Most people do not think much about whether what their employers tell them to do is legal. But to protect themselves, employees sometimes do need to independently question the legitimacy of their work. A case in point is a recent criminal action in Florida federal court against two business executives.
Problems at Stanford Financial
Texas billionaire financier R. Allen Stanford established several private finance companies known collectively as Stanford Financial Group (SFG), including Antigua-based Stanford International Bank (SIB), well known for offering certificates of deposit (CDs) with exceptionally high rates of return.
The United States Securities and Exchange Commission (SEC) is the federal agency responsible for regulating financial securities such as stocks and bonds. The SEC sued SFG in the U.S. District Court for the Northern District of Texas in Dallas, alleging a Ponzi-like scheme. The February 2009 lawsuit alleged that SFG violated federal civil securities laws by making fraudulent statements when marketing billions of dollars worth of SFG products, including the CD offerings and a mutual-fund program, called Stanford Allocation Strategy (SAS).
Jailed without bail in Houston, Allen Stanford is also accused personally of related federal securities crimes, including bribery, which could bring him life in prison. He maintains his innocence and is to be tried in early 2011.
The Anti-Shredding Order
In the civil case, the federal court in Dallas ordered that SFG preserve its financial records for review in the SEC investigation.
A few days later in SFG’s Fort Lauderdale office, two Stanford employees directed an independent shredding company to destroy thousands of company records:
Bruce Perraud, Global Security Specialist for SFG
Thomas Raffanello, Global Director of Security for SFG and formerly the head of the U.S. Drug Enforcement Agency (DEA) operations in Florida and the Caribbean who worked on the criminal case against Panamanian dictator Manuel Noriega
Authorities brought charges against Perraud and Raffanello in the U.S. District Court for the Southern District of Florida in Miami. The indictment alleged that they knowingly violated the Texas court’s order not to destroy company records and conspired to obstruct the SEC proceeding and investigation, charges that could have landed either of them in prison for up to 40 years.
The defendants and their attorneys had some interesting responses, including:
The shredding was routine practice in the paperless office.
The paper documents were backed up by computer.
The shredded documents were not the type covered by the Texas court order.
The office was too small to store the amount of paper that was destroyed.
Raffanello himself was a victim of mismanagement at SFG because he had invested his own money with the firm, so he would have no motive to participate in any illegal activity as an employee.
Court observers were shocked at the dramatic outcome of the criminal trial, presided over by Judge Richard W. Goldberg, a visiting senior judge from the U.S. Court of International Trade. After a long trial, Goldberg cut short the second day of jury deliberations by announcing he was acquitting the two of all charges.
The judge emphasized that he did not believe the evidence supported the necessary element of intent to commit the crimes charged. Judge Goldberg’s order was seen by many in the legal community as gutsy, brave and unexpected.
Protect Yourself from White-Collar Crime Charges
This case raises important questions for anyone asked to perform a duty that may violate the law in the course of employment. Most often the instruction is not to commit an act of violence, but an act that is somehow related to dishonesty or fraud in the business context, known broadly as white-collar crime.
If an employee is ordered to do something that he or she feels may be illegal, the employee should immediately express concern and ask questions of management, the human resources department, compliance officers and in-house legal counsel. However, the company’s lawyers represent first the company’s interests, which may not be the same as the individual employee’s.
And an executive who has bad motives may not give the questioning employee a straight or honest answer about the legality of the requested action. An upper-level manager may be looking for someone else to take the blame or to be fired for the action.
Most importantly, an employee who has been asked to do something that feels wrong and who is not satisfied with the answers coming back in response to his or her questions or who is afraid to even ask questions at work, should hire his or her own private, outside lawyer for guidance and protection.
Compliance Officers: Between a Rock and a Hard Place
Even the compliance officer charged with maintaining business practices that comply with the law and with company policies can be squeezed by limited resources with which to do his or her job, or by pressure from an executive into taking uncomfortable and potentially dangerous action from a legal liability standpoint. Of course a compliance officer works closely with company lawyers in directing operational compliance with the law, but a compliance officer should consult his or her own private lawyer immediately if he or she feels the law or his or her integrity is on the line at work.
An innocent employee should never be required to take action for which he or she could eventually be criminally liable. In most scenarios, an employee will be held personally liable for a corporate crime in which he or she participates.
“I was just following orders” is usually not a legal defense for an employee who commits a crime at work, even if directly instructed to take the illegal action by a superior. However, it is crucial to get knowledgeable advice away from work from a lawyer in your jurisdiction to advise you about the state and federal laws and defenses that could come into play in your unique situation.
In at least one state, the employer may be criminally responsible for ordering an employee to commit a crime in the course of employment, but it is not clear that the employer’s criminal responsibility would get the employee off the hook personally.
However, as in the SFG shredding case, weak evidence of personal criminal intent can be fatal to the prosecution’s case.
If something doesn’t feel right about an order at work, stop, clarify and get legal advice before you go any further. Your livelihood, your freedom and your good name could be on the line.