Here Come the Corporate Prosecutions
DOJ Demonstrates It Is Matching Bold Rhetoric with Action
To deter corporate crime, the Justice Department must start bringing more prosecutions of both the corporations themselves and culpable individuals – especially executives and other high-ranking officials who are responsible for the conduct of their subordinates.
The good news is: a fresh surge in corporate prosecutions demonstrates the DOJ is doing just that.
This week, the DOJ announced that Glencore International A.G., a multinational mining and commodity trading corporation, and its U.S.-based subsidiary, Glencore Ltd., pleaded guilty to foreign bribery and market manipulation crimes. The corporation will pay over $1.1 billion in fines and be supervised for three years by a corporate monitor.
A senior oil trader pleaded guilty to engaging in the market manipulation crimes. While foreign bribery portion of the announcement named no individuals, it states the investigation is ongoing and includes a quote from U.S. Attorney Damian Williams – the Southern District of New York’s top prosecutor – saying that the foreign bribery occurred “with the approval, and even encouragement, of its top executives.” That is to say, this announcement may well not be the final word on the matter.
“The rule of law requires that there not be one rule for the powerful and another for the powerless; one rule for the rich and another for the poor,” noted Attorney General Merrick Garland in his statement. “The Justice Department will continue to bring to bear its resources on these types of cases, no matter the company and no matter the individual.”
Last week, the DOJ indicted the US subsidiary of multinational financial corporation Allianz Global and three of the corporation’s high-ranking officials for defrauding institutional investors – that is to say, pools of working Americans’ retirement savings. Two Allianz officials entered plea agreements with the DOJ, as did the corporation itself, which pleaded guilty to a felony count of securities fraud and agreed to more than $5 billion in criminal fines and restitution. A third official, the subsidiary’s chief investment officer, is contesting the charges in court.
Deputy Attorney General Lisa Monaco made the connection with the department’s strengthened corporate crime enforcement policy explicit, stating:
I previously warned that the Department of Justice would crack down on corporate crime, without regard to size, salary, or other privilege. [...] Other corporations should take note that the results here are driven in part by the fact that this company failed to self-report their crimes. The Department stands ready to keep bringing these kinds of charges to assure the public that no one is above the law.
Additional notable recent corporate prosecutions from the past month include:
Didion Milling Inc., which was indicted for workplace safety violations that resulted in an explosion that killed five workers. Members of DMI’s management also were indicted; two supervisors have pleaded guilty.
Archegos Capital Management owner and founder Bill Hwang, who along with three others were charged with fraud and racketeering offenses in the aftermath of the firm’s multi-billion-dollar collapse.
Florida Power Company, which pleaded guilty to workplace safety violations that led to an explosion that killed five workers.
American Eel Depot Corporation, which with eight of its employees was indicted for wildlife trafficking of endangered eels.
Of course, corporations and individuals who are charged but have not pleaded guilty or been convicted are presumed to be innocent until proven guilty. Thankfully, the DOJ now appears not to be backing down from cases that must go to trial.
“We are not part of the Chickenshit Club,” DOJ antitrust division head Jonathan Kanter recently declared, a reference to accusations in the past that DOJ prosecutors were afraid of charging only the simplest, slam-dunk cases (and Jesse Eisinger’s excellent book).
The best way to prove Kanter right: keep the corporate prosecutions coming.
Big Business Blotter News Roundup
The Securities and Exchange Commission is probing Mr. Musk’s tardy submission of a public form that investors must file when they buy more than 5% of a company’s shares, the people said. The disclosure functions as an early sign to shareholders and companies that a significant investor could seek to control or influence a company. The Tesla Inc. chief executive made his filing on April 4, at least 10 days after his stake surpassed the trigger point for disclosure. Mr. Musk hasn’t publicly explained why he didn’t file in a timely manner.
Cerebral Inc., the online mental-health company, said on Saturday it has been subpoenaed by federal prosecutors as part of an investigation into possible violations of the Controlled Substances Act. [...] The Wall Street Journal reported in March that some of Cerebral’s nurse practitioners said they felt pressured by the company to prescribe stimulants and that they felt the company’s 30-minute patient evaluations weren’t long enough to properly diagnose ADHD.
LinkedIn finally settled a complaint with the U.S. Department of Labor over allegations that it underpaid 686 women workers at its California offices from 2015 to 2017. That $1.8 million is equivalent to back wages for the employees plus interest over time, the DOL said in a release. Of course, as per the conciliation agreement, the settlement maintains LinkedIn is not admitting to any wrongdoing.
The company “cheated millions of low-income Americans out of free tax filing services they were entitled to,” Ms. James said, adding that the settlement, signed by the attorneys general of all 50 states and the District of Columbia, was a clear reminder to companies that “deceptive marketing ploys” are illegal.
Now Khan has the leeway to pursue a potential antitrust suit against Amazon, crack down on employers’ non-compete agreements and go after middlemen blamed for increasing pharmaceutical prices — while taking steps to protect consumer privacy. And she may be able to cause headaches for Elon Musk’s deal to buy Twitter. It’s all part of an aggressive anti-monopoly and consumer-protection agenda that has elated progressive activists and angered many Republican lawmakers since Khan took the helm of the agency in June.
The Federal Trade Commission used its Penalty Offense Authority today to take action against national retailers Kohl’s, Inc. and Walmart, Inc. for falsely marketing dozens of rayon textile products as bamboo. Both companies also are charged with making deceptive environmental claims, touting that the “bamboo” textiles were made using ecofriendly processes, while in reality converting bamboo into rayon requires the use of toxic chemicals and results in hazardous pollutants. The Commission has asked the court to order Kohl’s and Walmart to stop making deceptive green claims or using other misleading advertising, and pay penalties of $2.5 million and $3 million, respectively, by far the largest penalties in this area.
The Consumer Financial Protection Bureau (CFPB) finalized an enforcement action against Bank of America for processing illegal, out-of-state garnishment orders against its customers’ bank accounts. Bank of America unlawfully froze customer accounts, charged garnishment fees, garnished funds, and sent payments to creditors based on out-of-state garnishment court orders that should have been processed under the laws and protections of the states where the consumers lived. Bank of America also violated the law by inserting unfair and unenforceable language into customer contracts that purported to limit customers’ rights to challenge garnishments. The CFPB’s order requires Bank of America to refund or cancel imposed fees from unlawful garnishments, review and reform its system for processing garnishments, and pay a $10 million civil penalty.
The Securities and Exchange Commission today charged BNY Mellon Investment Adviser, Inc. for misstatements and omissions about Environmental, Social, and Governance (ESG) considerations in making investment decisions for certain mutual funds that it managed. To settle the charges, BNY Mellon Investment Adviser agreed to pay a $1.5 million penalty. The SEC’s order finds that, from July 2018 to September 2021, BNY Mellon Investment Adviser represented or implied in various statements that all investments in the funds had undergone an ESG quality review, even though that was not always the case.
So we have a compliance officer raising allegations about JPMorgan’s compliance program; and JPMorgan essentially answering that, yeah, whatever, this ex-employee was so bad we had a legitimate motive to fire her no matter what. The “what” being compliance program weaknesses while the bank was under a non-prosecution agreement for FCPA violations.
The Biden administration is going to phase out deferred and non prosecution agreements? “There is a slight chance. A number of law professors, including myself, met with the Deputy Attorney General. That was a theme several of us raised. The first significant reform would be to end non prosecution agreements. With deferred prosecution agreements, there should be significant changes.”
In a January 2021 news release, the leader in the department’s criminal division, David P. Burns, said the resolution of the case “holds Boeing accountable for its employees’ criminal misconduct.” But in a legal filing this year, and in a Texas courtroom this week, the Justice Department argued that the 346 people killed when Max planes crashed in Indonesia and Ethiopia are not “crime victims” under federal law.
Environmental justice advocates on Thursday cautiously welcomed the federal government's new plan to deliver on some of U.S. President Joe Biden's campaign promises to hold polluters accountable and better serve disproportionately impacted communities.
Johnson & Johnson faces around 38,000 claims from people with ovarian cancer or mesothelioma who allege that the company’s talc products caused their illness. But Johnson & Johnson’s use of the ‘Texas Two-Step’ means that those 38,000 cancer victims no longer are able to bring their claim against the company.
“While building a cryptocurrency platform that profited him millions of dollars, Arthur Hayes willfully defied U.S. law that requires businesses to do their part to help in preventing crime and corruption. He intentionally failed to implement and maintain even basic anti-money laundering policies, which allowed BitMEX to operate as a platform in the shadows of the financial markets. This Office will continue to vigorously enforce United States law intended to prevent money laundering through financial institutions, including cryptocurrency platforms.”
The landmark prosecution of cryptocurrency derivatives platform BitMEX, which saw the Justice Department and CFTC bring actions against the company and its founders, is likely the first of many such actions, Gretchen Lowe, acting director of the CFTC’s enforcement division, said Wednesday.