Board of Directors Criminal Liability.

Can the Corporate Decision Itself Be the Basis for a Director’s Criminal Charges? Yes, if a corporate decision involves actions that violate the law, the underlying conduct associated with the decision can be the basis for criminal charges against the director. Whether this occurs under federal law or state law depends upon the nature of the conduct and the jurisdiction involved. Federal crimes, for example, are codified within the U.S. Code, and state crimes are codified within a state’s penal code.

Is a Director Culpable for a Corporation’s Crime Solely Because of Their Position?

Generally, board membership alone does not establish that a director has participated in the corporation’s criminal conduct. In most cases, establishing culpability requires establishing that the director possesses the culpability required for the specific offense charged (generally referred to as a culpable mental state or scienter). While many statutory offenses require proof of knowledge or intent, some impose a lower standard of culpability such as negligence, and some imposed strict liability.

However, negligence or failure to make a sound business decision is generally insufficient to establish a director’s criminal guilt. Federal prosecutors generally only pursue criminal charges against directors where there are grounds for establishing the director’s knowing or willful participation in an illegal act. Even in the event of a flawed decision by a director, the government would still be required to prove the director possessed the culpable mental state required by the applicable federal statute to support a conviction.

Does a Corporation’s Criminal Liability Establish a Director’s Personal Liability?

Generally, no. A corporation is a separate legal entity with its own liability; a corporation’s liability does not automatically transfer to the corporation’s directors. The corporation’s criminal liability does not establish a director’s personal liability for any individual’s actions or any entity-wide failing. Instead, to establish a director’s personal liability, the government must prove that the director personally participated in the offense and did so with the level of culpability required by the applicable federal statute.

We are committed to helping our clients avoid unjust criminal prosecution and charges.

What Mental State and Board Conduct Can Satisfy a Criminal Statute?

Can Willful Blindness Be Used to Prove Knowledge?

In certain circumstances, the government may prove that a director acted knowingly by establishing that the director consciously avoided learning about the corporation’s criminal conduct. This legal concept is known as willful blindness and is often referred to as the “ostrich instruction.” Willful blindness may substitute for knowledge in various contexts, including federal criminal cases. For directors, this means that “looking the other way” can establish culpability in the event that a federal criminal statute requires proof of knowledge or intent.

How Can Board Minutes Be Used Against Board Directors?

Board minutes can be used in various ways in criminal investigations. They often reflect a record of a board’s knowledge, and they can also demonstrate a board’s decisions. When a director is accused of criminal conduct, federal prosecutors will often look to board minutes to establish evidence that support their case. Board members should keep in mind that their actions and words in the boardroom can be evidence in their criminal investigations and may contribute to establishing their culpability.

When defending a director’s personal liability, it is important to have an effective and detailed defense strategy. At Spodek Law Group, we are committed to helping our clients avoid unjust criminal prosecution and charges.

Can Criminal Certifications under Sarbanes-Oxley Section 906 be Imposed?

Sarbanes-Oxley Section 906 imposes criminal penalties when a company’s chief executive officer or chief financial officer knowingly or willfully certifies a periodic financial report that has omitted material information. Section 906 creates two levels of culpability for criminal certification violations: knowing and willful. A knowing certification carries a statutory maximum fine of $1 million or 10 years of federal imprisonment; and a willful certification carries a statutory maximum fine of $5 million or 20 years of federal imprisonment.

Can Criminal Certifications under Sarbanes-Oxley Section 302 be Imposed?

Sarbanes-Oxley Section 302 requires certification by the company’s chief executive officer and chief financial officer. The certifications must affirm that the officer has reviewed the report, that the report does not contain any untrue statement of a material fact or omit a material fact necessary to prevent the report from being misleading, that the financial statements fairly present the issuer’s financial condition and results, and that the officer is responsible for and has evaluated the effectiveness of the issuer’s disclosure controls and internal control over financial reporting. The falsity of a certification does not alone prove that the signer knowingly certified the falsity of the report. Instead, evidence of the signer’s culpability for a certification violation must generally establish that the signer acted knowingly.

When an Investigation Reaches a Director, What Do Status, Interviews, and Company Counsel Mean?

Who May Conduct Federal Investigations?

Federal investigations may be conducted by a variety of law enforcement agencies, including the Federal Bureau of Investigation (FBI), the Securities and Exchange Commission (SEC), the Internal Revenue Service (IRS), and others. If you learn of a federal investigation targeting your company, you should speak to an experienced defense attorney about what this means for you. At Spodek Law Group, we can help you find out if you are in a position that requires immediate intervention.

What Will Law Enforcement Seek During a Federal Investigation?

Depending on the nature and status of an investigation, law enforcement agencies may seek documents, interviews, grand-jury testimony, or other forms of evidence from individuals and companies. The level of scrutiny directed at individual directors and other individuals will depend on the scope of the investigation and what the government has already learned. With this in mind, it is critical to address all concerns promptly and to take the necessary steps to protect your rights while minimizing the risk of unnecessary criminal prosecution.

Can I Decline an Interview with the FBI During a Federal Investigation?

Yes, individuals may decline to participate in investigative interviews and request the advice of legal counsel instead. A person may generally decline a voluntary investigative interview and request counsel, but federal investigators may continue the investigation and may seek compulsory process where authorized. With this in mind, if you are faced with an interview request from federal law enforcement agents, you should contact an attorney as soon as possible.

What is the Difference Between Being a Target, Subject, and Witness?

In federal criminal investigations, law enforcement agents use the terms “target,” “subject,” and “witness” to denote an individual’s status in the investigation:

• Target: An individual who is the target of a federal criminal investigation is someone as to whom the prosecutor or grand jury has substantial evidence linking the person to a crime and whom the prosecutor regards as a putative defendant.
• Subject: An individual who is a subject of a federal criminal investigation is someone whose conduct is within the scope of the government’s investigation, but whom the government does not currently believe is the focus of the case.
• Witness: An individual who is a witness in a federal criminal investigation is someone the government believes has information relevant to the case but is not himself or herself a target or subject of the investigation.

What Can a Conviction Cost, and Can Resignation, D&O Insurance, or Other Factors Prevent it?

What Factors Influence Federal Sentencing?

Federal sentencing is a complex process. Offense conduct, loss amounts, the number of victims involved, the defendant’s role in the offense, the defendant’s criminal history, and other factors all play a role in sentencing decisions. To this end, avoiding a conviction is critical, and taking steps toward this goal should begin as soon as possible. If you are facing charges, you should seek the advice of an experienced defense attorney promptly.

What Penalties May Result from a Conviction?

Depending on the offense involved, a conviction in a federal criminal case may produce a number of penalties, including federal imprisonment, fines, restitution, forfeiture, and supervised release.

Can Resignation Prevent Liability for Prior Conduct?

Resignation does not erase a director’s liability for actions he or she took prior to resignation; conduct surrounding a resignation could raise separate obstruction or witness-tampering issues if it is intended to affect evidence or communications with law enforcement. With this in mind, resignations should be made on advice of counsel.

Does D&O Insurance Cover Defense Costs in Federal Criminal Cases?

Directors and officers (D&O) liability insurance policies vary from one policy to another. Many D&O policies contain exclusions for criminal conduct. However, while criminal-conduct exclusions may affect coverage for loss or restitution, many policies will cover defense costs until criminal liability is established, as a result of intentional criminal conduct. For this reason, the extent of a director’s D&O insurance coverage is an important consideration.

Is There a Sentencing Enhancement for Company Directors?

There is no automatic sentencing enhancement for individuals sentenced in federal criminal cases. Contrary to commonly held beliefs, a two-to-four-year sentencing enhancement will not be added to a director’s sentence simply because of the individual’s position.

Why Should I Engage a Defense Attorney Promptly?

This knowledge is invaluably important when determining what steps are necessary to protect a client’s rights and to work to secure a favorable outcome.

Speak With Counsel Before You Answer Anything

If agents have contacted you, the order matters: counsel first, answers second. Spodek Law Group has been practicing since 1976 and defends federal matters nationwide, coast to coast, from offices in New York, Brooklyn, Queens and Los Angeles. Call 888 348 8028.