Today, a familiar pattern plays out over and over in corporate prosecutions. A U.S. Attorney’s Office begins an investigation and quickly finds its scope will overwhelm their logistical capacity. For example, it may be a Foreign Corrupt Practices case that spans six countries and three continents, has thousands of documents, millions of emails, and at least 50 persons (speaking eight languages) who need to be questioned at length. The U.S. Attorney can assign three AUSAs to this case and hopefully find some FBI agents and maybe an SEC staffer or two to work on it. That is a mismatch.

As a result, almost inevitably in the case of larger corporations with decentralized structures, the U.S. Attorney will agree to the defendant hiring an independent law firm to conduct a detailed investigation and prepare a lengthy and costly report (which can cost up to a $100 million). The implicit deal is that the prosecutors will approve a deferred prosecution agreement that spares the company a criminal conviction (and thus the risk of collateral civil liability in follow-on actions). As a result, much of the investigatory work traditionally conducted by prosecutors has now been outsourced—delegated to private counsel hired by the defendants. Critics have claimed that this de facto system reflects political cowardice or agency capture of the enforcers. They may be sometimes correct, but the bigger problem is logistics. In the Lehman investigation, where the company was bankrupt and could not pay for an expensive investigation, neither the SEC nor the U.S. Attorney did much of anything. The final Lehman CFO was not even interviewed. Eventually, the bankruptcy court retained Jenner & Block to serve as an examiner, and it diligently prepared a thorough report, which took 130 of its attorneys, 14 months, and resulted in a $53.5 million fee to that firm. Even if one suspects that that fee was slightly padded (as bankruptcy examiner fees tend to be), that is several orders of magnitude above what a federal agency can afford.

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