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Insight & Commentary on SEC Enforcement Actions and White Collar Crime

The SEC Totally Cares about Its Injunctions

Posted in SEC Litigation

Last week I wrote a post discussing the injunctions the SEC typically obtains against defendants in federal court.  I noted the oddity of these obey-the-law injunctions and wondered aloud why the Commission never pursues findings of contempt when those defendants disobey the very provisions they were ordered never to disobey again.

In a comment to the post, Robert Knuts noted “[t]wo simple reasons. 1. A permanent injunction triggers potential collateral consequences under various provisions of the Federal securities laws. 2. If such a recidivist went to trial, the violation of the prior injunction would likely lead to maximum civil penalties.”

These are both probably true.  The first certainly is.  Especially for large financial institutions, limiting and avoiding the collateral consequences of SEC injunctions and other regulatory sanctions can be almost its own practice area.  I had meant to mention this in the original post and forgot in the late night fog of composition.  As for the second, I don’t have supporting data, but violation of prior injunctions certainly wouldn’t be helpful to a defendant in a second go-round with the SEC in federal court.  So the original injunction would have value to the Commission in that respect.

But one thing that should be mentioned: this isn’t the only way a federal agency might handle the injunctions it seeks.  The Federal Trade Commission, for one, routinely pursues  and wins civil contempt orders against defendants who have violated injunctions issued by federal courts.  Those injunctions, though, do not merely order defendants to obey specific provisions of the law.  They order defendants not to do specific things, such as “using infomercials to sell any product, service, or program.”  When the people subject to those orders go off-track, occasionally the FTC steps in and asks a court to hold them in contempt for doing so.

If anyone knows the history of how these two agencies’ practices regarding injunctions developed, I’d be happy to hear that.

Retrench of DOJ’s Equitable Sharing Program Could be Boon to N.C. Schools

Posted in Asset Forfeiture

“Equitable Sharing” sounds so reasonable.  Who could argue with it?  Here’s what it is, and what it does:  The Justice Department’s Equitable Sharing program allows federal law enforcement agencies to “adopt” seizures of property conducted by state and local law enforcement agencies.  Under this program, when state and local officials seize property suspected of being involved in a crime, the federal “adoption” then allows the partners in (prosecuting) crime to divvy up the goods.  DOJ gets roughly 20%, and the remaining 80% or so is returned to the state agencies that made the initial haul, even if the original owner is never convicted of a crime.  Not everyone loves this scheme.  In fact, the program enjoys the distinction of attracting fire from commentators from across the political spectrum.  And that criticism has only drawn sharper in the recent debates over the “militarization” of police forces in light of the events in Ferguson, Missouri, as Equitable Sharing funds are often used by state and local law enforcement agencies to buy military-grade equipment.

Which is why it might have been a big deal that last Friday, Attorney General Eric Holder issued an order severely limiting the Equitable Sharing program.  It’s debatable whether this policy shift will meaningfully alter the general asset forfeiture landscape—the Washington Post certainly thinks so, Reason, not so much.  With exceptions built into the Attorney General’s order, only time will tell.

But we thought it might be interesting to see how this decision could affect North Carolina.  Justice Department reports to Congress indicate that about $160 million flowed to North Carolina law enforcement agencies through the federal Equitable Sharing Program from 2000 to 2013.  It’s hard to know the percentage of those funds that were purely adoptive seizures (now largely prohibited) versus those that were the result of a joint state/federal law enforcement operation (after the order, still allowed).  But it’s likely that a lot of money being seized will need to find a new home.

Interestingly, it’s not entirely clear where that home will be.  North Carolina does not have a meaningful civil asset forfeiture legal regime.  Generally, assets can only be forfeited to the State after the asset’s owner is convicted of the underlying crime, which is a significantly greater legal burden than the federal standard for adoptive seizures.

Assuming for the sake of argument that the seized property is ultimately forfeited, it seems clear that the money will not go to state and local law enforcement, as it has in the past, but will go to fund public education in the county where the asset was seized and forfeited.  Article IX, Section 7 of the North Carolina Constitution provides that “the clear proceeds of all penalties and forfeitures and of all fines collected in the several counties for any breach of the penal laws of the State, shall belong to and remain in the several counties, and shall be faithfully appropriated and used exclusively for maintaining free public schools.”

Given all this, we’re left with at least two questions: First, in light of this federal policy development, will the North Carolina legislature respond by creating a civil asset forfeiture legal regime?  Second, if civil asset forfeiture is given a statutory form, will the proceeds of North Carolina forfeitures continue to flow to the public schools, or will the local law enforcement community seek an amendment to the state constitution to redirect that money?

In any event, we are confident that it will be interesting to watch this issue play out over the next year.

 

 

 

The SEC Does Not Care about Its Injunctions

Posted in Microcap Fraud, SEC Litigation

It won’t surprise you to learn that the U.S. Code includes this provision: “A court of the United States shall have power to punish by fine or imprisonment, or both, at its discretion, such contempt of its authority . . . as . . . [d]isobedience or resistance to its lawful writ, process, order, rule, decree, or command.”  It’s right there at 18 U.S.C. § 401(3).  District courts also have inherent power to enforce compliance with their orders through civil contempt.  E.g., Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-65 (1980).

Meanwhile, the SEC’s enforcement staff works pretty hard to seek and obtain injunctions against its defendants.  They’re odd injunctions.  They don’t command someone to avoid particular behavior.  In addition to ordering disgorgement and civil penalties, they just order defendants to do what the securities laws already require them to do – that is, obey the law.  Some federal trial and appellate courts don’t love these injunctions, finding them overly vague under Rule 65.  But they are what they are, and it takes a lot of effort to get them.

So . . . True or False:  Having gotten those injunctions from a federal court, the SEC doesn’t really care if defendants violate them.  True!¹  If you are such a defendant, and you agree or are compelled not to violate specific provisions of the federal securities laws – as the law itself already requires – the SEC will not seek to have you held in contempt of court if you go ahead and violate those provisions anyway.  It might sue you again for new things it thinks you did, but contempt related to the old injunction?  Bygones.  The past is the past.

Have a look at this case from last Thursday.  Here’s the key paragraph from the SEC’s press release:

The SEC Enforcement Division alleges that a Canada-based attorney and stock promoter named John Briner orchestrated the [microcap] scheme, which entailed creating shell companies supposedly exploring mining activities.  Briner had been suspended from practicing on behalf of entities regulated by the SEC, so he recruited clients and associates to become figurehead executive officers while he secretly controlled the companies from behind the scenes.  The registration statements falsely stated that each CEO was solely running the company when in fact Briner was making all material decisions.

The hyperlink in that paragraph is from the press release, not me.  It does acknowledge that Briner had been suspended from practice before the Commission under Rule 102(e).  But the press release makes no mention of why.  Do you want to know?  It turns out the SEC sued Briner in 2009 for his participation in an “illegal stock offering” and accused him of violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act.  And Briner agreed that he had!  In fact, he consented to the entry of a federal court order that, among other things, enjoined him from violating the antifraud provision of the securities laws for the rest of his life.  According to the SEC, here he is doing it again.  And the SEC isn’t exactly letting it go, but the prior injunction has no effect on these new alleged violations of Section 17(a).  He won’t be held in contempt for violating that injunction, under 18 U.S.C. § 401 or otherwise.

So what is the point of the obey-the-law injunction?  It seems to be a signal from the Commission that it thinks the defendant violated a specific provision of the securities laws.  Can there be another reason?  Anyone?  Anyone?

 

 

¹ As Anthony Coronati will tell you, though, not completely true.  The SEC had him arrested when he ignored a subpoena and then ignored a court order to comply with the subpoena.

Justice Department Files First FCPA Case of 2015, Reminds Lawyers to Watch Out

Posted in FCPA

Last week, the Justice Department filed the first FCPA case of 2015 when it indicted Dmitrij Harder, the former owner and president the Chestnut Consulting Group in Huntingdon Valley, Pa.  Here’s a summary paragraph from DOJ’s indictment:

Between in or around 2007 through in or around 2009, defendant HARDER engaged in a scheme to pay approximately $3.5 million in bribe payments for the benefit of a foreign official to corruptly influence the foreign official’s actions on applications for financing submitted to the European Bank for Reconstruction and Development (“EBRD”) by the clients of defendant HARDER and the Chestnut Group, and to corruptly influence the foreign official to direct business to defendant HARDER and the Chestnut Group, and others.

The case is interesting to me for at least four reasons.  First, the European Bank for Reconstruction and Development is based in the United Kingdom, not a high-risk country for corruption issues.  Second, the case doesn’t involve third party sales agents, as so many FCPA cases tend to do in one way or another.  Instead, if the indictment is to be believed, here we have a company president’s single-minded determination to pay some bribes to win business, one way or the other.  Third, the case invokes the “public international organization” facet of the foreign official element to establish jurisdiction over the conduct at issue.  Doesn’t happen very often!

Also, Harder himself is surely the person who’s the least happy about this indictment.  But let’s pause for moment to remember his (surely former) lawyer.  Do you remember “Attorney” from In re Grand Jury Subpoena, 745 F.3d 681 (3d Cir. 2014)?  In that case we learn that before Harder allegedly made the payments in question, he met with Attorney to discuss his plan.  Attorney advised Harder not to make the payments, and Harder told Attorney he didn’t really care, he was going to make the payments anyway.  If Attorney had stopped there, we might not be talking about their conversations at all.  But soon, DOJ learned about the matter from the U.K. authorities and sent a subpoena for Attorney’s testimony, invoking the crime-fraud exception to the attorney-client privilege to obtain the content of Attorney’s discussions with Harder.  Suddenly Attorney wasn’t just advising Harder about a criminal matter, but participating in one.  As the Third Circuit put it:

In addition to the advice Attorney provided to Client that he should not make a payment, Attorney also provided information about the types of conduct that violate the law. We cannot say that the District Court abused its discretion in determining “that there is a reasonable basis to conclude that [Attorney’s] advice was used by [Intervenors] to fashion conduct in furtherance of [their] crime.” Specifically, Attorney’s questions about whether or not the Bank was a governmental entity and whether Banker was a government official would have informed Client that the governmental connection was key to violating the FCPA. . . . Of course, it is impossible to know what Client thought or how he processed the information gained from Attorney. But the District Court did not abuse its discretion in determining that Client “could easily have used [the advice] to shape the contours of conduct intended to escape the reaches of the law.”

I guess.  It’s hard for me to figure what Attorney should have done here.  Asking questions about the prospective payees’ identities hardly seems unreasonable in helping a client assess whether the payments might have been appropriate.  But watch out.  If a client comes to you and asks about prospective bribes, just know that too much information could allow that client to understand exactly what the law is.  That might sound like the goal of legal advice, but it could lead you to a grand jury room to explain everything you discussed.  Have fun with that.

Does SEC Enforcement Treat Bigger Companies Differently?

Posted in SEC Litigation

I’m stealing the title of this post from Broc Romanek, who asked this question on January 2nd.  He was responding to a study authored by Jonas Heese, an assistant professor at Harvard Business School, entitled Government Preferences and SEC Enforcement.  Here’s part of Heese’s abstract:

I examine whether political pressure by the government as a response to voters’ general interest in protecting employment is reflected in the enforcement actions by the SEC. Using labor intensity as a measure for a firm’s contribution to employment, I find that labor-intensive firms[1] are less likely to be subject to an SEC enforcement action. Next, I show that labor-intensive firms are less likely to face an SEC enforcement action in presidential election years if they are located in politically important states. I also find evidence of a lower likelihood of SEC enforcement for labor-intensive firms that are headquartered in districts of senior congressmen that serve on committees that oversee the SEC.

Broc doesn’t buy Heese’s study.  As he says, “If anything, higher profile companies would have bigger targets on their backs as the agency hopes to send messages to the market in general with its cases. And individual Staffers are hoping to make a name for themselves by catching big fish in the act…”

I have two thoughts about Heese’s claims.  As Vincent Vega once said, “That’s a bold statement.”   The facts are the facts, and if the SEC is less likely to beat up on labor-intensive firms, that tendency must be attributable to something.  But I am extremely skeptical that it is related to presidential election years or the locations of corporate headquarters relative to the districts of senior congressmen.  Believe me, Senators and Members of Congress who serve on the SEC’s oversight committees can be quite overbearing and can distract from the Enforcement Division’s mission.   But the vast majority of those distractions come in the form of low-value information requests that are tedious and hard to respond to.  As for outside pressure not to investigate a particular person or company, though, while the SEC’s record isn’t perfect, my experience was that the Commission was pretty insulated.

But . . . investigating cases and seeing them through to the end is hard.  And if the SEC is looking at a particular set of facts that requires the agency to rely on strained interpretations of the laws and regulations under its jurisdiction, it’s easier to bring those cases against defendants who are not as well funded and less likely to mount serious defenses.  If a large hedge fund and a smaller defendant are engaged in similar conduct the SEC finds questionable, that smaller defendant is a softer target.  I honestly hate to say it.  And I never write publicly about the matters in which I serve as defense counsel.  But I have seen – and am currently seeing – intense focus by the Enforcement Division in areas where the SEC’s authority is quite weak, but the costs of litigating are financially and emotionally prohibitive.  This is obviously a purely anecdotal “analysis”, but it’s not nothing either.  I suspect Heese is actually onto something with his facts but has latched onto simplistic causes that may not match up.


[1] I.e., companies with many employees relative to their capital.

Three More Thoughts about United States v. Newman

Posted in Insider Trading

In the wake of the Second Circuit’s huge remote tippee insider trading decision from two weeks ago in United States v. Newman, three more things occur to me.  To recap, the court held that to be liable for insider trading in a tipper/tippee context, (1) a tippee must know about the personal benefit received by the tipper for the information, and (2) while the personal benefit need not be immediately pecuniary, it must be “of some consequence” and mere friendship is not enough to qualify.  This is a big deal.  But here’s what I think:

First, the knowledge element could make things very difficult for the SEC and the Justice Department in remote tippee cases.  The defendants in Newman, for example, were far removed from the original sources of the information.  As the court put it:

[T]he Government presented absolutely no testimony or any other evidence that Newman and Chiasson knew that they were trading on information obtained from insiders, or that those insiders received any benefit in exchange for such disclosures, or even that Newman and Chiasson consciously avoided learning of these facts.

One of the things that enterprising inside traders might do as a result is to create some distance between the sources of material, nonpublic information and those who ultimately trade on that information.  A person or two in between could mean that the actual traders never know the personal benefit, if any, that accrues to the original tipper.  Structuring insider trading chains in this way could become part of the general business model.  I mean, this is what people do.  The court does seem to allow for liability, as it probably must, if defendants “consciously avoid[] learning of these facts.”  But one thing about conscious avoidance – it can be pretty hard to prove!  Not impossible, but hard.

Second, while most insider trading cases are brought within the Second Circuit, not all are.  This one from 2012, for example, was a remote tippee case filed in Charlotte, within the Fourth Circuit.  Which is just to say that if the Justice Department and SEC aren’t scared away by Newman, these issues could come up in another court of appeals and possibly cause a circuit split, allowing the Supreme Court to resolve them once and for all.  The Supreme Court could get to this point anyway, but as of this writing, the government hasn’t decided whether to appeal Newman directly.  Given Justice Scalia’s recent challenge to the SEC’s interpretive authority, that resolution might not be a happy one for the government.

Finally, the SEC has long resisted a statute that would spell out in plain terms what insider trading is and isn’t, preferring instead to rely largely on the general antifraud provisions and letting the courts fill in the gaps.  I wonder if Newman, especially if it’s affirmed by the Supreme Court, would spur the SEC to lobby for a legislative fix to this case.  Such an effort might not be successful.  But insider traders – at least when labeled that way – don’t exactly have a strong lobbying force.  It seems like it would be hard to sell the idea that hedge funds should be entitled by statute to trade on material, nonpublic information as long as they’re several steps removed from the source.  I get that there are nuances here.  I’m just not sure how it plays in the legislative process, which is messy and can obscure that nuance.

P.S.  I wrote most of this before I read this excellent piece by James Stewart about a possible insider trading statue.  It’s really good; you should read it.

Second Circuit Limits Insider Trading Law for Remote Tippees

Posted in Insider Trading, SEC Litigation

Matt Levine is a big jerk.  He just sits there at Bloomberg following events in finance and securities enforcement, and then writes interesting things about those events really quickly and with insight that no one else has thought of yet.  It’s so obnoxious.  Today he struck again with this piece about the Second Circuit’s huge insider trading case issued this morning, and if you want to stop reading this and go straight to that, it won’t be the worst decision you made today.  Anyway, like we said: big jerk.

But here’s what happened:  Today the U.S. Court of Appeals for the Second Circuit decided the case of two hedge fund managers convicted for insider trading in May 2013.  The two fund managers, Todd Newman and Anthony Chiasson, were prosecuted as part of U.S. Attorney Preet Bharara’s recent and extremely successful insider trading crackdown.  The government alleged that Newman and Chiasson got information from financial analysts and company insiders, including earnings information prior to company announcements. Specifically, Newman and Chiasson received early information on earnings for Dell and NVIDIA, which allowed them to make trades earning $4 million and $68 million, respectively.  But they weren’t exactly first in line to get the information.

In one representative trade in Dell shares, for example, the inside information allegedly originated with a Dell employee who tipped a bank analyst, who tipped an analyst at Newman’s hedge fund, who tipped Newman and another analyst, who then tipped Chiasson. Though Newman and Chiasson were three or four levels removed from the original insider, the government argued that they were sophisticated traders who should have known the information was disclosed as a result of insider trading.  This didn’t satisfy the Second Circuit. Newman and Chiasson had never heard of the insiders, and they certainly weren’t aware of any personal benefit to them.

And in a tipper/tippee case, there must be material nonpublic information leaked by the tipper in violation of a fiduciary duty, which results in the tipper receiving some personal benefit. Here, though, the court made clear that the tippee must be aware of that benefit. The tippee’s liability, as the Second Circuit notes, comes only from the tipper’s breach of a fiduciary duty. There is no liability simply for trading on material, non-public information.

Maybe more importantly, the court determined that there wasn’t any personal benefit in the first place.  This is important, as courts have typically construed “personal benefit” very broadly: it can be a bag of cash (pretty clear!) or the prospect of future business (not as clear, but good enough). This case really tightens up what a personal benefit to the original tipper can be. The bar has been set pretty low.  But the Second Circuit says the “warm glow that comes from helping a friend,” for example, probably isn’t an improper benefit.  The mere existence of a friendship, especially a casual one, doesn’t show that there was a personal benefit. The Court emphasizes the quid pro quo aspect inherent in a personal benefit, noting that the benefit “must be of some consequence.”  It also helps if the benefit is immediate.  Here, one of the analysts received “career advice” – that wasn’t enough to qualify.  That’s a big deal! The SEC and the Justice Department have been living off that loose definition for years, and now they can’t.  Even though this is a criminal case, we don’t see how the SEC’s enforcement program escapes this decision.  It will be interesting to see how it tries.

Caution: Aggressive Interpretation of Broker-Dealer Registration Provisions Could Be Hazardous to Your Liberty

Posted in Broker-Dealers, Non-scienter-based Violations

Let’s do some compare and contrast, starting with a fairly unremarkable case the SEC filed in the Northern District of Texas on November 20th.  In that action, the Commission sued the father-son duo of Paul and Jeffrey Downey in a securities offering fraud involving an oil and gas company.   In its litigation release the SEC says that in 2010-11, the Downeys:

used Quest, an Albany, Texas-based oil and gas company, to fraudulently offer Quest preferred stock and limited partnership units in an entity called Permian Advanced Oil working interests in oil and gas leases from Quest and receive revenue from those leases. With assistance from unregistered salesman John Leonard, the Downeys raised $4.8 million from approximately 17 investors. The PAOR offering was fraudulent on account of blatantly deceptive misstatements about Quest and PAOR.

As you might have expected, the SEC charged the Downeys with violations of the antifraud provisions.  It also charged Leonard with violating Section 15(a) of the Exchange Act, because he was allegedly acting as a securities broker without being registered as such.   Leonard wasn’t charged with fraud.  All told, a pretty ordinary matter.

Now let’s turn to the November 2014 newsletter from the North Carolina Securities Division, in particular the 5-Minute Challenge Section on page 6.  In that section, the newsletter challenges investors to spend five minutes calling the Securities Division to see if their brokers are properly registered.  After all, if they’re selling securities, they have to be registered to do that.  And one thing the Securities Division knows is, selling securities without being registered is a sure sign of no good.  They make this remarkable statement in exactly this way: “While registration in and of itself is no guarantee against fraud, we can say with 100% certainty that any NOT registered who is supposed to be is definitely committing fraud.”  That is to say that absent other facts suggesting fraudulent activity, a person selling securities without being registered under North Carolina law (specifically, N.C. Gen. Stat. § 78A-36) is presumed to be defrauding his customers.

Apparently, the idea is that the material omission in explaining unregistered status is the fraud on investors.  Also, remember that the N.C. Securities Division has criminal authority, not just civil enforcement power.  So under their interpretation, a broker whose registration has lapsed for whatever reason and continues work is committing fraud and risks going to prison.  They “can say that with 100% certainty.”

As far as I know, this notion has never been tried out in courts.  There certainly aren’t reported cases testing the idea.  I also don’t think the SEC has ever taken this position.  I’d be very interested to learn if readers are aware of other state authorities that have.

Pulling Mark Filip from UVA Rape Investigation Makes “Independence” a Silly Talisman

Posted in Investigations

I really don’t mean to be a mouthpiece for Kirkland & Ellis white collar lawyers.  But they’ve been in the news in recent days, this time in connection with this horrific story about widespread sexual assaults at the University of Virginia.  It describes a 2012 gang rape of a first-year student at the Phi Kappa Psi house, and the culture of acceptance and evidence suppression that has allegedly allowed many similar incidents to happen at UVA over decades.  It is hard to read, but if you have children or are at all interested in higher education, you should.

UVA is in a bit of a jam now, because as Dean Nicole Eramo says in the article, “Nobody wants to send their daughter to the rape school.”  To examine how it could improve its response to sexual assault allegations, the university hired Kirkland’s Mark Filip, a former federal judge, prosecutor, and Deputy Attorney General.  I don’t have firsthand knowledge of his work, but I suspect he would have been an excellent choice here.  But his appointment didn’t last long.

Instead, Filip is being pulled from the investigation because he was a Phi Kappa Psi member when he was an undergrad at the University of Illinois.  Virginia Attorney General Mark Herring said, “This situation is too serious to allow anything to undermine the confidence in the objectiveness and independence of this review.”  I guess I understand the inclination here.  It’s one of the preeminent public universities and a symbol of the state itself, and the Rolling Stone piece makes it look like a long-time enabler of the worst kinds of rapists imaginable.  Better to have the internal investigation be as untainted as possible.

But does anyone really think Filip’s time as a Phi Kappa Psi member over 25 years ago at a different school would color his approach to this investigation?  These aren’t pranks we’re talking about.  If the allegations are true, it is just about the worst criminal behavior – and coverup – you could have.  Also, the investigation will go far beyond Phi Kappa Psi.  Will former membership in a fraternity disqualify anyone from leading this investigation?  Steptoe’s Phil Khinda says, “Independence is a proxy for intellectual integrity.”  And that integrity is what you want; independence is only a means of getting at that.  I seriously doubt Filip’s intellectual integrity is compromised here.  The university will surely find someone qualified to lead the investigation, but the line drawn in cutting him out is silly.

Michael Garcia Now Just Taunting FIFA

Posted in Investigations

And I say that in the most complimentary way.  If you haven’t been following this story, here’s a quick recap:  FIFA awarded the 2018 and 2022 World Cups to Russia and Qatar, respectively.  This raised eyebrows, as they say.  Didn’t we just endure a crazily expensive and possibly corrupt Winter Olympics in Sochi?  And what is the average high temperature in a Qatar summer, when the World Cup is normally played?  Oh, 106°?  Athletes will play soccer matches for up to 120 minutes in that?  At some point people wondered if maybe these decisions weren’t made on the merits and instead owed something to corrupt payments made to FIFA officials.

So FIFA hired Michael Garcia, a former U.S. Attorney for the Southern District of New York, to conduct an internal investigation and get to the bottom of the situation.  Paragon of integrity!  How could anyone doubt the results if Garcia gave FIFA a clean bill of health?  So over 18 months, Garcia conducted that investigation.  Earlier this year, he wrapped things up and delivered his report to FIFA executives.  Apparently, his deal with the much-maligned soccer organization was that his report would be made public.  It wasn’t.  So Garcia waited.  And waited.  He agitated for its release.  And finally it (or the happy version of it) was released, with FIFA declaring itself corruption-free and the World Cup bidding process legitimate.  Maybe it wasn’t a big deal that laptops Russia used during its bid were destroyed and not made available to investigators.  Garcia wasn’t having it.  He denounced FIFA’s secrecy after he’d completed his work.  And last week he lodged an appeal of FIFA’s official report, publicly proclaiming it to be incomplete and inconsistent with what he learned over 18 months.  And now that FIFA has concluded its own investigation, the FBI is reportedly ramping up its own.

A primary feature of any legitimate internal investigation is the investigator’s independence from the subject.  Garcia is exhibiting a fairly extreme version of that independence here.  It’s not often that a white shoe investigator makes an exit this noisy.  As Tom Fox notes, “If your outside counsel disavows him or herself from the company’s interpretation of [an internal investigation], you are in big trouble.”  FIFA might have hoped that it would be able to contain the damage by hiring him to bless some version of the facts that was just vague enough for everyone to keep his job.  Instead, an actual criminal investigation is on its way.  In addition to being the right thing to do, Garcia is only helping his reputation as an independent investigator here.  Corporations that want to learn own up to actual facts and move past a crisis can hire him without much concern that he’ll deliver a whitewash.  Of course, it might not be much fun exposing the actual truth either.  So, you know, pick your poison.

Update (Dec. 17, 2014): Garcia has resigned in protest over the handling of his investigation’s findings.  In doing so, Garcia wrote a letter revealing, among other things, that the FIFA executive committee led by President Sepp Blatter tried to have disciplinary proceedings opened against Garcia in September for “allegedly violating the Code of Ethics through [his] public comments.”  It’s hard to believe but apparently true.