Board of Directors Criminal Liability: What To Do When You Get The Letter

Board of Directors Criminal Liability: What To Do When You Get The Letter

You just recieved a letter. Maybe it was from the FBI. Maybe the SEC. Maybe your companys general counsel forwarded you something marked “URGENT – CONFIDENTIAL” and now your sitting there, hands shaking, trying to figure out weather your about to lose everything youve worked for. Yes, board members can absolutley face criminal charges – and no, the fact that you “didnt know” about the fraud or regulatory violations or whatever they’re investigating doesnt automaticaly protect you.

Here’s what most directors don’t understand until it’s to late: your board position itself makes you more criminaly liable, not less. The same authority that let you approve budgets and strategy also means prosecutors will argue you should have known about problems. That corporate veil everyone talks about? It dosent exist in criminal court. At all.

This isnt one of those “consult your attorney” articles that leave you hanging. We’re going to walk threw exactly what you need to do in the next 48 hours, what your real exposure actually is, and which common assumptions (Delaware incorporation protects me! I have D&O insurance! Our lawyer approved it!) are going to get you in more trouble.

Your First 60 Minutes: Do NOT Do These Things

The moment you learn about a criminal investigation involving your company, your first instinct will be wrong. You’ll want to call other board members. You’ll want to “get your story straight.” You’ll want to email the CEO asking “what the hell is going on?!” Do not do any of these things.

Every communication you make right now creates evidence. That panicked email to the CFO? Discoverable. That phone call to the board chair where you say “I never saw those financials”? Can be subpoenaed. Even deleting old emails – which you might think “cleans up” confusion – is a federal crime called obstruction of justice. So first rule: stop communicating about company matters entirely.

Second, dont touch any documents. Not to “organize” them. Not to “review” them. Not to “secure” them. Federal prosecutors have literally built entire obstruction cases on directors who thought they were being helpfull by organizing relevent files. The legal standard for obstruction is incredibly low – they just need to prove you knew an investigation was possible and you altered documents in any way, even if you thought you were helping.

Third – and this one feels counterintuitive – dont immediately call a lawyer and leave a voicemail about the investigation. Why not? Because your metadata (time you called, how many times you called, the urgency in your voice if they save voicemails) becomes part of the prosecutions timeline showing you knew about problems. When you do contact a lawyer, which should be within a few hours, do it in person or via a secure method your first contact shouldnt scream “panic.”

What SHOULD you do in hour one? Write down – by hand, on paper, not digitally – everything you can remember about: when you first heard about the issue being investigated, what board meetings discussed anything related, what questions you asked, what concerns you raised, what you voted against. This is for YOUR eyes only, kept at home, and its protected by attorney-client privilege once you hire counsel. But you need to do it now while your memory is fresh, because six months from now when your lawyer asks “did you ever question the revenue recognition policy?” you wont remember.

Understanding Your Actual Criminal Exposure

Let’s talk about what “criminal liability” actualy means for a corporate director, because the way lawyers explain it and the way it actually works in practice are pretty diferent things.

Civilly liable means someone can sue you for money. Criminally liable means you can go to prison. Both can happen simultaneously for the same conduct. The shareholders can sue you in civil court while the DOJ prosecutes you in criminal court for the exact same fraudulent financial statements. And here’s the kicker – the standard of proof is diferent. Civil cases just need “preponderance of evidence” (more likely than not). Criminal cases need “beyond a reasonable doubt.” But that dosent mean criminal cases are harder to prove for prosecutors, because…

Criminal liability for corporate directors usually comes from one of four categories: (1) things you actively did that were crimes, (2) things you approved that were crimes, (3) things you should have known about and stoped, or (4) things you certified as true that werent. Let’s break down each one because they have very different defense strategies.

Category 1 is straightforward – you personaly bribed someone, you personaly embezzled funds, you personally insider-traded. Directors do go to prison for this, but its less common because board members usually arent in operational roles where they’re directly committing financial crimes. If your being investigated for Category 1 conduct, you already know it because it was YOUR action.

Category 2 is where most directors get caught. You approved a transaction that turned out to be fraudulent. You approved financial statements that were false. You approved a strategy that involved breaking environmental laws. The prosecutors dont need to prove you knew it was illegal – they just need to prove a reasonable director should have known. This is where the “business judgment rule” that protects you in civil court completley evaporates. Criminal courts dont care about your “good faith” business judgment.

Category 3 is the nightmare scenario because its the hardest to defend against: willful blindness. The legal standard goes something like this – if there were “red flags” that would have alerted a “reasonably diligent director” to problems, and you either (a) didnt ask questions about those red flags, or (b) accepted implausible explanations, then you can be charged as if you personally knew about the crime. According to Thomson Reuters legal analysis, criminal liability requires both actus reus (guilty act) and mens rea (guilty mind), but “willful blindness” satisfies the mens rea requirement. You dont need to actually know – you just needed to have deliberately avoided knowing.

Category 4 is Sarbanes-Oxley certifications, and we’ll get into this more later, but quick version: if you signed it and it was false, your signature IS the crime. “I didnt read it carefully” is not a defense. The prosecutor will litterally show the jury your signature and the false statement and rest their case.

Now here’s what “criminal liability” actually means in practical terms: Federal prosecutors can charge you with conspiracy, fraud, false statements, obstruction, and about a dozen other statutes. Each statute has a maximum sentence (usually 5-20 years). But the actual sentence youll face gets calculated using Federal Sentencing Guidelines, which is a complex point system. A first-time offender director convicted of fraud will probably be looking at 18-36 months in prison, not 20 years. But – and this is huge – your position as a director adds 2-4 years to whatever the base calculation is because of the “abuse of position of trust” enhancement. The same crime that gets a mid-level manager 18 months gets a director 30-42 months.

The First 48 Hours: Your Hour-by-Hour Action Plan

Okay, youve made it through the first 60 minutes without creating new evidence against yourself. Now what? The next 47 hours are going to determine whether you end up as a witness, a subject, or a target of this investigation. Here’s your hour-by-hour protocol.

Hours 1-6: Emergency Communications Lockdown

During this period, your only communications should be with your spouse (if applicable) and finding a white-collar criminal defense attorney. Not your regular corporate lawyer – they cant help you. Not your companys general counsel – they represent the company, not you, and anything you tell them can be shared with prosecutors if the company decides to cooperate. You need a lawyer who’s defended federal criminal cases, preferably someone whose actually tried cases (not just negotiated plea deals).

Call the most experienced white-collar defense attorney you can find. If you dont know any, call your state bar association lawyer referral service and ask for “federal white-collar criminal defense with former prosecutor experience.” Former prosecutors are worth their weight in gold because they know how the DOJ thinks. Expect to pay a retainer of $50,000-$100,000 just to get started. Yes, really. We’ll talk about costs more later, but if you think thats expensive, wait until you see what inadequate defense costs you in prison time.

What do you tell your spouse? Only what they need to know. “The company is under investigation for [whatever]. I’m getting ahead of it by hiring a specialized lawyer. This is serious, so our finances might get complicated.” Dont tell them details about your potential exposure. Dont tell them what you knew or when. Spouses can be subpoenaed to testify against you in federal court (spousal privilege is more limited than people think). Tell them enough to explain why moneys about to go to lawyers, but not so much that they become a witness.

Hours 6-24: Document Preservation (Without Looking Guilty)

Heres the impossible balance: you need to preserve documents in case you need them for your defense, but you cant do it in a way that looks like your hiding evidence or destroying evidence. How do you walk this line?

First, dont access any company systems from this point forward if you can avoid it. Every login is timestamped. Prosecutors love to show juries: “Notice how the defendant accessed the accounting files 12 times in the 48 hours after learning about the investigation.” Doesnt matter if you were looking for exculpatory evidence – the optics are terrible.

Second, preserve what you have in your personal possession. Board packages you took home. Emails in your personal account. Notes from meetings. But preserve them passively – meaning, dont move them to new locations, dont rename files, dont organize them into “investigation defense” folders. Just leave them exactly where they are. If there on your laptop, dont touch them. If there in a filing cabinet, dont reorganize them. Your lawyer will tell you what to do with them later, but for now: hands off.

Third – and this is critical – do not, under any circumstances, delete anything. Even if its embarassing. Even if its taken out of context it looks bad for you. Even if you think “this email makes me look guilty but I was actually innocent.” Deleting it is a seperate federal crime (obstruction) that carries its own prison sentence. Prosecutors LOVE obstruction charges because they’re easy to prove and they make you look guilty of the underlying crime even if you werent.

One director I know got charged with obstruction for deleting an email that actually would have helped his defense. The email said “I dont understand these numbers, can someone explain the revenue recognition methodology?” That email would have shown he was asking questions, being diligent. But he deleted it because he thought it made him look stupid, and that deletion became a felony charge. Dont be that guy.

Hours 24-48: The Cooperation Trap

By now, either the company’s lawyers or maybe even the board chair will reach out to you asking you to “participate in the internal investigation” or “give a statement to our outside counsel.” This is the cooperation trap, and most directors walk right into it.

Here’s what the company lawyers will say: “Were all on the same team here. We need to get the facts so we can defend the company and the board. Anything you tell us is privileged. You have nothing to worry about if you didnt do anything wrong. Actually, NOT cooperating might make you look guilty…”

All of that is technically true but strategicaly catastrophic for you personally. Let me explain why. When the company hires lawyers to do an internal investigation, those lawyers represent THE COMPANY, not you. If the company decides to cooperate with prosecutors (which most do), everything you told the company lawyers can be handed over to the DOJ. “But you said it was privileged!” Yes, its privileged as to third parties, but not as to the government if the company chooses to waive privilege to get cooperation credit.

So heres what happens in practice: You sit down with the company’s lawyers. They ask you what you knew and when you knew it. You answer honestly. You admit you maybe shouldve asked more questions about those revenue numbers. You acknowledge you knew the CEO was aggressive about making quarterly targets. Two months later, the company makes a cooperation deal with DOJ. Part of that deal is handing over all the interview notes from directors. Your statement – the one you gave trying to be helpful – is now a government exhibit at your trial.

The correct answer to any request for cooperation in the first 48 hours is: “My attorney has advised me not to participate in any interviews until we’ve had a chance to review the situation. I want to be helpful, but I need to do this properly.” If they push back, repeat it. You’re not refusing to cooperate – your refusing to cooperate without counsel. Huge difference legally and optically.

Board Meeting Minutes Are Evidence Maps

Let me tell you about something prosecutors call the “awareness timeline.” Its a document they build showing exactly when you knew what, based entirely on board meeting minutes. And its probably going to be the most damaging evidence against you.

Heres how it works. Prosecutors get all your board minutes for the past 3-5 years. They highlight every time your company’s problems were mentioned: “CFO reported revenue recognition methodology under review by auditors” (March 2023). “Discussion of SEC comment letter regarding revenue timing” (June 2023). “CEO provided overview of accounting policy changes” (September 2023). “Vote to approve 10-K certification” (February 2024). “Company receives SEC Wells Notice” (March 2024).

Now theyve got a timeline showing you were in meetings where these issues were discussed for a full year before you certified the financials were accurate. The fact that you didnt understand the technical accounting issues dosent matter. The fact that you relied on the auditors dosent matter (unless you can prove you asked specific questions, in writing, and got specific answers, in writing). The minutes show you were AWARE of accounting issues, and then you certified the statements anyway. That’s the crime right there, packaged up in your own board minutes.

According to Blake, Cassels & Graydon analysis of white-collar prosecutions, prosecutors use board minutes to establish the “awareness window” – the gap between when directors should have known about problems and when they took action. The longer that window, the stronger the criminal case.

This is why “I attended fewer meetings” is sometimes WORSE for your defense, not better. Prosecutors argue: “This director deliberately avoided attending meetings where problems would be discussed. That’s willful blindness.” Whether you attend every meeting and claim you didnt understand, or skip meetings and claim you didnt know – either way, your probably losing that argument.

Can you do anything about board minutes now? Not really. You cant change historical minutes without creating an obstruction charge. But going forward, if your still on the board (questionable strategy, but we’ll get to that), you need to be incredibly careful about what gets memorialized. If you ask a tough question, make sure the question and the answer get recorded. If you vote against something, make sure your dissent is recorded. If you demand additional information before voting, make sure that gets recorded too.

But honestly – if your already under investigation, board minutes are evidence you cant fix. There already created, there already in the prosecuters hands (or will be soon), and they already tell a story. Your job now is to understand what story there telling, so you can build a counter-narrative.

The Delaware Incorporation Myth

I cant tell you how many directors I’ve talked to who say “But were a Delaware corporation, so I’m protected by Delaware law, right?” And I have to explain: Delaware law protects you from civil liability (somewhat). It does absolutley nothing for criminal liability. Nothing. Zero. Nada.

Heres why. Civil liability is about money – shareholders suing directors for breach of fiduciary duty. Delaware’s business judgment rule says directors cant be sued civilly for business decisions made in good faith, even if those decisions turn out badly. Delaware also allows companies to put indemnification clauses in their bylaws saying the company will pay directors legal fees and settlements in civil cases. Great for civil stuff.

Criminal liability is about breaking criminal statutes – federal fraud statutes, federal false statements statutes, federal obstruction statutes. Where those crimes are prosecuted depends on where the crime occurred, not where your company is incorporated. If the fraud happened in New York, you can be prosecuted in New York. If the fraud happened in California, you can be prosecuted in California. If the fraud happened in multiple states, you can be prosecuted in multiple states. Delaware incorporation is completely irrelevant.

And federal crimes? Those can be prosecuted in ANY district where ANY part of the crime occurred. Wire fraud (sending fraudulent info by email or phone)? Thats prosecutable in any district where a wire crossed. Securities fraud? Prosecutable anywhere the security traded. The prosecutor gets to pick the most favorable venue, and Delaware aint it.

Even worse: some directors think Delaware indemnification clauses mean the company will pay their criminal defense costs. Read your bylaws carefully. Most indemnification clauses say “the company shall indemnify directors for legal costs… except for criminal proceedings.” Or they say “except where the director is found to have acted in bad faith.” Criminal charges basically equal bad faith in most general counsels minds, so there goes your indemnification.

What about Canada? As Canadas Department of Justice guidance on Bill C-45 makes clear, directors and officers “like anyone else, are liable for all crimes that they commit personally, whatever the context.” Canadian directors actually face STRICTER liability than US directors in some ways, because Bill C-45 expanded corporate criminal liability for workplace safety violations. Canadian directors can be charged for safety violations they knew nothing about if they failed to implement adequate safety systems.

The bottom line: incorporation state is a civil law issue, not a criminal law issue. Your criminal exposure follows the crime location and applicable federal/state criminal statutes. Thats it.

D&O Insurance Won’t Save You (Probably)

You know that D&O insurance policy your company bought? The one that costs like $500,000 a year in premiums? Let me walk you through exactly what it DOESNT cover, because most directors dont find out until its to late.

First, D&O policies almost universally exclude coverage for criminal acts. The exact language varies, but its usually something like: “This policy does not cover losses arising from deliberate criminal acts or deliberate fraudulent acts by the insured.” Now you might think “But I didnt commit a deliberate crime!” Doesnt matter. Once your charged criminally, the insurance company will deny coverage and make YOU sue THEM to get coverage, which means your paying defense costs out of pocket while fighting the insurance company. Not a fight you wanna be having while also fighting a criminal prosecution.

Second, even if the policy does cover your defense costs during the investigation phase (before charges), coverage usually stops the moment your indicted. The policy will say something like “Coverage for defense costs terminates upon criminal indictment.” So you might get $50,000 or $100,000 in defense costs covered during the investigation phase, then BOOM, your indicted and you need to come up with $300,000-$500,000 more for trial prep and trial, and insurance wont pay a dime.

Third, D&O policies dont cover fines, penalties, or restitution. So even if you somehow get your legal fees covered (rare), when the judge orders you to pay a $1 million fine and $5 million in restitution, that money is coming out of YOUR pocket. Insurance dosent touch it.

Fourth – and this one blindsides directors all the time – Insured vs. Insured exclusions. This means if the company (or other directors) sue you, D&O insurance dosent cover it. Why would the company sue you? Because as part of a cooperation agreement with DOJ, the company often agrees to claw back compensation from culpable directors or sue them to recover losses. That lawsuit from your own company? Not covered.

Fifth, “cooperation clauses” in D&O policies require you to cooperate with the insurance company’s investigation, which often means waiving attorney-client privilege and sharing your defense strategy with the insurer. And heres the kicker – if the insurer decides your conduct WAS criminal (before any court has ruled on it), they can retroactively deny coverage and demand you pay back the defense costs they already advanced. So you have to share your privileged defense strategy with an insurance company that might use it to deny your claim.

According to analysis by Ellyn Law on director liability, directors consistently over-estimate their D&O coverage and under-estimate their personal exposure. The report notes that “directors and officers have personal criminal liability for criminal acts done in the course of their duties” and insurance exclusions mean directors should expect to pay most defense costs personally.

Real talk about costs: A federal white-collar criminal defense through trial will run you $400,000-$2,000,000 depending on complexity. Your D&O insurance MIGHT cover $50,000-$150,000 of that IF your lucky and IF you dont get indicted quickly. The rest? Your personal assets. Your home equity line. Your retirement account. Your kids college fund. I’ve seen directors liquidate everything to pay for defense lawyers.

What about personal umbrella insurance? Also excludes criminal acts. What about homeowners insurance? Excludes criminal acts. What about pre-paid legal plans? They dont cover federal criminal defense. Your on your own financially.

If You’re “Just a Witness” (For Now)

Maybe you didnt get a target letter. Maybe you got a letter saying your “a witness” or you got a grand jury subpoena for documents only. Does that mean your safe? Absolutely not. Heres what you need to understand about witness status and how fast it can change.

Federal prosecutors use three categories: target (they intend to charge you), subject (your conduct is being investigated but no decision made yet), and witness (your only being asked to provide information about others). But these categories are fluid. You can go from witness to subject to target in about 48 hours based on what you say in one interview.

Heres how it happens. You get subpoenaed to testify before a grand jury as a witness about the CFO’s conduct. You show up, you answer questions honestly. The prosecutor asks “Did you review the revenue recognition policy?” You say “Yes, I reviewed it.” Prosecutor asks “Did you understand it?” You say “Well, not completely, I’m not an accountant.” Prosecutor asks “Did you ask questions about the parts you didnt understand?” You say “I dont recall specifically asking questions…” And BOOM, you just admitted to willful blindness. You went from witness to subject in three questions.

Or heres another version. Your a witness against the CEO. The prosecutor asks you to describe a board meeting. You describe it. Then they pull out the board minutes and show you that your description differs from the minutes in three small ways. Now they’re suggesting you lied to a grand jury (perjury). Doesnt matter that the differences were just memory errors – now your a subject of a perjury investigation.

This is why even as a “witness,” you need your OWN lawyer (not the company’s lawyer) to prepare you before any grand jury testimony or FBI interview. That lawyer needs to review all the documents with you, anticipate the questions, and make sure you understand the difference between “I dont recall” (safe) and guessing at an answer (dangerous).

Should you accept witness immunity? It depends. Immunity means you cant be prosecuted for anything you testify about. Sounds great, right? But heres the trap: once you accept immunity, you HAVE to testify (cant take the Fifth Amendment anymore), and if you refuse, you can be jailed for contempt. So if the prosecutor offers immunity and you think your testimony might implicate you in ways you havent figured out yet, accepting immunity can force you to testify against yourself without realizing it.

When you get contacted as a witness, do not – under any circumstances – talk to investigators without your lawyer present. Not even “just to schedule a time to talk.” Not even “just preliminary questions.” Federal agents are allowed to lie to you during interviews. They’re allowed to tell you “your just a witness” when your actually a target. They’re allowed to say “this is just informal” when there recording everything for a grand jury presentation later. You need a lawyer in that room, period.

The Advice of Counsel Defense That Actually Works

One of the most effective defenses for board members charged with corporate crimes is “advice of counsel” – but only if you build that defense BEFORE charges get filed, and most directors screw this up completely. Let me explain how to do it right.

The basic idea: you cant be convicted of a crime if you were following advice from a qualified attorney who you gave all the relevant facts to, and who told you the conduct was legal. Sounds simple. In practice, its incredibly hard to prove because of the documentation requirements.

Here’s what DOESNT count as advice of counsel defense: (1) “Our general counsel said it was fine” without a written memo, (2) “The lawyer gave a presentation to the board about compliance,” (3) “I assumed the lawyers had reviewed it,” (4) “The company has a compliance program,” (5) “We hired a law firm to advise us.” None of that is sufficient.

Heres what DOES count, and what you need to build this defense: (1) Specific written legal advice on the specific transaction or conduct at issue, (2) From a qualified outside attorney (not in-house counsel, preferably), (3) To whom you disclosed all material facts (and you can prove you disclosed them), (4) Before the decision was made (not retroactive), (5) That you actually relied on when making your decision, (6) Documented in board minutes as “decision made in reliance on advice of counsel dated [date].”

Why outside counsel instead of in-house? Because prosecutors argue in-house counsel is influenced by management pressure to approve deals. Outside counsel is presumed to be more independent. Its not a legal requirement, but its a practical advantage.

The “all material facts” requirement kills most advice-of-counsel defenses. You got legal advice about a transaction, but you didnt tell the lawyer that the CEO was pressuring the CFO to hit earnings targets. Advice based on incomplete facts isnt a defense – in fact, it can be evidence of your guilty knowledge (you deliberately hid facts from your own lawyer).

According to Girlings’ analysis of when directors assume personal liability, directors can face criminal liability for “making misleading statements or misrepresenting facts to parties such as investors, shareholders or customers.” The advice-of-counsel defense requires that you DIDNT mislead your own attorney.

Board minutes are critical here. If your minutes say “Motion to approve Transaction X, unanimously approved,” that tells prosecutors nothing about whether you relied on legal advice. But if the minutes say “Motion to approve Transaction X based on opinion letter from [Law Firm] dated [date] concluding transaction complies with applicable regulations, unanimously approved” – now you’ve got documented reliance.

Can you build this defense now, retroactively? Probably not for past conduct. But if your still serving on the board (questionable, see next section), you can implement this going forward. Before any major decision, demand written legal analysis. Make sure the lawyer has all the facts. Make sure the board minutes reflect reliance on that advice. Your building a paper trail that shows deliberate diligence, not recklessness.

One last thing about advice-of-counsel defense: it waives attorney-client privilege. If you claim “my lawyer told me it was legal,” the prosecutor gets to see all your communications with that lawyer to verify your claim. So dont assert this defense unless your 100% confident there’s nothing in those communications that undermines your story.

Should You Resign Right Now?

The question of whether to resign from the board during an investigation is one of those damned-if-you-do, damned-if-you-dont scenarios. Heres the calculus.

Arguments for resigning immediately: (1) You stop accumulating new liability exposure, (2) You can focus on your defense instead of company duties, (3) You separate yourself from ongoing company problems, (4) It might signal to prosecutors your not trying to interfere with investigation.

Arguments against resigning immediately: (1) It looks like consciousness of guilt – prosecutors love to show juries “Notice how the defendant resigned the moment the investigation started,” (2) You lose access to company information you might need for your defense, (3) You lose board fees (which you need to pay lawyers), (4) You might trigger D&O insurance exclusions for directors who “voluntarily” resign, (5) Other directors who stay might throw you under the bus as the “guilty” one who ran.

Here’s what alot of directors dont realize: resigning doesnt stop the clock on statute of limitations. If you resign today, you can still be prosecuted for conduct that happened while you were a director, for up to 5 years after that conduct (for most federal crimes). Resigning isnt a legal shield, its a tactical decision.

When resignation makes sense: If you’ve been asked to approve ongoing conduct you believe is illegal or questionable. At that point, resignation is better than voting yes (creates more liability) or voting no but staying on board (creates liability if conduct continues). Better to resign with a letter saying “I can no longer fulfill my duties as a director” (dont say WHY) than to keep approving stuff your not comfortable with.

When resignation looks terrible: If you resign within days or weeks of learning about the investigation. That screams “I’m guilty and running.” If your going to resign for tactical reasons, you need to create a plausible narrative that isnt about the investigation – “personal reasons,” “other business commitments,” “health issues,” something that doesnt scream “fleeing a sinking ship.”

Can you use resignation as a negotiating tool? Sometimes. If prosecutors approach you about cooperation, one thing you might offer is “I’ll resign from the board as part of a cooperation agreement.” That way resignation becomes part of your cooperation, not evidence of guilt. But thats a sophisticated negotiation that requires experienced defense counsel to execute.

What about the impact on D&O insurance? Some policies have clauses that reduce or eliminate coverage if you resign “without the company’s consent” or if you resign “knowing that your conduct might result in claims.” Read your policy (well, have your lawyer read your policy). In some cases, staying on the board is necessary to preserve insurance coverage, even if its awkward.

Bottom line: dont make the resignation decision unilaterally in the first 48 hours. Its a decision that has legal, financial, and tactical implications. Make it after consulting with your criminal defense attorney, after reviewing your D&O policy, and after thinking through the optics. Theres no one-size-fits-all answer.

Sarbanes-Oxley Certifications: Your Signature IS The Crime

If your a director of a public company, youve probably signed Sarbanes-Oxley certifications. Maybe you didnt read them that carefully. Maybe you assumed the auditors and lawyers had reviewed everything. Maybe you trusted the CEO and CFO when they said “everything’s accurate.” None of that matters if the financials were false.

Heres what most directors dont understand: SOX certifications create strict liability for the signing officers. Section 906 of Sarbanes-Oxley makes it a federal crime to certify financial statements you “know” are false. But heres the kicker – courts have interpreted “know” incredibly broadly to include “should have known” and “recklessly disregarded red flags.”

When you sign a SOX cert, your certifying: (1) The financial statements fairly present the company’s financial condition, (2) You’ve reviewed the statements, (3) There are no material misstatements or omissions, (4) The disclosure controls are effective. Your signature on that document is a sworn statement. If any of those four things turn out to be false, your signature is evidence of the crime.

“But I’m not the CEO or CFO, I’m just a director” – doesnt matter. If your on the audit committee, or if you signed certifications for any reason, your liable. The statute doesnt care about your title; it cares about your signature.

The penalties under SOX are severe. Section 906 carries up to 20 years in prison for willful violations and up to 10 years for reckless violations. Section 302 (the other SOX cert provision) doesnt have criminal penalties directly, but false certifications can be prosecuted as securities fraud, which carries up to 25 years.

According to Thomson Reuters analysis, criminal liability requires both actus reus (the guilty act – signing a false certification) and mens rea (guilty mind – knowledge or recklessness). Your signature proves the actus reus. The prosecution just needs to prove you were reckless in signing, which they do by showing you didnt do adequate review before signing.

What does “adequate review” look like? Courts expect directors to: (1) Review the actual financial statements (not just a summary), (2) Ask questions about any items they dont understand, (3) Get written answers to those questions, (4) Review the audit committee’s findings, (5) Review management’s assessment of internal controls, (6) NOT sign during compressed time periods that suggest rubber-stamping.

How many directors actually do all that? Almost none. Most directors get the board package 2-3 days before the meeting, skim the financials, ask a couple questions verbally at the meeting, and sign. If the numbers turn out to be fraudulent, that process wont save you.

Can you refuse to sign a SOX certification? Yes. Should you? If you have genuine concerns about accuracy, absolutely yes. Refusing to sign might cost you your board seat, but signing a false certification will cost you your freedom. If your being pressured to sign and you have concerns, the right answer is: “I need more time to review this. I’m not signing until I have written answers to the following questions…”

What if you signed in the past and your now worried those certifications might have been false? Theres nothing you can do retroactively. You cant “un-sign” them. You cant add caveats later. The signature is permanent evidence. Your defense will have to focus on what review you DID do, what questions you DID ask, and why a reasonable director in your position would have believed the statements were accurate at the time.

Sentencing Realities: What Happens If You’re Convicted

Lets talk about something most articles avoid: what actually happens if your convicted of a corporate crime as a board member. Because understanding the realistic outcomes helps you make better decisions about whether to fight, negotiate, or cooperate.

Federal sentencing works through a Guidelines system. The judge calculates a base offense level based on the crime, then adds or subtracts points based on factors like loss amount, number of victims, role in the offense, and your acceptance of responsibility. That offense level, combined with your criminal history (probably zero as a first-time offender), produces a sentencing range in months.

For most corporate crimes, your looking at a base offense level of 6-8, which would normally mean probation or a few months. But then the additions come: Loss amount – if the fraud involved more than $1 million, add 6-20 points depending on total loss. Number of victims – more than 50 victims, add 4 points. Role in offense – if you were an organizer or leader, add 2-4 points. And here’s the big one for directors: Abuse of position of trust – add 2 points automatically.

According to U.S. Sentencing Commission data, the average sentence for fraud offenses in 2023 was 23 months. But for defendants with the “abuse of trust” enhancement (which includes corporate officers and directors), the average was 36 months. Your board position alone adds about a year to your sentence on average.

What can reduce your sentence? Acceptance of responsibility – if you plead guilty and genuinely accept responsibility, you get 2-3 points off, which can reduce your sentence by 6-12 months. But you only get this if you plead guilty early. If you go to trial and lose, you dont get this reduction.

Cooperation can also reduce your sentence substantially. If you provide “substantial assistance” to the prosecution (meaning you help them convict other people), the prosecutor can file a 5K1.1 motion asking the judge to go below the Guidelines range. I’ve seen directors who cooperated get probation instead of prison. But cooperation means testifying against your fellow directors, against executives you worked with, and permanently burning those relationships.

What about alternative sentencing? Home detention is possible for sentences under 12 months in some cases. Halfway house (residential reentry center) for the last 6-12 months of your sentence is common. But for most directors convicted of corporate crimes, your looking at actual prison time – federal prison camp (minimum security) if your lucky, but still prison.

Fines and restitution are seperate from prison time. Fines can be up to twice the gain or loss from the crime, so a $5 million fraud could result in a $10 million fine (though judges usually impose less). Restitution is mandatory and equals the actual loss suffered by victims. If shareholders lost $50 million, you can be ordered to pay restitution of $50 million, even though you obviously dont have that much. Restitution orders dont expire – you’ll be making payments for the rest of your life.

Asset forfeiture is also possible. The government can seize assets that were proceeds of the crime or used to commit the crime. Your board compensation for the years you certified false financials? Forfeit. Your stock gains during the fraud period? Forfeit. Your home, if you used mortgage fraud to buy it? Forfeit.

After prison, you face supervised release (basically federal probation) for 1-3 years. During supervised release, you cant leave the district without permission, you have to submit to random drug testing, you have to allow searches of your home and computer, and any violation sends you back to prison.

Professional consequences: Convicted felons cant serve as corporate directors or officers of public companies. The SEC will also likely bar you from serving as a director or officer (this is a seperate administrative proceeding). Most professional licenses (lawyer, accountant, doctor) get automatically revoked or suspended for felony convictions. So even after you serve your sentence, your professional life is over.

This isnt meant to scare you into irrational decisions. Its meant to help you understand the real stakes so you can make informed choices about defense strategy, cooperation, and plea negotiations. A good defense attorney might get your potential 36-month sentence down to 18 months with a plea deal, or down to 12 months with cooperation, or even down to probation if you’ve got a really strong case. But you need to know the realistic range to evaluate options.

Protecting Your Family’s Financial Future

One of the most painful conversations Ive watched directors have is when they realize there entire family’s financial security is at risk. So lets talk about asset protection – what you can do, what you cant do, and what will get you in even more trouble.

First, understand what assets can be seized. In federal criminal cases, the government can take: (1) Assets that are “proceeds” of the crime (like board fees you earned while committing fraud), (2) Assets used to commit or facilitate the crime (like a computer used to send fraudulent financial statements), (3) Assets subject to criminal forfeiture statutes, (4) Assets to satisfy fines and restitution orders (which is basically all your assets).

What assets are protected? It varies hugely by state. Some states have unlimited homestead exemptions (like Florida and Texas) – meaning your primary residence cant be seized to satisfy civil judgments. But federal criminal restitution orders can override those protections. Some states protect retirement accounts; others dont. Some states have better spousal asset protections than others.

What you absolutely cannot do: transfer assets after you learn about the investigation. Transferring your house to your spouse for $1 after the FBI shows up? Thats a seperate crime (fraudulent conveyance or obstruction). Putting money in your kids names? Same problem. Creating offshore trusts? Even bigger problem. Any asset transfer you make after learning about criminal investigation will be scrutinized and can be unwound, plus you’ll get charged with additional crimes.

What about legitimate pre-existing asset protection? If you set up an irrevocable trust for your kids 10 years ago, before any of this started, that might be protected (depends on the trust terms and state law). If you bought a house in Florida 15 years ago and its your primary residence, the homestead exemption might protect it from civil claims (but probably not criminal restitution). The key is timing – the protection has to have been established long before the investigation, and it cant look like you were hiding assets.

Spousal asset protections vary by state. Community property states (like California, Texas, Arizona) treat marital assets differently than common law states (most others). In some states, assets in your spouse’s name that were never commingled with marital assets might be protected. In other states, “marital property” includes basically everything acquired during marriage regardless of whose name its in.

One strategy that sometimes works: if your spouse has there own income and assets that are clearly separate from yours (inheritance, pre-marital assets, business income in their name only), keeping those assets segregated might protect them. But this only works if you’ve maintained clear separation all along – trying to “separate” assets now wont work.

Should you liquidate retirement accounts to pay for defense costs? This is a tough call. In some states, retirement accounts are protected from creditors, so liquidating them to pay lawyers means taking money from a protected bucket and spending it. But if you dont pay for a good defense, you might end up convicted and lose everything anyway. No easy answer – depends on your specific situation and state law.

What about insurance? We already covered D&O insurance (probably wont help). Personal umbrella policies also exclude criminal acts. But your homeowners insurance might cover your house if the government tries to seize it as proceeds of crime – some policies cover “involuntary forfeiture.” Read the policy.

Bankruptcy? Most people assume they can discharge criminal fines and restitution in bankruptcy. Wrong. Criminal restitution is non-dischargeable in bankruptcy. Fines are non-dischargeable. You’ll owe that money until you die, and the government can garnish your wages, seize tax refunds, and intercept Social Security payments for the rest of your life.

The hard truth: if your convicted of a major corporate crime with substantial restitution orders, your probably going to be financially devastated. Even if you dont go to prison (unlikely), even if you keep your house (maybe), your lifetime earning potential is severely limited as a convicted felon who cant work in corporate America anymore. Your family needs to prepare for that reality – downsizing lifestyle, spouse potentially becoming primary earner, kids adjusting college plans, etc.

This is why the decisions you make in the next few weeks about defense strategy, cooperation, and plea negotiations are SO important. The difference between a conviction with $20 million restitution and a plea deal with $2 million restitution is literally your family’s financial future.

Finding the Right Criminal Defense Attorney

You need a lawyer yesterday. Not your regular corporate attorney. Not your companys general counsel. Not your friend who does estate planning. You need a white-collar criminal defense attorney with federal court experience, preferably someone who’s tried cases and won. Heres how to find them.

Start with the National Association of Criminal Defense Lawyers (NACDL) directory. Filter for “white collar” and “federal court” and your state. You want someone whos defended federal fraud cases, securities cases, obstruction cases. Check their website – do they have trial verdicts listed? Have they actually tried federal cases or do they just negotiate plea deals? You want someone who’s been to trial, even if you end up pleading.

Former prosecutors are worth their weight in gold for white-collar defense. They know how the DOJ thinks, they know the prosecutors personally, they know what deals are realistic and what arent. Look for “former Assistant U.S. Attorney” or “former DOJ trial attorney” in their bio.

Check their firm size. Big law firms (100+ lawyers) have resources but your case might get handled by junior associates. Boutique firms (5-20 lawyers) specializing in white-collar defense often provide more partner attention. Solo practitioners can be great if there extremely experienced, but make sure they have the bandwidth for a complex federal case.

Interview at least three lawyers before deciding. Ask: (1) How many federal white-collar cases have you tried? (2) What were the outcomes? (3) What’s your relationship with the local U.S. Attorney’s office? (4) Will you personally handle my case or delegate to associates? (5) What’s your retainer and hourly rate? (6) What’s your realistic cost estimate for taking this through trial?

Cost expectations: Retainers range from $50,000 to $200,000 just to get started. Hourly rates for experienced white-collar partners range from $600-$1,200/hour. Taking a federal case through investigation, pre-trial, and trial will cost $400,000-$2,000,000 depending on complexity. If you cant afford that, some lawyers do payment plans, but you’ll need to show ability to pay eventually.

What if you genuinely cant afford a private attorney? You can request a court-appointed attorney (federal public defender or CJA panel attorney). Federal defenders are actually excellent lawyers – often better than private counsel because they try more cases. The downside is they’re overwhelmed with cases and wont have as much time for your case as a private lawyer would.

Red flags to avoid: (1) Lawyers who guarantee outcomes (“I can get this dismissed”), (2) Lawyers who badmouth prosecutors or judges (you want someone who can negotiate, not someone who burns bridges), (3) Lawyers who dont specialize in criminal defense (corporate lawyers dabbling in criminal work will get you killed), (4) Lawyers who quote unrealistically low fees (you get what you pay for).

Once you hire counsel, listen to them. If they tell you not to talk to investigators, dont talk. If they tell you not to destroy documents, dont destroy them. If they tell you to resign from the board, resign. You hired an expert – follow their advice even when it feels counterintuitive.

According to OneGroup’s analysis of board member risk, directors can be “held personally liable for the decisions and actions of the board, even in the case of impropriety on the part of other members.” This means your defense attorney needs to be able to separate your conduct from other directors’ conduct and build an individualized defense strategy.

The attorney-client relationship in a criminal case is different from any other legal representation youve had. You need to tell your lawyer EVERYTHING – even the embarrassing stuff, even the stuff that makes you look bad. They cant defend you effectively if there hiding secrets that might come out at trial. Everything you tell them is privileged and confidential (unlike talking to company lawyers). Be honest, be thorough, and trust the process.

Final Thoughts: This Is Survivable

Look, I’m not going to tell you this isnt serious. If your reading this article because your actually facing a criminal investigation as a board member, your in one of the most stressful situations of your life. Your scared. Your angry. Your confused about how you got here when you were just trying to do your job as a director.

But here’s what I want you to understand: this is survivable. Directors get investigated all the time. Most dont get charged. Of those who get charged, many get plea deals with reduced sentences. Of those who go to trial, some win. Even those who get convicted and serve time – they rebuild their lives afterward. This isnt the end of your story; its a chapter.

The key is making smart decisions in these first few days and weeks. Hiring the right lawyer. Not creating new evidence against yourself. Understanding your real exposure (not your catastrophizing about worst-case scenarios). Building the best defense possible with the facts you have.

You didnt commit murder. You didnt rob a bank. Your being investigated for corporate conduct that exists in a gray area between aggressive business practices and criminal fraud. Theres room to defend yourself. Theres room to negotiate. Theres room to cooperate if that makes sense. You have options.

The directors who do the worst in these situations are the ones who panic and make impulsive decisions – destroying evidence, lying to investigators, trying to cover up their involvement. The directors who do the best are the ones who get good counsel fast, follow that counsel’s advice, and approach this systematically rather than emotionally.

Your board service was supposed to be prestigious and profitable. Instead, its become a nightmare. I get it. But you can get through this. Take it one day at a time. Make the smart moves. And remember – this too shall pass.