06 Sep US Policies Regarding Plea Bargaining Financial Crimes and Settling Civil Suits
US Policies Regarding Plea Bargaining Financial Crimes and Settling Civil Suits
Financial crimes in the United States are prosecuted exclusively by the US Attorney’s Office (USAO), which falls under the Department of Justice (DOJ). Within the DOJ, the Fraud Section is tasked with prosecuting securities and financial fraud, healthcare fraud, and enforcing the Foreign Corrupt Practices Act (FCPA). By contrast, the Division of Enforcement of the Securities and Exchange Commission (SEC) is empowered only to bring civil enforcement or administrative actions. The SEC can enjoin an individual from violating securities laws, disgorgement of money earned by illegal conduct, or civil penalties. The SEC cannot bring criminal charges itself, but the Commission will lend its expertise and any investigative findings to the DOJ to aid in prosecuting financial crimes.
Pleas in general are governed by Federal Rule of Criminal Procedure 11, and plea agreements by 11(c). The court may not be involved with the discussion of the plea agreement, but it must approve the terms that the prosecution and defense counsels agree to. After an agreement is reached between the two sides, it must be announced in open court or in some cases privately in the judge’s chambers to ascertain that the defendant fully understands the effects of a guilty plea. However, the terms of the agreement are not always made public as anything from key documents to the terms of the actual agreement may be sealed. Statistics tend to be unavailable, but in 2011, the government itself cited a scholarly estimation that 90 to 95% of cases are resolved by plea agreement, with 95% of those cases ending in a guilty plea. These numbers do not differentiate between financial and other crimes, and the DOJ’s Fraud Division only keeps the number of guilty pleas or convictions, not how they were obtained. A year prior, the Reporters Committee for Freedom of the Press surveyed federal judges in light of the DOJ’s policy seeking to restrict access to plea agreements and found mixed results in that some districts maintained complete openness, some sealed all plea agreements, and most sealed them on a case-by-case basis.
Court dockets, rulings, and plea agreements are all accessible via the government website Public Access to Court Electronic Records (PACER). An account must be registered and a fee paid per document accessed, and it is up to the judge’s discretion which documents will be posted. If either side files a motion to seal a plea agreement and the judge agrees then it will not be available on PACER. Some courts have chosen to forego PACER entirely by requiring in-person pick up from the clerk in order to restrict access to documents while still maintaining a veneer of openness.
Plea Bargaining with the US Attorney’s Office
The conduct of the USAO is governed by the US Attorney’s Manual (USAM). Chapter 3-9.100 specifically tasks the USAO with how to enforce financial crimes. 9-16.000 covers pleas generally and lays out exactly how the USAO operates regarding them. In fraud cases committed against the US government, the USAO’s prosecution should keep in mind coordination with a civil suit also. This includes an “explicit stipulation of all facts of a defendant’s fraud against the United States when agreeing to a plea bargain, including acknowledgement of the financial consequences or damages to the government.” Whereas 9-16.040 only covers the US government, 9-16.300 states that: “Plea agreements should honestly reflect the totality and seriousness of the defendant’s conduct. . . . The Department’s policy is to stipulate only to facts that accurately represent the defendant’s conduct.” Also included is that “[i]n addition, in accordance with USAM 9-27.630, United States Attorneys may not make agreements which prejudice civil or tax liability without the express agreement of all affected Divisions and/or agencies.” Although 9-16.300 does limit itself to the US government, it has only been litigated in the context of criminal law and appeals. However, it seems very difficult for a defendant to dispute facts in a civil case that he or she pleaded guilty to in a prior criminal case, provided the evidence is not suppressed in the civil trial.
1. Collateral Estoppel Effects of a Guilty Plea in a Subsequent Civil Trial
A guilty plea used in a subsequent civil trial is governed by Federal Rule of Evidence 410. 410(a)(1) and 410(a)(2) prohibit a guilty plea that was later withdrawn and a plea of nolo contendere, respectively. However, USAM 9-16.010 states that “United States Attorneys may not consent to a plea of nolo contendere except in the most unusual circumstances and only after a recommendation for doing so has been approved by the Assistant Attorney General responsible for the subject matter or by the Associate Attorney General, Deputy Attorney General or the Attorney General.” In fact, the USAO has been opposed to nolo contendere pleas for more than half a century, and only in very rare cases permits them.
If a defendant pleads guilty in a criminal trial, as long as the elements of the issue in the civil trial are the same, he or she may be precluded from disputing it. Offensive use of collateral estoppel, or issue preclusion, was upheld in the landmark Supreme Court decision Parklane Hosiery, Inc. v. Shore in which a class-action plaintiff precluded the defendant from litigating an issue it already lost against the SEC. This was a civil case rather than criminal, but the holding does not distinguish between the two. Courts have applied this in various ways. In SEC v. Monarch Funding Corp., the Second Circuit held that extending collateral estoppel to sentencing findings is not per se invalid, although precluding relitigation based on those findings is presumed to be improper. A common example of offensive collateral estoppel is US ex rel. Lamberts v. Stokes in which a district court that previously convicted the defendant of criminal fraud precluded him from denying it in the subsequent civil action.
As long as the elements pleaded to in the criminal trial are the same ones in the civil trial, then the plea is “as conclusive as a jury verdict.” Under Federal Rule of Evidence 803(22), evidence of a final judgment or conviction may be used in a subsequent trial provided (1) the judgment was entered after a guilty plea, (2) for a crime punishable by imprisonment of more than one year, (3) the evidence is admitted to prove any fact essential to the judgment, and (4) the judgment was against the defendant. There has been recent scholarship opposed to collateral estoppel and several district court decisions that seek to limit it in certain ways, but it still remains good law in federal court.
2. DOJ Policy to Achieve a Plea Bargain
The DOJ views plea agreements very favorably and actively encourages them to reduce costs and increase convictions. In a 2006 speech in Paris, the DOJ extolled the virtues of the American system by explaining how plea bargains benefit the prosecution, defense, judicial system, and society:
The term “plea bargaining” sometimes carries a negative connotation, because it implies that prosecutors are bargaining away justice by securing guilty pleas that allow defendants to plead guilty to lesser offenses. The Division’s experience of using negotiated plea agreements in cartel cases has very few, if any, detractors, however. Doing so benefits the government, cooperating defendants, the judicial system, the victims, and the public at large by encouraging early cooperation and acceptance of responsibility by cartel members through the promise of a transparent, proportional, expedited, certain and final plea disposition.
Although this pertained to the Antitrust Division, the USAM does not distinguish one area from the other regarding plea bargains. In fact, chapter 9-16.040 of the USAM specifically states guidelines for plea bargains in fraud cases, and 9-27.420 lists factors the USAO should weigh when considering a plea agreement. The first factor was also the hook the Paris speech relied on: the defendant’s willingness to cooperate. The desirability of a prompt trial and the likelihood of conviction are also factors that motivate the government. Plea agreements give a defendant a sense of certainty, but for the prosecution they result in expediency and an easier path than going to trial.
A 2012 World Bank study on bribery compiled statistics from 1979-2012 of US enforcement of the FCPA and found that in 243 cases brought by the DOJ 100 resulted in a guilty plea, and 66 resulted in a deferred prosecution agreement or non-prosecution agreement. Restitution was not focused on the US exclusively, but worldwide a mere 3.3% was returned to the country where the bribery occurred. These numbers are in accordance with the DOJ’s interest in prosecuting criminals, not necessarily in obtaining restitution to their victims.
3. Recovering Damages After a Criminal Conviction
The DOJ is tasked with enforcing US law. Domestic or foreign company must seek to recover damages from criminal actions with a civil law suit. In the past, the DOJ has sought to restrict online access to plea bargains, but individual district judges may use their discretion in what information to allow on PACER. The DOJ’s website does maintain some transparency by listing their enforcement actions and providing a PDF of the case information, press release, and a copy of the plea agreement if available. The Fraud Section’s list can be accessed at: https://www.justice.gov/criminal-fraud/securities-and-financial-fraud-unit and the FCPA’s list can be accessed at: https://www.justice.gov/criminal-fraud/chronological-list.
Depending on the terms agreed upon, a plea may preclude a defendant from litigating the issue in a civil trial. If a civil defendant is unwilling to settle and the elements do not exactly match the criminal charges, there may still be extensive discovery and risk of trial.
Brief Overview of US Civil Enforcement of Financial Crimes
In 1986 US Attorney General Edwin Meese issued a memo stating that every United States Attorney should “institute a system of coordination of the criminal and civil aspects of all matters within the office.” This was reiterated in 2012 by Attorney General Eric Holder encouraging communication between the USAO’s prosecutors and US departments tasked with civil and administrative enforcement of regulations.
The SEC’s Division of Enforcement is tasked with detecting and investigating violations of US securities laws. Their authority is limited to civil actions in which defendants can be enjoined from further violating the law, forced to comply with a court’s injunction or disgorge profits obtained illegally, or in rare cases pay civil penalties. The SEC either detects abnormal behavior or is alerted to it via employees, the public, or other sources, and then begins a preliminary investigation by utilizing cooperating employees, public documents, or news articles. These investigations are not usually public and if warranted may proceed to a formal investigation in which the SEC may obtain a subpoena and compel testimony from witnesses. If a witness fails to comply with the SEC at this stage he or she may be held in criminal contempt of court.
The SEC Enforcement Manual contains a very brief chapter regarding settlements, but does not cover it as extensively as the USAM. Nor does the SEC differentiate between settled and litigated cases when it releases its end-of-year statistics. It can be assumed the SEC is in favor of settlement for the same reasons as the DOJ is, and statistically, civil trials often settle before reaching trial. It was not until 2012, after the ensuing litigation of the American mortgage crisis, and harsh words from Judge Rakoff, that the SEC finally removed the option for defendants to no longer admit or deny liability. The pertinent language from Judge Rakoff: “[A] consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies.”
Since the 2012 change, parties that settle with the SEC can no longer do so just to hurriedly avoid an issue with the government. Instead, they must admit their wrongdoing. If this information becomes public or discoverable in a subsequent civil trial from a private plaintiff, it may open the settling party to increased liability. However, the SEC is independent and exists to enforce compliance with US securities laws – not to aid private civil plaintiffs or the DOJ.
Plea bargaining and settling is viewed favorably from both sides of a trial and is a frequent occurrence in the US. Aside from stated interests of judicial economy and public policy, it is often easier than proving facts in a criminal trial and carries less risk of an unknown sentence. On the civil side, it is often cheaper to pay the settlement than the expensive cost of trial. There is overlap between the DOJ and the SEC in their missions, although they are independent of each other. In parallel proceedings both will share information, but this information may not be as accessible to private plaintiffs that have been damaged. Court documents are usually available via PACER, but not always. The DOJ maintains slightly more transparency by posting many of their agreements directly on their website, but if the judge agrees to seal a plea agreement then it is inaccessible both via the DOJ website or on PACER. Recovering damages as a private plaintiff may be easier in the wake of a criminal trial where the defendant entered a guilty plea, but there could still be complicating factors that make it not so straightforward.
 Id. at 9-16.040
 USAM 9-16.010
 See United States v. Jones, 119 F. Supp. 288, 289 (S.D. Cal. 1954)
 Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322 (1979)
 SEC v. Monarch Funding Corp., 192 F.3d 295 (2d Cir. 1999)
 US ex rel. Lamberts v. Stokes, 640 F.Supp.2d 927 (W.D. Mich. 2009)
 LaMagna v. United States, 646 F.2d 775, 778 (2d Cir. 1981)
 See, e.g., Why Plea Bargains are Not Confessions, William & Mary Law Review http://scholarship.law.wm.edu/cgi/viewcontent.cgi?article=3642&context=wmlr
 Id. at p. 98
 U.S. S.E.C. v. Citigroup Glob. Markets Inc., 827 F. Supp. 2d 328, 333 (S.D.N.Y. 2011), vacated and remanded, 752 F.3d 285 (2d Cir. 2014)