U.Va. Law Professor Brandon Garrett Testifies Before Congress on Improving Corporate Fraud Monitoring

March 12, 2008
March 12, 2008 — Courts and prosecutors need more guidance on how to regulate agreements allowing the use of private attorneys to monitor corporate fraud settlements, U.Va. associate law professor Brandon Garrett told the U.S. House of Representatives Subcommittee on Commercial and Administrative Law on Tuesday.

Deferred prosecution agreements — out-of-court settlements that forestall prosecution of a corporation for fraud — have been under fire from members of Congress since news broke that former U.S. Attorney General John Ashcroft’s Washington-based legal and consulting firm would receive between $27 million and $52 million for 18 months of work through such a deal, according to the New Jersey Star-Ledger. Ashcroft was hired by his former employee, U.S. attorney Christopher Christie, to monitor the settlement of Zimmer Holdings, a company that had been under investigation for paying kickbacks to surgeons peddling its medical devices. Under threat of subpoena, Ashcroft also testified at the March 11 hearing.

Garrett became an expert on the issue after investigating deferred prosecution agreements for an article that was published in the current issue of the Virginia Law Review (www.virginialawreview.org/articles.php?article=163; and in brief, www.virginialawreview.org/inbrief.php?s=inbrief&p=2007/06/18/garrett). He and the U.Va.Law Library staff conducted an exhaustive search to find information on the more than 70 agreements made since the U.S. Department of Justice endorsed the practice in 2003 as an avenue for prosecuting corporate crime, not long after the Enron scandal brought the need for increased government monitoring to light.

"These agreements involve very serious crimes by some of the largest companies in the U.S.," said Garrett. "These cases are too important to remain outside the meaningful supervision of courts and outside the public eye."

The attorneys hired to monitor the agreements often receive a lucrative contract; however, not only are the terms of the selection of those monitors not public, but "it is often impossible to find out who the monitor is that was named," Garrett said. 

Although the Department of Justice endorsed the practice of deferred prosecution agreements through a series of memos to U.S. attorneys, they provided few guidelines to prosecutors, Garrett said. "How prosecutors design and implement these agreements has been up in the air."

Of the 39 agreements Garrett examined between 2003 and 2006, only one advertised an open monitor position to solicit candidates. In 17 agreements, prosecutors named the monitor, typically after consulting with the corporation. In only three of these did a court play any role in approving the monitor.

"Given the central importance of monitors in supervising compliance and their sweeping powers, a fair process for selection involving public notice and judicial approval is appropriate," Garrett told the subcommittee. "Such a process would help to prevent any perception of cronyism in the selection of monitors." 

While on the eve of the hearing the Department of Justice issued a new memo concerning the selection and duties of monitors, Garrett pointed out that the new guidelines neither require public notice of a monitor position nor judicial approval of the monitor. 

Garrett also commended judicial oversight as way to make such agreements more legitimate and transparent to the public.