What’s Behind the Drop in Corporate Fraud Indictments? Is there no more corporate crime — or has Justice simply stopped looking for it?

Daphne Eviatar
The American Lawyer
November 1, 2007

In his summer of discontent, there were few days of undiluted glory for Attorney General Alberto Gonzales, and July 17 was no exception. Just six weeks before he resigned, Gonzales stood before hundreds of federal prosecutors and investigators in the U.S. Department of Justice’s Great Hall to celebrate the fifth anniversary of the department’s Corporate Fraud Task Force and declare victory over white-collar corruption.

But the white-collar crime news that day was not dominated by Gonzales’ recitation of notches on his prosecutorial belt. Instead, the headlines focused on a federal judge in New York who dismissed indictments against 13 former KPMG executives, a very pointed rebuke to the Justice Department for some of the more aggressive tactics used by federal prosecutors over the past five years.

Along with raining on the AG’s victory parade, that confluence of events also served as a neat summary of the Justice Department’s corporate fraud record: a long litany of achievements punctuated by disappointment and controversy.

Created by President George W. Bush’s executive order in July 2002, the task force was the president’s signature response to the flood of revelations of criminal wrongdoing in America’s boardrooms. Enron Corp. had collapsed the previous fall. Its accounting firm, Arthur Andersen LLP, was charged in March 2002 with obstruction of justice. Later that spring, Adelphia Communications Corp. announced it would restate earnings by a billion dollars to account for hundreds of millions of dollars looted by senior executives. By the time allegations of a $3 billion fraud by WorldCom Inc. executives surfaced in June 2002, the leading stock indexes seemed locked in a death spiral, with investors panicked about which public company holding their retirement funds might topple next.

The new task force, by marshalling the firepower of nine different federal law enforcement agencies, was designed to restore investor confidence — and to deliver a strong dose of deterrence to executive suites.

Today, the Department of Justice and the White House say the task force did just that. At the five-year anniversary event, Gonzales announced that the task force had won an unprecedented 1,236 corporate fraud convictions, including the convictions of 214 chief executive officers and presidents, 53 chief financial officers, 23 corporate lawyers and 129 vice presidents.

“Our victories have been about more than just compiling statistics or making an example out of one or two bad actors,” Gonzales said. “They have been about preserving the integrity of our corporate boardrooms and our financial markets … about changing a culture [and] about redefining the way companies do business.”

But how much did the Corporate Fraud Task Force truly accomplish? Last spring The American Lawyer began investigating the Justice Department’s record on corporate fraud prosecution. It was a massive undertaking made all the more so because the Justice Department does not formally account for its corporate fraud cases. (Indeed, according to Joan Meyer, senior counsel to the deputy attorney general, it cannot provide a complete list of the cases that were the basis of the victories Gonzales cited at the July 17 anniversary celebration.) So we relied on our own research, gathering data on 124 investigations (resulting in 440 indicted defendants) identified by the Justice Department as major Corporate Fraud Task Force prosecutions. Our analysis included cases cited on the task force Web site and in two published task force reports, as well as corporate fraud prosecutions mentioned in speeches or public comments by Justice Department officials.

For more see American Lawyer Online. 

Related article:

Three Cents on the Dollar
Convicted white-collar criminals owe billions in restitution. Getting them to pay it is another story.

Related charts:

CORPORATE FRAUD DATABASE

Adaptec, Inc.- Countrymark Cooperative, Inc.

Craig Consumer Electronics Inc.- HealthSouth Corporation

HealthSouth Corporation – McKesson, Inc.

Med-Hut Co., Inc.- Smith Technologies (Basic Research Corporation)

Smith Technologies (Basic Research Corporation) – YBM Magnex International Inc.

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