Saturday, February 25, 2006
With Randy "Duke" Cunningham pleading guilty and set for sentencing (see here), the government can now move to sentencing a co-defendant who provided cooperation in the case against Cunningham. CNN reports here that Mitchell Wade pleaded guilty to giving bribes to Cunningham. Wade, a defense contractor, was said to have paid this money in exchange for government contracts. According to the Tampa Tribune here, a US Representative from Florida who is running for the Senate, and a US Rep from Virginia may have also been the recipient of illegal campaign contributions from Wade.
It will be interesting to see if the briber or bribee gets a greater sentence? How much is cooperation worth?
Friday, February 24, 2006
One problem faced by defense counsel in many white collar crime prosecutions is the massive number of documents, and the approach of prosecutors to simply say, "Here they are, you figure out what is (and is not) important." The end result of a long-term grand jury investigation may be that hundreds of thousands of pages of records are produced, and once the defendant is indicted, the government merely makes the documents available without identifying which will be used in its case-in-chief to establish guilt -- the "back up the truck" approach to discovery. In United States v. Anderson, a criminal tax prosecution in the District of Columbia, U.S. District Judge Paul Friedman ordered prosecutors to identify all the documents the government planned to use in its case-in-chief. The case involves at least 500,000 pages of records, and to this point prosecutors have relied on the "open file" discovery policy to meet their discovery obligations, which does little to aid the defendant in preparing for trial. Anderson is charged with tax evasion arising from off-shore accounts that allegedly involve over $450 million. A search warrant at his home resulted in the seizure of a large volume of documents, and a three-year grand jury investigation produced even more records, primarily from third-parties, such as banks, accounting firms, etc.
Judge Friedman directed the government to identify all records by March 31, 2006 (nine months before trial) that it intends to use in its case-in-chief that were seized from Anderson. The judge relied on Federal Rule of Criminal Procedure 12(b)(4)(B) for this portion of the order, which provides: "At the arraignment or as soon afterward as practicable, the defendant may, in order to have an opportunity to move to suppress evidence under Rule 12(b)(3)(C), request notice of the government's intent to use (in its evidence-in-chief at trial) any evidence that the defendant may be entitled to discover under Rule 16." The district court held that this provision is mandatory, and simply making the documents obtained in the investigation available to the defendant did not fulfill the requirements of the Rule.
Regarding the other records, Judge Friedman used his discretionary authority to order greater discovery by the March 31 date than that provided under Federal Rule of Criminal Procedure 16(a)(1)(E), which states:
Upon a defendant’s request, the government must permit the defendant to inspect and to copy or photograph books, papers, documents, data, photographs, tangible objects, buildings or places, or copies or portions of any of these items, if the item is within the government’s possession, custody, or control and: (i) the item is material to preparing the defense; (ii) the government intends to use the item in its case-in-chief at trial; or (iii) the item was obtained from or belongs to the defendant.
The judge noted that the government's open file policy met the minimum requirements of the Rule, but that the nature of the case and volume of documents demanded that the government go further in identifying those records it intended to use at trial. The court stated:
Given the enormous volume of material produced in this case and defendant’s limited resources, it is apparent that requiring defendant’s counsel to peruse each page of the materials at issue here – in effect, to duplicate the work of document review presumably already done by the government – would materially impede defendant’s counsel’s ability to prepare an adequate defense or, as repeatedly emphasized by defendant’s counsel at oral argument, to evaluate meaningfully the government’s plea offer and to engage in fruitful plea negotiations . . . The government does not credibly contest this reality. This fact alone counsels the Court, in the exercise of its discretion under Rule 16, to grant defendant’s discovery request.
The court noted that having the government identify the records it intends to use at trial will not only assist the defendant in trial preparation, but also allows defense counsel to evaluate the case to determine whether to pursue a plea bargain. Approaching discovery in white collar crime cases as the equivalent of finding the relevant needles in the haystack of banker boxes is hardly conducive to fair trial preparation and allowing the defense to understand the scope of the government's case. (ph)
The prosecution of former Illinois Governor George Ryan may take an interesting turn that raises issues of legal ethics related to his defense counsel from large firm Winston & Strawn and a defense witness who, at this point in time, is the Acting United States Attorney for the Southern District of Illinois. This one is a bit hard to follow, so follow the bouncing ball here (for fans of "Sing Along with Mitch" and other outstanding early 1960s entertainment). Edward McNally was Ryan's attorney in 2001, and he testified at trial about meetings with prosecutors in 2001 about the case. At the time, McNally was a partner at Altheimer & Gray, which went into bankruptcy in 2003 and owes, among others, LaSalle Bank approximatley $28 million on a defaulted loan. Here's where it gets a bit convoluted. Winston & Strawn is counsel to the creditors in the Altheimer & Gray bankruptcy, and in that proceeding five former partners opted not to participate in a bankruptcy court plan for paying the firm's debts, and one of those partners is McNally. Since then, Winston & Strawn has sued four of those partners to recover for their liability on the loan, but the one partner not sued is -- you guessed it -- McNally. Based on his ownership interest in the partnership, McNally is potentially liable for more than $500,000 of the bank loan.
According to a Chicago Sun-Times article (here), prosecutors are raising a ruckus that Winston & Strawn, which is representing Ryan pro bono, has gone easy on McNally to ensure his cooperation, and the failure to disclose the conflict means that the government could not impeach his testimony with all relevant information. Winston & Strawn has said that it was not aware of any potential conflict, and that may well be the case with a firm that large and the different departments (probably on different floors) handling the cases. Whether the information is particularly damning for McNally, it does raise an interesting question related to Winston & Strawn: did the firm view McNally, now in a very important government position, as a person who it would be better not to sue, and if so, was that in its client's interest or a desire to cull favor? The dots are pretty far apart to see a far-reaching plan to shield McNally to preserve his cooperation in the Ryan case, except for those addicted to conspiracy theories. But, the relationship raises questions about Winton & Strawn's internal conflicts mechanism, and whether the issue should have been flagged before McNally testified. Better to reveal before the fact than try to explain something after its revelation. (ph)
Thursday, February 23, 2006
The legal defense fund for I. Lewis Libby has a website (www.scooterlibby.com) with information about Libby, a list of the fund's Advisory Committee that includes a number of former administration officials and senators, and links to recent headlines. The fund's trustee is G. Michael Green, a tax lawyer at Dickstein Shapiro in Washington, D.C.
The site links to an AP story (here) discussing the response of Libby's lawyers to the "greymail" accusation made by Special Counsel Patrick Fitzgerald, that Libby seeks a large volume of classified materials as part of a strategy to obtain a dismissal of the charges under the Classified Information Procedure Act (see earlier post here). The response of defense counsel is that the greymail accusation "is not only false, but insulting" -- an almost sure sign that the defense strategy includes seeking a means to have the charges dismissed under CIPA. But that's not the only avenue for seeking dismissal. Also available on the website is Libby's motion to dismiss the indictment (here) filed on Feb. 23. The motion asserts that the appointment of the Special Counsel violates the Appointments Clause (Art. 2, Sec. 2), which requires the advice and consent of the Senate for a "principal officer" who can exercise the power of the United States to approve an indictment and prosecute a case without further supervision by a superior officer. Because Fitzgerald's office need not obtain the prior approval of the Attorney General or U.S. Attorney before seeking an indictment, he can only be appointed after the advice and consent of the Senate, according to Libby's brief. Needless to say, in the current political climate, I suspect Fitzgerald's nomination would sail through the Senate if that were necessary. This new front in the litigation could cause a delay in the trial if U.S. District Judge Reggie Walton agrees with the defense argument because it would trigger an immediate appeal, or perhaps Senate approval of Fitzgerald's appointment and a reindictment. (ph)
Mortgage giant Fannie Mae released the report of an internal investigation led by former Senator Warren Rudman (and his law firm, Paul Weiss) on the company's accounting problems that came to light in 2004. The report indicates that there were consistent problems over a number of years in how the company manipulated its accounting for mortgages and derivatives as part of an effort to smooth out its earnings from quarter to quarter, and various internal control weakness that permitted the improper accounting. The report (summary here and full report here, all 2652 pages of it in case you have insomnia) points the finger at former CFO Timothy Howard and Controller Leanne Spencer as primarily responsible for the accounting problems, although former CEO Franklin Raines comes in for criticism for the company's culture, which gave new meaning to the word "arrogant." The report accuses Howard of not cooperating in the investigation by refusing requests for interviews, and asserts that Spencer failed to disclose relevant documents in her files to the lawyers conducting the investigation and stopped cooperating at that point. While Fannie Mae will continue to be scrutinized closely on Capitol Hill, it is unlikely the firm will face any criminal charges. Whether Howard or Spencer might come under scrutiny from federal prosecutors is another question. (ph)
WHITE COLLAR CRIME CONFERENCE - NATIONAL ASSOCIATION OF CRIMINAL DEFENSE LAWYERS (NACDL)
WHEN: MAY 3-6, 2006
DETAILS: SEE HERE
The Practice of White Collar Criminal Defense "will have seasoned white collar lawyers and professionals share their insight on how to represent white collar defendants in a wide array of cases. This program will appeal to both seasoned white collar veterans who want to broaden his or her expertise as well as serve as a primer for those who are interested in starting a white collar practice. Topics include: Securities Law, Criminal Tax Enforcement, Healthcare Fraud, Mail and Wire Fraud, Sentencing in a Post-Booker World, as well as two panels on dealing with joint defense agreements, parallel proceedings, immunity agreements, and the when, where, why, and how to proffer.
Wednesday, February 22, 2006
Radioshack Inc. CEO David Edmondson resigned from the company after the revelation that he padded his resume by claiming to have received a B.S. degree when in fact he only received a degree requiring three years of study. That bit of resume-padding pales in comparison to what Michael Watson pulled off for nearly twenty years. Watson resigned as a deputy general counsel at New York Life, where he worked since 1996, when it came out that he was never admitted to the bar. Watson is a 1986 graduate of Columbia Law School, and worked as an associate for ten years at Hunton & Williams and Milbank Tweed before joining the life insurance company, where he rose to be one of five deputy GCs until he left the company. According to a New York Law Journal article (here), a spokesman for New York Life stated, "All current New York Life Insurance Company attorneys are properly licensed" -- you'd better believe that barn door was closed and everyone's bar card checked rather quickly.
Under New York law, it appears that Watson may have violated the state's unauthorized practice of law statute, Sec. 30-15-478 "Practicing or appearing as attorney-at-law without being admitted and registered" that provides:
It shall be unlawful for any natural person to practice or appear as an attorney-at-law or as an attorney and counselor-at-law for a person other than himself in a court of record in this state, or to furnish attorneys or counsel or an attorney and counsel to render legal services, or to hold himself out to the public as being entitled to practice law as aforesaid, or in any other manner, or to assume to be an attorney or counselor-at-law, or to assume, use, or advertise the title of lawyer, or attorney and counselor-at-law, or attorney-at-law or counselor-at-law, or attorney, or counselor, or attorney and counselor, or equivalent terms in any language, in such manner as to convey the impression that he is a legal practitioner of law or in any manner to advertise that he either alone or together with any other persons or person has, owns, conducts or maintains a law office or law and collection office, or office of any kind for the practice of law, without having first been duly and regularly licensed and admitted to practice law in the courts of record of this state, and without having taken the constitutional oath.
The law does provide an exception for law students appearing in court under supervision. Whether he will be prosecuted is another matter, but New York Life's legal department almost certainly will be spending the next few weeks reviewing all of Watson's work to determine if there are any matters in which a bar license would be needed for the representation that need to be fixed. The situation does show that, at least among lawyers, a claim of bar membership is unlikely to be verified. Although Watson's practice appears to be in the finance area, where bar membership is not something that would be likely to come up, as opposed to litigation, how do you live with this kind of secret for almost twenty years? (ph)
The SEC settled its securities fraud case related to improper accounting at Xerox with the four remaining defendants, all of whom were partners at the company's outside auditor at the time, KPMG. The four are: Ronald Safran, engagement partner on the Xerox audit for 1998 and 1999; Michael Conway, senior engagement partner for 2000; Anthony Dolanski, engagement partner for 1997; and Thomas Yoho, the SEC concurring review partner for KPMG on the Xerox engagement from 1997-2000. Safran, Conway, and Dolanski agreed to the entry of an injunction, with Safran and Conway paying civil penalties of $150,000 and Dolanski paying a $100,000 penalty. Yoho settled a separate administrative proceeding brought by the Commission and was censured. According to the SEC's Litigation Release (here), the audit fraud allowed Xerox to manipulate its earnings by over a billion dollars during the relevant period:
The SEC alleged in its federal court complaint that, in the course of serving as engagement partners for Xerox, Safran, Conway and Dolanski allowed Xerox to impose topside accounting adjustments that they knew or should have known did not comply with GAAP. The SEC alleged that these partners failed to adequately test, or require Xerox to test, the assumptions Xerox used to justify its topside adjustments, nor did they test, or demand that Xerox test, to determine if the topside adjustments resulted in financial statements that fairly presented Xerox's financial results. The SEC further alleged that, as a result of this conduct and other conduct alleged in the complaint, the engagement partners failed to exercise the professional care and skepticism required under GAAS and instead authorized the issuance of the KPMG audit reports that contained the false and misleading representation that KPMG conducted its audits in accordance with GAAS, and that Xerox's financial statements presented fairly, in all material respects, Xerox's financial position and results of operations in conformity with GAAP. The settled SEC Order against Yoho finds that he engaged in improper professional conduct by failing to exercise appropriate due care and professional skepticism when he conducted an "in depth" review during the 2000 audit.
Georgia businessman Ronnie Thornton, described by the Atlanta Journal-Constitution (here) as the government's star witness in the prosecution of former Atlanta Mayor Bill Campbell, completed his direct testimony. Thornton testified that he provided Campbell with over $125,000 in "campaign contributions" in the names of fictitious contributors in exchange for a $300 million dirt hauling contract related to the construction of a new runway at the airport, but that he was betrayed when the Mayor awarded the contract to another company. The cross-examination immediately focused on the usual soft-spot for some prosecution witnesses: the cooperation agreement that reduced Thornton's sentence to probation and a fine, and the government's decision not to pursue other fraud charges against him. Thornton asserted that charges in an unrelated case were never filed because there was no basis for a criminal charge, but whether that is in fact true may be irrelevant to whether the jury finds him to be a credible witness. The government had initially stated that its case would take five weeks, and this is the fifth week, so the prosecution's case-in-chief may be coming to a close. (ph)
Prominent plaintiff class action attorneys William Lerach and Melvyn Weiss have dodged a bullet with the U.S. Attorney's Office for the Central District of California reportedly deciding not to pursue criminal charges against them related to secret payments to representative plaintiffs in class actions. In 2005, Seymour Lazar was indicted for accepting kickbacks from the Milberg Weiss firm for serving as, or having relatives serve as, the named plaintiffs in various class actions, including securities fraud actions. The firm, now called Milberg Weiss Bershad & Schulman after an acrimonious split between Lerach and Weiss in 2004, may be a target of the government's investigation, along with named partners David Bershad and Steven Schulman. An AP story (here) reports that the two attorneys and the firm could be indicted in the near future, and that recently accountants for the firm testified before the grand jury. While Lerach and Weiss are the two well-known attorneys, it is often the case that the rainmaker is not involved as much in the day-to-day operations of the firm or the cases, so it could be that the other lawyers have a greater involvement in the alleged illegal payments.
Indictments of law firms are fairly uncommon, and it will be interesting to see the effect on the organization. Unlike accounting firms, such as Arthur Andersen that had to go out of business after its conviction (later reversed on appeal) because of problems related to its license, law firms are not licensed, only the lawyers. Theoretically, the firm could continue to operate after a conviction, and it would not directly affect the representation of clients. Whether a law firm could survive the reputational hit from an indictment, much less a conviction, is a different story. Under the current securities class action regime, plaintiff's firms are chosen by the court from among various contenders, and a criminal indictment would have a significant negative effect on its ability to compete in that process. (ph)
The National Association of Criminal Defense Lawyers (NACDL) issued a statement on Corporate Attorney-Client Privilege here The statement urges "[c]ollection of reliable data by DOJ" and "[g]uidelines for waiver at all enforcement agencies/reform of memos."
In asking for reform of the Thompson Memo, the Statement calls for DOJ to provide a "[a] statement on the value of attorney-client privilege," "[c]larification that waiver is not a necessary condition for cooperation, and that any waiver that might eventually be offered or obtained must be accorded no benefit nor burden," and "[s]pecification of conditions under which the government can request waiver." The conditions are items such as "judicially recognized exceptions to the privilege." (footnotes omitted).
(esp) (Author discloses that she is co-chair of committee that drafted this Statement).
International issues arise in more and more cases, so it is not surprising to see issues of this nature in cases coming from Enron matters. According to CNN Money here, three bankers who were alleged to have worked on some matters with Andy Fastow have lost a court appeal in their fight against being extradited to the United States. Their next step will be to go to the House of Lords.
Interestingly, the ability to extradite them quickly comes from the passage of a treaty pertaining to terrorism matters, a treaty that provides an expedited process for extraditions to the United States.This case raises many issues: 1) Will the United States now be attempting to extradite more individuals from outside this country who might allegedly be involved in white collar crime conduct in this country? 2) Will other countries be as forthcoming to allow their citizens to be extradited to the U.S. for trial? 3) What are the ramifications when a country refuses to extradite its citizens to the United States? 4) Will businesses outside the United States be reluctant to do business with this country out of fear that it will subject them to extraterritorial jurisdiction here?
Tuesday, February 21, 2006
The Bill Campbell trial had some compelling testimony, with the Atlanta Jrl Constitution reporting here that "[b]usinessman C.R. 'Ronnie' Thornton, . . . told jurors that he gave Campbell's re-election campaign more than $126,000 illegally in 1997." The problem with the testimony is that despite the payment, he did not receive the city contract. Will the jury think that this sounded like a motive for testifying against Campbell?
Stealing a page from the Leiter's Law School Report blog on the Law Professor Blog Network, co-editor Ellen Podgor will be making the move from Georgia State University to Stetson University permanently when she becomes the Associate Dean of Faculty Development and Distance Education on June 1, 2006. She will also continue her teaching and research in white collar crime and international criminal law. Congratulations! (ph)
You can skip TV and the movies and just go sit in the courtroom trial of former Governor Ryan, as the stars have been parading to the witness stand. According to the Chicago Tribune here, the defense witnesses have included "Hollywood actor Mike Farrell, who played B.J. Hunnicut on TV's 'M.A.S.H'" and Sister Helen Prejean, who authored best-selling movie "Dean Man Walking." The defense has also managed to secure testimony from "U.S. Attorney Edward E. McNally, chief federal prosecutor in the Southern District of Illinois." (See CNN here) But the most important witness for the defense may be Ryan's doorman, a witness who will be able to provide direct knowledge that Ryan is an honest and caring man.
Monday, February 20, 2006
Perhaps one of the saddest cases of last year was that of Rep. Randy (Duke) Cunningham, who plead guilty to conspiracy and tax evasion charges related to approximately $2.4 million in bribes and benefits. (see here) From a position on the Defense Subcommittee of the House Appropriations Committee, to now being a convicted felon facing sentencing, is a huge fall in power and prestige. Despite this extraordinary collateral consequence, according to the Washington Post here the government wants him to do ten (10) years in prison. They claim that he engaged in witness tampering and fabricating evidence.
Individuals with power who face criminal charges often think they can find their way out of the mess by using their power. Unfortunately, in many instances this can aggravate the case against them. Obstruction of justice, false statements, and perjury charges are common when a person is struggling to save themselves from an indictment. It is sad to watch those with significant problems make matters worse because of irrational acts made in last minute efforts to survive the oncoming storm.
Clearly the criminality is wrong. But does this non-violent conduct warrant a sentence of ten (10) years?
Sunday, February 19, 2006
A Wall Street Journal article (here) discusses another case of a small hedge fund operator that appears to be on the brink of collapse, and this time the investors include a group of current and former National Football League players. The players, mostly affiliated at one time with the Denver Broncos, include 8-time Pro Bowl safety Steve Atwater and running back Terrell Davis, the MVP of Super Bowl XXXII. The hedge funds, managed by International Management Associates LLC (IMA), have had their assets frozen by a Georgia state court judge, after a suit by the players alleging theft, fraud, and forgery by the principals of the firm, which reported total investments at one time of $150 million. Problems appeared in December 2005 when the firm refused redemption requests, and Kirk Wright, a founder of IMA, said that redemptions have risen since two principals left the firm recently. Among the other officers of the hedge fund are chief operating officer Nelson Bond and CFO Fitz Harper, Jr., both of whom are anesthesiologists -- it's not clear which jobs they did in their spare time. Wright stated that Bond and Harper have been been "poaching" clients after starting a rival firm, and that the results for IMA's hedge funds have not been audited in the past two years.
The firm's website (here) states that it "is an Atlanta-based private investment advisory firm formed to provide investment management services to mutual funds, hedge funds, pension plans, endowments, foundations and high net worth individuals." That same entry is on almost all the linked pages on IMA's website, although it lists offices in Las Vegas, Los Angeles, and New York in addition to its Atlanta headquarters.
Like the collapse of other, small hedge fund operations, such as Bayou Securities, this case has all the hallmarks of a possible securities fraud through the misstatement of investment returns to hide losses. Investors were supposedly offered a 10% monthly return on their funds, a sure sign of a highly risky venture, or even a fraudulent one. Hedge funds operate in an area with minimal federal regulation and almost no state oversight, so firms can sometimes stay in business without much outside scrutiny until it is too late. While the size of IMA is comparatively small, and the number of victims is unlikely to be great, the harm comes from the fact that hedge funds, unlike brokerage firms, operate without the safety net of any insurance, such as that provided by SIPC, and instead depend on the integrity of those who operate the firms. It would not be a great surprise if the NFL players and others who invested receive back little of their investment. (ph)
The Boston Globe here provides a gripping story of an alleged pyramid scheme occurring in a United States Cambodian community. The net result is that several individuals face criminal charges and significant monies have been lost by people. The close culture may have factored into the scheme's widespread acceptance and failure of law enforcement to intercede until significant damage was alleged to have occurred. This story emphasizes the importance of having diversity in federal law enforcement, and that the diversity be in both white collar and non-white collar investigations.
The Washington Post provides an indepth story of recent computer issues here. The article, titled "The Invasion of Computer Snatchers," looks at whether "botnets" are shaking down companies to purchase protection from computer activities that might hurt their business. The article also examines the far-reaching activities of some botnets and the problems faced by businesses who have had to contend with Phishing and unwanted spam. It is clear in reading this article that law enforcement is far behind the new technology crimes. Once law enforcement does move to arrest and prosecute individuals who may be committing computer crimes, the interesting aspect will be whether 18 U.S.C. sec. 1030, the computer crimes statute, will prove sufficient ti handle new developing technology crimes.