Shielding Yourself Against Fraud

The lawyer who helped get HealthSouth ex-CEO Richard Scrushy acquitted of fraud charges says all CFOs should safeguard themselves against a likely rise in corporate investigations.



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Inside corporations, the financial crisis has sparked a renewed interest in the talents of CFOs, who are expected to come up with ways to simultaneously cut costs and offer growth plans during lean times. But the credit crunch likely will also attract unwanted attention from outside forces, as companies in all industries, struggling during the downturn, could be subject to greater scrutiny by prosecutors and regulators, according to defense attorney James Parkman, whose most infamous client was Richard Scrushy, the former HealthSouth CEO acquitted of the health-care provider’s $2.7 billion fraud earlier this decade.

Parkman put a roomful of senior finance executives on notice during the CFO Rising conference in Orlando this week, warning them that their careers and reputations are at risk if they don’t take personal and professional measures to protect themselves. “Corporate executives — especially CFOs — have the deadliest job in the world today,” Parkman said.

To be sure, CFOs at publicly traded companies don’t risk their lives when they walk into their office every day. Still, they do put their professional futures on the line every time they certify their companies’ financial statements as required under the Sarbanes-Oxley Act. Parkman warned that, to avoid legal liability, CFOs need to educate employees on their companies’ compliance policies, be on the constant lookout for fraudulent behavior, and take precautions in case they ever become part of a criminal or civil investigation.

Parkman contends that because of the public’s heightened interest in the financial crisis – including questions about financial institutions’ risky lending policies, executive compensation at government-assisted banks, and the recently uncovered high-profile Ponzi-style schemes — finance departments across industries will be dissected by U.S. investigators eager to appease political headwinds. He warned that even CFOs innocent of wrongdoing should be worried as any investigation could cost them their job and cut into their personal finances, because they may be considered ultimately responsible if fraud happens on their watch. “Cases like [HealthSouth's] — even if you’ve done nothing wrong — can ruin you,” he said.

The decade-old guidelines that U.S. prosecutors follow when considering a company’s cooperation regarding indictment decisions have been softened somewhat in favor of employees’ constitutional rights, say some legal experts. The memorandum that contains the guidelines — which was originally crafted during the Clinton administration by Eric Holder, the new attorney general — now restricts how prosecutors can seek privileged information from companies. Still, critics like Parkman believe the guidelines, under Holder’s supervision, could continue to be used to coerce companies into refusing to pay employees’ legal fees or terminate employees, including CFOs, suspected of wrongdoing.

Parkman recommended that CFOs buy their own directors’ and officers’ insurance policy so that they will be covered during any type of investigation, even if their company files for bankruptcy protection and loses its D&O policy.

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