Justice goes after the little fish in the big pond. Photographer: Ty Wright/Bloomberg

We're Using Enron Laws To Prosecute a Fisherman?

Jonathan Weil joined Bloomberg News as a columnist in 2007, and his columns on finance and accounting won Best in the Business awards from the Society of American Business Editors and Writers in 2009 and 2010.
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There is a delightfularticle about a fishy case before the U.S. Supreme Court that deserves a broader audience than it probably got yesterday on the Law Professor Blogs Network. Here's the opening paragraph by Ellen Podgor, a professor at Stetson University College of Law in Gulfport, Florida, who teaches in the area of white-collar crime:

18 U.S.C. § 1519, known as the "anti-shredding provision" of the Sarbanes-Oxley Act of 2002, makes it a crime for anyone who "knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object" with the intent to impede or obstruct an investigation (emphasis added). Congress passed this statute in the aftermath of the Enron debacle. But did they ever envision that a prosecutor would use this statute against a commercial fisherman for allegedly having undersized grouper fish that were thrown overboard following the issuing of a civil fishing citation from the Florida Fish and Wildlife Commission?

Even though a fish is a tangible object, the obvious answer is probably not. The Justice Department, which prosecuted the case, says that shouldn't matter -- regardless of whether Congress envisioned that a law targeting Arthur Andersen-style document destruction would ever be used to prosecute a fisherman for disposing of a few fish.

The fisherman, John Yates, was convicted in 2011 by a federal jury in Fort Myers, Florida, and received a 30-day jail sentence. "It's a wonderful case for the Court to examine principles of statutory interpretation and how far afield the government can go in using a statute written and intended to stop one form of criminal conduct but being used in an unintended manner," Podgor writes, adding that the case "also provides the Court the chance to step to the plate and express a view on overcriminalization."

Here's another question I have, which isn't before the court: Why hasn't the government made greater use of the Sarbanes-Oxley Act to prosecute corporate fraud? One of the most promising aspects of the legislation had been the requirement that top executives certify that their companies' financial reports contain no untrue statements and that all major problems with their internal controls have been disclosed. However, prosecutions for false certifications have been few and far between. Likewise, the act's so-called clawback provisions -- aimed at forcing executives to return some of their past compensation if they get caught overstating earnings -- have been seldom used.

The act also was supposed to help clean up corporate accounting practices. After the 2008 financial crisis, of course, no top Wall Street executives went to jail, even at large financial institutions that collapsedwhile sporting balance sheets that made them seem healthy.

Unfortunately for the fisherman in the pending Supreme Court case, it's much easier for the government to net guppies for small-fry offenses than it is to catch big fish for major frauds. Two-tiered justice has been served.

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To contact the author on this story:
Jonathan Weil at jweil16@bloomberg.net

To contact the editor on this story:
Paula Dwyer at pdwyer11@bloomberg.net