Supreme Court Finds Something Fishy in Prosecution of Ship Captain Under Sarbanes-Oxley
On November 5, 2014, the United States Supreme Court heard arguments involving a unique application of the criminal penalties for evidence destruction under the Sarbanes-Oxley Act. The evidence at issue: fish. Specifically, three red grouper less than 20 inches long. While a decision in Yates v. U.S. (13-7451) is not expected until June 2015, the issues raised by the Justices at oral argument suggest that a potential reining in of legislation enacted in response to turn-of-the-century corporate scandals.
This fish story begins in 2007 when an official from the Florida Fish and Wildlife Commission boarded the fishing vessel, Miss Katie, in the Gulf of Mexico off Tampa, Florida. On board, the official found 72 red grouper – a federally protected species – that were under the 20-inch legal limit. The officer issued Miss Katie’s captain, John Yates, a citation for the undersized fish, packed the fish in a box, and directed Yates to deliver the box to officials when he reached port. However, when the Miss Katie docked, officials found the box contained only 69 undersized fish. When officials questioned a crew member, the fisherman admitted Yates had instructed him to throw three of the undersized fish back.
As a result of Yates’s attempt at “catch-and-release,” federal prosecutors charged Yates under Section 802 of the Sarbanes-Oxley Act (“SOX” or the “Act”), 18 U.S.C. § 1519. Congress enacted SOX in response to the corporate fraud scandals involving Worldcom and Enron. The statute is designed to place greater corporate governance controls on publicly-traded corporations in order to help root out and prevent the types of fraudulent activities that led to these scandals. Section 802 provides for criminal penalties to individuals who destroy “any document, record or tangible object” with the intent of impeding any matter within the federal government’s jurisdiction. A jury ultimately found Yates guilty of violating Section 806. He appealed the jury’s decision to the 11th Circuit, which upheld the conviction.
Before the Supreme Court, Yates argued Section 802 had been applied too broadly; that the term “tangible object” was intended to cover computers, servers and drives on which records and information could be stored, not fish. The Solicitor General, however, argued that “tangible object” has a broader meaning and includes anything that might be useful in establishing a violation of federal law. For example, federal prosecutors used Section 802 in connection charges against a friend of one of the Boston Marathon bombers who concealed a backpack and flash drive sought by agents investigating the attacks.
At oral argument, several of the Justices expressed skepticism over the application of Section 806 and its potential 20-year sentence to the three undersized grouper the crew of the Miss Katie returned to the sea. The Justices noted the use of Section 802 in this context presented a legitimate risk of arbitrary enforcement of the statute. While the Court’s decision is not expected for some time, if the questions asked by the Justices are any indication, we may soon see at least some narrowing of the scope of Section 802.