White Collar Criminal Defense Group

DOJ Criminal Chief Reinforces New Focus On Individuals In Corporate Investigations And Prosecutions

On Tuesday, Assistant Attorney General Leslie R. Caldwell expanded upon DOJ’s new policy focus on pursuing individuals in connection with the prosecution of corporate wrongdoing.  Assistant Attorney General Caldwell, speaking to the Second Annual Global Investigations Review Conference in New York, took the opportunity to throw the spotlight on the policy shift that was previously introduced by Deputy Attorney General (DAG) Sally Quillian Yates in remarks she delivered on September 10, and formalized in a September 9 memorandum to all department attorneys, entitled “Individual Accountability for Corporate Wrongdoing.”

While indicating that the policy announcement by DAG Yates was simply a reinforcement of what the Department has been doing for a long time, Assistant Attorney General Caldwell indicated that the policy shift does forcefully focus all federal prosecutors on pursuing individual accountability for corporate criminal misconduct.  She said that “prosecuting the corporate entity, and imposing a fine or other impersonal conditions, simply is not enough – in most instances – to fully punish and, more importantly, deter corporate misconduct.”

Assistant Attorney General Caldwell illustrated how she sees this new focus playing out, citing previous cases settled by the Department, including the resolution of the FCPA matter involving Alstom, S.A., the French power company, in December of 2014.  Alstom entered a plea of guilty to violating the FCPA, and agreed to pay a penalty of $772 million.  Its Swiss subsidiary pleaded guilty to conspiracy to violate the anti-bribery provision of the FCPA, and two U.S.-based subsidiaries also admitted to conspiring to violate the FCPA and entered into Deferred Prosecution Agreements (DPAs).  She added that the Alstom investigation resulted in criminal charges against five individuals, including four corporate executives, in connection with the bribery scheme.  She explained that the final global corporate resolution with Alstom was based, at least in part, on what she described as the company’s failure to voluntarily disclose the misconduct and its refusal to cooperate with the investigation until years later, after several company executives had been charged.

Ms. Caldwell also discussed agreements made earlier this year in two other FCPA cases, IAP Worldwide Services (IAP) and Louis Berger International.  In both cases, the companies paid a significant financial penalty, but each was permitted to enter into agreements without prosecution – a non-prosecution agreement (NPA) in the case of IAP Worldwide Services, and a DPA in the case of Louis Berger International.  Assistant Attorney General Caldwell indicated that the factors considered in entering into these agreements included the following:

           1) The companies’ cooperation with the investigations, including            voluntarily making U.S. and foreign  employees available for interviews  and collecting, analyzing and organizing key evidence;

           2) The companies’ extensive remediation efforts, including terminating the employees responsible for corrupt payments; and

           3) The companies’ demonstrated commitment to improving their            compliance programs and internal controls.

She added that both companies agreed to continue to cooperate in ongoing investigations of their officers, directors, employees, agents and consultants.

Assistant Attorney General Caldwell said that she did not see any basis for concern that the new policy guidance will require companies to conduct ever more extensive and expensive investigations.  In explaining this point, she said “we are not asking companies to boil the ocean every time they find evidence of wrongdoing.”  Rather, she indicated that it has long been the department’s policy that they expect investigations to be thorough and to be tailored to the scope of the wrongdoing.

On the often controversial issue of whether demands for cooperation include a requirement that corporations waive privilege, she said she wanted to “make clear that the new guidance does not change existing department policy regarding attorney/client privilege or work product privilege.”  She said that prosecutors will not request a corporate waiver of these privileges in connection with the corporation’s cooperation. 

Assistant Attorney General Caldwell asserted that the new policy guidance builds upon the core considerations of the existing principles of federal prosecution, “but also represents a strong step forward to promote and better reflect the importance of individual accountability.”  She indicated that it may be that counsel dealing with the criminal division and investigations of corporate wrongdoing may not ultimately see the new policy guidance as anything radical. 

The full text of Assistant Attorney General Caldwell’s remarks can be found here.

Former Peanut Company President And Two Others Sentenced For Roles In Salmonella-Tainted Product Outbreak

On Monday, two former officials and one broker for the now defunct Peanut Corporation of America (“PCA”) were sentenced by Senior U.S. District Judge W. Lewis Sands of the Middle District of Georgia for their roles in a conspiracy to defraud customers by shipping salmonella-positive peanut products.  Stewart Parnell, the former owner and president of PCA, was sentenced to serve 336 months (28 years) in prison.  Michael Parnell, a food broker who worked on behalf of PCA and is Stewart Parnell’s brother, was sentenced to 240 months, and Mary Wilkerson, who held various positions at PCA, including quality assurance manager, was sentenced to serve 60 months.  Judge Sands indicated that he will issue a restitution order at a later date.

The Parnell brothers were convicted by a federal jury on September 19, 2014, of multiple counts of conspiracy, mail and wire fraud and the sale of misbranded food.  Stewart Parnell was also convicted of the introduction of adulterated food into interstate commerce.  Stewart Parnell and Mary Wilkerson were also convicted of obstruction of justice.

Expert evidence at trial showed that tainted food led to a salmonella outbreak in 2009 with more than 700 reported cases of salmonella poisoning in 46 states.  The Centers for Disease Control and Prevention (“CDC”), estimated that, based on epidemiological projections, that number translates to more than 22,000 total cases including 9 deaths.  Judge Sands found at the time of sentencing that steps taken by the CDC to link reported illness to the specific strain of salmonella found in PCA products established that Stewart and Michael Parnell’s conduct was the proximate cause of the victims’ illnesses.

According to the government, evidence presented at trial established that Stewart and Michael Parnell, along with others, participated in several schemes by which they defrauded PCA customers and jeopardized the quality and purity of their peanut products.  Specifically, the government presented evidence that, on several occasions, the Parnells and others participated in a scheme to fabricate Certificates of Analysis (COAs) that stated that the food at issue was free of pathogens when in fact there had been no testing of the food or tests performed had actually revealed the presence of pathogens.

According to a report on the sentencing hearings by USA Today, the proceedings lasted the entire day and featured impassioned pleas for severe punishment from families of victims killed or injured by the salmonella outbreak, counterpointed with requests for leniency from relatives and supporters of defendants.  Addressing the court in his own behalf, Stewart Parnell apologized to victims and their families. 

In an interview with USA Today prior to the sentencing, Parnell’s attorney indicated that the potential life sentence at issue prior to the hearing, was “absurd.”  He added that the recommendation in this regard by the U.S. Probation Office was based on speculative losses, and questioned whether medical evidence had substantiated the victim count.  According to the USA Today, he added, “the truth of the matter is Stewart Parnell ate the peanut butter; he fed it to his children and fed it to his grandchildren; he never intended to harm anyone.”

Although restitution was put off to a later ruling, Judge Sands did write in his judgment of sentence in each case that Stewart Parnell and Wilkerson should bear responsibility for just under $200 million in losses and that Michael Parnell should bear responsibility for just under $50 million in losses.  According to the USA Today, Judge Sands calculated Stewart Parnell’s potential maximum sentence at 803 years in prison, but imposed a lesser, but still severe punishment after telling courtroom participants and spectators that “this is not a murder case.”

DOJ claims that Stewart Parnell’s sentence is the largest criminal sentence ever imposed in a food safety case.  Two other defendants in the case, former PCA plant processing manager Samuel Lightsey and operations manager Daniel Kilgore, entered pleas of guilty prior to trial in exchange for favorable sentencing recommendations or concessions by the government.  Lightsey and Kilgore are scheduled to be sentenced by Judge Sands on October 1.