Lawrence S. Bader interviews his partner of many years, Paul R. Grand, who is one of the Bar’s leading white collar criminal defense attorneys, with extensive experience handling complex criminal and civil matters in state and federal trial and appellate courts throughout the country. Paul successfully defended Afshin Mohebbi, the former President of Qwest Communications International, Inc., in SEC v. Nacchio, et al. in the District of Colorado. He also defended Timothy Rigas, the former Chief Financial Officer of Adelphia Communications Corporation, in U.S. v. Rigas, et al. in the Southern District of New York. And most recently Paul represented Anil Kumar, a key witness at the trial of Raj Rajaratnam, and successfully argued for a sentence of probation.
As a former Assistant U.S. Attorney for the Southern District of New York and Chief of its Securities Frauds Unit, and a defense lawyer for 43 years, Paul’s thoughts on the white collar defense practice and the cause of justice are always welcome. Lawrence Bader has practiced law with Paul for 32 of those 43 years.
LSB: What would you say have been the most significant changes in the white collar defense practice over the past 50 years – particularly the representation of individuals and how have those changes affected practitioners and the cause of justice?
PRG: The Federal Sentencing Guidelines, which affects crimes committed after Nov. 1, 1987, took power and discretion from the judges and transferred them to the prosecutors. As a result, sentences were made exponentially higher. Prior to the Guidelines, a harsh sentence in a white collar case was a year or two. And, in the off chance there was a white collar sentence of more than two years, the defendant would be eligible for parole (and probably got parole) after serving 1/3 to 1/2 of his sentence. Under those circumstances, the defendant had a real choice regarding whether to go to trial. However, with sentences in white collar cases reaching double digits, the risk of going to trial is too great for most defendants to take on. Hence, a greater number of guilty pleas and fewer trials. And even though the Guidelines are now advisory, the power of the Guidelines to drive harsh white collar sentences is still significant.
LSB: What are your thoughts on the most noteworthy securities fraud prosecutions in recent years – the insider trading cases against Raj Rajaratnam and Raj Gupta and the prosecution of SAC Capital and individuals associated with it? How would you compare them with the famous insider trading and securities fraud cases of the 1980s – Denis Levine, Ivan Boesky, Michael Milken?
PRG: The big insider trading cases today are comparable to the high visibility insider trading cases of the 1980s, but there are significant differences. The cost of defending cases today is much greater than it was in the 1980s. Also, prosecutors are more inclined to apply for wiretap evidence in insider trading cases today than they were in the 1980s. What is most striking about the current cases is that they have diverted attention from other white collar crimes that, unlike insider trading, have had a profoundly negative impact on our society. One can make the argument that the great recession of the last 5 years is among the most economically devastating periods in American history. Yet the number of criminal prosecutions charging fraud in connection with that recession have been few. And so we have a situation where insider trading gets all the attention of prosecutors, and attention is diverted from various frauds that led to the great recession.
LSB: Some have said that, in the wake of the accounting cases of the early 2000s, the tendency of public company boards or finance committees to call for internal investigations changed the landscape of white collar criminal enforcement, and altered the role of executives, boards and outside counsel, not necessarily for the better. In recent years we have seen fewer major internal investigations of accounting issues, and certainly less prosecutions or SEC enforcement actions in the accounting area. What do you think has been the impact of those major accounting cases?
PRG: I think that accounting fraud is an area in which enforcement should be vigorous. After all, financial statements are the face of a public company. Therefore, this is an area that should garner a lot of attention from regulators and prosecutors. So, I agree with Mary Jo White when she emphasizes the need for the SEC to bolster its enforcement efforts in this area. As for the increase in internal investigations, a lot of that is due to the Sentencing Guidelines, which reward companies who have good compliance procedures and who self-report early. The problem is that because of the Guidelines, prosecutors are trying to have “defense lawyers” do the prosecutor’s job. I put “defense lawyers” in quotation marks because these lawyers often see their role as that of a quasi-prosecutor, and not as advocate for their corporate client. I think it is much better policy to allow outside counsel to advocate for defenses that can be asserted in good faith, rather than start from a position that accepts the government’s worst case scenario as accepted fact.
LSB: What do you think will be the significance of the SEC’s new policy of considering demanding an admission of wrongdoing as a condition of settlement with the SEC?
PRG: I think that this new policy is a reaction to the “too big to fail” reality. Because the prosecution of huge corporations may have devastating financial consequences for our economy, regulators will naturally look for other ways – other than criminal prosecution – to deter large corporate wrongdoers. So I would be inclined to encourage this new policy to the extent that it was used against recidivist large corporations. I would be less inclined to use it in other cases because it may be that forcing potential defendants to admit wrongdoing would result in many fewer settlements. The SEC has a finite amount of resources to use for enforcement, and significantly increasing the number of trials will mean that the resources used for the trials will be diverted from other investigations.
LSB: What do you regret about the changes you have seen in white collar cases over the past 50-odd years?
PRG: The sentences are too harsh; the prosecutors have too much power; the cost of criminal defense is prohibitive for most individuals; and there aren’t enough trials.