On September 9, 2015, Deputy Attorney General Sally Q. Yates issued a memorandum outlining “six key steps” department attorneys must take in corporate investigations, particularly when handling misconduct. Among these steps, the memorandum made eligibility for any cooperation credit conditional on the corporation providing information that identified individuals in the organization responsible for the violations. Ms. Yates went on to explain the importance of “deter[ing] corporate misdeeds, hav[ing] a real impact on corporate culture and ensur[ing] that the public has confidence in our justice system.”
National Borders Create Barriers to Corporate Misconduct Investigations
Business Judgment Rule Tentatively Prevails in Case against Dewey & LeBoeuf Executives
In 2012, the New York based law firm Dewey & LeBoeuf made headlines by filing for Chapter 11 bankruptcy. The firm, which was among Vault.com’s Top 50 Law Firm Rankings from 2009 to 2012, employed more than 1,400 attorneys across fifteen countries before announcing its collapse. Since the announcement, Dewey’s top managers have been at the center of both a criminal and civil lawsuit after allegations surfaced that they had made fraudulent accounting representations to obtain funding.
Dewey & LeBoeuf’s problems began shortly after its inception in 2007, when Dewey Ballantine and LeBoeuf, Lamb, Greene & MacRae combined in the largest law firm merger to date. The new firm quickly became a powerhouse in the legal industry, representing high-profile transactions for clients such as A.I.G., BP, JPMorgan Chase, Disney, Dell and eBay. The firm built this enviable list of clientele largely by making “lateral hires,” the practice of drawing high profile lawyers from other firms by extending highly profitable contracts. One such hire was Ralph Ferrara, a successful securities litigator that Dewey was able to lure with an annual salary of $1.6 million and signing bonus of $16 million.
The White Collar Defense Dilemma: To Testify or Not?
The question of whether or not a defendant should take the stand remains a rightfully contested issue for legal professionals in the practice of white collar criminal defense. With no clear empirical evidence to suggest an advantage from this nuanced decision, lawyers are racked with the quandary of predicting how their client(s) would handle the high stakes of cross examination and direct jury exposure in legal matters that turn mostly on a defendant’s perceived credibility and motives at the time of the alleged crime.
Back in late October, a federal court in the Southern District of New York heard oral testimony from Anthony Allen, former head of global liquidity and finance at Rabobank and lead defendant in the first US criminal trial of traders involved in the London interbank offered rate (Libor) interest rate scandal. The prosecution questioned Allen regarding a number of communications made between him and traders in the bank. In one instance, Allen had responded in a message to a trader, “No worries mate, glad to help.” Allen contended that the response was simply a dismissal to the trader that he was not going to comply with the request, which Allen testified as “not right.”
Justice Department Files Antitrust Lawsuit to Block GE-Electrolux Merger
On July 1, 2015, the Department of Justice filed suit under federal antitrust statutes in the U.S. District Court for District of Columbia against AB Electrolux for its attempt to acquire General Electric for $3.3 billion, halting the potential buyout. The Department of Justice alleges that the multinational corporation’s buyout of GE would combine the two largest appliance manufacturers of ranges, cooktops, and wall ovens, effectively diminishing vital market competition.
Deputy Assistant Attorney General Leslie C. Overton of the Antitrust Division announced that the lawsuit “seeks to prevent a duopoly in the sale of major cooking appliances,” since allowing the merger would leave Electrolux and competitor Whirpool with control over 75% of U.S. sales. The DOJ contends the lack of competition would leave millions of American citizens and families vulnerable to major price increases in two major ways: directly for homeowners and indirectly for property lessees who will pay higher rents as a result of commercial builders passing off the costs of higher unit costs.
Ex-Morgan Stanley Adviser Pleads Guilty in Connection with Data Breach
A former financial advisor for Morgan Stanley, Galen Marsh, pleaded guilty last week to one count of unauthorized computer access in connection with one of the largest data breaches of a private wealth management company.
Between 2011 and 2014, Marsh uploaded sensitive financial information—including names, addresses, bank account numbers, and investment information—of over 350,000 Morgan Stanley clients to his private computer.
In late 2014, data from 900 Morgan Stanley clients appeared online at Pastebin.com, an open file sharing website known for leaking confidential information, including the hacking of Sony Pictures. The breached data did not include “critical” information such as social security numbers or account passwords, but cyber security expert Darren Hayes of Pace University told the Wall Street Journal that it could provide an “important first step” for identity thieves to create duplicate identities. According to Morgan Stanley, there have been no reports of financial loss from the breach.
An Important First Step: The DOJ’s New Response to White-Collar Crime
Last week, the Justice Department announced new policies for prosecuting corporate employees. This was in response to criticism the DOJ received for failing to indict enough bankers in the wake of the recent financial crisis. Indicting these individuals can be very difficult and many of the challenges facing prosecutors still remain despite the new policies outlined. “White-collar cases are hard to prove, because they’re very complex and if you don’t have direct evidence of fraud, there’s room for arguments on both sides,” said David O’Neill, former acting head of the criminal division of the Justice Department in Washington.
The financial system is also growing increasingly more complex and global, which adds further strain on the DOJ—an organization with the majority of its limited resources allocated for fighting terrorism instead of white collar crime.