July 12, 2016

The Feds’ Own Actions Make the Best Case for Over-Crim Reform

It is one of the great ironies that lately the most effective group in raising awareness of the problem of over-criminalization of American business by federal prosecutors is … federal prosecutors themselves.

In three headline-grabbing cases this year, the feds have had cases slapped down hard by juries and judges, drawing attention to their questionable tactics. 

The latest case involves FedEx Corporation, which scored a major victory last month as federal prosecutors dropped all charges in a criminal drug shipping conspiracy case.

Two years prior, the government brought criminal charges against both FedEx and UPS. UPS settled but FedEx chose to fight what became a $1.6 billion case in potential criminal fines.

But three days into what was expected to be a three-month trial, federal prosecutors abruptly told the judge “never mind” and withdrew their case.

That was probably the best move, since U.S. District Court Judge Charles Breyer “warned prosecutors last month that ‘the case is terminated’ if they couldn’t produce evidence that FedEx had ‘knowingly’ shipped drugs without valid prescriptions,” wrote the Wall Street Journal editorial board. “The judge noted that the Drug Enforcement Administration appeared ‘unwilling or incapable’ of providing a list to FedEx of illegal pharmacies. He also asked why Justice wasn’t prosecuting the United States Postal Service.”

Since the government properly licensed all of the drug companies it alleged that FedEx conspired with, and refused to provide the company with a list of illegal pharmacies, the only way FedEx could have known which shipments were illegal was to start examining customers’ packages.

In February, a Texas jury acquitted Minnesota medical device maker Vascular Solutions and its CEO, Howard Root, on all counts of criminal conspiracy to advance illegal off-marketing claims about its varicose vein treatment device.

The company earlier agreed to pay a $520,000 civil settlement to resolve related allegations (while denying wrongdoing), but was then criminally indicted.

Root and his company fought the feds – and won. Unfortunately, it was after spending $25 million in legal defense costs.

During the course of the trial, prosecutors engaged in what Root describes as “repulsive conduct,” including, “use of grand jury subpoenas to induce questioning outside the presence of a jury, divulging secret grand jury testimony to other witnesses, and telling witnesses to change their testimony or face a threat of firing and exclusion from working at any company that does business with Medicare,” reports the Minneapolis Star-Tribune.

It was that alleged conduct that spurred U.S. Senators Charles Grassley (R-IA) and Mike Lee (R-UT) to send a letter to Deputy U.S. Attorney General Sally Yates asking about the “questionable actions of federal prosecutors” in the case. The Justice Department, of course, denies the allegations.

But wait. There’s more.

In March, a federal district court ruled that a lawsuit against Preet Bharara, U.S. Attorney for the Southern District of New York, can proceed to discovery and possible trial.

David Ganek, a former hedge-fund manager, alleges Bharara violated his civil and constitutional rights in the prosecution of an insider trading case. Ganek was forced to liquidate his fund, but was later found innocent by the Second Circuit Court of Appeals, which overturned Ganek’s conviction, finding “no evidence” of fraud.

The sheer breadth and depth by which federal prosecutors overreached their authority in these recent cases has made the best case for the need to reform how prosecutors do their job.

The good news in these cases is they’ve all resulted in the right outcome. But that has come at a tremendous cost – in damaged reputations, enormous legal costs, and ruined careers. And there are countless other cases languishing in the courts, sucking money for defense costs and threatening the existence of those businesses caught in the federal net.

The embarrassing batting average of the Department of Justice as of late should cause them to take a long hard look at their own prosecutorial practices. But they appear unlikely to move in that direction. Last year, Deputy AG Yates issued a now infamous memo that requires prosecutors to take unprecedented and aggressive steps in their pursuit of criminal charges against companies and their employees.

In the short term, you can expect to see more attempts at criminalizing business conduct. Which is why it is up to Congress to continue to use its oversight powers to scrutinize the abuse of federal prosecutorial powers and pursue paths to reform.

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