“Since most big banks are federally insured, and many large health care companies do business with Medicare or Medicaid, barring an executive from that work can be a professional death sentence…

…For example, the F.D.I.C. can bar someone for life from any federally insured bank by demonstrating in an administrative hearing that the person violated federal banking regulations or failed to correct any “unsafe or unsound practice.”…And the S.E.C. can bar a financial services executive by filing a civil case in federal court, showing that the person is unfit “to serve as an officer or director” of a public company and proving that the executive knew about or recklessly ignored the improper activity.”,Eric R. Havian, former assistant United States Attorney and partner, Constantine and Cannon, October 22, 2015

“See the extensive discussion (and documentation) of both my SEC and FDIC matters on this blog. I beat the SEC in court on every allegation heard (all but one minor matter) and settled on that one minor matter, without any admission or denial, to avoid the SEC appealing the court’s decisions. I have no restriction on serving as a public officer and/or director. In regards to the FDIC, their receiver sued me personally for $600 million, alleging I was negligent (which should have been barred by the Business Judgment Rule). They refused to settle this bogus matter and sue me separately to seek an enforcement action barring me from serving as an officer or director of a federally-insured financial institution, because they knew they could not prove their case. Because I had to protect myself and my family financially, I settled the bogus civil suit with the FDIC’s receiver. I paid them $1 million (which they effectively extorted from me!), and DENIED all the receiver’s bogus allegations. They were not true. As I said, they never sued me or sought a separate enforcement action (to bar me from FDIC institutions), instead, at the signing table (for the settlement of the $600 million bogus civil suit) I had to agree to be barred for life or they wouldn’t settle. In that enforcement agreement, no facts related to IndyMac Bank or my role as CEO were laid out to support this bar and I did not admit or deny the “boiler-plate” allegations in this agreement. I paid no civil penalties or fines to the FDIC or anyone. I conducted myself appropriately and in accordance with every law and regulation, at all times. My bank, which specialized in home mortgages, failed in the unprecedented financial crisis of 2008, despite my (and so many others) Herculean efforts to prevent that from occurring. Is this really American justice Mr. Havian? I don’t think so.”, Mike Perry, former Chairman and CEO, IndyMac Bank

September 24, 2014 – Statement 380: “However, the Court will briefly discuss the FDIC’s claim that the “Great Recession” was not only foreseeable, but was actually foreseen by the defendants. The Court discusses this claim only due to the absurdity of the FDIC’s position…In sum, the FDIC claims that defendants (former Officers and Directors of Cooperative Bank) were not only more prescient than the nation’s most trusted bank regulators and economists, but that they disregarded their own foresight of the coming crisis in favor of making risky loans. Such an assertion is wholly implausible…

January 9, 2013 – Statement 35: FDIC Settlement Documents and M. Perry’s Comments Re. Settlement

October 22, 2015, Eric R. Havian, The New York Times

The Opinion Pages

How to Punish Corporate Fraudsters

By ERIC R. HAVIAN

Credit Golden Cosmos

EDWARD THURLOW, an English lord chancellor in the 18th century, reputedly said that it’s difficult to punish a corporation because there is “no soul to be damned, and no body to be kicked.”

But there is, in fact, a way to punish corporations for their misdeeds: Bar their officers from government work. So why don’t we?

Few outside the legal community are familiar with the concept of “exclusion,” which permits many federal agencies — including the Securities and Exchange Commission, the Federal Deposit Insurance Corporation and the Department of Health and Human Services — to temporarily or permanently block corporations that violate their rules from doing business with them.

Importantly, it can also be applied to individual corporate officers, such as chief executives and lower-level executives, and is especially effective in the finance and health care industries. Since most big banks are federally insured, and many large health care companies do business with Medicare or Medicaid, barring an executive from that work can be a professional death sentence.

For example, the F.D.I.C. can bar someone for life from any federally insured bank by demonstrating in an administrative hearing that the person violated federal banking regulations or failed to correct any “unsafe or unsound practice.” To exclude a health care executive from federal health programs, the Department of Health and Human Services can also conduct an administrative hearing to show that the executive engaged in fraud. And the S.E.C. can bar a financial services executive by filing a civil case in federal court, showing that the person is unfit “to serve as an officer or director” of a public company and proving that the executive knew about or recklessly ignored the improper activity.

It’s much easier to exclude someone than to convict him of a crime. None of these agencies need to prove their case beyond a reasonable doubt or convince a jury that the executive knew her company was violating the law. Although executives are entitled to due process and can appeal the decisions in federal court, judges largely defer to the agencies’ expertise.

Despite the availability of such strong medicine, there are only a handful of instances in which senior executives have been excluded after their companies committed fraud. Angelo Mozilo, the former C.E.O. of Countrywide Financial, was hit with a $67.5 million fine for his role in the financial crisis, and theS.E.C. barred him for life from serving as an officer of any public company because he deliberately misled investors as the mortgage crisis emerged.

Others have also been barred from any federally regulated bank over the past 15 years, including the former C.E.O. of the now-defunct American Sterling Bank and an executive of Louisiana’s First Guaranty Bank. In addition, the Bear Stearns executives who were acquitted of criminal charges after the financial crisis were later barred from the securities industry for several years.

But instead of using these tools, most federal prosecutors focus solely on bringing criminal charges against corporate executives. And if those are unavailable, they look no further. Sally Q. Yates, the deputy attorney general, recently announced that the Justice Department would try to squeeze the names of bad actors out of corporate defendants as a condition of any settlement negotiation. But Justice Department lawyers concede that in many cases it’s practically impossible to secure criminal convictions.

This single-minded focus on criminal convictions is misguided — too often, corporate fraud goes unpunished. JPMorgan Chase paid $13 billion in 2013 for its role in the mortgage crisis. But what happened to its executives that year? None were adequately punished, the stock price rose 28 percent and its C.E.O., Jamie Dimon, got a 74 percent raise.

Similarly, fraud against Medicare and Medicaid has been building for over a decade. From 2000 to 2004, the Hospital Corporation of America paid $1.7 billion to settle charges of fraud against federal health programs. Pfizer paid $2.3 billion in 2009 and $491 million in 2013 for fraud and illegal drug marketing. DaVita HealthCare Partners was fined $389 million in 2014 to settle charges that it paid kickbacks to doctors to refer patients to its clinics. This year, it agreed to pay $450 million to settle claims that it charged the government for unused drugs.

But what happened to the leaders of these companies, which paid some of the largest fines in history for defrauding taxpayers? The head of H.C.A. became the governor of Florida. Pfizer’s chief executive retired in 2010 with a “golden parachute” worth $23 million. And DaVita’s C.E.O. remains one of the highest-paid health care executives in the nation.

We need to use better methods to deter corporate misbehavior. Exclusion needs to be dusted off, modernized and used more frequently. Criminal remedies will never be a realistic option, except in the most egregious cases.

The best way to make sure the rank-and-file are turning square corners when dealing with the government is to give them, and their bosses, strong incentives to do the right thing. We no longer punish malefactors by damning their souls. But we need to start kicking their bodies out of the executive suite.

Eric R. Havian, a former assistant United States attorney, is a partner at the law firm Constantine Cannon. 

A version of this op-ed appears in print on October 22, 2015, on page A31 of the New York edition with the headline: How to Punish Corporate Fraudsters

Posted on October 23, 2015, in Postings. Bookmark the permalink. Leave a comment.

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