A string of setbacks for federal prosecutors in corporate crime cases continued Dec. 10, 2010, when the 9th Circuit overturned the securities fraud conviction of Prabhat Goyal, former CFO of computer security company McAfee Inc. (formerly Network Associates). In a stinging rebuke to prosecutors, Chief Judge Alex Kozinski asserted that no reasonable juror could have found Goyal guilty beyond a reasonable doubt of any of the charges against him.
The government alleged that Goyal concealed improper accounting practices from the company's outside auditors and filed reports with the Securities and Exchange Commission (SEC) between 1998 and 2000 that misstated revenues based on the accounting irregularities. A jury convicted him on 15 counts. But the appeals court said prosecutors failed to prove he had committed any crime.
"The government shouldn't have brought charges unless it had clear evidence of wrongdoing, and the trial judge should have dismissed the case when the prosecution rested, and it was clear the evidence could not support a conviction," Kozinski wrote in a concurring opinion.
He said the government's pursuit of the case had wasted taxpayer money, devastated the defendant's personal and professional life and cost his former employer millions of dollars in defense costs.
"Although we now vindicate Mr. Goyal, much damage has been done," Kozinski wrote. "One can only hope that he and his family will recover from the ordeal. And, perhaps, that the government will be more cautious in the future."
Kozinski underscored a key reason why former prosecutors say it is critical not to bring criminal charges unless the evidence warrants it: the impact on the defendant.
"People charged with a crime really have no redress if they are acquitted, even if they should not have been prosecuted in the first place," says Steven Miller, a Reed Smith partner who formerly was chief of the Special Prosecutions Division of the U.S. Attorney's Office in Chicago. "Even if the person is acquitted, people still point fingers at them across the crowded room and say, 'that's the guy who was indicted.'"
Kevin Di Gregory, a Manatt, Phelps & Phillips partner who previously was deputy criminal chief in the U.S. Attorney's Office for the Eastern District of Virginia, points out that the prosecutorial role is a "quasi-judicial function," requiring the prosecutor to weigh the evidence before seeking an indictment.
"Because of the charging decision's impact, not only on the individual but on society as a whole, you have to be very careful that criminal law is used only when you have sufficient evidence to go forward, and, as Judge Kozinski says, where it is clearly the kind of conduct that merits the moral condemnation of society," he says.
Di Gregory adds that prosecutors are supposed to weigh whether there are more appropriate remedies.
"In certain cases there may be civil remedies that can be pursued by regulators that will do justice and attempt to ensure society is protected in the future against the kind of conduct you believe occurred," he says. "Those are the kinds of things you need to consider."
Rush to Judgment
Former prosecutors say there are several possible reasons why the government has been embarrassed by some recent white-collar crime cases (see "Stretching the Bounds").
Miller says the process sometimes goes astray from the beginning--the FBI investigation.
"The FBI largely treats its agents as fungible, and has not sufficiently developed agent specialization so they can be genuine experts in the very complicated industries and transactions they are investigating," Miller says.
The problem is compounded by what Miller calls "the great white whale phenomenon."
"Young prosecutors fall in love with their case because they want it to proceed so they can get noticed and enhance their careers," he says. "They are not able to take an objective look at the case and say, 'What would a sharp defense lawyer do with this?'"
The backstop is supposed to be an intense review of the evidence by experienced prosecutors with no involvement in the case to see if it merits seeking an indictment. "The job of the supervisor is to apply the brake pedal," Miller says.
James Brady, a member at Dykema and former U.S. Attorney for the Western District of Michigan, questions whether current U.S. attorneys are reviewing the critical cases. "Back in the '80s, (former Attorney General) Griffin Bell would have had my hide if I let something like this go through and I didn't review it," he says.
Brady adds that Congress bears some responsibility by creating new felony offenses to address a range of issues.
"Is Congress really accomplishing anything by tagging on all these criminal activities, just to respond to the public hue and cry over the oil spill or the banking industry?" he asks.
Whatever the reasons for prosecutorial failures, they have the cumulative effect of undermining public trust in the Department of Justice, Miller says.
"When the public hears about case after case after case resulting in embarrassment, over time the government creates a very skeptical jury pool. They would be better off being more selective in the cases they bring, rather than looking for volume of prosecution."