But should the executive even continue working for the employer after such investigations are commenced? Inasmuch as many of Quattrone's actions that were used to prosecute him were performed in the normal course of interacting with others within CSFB regarding the status of the investigations, a powerful argument can be made that virtually anything that Quattrone did at that point -- including simply sitting in his office and saying nothing -- would have been used against him in the subsequent cover-up prosecution (on a related issue, see Larry Ribstein's analysis of the vagaries between an executive's optimisitic and fraudulent statements). Indeed, even an immediate resignation would probably have been used by the prosecution as evidence of Quattrone's culpability. Are we prepared to endure the cost attributable to companies losing key personnel simply because someone in government has elected to commence an investigation of those companies?
Thus, as Professor Ribstein has coined it, the lottery of regulating business fraud through criminalization of corporate agency costs is having huge and largely unevaluated costs. If the government pursues bit players such as William Fuhs or Daniel Bayly in the Enron-related Nigerian Barge case and can come up with something particularly distasteful to the jury -- such as Merrill's involvement with the corporate pariah Enron -- then it wins and productive careers are destroyed. On the other hand, even if the government oversteps with regard to a big fish such as Quattrone, then the government may lose the battle, but it still wins the war because Quattrone is out of business. This is not a rational deployment of our justice system, and the economic costs -- not to mention the emotional carnage to the families of the executives who are caught in this troubling spiral -- simply cannot be responsibly dismissed as a "trade-off" of an imperfect system.
Update: Don't miss Christine Hurt's clever analysis of Quattrone's impact on the means for notification of a company's document retention policy.
Posted by Tom at March 21, 2006 05:54 AM
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� Conscious ignorance as a corporate crime from Ideoblog
The Quattrone reversal raises the point, as discussed in today's WSJ, that a key issue in the Lay-Skilling trial may be whether the judge should instruct the jury that they can convict if the defendants consciously avoided knowing the truth. [Read More]
Tracked on March 21, 2006 08:46 AM
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