Coal Mining CEO Avoids Felony Conviction – Faces Misdemeanor Sentence
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UPDATED: Jan 13, 2016
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After a trial that lasted more than two months, federal prosecutors failed to obtain felony convictions against Don Blankenship, the controversial former CEO of Massey Energy, a coal mining company with a dismal record of safety violations. The trial followed a 2010 coal mine explosion that killed 29 miners.
Prosecutors did manage to obtain a misdemeanor conviction on a charge that Blankenship conspired to violate mine safety laws. Making the best of a bad outcome, federal agencies claim that the misdemeanor conviction will set a precedent for holding business executives accountable for their failure to follow safety procedures.
The verdicts are more a defeat than a victory for the Justice Department. Blankenship would have faced the possibility of a lengthy sentence if he had been convicted of felonies. Instead, he faces a maximum sentence of one year on the misdemeanor conviction.
The 2010 Disaster
An explosion at the Upper Big Branch mine in the town of Montcoal, West Virginia killed 29 miners. The explosion was caused by an ignition of methane that followed a buildup of explosive coal dust about 1,000 feet underground. The 29 deaths made the Upper Big Branch explosion the worst American mining accident in 40 years.
Massey Energy owned the mine. Investigators with the federal Mine Safety and Health Administration (MSHA) concluded that Massey violated a number of safety regulations. They blamed the disaster on those violations.
Permitting the mine to be operated with faulty ventilation systems was one of the most significant violations. Investigators also found that Massey disabled gas detectors, warned mine employees about surprise safety inspections, and failed to conduct required safety inspections.
Adding fuel to Blankenship’s eventual prosecution was the MSHA’s conclusion that Massey’s corporate culture was responsible for the safety violations. According to an MSHA official, “Massey management created a culture of fear and intimidation in their miners to hide their reckless practices.” The decision to put profits ahead of lives was deemed to be the root cause of the disaster.
The Justice Department’s Defeat
One felony charge alleged that Blankenship committed securities fraud when it issued a press release after the mine explosion. The press release claimed that safety was the highest priority at Massey. The press release was filed with the Securities and Exchange Commission and was provided to the company’s investors.
Prosecutors argued that safety was not a high priority at Massey and that false statements in the press release were intended to prop up stock prices. The allegedly false statements in the press release formed the basis for the felony counts of making false statements to the government and to the company’s investors. The jury found Blankenship “not guilty” on those counts.
The felony counts were justly criticized by legal professionals as a stretch of federal law. Corporations routinely put a favorable spin on their business when they provide information to their shareholders. “Our customer service is second to none” is a default response when customers begin to grumble that a business is not serving their needs.
Should corporate executives go to prison for “puffing” their performance in laudatory terms that the investors probably recognize as an exaggeration? Lying about earnings is securities fraud; lying about attitudes or priorities, at least according to Blankenship’s jury, is not. Investors generally expect (and may even want) the businesses in which they invest to portray themselves to the public in a favorable light.
The Justice Department’s Dubious Victory
The Justice Department did manage to persuade the jury to convict Blankenship of conspiring to violate federal safety standards. Prosecutors conceded that Blankenship did not participate in a formal conspiracy, but argued that his leadership caused others within the company to put profits ahead of lives. The jury agreed.
Putting a positive spin on a two-month effort that ended in a single misdemeanor conviction, the Secretary of Labor claimed that the verdict sent a “clear message that no mine operator is above the law, that there must be accountability when people lose their lives because of the neglect of their employer.” It is equally plausible that the acquittals sent a clear message that prosecutors should not be forced to resort to laws that do not clearly apply to CEOs who condone safety violations when they seek criminal penalties for actions that result in a loss of life.
Most violations of safety regulations are civil matters that result in administrative proceedings. Violators may be forced to pay fines or forfeitures, but violations of safety regulations rarely carry criminal penalties for CEOs who allow them to occur. The company that purchased Massey after the mine disaster settled criminal charges that were brought against the corporation by paying $209 million, but corporations do not serve time in prison. Whether corporate fines actually deter corporate wrongdoing is questionable.
Massey accumulated thousands of safety violations during Blankenship’s tenure, but Blankenship earned about $18 million in the year he stepped down. Even if Blankenship were to serve a full year in jail — and that’s unlikely — it is difficult to understand how the verdict would dissuade other highly compensated CEOs from putting the lives of their employees ahead of the increased profits that businesses earn when they ignore administrative regulations. If the Justice Department really wants to send a message, it should lobby for criminal laws that hold CEOs directly accountable for deaths caused by egregious violations of safety violations that occur on their watch.