M ANAGERIAL M ISCONDUCT, CRIMINAL LIABILITY AND RISK M ANAGEMENT

This document includes:

Note on Federal Sentencing Guidelines and Ethics Programs
Ethics for Sale
Prison Term for Destroying Documents
Long Jail Terms on Rise
Threshold of Guilt Declines
Note on Reading Judicial Opinions
U.S. v. Caputo [Skim we will not discuss this opinion in detail]
U.S. v. Allegheny Bottling Company
NOTE ON FEDERAL SENTENCING GUIDELINES AND COMPLIANCE PROGRAMS
Congress enacted sentencing guidelines for criminal violations of federal law by corporations
and their employees that became effective in 199l. When imposing criminal penalties upon
corporations and individual corporate managers, the Federal Sentencing Guidelines provide a
range of possible punishments that vary according to the corporation's past conduct, the degree to
which it cooperated with federal investigators in uncovering the crimes and whether it had
designed and effectively implemented a meaningful program for monitoring and enforcing
compliance with applicable federal laws.
The following excerpts from a law review article by two corporate lawyers offer some insights
into the nature and purposes of such programs, including the essential role of a Code of Business
Conduct.1
***
The Advantages to Implementing an Effective Compliance Program
Implementing an effective compliance program has four primary advantages. First, an effective
compliance program disseminates a positive, law-abiding corporate ethos throughout an
organization, and thereby creates an atmosphere that will discourage wrongdoing. Second, an
effective compliance program detects misconduct as it occurs so the organization can address
problem situations quickly and minimize their adverse consequences. Third, the existence of a
comprehensive compliance program serves as a significant mitigating factor to a prosecutor
considering whether to indict a company; the organization can point to the program as evidence
that it is a good corporate citizen and that the wrongdoing constituted aberrant behavior of rogue
employees. Fourth, should a company be prosecuted and convicted, the presence of an effective

Webb, Dan and Molo, Steven Some Practical Considerations in Developing Effective Compliance Programs: A
Framework for Meeting the Requirements of the Sentencing Guidelines 71 W ASH. U. L. Q. 375 (1993).

compliance program at the time of the offense significantly diminishes the organization's
exposure at sentencing
***
The Necessary Elements of an Effective Compliance Program
The Guidelines contain specific requirements for an effective compliance program. 2 A
sentencing court will examine the following relevant factors in determining whether a
compliance program is effective within the meaning of the Guidelines.
A. Timing
The compliance program must be in place before the offense was committed. A company that
waits to make a serious effort at preventing wrongdoing until after a problem arises will not
receive credit.
B. Subject Matter of the Program
The compliance program must address activities most likely to result in misconduct. Whether a
program covers the appropriate subject matter depends largely upon the nature of the
organization. Effective programs anticipate potential problems at all levels of the organization
and specifically address the areas most likely to yield problems in light of the company's
business. As the Guidelines explain:
if an organization employs sales personnel who have flexibility in setting prices, it must
have established standards and procedures designed to prevent and detect price-fixing. If
an organization employs sales personnel who have flexibility to represent the material
characteristics of a product, it must have established standards and procedures to prevent
fraud.
C. Degree of Formality
The size and nature of an organization generally dictate the appropriate degree of formality of
the compliance program. The Guidelines note that "the larger the organization, the more formal
the program typically should be." In other words, a court will not hold a family-owned printing
company with seventy-five employees and a single facility to the same standard as a publicly
traded conglomerate with nineteen facilities in fourteen states and three countries. For the
printing company, a written manual, an initial indoctrination session, updates and reminders at
monthly safety meetings, an anonymous written reporting system, and oversight by the plant
manager may suffice. In contrast, sufficient formality for the conglomerate may include a written
manual, additional written policies addressing specific business activities, indoctrination through
videos, seminars, or interactive software, periodic refresher seminars for certain classes of
employees, periodic briefings via an electronic bulletin board, anonymous toll-free call-in

A company prosecuted and convicted despite an effective compliance program that me ets these requirements can
receive as much as an 80% reduction in its fine.

reporting procedures along with anonymous interoffice write-in procedures, an ombudsman, and
oversight by a committee comprised of high- level corporate managers.
D. Industry Practice
A sentencing court will likely compare a particular compliance program with the programs of
other companies within the same industry in determining whether it is effective. A court
obviously will consider more favorably a program that is more advanced than those of
comparable companies than one that lags behind the industry.
E. Due Diligence
The Guidelines state that the "hallmark of an effective program ... is that the organization
exercised due diligence in seeking to prevent and detect criminal conduct by its employees and
other agents." The Guidelines then set forth seven criteria for determining whether the program
reflects due diligence:
1. The standards and procedures must be "reasonably capable of reducing the prospect of
criminal conduct." In essence, the organization must display a sincere commitment to prevent
and detect criminal conduct.
2. A specific high-ranking individual or several high-ranking individuals within the organization
must oversee compliance with the standards and procedures. The person or persons monitoring
the program must possess substantial control over the organization or the organization's policy
making.
3. The organization must exercise due care not to delegate substantial discretionary authority to
individuals who may, based on background or other factors, have "a propensity to engage in
illegal activities." This is the "fox in the chicken coop" provision. It requires that organizations
carefully inquire into the background of new hires and review the histories of employees
presently in sensitive positions to ensure that no significant prior problems exist.
4. The company must effectively disseminate the standards and procedures to all employees. The
Guidelines clearly state what effective communication means, "e.g., by requiring participation in
training programs or by disseminating publications that explain in a practical manner what is
required."
5. The organization must take reasonable steps to achieve compliance with its standards. The
Guidelines identify reasonable steps, "e.g., by utilizing monitoring and detecting criminal
conduct by its employees and other agents and by having in place and publicizing a reporting
system whereby employees and other agents could report criminal conduct by others within the
organization without fear of retribution."
6. The organization must discipline employees who violate the standard through established
mechanisms. As appropriate, discipline should extend to individuals responsible for failing to
detect an offense. However, the Guidelines do not mandate a specific form of discipline and

recognize that it will be "case specific."

7. Finally, the organization must make appropriate modifications to the program after it detects
offenses to prevent future offenses.
A well-crafted compliance program takes into account each of these factors. An organization
should review them when developing a program and reexamine them each time it considers
modifications to its program.
ETHICS FOR SALE
CHIEF EXECUTIVE
NO VEMBER 2004, VO L. 203
BY J O AN WARNER

Most chief executives say they are ethical people and that they run ethical organizations. But a
vast new industry worth hundreds of millions of dollars is springing up to help companies be
ethical - whether they need it or not. The captains of this new ethics industry include lawyers,
auditors, psychologists, academics, Web masters, video makers and management consultants. Its
product is ethics advice. Its fees are steep. And its targeted customer is the CEO.
The Sarbanes-Oxley Act of 2002, among other provisions, made CEOs and chief financial
officers personally responsible for ensuring the accuracy of financial reporting. But balance
sheets are only the beginning. The act also required the U.S. Sentencing Commission to review
its 14-year-old guidelines on what constitutes an "effective compliance and ethics program." The
tougher guidelines, which went into effect Nov. 1, charge CEOs with promoting "an
organizational culture that encourages ethical conduct."
Circulating a boilerplate code of conduct won't cut it anymore. Nor will having an in-house
lawyer vet key transactions, or making sure your IT department keeps all company emails for
five years. And forget about bringing in an expert for an annual employee briefing.
Under the new rules, if a company is indicted, the CEO and the board must prove they directly
oversee and monitor a comprehensive ethics program - or else incur stiffer fines and sentences.
"The sentencing guidelines acknowledge that no program can prevent 100 percent of the
problems," says Thomas R. McCormick, director for global ethics at Dow Chemical. "So it
basically becomes a due diligence standard. You have to show that the company is doing
everything it can do."
Already reeling from the financial and bureaucratic burdens of implementing new internal
controls to comply with Sarbox, do CEOs need to invest even more time and money teaching
their employees how to be good? If the mushrooming demand for ethics consultants is any guide,
many feel they don't have a choice. Sherrie McAvoy, director of Deloitte & Touche's compliance
and ethics services, says client calls to her practice have risen fourfold in the past two years.
Business at PricewaterhouseCoopers' corporate governance, risk and compliance practice has
doubled during the same period, bringing in some $100 million worth of assignments annually.
At LRN, a Los Angeles firm that sells Web-based ethics training programs, half of the $150

million in revenues it has earned from online education since its founding in 1993 were booked
in the past 18 months.
Such providers will perform everything from a quick evaluation of compliance procedures to a
radical overhaul. "It depends on how deep the company wants to go," says Carlo di Florio, a
director with the PricewaterhouseCoopers practice. "Some just review the code of conduct.
Others want to be able to measure (ethics] performance."
But the common denominator among consultants these days, in response to the sentencing
guideline amendments, is a focus on corporate culture - that is, ensuring that ethical guidance
comes from top management and that the message is continually reinforced. "Enlightened CEOs
aren't just running a separate compliance department. The whole company has to do
compliance," says Dov Seidman, LRN's founder and chief executive.
***
Some large companies are undergoing huge structural reorganizations to upgrade compliance at
the highest management layer. DuPont is creating a new department to oversee governance
functions that were formerly carried out by legal, human resources, finance and auditing staff. A
new compliance committee reporting to the board of directors will consist of 10 full-time
officers, representing its business platforms, geographical regions and core staff groups. "These
positions will be high-potential people at the operating level who will be rotated out every two or
three years," says Marjorie Doyle, a 24-year veteran of DuPont's legal department who will run
the new compliance department. "They'll serve and then eventually be heads of our businesses.
The point is to really get compliance into their DNA." Doyle suggests that DuPont's future CEOs
are likely to be drawn from this committee's ranks. It's not clear whether the reorganization is
related to DuPont's alleged cover-up of the health dangers associated with a West Virginia plant's
manufacturing of Teflon.
***
Not surprisingly, the Big Four audit firms - themselves under new regulatory pressure to
minimize conflicts of interest - are high-profile players in the compliance field. In July, KPMG
founded the Global Center for Leadership & Business Ethics, an independent body, modeled on
the Nobel committees. It will give annual awards to business leaders deemed outstanding in
areas including social responsibility and financial disclosure. Major law firms are also getting
into the game. Skadden, Arps, Slate, Meagher & Flom has re-engineered internal governance
programs for more than 200 of its clients, either helping to start them from scratch or reviewing
existing procedures.
In many cases, companies have outdated compliance systems that need to be brought up to the
new standards. For example, under Section 301 of Sarbanes-Oxley, publicly traded companies
must maintain a telephone hot line that employees can call with questions or complaints about
issues ranging from governance to sexual harassment.
To be sure, such whistleblower systems are nothing new. Defense contractors have been required
to use hot lines since the 1980s to monitor waste and fraud. Under the Foreign Corrupt Practices
Act, multinational companies have had programs for more than 30 years enabling employees to
report cases of illegal payments.

But the U.S. sentencing guidelines' emphasis on executive accountability means that CEOs now
must show they are monitoring and interpreting their ethics hot lines. Logging not just the
number but the nature of calls can paint a useful portrait of employee fluency in compliance
issues. "The hot line can be a metrics tool," says PricewaterhouseCoopers' di Florio. "The more
calls coming in, the better. It means people feel confident raising issues."
***
Management consultants, with their expertise in organizational matrices, say they can help
redraw lines of reporting within a company to maximize independence and build compliance into
performance reviews. Di Florio describes one financial services firm that had a "good program
on paper" but didn't include ethics and governance in annual executive appraisals. Now, the
CEOregularly evaluates the head of each business line, scoring 50 percent on financial results
and 50 percent on risk management and ethics programs. "Even Ivan the Horrible will clean up
his act if his bonus is at risk," remarks di Florio.
***
As the bar for good corporate behavior rises and the penalties for knocking it down get higher,
CEOs can't afford to leave ethics out of their business plans. If shelling out for a training
program will help prevent even one rogue employee from making an expensive mistake, getting
help may be well worth the cost.
PRISON TERM FOR DESTROYING D OCUMENTS
EX-ERNST & YO UNG PARTNER S ENTENCED
SFC 1/29/05

A former Ernst & Young accountant has been sentenced to a year in federal prison and fined
$5,000 for destroying documents sought by authorities investigating the failed Internet credit
card company NextCard Inc.
Thomas Trauger, 42, of Berkeley pleaded guilty in October to falsifying records in a federal
investigation. Prosecutors said he was one of the first auditing professionals in the nation
charged with destroying documents in violation of the Sarbanes-Oxley Act, the 2002 corporate
regulatory legislation passed in response to the Enron scandal.
Trauger, who was a partner in Ernst & Young's San Francisco office, admitted in his guilty plea
that he withheld information from the Securities and Exchange Commission to obstruct its
investigation of NextCard, the online lender that was submerged by card-holders' debts and
declared bankruptcy in November 2002.
Trauger said he failed to tell the SEC in April 2003 testimony that documents related to Ernst &
Young's audit of NextCard for 2000 and quarterly working papers for 2001 had been altered and
that considerable portions had been deleted.
"Our financial markets depend on the integrity of auditors, lawyers and professionals to do their
jobs ethically and fairly,'' U.S. Attorney Kevin Ryan said in a statement.

Trauger was sentenced Thursday by U.S. District Judge Jeffrey White and is scheduled to report
to prison March 30. Two of his former subordinates at Ernst & Young, Oliver Flanagan and
Michael Mullen, have been found guilty of related charges, the prosecutor's office said.
LONG JAIL TERMS ON RISE
WSJ 10/13/11
BY C H AD B RAY AND RO B B ARRY

When disgraced hedge-fund titan Raj Rajaratnam is sentenced in federal court Thursday, he will
come up against a hard and unavoidable truth: Inside traders are facing considerably harsher
sentences than they did in the past.
Mr. Rajaratnam, Wall Street's latest symbol of perfidy and excess, is expected to receive among
the longest-ever U.S. prison terms for his role in one of the biggest U.S. insider-trading cases
ever, lawyers say.
A higher percentage of those found guilty of such crimes are receiving significant time behind
bars than in the past, according to a Wall Street Journal analysis. In the past two years,
defendants sent to prison on insider-trading charges in New York federal courts have received a
median sentence of about 2 years, according to the Journal analysis of white-collar sentencing
data from court records and archives involving 108 cases. Just Wednesday, hedge-fund trader
Michael Kimelman was sentenced to 2 years in prison for inside trading.
Those sentences compare with a median sentence of 18 months in the past decade and 11
months from 1993 to 1999, according to the Journal analysis.
Meanwhile, a higher percentage of guilty insider-trading defendants on Wall Street and in
corporate America have been incarcerated in recent years, according to the analysis. In the past
two years, 79% of defendants sentenced in New York have been sent to prison, compared with
59% in the 2000s and less than half from 1993 to 1999, the analysis shows.
Of course, every case is based on a different set of facts, so it can be difficult to make a direct
comparison between sentences. But prosecutors and white-collar lawyers view the lengthier
insider-trading sentences these days as an additional deterrent amid one of the largest
government crackdowns against illicit trading ever on Wall Street.
The stiffer insider-trading sentences come as prosecutors have increasingly used techniques, such
as wiretapping, that once were employed mostly for drug or terrorism cases. That tactic has led
to evidence, including recorded calls, that has been more difficult for defendants to refute. And it
has led to broader alleged rings of inside traders.
At the same time, federal sentencing guidelines have placed a sharper focus in recent years on
the alleged gains from a white-collar defendant's crimes, lawyers said.
The guidelineswhich no longer are mandatory following a 2005 U.S. Supreme Court decision
continue to influence many judges, lawyers say.

In Mr. Rajaratnam's case, federal prosecutors in Manhattan are calling for a prison sentence of
from 19 years and seven months to 24 years and five months after the 54-year-old founder of
Galleon Group was convicted earlier this year in what prosecutors called a "brazen," "arrogant"
and "pervasive" insider-trading scheme that the government says corrupted corporate directors,
friends and former classmates.
Mr. Rajaratnam's lawyers have argued that U.S. District Judge Richard Holwell shouldn't count
all of the alleged illicit profits or losses avoided by Galleon against him at sentencing and that he
should receive leniency for an undisclosed medical condition.
Even if Judge Holwell accepts that argument, Mr. Rajaratnam's prison term could exceed 10
years, legal experts said, the longest sentence imposed for insider trading in New York in the
past two decades.
Representatives for Mr. Rajaratnam and the Manhattan U.S. attorney's office declined to
comment.
By comparison, the median prison sentence for robbery was five years and three months in this
fiscal year's first three quarters ending in June, according to the U.S. Sentencing Commission.
The median sentence for kidnapping during that period, according to the commission's numbers,
was 19 years and seven months, the low end of the government's range for Mr. Rajaratnam.

Defendants with 10 years or more remaining on their sentences are barred from the "minimumsecurity" prison camps typically associated with white-collar defendants. So, in addition to a
lengthy sentence, Mr. Rajaratnam is likely to serve some of his prison term in a "low-security"
prison, lawyers said, or one with higher security.
And since parole has been abolished in the federal system, white-collar defendants must serve
85% of their prison time. Sentences can be reduced to that point based on good behavior behind
bars.
"The idea of 'Club Fed' has gone by the wayside," said Todd A. Bussert, a Connecticut lawyer
and prison specialist.
Mr. Rajaratnam's case is the culmination of a broad government effort to root out improper
sharing of nonpublic information among corrupt corporate insiders and Wall Street professionals.

Of 54 hedge-fund managers and others charged since 2009, 50 have pleaded guilty or been
convicted of criminal charges.
Mr. Rajaratnam's sentence also could foreshadow harsher prison terms for insider trading in the
future, as politicians and prosecutors continue to push for tougher punishments for perpetrators
of financial crimes, lawyers said.
Preet Bharara, the U.S. attorney in Manhattan, asked the U.S. Sentencing Commission earlier
this year to consider additional factors that might drive the sentencing range higher for instances
of "sophisticated insider-trading conduct" and for engaging in "a course or pattern of insider
trading."
"Insider trading has become increasingly complex and difficult to detect," said Mr. Bharara in
testimony before the sentencing commission in February.
Still, some defense lawyers believe the harsher insider-trading penalties often don't fit the crimes.
"You have to ruin lots of people's lives to justify that kind of punishment," said Ellen Brotman, a
white-collar defense lawyer at Montgomery, McCracken, Walker & Rhoads LLP in New York.
"You have to kill people or decimate people's lives."

In the past, insider trading resulted in little prison time except in the most brazen cases. Half of
84 defendants sentenced for insider trading in the Southern and Eastern Districts of New York
from 1993 to 2009 received prison terms of three months or less, according to the Journal
analysis. In the past two years, however, half the 24 defendants sentenced in New York for
insider trading received prison terms of two years or more.

For example, Zvi Goffer, a former Galleon trader, was sentenced to 10 years in prison in
September for insider trading; his brother received a three-year prison term last week.
In an infamous insider-trading investigation, Michael Milken, the former head of Drexel
Burnham Lambert Inc.'s "junk"-bond department, pleaded guilty in 1990 to six felony violations
of federal securities laws, but not insider trading. He was sentenced to 10 years in prison, but that
sentence was later reduced after he agreed to cooperate with prosecutors in their investigation of
others. He ultimately served just 22 months in prison.
Former arbitrager Ivan F. Boesky, who pleaded guilty to conspiracy, but not insider trading, in
the probe in 1987, also served 22 months of a three-year sentence.
AS FEDERAL CRIME LIST GROWS , THRESHOLD OF GUILT DECLINES
WSJ 9/27/11
BY GARY FIELDS AND J O HN R. EMSHWILLER

For centuries, a bedrock principle of criminal law has held that people must know they are doing
something wrong before they can be found guilty. The concept is known as mens rea, Latin for a
"guilty mind."
This legal protection is now being eroded as the U.S. federal criminal code dramatically swells.
In recent decades, Congress has repeatedly crafted laws that weaken or disregard the notion of
criminal intent. Today not only are there thousands more criminal laws than before, but it is
easier to fall afoul of them.
As a result, what once might have been considered simply a mistake is now sometimes
punishable by jail time. When the police came to Wade Martin's home in Sitka, Alaska, in 2003,
he says he had no idea why. Under an exemption to the Marine Mammal Protection Act, coastal
Native Alaskans such as Mr. Martin are allowed to trap and hunt species that others can't. That
included the 10 sea otters he had recently sold for $50 apiece.
Mr. Martin, 50 years old, readily admitted making the sale. "Then, they told me the buyer wasn't
a native," he recalls.
The law requires that animals sold to non-Native Alaskans be converted into handicrafts. He
knew the law, Mr. Martin said, and he had thought the buyer was Native Alaskan.
He pleaded guilty in 2008. The government didn't have to prove he knew his conduct was illegal,
his lawyer told him. They merely had to show he had made the sale.
"I was thinking, damn, my life's over," Mr. Martin says.
Federal magistrate Judge John Roberts gave him two years' probation and a $1,000 fine. He told
the trapper: "You're responsible for the actions that you take."

Mr. Martin now asks customers to prove their heritage and residency. "You get real smart after
they come to your house and arrest you and make you feel like Charles Manson," he says.
The U.S. Attorney's office in Alaska didn't respond to requests for comment.
Back in 1790, the first federal criminal law passed by Congress listed fewer than 20 federal
crimes. Today there are an estimated 4,500 crimes in federal statutes, plus thousands more
embedded in federal regulations, many of which have been added to the penal code since the
1970s.
One controversial new law can hold animal-rights activists criminally responsible for protests
that cause the target of their attention to be fearful, regardless of the protesters' intentions.
Congress passed the law in 2006 with only about a half-dozen of the 535 members voting on it.
Under English common law principles, most U.S. criminal statutes traditionally required
prosecutors not only to prove that defendants committed a bad act, but also that they also had bad
intentions. In a theft, don't merely show that the accused took someone's property, but also show
that he or she knew it belonged to someone else.
Over time, lawmakers have devised a sliding scale for different crimes. For instance, a "willful"
violation is among the toughest to prove.

Requiring the government to prove a willful violation is "a big protection for all of us," says
Andrew Weissmann, a New York attorney who for a time ran the Justice Department's criminal
investigation of Enron Corp. Generally speaking in criminal law, he says, willful means "you
have the specific intent to violate the law."

A lower threshold, attorneys say, involves proving that someone "knowingly" violated the law. It
can be easier to fall afoul of the law under these terms.
In one case, Gary Hancock of Flagstaff, Ariz., was found guilty in 1999 of violating a federal
law prohibiting people with a misdemeanor domestic violence record from gun ownership. At
the time of his domestic-violence convictions in the early 1990s, the statute didn't existbut
later it was applied to him. He hadn't been told of the new law, and he still owned guns. Mr.
Hancock was convicted and sentenced to five years' probation.
His lawyer, Jane McClellan, says prosecutors "did not have to prove he knew about the law.
They only had to prove that he knew he had guns."
Upholding the conviction, a federal appellate court said that "the requirement of 'knowing'
conduct refers to knowledge of possession, rather than knowledge of the legal consequences of
possession."
In 1998, Dane A. Yirkovsky, a Cedar Rapids, Iowa, man with an extensive criminal record, was
back in school pursuing a high-school diploma and working as a drywall installer. While doing
some remodeling work, Mr. Yirkovsky found a .22 caliber bullet underneath a carpet, according
to court documents. He put it in a box in his room, the records show.
A few months later, local police found the bullet during a search of his apartment. State officials
didn't charge him with wrongdoing, but federal officials contended that possessing even one
bullet violated a federal law prohibiting felons from having firearms.
Mr. Yirkovsky pleaded guilty to having the bullet. He received a congressionally mandated 15year prison sentence, which a federal appeals court upheld but called "an extreme penalty under
the facts as presented to this court." Mr. Yirkovsky is due to be released in May 2013.
Changing laws mean it's easier for a mistake to be treated as a federal crime. Mr. Martin says he
learned that firsthand.
Overall, more than 40% of nonviolent offenses created or amended during two recent
Congressesthe 109th and the 111th, the latter of which ran through last yearhad "weak"
mens rea requirements at best, according to a study conducted by the conservative Heritage
Foundation and the National Association of Criminal Defense Lawyers. The study, one of the
few to examine mens rea, was extended to include the most recent Congress at the request of The
Wall Street Journal.
Earlier this year, Justice Antonin Scalia, in a dissent from a Supreme Court decision upholding a
firearms-related conviction, wrote that Congress "puts forth an ever-increasing volume" of
imprecise criminal laws and criticized lawmakers for passing too much "fuzzy, leave-the-detailsto-be-sorted-out-by-the-courts" legislation.
Lawmakers on both sides of the aisle worry about the weakening of mens rea. "Over my six
years in Congress there have been many times when in discussions with members of Congress I

say, 'Look, I know you want to show people how serious you are about crime, but don't put
anything on the books that doesn't require criminal intent,'" says Rep. Louie Gohmert, (R., Tex.)
a former state judge who wants the federal system reworked.
In a 2009 Judiciary subcommittee hearing on the growth of federal criminal law, Rep. Bobby
Scott (D., Va.)., said that mens rea had long served "an important role in protecting those who do
not intend to commit wrongful or criminal acts from prosecution and conviction."
The growing number of federal laws with weakened mens rea safeguards is making the
venerable legal principle that ignorance of the law is no defense a much riskier proposition for
people. That principle made sense, says University of Virginia law professor Anne Coughlin,
when there were fewer criminal laws, like murder, and most people could be expected to know
them.
But when legislators "criminalize everything under the sun," Ms. Coughlin says, it's unrealistic to
expect citizens to be fully informed about the penal code." With reduced intent requirements
"suddenly it opens a whole lot of people to being potential violators."
F. James Sensenbrenner, a Wisconsin Republican and chairman of the House crime
subcommittee, said he wants to clean up the definition of criminal intent as part of a broader
revamp of the criminal-justice system. There are crimes scattered among 42 of the 51 titles of the
federal code, with varying standards of criminal intent. Still others are set by court decisions.
"How the definition of mens rea is applied is going to be one of the more difficult areas to figure
out a way to fix," he said.
When a humpback whale got tangled in his fishing-boat net in 2008, Robert Eldridge Jr., a
commercial fisherman, says he had one overriding thought: free it. He freed the whale, although
it swam away with 30 feet of his net still attached.
A few weeks later, he was charged with harassing an endangered species and a marine mammal.
Under federal law, Mr. Eldridge was supposed to contact authorities who would send someone
trained to rescue the animal. The law is designed to prevent unskilled people from accidentally
injuring or killing a whale while trying to release it.
Mr. Eldridge says he was fully aware of the federal Marine Animal Disentanglement Hotline for
summoning a rescuer. But "it didn't cross my mind to do anything but keep it alive. I thought I
was doing the right thing," the Massachusetts fisherman said.
There were two federal observers aboard his boat that day, performing routine checks, who
reported the incident, according to court documents. Mr. Eldridge's potential sentence was one
year in jail and a $100,000 fine.
Mr. Eldridge, 42, pleaded guilty and has a misdemeanor on his record. He was fined $500 and
ordered to write a warning letter to other fishermen to look out for whales.

"I'm just glad it's done," he said of the case.

Asked for comment, a Justice spokeswoman referred to Mr. Eldridge's guilty plea, in which he
admitted knowing the procedure and having the hotline number posted on his boat at the time of
the incident.
The erosion of mens rea is partly due to the "hit or miss" way American legislation gets written
today, says Jay Apperson, a former Chief Counsel to the House Judiciary Subcommittee on
Crime, Terrorism, and Homeland Security. Some lawmakers simply omit criminal- intent
provisions when they draft legislation. "Lots of members don't think about it, not out of a
malevolent motive," he says. "They just don't think about it."
Other times they do. In 1994, Congress rewrote part of the anti-money- laundering law that
requires any cash transaction above $10,000 to be reported. The Supreme Court had just vacated
a conviction, saying the "willful" provision required the government to show that someone knew
he was violating the law when not reporting a transaction. In response, Congress took the
"willful" provision out of the law.
An incident from 2002 illustrates the sometimes messy process of drafting legislation. That year,
Congress passed the Sarbanes-Oxley Act, which set new punishments for white-collar crime
following the scandals at Enron, WorldCom and other companies. Several legal experts were
about to testify on key provisions of Sarbanes-Oxley before a Senate subcommittee when the
chairman called a break in the meeting. The reason: The senators needed to vote on the very
provisions the panelists were there to discuss.
The hearing resumed two hours later, after the provisions were approved 97-0. The witnesses
went on to testify about the dangers of weakening criminal-intent standards, as Sarbanes-Oxley
did.
"That slapdash approach to drafting was pretty rife throughout the period," said Frank Bowman,
a University of Missouri law-school professor who advised the Senate Judiciary Committee
during the bill's creation.
Among other things, the new law made it easier for prosecutors to bring obstruction-of-justice
cases related to destruction of evidence. Under earlier law, prosecutors had to show the
defendant's destruction of evidence was impeding an active investigation. Sarbanes-Oxley
broadened that, prohibiting the destruction of material that might be part of any future
investigation.
One of the witnesses that day, former deputy attorney Gen. George Terwilliger, says that, "In
retrospect, the hearing must have been about: Is what we just voted on a good idea?"
N OTE ON READING JUDICIAL OPINIONS
Attorneys, scholars and managers all read judicial opinions, but do so for different reasons. Their
motives range from advocacy to a deeper understanding of the forces at work in various
academic disciplines to a better understanding of the environment in which they operate.

An attorney who serves as an advocate for a litigant at either the trial or appellate level uses them
to persuade a judge or jury to decide in favor of his client. The objective is to win a legal dispute.
Thus, he will try to isolate (distinguish) or minimize the significance of any opinion that
undercuts his clients interest. On the other hand, he will emphasize the similarities of facts, legal
issues and holdings in those opinions that enhance or support his clients position (desired
outcome.)
A scholar, by contrast, works from a disinterested perspective. His analysis identifies similarities
and differences among opinions that address the same issue. Thus, he compares and contrasts,
seeking common threads of legal principles or alternative approaches to a particular issue or
problems as reflected in a set of related opinions. The objective is to understand a particular
aspect of law its nature, origins and current status.
Managers benefit from reading judicial opinions with their own set of objectives. In general, they
seek the managerial implications of legal developments as expressed in relevant judicial
opinions. The objective is to minimize legal risks associated with the problems, issues and
decisions that managers face on a regular basis. This is an essential part of developing
managerial skills, perspectives and judgment. A careful reading of them helps to identify the
interests of key stakeholders who must be taken into account, e.g., employees, vendors,
customers, and shareholders in order to strike appropriate balances among them.
Knowledgeable managers recognize that Legal standards impose numerous constraints upon
businesses and non-profit organizations. In order to operate effectively, they must therefore
develop an awareness and understanding of these external environmental factors that set
boundaries within which their decisions may be made. Not doing so invites disaster, as you will
see in many of the legal cases on our reading list.
Our objectives in studying these cases differ somewhat from those of law students. We do not
aim to acquire the degree of legal expertise that one would in a law school. Our emphasis will be
upon the legal risks and hazards faced by people who run organizations, businesses and nonprofits how to recognize such hazards, minimize the associated risks and respond in the event
of legal conflict. Careful consideration of these cases will also enable you to appreciate the
historical context in which current legal and ethical norms have developed.
As you read each judicial opinion, you should therefore identify:
I.
II.
III.
IV.
V.

The
The
The
The
The

key facts and events that define the conflict.

legal issue as the court defines it.
legal rules or standards that the court applies.
courts decision and rationale.
managerial implications of the decision.

As managers, you will often have to walk through legal and regulatory minefields where one
misstep can lead to disastrous consequences. Staying abreast of current legal developments and
their managerial implications allows for liability assessments and contingency planning that

reduce exposure accordingly. Well-informed managers can sometimes adopt preventive

measures that may even avoid liability altogether.
No managerial decision lies beyond legal challenge, but a properly-made decision should include
the recognition and evaluation of legal risks and uncertainties.
U.S. V. CAPUTO
456 F. S UPP. 2 D 970; (E.D. ILL. 2006)
CASTILLO, J.
On September 13, 2006 this Court sentenced defendant Ross A. Caputo ("Caputo") to a tenyear sentence and defendant Robert M. Riley ("Riley") to a six-year sentence. Both
defendants were directors of AbTox, Inc. ("AbTox"): Caputo was the President and Chief
Executive Officer, and Riley was Vice-President of Regulatory Affairs and Chief Compliance
Officer. While Caputo is one of many corporate CEO's who have recently been tried and
convicted, Riley is one of only a few Chief Compliance Officers ever tried and convicted in
federal court. ***
AbTox, based in Mundelein, Illinois, was a medical device manufacturer with essentially a
single product: the AbTox Plazlyte sterilizer, which it marketed to hospitals across the
country for use in sterilizing reusable medical devices. As a manufacturer of medical devices,
AbTox was subject to regulation by the U.S. Food & Drug Administration ("FDA.)
***
During the pre-market notification process, AbTox engaged in different forms of fraudulent
conduct. Adverse test results were, for the most part, withheld from FDA reviewers, while
favorable results achieved under the same test protocols were disclosed.
***
Defendants Caputo and Riley effectively carried out a bait-and-switch scheme on the FDA
and its customers, obtaining clearance on one sterilizer but using the clearance to sell an
other. The defendants continued to sell the uncleared sterilizer, in defiance of law and
FDA directives, through a pattern of falsehoods and deception, until the company shut down
sales operations on April 7, 1998, under pressure from the FDA. In the meantime, AbTox had
illegally sold 168 adulterated sterilizers in the United States., causing an intended loss in
excess of $16 million.
The sentencing of criminal defendants in the federal system is ultimately governed by 18
U.S.C. 3553(a).
***
APPLICATION OF ADVISORY SENTENCING GUIDELINES
A. Defendant Caputo
In the case of defendant Caputo, this Court determined that the advisory Guideline range was
108 to 135 months. This range was based on this Court's specific sentencing findings that the

total offense level was 31 and that Caputo had no relevant prior criminal history and therefore
was in Criminal History Category I.
Caputo also received a two level adjustment for obstruction of justice, pursuant to U.S.S.G.
3C1.1, for violating this Court's order directing him not to transfer personal monies over
$10,000 for the payment of non-attorney fee expenses after his conviction; for willfully
misleading the Court about the overall worth of his assets; and for attempting to
inappropriately transfer title to some of his vehicles after his conviction. Finally, both
defendants received a two level enhancement pursuant to U.S.S.G. 2F1.1(b)(4)(A) because
their offenses involved the conscious or reckless risk of serious bodily injury.
B. Defendant Riley
Riley's advisory sentencing calculations were the same as Caputo's with one important
exception. First, the Court declined to use an obstruction enhancement even though the
government strongly asserted that Riley had committed perjury when he testified. The Court
specifically found that Riley's trial testimony was misleading but not willful. Second, the
Court expressly found that Riley had been manipulated by Caputo throughout the fraudulent
scheme. Riley's initial advisory sentencing range was 87 to 108 months based on a total
adjusted offense level of 29 and a Criminal History Category of I.
Impact of the Defendants' Crime Upon Victims
Twenty-five patients at five hospitals are known to have suffered corneal decompensation in
one eye after ocular surgeries performed with instrument sterilized in the illegal AbTox
sterilizer. To this date, some of these twenty-five individuals are still suffering the lingering
effects of the ineffective and illegal AbTox sterilizer marketed by the defendants.
The AbTox company sold to U.S. customers approximately 172 units of the AbTox Plazlyte
sterilizer Model ABT 1.0, under the false pretense that it had been cleared for sale by the
FDA. At trial, a sample of hospital representatives testified that their hospital would not have
purchased the AbTox unit had it known that the unit had not been cleared, or that the FDA
had directed AbTox not to market the unit. Based on AbTox's own records, Special Agent
Stich of the FDA has identified 144 U.S. hospitals which purchased and paid for 167
uncleared units. The total amount of their purchases was $ 17,209,074.50.
THE ON-GOING N ATIONAL PROBLEM OF CORPORATE CRIME & RECENT ACTIONS OF
CONGRESS AND THE SENTENCING COMMISSION
1. Recent Increases In White Collar Sentences
Both Congress and the Sentencing Commission have targeted our nation's ongoing corporate
crime rate. The average federal sentence faced by corporate executives has more than tripled
in most instances as a direct result of the U.S. Sentencing Commission's 2002 Economic
Crime Amendment and the Sarbanes-Oxley Legislative Initiative. [emphasis added] It is
noteworthy that the Second Circuit recently held that a twenty-five year sentence was

reasonable for a massive securities fraud conducted by a corporate CEO. United States v.
Ebbers, 458 F.3d 110, 129 (2d Cir. 2006). * * * Our own Circuit recently affirmed a sentence
of 118 months as reasonable, even though it may have been above the advisory sentencing
range, due to the overall severity of a fraud offense which involved over one hundred million
dollars and an elaborate corruption scheme. See United States v. Leahy, 464 F.3d 773, (7th
Cir. Oct. 4, 2006).
***
2. The Recently Amended Organizational Sentencing Guidelines
Among the pertinent policy statements issued by the Sentencing Commission are the
Amended Organizational Sentencing Guidelines. * * * [The Guidelines] . . . emphasize that
an organization must both promote an organizational culture that encourages ethical conduct
and exercise due diligence to prevent and detect criminal conduct. The Guidelines set forth
the following compliance requirements:
1. Standards and procedures to prevent and detect criminal conduct;
2. Adequate resources and authority for the program;
3. Personal screening related to the goals of compliance;
4. Training in the standards and procedures at all levels;
5. Non-retaliatory internal reporting systems;
6. Periodic auditing, monitoring and evaluation of the program's overall
effectiveness;
7. Incentives and discipline to promote compliance and ethical conduct; and
8. Reasonable, responsive and preventive steps upon detection of a
violation.
By any measure, AbTox's system of corporate compliance was a total failure from top to
bottom. Caputo and Riley both bear primary responsibility for this failure. In this case,
Caputo selected Riley to serve as AbTox's Chief Compliance Officer for all the wrong
reasons. Caputo knew that he could manipulate and dominate Riley based on his prior
personal and business experiences with him. Riley did not have any real training as a
compliance officer. Riley had received an MBA from Northwestern University, specializing
in marketing, before beginning work in the healthcare industry.
Corporate compliance officers are very much today's corporate "fire personnel." They are
often the company's "first-responders" and must focus on both proactive and reactive efforts
to be effective. Proactive efforts need to emphasize the complimentary goals of crime
prevention and corporate ethical behavior. Reactive efforts measure how well a corporation
reacts when it learns that questionable and potentially illegal corporate conduct has occurred.
The defendants' behavior in this case turns the concept of corporate compliance on its head.
Caputo and Riley subverted the standard compliance goals to ensure that AbTox could
proceed with its illegal marketing scheme in direct violation of FDA regulations. . . . Instead,
the evidence showed that Riley aided and abetted Caputo's illegal marketing plans. Riley
chose to use whatever regulatory expertise he had to further, shield, and cover up the offenses
proven at trial. Riley totally failed to self-report any adverse scientific or healthcare results of

the sterilizer to the FDA. Riley also willfully participated in the submission of numerous
misleading regulatory filings with the FDA. All of Riley's actions were taken at the behest
and with the approval of Caputo.
3. The Further Need For Corporate Crime Deterrence While Avoiding Unwarranted
Sentencing Disparity
Despite the initiatives of Congress and the Sentencing Commission, corporate crime remains
one of our nation's problems. The need for both general and specific deterrence in this area is
especially important to buttress our country's regulatory efforts. Too often, as in this case, the
corporate officials on trial answer charges with broad assertions of lack of criminal intent in
the face of repeated and unheeded factual red flags. Corporate America should be aware that
this type of defense will be effectively undercut by the use of a standard "ostrich" jury
instruction. This instruction, which this Court gave to the jury in this case, states:
"Knowledge may be proved by the defendants' conduct and by all the facts
and circumstances surrounding the case. You may infer knowledge from a
combination of suspicion and indifference to the truth. If you find that a
person had a strong suspicion that things were not what they seemed or that
someone had withheld some important facts yet shut his eyes for fear of
what he would learn, you may conclude that he acted knowingly as I have
used that word. You may not conclude that the defendant had knowledge if
he was merely negligent in not discovering the truth."
This language is a standard jury instruction which has been repeatedly approved by our nation's
courts This instruction was especially appropriate in this case, where both Caputo and Riley
proceeded to trial on the general defense that they did not realize that their actions were illegal.
***
In view of all the factors outlined herein, it is this Court's hope that the readers of this opinion
will come to the realization that the ten and six year sentences imposed here are in large measure
part of our country's efforts to create an atmosphere of general corporate crime deterrence.
Serious corporate crime sentences are needed to reflect the actions of Congress and the
Sentencing Commission and to avoid unwarranted sentencing disparities. More importantly, the
sentences provide specific deterrence for Caputo and Riley after assessing each of their roles in
the offenses proven at trial.
D. History and Characteristics of the Defendants
This Court acknowledges that both Caputo and Riley lived largely exemplary lives until their
involvement in the AbTox sterilizer scheme. Neither defendant had a criminal record, and both
defendants were the subject of numerous favorable character letters received by the Court. This
factor influenced this Court to sentence Caputo at the mid-Guideline range and to depart
downward in the case of Riley and then sentence him at the lower end of his adjusted Guideline
range.

The Court specifically notes that, similar to public corruption crimes, most corporate crimes will
involve defendants with little or no relevant criminal history. It is important for the community to
know that this factor will help the Court assess the exact sentence to be imposed, but will not on
its own enable a convicted defendant to avoid a serious sentence in light of the recent actions
undertaken by Congress and the Sentencing Commission.
RESTITUTION
The Court fully adopted all aspects of the Pre-Sentence Report's recommendation and ordered
both defendants to jointly and severally pay $17,209,074.50 in restitution to the hospitals that
had been defrauded by the defendants' illegal scheme. In doing so, the Court accepted the report's
conclusion that the sterilizers were worthless because they were not cleared by the FDA and
were shown to cause eye injuries. Thus, as a result of the defendants' actions, the hospitals were
in the end left with worthless and illegal medical equipment with an undisputed purchase price of
$17,209,074.50. The hospitals were entitled to have the full benefit of what they believed they
were purchasing - effective and legal sterilizers.
CONCLUSION
This Court concludes that the proven offenses require sentences that will effectively deter and
adequately reflect the seriousness of the defendants' egregious conduct, the need for just
punishment, and the protection of the public. In this case, for the reasons stated at sentencing on
September 13, 2006, and as supplemented herein, the Court concluded that the just and
reasonable sentences for each defendant was a total sentence of ten years' imprisonment and
three years of supervised release for Caputo and a total sentence of six years' imprisonment and
three years of supervised release for Riley. In addition, the Court waived the imposition of any
fine in deference to the full award of $17,209,074.50 in restitution to the victims in this case.
These sentences are sufficient, and no greater than necessary, to accomplish all the sentencing
objectives of 18 U.S.C. 3553(a) in this case.
[On subsequent appeal, the 7th Circuit remanded the case for recalculation of the restitution
order, but otherwise upheld the trial court decision.]
U.S. VS . ALLEGHENY BOTTLING COMPANY
695 F. S UPP. 856 1988)

DOUMAR, D.J.
This case arises from a conspiracy between Mid-Atlantic Coca-Cola Bottling Company (MidAtlantic Coke) and defendant Allegheny Bottling Company, Incorporated, formerly Allegheny
Pepsi-Cola Bottling Company. * * *
Allegheny Pepsi was found guilty by a jury of a price-fixing conspiracy which occurred in the
Norfolk, Richmond and Baltimore areas. * * *
No exact figure can be developed for the non-fixed market price for Coke and Pepsi products,
since they so dominated this oligopolistic market. It does appear from the evidence, however,

that the profit gained by the defendant companies through price-fixing over the previously
established competitive prices is far in excess of the $1,000,000 fine provided by the Sherman
Act for punishment of such conspiracies. Through the agreement, the companies received what
appears to be an increase in revenue of between ten and twelve million dollars as shown in the
pre-sentence reports.
***
Thus, over one million dollars in illegal revenues were obtained just from the sale of sixteen
ounce non-returnable bottles in the Baltimore area market by Mid-Atlantic Coke in the year
1983.
***
The Lord Chancellor of England said some two hundred years ago, "Did you ever expect a
corporation to have a conscience, when it has no soul to be damned, and no body to be kicked?"3
Two hundred years have passed since the Lord Chancellor espoused this view, and the whole era
of what is and is not permitted or what is or is not prohibited, has changed both in design and in
application. Certainly, this Court does not expect a corporation to have a conscience, but it does
expect it to be ethical and abide by the law. This Court will deal with this company no less
severely than it will deal with any individual who similarly disregards the law.
For the reasons stated, Allegheny Bottling Company is sentenced to three (3) years imprisonment
and a fine of One Million Dollars ($ 1,000,000.00). Execution of the sentence of imprisonment is
suspended and all but $ 950,000.00 of said fine is suspended, and the defendant is placed on
probation for a period of three (3) years.
As special conditions of the probation, in addition to the normal terms of probation, the
defendant, Allegheny Bottling Company shall provide:
(a) An officer or employee of Allegheny of comparable salary and stature to Jerry Pollino,
Allegheny Pepsi-Cola Bottling company's (Allegheny Pepsi's) former Vice President of Sales, to
perform forty (40) hours of community service per week in the Baltimore, Maryland area for a
two (2) year period without compensation to the defendant.
(b) An officer or employee of Allegheny of comparable salary and stature to Armand Gravely,
Allegheny Pepsi's former Richmond Division Vice President and Manager, to perform forty (40)
hours of community service per week for a one (1) year period without compensation to the
defendant in the Richmond, Virginia area.
(c) An officer or employee of Allegheny of comparable salary and stature to Stanley Fabian,
Allegheny Pepsi's former Vice President and Norfolk Division Manager, to perform forty (40)
hours of community service per week in the Norfolk, Virginia area for a one (1) year period
without compensation to the defendant.
(d) An officer or employee of Allegheny of comparable salary and stature to James Sheridan,

Coffee, "No Soul to Damn: No Body to Kick": An Unscandalized Inquiry Into the Problem of Corporate
Punishment, 79 Mich. L. Rev. 386, 386 (1980) (quoting Edward, First Baron Thurlow 1731-1806).

Allegheny Pepsi's former President, to perform forty (40) hours of community service per week
for a two (2) year period without compensation to the defendant in the areas of Maryland and
Virginia formerly served by the Richmond, Norfolk and Baltimore Divisions of Allegheny Pepsi.
It is the further condition of such probation that the company shall not dispose of any of its
franchises, capital assets or plants or facilities in the Norfolk, Richmond or Baltimore areas,
without specific permission of this Court through the probation officer.
That portion of the fine that is not suspended ($ 950,000.00) shall be paid within 10 days from
the date hereof. All of the community service shall be performed under the direction of the
probation office and subject to the approval of the Court. In no event is Allegheny Bottling
Company to receive any form of compensation for the community service performed.
This case was brought pursuant to the Sherman Act, which provides in part:
Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint
of trade or commerce among the several States, or with foreign nations, is hereby
declared to be illegal. Every person who shall make any contract or engage in any
combination or conspiracy hereby declared to be illegal shall be deemed guilty of a
felony, and, on conviction thereof, shall be punished by a fine not exceeding one million
dollars if a corporation, or if any other person, one hundred thousand dollars, or by
imprisonment not exceeding three years, or by both said punishments in the discretion of
the court. 15 U.S.C. 1 (emphasis added).
A crucial issue in this case is whether the imprisonment term in this statute applies to
corporations. Before the Court addresses that issue, however, another issue will be disposed of
the lingering idea that a corporation cannot be imprisoned. This Court today specifically holds
that a corporation can be "imprisoned" under the Sherman Act, contrary to the traditional view.
This Court recognizes that this is a novel holding, and that it appears to run contrary to some
authority. Therefore, this opinion will set forth the reasons why the sentence imposed in this case
is appropriate. . . . Can a corporation, generally speaking, be "imprisoned"? The Court answers
this question in the affirmative. * * *
1. Corporate Imprisonment
The term "imprisonment" is defined by Webster to include "constraint of a person either by force
or by such other coercion as restrains him within limits against his will." Webster's Third New
International Dictionary at 1137. It is similarly defined as "forcible restraint of a person against
his will." The Random House College Dictionary at 669. The key to corporate imprisonment is
this: imprisonment simply means restraint.
***
[Legal precedent makes] clear that imprisonment does not [necessarily] mean incarceration in a
jail. Imprisonment simply means restraint, that is, a deprivation of liberty. There is
imprisonment when a person is under house arrest, for example, where a person has an electronic
device which sends an alarm if the person leaves his own house.

Corporate imprisonment requires only that the Court restrain or immobilize the corporation.
Such restraint of individuals is accomplished by, for example, placing them in the custody of the
United States Marshal. Likewise, corporate imprisonment can be accomplished by simply
placing the corporation in the custody of the United States Marshal. The United States Marshal
would restrain the corporation by seizing the corporation's physical assets or part of the assets or
restricting its actions or liberty in a particular manner. When this sentence was contemplated, the
United States Marshal for the Eastern District of Virginia, Roger Ray, was contacted. When
asked if he could imprison Allegheny Pepsi, he stated that he could. He stated that he restrained
corporations regularly for bankruptcy court. He stated that he could close the physical plant itself
and guard it. He further stated that he could allow employees to come and go and limit certain
actions or sales if that is what the Court imposes.
Richard Lovelace said some three hundred years ago, "stone walls do not a prison make, nor iron
bars a cage." It is certainly true that we erect our own walls or barriers that restrain ourselves.
Any person may be imprisoned if capable of being restrained in some fashion or in some way,
regardless of who imposes it. Who am I to say that imprisonment is impossible when the keeper
indicates that it can physically be done? Obviously, one can restrain a corporation. If so, why
should it be more privileged than an individual citizen? There is no reason, and accordingly, a
corporation should not be more privileged.
Cases in the past have assumed that corporations cannot be imprisoned, without any cited
authority for that proposition. This Court, however, has been unable to find any case which
actually held that corporate imprisonment is illegal, unconstitutional or impossible. Considerable
confusion regarding the ability of courts to order a corporation imprisoned has been caused by
courts mistakenly thinking that imprisonment necessarily involves incarceration in jail. But since
imprisonment of a corporation does not necessarily involve incarceration, there is no reason to
continue the assumption, which has lingered in the legal system unexamined and without
support, that a corporation cannot be imprisoned. Since the Marshal can restrain the corporation's
liberty and has done so in bankruptcy cases, there is no reason that he cannot do so in this case as
he himself has so stated prior to the imposition of this sentence.
***
Corporate imprisonment not only promotes the purposes of the Sherman Act, but also promotes
the purposes of sentencing. The purposes of sentencing, according to the United States
Sentencing Commission, include incapacitating the offender, deterring crime, rehabilitating the
offender, and providing just punishment. United States Sentencing Comm. Guideline Manual 1.1
(Oct. 1987). The corporate imprisonment imposed today is specifically tailored to meet each of
these purposes.
Incapacitation or restraint of the liberty of Allegheny is certainly accomplished by corporate
imprisonment. No more price-fixing by Allegheny Pepsi will occur when the United States
Marshal prevents the corporation from acting.
Deterrence of price-fixing will also be achieved by corporate imprisonment of Allegheny Pepsi.
Other corporations will be deterred by seeing that violation of the Sherman Act could lead to
consequences sufficiently severe as to dictate that the potential cost of price-fixing is seldom

worth the potential gain.

The deterrence achieved by corporate imprisonment may in fact be the only effective deterrent to
price-fixing, especially regarding corporations as large as the ones in this case. A corporation the
size of Allegheny Pepsi will, through price-fixing, make many times the maximum fine by the
time the price-fixing is detected. Knowing this, the fine will be ineffective as a deterrent even if
the probability of detection is considered great. The fine becomes simply a cost of doing
business, which is small in comparison with the potential profits. Corporate imprisonment, in
contrast, prevents the cost-benefit analysis to economically justify price-fixing. The corporate
decision-makers would know that, if caught, the corporation would lose more than they could
gain.
***