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Justice Department officials yesterday vowed to unravel the complex financial deals that helped prompt a market crisis in an effort that will generally seek criminal charges against individual brokers and bankers, rather than companies themselves, according to interviews with lawyers involved in the cases.
Mindful of the fallout from the last wave of business fraud cases six years ago, authorities are leaning against seeking indictments of major banks and insurers that may have inflated the value of their mortgage-related investments.
Yet the tenor is markedly different from the last wave of financial scandals, which began with the indictment of accounting firm Arthur Andersen six years ago. The firm swiftly collapsed, costing tens of thousands of jobs. More recently, corporate executives and civil liberties advocates pressed for legislation that would bar strong-arm prosecution tactics. In August, Filip issued guidance that reminds prosecutors to consider the rights of corporate employees.
Among other factors, the guidelines require government lawyers to take into account the health of a business when they make decisions about whether to file criminal charges. Given the current landscape, with Lehman in bankruptcy proceedings, Fannie Mae and Freddie Mac under federal control, and AIG surviving only after an $85 billion infusion from the Treasury, lawyers with experience in such cases predict few major criminal prosecutions of businesses.
Take, for example, a salesperson at a pharmaceutical company who asks the general counsel's office whether her marketing practices are lawful under a complex set of federal statutes. Permitting and respecting the need for such attorney-client communications is critical, because they are often a necessary, and typically a salutary, part of a company's effort to obey the law on an ongoing basis. The new guidance forbids prosecutors from asking for such communications, with only two exceptions, both of which are well-recognized in existing law.
Fifth, prior guidance allowed prosecutors to consider whether a corporation retained or sanctioned employees for the purpose of evaluating cooperation. That is now disallowed.