A Connecticut lawyer has become enmeshed in the snares of the Sarbanes-Oxley Act, even though his alleged crime has nothing to do with such core missions of the law as stamping out securities fraud, ensuring auditor independence, or boosting investor confidence. Rather, his alleged violation was tied to a church choirmaster’s confessed predilection for child pornography.
The gist of the prosecutors’ case — that the church’s attorney, Philip Russell, allegedly destroyed evidence — hinges on two little-known Sarbox provisions, Section 802 (“Criminal Penalties for Altering Documents”) and Section 1102 (“Tampering with a Record or Otherwise Impeding an Official Proceeding”).
Last October, an employee working in Christ Church in Greenwich, Connecticut, discovered digital images of naked boys in the laptop computer of Robert Tate, the church’s choirmaster and organist. When the church turned to Russell for advice, he destroyed the laptop, federal prosecutors say.
By the time Tate was convicted of possessing child pornography in January, Russell was off the case and his actions were being scrutinized by a grand jury investigation. In February, Russell was arrested and pleaded not guilty in federal court. One of his attorneys, Robert Casale, is filing motions to dismiss the two charges against his client. One of the motions is due to the U.S. District Court in New Haven during the week of March 19. According to Casale, Russell does not deny he disposed of the computer, but he doesn’t believe he broke any laws by doing so.
According to the U.S. Attorneys’ indictment against him, when Russell destroyed the laptop, he “corruptly altered, destroyed, mutilated, and concealed a record, documentÂ with the intent to impair the object’s integrity and availability for use in an official proceeding.” By using those words in their indictment, the prosecutors tapped into a part of the obstruction-of-justice law that was revised under Sarbox.
In writing the act, lawmakers presciently used that language to address loopholes in the rule that became evident in the federal case against Arthur Andersen after Enron’s collapse. Back when the accounting firm was in business, the law solely addressed those who “persuaded” others to shred or destroy evidence, and not the actual “shredder” himself. Andersen was also protected because a formal federal investigation against Enron was not yet in the works — the firm was merely subjected to an informal Securities and Exchange Commission inquiry when its employees destroyed paperwork. Andersen’s later conviction for obstruction of justice was thrown out by the Supreme Court on the basis that the shredders had simply been following their employer’s document-retention policy.
Casale thinks the prosecutors don’t have a precedent on which to base their claims that Russell violated a part of the U.S. Code called the “destruction of a tangible object.” The defense lawyer told CFO.com: “I know of no case where [destruction of a tangible object] has been applied to the disposal of contraband under circumstances where no official proceeding was pending, envisioned, or even imagined.”
Sarbox amended the provision by declaring that anyone who “knowingly alters, destroys, mutilates…any document or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter” could face up to 20 years in jail. The U.S. Attorneys involved in the case declined to talk to CFO.com.
The revised language implies that people could face criminal charges by tampering with documents before they become evidence in a federal investigation, legal experts worried about the provision’s vagueness say. “Sarbanes-Oxley did kind of push back in time the point at which you might be criminally culpable of destruction of evidence,” William Dodds, a litigation partner at Dechert LLP who has no connection to the case, told CFO.com.
Since the Andersen case, companies have gotten smarter about their document-retention polices and improved employee training about properly disposing records, notes Dodds. In addition, since technological advances have made it harder to destroy potentially damning electronic evidence, people have learned they may be better off concentrating on a defense strategy and leaving the evidence alone. That way, if they are guilty of a crime, at least they’re not adding another one to their list of wrongdoings. “They might as well accept the fact the document existed and figure out an explanation for why something was said rather than try to hide what was said,” says Dodds.
For the innocents among us, document-retention experts say it’s best to keep your employees educated on the latest rules and make sure your policy is sound. “Designate a key individual to oversee the implementation and execution of this policy, effectively communicate this policy to all employees, and make sure your internal and external counsel are an integral part of the process,” recommends Wade Lindenberger, director of corporate governance at RoseRyan, an organization of finance and accounting consultants. “The best policy ultimately is ‘when in doubt, don’t throw it out.’”