Originally published by the Journal of Commerce in March 2015

Back in November in a column discussing the ever-increasing criminalization of civil violations, we mentioned the case of fisherman John Yates. Mr. Yates was the captain of a commercial fishing boat in the waters off Florida where he was catching red grouper. The state fishing authorities enforce this law. They stopped the boat, conducted an inspection, measured the catch and determined a few of the grouper he caught were too small as under 20” in size. The boat was ordered back to shore and, by the time it arrived there, somehow the total number of grouper were reduced from 72 to 69, plus some had gotten larger!

There was an argument about how the measurements were taken which ended with the fishery official admitting he did not follow the federal requirement which is to find a measurement which results in the greatest overall length. As one might guessed, three (3) fish were ordered thrown overboard and other catch was substitute for some of the fish. The government took great exception and decided to prosecute. Mr. Yates was convicted under the anti-shredding provision of Sarbanes-Oxley (SOX). He was also convicted of destroying evidence to impede a federal investigation, but acquitted of making false statements. In the end, it was the Section 1519 SOX violation which attracted significant attention. 18 U.S.C. § 1519 bars anyone who “knowingly alters, destroys, mutilates, conceals, covers-up, falsifies, or makes a false entry in any record, document or tangible object…” The question presented by this case as it was argued before the U.S. Supreme Court is whether a fish is a tangible object as envisioned by SOX.

The trial court said yes, the appellate court said yes, but on February 25, 2015, the U.S. Supreme Court said no! And thank goodness it did. If one is going to violate the law, a person should at least have knowledge of that law. While much fun was made in headlines along the lines of a fisherman getting through the nets of justice, the seriousness of the outcome should not be lost.

One factor which has become common place in the current enforcement environment is for prosecutors and their enforcement agency counterparts to seek ever more serious consequences for what appear to be even the simplest of violations. Admittedly, this phenomenon generally is tied to those situations where someone seemingly flunks the “attitude” test, but when this might happen to any company or individual remains something of a crap shoot! While this phenomenon is not new, it is getting more serious as prosecutors get creative in the laws they seek to apply.

As noted, the crux of the Yates case was whether fish should be considered tangible objects as defined in SOX. To any reasonable person, the obvious answer might be no, but even four (4) Supreme Court justices (in the dissent) said yes! The majority opinion looked at the context of SOX and the language in which 1519 is framed, all of which are targeted to corporate fraud, and came to the conclusion “a “tangible object” within §1519’s compass is one used to record or preserve information.” The government sought to argue the goal of SOX’s anti-shredding provision was to bar every form of spoliation of evidence, i.e., any change to any bit of evidence which might be used in a case. However, to the Supreme Court majority, general principles of statutory construction dictated a different outcome, even though the dissent looked at the use of the phrase “tangible objects” in many different contexts, applied the term literally, and voted to uphold the conviction.

As we watch the brain drain and ever less stable budgets at the agencies which enforce the import and export laws, the lesson of the ChemNutra case should not be lost. Back in 2009, ChemNutra and its owners Sally and Stephen Miller were indicted in Kansas City for 13 misdemeanor counts of distributing misbranded foods and another 13 misdemeanor counts of distributing adulterated foods. The imported wheat gluton in their pet food contained melamine which was put in by the supplier to artificially enhance its protein levels. None of these misdemeanor counts was surprising since violations of FDA laws and regulations are strict liability situations. However, the prosecutor was not happy getting only misdemeanor convictions, so he also charged a felony count asserting wire fraud which argued that Sally Miller, because of her background and training in China, knew or should have known the misclassification of the wheat gluton by the exporter would have caused the shipment to evade Chinese inspection requirements prior to exportation. The prosecutor also sought to criminalize the communications between seller and buyer discussing the correct classification of the product (which in other contexts is known as exercising reasonable care). The case ended as expected with the company and individuals (Sally and Stephen Miller) pleading guilty to one count related to the misbranding and another count related to the adulterated nature of the wheat gluton. However, in the process they lost their company, their fortune, and almost lost their freedom!