This article originally appeared on Professor Koehler’s FCPA Professor website (www.fcpaprofessor.com) and is reprinted with his permission.
Last May, Lindsey Manufacturing Company, a privately held manufacturer of electrical transmission and related products that employs approximately 100 individuals, and president Keith Lindsey and CFO Steven Lee were convicted after a five-week trial by a federal jury in the Central District of California of one count of conspiracy to violate the FCPA and five counts of FCPA violations.
Reacting to the guilty verdicts last May, Assistant Attorney General Lanny Breuer stated in a release, “Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last.”
The DOJ’s “important milestone” has been erased as Judge Howard Matz who vacated the convictions and dismissed the indictment after months of legal wrangling. For more detail, see Judge Matz’s ruling.
Judge Matz’s ruling begins as follows.
“In this Court’s experience, almost all of the prosecutors in the Office of the United States Attorney for this district consistently display admirable professionalism, integrity and fairness. [A footnote states: Two of the three members of the prosecution team in this case were from the Washington, D.C., main office of the Department of Justice, including the lawyer who initiated the investigation. Only one ‘local’ AUSA was involved]. So it is with deep regret that this Court is compelled to find that the Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court’s rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court. Consequently, the Court throws out the convictions of Defendants Lindsey Manufacturing Company, Keith E. Lindsey and Steve K. Lee and dismisses the First Superseding Indictment.”
In reaching his conclusion, Judge Matz acknowledged that even he was overwhelmed by the pace of the case and thus unable to see sooner the gravity of the DOJ’s misconduct. The following paragraph from his order is telling.
“… when a trial judge managing a large docket is required to devote a great deal of time and effort to a fast-moving case that requires numerous rulings, often the judge will miss the proverbial forest for the trees. That is what occurred here. This Court was confronted with so many motions challenging the Government’s conduct that it was difficult to step back and look into whether what was going on reflected not isolated acts but a pattern of invidious conduct. Although the Court did issue orders granting various of Defendants’ motions to suppress, motions to exclude evidence, motions to compel further discovery, motions for curative instructions, etc., it did not fully comprehend how the various pieces fit together. And fit together they do. The Government has acknowledged making many ‘mistakes,’ as it characterizes them. ‘Many’ indeed. So many in fact, and so varied, and occurring over so lengthy a period (between 2008 and 2011) that they add up to an unusual and extreme picture of a prosecution gone badly awry. To paraphrase what former Senator Everett Dirksen supposedly said, ‘a few mistakes here and a few mistakes there and pretty soon you’re talking misconduct.'”
Upon first hearing of Judge Matz’s tentative ruling earlier this week, my initial reaction was that his decision would have little impact on FCPA enforcement (other than perhaps the O’Shea case pending in the S.D. of Texas given that it focuses in part on the same evidence and involves the same prosecutor). After all, prosecutorial misconduct motions focus on specific actions by specific actors.
Upon reading Judge Matz’s order, however, it seems clear that his decision was based in part on the quality of the DOJ’s case in the first instance. Post-trial motions as to sufficiency of the evidence and based on various FCPA elements were pending but are now moot. In any event, it is reasonable to conclude that Judge Matz might have vacated the jury verdict based on substantive grounds.
For instance, in addition to criticizing the DOJ’s willful blindness instruction, Judge Matz stated that it was improper and misleading for the DOJ to take inconsistent positions as to certain alleged school payments to the son of the Mexican “foreign official.” Because of the DOJ’s misconduct, Judge Matz stated as follows concerning Defendants’ opening statement.
“In their opening statements defense counsel were not in a position to cite grand jury transcripts as support for what eventually became part of their defense. Lacking the factual support they needed, they could not and did not assert, in effect, ‘The evidence will show that the Government team failed to conduct a complete and fair investigation. In fact, the Government obtained the very charges in the indictment through false and misleading grand jury testimony of an FBI agent. The prosecution has been scrambling to find out what happened ever since. Had they done their homework properly, they would have learned long before now that there was no crime.'”
More on point, Judge Matz stated:
“A clearly established additional basis for finding prejudice is the weakness of the Government’s case. The case against the Lindsey Defendants was far from compelling. That the jury returned its verdicts after some seven hours of deliberation is not a reliable indication of just how close the evidence was, contrary to the Government’s contention. For example, the key issue as to the Lindsey Defendants was whether they knew that the monies that LMC would and did pay to Grupo would be used by Enrique Aguilar to bribe CFE officials, and whether they intended that to happen. There was no direct evidence of such intent. There were no oral admissions (secretly recorded or otherwise); no writings acknowledging the payments were corrupt; no evidence of furtive conduct, except perhaps for the disputed bookkeeping reclassification of one contract, described above. The circumstantial evidence, at best, was murky.”
In conclusion, Judge Matz stated:
“The unavoidably dry recital of the background and prosecution of this case set forth above does not fully account for the real impact of the Government’s conduct. Dr. Lindsey and Mr. Lee were put through a severe ordeal. Charges were filed against them as a result of a sloppy, incomplete and notably over-zealous investigation, an investigation that was so flawed that the Government’s lawyers tried to prevent inquiry into it. In some instances motives, statements and conduct were attributed to them that were wholly unfounded or were obtained unlawfully, such as the statements attributed to Dr. Lindsey that were suppressed because of Miranda violations and Agent’s Guernsey’s grand jury testimony that Lee ‘didn’t want to know’ what Aguilar would do with the commission payments. The financial costs of the investigation and trial were immense, but the emotional drubbing these individuals absorbed undoubtedly was even worse. As for LMC, the very survival of that small, once highly-respected enterprise has been placed in jeopardy. That is not to say that the Lindsey Defendants are entitled to a finding of factual innocence; they are not. Moreover, the hardships described in the preceding paragraph are the plight of many defendants who go to trial. But as the Kohring dissent phrased it, ‘In this case, dismissal of the Superseding Indictment is justified not only as a deterrent but to release [defendant] from further anguish and uncertainty.'”
Whatever impact Judge Matz’s decision will have on FCPA enforcement, this much is clear: the DOJ is now 0-2 in corporate criminal prosecutions. As detailed in this prior post, in 1991, in an FCPA case involving Harris Corporation, John Iacobucci, and Ronald Schultz, U.S. District Judge Charles Legge (N.D. of California) granted a verdict of acquittal after the DOJ’s case. Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy.
About the Author
Mike Koehler is an assistant professor of business law at Butler University and is an Expert FCPA Columnist for Corporate Compliance Insights. He is a leading expert on FCPA and other anti-corruption laws and initiatives. Professor Koehler has testified before Congress on FCPA, and he is also frequently speaks about such topics before business and academic audiences.