Thursday, December 01, 2016

Petition asks if contracts can be false statements under the SOX anti-shredding provision

By Rodney F. Tonkovic, J.D.

A petition for certiorari has been filed asking the Supreme Court to consider whether contracts can constitute false statements for the purposes of federal criminal law. The government charged a former governor of Connecticut with violating the Sarbanes-Oxley anti-shredding provision by executing contracts that omitted that he was being paid to work on political campaigns. The petition argues that the Second Circuit's holding that contracts that misrepresented the true relationships among the parties were false is a sweeping construction of the provision that is at odds with decisions in other circuits (Rowland v. U.S., November 14, 2016).

John G. Rowland had a long career in politics, including a 10-year term as governor of Connecticut. He had to resign the governorship, however, in the wake of a corruption investigation in which he pleaded guilty to conspiracy to commit honest services and tax fraud. Rowland's felony conviction precludes him for running for public office, but he is still able to assist with the political campaigns of others.

False contracts. According to the government's charges, Rowland twice contracted to do consulting work for private entities. These contracts, one of which was never executed, were allegedly "false" because they omitted the fact that Rowland was really assisting in two separate political campaigns.

At trial, Rowland maintained that the contracts contained no false statements, and requested a jury instruction that defined falsification of a document to be the knowing inclusion of any material fact that the defendant knows to be false. The district court, however, adopted the government's proposed instruction that the knowing omission of any material fact renders a document false.

In 2015, Rowland was convicted, among other counts, of falsifying documents under the SOX anti-shredding provision. This provision, 18 U.S.C. Section 1519, prohibits the falsification of "any record, document, or tangible object with the intent to impede, obstruct, or influence" a federal investigation. The Second Circuit affirmed, ruling that the contracts were false because they misrepresented the true relationships among the parties. Here, the contracts said that Rowland would be providing consulting services and intentionally did not reflect that he would be assisting with political campaigns.

Reach of anti-shredding provision. According to the petition, the Second Circuit's decision expands the reach of Section 1519, as well as many other statutes that criminalize various types of false statements. The decision conflicts with decisions in the Tenth and Eleventh circuits holding that contractual commitments are not statements that can be "true" or "false," as well as a Sixth Circuit rule that material omissions from otherwise-true statements are not lies.

The petition argues further that the Second Circuit's construction of the provision conflicts with Supreme Court precedent, as well as the plain statutory text. Rowland points to precedent stating that written promises are legal commitments rather than statements that can be true or false and that omitting a material fact is different than telling a lie. The petition also notes that Yates v. U.S. cautions the government and courts to construe Section 1519 narrowly. Additionally, the plain text of Section 1519 is limited to "falsifying documents," which, the petition says means to forge or counterfeit, and not to enter into an authentic contract that fails to capture the totality of the parties' relationship.

In closing, the petition asserts that the question presented implicates over 100 federal statutes that criminalize false statements in a variety of contexts. The issue of whether contractual commitments are statements and whether material omissions are tantamount to lies can arise in construing dozens of criminal prohibitions, and ensuring consistent interpretation of these statutes warrants the Court's time and attention, the petition states.

The petition is No. 16-639.

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