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5 Rules for Protecting Yourself in a White-Collar Criminal Investigation

3. Be wary of discretionary accounting.

Another risk factor is the degree to which your profitability depends on accounting. If you live by the sword of accounting, you may die by it.

If there is a lot of discretion involved in how your company accounts for revenue, there will be a tendency for prosecutors later to say that management either pressured or deceived the accountants into: (1) mark-to-market accounting (as with Enron); (2) ignoring non-cash book entry expenses (as in the stock option backdating prosecutions); or (3) devising percentage completion accounting (as with the revenue recognition software cases), so as to mislead the public as to how well they were doing.

Anything that smells like a clever accounting maneuver will later, in the harsh light of a business failure, look like fraud. While most non-accountants (and even some accountants) think that accounting is boring, esoteric and elevates form over substance, accounting fraud is a staple of the white-collar world, and, more often than not, it is non-accountants who find themselves being accused of accounting fraud.

Bottom line: Don't assume that just because you are not responsible for accounting, you can't be charged with accounting fraud. If accounting decisions are important to the success of your business, make sure you get clear guidance from the experts on what information needs to be disclosed to the accountants and auditors.

4. If something doesn't feel right, it probably isn't.

Many white-collar criminal defendants can pinpoint a definitive moment in the past where they thought something was amiss in their business dealings, and they wanted to speak up, but for one reason or another, decided to stay quiet. Inaction can lead to trouble just as easily as enthusiastic misconduct. Prosecutors do not limit their ire to the architect of a crime; rather, they look to ensnare everyone who was complicit.

White-collar statutes generally do not recognize the concept of "relative responsibility." In most cases the least culpable member of a criminal conspiracy is punished just as harshly as the most culpable. Corporate executives are assumed to know everything that is going on at their company, and it is difficult to argue that you didn't have enough information to know that something was a fraud.

Bottom line: If something feels shady or seems too good to be true, it almost certainly is. Trust your instincts and affirmatively remove yourself from the situation.

5. The attempted cover-up is usually worse than the crime.

Think of Martha Stewart or Barry Bonds, who were convicted not for the crimes that initially led investigators to their doorsteps, but for their attempts to cover up their actions.

A failed cover-up attempt often becomes the focus of the prosecution because it is easier to prove than the crime, and because the government can use the cover-up as a proxy for criminal intent. Prosecutors will argue that the defendant knew what he or she did was wrong because they tried to cover it up by lying about their actions, deleting emails, contacting people to line up their stories, etc. These are things ordinary people can understand as indicative of a guilty conscience, which often becomes the default mental state for all the conduct that preceded it.

Keep in mind that in most white-collar cases, the primary defense is, "I never thought I was doing anything wrong at the time." But that defense gets seriously compromised if the first step taken after being alerted to a potential criminal investigation is to lie about your actions, or try to rewrite history.

If you become involved in a criminal investigation, do not try to finagle your way out of it. It's best to hire a lawyer and say nothing, even if it means taking a minor public relations hit. The problem with trying to "clear your name" at the inception of the investigation is that you don't know what evidence the prosecutors have, and it is easy to make statements that you think are harmless but come back to haunt you during the investigation.

Bottom line: One of the best ways to avoid becoming a white-collar criminal is to listen to your criminal defense lawyer, who will tell you not to talk to anybody other than him or her.

--Written by Eric MacMichael, partner at Keker & Van Nest.

Eric MacMichael has extensive experience handling white-collar criminal matters and complex civil litigation. He has represented numerous individuals and companies under investigation or indictment by the Department of Justice in such areas as securities fraud, insider trading, banking-related crimes, tax evasion, accounting and revenue recognition fraud, antitrust (including bid rigging), computer crimes, mail and wire fraud. MacMichael has also represented individuals and businesses in civil cases involving breach of contract, securities fraud, breach of fiduciary duty, and professional negligence claims. He litigates matters throughout the United States and has tried cases to verdict in many state and federal courts, and before arbitration panels. He was recently awarded the 2012 California Lawyer magazine Attorney of the Year award for achievements in pro bono work for overturning the unjust conviction of Caramad Conley, a man imprisoned for over 18 years for a crime he did not commit.
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