Board of Directors

Over-Criminalization and its Effects on Corporate America, Part IV

Richard Levick is Chairman and CEO of LEVICK, which provides strategic communications counsel on high-profile, public affairs and business matters globally. This is the last of a four-part series originally published on (Read Part I, Part II and Part III.)

There is a great irony to writing a column about overzealous prosecutors in the shadow of the first Paul Manafort sentence where it appears by any measure that he secured a remarkably lenient sentence. Yet my recent series in on the disquieting trend toward criminalizing “normal” American enterprise stirred more than a few pointed comments. The most common response? “Have I got a story for you!”

Genuine criminal misconduct is one thing. If a company or an executive knowingly, maliciously, and repeatedly violates the law, they deserve society’s censure, plus jail time if warranted.

But what if their “misdeed” is not the product of willful or malevolent behavior? What if their action would have passed legal muster until very recently? Even worse, what if their prosecution was triggered by an overly ambitious prosecutor looking for a headline and a healthy settlement?

It’s this apprehension that elicited the most comments. The National Association of Criminal Defense Lawyers (NACDL), as well as prominent attorneys, shared a litany of alarming stories. Indeed, NACDL’s analysis reveals that some 95% of all criminal convictions are now obtained through plea bargaining instead of jury trials. Prosecutors know that few companies can afford the expense and the jarring publicity generated by a high-profile trial.

Washington, D.C. attorney Paul D. Kamenar, a public policy lawyer who litigates, lectures, and lobbies on over-criminalization issues, emailed links to the Cato Institute, the Heritage Foundation, the Federalist Society, NACDL, and the U.S. Chamber of Commerce Institute for Legal Reform websites, all focusing on over-criminalization and prosecutorial misconduct.

Kamenar specifically cited the nightmare experiences of two corporate CEOs in the medical field. Todd Farha, a young Harvard MBA businessman and former CEO of WellCare Health Plans, was convicted and sentenced to prison in 2014 for Medicaid fraud, but not because the company provided faulty services. Instead, he was found guilty for not calculating what the government argued was the “proper” amount of Medicaid funds to rebate, which hinged on a vague and confusing regulatory accounting formula. Third-party experts agreed that the interpretation of the refund formula by the CEO, the CFO, and the General Counsel was reasonable. Moreover, there were ample administrative and civil remedies to correct any disputed overpayments, particularly where requisite criminal intent was lacking. The NACDL has a special link with nearly three dozen articles, op-eds, podcasts, and legal briefs devoted to this unfair prosecution. They’re worth a careful read.

Howard Root, the former CEO of Minnesota-based Vascular Solutions, Inc., and author of Cardiac Arrest: Five Heart-Stopping Years as a CEO on the Feds’ Hit-List, spent a half-decade and $25 million (!) in legal fees combating what proved to be a groundless Department of Justice (DOJ) claim that his company was fraudulently marketing a vascular health device. An embittered ex-employee of Vascular had leveled the reckless charge – and DOJ bought into it, ignoring the fact that the device in question had never harmed a patient and represented less than one percent of the company’s overall sales.

After being put through a legal labyrinth, he and Vascular were eventually acquitted of all wrongdoing. Not long ago he sold Vascular for a billion dollars, which must have been a gratifying moment.

“I wish my story was a lightning strike in the perfect storm – a few unscrupulous prosecutors conned by desperate whistleblowers,” Root says today. “But prosecutions like mine are exploding across the United States. When prosecutors can use false criminal charges to destroy everyone except the few wealthy and unbroken defendants like me, then virtually everyone is in danger – even if you’ve done nothing wrong.”

Have we entered a period where only the exceptionally wealthy can defend themselves against the state, regardless of the charge? And, worse still, are we reaching a tipping point where the very fear of long-arm prosecution will deflate capitalism’s beating heart? I grew up professionally in the Ralph Nader consumer network and always trained to defend the citizen, not the corporate executive. If you have someone like me scratching their head, we may be well past the tipping point.

Among the businesspeople who find themselves caught in Root’s “perfect storm” of legal jeopardy are corporate executives like Farha who have adhered to the advice of in-house counsel. What was previously deemed “routine” or “innocuous” is, in today’s litigious climate, seen by overzealous prosecutors as unlawful – or grounds for a high-profile settlement. In other words, following the advice of counsel is no guarantee of liberty, even when good faith is never in question.

“With over 4,450 crimes scattered throughout the federal criminal code, and untold numbers of federal regulatory criminal provisions, our nation's addiction to criminalization backlogs our judiciary, overflows our prisons, and forces innocent individuals to plead guilty not because they actually are, but because exercising their constitutional right to a trial is prohibitively expensive and too much of a risk,” maintains NACDL. “This inefficient and ineffective system is, of course, a tremendous taxpayer burden.”

The burden extends beyond taxpayers. As Scott D. Marrs, Akerman’s Regional Managing Partner – Texas and our collaborator on the over-criminalization series, puts it: “Not many clients have the unlimited resources and thickness of skin to get into a nasty trial climate. Often the percentage move is to agree to a settlement – even if the client hasn’t done anything unlawful. That’s not a healthy situation for anyone.”

It also may not be healthy that certain corporations have taken to hiring former prosecutors to help them avert unfair prosecutions.

These former prosecutors appear to be preaching voluntary disclosure – urging companies to be as upfront and transparent as possible. The fewer corporate activities seen as furtive, the greater the likelihood that prosecutors will look elsewhere. Transparency always carries a degree of risk; but the risk associated with opacity is, in this instance, far greater.

“As far as deciding which firms to prosecute,” observes Professor Eugene Soltes, an Associate Professor of Business Administration at Harvard Business School and the author of Why They Do It: Inside the Mind of the White-Collar Criminal, “I think the biggest shift has been around voluntary disclosure – especially in the context of the Foreign Corrupt Practices Act (FCPA). Firms that bring such issues to prosecutors can qualify to not be charged if they are fully transparent. This is an important shift in policy and changes the calculus about how firms approach some of these issues.”

Achieving a level of voluntary disclosure that might dissuade a prosecutor from launching an investigation is easier said than done. What other steps can companies take to try and inoculate themselves?

First and foremost, companies shouldn’t go it alone. Retain expert legal and communications counsel, and engage all key senior leaders, beginning with the general counsel’s office, public affairs, communications, and marketing.

Second, the CEO and the GC need to dictate from day one that the fewer non-transparent activities, the better. Sure, there are proprietary initiatives and secret-sauce recipes that can’t be exposed to sunlight, but they should be few and far between.

Third, don’t wait until something unsavory happens: move now, during peacetime. Once the charge has gone public, it’s too late.

Fourth, and this requires some collective action, join with associations, law professors, former prosecutors, and think tanks such as those mentioned above, as well as others known for their free enterprise and judicial fairness views, and articulate the need for balance. Produce videos to help dominate the search engines so that the challenge of overzealous prosecution becomes a national cause more than the sound and fury of a single victim. The overregulation argument is an old saw that has lost a lot of its firepower because it was used for decades as an argument against all regulation. Show the negative impact on jurisprudence, business, the public trust or public policy, not just the potential negative impact on a single company or executive. The larger the risk to other audiences, the more likely the issue is to gain traction and sympathy.

Finally, collect and publicize the most egregious examples; rather than allowing selfish prosecutors to dominate headlines, try to engage the public square with capitalism’s reliance on fairness, not intimidation, as the lodestar. Applaud proper prosecutions and argue for some regulation while changing the national dialogue to address the discretion and intimidation that have become prosecutorial weapons rather than scales of justice. This strategy was adopted a few years ago by the FCPA defense bar, which substantially changed the national dialogue.

Amid the FCPA debate, DOJ and Securities and Exchange Commission (SEC) lawyers increasingly saw a “don’t over-prosecute” message every time they searched the Internet. If you want to impact collective behavior, there is no more powerful way than to influence search results; videos do that faster than anything. But you need to coordinate this with other companies, former prosecutors, thought leaders, business executives, and law professors. No one company can do this alone.

Are unwarranted prosecutions the scourge that Kamenar, Farha, Root, Marrs, and others fear? Trends certainly appear to be heading in that direction. Before a nasty prosecution heads your way, you ought to take some constructive steps.

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