Business News: Corporate Fraud Updates
Here are three news items of interest on the corporate fraud front. Since well before the Sarbanes-Oxley law was passed in 2002, the effort and energy put into investigating and dealing with corporate fraud has produced great changes for the business and government sectors. Prison time, once a rarity, no longer is; and corporate giants who thought the government was either too incompetent, politically disinterested or lazy to regulate and/or investigate them have found out otherwise. In other words, things just keep changing and evolving in this area.
SEC eases Sarbanes-Oxley financial control rules: The SEC voted yesterday to tentatively adopt a plan giving smaller companies more flexibility in how they apply financial controls under the broad 2002 Sarbanes-Oxley law, which was passed to combat corporate fraud. The proposed changes provide new guidelines about how to evaluate internal financial controls and financial reporting, among others. Overall, the changes will ease financial control rules for smaller companies and were brought about by businesses who complained that the rules were overly burdensome and costly. Here is an AP story with more information.
DOJ revises its corporate fraud guidelines: The Justice Department on Tuesday bowed to pressure from the federal bench, Congress and the business sector and relented in its “take no prisoners” stance on waiving the attorney-client privilege, among others, when deciding whether to indict. This is the third in a series of memos written by senior DOJ officials beginning in 1999, again showing just how rapidly the subject of corporate fraud is changing. This week’s memo is referred to as the “McNulty Memo” in honor of its author, Deputy Attorney General Paul McNulty, and replaces the 2003 Thompson Memo (former DAG Larry Thompson), which replaced the Holder Memo (former DAG Eric Holder). The complaints in the last few years have been about the aggressive practice in the pre-indictment phase of prosecutors asking (or expecting) companies to waive the attorney-client privilege or to cut off the payment of legal fees for employees being investigated or charged. As you can imagine, the pressure to cooperate and possibly avoid indictment is heightened when a federal prosecutor requests that the company turn over the results of an internal investigation or the strategic advice of the company’s lawyers. Now, McNulty has told prosecutors that attorney-client communications should be sought only in “rare circumstances” and, once a legitimate need for it is shown, approval must be sought up the chain from the U.S. Attorney to the Assistant Attorney General of the Criminal Division. In certain instances, McNulty will personally approve requests for obtaining privileged information. Also, for added incentive, on December 8, Senator Arlen Specter, R-Pa., outgoing chairman of the Judiciary Committee, introduced a bill that would strictly limit a prosecutor's ability to request attorney-client privileged information. Read an article at law.com
Skilling reports to prison: Having failed to win the court’s approval to remain free on bond pending his appeal, former Enron chief executive Jeffrey Skilling entered a Minnesota federal prison yesterday. Skilling, 53, will serve over 24 years for his conviction on fraud in the collapse of the former energy giant. Remember, federal time is “real time” because there is no parole and only a minimal reduction for good behavior if it is earned day for day as determined at the end of the year.