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SCOTUS Skeptical of Sarbanes-Oxley Prosecution Over…Fish?

SCOTUS Skeptical of Sarbanes-Oxley Prosecution Over…Fish?

“What kind of a mad prosecutor would try to send this guy up for 20 years?”

The Sarbanes-Oxley Act of 2002 was passed in an effort to reform the finance and governance structures in corporate America. Although the language of the Act is notoriously broad, it has mostly been applied to those in the corporate world who make missteps during investigations into their financial practices.

Then, of course, there are times when white collar crime statutes are used to prosecute fishermen who throw back undersized fish.

In 2007, a search of the Miss Katie fishing vessel revealed that the crew had caught and retained 72 undersized red grouper. The vessel’s owner, John Yates, was cited, and told to take the 72 grouper to port for seizure. Instead, Yates put the fish back in the water and replaced them with bigger fish. A port inspection revealed only 69 undersized fish, leading to officials’ discovery of what Yates had done.

Prosecutors indicted and convicted Yates under a provision of Sarbanes-Oxley that provides a maximum punishment of up to 20 years for the destruction of “any record, document or tangible object” in order to obstruct an investigation.

The case wound its way through the system before landing on the dias at the Supreme Court—and it looks like the entire panel is skeptical not of the prosecutor’s classification of fish as “evidence,” but of the prosecutor’s decision to prosecute under Sarbanes-Oxley.

From the New York Times:

Some justices were wary of the sweep of the law, which applies to “any matter within the jurisdiction of any department or agency of the United States.”

Justice Stephen G. Breyer said the law would allow prosecution for the destruction of a census form. “The risk of arbitrary and discriminatory enforcement is a real one,” he said.

John L. Badalamenti, a lawyer for Mr. Yates, said that sustaining the law would mean that “the American people will be walking on eggshells.”

Mr. Martinez acknowledged that the law may be subject to attack as too broad and vague. But he said those issues were not squarely raised in the case argued Wednesday, Yates v. United States, No. 13-7451.

Justice Samuel A. Alito Jr., who is generally sympathetic to arguments from prosecutors, was skeptical.

“You are really asking the court to swallow something that is pretty hard to swallow,” he said. The law, he said, “is capable of being applied to really trivial matters, and yet each of those would carry a potential penalty of 20 years.”

The lawyers and justices for the most part resisted the temptation to make fish jokes. But Justice Kennedy got one in near the end of the argument.

“Perhaps Congress should have called this the Sarbanes-Oxley-Grouper Act,” he said.

Traditionally, the Court has been wary to allow the use of sweeping federal statutes to prosecute minor crimes, and judging by the content of the transcript, this case is no exception. Again, the Justices by and large aren’t as concerned with the standard set by Sarbanes-Oxley as they are with the prosecutor’s decision to use a while collar crime statute to up the ante when there was already a citation issued, and a subsequent admission that the fish had indeed been thrown overboard. Sarbanes-Oxley isn’t a small fry (fish fry?) statute; it’s aimed at nailing Wall Street CEOs who commit financial crimes like bribery, negligent swap trading, and fiduciary malpractice.

For Scalia and others on the panel, this prosecution was a perfect example of discretion gone wild:

The government’s position wasn’t popular, either. When Martinez tried to argue that the fish prosecution wasn’t absurd because Yates only got 30 days, Scalia erupted.

“What kind of a sensible prosecution is that?” he asked. “Is there nothing else you –­­ who ­­ — who do you have out there that — ­­ that exercises prosecutorial discretion? Is this the same guy that ­­ that brought the prosecution in Bond last term?”

By Bond, Scalia meant the court’s Bond vs. U.S. decision earlier this year, overturning a woman’s conviction under an international chemical-weapons law for trying to poison her husband’s lover. Later, Roberts said the prosecution made Yates ” sound like a mob boss or something.”

Finally Breyer asked whether somebody could be prosecuted for tearing up a letter from the Postal Service that he was supposed to send back. Martinez said that would never happen.

“ And why wouldn’t it happen?” Breyer said. “It wouldn’t happen because you’d never prosecute it, though I’ve had my doubts recently. …”If you can’t draw a real line, the risk of arbitrary and discriminatory enforcement is a real one.”

If you’ve lost Breyer on a question of big government, you’ve lost them all, Martinez.

You can read the full argument transcript here.


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What a waste. I bet those 72 small grouper would have been delicious.

Wow. That would be a dynamite beginning…!!!

Note that it directly attacks the madness that is Sarbanes-Oxley, along with a few others.

THAT would send a signal to BOTH the business community and the crazy Federal prosecutors.

Maybe this will be nail that declares this atrocious law unconstitutional.

KM from Detroit | November 6, 2014 at 3:37 pm

>Sarbanes-Oxley isn’t a small fry (fish fry?) statute;

Hey Amy–“small fry” is a colloquialism that *already* refers to fish 😀 Yay for jokes making themselves!

The four phases of government (RE:Groupers)
1) That’s a fundimental right that we would never restrict.
2) We’ve passed some laws to restrict those actions, but we’ll never enforce them.
3) We’re only enforcing those laws against really blatant violaters.
4) Up against the wall and spread ’em.

and yet the feds (irs) are not held liable to SO….

Freddie Sykes | November 6, 2014 at 5:13 pm

I worked for a large corporation and remember just how much time and resources were spent on ensuring that we were Sarbanes-Oxley compliant. It is definitely a piece of legislation that favored large corporations and made it harder for the smaller ones to compete with them.

He should have told them he confused the fish with IRS hard drives.

NC Mountain Girl | November 6, 2014 at 11:19 pm

Sarbanes-Oxley should be called the big accounting firm bail out act. The AICPA was heavily involved in its passage, which was hasty. SO was enacted on June 30, 2002. Arthur Anderson, the fifth largest CPA firm in the nation, had been convicted of obstruction of justice on June 15, 2002 for its destruction of files relating to the Enron engagement. AA vanished almost overnight. The other large firms had engaged in similar shoddy practices but hadn’t been caught. SO gave them a all a new lease on life by restoring the CPA brand.

For years the national CPA firms had all heavily discounted their unique selling point- the ability to issue certified financial reports. They did this to feed the more lucrative consulting work. We we told to practice a client intimacy model on engagements in order to sell as many other services as possible. The problem was one can be a watch dog or one can be a whore but you can’t be both. Arthur Anderson’s policy of out placing accounting staff with audit clients proved particularly disastrous as interpersonal relationships compromised objectivity as much as greed did.

SO saved the large CPA firms from themselves, It expanded the scope of audits. It also limited the amount of consulting work a CPA firm could do for an audit client. This forced firms to bid out the audit work at a fee level at which the firm could make money on such work.

Could Sarb-Ox be used to prosecute the destruction of evidence at the IRS? if not, why not?