It is not uncommon for an employer to discover that it is the victim of an illegal scheme involving a rogue employee. Is it a viable option for that employer to report the matter to the federal government?
Consider the following hypothetical, which assumes that the company does not have mandatory reporting requirements: A national retailer learns that its purchasing agent receives kickbacks from a manufacturer. In return, the purchasing agent stocks only the manufacturer’s products, which are inferior to other brands, and overpays.
The retailer believes it has been harmed. It contacts law enforcement and a federal criminal process is initiated. The prosecutor analyzes the evidence, maybe conducts some additional investigation, and decides whether to issue charges, possibly under a fraud statute. The prosecutor also determines whom to charge — the purchasing agent, the manufacturer, or both. If the prosecution is successful, the court will determine the restitution owed to the retailer at sentencing.
Reporting the matter to the government has certain advantages over the customary alternative of pursuing civil litigation. The main benefit is cost. Generally, civil litigation would be more expensive because attorneys must be retained. Even if the retailer is successful and obtains a civil judgment, it might not be collectible. But under the criminal option, investigators and prosecutors perform the lion’s share of the work.
Moreover, criminal matters take precedence over civil cases within the judicial system. Thus, once the government decides to proceed with criminal charges, the resolution is usually quicker.
And once there is a criminal conviction, the determination of restitution is made by a judge, not a jury. This is unlike a civil proceeding, where the defendant has a right to a jury for the determination of damages under the Seventh Amendment. Depending upon the circumstances, having a judge make the restitution decision might be beneficial.
Finally, as a victim in the federal criminal system, the retailer enjoys a special status. Under the Crime Victims’ Rights Act, victims have the right to full and timely restitution as provided in law. Using written guidelines, the U.S. Department of Justice directs its officials to take specified steps. In essence, the government acts as the victim’s advocate during the criminal process. While the exact parameters of the victim’s rights are unsettled, it is clear that the victim has an elevated role within the criminal justice system.
Referring the matter to law enforcement does have some drawbacks. The main concern is that the retailer in our example loses control over the litigation. The moving force is the prosecutor, not the victim. Although the retailer possesses rights as a victim, it is not a party and is subject to the government’s whims and timetable.
The prosecutor represents the people of the United States, not just a particular victim. Thus, the retailer might disagree with some of the positions taken by the government during the prosecution. When that occurs, the retailer has less recourse than if it was a party to the matter in civil litigation. In addition, by reporting the matter, the retailer exposes itself to scrutiny by law enforcement, and perhaps the public. It might not want that kind of media attention.
Finally, the restitution awarded at sentencing may be less than what could be obtained in a civil setting. Certain categories of harms, compensable in a civil case, cannot be awarded as criminal restitution — for example, punitive damages are not available. If the judge in the criminal case does not award a substantial portion of the restitution the victim seeks, efforts to obtain that sum in a civil case might be compromised.
If the retailer decides to refer the matter to the government, the prosecutors and investigators will analyze the evidence against a backdrop of several considerations. Among them: Does the case fit within the government’s prosecution priorities? Are there other victims? Is there a pattern of misconduct? How strong is the government’s case? Did the victim’s acts or omissions contribute to the problem? Is this really a civil matter? Has a civil proceeding already commenced?
Even if the government decides there is sufficient evidence to obtain a criminal conviction, it might not pursue the matter. The government does not have the resources to pursue every potential criminal matter. It is not unusual for it to decline prosecution of what appears to be an “open and shut” case.
Given this, the retailer should decide without delay whether to refer the case to law enforcement. The government prefers to investigate crimes while the underlying evidence is fresh. If a civil proceeding has already commenced, the government might not want to pursue a parallel criminal action, particularly if potential witnesses have already been subjected to vigorous cross examination during depositions.
In presenting the matter to the government, counsel should consider preparing a package that outlines the evidence gathered and the witnesses who would be available to testify. This package should discuss the harm suffered as a result of the misconduct.
Obviously, the decision about whether to refer the matter to law enforcement must be made on a case by case basis. But it is clearly an option that merits exploration in appropriate circumstances.
This article is based upon Federal Criminal Restitution (Thomson West), by Catharine M. Goodwin, Jay E. Grenig, and Mr. Fishbach. The author appreciates the assistance of David C. Hertel, Chair of WHD’s Labor and Employment Team. A version of this article was published in the February March 2010 issue of Executive Counsel Magazine. It is reprinted with permission here.
Nathan A. Fishbach, a shareholder at Whyte Hirschboeck Dudek S.C., focuses upon complex civil and white collar litigation as well as compliance matters. He served in the United States Attorney’s Office for the Eastern District of Wisconsin for over 13 years, including a tenure as Interim U.S. Attorney.