FSGO comments

[comments submitted re Federal Sentencing Guidelines for Organizations per this.]
From: RDShatt@aol.com
To: fsgocomments@ethics.org
Sent: 3/29/2012 3:25:06 P.M. Central Daylight Time
Subj: FSGO comments

Although the comment period has ended, I submit the below comments.

I. What has been learned about entity level liability

The FSGO deal with entity level liability. The 20th anniversary review of the FSGO ought to include a review of what new learning, if any, has been acquired about the uses, effectiveness, and appropriateness of entity level liability versus officer and employee individual liability for purposes of deterring corporate wrongdoing. If nothing new has been learned in the past twenty years, presumably the premise and foundation of the FSGO continue valid now as 20 years ago. If significant new learning has been acquired, perhaps the premise and foundation of the FSGO need a reexamination that takes into account the new learning.

II. Problem of settlements

The first "challenge" specified in the draft report is that the presence of effective ethics and compliance programs of large companies is not being given the recognition that is intended by the FSGO, because criminal cases are being detoured around judges by means of DPA's, NPA's and other administrative/settlement agreements.

The report points out this judicial bypass has the benefits of eliminating costs and risks of litigation and of avoiding potentially devastating collateral damage, often to innocent parties, that can result when a company is convicted of a crime.

Collateral damage to innocent parties is frequently present in the imposition of entity level liability (be it criminal or civil) and should generally be a factor in making a choice between entity level liability and officer and employee individual liability for the purpose of deterring corporate wrongdoing. The collateral damage potential that has undermined the use of FSGO is a manifestation of this. That manifestation could enter into the review suggested above about whether anything new is known or is present in making the choice between entity level liability and officer and employee individual liabiliity.

In extending the comment period to January 6, 2012, the ERC specifically referred to Judge Rakoff's rejection of the SEC/Citigroup proposed mortgage bond settlement and said that rejection provided something additional to think about in connection with the draft report's critique of settlements as undermining the FSGO's objectives. The link given by the ERC seems now to be a broken link. This November 29, 2011 Wall Street Journal article indicates the significant and difficult countervailing policy considerations that are raised by Judge Rakoff's rejection of the proposed settlement, and these are other than in the narrow confines of the FSGO. They include the societal value of determinations being made of whether wrongdoing has in fact taken place, the cost and amount of resources that are needed to make such determinations, and the "public questioning of the value of settlements, in which Wall Street firms can resolve potentially serious fraud allegations by paying back a small portion of investors' losses without admitting having done anything wrong "

I have written about how settlements and related litigation phenomenon impinge on the mission of business ethicists (besides in regard to the FSGO). For example, Judge Rakoff's belief about the public's clear interest in knowing the truth of what happened is relevant from an ethics and compliance perspective that judicial determinations of whether wrongdoing has in fact taken place can provide important information to the public and to corporate actors (both the corporate entity and officers and employees acting on behalf of the entity) about what corporate practices and activities are permissible and what behavior and actions are not permissible and are wrongful. Otherwise there can be lots of uncertainty.

The Advisory Group may limit itself to the FSGO and to a recommendation that there be "greater judicial oversight of proposed settlements to ensure they give proper consideration to FSGO criteria," and the final report may not touch on whether greater judicial oversight should be given to settlements for other ethics related purposes. If the Advisory Group limits itself to the FSGO, hopefully the ERC will find alternative ways to explore more fully how settlements and related litigation phenomena impinge on the business ethics mission and whether greater judicial oversight is needed for other than the narrow FSGO concern of the Advisory Group.

Respectfully submitted,
Robert Shattuck