Monday, October 31, 2005
The nomination of Third Circuit Judge Samuel Alito, Jr., to the Supreme Court is now official, and a very quick check of his opinions while serving on the court of appeals shows that there are no major decisions on white collar crime issues. One of some interest is the decision in United States v. Cohen, 301 F.3d 152 (3d Cir. 2002), in which the court overturned the obstruction of justice conviction of a former Secret Service agent who stole money that was seized in an arrest. Judge Alito's opinion found that the government introduced insufficient evidence of his intent to obstruct justice, holding that his theft of money that was related to an investigation was not enough to show the intent to impede the investigation or prosecution. In another case familiar to those who follow white collar crime cases, he wrote the opinion in United States v. McDade, 28 F.3d 283 (3d Cir. 1994), that rejected then-Representative Joseph McDade's challenge to the government's RICO and corruption charges on the grounds that it violated the Speech or Debate Clause, holding that the government was not questioning the Congressman about his statements. The government's prosecution of McDade, and his subsequent acquittal, led to the adoption by Congress of the McDade Act, 28 U.S.C. Sec. 530B, which requires federal prosecutors to adhere to the professional responsibility rules of the state in which the attorney practices, and the Hyde Amendment, 18 U.S.C. Sec. 3006A Note, which permits an award of attorney's fees to a defendant who is a "prevailing party" in a prosecution.
Prior to his appointment to the Third Circuit, Judge Alito was the United States Attorney for the District of New Jersey from 1987 to 1990. In that role, he certainly had significant contact with a wide range of white collar crime issues, so he will be familiar with many of the questions that arise in such cases. In thinking about the nomination of Judge Alito, has there been a Supreme Court justice who served as a United States Attorney (not the Attorney General, which is a much different position)? That position gives a person a front-row seat to a number of federal criminal law issues, a background no current member of the court has (save perhaps Justice Breyer's involvement in the Federal Sentencing Guidelines). (ph)
The initial outlines of I. Lewis Libby's defense to the five-count indictment emerged shortly after the charges were unveiled when his attorney, Joseph Tate, stated, "Mr. Libby testified to the best of his recollection on all occasions." As Ellen Podgor notes (post here), the defense will emphasize how busy Libby was, and that these were relatively brief conversations amidst the crush of important government business (perhaps thereby invoking the war in Iraq and even Sept. 11 as touchstones of the scope of his responsibilities). This strikes me as an off-shoot of the "honest-but-ignorant CEO" defense urged earlier this year in the trials of Richard Scrushy and Bernie Ebbers -- successfully by one but not the other. The crux of the defense is that a CEO of a large company cannot be expected to pay attention to the details of the entire business, and that the person relies on others to handle the more mundane tasks (such as accounting). The details of individuals meetings and memoranda are not what a CEO focuses on.
While the prosecution of Libby involves different charges, the case hinges, like the corporate cases, on proving his intent. Libby could take the approach that his statements were entirely accurate, but then he gets into a fight over whether Tim Russert and Matt Cooper were telling the truth, a battle that may be very hard to win. Focusing the case on Libby's potentially faulty memory, and any inconsistencies in the testimony of both the media witnesses and internal government officials, can be used to support the position that Libby shares the same trait as others: a lack of attention to detail. Moreover, the "dedicated-but-overworked-public-servant" defense does not force him into a confrontation with the government witnesses, particularly Vice President Cheney should he testify, but would instead present Cheney (and perhaps Karl Rove) an opening to support Libby's position by noting how important his work is and how many issues Libby dealt with on a daily basis. By building up Libby's work, that may diminish the importance of Valerie Plame's CIA role within the scope of his attention. An interesting question will be whether a defense that emphasizes the importance of Libby and the Vice President may be perceived as diminishing the importance of the President and his advisers -- the whole "power behind the throne" issue that might cause a reaction from the White House.
A Washington Post story (here) discusses Libby's defense. (ph)
While high profile prosecutions usually are ascribed to the lead prosecutor (e.g. Ken Starr, Archibald Cox), much of the basic work in investigating and trying a case is done by career prosecutors out of the limelight. The same is true of Special Counsel Patrict Fitzgerald's office, and Legal Times has an interesting article (available on Law.Com here) giving the background of the various lawyers working on the investigation of the leak of Valerie Plame's status as a CIA agent. (ph)
It should not come as a surprise that Richard Scrushy entered a not guilty plea to corruption charges contained in an indictment filed in the Middle District of Alabama. Invoking God and country, Scrushy proclaimed that he was "absolutely not guilty," noting that he grew up reciting the Pledge of Allegiance and singing "God Bless America," but ""I am broken right now at what our government is doing." Scrushy also stated that the government offered him immunity if he would testify against former Alabama Governor Don Siegelman, but that he had nothing to offer. A Birmingham News story (here) discusses the not guilty plea. (ph)
Sometimes you see a case in which you wonder whether people can sink much lower. A principal at an elementary school in Clinton Township, Michigan, entered a guilty plea to embezzling over $400,000 from the school's child care program and parent-teacher organization over a seven-year period. A press release issued by the U.S. Attorney's Office for the Eastern District of Michigan (here) notes that under the guilty plea the principal will have to serve a sentence of 27 to 33 months and forfeit properties worth approximately $400,000. A principal stealing from students causes far more damage than just the monetary costs in the betrayal of trust. (ph)
Sunday, October 30, 2005
Co-Blogger Peter Henning explains the Obstruction of Justice charge here in the Washington Post.
And AJC (AP) reports here on the possible defense, which I call "the too busy executive." Actually this might be interesting as Libby probably has an incredible number of telephone calls and meetings - how could he remember them all? Will a jury buy this?
Couple this with the three charges and the list of witnesses for all three charges (all admissible at the same trial) and one has to ask whether the prosecutor be throwing spaghetti at the wall and hoping that something just might stick.
Or will there be a plea (will Libby want to roll the dice and go to trial or take an offer that might minimize a possible conviction?) Libby, a lawyer, has more to lose with a plea if the plea implicates his law license. And will Prosecutor Fitzgerald offer a plea, and will it be a reasonable one? If he does offer a plea will it be dependent upon Libby testifying against others? WHO might the others be? (is Karl Rove nervous?) And would Libby's testimony be credible - after all he was charged with false declarations?
And will there be a pardon now or down the road? A lot of choices. Did I hear Fitzgerald say - take a deep breath. Stay tuned.
Saturday, October 29, 2005
It is in chapter 79 of the federal criminal code, in title 18. And chapter 79 is titled perjury. And the indictment clearly states perjury. Not to mention that the prosecutor called it perjury.
But was one of Libby's charges really a perjury charge?
The truth of the matter is that 18 USC 1621 is really the perjury statute and "Scooter" Libby was not charged with a violation of that statute. In actuality Libby was charged with a violation of the 18 USC 1623, commonly referred to as the false declarations statute ("False declarations before grand jury or court").
There are some important differences between a charge of perjury under 1621 and false declarations under 1623.
1. For one perjury can be before any "competent tribunal, officer, or person," while false declarations is limited to being "before or ancillary to any court or grand jury of the United States." Clearly Prosecutor Fitzgerald has used the more specific statute in the indictment and one has to credit him with making this choice. Many prosecutors use generic statutes when a more specific statute exists and one has to wonder in these cases why they failed to use the statute that Congress specifically crafted for the factual situation at hand. So - two points for Fitzgerald here.
2. Perjury has a 2 witness rule (although courts have interpreted this to be not merely two live witnesses), while this is not required for false declarations. Probably inconsequential in this case as it looks like there will be more than one witness.
3. The false declarations statute "permits the use of inconsistent statements to prove falsity, without specification as to which statement is false." Podgor & Israel, White Collar Crime in a Nutshell 3rd Ed (Thomson/West 2004). Perhaps a benefit of charging this statute here as opposed to the generic perjury statute.
4. In some cases the false declarations statute requires the opportunity for recantation. (Could that be why Rove made that last appearance before the grand jury?). Perjury, however, does not have a recantation defense and in any event courts have placed some limits on the recantation defense.
With a choice of charging perjury or false declarations, it looks like Fitzgerald made the correct choice in this case.
When I teach Professional Responsibility, one of the topics I don't cover is forging the signature of a judge, on the supposition that students know that's not proper. Despite the obvious stupidity of even thinking about trying such a thing, John Eleazarian, an attorney in Fresno, California, was charged by the U.S. Attorney's Office for the Eastern District of California with forging the judge's signature to help a client get back her car that was wrongly repossessed when she was in bankruptcy. According to the USAO press release (here):
ELEAZARIAN was representing a bankruptcy client whose car had been improperly repossessed by the creditor. Despite repeated requests by the debtor to get her car back, the defendant failed to act for over seven months. In response to the repeated requests, the defendant provided the debtor with a forged order, purportedly signed by United States Bankruptcy Judge W. Richard Lee, stating that the creditor had improperly taken the debtor's vehicle, and that the debtor was entitled to sanctions in the amount of $20,000.
Maybe I should adjust my syllabus next semester to include this topic. (ph)
Friday, October 28, 2005
The indictment of I. Lewis Libby, now the former chief of staff to Vice-President Cheney, is available here. The five-count indictment primarily involves Libby's testimony regarding his interactions with Time reporter Matthew Cooper and NBC news personality Tim Russert, both of whom Libby told the FBI and grand jury were the source of his information about Valerie Plame's position at the CIA. Libby had two interviews with the FBI, and testified twice before the grand jury. Although the indictment does not reference directly the testimony of Cooper and Russert, the government's case is based on their providing contradictory statements, so the prosecution appears to be one based largely on whether the jury believes the reporters or Libby. While the indictment identifies various persons with whom Libby discussed Plame's CIA role, the crux of the case is his false testimony regarding his conversations with Russert and Cooper, so that will be the key to the prosecution.
The obstruction of justice count sets forth the matters that were "material" to the grand jury investigation, a key point that must be established for the charges:
During the course of the Grand Jury Investigation, the following matters, among others, were material to the Grand Jury Investigation:
i. When, and the manner and means by which, defendant LIBBY learned that Wilson’s wife was employed by the CIA;
ii. Whether and when LIBBY disclosed to members of the media that Wilson’s wife was employed by the CIA;
iii. The language used by LIBBY in disclosing any such information to the media, including whether LIBBY expressed uncertainty about the accuracy of any information he may have disclosed, or described where he obtained the information;
iv. LIBBY’s knowledge as to whether any information he disclosed was classified at the time he disclosed it; and
v. Whether LIBBY was candid with Special Agents of the Federal Bureau of Investigation in describing his conversations with the other government officials and the media relating to Valerie Wilson.
The indictment does refer to Libby speaking with a senior official in the White House, who is then identified as "Official A." From recent news reports, this would appear to be Karl Rove. One official specifically identified as providing Libby with information about Plame's CIA status is the Vice-President, which likely means Cheney will be a witness for the government in the case. This witness will be a particularly delicate one for the prosecutors to handle because of the long relationship between the Vice-President and Libby. (ph)
Prominent Ohio Republican campaign fundraiser Thomas Noe was indicted for making illegal contributions to the Bush-Cheney campaign in 2004. Noe has ties to a number of elected officials in Ohio, including Governor Taft, and the probe of his activities began when an investment in rare coins by the Ohio workers compensation fund that he arranged turned out to be nonexistent. According to a press release issued by the United States Attorney's Office for the Northern District of Ohio (here):
The three-count indictment returned today alleges that beginning in October 2003, Noe made contributions to President George W. Bush's 2004 re-election campaign over and above the limits established by the Federal Election Campaign Act (FECA). He did so, according to the indictment, in order to fulfill his pledge to raise $50,000 for a Bush-Cheney fundraiser held in Columbus, Ohio on Oct. 30, 2003. The indictment alleges that Noe disguised his contributions by recruiting and providing money to friends and associates who made campaign contributions in their own names. The indictment also alleges that Noe wrote several checks in amounts slightly less than the maximum allowable amount so as to avoid suspicion. Altogether, Noe allegedly contributed $45,400 of his own money through 24 conduits.
Noe is charged with making contributions in the names of others, in violation of the FECA's anti-conduit provision. The indictment charges that Noe also conspired to make contributions in the names of others, to cause the submission of false statements to the Federal Election Commission, and to defraud the United States. The indictment alleges that Noe caused the conduits to fill out contribution cards and forms falsely certifying that they were making the contributions themselves, and that these false statements caused President Bush's campaign committee to unknowingly submit a false campaign finance report to the FEC. The campaign committee has been fully cooperative with the government’s investigation.
The Eleventh Circuit upheld the RICO conviction of Dwight York, head of the so-called Nuwaubian tribe, a religious sect that claimed various roots, including Native American, Islamic, and Hebrew foundations. The charges involved violations of the Mann Act for transporting children across state lines for the purpose of engaging in sexual relations and money laundering arising out of York's role as leader of the cult-like organization. The whole sordid tale is recounted in United States v. York (here), and the court upheld the district judge's sentence of a 1,620-month term of imprisonment (that's 135 years) that was reached by imposing the maximum term under the Sentencing Guidelines for each count to be served consecutively. The Eleventh Circuit found no plain error in the sentence. Mike has an interesting post on the case and more generally RICO over on Crime and Federalism (here). (ph)
The Wall Street Journal reports (here) that Santo Maggio, the former head of Refco's securities unit, is cooperating in the government's investigation of Phillip Bennett, former CEO of Refco who was charged with one count of securities fraud. It was the revelation of accounting fraud related to receivables on the company's books for which Bennett was responsible that led to the quick demise of the firm, which had been the largest futures trading firm. The government charged Bennett in a single count criminal information in order to prevent him from leaving the country, and he has been confined to his Park Avenue apartment since the arraignment. Under Federal Rule of Criminal Procedure 5.1(c), the government must present its evidence at a preliminary hearing within 20 days of Bennett's initial appearance unless he consents to an extension or the government obtains a grand jury indictment. Maggio's cooperation will be important because the government generally seeks to avoid a preliminary hearing, and a broader indictment is likely. (ph)
A Travis County grand jury issued a subpoena to three associates of Rep. Tom DeLay, who were also charged in the conspiracy and money laundering indictments, seeking copies of e-mails sent in 2002. This is sure to draw a strongly-worded response from the defense side. It's interesting that the grand jury continues to investigate the same conduct that is the subject of the indictments, an investigation that is going into its third year. A CNN.Com story (here) discusses the subpoena. (ph)
Thursday, October 27, 2005
The government unsealed an indictment of former HealthSouth CEO Richard Scrushy for allegedly paying $500,000 in bribes to a campaign committee for former Alabama Governor Don Siegelman in exchange for an appointment to a state board involved in approving, among other things, construction of hospitals. The indictment, returned in May but sealed because of the pending jury deliberations in the securities fraud prosecution of Scrushy, also names two former aids to Siegelman. Scrushy was found not guilty on all the charges in that case, and a New York Times story (here) quotes one of Scrushy's attorneys, Donald Watkins, as stating, "Apparently the spanking we gave them in Birmingham was not sufficient." Any guesses on how Scrushy will plead at his arraignment?
Like Scrushy, Siegelman has also been prosecuted by the U.S. Attorney's Office on different corruption charges that were dismissed. To make things even more complicated, Siegelman is running for the Democratic nomination for Governor for the 2006 election, and if he won, there is at least a chance he could face former Alabama Supreme Court Chief Justice Roy Moore, who is seeking the Republican nomination. Moore was ousted from the court for refusing to remove the Ten Commandments from the state courthouse. If this one gets to trial, it will certainly be interesting. (ph)
Philadelphia City Councilman Rick Mariano, who made a brief sojourn to the top of City Hall last week to contemplate his circumstances, was indicted along with five others on corruption, conspiracy, and tax charges by the U.S. Attorney's Office for the Eastern District of Pennsylvania that alleges he accepted $30,000 in bribes to assist in the award of city contracts and tax breaks (indictment here). A Philadelphia Inquirer story (here) notes that the indictment of Mariano breaks a 14-year drought in prosecutions of City Council members, with the last one being charged with a crime in 1991. That's not nearly as long as the White Sox went between World Series victories, but maybe for Philly that's a long time between having elected representatives hauled into court. (ph)
The latest AP report (here) has Special Counsel Patrick Fitzgerald meeting with Chief U.S. District Judge Thomas Hogan, who is responsible for (among other things) overseeing the grand jury and dealing with the administrative details for the courthouse, after a three hour grand jury session. Was Fitzgerald seeking an extension of the grand jury, or clearing procedures for returning a sealed indictment (and the resultant media circus that will attend an arraignment), or perhaps reviewing the Redskins smashing victory over the 49ers? FBI agents were out conducting interviews with neighbors of Valerie Plame and Joseph Wilson while the grand jury met with Fitzgerald and assistants from his office. As the legal adviser to the grand jurors, Fitzgerald most likely is explaining the law and discussing the evidence presented, and could even be working through a draft indictment (or two). We will know when we know -- no truer tautology than that. (ph)
A recent Second Circuit decision in United States v. Cassese (available on court website here) deals with the always-tricky issue of interpreting the "willfully" element in a securities fraud prosecution. The case involves the CEO of Computer Horizons Corp., John Cassese, whose company received a tender offer from Compuware Corp. that it turned down. A few months after rejecting the offer, Compuware's CEO told Cassese that Compuware planned to acquire Data Processing Resources Corp. (DPRC), and might be interested in acquiring Computer Horizons at a future date. Upon learning about Compuware's plans, Cassese purchased 15,000 shares of DPRC and, after the announcement that Compuware would acquired the company through a tender offer, sold his shares for a profit of approximately $150,000. Two months after the DPRC transactions, Cassese discussed the trades with another Compuware officer and said that "he had made a stupid mistake." The SEC filed a civil insider trading action, which Cassese settled, and the U.S. Attorney brought a criminal case based on a violation of Rules 10b-5 and 14e-3, which prohibits trading while in possession of nonpublic information about a tender offer. The district court dismissed the Rule 10b-5 charge because the government could not establish that Cassese breached of fiduciary trading (or other duty or trust and confidence) by misappropriating the information from Compuware.
After being convicted by the jury, the district court granted the defense motion for a judgment of acquittal on the ground of insufficient evidence that the defendant acted with the requisite willfulness to violate the law. The district court held that that the government's evidence did not establish that Cassese knew he was trading in securities that would be subject to a tender offer, a requirement for a Rule 14e-3 violation. The lower court rejected the government's argument that it need only prove that Cassese knew his trading was unlawful, but not that he knew that a tender offer was the method for conducting the transaction.
In affirming the district court, a majority of the Second Circuit held that even under the government's "more expansive" reading of the intent element, its evidence was insufficient to show Cassese knew his conduct was unlawful. At the outset, the court noted:
Before analyzing the Government’s evidence, it is helpful to keep in mind the context in which the trades occurred. In purchasing the DPRC shares, Cassese did not breach any fiduciary duty, nor did he misappropriate any confidential information . . . The information Cassese had received was not related to Computer Horizons or to any company in which he could be considered an insider by virtue of a directorship or otherwise. Accordingly, he was under no legal duty to refrain from trading on the information by virtue of being an insider, or to keep it confidential. Finally, and significantly, the Government did not prove – and does not contend – that, when Cassese traded, he knew DPRC would be the subject of a tender offer. In other words, the Government contends it proved willfulness despite the lack of any of the traditional warning signals that would put one on notice that he ought to refrain from trading.
The Second Circuit rejected the government's argument that Cassese's use of two brokerage accounts to conduct the trades shows knowledge of wrongfulness as "frivolous" Regarding Cassese's statement about doing something "stupid," the court stated: "Viewing this bit of evidence in a light most favorable to the Government, the fact that Cassese may have felt he made a mistake two months after the trades makes, at best, the most modest of contributions to the Government’s responsibility of proving beyond a reasonable doubt that Cassese willfully violated the securities laws." The court concluded:
Since few events in the life of an individual assume the importance of a criminal conviction, we take the "beyond a reasonable doubt" requirement with utmost seriousness. Here, we find that the Government’s evidence failed to reach that threshold. As discussed above, viewed singly, each of the areas of proof by the Government was characterized by modest evidentiary showings, equivocal or attenuated evidence of guilt or a combination of the three. More importantly, when the evidence is viewed in its totality, the evidence of willfulness is insufficient to dispel reasonable doubt on the part of a reasonable fact finder.
Circuit Judge Raggi dissented, arguing that the evidence was sufficient when viewed in the light most favorable to the verdict. (ph)
William Warren touted himself to churches and religious organizations as a "financial pastor" who possessed special expertise in investments and promised outsized returns. Like most everything that sounds too good to be true, it wasn't, and he entered a guilty plea to mail fraud, securities fraud, and embezzlement for bilking over 140 investors out of $7 million. According to a press release (here) issued by the U.S. Attorney's Office for the Western District of Virginia:
Warren solicited investors by advertising that he was a "financial pastor" with exceptional investment expertise. He targeted churches and religious organizations by offering free financial seminars and workshops under the name Excellent Life Institute. Warren solicited persons within these groups to invest funds with his companies, promised them unusually high rates of return on their investments, and represented that he would use their funds to trade stock index futures contracts. Warren offered rates of return of up to 30% to 40 % annually.
U.S. District Judge Glen Conrad sentenced Warren to a 21-year term of imprisonment, a stiff sentence for a ponzi scheme. (ph)
Update: The original post identified the defendant as John Brownlee, who is the United States Attorney for the Western District of Virginia. My apologies for the misidentification. (ph)
Bausch & Lomb Inc. disclosed that an accounting fraud problem in its Brazilian subsidiary may require the company to postpone filing its quarterly financial report due to problems with its books and records. The company issued a press release that the general manager and others in its BLIO subsidiary tried to hide pension compensation by falsifying entries in the company's records, and the Brazilian government is seeking to assess a penalty on the company. A company press release (here) states:
In September of 2005, the Audit Committee of the Board of Directors commenced an independent investigation into allegations of misconduct by the management of BLIO, which had been reported to the Company's senior management by a BLIO employee pursuant to the Company's established compliance program. The Audit Committee has engaged the law firm of Cahill Gordon & Reindel LLP to assist with the investigation. Bausch & Lomb also voluntarily reported these matters to the staff of the Northeast Regional Office of the Securities and Exchange Commission, which has commenced an informal inquiry into the matter.
The Audit Committee's independent investigation to date has determined that the general manager, the controller and other employees of BLIO, in violation of Company policies, engaged in improper management and accounting practices, including, among other things, the mischaracterization of approximately $600,000 in expenses to fund an approximately $1.5 million, unauthorized local pension arrangement for the benefit of themselves and other members of local management, the avoidance of Brazilian payroll tax obligations, the amount of which has not yet been determined, and the misuse of Company assets for personal benefit.
Also as a result of the Audit Committee's investigation, it was learned that certain Brazilian tax authorities have made tax assessments relating to or arising from Brazilian VAT, social contribution, income and certain import-related taxes against BLIO for unpaid taxes totaling approximately $5 million, interest of approximately $7 million, plus approximately $21 million in claimed penalties which relate back to various earlier periods. Appropriate reserves relating to these assessments were not reflected by BLIO in its subsidiary financial statements, as required by the Company's established policies and procedures.
The Brazilian subsidiary accounts for less than 1% of Bausch & Lomb's annual sales, but even a small problem can turn into a serious accounting and reporting issue, and no one wants to mess around with that.(ph)