Recent Activities

CRIMINAL CORPORATE LIABILITY AND WHAT THE TEXAS ATTORNEY SHOULD KNOW

By
ROBERT S. BENNETT
Houston, Texas

REPRINT FROM

TRIAL
LAWYERS
FORUM

VOLUME 22, NUMBER 4,1988

Criminal Corporate liability and what the Texas attorney should know.

Robert S. Bennett

Corporate or business crime, or what is more frequently referred to as white-collar crime is as old as horse-trading, but it continues to take on new forms with the “advancement” of society and technology.

The landmark study in this field was published by Edwin H. Sutherland in 1949 and entitled White-Collar Crime.1 Attempting a definition of the converse of “street” crime, Sutherland wrote “ ... white-collar crime may be defined approximately as a crime committed by a person of respectability and high social status in the course of his occupation.” 2 Sutherland introduced this definition with comments that these white-collar crimes are violations of law by persons in the “upper socio-economic class.”3

Generally, white-collar offenses do not involve acts of violence. There are no smoking guns, no blood-stained knives, and no wails of police sirens associated with their commission. There is an excellent likelihood that the white-collar offender, in many instances, is not even aware that the law is being broken.

Like violent street crimes, however, white-collar crimes can (and usually do) have certain elements, including (a) a victim, even though the victim may be the United States government or a "sophisticated" entity like an international bank, (b) innocent parties falsely accused, and (c) those directly involved, who may be skeptical of our criminal justice system.

As legal concepts, the terms “white-collar crime” or “corporate crime” have no real significance. The term “white-collar crime” is not found in any criminal code or statute. Definitions of white-collar crime that supplement Sutherland's definition generally stress one of three major characteristics of nonviolent offenses: (a) their frequent commission by persons of respectability and high standing: (b) their occurrence in connection with and during the course of the offender's legitimate occupation; and (c) their nonviolent nature and their consummation through deceit, concealment, or breach of trust.

In 1976 the Assistant Attorney General, Criminal Division, of the United States Justice Department wrote:

However one defines white-collar crimes, they demand our (prosecutors’) close attention. Public losses from these offenses far exceed the combined losses sustained from more publicized crimes such as robbery, burglary, and extortion. Although precise total loss figures are almost impossible to compile, the United States Chamber of Commerce estimated that in 1974 the public loss from white-collar crimes was a staggering $40 billion-some two hundred times the amounts ... stolen by all the country’s bank robbers in the same year!

There is no evidence that this figure has declined since 1974.

In the 1970s, corporate giants such as Lockheed and I.T.T. became involved in bribery scandals. The post-Watergate era produced new laws and an awareness on the part of prosecutors that highly placed government and business officials were committing criminal acts. More recently, Time magazine featured an article on "Crime in the Suites."5 The article’s opening sentence stated: "The way things are going. Fortune may soon have to publish a 500 Most-Wanted list.”6 The article continued:

During the past few months, the news has been filled with tales of business schemes and scandals, of corporate intrigue and downright crime. The offenses make up a catalog of chicanery: cheating on government defense contracts, check-writing fraud, bogus securities dealing, tax dodoes, insider trading, and money laundering. Among the culprits, General Electric, E. F. Hutton. Bank of Boston, and General Dynamics. Once powerful and respected executives, including Jake Butcher, a Tennessee banker, and Paul Thayer, former LTV chairman and, under President Reagan. Deputy Secretary of Defense, are now facing the humbling prospect of spending several years in prison. Probably no area has drawn prosecutorial scrutiny like government contracts or the defense business. Altogether, 45 of the 100 largest U.S. military suppliers are under criminal investigation. In May 1985, General Electric, the sixth largest military contractor, pleaded guilty of defrauding the Air Force of $800,000 in 1980 on a Minuteman Missile project. The heightened notoriety of corporate and white-collar crime has given rise to greater prosecutorial emphasis, and, without doubt those individuals in businesses who truly believe that a criminal investigation would never touch them are now being dragged into court.7

Numerous changes in the law, as well as heightened prosecutorial and congressional interest, clearly demonstrate that the government plans to increasingly rely on criminal law as a means for controlling corporate misconduct. Corporate lawyers and businessmen must realize the tremendous range of exposure faced by corporations and their officers.

This article attempts to provide background information and recommendations that should prove helpful to a corporation and its attorneys in evaluating its potential criminal liability and to individuals who may have engaged in illegal activity without being aware of the consequences of their actions. As a former federal prosecutor who is now a defense counsel in numerous white-collar cases, I strongly recommend consulting with an experienced criminal lawyer as soon as possible regarding any possible illegal activity. How one handles a criminal matter in its inception can have a profound effect on the results obtained.

INVESTIGATION AND PROSECUTION
If a corporation is to operate successfully and free from government interference in this day and age, the management of the corporation must be aware of the applicability and effect of current criminal law to their operations, whether or not the corporation is currently under governmental investigation, and the identity of the investigative governmental body that may be intruding into its private affairs. This knowledge will enable the management of the corporation to respond to investigative inquiries and to devise an overall strategy that can ethically and legally protect the corporation's interest. Federal, state, county, and municipal government units have certain responsibility for the prosecution of corporate crime. There is often concurrent jurisdiction of white-collar and corporate crime at all levels of government.

Federal jurisdiction is based, however, only on violations of specific statutes. This jurisdiction extends to such diverse areas as the following partial listing: antitrust violations, tax violations, mail fraud, consumer fraud. Fraud arising out of government procurement programs, securities fraud, water pollution, violations of the Truth-in Lending

Act, Food and Drug Act violations, and election law and Corporate Practices Act violations.8 Ultimate federal jurisdiction rests with the United States Department of Justice, which operates mainly through its 94 United States Attorneys, but investigative jurisdiction is significantly more widespread.

Every government department (thus, every cabinet officer) has specific responsibilities for criminal investigations in the white-collar or corporate crime area.9 More specific investigator and referring responsibilities are within particular independent agencies, such as the following: Securities and Exchange Commission, Board of Governors of the Federal Reserve System, Veterans Administration, Interstate Commerce Commission, Federal Communications Commission, Federal Deposit Insurance Corporation, Federal Trade Commission, General Services Administration, Office of Economic Opportunity, and Small Business Administration.10

One must never overlook, however, the fact that criminal investigations at the federal level are often the other side of the coin with respect to civil proceedings. An innocuous administrative matter can rapidly turn into a full-blown criminal investigation if the right facts are discovered. Thus, most criminal referrals by the Securities and Exchange Commission follow administrative proceedings or judicial applications for injunctions; investigations by the Federal Bureau of Investigation of fraud cases may result in civil fraud cases following or in lieu of criminal prosecution: investigations by the Agency for International Development may result in civil proceedings following or in lieu of criminal proceedings; investigations by the Department of Defense or the General Services Administration may result in a contract termination or debarment, to be followed by criminal proceedings; investigations by the Enforcement Division of the Interstate Commerce Commission may result in loss of motor carrier rights and criminal investigation.11

Recently Bennett & Broocks received a telephone call from a Chicago law firm requesting our assistance in defending a Houston business under investigation by the Harris County District Attorney's Office, the Texas Attorney General's Office, and the United States Secret Service. Our new client was in the telemarketing business of selling travel vouchers to individual customers. Numerous complaints that were not properly handled resulted in a raid by the agencies and a confiscation of equipment and documents by the use of a state search warrant.

The Texas Attorney General's Office took the lead in the investigation and conducted administrative depositions of the company’s employees, as part of the discovery process that is allowed in administrative proceedings. Once the depositions were completed, the seized documents analyzed, and other interviews of potential witnesses conducted, the Attorney General decided to seek an injunction against the client under the Texas Deceptive Trade Practices Act.

Faced with a defensible case, but an expensive and long legal battle, a consent decree was agreed upon with no admission of liability. The business paid a fine, made some changes in its business procedures, and was able to continue in business.

But after the state action was concluded, the business had to face a civil injunction action by the Federal Trade Commission in Chicago. Simultaneous with the FTC action, a federal grand jury was investigating the business in Indianapolis. These multiple or seriatim investigations and prosecutions are referred to as "parallel proceedings.”12

In my fourteen years of experience with the federal and state legal systems, I have generally found that white-collar or corporate crime is usually investigated by the federal government. As opposed to other investigative agencies of a municipal or state government, the federal government has larger investigative resources, better trained agents, nationwide jurisdiction, and certain international reciprocity. This does not mean, however, that state and local agencies do not conduct similar investigations. Thus, consumer frauds may be investigated by the attorney general of a particular state, by a district attorney of a particular city or county, or by state or local police. Banking violations may be investigated by a state banking agency or by the police at any level. Breaches of trust by attorneys may be investigated by police, bar associations, or special hearing examiners appointed by the judiciary on application by bar associations.

Investigations are also conducted by numerous private organizations. For example, the Furniture Manufacturers' Credit Association in High Point, North Carolina, maintains liaison with the Federal Bureau of Investigation, the United States Postal Service, and the criminal division of the United States Department of Justice. Private organizations often conduct preliminary investigations of putative bankruptcy frauds in order to trigger formal government investigations and prosecutive action. Better Business Bureaus, associations of credit organizations, and various consumer groups are also involved in private investigations.13 within the private sector. American Express Company has an efficient, computerized security office to protect the integrity of its credit card, money order, and banking operations. American Telephone and Telegraph also has similar facilities that are utilized in criminal enforcement.14

For an additional example, the largest insider trading scandal in history was discovered in 1986 through the initial investigative efforts of the compliance unit of Merrill Lynch Pierce Fenner & Smith, Inc. in New York. A tip led the compliance investigators to question the trading of two Merrill Lynch salesmen in Caracas, Venezuela. This lead revealed a connection to Bank Leu of Switzerland, which turned up the name of Dennis B. Levine of Drexel Burnham Lambert, Inc. Levine later named Ivan F. Boeskv.as an inside trader, and Boeskv was fined $106 million by the SEC for his illegal activities and pleaded guilty to one five-year felony count.

DETECTION OF CORPORATE AND WHITE-COLLAR CRIMES
The criminal activities of a corporation or an individual within a corporation or other business are usually detected by the following three means: complaints by victims, tips from informants, and affirmative searches for violations by law enforcement agencies.

In many instances, corporate crimes arc based upon predictable delays in a victim's awareness that he has been defrauded. For example, and desert land was sold by mail for millions of dollars in reliance that few purchasers would quickly travel from the East to parched areas of Arizona or Nevada to see their expensive oasis. Ponzi schemes, in which investors are promised significant profit returns on their investments, involve the payment of such returns from the capital investments of subsequent investors. Some of these schemes continue for years, with a dozen sequential investing groups having losses that often amount to millions of dollars when the schemes eventually collapse. Consumer schemes rely on perpetual delay in victim realization, as do chain referral schemes, work-at-home schemes, fraudulent self-improvement schools, advance fee schemes, and credit card frauds.15

Statistics reveal that many victims never report their losses. Once the victim knows or suspects that he has been criminally wronged, he must first decide whether to complain to law enforcement authorities and then where to lodge a complaint. This period of delay allows a corporation or business that is aware of the wrong the opportunity to forestall the matter going public. If a wrong can be made right at this point, there may be no need for further investigation.

From the law enforcement perspective, this is seen as a crucial stage for several reasons: (a) if the victim does not complain of an alleged crime, the crime will go unheeded, and the possibility exists that others may suffer a similar fate, (b) the success of white-collar prosecution depends on a showing of criminal intent, inferable from the circumstances-which often means a showing of similar acts and transactions (the number of complaints will, therefore, play a key role in the prosecutive evaluation and in the ultimate success of a prosecution) ; and (c) if there are not clear procedures for complaints, then complainants may very well cease their efforts after unsuccessful initial attempts to reach appropriate law enforcement officials.16

Informants are an established detection resource with respect to certain white-collar crimes, such as tax or customs violations, in which the reward or bounty system is employed. Informants also play a role, though a lesser one, with respect to violations of securities laws, violations of banking laws, and frauds against the government. Informants are also used extensively in any crime that is drug-related or where money-laundering or currency violations occur.

Affirmative searches for violations by law enforcement personnel are widely used in business crimes or crimes incidental to or in furtherance of business operations. The -Antitrust Division of the Department of Justice as well as the Federal Trade Commission maintains oversight with respect to mergers, trade association activities, and pricing policies of dominant firms in important markets, internal Revenue Service and state tax authorities strive to more carefully audit large returns. The Department of Agriculture and the Food and Drug Administration make qualitative and quantitative examinations of food and drug products. The Securities and Exchange Commission examines new stock issues and monitors over-the-counter and exchange trading.

Most recently, the Department of Defense, working cooperatively with the fraud division of the Department of Justice, has developed a Defense Procurement Unit to focus on fraud in government contracts.17 In 1985 the Department of Defense debarred b52 contractors from competing for Department of Defense contracts.18 The Defense Criminal Investigation Service now has more than 400 investigators in three military investigative services looking into government contracts, thereby supplementing what the Federal Bureau of Investigation has been doing for years in the area of government contracts.19 As a result of these efforts, significantly more companies are coming under criminal scrutiny.

INVESTIGATIONS
Most white-collar corporate crimes are violations of laws in multiple jurisdictions, either vertically (state-federal) or horizontally (between jurisdictions in one state or between jurisdictions in the federal government). From the government's perspective, this leads to prosecutorial problems of (a) coordination of effort when more than one jurisdiction is fully on the case, (b) the necessity of cooperation when one jurisdiction assumes or is ceded the investigation, (c) conflicts of interest when more than one jurisdiction claims exclusivity, or (d) bureaucratic in-fighting when one jurisdiction attempts to avoid responsibility by claiming another jurisdiction has primary responsibility.20

This is another critical point for the intervention of a criminal defense counsel or special outside counsel to determine if it may be possible to negotiate with the appropriate investigative body involved and, having reached an arrangement, curtail the investigative efforts of any other agency. The possibility always exists for an agreement to be reached that would reduce the criminal charge to a misdemeanor offense handled in state court, which is significantly preferable to a felony indictment arraigned in federal court. On the other hand, if the crime committed appears to be6 one resulting in jail time, the federal penal system has numerous advantages over any state penal system.

A good example of multiple jurisdictional crimes would be a charity fraud in Houston in which the local charity collects money on street corners, by mail, and by other solicitations within and outside Texas. To start with, the charity should register with the appropriate state and municipal agencies; a legitimate charity would also register with the Better Business Bureau. For improper solicitations the charity may be enjoined from operation for violations of various Texas laws. The Attorney General of Texas would investigate violations under its jurisdiction, while the Consumer Fraud Division of the Harris County District Attorney would investigate any collections by means of false representations. The charity's interstate mail solicitations could be a violation of the mail fraud statute and may be investigated by the United States Postal Service. The use of television or radio solicitations or the use of interstate telephone lines to solicit or conduct other related business could constitute a violation of the wire fraud statute, which is within the investigative jurisdiction of the Federal Bureau of Investigation. The use of credit cards may trigger the Secret Service to investigate. There is also a parallel tax problem to be considered with the Texas taxing authorities and the Internal Revenue Service.

One of the major aspects of the investigative process is the push for settlement. Since white-collar or corporate crimes usually deal with deprivations of money or property, the first concern of any victim (and, in many instances, the government-when it is a victim) is restitution rather than punishment. While repayment may have no criminal significance, a civil settlement by an aggrieved party during a criminal investigation or prosecution has a damping effect on criminal enforcement. The dividing line between civil abuse and criminal violation is often less than clear in the white-collar crime area. As a result, prosecutors and investigators may accept a settlement as an indication that the civil aspect outweighed the criminal aspect. The investigator or prosecutor also knows that the victim of a private crime, unless it is the government, will no longer be a whole-hearted witness for the prosecution and that competent defense counsel will find some way to make the jury aware that the case was mooted by civil settlement, even though evidence of such settlement may be inadmissible. Civil settlement may also be pursued as a device to dispose of an issue of fact crucial to criminal prosecutions. 21

The desire for settlement is not the only point of conflict between the allegedly aggrieved and the investigator or prosecutor. The complainant may object to being troubled, or he may be concerned with his public image. Defrauded corporate complainants may drag their feet in cooperating because their image as a victim may make their management look bad to shareholders, and corporate executives have even voiced concern that customers may question whether a company that could be easily victimized would be capable of maintaining the quality of its product. There are also instances in which the white-collar crime involved may expose a weakness in the business structure, and the corporation is fearful that prosecution may educate others about how to do the same thing. In one case, the defendants learned how to manipulate postage meters to enable them to avoid the pavement of more than 5250,000 of postage. The defendants were prosecuted for fooling a foolproof system, but both the manufacturer of the metering machine and the United States Postal Service, which investigated the case were concerned that the moaus operandi not be made public until correctional measures could be taken.

Before addressing investigative and prosecutorial evaluations of fact situations, I must mention the massive investigation into the banking industry in Texas. In the Houston area alone, twenty-seven financial institutions are under investigation by the Federal Bureau of Investigation. According to The Houston Business Journal: ‘From January, 1987 through March 1988, local investigations have resulted in 49 federal indictments for bank fraud and embezzlement.”23

The focus of the bank investigation is not limited to Houston. Special grand jury in Dallas has issued more than -400 subpoenas to individuals. The Dallas investigation is directed at the savings and loan industry with special attention being given to insider borrowing or large borrowers who were caught in the financial crunch.24 According to Edwin Tomko, Deputy Chief, Criminal Division, Department of Justice, the bank fraud investigation unit in Dallas is the largest investigative group to investigate white-collar crime.25

INVESTIGATIVE TECHNIQUES FOR CORPORATE, AND WHITE-COLLAR CRIMES
It should come as no surprise that federal criminal investigators operate by paper and that nothing gets done without a report being written. In a typical investigation, the written complaint first lands on the investigator's desk. He must determine whether the facts alleged, if supported by legal evidence, constitute a crime and, if so, the nature of the crime. The investigator is usually not an attorney, and, more importantly, the investigator almost never has any prosecutorial background.

If he determines that the alleged facts embody the elements of a crime worthy of prosecution, the investigator will interview witnesses and seek to examine the pertinent records. If his agency has regulatory or special investigative powers, the investigator may compel answers or production of records by threat of suspension of business operations, by subpoena, or by both.

If there is a refusal to cooperate with the regulatory agency, there may be a grant of immunity. At some point the investigator may be shifted to the prosecutor's bailiwick, and the investigation may be continued by a federal or state grand jury.

PROSECUTIVE EVALUATIONS: WHETHER TO INDICT
Prosecutive evaluation is a process whereby an investigator or a prosecutor determines whether a particular case is to be directed toward ultimate prosecution or dropped. The prosecutive evaluation is more of an art than a technique. A corporation or an individual under investigation must realize that a myriad of factors leads to a prosecutorial decision. In making this decision, a law enforcement official must call upon every personal resource of intelligence, social perception, psychology, and public relations skill in all but the most mundane cases.26 Evaluation is crucial to the allocation of law enforcement resources since determination about classes of cases to investigate or prosecute must always be made in the arena of conflicting claims and finite resources.

When an investigative agency decides to concentrate on one particular type of violation, other types must suffer or remain on standby. When a prosecutor decides that ever-v bank robbery case must be the subject of an indictment, he makes the implicit decision that ICC violations will not be prosecuted even if he does not consider his decision in that light.27

If prosecutive evaluations are mishandled, the consequences may be serious and far-reaching both to subjects of evaluation and to the administration of justice. Such consequences include (a) a sense of injustice on the part of those who know that they are singled out for prosecution while others escape the net after being apprehended; (b) failure to effectively use prosecutions in investigations for maximum effect and prevention as well as for deterrence and detection; (c) blurring of standards for measuring, the effectiveness of law enforcement efforts; (d) vulnerability to dispense parity in treatment of offenders based on influence or quality of defense counsel. (e) Imposition of the brand of criminality on those who should not have been prosecuted in the first instance, whether they are convicted or found not guilty; (f) failure to adequately prosecute certain crimes, particularly some white-collar crimes, that may have little publicity value or that provide for minimal penalties and may discourage enforcement efforts by agencies and investigators.28



White-collar crimes require longer and more sophisticated investigations, as well as longer and more complicated trials. Sentences are usually less impressive than sentences from convictions for common crimes. These factors tend to encourage procrastination on the part of the investigators or prosecutors. Lengthy prosecutions mean heavier expenditures of time and money, thus weighing the scales against these cases in the minds of many decision makers. No single comment can be made about how white-collar crimes are evaluated by investigators or prosecutors, since the variety of these crimes, their perpetrators, and the victims are infinite-as are the public interests affected.

EVALUATION BY INVESTIGATORS
In the federal arena, it is important to understand the referral technique by which a complaint on the investigator's desk ends up as a prosecution from the United States Attorney’s Office. The United States Attorney’s Office rarely commences an investigation on its own without having first been contacted by some investigative agency. One exception is the Securities and Exchange Commission, which is a unique agency with criminal and civil investigative jurisdiction and with the rare power to make a criminal evaluation of whether to refer a case to a prosecutor for criminal action. Other state and federal agencies usually report all potential criminal violations to an investigative agency if there is some evidence to support the allegation that a crime has been committed. As a practical matter, an investigative agency may exercise prosecutive discretion in several ways, including the interpretation of the allegations received as insufficient to spell out a crime as a matter of law.

An investigator must always remember that his investigation will be evaluated by the Assistant United States Attorney. The investigator also knows that the prosecutor’s ultimate evaluation is initially influenced most heavily by the work and quality of the preceding investigation, by the zeal of the investigator, and, therefore, by the implicit evaluation made by the investigating agency. This, of course, depends on the reputation and prior performance of the investigative agency. An investigator who promotes every minor case as being worthy of prosecution, or who withdraws or does not deliver support when the prosecutor has committed himself to the battle by returning an indictment or information, will find small regard for his evaluations on subsequent visits to the prosecutor's office.

EVALUATION BY PROSECUTORS
Prosecutors29 traditionally have the duty to determine who will and who will not be prosecuted. They are subject to many pressures in arriving at their decisions and are continually forced to make not only value judgments or moral judgments but also difficult discriminations based on their assessments of priorities. Since the prosecutor will make the ultimate determination of whether a corporation or an individual will stand before a jury in a criminal prosecution and will have the greatest impact on the sentence to be imposed if a conviction is returned, it is possible to look at how these decisions are made by examining the role and character of the typical prosecutor.

As a sweeping generalization, a prosecutor knows that alleged violators in the white-collar corporate criminal area are usually represented by counsel who are well above average in ability, in standing among the legal profession, and in political influence. Defense counsel's ability promises more tenacious opposition, his standing among the legal profession promises unique difficulties, and the significance of his political influence will vary on a case-by-case basis.30

One of the prosecutor’s major hurdles is the lack of resources. If the caseload of a prosecutor has passed the point at which he can adequately handle the cases currently on his desk, even by working seventy hours a week, he must become selective about the cases on which he will proceed. This is certainly one of the most telling pressures on any prosecutor and is often the motive or rationale for his seeking other or alternative dispositions for cases submitted to him. 31

Most important of the pressures are those on the prosecutors themselves. Historians have said of Napoleon’s legions that “every private carries a Marshall’s baton in his knapsack.” Similarly, the prosecutor’s role has traditionally led to political stardom. Run-of-the-mill white-collar cases rarely attract great publicity, but they will often generate fierce opposition on the part of private interests and members of the legal profession who can be most important to a political career, while victim interest on the other side may not be able to generate a counterbalancing weight. Of course, white-collar cases that are not run-of-the-mill can excite great public interest and can be stepping stones in and of themselves, particularly when they are abuse of trust cases.32

A case being evaluated by a prosecutor must be considered on two levels. The first level is whether acts have been committed that (whether violations or not) would justify criminal sanctions. The second level is whether other legitimate factors should deter action, even if the first question is answered affirmatively. This means that there must be some system of priorities. In any rational system, some cases must stand in line and never be reached. Prosecutive resources will always lag behind need; and, in truth, overall law enforcement objectives would certainly be better achieved by a policy of selective prosecution.

It is vitally important to understand the personality of the prosecutor who is handling a case. The prosecutor's commitment or lack thereof will affect every aspect of the case from the number of counts in the indictment to the sentencing recommendation. Rudolph Giuliani, the U. S. Attorney for the Southern District of New York, personifies the image of the dedicated federal prosecutor. Commenting on his success, Nancy Collins in the New York magazine wrote:

In the last two years alone, Southern District prosecutors have won racketeering convictions against Tony Salerno and other leaders of New York’s five major crime families (in the so called Mob Commission case), and they've put away the operators of a huge, mob-controlled heroin network (in the “Pizza Connection” case). Giuliani himself successfully prosecuted former Bronx Democratic boss Stanley Friedman in the first trial to come out of the city corruption scandals, and an investigation by his office led to a guilty plea on tax fraud charges by sewer contractor Carl Capasso, Bess Myerson's consort. Together with the Securities and Exchange Commission, Giuliani's office has been leading the crackdown on insider trading, getting guilty pleas-and promises of cooperation-from Dennis Levine and Ivan Boesky, among others.33

In the interview with U. S. Attorney Giuliani, Collins provided some insight into the prosecutorial Zeal that many federal attorneys bring to their job. She asked ‘if he was not a Cancerous zealot, and he responded:

Enforcing the law is an important thing to me. I try to do it effectively. If I’m not fair, it's only because I've made a mistake, because I want to be fair. Everything I do I have to go to court and prove. We can't just decide so and so’s a criminal and that’s it. If anyone thinks I am enthusiastic about my cases, they should watch me play softball or watch a football game. I’m enthusiastic about everything . . . about going to the opera, or dinner at a restaurant. That's just the way I approach life.34

PROSECUTIONS
A major problem in prosecuting major white-collar crimes is delay, a difficulty not unique to white-collar crimes. In one sense, white-collar prosecutions are harmed less by delay than are other prosecutions. White-collar crimes are more frequently provable by documents and records that, unlike memories, are not usually altered by the passage of time. Notwithstanding this, delay may cause greater havoc on white-collar criminal prosecutions because there are more excuses for delay and because turnover of personnel and prosecutors’ offices make it difficult to be certain that the prosecutor who generated the prosecution (and knows the most about it) will still be in the office when the case is finally tried.

Since white-collar criminal trials are lengthy and complicated. And since questions of guilt or innocence will often turn on inferences drawn on evidence presented, much stud of the facts and research of the law may be necessary before a case can be tried. Difficult questions, according to the former chief of the Fraud Section of the Department of Justice, in a typical trial include:

(1) Although the indictment charges a conspiracy, are the required elements of proof present?

(2) Is the economic interest a “security” within the meaning of the Securities Act of 1933? This question may entail an exhaustive analysis of the underlying business.

(3) Although monies solicited for a church were promptly bet at a local dog track. Did the defendant really believe that his gambling was commanded by God?

(4) Do continuous unexplained pavements to a Swiss corporation spell out a criminal tax evasion in which the defendant pleads the Fifth Amendment and Swiss law prohibits tracing of the funds?

(5) When the condemnation of land for public purpose is immediately preceded by two sales of the same property at markedly higher prices on each transaction, was there a scheme to defraud the government by creating a fictitious value for condemnation purposes? 35

Prosecutions in which such questions are relevant are fertile ground for complex motions for bills of particular, for discovery of filing cabinets full of documents, and for pretrial disputations about the meaning of documents and constructions of and limitations on indictment language.

The marked contrast between the trial of white-collar crimes and of common crimes in all likelihood stems from the fact that in white-collar criminal trials the issues of why something was done generally dominate the trial. If five manufacturers equally raise their prices within a one week period, there would be no antitrust violation if they did so independently and without collusive communications or agreements, but there will be criminal violations if their actions did involve communications and agreements. The basic issue of criminal intent would depend on inferences or actual proof of collusive agreements, even though there would be no problem of proof with respect to simultaneous price increases. Contrast this to homicide or burglary, in which there is usually no question of whether a crime has been committed; the only question is who did it and whether there is available evidence, competent and admissible, in such measure that it would prove guilt beyond a reasonable doubt.36

From a prosecutor’s point of view, a further complication with respect to proving criminal intent arises from the fact that most white-collar crimes arise in a non-criminal context and are often only illegal appendages attached to an otherwise proper execution of a previously legitimate role. Thus, an insolvent businessman might commit bankruptcy fraud after months of fending off disaster in good faith, and the fraud would be executed by continuing a prior course of conduct, but for a different purpose. A broker may have taken a heavy position in a stock, to the point where its further decline would spell disaster for him at which point a continuation of advice to clients to buy the stock might well be altered in character from a mistake in judgment to a criminal, manipulative, deceptive device in connection with the purchase of a security.37

Thus, the importance of intent, as contrasted with the facts of admitted occurrences or acts, places a premium on both the prosecution and the defense to elicit every minute scrap of evidence that might be available. In such necessary zeal there is a tremendous cost in man-hours, expenses, and emotion to prepare a white-collar criminal case for trial. There is rarely a point for the prosecution when it has enough evidence for its prima facie case or for rebuttal of anticipated defenses.

In major cases, therefore, the indictments tend to become lengthy, with numerous counts, and some critics make the point that major white-collar criminal cases tend to be over-prepared and over investigated by the prosecution. If this is the case, the preparation stems from the prosecutor’s concern that he has no way of knowing in advance what quantum of evidence will be sufficient. In a major white-collar criminal prosecution, there may be no realistic limit to the evidence, since either the prosecutor or the defense might just as easily find and use 5,000 relevant documents as fifty relevant documents, in contrast to common crimes in which the nature and amount of relevant admissible evidence is more circumscribed by the nature of the criminal acts involved. 38

When one examines the issues in such cases, and given the lack of natural boundaries with respect to the quantity of admissible and relevant evidence, one can understand the potentials of delay in the pretrial period and the drawn out nature of the trials that follow. There are innumerable sub-issues that are properly the subject of extensive pretrial motions. While the outlines of permissible discovery are drawn by the judge, weeks or months may be consumed in the arduous work of examining and considering documents that may be produced. These documents will, in turn, be a starting point for further motion practice to protect the interests of the corporate or individual defendant in a white-collar criminal prosecution. Thus, intricate and involved cases trigger maximum utilization of procedural potential for further delay, and each step in the cycle energizes and justifies further steps. A seasoned defense counsel can fully protect a client by requesting time to properly examine all the relevant documents, and the resulting delay can have a deadly effect on orderly prosecutions

PLEAS AND PLEA BARGAINING
As previously stated, the facts of a white-collar criminal prosecution are not in dispute as much as they are in a common criminal prosecution. The major focus of the prosecution is the criminal intent of the parties involved. The time-consuming investigation required by all parties, the desire of the corporate defendant to put the case behind it as soon as possible, and the usual thorough investigation by federal agencies all dictate that pleas and plea bargaining be entered into as soon as possible. Certain objectives are attempted by the prosecutor’s office with regard to pleas. From the defendant's point of view, other objectives are attempted and include the following:

As in all plea bargaining, to restrict the punishment by pleading to lesser offenses or lesser included offenses.

As in all plea bargaining, to restrict the punishment by pleading to the smallest possible number of counts.

By minimizing the number of counts to which guilty pleas are entered, to establish the basis for a defense argument on sentencing aimed at narrowing the scope of the overall conduct for which the judge will mete out punishment.

By minimizing the number of counts, to limit the extent to which the defendant may be civilly liable to the victims of the criminal conduct.

By seeking permission to enter a nolo contendere plea, to eliminate civil consequences that might flow from a guilty plea.

By seeking permission to enter a nolo contendere plea, to deter the court from imposing a severe sentence.40

While the traditional doctrine is that the nolo contenders plea is the same as the guilty plea for sentencing purposes, it is plain that the courts regard government acquiescence or nominal objection to the proffer of a nolo contenders plea as a downgrading of the importance or true criminal impact of the acts charged in the indictment or information. If the prosecutor generally objects, overriding of such an objective on by the court would generally be followed by a light or only nominal sentence.

In many instances, prosecutors are offered pleas to crimes not charged in the indictments in order to reduce criminal exposure. For example, a bankruptcy trustee might embezzle funds (a violation of 18 U.S.C. Section 153, punishable by five years in prison); and a plea bargain may be entered into pleading guilty to an information under 18 U.S.C. Section 154 charging that the trustee refused to permit inspection of his records, an offense punishable by a $500 fine and forfeiture of his office. No blanket judgment can be made about bargaining for pleas to lesser-included offenses or to pleas reflecting acts not charged in an indictment. Each case must be viewed on its merits.41

SENTENCING
A general impression is that “the more serious the white-collar crime, the less serious the sentence.” Along the same lines is the folk myth that if one steals, it’s better to steal big. This may be borne out in the gentle treatment that E. F. Hutton got in July 1985. Hutton pleaded guilty to a fraud that bilked some 400 banks out of more than $8 million between 1980 and 1982. In a settlement with the government, Hutton agreed to pay a fine and court costs totaling $2.75 million and to repay the banks the money they lost. No individuals, however, were prosecuted, even though the Justice Department admitted that ten people were primarily responsible for this scheme “in a criminal sense.”42

Generally speaking, a judge has two objectives in sentencing policy: deterrence and punishment. With those objectives in mind, defense counsel can easily argue that a defendant with no record has been severely punished by the criminal charges having been brought against him because, in the business and social milieus in which arrestees or people without records operate, convictions are almost unknown and there is no likelihood of recidivism. Restitution and victim assistance are also considerations of the courts.43

Prior to the enactment of the Sentencing Reform Act of 1984, the judiciary had wide discretion in imposing a sentence, which often led to a gross disparity of sentences imposed on offenders. The Sentencing Reform Act of 1984 was enacted in an effort to minimize judicial discretion, while at the same time to maximize certainty and consistency in sentencing.

NEW SENTENCING GUIDELINES
The new Federal Sentencing Guidelines became effective on November 1, 1987, and have already been invalidated by several federal judges. These cases have started up the appellate process with the U. S. Supreme Court to determine the final resolution.

If the guidelines are upheld, the major changes in sentencing will include (I) parole elimination the guideline sentence will be served; (2) good time credit will be diminished, and (3) the sentence imposed must comport to the guidelines unless “there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequate by taking into consideration by the Sentencing Commission in formulating the guidelines that should result in a sentence different from that described.”44 Thus, the Federal Sentencing Guidelines will radically change how a defendant is sentenced and the length of time imprisoned.

Rule 32 of the Federal Rules of Criminal Procedure describes the procedures for sentencing in federal courts. Before imposing sentence, the court must allow defense counsel the opportunity to speak on behalf of the client and allow the defendant the opportunity to make a statement and to present evidence in mitigation of punishment. A government attorney also has the right to address the court. The sentence must be imposed without unreasonable delay. At the time of sentencing, the judge must state the reasons for imposition of a particular sentence. When sentence is imposed, the defendant has the right and responsibility to be present.

Additionally, before sentence is imposed or probation granted, Rule 32 also requires the United States Probation Service to prepare a presentence investigation and report its findings to the court. The presentence report must describe the criminal record of the defendant as well as his background, financial condition, and other circumstances that affect his behavior. Although the sentencing judge may rely on other facts in determining the defendant's sentence, the judge frequently relies heavily on the presentence report. Defense counsel, at the minimum, should verify all facts that appear in the presentence report.

The vast majority of cases require defense counsel to prepare a separate report to be submitted to the court. The defense presentence report is often called a sentencing memorandum. The court is greatly assisted by the inclusion in the sentencing of excerpts of letters of recommendation already forwarded to the court that describe the defendant's charitable and religious contributions to the community where he or she resides. This sentencing memo random provides the defendant the first opportunity to portray the alleged crime as meriting light punishment and the defendant as an improper candidate for imprisonment. Therefore, the defense sentencing memorandum often challenges the assumption of dangerousness in future conduct and stresses the nonviolent and no repetitive nature of the offense.

Typically, the sentencing memorandum prepared by Bennett & Broocks argues that the purpose of punishment, notably rehabilitation and incapacitation, are inappropriate for white-collar offenders; or, in the alternative, that the defendant's gainful employment and respectable position in the community make rehabilitation unnecessary. Incapacitation, it is argued, implies a need for predictive restraint, which is invoked to protect society against repeated, serious criminal activity. The assumption of repeated future criminality underlying the incapacitation theory risks unnecessary imprisonment when applied to chronic recidivists and may present even greater risk for the typical first offender, white-collar criminal.

Additionally, the firm’s sentencing memorandum emphasizes the degree to which the defendant has already been punished. The white-collar defendant’s convincing representation that he has already been sanctioned; that he recognizes his wrongful conduct, and that he resolves to reform may persuade the judge that additional punishment is unnecessary. If the defendant has suffered collateral consequences of arrest and conviction, such as loss of job, business, professional standing, or economic or status hardship, the firm’s sentencing memorandum may indicate the type and extent of loss already suffered. Any information that would illustrate to the court that additional punishment may be superfluous will often be included in a sentencing memorandum.45

NOTES

1. E. SUTHERLAND, WHITE-COLLAR CRIME (1949

2. Id. at 9. The Department of Justice in 1970 defined white-collar crime as “an illegal act or series of illegal acts committed by nonphysical means and by concealment or guile to obtain money or property, to avoid the payment or loss of money or property, or to obtain business or personal advantage.” H. EDELHERTZ, THE NATURE. IMPACT AND PROSECUTION OF WHITE-COLLAR CRIME (Washington D.C.; U. S. Department of Justice Law Enforcement Assistance Administration, U. S. Government Printing Office, 1970), at 3.

3. Sutherland, supra at 9.

4. Richard L. Thornburgh, “White Collar Crime,” Federal Bar News, September 1976, 308.

5. Charles P. Alexander, “Crime in the Suites-A Spree of Corporate Skulduggery Raises Questions and Concerns,” Time, June 10, 1985, at 56.

6. Id. at 56.

7. Id. at 56.

8. Edelhertz, supra at 21.

9. Edelhertz, supra at2l.

I0. Edelhertz, supra at 21.

11. Edelhertz, supra at 22.

12. Paul L. Friedman, “Unique Problems Resulting from Parallel Criminal, Civil and Administrative Proceedings,” Procurement Fraud Prosecutions and Debarments (American Bar Association, 1986) at 245. Judah Best and Marc S. Gomis, “Follow the Yellow Brick Road: A Guide Through the Maze of Parallel Proceedings,” presented at the Banking Litigation Institute, Prentice Hall Law & Business (September 1987).

13. Edelhertz. supra at 22.

14. Edelhertz, supra at 23.

15. Edelhertz, supra at 23.

16. Edelhertz, supra at 24.

17. Robert Bonner. “Justice Department Priorities,” Procurement Fraud Prosecutions and Debarment (American Bar Association Division for Professional Education, Feb. 1986), at 2.

18. Id.

19. Id.

20. Edelhertz, supra at 27.

21. Edelhertz, supra at 28.

22. Bob Sablatura, “FBI Probes 27 Area Banks, S&Ls -Houston bank fraud task force releases detailed list of target institutions,” Houston Business Journal (April 11, 1988), at 1.

23. Id. at 17.

24. Id. at 18.

25. Edwin Tomko, “Banks Under Attack: Criminal Prosecutions and Civil Litigation Relating to Failing Banks and Savings and Loans,” presentation at the American Bar Association Section of Litigation (April 28-29, 1988, Dallas, Texas).

26. Edelhertz. supra at 38.

27. Edelhertz, supra at 38.

28. Edelhertz, supra at 38.

29. An excellent resource on the operation of a U. S. Attorney's office is James Eisenstein’s book, COUNSEL FOR THE UNITED STATES (John Hopkins University Press, Baltimore, 1978).

30. Edelhertz, supra at 39.

31. Edelhertz, supra at 40.

32. Edelhertz. supra at 41.

33. Nancy Collins, “Gotcha! Nancy Collins Cross-Examines Crime Buster Rudolph Giuliani,” New York magazine (May 25, 1987), at 28.

34. Id. at 35.

35. Edelhertz, supra at 47.

36. Edelhertz. supra at 48.

37. Edelhertz supra at 48.

38. Edelhertz, supra at 49.

39. Edelhertz supra at 49.

40. Edelbertz, supra at 54.

41. Edelhertz, supra at 56.

42. Alexander, supra at 57.

43. Edelhertz, supra at 56.

44. 18 U.S.C. §3553(b)

45. An excellent article on white-collar sentencing is “White-Collar Crime, White-Collar Time: The Sentencing of White-Collar Offenders in the Southern District of New York,” John L. Hagen and Ilene H. Nagel, 20 AMERICAN CRIMINAL LAW REVIEW, No. 2 (Fall 1982)