Bus300WSJRAISING_A_REDFLAG - Raising a Red Flag Isn't...

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Raising a Red Flag Isn't Enough By Kara Scannell and Almar Latour 1,242 words 21 April 2004 The Wall Street Journal C1 English (Copyright (c) 2004, Dow Jones & Company, Inc.) THE WAY THINGS are going with corporate-fraud cases, Royal Dutch/Shell Group's former exploration chief is smart to have hired a good lawyer. Walter van de Vijver complained to his boss about exaggerated oil-and-gas reserves but didn't voice his concerns beyond the executive suite -- and that could put him in legal peril if prosecutors conclude his company defrauded investors, lawyers say. As prosecutors take a harder line on corporate fraud, it has become increasingly clear that raising red flags internally isn't enough to avoid criminal charges. Prosecutors have signaled again and again that they will go after anyone who is complicit or participates in fraud, even if they did so kicking and screaming under protest. Executives need look no further than the spate of guilty pleas and indictments of lower-level workers in connection with frauds at WorldCom (now MCI), Enron Corp. and elsewhere. Some of these employees questioned accounting practices while carrying out the fraud. Others alerted the authorities, but did so too late for prosecutors' tastes. That can make reporting wrongdoing to higher-ups a Catch-22. If executives raise concerns about something without stopping it, they have given prosecutors damning evidence of their knowledge. The other options aren't always very attractive: quitting or blowing the whistle to regulators, lawyers say. Executives aren't required to tattle on their own companies, but "if you did something you know was wrong, you may want to go to the government and get immunity or leniency," says Seth Taube, the Securities and Exchange Commission's former enforcement chief for New York. "The earlier you blow the whistle, the better deal you get." The choice sometimes boils down to this: Either quit or join the conspiracy, lawyers say. "Employees with knowledge the financial statements are false can't stay," says Jan Handzlik, a
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This note was uploaded on 02/26/2012 for the course BUS 360 taught by Professor Goldberg during the Fall '08 term at Rider.

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Bus300WSJRAISING_A_REDFLAG - Raising a Red Flag Isn't...

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