Sunday, September 30, 2007
The WSJ via an article by Even Perez comments on remarks made by Judge Kaplan at the recent National Association of Criminal Defense Lawyers (NACDL) & Georgetown University's White Collar Crime conference. It is not surprising to see his concern about the government's power in securing agreements with companies.
The KPMG related case stands as a headline to those monitoring fairness in the system that government power in this context needs to be re-evaluated. The bill to curb government requests for waivers of the attorney-client privilege are a step in the right direction (see here).
Saturday, September 29, 2007
The United State Attorney for Massachusetts reports in a press release that "Bristol-Myers Squibb Company (BMS) and its wholly owned subsidiary, Apothecon, Inc., have agreed to pay in excess of $515 million to resolve a broad array of federal and state civil allegations involving their drug marketing and pricing practices." Within the press release one finds the following:
"BMS cooperated in aspects of the Government’s investigation. For example, BMS voluntarily disclosed to the United States Attorney's Office in the District of Massachusetts its practices with respect to the remuneration paid to physicians in 2000-2003, and voluntarily provided to the government numerous documents detailing these practices. With respect to Abilify, prior to the government’s investigation, BMS initiated steps to modify its physician “call lists” to reduce the potential for off-label marketing. In addition, BMS made available to the government Frederick Lacey, a retired federal district court judge who had been serving as BMS' compliance monitor pursuant to a deferred prosecution agreement in the District of New Jersey. Judge Lacey and other senior BMS officials presented extensive evidence of the compliance practices under which BMS currently operates. The government took BMS’s self-disclosure, its cooperation, and its current practices into account in agreeing to this civil resolution."
The Agreement does contain a waiver and cooperation provision, but it does not ask for a waiver of attorney-client privileged material. The agreement states:
33. BMS agrees to cooperate fully and truthfully with the United States' investigation of the Covered Conduct, as that pertains to individuals and entities not released in this Agreement. Upon reasonable notice, BMS shall make reasonable efforts to facilitate access to, and encourage cooperation of it directors, officers, and employees for interviews and testimony, consistent with the rights and privileges of such individuals and shall furnish to the United States, upon reasonable request, all non-privileged documents and records in its possession, custody, or control related to the Covered Conduct.
By the way, this agreement also does not include a chair to law school.
Destroying a computer with evidence of pornography can land you a conviction. A press release of the U.S. Attorney for Connecticut reports of a plea "to one count of misprision of a felony" by an attorney who "admitted that he was aware that an individual had committed a child pornography crime, yet he failed to report it to authorities." The release notes that he "then concealed the crime by destroying a laptop computer containing the child pornography."
The attorney was acting as attorney to a church. According to the press release, the attorney told the individual with the improper items on the computer that "this is serious business,” “this is a federal crime that carries a minimum of five years in jail,” and “you need a lawyer.” The attorney for the church then "destroyed and concealed ... [the] laptop." This attorney then "failed to report to law enforcement that [the person he advised to secure legal counsel], who was not his client, had possessed child pornography."
At least the charge was not a SOX amendment charge (see here)
Every attorney who represents an entity of any type needs to be aware of this case. It is sad to see a criminal conviction being given to an attorney based upon these facts. Would a disciplinary violation have been a better resolution?
Information - Download Information.pdf
Plea Agreement - Download plea_agreement.pdf
A federal grand jury investigating Capitol Hill corruption subpoenaed California Representative John Doolittle and five of his aides for a number of documents created over the past eleven years. The Congressman has been under investigation for over a year, including a search of his Virginia home, related to dealings with former superlobbyist Jack Abramoff, who is serving a six year sentence in federal prison and has been cooperating in the Department of Justice's continuing inquiry into corruption in Congress. Two of Doolittle's aide reportedly testified before the grand jury recently. According to a story in The Hill (here), Representative Doolittle's lawyer asserts that the subpoenas cover "“virtually every record including legislative records," and the Congressman plans to fight them on the ground that the records are protected by the Speech or Debate Clause.
Article I, Section 6 of the Constitution provides that "for any Speech or Debate in either House, [members of Congress] shall not be questioned in any other Place." The two leading Supreme Court cases on the scope of the Speech or Debate Clause are United States v. Brewster, 408 U.S. 501 (1972), and United States v. Helstoski, 442 U.S. 477 (1979). In Brewster, the Court stated, "[A] Member of Congress may be prosecuted under a criminal statute provided that the Government's case does not rely on legislative acts or the motivation for legislative acts. A legislative act has consistently been defined as an act generally done in Congress in relation to the business before it. In sum, the Speech or Debate Clause prohibits inquiry only into those things generally said or done in the House or the Senate in the performance of official duties and into the motivation for those acts." [Italics added] In Helstoski, the Court explained, "Likewise, a promise to introduce a bill is not a legislative act. As to what restrictions the Clause places on the admission of evidence, our concern is not with the ‘specificity’ of the reference. Instead, our concern is whether there is mention of a legislative act. To effectuate the intent of the Clause, the Court has construed it to protect other ‘legislative acts’ such as utterances in committee hearings and reports. But it is clear from the language of the Clause that protection extends only to an act that has already been performed. A promise to deliver a speech, to vote, or to solicit other votes at some future date is not a legislative act." The government will have to walk a fine line in seeking materials that do not come within the definition of "legislative act."
The D.C. Circuit's recent decision related to the search for records in the office of Louisiana Representative William Jefferson will likely be a favorable precedent for Representative Doolittle because the court held that the Executive branch cannot view legislative materials protected by the Speech or Debate Clause. The government is seeking rehearing en banc to clarify the scope of the privilege afforded members of Congress by the Constitution (see earlier post here). The number of investigations of Capitol Hill corruption, and the link to official acts of Congress, likely means this issue will arise with some regularity in the near future. If the D.C. Circuit does not grant review by the full court, look for the Department of Justice to seek Supreme Court review of the issue. (ph)
Friday, September 28, 2007
Five companies that are the dominant suppliers of surgical knee and hip implants agreed to settle a criminal investigation that they paid kickbacks to doctors in the form of consulting fees and lavish travel and entertainment to get them to use their products. The companies are Zimmer, Inc., Depuy Orthopaedics, Inc., Biomet Inc., Smith & Nephew, Inc., and Stryker Orthopedics, Inc., and together they control 95% of the market for the surgical products. The U.S. Attorney's Office for the District of New Jersey announced that the first four companies listed agreed to a deferred prosecution agreement, while the fifth, Stryker, entered into a non-prosecution agreement because it was the first one in the door to report the illegal payments to physicians. According to a press release (here):
The criminal Complaints accuse the four companies of using consulting agreements with orthopedic surgeons as inducements to use a particular company’s artificial hip and knee reconstruction and replacement products. The investigation revealed that this was a common practice by the companies from at least 2002 through 2006. Surgeons who had agreements with the companies were typically paid tens to hundreds of thousands of dollars per year for consulting contracts and were often lavished with trips and other expensive perquisites.
The deferred and non-prosecution agreements each last for 18 months. Four companies also agreed to five-year Corporate Integrity Agreements with the Department of Health and Human Services, and settled civil claims by paying over $300 million for violating the anti-kickback statute. Stryker was not involved in the civil settlements. By receiving a non-prosecution agreement, Stryker gained the benefit of not having a criminal complaint filed against it, and the U.S. Attorney's approach is similar to the Antitrust Division's policy of giving the first reporter of a violation immunity from prosecution.
The deferred prosecution agreements require the companies to pay for corporate monitors to ensure their compliance, a standard feature of such settlements. The monitors appointed pursuant to the four deferred prosecution agreements are former Attorney General John Ashcroft, former U.S. Attorneys Debra Yang (CD Cal.) and David Kelley (SDNY), and former New Jersey Attorney General David Samson. Interestingly, all four are law enforcement colleagues of the New Jersey U.S. Attorney, Christopher Christie, showing again the value of connections in receiving such appointments, which can be quite rewarding to the firm's employing the monitors. The agreements are available on the U.S. Attorney's website (here). (ph)
As discussed in an earlier post (here), Brent Wilkes sent subpoenas to twelve members of the House of Representatives -- one was withdrawn -- for their testimony at his upcoming trial on corruption charges related to bribes paid to former Representative Randy "Duke" Cunningham. The House general counsel moved to quash the subpoenas on a number of grounds, among them that the Speech or Debate Clause grants members of Congress an absolute privilege from testifying, the subpoenas seek their appearance while the House is in session, the subpoenas do not comply with the House rules, and the defendant failed to tender the appropriate witness fees and mileage allowances -- the last one is really in there. The filing also notes that an investigator for defense counsel stated that subpoenas will also be issued to four senators, the White House chief of staff, and the Secretary and Deputy Secretary of Defense, although they have not been served. The filing also contains the attachment for documents sent to two Representatives that seeks, inter alia, "documentation of all political contributions, meals, entertainment or other travel, goods or services offered to you or accepted by you in exchange for the performance of your duty as a member of the legislature or in exchange for any special treatment afforded to you by anyone . . . ." Somehow, I can't see the subpoena generating many documents responsive to this request.
The government filed a motion (see earlier post here) seeking to preclude Wilkes from offering a necessity or duress defense to the corruption charges. These subpoenas to Capitol Hill appear to be designed to put on a defense of a "culture of corruption" in Congress, and that Wilkes simply went along with the status quo and is now being made into a scapegoat. Whether the judge will allow such a defense is questionable, and unless Wilkes can show a plausible reason for subpoenaing so many Congressmen he never dealt with, the subpoenas probably will be quashed. (ph)
With the end of the fiscal year nearly upon us, the SEC seems to be clearing its docket of insider trading cases, announcing three new ones on the second to the last day of FY 2007. Last year, the Commission was criticized for the decrease in enforcement actions, specifically insider trading cases, and it's unlikely that criticism will be leveled again with the increase in the number of such cases filed. Note when the trading involved in the three cases occurred:
- A father and son were accused of trading in the shares of Aspen Technology, Inc., Regeneration Technologies, Inc., and Triangle Pharmaceuticals, Inc. in 2001 and 2002 based on information the son obtained while working for Banc of America Securities and passed on to his father. The father comes with quite a pedigree, having been "a founding member and Director of the Chicago Board of Options Exchange, Director of the American Stock Exchange, a Board member of the Securities Industry Automation Corporation, and a Director of the New York Institute of Finance." The two defendants settled the matter by agreeing to be jointly and severally liable to disgorge profits of $204,476 plus prejudgment interest of $72,511.48. The son will pay a one-time civil penalty, while the father agreed to a double penalty. The SEC Litigation Release is here.
- A former director and member of the audit committee at NBTY, Inc. is accused of tipping a friend about an impending announcement of an earnings shortfall in the third quarter of 2004. Based on the information, the friend "sold his entire position of NBTY stock, sold the stock short, purchased put contracts, and sold call contracts through the custodial accounts of his three children," realizing $400,000 in gains and losses avoided. The SEC complaint is here.
- A tippee of a vice president of LendingTree, Inc., traded and tipped others before the announcement of a buyout of the company in May 2003. The defendant realized profits of $14,078 himself, and his tippees made $74,516. In settling the matter,the defendant agreed to disgorge his profits and pay a $88,594 penalty, equal to the total profits made through his and his tippees trading. The SEC Litigation Release is here.
Just like the auto companies, the SEC needs to clear the lot for next year's models. (ph)
The internal investigation of corrupt payments at Siemens A.G. just can't seem to stop these days. New York law firm Debevoise & Plimpton reportedly has told the company's managing board that the suspicious payments to obtain overseas contracts involve upwards of 1.6 billion euros, far more than the original disclosure of questionable payments of more than 400 million euros. More importantly, the investigation shows the payments were not limited to Siemens' telecommunications unit, but also involve the power generation division and other units of the company. As the extent of its foreign bribery grows, so too does the likelihood that Siemens will face a substantial criminal fine and may have to plead guilty in the U.S. to a Foreign Corrupt Practices Act violation rather than receive a deferred prosecution agreement. An AP story (here) discusses the latest development at Siemens. (ph)
Thursday, September 27, 2007
Former Alaska House of Representatives Speaker Peter Kott, who served seven terms in the legislature, was found guilty of conspiracy, extortion, and bribery for accepting benefits from oil services firm Veco; the jury acquitted him on a wire fraud charge The amount Kott received is fairly small, approximately $9,000, but recordings made in the undercover investigation also showed Kott agreeing to push legislation favorable to Veco that he tried to explain away. Kott also claimed that $7,993 he received from Veco's CEO was an advance on a flooring job.
This is the second conviction in the past year of a former member of the state House of Representatives. Kott was one of a group of legislators supporting the interests of the oil companies who called themselves the "Corrupt Bastards Club" that included a hat with Veco's logo on the front and the initials "CBC" on the back -- not a very helpful picture for a politician accused of corruption. An interesting aspect of the case was the testimony by Veco's former CEO about how the company supplied materials for the remodeling of Senator Ted Stevens' home, which was searched pursuant to a warrant earlier this year. The corruption investigation continues in both Alaska and the District of Columbia, and an Anchorage Daily News story (here) discusses the guilty verdict. (ph)
The SEC filed a settled insider trading case against a consultant for Frederick's of Hollywood for buying stock in Movie Star, Inc., before the announcement of a deal. The two firms are leaders in the intimate apparel market -- I will abjure further comments -- and the merger was announced on December 19, 2006. The defendant participated in the merger negotiations, and according to the SEC Litigation Release (here):
[B]etween September 14 and November 20, 2006, Keeney made over a dozen purchases totaling 157,000 Movie Star shares at an average cost basis of $0.97 per share, on the basis of material, nonpublic information concerning both the possible merger as well as the financial projections for Movie Star he had received in the course of the merger discussions. On December 19, 2006, both Movie Star and Frederick's publicly announced that the two companies had entered into a merger agreement. That same day, the price of Movie Star shares increased to close at $1.46. As a result, the complaint alleges, Keeney had imputed illicit profits of $77,540.50 from his unlawful trading.
The defendant agreed to disgorge profits (plus interest) of $81,210.96 and pay a one-time civil penalty. (ph)
Senators Dan Webb and Claire McCaskill have proposed the creation of a Commission on Wartime Contracting to investigate allegations of fraud and abuse in the award of contracts and the broader issue of the use of private contractors in war zones. The Commission is based on the Truman Commission established during World War II to investigate war contracts, and according to a summary of the bill (here):
The amendment would establish an independent and bipartisan eight-member Commission on Wartime Contracting to study and investigate: (1) federal agency contracting for the reconstruction of Iraq and Afghanistan; (2) federal agency contracting for the logistical support of coalition forces in Operation Iraqi Freedom and Operation Enduring Freedom; and (3) federal agency contracting for the performance of security and intelligence functions in Operation Iraqi Freedom and Operation Enduring Freedom. The bill also will expand the Special Inspector General for Iraq Reconstruction’s (SIGIR’s) area of responsibility beyond Iraq Reconstruction and Relief Funds. In consultation with the Commission, SIGIR will conduct audits of agency contracts to identify potential waste, fraud, abuse, and mismanagement.
The Commission will study and investigate the extent and impact of this growing reliance on civilian contractors to perform wartime functions. Its focus will encompass the policies, procedures, processes, and performance associated with wartime contracting and contracts. It also will assess the extent of waste, fraud, abuse, and mismanagement, and the extent to which those responsible have been held financially and legally accountable. The appropriateness of agencies’ structure, policies, and processes for wartime and contingency contracts also will be assessed. [Italics added]
The bill (here) has 26 co-sponsors, and is being offered as an amendment to the Defense Authorization legislation that is currently before the Senate. The recent revelations of problems with private security companies operating in Iraq is sure to fuel demands for an independent review of contractors and the process by which the contracts are awarded. (ph)
Wednesday, September 26, 2007
Federal prosecutors in San Diego filed a motion to preclude Brent Wilkes, who is accused of paying former Congressman Randy "Duke" Cunningham over $650,000 in bribes, from raising claims of duress and necessity as a defense to the charges. These classic criminal law defenses are unusual in white collar crime cases because the threat is usually one of physical violence or other potential personal harm, not a threat to one's business. Wilkes is charged with bribery and aiding an honest services fraud violation for giving Cunningham cash along with gifts ranging from private jet rides to "payments for prostitutes" in exchange for receiving no-bid defense contracts that Cunningham arranged. The former Congressman is serving a 100-month sentence after pleading guilty to accepting the bribes.
In its brief (available below), the government claims that Wilkes "might seek to argue that he was coerced or extorted into bribing Cunningham to get government business." Making it clear that the prosecutors will be aggressive, the brief notes that Wilkes didn't act as if Cunningham had threatened him, or that he needed to pay the bribes to realize a greater social good, pointing to one evening spent in a hot tub with prostitutes to show that the conduct was voluntary. According to the brief:
The two remained friendly enough throughout this period that they shared numerous vacations, including a vacation in Hawaii in August 2003, during which Wilkes and Cunningham relaxed in a hot tub with prostitutes hired by Wilkes. No reasonable juror could believe that during that long period, despite outward appearances, Wilkes was secretly operating under a imminent threat of serious bodily injury or death, or some other harm sufficient to justify bribery, and could never find a way to inform law enforcement of such threats.
A necessity or duress defense generally requires a defendant to admit to the conduct but seeks to avoid a conviction on the ground that he or she should not be held responsible because of extenuating circumstances. The cases involving the defenses usually involve a single act, or at least acts that occur over a short period of time before the threatened harm dissipates. Whether Wilkes will even raise the defense is an open question, and the government filing makes it clear the case will involve a few salacious moments. (ph)
Tuesday, September 25, 2007
The U.S. Attorney for the Northern District of Illinois issued an indictment against "a commercial real estate developer and property manager who once proposed building the world's tallest building in Chicago." The government's press release alleges that this developer "allegedly used the fraudulently obtained funds for such personal expenses as purchasing antiques, fine wine, and paying tuition at Harvard University, as well as to pay debts he incurred to professional firms in connection with his ill-fated plan in 1999 to build the world's tallest office tower [ ] in Chicago." The government will have the burden to prove the ten counts of fraud, as alleged in the indictment, beyond a reasonable doubt.
ABA Securities Fraud Conference - Date: October 25-26, 2007, The Fairmont Hotel - Washington, DC
Brochure - Download final20brochure20sfr07.pdf
NACDL - 'Defending the White Collar Case: In & Out of Court'
--In partnership with Georgetown CLE
Georgetown University Law Center, Washington, DC
Monday, September 24, 2007
Ginger Thompson and Eric Schmitt's article in the New York Times, titled, Graft in Military Contracts Spread from Base makes one wonder how ten million dollars worth of bribes could have happened, let alone been hidden. One has to wonder if there was an appropriate "effective program" in place to monitor and promote due diligence. Could it possibly be that the government, particularly in the military, is lacking an appropriate compliance program?
New York State's new Commission on Public Integrity went into effect today. This new body comes from the Public Employees Reform Act, and combines the State Ethics Commission and the Temporary State Commission on Lobbying. (see here). Membership on the Commission is as follows:
"The Commission consists of five members appointed by the Governor, one of whom is nominated by the Comptroller and one by the Attorney General. Of the three members appointed directly by the Governor, no more than two members may belong to the same political party and at least two members shall not be public officers or hold public office. No member may hold office in any political party or be a lobbyist. The Governor designates the chair. Members serve five-year terms, and receive no compensation except reimbursement for necessary expenses."
Governor Spitzer made his five appointments (see here). The New York Times City Room raises an interesting connection between one of Attorney General Cuomo's new appointees and a matter that may become of interest to this entity. (see here).
Dan Eggen of the Washington Post reports on a probe of the United States Attorney in Minneapolis. These kind of allegations may make someone think twice about going into public service. After all, a Yale Law School grad could probably make a lot more money in private practice. But maybe it should make everyone think twice. What qualifications are needed for a key position like United States Attorney? And will the appointment process change with a new Attorney General?
Both the New York Times here and the ABAJrl.com here are reporting that prosecutors in the KPMG related case are trying to conflict-out two defense counsel. The prosecutors are claiming that the two defense counsel may have provided legal advice to David Amir Makov, who is now cooperating with the government. Interestingly, the ABAJrl.com states that the lawyers for Makov do not see the problem alleged by the government. If the witness has his own lawyer, and that lawyer doesn't see the issue, why is the government claiming one exists?
The term "secret defense agreement" as used in the article may make what occurred here sound somewhat nefarious. In reality, joint defense agreements are quite common today. Multiple defendants will enter into these agreements for the purpose of exchanging information yet maintaining the attorney-client privilege. They also allow the multiple defendants to cut costs by perhaps hiring one accountant, investigator, or other expert. With the costs placed upon defendants facing white collar charges, this is understandable. These agreements, however, can become a problem when one defendant who is a party to the agreement decides to testify for the government.
Former Atlanta Mayor Bill Campbell was found guilty of three counts of a tax violation (see here). But because he held a law license, the punishment does not end with the sentence. Defendants who hold law licenses also have to contend with disciplinary charges. And in the case of Bill Campbell, the Atlanta Jrl Constitution reports that he is surrendering that license.
Sunday, September 23, 2007
The Department of Justice has requested rehearing en banc of the decision of a panel of the D.C. Circuit that found the government violated the Speech or Debate Clause in its search of Representative William Jefferson's office in the Rayburn House Office Building. That decision, available below, determined that "the compelled disclosure of privileged material to the Executive during execution of the search warrant for Rayburn House Office Building Room 2113 violated the Speech or Debate Clause and that the Congressman is entitled to the return of documents that the court determines to be privileged under the Clause." The Politico (here) quotes from the government's brief seeking rehearing, which argues that "[b]y interpreting the Clause to include an absolute non-disclosure privilege, the panel has not only frustrated the execution of search warrants supported by probable cause, it has invited questions concerning the lawfulness of essential tools in investigating and prosecuting corruption - including electronic surveillance, consensual monitoring, searches of home offices, and voluntary interviews of staffers - that have never been considered problematic."
Representative Jefferson was indicted before the D.C. Circuit's decision, and it is unlikely the evidence seized from his office was of great importance to the prosecution. By challenging the panel's decision, the Department of Justice risks provoking further ire on Capitol Hill, where the search was none too popular. The Solicitor General's office has to approve the decision to seek rehearing en banc, so that office must view this as a case with important implications. If the D.C. Circuit denies review by the full court, there is at least a decent chance the SG will file a petition for certiorari. The principle appears to be important to the Department of Justice, even though the underlying prosecution probably will not be affected to any great degree by the appeal. Any further appeal of the Speech or Debate issue will have to be resolved before the conclusion of the prosecution of Representative Jefferson, but that case does not show any signs of being settled with a plea in the near future, so the appeal is unlikely to be moot. (ph)