WSJ What’s News - How Businesses Survive Felony Convictions Without Lasting Damage

Episode Date: July 30, 2024

P.M. Edition for July 30. For big companies, corporate felony convictions aren’t the black mark that they used to be. WSJ reporter Dave Michaels explains how many big businesses plead guilty to crimes and emerge unscathed. And Tesla recalls more than 1.8 million vehicles in the U.S. Plus, Israel launches a strike in Beirut targeting a Hezbollah commander, after Saturday’s deadly attack in the Golan Heights. Francesca Fontana hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Israel launches a strike in Beirut, targeting a Hezbollah commander after Saturday's deadly attack in the Golan Heights. And how many big companies survive felony conviction without lasting consequences. For really big companies, public companies, a guilty plea is not fatal. And in a way, really it isn't much more impactful on them than the other kinds of settlements. Plus, Tesla recalls more than 1.8 million of its electric vehicles. It's Tuesday, July 30th. I'm Francesca Fontana for the Wall Street Journal.

This is the PM edition of What's News, the top headlines and business stories that move the world today. The Israeli military says it launched a strike in Beirut, targeting a Hezbollah commander that Israel said was behind a deadly Saturday attack that killed 12 children in the Israel-controlled Golan Heights. The attack, which the Israeli military called a targeted strike, comes amid fears of a wider war. According to Lebanon's official news agency, a number of wounded people were sent to three Beirut hospitals by first responders. It wasn't immediately clear if anyone had been killed in the attack. Israel and the Iran-backed Hezbollah have engaged in months of back-and-forth fighting across the

Israeli-Lebanese border. Today is the second time in nine months of war that Israel struck the capital of Lebanon. The first was in January, killing a senior Hamas leader. In Washington, the US has agreed to arm dozens of Ukraine-bound F-16 jet fighters with American-made missiles and other advanced weapons as Ukraine seeks to turn the tide in its war against Russia. Denmark and the Netherlands are preparing to send the first American-made F-16s to Ukraine this summer, and more will come later from Belgium and Norway. The F-16 is one of the highest-profile pieces of equipment that the West has offered Ukraine.

The Journal's national security reporter, Laura Seligman, explains how the newly armed aircraft may make a difference. While the F-16s are not going to be a game changer for Ukraine, they are going to add a tactical advantage in a war that's being fought over just inches of territory. The aircraft is 50 years old, but with upgrades it is a modern fighter jet with a sophisticated radar that allows more precise targeting as well as a suite of advanced precision weapons. Now, Ukraine still has a lot of challenges once the jets actually arrive in Ukraine. Training of pilots and maintainers has already been difficult as the F-16 is a very complex aircraft both to fly and maintain.

And the maintenance itself is going to be logistically challenging because a lot of the higher level maintenance will have to be done in a different country. And finally, Ukraine's ability to use the F-16s is going to be limited as well because they are at significant risk of getting shot down by Russian aircraft and surface-to-air missiles. The main area that they will be useful in is on the front lines, protecting troops on the ground from incoming fire. The new leader of the Secret Service told Congress today that he was ashamed when he saw how easy it was for a gunman to shoot at former President Donald Trump during a

recent rally. One of my first actions as acting director was traveling to the Butler Farm Show site to better understand how our protection failed. I went to the roof of the AGR building where the assailant fired shots and I laid in a prone position to evaluate his line of sight. What I saw made me ashamed. As a career law enforcement officer and a 25-year veteran with the Secret Service, I cannot defend why that roof was not better secured."

Appearing before two Senate committees, Acting Director Ronald Rowe said the agency has taken steps to enhance security for its protectees, including by expanding the use of drones. He's also ordered the maximum use of Secret Service special agents to address this heightened security environment, and took steps to improve communication between agents and local law enforcement. Roe appeared forceful and more forthcoming during his testimony compared to his predecessor, Kimberly Cheadle, who resigned last week under pressure from lawmakers. Coming up, how big businesses often emerge from felonies unscathed. That's after the break. Whether you're a shop owner, a pet groomer, a contractor, or a consultant, you can get

customized coverage for your business. Contact a licensed TD Insurance advisor to learn more. Times have changed, and corporate criminal convictions aren't what they used to be. Following the Enron scandal, accounting firm Arthur Anderson collapsed in 2002. Prosecutors had indicted the company for shredding evidence relating to its audits of the failed energy conglomerate. For years after, prosecutors held back from inditing major corporations, fearing they would kill them in the process. But in the past decade, banks, commodity trading firms, and automakers have pleaded guilty to crimes and emerged without permanent scars. Here to explain

is reporter Dave Michaels, who covers financial enforcement. Dave, what's changed from the days of Enron and the like? How are corporations now able to come out of these cases unscathed? Well, since a company can't go to prison, you really have to break down a conviction into various punishments. Fines, you know, the corporation is going to pay a big fine. The corporation is going to perhaps have to accept what's called an independent compliance monitor, which is an entity that looks into the way that the company tries to set up defense mechanisms against violations of law. And the compliance monitor can be very expensive and intrusive, so corporations don't like

those. And then there can be prosecutions of the culpable individuals, and the corporation is supposed to cooperate with the government's investigation into those individuals. But what we found out is that for really big companies, public companies, a guilty plea is not fatal. What are some recent examples where we can see this phenomenon play out? The most recent example is Boeing. Its reputation has been tarnished by crashes in 2018 and 2019. Those crashes killed 346 people.

And its reputation has been harmed by its problems with its supply chain. At the end of the Trump administration, Boeing got a settlement with the Justice Department that was not a conviction. It was an alternative form of a settlement called a Deferred Prosecution Agreement. And that disappointed a lot of people who were stakeholders, frankly, in that resolution.

And recently the government said, hey, Boeing, you violated your earlier settlement. We're gonna make you plead guilty. So what I got interested in was really trying to understand, okay, well, how different is a guilty plea at the end of the day from a different kind of a settlement, a settlement that supposedly is more lenient? Are the ingredients sort of all the same?

What I found is that where the corporation is a big public company that has a very established business like Boeing or like big banks, at the end of the day, the guilty plea is not that much different from other kinds of settlements for the corporation. How do investors or customers feel about this? Are there times when it is a big deal for them?

I think it can be a really big deal for them where the company is a smaller company, the private company are closely held by its owners, and the owners themselves are involved in the wrongdoing. Customers of those companies can be scared off, business partners can be scared off, and the corporation can sort of collapse. And they do after a guilty plea or a conviction. But size really matters here. The importance of the company to its industry. Boeing is kind of a one of a kind corporation, right? In aerospace and defense. And it can't just go away tomorrow because of a conviction.

Everybody sort of knows that. So there are real limits to the impact of a guilty plea. And that's why prosecutors over the years have oriented their programs more toward trying to convict individuals rather than just making corporations pay a bunch of money. And are there any other collateral consequences? Well corporations can be suspended as federal contractors if they have a criminal conviction. And in Boeing's case, that is a potential consequence, but analysts do not expect the Defense Department

to suspend Boeing as a federal contractor. That Boeing is just too important to the program for that. That was WSJ Reporter Dave Michaels. In other corporate news, Tesla is recalling more than 1.8 million of its electric vehicles in the U.S. The cause? A software issue that could result in the hood fully opening and obstructing the driver's view. The National Highway Traffic Safety Administration said the glitch could fail to warn a driver

when the hood's unlatched, increasing the risk of a crash. In response, Tesla released an over-the-air software update free of charge for vehicles that could be affected. The electric vehicle maker has been hit by a series of potential safety issues in recent years, like last month's recall affecting more than 11,000 of Tesla's Cybertrucks over issues with the trunk and the windshield wiper. The transportation agency has also been scrutinizing the company's autopilot system after years of high-profile crashes. Video and data gathered by the Wall Street Journal from over 200 Tesla autopilot crashes reveals that long-standing concerns about the company's camera-based technology, which differs from the rest of the industry, are showing up on the roads

and putting the public at risk. Tesla didn't immediately respond to requests for comment. In markets, big tech stocks kept falling in today's session, continuing the recent market rotation. The tech-heavy NASDAQ composite dropped 1.3% and the S&P 500 fell 0.5%. Meanwhile, the Dow Jones Industrial Average rose 0.5% or about 203 points. After today's trading session, Microsoft posted its quarterly results, saying that cloud growth boosted its sales. The tech giant's cloud revenue, which includes its AI offerings in partnership with OpenAI, grew 21% from a year earlier, while its

overall revenue grew 15%. From heat waves to flooding rains, there's been a lot of extreme weather this summer. How have you been affected by extreme weather and what questions do you have about what companies are doing to counter those effects? Send a voice memo to wnpod at wsj.com or leave a voicemail with your name and location at 212-416-4328. We might use it on the show. And that's what's news for this Tuesday afternoon. Today's show was produced by Pierre Bienamay and Anthony Bansi with supervising producer Michael Cosmitis. I'm Francesca Fontana for The Wall Street Journal.

We'll be back with a new show tomorrow morning. Thanks for listening.