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It’s the Cover-up, Once Again

by Larry Bumgardner

“It’s the cover-up, not the crime.”

You’ve probably heard that adage hundreds of times. The phrase dates back at least to Watergate days of the 1970s. After the 1972 break-in at the Democratic National Committee offices at the Watergate complex in Washington, investigative reporters started looking for ties to the Nixon White House.

Most political observers believed that some early, contrite admission of mistakes by President Nixon would have saved his job. But Nixon chose the cover-up route instead and ultimately became the only U.S. President to resign (with the prospect of impeachment hanging over his head).

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You might have heard the saying again a few days ago, when I. Lewis “Scooter” Libby, the former chief of staff to Vice President Dick Cheney, was sentenced to 30 months in prison. Libby was convicted of obstruction of justice and perjury for deceiving a grand jury that was investigating the leak of a CIA official’s name. A federal court jury also found Libby guilty of making false statements to FBI agents in an interview before his grand jury testimony.

Libby was never charged with leaking the name of Valerie Plame, the CIA operative. In fact, no one was charged with that potential crime. Regardless of what you think about the decision to prosecute Libby, it was the cover-up — not any underlying crime — that likely will send Libby to prison. (Libby is still appealing his conviction.)

But you shouldn’t conclude that only politicians fall into this dangerous trap. A number of business officials, both prominent and lesser known, have made the same costly mistake.

Ask people what Martha Stewart went to prison for and many will say it was for insider trading. Wrong! She was never charged criminally with insider trading. Rather, she was convicted and served time in federal prison for obstruction of justice and making false statements to government investigators who were examining the circumstances of her sale of ImClone stock.

Another obstruction of justice case in the corporate world — but one that drew far less attention than Stewart’s — involved executives at Computer Associates, a New York software firm (since renamed CA Inc.). The company’s former CEO, Sanjay Kumar, pleaded guilty not only to securities fraud, but also to obstruction of justice.

Notably, the obstruction of justice charge was based on false statements that the CEO had made to his own company’s lawyers. The government’s theory was that Kumar, along with several other company officials who also pleaded guilty to obstruction of justice, intended for the company’s lawyers to pass that false information on to the government. It was part of what a U.S. attorney described as a “massive cover-up.”

Kumar’s 12-year prison sentence shows that one can, in fact, be punished for both the cover-up and the crime — obstruction of justice and securities fraud. Perhaps more importantly, the Computer Associates case vividly illustrates prosecutors’ broad view of the types of conduct that might count as obstruction of justice — including misleading your own company’s lawyers.

Congress apparently concurs on the need for a broad obstruction of justice crime. In fact, one of several important criminal law provisions in the Sarbanes-Oxley Act of 2002 established an even broader definition of obstruction of justice under federal law.

The senator who sponsored that portion of the law explained that it was an attempt to “clarify and plug holes” in older laws relating to destruction of evidence. For example, Sarbanes-Oxley says that altering evidence merely in “contemplation of” a federal government investigation — before you know with certainty that there will be an investigation — might indeed qualify as obstruction of justice (if other required elements are also met). The maximum sentence for that crime is 20 years.

Obstruction of justice is a very broad term that business people need to take seriously. It could include false statements made to government investigators or to your own company’s lawyers. It might even cover seemingly innocent decisions about what to do with pertinent records.

We would all hope that good sense and strong ethics would encourage business people to tell the truth, and not to cover up their mistakes. But even if that isn’t the case, you shouldn’t forget the criminal consequences of a very broad obstruction of justice crime. Because ironically, it may be difficult to cover up the cover-up.

Larry Bumgardner is an associate professor of business law at Pepperdine University’s Graziadio School of Business and Management in Los Angeles and an academic adviser to California Employment Law Letter .