Dear Judge Cooke,
Please reject the settlement in US v. Alcatel-Lucent, case no. 10-CR-20907. Alcatel has entered into a deferred prosecution agreement with the government requiring it to pay $92 million (all but $1.5 million to be paid by the parent company). The parent company pays the most, over $90 million, but receives a deferred prosecution agreement based on books-and-records and internal control charges. The subsidiaries are pleading guilty to substantive FCPA violations. There will be a corporate monitor for three years, and the company will consent to the entry of a permanent injunction against further violations as requested of the Court by the SEC. Disgorgement and prejudgment interest of $45.4 million has been paid.
This resolution is fundamentally unfair, and the Court should reject it.
Recently, the Instituto Costarricense de Electricidad objected to the settlement claiming victim status. The government and—in a display of what can only be called chutzpah—Alcatel itself objected to ICE’s petition. I don’t know whether ICE is entitled to victim status, and what, if any, effect that would have on the outcome. The reason I ask that you reject the settlement has more to do with Alcatel’s apparent ongoing conduct. According to ICE’s Petition, an attorney representing Alcatel appeared in court in Costa Rica this February and denied Alcatel’s responsibility for the bribery scheme, shifting the blame onto two individuals, the senior Alcatel official in Costa Rica, and the government’s cooperating witness, also an Alcatel employee. This blame shifting took place less than three weeks after the DPA was signed.
Alcatel’s response to ICE’s petition, filed last week, essentially admitted that they did it. Arguments in the alternative are wonderful constructs for analyzing legal intricacies, but not for accepting responsibility. Alcatel argues first that it didn’t shift blame, as evidenced by its civil settlement in Costa Rica. But if it did shift blame, it wasn’t really shifting blame because Costa Rica doesn’t have corporate liability, but instead has joint liabilty with employees, so saying the employees did it is saying the corporation did.
Let me first point out the obvious: Alcatel never claims the simplest defense to ICE’s allegations, “he never said that.” That failure tells us that Alcatel’s lawyer did go into a Costa Rican court and say that it wasn’t the corporation’s fault, it was the two employees’ fault. Alcatel wants us to believe that “any statement made by [Alcatel’s lawyer] has to be understood in the context of Costa Rican law, which does not recognize corporate liability.” Hogwash. The context is simple: settlements with US agencies like the SEC and the DOJ often, if not always, come with a prohibition on denying the facts alleged by the government. The merits of “neither admit nor deny” settlements notwithstanding (see, e.g., SEC v. Vitesse Semiconductor for Judge Rakoff’s opinions), this prohibition has good reasons behind it. Our system of justice cannot allow companies to resolve cases with the right hand while the left hand is saying “it wasn’t me.” Back in Bronx Criminal Court, we used to call that the SODDI defense: some other dude did it. There is a basic denial of responsibility inherent in making that statement that is in complete conflict with a “neither admit nor deny” settlement. That inconsistency is unresolvable, and the Court should reject the underlying settlement because of it.
At the very least, this Court should hold a hearing to determine (i) what Alcatel said and (ii) what the rightful consequence of those statements should be.
It strikes me, as a disinterested observer—full disclosure: I know and admire one of Alcatel’s in-house counsel who deals with FCPA matters, Barbra Levy, who is really, really smart—that at the very least, as a remedial measure, Alcatel should be required to formally accept responsibility for its scheme in the US matter. Alcatel is already reaping the benefit of a structured settlement designed to avoid debarment. It is common for large government contractors, when settling FCPA charges, to have (as happened here) their foreign subsidiaries plea to substantive bribery charges while the US parent pleads to a books-and-records or internal controls charge. This is so no debarment requirements come into play, as would happen if a US company pled to a bribery charge. Having been given this tremendous benefit during plea negotiations, one would think Alcatel would be extra careful to abide by the final agreements. One can only think that Alcatel believed no one would find out what happened in Costa Rica. Thanks to ICE, we did. This Court did. To ignore it now would result in manifust injustice.
Love & kisses,
[Disclaimer: to avoid confusion, please no one print this out or cite it as a filing (or anything other than opinion commentary) to Judge Cooke. This is commentary in the form of an “open letter.” If I want to actually petition the Court, I’ll file a request to do so. I know how, having practiced in that district when I was on staff at the SEC. I’m not going to, however, because, as I said, this is opinion commentary.]