Manhattan’s top federal prosecutor says corporate America — especially financial institutions — will do almost anything to avoid a tough enforcement action, but their doomsday claims are sounding more like a “Chicken Little” routine unlikely to shield them from criminal prosecution.
US Attorney Preet Bharara told a conference of securities compliance officers in Florida on Monday that no corporation should receive a “get-out-of-jail-free card based on size,” though he added that there may be “extremely compelling reasons” why for the sake of innocent third parties a disposition short of a criminal charge is sometimes appropriate.
He said he believes the “pendulum has swung too far and needs to swing back a bit” from the thinking that large corporations must be protected from prosecution after 85,000 workers lost their jobs when the Chicago-based accounting firm Arthur Andersen was convicted criminally. The Supreme Court later overturned the 2002 conviction.
“We view with more and more skepticism and with more and more doubt all the breathless claims of catastrophic consequences made by companies both large and small,” Bharara said. “Effective deterrence sometimes requires that institutions be punished, because sometimes it is the institution that has failed.”
He cited recent events including a jury verdict against Bank of America for reckless mortgage lending practices, the filing of deferred criminal charges against JPMorgan Chase & Co. in connection with Bernard Madoff’s massive fraud, deferred charges against Toyota Motor Corp. in connection with how it dealt with a rapid acceleration problem in some vehicles and a guilty plea by SAC Capital in a case of unprecedented insider trading.
In written remarks released after he spoke to the Securities Industry and Financial Markets Association’s Compliance and Legal Society Annual Seminar in Orlando, Bharara said companies “have a natural and powerful incentive to make prosecutors believe that death or dire consequences await on the other side” of a criminal action.
“I have heard assertions made with great force and passion that if we take any criminal action, the skies will darken; the oceans will rise; nuclear winter will be upon us; and the world as we know it will end,” he said.
“They predict that the stigma and reputational damage from any criminal action — even a deferred prosecution — will be too much to bear: the stock price will plummet; clients will vanish; customers will flee; key employees will quit; and senior executives will be so ashamed to be associated with a criminal resolution that they themselves may have to consider whether they can even stay on as leaders,” he said.
The reality, he said, is often much different.
“As we had suspected, the sky does not fall,” he said. “In fact, sometimes the sky brightens: stock prices remain steady, or go up, as the company is viewed as putting problems ‘behind it;’ clients and customers and key employees don’t even bat an eye; and sometimes, the CEO even gets a raise. And so, this repeated Chicken Little routine, I will tell you, begins to wear thin.”
Bharara said his office tracks whether any of the misfortunes predicted by companies materialize. Then, he said, he sends letters to those who made drastic claims to keep them honest and to discourage others from making similar exaggerated claims.