to the inaugural issue of Executives at Risk: Navigating Individual Exposure in Government Investigations. As federal prosecutors are increasingly investigating and prosecuting corporate executives in conjunction with corporate investigations, we thought it would be useful to collect and periodically report on the most noteworthy cases and investigations implicating corporate executives. The importance of this focus was illustrated yesterday, when the Department of Justice (DOJ) issued a new policy that requires federal prosecutors to target individual executives in cases of corporate wrongdoing. A quick glance at the headlines below illustrates the high level of activity involving executives. Most summaries contain links to documents that will provide you with source materials and more in-depth coverage.

We hope you find this newsletter informative and valuable. We look forward to sending periodic updates throughout the year.

New DOJ Enforcement Policies Target Executives

Just yesterday, U.S. Deputy Attorney General Sally Yates issued a memorandum to federal prosecutors nationwide detailing new DOJ policies that prioritize the prosecution of corporate executives. The memo lists "six key steps to strengthen [DOJ's] pursuit of individual corporate wrongdoing," each of which is discussed in further detail in the memo itself. DOJ's message is clear, however, from the first of those steps: if a corporation wishes to resolve its own criminal charges and qualify for any cooperation credit, it must provide DOJ with all relevant facts relating to the individuals responsible for the misconduct. This means that corporations are going to be pressured to not only hand over documents, but also to name names. In addition, the memo stresses that prosecutors should focus on individual wrongdoing from the outset of any investigation of corporate misconduct to "maximize the chances that the final resolution of an investigation uncovering the misconduct will include civil or criminal charges against not just the corporation but against culpable individuals as well." The memo also instructs prosecutors to refer to civil DOJ attorneys any conduct that might give rise to potential individual civil liability, even when criminal charges will not be pursued.

Enforcement Actions Against Executives

Securities

SEC Hits Auditor BDO and Executives With Charges Over False and Misleading Audit Report: On September 9, 2015, the Securities and Exchange Commission (SEC) hit national audit firm BDO USA with charges related to its involvement in issuing a false and misleading audit report. BDO agreed to settle the charges resolving allegations that it conducted a deficient audit of staffing services agency General Employment Enterprises, Inc. (GEE) in 2009. As part of the settlement, BDO admitted that it dismissed red flags of fraud related to the disappearance of $2.3 million from GEE's account but ultimately gave GEE a clean bill of health. The audit firm agreed to pay $2.1 million to resolve the case, and four of its partner firms agreed to be suspended from public accounting and pay additional penalties. Two former GEE CEOs also settled related charges with the SEC without admitting wrongdoing and agreed to pay $150,000 in penalties each. Separately, the SEC filed civil fraud charges against GEE's former chairman and majority shareholder, Stephen B. Pence, for allegedly misleading BDO auditors regarding the missing funds. Pence is a former United States Attorney and Lieutenant Governor of Kentucky. The SEC is seeking financial penalties and an officer-and-director bar against Pence.

Cartel

U.K. Jury Acquits Executives in Cartel Case in Defeat to the U.K. Competition Authority: In June, a British jury dealt a blow to the U.K. Competition and Markets Authority (CMA) by acquitting two executives on charges that they fixed prices and rigged bids related to galvanized steel water storage tanks. The case was brought under a subsequently amended law, which required the CMA to prove that the executives acted "dishonestly." Under the new law, the prosecution is not required to show dishonest conduct. It is unclear to what extent the "dishonesty" requirement affected the jury's verdict. The trial came on the heels of a guilty plea of a third executive, Nigel Snee (former managing director at Franklin Hodge), who has yet to be sentenced.

Jury Acquits Executive in Cartel Case in Record Time: A jury in the U.S. District Court of Puerto Rico acquitted a shipping executive accused of price fixing and market allocation after a three-week trial after deliberating for just four hours. Thomas Farmer worked for Crowley Liner Services, Inc., a company that provides freight services. The products said to be affected by the alleged anti-competitive behavior included heavy equipment, food and medicine. Farmer was prosecuted by the DOJ's Antitrust Division. (See article in The National Law Review.)

DOJ Continues to Indict Japanese Auto Parts Executives Despite Poor Track Record on Prosecutions: In the last month, the DOJ has indicted three more Japanese executives in its ongoing auto parts cartel investigation. (See DOJ's press release from May 14, 2015, and May 21, 2015.) To date, DOJ has charged 55 executives, but has been able to secure guilty pleas from only 31 -- barely more than half. The rest remain in Japan, seemingly beyond the reach of the U.S. government. Indeed, DOJ has obtained only one extradition exclusively on antitrust charges in history. It is, therefore, unlikely that the Department will succeed in extraditing many -- let alone all -- of the foreign executives indicted in the auto parts investigation. (See comments in article published by Law360.)

FCPA

Former Co-Chief Executive Officer of PetroTiger Pleads Guilty to FCPA Violations: In June, Joseph Sigelman, a former Co-Chief Executive Officer of PetroTiger Ltd., pled guilty to one count of conspiracy to commit an FCPA anti-bribery violation. Sigelman's plea followed the government's agreement to drop five of the six charges against him in the middle of his trial in the U.S. District Court for the District of New Jersey. Sigelman was subsequently sentenced to three years of probation and ordered to pay $100,000 in fines and $239,015.45 in restitution to the U.S. government. The charges against Sigelman stemmed from his alleged involvement in a scheme with other PetroTiger Ltd. executives to bribe an employee of Ecopetrol, a petroleum company majority-owned by the Colombian government, to secure a $45 million oil contract. For a more fulsome discussion of the PetroTiger Ltd. case, see Miller & Chevalier's FCPA Summer Review 2015.

Banking

DOJ's Self-Imposed 90-Day Deadline to Sue or Indict Banking Executives Expires: On February 17, 2015, then Attorney General Eric Holder told the press that he had given federal prosecutors 90 days to decide whether they could successfully bring cases against individuals for the banking crisis of 2008. Although the public statement is unclear on whether charges were to be brought within the 90-day period, or if only internal, non-public recommendations were to be made by that time, no cases appear to have been filed to date.

DOJ Actively Pursuing Banking Executives in Other Contexts: Although federal prosecutors' self-imposed 90-day period for deciding whether to indict or sue individuals for the banking crisis of 2008 appears to have passed with a whimper, the government is actively prosecuting banking executives in other contexts. On May 18, 2015, for example, a former Bank of America executive pled guilty to fraud and conspiracy charges in connection with a bid-rigging scheme involving municipal bond contracts. To date, 17 individuals have been convicted in connection with the scheme. 

Responsible Corporate Officer Doctrine

Automotive

Potential Expansion of Doctrine to Automotive Industry: In July, Senators Bill Nelson (D-Fla.), Richard Blumenthal (D-Conn.) and Ed Markey (D-Mass.), introduced the Motor Vehicle Safety Act of 2015 in the wake of an ongoing Senate investigation into defective auto parts sold by General Motors and Takata Corporation that have led to numerous deaths. Among other things, the legislation would require responsible automotive executives to report to the federal government auto defects that pose a serious danger. If they do not, the responsible corporate executives face up to five years in prison and criminal fines. The legislation was referred to the Senate Committee on Commerce, Science, and Transportation for consideration.

Food and Drug

Responsible Corporate Officer Doctrine Has Real Bite: Austin and Peter DeCoster, father-and-son owner and chief operating officer of a large egg producer in the U.S., were recently prosecuted under the responsible corporate officer doctrine because their company sold shell eggs containing salmonella enteritidis. Although they were not directly responsible for selling and shipping the contaminated eggs, the DeCosters' failure to effectively oversee their company's operations and prevent lower-level workers from shipping eggs containing salmonella enteritidis ultimately cost them their freedom. On April 13, 2015, the DeCosters were sentenced to three months in prison, and ordered to pay a $100,000 fine each. This case demonstrates that executives prosecuted under the responsible corporate officer doctrine can face serious consequences, no matter how uninvolved they were in the misconduct. As the DOJ emphasized, "Claims of ignorance or 'I delegated the responsibility to someone else' will not shield [executives] from criminal responsibility."  

Extradition

DOJ's Threat to Increase Efforts to Extradite Cartel Defendants Belied by DOJ's Record: Assistant Attorney General for Antitrust Bill Baer told reporters in May 2015 that the DOJ Antitrust Division would increase its efforts to extradite foreign nationals to the U.S. to face price-fixing charges. However, their efforts to extradite foreign nationals in the Antitrust Division's auto parts investigation has been unsuccessful to date. While almost all criminal defendants charged with a crime plead guilty, barely more than half of the individuals charged in the auto parts probe have done so. Of the 55 individuals who have been charged in that investigation, 26 -- all foreign nationals -- have been indicted because they refused to plead guilty. Only two of these executives have voluntarily submitted to U.S. jurisdiction and appeared in a U.S. courtroom. (See comments in article published by Law360.) 

Extraterritoriality

Federal Court in the Ninth Circuit Again Curbs Government's Overly Broad Conception of Extraterritoriality: In the recent antitrust case United States v. LSL Biotechnologies, the Ninth Circuit narrowly interpreted when the U.S. government can prosecute criminal cartel conduct occurring abroad pursuant to the Sherman Act and the Fair Trade Antitrust Improvements Act. On April 21, 2015, the government's attempts to apply criminal statutes to foreign conduct took another hit. In United States v. Sidorenko, the U.S. District Court for the Northern District of California held that the bribery provisions of 18 U.S.C. § 666(a)(1)(B) & (2), as well as the wire fraud statute (18 U.S.C. § 1343), do not apply extraterritorially. The court therefore dismissed an indictment against three foreign nationals whose conduct had occurred entirely abroad. 

Corporate Liability for Executive Defense Costs

Corporate Charters and Contracts Can Obligate Companies to Pay Defense Costs of Former Executives: A Delaware Chancery Court recently ordered Massey Energy Co. to pay the defense costs for Donald Blankenship, the company's former CEO who is being prosecuted for making false statements and misleading government agents investigating the company's safety practices following a deadly explosion at Massey's Upper Big Branch coal mine in West Virginia. Even though Blankenship is being prosecuted for his own misconduct, the court held that the company's charter and its merger agreement with another company that acquired Massey after Blankenship left required the company to pay Blankenship's legal fees.

Editors: Kirby D. Behre, Lauren E. Briggerman and Dawn E. Murphy-Johnson

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