Prosecutor to Corporation: Endow a Chair at My Law School, or Else

19 Corporate Crime Reporter 32(3), August 3, 2005

In the last two years, despite a host of financial-irregularity cases, no major public corporation – with the exception of Riggs Bank for Bank Secrecy Act violations – appears to have been indicted for involvement in accounting or financial fraud.

The reason: the federal government's new policy is to permit the corporation to enter into a deferred prosecution agreement.

And according to Columbia University Law Professor John Coffee, the increased use of deferred prosecutions in recent years has led to a shift of power to the prosecutors.

“The deeper problem lies in the danger that power corrupts and that prosecutors are starting to possess something close to absolute power,” Coffee warns in a recent article in the National Law Journal.

According to Coffee, the high-water mark for deferred prosecution agreements: the agreement with Bristol Myers Squibb.

The company was charged with “channel stuffing” and other accounting irregularities.

The U.S. Attorney for New Jersey, Christopher Christie, met with the Bristol Myers board and negotiated a deal whereby the company would contribute $300 million to a shareholder compensation fund, separate the positions of the CEO and chairman of the board, nominate an additional outside director acceptable to the U.S. Attorney, and appoint a special monitor to report to the U.S. Attorney.

In addition, the company agreed to endow a chair in business ethics at Seton Hall University School of Law – the law school where U.S. Attorney Christie received his law degree.

Coffee says that the Bristol Myers Squibb settlement raises an issue of “prosecutorial accountability.”

“Should a U.S. attorney exploit his leverage over a corporate defendant to compel it to do good deeds, such as creating a chair at the U.S. attorney's law school?” Coffee asks.

But the Bristol Myers Squibb settlement was not the crudest example of this type of exploitation, he says.

That distinction, according to Coffee, goes to the Attorney General of Oklahoma, who in March 2004 “signed a deferred prosecution agreement with MCI, the successor to WorldCom, requiring it to increase its employment in Oklahoma by 1,600 people within 10 years as a condition of leniency.”

“Such examples suggest that two closely related dangers arise when the corporation desperately needs to avoid the consequences of a criminal conviction,” Coffee says. “It becomes vulnerable to the extortionate demands of even well-meaning prosecutors, and prosecutors may be tempted to experiment with corporate governance in ways that exceed their competence or entitlement.”

What if a prosecutor discovers that a corporation’s 12-member board has only two women and one minority group member andthe prosecutor demands as a condition of deferred prosecution that the board reconstitute itself to be at least half female and one-third minority group, Coffee asks.

“This has not yet happened, but it could -- and soon -- in part because prosecutors are often politically active people,” he warns.



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