David Nelson, director for the SEC’s Southeast region, agrees. “The receptiveness of the DoJ is higher down here now than at any time before,” he says. A cross-training program that puts one of his staff members in the Miami U.S. Attorney’s office full-time has already boosted the flow of SEC cases to the DoJ, he says, and he expects to see it increase thanks to the encouragement from Washington.
So far, neither Degenhardt nor Nelson has scored an indictment as a result of these partnerships. But the fruits of such collaboration can be seen in central California, where efforts between Yang’s office and the Los Angeles SEC branch office have produced four indictments and five guilty pleas against the corporate officers at four companies — Homestore.com, eConnect, Motorcar Parts & Accessories, and Newcom — since last July. “The old model, in which we finish our own investigation, bring our case, and then make a referral to the U.S. Attorney’s Office, often no longer applies,” says Randall R. Lee, director of the SEC’s Pacific region. Instead, “we’ll call criminal authorities immediately” when an SEC case seems to have criminal elements.
Lines of Cooperation
So what’s the best advice for companies and finance executives in dealing with this new united front? Lie down and roll over, say lawyers. “One of the few ways a company or an individual can gain any benefit with prosecutors is by cooperating with them,” says Handzlik.
In fact, the access a company is willing to give the government to its employees and to its information can actually determine whether or not charges are pressed against the entity, say prosecutors, as well as how high the fines should be. “When a company walks in and says, ‘Here are the books, and all witnesses are available,’” says Patrick Fitzgerald, U.S. Attorney for the Northern District of Illinois, “that’s a very important factor in deciding whether or not to charge them if we find a crime took place.”
Such conduct is what made Homestore.com, an online real-estate concern, such a model cooperator, say authorities. Although four of the company’s former executives, including two former CFOs, were charged for a scheme to buy revenues, “we did not charge the company, in large part because of its behavior,” says Yang. “When we started investigating, they turned over all their documents without trying to hide anything, and they made an effort to root out the cause of the problem by getting the officers out of there.” Safety-Kleen Corp. and Aurora Foods Inc. also managed to avoid corporate charges when their executives were indicted.
Cooperation is not risk free, however. First, it carries with it no guarantees of leniency. Arthur Andersen signed its own death warrant by admitting to authorities that its Houston office had destroyed documents, say many attorneys, based on the fact that it later sank on a single charge of obstruction of justice related to the shredding. A similar situation now appears possible at Credit Suisse First Boston, according to published reports, where company-produced E-mails now look likely to be the basis of charges against former investment banker Frank Quattrone.