Is a new Department of Justice (DOJ) policy focused on individual accountability for white-collar crime encouraging companies to scapegoat their employees? A recent court filing in a $6 billion corporate fraud case could give company officers some sleepless nights.
In September, the DOJ announced sweeping changes to its efforts to fight corporate crime, including new guidance regarding individual accountability, voluntary self-disclosure of violations, independent compliance monitors, and ways to strengthen and sharpen a firm’s compliance culture. Deputy Attorney General Lisa Monaco said then the agency would make individual accountability its No. 1 priority.
Claims made in federal court by a former portfolio manager at financial services firm Allianz Global Investors (AGI) could, if true, call into question the DOJ’s high ground on individual accountability. It could also serve as a cautionary tale.
In May, AGI and three of its former portfolio managers were charged with lying to investors about a complex options trading strategy, as well as forging documents to cover up the scheme, leading to multibillion dollar losses. AGI admitted the misconduct and, together with its parent company Allianz SE, agreed to pay more than $6 billion in fines and restitution to settle fraud charges levied by the DOJ and Securities and Exchange Commission.
Two of the former AGI portfolio managers pleaded guilty to their roles in the scheme. The third, Gregoire Tournant, who was a chief investment officer for one of Allianz’s U.S. investing divisions, pleaded not guilty.
In a court filing Monday with the U.S. District Court for the Southern District of New York, Tournant said he met with two law firms hired by Allianz, Sullivan & Cromwell and Ropes & Gray, to prepare his defense. He claimed the firms relayed everything he said to them—in confidence—to DOJ prosecutors under orders from AGI with the intent of sparing the company from criminal charges that would lead to the so-called “corporate death penalty.”
Tournant noted in the motion its contents do not address the charges he faces but rather how the government, AGI, and its legal team collected evidence against him.
“The law firm knew before that meeting (but did not raise and resolve with Mr. Tournant) that a conflict of interest had developed that made it impossible for it to continue to represent his interests as well as those of its other client, Allianz,” the filing said. “That law firm would go on to switch sides and act, in its own words, as the ‘back office’ to the [U.S. Attorney’s Office] in the investigation of Mr. Tournant, all for the benefit of Allianz, which found itself in a life-or-death situation brought on by the investigations and the government’s onerous corporate cooperation policy.”
In his filing, Tournant specifically pointed the finger of blame for this alleged deception on the DOJ’s policies regarding white-collar crime.
“The attorneys’ betrayal was a direct result of the government’s onerous policies pertaining to the charging of business entities,” he said. “These policies condition cooperation credit—which Allianz and its attorneys deemed essential to avoid the ‘fatal’ result of a guilty plea—on a company’s willingness to build the government’s case against employees.
“As applied here, these policies left Allianz in the desperate position of needing to scapegoat Mr. Tournant in an attempt to avoid indictment, and they coerced Mr. Tournant’s former counsel to turn on one client in order to save another.”
Allianz, Sullivan & Cromwell, and Ropes & Gray did not respond to requests for comment.
If Tournant’s allegations about the conduct of his counsel and former employer are accepted by the court, they could have a chilling effect on the future cooperation of any other corporate employee accused of misconduct. Employees could begin refusing to meet with representatives of a company’s internal investigation team, or even with inside corporate counsel, for fear of self-incrimination. If AGI did indeed scapegoat Tournant to save its own skin, what is to stop other companies accused of misconduct from using similar tactics?
Similar questions have been raised before, most recently with the DOJ’s successful pursuit of concealment and obstruction felony charges against Uber’s former chief security officer, Joseph Sullivan. In December, Principal Associate Deputy Attorney General Marshall Miller defended the DOJ’s prosecution, calling the case an “outlier” in which Sullivan “deliberately and criminally obstructed justice by hiding and falsifying evidence and trying to cover his tracks.”
Is the DOJ saying Sullivan acted on his own, without any direction or sign-off from Uber’s then-CEO, Travis Kalanick? If there was support and acknowledgement from above at Uber, why did no one else except Sullivan face charges?
Tournant’s case has yet to be ruled on, so it is premature to draw conclusions about the DOJ’s actions. But it raises questions whether the DOJ, in its zeal to hold individual corporate employees accountable for misconduct, is encouraging companies to scapegoat workers to protect their public image and avoid accountability.
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