Washington — The Justice Department sent a warning to major corporations Wednesday, saying it will seek out individual corporate wrongdoers and not just blame the company.
U.S. Attorney General Eric Holder had a clear message for all companies under investigation in a speech that largely focused on financial fraud cases. The government has been criticized for repeatedly reaching deals with large banks and other companies in which they agree to pay massive fines, but few if any corporate executives are charged criminally.
“Despite the growing jurisprudence that seeks to equate corporations with people, corporate misconduct must necessarily be committed by flesh-and-blood human beings. So wherever misconduct occurs within a company, it is essential that we seek to identify the decision-makers at the company who ought to be held responsible,” Holder said in a presentation at the New York University School of Law, according to remarks released by the Justice Department.
“The buck needs to stop somewhere where corporate misconduct is concerned,” Holder said. “We ought to consider this further and modify our laws where appropriate. It would be going too far to suggest reversing the presumption of innocence for any executive, even one atop the most poorly run institution. But we need not tolerate a system that permits top executives to enjoy all of the rewards of excessively-risky activity while bearing none of the responsibility.”
Though he did not mention General Motors Co. by name, the Justice Department is conducting a wide-ranging investigation into the automaker over its delay in recalling 2.6 million cars with defective ignition switches now linked to at least 19 deaths. The department hasn’t publicly confirmed the investigation, even though it has been confirmed by GM, Transportation Secretary Anthony Foxx and Michigan Attorney General Bill Schuette.
Aided by a grand jury and the FBI, the U.S. Attorney’s Office in New York has subpoenaed millions of pages of records from the automaker. The probe is looking at whether GM and its lawyers misled the National Highway Traffic Safety Administration or if it committed bankruptcy fraud by failing to disclose defects prior to its 2009 exit from bankruptcy as a government-sponsored company.
In March, the Justice Department imposed a record-setting $1.2 billion criminal fine on Toyota Motor Corp. for corporate misconduct after that company was charged with wire fraud, a felony. Toyota agreed to three years of monitoring by a former U.S. Attorney in New York, David Kelley, but didn’t have to plead guilty; no individual executives were charged.
The government’s investigation found “individual employees not only made misleading public statements to Toyota’s consumers, but also concealed from Toyota’s regulator one safety-related issue.” Toyota in October 2009 made plans for a design change to pedals with its supplier described internally as “urgent.” Less than two weeks later, Toyota executives “decided to cancel the design change instruction that had already been issued and to suspend all remaining design changes.”
Consumer advocate Ralph Nader has called the Justice Department’s focus on companies — and not executives — a big problem. “Corporations don’t break the law — people at the companies do,” Nader said in a Detroit News interview earlier this year. “Toyota got what it wanted. ... None of their officials are prosecuted and (Toyota) didn’t have to plead guilty, which would have enhanced the civil product liability litigation.”
Holder said the government was committed to holding individuals accountable. “It promotes fairness — because, when misconduct is the work of a known bad actor, or a handful of known bad actors, it’s not right for punishment to be borne exclusively by the company, its employees, and its innocent shareholders,” Holder said. “It has a powerful deterrent effect.”
GM CEO Mary Barra fired 15 executives and disciplined five after an internal investigation led by a former U.S. attorney in Chicago blamed the delayed recall on a “culture of incompetence and neglect.” Barra has repeatedly said the company is cooperating but declined to say if she thinks criminal charges are appropriate.
GM has already admitted wrongdoing and paid a record-setting $35 million settlement to NHTSA in May.