Recently, Deputy Attorney General McNulty issued a memo revising the Thompson Memo. Mr. McNulty’s revision of the standards for prosecuting organizations, which focuses largely on the question of cooperation, common interest agreements, and the payment of legal fees by organizations, is, as noted here yesterday, a significant step. Unfortunately, the Memo fails to address the key problem under Thompson – the lack of standards defining cooperation. This oversight, coupled with the coercive atmosphere in which charging decisions are made, makes it extremely difficult for organizations to make independent decisions on whether or not and to what extent to cooperate with law enforcement. It is the vagueness of cooperation standards and the potentially devastating impact of an indictment which causes corporations to take virtually any step that might possibly help them be viewed as cooperative. Often this “cooperation” is dictated by today’s coercive environment and not by what prosecutors may actually demand.
The SEC’s standards of cooperation, defined in its Seaboard Release and standard practices, are no better. The standards are vague and open-ended, leaving organizations in the difficult position of deciding whether or not to self-report. Unlike the Antitrust Division’s program, which grants amnesty to the first self-reporting company under certain circumstances, the SEC has no established terms defining what constitutes cooperation or what action the SEC may take after learning of misconduct. Like with the vague DOJ standards, organizations are forced to guess at what might help them be viewed as cooperative and avoid the additional injury inflicted by an enforcement action.
While the McNulty Memo is a significant step – and more than the SEC has done – it is time to go further. Now, as corporate scandals such as Enron and others wind down, it is the time for the SEC to step forward and establish a bright-line standard for cooperation to end the coercive charging environment and to foster a climate that encourages cooperation with law enforcement. Such a standard would be beneficial for the SEC because it would encourage self-reporting, provide factual information, and facilitate prosecution of the individuals involved. At the same time, the standard would benefit organizations because it would end the current coercive environment and provide certainty that cooperation prevents further injury. Thus, an established standard should help foster a better relationship between law enforcement and corporations.