This earlier post examined the Justice Department’s policy under the controversial Thompson Memo to threaten to go Arthur Andersen on companies that fulfill an obligation to pay defense counsel for current or former employees who are under criminal investigation or indictment by the DOJ.
According to the Thompson Memo, the DOJ expects companies under investigation to surrender any right against self-incrimination and to cut their accused employees adrift. The memo is incredibly bad public policy in that it now places a business executive on notice that even seeking legal counsel from company counsel could later be used against the executive in court as evidence that the executive knew what he or she was doing might not be proper. Under those circumstances, what rational executive would seek legal advice from company counsel in the first place?
Now, this Lynnlee Browning/NY Times article reports on U.S. District Judge Lewis Kaplan’s decision to conduct a hearing in the criminal case against the former KPMG partners who the firm served up as sacrifical lambs in connection with the DOJ’s probe of KPMG in connection with the firm’s creation and promotion of allegedly illegal tax shelters. Judge Kaplan is clearly troubled by the DOJ’s pressure on the accounting firm to stop paying the defense costs of the former KPMG partners. Peter Lattman (here and here), Ellen Podgor (here and here) and the Wired GC also comment on this development.
Although the DOJ attempted to characterize KPMG’s decision to cut off support for a former employee as “voluntary,” it appears that Judge Kaplan has seen that ruse. As a practical matter, few CEO’s or corporate boards will risk becoming the next Arthur Andersen by not cooperating with the DOJ, so the “cooperation” that the DOJ “suggest” under the Thompson Memo is hardly optional. In an earlier hearing in the KPMG case, when Judge Kaplan questioned the fairness of pressuring companies to throw their employees into the grease, the Assistant U.S. Attorney handling the hearing replied that companies are “free to say, ‘We’re not going to cooperate.'” Judge Kaplan replied: “That’s lame.”
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As noted in earlier posts here and here, it has been rather easy for Houstonians to ignore the NBA generally because the local team — Houston Rockets — has been mediocre over the past decade or so, although at least some recent management decisions look encouraging.