A push down the road of good corporate citizenship: the deferred prosecution agreement between the U.S. attorney for the District of New Jersey and Bristol-Myers Squibb Co.

• Author: Christie, Christopher J.

Corporate fraud cases present prosecutors with a particularly complex mix of considerations to analyze and ultimately balance in order to appropriately resolve allegations of corporate wrongdoing. The range of options available to prosecutors in the corporate context is broad. Charging options include indictment, negotiated plea agreements and, increasingly, deferred prosecution agreements. Other options include non-prosecution agreements, deference to purely civil resolutions (such as compliance agreements and consent decrees with regulatory agencies), and unadorned declinations of prosecution.

In contrast to the far more rigid criminal sentencing process, deferred prosecution agreements allow prosecutors and companies to work together in creative and flexible ways to remedy past problems and set the corporation on the road of good corporate citizenship. They also permit us to achieve more than we could through court-imposed fines or restitution alone. These agreements, with their broad range of reform tools, permit remedies beyond the scope of what a court could achieve after a criminal conviction.

In June 2005, the United States Attorney's Office for the District of New Jersey entered into a deferred prosecution agreement (1) with Bristol-Myers Squibb Company, (2) a Fortune 100 pharmaceutical company and a major New Jersey employer. (3) The agreement resolves allegations of a fraudulent earnings management scheme involving, among other things, a practice commonly referred to as channel stuffing. (4) The Bristol-Myers' deferred prosecution agreement, we believe, achieves the goals of general and specific deterrence, full disclosure to the investing public, carefully targeted reform of a corrupted corporate culture, and restitution to victim shareholders, while minimizing collateral consequences on tens of thousands of Bristol-Myers' law-abiding employees and current shareholders. No fine was imposed; the intent was to avoid penalizing innocent employees and shareholders any further. Importantly, the agreement achieves these aims without interfering with Bristol-Myers management's ability and obligation to run its business in the best interests of all Bristol-Myers stakeholders.

This essay also reveals our view that, in an investigation like Bristol-Myers, the personal involvement of the U.S. Attorney, in this case Christopher J. Christie, is both advisable and warranted. When dealing with a major corporation accused of significant felonies, where the issues of attorney-client privilege and the failure of the corporation to compile a comprehensive internal investigative report are implicated, the U.S. Attorney needs to determine how to proceed regarding such major policy concerns. Counsel for the corporation are going to want opportunities to personally argue their client's positions to the U.S. Attorney. Finally, if any resolution of the investigation includes a significant commitment by the board of directors to the requirements of the deferred prosecution agreement, the U.S. Attorney may want to meet personally with the board to gauge their resolve to implement the proposed remedies. (5) This was done in the case of Bristol-Myers and gave us invaluable insight into the workings and mind-set of the board. It also gave us great insight into the role of the board in both the creation of the issues involved in the investigation and the failure to uncover the conduct sooner.

This essay explores this particular exercise of prosecutorial discretion. It starts by discussing the framework--most notably the Thompson Memo (6)--that federal prosecutors use during the decision-making process. Second, the paper provides background on the Bristol-Myers case and the eventual deferred prosecution agreement. An analysis of the decision-making process of the U.S. Attorney's Office in this case serves as a vehicle for discussion of the issues and goals prevalent in corporate criminal prosecutions, including transparency, corporate culture and governance, outside oversight, public notice, and restitution. Lastly, the essay draws conclusions about the unique value of deferred prosecution agreements and the advantages that they offer the government and corporate America.

At a minimum, the answers to these and other questions about the Bristol-Myers deferred prosecution agreement will provide insights into the process of negotiating a deferred prosecution agreement. Corporations and their counsel should understand that prosecutors view such an agreement as a unique opportunity to right a listing corporate ship and strengthen the economic engines of our federal districts and nation. This essay also provides guidance to the corporate community about how to prevent corporate misdeeds from occurring in the first place and, in the event wrongdoing nevertheless occurs, how to deal with it swiftly and effectively. After all, negotiating favorable terms for deferral of prosecution comes in a distant second to altogether avoiding discussions about prosecution, deferred or otherwise.

THE STARTING POINT: DOJ's THOMPSON MEMO

Federal prosecutors look to the Thompson Memo for guidance in corporate fraud investigations. While the Thompson Memo does not attempt to detail circumstances and factors that should lead a prosecutor to choose deferral of prosecution, or discuss appropriate terms for a deferred prosecution agreement, its analytical framework applies in all corporate fraud investigations. The Thompson Memo urges federal prosecutors to carefully consider whether a business organization should bear criminal responsibility for the wrongdoing of its directors, officers, employees or agents. (7) It lays out nine factors that should be considered in assessing corporate responsibility: (8)

1. The nature and seriousness of the offense, including the risk of harm to the public.

2. The pervasiveness of wrongdoing within the corporation, including the complicity in, or condonation of, the wrongdoing by corporate management.

3. The corporation's remedial actions, including any efforts to implement an effective corporate compliance program or to improve an existing one, to replace responsible management, to discipline or terminate wrongdoers, to pay restitution, and to cooperate with the relevant government agencies.

4. The corporation's timely and voluntary disclosure of wrongdoing and its willingness to cooperate in the investigation of its agents, including, if necessary, the waiver of corporate attorney-client and work product protection.

5. The corporation's history of similar conduct, including prior criminal, civil, and regulatory enforcement actions against it.

6. The existence and adequacy of the corporation's compliance program.

7. Collateral consequences, including disproportionate harm to shareholders, pension holders and employees not proven personally culpable, and impact on the public arising from the prosecution.

8. The adequacy of the prosecution of individuals responsible for the corporation's malfeasance.

9. The adequacy of remedies such as civil or regulatory enforcement actions.

The Thompson Memo is a useful tool to both prosecutors and corporate counsel. By identifying and discussing the factors federal prosecutors should consider in the corporate fraud context, the Thompson Memo promotes thoroughness and consistency throughout the far-flung Department of Justice and allows corporate counsel to take action to prevent wrongdoing from occurring in the first place. Where wrongdoing does occur despite a corporation's best efforts, the Thompson Memo lays out a framework to respond promptly and effectively. Broadly considered, the Thompson Memo defines a model of good corporate citizenship that all business organizations would do well to follow.

The core message of the Thompson Memo is that good corporate citizenship should be rewarded and bad corporate citizenship should be punished. Good corporate citizens, for example, encourage and reward their employee's ethical behavior. Their compliance programs are not merely unused manuals gathering dust, but rather active, companywide commitments to train employees about doing the right thing. If allegations of wrongdoing surface, a good corporate citizen promptly and thoroughly investigates and, where warranted, takes appropriate remedial action.

In stark contrast to good corporate citizens, bad corporate citizens are often business organizations whose upper echelons direct criminal activity. These are companies that respond to law enforcement investigations by destroying documents and other evidence. They turn a blind eye to corporate compliance in favor of the bottom line. They stonewall external investigations; they give perfunctory attention to internal investigations; they cooperate with investigators in name only. In the real world, of course, there are infinite shades of gray between good corporate citizens and bad corporate citizens. Our job as prosecutors is to decide where the conduct falls within that spectrum, and what the appropriate remedy is for the conduct at hand.

Many options are available to federal prosecutors when dealing with corporate wrongdoing. If no criminal conduct can be proven, then coordination with the Securities and Exchange Commission on a civil remedy, such as a combination of restitution and fine, may be the most appropriate resolution. When criminal conduct by certain individuals can be proven, but that conduct is neither taken by senior office holders nor does it comprise a systemic part of the organization, then indictments against the culpable individuals may be the only appropriate course of action. When criminal conduct by senior corporate offices establishes a culture of criminal behavior in the corporation, then charges against the corporation must be considered in addition to individual indictments.

The Thompson Memo directs federal prosecutors to evaluate all pertinent facts and circumstances, measuring the conduct of the corporation's...