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T.S. Eliot wrote that April is the cruelest month, but for the corporate community, this past September surely ranked highest in terms of the confluence of harsh corporate criminal prosecutions. In the September storm, WorldCom’s former chief executive officer pleaded not guilty to state fraud charges and a Goldman Sachs vice president faced a federal multicount indictment for conspiracy and securities and wire fraud. September also found Tyco’s former CEO, Dennis Kozlowski, and former chief financial officer, Mark Swartz, in a New York state court beginning their trial on charges of misappropriating $300 million in corporate funds. Next door, on the same day, in federal court in New York, Frank Quattrone began his trial for obstructing justice by allegedly urging employees of Credit Suisse First Boston to delete e-mail files while the government was investigating Credit Suisse’s issuance of initial public offerings. While the Kozlowski and Quattrone trials are already the focus of media attention, they are not the most significant events on the corporate crime calendar. Of far greater importance were the federal indictments of three managing directors of Merrill Lynch, charged with conspiring to orchestrate a deal with Enron for the sham purchase of Nigerian electricity-generating power barges that would have guaranteed a 22% profit to Merrill Lynch. The executives were charged not only with conspiracy to commit wire fraud and falsification of books and records, but with perjury and obstruction of justice in connection with false statements made to the Enron grand jury, the Securities and Exchange Commission and Congress. The extraordinary feature of this prosecution is not that three Merrill Lynch executives were indicted, but that Merrill Lynch itself was not criminally charged. Instead, it was the beneficiary of a nonprosecution agreement (thus avoiding criminal prosecution). This is in marked contrast to the indictment, conviction and disintegration of Arthur Andersen for obstruction of justice. Adamant at Arthur Andersen Three days before Enron announced a $1 billion loss based on fraudulent accounting practices, an Andersen attorney, Nancy Temple, sent an e-mail to Andersen executives “reminding” them of Andersen’s document-retention policy. The following day, Andersen began shredding thousands of pounds of Enron-related documents. At trial, the government successfully argued that the Temple e-mail was “simply a cover, a method for providing instructions to shred documents.” Andersen and the U.S. Department of Justice engaged in settlement negotiations prior to indictment, but the record is not entirely clear why those negotiations failed. A published account by a former Andersen executive in charge of the firm’s corporate accountability programs accords with my understanding: “Settlement talks continued but . . . Andersen refused to admit guilt.” While “the two sides came close,” the government became “infuriated” by what it saw as Andersen’s “arrogance and a lack of desire to change.” The underlying misconduct of Merrill executives was at least as serious as that of Andersen executives. What accounts for the difference in treatment of the two entities? In essence, Andersen, which had a prior history of misconduct, refused promptly to accept responsibility for wrongdoing and failed to convince the government, prior to indictment, that it was committed to serious institutional reform. In contrast, Merrill Lynch quickly accepted responsibility, disciplined and discharged culpable executives and undertook an agreed-upon program of internal reform. Owning up Specifically, Merrill Lynch, in its nonprosecution agreement with the government, declared that it “accepts responsibility for the conduct of its employees,” does not “endorse, ratify or condone criminal conduct,” “has taken steps to prevent such conduct from occurring in the future” and pledges its “willingness to . . . cooperate with the Department in its investigation . . . of Enron.” The Merrill Lynch situation is not the first occasion that a major corporation, faced with charges of serious misconduct, succeeded in terminating the case by a deferred or nonprosecution agreement. In 1993, charges against Salomon Brothers of serious misconduct in its marketing of Treasury notes led to the conviction of one senior executive, the resignation of Salomon’s president and CEO and a deferred prosecution agreement explicitly premised on Salomon’s “extensive” cooperation and its “decisive and extraordinary actions to restructure its management to avoid future misconduct.” The following year, Prudential Securities secured a deferred prosecution agreement based on important internal restructuring, and the establishment of extraordinary monitoring mechanisms. This included the appointment of a former federal judge as a full member of the Prudential board who would serve as a corporate monitor and report misconduct directly to the U.S. attorney. In the last analysis, the message of the Andersen and Merrill Lynch cases is clear. Corporations faced with serious wrongdoing by corporate executives should promptly accept full responsibility, discipline wrongdoers, institute serious institutional reform and fully cooperate with the government. If they do, they may escape institutional indictment. If they do not, they face the risk of indictment, conviction and even corporate death. That admittedly harsh result is neither surprising nor inconsistent with the underlying premise of corporate criminal liability-that entities are criminally responsible for the crimes of their executives and must not only take responsibility for that misconduct but institute serious reform to prevent recurrence of wrongdoing. Leonard Orland, a professor at the University of Connecticut School of Law, is most recently the author of the forthcoming Corporate Criminal Liability: Regulation and Compliance (Aspen).

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