Saturday, May 28, 2005
Tennessee State Senator John Ford, a 30-year veteran of the Senate, has resigned after his indictment on corruption charges and order of home confinement because of an alleged threat against a witness (see earlier posts here and here). According to an AP story (here), Ford's lawyer said the threat against the witness was just a joke. (ph)
Workers compensation is one of those areas of the law that is better left unexamined. Unfortunately for the Ohio Bureau of Workers Compensation (BWC) and its CEO, James Conrad, the spotlight is now focused on a rather peculiar investment by the Bureau that seems to be missing. According to an AP story (here), the BWC bought approximately $55 million in rare coins through a Toledo dealer as part of an investment strategy to diversify its portfolio. Companies pay hefty premiums into state workers comp pools, and investment gains should lower the cost of insurance. About $10-12 million worth of coins, however, are missing, and the coin dealer, Tom Noe, is being investigated for the disappearance. Conrad resigned from the BWC because of the disappearance, and questions have been raised about the use of Noe because he was a substantial contributor to Governor Taft and other Republican candidates. Collectibles are notoriously hard to value -- just ask Ellen about the value of her Beanie Baby stash -- and subject to theft, unlike stocks and bonds. While the missing coins are only a small part of the BWC's $15 billion investment fund, it shows that even a small-scale fraud can blow up once it is tied in with campaign contributions. (ph)
A Fourth Circuit opinion in United States v. Blick (here) has a thorough discussion of the appeal waiver related to post-Booker sentencing issues, taking the approach adopted by all other circuits that a waiver of the right to appeal in a plea agreement is enforceable even though the Supreme Court's decision on the Federal Sentencing Guidelines had not been announced. What is more interesting is how Blick ended up in this position. Blick was a principal and one-third owner of a consulting firm, with the responsibility for managing its business affairs. Over the course of about a year, he embezzled approximately $1.4 million, transferring the money overseas. Eventually, the embezzlement caught up with him, and he informed the other owners of the firm and was eventually indicted on wire fraud charges. He repaid about $750,000 of the money he took, and was sentenced for defrauding the firm of $655,000. Why did Blick embezzle all that money? It turns out that he was "assisting" a person in Nigeria to remove $20.5 million from that country into a safe account in Europe. How many of those e-mails do you get a week? It is simply amazing that people actually fall for these scams, although according to Wikpedia (here) this type of advanced fee fraud goes all the way back to the 16th century.
On a side note, Blick had a creative, if less-than-compelling, argument why the actual loss from his scheme should be zero, which could have a significant effect on his sentence. Blick argued that the firm suffered no loss because he owned one-third of it, and his ownership interest exceeded the $655,000 loss, so the "net loss" to the victim -- the consulting firm -- was really zero. In effect, he argued "I stole only my share of the company." Neither the district court nor the Fourth Circuit fell for the argument as easily as he agreed to participate in the Nigerian 419 plan. (ph)
In the fine tradition of Barney Fife, Orange County Sheriff Michael Carona appointed 86 campaign contributors (Sheriff is an elected post in California), friends, and family members as reserve Deputy Sheriffs, giving them badges and -- a bit scarier -- the authority to arrest. None of the reserve deputies, who are all volunteers, had to undergo a criminal background check, and the state Commission on Peace Officers Standards and Training removed them from its database of peace officers once the lack of a background investigation was revealed. A Los Angeles Times story (here) quotes Carona as stating, "Like any organization, the first group of individuals we reach out to for support and assistance is friends and family of the members of the organization." I would have thought law enforcement training might be a more appropriate criterion for appointing someone who carries the authority of the county sheriff's office, but maybe I'm old fashion. It does remind me of the time when Richard Nixon gave Elvis Presley a badge as a "Federal Agent-at-Large" for the Bureau of Narcotics and Dangerous Drugs (the predecessor of the DEA), which became one of the King's prized possessions. Didn't Nixon have a house in Orange County? (ph)
U.S. District Judge Barbara Jones postponed the sentencing of former WorldCom CEO Bernie Ebbers from June 13 to July 13 to give the parties more time to file briefs on the new trial request and to complete the presentence report. Any guesses on the fraud loss figure? Because Judge Jones can treat the Guidelines as advisory, I think she is unlikely to impose the highest sentence even if the loss amount would have triggered a significant term of imprisonment under the Guidelines. See the AP story here.
In cases where the accused is charged with murder, it is rare that the defendant will receive bail. In contrast in white collar cases, it is rare that the accused is not granted bail. Often, however, restrictions are placed on the defendant. The usual restrictions range from turning in a passport or gun. CNN reports here that in the "Tennessee Waltz" case of John Ford, a state senator of Tennessee, the court has placed him under house arrest. Ford has an obstruction charge premised on witness intimidation and retaliation that has caused the judge to place this added restraint on him.
Friday, May 27, 2005
David Rosen, the former national finance director for Senator Hillary Rodham Clinton (referred to as "Senator A"), was acquitted of two counts of filing false campaign finance statements with the Federal Election Commission. An AP story (here) reports that the jury was out approximately 6 hours before it returned the "not guilty" verdict. Rosen's testimony resonated with the jury, who accepted his position that he got in over his head and was not responsible for any misreporting of contributions. As in other high profile cases, the decision whether to have the defendant testify turned out to be crucial to the outcome. (ph)
In an undercover operation that appears to have lasted more than two years, the United States Attorney's Office for the Western District of Tennessee indicted four present and one former state legislators on criminal charges related to improperly taking money. Some of the news reports on these indictments coming from the undercover operation, called the "Tennessee Waltz," can be found here (AP), here (WBIR-TV), and here (Jurist).
One of the indictments can be found here and the charges in this indictment are for violations of the Hobbs Act (extortion), 18 USC 666 (a statute that allows the federal government to charge criminal conduct when a state receives federal assistance in excess of a specified amount), and 18 USC 1512(b)(3) (obstruction premised on intimidation and threats).
The indictment describes an FBI undercover operation where the FBI set up a company called E Cycle Management Inc. The indictment discusses the alleged payment of money for the passage of a bill in the legislature (bill here) related to this company.
It is fairly common these days for the federal government to proceed against state actors with charges related to alleged corruption. The charges in these cases carry severe penalties, so these will definitely be cases to follow.
This seems to be a week of trials ending and jury deliberations beginning, or about to begin. Of course there is the Scrushy jury that has been deliberating for several days (see here).
Jury deliberations have also just started in the case against David Rosen, who is facing two counts of false statements to the Federal Election Commission (FEC). In this case the government's case emanates from a fundraiser for a US Senator (see here and here).
Finally the jury in the Kozlowski-Swartz trial is very close to deliberations, with final arguments underway. (see here)
Thursday, May 26, 2005
The jury, unable to reach an agreement on the conspiracy count, has asked the judge whether they should move onto other counts. (see WSJ here and Birmingham News here). One feels their frustration in that according to these news reports they are asking the judge for a one word answer - yes or no. We tell law students to think in terms of arguments, not answers, but the reality is that people in the real world want answers.
Addendum - Birmingham News reports here that the judge did give a "yes" answer, but also "read a one-page written answer to jurors."
Gwinnett County (Georgia) Prosecutor Danny Porter has decided to proceed with two counts against the runaway bride. (see Atl. Jrl Const. here) Although I have not been able to secure a copy of the indictment as of yet, according to the Atl. Jrl Constitution, the two charges are: "one felony count of making false statements and one misdemeanor count of falsely reporting a crime." If a plea is not worked out here, it is likely that there will be legal issues regarding jurisdiction and as to whether there is evidence of one of the elements in the statute. Obviously the defense may have other legal issues to present.
For example, the misdemeanor of falsely reporting a crime in Georgia is found in 16-10-26. The statute states, " A person who willfully and knowingly gives or causes a false report of a crime to be given to any law enforcement officer or agency of this state is guilty of a misdemeanor."(emphasis added). Did the accused give a false statement to someone in law enforcement of this state? The answer to this question remains to be seen.
New York Attorney General Eliot Spitzer and state Superintendent of Insurance Howard Mills filed a civil suit alleging fraud, violation of the state securities law (Martin Act), and violation of the state Insurance law against American International Group, former CEO Maurice Greenberg, and former CFO Howard Smith (summons & complaint here). The suit had been widely anticipated, and it contains no new allegations that have not already been aired in the press and discussed by the company as part of its internal investigation. A press release issued by Spitzer's office (here) summarized the allegations involving AIG:
- Engaged in sham transactions with a reinsurance company to create the appearance of insurance reserves where none existed. These deals were personally conceived and negotiated by Greenberg;
- Hid underwriting losses from an auto warranty unit by transferring the losses to an off-shore entity that it secretly controlled; Papered over losses in a Brazilian subsidiary by linking the losses to a Taiwanese subsidiary;
- Created false underwriting income derived from the purchase of life insurance policies; and
- Repeatedly deceived state regulators about AIG’s ties to off-shore entities.
The suit also cites a separate scheme in which AIG improperly booked worker’s compensation premiums as general liability and other coverage. This misconduct reduced the company’s taxes and other assessments.
No word on the status of the criminal investigations by Spitzer's office (see earlier post here) and the Department of Justice. The SEC usually coordinates its civil actions with the U.S. Attorney's Office, so I expect that the Commission will hold off for now pending decisions on whether to pursue federal charges against individual executives. An AP story (here) discusses the filing. (ph)
NOW v. Schiedler is a case that is well known in legal circles. The latest appears to be an attempt to have certiorari granted with issues regarding the Hobbs Act. The essence of the Petition in Opposition to a cert grant is that "[t]his Court should abide by its settled practice of denying certiorari over non-final rulings remanding matter to the district court." Obviously, the other side presents a different picture. Some of the briefs in this case are below.
A former employee of the U.S. Attorney's Office for the Middle District of Louisiana will be pleading guilty to "willfully engaging in a conflict of interest, a felony violation of 18 U.S.C. §§ 208(a) and 216(a)(2)." According to a press release of the criminal division, the individual who will plead guilty to a criminal information "worked as the Coordinator for the Law Enforcement Coordinating Committee (“LECC”) Program of the U.S. Attorney’s Office."
The former employee of the U.S. Attorney's Office was alleged to have been "negotiating with a Government vendor, PHI Investigative Consultants (“PHI”), to give periodic LECC-sponsored training seminars for the Middle District of Louisiana and other United States Attorneys’ Offices. At the same time, he arranged for PHI to hire his wife to plan and coordinate all seminars that PHI conducted. His wife then began operating a business doing seminar planning and coordination work for PHI between 2000-2002." The bottom line is the charges describe a conflict of interest that permitted the accused to benefit financially.
One has to applaud the local US Attorney's Office as it recused itself from the matter and it was sent to D.C. for the Inspector General to oversee.
But it appears that key dates in the press release imply that the conduct occurred between 1999 -2002. Questions - Did the US Attorney's Office have an "effective program" to comply with the law? Would the result in this case be the same if this was a corporation that had an individual employee who violated the law?
Wednesday, May 25, 2005
Perhaps one of the hardest subjects to teach in criminal law is the law of conspiracy. It is therefore not surprising that the Scrushy jury is having trouble understanding this particular aspect of the case. (see here and here) After the usual and unusual (see here) preliminary aspects of the jury instructions, the court's instructions in this case then proceed through each count of the indictment, defining the elements that the government needs to prove in order to convict the defendant of these crimes. Although the first count is conspiracy, the court tells the jury that she will describe this one after she has finished with the others, since conspiracy includes these other offenses. That's the first clue that this charge is complicated.
The accused, Richard Scrushy is charged with conspiracy under 18 U.S.C. s 371, the general conspiracy statute that tacks on an underlying offense to a general conspiracy charge. Unlike some other conspiracy statutes in the federal code (RICO and drug conspiracies), this statute explicitly requires that the government prove an overt act on the part of the defendant. Other conspiracy statutes often do not require proof of an overt act. That's the second clue that this charge is complicated.
Conspiracy under 18 USC 371 is divided into two possible choices. One possible approach is a conspiracy to defraud, where the deprivation is to the United States government. Under this portion of the statute it is not necessary to show an underlying specific offense. It is enough if there is a deprivation of the federal government. In contrast, a conspiracy to violate a specific provision of the Code, such as wire fraud, etc. requires that the government prove the agreement was to commit the crime alleged. In this case the alleged agreement was to commit numerous different crimes. That's the third clue that this charge is complicated.
The government in federal cases has the option of charging both the underlying conspiracy and the specific offense, thus charging the defendant with two different crimes for the same exact conduct. Some states do not permit this double charging and the Model Penal Code prohibits it "unless the prosecution proves that the conspiracy involved the commission of additional offenses not yet committed or attempted." (Dressler's, Understanding Criminal Law). So jurors are left to figure out not only the substantive offense on a jury form, but also whether there was an overt act regarding the individual conspiracy acts - even when the conduct is exactly the same as some of the specific counts they are considering. That's the fourth clue that this charge is complicated.
Couple that with 78 pages of jury instructions, and that number does not even include the numerous pages of verdict forms with explicit questions for the jury to answer-- and you ask why the jury is confused and wants explanations in lay people's terms?
Discussed here were the government problems in the Rosen case, a case involving an individual who served as a fundraiser for "Senator's A." The latest events in the trial may present even more problems for the government's case. According to CNN here, David Rosen testified "that he knew nothing about cost overruns for a lavish Hollywood fund-raiser he helped stage." The prosecution now gets to cross-examine Rosen on this testimony and that is occurring today. Stay tuned.
Not surprisingly, the jurors deliberating in the trial of former CEO of HealthSouth, Richard Scrushy, are having difficulty reaching a verdict. According to the Birmingham News here and Wall Street Journal here, the jurors in the case have sent a second note to the judge saying they are having difficulty reaching a consensus and asking for an explanation, this time in "layman's terms." We reported on the jury instructions here, and one can find the 78 pages of jury instructions here. The problems may be focused on the conspiracy charge.
The trial was several months and there are a good number of counts including conspiracy, securities fraud, wire fraud, mail fraud, false statements, and yes- a first time ever SOX charge.
Everytime I teach the course in white collar crime, I see law students struggle to grasp the meaning of terms within some of these statutes. For example, the instruction on wire fraud includes the following statement:
"To 'deprive another of the intangible right of honest services' means to violate a duty, or to cause another to violate his duty, to render honest services to HealthSouth, including its shareholders and its Board of Directors. The Government must prove beyond a reasonable doubt that Mr. Scrushy intended to breach a fiduciary duty, and that he foresaw that HealthSouth, including its shareholders and its Board of Directors, might suffer economic harm or risk economic harm as a result of that breach."
The instructions provide the following definition of "honest services":
"'Honest services' means the duty of an officer or employee of a company to act honestly and faithfully in dealings with the company, and to transact business in the best interest of the company, including a duty to disclose any material information on which the company, its shareholders, and Board members are entitled to rely in making business decisions."
One has to admit that these are not particularly easy concepts to understand. So it is not surprising that the jury in this case is asking for an explanation in "layman's terms." The problem is, I'm not sure that any judge could do better in defining these statutes then what has already been stated. Perhaps the problem is vagueness, ambiguity, and basic understandability - problems that Congress needs to correct.
And yes, I can't help but wonder if there might be less criminal charges filed if the law were clearer. More would understand exactly how to conform their conduct to the law and be on notice of what was legal and what was not. Perhaps compliance could be enhanced with simplicity.
The British Home Secretary, Charles Clarke, approved the extradition of David Bermingham, Gary Mulgrew and Giles Darby to the United States to face wire fraud charges in Houston related to transactions with an Enron-related SPE organized by Andy Fastow and Michael Kopper. The three were officers of Greenwich NatWest, a division of NatWest Bank, which is now owned by Royal Bank of Scotland (RBS). According to the indictment (here), when it became clear that NatWest would be acquired by RBS, which would put their jobs at risk, the three defendants hatched a scheme with Fastow and Kopper to take for themselves Greenwich NatWest's investment in a Cayman Islands company (LJM) that was used by Enron for off-books transactions. The three defendants are charged with seven counts of wire fraud in relation to the scheme, and it is alleged they received a total of approximately $7.3 million from the transaction. The defendants had sought to be tried in Britain because their actions took place there and the victim of the alleged fraud is a British company. They can appeal Home Secretary Clarke's decision, which would likely slow the extradition process further. The Times story (here) discusses the extradition decision, and check Tom Kirkendall's Houston's Clear Thinker blog (here) for information about the prosecution (including pictures of the three defendants). (ph)
Tuesday, May 24, 2005
Sometimes a judicial opinion catches your eye, and this one did, although it's at best only tangentially a white collar crime case (well, there's a property sale, so that brings it under our giant tent). The Ninth Circuit has a rather wry recitation of the facts of a criminal prosecution for interfering in the sale of government land. In United States v. Cassel (here), the defendant was charged with violating 18 U.S.C. Sec. 1860 for his statements made to potential purchasers of federal land in the Mojave Desert. It seems that Mr. Cassel (and his girlfriend, Anastasia Kafteranis, who owned the property on which they lived) did not want any neighbors on property the Bureau of Land Management planned to sell, so when the first potential purchasers came to look at the property, the following interchanges took place:
Arthur and Alice Rinard, a married couple, were interested in buying one of the government lots, and in January 1998 they visited the property to look around. As they were walking around, Cassel approached them. He was accompanied by two of his dogs. One of the dogs—a certain "Mr. Mooch Face"—was extremely ugly and at least somewhat aggressive, probably because it had once been run over by a car. Cassel began a conversation with the Rinards that would continue over the following two days. Cassel’s participation in the conversation consisted mostly of providing the Rinards with a series of dramatic reasons why the property that the Rinards were considering was quite undesirable. Cassel claimed, among other things, that the government’s maps misidentified the boundaries between the various lots; that bidding on one of the lots—lot 107—was pointless because Cassel and Kafteranis were going to purchase it no matter what the cost; that it would cost at least twenty thousand dollars to get the permits needed to build a residence on the property; that the surrounding area was inhabited by child molesters, murderers, producers of illegal drugs, devil-worshipers, and witches; that the ground was a toxic waste dump contaminated with cyanide; that local law enforcement officials were corrupt; that mining explosions had damaged Kafteranis’s own house; and that a neighbor had developed a disease known as "silica lung."
Cassel invited the Rinards to join him and Kafteranis for dinner, and despite his generally unneighborly demeanor, they agreed. Cassel kept up his invective during the meal, and his dogs continued to appear aggressive. He ultimately succeeded in dissuading the Rinards from purchasing the lot they had been considering—not, according to Mr. Rinard’s testimony, because they believed his stories about nearby witches, but because they did not want Cassel as a neighbor.
After making similar comments to a second set of potential purchasers -- who decided not to buy the property for some unfathomable reason -- the government charged Cassel with two counts of violating Section 1860 along with one count of witness intimidation. Section 1860(a) (here) provides: "Whoever, by intimidation, combination, or unfair management, hinders, prevents, or attempts to hinder or prevent, any person from bidding upon or purchasing any tract of land so offered for sale—Shall be fined not more than $1,000 or imprisoned not more than one year, or both." Cassel challenged his conviction under the statute on First Amendment grounds. The court first rejected his facial unconstitutionality argument, holding that the statute must be interpreted to incorproate an intent element regarding the intimidation to meet the requirements of the Supreme Court's opinion in Virginia v. Black (on the constitutionality of Virginia's cross-burning statute). The Ninth Circuit went on to overturn the conviction on the ground that the jury instructions did not articulate the requisite specific intent to intimidate element of the crime, read into the statute by the court to avoid First Amendment problems. The court held:
In view of our holding that 18 U.S.C. § 1860 includes a mens rea element of subjective intent, Cassel’s first contention is correct, for the instruction included no such requirement. It did require that the intimidation be “for the purpose of compelling or deterring legal conduct,” but that is by no means the same thing. It is not enough that the defendant by means of a threat. Were it otherwise, a defendant could be convicted under § 1860 who, for example, merely attempted to dissuade the potential bidder by informing him of dangerous conditions in the area surrounding the land to be sold. Such a result comports neither with the First Amendment nor with the statute’s purpose, which is to punish interference by intimidation, not to prevent potential land buyers from hearing negative viewpoints on the land for sale.
Cassel may not be the friendliest neighbor around, and spending too much time out in the sun in the Mojave Desert can do funny things to you, but when has being unneighborly (to say the least) been a federal offense? Now, naming your dog "Mr. Mooch Face" is another matter. (ph)