Saturday, December 16, 2006

Comments on the McNulty Memo

What have others been saying about the McNulty Memo -

ABA Jrl E- Report here

Alan Childress, Legal Profession Blog here

Business Week Online here

Carrie Johnson, Washington Post here

Dale Oesterle, Business Law blog here

Doug Berman's Sentencing Blog here

Jason McClure, Legal Times here

Linnley Browning, New York Times here

Peter Lattmen, Wall Street Journal Blog here and here

Porter Wright Morris & Arthur here

Wachtell, Lipton, Rosen & Katz here  (per the Wall Street Jrl)(John F. Savarese & David B. Anders)

WilmerHale here

(esp)

December 16, 2006 in Privileges | Permalink | Comments (1) | TrackBack (0)

Forfeiture Action Against Former Chancellor

The former chancellor of Alabama’s two-year-college system faces a forfeiture action according to an article in the Chronicle of Higher Education.  There are no federal criminal charges in this case, but the forfeiture seeks return of funds he received from from contractors.

(esp)(w/ a Stetson hat tip to Dean Darby Dickerson)

December 16, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Athlete Indicted for Perjury in Balco Investigation

The Balco (Bay Area Laboratory Co-Operative) steroids investigation has entered what U.S. Attorney Kevin Ryan called the "third stage" with the indictment of Tammy Thomas, a former cyclist banned from competition for steroid use.  Thomas testified under a grant of immunity in 2003 before the same grand jury that heard from a number of prominent athletes, including famed San Francisco Giants slugger Barry Bonds and Olympic gold medalist Marion Jones.  According to the indictment (here), Thomas committed perjury by denying she received the designer steroid THG, known as the "the clear," from Balco chemist Patrick Arnold, who entered a guilty plea earlier in 2006 to conspiracy and money laundering charges.  The indictment quotes the relevant testimony for count one:

Q: Did you ever – besides this one instance of getting the 1-AD from Mr. Arnold, did you ever get any other services from Mr. Arnold or products?

(a) A: No, no other products.

* * * * *

Q: Did you ever, in addition to anything I’ve said, get any kind of what you knew to be banned or illegal performance-enhancing drugs from Mr. Arnold?

(b) A: No.

In another exchange quoted in the indictment, she denied ever taking steroids or taking anything that Arnold gave her.  Thomas tested positive for steroids in 2002,leading to her ban from competition.  The key witness appears to be Arnold, which means that the case could come down to a credibility battle between Thomas and an admitted felon.

U.S. Attorney Ryan hinted in a press release (here) that more perjury indictments may be coming.  He said, "“In the early stages of the investigation, the individuals who distributed steroids to some of the nation’s top-flight athletes were indicted and convicted. In the second stage, we developed the evidence to indict and convict the creator of the undetectable steroid THG distributed through Balco. A third stage has begun as we bring charges against individuals who lied to investigators or committed perjury while testifying under oath to a federal grand jury. Our investigation into each of these stages will continue as the evidence develops."  In addition to Thomas, the grand jury earlier indicted Trevor Graham, Jones' former coach.

Bonds has already been the subject of serious speculation about a possible perjury and tax evasion indictment, the latter based on unreported income from memorabilia sales.  When the earlier Balco grand jury expired in July 2006, many thought its last act would be to indict Bonds, but right before its expiration, the Giants released his medical records, so White's office announced that nothing would be done at that time.  Bonds' former personal trainer, Greg Anderson, remains in jail on a civil contempt because of his refusal to testify about Bonds' use of steroids; Anderson was affiliated with Balco and entered a guilty plea to a drug charge related to steroid distribution.  A San Jose Mercury News article (here) quotes Bonds' attorney stating, "If this is phase three, why not indict Barry?'  The simple answer -- they need the testimony of Greg Anderson.''

It's not clear how important Anderson is to the case, but he could certainly help the government by identifying Balco documents that apparently indicate a schedule of steroid use by Bonds.  If the perjury case rides on Anderson, the government will not be in a very strong position unless it has powerful documentary evidence to support its position.  Anderson is unlikely to be a very convincing witness, or perhaps not a very trustworthy one. 

In addition to Anderson, two San Francisco Chronicle reporters are fighting a contempt citation in the Ninth Circuit for refusing to testify before the grand jury about the leak of transcripts of Bonds and other major league players.  The perjury stage of the investigation has generated a significant amount of litigation already, and the U.S. Attorney's Office for the Northern District of California has not been shy about pursuing perjury and contempt cases, so look for more to come.  Whether higher-profile athletes like Bonds, Jones, or perhaps others are charged could play out over the next few months. (ph)

December 16, 2006 in Grand Jury, Perjury, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Will Another GC Be Indicted for Options Backdating?

An article in The Recorder (here) states that former McAfee Inc. general counsel Kent Roberts may be indicted by prosecutors in the Northern District of California for backdating documents related to options he received from the company.  The options-timing investigations have already resulted in a guilty plea from another GC, William Sorin at Comverse Technology.  McAfee terminated Roberts on May 30, 2006, stating in a press release (here): "In connection with [an internal] review, the Company became aware of one episode involving the General Counsel in 2000 that was improper. As a result, the Board has terminated his employment."  It is not clear whether this is the only instance under investigation.

The options-timing investigations are now about six to nine months along, and a number of companies have announced the preliminary results of their internal investigations.  It appears that the companies are cooperating with the government by turning over the results of those reviews, including privileged materials.  The government's investigations are probably far enough along that we should expect to see indictments and SEC enforcement actions starting in January.  Unlike the accounting fraud cases of the past few years, the options-timing cases are much less complex in most instances because they involve a fairly narrow range of transactions and the initial issue is whether documents were altered or created to make it appear the decision was contemporaneous with the grant.  While issues may arise about the timing of the exercise of the options, raising tax questions, this conduct also involves fairly discrete transactions that are not difficult to investigate.  (ph)

December 16, 2006 in Prosecutions, Securities | Permalink | Comments (0) | TrackBack (0)

Friday, December 15, 2006

Monster Woldwide Fesses Up to Options Backdating

On-line employment company Monster Worldwide, Inc. disclosed that the options backdating at the company was the result of intentional conduct and not "mere oversights" by executives.  A press release (here) states:

The Special Committee has determined that the exercise price of a substantial number of stock option grants during the periods between 1997 through March 31, 2003 differed from the fair market value of the underlying shares on the measurement date. In most cases, the original date assigned to the grant corresponded to the date as of which a unanimous written consent ("UWC") was executed by the members of the Compensation Committee of the Company's Board of Directors, but the date of that consent did not correspond to the actual date on which the identities of the individual optionees and the number of shares underlying each option was determined. The Company believes that the dates as of which the UWCs were dated were earlier than the dates on which they were actually executed. In a significant number of instances, the stock price on the assigned date (the date as of which the UWC was executed) was lower, sometimes substantially lower, than the price on the date the award may be deemed to have actually been determined. The Company believes that this practice was done intentionally, by persons formerly in positions of responsibility at the Company for the purpose of issuing options at a higher intrinsic value than would have otherwise been the case.

The financial restatement triggered by the backdating will be over $300 million.  Former CEO Andrew McKelvey resigned his position because of the problem, and quit the board of directors when he decided not to meet with the law firm conducting the internal investigation for another interview (see earlier post here).  Former general counsel Myron Olesnyckyj went on paid leave in September 2006, and was fired for cause in November (see earlier post here).  The reference to "persons formerly in positions of responsibility" indicates that senior executives were involved in the backdating, and the U.S. Attorney's Office is likely privy to their identity and may pursue a criminal case now that the internal investigation is largely complete.  There has not been an indication yet that McKelvey or Olesnyckyj are targets of the grand jury investigation.  (ph)

December 15, 2006 in Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Where White Collar Criminals Wind Up

The past year has seen the imprisonment of a number of high-profile white collar defendants, including former CEOs like Jeffrey Skilling and Bernie Ebbers, and former political heavyweights like Representative Randy "Duke" Cunningham and Jack Abramoff.  The prison terms they and others received has increased the awareness of what a change prison life is for white collar defendants.  There is an interesting article from the New York Law Journal (available on Law.Com here) about the process for securing a favorable prison environment for the federal white collar defendant who has been convicted (either after trial or by plea) and faces a prison term.  Life in the federal prison system is a world apart from the corporate world, and the author, JaneAnne Murray, makes the point that prison is a dehumanizing experience, which may be the greatest shock to the prisoner who has never seen the inside of a jail except perhaps briefly on the day the person was arraigned.   The article concludes:

For many prison inmates, the quality of the time they serve is as important as the length of the sentence. Time will certainly pass faster for most, for example, if one is in the relatively freer and less volatile environment of a camp facility. Thus, in federal criminal cases, once the client has pleaded guilty or has been convicted after trial, it is in the client's interest for the defense lawyer to adopt the dual strategy of mitigating the sentencing exposure and simultaneously positioning the client for a favorable prison placement. This is true even if the likelihood of incarceration appears to be remote. Once a prison sentence has been pronounced, it is often too late to take the measures that can make that sentence more palatable.

(ph)

December 15, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

First Foreign Economic Espionage Act Convictions

The U.S Attorney's Office for the Northern District of California announced the first two convictions under 18 U.S.C. Sec.1831 for foreign economic espionage in a case that began with an arrest back in 2001.  According to a press release (here):

Fei Ye and Ming Zhong pleaded guilty today to two counts each of economic espionage. Ming and Zhong were arrested at the San Francisco International Airport on November 23, 2001, with stolen trade secret information in their luggage while attempting to board an aircraft bound for China. The defendants today admitted to possessing stolen trade secrets from Sun Microsystems, Inc. and Transmeta Corporation with the intent to benefit the Peoples Republic of China.

Mr. Ye and Mr. Zhong today admitted that they intended to utilize the trade secrets in designing a computer microprocessor that was to be manufactured and marketed by a company that they had established, known as Supervision, Inc. In pleading guilty, Mr. Ye and Mr. Zhong admitted that Supervision was to have provided a share of any profits made on sales of chips to the City of Hangzhou and the Province of Zhejiang in China, from which Supervision was to receive funding. Mr. Ye and Mr. Zhong further admitted that their company had applied for funding from the National High Technology Research and Development Program of China, commonly known as the “863 Program.”

Federal prosecutors in the Northern District of California also announced a superseding indictment in another Sec. 1831 case.  According to a press release (here), the defendant was "charged with stealing military combat and commercial simulation software and other materials from his former employer Quantum3D, a company based in San Jose, California. The economic espionage charges allege that Meng, formerly a resident of Beijing, China, and a resident of Cupertino, California, stole the trade secrets from Quantum3D with the intent that they would be used to benefit the foreign governments of China, Thailand, and Malaysia." (ph)

December 15, 2006 in International, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 13, 2006

Protecting the Privilege and the Issue of Remedy-Part II

Focusing on Four Things -

1. In analyzing the McNulty Memo, there are several interesting points to note within the initial parts of the document.  In going from the Holder Memo to the Thompson Memo, Larry Thompson outlined in the initial paragraphs the main reason for revisions - "increased emphasis on and scrutiny of the authenticity of a corporation's cooperation."  He also noted that "[f]urther experience with these principles may lead to additional adjustments."  These lines are omitted in the McNulty Memo.  In its place one finds some interesting language that demonstrates the motivation of DOJ in presenting this revised memo.  For example, in Part I of the Memo there are several references to "perception."  Clearly the DOJ has been bombarded with criticisms for its actions regarding attorney-client privilege waivers.  This recognition of how their actions "impact[] public perception" is noteworthy.  This very long new Memo by DOJ, with clear emphasis on combating corporate crime, is clearly an attempt to keep as much as possible of existing rules in place, but also change the perception of the DOJ from being called the ones who are destroying the attorney-client privilege to the ones who are fighting corporate crime.

2. The problem with the DOJ categorization of materials, is that we see an executive agency legislating.  They are creating rules that they can or cannot follow in their deciding when to violate the longstanding attorney-client privilege.  The most important aspect here is that they are not only the ones who are deciding what the rules will be, but also how they will be interpreted, and what happens if they are not followed. 

3. In Part II of the Memo it states - "an indictment often provides a unique opportunity for deterrence on a massive scale.  In addition, a corporate indictment may result in specific deterrence by changing the culture of the indicted corporation and the behavior of its employees." 

Since when is deterrence supposed to be forthcoming from an indictment?  Shouldn't we have a trial first? And more importantly, shouldn't we first have a conviction? 

4.  So why does the Specter legislation provide a better alternative?  The main reason is that it keeps within the executive branch - the executive functions.  It allows the judiciary to provide the proper oversight and thus promotes a system with proper checks and balances.

5.  Finally, back to the discussion with my co-blogger.  The Specter bill does not explicitly have language for a remedy when there is a violation.  This is no different from the McDade Amendment. A remedy was unnecessary there, as none is necessary here. Judges need to have discretion to provide for an appropriate remedy depending upon the circumstances.  Judges, through caselaw, will interpret the statute to let prosecutors know what is proper and what is not.  Who knows, maybe they will have a Leon type of an exception that allows the conduct to stand when the prosecutor acts in good faith.

(esp)

December 13, 2006 in Defense Counsel, Legal Ethics, Privileges, Prosecutors | Permalink | Comments (0) | TrackBack (0)

House Subcommittee Asks About H-P CEO's Stock Sales

While the Hewlett-Packard pretexting imbroglio has faded from view, a House Subcommittee decided to pepper company CEO Mark Hurd with an inquiry about his exercise of options on 100,000 shares of stock and immediate sale on the day he was interviewed in August 2006 as part of the company's internal investigation.  The Subcommittee letter is signed by Representatives John Dingell, the incoming chair of the Energy and Commerce Committee, and Bart Stupak, the likely new chair of the Oversight and Investigations Subcommittee that has already been looking at the pretexting.  Hurd sold the shares on August 26, 2006, the same day H-P's then-outside counsel, Wilson Sonsini, interviewed him about his role in the investigation of boardroom leaks that included the pretexting that caused such a public relations disaster. 

The Congressmen asked whether Hurd's sale was a species of "bullet dodging" in which a corporate insider sells shares ahead of the disclosure of negative news that will cause the stock price to go down.  In addition, they asked Hurd whether any other executives sold at this time.  It's not a hard question to answer on your own by looking at the company's public records.  A quick check of H-P's Form 4s (which report stock sales by executives and directors) shows one example (here) in which board member Lucille Salhany sold over 18,500 shares on August 24.  Ms. Salhany is a member of the audit committee and was likely aware of the Wilson Sonsini investigation, although that's a guess based on her committee membership.  The timing of the trade does not mean the person sold shares because of the internal investigation, and there are many reasons for these transaction. 

Hurd's Form 4 (here) shows that he received the options on April 1, 2006, at an exercise price of $21.73, and he sold the shares for about $35.40, for a profit of approximately $1.35 million (not counting brokerage costs, which are usually fairly low).  While the sale may look bad, it may be that Hurd did not exactly dodge a bullet, but instead took a bit of one.  The announcement of the pretexting that was part of the leak investigation triggered a firestorm of criticism, but had little if any effect on the stock price in the short term.  Moreover, since late September, when the Subcommittee held a hearing on the pretexting at which Hurd testified, the price has gone up almost $2 per share.  Hurd sold a few months too early, and if he'd waited until now he would have reaped another $450,000 based on the December 13 closing price of $39.83.  Hurd still has options on another 600,000 shares, so no tears need be shed over his sale.  While the timing looks suspicious, I doubt there's anything there for the Representatives to get too worked up about. (ph)

Download hurd_house_subcommittee_letter_dec_12_2006.pdf

December 13, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Court Rejects New Trial Motion of Scrushy and Siegelman

Chief U.S. District Judge Mark Fuller rejected the new trial motion of former HealthSouth CEO Richard Scrushy and former Alabama Governor Don Siegelman after their convictions on corruption charges.  The defendants sought the new trial on grounds of juror misconduct, specifically related to outside evidence in the jury room and improper deliberations.  The opinion (available below) found that two jurors did bring in evidence not admitted at trial during the deliberations, but concluded that the defendants were not prejudiced.  The jury foreman looked up on the internet the instructions for people serving in that role, and the foreman and another juror downloaded a copy of the indictment from a District Court website that had language the court had stricken from the official indictment supplied to the jury.  The court noted that the first type of information was unrelated to the deliberations, and the jury instructions to consider the indictment only as an accusation meant that the unauthorized version likely had no effect on the jury's decision.  The court also rejected a set of e-mails supplied by the defendants allegedly showing that some jurors discussed the case outside the jury room because they could not be authenticated.

Although the jury misconduct issue is out of the way, the district court still has not addressed a defense challenge to the racial composition of the jury pool, that African-Americans were improperly excluded and therefore a new trial with a jury drawn from a properly chosen venire is required.  Until Judge Fuller rules on that issue, a sentencing date will not be set.  Look for the case to drag on even longer before it finally heads to the Eleventh Circuit, where the jury issues, among others, will be fought out again. (ph)

Download scrushy_siegelman_opinion_dec_2006.pdf

December 13, 2006 in Corruption, Judicial Opinions, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Is David Stockman Headed Back to the Woodshed?

Former political wunderkind David Stockman was famously taken to the woodshed by President Reagan for his comments about the administration's tax and budget cuts when Stockman was head of the Office of Management and Budget.  He may be headed back there, according to a report in the Detroit News (here) that a federal grand jury in New York is looking at whether he managed earnings through accounting gimmicks and made misleading statements about Collins & Aikman Corp. in 2005 when he was CEO of the company.  After leaving the White House in 1985, Stockman moved to the world of finance, and in 2001 acquired control of various auto parts companies, rolling many of them into C&A, which entered bankruptcy in May 2005.  The board ousted him a few days before filing bankruptcy, and in the months before the filing Stockman made optimistic statements about C&A's prospects.  In addition to the criminal probe, the SEC sent Stockman a Wells Notice that the Enforcement Division staff intends to recommend the filing of a securities fraud action against him.  It sounds like the government is preparing a coordinated criminal-civil case against Stockman, and perhaps other former C&A executives. (ph)

December 13, 2006 in Fraud, Grand Jury, Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 12, 2006

Protecting the Privilege and the Issue of Remedy

The Department of Justice's latest guidance on prosecuting corporations, the newly-christened McNulty Memo, tries to assuage some of the concerns of corporations and various interest groups about the frequency with which federal prosecutors can request waiver's of the privilege.  This latest iteration of the Department's policy is now even more complex than its predecessors, the Thompson and Holder Memos, by creating categories of privileged material and work product.  On this blog, we will discuss various issues related to this new approach, but it remains an open question whether Congress will intervene and set the policy through the legislation that Senator Arlen Specter will introduce in the new Congress in January.  As discussed in an earlier post (here), this legislation would prevent federal prosecutors from seeking a privilege waiver in any circumstances, along with other prohibitions.  These are the two approaches, one legislative and one an internal guideline, that raise a number of interesting questions we plan to discuss here.  The first issue we will talk about is whether there should be some enforcement mechanism along with the restrictions on requesting waivers,and the related question of the proper remedy for a violation.

Peter Henning: One significant weakness with the McNulty Memo appears in its name -- it is only an internal policy statement with no means to enforce its provisions except what the Department chooses to provide.  While the Office of Professional Responsibility could investigate a complaint, the McNulty Memo has a hortatory value but not much else if there is a violation of its restrictions on privilege requests.  The U.S. Attorney's Manual is quite explicit in its first provision that it "provides only internal Department of Justice guidance. It is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. Nor are any limitations hereby placed on otherwise lawful litigative prerogatives of the Department of Justice."  USAM 1-1.100.  The McNulty Memo will take the place of the Thompson Memo in the Manual, and be subject to the same limitation on its enforceability, or even usefulness outside of an internal Department investigation.

The "Attorney-Client Privilege Protection Act of 2006" that Senator Specter will introduce (I'm hopeful with "2007" at the end) in the next Congress similarly does not contain any enforcement mechanism or reference to what remedy might be available (or to whom) in case of a violation.  One can argue that not including a remedial provision is a benefit because it creates maximum judicial discretion, but that can also lead to substantial inconsistency.  More importantly, a crucial issue involved in the proposed legislation is identifying the goal Congress would hope to achieve if it enacts the bill.  If the purpose is to eliminate what Congress views as prosecutorial misconduct, then providing a remedy against the prosecutor without directly interfering in the underlying investigation or prosecution would be a good approach.  The focus of Senator Specter's bill is on the request for a waiver and the decision whether to institute charges, and not as much with providing that information.  The bill acknowledges that a corporation can voluntarily waive its privilege and work product protection, so I think the focus is on the prosecutor and not simply protecting information. 

I would be surprised if a federal prosecutor made a request that arguably violated the bill and was not immediately the subject of a protest to the U.S. Attorney, Main Justice, and the courts about the legal violation.  I think it is unlikely that a company would provide privileged information and protected work product and then later come to the realization that the request violated the Attorney-Client Privilege Protection Act.  The question, then, is if the primary concern is prosecutorial misconduct, can a remedial provision be attached to the bill that would fulfill that purpose? 

One area that has some similarity to this issue is Federal Rule of Criminal Procedure 6(e)'s provision for pursuing violations of the grand jury secrecy requirement.  Rule 6(e)(7) provides: "A knowing violation of Rule 6, or of guidelines jointly issued by the Attorney General and the Director of National Intelligence pursuant to Rule 6, may be punished as a contempt of court."  This provision concerns prosecutorial misconduct, and permits a direct punishment of the government attorney for a violation.  Moreover, the provision requires proof of knowledge, and provides that a violation "may be punished."  These limitations give the courts flexibility to find that a de minimis or technical violation does not merit contempt, while a serious transgression could even be punished with a fine or jail sentence.  This strikes me as a workable provision under Senator Specter's legislation, and could be added quite easily as a single sentence amendment.

One possible objection is that such a provision only addresses the prosecutor's conduct but not the effect on the investigation.  To address that issue, a provision similar to Federal Rule of Criminal Procedure 41(g) could be added.  That Rule provides, "A person aggrieved by an unlawful search and seizure of property or by the deprivation of property may move for the property’s return."  Similarly, language could be added so that a company aggrieved by a violation of the act could move for the return of documents and a restoration of the privilege and work product protection for any information it was compelled to turn over in violation of the law.  If the case ever came to trial, a court could ensure that the government did not use privileged information, something every trial just is empowered to do already.   

If the goal of the bill is to give corporations, and perhaps their employees, a means to block an investigation or have an indictment dismissed, then leaving judges the widest discretion may be the way to achieve that purpose.  The discussion about the legislation has been focused on the need to protect the privilege, and I think there are some fairly simple procedural mechanisms to punish prosecutorial misconduct and restore privileged communications and work product to their prior state that can give the courts real guidance on how to proceed in cases that arise five and ten years down the line.  Enacting a law prohibiting conduct without any direction on how it should be applied creates significant uncertainty that may result in inconsistent results.  If the legislation does create (or restore) an important right, then it should have a remedy. (ph)

                                                                                                                                              

Ellen S. Podgor -  Although I agree with many of the points made by my co-blogger, there are several aspects that we do part ways. So stay tuned to a forthcoming entry that will discuss another approach. It will specifically look at why it is important to provide judges with flexibility in fixing a remedy for a violation, why existing statutes of a similar nature mirror this approach, and why the focus of Senator Specter's bill is on the information, more specifically on protecting a privilege that is at the bedrock of our adversarial system. (esp)

December 12, 2006 in Legal Ethics, Privileges, Prosecutors | Permalink | Comments (0) | TrackBack (1)

Leak Investigations

Recent leaks in corruption cases have become a focus of an FBI investigation. (see here) FBI Director Robert Mueller should be congratulated for this move as leaks can seriously impair the ability of an individual from getting a fair trial.  It is even more problematic when the leak involves material being presented to a grand jury that is subject to secrecy under Rule 6(e).

(esp)

December 12, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Get Out the Winter Coat - Mr. Skilling

It did not take very long for the Fifth Circuit to rule on whether Jeff Skilling could remain free pending his appeal.  The answer was plain and simple - No.  (See here and here)

(esp)

December 12, 2006 in Enron, Sentencing | Permalink | Comments (0) | TrackBack (0)

The McNulty Memo - Attorney-Client Privilege Waivers & Attorney Fees

It looks like DOJ has decided to try and save itself from legislation (here) concerning the attorney-client privilege waivers, by issuing a revision to the Thompson Memo.  DOJ issued a press release that tells of Paul McNulty's talk to Lawyers for Civil Justice in New York.  The new McNulty Memo and an Executive Summary are below.  The press release states in part:

"The new guidance requires that prosecutors must first establish a legitimate need for privileged information, and that they must then seek approval before they can request it. When federal prosecutors seek privileged attorney-client communications or legal advice from a company, the U.S. Attorney must obtain written approval from the Deputy Attorney General. When prosecutors seek privileged factual information from a company, such as facts uncovered in a company’s internal investigation of corporate misconduct, prosecutors must seek the approval of their U.S. Attorney. The U.S. Attorney must then consult with the Assistant Attorney General of the Criminal Division before approving these requests.

"The guidance cautions prosecutors that attorney-client communications should be sought only in rare circumstances. If a corporation chooses not to provide attorney-client communications after the government makes the request, prosecutors are directed not to consider that declination against the corporation in their charging decisions. Prosecutors are told to request factual information first and make sure they can establish a legitimate need to go further before requesting a waiver of privilege to obtain attorney-client communication or legal advice.

"The new memorandum also instructs prosecutors that they cannot consider a corporation’s advancement of attorneys’ fees to employees when making a charging decision. A rare exception is created for those extraordinary instances where the advancement of fees, combined with other significant facts, shows that it was intended to impede the government’s investigation. In those limited circumstances, fee advancement may be considered only if it is authorized by the Deputy Attorney General."

It is certainly wonderful to see the DOJ realizing the importance of the right to counsel, and how asking for a waiver of attorney fees can be problematic to making certain that the accused has appropriate legal counsel. In light of the Stein case, this is certainly a step in the correct direction.

But with regard to the attorney-client privilege, the new McNulty Memo does not go far enough.  For one, it is commonly known that DOJ guidelines are nothing more than internal guidelines that are unenforceable at law.  So if an AUSA fails to follow this guideline, and forgets to seek approval before requesting a waiver, there is nothing that the accused can do in response.  This is exactly why, Specter's legislation is needed.  As long as the possibility exists that DOJ will allow someone to ask for a waiver of the attorney-client privilege, the privilege is in jeopardy. 

What is not mentioned here is that DOJ always has the right to secure a waiver with a court through the crime-fraud exception.  It is sad that this new Memo tries to bypass judicial review by having the DOJ do internally what is clearly against the long standing privilege.

On the bright side - Larry Thompson is probably happy to see a new name on this memo.

(esp)

Download mcnulty_memo.pdf

Download mcnulty_memo_executive_summary.pdf

December 12, 2006 in Legal Ethics, Privileges | Permalink | Comments (0) | TrackBack (3)

Monday, December 11, 2006

When Will Skilling Need A Winter Coat?

Today was the day for Jeffrey Skilling to report to prison.  And the 24+ prison term was to be served near Minneapolis (see here).  But he can keep the winter coat in storage a little longer as the Fifth Circuit Court of Appeals has decided to stay his reporting to prison pending its ruling on bail during the appeal (see here).

(esp)

December 11, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (2)

Alaskan House of Rep Member Indicted by Feds

The Department of Justice issued a press release on its recent indictment of an Alaskan State Representative. The seven count indictment charges "extortion, conspiracy, bribery, and money laundering."  It alleges that, "Anderson and Lobbyist A participated in the creation of a sham corporation to conceal the existence and true origin of the payments, and used the sham corporation to funnel a portion of the $26,000 to Anderson."  The press release also notes that "according to the indictment, the FBI confidential source was a consultant for a private corrections company located outside the state of Alaska, and Anderson and Lobbyist A initiated contact with the FBI confidential source in order to solicit bribery payments."

(esp)

December 11, 2006 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

How Much Is An "A" Worth?

According to CNN.com (AP) a Queens DA has filed charges against a college instructor for allegedly taking  "cash and wine" to change grades.  The instructor is also accused of telling a student to lie before a grand jury. The charges include "computer tampering and forgery." All of the charges are denied by the accused.

What is particularly good to see in this case is that the prosecution is not being advanced by federal authorities. Because of overcriminalization, federal prosecutors often have the discretion to proceed on a wide variety of cases. 

(esp) (w/ a hat tip to Dean Darby Dickerson) 

December 11, 2006 in Fraud, Prosecutions | Permalink | Comments (1) | TrackBack (0)

Public Corruption is "in"

Public corruption appears to be a new top priority of DOJ and the FBI. (see here)  Often, however, the sentences issued for public corruption crimes are lower when compared with the sentences issued for fraud cases.  This is in large part because fraud cases have "loss" figures attached to them, and these amounts often increase a sentence. But not everyone is convinced that this should be the appropriate priority.  In a quote in a Washington Post article (in TBO), Senator Dianne Feinstein expresses a view that violent crimes need to be given a higher priority.  One form of crime that goes unmentioned is identity theft.  In this technology age, more attention needs to be given to crimes related to the Internet.

(esp)

December 11, 2006 in Corruption | Permalink | Comments (0) | TrackBack (0)

Sunday, December 10, 2006

Hopscotching Across the USA

Once a defendant enters the prison system, the system takes over.  Where they land can be a function of many factors.  Often unnoticed, however, is how long it may take until they get there and where they may stop along the way. Many white collar offenders are fortunate in that they may be allowed to report directly to the final destination.  But not all are given this luxury. Take Jamie Olis, for instance - he is spending his third bithday in prison today - and so far he has seen the insides of FCI in Bastro, Tx., then the FCI in Oakdale, Louisiana and then onto Houston's Federal Dentention Center. As Tom Kickendall's Houston Clear Thinkers states here, "Olis has now endured almost a year in his cramped Detention Center cell and still has not been assigned to a prison unit to serve the balance of his sentence. This despite the fact that he was resentenced three months ago and a number of federal criminal defendants sentenced after Olis -- including Skilling, Fastow and Causey -- have already been assigned to the prisons where they will serve their sentences."

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December 10, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)