Saturday, August 26, 2006
The latest Syracuse Trac Reporting on DOJ white collar crime statistics shows an increase this month in the number of cases being prosecuted in comparison with last month. (see here). And as has been the case for the last five years, bank fraud continues to be the number one charge being used, with mail fraud being the second. Conspiracy under 18 U.S.C. sec. 371, which holds the number three spot in the five year statistics, was number five for the month. But as previously noted on this blog, here, here, and here, the reporting needs to be examined closely as offenses that many would consider to be white collar offenses are omitted from the statistical data.
(esp)(with disclosure that she is a Syracuse grad).
State Department officer Michael O'Keefe has been for accepting jewelry and trips to Las Vegas and New York for himself and two "exotic dancers" from Sunil Agrawal to facilitate the issuance of visas to workers at Agrawal's business, STS Jewels (website here). O'Keefe and Agrawal are both charged with violating Sec. 201(b), the bribery provision that covers federal employees, and with conspiracy. O'Keefe was the Deputy Nonimmigrant Visa Chief in the U.S. Embassy in Toronto, and he authorized the issuance of 21 work visas for employees of STS Jewels. The indictment (here) lists four pieces of jewelry provided to O'Keefe for which the government seeks forfeiture, and the two trips included accommodations and car service along with expensive meals.
As if the exotic dancers weren't enough, the indictment recounts a number of e-mails between O'Keefe and Agrawal describing how O'Keefe would short-circuit the visa review process. Others are more person, so that In one, O'Keefe complains about having to pay Canadian customs -- over $250 -- on a ring that Agrawal sent to him, while another whines that the gift basket Agrawal said was sent to the New York hotel room for O'Keefe and his two "friends" never arrived. Gee, it's hard to accept bribes and gratuities when you have to pay taxes on them and those wonderful fruit baskets never even arrive for the exotic dancers! The case shows once again that people will write things in e-mails that they would never repeat if they thought the government were listening. E-mail lasts forever, unlike water-cooler conversations, and can lead to jail. (ph)
New Jersey physician Albert Poet was charged with 13 counts of mail fraud and one count of selling a misbranded drug for giving his patients a cheaper, unapproved drug for what his patients thought were Botox treatments. According to a press release (here) issued by the U.S. Attorney's Office:
Poet, a licensed physician, owned and operated Shore Laser Center in Stafford Township and PEAU in Montclair. According to the Indictment, Poet advertised “Botox” treatments in local newspapers and maintained a website to promote his services. According to the Indictment, Poet used a personal credit card to purchase an unapproved form of Botulinium Toxin Type A (the TRI product) from a company named Toxin Research International (TRI), located in Arizona. The company marketed and sold the TRI product from December 2003 until December 2004. Although TRI marketed its product to physicians, the TRI product was sold in injectable vials which were labeled “For Research Purposes Only/Not for Human Use.” According to the Indictment, high doses of Botulinium Toxin Type A can cause Botulism in humans. The Indictment alleges that from December 2003 until January 2005, Poet injected patients with the TRI product without informing them that they were not receiving the brand name drug Botox. The defendant further failed to inform patients that the actual drug used was not approved by the FDA and that the product arrived in vials labeled "For Research Purposes Only/Not for Human Use."
Kinda makes you just want to live with those wrinkles, doesn't it? (ph)
Friday, August 25, 2006
Kentucky Governor Ernie Fletcher reached an agreement with Attorney General Greg Stumbo to have the misdemeanor charges of violating state personnel laws dismissed. Governor Fletcher was accused of violating the state's merit hiring policies by making political affiliation a key to retaining one's position with the state, and he earlier pardoned everyone in his administration except himself for any acts they did in relation to hiring. The agreement is a bit odd because it does not require Governor Fletcher to do anything, and four members of the state's Personnel Board will resign their positions. Highlighting the political nature of the fight, Attorney General Stumbo, a Democrat, will submit three names for each of the Personnel Board positions to Governor Fletcher, a Republican, who will then appoint the new members from the suggested names. The Board will hear appeals from former state employees who claim to have been discharged based on their politics.
The agreement (available below) contains a number of carefully worded admissions that will allow Governor Fletcher to deny any direct illegal acts, which will be important in case he faces Attorney General Stumbo in next year's gubernatorial election. For example, while the Governor "acknowledges that the evidence strongly indicates wrongdoing by his administration" and "that he regrets their occurrence, and accepts responsibility for them as the head of the executive branch," nevertheless "[t]his sincere expression of ultimate responsibility, however, is not an admission in any way of criminal wrongdoing by the Governor nor directly on behalf of the Governor." In other words, it was wrong, I know it was wrong, but don't blame me for doing anything wrong -- that sounds sincere. These "admisstions" could be the start of an effective stump speech for Attorney General Stumbo, except that the order concedes that acts by the administration "were without malice," thus making it harder to argue that any crime even occurred. Attorney General Stumbo had asserted that so long as his office -- he was barred from participating in the case by a state judge due to the potential conflict -- was prosecuting Governor Fletcher he would not run for Governor. Talk about a win-win situation, at least for the two elected officials: the Governor is off the hook while the Attorney General can pursue his political career. For the public, the criminal charges are swept under the rug, at least until the campaign takes a nasty turn. A Lexington Herald-Leader article (here) discusses the case. (ph)
Annie Donnelly entered a guilty plea to stealing $2.3 million from her employer, a medical practice, to buy lottery tickets over the past three years. She was buying upwards of $6,000 worth of tickets a day, and a clerk in a story where she made her purchases is quoted as saying, "I don't think I'll ever see anyone spend that much money again." No kidding! It's not clear how much she won, but it's unlikely there much left if she kept embezzling from the business. If you can steal $2.3 million without being noticed, isn't that kind of like hitting the lottery? Donnelly faces a prison term of at least four years, and could serve up to twelve years. It's been said enough times, but the trusted bookkeeper is usually the soft underbelly of so many businesses hit by embezzlement. A Reuters story (here) discusses the guilty plea. (ph)
Mortgage giant Fannie Mae, a federally-chartered corporation, avoided being charged with any crimes related to accounting problems at the company dating back to 1998. The Department of Justice concluded its criminal investigation of the company and notified it that charges would not be file in the case, and apparently none will be pursued against individuals. Fannie Mae settled a civil securities fraud action in May 2006 filed by the SEC and the Office of Federal Housing Enterprise Oversight, and agreed to pay a $400 million civil penalty. According to the SEC's press release (here) issued at the time of the settlement:
At the end of 1998, senior management manipulated the company's earnings in order to obtain bonuses they otherwise would not have received. Senior management of the company directed employees to record only $240 million of amortization expenses. By not recording the full amount of the calculated expenses, Fannie Mae understated its expenses and overstated its income by a pre-tax amount of $199 million. The company's management made two additional adjustments in the fourth quarter of 1998 that had the effect of offsetting nearly half the $240 million amortization expense adjustment. This resulted in the company not only exceeding Wall Street expectations but also hitting the earnings per share target necessary to trigger maximum bonuses. Fannie Mae has agreed, without admitting or denying these allegations, to a fraud injunction for violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.
From at least 1998 through 2004, the company's financial results were smoothed as a result of the misapplication of certain Generally Accepted Accounting Principles (GAAP); namely rules relating to the amortization of loan fees, premiums and discounts, known as SFAS 91, and rules relating to hedge accounting, known as SFAS 133. In both instances, while Fannie Mae recognized that the company was departing from GAAP, it failed properly to consider whether the departures were material.
Unlike many criminal investigations of corporations pursued in the past few years, this case ends without a deferred or non-prosecution agreement. A Reuters story (here) discusses the decision to end the criminal investigation. (ph)
Thursday, August 24, 2006
After asking "Where the heck is Kobi Alexander?" (earlier post here) the answer is:
Sri Lanka -- Namibia. Check an updated blog post here. The rest is what was written on August 24: Israeli newspaper Ma'ariv reports (Marketwatch story here) that a private investigator tracked Alexander through an internet telephone call he recently placed to his daughter in Israel. Assuming he has not left the jurisdiction, the United States and Sri Lanka have an extradition treaty so there is a chance that he will be detained and then returned to the United States to face the conspiracy and securities fraud charges filed against him in Brooklyn related to options-timing at the company he founded and served as CEO, Comverse Technologies.
One issue in an extradition proceeding against Alexander will be whether the crimes charged are covered by the treaty (here), which provides in Article 2: "An offense shall be an extraditable offense if it is punishable under the laws in both Contracting States by deprivation of liberty for a period of more than one year or by a more severe penalty." The treaty entered into force in 2001, and is fairly flexible on determining whether there is dual criminality, providing in Article 2(3) that it is an extraditable offense
(a) whether or not the laws in the Contracting States place the offense within the same category of offenses or describe the offense by the same terminology; or
(b) whether or not the offense is one for which United States federal law requires the showing of such matters as interstate transportation, or use of the malls or of other facilities affecting interstate or foreign commerce, such matters being merely for the purpose of establishing jurisdiction in a United States federal court.
It is very typical for countries to incorporate a dual criminality provision within a treaty. The rationale for the dual criminality rule is "to make certain that extraditable crimes are serious offenses. Having the conduct as criminal in both countries helps to assure that it is a crime that both countries consider sufficiently wrongful." Podgor, Understanding International Criminal Law 99 (2004) In determining whether the crime is the same in both countries, the name of the crime is not determinative. Courts also will defer to the surrendering country in its "reasonable determination that the offense in question is extraditable." United States v. Saccoccia, 58 F.3d 754, 766 (1st Cir. 1995).
The Department of Justice's decision to enter into a deferred prosecution agreement with Frank Quattrone may signal that this device will be used in a broader array of white collar cases and not just for corporations. An article in the Wall Street Journal (here) discusses the developing use of these agreements in investigations of corporate crime, and how they have achieved a featured position in the resolution of a variety of cases. A key benefit to a deferred prosecution agreement is that the collateral effects from a criminal case are limited. Blog co-editor Ellen Podgor is quoted in the article, and notes that in many industries, such as health care and military contracting, an indictment can be the death knell for a company because it is cut-off from future business. It will be interesting to see if cases involving individuals will be resolved by deferred prosecution agreements, and what the parameters of those agreements will look like. (ph)
On top of the investigation in San Francisco into the leak of secret grand jury testimony leaked to the San Francisco Chronicle comes word that U.S. District Court Judge T.S. Ellis has ordered the Department of Justice to investigate whether confidential information was leaked to the press about the impending indictment of two lobbyists subsequently accused of disseminating national security information to Israel. A Washington Post story (here) states that Judge Ellis, who sits in the Eastern District of Virginia, directed prosecutors to determine who may have disclosed information to CBS News in 2004, which reported that Steven Rosen and Keith Weissman would be indicted for violating the Espionage Act before the indictment was returned. The ruling comes in connection with a motion to dismiss by the defendants, who argued that the pre-indictment publicity prejudiced the jury pool; Judge Ellis refused to dismiss the charges but did order the investigation.
The Post story seems to indicate that the investigation is directed at the media, but it looks to me like the basis for it is the grand jury secrecy requirement of Rule 6(e), a violation of which is punishable by a criminal contempt. Although the media cannot generally be charged for publishing information leaked to it, at least outside the national security context, there is a good possibility that reporters will be subpoenaed to testify about the source of their information, perhaps leading (once again) to the incarceration of members of the media for civil contempt for refusing to comply with a grand jury subpoena. Our nation's capital has seen quite a bit of that lately, too, during the investigation of the disclosure of Valerie Plame's identity as a CIA agent. (ph)
Remember when Lee Iacocca was trying to save Chrysler by initiating the first rebate program with the tag-line, "Buy a car, get a check"? After entering into a deferred prosecution agreement that will result in the dismissal of all charges after one year, former star investment banker Frank Quattrone may be looking at a $120 million payday if he can keep his nose clean. The Wall Street Journal Law Blog (here) discusses a report that Quattrone entered into an agreement with Credit Suisse (former Credit Suisse First Boston, or CSFB) when the left the firm at the time of his indictment that if he were cleared of the charges he would receive $120 million worth of restricted stock and deferred compensation awarded to him while he led its high tech investment banking group. The terms of the deferred prosecution agreement (here) are not particularly onerous, requiring that Quattrone "refrain from violation of any law (federal, state, and local)" and that he "shall associate only with law-abiding persons." With $120 million waiting at the end of the year, Quattrone's car will be easy to identify in the Bay Area -- it will be the only one driving one mile per hour under the speed limit on 101, and it may even be made by Daimler-Chrysler. (ph)
Wednesday, August 23, 2006
The options-timing investigations that have ensnared numerous companies call into question the oversight role of the board of directors at the organizations. The Wall Street Journal reports (here) that KB Home, the Los Angeles home building giant, has initiated an internal investigation into some "propitiously timed" stock options granted to CEO Bruce Karatz, who was among the highest paid executives in 2005 with total compensation of over $150 million, most of it from cashing in options. An interesting tidbit in the story is that the former head of the compensation committee on KB Home's board, James Johnson, is also an independent director at UnitedHealth Group, which is also involved in a number of options-timing investigations. Indeed, UnitedHealth has hired Bill McLucas, former head of the Enforcement Division at the SEC and now at Wilmer Cutler, to lead its internal investigation, and the company has achieved the federal investigatory hat trick, with the IRS, SEC, and Department of Justice conducting investigations of possible options backdating in grants to executives, including its CEO, William McGuire (see proxy statement here). Johnson is the former CEO of Fannie Mae, and serves as a director at Goldman Sachs and Temple-Inland, along with KB Home and UnitedHealth. Directors serving on multiple boards is certainly not unknown, and boards are stocked with former CEOs, giving these groups the feel of an old boys club. While there is certainly no conflict involved in serving on multiple boards, the options-timing investigations will focus on the work of compensation committees in particular, and it cannot be comforting to shareholders to see companies with the same directors facing similar problems involving internal controls and oversight of executive compensation. (ph)
Tuesday, August 22, 2006
The Wall Street Jrl reports here that "[a] former mailroom employee at J.P. Morgan Chase & Co. pleaded guilty to a conspiracy charge in connection with the theft of more than $100 million in corporate checks from a "lockbox" facility in Brooklyn." So the question here is whether this is a white collar crime -
What makes something a white collar crime, and what designates a person a white collar criminal?
The term, coined by sociologist Edwin Sutherland, started as a word that had an element of class infused into it. Corporate misconduct was white collar. Basically, the collar you wore made a difference in whether you would be considered a white collar offender.
Today, we have moved in the criminal justice system to looking more closely at the act. Thus, the crime being conspiracy to commit bank fraud in this scenario would make this a white collar crime. It is an economic crime, and perhaps it has an element of there being a fiduciary duty that was breached. But could one also say this is just theft, like a street crime?
The fuzzy nature of white collar crime presents issues to those of us who teach the course. What should be covered and what should be omitted? Is this like Potter Stewart's Jaobellis test - you'll know it when you see it? Or does that only work with pornography?
Some of the reporting on the Quattrone resolution here-
All in all - is there something beneficial coming from this case? - Yes - - Quattrone will be continuing his work with an Innocence Project. Perhaps one added effect of the white collar prosecutions is that more people, who normally would not have known about the criminal justice system, are learning about really happens.
The Frank Quattrone case is essentially resolved. The government and accused have entered into a deferred prosecution agreement and the court has signed off on this agreement. (See Peter Lattman at the Wall Street Jrl Blog here) Some thoughts on the agreement here.
- This is a superb resolution for both Frank Quattrone and the government. (see prior post here) After all, his attorney fees for two trials and preparation for a third were probably sufficient punishment, not to mention all the collateral consequences that he has suffered.
- The government is not walking away empty handed, as they might have should this case have gone to trial a third time. Rather, they have some concession from Frank Quattrone - he promises to be good.
- The agreement kind of reminds one of the deferred prosecution agreements given to juveniles. Stay clean and we won't prosecute you. It is basically saying - we'll give you a second chance.
- The best part is he "can only associate with law-abiding persons." How do you know if someone is abiding by the law? Obviously if they are murdering someone in front of you, you will know. But what if they don't pay their taxes, will you really know this?
- The agreement lasts for one year, and should be relatively easy for Quattrone to abide by. There is no admission of guilt here.
- Deferred prosecution agreements filed after a case is pending have to be submitted to the judge for approval, as in this case. In contrast, deferred or non-prosecution agreements pre-trial can remain outside the system. This has been very problematic for corporations that are asked to sign away their attorney-client material or provide no support to employees. Without a pending case, there is no judicial oversight. Only when the individuals are eventually indicted as in the Stein, et. al case is it possible for the judiciary to provide oversight. It is good to see the court participating in this resolution.
Monday, August 21, 2006
The Las Vegas Review Journal reports here that "Former Clark County Commissioner Dario Herrera was sentenced to 50 months in prison" and "Former Clark County Commissioner Mary Kincaid-Chauncey was sentenced this morning to 30 months in prison." Some white collar offenders are not being given significant breaks in the sentence. For example, prosecutors in the first case, a case where the individual received a 50 month sentence, asked for 51 months. The prosecutions result from a corruption investigation including an alleged bribe from a strip club owner. The Las Vegas Review Jrl has a web page here noting the entries from the Vegas corruption cases.
Yet another professor is entering the practical world. According to the Wall Street Journal Law Blog here, Professor Joseph Grundfest of Stanford Law School, is helping out in the Jamie Olis case. And he is doing it pro bono. Peter Lattman, the author of the post, discusses the key issue of this case - how should the court to calculate loss.
According to the Atlanta Jrl Constitution here, Professor Jeff Fisher (who represented the defendants in cases such as Blakely and Crawford) and Professor Doug Berman (editor of the Sentencing Law & Policy Blog here) have agreed to assist Decatur attorney Mawuli Davis on Campbell's appeal. Former Atlanta Mayor Bill Campbell, unlike so many others convicted of white collar crimes, is being sent immediately to prison.
Sunday, August 20, 2006
"Scooter" Libby, scheduled for trial in January, is having a problem getting some of the discovery material he wants for this trial. The issue he faces is common in cases of espionage and sometimes terrorism, but this particular problem is rarely seen in the white collar case. The problem, according to the Wall Street Jrl. here, is that some of the documents are sensitive documents that might risk national security if released. Not an unexpected ruling when dealing with a CIA leak.
It is important to note here that the judiciary is making the decision of whether to release the documents. Considerations are whether the accused truly needs this material for his or her defense and the issues of national security that might accrue if the information were released.
Kobi Alexander, former Comverse Technology CEO, has been missing (posts here and here). No doubt problematic as he has been charged with mail fraud, wire fraud, and securities fraud. The story of his background and rise to fame is outlined in a comprehensive story by Julie Creswell in the NY Times. (see NYTimes here).
One interesting note is that the story states that "Robert G. Morvillo, said he last heard from his client more than two weeks ago and he believed that Mr. Alexander and his family were on vacation in Israel."
Robert G. Morvillo, an experienced white collar attorney (see here), also represented Martha Stewart at her trial.