Have you heard the old joke about the difference between God and a federal court judge? The punchline is that God doesn’t think he’s a judge – implying, of course, that federal judges have a perhaps inflated perception of their omnipotence.
The Justice Department is doing its best to prick that bubble, at least when it comes to judicial oversight for its deals with corporate defendants. None of the government’s megabillion-dollar settlements with banks for their alleged mortgage securitization crimes, for instance, has been subject to review by a federal judge, since all of the deals have been struck before Justice actually filed cases. (Better Markets has been sounding an alarm on these settlements since February, when it sued Justice over JPMorgan Chase’s $13 billion deal.) Formal non-prosecution agreements, which also permit Justice and corporate defendants to sidestep federal judges, have been on the rise for more than a decade. Gibson, Dunn & Crutcher‘s midyear corporate crime report, issued in July, said Justice has struck five non-prosecution agreements – including one settlement, with SunTrust Mortgage, that introduced a whole new category of non-prosecution deals, the “restitution and remediation agreement” – so far in 2014. (Sue Reisinger at Corporate Counsel had a good piece Friday on this latest avenue of evasion for corporate defendants.)
Deferred prosecution agreements, which the Justice Department has deployed more frequently than non-prosecution agreements, do involve judicial oversight, thanks to the Speedy Trial Act of 1974. The act, which requires the federal government to try criminal defendants expeditiously, entails judicial approval for agreements that toll time limits. Historically, such deals involved individual defendants, and judges reviewed them to be sure that prosecutors and defendants weren’t colluding to delay trials.
But in a few recent corporate cases involving deferred prosecution agreements – most notably, a 2013 deal to resolve the Justice Department’s money-laundering allegations against HSBC – federal judges have expanded their traditional scope of review under the Speedy Trial Act. In the HSBC case, U.S. District Judge John Gleeson of Brooklyn said there’s “barren” precedent to guide judges reviewing deferred prosecution deals, but he concluded that the court’s supervisory power granted him authority to determine the adequacy of the entire agreement, not just to decide whether it’s a trial-delaying tactic. (Judge Gleeson ended up approving the agreement but requiring HSBC and Justice to present him with quarterly reports on the bank’s compliance.)
In another 2013 deferred prosecution case, U.S. District Judge Terrence Boyle of Raleigh, North Carolina, held two hearings on the government’s deal to resolve Medicare fraud allegations against the healthcare provider WakeMed, weighing the equities of the agreement before he decided to approve it.