Between A Rock, A Hard Place & Under A Bus: Cooperate or You’re Fired
June 29, 2016 (Fault Lines) — Talk about having one’s world turned upside down and backwards after having it made, on Wall Street of all places. As per a recent decision from the U.S. Court of Appeals for the Second Circuit, when a company’s employees refuse to cooperate with a criminal investigation involving their employer, they may have no civil recourse against their former boss if they were let go for refusing to cooperate. The New York Times’ DealB%k reports:
As part of the company’s internal investigation, two executives, William W. Gilman and Edward J. McNenney Jr., were interviewed by an outside law firm retained to look at the commission payments. A few months later, it emerged that there were allegations of bid-rigging by agents at different insurance brokers. Two employees of the American International Group pleaded guilty to state antitrust charges in September 2004, with one identifying Mr. Gilman and Mr. McNenney as co-conspirators.
At that point, Marsh’s lawyers shifted the focus of their inquiry to the bid-rigging and tried to arrange new interviews with the two executives. With Mr. Spitzer breathing down the company’s neck, it was crucial to complete the inquiry and turn over the results quickly to appear as cooperative as possible.
Rather than submit to questioning, Mr. Gilman and Mr. McNenney refused to speak with investigators. Mr. Gilman even tried to retire before meeting with them so that he could not be fired for refusing to cooperate. That was a good strategy from a legal standpoint because their statements were sure to be given to prosecutors, who could use them to build a case against the two executives.
Maybe Gilman and McNenney were naive enough to believe that Marsh would stick up for them, but in reality the company sought to cover its tracks, cooperate with the government to the T, and the result was that the government’s cross-hairs shifted towards them and away from Marsh. And after Marsh settled with the government, it fired Gilman and McNenney and continued its internal investigation in order to stay in the government’s good graces. Gilman and McNenney were left holding the bag. They were criminally charged in New York State court, where they went to trial and were acquitted of all charges but for a single count of bid rigging.
Back in 2004, employees at the accounting giant, KMPG, were facing a similar predicament: being hung out to dry when KMPG, on pressure from the government, refused to cover their legal fees in the event they did not cooperate. Then-U.S. Deputy Attorney General’s response to the individuals’ protests was that if employees really don’t believe they acted with criminal intent, “they don’t need fancy legal representation” to defend themselves. But in 2006, U.S. District Judge Lewis A. Kaplan ruled that the government had pressured KPMG to cut off payment of legal fees to the employees who were indicted, and that this was a violation of their constitutional rights to counsel and to a fair trial. From Judge Kaplan’s Opinion:*
KPMG refused to pay because the government held the proverbial gun to its head. Had that pressure not been brought to bear, KPMG would have paid these defendants’ legal expenses.
Those who commit crimes – regardless of whether they wear white or blue collars – must be brought to justice. The government, however, has let its zeal get in the way of its judgment. It has violated the Constitution it is sworn to defend.
Fast forward to the present, and corporate employees are still being fed to the flames for the sake of their company’s salvation. On May of 2016, speaking on the eponymous Yates memo to the New York City Bar Association, the U.S. Deputy Attorney General reiterated that “we now require a company to provide all the facts about individual conduct in order to qualify for any cooperation credit.”
In an atmosphere where an individual will face not only the wrath of the federal government, but also intense pressure from their employers to spill the beans in the hopes that they will not be fired or end up in a cage, only a select few will come out the other end victorious or in one piece. Those who choose to fight back against all will find it very expensive to prevail. As the government, the defense, and the client know, it’s just as costly to defend an innocent client as a guilty one.
In the end, the company will do what is good for the company. As for Gilman and McNenney, New York Supreme Court James A. Yates overturned their convictions for bid rigging, when the judge determined that there had been prosecutorial misconduct during the trial:
In January, attorneys for Messrs. Gilman and McNenney filed what is called a 440 motion that asked Judge Yates to vacate the convictions due to prosecutorial misconduct.
The motion was based on “multiple forms of exculpatory evidence” that prosecutors failed to produce during the trial of Messrs. Gilman and McNenney, but did disclose it in a later trial against three other Marsh executives, all of whom were acquitted, according to documents.
In his ruling, Judge Yates said some of the nondisclosed material “would have been invaluable to the defense effort” to challenge what prosecutors described as a horizontal conspiracy between individuals to rig bids for excess casualty insurance coverage.
Because they refused to play ball with Marsh and the government, Gilman and McNenney lost their jobs, pensions, and reputations, but at least they’re not in the can.
*Judge Kaplan’s ruling was affirmed by the Second Circuit Court of Appeals.