Monday, February 28, 2005

Corruption Prosecutions in New Jersey

The U.S. Attorney's Office in New Jersey announced last week the arrests of a number of local public officials in Monmouth County (home of Asbury Park for the Bruce fans in the crowd), including the mayors of Keyport, Hazlet, and West Long Branch, on corruption charges.  According to a press release by the USAO discusses a contractor who cooperated with the government and who "[d]uring many tape-recorded and videotaped conversations, cash in amounts of between $1,000 and $9,000 - and in one case a $5,000 home driveway repaving - was exchanged with the public officials, some of whom assured the cooperating witness that they would continue to send work his way as long as the money kept coming, according to the Complaints. In one case, a Monmouth County official took cash in exchange for assisting what he believed to be a money laundering operation."  The defendants were charged in criminal complaints with Hobbs Act violations, although it is likely that the government will add additional charges (including honest services fraud and Section 666 violations) in subsequent indictments. Corruption in New Jersey?  The press release notes that the "arrests are an outgrowth of an earlier investigation, which led to the convictions of other Monmouth County public officials, including former Asbury Park Mayor Butch Saunders and Saunders' advisor Rayfield James, former Ocean Township Mayor and Asbury Park City Manager Terrence Weldon, former Asbury Park Councilman James Condos, and former executive director of the Asbury Park Housing Authority, the late Kenneth Nixon." (ph)

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UPDATE: An article in the Asbury Park Press (Feb. 28) discusses the claim by some of the defendants charged with in the Monmouth County corruption case that they were entrapped by the FBI into accepting the cash payments (story here).  Think back to the Abscam investigation in the late 1970s for a good example of how that defense does not work very well when public officials take cash.

February 28, 2005 in Corruption, Prosecutions | Permalink | TrackBack (0)

A Possible Settlement in the SEC Insider Trading Case Against Martha Stewart

The cover of the March 7 issue of Newsweek features a smiling Martha Stewart and the headline "Martha's Last Laugh" (here).  The magazine is reporting that Stewart's attorneys (she continues to reside in an FCI in West Virginia for the rest of the week) are negotiating a settlement with the SEC regarding the civil insider trading charges related to her sale of ImClone Systems stock based on information she allegedly received from her broker, Peter Bacanovic, and indirectly from former ImClone CEO Sam Waksal (who is also residing in an FCI, for quite a bit longer).  If she settles the case, it will likely involve a bar for at least some period of time from serving as a director and officer of the company, Martha Stewart Living Omnimedia, in addition to disgorgement of the loss avoided and a civil money penalty.  The dollar figures are minute -- at least for Stewart -- because the disgorgement and penalty are unlikely to be more than $250,000 (including interest and assuming a 3x penalty, which is probably on the high side), and Stewart owns 30 million shares of the company, with a current market value of over $1 billion.  Put another way, any monetary payment will be less than .025% of the value of her stock holdings in her company, so the key is what can be negotiated regarding the D&O bar.  The case was never really about the money, as both sides would likely concede. (ph)

February 28, 2005 in Civil Enforcement, Martha Stewart, Securities | Permalink | TrackBack (0)

Martha Stewart's Return to Work

An article in the New York Times (Feb. 27) discusses Martha Stewart's imminent return to her company, Martha Stewart Living Omnimedia, upon completion of her five-month term of imprisonment.  Stewart is scheduled to return to her office on March 7.  Her sentence includes five months of home confinement, and the terms of that portion of her sentence permit her to work at the company, where plans are in the works for a new daily program and an "Apprentice" show similar to the one starring Donald Trump.  A graphic with the NY Times story notes that the strong rise of her company's stock price since the sentencing last July means that Stewart's share have nearly quadrupled and are now worth a billion dollars.  That may be a first in American penal history, and you wonder whether this will be a situation similar to the Wall Street adage of "buy on the rumor, sell on the news." (ph)

February 28, 2005 in Martha Stewart | Permalink | TrackBack (0)

Corruption Investigations May Affect Outcome of Los Angeles Mayor Race

Los Angeles Mayor James Hahn faces a primary election on Tuesday, March 8, amidst significant publicity about federal and county corruption investigations involving possible bribery and kickbacks.  Federal prosecutors have issued subpoenas for office e-mail and have called witnesses to testify before the grand jury.  An executive at a public relations firm with ties to Hahn was indicted in January for allegedly overbilling the city's Department of Water & Power $250,000 (press release here), and several city officials have resigned, although those resignations have not been linked specifically to the corruption investigations.  With the election so close, it will be interesting to see if Hahn, who denies any knowledge or involvement in the alleged corruption, can survive the publicity. An AP story here discusses the investigations. (ph)

February 28, 2005 in Corruption, Investigations | Permalink | TrackBack (0)

Enron Executives Trial Set to Start in January 2006

How time flies when you're getting ready for trial!  U.S. District Judge Sim Lake has set the start of the criminal prosecution of former Enron CEOs Ken Lay and Jeffrey Skilling, along with former chief accounting officer Richard Causey, for January 2006 to accommodate the busy schedules of the various defense lawyers.  The judge, who said he appreciated the lawyers "giving me the time of day," said that December 2005 appeared to be the earliest available trial date, and to avoid any holiday conflicts set the trial to start on Jan. 17, 2006.  Lay initially sought a "speedy trial" (motion here)and for severance from the other defendants (motion here), which the judge denied, but now professes to be comfortable with the trial date that has been set.  At least now we have something to look forward to next year. A Houston Chronicle story here discusses the judge's ruling on setting the case for trial. (ph)

February 28, 2005 in Enron, Prosecutions | Permalink | TrackBack (0)

Sunday, February 27, 2005

NACDL Files Amicus in Andersen

The National Association of Criminal Defense Lawyers (NACDL) filed an amicus brief in the Arthur Andersen , LLP case pending before the United States Supreme Court.  The brief, available here, focuses on the role of counsel and the effect of this case on attorneys.  In the Summary of the Argument it states in part:

"This case places lawyers at risk of investigation, prosecution, and imprisonment for doing their jobs. When a lawyer represents a client in connection with a potential government investigation, one of the lawyer’s goals may appropriately be to prevent the government from developing evidence against the client. Within the bounds of ethics and the law, that is what lawyers do.

By expanding the definition of "corruptly persuades" in 18 U.S.C. § 1512(b)(2) to encompass legal advice directed to that end, the Fifth Circuit’s ruling will chill zealous legal representation, create potential conflicts between counsel and client, and undermine faith in the privacy of attorney-client communications.

(esp)

February 27, 2005 in Arthur Andersen | Permalink

Saturday, February 26, 2005

Ebbers Will Testify in His Defense on Monday

During a hearing on Friday, defense counsel for Bernie Ebbers stated "in good faith" that Ebbers will be called to testify on Monday.  The decision is the most important one the defense will make, and may reflect an assessment that former CFO Scott Sullivan's testimony needs to be countered by more than just the defense witnesses called so far who have indicted only indirectly that Sullivan was the main architect of the fraud at WorldCom.  The "honest-but-ignorant" defense is not an easy one to pull off, and the key will be how Ebbers comes across to the jury in his likely assertions that, while he is an otherwise bright person and something of a micromanager (tap water for the water coolers), he did not know about the extensive fraud in the company's accounting. Another factor that may be playing a role in the decision to testify is that the court has so far refused to grant immunity to two witnesses the defense wants to call, including former chief operating officer Ronald Beaumont.  A Wall Street Journal story here discusses the defense announcement that Ebbers will testify.

The decision for Ebbers to testify could change over the weekend because the statement was not made before the jury and therefore -- at least in a perfect world in which jurors adhere to the judge's admonition not to read any media accounts of the trial -- no direct harm would come to the defense from jury expectations of hearing him testify.  I had predicted in an earlier post that Ebbers would not testify, proving once again that my prognostications are better used as a negative indicator. (ph)

February 26, 2005 in WorldCom | Permalink | TrackBack (0)

High Profile Miami Attorney Indicted on Money Laundering and Obstruction Charges

Miami attorney Sam Burstyn appeared in federal court in the Southern District of Florida this past week to face an indictment charging money laundering and obstruction of justice.  Burstyn has represented celebrity clients, including Robin Givens and the wife of tennis player Boris Becker, and is known for his penthouse office on Brickell Ave. in addition to his criminal defense work.  The government alleges that he was the "house counsel" for a marijuana importation enterprise led by Jeffrey Tobin.  The charges against Burstyn include a $500,000 money laundering charge related to a loan that was made with alleged drug profits, and that Burstyn obstructed justice by advising Tobin to flee the United States and organized meetings with grand jury witnesses to provide false testimony.  According to a press release issued by the U.S. Attorney's Office:

On or about October 22, 1998, Burstyn lent approximately $498,250, in the form of a counter check, to an owner of the business, Auto Fund of Atlanta, Georgia, at a substantial interest rate. This check was drawn on the lawyer’s trust account of Samuel I. Burstyn, P.A. Burstyn obtained the proceeds to make this loan from the financial accounts of his relatives. Burstyn used a fictitious company named “J.B. Partners” as an entity to make the loan. As a condition for making the loan, defendant Burstyn obtained collateral of $500,000 in drug proceeds from Jeffrey Tobin.

An AP story here discusses Burstyn's law practice and his attorney's statement that "If you were to see him now, you would be struck by how confident he is that he will be acquitted." (ph)

February 26, 2005 in Defense Counsel, Money Laundering, Obstruction, Prosecutions | Permalink | TrackBack (0)

Friday, February 25, 2005

A Good Day for Ebbers, Tough for Scrushy

Ebbers- In order to succeed in the prosecution of Bernie Ebbers, the government needs to prove mens rea - that the defendant knew. Two witnesses for the defense, however, state otherwise. (See more here and here).

Scrushy- The government presented some damaging evidence against the defendant with testimony that goes to whether the accused had knowledge of improprieties occurring at HealthSouth. It's tough to get around a statement like, "We can all go to the lake and retire,"  (See more here).  But it is too soon to judge how things are going in this case.  Unlike the Ebbers trial, this case is still in the prosecution phase.

(esp)

February 25, 2005 in HealthSouth, WorldCom | Permalink

Fraud on the Defense Department

The local United States Attorney offices are not wasting any time in bringing cases of alleged defense fraud.  (See post here and here). In a press release of the United States Attorney's Office for the District of Colorado, "Bill Leone, Acting United States Attorney for the District of Colorado, and Steven O’Neill, Resident Agent in Charge of the Department of Defense’s Office of the Inspector General, announced" the indicment of an individual on "charges of mail and wire fraud for" allegedly "implementing a scheme to defraud the Department of Defense."   According to the press release the defendant is accused of causing "numerous invoices to be sent to the Department of Defense which falsely reflected that the goods had been shipped on the date invoiced." " The indictment alleges that" the accused "ultimately over-billed the Department of Defense on hundreds of items, and sometimes failed to deliver any supplies at all."

(esp)

February 25, 2005 in News | Permalink

Attorneys Appear to Be Top DOJ Priority

United States Attorney John L. Brownlee announced the indictment by a federal Grand Jury of an attorney in Lynchburg, VA, (who they list as being 72 years old).  The press release states that "'[t]he indictment details a scheme by which' the two individuals accused 'obtained $1,355,000 from four families by falsely promising them that they could realize a very high return on their money while their invested funds remained risk free in" the "attorney trust accounts."

The conduct alleged in the press release talks about the use of the accused trust account, but also speaks to activities that may have crossed state lines.  The press release states that the accused individuals face a "three count indictment with conspiracy to commit wire fraud and aiding and abetting each other to commit wire fraud."

(esp)

February 25, 2005 in News | Permalink

Thursday, February 24, 2005

Second Circuit Takes a Different Approach to Attorney-Client Privilege Claim Involving Government Official

During the government's investigation of former Connecticut Governor John Rowland, the grand jury subpoenaed the counsel to the Governor to testify regarding conversations she had with Rowland and members of his staff about the receipt of gifts, which was the focus of the investigation and the basis for the charge to which Rowland eventually pled guilty. The district court enforced the subpoena, but on appeal the Second Circuit (on Aug. 26, 2004) issued a summary order quashing the subpoena on attorney-client privilege grounds. On Feb. 22, the court issued its written opinion in In re: Grand Jury Investigation (available here on court website) explaining the basis for its decision.  The Second Circuit rejected the approach of the Seventh, Eighth, and D.C. Circuits and upheld the attorney-client privilege assertion by a government attorney advising an official in relation to that person's duties.  The other circuits have found the government's interests in investigating wrongdoing through the grand jury overcame the protections of the privilege when the investigation concerned the conduct of officials in the office.  The D.C. and Eighth Circuit cases involved the Independent Counsel investigation of Whitewater (and "related" conduct) and the consultation by the President and First Lady with White House counsel.  The Second Circuit rejected a balancing test, explaining

In arguing that we ought not "extend" the attorney-client privilege to the present situation, the Government asks us, in essence, to assign a precise functional value to its protections and then determine whether, and under what circumstances, the costs of these protections become too great to justify. We find the assumptions underlying this approach to be illusory, and the approach itself potentially dangerous. The Government assumes that "the public interest" in disclosure is readily apparent, and that a public official’s willingness to consult with counsel will be only "marginally" affected by the abrogation of the privilege in the face of a grand jury subpoena. Because we cannot accept either of these assumptions, we decline to abandon the attorney-client privilege in a context in which its protections arguably are needed most.

The court acknowledged that its decision conflicted with the Seventh Circuit's position and was in "sharp tension" with the Eighth and D.C. Circuit analysis, but it decided that the protections of the privilege outweighed the need of the grand jury to obtain evidence.  While uncommon, cases involving the governmental attorney-client privilege do arise -- especially with the federal government's efforts to combat state and local corruption-- so that at some point the Supreme Court may have to intervene to settle the scope of the privilege.(ph)

February 24, 2005 in Corruption, Defense Counsel, Grand Jury, Privileges | Permalink | TrackBack (0)

The Latest in the Ebbers Case

We left off in our post of 2/21 discussing the final portions of the government's case in the trial of Ebbers. The prosecution's case has now ended, and the court has denied the defense motion for a directed verdict. The defense, now presenting its case, started with its first witness being Cynthia Cooper, the former head of internal auditing at WorldCom.  See AP story for more. 

(esp)

February 24, 2005 in WorldCom | Permalink

New Procurement Task Force

If there was any thought that defense procurement was no longer a top priority, it was just destroyed with the announcement by DOJ of the creation of a  "special task force aimed at combating fraud among defense and homeland security contractors." GOVEX.com reports on U.S. District Attorney Paul McNulty's goals in creating this task force.   We previously reported on the U.S. Attys. White Paper on his reasons for setting up a procurement fraud working group- here.

(esp) (With thanks to Neal Sonnett for sending this alert of the GOVEX.com site).   

February 24, 2005 in News | Permalink

Andersen Brief Filed

Petitioner Arthur Andersen filed its Brief in the United States Supreme Court and without doubt this will be an interesting case.  The Summary of the Argument states:

"It is plain as day that the Government did not charge Andersen with obstruction of justice for discarding documents during the relevant time period because no official proceeding of the SEC was pending.  . . ."

A paragraph later we see:

"The United States attempted to evade that settled law by instead charging Andersen with 'witness ampering' on the remarkable theory that although it was perfectly lawful for Andersen to have a document retention policy that preserved only the final audit work papers, and perfectly lawful for Andersen's employees and professionals to follow that policy, it was somehow a serious felony for Andersen's in-house attorney and supervisors to remind its employees of the policy."

The legal arguments within this brief cover issues regarding the word "corruptly,"  whether the instruction on the "requisite nexus to an official proceeding," was proper, and the Rule of Lenity.  But a message is also being sent -  how far can the Government go... and did they go too far this time?

The Brief. Download andersen_merits_opening_brief.PDF

(esp)

February 24, 2005 in Arthur Andersen | Permalink | TrackBack (0)

Wednesday, February 23, 2005

NACDL Hires White Collar Project Director

The National Association of Criminal Defense Lawyers (NACDL) has hired Stephanie Martz as its first White Collar Crime Project Director.  Introduced at the recent NACDL meeting in New Orleans, Ms. Martz will coordinate white collar related initiatives for the defense organization. NACDL's announcement of her appointment describes are role as follows:

"Stephanie will address issues related to overcriminalization of economic conduct and related prosecutorial practices, and she will identify and document abuses and formulate reform proposals. Her areas of focus will include: monitoring overcriminalization, overfederalization, and erosion of mens rea; identifying attacks on the attorney-client privilege; highlighting disproportionate and inflexible sentences; tracking legislation on Capitol Hill; monitoring DOJ and other federal agency initiatives; staffing the NACDL White Collar Crime Committee; outreach to the white collar defense bar and law firms; and assisting in the development of white collar defense-oriented CLE programs."

Ms. Martz brings strong background and expertise to this new position. As described in the NACDL press release:

"Stephanie previously served as Staff Counsel of the National Litigation Center of the Chamber of Commerce of the United States and also was an Associate in the law firms of Mayer, Brown, Rowe & Maw and with Miller, Cassidy, Larroca & Lewin (which merged with Baker Botts LLP). From 1998 - 1999, Stephanie clerked with the Hon. Patricia Wald of the US Court of Appeals for the DC Circuit and in 1997 - 1998, she clerked with the Hon. James Robertson of the US District Court in DC. From 1991 - 1994, Stephanie was a stringer for The New York Times and was a reporter for the Charleston Gazette form 1992 - 1994. She is a 1997 graduate of Stanford Law School, where she graduated with distinction and where she served as Executive Editor of the Stanford Law Review, and she received her AB in American Studies in 1991 from Georgetown University, where she graduated magna cum laude."

(esp)

February 23, 2005 in News | Permalink

April 15th, Tax Day, is Approaching

The closer it gets to April 15th, the more tax indictments there seem to be.  One can only guess that it's the government reminder to file and also to include everything in the reporting.  Some call this general deterrence.

But it seems that the individuals selected from prosecution are not always the classic citizen types. For example, Bill Rankin of the Atlanta Journal Constitution reports that the individual being indicted is a former employee of the Internal Revenue Service. According to the United States Attorney for the Northern District of Georgia, the AJC reports that the accused "accessed the accounts of more than 40 taxpayers and then sold the information to others so they could file fraudulent tax returns."

Interestingly this is not the first time that someone employed at the IRS is the subject of a criminal charge.  In 1997 a "[c]ontract representative in the Boston office of the taxpayer Services Division of the" IRS was accused of accessing information from IRS computers and charged with mail, wire, and computer fraud.  The conviction in the case was reversed when the First Circuit held that "mere browsing" in a government computer was not a basis for  a "conviction on a 'deprivation of intangible property ' theory". (106 F.3d 1069 1st Cir. (1997)).

Other IRS defendants have not been as fortunate.  For example, in United States v. Mangan, 575 F.2d 32 (2d Cir. 1978) a conviction of a former IRS agent was upheld for the submission of tax returns of fictitious individuals for the purpose of obtaining tax refunds on the filed returns. 

(esp)

February 23, 2005 in Tax | Permalink

Philadelphia Corruption Trial Begins

The corruption trial of former Philadelphia City Treasurer Corey Kemp, two Commerce Bank executives, and two other defendants began in U.S. District Court on Tuesday with opening statements by the government and three of the five defense counsel.  Kemp was one of 12 defendants indicted (here) on honest services fraud charges in June 2004 as part of a wide-ranging corruption investigation by the FBI that included a bug placed in Mayor Street's office.  The allegations involve a claimed "pay-to-play" scheme in which, among other things, Commerce Bank made a mortgage loan to Kemp in exchange for receiving $150 million in city deposits.  Defense counsel assailed the government investigation in the opening statements, with Kemp's lawyer asserting that the government's case is a "situation where the elephant has given birth to the mouse. And it's a dead mouse at that." I'm not sure how the biology of that one works. The Philadelphia Inquirer has extensive coverage of the trial here. (ph)

February 23, 2005 in Corruption, Prosecutions | Permalink | TrackBack (0)

Boxing Promoter Sentenced to 37 Months For Fixing Fights

Boxing promoter Robert Mitchell received a 37-month sentence for his conviction last November on conspiracy and sports bribery charges for fixing fights involving boxer Thomas Williams.  The three-year knock-out punch (I couldn't resist) came for fixing 11 fights, including a match with Richie Melito that was an undercard for an Evander Holyfield heavyweight title fight in Las Vegas in 2000.  While Mitchell's lawyer said, "I don't think he represents everything that is wrong with boxing," he certainly is not part of what is right about the sport. Williams, known as the "Top Dawg," was also convicted and sentenced to a 15-month term of imprisonment. An AP story here discusses the sentencing.

February 23, 2005 in Sentencing | Permalink | TrackBack (1)

Tuesday, February 22, 2005

First Circuit Booker Analysis: Arguing the Effect of Advisory Guidelines on a White Collar Sentence

The First Circuit issued an opinion today in U.S. v. Antonakopoulos involving a Booker plain error claim in a bank fraud prosecution in which the defendant's base offense level was increased substantially by the application of Sec. 2B1.1 loss calculation.  The court summarized its analysis of when a Booker error will trigger a reversal for plain error, and the standard is a tight one: 

To summarize our position at the outset, we intend to apply, in accordance with Justice Breyer's admonition, conventional plain-error doctrine where a Booker error exists but has not been preserved. See id. at 769; United States v. Olano, 507 U.S. 725, 731-32 (1993). The Booker error is that the defendant's Guidelines sentence was imposed under a mandatory system. The error is not that a judge (by a preponderance of the evidence) determined facts under the Guidelines which increased a sentence beyond that authorized by the jury verdict or an admission by the defendant; the error is only that the judge did so in a mandatory Guidelines system. A mandatory minimum sentence imposed as required by a statute based on facts found by a jury or admitted by a defendant is not a candidate for Booker error. The first two Olano requirements -- that an error exists and that it is plain at the time of appeal -- are satisfied whenever the district court treated the Guidelines as mandatory at the time of sentencing. But to meet the other two requirements -- that this error affected defendant's substantial rights and would impair confidence in the justice of the proceedings -- we think that ordinarily the defendant must point to circumstances creating a reasonable probability that the district court would impose a different sentence more favorable to the defendant under the new "advisory Guidelines" Booker regime. We follow the more flexible standard for plain error articulated in United States v. Dominguez Benitez, 542 U.S. ___, 124 S. Ct. 2333 (2004). We engage in case by case review and we reject certain automatic reversal rules.

The First Circuit stated that a Blakely error does not require automatic reversal of a sentence under Booker on the ground that

It is far from necessarily true, as a per se remand rule assumes, that a judge who found the facts underlying an enhanced sentence would have reached a different result under a post-Booker regime. In these situations a judge's factual findings, unless they were found to be clearly erroneous, are far more likely than not to be the same if the case were remanded. The fact that the judge initially did the fact finding on a certain factor is surely a different matter than what the judge would have done with that factor if the Guidelines were not mandatory. The use of judicial fact finding, then, ordinarily cannot alone meet the "reasonable probability" standard of the third Olano prong.

The court did note one situation that will in all likelihood lead to a remand for resentencing under Booker:

Finally, history shows that the mandatory nature of the Guidelines has produced particular results which led trial judges to express that the sentences imposed were unjust, grossly unfair, or disproportionate to the crime committed, and the judges would otherwise have sentenced differently . . . Where the district judge has said as much about a Guidelines sentence, that is a powerful argument for remand. If the resulting sentence after remand is itself unreasonable, the government can appeal. By like token, if the district judge has said at sentencing that he would have reached the same result regardless of the mandatory nature of the Guidelines, that is a powerful argument against remand.

The court emphasized that an argument that the trial judge would have given a lower sentence if freed from the mandatory nature of the Guidelines will, if made persuasively, trigger a remand for resentencing.  That is the apparent invitation in this case, in which the court found the fraud loss calculations to be entirely reasonable and, indeed, the district judge gave the defendant the benefit of the doubt on a couple transactions that could easily have gone against him.  The First Circuit gave the defendant the opportunity to address this question in a supplemental brief, and counsel in other cases will now be alerted to make the "it would have been different if the judge were sentencing under advisory guidelines" argument. [Sorry about the quirky fonts in the case quotes.  I haven't quite figured that one out yet.] (ph)

February 22, 2005 in Sentencing | Permalink | TrackBack (1)