Making the silent speak and the informed wary.

• Author: Ellard, George
• Position: False statements to impede government investigations

Three executives of a software company, Computer Associates, recently pled guilty to federal charges of obstructing justice and conspiring to commit securities fraud. (1) The charges were grounded in backdated licensing agreements and other false documents that led the company to book (improperly) more than one billion dollars of revenue, thereby meeting the earnings estimates of Wall Street analysts. (2)

On the surface, the prosecution simply represents yet another instance of venality driven by a febrile passion to enhance share price. Just below the surface, however, is a disturbing distortion of the American criminal process.

The Deputization of Private Counsel

According to the charging instruments filed when the pleas were entered, instruments known as "criminal informations," Computer Associates' Board of Directors retained a law firm to conduct an internal inquiry after the company had learned that the Department of Justice and the Securities and Exchange Commission were investigating the company's accounting practices. (3) The executives who pled guilty, the informations asserted, communicated "false and misleading justifications" of those practices when outside counsel interviewed them, "knowing and with the intent" that these justifications would be relayed to the United States Attorney's Office, the SEC, and the Federal Bureau of Investigation. (4)

Because the executives knew that the company's outside counsel would pass on to the government the false statements they had made, the executives, in the government's eyes, had knowingly, intentionally and corruptly conspired to "obstruct, influence and impede official proceedings," (5) namely, the government's investigation into the accounting irregularities. On the same day that the Department of Justice filed criminal charges against the executives, the SEC filed civil actions against them, asserting that they had obstructed the Commission's investigation "by wrongly deceiving [Computer Associates'] outside counsel, and derivatively the government." (6)

These charges were followed by an indictment of Computer Associates' former Chief Executive Officer and Chairman. (7) The indictment alleges that the former executive and other conspirators "concocted and presented to the Company's Law Firm an assortment of false justifications, the purpose of which was to support their false denials" of accounting irregularities. (8) The conspirators, the indictment asserts, "knew, and in fact intended, that the Company's Law Firm would present these false justifications to the United States Attorney's Office, the SEC and the FBI so as to obstruct and impede[] the Government Investigations." (9) The former CEO was charged under the traditional false-statement statute with lying to federal agents, and he was also charged with obstruction of justice and conspiracy to obstruct justice by lying to Computer Associates' outside counsel. The indictment asserts that the second set of alleged lies "resulted in substantial interference with the administration of justice," an assertion that lays the predicate for enhanced punishment under the U.S. Sentencing Guidelines. (10)

These charges reflect a significant development in criminal-law enforcement: In certain circumstances, private counsel retained by a company become in effect representatives of the government, so that misleading counsel carries the same criminal sanctions as misleading federal authorities. (11)

The Thompson Memorandum

The significance of the Computer Associates prosecutions can be understood only against the background of what has become known as the "Thompson Memorandum," a document that (then) Deputy United States Attorney General Larry Thompson issued in January 2003 to all United States Attorneys and component heads within the Department of Justice. (12) The memorandum is designed to "guide Department prosecutors as they make the decision whether to seek [criminal] charges against a business organization." (13) The Deputy Attorney General explained that the new "principles" the Department had issued would increase the "emphasis on and scrutiny of the authenticity of a corporation's cooperation." (14) "Too often business organizations," Deputy Attorney General Thompson wrote, "while purporting to cooperate with a Department investigation, in fact take steps to impede the quick and effective exposure of the complete scope of wrongdoing under investigation." (15)

The Thompson Memorandum instructs charging officials to assess the authenticity of a corporation's cooperation by considering "the corporation's timely and voluntary disclosure of wrongdoing," its "willingness to identify the culprits within the corporation, including senior executives[,]" and its willingness "to disclose the complete results of its internal investigation and to waive the attorney-client and work product protection." (16) Prosecutors are specifically instructed to assess whether the corporation is protecting its employees:

[A] corporation's promise of support to culpable employees and agents, either through the advancing of attorneys fees, through retaining the employees without sanction for their misconduct, or through providing information to the employees about the government's investigation pursuant to a joint defense agreement, may be considered by the prosecutor in weighing the extent and value of a corporation's cooperation. (17) Particularly important is "whether the corporation, while purporting to cooperate, has engaged in conduct that impedes the investigation...." (18) Included among the examples of improper behavior are "overly broad assertions of corporate representations of employees." (19)

The Thompson Memorandum has had a significant effect on organizations involved in federal investigations, for, as the demise of the accounting firm Arthur Andersen demonstrates, indictments can be lethal, even for venerable institutions. The 2002 indictment of that company and its subsequent conviction for obstruction of justice caused the 90-year old entity to implode. Thus, the possibility of avoiding indictment creates a strong incentive for business organizations to cooperate in government investigations. Cooperation is also recognized as a factor that...