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Sarbanes-Oxley vs. the Free Press
Sarbanes-Oxley vs. the Free Press
Berlau article in Reason
January 16, 2006
Back in June, when New York Times reporter Judith Miller was about to go to jail on contempt charges for refusing to testify about her anonymous sources, she and the Times had company in legal hot water: Matthew Cooper and his bosses at Time magazine. Both journalists were subpoenaed by prosecutor Patrick Fitzgerald, and both were alternately praised as First Amendment heroes and vilified as arrogant media elitists. But on June 9, in a move that took many by surprise, Time Inc. surrendered the magazine’s notes to Fitzgerald and revealed its anonymous source in the Valerie Plame/Karl Rove/Joe Wilson/Robert Novak saga.<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
That much is well-known. What isn’t widely understood is the role that may have been played by a law that most people don’t associate with free press issues, the Sarbanes-Oxley Act, passed in the wake of the Enron scandal, along with related crackdowns on corporations.
Much of the reaction to Cooper’s capitulation and Miller’s imprisonment contrasted the two news organizations in terms of their editorial gumption. Virtually nothing was said about the growth in prosecutorial power in recent decades, even though a bipartisan journalistic consensus from Salon to The Wall Street Journal’s editorial page argued that Fitzgerald had stepped way over the line in his treatment of the news organizations. Amazingly, even as Fitzgerald let Miller languish in jail for months, Time Inc. supplanted him as the villain in many media commentaries.
In taking on Time Inc., Fitzgerald seemed to take a page from <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />New York’s anti-corporate crusader of an attorney general, Eliot Spitzer. Fitzgerald came up with novel ways to implicitly and explicitly threaten all of Time’s executives and corporate directors with steep fines and/or jail time. He tapped into a populist theme in his courtroom arguments and briefs, arguing that Time’s officers and board members could individually be held responsible for the corporate “crime” of withholding documents. “The theory that he cited was, ‘How could a board possibly permit violation of a court order?’ ” says Floyd Abrams, the respected First Amendment attorney who represented Miller as well as Time and Cooper at various points in the case. “He certainly suggested there could be criminal sanctions imposed on individuals in senior management if they defied the court order.”
On June 28, the day after the Supreme Court refused to hear an appeal of the circuit court decision against Time Inc. and to revisit whether the First Amendment gives reporters any privilege to shield sources, Fitzgerald filed a motion specifically asking that Time Inc. CEO Ann Moore be present at the next court hearing. This was necessary, Fitzgerald argued, “so that the CEO can explain to the Court the manner in which Time’s officers and/or directors purport to have authorized Time to act contrary to law; and the Court can direct the CEO of Time to comply with this order upon pain of contempt” (emphasis added).
In his arguments, Fitzgerald suggested that Time’s officers and directors should face penalties equal to, if not greater than, the penalties Cooper was facing for not surrendering the notes. “Time, as well as its controlling officers, have no legal right to defy a final court order, and an officer failing to take steps to have the corporation comply could be punished by contempt,” he said in the motion. In court on June 29, Fitzgerald said to U.S. District Judge Thomas Hogan, “I don’t know how under any set of circumstances a corporate board could meet and agree to break the law.” He also asked Hogan to levy a fine on Time Inc. large enough “to impact on the shareholders to try to coerce them.”
Fitzgerald argued for the Court to deal with Time as a company first, saying that this could persuade Cooper to fall in line. “If we deal with Time Inc. first and Time produces the documents which include Mr. Cooper’s notes,” he said, “I think that might be material, a fact that might aid the rest of Mr. Cooper’s situation [and] a fact that may sway Mr. Cooper to follow the Court’s order.”
Hogan took his advice about going after the corporation first, and things worked out pretty much as Fitzgerald had predicted. Time Inc. surrendered the documents the next day, and a week later Matthew Cooper surrendered his notes fingering his source as White House Deputy Chief of Staff Karl Rove. Cooper justified his decision by saying Rove had given him a new, specific waiver.
No Document Is Private
How could a prosecutor bring one of the largest and most powerful media organizations in history so completely to heel?
In 2002, with many journalists cheering him on, President Bush signed the Sarbanes-Oxley Act, one of many new laws that have expanded the list of corporate crimes and ratcheted up criminal penalties to terms longer than some serve for murder. Critics have complained that these laws criminalize risk taking. Fitzgerald’s use of anti-corporate rhetoric and new legal precedent shows that can include risk taking by media companies.
Fitzgerald wasn’t making his argument against Time in a legal vacuum. In his motion, he cited a 2003 case in which the U.S. Court of Appeals for the Sixth Circuit ruled that an officer of a Michigan company could be held in contempt of court for the business’s lack of compliance with a court order, even though the officer had not been subject to any legal action, such as a lawsuit or indictment, as an individual. Michigan corporate attorney Nathan D. Plantinga warned in 2003 that the case “represents a significant change in the law and new exposure of corporate officers to liability and sanctions.”
This is what Time Inc. faced, and that is why comparisons to The New York Times aren’t completely fair. Fitzgerald could go after Time as a corporation. But Miller, who never filed a story about Plame, “apparently kept personal possession of her notes and the Times’ view is it never had them,” The Wall Street Journal reports. Since it seems there were no corporate documents to be surrendered, Fitzgerald never had the opportunity to ask the court to hold officers and directors of the New York Times Co. in contempt. Time Inc. wasn’t so lucky.
The Sarbanes-Oxley Act includes provisions that, even if they weren’t a factor in Time Inc.’s decision, will almost surely affect the use and protection of anonymous sources in the future. The law was passed right after the Enron and WorldCom bankruptcies. Like the PATRIOT Act, it was rushed through after a crisis, and many provisions weren’t scrutinized. Right now businesses are struggling with the costly Section 404, which mandates that accountants certify “internal controls” that are only tangentially related to a company’s financial statements.
But it’s the law’s broad definition of “obstruction of justice” that has First Amendment and civil liberties experts concerned. Because of the media coverage of accounting firm Arthur Andersen’s memo shredding during the Enron scandal—shredding the Supreme Court has now said was not necessarily improper—Sarbanes-Oxley increased penalties and created new offenses related to document concealment. Section 802 applies not just to corporate fraud but to “the investigation or administration of any matter within the jurisdiction of any department or agency of the United States.” It punishes a person who “knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document or tangible object” with new penalties of up to 20 years in prison. The record tamperer need not have a “corrupt” motive.
Corporate Reform vs. a Free Press
Spokespeople for Fitzgerald and Time Inc. declined to say what role, if any, Sarbanes-Oxley played in the events leading to Time Inc.’s surrender of Cooper’s documents. But even if Fitzgerald did not directly threaten Time with Sarbanes-Oxley, it’s not a stretch to say that good lawyers would take the law and its sentencing provisions into consideration. “You have a risk that a vigorous prosecutor will think of that act as obstruction of justice, and you don’t know what a jury will do,” says Ronald Rotunda, a professor at the George Mason University School of Law who specializes in legal ethics.
And for the press, the “obstruction of justice” provision may cover more than just withholding notes from the government once an investigation has begun. It may also endanger the common practice of routinely destroying notes to protect anonymous sources. For decades, newsrooms have shredded or thrown away notes some time after using them both to save space and to prevent prosecutors like Fitzgerald from demanding them as part of an investigation. This “routine expungement is a longstanding practice in many news organizations,” says Sandra Davidson, a professor of communications law at the University of Missouri School of Journalism. Sarbanes-Oxley, because it covers document destruction even “in contemplation” of a federal investigation, could apply to the press’s “routine expungement” practices, scholars say. “If you’re destroying documents to prevent them from being subpoenaed,” says Rotunda, “you have a risk that a vigorous prosecutor will think of that as obstruction of justice.”
Because it’s hard for journalists to analyze the changing legal environment, Plamegate coverage has tended toward character-driven treacle about journalism’s fall from grace. In the October Vanity Fair, the legendary Watergate reporter Carl Bernstein never mentions Fitzgerald by name. He does devote a couple sentences to arguing that Fitzgerald’s prosecution is out of control, but he saves most of his venom for Time Inc. He smugly compares the actions of The Washington Post’s late publisher Katharine Graham to those of Time Inc. officials.
“In 1972, Katharine Graham did the opposite of what Time editor in chief Norman Pearlstine did in 2005,” Bernstein writes. “She took formal control of our notes and unequivocally declared she would go to jail rather than give them up or reveal their contents—as would we.…Pearlstine’s actions suggested that he had a responsibility to protect the profits and corporate interests of Time Warner first—and journalistic principle second.”
Others have charged that Time made the decision only to further its bottom line. The Brussels-based International Federation of Journalists issued a statement saying it was “impossible not to conclude that commercial interests have taken priority over a principled defense of professional secrecy.”
To Bernstein and others, the erosion of journalistic standards is the only significant change since 1972. But to focus on the rise of big media corporations and ignore the new prosecutorial powers the state can use against them is to miss an important part of the story. At their best, big media corporations are still an important part of the investigative journalistic landscape, because they have the resources to probe wrongdoing by government and business. (Indeed, Time Inc.’s Fortune was one of the first publications to raise questions about Enron before the scandal broke.)
To be effective at restraining prosecutorial power, any proposed shield law should specifically protect media entities, as well as “journalists” broadly defined, from subpoenas related to news gathering. Like the free market, the free press may allow behavior that some consider unethical, such as excessively cozy relationships between reporters and their sources. But criminalizing the anonymous source relationship would make society less informed and less free.
Reporters and commentators in the establishment media need to rethink their cheerleading for Sarbanes-Oxley and so-called corporate reform. From their privileged perch, journalists frequently have advocated giving prosecutors and grand juries more power over their fellow citizens, especially those who work for big corporations. But prosecutors like Fitzgerald see a media company as just another corporation. Now that the media are under the government’s thumb, they may be a bit more skeptical in covering the crusade against corporate crime.