With the famous Arthur Anderson shredding parties in mind, part of the 2002 SOX legislation was written to prevent companies from getting rid of evidence (documents). Specifically, SOX “prohibits knowingly altering or destroying “any record, document, or tangible object” with the intent to obstruct an investigation.”
In a million years, I’ll bet that you’d never seriously think that a Grouper (fish) would establish legal precedence over the interpretation and application of evidence used to prosecute crimes under SOX provisions.
It might surprise you to know that over the years, SOX has been widely interpreted and used as a charging vehicle for all sorts of “non financial” fraud crimes where suspects disposed of physical “evidence” (autos, money, drugs, firearms) to avoid prosecution, conviction and vacation in the “Big House.”
Today’s Fraud Solutions blog features an interesting look at a SOX related case decided last week by the U. S. Supreme Court.
Case and Charges
In 2007, John Yates, a commercial fisherman was in the Gulf Coast, aboard the vessel “Miss Katie,” fishing for Grouper. During one of his trips, John Jones, an officer with the Florida Fish and Wildlife Conservation Commission boarded Yates’ boat and found 72 Grouper that he thought were smaller than the required 20 inch minimum legal length.
Jones placed the short fish in crates and notified Yates that the short fish would be seized when he returned to port.
Once Yates returned to port, the officer inspected the catch again but reported that he found less short fish than the ones he originally inspected and many actually appeared longer. The officer suspected that the undersized fish were disposed of at sea before the boat returned to port and replaced with larger fish.
Yates was charged by the federal government with destruction and falsification of evidence (under the 2002 Sarbanes Oxley provision) alleging that he knowingly altered or destroyed a “tangible object” with the intent to obstruct a federal fisheries investigation.
Tangible Object Contention
At issue is the phrase “tangible object” which the government alleges can be a fish (or apparently anything else for that matter).
Yates legal team challenged the “definition of a tangible object” stating that SOX was specifically written to target the destruction of financial documents and NOT fish.
Yates Trial Defense
“Aboard his vessel, 3,000 pounds of fish were measured frozen. At the dock in Cortez, they were measured after they had been placed in water and run up a conveyer belt…Yates says that the thawed fish would measure longer, so there were no missing fish after all. In other words, if the officer said 72 fish were undersized while in a frozen state on the boat, and 69 were counted as being undersized on the dock, perhaps three gained length once they’d thawed. Even steel shrinks when it’s cold.”
“Everything shrinks when it’s cold” (Herald Tribune, 10.7.14).
This concept was comically made famous by George Costanza when he uttered the now famous line “I was in the pool! I was in the pool” (Seinfeld, The Hampton’s, 1994)!
This is now a legal tactic, I’ll call the “shrinkage defense.”
Anyone remember this classic episode:
“George: Well I just got back from swimming in the pool. And the water was cold…
Jerry: Oh… You mean… shrinkage.
George: Yes. Significant shrinkage!”
Classic comedy aside, one of the crew members on Yates boat testified at trial that after the Fish and Wildlife Officer departed the boat, Yates instructed the crew to throw the short fish and overboard replace them with larger fish in order to avoid a citation and fine.
Yates legal team also argued at trial that Officer Jones measured the Grouper with their mouths closed and had he measured them with their mouths open they wouldn’t have been undersized.
Conviction and Sentence
In 2011, Yates was found guilty at trial of disposing of illegal/short fish in violation of the SOX statute which made it a crime to destroy or conceal “a ‘tangible object’ specifically to impede, obstruct, or influence” a federal government investigation.
Yates faced a possible sentence of 30 years in prison. The Judge sentenced him to 30 days and he served his time in December 2012.
Yates appealed his conviction to the 11th U.S. Circuit Court and the Appeals Court upheld the original conviction.
Yates then appealed the criminal conviction, previously upheld by the Appellate Court, to the U.S. Supreme Court.
In a closely contested legal decision (5-4) the Supreme Court Justices recently threw out Yates conviction.
Justice Ginsburg (also known by her hip hop name: “Notorious RBG”) argued for the majority saying that “given the context and purpose of the law, it covers only objects used to record or preserve information and does not include any and every object found on land or in the sea.”
Further, she questioned the intent of the SOX legislation and the definition of a “tangible object” when she stated that “fish one may fry, but may one falsify, or make a false entry in the sea dwelling creatures?”
Arguing the dissenting opinion, Justice Kagan stated that “Congress intended the law to have a wide scope to ban destruction of any physical evidence that could thwart law enforcement.” She further stated, “a fisherman like John Yates, who dumps undersized fish to avoid a fine is no less blameworthy than one who shreds his vessel’s catch log for the same reason.”
The Last Word
You might not think that a case about illegal-undersize Grouper is material. However, Justice Ginsburg made it clear that fish don’t fall under the definition of “tangible object” as intended by the legislators who created SOX.
This is clearly a precedent setting case as the federal government has previously used SOX’s “tangible object” provision in other criminal cases unrelated to the mega financial fraud cases which originally inspired SOX.
Despite Justice Ginsburg’s majority opinion, which resulted in Yates conviction getting overturned, the 5-4 decision suggests that SOX’s language and intent isn’t clear. Justice Kagan argued that Congress intended the “tangible object” provision to be used more broadly in all types of criminal cases involving the destruction of evidence.
Unlike the provisions of the constitution, which people regularly question what the framer’s originally intended, both Sarbanes and Oxley are still around to ask. Wonder what they’ll say.
What will the long-term impact of the Yates decision be? Likely, we haven’t heard the end of this story yet. Will SOX’s language be re-written by Congress in order to broaden its tangible object,” destruction of evidence usage for application in ALL crime types, or will the existing language, and now more closely restricted Supreme Court interpretation, be left as is?
Those are our insights, what are yours?
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The insights, observations and unique commentary in the Fraud Solutions blog are my own and do not represent the views or opinions of any other employer.