White Collar Crime Prof Blog

New SEC Policy On Admissions Of Wrongdoing: Tangibles And Intangibles

SEC Chair Mary Jo White has announced an end to the SEC's blanket "does not admit or deny" settlement agreement policy. In a select number of cases involving "widespread harm to investors" or "egregious intentional misconduct" the Commission will now insist on admissions of wrongdoing on the part of civil defendants who want to settle. The blanket policy was previously eroded, in January 2012, in cases where settling defendants had already pled guilty to related criminal charges. Yesterday's Reuters story is here. Todays Thomson Reuters News & Insight analysis is here.

I strongly suspect that the tangible impact of the policy shift will be minimal. Since almost no SEC civil defendants can afford to admit wrongdoing as a condition of settlement (except in cases where a guilty plea occurred or is anticipated), we can expect the instances in which the SEC will insist on such admissions to be extremely rare. And those very rare cases will result in trials.

But the intangible impact of annually insisting on admissions of wrongdoing in three or four cases may be greater over time. First, the trials, though few in number, should be well-covered by the media. Second, the SEC will regain some much needed respect for its toughness. Third, going to trial and airing the dirty laundry accumulated by malefactors of great wealth should have salutary educational and public policy benefits. Fourth, we may actually see some deterrent effect from all this, so that companies don't automatically view SEC settlements as a cost of doing business.

We will revisit this issue as the new policy is implemented.

(wisenberg)

Non-arrested Person Asserting Right to Silence Must Assert Constitution

In Salinas v. Texas, the Supreme Court in a bizarre, unrealistic 5-4 (or more precisely 3/2-4) decision announced yesterday seemed to rule that the pre-arrest silence of a person not in custody may be introduced at trial against that person and commented upon in summation by the prosecutor -- unless that person specifically invoked his Fifth Amendment privilege against self-incrimination.  Justice Thomas, joined by Justice Scalia, concurred only in the result, arguing that Griffin v. California, 380 U.S. 609 (1965), which prohibited prosecutorial use of a defendant's invocation of silence at trial, should not be extended to pre-arrest situations.

According to Justice Alito and two others (Chief Justice Roberts and Justice Kennedy), the individual had the responsibility to demonstrate at the time of his invocation of silence that it was based on his constitutional rights.  ("[I]t would have been a simple matter for him to say that he was not answering the officer's questions on Fifth Amendment grounds.")  Much like a trial lawyer, the defendant thus had the responsibility to make a proper contemporaneous record or forfeit any future legal claim.  ("A witness's constitutional right to refuse to answer questions depends on his reasons for doing so, and the courts need to know those reasons to evaluate the merits of a Fifth Amendment claim.")  Thus, the rules for making a record for a defendant represented by counsel in a courtroom have apparently been extended to an uncounseled layperson on the street or in a police station.

Salinas may affect the advice a white-collar lawyer (or any lawyer) might provide to a non-arrested client who the lawyers suspect might be approached by a law enforcement agent.  Instead of advising the client merely to decline to speak with the law enforcement official, the lawyer should also probably advise the client to explicitly state that his refusal is based on the Fifth (and perhaps also the Sixth) Amendment.  Indeed, perhaps white-collar lawyers should follow the lead of some other criminal lawyers and print the invocation of the Fifth (and Sixth) on the reverse side of their business cards.

(goldman) 

A Great Moment In The History Of The FBI

This makes me so damn proud to be an American. What a righteous Department of Justice we have! Always going after the malefactors of great wealth. And God Bless the Fan Belt Inspectors too. No crime is too small for the Bureau to root out.

Kudos to John Cook of Gawker.com for posting this item and to Anthony Colleluori for bringing it to my attention.

(wisenberg)

Circuit Report

Today in U.S. v. Cherry, the Fourth Circuit held that it was plain error for a trial court to tell the jury about the defendant's inadmissible criminal history prior to polling the jurors. Alas, the error was harmless, given the overwhelming evidence of guilt. The offending jurist was Senior District Judge Robert Doumar of the Eastern District of Virginia (Norfolk Division), who informed the jurors of defendant's three prior criminal convictions immediately after the verdict, but prior to polling. The Fourth Circuit opinion was authored by Judge Allyson  Duncan.

(wisenberg)

Shargel to Join Winston & Strawn

Gerald Shargel, perhaps the pre-eminent criminal defense lawyer in New York City, has left his solo practice to join the 900-lawyer firm of Winston & Strawn.  Shargel's move is embelmatic of two trends:  the expansion of white-collar and not so white-collar criminal defense practices of large firms and the exodus of criminal practioners from solo or small partnership practices.

Mr. Shargel's transition is a boon to Winston & Strawn but a loss to the independent, private defense bar that is diminishing in number, income and quality.

(goldman)

"'We the people' are the boiling frog, and the water has started to boil."

The wonderful John Wesley Hall concisely explains, at Welcome to the Fourth Amendment.com, the decades-long erosion of our Fourth Amednment rights, at the hands of the Supreme Court and a succession of do-nothing Congresses. No surprises here, as Hall laments: 

"What is Congress doing? Essentially nothing. Proposing a law with great fanfare is meaningless if it goes nowhere. I wrote my Senators about email privacy, so I figure they don’t care since they never wrote back. So, I haven’t bothered to write to them about Sen. Paul’s bills. Congress is too mired in gamesmanship to do their damned jobs of actually legislating in the public interest."

***

"Now, what are we going to do about it? Complain, but sit on or wring our hands and do nothing?"

Hat Tip to NACDL's tireless weekend warrior, Ivan J. Dominguez, for sending this out. Similar points were made on Friday by the inimitable Scott Greenfield at Simple Justice in Seize It All And Trust the Government To Sort IT Out:

"Yet all the hand-wringing interest today will fade and we will elect the same men and women to power to continue to re-enact the same laws that allow the government to do such things to its own people, and presidents who believe so strongly in their own exceptionalism that they can be trusted with our personal data even though the other team could never be."

Cheery thoughts for a Sunday afternoon.

(wisenberg)

Sideshow: DC District Court Staff's Failure to Unseal the James Rosen Affidavit

FBI Special Agent Reginald Reyes' affidavit supporting DOJ's search warrant application for Fox News Reporter James Rosen's Google email account was ordered unsealed in November 2011. But it wasn't actually unsealed by the DC U.S. District Court's staff until late May of 2013. In other words, the affidavit was only unsealed several days after AG Holder testified that, "[w]ith regard to potential prosecution of the press for the disclosure of material, that is not something that I have ever been involved in, heard of, or would think would be a wise policy." Once the affidavit and search warrant application were unsealed, it became clear that Holder's testimony was inacurrate, as he had personally authorized the search warrant application. See here for yesterday's post on this issue.

DC Chief Judge Royce Lamberth is not happy about his staff's failure to unseal the affidavit and related documents. Here is Chief Judge Royce Lamberth's 5-23-2013 Order expressing his unhappiness.

(wisenberg)

The Holder Mess

“Well, I would say this. With regard to potential prosecution of the press for the disclosure of material, that is not something that I have ever been involved in, heard of, or would think would be a wise policy.” Attorney General Eric Holder testifying under oath before the House Judiciary Committee on May 15, 2013.

"For the reasons set forth below, I believe there is probable cause to conclude that the contents of the wire and electronic communications pertaining to SUBJECT ACCOUNT, are evidence, fruits and instrumentalities of criminal violations of 18 U.S.C. [Section] 793 (Unauthorized Disclosure of National Defense Information), and that there is probable cause to believe that the Reporter has committed or is committing a violation of section 793(d), as an aider and abettor and/or co-conspirator to which the materials relate." FBI Special Agent Reginald B. Reyes' May 28, 2010, Affidavit in Support of Search Warrant Application for Fox News Chief Washington Correspondent James Rosen's Google email account. The warrant was authorized by Attorney General Holder.

Note than in addition to identifying "the Reporter" as a probable aider, abettor and/or criminal co-conspirator, the affidavit explains that the Department of Justice is not bound by the Privacy Protection Act, otherwise prohibiting warrants for First Amendment work product, precisely because "the Reporter" was "suspected of committing the crime [18 U.S.C. Section 793(d)] under investigation."

There is no doubt that AG Holder gave false testimony to House Members under oath. He is an idiot if he did so intentionally, and he isn't an idiot. What should Holder have done to fix this mess? Corrected the record, of course. In the immortal words of Richard Nixon, "that would have been the easy thing to do."

Holder should have said: "Dear Representatives Goodlatte and Sensenbrenner. I screwed up. My testimony to you is now inoperative. I forgot that I authorized this affidavit, which clearly identifies a 'Reporter' as somebody under investigation for a crime. I did not intentionally try to deceive you. My statement was careless and overbroad. Please accept my apologies."

But the Attorney General apparently cannot not bring himself to do anything as straightforward as that. Instead he spends days sending out spinmeisters, most recently, and regrettably, Deputy Assistant AG Peter Kadzik, as reported here by Sari Horwitz in today's Washington Post.

How sad. Can you imagine anything like this happending under Attorney General Griffin Bell? Bell, a genuine protector of our civil liberties, most likely would have nixed the supboena in the first place. But if Bell had authorized it, he never would have shied away from the ensuing controversy or hidden behind his DOJ underlings.

Mr. Holder has received his fair share of undeserved, demagogic criticism from the kooky right. He deserves what he's getting now. 

Here is a copy of the Reyes Affidavit.

(wisenberg)

AUSA Bill Baumann (1950-2013)

Federal prosecutors come and go. Some are good. Some are bad. One of the really good ones died this week. Bill Baumann joined the U.S. Attorney's Office for the Western District of Texas in 1989--the same year I did. He stayed on until Tuesday, May 28, 2013, when he passed away after a valiant six-month struggle with brain cancer. Bill was the quintessential AUSA lifer, in the best sense of that word. Intelligent, hard working, competent, even-tempered, professional, and proud of what he did for a living. He could be a hard-ass, but the defense bar considered him a fair one. Bill was a great colleague to his fellow AUSAs, who will sorely miss him and his sunny disposition. Here is the obituary. Rest in Peace.

(wisenberg)

Did Lois Lerner Waive the Fifth?

Most witnesses with potential criminal exposure who are called to testify before Congressional hearings take the stand, with their lawyers behind them, and repeat the incantation "I respectfully decline to answer the question based on my Fifth Amendment privilege against self-incrimination," or some variation.  Occasionally, a witness insists on testifying in spite of a danger that his answers might incriminate him or, if in conflict with other witnesses' statements or other evidence, might lead to a perjury or obstruction prosecution.  One notable example is Roger Clemens, who chose to testify and, although ultimately acquitted, was indicted and lost millions of dollars in legal fees and endorsements.

Lois Lerner, an embattled Internal Revenue Service official called to testify before a Congressional hearing earlier this week, tried to have her cake and eat it too.  She made a brief opening statement declaring her innocence ("I have not done anything wrong.  I have not broken any laws.  I have not violated any I.R.S. rules and regulations, and I have not provided false information to this or any other Congressional committee.").  She then invoked her constitutional right not to testify.  Committee Chair Daryl Issa (R-Calif.) and other Congressmen claimed that, by her opening declaration, she had waived her privilege and therefore was required to answer the Committee's questions.

Some lawyers have criticized Ms. Lerner's counsel, William Taylor III, one of the most highly-respected criminal defense lawyers in the nation, for allowing Ms. Lerner to make an opening statement, claiming that at the very least that she placed herself at risk of waiving her constitutional privilege against self-incrimination.  See here.  Although the area of waiver of privilege is indeed murky, with cases going in different directions, I believe Ms. Lerner did not waive her right to silence by her unspecific denials.  As Miranda v. Arizona itself says, "If the individual indicates in any manner, at any time prior to or during questioning, that he wishes to remain silent, the interrogation must cease."  384 U.S. 436, 473-4, fn. 44.

Nonetheless, courts sometimes bend over backwards to "punish" what appears to them as gamesmanship.  Many years ago, a New York City Congressman, Mario Biaggi, in response to a "leak" disclosing he had invoked his privilege in the grand jury and refused to answer questions, declared publicly that he had cooperated fully and answered all the jury's questions -- a statement which was far from true -- and that he had instructed his attorneys to seek release of his testimony to prove it.  His attorneys moved for disclosure of testimony, no doubt expecting the motion to be denied.  (The United States Attorney also so moved.)  The district court, however, as later affirmed by the Court of Appeals, held that Biaggi had waived the privilege and ordered the release of his entire transcript.  In re Biaggi, 478 F.2d 489 (2d Cir. 1973).

Even though I believe that ultimately it will not be determined (or probably even litigated) that Ms. Lerner waived her privilege against self-incrimination, I wonder whether her brief declaration of innocence -- by itself unlikely to persuade anyone -- was worth the risk, however slight.  My guess -- pure guess -- is that the decision to allow her to make her brief opening statement was a compromise made between a careful lawyer and a client, like many I have represented, who adamantly desired to testify.  Of course, professional discretion would prevent Mr. Taylor from shifting any blame.

(goldman)

NACDL White Collar Crime Conference

NACDL's  3^rd Annual West Coast White Collar Conference, titled “Turning the Tables on the Government will be held at the  Hyatt Regency Lake Tahoe Resort on June 6-7, 2013.

(esp)

Discretion At It's Worst - IRS Targeting

The Treasury Inspector General for Tax Administration Office of Audit report and its highlights tell the story of how "Early in Calendar Year 2010, the IRS began using inappropriate criteria to identify organizations applying for tax-exempt status to review for indications of significant political campaign intervention." This Report issued on May 14, 2013 has been the source of significant media attention and President Obama has stated that the Reports findings are "intolerable and inexcusable." (see CNN here).  The Report calls for several recommendations, including "develop training or workshops to be held before each election cycle including, but not limited to, the proper ways to identify applications that require review of political campaign intervention activities."

A couple of observations:  1)  It is good to see that this Audit produced this evidence and that it was not overlooked;  2) It is also good to see that the Attorney General is not taking this finding lightly; and 3) Most imoprtantly the President is not going to tolerate this activity.

Politics do not belong in the agencies of our government.  Whether it be the DOJ, SEC, or IRS - it is important that when politics gets infused in discretionary decisions, someone immediately puts a stop to this happening. Internal compliance programs are important in the corporate world, maybe we need more compliance programs and monitoring within the government world.

(esp)

Upcoming Conferences

New York City Bar - Second Annual White Collar Crime Institute - here

ABA Securities Fraud 2013, Oct. 24-25, New Orleans - here

Georgia's Institute of Continuing Legal Education (ICLE) - International Business Crimes: Foreign Corrupt Practgices Act (FCPA), Criminal Antitrust and Export Controls, June 6 - Download Program Brochure

AALS Midyear Conference on Criminal Justice, June 9-12, San Diego - here  (There's a panel on Culpability and White Collar Crime)

22nd Annual National Seminar on Federal Sentencing Guidelines, May 22-24, 2013 - Orlando, Florida - here

(esp)

In the News & Around the Blogosphere

DOJ Press Release, Parker Drilling Company Resolves FCPA Investigation and Agrees to Pay $11.76 Million Penalty; Corporate Crime Reporter, Parker Drilling Gets FCPA Prosecution Deferred, to Pay $11.76 Million

DOJ Press Release, Former Investment Banker and His Associate Plead Guilty in San Francisco to
Insider Trading Scheme

Phil Willon, LATimes, Charges filed in San Bernardino airport corruption probe

Adam Kaufmann & Arthur Middlemiss Join Lewis Baach PLLC - see here

(esp)

Brady Violation Leads to Arrest of Former Texas Prosecutor

Prosecutors who have committed Brady violations, even those which have been later demonstrated to have resulted in wrongful convictions and lengthy terms of imprisonment for persons later proven innocent, are rarely prosecuted.  Courts tend to find Brady violations inconsequential, prosecutor's offices generally defend or at the least refuse to acknowledge them, disciplinary committees overlook them, and defense lawyers, out of timidity and self-interest, rarely press for sanctions.  One notable exception to this general disregard by institutions and the bar is DOJ's commendable effort, at the moment thwarted by a questionable administrative law decision, to sanction prosecutors in the Senator Ted Stevens trial (see here and here).

The State of Texas, whose criminal justice system is often disparaged by commentators and defense lawyers, recently took a giant step in holding prosecutors sanctionable for egregious Brady violations.  A Texas judge, acting as a court of inquiry, under Texas law, after a hearing ordered the arrest of a current Texas state court judge, Ken Anderson, for contempt and withholding evidence from the court and defense attorneys when Anderson was a District Attorney prosecuting Michael Morton, who was recently demonstrated to be actually innocent for the murder of his wife for which he served 25 years of a life sentence.  See here.  

The inquiry judge, District Judge Louis Sturns, found probable cause to believe that Anderson had concealed two crucial pieces of evidence:  a statement by Morton's three-year old son that Morton was not home at the time of the crime and a police report which revealed that an unknown suspicious man had been seen on several occasions stalking the Morton house.

For denying to the trial judge that there was exculpatory evidence and for failing to provide a full copy of a police report demanded by the judge, Anderson was charged with tampering with evidence, tampering with a government document, and contempt.  The most serious charge, evidence tampering, carries a maximum prison term of ten years, far short of the 25 years Morton served.

Criminal prosecution of prosecutors for Brady violations has been to my knowledge totally or almost totally nonexistent.  Thirty-five years ago I drafted a proposed New York State statute criminalizing intentional and knowing Brady violations.  As expected, the proposal went nowhere.  The statute, as I wrote it, had such strict scienter requirements that the crime was virtually unprovable.  It was written more to stress to prosecutors the seriousness of such misconduct than to lead to actual prosecutions.  The Anderson prosecution, if it occurs, may fill that function.

(goldman)

Change in Anti-trust Division "Carve-Out" Policy

Guest Blogger - Robert Connolly - DLA Piper

At the ABA Antirust Spring Meeting in Washington DC, Assistant Attorney General for the Antitrust Division William Baer announced a significant change in the Division’s practice of carving out of individuals from the non-prosecution protection offered in corporate plea agreements.  Depending on circumstances, the Division may be willing to enter into a plea agreement with a corporation and provide non-prosecution to some, but not all, of the corporation’s executives.   The Division may reserve for prosecution (carve-out)  some executives it thinks are culpable, or others it whose conduct doesn’t warrant prosecution, but the individual(s) declines to cooperate.  The most contentious part of the carve-out practice was that the Division would name these individuals in a public plea agreement.  This could smear an executive’s reputation by signaling that they were involved in criminal conduct, but provide no way for them to clear their name.   Courts upheld the practice as legal, but one court  found the Division's policy "unappealing," "offensive" and a “perp walk.”

The defense bar had long lobbied for a change in this policy, especially demanding that the names of carved-out individuals not be made public.  See, e.g., Victor, Farber and Duke, “The Policy Case for Eliminating The Public Identification of Carve-Outs In Antitrust Plea Agreements.”   Baer, who has worked on the defense side himself, agreed.  He issued a press release stating: “As part of a thorough review of the Division’s approach to corporate dispositions, we have decided to implement two changes.  The Division will continue to carve out employees who we have reason to believe were involved in criminal wrongdoing and who are potential targets of our investigations.  However, we will no longer carve out employees for reasons unrelated to culpability.”  And, for those carved out “the Division will not include the names of carved-out employees in the plea agreement itself.  Those names will be listed in an appendix, and we will ask the court for leave to file the appendix under seal.”  See Statement of Assistant Attorney General Bill Baer on Changes to Antitrust Division's Carve-Out Practice Regarding Corporate Plea Agreements, April 12, 2013.

(rc) 

Will the "Public Safety Emergency Exception" Apply in White-Collar Cases?

The government decision to delay Miranda warnings, and also the first appearance before a judge and the assignment of counsel, for Dzhokhar Tsarnaev, the surviving alleged Boston Marathon bomber, was a tactical one, no doubt based largely on an evaluation that any admission Tsarnaev makes is unnecessary to a government case (eyewitnesses, an admission, videotapes, possession of explosives, flight, etc.) which appears to be overwhelming.

The broad "public safety emergency exception" which the government asserts is a questionable Department of Justice attempt to expand the narrow exception announced in New York v. Quarles, 467 U.S. 649 (1984).  The government's aggressive stance is based in part on a belief that Miranda does not prescribe a procedural requirement for police questioning, but is only a prerequisite for the admissibility at trial of statements made by a defendant.  Under such reasoning, government agents are free to violate the dictates of Miranda (and perhaps other constitutional rights) with no harm to their case except a return to the status quo ante.

Aggressive law enforcement tactics against criminal suspects accused of particular heinous crimes, such as terrorism, murder, kidnapping and large-scale drug dealing, gradually work their way into the general law enforcement toolbox.  Tactics used against drug dealers and organized crime figures, such as extensive electronic surveillance, undercover agents, forfeiture of assets and disallowance of attorneys' fees, and exceedingly high bail requests, for instance, are no longer uncommon in white collar cases.

I wonder whether the "public safety emergency exception" is so far off.  If it is acceptable under this exception to allow the government to disregard Miranda and Federal Rule of Criminal Procedure 5(a)(1)(A) (requiring agents to bring one arrested before a court "without necessary delay") in order ostensibly to prevent future terrorist crimes, will it also become acceptable to detain for 48 hours and question without Miranda warnings, for instance, those who have provided inside information about unknown persons to whom they might have provided such information in order to deter imminent or future insider trading or  those who have hacked computers about accomplices or others who might commit imminent or future computer crimes?

(goldman)

Administrative Judge Reverses Suspension of Stevens Prosecutors

An administrative judge for the Merit Systems Protection Board has overturned the DOJ internal decision finding reckless misconduct for violating Brady obligations by two prosecutors of Senator Ted Stevens, Joseph Bottini and James Goeke, and ordering their suspensions.  See here. 

The administrative judge ruled that DOJ had violated its own disciplinary procedures which require a rank-and-file DOJ attorney in the Professional Misconduct Review Unit to review OPR findings and determine whether misconduct had occurred.  The career attorney who reviewed the OPR findings, Terrence Berg (now a federal district judge in Michigan), decided in favor of the prosecutors, but his ruling was reviewed and reversed by his superiors, who found that misconduct had occurred and suspensions were appropriate.  Review and reversal by the superiors, said the administrative judge, was improper procedurally, and the rank-and file attorney's decision was non-reviewable and final.

I lack sufficient familiarity with administrative law to opine whether this decision is wrong  (although Prof. Bennett L. Gershman has made a strong case that it is).  See here.  I recognize that prosecutors, like those they prosecute, are entitled to due process.  However, procedural infirmities aside, the actions of the prosecutors were clear enough and serious enough to warrant on the merits a finding of misconduct and a suspension.  See here.

I find it ironic that DOJ's finding of misconduct was (according to the administrative judge) based on DOJ's own procedural misconduct.  More seriously, however, I find extremely troubling the notion that a DOJ prosecutor's misconduct should be finally determined by a fellow career DOJ prosecutor.  Defense lawyers, for instance, are not entitled to have their alleged misconduct weighed by a fellow defense lawyer.

A prosecutor's alleged misconduct ideally should be determined by the appropriate state bar disciplinary committee, not a fellow prosecutor (or fellow prosecutors).  Of course, bar disciplinary committees, as several commentators have pointed out, have been extraordinarily hesitant to discipline prosecutors, especially with respect to Brady violations.

DOJ has the right to appeal to the three-judge Merit Systems Protection Board.  It will be interesting to see if it does.

(goldman)

New Scholarship - "Should Competition Policy Promote Happiness?"

Maurice E. Stucke (University of Tennessee) authored an article titled, "Should Competition Policy Promote Happiness?"  The SSRN abstract states:

What, if anything, are the implications of the happiness economics literature on competition policy? This Paper first examines whether competition policy should promote (or at least not impede) citizens’ opportunities to increase well-being. The Paper next surveys the happiness literature on five key issues: (i) What constitutes well-being; (ii) How do you measure well-being; (iii) What increases well-being; (iv) Do people want to be happy; and (v) Can and should the government promote total well-being? Although the happiness literature does not provide an analytical framework for analyzing routine antitrust issues, this does not mean that competition officials should discount or ignore the literature altogether.

The findings of the happiness literature, as this Paper argues, offer some helpful insights on the current debate over competition policy's goals. The literature suggests that competition policy in a post-industrial wealthy country would get more bang (in terms of increased well-being) in promoting economic, social and democratic values, rather than simply promoting a narrowly-defined consumer welfare objective.

(esp)

White Collar Criminal Law is Heating Up?

Two news items today highlight that the white collar area continues to be a key component of the criminal justice system.  In Atlanta we see a Fulton County Grand Jury issuing indictments for claims that an alleged test cheating scandal involves criminal activity. See Michael Winerip, NYTimes, Former Atlanta Schools Chief Is Charged in Testing Scandal. 

And the headline of the Tampa Bay Times is FBI Raid Signals End of Universal - an article describing the FBI raid of Universal Health Care.

(esp)