Company Had to Help Put the Boss in Jail

Prosecutors often tell a company that it must cooperate with a criminal investigation in order to avoid being charged with a crime.  The company is obligated to cooperate, even if the investigation may incriminate the company’s own senior management.

A Company Is Separate from its Managers

A key legal concept is that companies (such as corporations, LLCs, or limited partnerships) are separate legal persons from the individuals that manage the company.  When situations create potential conflicts between the company and one or more individual managers, those acting for the company owe their loyalties to the company, not to any individual manager.

The recent experience of Redflex Traffic Systems, Inc. (“Redflex”) demonstrates this concept.  Federal prosecutors investigated Redflex for its role in paying bribes to city officials in order to get contracts to supply red light cameras to Chicago, IL and Columbus, OH.  The company agreed to fully cooperate in the investigation, which led to the indictment of Karen Finley, its CEO at the time of the bribes.  Federal courts in Ohio and Illinois convicted Ms. Finley and sentenced her to prison; one sentence was for over two years.

Redflex Gets Non-Prosecution Agreement

After its former CEO was sentenced, the Department of Justice and Redflex entered into a Non-Prosecution Agreement.  In announcing the Agreement, federal prosecutors noted Redflex’s cooperation with the investigation that led to its former CEO’s conviction.

The Agreement requires Redflex’s continuing cooperation, including the agreement to provide non-privileged documents on request (rather than insisting on a subpoena).  The Agreement also requires Redflex to cooperate with other countries that have initiated similar investigations.  Finally, the Agreement requires Redflex to pay restitution to the cities of Chicago and Columbus.

Full Cooperation: Difficult but Necessary

“Full cooperation” brings challenges.  The targets of the investigation may be colleagues, and close friends, of those within the company who must facilitate the cooperative efforts.  It is hard for people to help put their friends in jail.

Federal prosecutors often make multiple requests, with short notice, to interview employees, inspect files, and image computer hard drives; no one thinks having federal agents on-site makes it easier to operate a business.  Yet, to give maximum protection to the company, full cooperation is almost always the necessary course.

To see the Redflex Non-Prosecution Agreement click here.

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