Corporate Criminal Liability versus Corporate Securities Fraud Liability: Analyzing the Divergence in Standards of Culpability

Article excerpt

Many criminal and civil offenses require proof of a corporation's intent in order to find it guilty of wrongdoing. (1) Intent, or mens rea, plays a pivotal role in criminal law, and the concept of intent is dispositive in civil securities fraud cases brought against corporate defendants under Section 10(b) of the Securities and Exchange Act of 1934. (2) A central problem in this area is the question of how a corporation, which is only a "person" by an act of legal fiction, can be said to possess a "unitary, discrete, and demonstrable state of mind." (3) In the United States, the doctrine of respondeat superior has been the most traditionally accepted method of imputing criminal liability to a corporation. (4) By contrast, in civil securities fraud suits, courts are in notable disarray when analyzing the intent of corporations sued under the securities laws, with some courts rejecting the application of a doctrine referred to as collective scienter, and other courts embracing the doctrine with varying degrees of strength. (5) The questions then become, what are the optimal standards, and are there valid reasons for analyzing corporate intent differently in the criminal and civil securities fraud contexts?

Part I of this Note examines the standards of culpability and intent applied by courts in prosecutions brought against corporations. Next, Part II analyzes the vastly different approaches that courts in the United States have taken in examining the intent of corporations in civil securities fraud suits. Part HI then examines the various ways in which legal systems in other parts of the world have analyzed corporate intent. Part IV explores the several stated purposes behind imposing civil and criminal liability on corporations, and Part V outlines the proposed alternative standards to those currently used in the United States for determining corporate culpability. The Note concludes with a discussion of the optimal standards for imposing corporate criminal and securities fraud liability and the suggestion that the United States adopt a standard for imposing corporate criminal liability that is a combination of a corporate ethos and accomplice liability theories. This combination would arguably further the goal of imposing criminal and securities fraud liability only on those corporations that are deserving of punishment.

I. STANDARDS OF CORPORATE CULPABILITY IN CRIMINAL CASES

Over time, the criminal law has been forced to develop a series of responses to the problem of corporate mens rea to effectively achieve the goals of punishment, retribution, and deterrence. (6) Although corporations generally do not have the nature or qualities of human beings, criminal law, as the result of strong social encouragement, has always attempted to hold corporations to the same standards that apply to individuals. (7) In the landmark case New York Central and Hudson River Railroad Company v. United States, (8) the United States Supreme Court reasoned that if, due to the application of agency principles, a corporation would have civil liability for injuries caused by its agents, the Court would be within its rights to go "only a step farther" and hold a corporation criminally liable for "the act of the agent [done] while exercising the authority delegated to him." (9) Thus began the prominence of the doctrine of respondeat superior in the context of corporate criminal prosecutions.

A. Respondeat Superior

The traditional respondeat superior approach is a common law rule, which provides that a corporation can be held criminally liable for the acts of any of its agents who commit a crime within the scope of their employment with the intent to benefit the corporation. (10) This broad definition of agency includes all individuals who work in the corporation, regardless of their rank. (11)

Criticisms of the application of the doctrine of respondeat superior to corporations in the criminal context abound. …