Victims of Business Crimes Aren’t Always Better Off Seeking Prosecution

Pittsburgh White Collar - Grail Law Firm

A week hasn’t gone by since I left my job as a prosecutor in 1995 (yes, 1995:  Bill Clinton was president, the Dow topped 5,000 for the first time ever, O.J. Simpson was acquitted of murder that year and the iPod wouldn’t come out for another six years) when a client hasn’t called asking how to have someone prosecuted and sent to jail. Businesses find local, state and especially federal law enforcement almost uniformly unresponsive to their victimization at the hands of employees and competitors. Companies often feel victimized a second time by “the system,” when all they really want is what almost no victim ever gets in the way of justice: vindication, to make up for the betrayal of trust.

Before calling 911, though, business crime victims should consider the risks and drawbacks of involving themselves in the criminal justice system.  Investigations and court cases are rarely short or cut-and-dried, especially when the target has significant knowledge of your business and its employees or operations. Meeting with police and prosecutors, going to court and even testifying there can be a major distraction to key personnel. It can risk the confidentiality of company processes or trade secrets, and can even provoke investigation of the business victimized in the first place. The decision to “blow the whistle,” then, even when justified, should be made for good business reasons, and not for emotional ones, and be thought through thoroughly at a high level of policy/decision making.

The exception to the “think before you fink” rule is for highly-regulated business, which are likely required to report thefts or other misconduct by employees, directors and competitors: chiefly banks and financial institutions, health care providers which seek reimbursement of federal or insurance funds, environmental permit holders (mandated to regularly report discharges), and industries which handle classified national security data (e.g., defense contractors, advanced software and computing research, etc.).

Simple embezzlements by employees, additionally, should always be reported when the identity of the culprit is certain.  Reporting to the police is almost always a prerequisite to recovering on a dishonest employee provision to the business’s insurance coverage or employee fidelity bond.  (Note: let this be a reminder to check with your company’s broker or risk managers to ensure that there is dishonest employee coverage, in sufficiently high enough dollars to adequately protect the entity against loss.)

But affirmatively pressing for criminal charges (beyond simple reporting) can be counter-productive. Often a company’s best chance of recovering any restitution informally is before a prosecution, through negotiation. This should be done by experienced counsel consistent with lawyers’ professional conduct rules, to prevent accusations against company personnel of committing extortion and themselves becoming a target of an investigation, and also to ensure the company’s duty under a policy of insurance to cooperate with law enforcement is fulfilled, thereby preserving coverage.

Prosecutors and investigators often see businesses’ reports of crime as pressing them into service for a private entity, and not the public safety.  Trade secret theft allegations are most often ignored by law enforcement.  Federal prosecutors are reluctant to become involved in lengthy disputes between private parties, for which there are civil remedies available, such as the private right of action recently provided by the recent enactment of the Defense of Trade Secrets Act.    The exception, again, is for employees and competitors of banks, government contractors (primarily including health care providers,) and businesses in which there is a national security interest.  And state and local police and prosecutors aren’t set up to bring “white collar” cases that exceed simple fraud/theft matters (even those can tax a district attorney’s office, more comfortable with ‘guns and drugs’ case).

Sophisticated theft prosecutions can harm the victim as well.  Prosecutors may not be sufficiently attuned to protecting confidential security or manufacturing/development processes, and courts may not adequately protect against their disclosure to the defense.   While the Justice Department is getting better at handling trade secret misappropriation cases, early prosecution efforts under the Economic Espionage Act of 1996 risked disclosure of the very trade secrets alleged to have been stolen.

And the unfortunate truth is that former employees and competitors  facing criminal prosecution often retaliate by alleging criminal wrongdoing by the complaining business, rightly or not. This is especially true in small businesses, or small units of larger ones. It does no good to accuse an employee whose wages are not being completely reported of theft, when that employee can in turn complain to the IRS about the employer’s tax fraud.  (That case led to convictions of both the business owner and the former controller). Employers need to understand what they risk in publicizing an internal matter, including in the way of adverse publicity, when it is them who have been ripped off.

Seeking redress as the victim of a theft or other crime shouldn’t be difficult, and it shouldn’t require a business seconding-guessing itself.  But the realities of the justice system, the economics and the politics of what drives it, and especially the fact that desperate persons facing the possibility of criminal conviction and jail will often lead desperate people to desperate acts, to your detriment. Economic crime victims shouldn’t shy away from seeking justice and restitution, if for no other reason than to highlight to others that crimes against them will not be tolerated. But how best to be made whole after being victimized requires a well-thought out decision with the help of counsel experienced in the justice system, and not an emotional response to make senior executives feel better. In the long run, it may only make things much worse.

Takeaways from the Annual Pennsylvania White Collar Criminal Defense Lawyers’ Conference

Pittsburgh White Collar - Grail Law Firm

Newsflash: the Justice Department is still an insider’s club, criminal practice is not for beginners, and courts still penalize defendants who exercise their constitutional right to have criminal charges against them tried by a jury; Western Pennsylvania is the only judicial district in the country regularly prosecuting doctors who prescribe Suboxone, and everyone’s rekindled interest in the Nixon case as a prediction of Special Counsel Robert Muller’s next move.

That’s our “takeaway” from the annual White Collar Criminal Defense seminar featuring top prosecutors, judges, and federal defense practitioners, hosted by the Pennsylvania Association of Criminal Defense Lawyers in Philadelphia this past month. The annual event brings key Justice Department lawyers from Washington, and practice chiefs from the local and neighboring U.S. Attorneys’ Office, together with judges and defense practitioners, to discuss the Government’s enforcement focus and the strategy and tactics to defend them. The program provides insight into current Government initiatives, and a window onto what has changed in the law; what we learned is that the more things change, the more things remain the same.

This year’s program featured the Eastern District of Pennsylvania Federal Judge Wendy Beetlestone, on sentencing practices for criminal defendants in White Collar Cases. The implicit message in her remarks, as well as in those of appellate lawyers at the program following her address, was the implicit bias of the judiciary against criminal defendants who insist on exercising their constitutional right to trial by a jury of their peers on the charges against them. Of course, this sounds counterintuitive to non-lawyers; the federal United States Sentencing Guidelines, however, place an enormous emphasis on having criminal defendants admit their guilt and show remorse, to the extent of rewarding those who plead guilty with a lesser sentence. Unlike plea bargaining in many states, however, federal criminal procedure does not provide for a plea of “no contest,” where the defendant withdraws their plea of not guilty because they believe that taking the prosecution’s offer without a trial “is in their best interest” (California law provides for this in what is known as an Alford plea; in West Virginia it’s referred to as a Kennedy plea).

Sure, the Bill of Rights to the U.S. Constitution provides that every defendant is presumed innocent until proven guilty – but defendants who put the prosecution and the courts through the exercise of a trial are routinely punished for relying on that right.  Since they have not admitted their guilt or shown remorse, this is generally true in practice even if they do not take the stand to testify in their own defense, or present evidence directly disputing that they are guilty of the charge(s), and instead exercise their constitutional right to remain silent.  Indeed, the implicit rule has not changed little: if you must go to trial, be certain that you win because the price of losing is higher than the price of admitting guilt.

And speaking of trials, the overwhelming takeaway from appeals of political trials seems to be that under no circumstances should the defense ever sit quietly while a judge sends an indictment into the jury room, as the “road map” for consideration of the charges. Indictments are in effect the government’s statement of its case, replete with excess and prejudicial allegations which in no instance reflects at all well on the defendant, and further, object strenuously to the judge holding her jury charge conference in chambers, without a court reporter present; there is too much potential to waive legal objections through lack of adequate preservation of the issues. The familiarity and closeness of the government prosecutors and defense lawyers on a personal level emphasized, once again, how many of us as defense lawyers started out as prosecutors, and oftentimes how many prosecutors start out as defense lawyers. 

We hang out together because we speak the same language, we often respect each other, and most of the time we even like each other.  Don’t underestimate the value of personal relationships and familiarity with the system in choosing your criminal defense advocate.  The “Main Justice” Department in Washington and the U.S. Attorneys Office(s), are notorious for being places where “inside baseball” is played, or as we say in Pittsburgh, where only “home cooking” is served.  If your civil lawyer who doesn’t know where the U .S. Attorney’s Office is or who sits in it, tells you they can handle the criminal matter just fine, don’t believe them; this isn’t something you want your attorney to learn at your expense.  

In health care prosecutions, as Buzzfeed recently noted online, the Western District of Pennsylvania seems to remain the only federal judicial district in the country prosecuting doctors who allegedly misprescribed buprenorphine (suboxone).  Doctors beware. 

And finally, what we learned at the White Collar Seminar was that if acting Attorney General Whitaker (or his successor) unseats special prosecutor Mueller, the Chief Judge of the judicial district in the District of Columbia may not maintain an investigation without the Justice Department leading it.  That having been said, former PA Western District U.S. Attorney Harry Littman said just several days ago on TV that, regardless of Special Counsel Mueller’s longevity in office, his plans for the further investigation and possible prosecution of Donald Trump, Jr., the President’s son, Jared Kushner, the President’s his son-in-law, and even the President himself should all be revealed in short order.  Stay tuned!

From the Desk of Efrem Grail: Takeaways from the Annual Meeting of the American Society of Pharmacy Law

Pittsburgh White Collar - Grail Law Firm

Last week, I was privileged to attend the 29th Annual Meeting of the American Society of Pharmacy Law, on Hilton Head Island, South Carolina.  Here are some few general ‘takeaways’ for our health-care provider and physician practitioner/practice groups specifically, and business clients generally:

    • Compliance isn’t about getting the right answer on any given occasion or, in the words of the United States Sentencing Guidelines Commission’s guidance for business entities, preventing and detecting violations of law in every instance. From “big pharma” all the way to the corner drug store, it’s about having reproducible processes and verifiable systems with integrity in place that conduct due diligence 100% of the time. No system is perfect, no judgment call will always be accurate, and everyone gets it wrong occasionally. The key to defending a civil audit, an administrative enforcement investigation or a federal grand jury inquiry is being able to demonstrate that your business has processes to ensure laws and regulations are in place and employs people dedicated to making sure they are utilized.

 

    • Everyone acknowledges the opioid epidemic is killing our citizens, without discriminating by wealth, race, gender or any other category or classification, and that “something must be done” about it.  But there remains a deep, cultural divide between those in health care who believe the solution is treatment, and those in law enforcement who believe the solution is enforcement – and this culture war shows no sign of détente in the near future.

 

    • There are now over 900 lawsuits against manufacturers, distributors, pharmacies and other defendants seeking money damages arising out of the opioid crisis, giving rise to a cottage industry of opioid case lawyers, on both sides of the cases. We’ll all end up paying for them in the long run.

 

    • Investigation of suspected violation(s) of statutes and regulations of wholesale pharmaceutical distributors, retail dispensers (i.e., pharmacies) and providers varies widely from judicial district to judicial district. Having local connections with regulators and enforcement personnel has no substitute for business and business persons when it comes to knowing how regulations are interpreted in specific regions of the country, and between regions that are connected.

 

    • “PBMs,” or pharmacy benefit managers who, as third-party administrators of prescription drug programs for insurers, government health care provider programs and other payor plans, have an inordinate amount of influence over how we get our medicines in this country, who we get them from, and what we pay for them.

 

Overall, the ASPL meeting was highly informative and worth attending for industry professionals and counsel. As more pharmacies, distributors and retail stores are sued and investigated, attorneys need to be proactive in providing their clients timely advice to avoid the rising costs of legal proceedings.