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From Securities Regulation Daily, February 25, 2015

Supreme Court rejects broad reading of Sarbanes-Oxley anti-shredding provision

By Jim Hamilton, J.D., LL.M.

The U.S. Supreme Court ruled that Sarbanes-Oxley’s provision against shredding a “tangible object” in 18 U.S.C. §1519 is better read to cover only objects one can use to record or preserve information, not all objects in the physical world. It is highly improbable that Congress would have buried a general spoliation statute covering objects of any and every kind in a provision targeting fraud in financial record-keeping (Yates v. U.S., February 25, 2015, Ginsburg, R.).

The Court agreed to review the issue of whether Section 1519 reached the conduct of a commercial fisherman who was convicted under the anti-shredding statute for destroying undersize fish after a federal officer issued him a citation and instructed him to bring the fish back to port. Section 1519 prohibits the destruction of “any record, document, or tangible object with the intent to impede, obstruct, or influence” a federal investigation. The decision to reverse was 5-4.

Statutory headings. The Court noted that Section 1519 falls under the caption: “Destruction, alteration, or falsification of records in Federal investigations and bankruptcy.” That heading conveys no suggestion that the section prohibits spoliation of any and all physical evidence, however remote from records. Furthermore, Section 802 of the Sarbanes-Oxley Act, which adds Section 1519 to Title 18 of the U.S. Code, is titled “Criminal penalties for altering documents.” The only other provision passed as part of Section 802 is 18 U.S.C. §1520, titled “Destruction of corporate audit records”; it addresses only that specific subset of records and documents. While these headings are not commanding, they supply cues that Congress did not intend “tangible object” in Section 1519 to sweep within its reach physical objects of every kind, including things no one would describe as records, documents, or devices closely associated with them.

Other contextual cues. Also, the words immediately surrounding “tangible object” in Section 1519—“falsifies, or makes a false entry in any record [or] document”—also constrain the contextual meaning of that term. “Tangible object” is the last in a list of terms that begins “any record [or] document.” The term is therefore appropriately read to refer not to any tangible object, but specifically to the subset of tangible objects involving records and documents, that is, objects used to record or preserve information.

Resolution of ambiguity. Finally, the Court invoked the rule that “ambiguity concerning the ambit of criminal statutes should be resolved in favor of lenity.”Cleveland v. United States, 531 U. S. 12, 25 (2000) (quoting Rewis v. United States, 401 U. S. 808, 812 (1971)). That interpretative principle is relevant here, where the Government urges a reading of Section 1519 that exposes individuals to 20-year prison sentences for tampering with any physical object that might have evidentiary value in any federal investigation into any offense, no matter whether the investigation is pending or merely contemplated, or whether the offense subject to investigation is criminal or civil.

The case is No. 13-7451.

Attorneys: John L. Badalamenti, Assistant Federal Defender, for John L. Yates. Donald B. Verrilli, Jr., Solicitor General for United States Department of Justice.

MainStory: TopStory SarbanesOxleyAct

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