Saturday, March 25, 2006

Quattrone Goes 2-for-2

Former tech investment banker Frank Quattrone had quite a positive week.  First, the Second Circuit reversed his obstruction convictions due to improper jury instructions, then a few days later the Securities & Exchange Commission reversed the NASD's order barring him permanently from working with any broker-dealer.   In 2002, the NASD, New York Stock Exchange (NYSE), and SEC Enforcement Division began investigations of so-called "IPO Spinning" by Credit Suisse First Boston, in particular the awarding of shares in hot IPOs by Quattrone to corporate executives as a way to win their company's investment banking business down the road.  During that investigation emerged the famous "cleanup" e-mail forwarded by Quattrone, urging employees to clear out their files of unnecessary documents when there were pending civil and grand jury investigations, which ultimately led to the obstruction charges.  In response to an NASD demand -- called a Rule 8210 Request -- that Quattrone testify about the e-mail, he asserted his Fifth Amendment privilege.  The NASD then initiated a separate proceeding and ordered that he be barred from the securities industry because of his failure to provide information.  Regarding the Fifth Amendment, the NASD took the position that it was not a "state actor" and therefore the Fifth Amendment was unavailable.  Quattrone challenged that position, arguing that the coordinated SEC-NASD investigation meant that he could assert the Fifth Amendment and refuse to testify without that being the basis for an automatic sanction.

The full Commission did not rule on Quattrone's "state actor" argument, finding instead that there was a genuine issue of material fact regarding that question, and therefore the NASD's summary rejection of the argument and imposition of a sanction was improper.  The Commission's opinion (here) states:

We do not reach the merits of the issue of whether the Rule 8210 Request constituted state action because we hold only that Quattrone should have been allowed to present evidence to support his claim that the requisite degree of coordination between NASD and the Commission existed here. Applicable law indicates that cooperation between the Commission and NASD will rarely render NASD a state actor, and the mere fact of such collaboration is generally insufficient, standing alone, to demonstrate state action. However, Quattrone proffered enough evidence concerning the Joint Investigation to earn an evidentiary hearing. Therefore, although we consider the burden of demonstrating joint activities sufficient to render NASD a state actor to be high, NASD should not have summarily dismissed the claim that, on the facts of this case, the Rule 8210 Request constituted state action.

While certainly welcome news, the SEC decision does not mean that Quattrone is out of the woods.  Prior to the NASD's demand for testimony regarding the e-mail, it had already notified Quattrone that it intended to pursue an enforcement proceeding for the IPO spinning, a position it did not pursue further once it imposed the lifetime ban for taking the Fifth Amendment.  The NASD is free to restart that proceeding, and may well in light of the uncertainty related to the e-mail issue.  Similarly, the government has not announced whether it will retry Quattrone a third time, and the Second Circuit's opinion finding that sufficient evidence had been introduced at trial to support the convictions may impel the U.S. Attorney's Office to move forward. 

Another possibility is that Quattrone will reach a civil settlement with the SEC and NASD, with the imposition of a significant civil penalty and industry bar, after which the criminal case will be dropped.  While the situation remains fluid, the SEC's narrow opinion does not say anything about the merits of the NASD's enforcement action, so it is not much of a harbinger of how the criminal and civil cases are likely to proceed from here.  The case goes back to the NASD to consider its options, and because the IPO spinning issue has never been fully aired, I suspect the NASD (and even the SEC) will pursue charges against Quattrone. (ph)

March 25, 2006 in Civil Enforcement, Securities | Permalink | Comments (0) | TrackBack (0)

Friday, March 24, 2006

Subpoena to TSA Attorney Martin Quashed

Transportation Safety Administration attorney Carla Martin will not have to appear as a witness called by the defense in the death penalty trial of Zacarias Moussaoui.  Martin had disclosed trial transcripts to various government witnesses in violation of U.S. District Judge Leonie Brinkema's sequestration order, which nearly resulted in the government being unable to complete its case due to the court's order barring those witnesses from testifying.  Judge Brinkema's order (here) notes only that the subpoena has been quashed "based in [on?] the request of Carla Martin's counsel."  That statement indicates that Martin would have assert her Fifth Amendment privilege if called to testify, as she did at an earlier hearing when her violation of the court's order first came to light.  Martin is currently on paid leave, and once the Moussaoui death penalty case is complete, look for Judge Brinkema to take up the issue of a possible criminal contempt proceeding against Martin. (ph)

March 24, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Guilty Pleas in Bottle Deposit Scheme

While the amount you get for recycling bottles and cans is not much, if you have enough of them you're talking about real money.  Kramer and Newman certainly figured that out on Seinfeld when they collected cans in New York and planned to drive them to Michigan, which has a ten cent deposit (Episode 131, Season 7 -- synopsis here).  A number of defendants in California have entered guilty pleas to fraud charges for obtaining deposit refunds on bottles and cans collected in other states or Mexico, and claims for non-existent recyclables.  A press release (here) issued by the U.S. Attorney's Office for the Central District of California describes the guilty pleas of Errol Segal, Memveluz Lampert, and two corporations under Segal's control, Active Recycling and Worldwide Recycling:

California consumers pay into the state's beverage container recycling system every time they purchase certain beverages – such as soda – in glass, plastic and aluminum containers. This money is refunded to the consumer when containers are redeemed at privately-owned recycling centers, which then reclaim California Redemption Value payments from the state Department of Conservation. Only cans and bottles sold in California are eligible for the CRV refund. Segal, Lampert and the other defendants defrauded the program by seeking and obtaining payments for recyclable goods that came from outside California or simply did not exist.

Appearing before United States District Judge A. Howard Matz last night, Segal pleaded guilty to mail fraud and to conspiring with several individuals to process non-CRV cans and bottles that were transported into California from other states and from Mexico, and then submitting falsified paperwork seeking reimbursement from California for processing those ineligible cans and bottles. The scheme led California to pay Segal and his corporations more than $2 million between September 1998 and February 2000.

Appearing yesterday morning before Judge Matz, Lampert pleaded guilty to conspiracy in a second scheme to defraud the State of California. Lampert admitted that, at the direction of Segal, she oversaw Active Recycling employees who processed paperwork for non-existent bottles and cans that were never recycled. As part of this scheme, which cost California more than $400,000 in less than a year, Lampert directed Active Recycling employees to falsify paperwork that allowed it to receive CRV payments for non-existent bottles and cans.

Watch out for those cans and bottles. (ph)

March 24, 2006 in Fraud | Permalink | Comments (1) | TrackBack (0)

FCPA Charge for Offering Bribe to Iraqi Police Official

Faheem Salam, a civilian translator working in Iraq as a contract worker through Titan Corp., was charged with violating the Foreign Corrupt Practices Act for offering a $60,000 bribe to an Iraqi police official to obtain a supply contract.  According to a Department of Justice press release (here):

Salam offered a senior Iraqi police official approximately $60,000 for the official’s assistance with facilitating the purchase by a police training organization of approximately 1,000 armored vests and a sophisticated map printer for approximately $1 million. The complaint alleges that Salam later made final arrangements with an undercover agent of the Office of the Special Inspector General for Iraq Reconstruction – posing as a procurement officer for the multinational Civilian Police Assistance Training Team (CPATT) in Iraq – for the map printer and vests, along with a separate $28,000 to $35,000 “gift” to process the contracts.

(ph)

March 24, 2006 in FCPA | Permalink | Comments (0) | TrackBack (0)

Thursday, March 23, 2006

Former NFL Kicker Indicted for Insurance Fraud

Former NFL placekicker Ray Wersching was indicted in the Northern District of California on insurance fraud charges for allegedly siphoning more than $8 million in premiums from Farmers Insurance Group through his insurance agency.  He is also charged with evading taxes on $3.6 million of income in his agency.  Wersching was a kicker for 15 years in the NFL, including winning two Super Bowls with the San Francisco Forty-Niners.  He tied the record for most field goals in a Super Bowl with four in Super Bowl XVI, when the Niners won 26-21 over the Bengals.  In addition to the insurance business, Wersching is a CPA.  A press release issued by the U.S. Attorney's Office (here) states:

According to the indictment, Mr. Wersching falsified and altered documents and records of his business in order to steal premium money owed to Farmers. Wersching also allegedly transferred premium money to the operating account of his company, instead of remitting the funds to Farmers. Wersching is charged with embezzling and misappropriating over $456,000 of premiums belonging to Farmers in 1997; over $1.2 million in such premiums in 1998; over $3 million in such premiums in 1999; and over $3.4 million in such premiums in 2000, all by failing to remit the premiums to Farmers as required by the company’s policies and procedures

Wersching was also charged with hiring a person convicted of a felony involving dishonesty -- forgery in this case -- to work in the insurance agency, a federal crime under 18 U.S.C. Sec. 1033(e)(1)(B).  I suspect it's not a good business practice for insurance companies and agencies  to hire former felons to handle other people's money, but I have to admit I never knew it was a federal crime (indictment here).

Former Lions great Alex Karras once observed about kickers, "You battle for 59 minutes, and then some little guy with a clean uniform comes in to kick a field goal to win the game, and he says, 'Hooray, I keek a touchdown.'" No touchdowns here. (ph)

March 23, 2006 in Fraud | Permalink | Comments (0) | TrackBack (1)

Ryan Jury Bogging Down

The jury considering the RICO corruption charges against former Illinois Governor George Ryan and co-defendant Lawrence Warner has finished its eighth day of deliberations, and sent two notes to the judge about having "personal difficulties" in reaching a verdict.  To make matters even more complicated, U.S. District Judge Rebecca Pallmeyer dismissed the jury early and said she is conducting an investigation of a "personal matter" involving a juror.  A Chicago Tribune story (here) notes that the paper raised questions about whether one of the jurors answered a questionnaire truthfully during voir dire, although there are no further details and the court has sealed the records of its meetings with counsel for now.  If one of the jurors has to be dismissed, then an alternate can be brought in, assuming one is available.  That would require the jury to begin its deliberations all over, which will drag out the process even further.  Deliberations will resume on Monday, when Judge Pallmeyer will most likely have completed her investigation of the juror issue and the question of whether an alternate will be used should be answered.  Don't anyone hold their breath waiting for a verdict, at least not yet. (ph)

March 23, 2006 in Corruption, Prosecutions, RICO | Permalink | Comments (0) | TrackBack (0)

SEC Authorizes a Formal Investigation of Mills Corp. Accounting

The Mills Corporation, a real estate investment trust (REIT) specializing in shopping centers, disclosed that the SEC bumpted the Enforcement Division's inquiry of the company's accounting up to a formal investigation, which means the Commission staff has subpoena power to compel the production of records and the appearance of witnesses.  Mills buried its announcement about the status of the SEC investigation in an 8-K filing (here) that includes a long description of its employment agreement with the president of its operating division, and then the following terse entry: "On March 20, 2006, the Securities and Exchange Commission (the 'SEC') advised the Company that it has commenced a formal investigation of the Company. The Company previously announced in a Current Report on Form 8-K filed on January 12, 2006 that the SEC had commenced an informal inquiry. The Company has fully cooperated, and intends to continue to fully cooperate, with the SEC."  In an earlier filing regarding the reasons why the company cannot make a timely filing of its annual 10-K, it noted (here) that the internal investigation has expanded so that "among the areas under review are revenue recognition, cost capitalization, lease accounting, accounting for sales of real estate and purchase price allocations to acquired operating properties."  Gibson Dunn and Ernst & Young are conducting the internal investigation and audit.

Mills identified an awful lot of accounting issues, and the review seems to cover a significant amount of its financial reporting.  The REIT industry has been largely free from the accounting problems that have enveloped other sectors in the past few years, such as food distribution, pharmaceuticals, and the automobile suppliers and manufacturers.  If significant problems crop up at Mills, the SEC may take a proactive approach in looking at other REITs to see if similar problems exist.  Check your portfolio.  (ph)

March 23, 2006 in Civil Enforcement, Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Wednesday, March 22, 2006

City Council Member Will Retain Seat Until Sentencing on Corruption Charges

Philadelphia city councilman Rick Mariano was convicted of 18 of the 22 counts related to accepting over $30,000 from businesses and helping them win city contracts and other favors -- he was acquitted of two counts each of mail and wire fraud.  The judge ordered Mariano taken into custody immediately for a mental health examination, due to his behavior right before his indictment when he went to the observation deck of the Philadelphia City Hall in what some feared might be a suicide attempt.  Mariano remains in custody, and also remains on the city council.  Under state law, he is not required to resign until sentence is imposed, which will be at least three months from now, and possibly longer if the mental health exam takes a significant amount of time.  Mariano's attorney did inform the city council president that he resigned from his positions a chair of the Licenses and Inspections Committee and vice-chair of the Appropriations Committee, but will retain his position on the council and, more importantly, the $102,000 annual salary that comes with it.  Mariano's defense at trial was that the payments he received were loans due to financial difficulties, so he likely needs the salary, although that is not much justification for continuing on the city's payroll; Mayor Street, a long-time friend, called for his resignation.  Having an elected official who has been convicted of corruption for misuse of that office retain his position just to draw a salary certainly presents an odd picture.  A Philadelphia Inquirer article (here) discusses Mariano's conviction and position on the council. (ph)

March 22, 2006 in Corruption, Sentencing | Permalink | Comments (0) | TrackBack (0)

Cunningham's Boodle Goes on the Block

Former Congressman Randy "Duke" Cunningham pled guilty to accepting approximately $2.4 million in bribes that included a wide array of antiques, rugs, and home furnishings from defense contractors.  Those items will go on the auction block on March 23 in Los Angeles as the government seeks to recover some of the $1.8 million he was ordered to forfeit, which comes on top of $1.8 million in back taxes owed to the IRS.  Among the items to be sold are silver candelabra, marble-top bedroom furniture, and a cherry sleigh bed (I'd pass on that one); he sold the Rolls-Royce before being charged.  Cunningham received a ten-year sentence for accepting the bribes and arranging no-bid contracts for defense companies through his position on the House Defense Appropriations Subcommittee, and the auction closes out a sad chapter in the history of public corruption.  An AP story (here) discusses the auction. (ph)

March 22, 2006 in Corruption | Permalink | Comments (1) | TrackBack (0)

Three Samsung Executives to Serve Prison Terms in DRAM Chip Antitrust Prosecution

The government's wide-ranging investigation of price-fixing in the dynamic random access memory (DRAM)chip market has resulted in three more foreign defendants agreeing to serve prison terms in the United States.  Three executives from Samsung, Sun Woo Lee, the senior manager of DRAM sales, Yeongho Kang, associate director of DRAM marketing for Samsung’s U.S. subsidiary, and Young Woo Lee, sales director for Samsung’s German subsidiary, entered guilty pleas to a single antitrust conspiracy charge.  Sun Woo Lee will be sentenced to eight months, and Kang and Young Woo Lee to sevenths each.  Three Korean executives from Hynix Semiconductor and four executives from the German company Infineon Technologies earlier entered guilty pleas and will serve prison terms in the U.S.  Samsung, the largest company in the DRAM market, agreed to plead guilty to conspiracy and pay a $300 million fine in November 2005.  A Department of Justice press release (here) discusses the prosecutions. (ph)

March 22, 2006 in International, Investigations, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Philadelphia Charter School Principal Charged with Fraud

The former principal of a charter school in Southwest Philadelphia was indicted on six counts of wire fraud related to submitting inflated student enrollment figures to obtain additional funding.  The school closed abruptly in June 2003, before the end of the school year, when its charter was not renewed, and a federal investigation had began shortly before that.  According to a press release issued by the U.S. Attorney's Office for the Eastern District of Pennsylvania (here):

As the principal of CEL, Andrews engaged in a scheme to defraud the School District by causing falsely inflated student enrollment data to be submitted to the School District, thereby causing the School District to provide funding to CEL to which CEL was not entitled. As Andrews knew, limitations in the School District’s computer network prevented the School District from knowing that a student had left CEL, where that student had transferred to another school outside of the School District (such as a parochial school or a school outside of Philadelphia) or had dropped out of school altogether. Andrews exploited these limitations in the School District’s computer network by directing his staff to report to the Network that students who had either transferred to another school outside of the School District, or dropped out of school altogether, continued to attend CEL, when in fact as Andrews knew, these students did not attend CEL. As a result of the defendant’s scheme to defraud, the School District overpaid CEL approximately $200,000 in public education funds.

It is not clear from the press release whether Andrews is accused of personally enriching himself from the alleged fraud.  For those wondering about the name of the school, CEL stands for "Center for Economics and Law."  The school focused on law, economics and entrepreneurship, and this case would have served as a good object lesson for the application of the law. A Philadelphia Inquirer story (here) discusses the indictment. (ph)

March 22, 2006 in Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

FCPA Guilty Plea for Bribery of Diplomats to Certify Liberian Diploma Mill

Saint Regis University graduates beware, your degree is from a diploma mill in Liberia (in case you didn't know that already).  Not to be confused with Regis College in Massachusetts or Regis University in Denver, Saint Regis University was a school purportedly accredited in Liberia, but it turns out that three Liberian diplomats accepted over $40,000 in bribes to have the country's Board of Education certify the on-line school that granted credit for "life experience" -- a sure sign of questionable educational practices.  Richard Novak entered a guilty plea to conspiracy and Foreign Corrupt Practices Act charges for his role in making the payments to the diplomats, including at least one transaction in a Washington, D.C. hotel room that was secretly videotaped by the Secret Service.  The "University" issued over $6,000 college degrees, and an AP story (here) reports that two other defendants, Dixie and Stephen Randock, allegedly were the source of the bribery funds and the organizers of the operation, which included other purported "universities" issuing diplomas.  The Randocks were indicted on mail/wire fraud and conspiracy charges in October 2005.  (ph)

March 22, 2006 in FCPA, Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 21, 2006

What Happens When the Compliance Officer Gets Indicted?

The Wall Street Journal here notes the latest indictments in the "squawk box" cases.  The four new indictments concern the internal audio system used on Wall Street and alleged abuses by individuals  who were to have "paid cash or padded commissions to brokers" for access to their squawk boxes.  The four individuals, employed by A.B. Watley, were charged with conspiracy to commit securities fraud.  Three of the four had conspiracy to commit commercial bribery charges and two had a false statement charge. Perhaps the most unusual part of the indictment here is that one of the individuals charged was a compliance officer.

(esp)

March 21, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Former Mayor Bill Campbell Seeks Reversal

Despite being found not guilty of all but the tax counts, the Atlanta Journal Constitution reports here that the government seems to be trying to use something on a verdict form  (not sure exacly what from the story) as a basis for increasing the sentence that former Atlanta Mayor Bill Campbell might receive at his upcoming sentencing.  It seems that although the jury found him "not guilty" on the RICO count, they made an indication of a mail fraud predicate act.  RICO requires two predicate acts, and also requires continuity plus relationship of the acts involved.  Absent these elements there is no RICO. And in the meantime, Campbell is arguing for a reversal of his conviction.

(esp)

March 21, 2006 in Fraud, Sentencing, Tax | Permalink | Comments (0) | TrackBack (0)

Arms Export Control Act Conviction

The U.S. Attorney's Office for the Southern District of California issued a press release here regarding an individual who was convicted of "four counts of Exporting Defense Articles Without a License and one count of Conspiracy to Commit Offenses Against the United States."  Unlike many white collar offenders, and certainly those involved in corporate fraud, the individual convicted in this case "was previously convicted in 1987 of violating the Arms Export Control Act by illegally exporting HAWK missile system components from the United States."  The press release states that he was deported thereafter.  So why is he here in the US and being prosecuted a second time?

(esp)

March 21, 2006 in International | Permalink | Comments (0) | TrackBack (0)

Perp Walk

Check out a wonderful article in the National Law Journal here by William R. Mitchelson Jr., a former Assistant U.S. Attorney for the Middle District of Florida and Mark T. Calloway, a former U.S. Attorney for the Western District of North Carolina, who both now work at the law firm of Alston & Bird.  This article provides defense counsel with some excellent advice on how to deal with prosecutors to avoid having a client disgraced and disadvantaged by being put through a "perp walk."  The authors note the prosecution's use of this tactic in many white collar cases.

Perhaps showing the world the discretion afforded the government in making the decision to use a perp walk in arresting a client as opposed to just asking the accused to appear for the fingerprinting ritual, will at last expose this disgraceful tactic employed by the government.

(esp)

March 21, 2006 in News, Scholarship | Permalink | Comments (1) | TrackBack (0)

15 Plus Years for Former Mayor

The former mayor of Lynwood, California received a sentence in excess of 15 years. (see LATimes here)  Paul H. Richards II, who also was an attorney, was convicted of 35 charges including fraud, false statements and money laundering. (See also Newsday (AP) here)  Richards was said to have awarded no-bid contracts that benefited him and his family.

(esp)

March 21, 2006 in Corruption, Fraud, Sentencing | Permalink | Comments (0) | TrackBack (0)

Commentary on the Quattrone Decision

Some more comments on the Quattrone decision:

  • Did Quattrone win?  In a sense he clearly did as he was not convicted of a crime and does not have to serve time, at least now.  But in a sense he also loses. In September 2004, he was sentenced to 18 months.  This decision coming down 18 months later means that Quattrone has to again go through another trial.   This will be his third trial.  One can only imagine the cost that this places on the accused.  This cost is not only measured in terms of the monetary cost of having defense counsel try it yet again, but the cost emotionally of having this matter continue to hang over his life.  In this respect, one has to credit Martha Stewart who made the decision to - just get it over with in going to jail prior to the Second Circuit ruling on her case.
  • Did the taxpayers win?  Clearly not.  This will mean the cost of a third trial.  Obviously due process and judicial fairness needs to come first, but at some point should the government just say -enough is enough and move onto other pending matters. Besides they cost the accused a good bit in having this tried twice.
  • Will Quattrone have a better chance on retrial?  Retrials can work for or against a defendant.  On one hand the defendant now has all the discovery in hand, has knowledge of what the witnesses will say, and has the ability to better plan out the defense.  On the other hand, retrials also mean that the prosecution knows exactly what arguments the defense will make and the defense that will be presented. But Quattrone will most definitely have one new aspect at the retrial, and that's the new judge.  The court not only gave Quattrone a new judge but also provided guidance for the next court. Some of the evidence admitted at the last trial will not be permitted this time around.  (RIM emails).
  • What advice do prosecutors learn from this decision? Sometimes using obstruction - a shortcut type of charge- is really not a shortcut at all.  Maybe it might just be best to investigate a case and proceed to trial on the actual conduct.  A lesson also learned perhaps from the Andersen case.
  • What advice do judges learn from this decision?  This decision has a thoughtful discussion of a very important topic for all judges - how far can you go regarding trial-management authority.  At some point the court needs to move a trial along.  Yet, equally important is the fact that someone stands accused of a felony and deserves his or her day in court.  The Second Circuit notes that judges have "'the discretion to place reasonable limits on the presentation of evidence.'” (citations omitted here) The court also provides an appropriate balancing test to allow for efficiency but also provide for justice. Efficiency has become an enormous concern lately, especially with long white collar cases.  This court notes that efficiency may be important, but there also needs to be respect for the rights of the accused.

(esp) Addendum - check out Tom Kirkendall's thoughtful commentary on Houston Clear Thinkers here.

Additional Comments on the Quattrone Decision-

Wall Street Journal - here & here

Washington Post - here

New York Times - here

Tampa Tribune (AP) - here

March 21, 2006 in Judicial Opinions, Obstruction | Permalink | Comments (1) | TrackBack (2)

Monday, March 20, 2006

Quattrone Convictions Overturned by Second Circuit

The obstruction of justice and witness tampering convictions of former Credit Suisse First Boston tech investment banker Frank Quattrone were overturned by the Second Circuit in an extensive opinion (link below).  The prosecution of Quattrone revolved around his forwarding an e-mail urging colleagues in his department to "catch up on file cleanup" when he knew that there were pending grand jury and SEC investigations of the IPO practices of the firm.  Quattrone included a message forwarding the "cleanup" e-mail stating "i strongly advise you to follow these procedures" related to CSFB's document retention policy.  Quattrone had been in touch with the firm's legal department about the pending investigations, although his defense at trial was that he did not know that documents from the tech group he headed were involved in the investigations.  The government charged Quattrone with violations of 18 U.S.C. Secs. 1503 and 1505, obstruction of grand jury and agency investigations, and witness tampering under 18 U.S.C. Sec. 1512. 

The Second Circuit reversed all three convictions because of faulty jury instructions.  In a partial victory for the government, the court held that there was sufficient evidence to convict Quattrone of all three charges, and that the jury's inferences from the evidence were sufficient to establish the requisite corrupt intent under the different provisions.  Where the prosecution failed, requiring reversal for a new trial (this will be the third one because the first trial ended in a hung jury), was the district court's jury instructions on the required nexus between Quattrone's knowledge of the pending investigations and the conduct that allegedly obstructs the investigations.  The jury instructions on the 1503 and 1505 counts stated, "I charge that if you find that either, A, the defendant directed the destruction of documents that were called for by a grand jury subpoena, or that[, B,] defendant directed the destruction of documents that he had reason to believe were within the scope of the grand jury’s investigation, then this nexus requirement will be satisfied."  The Second Circuit held that the instruction failed to tell the jury how to determine if the nexus requirement had been proven:

The first portion of the "application" section told the jury in effect that if it found that Quattrone merely called for the destruction of documents that were within the scope of those sought by the subpoenas, that finding alone satisfied the nexus element. Clearly, that instruction is not a correct formulation of the law. Under the charge, as given, any defendant who urges the destruction of documents might run afoul of section 1503 (or 1505) without any proof that the defendant knew the documents were subject to a subpoena (or document request). More is required; a defendant must know that his corrupt actions "are likely to affect the proceeding."

The government argued that any mistake in the instruction was harmless because, based on the evidence, the jury necessarily found that Quattrone acted with the requisite corrupt intent when he sent the e-mail.  The court rejected that argument:

The government presents a forceful and thoughtful argument. However, that argument overlooks a glaring deficiency in the court’s charge. When the court finally explained to the jury how to apply the law to the facts, it eviscerated the nexus requirement. It removed the defendant’s specific knowledge of the investigatory proceedings and the subpoenas/document requests from the obstruction equation. It left a bare-bones strict liability crime. Given the court’s instruction for the nexus determination, all that need be proven was that an investigation had called for certain documents and that the defendant had ordered the destruction of those documents. Although wrongful intent, corrupt intent, and the nexus requirement were correctly defined, the charge, as a whole, relieved the jury of having to make those findings in assessing criminal liability.

In overturning the Sec. 1512 conviction, the Supreme Court's recent decision in Arthur Andersen [spelled "Arthur Anderson" in a number of places in the opinion, a common error as evidenced by the list of post topics on the right side of this blog] played a key role because there the Court held that the government must prove the nexus element linking the defendant's intent to the conduct alleged to be an obstruction of justice (or witness tampering, in this case).  The district court's instruction specifically said that the jury need not find such a nexus, the common understanding of that provision before Arthur Andersen that the government conceded was erroneous.

Quattrone won another important point by having the case remanded to a different district court judge.  The first two trials were presided over by Judge Richard Owen, who is viewed by many as being favorable to prosecutors and his conduct during trial was the subject of strong objection by the defense, who believed he showed favoritism to the government.  Some (but not all) of the judge's evidentiary rulings were overturned by the Second Circuit, although the evidence may not be of great significance at a retrial and the appellate court did not find anything untoward in those rulings.  While the Second Circuit did not find that Judge Owen committed error during the trial in how he conducted himself, it did grant the defense request that the case be reassigned to a new judge for the third proceeding.  The court stated:

This case has already endured two full trials before the same dedicated jurist. In our view, the contentions of the parties in this difficult and complex matter have taken a toll on all involved. We conclude that the better decision is that the case be reassigned to another judge upon remand. While we have considered the government’s arguments and do not find evidence that the trial judge made any inappropriate statements leading us to seriously doubt his impartiality, portions of the transcript raise the concern that certain comments could be viewed as rising beyond mere impatience or annoyance. Ultimately we believe that the interest and appearance of justice are better served by reassignment.

The remand to a new judge may be just as important as the change in the jury instructions for the defense.  The Second Circuit's finding of sufficient evidence to convict on the obstruction and witness tampering charges likely means that a third trial will take place.  (ph)

Download quattrone_second_circuit_opinion.pdf

March 20, 2006 in Judicial Opinions, Obstruction | Permalink | Comments (0) | TrackBack (2)

Sunday, March 19, 2006

Katrina Frauds

One has to give credit to the DOJ- Criminal Division for its pursuit and prosecution of Katrina Frauds. A February Report here details the many accomplishments of the office.  I actually had only one problem with the report.  On page four it is signed by the "Chairman"  Alice Fisher.  I just wondered if they could perhaps make it a gender neutral term - "chair."  And with the report out, the prosecutions continue.  Just this week, the US Attorney's Office for the Eastern District of California indicted eight additional Bakersfield residents for alleged Katrina related frauds. The new cases include charges of mail and wire fraud, and false claims. (see here).

(esp)

March 19, 2006 in Fraud | Permalink | Comments (1) | TrackBack (0)