Monday, July 28, 2008

Former Lobbyist Pleads Guilty to Trying to Destroy Evidence

According to the DOJ, Cecelia Grimes, a former lobbyist and close friend of former U.S. representative Curt Weldon, pleaded guilty in U.S. District Court on Friday to charges related to the attempted destruction of evidence in a federal investigation.

According to press accounts, Grimes was visited by the FBI in 2006 regarding its investigation of Congressman Weldon. During that meeting, Grimes was presented with two grand jury subpoenas seeking records. Six days later, Grimes placed responsive documents in a trash bag and placed the bag in front of her house for garbage pickup. FBI agents then retrieved the garbage bag and located the documents, which were never produced to law enforcement authorities. Evidence presented at the plea hearing also showed that Grimes placed her blackberry devise in a trash can near a fast food restaurant to prevent the FBI from reviewing its contents. Grimes faces a maximum sentence of 20 years in prison and a fine of $250,000.

Obstruction of justice is a prevalent charge in white collar criminal cases and a favored statute for use in plea bargains. In an excellent article from 2004, two of my former colleagues, Gary Grindler and Jason Jones, took a look a the Sarbanes-Oxley obstruction provisions. Here is the introduction to their article, which was entitled "Please Step Away from the Shredder and the 'Delete' Key: Sections 802 and 1102 of the Sarbanes-Oxley Act." 41 Am. Crim. L. Rev. 67 (2004).

On September 25, 2003, FBI agents arrested Thomas Trauger, a former partner with accounting giant Ernst & Young ("E&Y"), charging him with obstruction of justice. The indictment, filed in United States District Court for the Northern District of California, alleges that Trauger intentionally altered and destroyed workpapers relating to E&Y's audit of NextCard, Inc. NextBank, a subsidiary of NextCard, was under examination by the Office of Comptroller of the Currency ("OCC"). The Trauger indictment specifically alleges violations of Title 18, including § 317, conspiracy; § 1517, obstructing the examination of a financial institution; and § 1519, falsification of records in a federal investigation.

Immediately following Trauger's arrest, Acting Deputy Attorney General Robert McCallum hailed it as a "bellwether day for the Corporate Fraud Task Force." McCallum emphasized that the arrest was one of the first prosecutions under the Sarbanes-Oxley Act of 2002 ("the Act"), which he described as "an important weapon in the fight against corporate fraud."

If your client's shredder is not yet collecting dust, it probably should be. Under the Act, destruction of documents could result in a twenty-year stint in federal prison, a term unattainable under the previous statutory scheme. Among the many changes implemented by the Act, which President Bush characterized as containing "the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt," Whereas previous laws criminalized both the "corrupt persuasion" of others to destroy documents in connection with an "official proceeding," and the obstruction of pending judicial and federal agency proceedings, the new document destruction provisions of §§ 802 (codified at 18 U.S.C. §§ 1519 & 1520) and 1102 (amending 18 U.S.C. § 1512(b)) cast a wider net, reaching persons who shred documents even where a proceeding or investigation does not yet

Despite one senator's admonition that "any dummy that reads the bill knows what we meant. . . . and we couldn't have written it any clearer," rather than attempting to analyze this entire, sprawling piece of legislation, this Article focuses on the Act's impact on the crime of obstruction of justice. After a discussion of pre-Sarbanes-Oxley impediments to destroying documents and the consequences of improperly doing so, the Article discusses the importance and breadth of §§ 802 and 1102, and subsequent actions by the Securities and Exchange Commission ("SEC"), the Department of Justice ("DOJ"), and the United States Sentencing Commission ("Sentencing Commission"). The Article concludes with a brief discussion of some practical implications for corporate document retention policies.

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