White Collar Crime and Securities Enforcement: 2012 in Review
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White Collar Crime Report™ Reproduced with permission from White Collar Crime Report, 08 WCR 57, 01/25/2013. Copyright 2013 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com SECURITIES FRAUD White Collar Crime and Securities Enforcement: 2012 in Review ing out of the LCD panel investigation, prevailed in a string of insider trading cases, and secured large civil settlements and other resolutions with banks related to the financial crisis. Yet defendants won their own share of Securities and Exchange Commission actions arising out of the financial crisis, a major Foreign Corrupt Prac- tices Act trial, and the John Edwards public corruption trial. This article highlights some of 2012’s key white col- lar and securities enforcement actions and identifies cases to watch in 2013. Foreign Corrupt Practices Act BY BROOK DOOLEY AND ERIC H. MACMICHAEL rosecution and defense counsel could each find Coming on the heels of the Department of Justice’s something to cheer in 2012, as both sides won im- loss in the Lindsey Manufacturing case, 2012 was an- P portant white collar and securities cases. The gov- other difficult year in the courtroom for prosecutors ernment won a significant criminal antitrust trial aris- seeking convictions under the Foreign Corrupt Prac- tices Act. The most notable failure was the ‘‘Africa Sting’’ case, which arose out of an undercover arms in- Brook Dooley is a partner at the San Fran- dustry investigation.1 As part of the investigation, gov- cisco litigation firm Keker & Van Nest LLP. ernment officials attended an annual trade show in Las He handles white collar criminal matters and Vegas and posed as representatives of the Gabon gov- complex civil litigation involving securities ernment. DOJ alleged that the defendants agreed to fraud, breach of contract, breach of fiduciary bribe the undercover agents to secure contracts to sell duty, and professional negligence claims. body armor, weapons, and other military gear. Dooley has represented numerous clients fac- After trying 10 defendants in two separate trials, the ing federal investigation or indictment, includ- government failed to obtain a single conviction. In July ing the recent defense of Citigroup Executive 2011, Judge Richard J. Leon of the U.S. District Court Brian Stoker in a Securities and Exchange for the District of Columbia declared a mistrial in the Commission enforcement action. first trial involving four defendants. In January 2012, at Eric MacMichael is also a partner at Keker & the conclusion of a second trial involving six different Van Nest. With extensive experience handling defendants, two of the six were acquitted, and Judge white-collar criminal and complex civil liti- Leon declared a mistrial after the jury deadlocked on gation matters, he represents individuals and the other four. The court also dismissed the conspiracy companies under investigation or indictment count as to all six defendants. In February, the govern- for offenses including insider trading, ment dismissed the indictments against all 19 defen- banking-related crimes, antitrust, and tax eva- dants. Finally, in March, the government agreed to dis- sion. MacMichael litigates matters through- miss the charges against three defendants who pleaded out the United States and has tried cases guilty. In the end, Leon called the prosecution ‘‘a long to verdict in many state and federal courts and before arbitration panels. 1 07 WCR 143 (2/24/12). United States v. Goncalves, No. 1:09-cr-00335 (D.D.C. Feb. 21, 2012). COPYRIGHT 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. ISSN 1559-3185 2 and sad chapter in the annals of white collar criminal Antitrust enforcement.’’ 2012 was a good year for DOJ’s Antitrust Division, Guidance. An FCPA issue to watch in 2013 is what ef- highlighted by price-fixing convictions in the AU Op- fect, if any, DOJ’s and the Securities and Exchange tronics Corp. case, the only criminal case arising out of Commission’s guidance, Resource Guide to the U.S. the government’s long LCD panel industry investigation Foreign Corrupt Practices Act, has on enforcement ac- to go to trial.3 After an eight-week trial before Judge Su- tivity. Issued in November, the guide purports to pro- san Illston that featured testimony about monthly meet- vide a comprehensive set of rules and examples for con- ings of LCD suppliers, referred to as ‘‘Crystal Meet- ducting business in a foreign country. However, the ings,’’ the jury took seven days to reach its verdict. The general consensus among practitioners has been that jury convicted AU Optronics, a Taiwanese company, its the guide contains no new policy pronouncements and American subsidiary, and two senior executives, Hsuan provides little guidance on the tougher compliance B. Chen, AUO’s president and chief operating officer, 2 questions. Below is a summary of what the guide and Hui Hsuing, the company’s executive vice president says—and what it does not. of sales, of violating Sherman ActSection 1.4 s Corporate Compliance Programs: The guide pro- At sentencing, Illston rejected the government’s re- quest for a $1 billion fine on AUO, instead imposing a vides a list of ‘‘Hallmarks of Effective Compliance Pro- $500 million fine, which she deemed ‘‘adequate but not grams,’’ a summary of compliance elements listed in excessive’’ in light of the substantial costs already im- prior publications and settled enforcement actions. No- posed on the company.5 Each individual defendant was tably, the guide does not adopt a compliance defense, fined and sentenced to 36 months in prison, substan- but it does state that DOJ ‘‘may decline to pursue tially longer sentences than those received by the indi- charges against a company based on the company’s ef- vidual defendants who pleaded guilty in the LCD panel fective compliance program.’’ investigation. s Books and Records Provision: The guide confirms The jury also acquitted two less-senior executives that a books-and-records provision of the FCPA is sepa- and hung as to Steven Leung, head of the company’s rate and distinct from the bribery provision and that it computer monitor division. Leung was subsequently 6 applies where the company’s books and records do not convicted in December after a three-week retrial. accurately reflect the company’s transactions, assets, and liabilities. Public Corruption s Permissible Expenditures on Gifts, Travel, and En- tertainment: The guide provides several examples Following the report of DOJ’s internal investigation where a company can pay for gifts, travel, and enter- into the prosecution of Sen. Ted Stevens (R-Alaska), re- tainment without violating the FCPA, and it provides a leased in March, DOJ’s Public Integrity Division failed framework for distinguishing between corrupt pay- to redeem itself in the case of former Sen. John Ed- ments and acceptable corporate generosity. wards (D-N.C.), tried before Judge Catherine C. Eagles in the Middle District of North Carolina. DOJ indicted s Credit for Voluntary Disclosure: Most notably, the Edwards on five counts of violating federal campaign fi- guide does not provide clear guidance on the quantum nance laws and one count of conspiracy on the theory of leniency companies should expect to receive from that his image as a devoted husband was integral to his voluntarily disclosing FCPA violations. Instead, the 2008 presidential campaign.7 The government alleged guide repeats many of the general considerations listed that, after Edwards’s mistress became pregnant, he ac- in previous guidance and repeats the common warning cepted approximately $1 million from wealthy donors that ‘‘DOJ and SEC place a high-premium on self- to hide her from the media and improperly failed to dis- reporting.’’ close these payments as campaign contributions. s Intent Requirement for Corporate Liability: De- Edwards’s defense centered on the argument that the fense counsel have argued in several recent cases that funds were not political contributions but simply a way corporate criminal liability under the FCPA requires for friends to help him hide his affair. The central ques- ‘‘willful’’ conduct by individuals. The guide rejects that tion in the case, therefore, was whether the donors gave position, stating, ‘‘Proof of willfulness is not required to the money with the ‘‘purpose to influence an election.’’ establish corporate criminal or civil liability, though Over Edwards’s objection, the court instructed the jury proof of corrupt intent is.’’ The guide does not, how- that ‘‘the government does not have to prove that the ever, provide any useful guidance on how ‘‘corrupt in- sole or only purpose of the money was to influence the tent’’ is measured. election.’’ Despite losing on the instruction point, Ed- wards was acquitted on one count and the jury dead- s Agency Liability: While many hoped that the guide locked on the remaining counts. In June, DOJ dis- 8 would clarify the circumstances under which a corpo- missed the remaining charges against Edwards. rate parent can be held liable for the acts of its subsid- iary, no such guidance was provided. The guide merely 3 United States v. Lin, No. 3:09-cr-00110 (N.D. Cal., March states that a parent company may be held liable for the 13, 2012). violations of its subsidiary under ‘‘traditional agency 4 07 WCR 242 (3/23/12). principles’’ even if the parent is not directly involved in 5 07 WCR 765 (10/5/12). the underlying violation. 6 07 WCR 981 (12/28/12). 7 United States v. Edwards, No. 1:11-cr-00161 (M.D.N.C., May 31, 2012). 2 07 WCR 871 (11/16/12). 8 07 WCR 469 (6/15/12). 1-25-13 COPYRIGHT 2013 BY THE BUREAU OF NATIONAL AFFAIRS, INC. WCR ISSN 1559-3185 3 Intellectual Property Crimes lished in Apprendi v.