Katz, Marshall & Banks senior associate Alexis Ronickher and partner Debra Katz published an article in Law360 on September 17, 2013, entitled "A Powerful Tool To Effectively Fight Fraud." The article discussed one of the central issues in combatting financial fraud: creating real penalties that will actually work to disincentivize wrongdoing. As Ronickher and Katz note in the article, because the penalties for companies that are found liable for engaging in fraud are so weak compared to the revenue that fraud provides, companies who play by the rules may end up having a difficult time keeping up.
The solution the article prescribes is to make sure the executives overseeing the fraud have some skin in the game by enforcing and expanding what is known as the responsible corporate officer (“RCO”) doctrine. Under this doctrine – currently only available for violations of the federal Food, Drug and Cosmetics Act and certain federal environmental statutes – a corporate executive is held criminally accountable for failing to exercise his or her authority and supervisory responsibility to prevent the fraud. While the criminal penalties they face are not immediately severe – a misdemeanor that carries a relatively modest fine, or at most, short jail time – the violation goes on their criminal record, meaning they cannot avoid taking personal responsibility. Moreover, the U.S. government can bar a convicted executive from participating in federal programs based on such a violation. As Ronickher and Katz state in the article, an executive faced with the prospect of a criminal conviction and being barred from working in his or her field for at least three years is likely to rethink not taking the necessary actions to stop fraud at his or her company.
