Mark Rothko, No. 8 (1952)

1. Mark Rothko, No. 8 (1952)

2. Module V – Corporate Externalities Chapter 12Corporate Criminality Bar exam Corporate practice Law profession Potential criminal actors Corporate agents Corporate supervisors Corporate entity Corporation as criminal Finding corporate intent Fines borne by Shs Corporate supervisors as criminals Strict liability Legal compliance programs Sentencing guidelines Citizen of world Chapter 12 Corporate Criminality

4. How can corporation be criminal? DGCL § 122. Specific Powers Every corporation created under this chapter shall have power to: (4) Purchase and own property (8) Conduct its business (12) Transact any lawful business (13) Make contracts (14) Lend money Chapter 12 Corporate Criminality

5. Who is responsible in corporation? Investors Contract/tort creditors Mgmt Gov’t regulator Corporateentity Criminalprosecutor Chapter 12 Corporate Criminality

6. Who is responsible in corporation? Investors Contract/tort creditors PCV PCV Mgmt Gov’t regulator Corporateentity Criminalprosecutor Chapter 12 Corporate Criminality

7. Who is responsible in corporation? Investors Contract/tort creditors PCV / direct? Mgmt Gov’t regulator Corporateentity Criminalprosecutor Chapter 12 Corporate Criminality

8. Who is responsible in corporation? Investors Contract/tort creditors Mgmt Gov’t regulator Corporateentity (employees) Criminalprosecutor Chapter 12 Corporate Criminality

9. Classic sociopathic personality: manipulating, grandiose, lacking in empathy, denies responsibility for its actions, and cannot feel remorse … Corporations: A Contemporary Approach Chapter 12 Corporate Criminality Slide 9 of 15

10. State v. Christy Pontiac-GMC(Minn 1984) Chapter 12 Corporate Criminality

11. Jim Christy “same charge” Board Criminalprosecutor Corporation Officers theft + aggravated forgery 4 felony counts Phil HesliGary Swandi Chapter 12 Corporate Criminality

12. Jim Christy Dismissed (lack probable cause) Board Bench trial Corporation Officers Guilty on 4 counts: theft + aggravated forgery Acquitted on 3 counts (guilty on 1 count - misdemeanor) Phil Hesli Chapter 12 Corporate Criminality

13. Can corporation be criminal? “Unless legislature expressly excluded corporations from criminal liability … corporations are to be considered persons within the meaning of the Criminal Code.” Corporate criminal intent? “Corporation can be liable in civil tort for both actual and punitive damages for libel, assault and battery, or fraud, … also criminally liable for conduct requiring specific intent.” State v. Christy Pontiac-GMC (Minn 1984) Chapter 12 Corporate Criminality

14. How show criminal intent? agent acting within course/scope of employment, having authority to act for corporation wrt particular corporate business agent acting in furtherance of corporation’s business interests criminal acts authorized, tolerated, or ratified by corporate management. Notes (1) (2) (3) beyond civil liability Federal crimes: (3) [not required] Model Penal Code: conduct “authorized, requested, commanded, performed or recklessly tolerated by board or manager.” State v. Christy Pontiac-GMC (Minn 1984) Chapter 12 Corporate Criminality

15. Unanswered questions: Criminal vs. private liability: why not let “victim” GM pursue private remedies? What happened to Christy Pontiac? Corporation as criminal: what does court say about effect of fines? And why does corporation appeal $1000 fine? Corporate intent: if conviction based on “corporate policy,” can “compliance program” negate? Evidence of intent: If Christy tolerated graft (corporate policy), why not enough evidence to send him to trial? Double jeopardy: how is fine of Christy Pontiac-GMC different from fine of Jim Christy? Chapter 12 Corporate Criminality

16. "Criminal Corporate Character"   In the last few years, corporations have been accused of crimes ranging from environmental pollution on an unprecedented scale, to manslaughter, to election tampering, to large-scale antitrust violations. Many of these accused companies had previously committed similar acts or even the exact same offense.  Unfortunately, the rules of evidence in the federal system and in virtually every state system prohibit the use of this information in a prosecution for such crimes. Lawyers, judges, and Federal Rules of Evidence and their state counterparts -- make it unambiguously clear that corporations are not covered by the same principles regarding character as individuals. ROBERT E. WAGNER,  City University of New York (CUNY) Baruch College Zicklin School of Business Chapter 12 Corporate Criminality

17. Corporate “death penalty” … Chapter 12 Corporate Criminality

18. More questions: • Does corporate “death penalty” go beyond goals -- retribution, incapacitation and deterrence? • Is “deferred prosecution agreement” violation of due process? (Treat corporate execs like drug dealers?) • Which shareholders get “fined” in public corporations? Is this fair? Chapter 12 Corporate Criminality

19. Going after corporate execs … Jeff Skilling(CEO Enron) Chapter 12 Corporate Criminality

20. Going after corporate execs … • Standard of liability • Strict liability: “responsible corporate agent” (subject to compliance-program defense) • Wrongful failure to supervise: knowledge of harm and acquiescence • Compliance program • Effect of Sentencing Guidelines – why would directors ever not have one? • Aren’t Sentencing Guidelines counter-productive – by asking for more harshness, they induce judicial leniency? Chapter 12 Corporate Criminality

21. The end Chapter 12 Corporate Criminality

22. Going after corporate execs … • "The Effect of Deferred and Non-Prosecution Agreements on Corporate Governance: Evidence from 1993-2013" WULF A. KAAL, University of St. Thomas, Minnesota - School of Law, European Corporate Governance Institute (ECGI)Email: kaal8634@stthomas.eduTIMOTHY LACINE, University of St. Thomas (Minnesota)Email: timlacine@hotmail.comNon- and Deferred Prosecution Agreements (N/DPAs) are controversial because prosecutors, not judges or the legislature, are changing the governance of leading public corporations and entire industries. To analyze N/DPAs’ corporate governance implications and provide policy makers with guidance, the authors code all publicly available N/DPAs (N=271) from 1993 to 2013, identifying 215 governance categories and subcategories. The authors find evidence that the execution of N/DPAs is associated with significant corporate governance changes. The study categorizes mandated corporate governance changes for entities that executed an N/DPA as follows: (1) Business Changes, (2) Board Changes, (3) Senior Management, (4) Monitoring, (5) Cooperation, (6) Compliance Program, and (7) Waiver of Rights. The authors supplement the analysis of governance changes in these categories with a more in depth evaluation of the respective subcategories of governance changes. The authors also code and analyze preemptive remedial measures, designed by corporations to preempt the execution of an N/DPA or corporate criminal indictment. The paper evaluates the implications of the empirical evidence for boards, management, and legal practitioners. Chapter 12 Corporate Criminality