Former U.S. Independent Counsel Shares Views On White-Collar Issues

Editor: You have had a very distinguished career. Tell us about some of the highpoints?

Ray: What has had the greatest impact on my career, which really set the stage for everything else, were the 13 years that I spent as a federal prosecutor. The most unusual aspect of that was that half of that time was spent in the U.S. Attorney's Office in the Southern District of New York. The other half was spent in Washington D.C. in independent counsel investigations. Unlike many former federal prosecutors, I've actually spent a fair amount of time in more than one district. Indeed, the independent counsel investigations had nationwide dimensions. They enabled me to participate in aspects of federal law enforcement of great consequence to the body politic. Then both before and after that I've spent time in private practice. First with a big firm, Brown & Wood, which eventually became Sidley Austin Brown & Wood, for a couple of years before beginning my prosecutorial career; and more recently at Pitney Hardin in Morristown, New Jersey, and now at Kelley Drye & Warren LLP. I am currently a partner in Kelley Drye's Parsippany, New Jersey office, where I have been since November of last year.

Editor: What has been the effect of Sarbanes-Oxley and its progeny on white-collar practice?

Ray: Four years ago, I returned to the private sector at almost exactly the time that Sarbanes-Oxley was enacted. Sarbanes-Oxley and related legislation and regulations have created an environment that has not only affected me but other former federal prosecutors by creating a tremendous demand for white-collar practitioners. There were people who did white collar work at many of the larger firms, but now a white collar practice has become a fixture at all the major law firms and even some of the smaller ones. Corporations across the country now expect that kind of expertise among the menu of choices they expect their law firms to offer.

Editor: What is your analysis so far of the handling of the trial of Skilling and Lay?

Ray: The prosecutors resisted the temptation that always exists in such a high profile case to base their case on overbroad allegations and have presented their side fairly cleanly. It also doesn't surprise me that both defendants will testify in their own defense. Typically in a white-collar case of this importance, juries have an intense interest in hearing from the defendants. You've got skilled counsel on both sides in what is the prosecution of the decade in the white-collar world.

It will be very interesting to see how the jury evaluates the case. Unlike the world that existed a decade ago, allegations that business leaders mismanaged their companies in ways that benefited them to the detriment of shareholders have real impact on ordinary jurors' lives. With the proliferation of 401(k) plans and the conversion of retirement plans to those with benefits based on stock valuations, wrongdoing by corporate management now has an adverse impact on ordinary people.

There was a time when jurors could dispassionately view white-collar crime as simply involving money changing hands in corporate America. Now their very futures are intertwined with the outcome of such trials and the lessons they send to executive suites throughout the country. People do care and those in Texas are directly affected, not only by reason of their pensions but also because the collapse of Enron had a significant impact on the economy of Houston and their lives and the lives of their neighbors. It is a very difficult time and place from the defense perspective to try a white-collar case.

Editor: A major concern of corporate America is the threat of prosecutorial action at a federal and/or state level. How should corporations react after learning of an event that might trigger such action?

Ray: Responsible companies that are good corporate citizens know that in today's environment the public expectation is that they will respond promptly, comprehensively, and appropriately. They recognize that failure to do so could bring about serious collateral consequences.

Editor: What should be done to protect work product created in connection with an internal investigation of the causes of the event that triggered prosecutorial interest?

Ray: Those who memorialize the results of the investigation should assume that they will reach the eyes of the prosecutor and therefore be cautious about how those results are expressed. Since it is highly likely that interviews with key employees and others will be turned over to the government, it is important that they not be interspersed with the interviewers' mental impressions and legal conclusions. And, true legal advice should definitely be kept separate. Therefore, because the government may agree to a limited waiver, you should separate those items that the government would inevitably want from items that the government might agree are excluded from the waiver, such as legal advice and mental impressions. This should limit the damage in the event that information made available to the government becomes available to civil litigants.

Editor: Are you concerned about the extent to which a showing of criminal intent ( mens rea) is being eliminated from statutes relating to white collar crime?

Ray: While Congress may make attempts to remove the mens rea from criminal statutes, there will (and should) be a push back from the judicial branch within our system of checks and balances and separation of powers. You have already seen evidence of this in the Supreme Court's reaction in the Arthur Andersen case. In eliminating the mens rea requirement, Congress and state legislatures are bumping up against centuries of legal tradition that you don't convict somebody of a crime unless they had criminal intent.

Editor: Settlements have been entered in the Enron and WorldCom cases where directors of those companies were required to make significant payments.

Ray: There is no question that if directors' personal assets are at risk and they can't rely on the business judgment rule, you are going to have very few people left that will ever agree to serve as directors - and it would be completely foolhardy for them to do so. The responsibilities of board members are going to be enhanced and appropriately so. They are going to be more vigilant now than they would have been five or ten years ago. On the other hand, we can't expect good people to serve if they are subjected to personal liability for making decisions in good faith that turn out to have been wrong only with the benefit of hindsight.

Editor: Should a corporation enter into a non-prosecution agreement that requires a company, notwithstanding contracts or bylaws providing for the indemnification of legal expenses, to withhold reimbursement of such expenses from officers, directors and employees?

Ray: I believe that such a demand is unconscionable and represents overreaching. There is an awful lot of resistance in negotiating such agreements and more of an effort should be made to object to such a demand.

A balance eventually will be achieved. Right now, the balance has tipped very far in favor of prosecutors. Companies have shied away from trying to tackle prosecutors when they insist that certain employees be cut off. On the other hand, taking such an extreme position with regard to essentially anybody that the government decides to cut off is something that corporations are going to seek increasingly to resist.

I don't know where this is going to land eventually, but what I do know is that eliminating indemnification given the sound corporate policy underlying such arrangements is really going to result in a lot more angst from the business community. My sense is that the pendulum is going to swing back and that the government is going to have to get used to the notion that they shouldn't be demanding that a company pull the rug out from underneath its own employees and that the presumption of innocence still applies.

Editor: Numerous corporations have entered into non-prosecution agreements that include a government appointed monitor to oversee the compliance efforts of a corporation. Do you anticipate a push back here as well?

Ray: I don't think that it is good practice for the federal government to be in the business of running businesses. It is an extreme measure that should be reserved for very rare cases. Prosecutors know how to prosecute and businesses know how to run a business. While I understand that prosecutors are capable of bringing in experts from the outside to review things, I don't think that it is a good practice for the federal government to essentially take over an important business function under the guise of its enforcement authority. It is a serious encroachment across the dividing line between what government is supposed to be doing in our society and what the free enterprise system is supposed to be doing. These kinds of incursions by the government into the private sector should not become commonplace.

There will be a backlash as the full magnitude of the government's micromanagement of business activities becomes better known. We are still riding the wave of public revulsion about the business abuses revealed in the scandals, but we know from history that attitudes change over time. The focus has started to shift. The most obvious example is the mounting concern about the additional expenses incurred by smaller businesses as a result of Sarbanes-Oxley. With respect to abuse of prosecutorial power, the question is what an appropriate course correction should be - but we can be confident that the pendulum will swing back toward the center. The only thing we don't know is how far.

Editor: You recently joined Kelley Drye. Why do you feel it provides the ideal setting for using your talents?

Ray: It is an old line New York firm with a great reputation, and it allows me to continue practicing law with a base in New Jersey. Since its mothership is in New York, it has allowed me to expand my practice internationally, including handling matters involving the Foreign Corrupt Practices Act and the international implications of Sarbanes-Oxley.

Published May 1, 2006.