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Resist or cooperate? The enduring dilemma for the corporate defendant: my experience suggests that resisting the investigation almost always leads to a better result for the company than had it surrendered at the outset.

On any given day, countless corporations and their officials are under criminal investigation by federal and state prosecutors or agency officials. Almost every corporate official and board member will, at some point, have to confront the question of whether it is better to surrender and buy peace or better to resist and defend in court ... or at least prepare to defend in court.


I understand that there are many, both in my profession and in the business community, who would argue that resistance is not an option. And, admittedly, they could point to myriad incentives to acknowledging wrongful conduct quickly and cooperating with the government, whatever the cost and whatever the outcome. Their view is that the risk of trial and conviction with substantial penalties, as well as debarment or exclusion under federal law, all accompanied by incessant adverse publicity, is too great to bear. Nevertheless, my experience suggests that resisting the investigation almost always leads to a better result for the company than had it surrendered at the outset.

The principal objective of resistance is the development of defenses and other legal obstacles to convince the government to agree to settlement terms better than those that would be achieved through instant cooperation. There is no secret to this process: the only tactic available is to make the government just as fearful of the eventual outcome of the investigation as you are. The more insecure the government becomes about its case, the better chance for a successfully negotiated outcome.

When a corporation rushes to disclose to the government the results of its own internal investigation, or signals a desire to resolve the government's allegations early, the wrong message is sent. The most that can be said for such an approach is that fear of the unknown is traded for certainty, but that certainty is both expensive and painful.

The Justice Department's internal guidance to prosecutors in deciding whether to charge corporate defendants embraces a strategy of seeking deferred prosecution agreements rather than convictions if the organization commits to a rehabilitative program and adopts corrective action. But cooperation is very expensive and includes resource-intensive review and production of enormous amounts of documents and access to all relevant (and some irrelevant) corporate employees. More important, the early cooperation strategy forces corporations under investigation to make critical decisions early--perhaps even before the corporate decision-makers themselves know the relevant facts. A decision to begin cooperating immediately also eliminates any chance the corporation would have of mounting an effective defense. In addition, the costs of settlement and structural reform can be immense. Under deferred prosecution or cooperation agreements, the cooperating company will likely obligate itself to undertake extensive compliance or monitoring programs. These can last for years, sending costs skyward and spinning off new problems, issues and inquiries.

The Risk of Losing

It is important to understand that government prosecutors are well aware of the risks associated with going to trial. The foremost risk is the risk of losing, and if their adversary is a successful trial lawyer, they are more fearful of losing. It is possible to rob government prosecutors of their confidence through a combination of tactics, including treating the prosecutors to ongoing presentations of well-reasoned and well-written arguments which expose legal and factual flaws in the government's theories; by pointing out mistakes and misconduct in their investigation and, if necessary, by winning challenges to an indictment or complaint or by winning other pre-trial motions based on evidentiary objections and theories of defense.

Because a corporation will always have easier and quicker access to its personnel and its documents than the investigating agents, it will have an unquestionable advantage and the ability not only to learn more than the government knows, but also to understand what the government is learning--and what it is missing. In addition, in many settings, the company's defense team will possess more experience, imagination and creativity than the government's lawyers. The result is that experienced and seasoned counsel can almost always develop legal and factual theories of defense which prosecutors might not anticipate or be well prepared to meet.

Moreover, signaling that the company will not choose settlement and cooperation at all costs may cause prosecutors to rethink their own cost-benefit analysis. The government has limited resources, which it seeks to leverage by inducing cooperation. When a corporation refuses to cooperate, the investigation requires a substantially heavier investment of government time and money. Actually charging a defendant and trying the case drains even more resources. When faced with a non-cooperating defendant, a prudent prosecutor may be motivated to confront the weak links in his or her case and to offer improved settlement terms. The bottom line in almost all cases is that good prosecutors often are willing to listen and evaluate good defense arguments despite their bravado and their constant refrain that "the train has left the station." The reason for that refrain is that time is hardly ever an ally of the government.

At Trial

If a corporation is forced to trial, there are still options. Although there are certainly exceptions, many of the prosecutors who won't listen usually are overly optimistic, inexperienced or otherwise unable to see the flaws in their cases. Experience teaches that the government's evidence and legal theories almost never improve during a trial. Prosecutors frequently overcharge and over try their cases, trying to prove too many violations or crimes by calling too many witnesses and introducing too many documents, often causing exasperation on the part of the judge and jury. Contrary to popular belief, many prosecutors possess relatively little experience in complex trials. If they become overzealous, they are prone to make serious mistakes in tactics and judgment. And a potential defendant should never underestimate how seriously jurors worry about fundamental fairness and dislike any notion of the government "piling on." Finally, even if the corporation loses at trial, the fact remains that very often the jury's verdict on liability or the sentence of the court is far less severe than the government's settlement offer.

That leaves us with the risks of debarment or exclusion which are, in my view, overstated. Since the 1990s, only a handful of large contractors have been suspended, and many of them had engaged in egregious misconduct on a large scale--think of Worldcom and Enron. Many other large contractors have undergone suspension or debarment for only a brief period of time--GE for five days, and more recently IBM for a period of eight days in 2008. These companies are so big and so important that the government cannot live without them. Significant contractors have a high probability of obtaining a waiver of suspension or debarment if adequate, alternative supplies are unavailable or if no other contractor can provide the goods or services in a timely manner. For instance, during an unusually long 20-month suspension beginning in 2003, Boeing received multiple waivers for contracts totaling over $100 million. Finally, suspension and debarment are to be imposed only to protect the government from contractors that are not presently responsible. Thus, while misconduct may result in criminal or civil liability, a corporation which is able to demonstrate that it has remedied wrongdoing should be eligible to compete for contracts going forward.

Perhaps the least quantifiable factor that drives companies to cooperate is the fear of adverse publicity that might accompany a trial or conviction. However, bad press, a depressed stock price and shareholder suits are equally likely to follow full cooperation with an investigation and eventual settlement. Efforts to minimize the risk of adverse publicity have to be realistic and measured against the prospects of achieving more attractive settlement terms and the chance for ultimate vindication at trial.

I understand that the risk-benefit analysis suggested herein is delicate, but corporations, boards, and executives under investigation should never fail to undertake a serious analysis of whether they could improve any outcome by resisting the government's charges.

Thomas C. Green for many years managed Sidley's federal and state investigation and white collar defense practice group in Washington, D.C. Mr. Green is a nationally known and highly regarded trial lawyer who has tried countless complex criminal and civil cases. In June of 2009, Chambers and Partners selected Mr. Green for its USA Award for Excellence in the field of White Collar Criminal Defense and Government Investigations. In June of 2010, he was featured in the National Law Journal as one of 11 "Winning" litigators in the United States, and in October of 2010, Ethisphere Magazine named Mr. Green to its Hall of Fame honoring "Attorneys Who Matter" in the United States. In 2003, in a nationwide poll conducted by Corporate Crime Reporter, Mr. Green was selected as one of the top five white collar defense lawyers in the United States. He has been selected by his peers over 25 successive years for inclusion in the top tier of "Best Lawyers in America," and was recently named Best Lawyers' 2011 Washington, D.C. White Collar Lawyer of the Year.
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Author:Green, Thomas C.
Publication:Directors & Boards
Geographic Code:1USA
Date:Dec 22, 2010
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