Taking Stock Of Corporate Scandals

Hundreds of high-ranking company officials have been convicted in corporate fraud schemes since 2002, the Justice Department said Tuesday — a day after a federal judge threw out charges in one of the largest criminal tax cases in U.S. history.

Attorney General Alberto Gonzales called the U.S. District Court ruling, in favor of 13 former KPMG employees, disappointing and said he was "quite confident" the government would appeal.

"Obviously, we're disappointed, and we won't be discouraged or deterred from pursuing wrongdoing where we think it exists and following the evidence where it takes us," Gonzales told reporters following the long-planned Justice Department announcement regarding its efforts to curb corporate fraud. "So we're disappointed but we're going to stay focused on this very important issue."

In all, federal prosecutors have won 1,236 convictions in corporate fraud cases and reaped hundreds of millions in payback for victims over the last five years, said Deputy Attorney General Paul McNulty.

At least one-third of the convictions came against company CEOs, presidents, counsel and other high-ranking officials, said McNulty, who chaired a government task force aimed at curbing corporate corruption in the aftermath of the Enron scandal that wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in employee pension plans.

McNulty, who is leaving the Justice Department by summer's end, last year authored changes to rules for prosecutors in corporate fraud cases. The result, known as the "McNulty Memo," bars prosecutors from charging businesses solely for refusing to hand over corporate attorney-client communications. It also prohibits the government from penalizing firms that pay attorneys' fees for employees — except in rare cases where the payments result in blocking the investigation.

Critics say that leaves open the possibility of firms that pay attorneys fees being publicly viewed as hindering investigations — a death knell in an ethics-sensitive business era. Last week, Rep. Bobby Scott, D-Va., introduced legislation to bar prosecutors from pressuring corporations against paying legal fees or demanding attorney-client information. The bill is similar to one filed last year by Sen. Arlen Specter, R-Pa.

In the KPMG case Monday, U.S. District Judge Lewis A. Kaplan in New York said the government coerced the giant tax firm to limit and then cut off its payment of the employees' legal fees — stripping the 13 defendants' constitutional right to legal representation. The former KPMG employees were accused of participating in a fraud that helped the wealthy escape $2.5 billion in taxes.

The case was not mentioned during Tuesday's hour-long ceremony, which doubled as a public send-off for McNulty. The memo, McNulty said, should encourage firms "to engage in more robust self-assessment of their internal controls."