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A New Jersey state appeals court has ruled for the first time that a 23-year-old criminal law aimed at corporate officers and directors is enforceable against corporate owners and majority shareholders who use a business for criminal purposes. The Appellate Division decided on Dec. 30, in State v. Malik, A-6085-01T5, that the statutory language and purpose made it clear that the Legislature meant to “expand the class of persons engaged in these activities beyond the traditional corporate group of officers and directors to include those individuals … in a position to control the company.” It doesn’t matter that the owner or majority shareholder lacks an official title or position, the judges held. The law, N.J.S.A. 2C:21-9(c), makes it a crime to purposely or knowingly use, control or operate a corporation to further or promote a crime. Mohammad Saleem Malik was charged with using Venditti Clinical Laboratory Inc., which he owned and controlled, to commit Medicaid fraud by paying nearly $350,000 in kickbacks to medical clinics and labs that sent blood samples for testing. Following denial of a motion to dismiss, Malik pleaded guilty but reserved the right to appeal the motion denial. He argued on appeal that N.J.S.A. 2C:21-9(c) covers only corporate officers and directors and he is neither. He also alleged that the law was unconstitutionally vague as applied to owners. Judges Anthony Parillo, Richard Newman and Helen Hoens rejected the argument that subpart (a), which refers to dissipation of corporate assets by directors, and (b), which covers improper issuance of stock by directors or officers, limit the reach of the broad general language in (c), which uses the word “he.” The court also differed with Malik that the title of the statute, “Misconduct by a corporate official,” should control its interpretation. The title dated back to 1978 and was not altered when the Legislature added subpart (c) in 1981, the court noted. For corporate attorney John MacKay II, the interesting aspect of the case is not the court’s slam-dunk ruling on officeholders versus non-officeholders. Rather, it is the anachronistic focus of the law on corporations to the exclusion of other types of business entities, including partnerships, limited liability partnerships and limited liability corporations. “My take is that if you’re going to have a statute like this, you should make it general, not specific to corporations,” says MacKay, a partner with Lowenstein Sandler in Roseland, N.J., who was not involved in the case. “You should attack the underlying wrong, not the form of the enterprise committing the wrong.”

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