As discussed in this prior post, in May 2023 a federal jury in Chicago found four former Commonwealth Edison (“ComEd”) executives and associates guilty on all counts charged, including conspiring to influence and reward the former Speaker of the Illinois House of Representatives in order to assist with the passage of legislation favorable to the electric utility company, in addition to multiple bribery and record falsification charges. (See here for the DOJ release).
Bribery of a state politician is not ordinarily the type of conduct that results in Foreign Corrupt Practices Act issues.
However, ComEd (a majority-owned indirect subsidiary of Exelon Corp) was an issuer (as was Exelon) and the FCPA has always been a law much broader than its name suggests because of the FCPA’s books and records and internal controls provisions.
Indeed, the most serious (from a sentencing and fine perspective) criminal charges the four individuals were found guilty of were record falsification in violation of the FCPA.
In connection with the core bribery scheme, the indictment charged (in Counts 3, 4, 7, and 9) that the defendants:
- Michael McClain – who worked as a lobbyist and consultant for ComEd;
- Anne Pramaggiore – who served as CEO of ComEd from 2012 to 2018 and later as a senior executive at an affiliate of Exelon Corp;
- John Hooker – who served as ComEd’s executive vice president of legislative and external affairs from 2009 to 2012 after which he worked as an external lobbyist for ComEd; and
- Jay Doherty – who owned Jay D. Doherty & Associates, which performed consulting services for ComEd from approximately 2011 to 2019)
knowingly and willfully falsified and caused to be falsified certain ComEd and Exelon books, records, and accounts, so that those books, records, and accounts did not in reasonable detail, accurately and fairly reflect the transactions and dispositions of ComEd’s and Exelon’s assets.
Post-conviction, the defendants moved pursuant to Federal Rule of Criminal Procedure 29(c) for judgements of acquittal and Rule 33 for a New Trial in the alternative based on a variety of issues including FCPA issues.
Recently, Judge Harry Leinenweber (N.D. Illinois) denied the motions.
As to the FCPA counts, the decision states:
“Counts Three, Four, Seven, and Nine charge defendants with falsification of records in connection with Jay Doherty and Associates (“JDDA”) contracts, in violation of the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. §§ 78m(b)(5), 78ff(a) and the federal aider and abettor statute, 18 U.S.C. § 2.
Section 78m(b)(5) of the FCPA makes it a crime to “knowingly circumvent or knowingly fail to implement a system of internal
accounting controls or knowingly falsify any book, record, or account described in [the above] paragraph.” 15 U.S.C. § 78m(b)
(5). Section 78ff(a) sets forth the penalties for violating the statute. See id. § 78ff(a).Defendants challenge their direct liability, as well as their conviction on an aider and abettor theory and a Pinkerton theory. Because the counts are for similar contracts that recurred annually, the Court will discuss these counts together where proper. The Court will first address why the evidence shows a crime was committed, and then will address facts supporting liability for each Defendant.”
1. False Documents
Defendants argue they are entitled to acquittal because the Government failed to demonstrate that the JDDA contracts and
single source justification (“SSJ”) forms were false. In support, they point to a laundry list of evidence presented which clearly
establishes that the records did not need to list the subcontractors. They contend this evidence conclusively shows that the contracts and SSJ forms themselves contained no falsehoods. However, this both mischaracterizes the Government’s theory and overlooks supporting evidence.The Government’s theory was not limited to a technical deficiency; instead, the Government’s indictment alleged that Defendants “created and caused the creation of false contracts, invoices and other books and records to disguise the true nature of certain of the payments and to circumvent internal controls.” Whether the contracts or justification forms were mandated to list the subcontractors is relevant, but whether the whole of the evidence rendered the documents false was a question for the jury.
To that point, the Government introduced plenty of evidence upon which a jury could reasonably conclude that the contracts did contain falsehoods. This included Pramiaggore’s approval of the 2017 Doherty contract, which specified that all payments made under the contract were “as consideration for the monthly services” to Doherty for advising ComEd on legislative issues relating to its business. The SSJ forms the Government introduced justified ComEd’s retainment of Doherty because of his “unique insight and perspective to promote ComEd and its business matters.” Subsequent contracts and justification forms “expanded [his] role”.
ComEd used SSJ forms when the company engaged the services of a vendor outside of its typical competitive bidding process.
Marquez testified that this usually occurs when goods or services are uniquely provided by a specific firm or company. Carrie Bourque, employed as a principal category manager at Exelon, was involved in the preparation of the ComEd contracts. Bourque testified that it is “really important” that the justification forms are “really accurate” because they are auditable, they help maintain public trust, and they typically identify the individuals that are contracted so that background checks can be performed and confidentiality can be maintained. Therefore, the documents at issue were at least incomplete, in part, because no subcontractors were mentioned on the two justification forms signed and approved by Defendant Pramaggiore. The forms also conveyed that Doherty provided expertise as a consultant that could not be obtained elsewhere, but there was little evidence that his team contributed any expertise, let alone unique expertise.To the contrary, the Government introduced evidence that Doherty and the subcontractors did not do any work. At trial, Marquez testified that he “didn’t expect for [the subcontractors] to be doing work for ComEd” because he “knew they were brought on as a favor to Michael Madigan.” Marquez further testified that it was his understanding that Pramaggiore did not expect the subcontractors “to be doing anything” because the payments were made so that Madigan “could perhaps be helpful in [ComEd’s] legislative agenda” with no expectation of working at all. Thus, what appeared distinctive about Doherty’s team was not its expertise but its connection to Madigan.
This testimony alone is sufficient for a jury to reasonably conclude that the contracts were false because they failed to disclose the intent guiding the payments; that is, the payments were not for professional expertise but instead for something else. The jury also heard a recorded conversation where Doherty told Marquez that ComEd’s motivation for paying these individuals was not so that they could assist Doherty, but instead to corruptly influence Madigan. […] The is substantially more than a “mere modicum” of evidence that defendants falsely represented the reasons for retaining and paying the subcontractors on the Doherty contracts and associated justification forms. […]
Defendants also accuse the Government of eschewing specificity and changing their theory throughout the case. They argue that the Government failed to articulate a consistent theory supporting the books-and-records charges “refusing to identify which documents it believed were false. And when [the Government] was compelled by the Court to provide information about these charges, it adopted a kitchen-sink approach, claiming that nearly every document associated with the JDDA contract was false,” permitting Government to offer “shifting theories” throughout trial in violation of the Fifth Amendment.
[…]
Here, the Government was not presenting different and incomplete theories of liability when it alleged that the documents were false, in part, for failing to disclose the subcontractors or the reason for hiring the subcontractors. Instead, Defendants’ failure to disclose information on contracts were pieces of evidence that the Government introduced to illustrate how the documents — specifically the 2017 Doherty contract, its renewal, and the documents otherwise associated with executing the payments under the contract — were full of lies, even where the documents might have been accurately procured. This, too, is no basis for acquittal. […]
2. Knowing and Willful Intent
Defendants next contend that the Government introduced no evidence to find the requisite mens rea. As noted, the Government must prove that the defendants acted with knowing and willful intent. A defendant acts knowingly if the defendant “realized what he was doing and was aware of the nature of his conduct, and did not act through ignorance, mistake or accident.” […] This intent need not be to falsify records but can be the intent to join a conspiracy to do as much. Viewing the evidence in the light most favorable to the verdict, the Court must deny Defendants’ motions, as explained herein for each argument Defendants raised.
Doherty
Doherty argues the Government’s evidence does not sufficiently show a willful and knowing intent. He believes the Government’s showing was insufficient as it only showed Doherty’s “mere” suspicion that “something was amiss.” In essence, Doherty disagrees with the jury’s interpretation of the evidence: Doherty, a long-time businessman in a position to understand that falsely describing the nature of payments would — and ultimately did — cause the creation of false entries, provided false justifications to ComEd in his invoices and in the contract requisition process. Doherty’s contract was under Anne Pramaggiore’s (ComEd CEO) budget, which meant that from time to time, Pramaggiore was required to sign the single source justification forms explaining why it was necessary to pay for Doherty’s services at the rate invoiced. Doherty was aware that he was asked to provide accurate information so there could be an internal justification as to why the payments under the contract were being increased. Yet the signed justification forms explained that Doherty was being paid hundreds of thousands of dollars each year on account of his expertise and omitted the detail that a portion of the payments were destined for the subcontractors who were Madigan associates.
The Government’s evidence showed other efforts by Defendants directly associated with Doherty to ostensibly conceal the subcontractors. Janet Gallegos (Doherty’s administrative assistant) and Elizabeth Lynch (Director of Corporate Accounting at Exelon) testified that Doherty’s invoices said nothing about subcontractors. Gallegos and Carrie Bourque (principal category manager for Exelon, who created and executed contracts for ComEd consultants) likewise testified that the contracts between Doherty and ComEd said nothing about the subcontractors. Lynch further testified that ComEd’s internal accounting records also said nothing about the subcontractors, and instead stated that the payments to the intermediaries were for categories such as “legislative services,” without any mention of the fact that a substantial portion would be passed on to Madigan associates.
The Seventh Circuit has recognized that inconsistent assertions put in books and records suggests willfulness. […]
The Court cannot repeat the entire record, but the above showing made by the Government already mirrors Mansfield. As there,
a jury here could reasonably infer that Doherty’s failure to disclose was an effort to conceal and mislead, thereby suggesting
willful intent. Therefore, the Court cannot acquit on this basis.Pramaggiore
Pramaggiore also challenges the sufficiency of the evidence of her intent to falsify documents. First, she argues that the Government cannot prove she intended to falsify the Doherty contracts for 2017 and 2018 (Counts Three and Four), because she did not personally sign these contracts, and the 2019 contract amendment (Count Nine), because she had already left ComEd CEO. This argument fails for several reasons.
As discussed above, Pramaggiore did sign false single source justifications for the Doherty contract in 2017 and 2018. Although the forms did not require mention of subcontractors, they did require truthful justifications of the payments. As with Doherty, a jury can reasonably infer that Pramaggiore’s omissions were an effort to conceal and mislead, suggesting willfulness to hide the true reason why the Doherty payments were so high (to pay Madigan associates for no work).
Moreover, as Elizabeth Lynch (Director of Corporate Accounting at Exelon) testified, Pramaggiore was responsible not just for
signing the single source justifications, but for approving payments under the contract on an ongoing basis. Accordingly, each payment under the contract generated a false entry in the general ledger of the company for which Pramaggiore was directly responsible. And while Pramaggiore did not personally sign each contract with Doherty, a reasonable jury could conclude that she caused their creation and authorized their scope, as demonstrated by, for example, her direction to Marquez to hire Zalewski, or her involvement in pushing for the contracts continued into 2019, even when she had moved to Exelon, Such evidence established her liability as an aider and abettor. In addition, as discussed further below in response to the arguments presented by Hooker, a reasonable jury could have found Pramaggiore guilty under a Pinkerton theory of liability as to the books-and-records charges.Hooker
Hooker argues that he cannot be held liable (directly or otherwise) for violating the book-and-records provisions of the FCPA because he had retired as a full-time employee from the company. But Hooker claimed that he created the illegal payment arrangement in 2011 and set it in motion when he was head of the company’s legislative affairs department. […]
The Government introduced plenty of evidence showing that Hooker, in his post-retirement role as a consultant for ComEd, continued to play a role in the contracts. For example, he continued to monitor the subcontractors throughout the existence of the conspiracy. Additionally, he continued to provide co-conspirator McClain advice about how to have the contract renewed in 2019 when Dominguez became ComEd’s CEO. In sum, a reasonable jury could find that he knowingly and willfully caused false records to be created.
McClain
McClain also contends that there was no evidence that he knowingly or willingly falsified a book or record, because he did not have responsibility or access to internal ComEd documents, did not have any role in creating, signing, approving, or reviewing JDDA contracts or single source justification forms, and was not aware of ComEd’s internal accounting practices. But, as discussed herein, McClain’s liability does not depend on his personal signature where he played an integral part in the conspiracy as the conduit between ComEd and Madigan and caused the creation of false documents. In addition to his calls with Hooker discussed above, McClain enlisted Shaw Decremer and John Bradley to act as intermediaries for payments to individuals such as Ed Moody. Invoices, as well as associated payment records, sent by both individuals to ComEd made it appear that the payments were for legitimate lobbying services, when the payments were instead made to corruptly influence Madigan for no work. A jury could reasonably infer that McClain knew that he was causing false documentation to be created as part of ComEd’s books and records because they affirmatively mispresented why payments were being made to Doherty.
3. Circumvention of Internal Controls
Defendants Hooker and Pramaggiore take further issue with their convictions under 78(m)(b)(5) for willfully and knowingly circumventing internal accounting controls. They argue that the only internal control the Government presented was Exelon’s Corporate Code of Business Conduct, which, she asserts, are not internal accounting controls for the purposes of 15 U.S.C. §§ 78m(b)(5) and 78ff(a).
This argument fails for two reasons. First, Exelon’s Code was not the only internal control the Government presented. For instance, the previously discussed testimony from Fidel Marquez, Elizabeth Lynch. and Carrie Bourque also detailed how the Defendants’ failure to disclose the true nature of the payments required the Defendants to circumvent multiple ComEd and Exelon accounting procedures. These internal controls included requiring the submission of invoices before payment, the requirement that invoices be approved by someone “familiar with the charges,” and the requirement that payments be for services actually rendered.
But even if the Code were the only control Defendants were alleged to have violated, Exelon’s Code directly concerns the organization’s internal accounting practices. The Seventh Circuit has clarified that internal controls for §§ 78m(b)(5) purposes include “manual or automated review of records to check for completeness, accuracy and authenticity; a method to record transactions completely and accurately; and reconciliation of accounting entries to detect errors.” McConville v. SEC, 465 F.3d 780, 790 (7th Cir. 2006). Here, the 2015 and 2016 Code of Business Conduct describes internal controls related to ComEd’s accounting systems, including mandates to: (i) “Never make an entry in any record that intentionally misrepresents, conceals or disguises the true nature of any transaction, event or condition,” and (ii) “Record all business transactions, events and conditions accurately, completely, and in a timely fashion.” This makes the Code, as well as the procedural testimony, characteristic §§ 78m(b)(5) and 78ff(a) accounting procedures, as they (among other things) ensure accuracy and authenticity. There was more than sufficient evidence that Pramaggiore approved transactions that did not comply with these standards in order to circumvent these internal safeguards—namely, by misrepresenting or concealing the true nature of the Doherty transactions and creating inaccurate records to do so. This was enough to convict her on a direct liability theory. And the following section illustrates how there was more than sufficient evidence to convict Hooker on a Pinkerton theory of liability.
[…]
McClain, along with Doherty, challenge their convictions under 18 U.S.C § 2 and Pinkerton. The Court affirms each count in turn.
Under the Pinkerton theory of liability, one conspirator can be held liable for the crimes of another if committed in furtherance
of the conspiracy. United States v. Manzella, 791 F.2d 1263, 1267 (7th Cir. 1986) (citing Pinkerton v. United States, 328 U.S. 640, 666 (1946)). To convict under Pinkerton, the Government must prove that: 1) “the offense defined in the substantive count was committed pursuant to the conspiracy,” and 2) “that the defendant was a member of the conspiracy at the time the substantive offense was committed,” Id. at 1268, and that 3) the offense was committed in furtherance of and as a foreseeable consequence of the conspiracy. See United States v. Benabe, 654 F.3d 753, 777 (9th Cir. 2011).Here, Defendants challenge the foreseeability that their actions would result in the creation of false documents and the circumvention of internal accounting procedures. Doherty and McClain (and Hooker) were long-time professionals in positions to understand that falsely describing the nature of payments would cause the creation of false entries in the books and records of a company. Given their experience, and their roles in creating the subcontractor arrangement and taking steps to conceal the true purpose of the arrangement, it was reasonably foreseeable that their fellow conspirators would continue to falsify internal records over the years that followed.
Drawing all reasonable inferences in favor of the verdict, the Court cannot acquit Defendants on counts here either.
Ultimately, the Court cannot acquit on any count. For the reasons discussed as to each conviction, the jury had sufficient evidence, and Defendants’ arguments here amount to disagreeing with the strength with which the jury weighed it.”
