It’s Either Me or You, Baby, and I Choose You…

Tom Kirkendall writes recently about the Dynegy case (with reference to the recent decision in the KPMG case) and the epidemic of corporations and firms willing to throw their employees “under the bus” in order to save their own skin. In case you’ve forgotten:

“…a recent civil lawsuit against Dynegy, Inc. involved issues relating to the Justice Department’s 2003 threat to indict the company that contributed dramatically to the barbaric prosecution and prison sentence of former mid-level Dynegy executive, Jamie Olis. The evidence from that trial is now slowly filtering out and reveals a systematic effort by federal prosecutors to interfere with Olis’ defense of the government’s charges….According to transcripts from a late-April trial, [Dynegy CEO] Bruce Williamson testified that after a January 2003 meeting with the US attorney, “I walked out of there a few pounds lighter. An indictment clearly would have put the company out of business.” [. . .]

Williamson said he feared that a criminal indictment against Dynegy on the heels of mass layoffs would have “shut the company down” by forcing the departure of the firm’s remaining 1,400 employees. An indictment never came. Williamson told the court that he took a hard line against any current or former Dynegy employee being investigated by the government.

I’m not going to give people the presumption of innocence,” he said. “Anybody on that list needs to be investigated fully and we needed to determine whether they were guilty or not. If they are, they need to leave the company. If they are going to be indicted, they need to leave the company. If there is a doubt, they need to leave the company,” Williamson testified. . . “

As Kirkendall states, “It’s a sad sign of our times that federal authorities deem “nothing wrong” with threatening to put a company out of business for merely defending its employees. “

Now, I am the first to come to the defense of employees who seem to have been made a scapegoat by corporate management or a Board of Directors who are covering up institutional, systemic problems that they really don’t want to fix. I’m always more skeptical of management than labor…But I’m not sure who the bad guys are in the KPMG case, for example. Is the bad guy the firm that supported and benefited from the tax shelter schemes, while turning a blind eye to the potential illegality of them or are the bad guys the partners, the “rogue partners,” who tarnished the good name of KPMG in the pursuit of personal wealth and glory? There are already enough judges involved in trying this case…

As another example, (although a law firm partner is not usually considered “labor”), there’s also the recent case, related to the KPMG case, of the Sidley Austin partner that was pretty quickly hung out to dry by that firm. Although the facts, described below, seem to justify their actions prima facie.

What’s interesting to me is that the corporations and firms (as well as the prosecutors) are open about the “lesser evil” choice they have made:

A press release issued by the U.S. Attorney’s Office for the Southern District of New York (available below) discussed the reasons why, under the McNulty Memo, the decision was made not to charge the law firm:

-Ruble’s activities were primarily while he was with Brown & Wood before it merged with Sidley in 2001, and only a few opinions were issued after the merger on Ruble’s insistence that he had an ethical obligation to provide them.
-The government accuses Ruble of providing “cookie-cutter” opinions that did not properly reflect the legality of the tax shelter transactions.
-Sidley notified the IRS once it learned about the problems with Ruble’s opinions and fired him shortly thereafter.
-The firm adopted a “model compliance program” after discovering the problem and cooperated in the criminal and IRS investigations.
The collateral consequences of a criminal prosecution on employees, partners, and clients of the firm.

But as Paul Davies points out in the WSJ Law Blog, (of all places), things are always a little more complicated than that. Sometimes too many of the same people are involved in these things and it can be difficult for the outside reader of newspapers and other business publications to form a true conclusion from the facts presented. There are longstanding relationships, loyalties, mutual interests and debts owed, as well as grievances pursued, payback and revenge or just plain bias at work. Each case is different and I am grateful to the legal writers amongst us who, at least, explain the law behind these stories, instead of just repeating the sensational facts.

That all being said, the McNulty Memo, (and previously the Thompson Memo,) while brilliant in concept from a strategic perspective, is a thug’s tool. Maybe some of these guys can get jobs with Littler Mendelson. I hear that over there they persuade you the old fashioned way: They beat you into submission…

3 replies
  1. john339
    john339 says:

    Great comments -but who is responsible for correcting these improper actions and taking steps to make sure they do not happen again or are at least reviewed by some impartial group who knows the law?

Trackbacks & Pingbacks

  1. […] easier if you keep the guys in “time-out” on the payroll like Deloitte and EY do, rather than kicking them to the curb like KPMG did.  One KPMG ingrate turned around and sued the firm! Worst case is when the firm has […]

  2. […] See my discussion of KPMG and Sidley and Austin partners left to their own devices in the tax shelter case as a result of this US Administration policy. There have been corporate cases, also, hence the attention by the US Chamber. […]

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