Friday, December 31, 2004
Today's Washington Post (also on Yahoo News) reports in a story titled, "House to Consider Relaxing Its Rules, that "House Republican leaders are urging members to alter one of the chamber's fundamental ethics rules, which would make it harder for lawmakers to discipline a colleague."
Some of the additional changes include: "allow[ing] either party to stop the House ethics committee from investigating a complaint against a member" and "relax[ing] a restriction on relatives of lawmakers accepting foreign and domestic trips from groups interested in legislation before the House."
This is an odd development, especially for a legislative body that is passing new laws to crack down on improper business practices. If this passes, will this legislative body be saying that there are two standards - one for businesses and another for those in the political realm?
(ph-source of information; esp-commentary)
HealthSouth is back in the news today.
First because as reported by the New York Times in a story titled, "Trial of Ex-Chief of HealthSouth is Set to Open" that "[y]esterday, in a separate proceeding, the management of HealthSouth agreed to pay the government $325 million plus interest to settle claims that the company had inflated its Medicare bills." According to an AP story in the Wall Street Journal, "[t]he payment includes an initial amount of $75 million and the balance to be paid quarterly over three years."
Second because the trial is about to open in Birmingham, Alabama. The NYTimes quotes Professor Pam Bucy (Alabama) as saying that "Mr. Scrushy's lawyers might argue that their client delegated authority to his chief financial officer and other staff members and 'was unaware that they were inflating the earnings numbers of the company.'" Professor Bucy, a professor at University of Alabama authored the book "Health Care Fraud (Law Journal Seminars Press 1996)."
What will be the effect of the this settlement on the upcoming trial?
Thursday, December 30, 2004
The December 6th post spoke of a librarian accused of fraud. The post noted how librarians and libraries are special, something that John Ashcroft found out when he tried to enter their turf with the Patriot Act. (Reports)
Well it looks like some librarians may be losing that "protected class" status. The Beacon Journal (AP) reports in an article titled, "Former Library Employee Pleads Guilty to Selling Ancient Texts," that "[a] former Kenyon College library supervisor has admitted stealing more than $50,000 in rare books from the school and selling them, including a 476-year-old astronomy text." It seems that this individual, a "night supervisor at the library" "persuaded custodians and other library workers to let him into the area" where rare books were kept. This probably became a federal case, as opposed to it being a state case, because some of the items were sold over the internet. (per Beacon Jrl AP story).
Yes, even libraries need to protect themselves from internal fraud. This is a far cry from being a case of an overdue book.
(esp) (With thanks to Joe Hodnicki for sending us the Beacon Jrl story).
A key HealthSouth Corp. prosecution is soon to begin. According to a Media Advisory of the U.S. Courts, "[o]pening statements in U.S. v. Richard Scrushy are scheduled to begin Tuesday, January 18 at 9:00 a.m in . . . Birmingham, Alabama. A 58-count indictment charges the former CEO of HealthSouth Corp. with securities fraud, among other crimes." But with just days to go before starting this trial, prosecutors have not stopped indicting people.
Bloomberg News (per the NY Times) reports this a.m. in an article titled "Fraud Indictment in HealthSouth Case," that " [a] former controller of HealthSouth, Hannibal Sonny Crumpler, was indicted by a grand jury yesterday, accused of participating in a $2.7 billion fraud at the company, according to a federal prosecutor." According to this article the indictment has charges of mail, wire, and securities fraud. Crumpler's attorney, Michael Abbott responds that his client" never knowingly engaged or participated in any fraud relating to the HealthSouth investigation."
With the trial of Scrushy so close to opening, one has to wonder several things about this new indictment. Is it something that arose as a result of the government preparation for trial or just part of their continuing investigation into HealthSouth? Is the government hoping to obtain a new witness for the trial? Is the government hoping to keep this individual from testifying for the defense? The indictment of a new individual just days before a major trial can in some instances present a challenge to the defense. Whether that will be the case here remains to be seen.
Wednesday, December 29, 2004
The November 3rd post has Martha Stewart's Brief in her Appeal to the Second Circuit Court of Appeals. On December 24 is posted her Reply Brief. Now, at last, a copy of the Government's Brief in the Martha Stewart case. It is a LONG brief - 247 pages to be exact and the argument portion of the brief does not start until page 40. There are nine points - which are outlined below:
POINT I—The District Court’s Evidentiary Rulings Should Be Affirmed
POINT II—The District Court Properly Instructed The Jury
POINT III—The Admission Of Each Defendant’s Statements To Investigators Against The Other Did Not Violate The Confrontation Clause
POINT IV—Bacanovic Was Not Entitled To A Severance
POINT V—Sufficient Evidence Supported The Jury’s Conviction Of Bacanovic On Count Two And The Jury Was Properly Instructed
POINT VI—The Jury Was Properly Instructed On Application Of The Two-Witness Rule
POINT VII—There Were No Grounds For An Evidentiary Hearing Into Alleged Juror Misconduct
POINT VIII—There Is No Reasonable Likelihood That Lawrence Stewart’s Perjury Affected The Judgment Of The Jury
POINT IX—The Potential Effect Of Blakely v. Washington On The Defendants’ Sentences
On Dec.28, U.S. District Judge Susan Illston issued an order in the BALCO (Bay Area Laboratory Co-operative) case denying defense motions to dismiss and granting an evidentiary hearing on a motion to suppress. The evidentiary hearing will be on the issue of whether statements obtained by the government investigators while executing a search warrant at BALCO's office were taken in violation of Miranda because the questioning constituted a custodial interrogation. A common tactic during the execution of search warrants in investigations that involve business organizations (corporations, partnerships, LLCs and LLPs) is to have agents ask employees on the scene whether they would be willing to answer questions. The government usually tries to ensure that the interviews are voluntary, and generally avoids giving the Miranda warning because it can serve to discourage responses. Many defense lawyers advise their business clients to send all non-essential employees home and to notify counsel, who will be the only person to speak with the agents conducting the search.
Judge Illston ordered the hearing because of the conflicting assertions of the government and defendants regarding the atmosphere surrounding the interviews. The District Court's order states:
Defendants contend that their statements were made while they were in custody. Defendants assert that the agents’ manner of entrance into the business, combined with the agents’ forcing defendants to sit in the lobby with their hands on their knees, gave defendants the reasonable belief that they were not free to leave. When Joyce Valente stood up to help an agent locate a key to a storage area, the agent yelled at her to sit down. James Valente Decl. at ¶ 7. Hours later, when Joyce Valente’s interview ended, she was told that she could leave, but that her husband could not. Id. at ¶ 14. Conte alleges that he was surrounded by armed agents at all times. Conte Decl. at ¶ 8.
Although the suppression of the interviews would likely harm the government's case, Victor Conte's statements on a recent 20/20 program admitting that he provided steroids to various athletes may be sufficient to convict him. (ph)
Tuesday, December 28, 2004
Co-blogger Peter Henning has an op-ed piece in this a.m.'s Hartford Courant titled, "Would You Risk Your Career For Small Change." He states, that "We often see white collar crimes in which prominent individuals risk their livelihood and reputation for seemingly trivial amounts." He points out some of the differences from white collar and street offenders.
Our opinions on Martha Stewart, however, differ. Where Professor Peter Henning states that "she will be forever known as a felon who lied to the government," I say that her appeal is pending, so lets hold on that judgment. And even if the conviction stands, will she be forever known as he describes, or as someone who has accomplished so much for homemakers throughout the world. More importantly, will she become known for being someone who helps with reforms on the incarceration of women? The feds spent a good bit of taxpayer time and money on this prosecution, and the question in the future may be- was it worth it?
In an article in today's Wall Street Journal titled, "Allied Capital is Focus of Probe," reporter David Armstrong reports that the "Corp. said the U.S. Attorney for the District of Columbia is conducting a criminal investigation of the company." The article discusses the effect on the company of this investigation (or perhaps disclosure of this investigation) - that being the stock is down.
The article notes that, "[t]he company said it received letters on Dec. 22 from the U.S. Attorney requesting the preservation and production of information related to Allied and one of its subsidiaries, Business Loan Express." The reason for this letter is to put a company on notice of an impending investigation so that documents are not destroyed. Notices like this can also serve as a basis for meeting an element of an obstruction of justice charge (knowledge of a pending judicial proceeding), should a company not comply with the government request not to destroy documents. The benefit of sending such a notice is that most companies are not likely to violate the law when they are advised that they are under investigation. Cases of obstruction are problematic when the company claims they did not know they were under investigation and yet documents may have been destroyed, especially when destroyed as part of a routine document retention policy. A notice such as the one sent by the government in this case avoids these types of problems.
Monday, December 27, 2004
In the post of December 26th we noted that the NYTimes was reporting that Spitzer might turn over investigations to the feds. Well, looks like Spitzer says NO! In an article in todays Wall Street Journal, titled "Spitzer Affirms Tough Tactics Are Here to Stay" it states that "[a] spokesman for Mr. Spitzer said, '[t]here was confusion about a pretty obvious statement Mr. Spitzer made, which is that the SEC is re-energized.'" The NYTimes correction says that the article "left an incorrect impression that he had spoken of ceding existing investigations to federal regulators -- as opposed to recognizing a reinvigorated federal role in new investigations." Did Spitzer give a holiday gift and now its being returned, or was there no gift to begin with?
P.S. A Spitzer advertisement comes up when you do a search on the NYTimes correction and new article. Obviously linked to the name.
In a recent AP story titled "Feds Take Aim at Government Corruption," reporter Lolita C. Baldor notes that "[f]ormer Connecticut Gov. John G. Rowland's guilty plea Thursday to a felony charge makes him only the latest in what is a steadily growing number of federal corruption prosecutions focusing on government officials." According to this article, it is not a question of government corruption increasing, but rather a situation of DOJ placing a higher priority on this type of prosecution. Interestingly, the article also speaks to public officials wanting more training on the line between what is proper and what is unethical.
When it comes to white collar offenses, the line between legality and illegality is sometimes "blurred" as noted by Professors Kenneth Mann (Tel Aviv) and John Coffee (Columbia) in articles they have written about the line between civil and criminal improprieties. Prosecutorial discretion often controls what will remain an ethics violation and what will be subject to criminal prosecution. Irrespective of whether it is an ethics violation or criminal conduct, it is wrong and it is particularly important to educate public officials so that they do not engage in improper conduct.
Sunday, December 26, 2004
According to an article titled, "Jeweler's Problems Multiply," in Sunday's Atlanta Journal Constitution, "Friedman's has become a petri dish of corporate afflictions, almost all of which became public only in the last 18 months."
Matt Kempner, the reporter on this article tells about a few state attorney generals that have filed civil actions against this company and he also states that "[t]he Securities and Exchange Commission and the Department of Justice are investigating accounting issues and fraud allegations." Freidman's, Inc. company profile on Yahoo Finance notes that recently there has been a "departure of two or its top executives."
On December 22nd, Yahoo Finance had a press release titled "Friedman's Comments on Civil Actions Filed by States' Attorneys General" stating that "the Company does not condone any improper practices alleged in the complaints. Friedman's further noted that the Company believes that the transactions challenged primarily arose years ago and stated that the Company has in place measures designed to monitor and assure compliance with Company policy concerning credit insurance sales practices."
When companies have state and federal authorities looking into their internal affairs, it can be overwhelming to the company. This is especially true when more than one state decides to proceed with an investigation or civil action. Although this can happen with investigations of street crimes, it becomes a more pronounced issue for companies that may have businesses, offices, or distributors throughout the United States.
The NY Times reports in an article titled, "Spitzer, in a Shift, Will Yield Inquiries to U.S. Regulators" that Attorney General Eliot Spitzer has decided to let federal regulators handle future investigations of possible violations of federal agency regulations. The article sends the message that Spitzer's high profile prosecutions of "investment banks, mutual funds and insurance companies" are over.
Why? Well the NYTimes reports that Spitzer said, "[h]e was concerned that 50 different investigations would balkanize regulations, and added that once-lax federal agencies had become more aggressive about rooting out fraud and wrongdoing."
Spitzer has been a tough prosecutor, going after the insurance industry with unusual force. The Atlanta Jrl. Consitution in an article of Nov. 30th titled, "Wall Street's Crusading Sheriff," reports how Spitzer recently "urged a Senate committee to scrutinize the insurance industry, calling it a 'Pandora's box that should be opened.'"
Addendum. See NYTimes Correction.
Saturday, December 25, 2004
Each year the American Criminal Law Review puts out a survey on white collar crime. The 2004 issue has student notes on topics such as antitrust violations, environmental crimes, false statements, health care fraud, mail and wire fraud, and tax violations. The webpage contains a full listing of topics.
Friday, December 24, 2004
The Times-Picayune reports in an article titled, "Feds look into allegations of bribery at Traffic Court" that "sources close to the case said," that "[a] wide-ranging probe into potential ticket-fixing at Orleans Parish Traffic Court has been under way for more than a year, and federal authorities have obtained video and audiotape evidence showing bribes being paid."
This is not the first time there has been an undercover operation into a local or state traffic court. Some of the investigations have produced indictments and convictions such as those from Operation Greylord (Chicago) and Operation BarTab (Lake County, Indiana). But there was also Operation Corkscrew (Cleveland) with a high cost and poor result. The Cleveland undercover operation is detailed in a Report of the Subcommittee on Civil and Constitutional Rights (H.R. Doc. No. 267, 98th Cong. 2d Sess 17-18 (1984)).
Attorneys for Martha Stewart filed a reply brief that includes a strong argument based on the case of Crawford v. Washington, a case in which Justice Scalia, writing for the majority stated, " [w]here testimonial statements are at issue, the only indicium of reliability sufficient to satisfy constitutional demands is the one the Constitution actually prescribes: confrontation." This reply brief argues that the government's use of Peter Bacanovic's testimonial statements violated Martha Stewart's right to confrontation as required by the Crawford decision.
In the initial passages of this portion of the Reply Brief, defense counsel argues that
"in more than 56,000 words, the Government nowhere disputes that:
- Bacanovic's statements were made in a 'testimonial' setting; and
- Were used against Stewart;
- To prove the truth of the matters asserted."
It would not be surprising to see this Crawford argument and the first argument made by defense counsel in their original brief as the key issues at oral argument. The first argument was:
"Whether, after a trial pervaded by allegations that Stewart had committed the uncharged crime of insider trading, the District Court erred by: (1) refusing to instruct the jury that it could not convict Stewart of insider trading and could consider evidence of uncharged conduct only for a limited purpose; and (2) barring Stewart from rebutting the Government’s allegations or explaining to the jury that she had not committed insider trading."
(See also Post of Nov. 3, 2004 which includes Stewart's initial brief.)
In a holiday message, Martha Stewart wishes everyone a happy holiday and also gives us her thoughts on women in prison. She says, "I beseech you all to think about these women -- to encourage the American people to ask for reforms, both in sentencing guidelines, in length of incarceration for nonviolent first-time offenders, and for those involved in drug-taking."
Professor Myrna Reader (Southwestern) has written some wonderful pieces on the issues faced by women in prison. For a primer, check out her Introduction in 16 Criminal Justice Magazine 4 (2001), titled "Female Offenders: An Introduction." It is wonderful to see Martha Stewart joining as an advocate to correct deficiencies in our justice system.
Thursday, December 23, 2004
AP wires report that Former Governor Rowland of Connecticut pled guilty to one count of conspiracy with the specific offense being a deprivation of honest services. The AP story notes that "[t]he plea deal ends the two-year-long investigation into corruption in the administration of Rowland, who resigned July 1 after 9 1/2 years in office." According to the AP wire, prosecutors told the judge, "that Rowland accepted $107,000 worth of vacations, work on his cottage and free flights from state contractors and others."
Rowland will likely face jail time, fines and a payment to the IRS. Although it is uncertain what sentence John Rowland will receive, and whether the sentencing guidelines of "15 to 21 months in prison," as stated by the AP story, will be controlling, it appears that this matter is over for the former governor.
Despite the fact that Rowland may soon be facing fines and jail time, this plea may be somewhat of a holiday present for the former governor. After being investigated for two years, finality to this process may offer a certain relief, even when jail time may be in his future. In some cases the jail time is not as difficult as the publicity and stigma that surrounds white collar offenders during an investigation. This is especially true when the investigation lasts for several years.
Addendum - The plea agreement can be found on Findlaw.
Other bloggers, like Doug Berman's Sentencing Blog (which includes comments of Margy Love, former pardon attorney for DOJ and now in private practice), Orin Kerr writing on the Volokh Conspiracy Blog, and the Crime and Federalism Blog have been commenting on whether President Bush is being stingy or not in his use of the pardon power. There is, however, another aspect regarding these pardons that warrants mention.
In our Nov. 19th blog entry we noted how 5 of the 6 pardons given by Bush in November 2004 were white collar offenders. Here again we are seeing the same pattern. CCN reports that the latest four pardons involve an "embezzlement by a bank employee," a "misapplication of bank fund by an employee," "possession of counterfeit obligations," and "theft from interstate shipment."
Although the definition of white collar crime is sometimes a term that is open for discussion, especially when the crime involves something like RICO, which can be a white collar offense in some instances and more a street crime in other contexts, I'm categorizing 3 of these 4 recent pardons as white collar. Clearly "embezzlement by a bank employee" and "misapplication of bank fund by an employee" fit the white collar category. "Possession of counterfeit obligations" also tends to fall in the white collar crime category. The last one, "theft from interstate shipment" could go either way, perhaps depending on the facts. I will give the benefit of the doubt on this last one to it being in the non-white collar category and claim 8/10 of the November/December pardons as white collar. (admittedly not an accurate statistical study being conducted here - so I would say the margin of error is likely to be 10%).
Some will claim that having 80% of pardons as white collar offenses is a proper percentage, as we are dealing with non-violent crimes here. Others may, however, note that there seems to be a lack of consistency in the types of pardons being granted by the President (high percentage of white collar offenders) with an aim of increased penalties in sentencing guidelines for white collar offenders. Just maybe, President Bush is giving a perfect reason for the need to rethink sentencing guidelines with respect to white collar offenses. But I guess, others out there will claim that I am comparing apples and oranges, as sentences have nothing to do with pardons. Your choice, I have my opinion.
Addendum - Christoper Geider also comments on the pardons on his blog. (esp)
Wednesday, December 22, 2004
The law firm Fried, Frank, Harris, Shriver & Jacobson LLP has an e-mail service called FraudMail Alert that notifies recipients about qui tam and contractor fraud-related developments [you can subscribe by going to one of the following websites: http://www.ffhsj.com/quitam/cfc.htm or http://www.ffhsj.com/wcc/fmamain.php3?sort=chron]. An e-mail sent today discusses the prosecution of a Minnesota beauty queen for fraud that is certainly worth reading (and enjoying):
FraudMail Alert® No. 04-12-22
December 22, 2004
The False Claims Act and the Beauty Queen
Over the many years that FraudMail Alert has served its readers, we have tried at holiday time to warn our readers of the substantial risk of fraud they face at such a precarious time of the year. Last year we warned of "Lobster Fraud," see FraudMail Alert No. 03-12-18. In previous years, we had warned our readers of "Caviar Fraud" (December 2002); "Chicken Fraud" (December 2001); "Frog Leg Fraud" (December 2000); and "Coffee Fraud" (December 1996). (In order to protect themselves and their organizations from allegations of "food fraud," we strongly encourage those who have not read these prior Alerts to do so at http://www.ffhsj.com/wcc/fmamain.php3?sort=chron.)
Having covered all the major food groups, we thought that we would have difficulty finding a Federal enforcement effort silly enough to give us holiday cheer - but we were wrong. After all, this past year brought the sad and tragic - but also true and amazing - case of the enforcement of the civil False Claims Act against the "Minnesota Beauty Queen." Once again, we are not making this up.
In March of this year, trolling through the daily grind of new FCA cases, we happened on the case of United States v. Denise Marie Henderson, 2004 WL 540278 (D. Minn., March 16, 2004). It appears that Ms. Henderson was hurt in an automobile accident and, some time later, applied to the U.S. Government for disability benefits paid for by the U.S. Social Security Administration, an agency of the Department of Health and Human Services ("HHS"). According to the Complaint, she allegedly made numerous false certifications, both express and implied, regarding her disability and ability to work.
Turns out, however, that Ms. Henderson's disability did not prohibit her from participating in, of all things, beauty pageants. Apparently quite attractive, Ms. Henderson won both the Mrs. Minnesota International - and the Mrs. Iowa International - beauty pageants despite her disability.
Ever vigilant to protect the Federal fisc, the U.S. Attorney's Office promptly sued Ms. Henderson under the civil False Claims Act, claiming that she obviously lied about her disability since she clearly was able to stand on a stage and look good (a skill that has always eluded the undersigned).
The Federal District Court heard oral argument on the case and promptly dismissed the FCA case under Rule 9(b) - for failure to plead with particularity. The Government, although free to file an amended complaint, never did so, and Ms. Henderson emerged victorious. But, alas, Ms. Minnesota/Iowa International's legal victory was short-lived. She was indicted, and recently convicted, for fraud.
All of this, of course, both warms and chills the heart at this holiday season. As your mind wanders while you are at a boring holiday party, think of these questions:
1. Just what facts did the Justice Department not plead with particularity? Perhaps her choice of songs at the pageant? The color of her evening gown?
2. Was the HHS OIG involved in this case? One can see one or two OIG agents, stealthily making their way into the exhibition auditorium, waiting breathlessly for Ms. Henderson to make her appearance in the bathing suit competition and take "pictures" of the contestants (purely as evidence, of course).
3. Be careful of winning those Rule 9(b) motions. Requiring the government to plead its civil case with particularity may have dire consequences.
As has been the case in past years, when FraudMail Alert applauded the efforts of the Department of Justice to protect the eating habits of the "rich and famous," we applaud these prosecutions. After all, without agents and prosecutors lacking a sense of humor or common sense, these annual holiday FraudMail Alerts would not be possible.
Most importantly, we want to wish you and your families the best for the holiday season and a Happy New Year.
Thanks to Jack Boese of Fried Frank for permission to post the e-mail. One question: how can someone from Minnesota win an Iowa beauty contest? (ph)
UBS AG, a large multinational investment bank, disclosed yesterday (press release here) that it received a Wells Notice from the SEC that the Enforcement Division staff is planning to recommend the institution of a civil action against the company for securities fraud related to its investment banking work on behalf of HealthSouth Corporation. A Wells Notice invites a company or person to file a response with the Commission staff arguing why charges should not be filed, and it is often an invitation to negotiate a settlement.
UBS was the leading investment banker for HealthSouth, and participated as an underwriter in numerous stock and bond offerings for the company while its analysts were among thestock's main cheerleaders. According to a Wall Street Journal article (Dec. 22), two UBS bankers, Benjamin Lorello and William McGahan, had a close relationship with Richard Scrushy, HealthSouth's former CEO who is scheduled to go on trial early next year for securities fraud and violating the Sarbanes-Oxley Act's CEO/CFO certification provision. The WSJ article notes:
The SEC has been looking into UBS's work for HealthSouth for months, with a focus on whether any UBS bankers had knowledge of the accounting fraud or did transactions with HealthSouth that made the company's books appear stronger than they actually were, according to people familiar with the probe. HealthSouth, one of the nation's largest providers of rehabilitative and surgical health care, has been under the scrutiny of Justice Department and SEC investigators for two years.
At this point, there is no indication that any individuals at UBS have received Wells Notices, but there is a reasonable likelihood that the SEC will file charges against individuals at some point. (ph)
Jurist reports that Federal District Court Judge Alvin Hellerstein refused to accept a plea agreement involving a former AOL employee who sold e-mail addresses in violation of the recently enacted Can-Spam law. The judge stated that it is not clear to him that the defendant acted with the requisite intent to deceive. (ph)