Saturday, August 5, 2006

More on KPMG - Stein et al Case

The Stein case (KPMG related) has been a subject of a good number of posts on this blog. (e.g., here and here).  Here is one to add to this collection, as Joan Rogers has an extremely thorough and thoughtful article in the ABA/BNA Lawyers' Manual on Professional Conduct.  The ABA and BNA have been kind enough to allow this blog to provide direct access to this article. (Download PDFArtic.pdf)

The article dissects Hon. Lewis Kaplan's decision and provides extensive commentary on the decision.  It also places it in context with happenings on this issue in the ABA and the New York State Bar Association.

The Wall Street Jrl reports here of other happenings on this case.

(esp)

August 5, 2006 in Defense Counsel, Investigations, Privileges, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Senate Ratifies Cybercrime Treaty

The United States Senate ratified the Council of Europe's Cybercrime Treaty.  In a statement issued by Attorney General Gonzalez he states:

" The Cybercrime Convention - the first of its kind - will be a key tool for the United States in fighting global, information-age crime. This treaty provides important tools in the battles against terrorism, attacks on computer networks, and the sexual exploitation of children over the Internet, by strengthening U.S. cooperation with foreign countries in obtaining electronic evidence. The Convention is in full accord with all U.S. constitutional protections, such as free speech and other civil liberties, and will require no change to U.S. laws. I congratulate and thank the Senate for its advice and consent, and look forward to having the United States become a party to the convention at the earliest opportunity."

The Convention itself can he found here.  One of the fascinating provisions in the Convention is the jurisdiction provision which provides:

"1 Each Party shall adopt such legislative and other measures as may be necessary to establish jurisdiction over any offence established in accordance with Articles 2 through 11 of this Convention, when the offence is committed:

a in its territory; or

b on board a ship flying the flag of that Party; or

c on board an aircraft registered under the laws of that Party; or

d by one of its nationals, if the offence is punishable under criminal law where it was committed or if the offence is committed outside the territorial jurisdiction of any State.

2 Each Party may reserve the right not to apply or to apply only in specific cases or conditions the jurisdiction rules laid down in paragraphs 1.b through 1.d of this article or any part thereof.

3 Each Party shall adopt such measures as may be necessary to establish jurisdiction over the offences referred to in Article 24, paragraph 1, of this Convention, in cases where an alleged offender is present in its territory and it does not extradite him or her to another Party, solely on the basis of his or her nationality, after a request for extradition.

4 This Convention does not exclude any criminal jurisdiction exercised by a Party in accordance with its domestic law.

5 When more than one Party claims jurisdiction over an alleged offence established in accordance with this Convention, the Parties involved shall, where appropriate, consult with a view to determining the most appropriate jurisdiction for prosecution."

(esp)

August 5, 2006 in Computer Crime, International | Permalink | Comments (0) | TrackBack (0)

Friday, August 4, 2006

Former Broker to Archdiocese of New York Pleads Guilty

Fraud Update reports here that a former broker to the Archdiocese of New York pleads guilty to
fraud, tax and obstruction of justice charges.  The press release of the DOJ, states the Indictment charged the defendant and his co-defendants with:

"using their positions as employees and consultants at Institutional Commodity Services Inc. (ICS), the purchasing arm of the archdiocese, to defraud the archdiocese of more than $2 million from 1996 until 2004."

The press release also states that:

"According to the charges, numerous vendors doing business with the ICS were required to pay DeRusso more than $1.2 million, ostensibly as commissions, which DeRusso secretly shared with the others charged. Of this money, at least $385,000 was paid in cash. The prices charged to ICS included the amount of the commissions, which resulted in the archdiocese paying artificially inflated prices for the goods and services procured by DeRusso. In addition, DeRusso and his co-defendants embezzled more than $1 million from the archdiocese through a self-dealing scheme in which they diverted funds earmarked to buy food for the children enrolled in the archdiocese’s schools to companies they secretly owned and controlled."

(esp)

August 4, 2006 in Settlement | Permalink | Comments (0) | TrackBack (0)

Former Bowne Exec Pleads

We reported on Robert Johnson, the former CEO of financial information and document management firm Bowne & Co., and also a former publisher of Newsday and member of the New York Board of Regents, here regarding charges of child pornography and obstruction of justice. Yesterday he plead guilty to these charges (see Wall St. Jrl here) (see AP here).

(esp)

August 4, 2006 in Computer Crime, News, Settlement | Permalink | Comments (0) | TrackBack (0)

Public Humiliation A Factor in Sentencing Former Bush Advisor

Professor Doug Berman, in his wonderful sentencing blog, reports here on the minimal sentence received by a former Bush advisor. His post is truly a classic - so take the time to read this one.

If in fact Claude Allen (as per AP here) "made thousands of dollars worth of fraudulent returns to Target and other stores last year"  does a sentence of "two years of supervised probation," "a $500 fine," "$850 in restitution to Target Corp. and perform 40 hours of community service" sound reasonable?  Perhaps the most interesting aspect here is that the judge in the court (the Montgomery County Circuit Court) noted he had  "suffered public humiliation."

The federal sentencing guidelines fail to account for the shame suffered by the accused.  They also do not provide sufficient recognition to first offenders.  It is nice to see that the Montgomery County Circuit Court gives justice with a sense of compassion. Maybe the feds could learn something from this judge.

(esp) 

August 4, 2006 in Sentencing | Permalink | Comments (1) | TrackBack (0)

The Split Verdict in the Trader's Case

More can be found here and here on the jury's decision in the Houston Trader's Case.  The former trader from Dynergy was found guilty of seven counts of wire fraud and the former El Paso trader has one wire fraud count conviction. Some of the remaining counts were not guilty findings, and some were hung. Some questions:

  • Were the wire fraud counts premised on "money or property" or on section 1346? If 1346, the "honest services" provision, will it hold up after the recent 5th Circuit's recent ruling in the Enron Barge/Merrill Lynch case? (see post here)
  • Without the false reporting, what was the scheme to defraud?  Is this just a compromise verdict and how will an appellate court look at this?
  • Would it be wise for the defendants to reach some agreement with the prosecution to avoid a retrial on the counts that were hung? And would it be wise for the government to agree in light of the recent 5th Circuit decision?
  • This is yet another case where an individual accused of a white collar crime is admitting to doing an act, but claiming they didn't know it was illegal. It is another case of someone not realizing what is criminal and what is not.  With overfederalization and overcriminalization, it is likely that cases like this could continue to rise.  Due process requires notice, and perhaps the unawareness will give rise to an appellate issue claiming a denial of due process.  Should ignorance of the law be a legitimate excuse in the white collar case? (see the cases of Ratzlaf and Cheek).

Tom Kirkendall of Houston ClearThinkers points out here that the defense did not put on a case.  If there is a retrial, and it is on just the limited remaining count/s then the accused will be in the position of presenting new material to the jury that has not previously been cross-examined. However, with the conspiracy count remaining, the breadth of evidence that would be admissible is increased.

(esp)

August 4, 2006 in Verdict | Permalink | Comments (0) | TrackBack (0)

Spilt Verdict for Two Former Energy Traders

Houston Chronicle reports here.  Commentary to follow.

(esp)

August 4, 2006 in Verdict | Permalink | Comments (0) | TrackBack (0)

Former Atlanta Mayor Bill Campbell Off To Jail - No Appeal Bond

The Atlanta Jrl Constitution reports here and Washington Post (AP) reports here that former Mayor Bill Campbell's Motion for an Appeal Bond was denied. This means he will go to prison while his appeal is pending.

Who gets an appeal bond and who doesn't?  It is always a fascinating question to see, especially in the white collar crime cases.  In some cases the appellate court will issue a release even before a decision is ordered. (See post here regarding the appellate court suddenly giving a defendant in the Enron Barge case an appeal bond that had previously been denied)

Some of those who were allowed to stay out on bond pending their appeal are: Martha Stewart (who decided to go ahead and serve her sentence); Bernie Ebbers (see post here - who just had his conviction upheld on appeal); John and Timothy Rigas (see post here);

Some of those who were not allowed to stay out on bond pending their appeal are: Jamie Olis (sentence reversed and new sentence not issued to date); Kozlowski and Swartz (see post here -but they were in the state system)

Although I have done no study to see if white collar offenders are given appeal bonds more often than street offenders, my gut feeling is that there might be a higher percentage in the white collar cases.  After all, the chances that a street offender would get an appeal bond in a case they received a sentence of 25 years (Bernie Ebbers) seems highly unlikely.  But as I previously noted, this difference may be warranted.  There is little chance that the white collar offender will harm someone, especially since they usually are no longer in a position of power to do any harm.  Unlike the person who commits a street crime, incapacitation is not needed here.   The key legally, however, is showing the court that there is a significant issue being raised on appeal.

(esp)

August 4, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

More on the Adelson Case

The Hon. Jed Rakoff's superb decision in the Adelson case was discussed here. Others in blogsphere are also discussing this decision.  Check out some of the following:

Doug Berman's Sentencing Law & Policy Blog here

Tom Kirkendall's Houston Clear Thinkers here

Harlan Protass' Second Circuit Sentencing Blog here

Tom Kirkendall reminds us of the Jamie Olis re-sentencing that has yet to happen. Perhaps the thoughtful opinion in the Adelson case will provide a good citation in this forthcoming sentencing.

(esp)

August 4, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 2, 2006

Morgenthau's Office Indicts Eight Stock Brokers

The feds are not the only ones proceeding against stock brokers.  In a bold move:

"Manhattan District Attorney Robert M. Morgenthau announced today the indictment of eight Wall Street stock brokers for defrauding customers of at least $13 million.  Six of the indicted brokers are charged with racketeering; four corporate entities through which the defendants carried out their criminal scheme have also been indicted."

The Press Release from Morgenthau's Office states here:

"The indictment alleges that the defendants ran a criminal enterprise at a succession of three Manhattan brokerage firms, defrauding hundreds of customers from April 2000 through October 2005.  It is alleged that the defendants fraudulently induced customers to buy shares of Stratus Services Group, Inc., a thinly traded, microcap stock, in order to artificially raise, maintain, and manipulate Stratus’s market price."

(esp)

August 2, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

US Senate Candidate Katherine Harris Gets a Subpoena

According to the Tampa Tribune here, US Senate candidate in Florida, Katherine Harris received a subpoena. We previously reported about Katherine Harris here.  What appears to be the issue is that she failed to tell her campaign manager of receiving this federal subpoena.  The article states that Harris has stated that she is not a "target." 

There are three categories often used to describe individuals who receive subpoenas.  They can be targets, subjects, or witnesses.  Obviously, target is the least favorable category for the accused.  Being a subject can also be problematic as it means that the government has not yet made up their mind on whether to indict you. Being witness is used to describe the person who be providing information that will assist the government in proceeding against others.

(esp)

August 2, 2006 in Grand Jury | Permalink | Comments (0) | TrackBack (0)

University President Indicted

According to the Chronicle of Higher Education (subscription required), here, a Texas state grand jury has indicted the former President of Texas Southern University. The indictment alleges questionable expenses including money for "furniture, landscaping, and security" at her home. The Houston Chronicle reports here. This may be an interesting case to follow.  Don't many university presidents receive a house as part of their package?

(esp)

August 2, 2006 in News | Permalink | Comments (0) | TrackBack (0)

BetOnSports Pleads Not Guilty

According to the Kansas City Star here BetOnSports has plead not guilty in federal court to charges related to alleged online gambling.  For details see here.

(esp)

August 2, 2006 in Computer Crime | Permalink | Comments (0) | TrackBack (1)

Should the Government Appeal the Enron Barge/Merrill Lynch Decision

Discussed here and here are posts on the recent Fifth Circuit decision in the Enron Barge/Merrill Lynch case.  The question to now ask is whether the government should move for an en banc hearing on this case.

For one the three judge panel is a split decision and thus the larger group may find merit to the one decision that upholds the convictions against three individuals on the conspiracy and wire fraud (Hon. Reavley).  Clearly, there are other circuits that the government can turn to as support for there being wide latitude when interpreting section 1346.

But on the negative side, is it worth the risk to appeal here?  The main decision finds that the statute itself is not vague, but that the government merely needed a better basis for the prosecution. The decision specifically states, "We hold only that the alleged conduct is not a federal crime under the honest-services theory of fraud specifically."  The underlining by the court is particularly telling.  The court is saying it is not good enough here, but the statute may be OK.  Do prosecutors across the U.S. want to lose the statute completely by risking an appeal with this case. One judge dissenting here finds the statute vague.  The Rybicki decision also had a split when it came to the vagueness issue.  If the case goes up on appeal, the vagueness issue is likely to be re-examined.  Is this the right case for a re-examination of 1346?  As noted by Circuit Judge DeMoss, "[y]ears of review of the application of sec. 1346 to varied facts persuade me that the constitutionality of section 1346 may well be in serious doubt."   

Stay tuned.

(esp)

August 2, 2006 in Enron, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Barry Pollack Comments on the Enron Barge/Merrill Lynch Case

NACDL White Collar Crime Co-Chair Attorney Barry Pollack's comment on the decision:

"As with the Broadband case, the Enron Task Force attempted to transform the efforts of employees to serve their employer into a scheme to defraud their employer. The Fifth Circuit has correctly refused to endorse the Task Force's tactics. As in the Arthur Andersen case, the Task Force allowed its zeal to prosecute perceived wrongdoers to trump both the law and common sense."

(esp)

August 2, 2006 in Enron, Judicial Opinions | Permalink | Comments (2) | TrackBack (0)

Reversal in Enron Barge/Merrill Lynch Case

A six week trial down the drain, and yet another loss for the government.  The Fifth Circuit Court of Appeals tossed out the conspiracy, and wire fraud counts against the defendants leaving one individual's conviction for perjury and obstruction of justice. The basis for the reversal is premised on the "honest services theory" upon which the government rested this prosecution.

The court upholds the reasoning in prior decisions, including the Second Circuit's famous Rybicki case.  There is no elimination of the entire honest services approach.  Rather, the court holds that:

"What makes this case exceptional is that, in typical bribery and self-dealing cases, there is usually no question that the defendant understood the benefit to him resulting from his misconduct to be at odds with the employer’s expectations. This case, in which Enron employees breached a fiduciary duty in pursuit of what they understood to be a corporate goal, presents a situation in which the dishonest conduct is disassociated from bribery or self-dealing and indeed associated with and concomitant to the employer’s own immediate interest."

The Fifth Circuit notes that "[t]his opinion should not be read to suggest that no dishonest, fraudulent, wrongful, or criminal act has occurred.  We hold only that the alleged conduct is not a federal crime under the honest-services theory of fraud specifically."

In addition to Judge Jolly's opinion, there are two other separate opinions in this case. 

One concurring and dissenting opinion (concurring on Judge Jolly's opinion reversing the honest services based convictions and dissenting on the affirmation of the perjury and obstruction of justice convictions) by Circuit Judge DeMoss' calls for holding the statute as vague. Advocating the position taken by the dissenters in the Rybicki case, he states that "Congress should repair this statute that, in my opinion, fails to provide the requisite 'minimal guidelines to govern law enforcement.'"

Courts have been wrestling with what is, or is not, a sufficient basis for a mail and/or wire fraud prosecution when the government proceeds under section 1346, the honest services statute that was enacted to counteract the Supreme Court's holding in McNally. Prosecutors may find it easier to obtain a conviction when using this statute, but as seen here, it can place them in a tougher position on appeal.  And rightfully so.  After all, what is a deprivation of honest services? As I state in an article written years back in the South Carolina Law Review - if a candidate should say "Read my Lips, No New Taxes, " and then raise taxes, could this absurd example be interpreted to be a deprivation of honest services?  My answer is no, but it demonstrates the possible breadth of some of the terms in this statute.

Decision Can Be Found here - http://www.ca5.uscourts.gov/opinions/pub/05/05-20319-CR0.wpd.pdf

(esp) ( w/ a hat tip to Doug Berman)

August 2, 2006 in Enron | Permalink | Comments (1) | TrackBack (3)

Tuesday, August 1, 2006

Who Are Your Friends?

The Wall Street Jrl reports here that Sanofi-Avenits has received a DOJ grand jury subpoena. It appears to relate to "a proposed settlement of a patent lawsuit involving Plavix, a blood thinner."  The drug is co-marketed with Bristol-Myers. CNN Money reports here on happenings at Bristol-Myers.

Bristol-Myers Squibb entered into a deferred prosecution agreement with the government last year. (see here). The agreement called for the company "to endow a chair at Seton Hall University Law School dedicated to the teaching of business ethics and corporate governance, which position shall include conducting at least one seminar on business ethics and corporate governance annually that members of BMS' executive and management staff may attend, as well as other corporate executives."

(esp)

August 1, 2006 in Grand Jury | Permalink | Comments (0) | TrackBack (0)

A "Not Guilty" for the Government

The Wall Street Jrl reports here on the "not guilty" verdict of a former specialist at Van der Moolen Specialists USA LLC. This case demonstrates the risk in going to trial. If the jury had found him guilty, he could have faced 20 years in prison. The merit of the government's case is best expressed in the fact that the jury only deliberated, according to the Wall Street Jrl,  45 minutes.

Two others who were also recently tried were not as fortunate.  The government received a split verdict against two individuals, with a conviction of securities fraud, approximately two weeks ago. (see here).

(esp)

August 1, 2006 in Fraud, Prosecutions, Verdict | Permalink | Comments (0) | TrackBack (0)

Tax Shelters- The Senate Will Speak

According to the Washington Post here, a Senate panel will be releasing a report today discussing tax shelters.  The aim is to crackdown on shelters that some may consider legitimate, but others find clearly illegitimate. Issues of "advice of counsel" may play a factor in some of these shelters where some acted on the advice of people who thought the shelters legal. 

Two Observations:

  • People who take these risks often find themselves paying more.
  • Clarity in the law always works to everyone's benefit.

(esp)

Addendum - See also the Tax Blog here and here.

August 1, 2006 in Tax | Permalink | Comments (0) | TrackBack (0)

Plea in Department of Education Case

A former employee of the Department of Education plead guilty to accepting a gratuity. In a DOJ Press Release (here) of the US Attorney for the District of Columbia it states:

"[The individual] admitted that the company’s president had told him that he would be able to pay [him] for services he had provided over the past couple of years if the company received the contract with the California grantee. The company’s president subsequently paid him $10,000 in cash in two separate installments between January and May 2005 for services [he] had provided to the company over the past 25 years. The installments corresponded to the installment payments the company had received pursuant to its contract with the grantee."

(esp)

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