Project to investigate diverse perspectives on entity vs. individual liability
I wish to solicit assistance or outright collaboration for a project to investigate the perspectives, views, analyses, and information that multiple interested parties have concerning the subject of entity level liability versus officer and employee individual liability as a means to deter corporate wrongdoing.
Parties who have an interest or should have an interest in this topic include lawmakers, judges, regulators, state attorneys general, criminal prosecutors, corporate management, ethics and compliance officers, corporation lawyers, various academics, plaintiffs' lawyers, defense lawyers, tort reform organizations, and consumer protection organizations.
Corporate wrongdoing seems to be an entrenched societal problem that is not shrinking. Efforts to attack corporate wrongdoing have become expansive and diverse.
Achieving satisfactory progress seems elusive. Perhaps satisfactory progress will never be made under prevailing societal conditions.
However sanguine or dismal prognostications are, there is no dearth of investigation, research, theorizing and experimentation about how best to try to deter corporate wrongdoing.
A persistent issue is the extent to which deterrence can be accomplished by punishing the corporation, or whether punishment needs to be imposed on responsible officers and employees who design, implement and carry out corporate activities that constitute wrongdoing.
Currently, there is a suggestion that the Obama administration believes there should be a shift to more punishing of culpable officers and employees. See these three recent articles from The Wall Street Journal: here, here, and here.
The numerous parties referred to above have different perspectives and may have very differing views. All the parties have influence in societal decisions that are made concerning the subject matter, and the parties may be variously oppositional to or supportive of actions that are attempted to be taken.
I believe there is a deficiency of dialogue among the interested parties concerning their varying perspectives, views, beliefs, and information about the subject matter, and this makes societal decision making more difficult.
The purpose of this proposed project is to try to contribute something to correcting the foregoing deficiency.
I have begun a lot of contacting of the interested parties, but it is just a start and there is a long, long way to go.
To continue, I would like to ask for suggestions of what reading I should do on the subject.
Next, I would like to locate representatives of the parties who would be willing to try to speak from their respective perspectives. For example, would the US Chamber of Commerce be willing to speak from the perspective of corporate management? Are there ethics and compliance officers who are willing to offer their frank views on the subject? Would the American Trial Lawyers Association be willing to dialogue from the perspective of plaintiffs' lawyers?
This project could quickly founder if parties refuse to participate and refuse to dialogue on the subject. There may turn out to be abject disagreement about the subject matter.
If the foregoing happens, I believe useful things would still be learned. Let's say corporate management, in the form of the US Chamber of Commerce, wants nothing to do with any discussion about the possibility of greater deterrence from increased officer and employee liability. Or let's say ethics and compliance officers will not be frank in expressing their views because of what corporate management thinks. What if plaintiffs' lawyers won't engage in discussion? One inference could be that corporate management and plaintiffs' lawyers do not believe they can defend their positions on the subject. If ethics and compliance officers cannot speak frankly, that would be enlightening in evaluating how they are carrying out their mission.
I personally have no standing to get parties to participate. The parties themselves have significant standing for trying to get other parties to participate, and I seek help from parties or representatives of parties to help elicit participation from other parties.
If you think this project is worthwhile, and you are willing to try to lend a helping hand in any way, please contact me.
Thank you.
Rob Shattuck
PROJECT UPDATES
2011
June- ethics and compliance contact list notified of project
September- ECOA annual conference speakers contacted about project
September- tort reform contact list notified of project
September- US Chamber of Commerce and its Institute for Legal Reform notified of project
September- DRI Corporate Counsel Committee leadership contacted about project
September-National Association of Attorneys General
Oct./Nov. - Emailing to Business Ethics Quarterly authors: link, link, link
November- Project for Law & Business Ethics
2012
March/April - Case study of $25 billion robo-signing settlement: link, link
April - RAND (Institute for Civil Justice and Center for Corporate Ethics and Governance)
April - Interim project report
By JEAN EAGLESHAM
Settlement agreements being hammered out by U.S. securities regulators and securities firms accused of fraud in mortgage-bond deals are likely to include civil charges against at least one person connected to each deal, according to people familiar with the situation.Securities and Exchange Commission officials are pushing hard as part of their ongoing probe of collateralized debt obligations and other mortgage-related products developed by Wall Street to bring charges against individuals, such as executives involved in selling the deals or outsiders who managed the assets, these people said.
While the situation remains fluid, the agency also could file civil charges against hedge-fund managers who helped structure certain mortgage-bond deals but then bet against them.
The move by the SEC to pin at least some of the blame for alleged wrongdoing on specific individuals follows criticism of the agency for previous fraud settlements in which no enforcement action was taken against executives or other employees.
In 2009, U.S. District Court Judge Jed Rakoff in New York denounced the SEC's proposed $33 million settlement with Bank of America Corp. of civil charges related to its takeover of Merrill Lynch as a "contrivance designed to provide the SEC with the facade of enforcement."
No executives at the Charlotte, N.C., bank were accused of wrongdoing as part of the case. Judge Rakoff eventually agreed "reluctantly" to a $150 million settlement in which Bank of America neither admitted nor denied wrongdoing.
Robert Khuzami, the SEC's director of enforcement, declined to comment on the settlement talks. "Our starting point in any investigation is to see if there are grounds for enforcement action against one or more individuals," he said in an interview.
Financial firms being probed by the SEC include J.P. Morgan Chase & Co., Citigroup Inc., Morgan Stanley, Bank of America's Merrill unit and UBS AG, according to people familiar with the matter. The companies declined to comment.
Talks aimed at reaching settlements with at least some of the firms have accelerated in recent weeks. In its quarterly report last week, J.P. Morgan said it was in "advanced discussions" to resolve the matter, though the New York company said it couldn't assure that a deal would be reached.
In January, the SEC notified J.P. Morgan's former head of CDOs, Michael Llodra, and Edward Steffelin, a former executive at an outside firm that managed the assets in a CDO created by the giant bank, that they could face civil charges related to the bond deal called Squared, according to their records at the Financial Industry Regulatory Authority.
Lawyers for Messrs. Llodra and Steffelin declined to comment.
CDOs are complex pools of mortgages and other loans, made up in part of risky subprime mortgages. Banks and securities firms cranked out more than $1 trillion of CDOs, often at the request of investors who made bets against the same deals. The collapse of the CDO market deepened the financial crisis and triggered investigations of Wall Street's mortgage machine.
In the most significant example, Goldman Sachs Group Inc. agreed to pay $550 million last year to settle an SEC investigation into whether it duped investors in a CDO deal called Abacus 2007-AC1.
Goldman admitted making mistakes but denied cheating clients. No Goldman executives were accused of wrongdoing by the SEC, and the agency is heading to trial against Fabrice Tourre, the Goldman bond trader who helped assemble the Abacus deal. He is fighting the civil fraud charges.
A lawyer for Mr. Tourre declined to comment. A Goldman spokesman declined to comment.
Mr. Steffelin, who worked at investment-management firm GSC Group, was influential in that company's rejection of a request by Goldman to manage the Abacus deal, according to lawmakers who scrutinized the transaction.
A Senate report released last month included an email from February 2007 in which Mr. Steffelin wrote to a Goldman executive: "I do not have to say how bad it is that you guys are pushing this thing." Asked later about the email, sent after GSC had declined to act as a manager for Abacus, Mr. Steffelin said he believed the CDO created "reputational" risk for the market.
As part of a growing push to counter criticism that it hasn't punished enough executives for wrongdoing related to the financial crisis, the SEC launched a new section on its website about the agency's track record.
The SEC has filed charges against 32 senior executives as part of enforcement actions related to the crisis that have resulted in $1.34 billion in penalties and restitution to investors.
"Most of the concern seems to stem from the fact that there have been few senior executives going off to jail as a result of the crisis, though that's not for lack of hard work and dedication on the part of the criminal authorities," Mr. Khuzami said.
"It's a pretty strong track record, and we're still hard at work," he added.