Saturday, June 30, 2007

Another Leaving at DOJ

The ever-increasing turnover rate at DOJ just increased even further, with another individual announcing a departure. Assistant Attorney General Rachel Brand announced her departure from DOJ, effective July 9, 2007. A DOJ Press release states:

"As Assistant Attorney General for Legal Policy, Brand managed the development of a variety of civil and criminal policy initiatives, the creation of departmental regulations, and the Department’s role in the confirmation of the President’s judicial nominees. She played an integral role in securing reauthorization of the US  A PATRIOT Act in 2006, and was responsible for preparing Chief Justice John Roberts and Justice Samuel Alito for their confirmation hearings."

(esp)

June 30, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Jury Deliberations Resume on Monday in Conrad Black Trial

The jury deliberations in the Conrad Black trial will resume on Monday. Canada.com reports on a recent request by the jury to view a prosecution summary chart.

(esp)

June 30, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

English Magistrate Rejects Extradition and Castigates the U.S. Prosecutor

An English Magistrate rejected the request of the U.S. government to extradite Stanley Tollman to face bank fraud and tax evasion charges that he defrauded investors of over $100 million (opinion available below).  The ground for denying the request was that the passage of time since the underlying criminal conduct would make it "unjust and oppressive" to extradite the defendant to face the charges.  Among other things, the Magistrate noted that two important witnesses, one Tollman's brother, have died since the case was first indicted, and the underlying transactions took place in the early 1990s so documents may no longer be available.  Interestingly, the Magistrate did not find that Tollman was a fugitive even though he left the U.S. while his lawyers were negotiating his surrender with prosecutors (see New York Times story here).  The court noted that Tollman, a South African citizen, lived openly in Great Britain after the indictment.  Therefore, his argument that the passage of time harmed his defense was not negated by his having been a fugitive.

While the court did not rest its decision specifically on the ground of prosecutorial misconduct, it found that the Assistant U.S. Attorney in the case had been less than honest in his dealings with foreign courts and his conduct "reprehensible."  In one instance, the Magistrate determined that the prosecutor misled a Canadian court related to having Tollman's brother returned to the United States.  The prosecutor was also alleged to have said that he would make Tollman's "life as miserable as possible" and would make his wife, who was also indicted, do a "perp walk" when she returned to New York -- the same Magistrate earlier turned down an extradition request for Mrs. Tollman.  The prosecutor submitted an affidavit denying he made the statements, which the Magistrate found "to be untruthful."  The English court sent a clear message that there was prosecutorial overreaching, a point that will not aid the Department of Justice if it appeals the decision. (ph)

Download us_v_tollman_magistrate_extradition_decision.pdf

June 30, 2007 in Fraud, International, Tax | Permalink | Comments (0) | TrackBack (0)

Internet Gambling Processor Pleads Guilty

The co-founder of NETeller PLC, which acted as a middleman to facilitate Americans placing bets with on-line gambling sites, entered a guilty plea to one count of conspiracy and is cooperating with the government investigation.  The company did not take any bets itself, instead served as the conduit through which the money passed to the gambling concerns located off-shore and handled the proceeds of any pay-offs.  The defendant was arrested in January 2007, along with the company's other founder, as part of a broad federal crackdown on internet gambling that caused the shares of a number of companies, most traded in London, to fall sharply.  Federal law now prohibits virtually all internet gambling.  A Reuters story (here) discusses the guilty plea. (ph)

June 30, 2007 in International, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Four Former ConAgra Execs Settle SEC Accounting Fraud Charges

Four former finance executives at ConAgra Foods, Inc., settled SEC civil enforcement and administrative actions for their roles in a variety of accounting entries that inflated the company's earnings and resulted in misstated financial statements being filed.  The executives served at one time as the CFO, controller, and vice president for taxes, and according to the SEC Litigation Release (here): "These enforcement actions variously address alleged improper accounting practices, inaccurate disclosure and income tax errors occurring between ConAgra's fiscal years 1999 and 2005 that resulted in ConAgra materially misstating its financial performance in its public statements and periodic filings with the Commission."  The defendants will pay a total of $1.7 million in disgorgement, prejudgment interest, and civil penalties. (ph)

June 30, 2007 in Civil Enforcement, Fraud, Securities, Settlement | Permalink | Comments (0) | TrackBack (0)

Friday, June 29, 2007

Scrushy and Siegelman Go Directly to Jail

It took a few days of hearings before Chief U.S. District Judge Mark Fuller finally sentenced former HealthSouth CEO Richard Scrushy and former Alabama Governor Don Siegelman to prison for their convictions on conspiracy and corruption charges.  Although the government sought sentences of twenty-five and thirty years for the two, Scrushy received a sentence of nearly seven years (82 months), and Siegelman was sentenced to a bit more than seven years in prison (88 months).  Both men testified at the sentencing hearing, requesting mercy from the court. 

While the sentences were lower than the prosecutor's recommendation, Judge Fuller ordered the defendants taken into custody immediately to begin serving their terms, denying requests for bail pending appeal.  In white collar crime cases, it is much more common for a defendant to be given a reporting date -- usually a few weeks out -- so that the Bureau of Prisons is ready to process the person to the facility where the sentence will be served.  By having them placed in custody immediately, Scrushy and Siegelman will likely be held in a facility temporarily until assigned to a prison, a process that can take weeks -- or, as Jamie Olis learned the hard way, even months.  Defense counsel for each is likely to file a petition for bail pending appeal with the Eleventh Circuit, but even that process, while expedited, can take weeks and the prospects for success are cloudy at best.

Scrushy and Siegelman have vowed to appeal, and given how hard-fought the case has been, there's a decent chance prosecutors will appeal the sentence, arguing that the court miscalculated the gain from the bribery that should result in a higher calculation under the Federal Sentencing Guidelines.  A WTVYNews4.com story (here) discusses the sentencing. (ph)

June 29, 2007 in Corruption, Sentencing | Permalink | Comments (2) | TrackBack (0)

Are Prosecutors Getting Ready to Go After Weiss and Lerach?

The Los Angeles Daily Journal is reporting that prosecutors offered a plea deal to leading class action attorneys Melvyn Weiss and William Lerach related to allegedly illegal kickbacks paid to representative plaintiffs.  The report also indicates that former Milberg Weiss name partner David Bershad is cooperating in the investigation of his former firm, which was indicted along with him and another firm partner in 2006.  The investigation of the firm has been tortuous, to say the least, having lasted now since about 2000.  At one point, Weiss and Lerach were identified as targets, but then in February 2006 the U.S. Attorney's Office in Los Angeles apparently notified them they were no longer targets (see earlier post here).  Now they may be back on the list, and indeed much more than mere targets but the principle focus of the case.  If Bershad does plead guilty, there is little the firm can do to fight the charges, and it may be in the interest of the remaining partners to end the prosecution with some type of settlement agreement. 

One hang-up with the reported plea offer is that it would have required Weiss and Lerach to serve a term in prison, which neither is amenable to at this point.  When prosecutors make plea offers this far into an investigation after securing the cooperation of another defendant, it may well be a sign that the government will move against the two lawyers in the near future.  A Reuters story (here) discusses the Daily Journal report (which is available only by subscription).  (ph)

June 29, 2007 in Fraud, Legal Ethics, Prosecutions | Permalink | Comments (0) | TrackBack (0)

The Bumpy Road at the Reyes Trial

The first options backdating criminal prosecution to go to trial seems to be quite a bumpy road out in Baghdad-by-the-Bay -- San Francisco.  Gregory Reyes, the former CEO of Brocade Communications, is accused of securities fraud for his role as a committee-of-one who decided on options awards to employees, including new hires, that involved backdating of a number of the grants.  There was a bit of a stir at the start of the trial when one of the first witnesses, a human resources employee at the company, testified that at one time Reyes said, "It's not illegal if you don't get caught" (see earlier post here).  While U.S. District Judge Charles Breyer allowed the testimony to come in, according to Justin Scheck on the CAL LAW blog Legal Pad (here), the witness showed a distinct lack of memory and some rather nettlesome behavior in responding to questioning.  In describing her testimony, Justin opines that she "is an incredibly bad witness."  Her lack of memory in other areas may well negate the harm to Reyes from recounting his pithy comment on what constitutes illegal conduct.

While that may not be all that helpful to the government, Reyes' defense counsel, Richard Marmaro, has apparently fallen well out of Judge Breyer's favor.  The defense has objected to what it views as the Judge's bias in conducting the trial and reacting to witnesses.  As recounted on the estimable Wall Street Journal Law Blog (here), Judge Breyer rejected what was by his count the "third or fourth" mistrial motion, all coming in the first five days of trial.  Among other things, the Judge told Marmaro, "If you want to turn this into a popularity contest, so be it. I can’t try the case to please friends, associates and summer associates at Skadden.”  Of course, those associates are making more than most federal judges and many of us lowly law faculty, although I think we have much better jobs.  These aren't the types of fireworks one would expect in a trial about the former CEO's knowledge of the proper tax and accounting treatment of options and the recording of employee compensation.  (ph)

June 29, 2007 in Fraud, Prosecutions, Securities | Permalink | Comments (0) | TrackBack (0)

Executive Fired for Trying to Destroy Documents During an Internal Investigation

With investigations of corporations for criminal conduct a common feature of the landscape these days, any news about an attempt to destroy corporate records is sure to get the attention of prosecutors.  That conduct is particularly problematic when the it is the company's chief accounting officer. Homebuilder Beazer Homes USA, Inc. is being investigated by the FBI and HUD over its mortgage lending practices, and has commenced an internal investigation.  The company disclosed that it recently learned its chief accounting officer tried to destroy documents, and it responded swiftly by terminating him for cause.  In an 8-K (here), Beazer stated that he

has been terminated for cause, under the terms of his employment agreement, due to violations of the Company’s ethics policy stemming from attempts to destroy documents in violation of the Company’s document retention policy. The action was taken by the Board of Directors and management following a briefing by the independent legal counsel retained by the Audit Committee of the Board of Directors. As previously disclosed, the Audit Committee, with the assistance of independent legal counsel, is conducting an internal investigation of the Company’s mortgage origination business and related matters and recently became aware of [the chief accounting officer]’s actions during that investigation. As a result, [his] employment agreement dated as of September 1, 2004 as amended effective as of February 3, 2006, has been terminated.

Prosecutors will be especially eager to learn the details of the document destruction to see if it constitutes obstruction of justice.  The Sarbanes-Oxley Act included provisions expanding the scope of the obstruction of justice statutes, making it easier to prove such cases.  Given the person's expertise in accounting, it's unlikely that an ignorance defense would get much traction. (ph)

June 29, 2007 in Investigations | Permalink | Comments (0) | TrackBack (0)

Thursday, June 28, 2007

White House Asserts Executive Privilege to Prevent Testimony of President's Aides

Not surprisingly, the White House asserted Executive Privilege in response to subpoenas from the Senate Judiciary Committee seeking documents and the testimony of former senior Presidential aides Harriet Miers, who was Counsel to the President, and Sara Taylor, former political director (see earlier post here).  The subpoenas were sent as part of the investigation of the firing of nine U.S. Attorneys in 2006.  The Committee's next option is to decide whether to seek a contempt order from the court under 2 U.S.C. Sec. 192, which provides:

Every person who having been summoned as a witness by the authority of either House of Congress to give testimony or to produce papers upon any matter under inquiry before either House, or any joint committee established by a joint or concurrent resolution of the two Houses of Congress, or any committee of either House of Congress, willfully makes default, or who, having appeared, refuses to answer any question pertinent to the question under inquiry, shall be deemed guilty of a misdemeanor, punishable by a fine of not more than $1,000 nor less than $100 and imprisonment in a common jail for not less than one month nor more than twelve months.

While we won't see Miers or Taylor going to jail any time soon -- note that the violation includes a mandatory minimum term in a "common jail" -- it is not clear whether the Senate could pursue enforcement of its subpoena in a civil proceeding.  Any judicial resolution of the matter could come after President Bush has left office.  The President's position was expected, and is one likely to be repeated in response to the most recent set of subpoenas from the Committee seeking documents on the government's domestic surveillance program (see post below).  An AP story (here) discusses the White House response to the subpoenas. (ph)

June 28, 2007 in Investigations | Permalink | Comments (1) | TrackBack (0)

Another Set of Subpoenas to the White House

The Senate Judiciary Committee sent subpoenas to the White House, the Office of the Vice President, the National Security Counsel, and the Department of Justice for documents related to the government's domestic surveillance program launched after the September 11 attacks.  These latest subpoenas arise out of the investigation of the firing of nine U.S. Attorneys in 2006, and relate to the testimony of former Deputy Attorney General James Comey about a 2004 meeting in the intensive care unit with then-Attorney General John Ashcroft about whether the Department of Justice would continue to authorize the surveillance program.  Comey's testimony concerned pressure placed on Ashcroft, recently out of surgery and still quite ill, to authorize the program over Comey's objection, which he did not do.  Attorney General Alberto Gonzales, who participated in the meeting at the hospital in his role then as Counsel to the President, has testified generally that there were no substantive objections to the program, which may not be entirely accurate.  The White House subpoena (here along with links to the other three subpoenas) includes a demand for the following: " All documents from September 11, 2001 to the present . . . that was the subject of discussion during the March 2004 hospital visit to former Attorney General John Ashcroft and other events that former Deputy Attorney General James Corney described in his May 15,2007 testimony before the Senate Judiciary Committee . . . ." 

The subpoenas to Administration offices require production of a broad range of documents related to the surveillance program, and is sure to draw a claim of Executive Privilege from the White House.  Whether any relevant documents are available from the Department of Justice is an open question, and a claim of attorney-client privilege could be asserted, too.  Like the earlier subpoena to the White House for documents related to the U.S. Attorney firings (see earlier post here), this one won't be resolved any time soon. (ph)

June 28, 2007 in Investigations | Permalink | Comments (0) | TrackBack (0)

Three Former Executives Plead to Insider Trading in Their Company

The U.S. Attorney's Office for the Central District of California announced that three former vice presidents at mortgage lender Countrywide Financial agreed to plead guilty to one count of securities fraud for trading on inside information about the prospect of the company not meeting earnings projections.  According to a press release (here), the defendants sold their shares in the company, and also sold put options and shorted the stock to take advantage of the bad news that caused Countrywide's shares to fall over 11% after its disclosure.  "As a result of the scheme, Cao realized profits of approximately $47,668. Zhu's total illegal profits from the tips he received from Cao was $35,547. And, Shi realized illegal profits totaling $19,995."  The profits were relatively small and usually would not seem to merit a criminal prosecution -- and two of the defendants settled an SEC case in 2006 (Litigation Release here) by disgorged their profits along with paying a civil penalty.  But the fact that the defendants were aggressive in their trading by using put options and short sales, and their positions at the company, likely triggered the interest of federal prosecutors.  The focus on insider trading is certainly growing on both the civil and criminal side these days. (ph)

June 28, 2007 in Insider Trading, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Former Adelphia Execs to Report to Prison

The long prosecution of former Adelphia Communications executives John and Timothy Rigas appears to be coming to an end as the federal judge presiding over their case has given them an August 13 reporting date to begin their prison terms.  John was CEO of Adelphia, and his son Timothy was CFO.  They were convicted in 2004 on a number of fraud and conspiracy charges related to the accounting at the company, which the Rigas family controlled even though it was publicly traded.  The sentencing did not take place until 2005, and the Second Circuit largely rejected their appeal in May 2007, upholding all the counts of conviction except one.  John  received a fifteen-year prison term and Timothy received twenty years, among the most severe sentences in corporate fraud cases.  The two have remained free on bail pending appeal, but with the convictions affirmed and little prospect of a successful appeal to the Supreme Court -- none of the issues appear to be particularly noteworthy -- the judge determined that the time had come to report to the Bureau of Prisons and begin the sentences.  John is now 82-years old and has been ill, so it is unlikely he will serve a significant portion of the sentence.  With the case nearly concluded, it brings to a close the prosecution from one of the spectacular corporate bankruptcies in 2001-2002 that garnered so much attention. An AP story (here) discusses the judge's order. (ph)

June 28, 2007 in Fraud, Prosecutions, Sentencing | Permalink | Comments (1) | TrackBack (0)

Wednesday, June 27, 2007

And Away We Go

After a week of closing arguments, U.S. District Judge Amy St. Eve will give the jury their instructions and then send them off to consider the fate of Lord Conrad Black and three other former executives of Hollinger International Inc. on a variety of charges.  The instructions (available below) outline the elements of the various charges and possible defenses, including most importantly the issue of intent.  The court will give the following instruction on the knowledge element of the fraud offenses, which is a key to the case because it contains the deliberate ignorance or "ostrich instruction" [in italics]:

When the word “knowingly” or the phrase “the Defendant knew” is used in these instructions, it means that the Defendant realized what he was doing and was aware of the nature of his conduct, and did not act through ignorance, mistake or accident. Knowledge may be proved by the Defendant’s conduct, and by all the facts and circumstances surrounding the case. 

You may infer knowledge from a combination of suspicion and deliberate indifference to the truth. If you find that a Defendant had a strong suspicion that criminal conduct was occurring, yet intentionally shut his eyes for fear of what he would learn, you may conclude that he acted knowingly, as I have used that word. You may not conclude that a defendant had knowledge if he was merely negligent in not discovering the truth.

The italicized portion is sure to generate a ground for appeal if any of the defendants are found guilty on one or more of the fraud counts.

How long will the jury be out?  This case involves a number of disparate charges, and one particularly complex count: RICO.  The fraud counts cover both the non-compete payments, along with the related SEC disclosures, and the "perks" counts against Lord Black.  Those charges form the basis for the RICO charge, which requires the jury to determine whether there is a pattern of racketeering activity and the operation or control of an enterprise, which will require additional considerations beyond just the underlying fraud allegations.  There are also tax counts and, for Lord Black, an obstruction of justice charge.  Add in the fact that there are four defendants with different levels of involvement in the underlying decisions, and that's a recipe for a fairly long deliberation.  When you consider that the Fourth of July holiday will come just a week after the jury retires, it would not surprise me to see them remain out over two weeks, with the possibly of very long deliberations.  This is a lot like watching paint dry, or perhaps a cricket match -- very little action, and no way to predict when there will be a resolution. (ph)

Download us_v_black_final_jury_instructions_june_25_2007.pdf

June 27, 2007 in Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Sentencing Hearing Begins for Scrushy and Siegelman

The sentencing hearing for former HealthSouth CEO Richard Scrushy and former Alabama Governor Don Siegelman for their conviction on corruption charges began in U.S. District Court in Montgomery, Alabama.  The government urged sentences of twenty-five years for Scrushy and thirty years for Siegelman, in both cases asking the district court to depart upward from the Federal Sentencing Guidelines.  For each defendant, the government argued for a higher Guidelines calculation than that offered in the presentence report, which had put the sentence for each at about seven to nine years.  Among other things, the government argued for a higher calculation of the gain from the bribery, an obstruction of justice enhancement for each, and special upward departures for pervasive government corruption.  Importantly, the argument in favor of the higher sentences is based in part on the judge including conduct for which the defendants were acquitted at trial, a position that has become quite controversial since the Supreme Court's decisions in Blakely and Booker on the Sixth Amendment's role in factual determinations.  A copy of the governments sentencing memorandum for each defendant is below.

According to a story on NBC13.com (here), Chief U.S. District Judge Mark Fuller rejected the government's argument that the Guidelines calculation include the imputed benefits to HealthSouth from the bribe, which likely will lead to a less-severe sentence.  That said, if Judge Fuller follows the recommendation in the PSR, each defendant will be spending significant time in jail, probably similar to the sentences received in recent corruption cases involving Jack Abramoff (six years) and Randy "Duke" Cunningham (eight+ years).  The sentencing hearing is likely to last three or four days, which is longer than many trials.  Once the court renders the sentence, then the case will move to the Eleventh Circuit, where Scrushy and Siegelman will pursue a variety of arguments to have their convictions overturned in an already contentious and convoluted case. (ph)

Download us_v_siegelman_government_sentencing_memorandum_scrushy_may_25_2007.pdf

Download us_v_siegelman_government_sentencing_memorandum_siegelman_may_25_2007.pdf

June 27, 2007 in Corruption, Sentencing | Permalink | Comments (0) | TrackBack (0)

Former Interior Deptartment Official Sentenced to Ten Months

Former Deputy Secretary of the Interior J. Steven Griles received a ten-month prison sentence after pleading guilty to obstructing a Senate committee investigation of former superlobbyist Jack Abramoff's activities.  Griles had requested a sentence of house arrest and community service, while the government recommended a double-nickel sentence: a ten-month term, divided into five months in prison and five months in a half-way house or home confinement.  But the judge sentenced Griles to the full ten months, expressing some displeasure at evasiveness by Griles and his attorneys about his conduct, according to an AP story (here).  Under federal Bureau of Prisons regulations, he will not receive the 15% good time reduction because the sentence is less than a year.  According to a Department of Justice press release (here) describing Griles' criminal conduct:

Griles admitted that he knowingly and willfully made material false and misleading statements when he testified before the Senate Committee on Indian Affairs on Nov. 2, 2005. Specifically, he testified that “Mr. Abramoff is no different than any other lobbyist” and that, “there was no special relationship for Mr. Abramoff in my office. It never did exist.” Griles admitted that his false and misleading statements had the effect of influencing the committee’s findings. The committee concluded in a report that “given the paucity of evidence in the committee’s possession, the committee is unable to arrive at any definitive conclusions as to the veracity of Griles’ testimony on his relationship, and interaction, with Abramoff during all times relevant.”

The Abramoff investigation has resulted in twelve convictions, including one Congressman and a number of Capitol Hill staffers.  Griles is the highest-ranking member of the Executive Branch caught up in the investigation to this point. (ph)

June 27, 2007 in Corruption, Sentencing | Permalink | Comments (0) | TrackBack (0)

Corporate Criminality -- Beyond the United States

The International Society for the Reform of Criminal Law had a Plenary Session at its annual conference titled - The Corporation and the Criminal Law. Speakers included: Victoria O'Keefe, Assistant Director & Head of Policy - Serious Fraud Office in London, who spoke about Charging Decisions & the Company - The UK Serious Fraud Office Perspective; Mark Tuohey, of the law firm of Vinson Elkins in Washington, D.C., who spoke about The Corporation & The Criminal Law: Developments in the Law of Corporate Waiver of the Attorney-Client Privilege; Gerard Forlin, Barrister at 2-3 Gray's Inn Square, London who spoke about The New Corporate Killings Proposal & The General Climate: Where Are We Now and Where Are We Going; Miriam Maisonville, Crown Counsel, Attorney General of British Columbia - Special Prosecutions, who spoke about Rethinking Theories of Corporate Liability in Criminal Law: Pushing the Legislative Envelope & Corporate Push Back - A Comparison of American, Canadian, & English Developments; and Annemicke Holthuis, Counsel, Criminal Law Policy Section of Canada, who spoke about Criminal Liability of Organizations in Canada.  It was interesting to note the number of people who spoke to issues of extraterritoriality and the need for more cooperation between countries.

Others from the United States speaking at this conference included Ron Gainer, Professors Arnold Loewy (Texas Tech), Sara Sun Beale (Duke), and Linda Malone (William & Mary).

(esp)

June 27, 2007 in News | Permalink | Comments (0) | TrackBack (0)

Monday, June 25, 2007

Corporate Executive Faces FCPA Charges

A press release of the U.S. Attorney's Office of the Central District of California tells of "a former executive of Santa Ana, California - based Pacific Consolidated Industries" being "arrested for allegedly violating the Foreign Corrupt Practices Act (FCPA) as part of a conspiracy to bribe a United Kingdom Ministry of Defence official in order to obtain lucrative contracts with the U.K. Royal Air Force."  The allegations are that this executive "conspired to make over $300,000 in bribe payments for the benefit of the U.K. Ministry of Defence official in order to obtain equipment contracts for Pacific Consolidated Industries valued at over $11 million dollars."  In addition to the FCPA charges, the indictment included both "money laundering and tax offenses." The Foreign Corrupt Practices Act allows for the use of the general conspiracy statute (18 U.S.C. s 371) against the U.S. actor, as all individuals do not have to be charged for a conspiracy to exist.  But the case of United States v. Castle, 925 F.2d 831 (5th Cir. 1991) rejected charges being brought against the foreign officials who might have accepted the bribes.

(esp)

June 25, 2007 in FCPA | Permalink | Comments (0) | TrackBack (0)

Is DOJ Dropping the Ball on Corruption Prosecutions?

DOJ has clearly been a place making the news with individuals in top positions leaving office. (see here) But normally a change of personnel would not affect the level or quality of prosecutions, as so many in the office are career individuals.  One has to wonder if this is the case this time, as new statistics on public corruption prosecutions show a marked drop from the prior month for the month of February. According to the TRAC reporting system the number of February 2007 prosecutions was down 21.3% from the prior month.  And from the prior year we're taking a 12.1% decrease.  Although the convictions for this month was down only 4.8%, this number will have to increase if the number of people being charged with these crimes decreases.  It is hard to believe that people are being less corrupt, especially in government positions.  Yet, with the statistics showing this decrease, one can only assume that either people are being less corrupt, or the DOJ is no longer prosecuting this conduct at the same level.

(esp)(w/ disclosure that she received her B.S. from Syracuse U. - the home of the TRAC reporting system)

June 25, 2007 in Corruption, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (1)

The Problem of Remedy in the KPMG Tax Shelter Prosecution

The government's brief (available below) in opposition to the motion to dismiss filed by the former KPMG partners and employees in the large tax shelter prosecution is not so much an opposition as it is an acknowledgment of the reality of crafting a remedy for the constitutional violations found by U.S. District Court Judge Lewis Kaplan.  While it may come as a surprise that the government supports the defendant's argument in favor of dismissal, the brief acknowledges the reality of Judge Kaplan's finding that the denial of attorney's fees by KPMG in response to government pressure constituted a violation of the defendants' Sixth Amendment rights.  In his opinion (available here), Judge Kaplan found that the Sixth Amendment violation was "structural," which means that the prejudice to the defendants cannot be remedied short of dismissal.

The government still contests Judge Kaplan's analysis, but concedes that if it is correct, then the only alternative authorized by the Supreme Court for such a violation would be dismissal if KPMG cannot be compelled to pay the attorney's fees.  The Court's recent decision in U.S. v. Gonzalez-Lopez, 126 S.Ct. 2557 (2006), requires automatic reversal of a conviction for denial of the right to counsel of choice, a type of "structural" error, and the district court found that the Sixth Amendment violation for the KPMG defendants rested on the same constitutional protection.  Prosecutors did not accept the Judge's invitation to offer other remedies because they could not find any that would redress the violation.  Any remedy short of dismissal would not correct the "structural" violation of the defendants' rights found by Judge Kaplan, and therefore a conviction would have to be reversed.  The brief states:

Given the logic and express holdings of the Court’s decision in Stein I, and given (i) the ruling by the Court of Appeals on the ancillary jurisdiction question and (ii) the fact that KPMG steadfastly declines to pay the defendants’ fees, it is difficult to understand how anything short of dismissal of the Indictment would suffice. The Court has held that the defendants’ Fifth and Sixth Amendment rights have been infringed and that those violations have led to “structural error,” and the remedy that the Court hoped would restore the defendants “to the position they would have occupied but for the government’s constitutional violation” has not come to pass. If the Court’s analysis and holdings in Stein I are correct — and we respectfully submit that they are not — on appeal “a per se rule of reversal [would apply] following any trial and conviction, when a structural error is present at trial, even if the record contains overwhelming evidence of guilt.” United States, 106 F.3d 450, 454 (2d Cir. 1997).

While it is clear that the government wants to appeal the case to the Second Circuit -- it appears to be champing at the bit to do so -- its brief does not misconstrue the cases or seek to mislead the court in order to obtain appellate review.  The brief disputes the defense argument that dismissal is appropriate for "outrageous government conduct," and instead limits the argument in favor of dismissal to the Sixth Amendment violation.  Moreover, it only recommend dismissal for twelve of the eighteen defendants, noting that the other six do not have a valid claim against KPMG for attorney's fees so there would not be a violation of their right to counsel triggering dismissal.  The logic of Judge Kaplan's decision on the constitutional issues does not leave much room for any other remedy once the Second Circuit rejected his proposed claim procedure against KPMG (see earlier post here).  If granted by Judge Kaplan and upheld by the Second Circuit, the dismissal would impose a significant cost on the government for its transgressions in pursuing the case. (ph)

Download us_v_stein_government_opposition_june_22_2007.pdf

                                                            

UPDATE:  A couple readers sent e-mails asking how the government can appeal a decision to dismiss that it appears to be agreeing to.  The government's brief makes clear that, in its view, the only permissible remedy for the Sixth Amendment violation is dismissal of the indictment by the court, but the government is not conceding that the basis for that remedy is correct.  Under 18 U.S.C. Sec. 3731: "In a criminal case an appeal by the United States shall lie to a court of appeals from a decision, judgment, or order of a district court dismissing an indictment or information or granting a new trial after verdict or judgment, as to any one or more counts, or any part thereof, except that no appeal shall lie where the double jeopardy clause of the United States Constitution prohibits further prosecution."  If Judge Kaplan orders the indictments dismissed, it will not be with the government's acquiescence except to the extent prosecutors acknowledge it is the only -- or perhaps best -- remedy.  This is not a case of a voluntary dismissal under Rule 48(a), and the government remains opposed to the remedy even though dismissal would allow it to appeal, which it probably wants very much to do.  This is one of those funny little procedural technicalities, because if Judge Kaplan refuses to dismiss the indictment, the defendants cannot appeal that decision under the collateral order doctrine.  (ph)

June 25, 2007 in Prosecutions, Tax | Permalink | Comments (0) | TrackBack (0)