paul fiorelli member, ad hoc advisory group, u.s. federal sentencing commission

1. Paul Fiorelli Member, Ad Hoc Advisory Group, U.S. Federal Sentencing Commission

3. INDIVIDUAL GUIDELINES Dynergy - Jamie Olis sentenced to 24 years on 4/04 Blamed for more than $100 million of stock losses 3 counts of wire fraud, one count of securities fraud, and one count of conspiracy His boss plead and cooperated and was sentenced to 5 year max

4. Organizational Compliance & Ethics Update INDIVIDUAL GUIDELINES Frank Quattrone convicted of obstruction on 5/3/04 Sam Wacksal - CEO of Imclone, 7 years for Insider Trading Martha Stewart - 10 months for obstruction of justice

5. 7 Minimum Requirements COMPLIANCE STANDARDS HIGH LEVEL OVERSIGHT CAREFUL DELEGATION EFFECTIVE COMMUNICATION MONITORING/COMPLIANCE CONSISTENT DISCIPLINE PROCESS MODIFICATIONS

6. $80,000,000 v. $1,000,000 80:1 SWING IN FINES

7. USSC Revision Process Fall 2001- USSC announces intention to form Advisory Group on Organizational Guidelines (AGOG) February 2002 - AGOG empanelled 16 people (3 academics, DoJ, Ethics and Compliance Communities) November 2002 - Public hearing

8. Organizational Compliance & Ethics Update USSC Revision Process October 2003 - Final report to USSC Available at www.ussc.gov March 2004 - USSC held public hearing May 1, 2004 - USSC sends amendments to Congress

9. USSC Proposals Stand-alone guideline Assessing the risk Periodic evaluation of program effectiveness Defining Standards and Procedures Delegation of Substantial Authority Training requirement Reporting systems Promoting Ethics Culture promoting ethical conduct and commitment to compliance with the law

10. USSC Vice Chair - John Steer“Although those immediate objectives (of preventing and detecting violations) were bold advances in their own right, the Commission’s vision for its organizational guideline structure was even more ambitious and forward-looking. The Commission hoped this punishment scheme initiative would help contribute, over time, to a more healthy, values-based way of doing business in America.” (26/4/01) (emphasis added by author).

11. New Stand-alone Guideline Section 8B2.1 Elevate from application note to guideline Maintained and refined seven minimum requirements

12. Risk Assessment Implicit in current guidelines Ongoing review

13. Defining Compliance Standards and Procedures “Standards of conduct and internal controls that are reasonably capable of reducing the likelihood of criminal conduct”

14. Delegation of Substantial Authority Current guidelines exclude from substantial authority personnel, those with a propensity towards illegal activity (mind reader standard) Proposal “knew or should have known” screen out those with a history of violations, or conduct inconsistent with an effective program

15. Periodic Evaluation of Program Effectiveness Current guidelines suggest monitoring and auditing as possible way to implement reasonable steps to achieve compliance Proposal requires monitoring and auditing Evaluate program effectiveness Detect criminal conduct

16. Training Current guidelines suggest it is an option Proposal requires training All employees of the organization Board and governing authority must be trained Training need not be formal Orientation or monthly meetings for small organzations

17. Reporting Systems Current guidelines address anti-retaliation Proposal requires reporting mechanism Allow for anonymity and confidentiality Employees and agents may report, or seek guidance Without fear of retaliation Similar to Sarbanes-Oxley

18. Organizational Culture and Leadership Increased leadership responsibility for compliance Governing authority knowledgeable about content and operation of Compliance and Ethics Program Ethics Officer given adequate resources, authority and access to governing authority Promote organizational culture that encourages ethical conduct and a commitment to compliance