On December 1, U.S. District Judge for the Central District of California Howard Matz vacated the Foreign Corrupt Practices Act (“FCPA”) convictions of Lindsey Manufacturing (“LMC”) and its executives Keith Lindsey and Steve Lee (collectively, “Lindsey Defendants”), citing numerous instances of misconduct by the prosecutors–prosecutors once so proud of the jury convictions of Lindsey, et al., on May 10 that Assistant Attorney General Lanny Breuer announced, “Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last.” How far out of bounds did Justice run in pursuing the prized convictions, and what does that mean for other targets of Government investigations?
According to the indictment, the Lindsey Defendants were alleged to have paid bribes to officials of an electric utility owned by the Mexican government. Justice defined employees of the government-owned utility as “foreign officials” within the meaning of the FCPA. LMC was said to have funneled these payments through a third-party agent, a husband-and-wife team, who it was asserted then paid the actual bribes to the utility officials. Paying bribes through a third party is not uncommon, but in this case it simply never happened. But that didn’t stop the prosecution from proceeding as if it had.
It seems one of the Government’s prosecutors in the Lindsey case had earlier investigated and prosecuted a Texascompany, ABB Ltd., that had allegedly made payments to the same utility officials through a different company owned by the husband-and-wife agents. Nevertheless, the prosecutor managed to link the wife in the Lindsey case to the Texasmatter and, ultimately, to the Lindsey Defendants, who were quickly added to the existing indictment against the wife, lest the Lindsey Defendants preview Justice’s case against them when the wife was tried. In roughly six months from indictment, the case raced to trial. Along the way were countless motions, ex parte applications, and disputes requiring hearings before and during trial. The defense, in particular, had to play catch-up on a case that Justice had been investigating for years, in part because Justice failed to provide discovery as required or in a timely manner. At least five defense motions to dismiss the indictment filed during this time raised claims of prosecutorial misconduct. However, the trial judge was so busy trying to keep pace with all of the motions and acrimony that he “missed the proverbial forest for the trees” and didn’t connect the many prosecutorial “mistakes” as a pattern of misconduct.
Amid this activity, it became apparent the Lindsey Defendants never had any dealings with the wife, much less met her, causing the Government to shift gears and try to tie the Defendants to the husband, regardless of a lack of evidence. Just before jury deliberation began, another motion for dismissal was filed. After the verdict was entered, Justice filed its opposition to that motion and finally turned over the last of the Grand Jury transcripts it was supposed to have provided before the trial began. This violation of the Court’s discovery order was one “mistake” too many, causing the judge to step back and make that long-overdue big-picture examination of the way the Government’s case had been handled.
After nearly 200 pages of supplemental briefs were submitted and reviewed, the Court found the Government had violated Defendants’ rights through a variety of misdeeds, including the following:
- Material falsehoods and improper language in search-and-seizure affidavits.
- Unauthorized warrantless searches.
- Permitting false or misleading testimony by a key FBI agent before the Grand Jury.
- Failure to produce Grand Jury transcripts in a timely way, as ordered by the Court.
- Wrongfully obtaining co-defendants’ privileged communications and then making misrepresentations about it.
- Introduction of ABB-related testimony, which the Court had ruled irrelevant to the Lindsey case.
- Improper citing of the “willful blindness” standard during Justice’s closing argument.
The Court then acknowledged that “the multiple acts of misconduct described above undoubtedly affected the verdicts and thus substantially prejudiced the Lindsey Defendants.” The judge was clearly as upset by the prosecution’s failure to act properly as he was by the fact he had not been told the truth, despite ample opportunities for Justice to have done so in response to direct questions by the judge. Moreover, the overall weakness of the Government’s case was glaring. Rather than merely vacating the convictions (and enabling Justice to have a “do-over” retrial), the Court also dismissed the indictment against the Lindsey Defendants.
What we have attempted to do here is summarize a very complicated matter. Even so, it is easy to see the prosecution was found guilty of flagrant misconduct throughout. Nevertheless, no direct consequences befell the individuals who corrupted the process in their zeal to make headlines with the first corporate conviction under the FCPA. The latitude afforded Justice by the trial court to repeatedly make “mistakes” in prosecuting the Lindsey case is astonishing. That such misconduct continued post-verdict is shameful. The Lindsey Defendants suffered a great toll in time, energy, stress, and money to get out from under these charges. Not everyone is as fortunate, and not every bad verdict is vacated.
While the Government is free to bring its considerable resources to bear against a violator, your best defense is to redouble your efforts to ensure that your compliance program is solid up and down your supply chain. Nothing can stop a determined prosecutor, but even so, why give them any leg to stand on?