- - Wednesday, November 11, 2015

Here’s a quiz: Which of the following is a federal crime: (a) A hamster dealer needlessly tilting a hamster’s cage while in transit; (b) subliminally advertising wine; or (c) selling a fresh steak with paprika on it?

Give up? The answer: all of the above.

Right now, there are approximately 4,500 federal criminal statutes and 300,000 administrative regulations that can be punished with imprisonment — and the list keeps growing. This is an invitation for our government to over-prosecute. Too often, federal prosecutors are accepting that invitation and rejecting more measured and effective administrative and civil remedies.

Indeed, the Department of Justice recently announced new guidelines that will allow it to more aggressively prosecute individual executives.

The trend toward punishing honest businessmen for trying to maximize shareholder value is alarming. Two recent cases in the federal appellate courts demonstrate how just how serious this problem is.

In a case that was recently argued before a federal appeals court, executives at WellCare, a managed health care company in Florida, were prosecuted based on their reasonable interpretation of a Florida statute. Federal prosecutors, however, disagreed with the company’s interpretation, even though Florida never issued any regulations contradicting the executives’ reading of the law.

The legal framework WellCare operated in was complex. In a nutshell, Florida’s Medicaid program required managed care companies to report expenses they paid for providing behavioral health care — like mental health services. If the company did not spend at least 80 percent of the premiums they received, they had to return some of the premium dollars to the state. The executives at WellCare read Florida’s requirements as allowing them to classify as expenses the money that WellCare paid to its subsidiary that actually provided all the services.

Florida never clarified the law to say whether this was allowed or not, so WellCare did what businesses do — it consulted a lawyer. And WellCare’s lawyers — both in-house and independent outside counsel — said that the way they were reading the law was reasonable. Other companies providing these services under Florida’s Medicaid program read the law in a similar way. Admittedly, WellCare’s interpretation made the company more money, but, of course, making money is what a corporation ought to do.

Federal prosecutors disagreed and brought criminal charges against its executives. The prosecutors argued that WellCare lied when it sent in expense forms reflecting its reading of the law. At trial, even the government’s witnesses agreed that WellCare’s interpretation of the law made sense. And because this complicated question of how to read a technical Florida health care law was improperly left to the jury instead of the judge, the executives were convicted after a month of stalled deliberations. The company’s reasonable interpretation of a complex law — which was vetted by lawyers — was no sanctuary from a conviction for the company’s executives.

The executives were sentenced to prison up to three years. Yet another company that used the same accounting method was only sued for breach of contract and didn’t even have to pay back any money to Florida.

A federal appeals court has a chance to correct this and uphold a firmly established principle of criminal law: Where a citizen reasonably interprets complex regulatory law, a judge — not a jury — should throw out the case.

The WellCare case isn’t isolated. In another case currently before a different federal appeals court, 81-year old Jack DeCoster and his son Peter who owned and ran an egg company in Iowa were sent to prison when some salmonella-contaminated eggs were shipped out by the company.

These executives didn’t work on the plant floor. They didn’t handle the eggs. Indeed, no one at the plant knew that these contaminated eggs were being shipped out — or that the eggs were contaminated in the first place.

But for some “strict liability” regulatory violations, the government can convict someone of a crime without having to show that they knew they were doing something criminal. And in some cases, executives can be prosecuted when the offense committed by low-level workers happened under their management authority under what’s called the “responsible corporate officer doctrine.”

These rules — that the DeCosters didn’t need to have done anything wrong and that no one at the company had to know a regulation wasn’t being followed — stacked in a uniquely troubling way. The DeCosters were convicted of a crime that didn’t require that they did anything — they weren’t the ones at the facility who knew about the bad eggs — and it didn’t require that they knew what was happening was a problem. Instead, they were convicted solely because they had a job as an executive at a company.

And, what’s worse, they were sentenced to prison time because of it.

These two important cases — and many others — illustrate the scourge of overcriminalization. The Department of Justice’s new focus on scapegoating individual men and women in executive positions means that this problem will continue to get worse.

Executives shouldn’t be criminally punished for innocent mistakes or interpreting vague laws to their economic advantage. And when there’s a questionable call, the department should err in the side of walking away, or using civil or administrative remedies. Unfortunately, there is no reason to think that restraint will be exercised.

The federal government criminally prosecutes too broad a swath of normal business activity. That needs to stop. If Congress or the Justice Department won’t do it, then the judiciary should.

Matt Kaiser is a white-collar criminal defense attorney at Kaiser, LeGrand & Dillon PLLC in Washington, D.C. He is the author of an amicus brief urging reversal in each of the two cases discussed in this piece, United States v. Clay and United States v. DeCoster.

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