Posts tagged ‘Thompson Memo’

Thompson Memo Slapdown

I am way, way late in posting this, but there was good news several weeks ago when a judged slapped down federal prosecutors in the KPMG case for essentially following the Thompson Memo and dismissed all charges in the case.  Here was the initial confrontation the judge had with prosecutors over a year ago, which explains key provisions of the Thompson memo:

Those steps were extraordinary in their attempt to
pressure corporate executives: They include waiving attorney-client
privilege to give investigators access to internal documents and
cutting off accused employees from legal and other forms of support. In
short, the Thompson memo said that companies under investigation are
expected to surrender any right against self-incrimination and cut
their accused employees adrift.

In one sense, the memo's guidelines are just that --
internal guidelines for prosecutors. But as a practical matter, only a
rare CEO will risk the death sentence that a corporate indictment
represents. So "cooperation" as defined by Justice is hardly optional.
It was on this point that Judge Kaplan took Assistant U.S. Attorney
Justin Weddle to task last week. When Judge Kaplan questioned the
fairness of pressuring companies to throw their employees overboard,
Mr. Weddle replied that companies are "free to say, 'We're not going to

"That's lame," the judge retorted. He then asked Mr.
Weddle "what legitimate purpose" was served by insisting that companies
cut their former employees off from legal support. Companies under
investigation, Judge Kaplan noted, ought to be free to decide whether
to support their employees or former employees without Justice's "thumb
on the scale."

Mr. Weddle replied that paying the legal fees of
former employees charged with crimes amounted to protecting
"wrongdoers." This prompted the judge to remind the young prosecutor
that the accused are still innocent until proven guilty. He also
reminded Mr. Weddle that the Constitution's Sixth Amendment guarantees
the right to counsel. And for good measure, if the government is
confident in its case, it shouldn't be afraid to allow "wrongdoers"
access to an adequate defense.

And this is from his decision to drop all charges:

Just as prosecutors used KPMG to coerce interviews with KPMG personnel
that the government could not coerce directly, they used KPMG to strip
any of its employees who were indicted of means of defending themselves
that KPMG otherwise would have provided to them. Their actions were not
justified by any legitimate governmental interest. Their deliberate
interference with the defendants' rights was outrageous and shocking in
the constitutional sense
because it was fundamentally at odds with two of our most basic
constitutional values "“ the right to counsel and the right to fair
criminal proceedings. But the Court does not rest on this finding
alone. It would reach the same conclusion even if the conduct reflected
only deliberate indifference to the defendants' constitutional rights
as opposed to an unjustified intention to injure them.

Tom Kirkendall has more analysis

Plenty of Shame to Go Around

Last week, Milberg-Weiss and two of its partners were formally charged with bribery and fraud surround their aggressive pursuit of class-action lawsuits, often against companies with falling share prices.  Walter Olson helps describe in detail what was going on, but the short answer is that the firm, as many of us suspected for years, appears to have been generating class action suits against large companies mainly for the benefit of itself and the legal fees generated.  A few months ago, I questioned shareholder suits and their fundamental logic when I was guestblogging at Overlawyered.

So I am happy that this particular rock is finally being turned over.  However, there are substantial problems on the prosecution side of this as well.  The Justice department is using the abusive Thompson Memo guidelines to go after Milberg-Weiss.  Larry Ribstein is concerned with the firm death penalty approach being taken here that was used to bring down Arthur Anderson.

Milberg is a different story. The case seems to be based on the
alleged misconduct of a couple of partners. If the partners did what
they are accused of, they should go down. Moreover, the firm will have
earned fees under questionable circumstances and should bear civil
consequences for that. But the criminal indictment casts a shadow on
the entire firm that it will have a hard time surviving, given the need
to establish its credibility for courts and institutional investors in
the highly competitive class action industry. Moreover, unlike AA, it's
not clear the indictment reveals a continuing public policy problem,
given the post-PSLRA reliance on unbribable plaintiffs.

We (and I) may not like Milberg's business. But the class action
part of it was one enabled by legal rules. The right way to deal with
the problems of this business is to change the rules, as I've argued
for securities class actions in my Fraud on a Noisy Market.
When we criminally condemn firms like Milberg because we don't like
their business, we set a precedent for other firms in controversial
lines of work -- e.g., Drexel Burnham.

More seriously, the power to criminalize a firm puts a potent tool
in the government's hands to get the firm to cooperate in sacrificing
the rights of criminal defendants. Here the cure seems patently worse
the disease. The questions are no less in Milberg than in KPMG just
because Milberg was in an unpopular line of work.

The government tactic de jour, as outlined in the Thompson memo, is to threaten a large company with extinction, telling them they might get off the hook but only if they agree to throw a number of their employees to the wolves.  These steps include the unbelievable step of forcing companies to waive attorney client privilege, including privilege between any company-paid attorney and any employee.  Does anyone doubt that if the company who employs you was given the choice of having the government prosecute them or you, who they would choose?  In this context, Arthur Anderson should be commended for not sacrificing its employees for its own survival.  KPMG survived, because it chose to roll over on its employees.  I commented on many of the problems with the AA takedown here, and on the dangers of the Thompson Memo here and hereTom Kirkendall is all over the story.