Criminal Investors
George Washington Law Review, Vol. 93 (forthcoming 2025)
64 Pages Posted: 6 Dec 2024 Last revised: 25 Nov 2024
Date Written: November 24, 2024
Abstract
This Article reassesses the culpability of those of who invest in law-breaking firms. Prosecutors currently treat investors as victims of corporate wrongdoing rather than as actors who might bear responsibility for it. One explanation for this tendency is that corporate law’s doctrine of limited liability creates so strong a presumption of investor blamelessness that it permeates other spheres, including criminal law. Another is that investors are too remote from the firms they invest in to be blamed for corporate wrongdoing. This Article observes, though, that investment can facilitate, and even cause, illicit corporate activity. When investors intentionally contribute to those effects, substantive criminal law imposes liability on them just the same as it does on accomplices, conspirators, or principals in other contexts. Despite this formal parity, however, investor criminal liability is more a theoretical proposition than a practical reality.
This Article challenges that status quo by asking whether and when culpable investors should be held criminally accountable for corporate wrongdoing. The answer, it explains, should follow careful balancing between the public’s interests in law compliance and capital formation. It finds individual investors in private law-breaking firms, who have at least knowing intent, to be plausible enforcement targets. For other investors, the status quo merits keeping. Yet if culpable investors are at realistic risk of prosecution, law-abiding investors might, even if erroneously, perceive themselves as exposed. If so, they might make fewer and less-efficient investments. To address this danger, the Article calls for safe harbors to protect investors who rely on firms’ representations of having adequate corporate compliance programs or who rely on their own pre-investment investigations. These safe harbors would incent proactive compliance by firms and due diligence by investors while also distinguishing law-abiding from criminal investors.
Keywords: Corporate governance, corporate crime, corporate compliance, white-collar crime, shareholder liability, venture capital, entrepreneurship, investment ethics, prosecutorial discretion
JEL Classification: G34, K14, K22, K42, L26, M14, G32
Suggested Citation: Suggested Citation