White Collar Criminal Defense Group

Alert: Policy And Personnel Changes At The Department Of Justice

By now, all lawyers involved in federal white collar criminal practice have either heard of, or read in detail, the “Yates Memo” issued by the Department of Justice in September 2015.  Perceived as a response to the financial crisis in recent years and the lack of individual criminal and civil liability, Deputy Attorney General Sally Quillian Yates authored a detailed memorandum outlining a shift in Department policy.  The United States will now seek to hold individuals accountable for corporate wrongdoing.  In years past, all too often the government resolved criminal investigations of corporate entities with a corporate plea or deferred prosecution agreement, a civil settlement agreement, a stiff fine, and perhaps the installment of a compliance monitor within the company.  The civil settlement agreements often included releases of owners, officers, directors, and employees of the same corporations.  Those days are done according to Deputy Attorney General Yates.

In a pair of recent public appearances, top Department Officials have announced important changes in policy and personnel as a result of government’s new initiative.  First, in a speech delivered to the American Bankers Association and the American Bar Association on November 16, 2015, Deputy Attorney General Yates announced that the Department of Justice is revising the stone tablets that comprise the United States Attorney’s Manual.  First, the Department is revising the Principles of Federal Prosecution of Business Organizations (commonly referred to as the Filip factors) to emphasize the primacy in any corporate case of holding individual wrongdoers accountable.  If a company wants any credit at all for cooperating with the investigation, it must provide all non-privileged information about the individual wrongdoing.  The government is now separating what used to be a single factor regarding a corporation’s voluntary disclosure and its willingness to cooperate into two distinct factors: one regarding a company’s timely and voluntary disclosure and one regarding cooperation.  Additionally, the Department of Justice is amending the Manual to instruct its civil attorneys to follow the same factors as its criminal attorneys, and an inability to pay is not in and of itself a reason to decline a civil case: “Just because wrongdoers are judgment-proof doesn’t mean they should escape all judgment.”

Second, in a speech delivered on November 17, 2015 to a seminar for attorneys focused on the Foreign Corrupt Practices Act (“FCPA”), Assistant Attorney General Leslie Caldwell announced that the Department of Justice is seeking to hire 10 prosecutors to add to its FCPA unit.  This represents a 50% increase in its labor force.  Assistant Attorney General Caldwell made specific reference to the principles of the Yates memo when she told the attendees of the seminar, “Companies cannot just disclose facts relating to general corporate misconduct and withhold facts about the individuals involved…And internal investigations cannot end with a conclusion of corporate liability, while stopping short of identifying those who committed the underlying conduct.”  Certainly with the inevitable increase in the number of individual prosecutions, the Department will need more attorneys to review corporate disclosures and try cases.  Assistant Attorney General Caldwell’s comments make that connection clear.

SEC Settles With St. Joe Company And Former Top Execs On Charges Of Improper Accounting Of Real Estate Assets During Financial Crisis

The SEC recently announced the settlement of charges against The St. Joe Company, as well as 5 former officials, including its former CEO and CFO.  The charges related to allegations that the Florida-based real estate developer and its top officials failed to properly apply generally accepted accounting practices to St. Joe’s real estate investment holdings. Specifically, St. Joe and its senior executives repeatedly failed to take required write-downs on the value of properties hit hard during the financial crisis. As a result, according to the SEC, St. Joe continuously filed financial statements with the SEC that materially overstated earnings and assets in 2009 and 2010, thereby depriving investors of critical information required to make informed investment decisions.

St. Joe was originally founded as a timber company by an heir to the DuPont chemical-company fortune over 75 years ago. In the 1990s, the company spun-off its forest management and railroad manufacture businesses and, with the help of a former Walt Disney Co. real estate executive as its new CEO, began the rise to power as a Florida real estate development company.

The value of St. Joe’s real estate holdings, and the company’s share price, fell drastically between 2006 and 2011 as a result of the housing downturn. During this time, David Einhorn of Greenlight Capital – which held a significant and notorious short position in St. Joe’s stock – was an outspoken critic of St. Joe’s company finances and the purported value of its land holdings. Ultimately the SEC, acting upon similar concerns, instituted its action against the company and top officials. 

St. Joe and the 5 executives neither admitted nor denied the SEC’s findings but consented to the entry of the settlement order, which found that they violated or caused the violation of, among other provisions, the negligence-based antifraud provisions, and the books-and-records, reporting, and internal controls provisions, of the federal securities laws. As a result, in addition to St. Joe’s $2.75 million settlement, the combined penalties agreed to be paid by the executives totals $335,000.  They also agreed to pay $640,000 in disgorgement, plus prejudgment interest.  Four of the former executives also agreed to be suspended from appearing and practicing before the SEC as an accountant for a number of years.

The SEC has indicated that its investigation into this matter continues.