DOJ Rolls Out Pilot Program for Voluntary Disclosures
On April 15, 2024, the U.S. Department of Justice’s (DOJ) Criminal Division unveiled its Pilot Program on Voluntary Self-Disclosures for Individuals. Under this Pilot Program, the Criminal Division may offer non-prosecution agreements (NPAs) to individuals who voluntarily disclose original information about certain types of criminal conduct to the DOJ. In addition to providing a clear framework that encourages employees to speak up about wrongdoing and incentivizes companies to shore up their compliance protocols, the program may have a positive impact on securities litigation.
The Pilot Program is meant to aid the DOJ in its fight against corporate malfeasance by incentivizing financial institutions and corporations to enhance their compliance efforts, while simultaneously increasing pressure on their employees to self-disclose certain forms of misconduct.
To be eligible for an NPA under the Pilot Program:
1. The disclosure must be made to the DOJ’s Criminal Division;
2. The reporting individual must disclose original information about certain types of misconduct;
3. The disclosure must be voluntary;
4. The disclosure must be truthful and complete;
5. The reporting individual must agree to fully cooperate with and be willing and able to provide substantial assistance to the DOJ;
6. The reporting individual must agree to forfeit or disgorge any profit from the criminal wrongdoing and pay restitution or victim compensation; and
7. The reporting individual must not meet certain disqualifying criteria.
What is “original” information?
Original information is non-public information that was not previously known to the Criminal Division or to any other component of the DOJ. Accordingly, the Pilot Program is focused on uncovering new criminal activity, rather than supplementing ongoing investigations with new information. Because the information must be original, only the first person to bring the wrongdoing to the DOJ’s attention will be eligible for the NPA, and only while the wrongdoing remains unknown to the public.
What types of criminal activity must the information relate to?
Essentially, the disclosed information must relate to white-collar crimes, such as schemes involving money-laundering, fraud, bribery, corruption, or kickbacks. The crimes must be committed by organizations (or their insiders or agents) whose conduct is important to maintaining the integrity of the financial and securities markets, such as banks, large public or private companies, or investment funds and advisors.
What is a “voluntary” disclosure?
A voluntary disclosure is made without any prompting by the DOJ or other federal law enforcement or regulatory bodies, without the risk of imminent disclosure to the public or government, and in the absence of an ongoing investigation. As such, the voluntary disclosure requirement supports the Pilot Program’s goal of seeking out only previously unknown information, with the aim of rooting out wrongdoing that would not otherwise have come to the DOJ’s attention.
What is a “truthful and complete” disclosure?
A truthful and complete disclosure includes all known information related to the misconduct, including the full extent of one’s own involvement in the wrongdoing and any other matters about which the DOJ may inquire. In practical terms, once you report information to the DOJ, you must disclose everything you know about the wrongdoing in question; partial tips go unrewarded.
What does it mean to “fully cooperate” with and provide “substantial assistance” to the DOJ?
Fundamentally, a reporting individual must be willing to become an evidence-producing vehicle for the DOJ. The reporting individual must be willing to help the DOJ gather evidence (potenitally even wearing a wire to work), provide truthful and complete testimony during interviews or in court, and produce documents, records, and other evidence.
Who is disqualified from the Pilot Program?
Individuals occupying certain roles or who have committed certain crimes are disqualified from participating in the Pilot Program. Some of these individuals are obvious, such as a scheme’s organizer or leader. Others appear to be disqualified to achieve a purpose-driven result. For example, elected or appointed foreign government officials, as well as domestic government officials at any level, are ineligible for an NPA. In this way, the Pilot Program excludes individuals who are often targeted by corporate wrongdoers to facilitate white-collar crimes: a city official overseeing the bidding process for a lucrative government contract; a regulator responsible for green-lighting a new facility or product; or an administrative functionary issuing business permits to foreign companies. By preventing these individuals from availing themselves of the Pilot Program, the DOJ deters them from engaging in the crimes that the Pilot Program is focused on, such as fraud, bribery, and corruption.
Other examples of individuals disqualified from the Pilot Program include an offending corporation’s Chief Executive Officer or Chief Financial Officer (or those occupying an equivalent role); anyone with a previous felony conviction or a conviction of any kind for conduct involving fraud or dishonesty; and anyone with a criminal history involving violence, use of force, threats, substantial patient harm, any sex offense involving fraud, force, or coercion, or relating to a minor, or any offense involving terrorism.
How might the Pilot Program help uncover corporate wrongdoing?
The Pilot Program facilitates and rewards prompt and proactive disclosures by those aware of or involved in corporate wrongdoing. As discussed above, those who wait until an investigation begins or who come forward after someone else has done so, will not be eligible for an NPA under the Pilot Program. The Pilot Program’s original information requirement has essentially created a race-to-the-DOJ: once any facet of the DOJ becomes aware of the wrongdoing, whether from the corporation itself, one of its many employees, or an outside source such as a news organization, one cannot satisfy the Pilot Program’s criterion for originality. Similarly, because of the Pilot Program’s voluntary disclosure requirement, once an internal company investigation begins, it is likely too late to seek an NPA under the Pilot Program. This means that anyone involved in or otherwise aware of the wrongdoing is incentivized to report to the DOJ first to secure an NPA to the exclusion of everyone else.
For the same reason, corporations are more incentivized in the first instance to shore up their compliance efforts. Because the Pilot Program encourages employees to report suspected corporate wrongdoing to the DOJ before, for example, a company’s own HR department or compliance hotline—which might kick off an internal investigation by the company and disqualify employees from the Pilot Program—the company and its management will presumably put more effort into preventing or detecting wrongdoing, as opposed to merely relying on internal reporting structures.
What does the Pilot Program mean for securities litigation?
If the Pilot Program is successful, then the DOJ will presumably announce more investigations into and/or file more complaints against offending corporations. If this causes a company’s stock price to fall, a securities fraud class action becomes a potentially viable route for redress for harmed investors.
Some of the Pilot Program’s requirements lend themselves well to securities litigation. For example, securities fraud class actions often hinge on showing that an event, usually a disclosure of some kind, prompted a company’s share price to fall, and that this share price decline was the result of the market digesting new information about the company and baking that information into the company’s share price. Accordingly, if a securities fraud class action follows from a DOJ investigation, which itself follows from a disclosure under the Pilot Program, the Pilot Program’s original information requirement can help litigators verify that a disclosure or event revealed new information to the market. Further, a reporting individual’s testimony under the Pilot Program may aid lawyers in their discovery (i.e., evidence-gathering) efforts by, for example, helping them narrow down which department or individuals of an organization were most likely involved in or aware of the wrongdoing in question, while simultaneously helping them avoid deposing those departments or individuals unlikely to be implicated in or exposed to the wrongdoing.
In sum, the Pilot Program is a promising new tool for the DOJ to employ in its fight against corporate and financial malfeasance. It also presents a greater opportunity for both the public and private sectors to investigate corporate bad actors and hold them accountable.