DISTORTING THE ADVERSARY PROCESS: PROSECUTORIAL MISCONDUCT

Government prosecutors have an obligation to bring meritorious cases. Equally important is their duty to protect and safeguard the constitutional rights of the accused. The results in four recent high profile stock option backdating cases suggest that the government has focused on its obligation to prosecute, but lost sight of its duty to protect.

Yesterday two high profile criminal stock options backdating cases were dismissed because of prosecutorial misconduct. The charges against Broadcom Corp. co-founder Dr. Henry Samueli and its former CFO William J. Ruehle were dismissed. Both men were charged with multiple felony counts centered on stock option backdating claims. U.S. v. Nicholas, Case No. SACR 08-139 (C.D. Cal.). The court’s ruling came during the trial of Mr. Ruehle. Mr. Nicholas was scheduled to stand trial in February.

The defense motion requesting dismissal is based on a series of wrongful acts by the government. These include interfering with defense witnesses, intimidating other witnesses, entering into invalid plea agreements, leaking grand jury information to try and coerce a witness to cooperate, eliciting false testimony and failing to produce material helpful to the defense. Key claims in the motion include:

• Threats of perjury charges against immunized witness David Dull, the former general counsel of the company, if he testified in accord with his SEC testimony;

• Leaking information to the press about Dr. Henry Samueli’s grand jury appearance in which he invoked the Fifth Amendment in an effort to secure his cooperation;

• Causing another witness who invoked her Fifth Amendment rights to be fired from a new job by telephoning the employer and stating that the witness was not cooperating in an effort to compel cooperation; and

• Eliciting false testimony from another witness about the deal she had made with the government and then failing to correct the testimony.

The dismissal follows an equally stunning ruling last week regarding Broadcom co-founder Henry Samueli. That ruling, discussed here, was also made during the trial of Mr. Ruehle. The court had taken the extraordinary step of granting immunity Mr. Samueli so he could testify for the defense. The government refused a request for immunity. Following two days of testimony, the court concluded that Mr. Samueli had not made false statements to the SEC in his testimony and vacated his prior guilty plea to that charge. U.S. v. Samueli, Case No. SA CR 08-156 (C.D. Cal.).

Previously, the Ninth Circuit Court of Appeals had reversed the conviction of former Brocade Communications Systems, Inc. CEO Gregory Reyes, discussed here, because of prosecutorial misconduct. U.S. v. Reyes, Case No. 08-10047 (9th Cir. Filed Aug. 18, 2009). The prosecution of Mr. Reyes, announced with much fanfare by the U.S. Attorney and the SEC, was based on claims of stock option backdating. U.S. v. Reyes, Case No. C 06-04435 (N.D.CA.). Mr. Reyes is awaiting retrial.

Rulings such as these raise disturbing questions. The decisions are not on the merits. Yet, each raises fundamental questions about the merits of the case. The misconduct here does not involve simple procedural errors. Actions such as threatening witnesses, evoking perjured testimony and accepting baseless guilty pleas cuts to the core of the criminal justice system, suggesting that the cases lack merit. Yet, each of these men has been forced to endure what must seem to be an endless ordeal because of what appears to be serious over reaching by prosecutors. Indeed, Mr. Reyes still faces a retrial.

In the future, before charges are brought, before the “win at all cost” mentality which obviously polluted these cases takes over, prosecutors would do well to recall the directive of the Supreme Court years ago. In Berger v. U.S., 295 U.S. 78, 88 (1935) the high court held that a prosecutor is “the representative not of an ordinary party to a controversy, but of a sovereignty whose obligation to govern impartially is as compelling as its obligation to govern at all; and whose interest, therefore, in a criminal prosecution is not that it shall win a case, but that justice shall be done. . . while he may strike hard blows, he is not at liberty to strike foul ones.” Perhaps this quote should be inscribed on the wall of each U.S. Attorney’s Office.

SEC CHARGES FCPA COMPLIANCE OFFICER WITH VIOLATIONS

The SEC brought an FCPA action against Bobby Benton, the Vice President of Western Hemisphere Operations of Pride International, Inc. Mr. Benton was responsible for FCPA compliance in his region. Pride is one of the world’s largest offshore drilling companies. SEC v. Benton, Civil Action No. 4:09-cv-03953 (S.D. Tex. Filed Dec. 11, 2009).

The SEC’s complaint, which is in litigation, alleges that Mr. Benton covered up evidence of bribes, authorized another and executed false FCPA certifications. According to the Commission, in mid-2003 the company country manager for Venezuela authorized payments of $60,000 per month to an intermediary to secure the extension of a contract with Petroleos de Venezuela S.A., the state owned oil company. The payments were intended for an official of the company. Additional payments were made in May 2004 to ensure that the contract was not blocked.

Subsequently, in early 2005 the country manager for Venezuela furnished Mr. Benton with a draft action plan to address certain internal control weaknesses uncovered by a Pride internal audit. The draft plan included information about the payments made to the oil company official. Mr. Benton redacted all references to the bribes. The revised plan was submitted to the internal and external auditors by Mr. Benton.

In December 2004, Mr. Benton authorized the payment of $10,000 in cash to a purported customs official. This payment was made to secure more favorable treatment in connection with certain alleged customs violation. The payment was booked as an electricity maintenance expense.

Later that same month, Mr. Benton learned about a bribe paid to a Mexican customs official in connection with the export of machinery. Nevertheless, he failed to report it to the internal or external auditors or the legal department.

On March 3 and 5, 2005, defendant Benton executed FCPA certifications. In the certifications, Mr. Benton represented that he knew of no bribes paid to government officials to obtain or retain business or violations of the FCPA.

The Commission’s complaint alleges violations of Exchange Act Sections 30A, 13(b)(5), 13(b)(2)(A) and the pertinent rules. The investigation of this matter is continuing. See also Litig. Rel. 21335 (Dec. 11, 2009). The case is one of a series of FCPA actions brought in recent years by the SEC.