Several corporate crime trials have begun in the United States.

arbitrage practice
Last week in the United States was marked by the beginning of hearings on several high-profile cases of corporate fraud. It is noteworthy that it was these cases that led to a serious tightening of legislation regulating corporate activities, and now the preventive measure for those involved in these cases will be determined in accordance with the new laws.

Punishable by law: concealment...

The proceedings, which began on September 29, include charges under Section 1102 of the Sarbanes-Oxley Corporate Fraud Act. According to it, persons guilty of deliberate destruction, concealment, damage, falsification and correction of documents with the intent to obstruct the execution of justice will face a fine and (or) imprisonment for up to 20 years.
The bankruptcy of Enron and the subsequent collapse of the auditing company Andersen, the discovery of large-scale fraud in the reporting of the telecommunications giant WorldCom, and the identification of a conflict of interest between the investment and analytical divisions of the largest investment banks led to stricter regulation of corporate activities in the United States. Thus, immediately after the Andersen scandal in 2002, under pressure from the US Securities and Exchange Commission (SEC), leading audit companies separated their audit business from their consulting business. In February of that year, the SEC required the largest US exchanges to tighten governance standards for public companies, which was done by NASDAQ in April and NYSE in June 2002. In May of that year, regulations were introduced to regulate the activities of stock analysts, and in February 2003, analysts were forced to swear that they sincerely believed their own forecasts. The most ambitious legislative response to the corporate scandals of 2001-2002 was the adoption in July 2002 of the Sarbanes-Oxley Act, which provided for personal liability of top managers of public companies for the financial statements provided (Kommersant wrote about it on August 15, 2002). August 15, 2002 went down in US corporate history as “Honest Wednesday”: CEOs and CFOs of major public companies swore under oath to the integrity of their balance sheets.
On September 29, the US Securities and Exchange Commission (SEC) asked the District of Columbia District Court in Washington to order former CEO and Chairman of the Board of Directors of the energy company Enron Kenneth Lay to hand over documents, letters and memos that he is withholding under that pretext. that they are personal in nature. Until now, Mr. Lay has avoided presenting them, citing the Fifth Amendment to the US Constitution, which states that no one can be forced to testify against himself. But now the court, responding to the SEC’s request, invited Mr. Lay to prove that these papers are really personal. After all, if these documents relate to the company's affairs, as the SEC suspects, then Mr. Lay's actions fall under Section 1102 of the Sarbanes-Oxley Act, which provides for prison sentences for concealing documents that could affect the course of the investigation.
Article 1102 was tested in legal proceedings relatively recently. One of the first to be prosecuted was Ernst & Young partner Thomas Troger, who was arrested on September 25 on charges of destroying and correcting the results of an audit (Kommersant wrote about this on September 29). Obviously, the SEC will now try to test this article on Kenneth Lay himself. Let us recall that it was with the exposure of the frauds of Enron, which used a sophisticated system of payments between shell companies in order to create the appearance of high profits, that began the struggle of American regulators against fraud with corporate reporting, culminating in the introduction of the Sarbanes-Oxley Act.

...destruction...

On the same day, September 29, hearings began in a Manhattan court in New York in the case of the former head of the investment bank Credit Suisse First Boston's department for working with shares of technology companies, Frank Quattrone. Mr. Quattrone has been charged with destroying documents relating to initial public offerings (IPOs) of technology companies during the boom years in the high-tech market (Kommersant wrote about this on January 31).
Regulators became interested in Mr. Quattrone in January of this year, when the SEC received an electronic directive from his assistant William Brady, “Time to clean up the files,” dated December 4, 2000. “It is expected,” Mr. Brady wrote, “that in light of the recent collapse in stock prices, regulators will launch a comprehensive investigation into failed technology IPOs... As the end of the year approaches, we want to remind you of the CSFB's document retention rules. None memos, drafts, cost analyses, no prospectuses, no dealer commissions, no sales or purchase recommendations, no internal correspondence. We remind you that if a lawsuit is filed, scheduled work on cleaning the archives, according to the CSFB charter, must be suspended, so. how destruction of documents is equivalent to destruction of evidence."
Mr. Brady's boss, Frank Quattrone, strongly advised everyone to comply with the directive. But at the same time, he forgot to notify his subordinates that at that moment three investigations were underway in relation to CSFB, the course of which could be influenced by these documents, which he was well aware of. Mr. Quattrone is also charged under Section 1102 of the Sarbanes-Oxley Act. CSFB itself was not charged with destroying papers.

...and forgery of documents

On the same day, September 29, the trial of the former head of the legal services of the medical company Rite Aid, Franklin Brown, began in the city of Harrisburg (Pennsylvania). Rite Aid is the third largest pharmacy chain in the United States, with 3,386 pharmacies. Before the Enron story, it was Rite Aid that had the dubious record of overstating its earnings; As it became known, in 2000, as a result of accounting fraud, the company's income was inflated by $1.6 billion. Franklin Brown is the latest executive of the company to be accused of fraud, five representatives of the company's senior management, including its CEO Martin Grass , COO Timothy Noonan and CFO Franklin Bergonzi have already pleaded guilty.
During the trial, it turned out that Mr. Brown in 1998 asked his secretary Mary Lou Egan to create a document backdated to early 1995, with the help of which he was able to receive 300 thousand shares of the company in accordance with the compensation program for key executives. The number of shares with which top managers were rewarded directly depended on their performance indicators over several years. With the help of Mrs. Egan, he managed to falsify these figures and ensure that he and Messrs. Grass, Noonan and Bergonzi were paid double the remuneration. For her help, Franklin Brown gave Mrs. Egan a check for $25,000 to buy a new car.
In November 1999, after learning of a federal investigation into Rite Aid, he sought her help again and asked her to remove documents indicating his actions. Ms. Egan refused. The fact that the documents were not destroyed does not make Mr. Brown’s situation any easier: according to the same Sarbanes-Oxley law, the intention to commit any of the actions specified in Article 1102 with documents is subject to the same punishment as for the actual commission.
NATALIA Kommersant-SKORLYGINA

Newspaper "Kommersant" No. 181/P dated 10/06/2003, p. 17

Authors:

Natalya Skorlygina

The court is working with documents