A Volkswagen engineer pleads guilty and pledges to help prosecutors going after company executives for cheating on diesel emissions rules. Federal investigators probe Fiat Chrysler Automobiles' sales reporting misdeeds and reportedly put North American sales boss Reid Bigland in their crosshairs.
Crooked execs could face jail time
Prosecutors say the rules have changed
One takeaway from these ongoing cases? Watch out, executives. Some legal experts and auto industry veterans say executives are increasingly at risk for individual criminal prosecution for actions taken while performing their jobs.
"There is little question but that the Justice Department is ratcheting up enforcement against individuals," said Dennis Cuneo, a former Toyota executive, one-time antitrust lawyer with the Justice Department and current industry consultant and law firm partner. "To be a corporate executive, even a board member, carries a lot more risk today than it did 10 years ago."
But that's not a universal opinion.
Longtime consumer advocate Ralph Nader said top executives, with few exceptions, are unlikely to to be prosecuted given the vast corporate resources available to defend them and the limited budgets available to government prosecutors.
"They're getting sweaty palms," Nader said. "But they know the higher up they are, the less sweaty their palms."
While one or two high-profile cases might be brought each year "to send a message to the other corporate crooks," it will be minimal and "nothing compared to the corporate crime wave," Nader said. He identified the VW case as one to watch for example-setting.
Congressional legislation calling for harsher penalties, more funding for enforcement and more corporate disclosure requirements would make a difference, Nader said, but it won't pass in the current political environment. Past legislation that would have made it a crime for corporate officers to conceal dangers posed by their products went nowhere.
Nader blasted federal prosecutors a year ago for not filing criminal charges against individuals in the General Motors ignition switch defect case. Last September, GM agreed to pay $900 million to settle a Justice Department criminal investigation into its conduct in the case.
The GM settlement coincided with a new policy direction by the Justice Department. About a week prior to the GM settlement announcement, Deputy Attorney General Sally Quillian Yates distributed a memo that put the department on a broader mission to pursue criminal charges against individuals in corporate cases.
In a speech last September at New York University School of Law, Yates said the Justice Department is obligated to hold lawbreakers accountable whether they commit crimes "on the street corner or in the boardroom."
"The rules have just changed," Yates said. "Effective today, if a company wants any consideration for its cooperation, it must give up the individuals, no matter where they sit within the company. And we're not going to let corporations plead ignorance. If they don't know who is responsible, they will need to find out."
The Volkswagen investigation will likely be a test case of the department's new commitment to individual prosecution in the post-Yates-memo era. If multiple individuals are charged with crimes, particularly those who worked in high-level executive roles, it may well illustrate that things have changed since the GM ignition switch case.
"They've raised expectations that individuals are going to be charged; they've made that essentially the bottom line for how federal prosecutors pursue a case," said Peter Henning, a professor of law at Wayne State University in Detroit who writes a white-collar-crime column for The New York Times. "It will be interesting to see how high up it goes. The problem with getting senior-level executives is they don't get their fingers dirty."
Former auto industry executive Bob Lutz said the heightened feeling of risk is a natural consequence of the Volkswagen scandal. "This was a deliberate act of commission, and that probably deserves to be pursued criminally," said Lutz, who has worked in high-level positions at GM, Chrysler, BMW and Ford.
But any elevated risk probably begins and ends with VW, he said. Volkswagen's cheating is different from having failed airbags or a failed ignition switch.
"In today's environment, nothing has changed," Lutz said. "As long as you're not committing manifest fraud -- lying to the SEC or faking financial numbers because you're about to go for a capital raise -- as long as you're not deliberately committing fraud, cheating, lying or deliberately putting out dangerous cars, you've got nothing to worry about."
Lutz warned that if prosecutors start pursuing criminal charges against individuals in faulty parts cases, where there was no intent to make faulty parts, "it would just totally shut things down."
"Most people would no longer be comfortable saddled with the responsibility of a senior executive," Lutz said. "It would also put the curbs on any technological innovation because nobody would want to take the risk of even one person getting hurt as a result of new technology."
Federal prosecutors also have been aggressive in automotive cases that fall outside the realms of safety or emissions. As of Sept. 21, a total of 65 people and 46 companies have been charged in a long-running investigation into price fixing in the automotive parts industry, according to the Justice Department.
And the federal investigation into whether FCA fraudulently overstated monthly sales could have far-reaching implications, legal experts and former executives said. The auto industry has long been filled with stories of monthly sales manipulation, and other industries that release sales reports also will be watching for the outcome.
"This is not the type of thing that typically has drawn criminal attention. Now all of a sudden, it has," Wayne State's Henning said. "Even if they don't bring a case, they've told everybody: We're watching you."
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