Tuesday, May 1, 2007

NACDL White Collar Conference - Part IV

Stephanie Martz, White Collar Crime Project Director at the National Association of Criminal Defense Lawyers (NACDL), guest blogs a six part series on the recent White Collar Crime Track at the NACDL Cincinnati Conference:

Session 4: Attorneys’ Fees and Asset Forfeiture

The panelists, Steve Weisbrod of Gilbert, Heintz & Randolph in Washington, DC and David Smith of English & Smith in Alexandria, VA, addressed a hypothetical accounting restatement case with parallel proceedings.

What kinds of assets can/should you accept? Smith said "no" to proceeds of fraud crimes. You should be chary of assets from the CEO who has received most of his assets from the business itself (which was financed as a start-up from his own pocket). One circuit (the 7th) has said that you don’t have to do any investigation at all to determine likely source of the proceeds. DOJ guidelines, which have not been updated since 1985, require an "actual knowledge" test. If there are no restraining orders or indictments in place yet, it would be difficult to show that anyone’s assets were subject to forfeiture. Bottom line, though, is that there are many U.S. Attorneys’ offices that have never sought to forfeit a fee – it varies widely and the politics are interesting.

How do you investigate what funds are subject to forfeiture or not? Sometimes clean property can be substituted for dirty property if the dirty property is not available for forfeiture. If clean and dirty money is co-mingled, it helps to know what percentage is each (in a money laundering case, for example) – and it’s a very messy area of the law.

Weisbrod then discussed the right to indemnification. It comes from 3 sources: employment agreements, corporate by-laws, and statutes in all 50 states. Payment in advance, as opposed to indemnification, is quite difficult to get in many circumstances. Even indemnification is mandatory under state law only when you are "wholly successful" or something close to it. Most indemnification statutes provide mandatory indemnification under limited circumstances and optional indemnification under others. Insurance policies are contracts with usually very specific terms and limits.

Both panelists talked about the case of United States v. Wittig, in which the government alleged that the pre-existing indemnification agreement itself was the product of the fraud. Smith said that this case, while extremely disturbing, is still an outlier (and the result was ultimately vacated when the convictions were overturned). However, one should note that in general, forfeiture has bled significantly outside of the original core of drug cases.

Weisbrod noted that in the last 2 years, a quarter of all of the cases ever decided in which companies or insurance companies have argued against an indemnification agreement, have come down. This certainly evidences a trend towards fighting against paying employees in fraud cases. The "ancillary" proceeding in United States v. Stein, the KPMG case, is a prime example of this.

Weisbrod also cautioned that insurance, if it exists, should be your first source of funds, rather than your last, because notice and what you say in that notice is extremely important.

(sm/posted and links by esp)


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