April 14, 2007
Death and Taxes
Each year as the tax return due date gets closer, we find the government filing more tax cases. These prosecutions are most likely timed to offer an increased deterence to those who might be considering not filing, or not paying what is due. But the government also wants to send a message to think twice if considering any tax scheme to defraud the government. So it is not surprising to see indictments this past week such as this one reported in a recent Press Release of the U.S. Attorney's Office in Central California. According to this release, "[a] Southern California woman was charged [ ] in a federal criminal complaint that alleges she stole the identities of hundreds of deceased people and used their personal information to file fraudulent federal tax returns that sought more than $1 million in refunds."
Addendum - Professor Brian Galle (Florida State) points out that the increased prosecutions this time of year may be a function of impending statute of limitations.
Libby Abjures a New Trial Request
An AP story (here) discusses a filing by I. Lewis Libby in which he dropped his request to the district court for a new trial and instead will pursue an appeal of the conviction in the D.C. Circuit. New trial requests are usually coupled with a motion for a judgment of acquittal under Federal Rule of Criminal Procedure 29, but a defendant need not make that request to the trial court and can pursue a reversal of the conviction in the appellate court. I suspect Libby's lawyers determined that their Rule 29 acquittal motion is unlikely to succeed, and a new trial motion (which is made pursuant to Rule 33) was just as unlikely, and so need not be pursued at this time. With sentencing set for June 5, the next issue will be whether U.S. District Judge Reggie Walton permits Libby to remain free on bail pending appeal.
Under 18 U.S.C. Sec. 3143(b)(1), the statutory presumption is that the defendant begins serving the sentence unless there is a determination that the person is not a flight risk and the appeal "raises a substantial question of law or fact" that would result in an acquittal or new trial. The recent pattern in high-profile white collar crime cases has been for defendants to remain free on bail pending appeal, which was the case with Bernie Ebbers of WorldCom and John Rigas of Adelphia Communications. But it is not universal, as former Enron CEO Jeffrey Skilling is in an FCI in Minnesota while his lawyers pursue the appeal in the Fifth Circuit. I suspect Libby will be granted bail during the appeal rather than sent to jail shortly after the sentencing, but there are no guarantees. (ph)
Did the Delete Button Really Get Rid of the E-Mails?
The search for e-mails related to the firing of the eight U.S. Attorneys gets more intriguing by the day with the latest revelation that messages were deleted from the Republican National Committee e-mail accounts of senior White House aides that may have permanently removed them from the server, making them unrecoverable. Among those who appear to have missing e-mails is Karl Rove, for whom there are no e-mails before 2005 available. In describing the reason for the separate accounts, White House spokeswoman Dana Perino explained that they were to avoid the restrictions of the Hatch Act on federal employees engaging in partisan political activities (transcript here). She said that any lost materials were not the result of an intentional violation of the Presidential Records Act, which requires that all official communications be preserved. She said:
Q So working to comply with Hatch Act, it's possible that someone unwittingly violated the Presidential Records Act.
MS. PERINO: I think what I would say to you is that we've seen no basis to conclude that anyone intentionally or improperly used the RNC email system.
Speaking of e-mails, the Department of Justice engaged in its latest document dump on the House Judiciary Committee, this time sending over 3,000 pages of internal communications and documents. As is its usual method, the documents were delivered on a Friday, perhaps to minimize the coverage of the contents. One interesting chart (available here) lists all the U.S. Attorneys during the Bush Administration and their background information, such as prior prosecutorial and political experience. The last column is whether they are a member of the Federalist Society, an item that doesn't appear to be directly relevant to the qualifications to be a U.S. Attorney. Eight are listed in that column as "Yes" to membership, so that does not appear to be a significant criterion for appointment, but it is interesting that it even appears in the chart. The complete set of the latest documents is available on the House Judiciary Committee website (here).
The consideration of political experience and ties is nothing new because these positions are political appointments, and prosecutorial experience is not the sole criteria. The real issue is what the person does after the appointment to ensure that justice is administered fairly, not so much how they got the job (assuming it was not obtained by improper means). Politics is a part of the process at the front end, but should not be once the job is started. A Washington Post story (here) discusses the latest twists to the e-mail search. (ph)
April 13, 2007
"A Very Large Handful" of White House E-Mail Accounts
The latest twist in the ongoing saga of the firing of the eight U.S. Attorneys is the revelation that a number of White House aides had e-mail accounts through the Republican National Committee for "political" work, and some of the traffic through those addresses may have involved discussions of the firings. Perhaps more ominously is the word that e-mails were deleted from the accounts, which is impermissible for any records sent through an official White House account. The House and Senate Judiciary Committees are demanding the e-mails and questioning whether the Administration has been forthcoming in providing all the information related to the firings. Senator Pat Leahy, Senate Judiciary Committee chair, said that "[e]-mails don't get lost . . . These are just e-mails they don't want to bring forward." (see AP story here) The Committee authorized the issuance of subpoenas for the e-mails and to compel testimony from Department of Justice and White House aides, but none have been issued yet.
In discussing the number of aides who had such accounts, White House spokeswoman Dana Perino said at a press briefing (here):
Q On March 27th at this podium, you said that there were only a handful of White House aides who had these political RNC accounts. Now you're saying 22. That doesn't sound like a handful.
MS. PERINO: Well, I didn't know how many there were. And I think that, again, if you look at the number of people that work at the White House, almost 2,000, to have 22 people that -- I mean, that's obviously -- I grant you, it's a very large handful, but it's still a relatively small number. And it's based on the people who have responsibilities, both White House official responsibilities, but that also have responsibilities in their job description to do political activities. And to make sure that they didn't violate the Hatch Act, they had access to this other equipment. [italics added]
Much like Attorney General Alberto Gonzales' statement that when he said he was not involved in the firings he meant he was not deeply involved, the assertion that it is "large handful" is the kind of parsing done by an earlier President that was the subject of so much criticism. While the White House has 2,000 employees, I suspect that includes the support staff, lower-level employees, secretaries, and perhaps even interns. If you consider only the upper-levels of the President's staff, twenty-two may well be a large number, and these are the people most likely involved in the decision to terminate the U.S. Attorneys, especially if there were political issues. The investigation has become an example of death by a thousand cuts as each new wave of e-mails reveals more about the decision-making process that does not reflect well on the participants, in part because many people write e-mails without thinking how they will be understood down the road. Could it be that AG Gonzales' testimony on April 17 will be overshadowed if another round of e-mail traffic emerges? (ph)
The Decline in FBI White Collar Crime Investigations
The Seattle Post-Intelligencer published a set of interesting articles (available here) on the decline in white collar crime investigations by the FBI as a result of the shift of agents to counter-terrorism duty in the wake of the September 11 attacks. According to a study of FBI investigative and case referral statistics, the effect of the manpower shift has been particularly felt in fraud and civil rights cases. The article states:
White-collar crime investigations by the bureau have plummeted in recent years. In 2005, the FBI sent prosecutors 3,500 cases -- a fraction of the more than 10,000 cases assigned to agents in 2000.
Civil rights investigations, which include hate crimes and police abuse, have continued a steady decline since the late 1990s. FBI agents pursued 65 percent fewer cases in 2005 than they did in 2000.
In the Western District of Washington, the number of white collar crime case referrals dropped 90% from 2000 to 2005. Another interesting statistic highlighted in the lead article (here) is that 55% of the Bureau's agents are now assigned to counter-terrorism tasks, and 41% devoted to criminal investigations. While much of the media focus in white collar crime prosecutions is on the trials of CEOs like Jeffrey Skilling, Joseph Nacchio, and Lord Conrad Black, the cases with the greatest impact are those involving embezzlement from smaller businesses and scams that target the elderly and the lower-middle class, the cases that may no longer be investigated by law enforcement. (ph)
Second Circuit Reverses Lawyer's Conviction for Insurance Fraud
The Second Circuit overturned the insurance fraud conviction of personal injury lawyer Solomon Kaplan due to evidentiary error by the district court. Kaplan was convicted on a seven-count indictment for his role in an insurance scam involving faked accidents and victims with exaggerated injuries in which he served as the plaintiff's counsel. In addition to the fraud counts, Kaplan was also convicted of witness tampering and making a false statement to a government agent. The appellate court overturned the conviction (opinion below) because the district judge allowed a cooperating witness to testify about his opinion of Kaplan's knowledge of the insurance fraud scheme, which it found was impermissible lay opinion that usurped the jury's fact-finding role. As with most white collar crime cases, intent is the key issue, so allowing a witness to testify about what he thought was in the defendant's mind is the type of error that often leads to a reversal. The Second Circuit rejected Kaplan's challenge to the investigative counts, however, finding that there was sufficient evidence and no error in the jury instructions. Kaplan received a 27-month sentence, but with the fraud counts overturned, he will be eligible to be resentenced. The government may decide to retry the fraud counts, which appear to be the more serious charges in the case. (ph)
April 12, 2007
Girls Gone Wild Producer Charged with Tax Evasion
Joe Francis, the producer of the ever-popular "Girls Gone Wild" videos and those incessant infomercials that plague the late-night airways, was charged in a two-count indictment with tax evasion for his 2001 and 2002 tax returns. According to the indictment (here) returned in the District of Nevada, Francis had the company that produces the films, an S corporation, deduct allegedly false business expenses, including building a house in Mexico and allegedly bogus insurance payments to a company headquartered in the South Pacific island of Vanuatu. As the sole shareholder of the company, all income was passed through to Francis, so any increase in deductible business expenses decreased his income. The indictment also charges that Francis set up a brokerage account in California with nominee owners and moved funds from a Cayman Islands company through the account without declaring it as income. The indictment of Francis is another in a string of high-profile media personalities pursued for tax evasion, including Richard Hatch, the first Survivor winner currently serving a prison sentence, and movie star Wesley Snipes. An AP story (here) notes that singer Marc Anthony, perhaps best known as the husband of Jennifer Lopez for those who follow such things, agreed to pay $2.5 million in back taxes but will not be prosecuted because he thought his accountant had filed the returns. While tempting, I will pass on any allusions to the video series Francis produced, tempting as that might be. (ph)
Nacchio Prosecution Heads to the Jury
The prosecution of former Qwest CEO Joseph Nacchio heads into its final phase, at least for the guilt portion of the proceedings, as the jury will receive the case and begin its deliberations on the 42 counts of insider trading. The defense put on only three witness, adjuring having Nacchio testify or presenting any evidence of the secret national security contracts that had been touted before trial as a basis for his positive outlook on the company before its stock collapsed. The Race to the Bottom blog (here) , sponsored by the University of Denver Sturm College of Law, has by far the best coverage of the trial, with outstanding summaries and analysis of the closing arguments. The posts are especially good at providing perspective on how the lawyers for each side framed their cases that, in the end, revolve around a determination of what exactly was in Nacchio's mind in 2001 when he sold shares valued at over $100 million.
Like any prosecution, the outcome will cause one side or the other to be second-guessed. If the jury convicts, then the decision not to put Nacchio on the witness stand will be the first strategic decision questioned. Some will also ask whether a guilty verdict is more a judgment on a CEO who made an almost obscene amount of money while ordinary investors lost 98% of their stock value (measured from the peak, of course) and numerous employees lost jobs when Qwest had to make layoffs due to financial problems exacerbated by accounting problems. Nacchio sought a change of venue before trial because he claimed that he was the most vilified man in Denver -- something former Broncos QB Jake Plummer might argue. If the jury returns a not guilty verdict, then the government's strategy of charging a narrow insider trading case without any "smoking gun" evidence of what was in Nacchio's mind will call into question whether the government was motivated by a desire to bring another high-profile CEO prosecution based on shaky evidence for the sake of the headlines. The whole "criminalization of agency costs" discussion will be resurrected -- although that's not dependent on a not guilty verdict -- to question whether the decisions of executives should be the subject of criminal cases. If the jury deadlocks and a mistrial is declared . . . well, maybe it's better not to think about that one right now. An AP story (here) discusses the case as it heads to the jury. (ph)
April 11, 2007
Plea Results in Probation in Export Related Case
It started as a major conspiracy case, but ended with the defendant receiving probation after a plea to a charge of lying to a federal officer under 18 U.S.C. s 1001.
The accused had been the subject of a FISA warrant and the charges in the SDNY were initially violating the International Emergency Economic Powers Act (IEEPA) and in D.Conn. he was charged with acting as an agent of the Chinese government. The Hartford Courant notes that the accused "originally was accused of conspiring with Chinese officials to sell $27 million in telecommunications equipment to the Iraq government from 1999 to 2001." But in the end all that happened was the accused pleading guilty to this single charge and receiving probation. Attorney Ross Garber represented the accused. The prosecuter being quoted in the Hartford Courant is Kevin O'Connor, the U.S. Attorney in Connecticut and AG Alberto Gonzales' new chief of staff.
Armstrong Hit with a Maximum Sentence
Former currency trader Martin Armstrong received the maximum five-year sentence for his plea to one count of conspiracy to commit securities and commodities fraud. Armstrong could not receive a longer sentence because the conspiracy statute at the time of the offense limited the prison term to five years. Armstrong was accused of defrauding a number of clients of his firm, Princeton Economics International, of hundreds of millions of dollars through the sale of so-called "Princeton Notes," promissory notes that the government described as a Ponzi scheme. Many of the clients were Japanese corporations, and along with the five year sentence, U.S. District Judge John Keenan ordered Armstrong to pay $80 million in restitution. A press release from the U.S. Attorney's Office for the Southern District of New York discusses the case (here).
Armstrong has been in jail since 2000 under a civil contempt order for failure to deliver the firm's assets to a receiver appointed in the SEC and CFTC civil cases. His stay in the Manhattan Correctional Center is the longest ever endured by a civil contemnor. Among the missing assets are 100 gold bars and a bust of Julius Caesar -- not the types of things one would bury in the backyard. The civil contempt has been appealed four times to the Second Circuit, and each time that court refused to order Armstrong's release. The most recent decision, Armstrong v. Guccione, 470 F.3d 89 (2d Cir. 2006), the court summarized the issue: "It has been said that a civil contemnor who is incarcerated to compel compliance with a court order holds the key to his prison cell: Where defiance leads to the contemnor's incarceration, compliance is his salvation. In this case, petitioner-appellant Martin A. Armstrong principally argues that the key to his freedom comes at the cost of his Fifth Amendment right against compelled self-incrimination." The court rejected Armstrong's claim that the civil contempt infringed his Fifth Amendment right, although the court did order that the case be reassigned from U.S. District Judge Richard Owen, who had originally jailed him for civil contempt. The Second Circuit stated, "[W]hile we emphasize that we have never found any fault in Judge Owen skillful handling of this case, we believe that on the seventh anniversary of Armstrong's confinement, his case deserves a fresh look by a different pair of eyes."
That different pair of eyes didn't see things all that much differently. Judge Keenan ordered that Armstrong's sentence begin after he completes the civil contempt, for which there is apparently no cap on the amount of time he can be held in jail. The distinction between civil contempt and a criminal sentence is that the former is termed "coercive" but not punitive, while the sentence after a conviction is punishment subject to the Eighth Amendment and other constitutional limitations. To the person inside the jail cell, there's not much difference between the two. Armstrong is likely to appeal the district court's refusal to give him credit for the time served on the civil contempt, but given his track record in the Second Circuit I would not place any bets on him succeeding with that argument. Then again, the gold bars and Julius are still out there somewhere, perhaps awaiting his eventual release. (ph)
Their Oughta Be a Law Against That
New York Attorney General Andrew Cuomo is riding a wave of publicity over conflicts of interest in the student loan arena as more ties between lenders and university financial aid officers come to the surface. An AP article (here) quotes Cuomo stating, "This is like peeling an onion . . . It seems to be getting worse the more we uncover. It's more widespread than we originally thought . . . More schools and more lenders at the top end." The University of Pennsylvania said that it is modifying its student loan program and will reimburse student borrowers approximately $500 that it received from lenders for their applications (press release here). CIT Group, whose subsidiary Student Loan Xpress is at the middle of the controversy, put three executives on leave while it investigates.
These close ties between lenders and financial aid officers raise the question whether any laws were broken, particularly federal laws because many loans come with federal guarantees and subsidies. Based on a quick review of various federal criminal laws, the most likely basis for a prosecution would be under the mail and wire fraud statutes, either for a scheme to defraud of money or property, or more likely an honest services fraud claim. For the financial aid officers, the government would have to show that their employers prohibited the receipt of undisclosed benefits from outside sources and that the recommendation of a lender was influenced by the payments. The payment of referral fees to the institution might make it harder to establish that any benefits to an individual were improper. Section 656, which covers embezzlement and theft from a financial institution, only covers banks and not loan companies or educational institutions. There are no criminal provisions that specifically address student loan programs, at least from the lender and university side.
The Student Loan Sunshine Act (S. 486 and H.R. 890), which was introduced in Cogress in February, would provide that a "lender or guarantor of educational loans shall not offer any gift to an employee or agent of a covered institution," and would require any person working at an educational institution to report the offer of "any gratuity, favor, discount, entertainment, hospitality, loan, or other item having a monetary value of more than $10" from a lender or guarantor of student loans. The penalty for violating the prohibition on gifts would be a $25,000 civil penalty imposed on the school and a ban on the lender from federal educational loan programs. The bills are currently in committee. With the burgeoning scandal, look for someone in Congress to introduce legislation providing a criminal statute to directly address such payments and kickbacks at universities. Maybe it will be called the Higher Education Loan Honesty and Fairness Act. (ph)
Corruption Conviction Overturned at the End of Oral Argument
Television programs occasionally show an appellate court freeing the wrongly-convicted defendant, and we lawyers laugh at the cheap theatrics, knowing that a court of appeals acts quite deliberately and never orders an acquittal during its session. Then again, reality mimics television every once in a while, as shown by the Seventh Circuit when the panel entered an order (here) acquitting Georgia Thompson of corruption charges at the conclusion of oral argument because the government's evidence was insufficient to support the conviction. Thompson had begun serving her sentence, and the order required the government to arrange for her release by the end of the close of business on April 5, the date of the argument (a link to the oral argument is available here). Circuit Judge Diane Wood said that the government's evidence was "very thin."
Thompson was convicted on Sec. 666 and honest services fraud charges for her role in awarding a $750,000 travel contract to a campaign contributor to Governor Jim Doyle. Thompson did not receive any direct pecuniary gain from the award, although the government did introduce evidence that she received a $.50 per hour raise that year. She was a career civil servant, and there was no evidence that she was aware that the recipient of the contract was a campaign contributor; the contribution was legal, and the government focused on Thompson's knowledge of political connections to the Governor. An article in The [Madison]Capital Times (here) notes that Governor Doyle said he would rehire Thompson to her position in the Wisconsin state government. (ph)
April 10, 2007
AG Appoints New Information Person
DOJ issued a news release today stating that Attorney General Gonzales had appointed a new Director of the Office of Information and Privacy (OIP). The release outlines the new person's responsibilities, stating that she will "manage[ ] the Department’s responsibilities related to the Freedom of Information Act (FOIA), which include developing policy guidance and ensuring compliance with the FOIA, responding to initial information requests made to the senior leadership offices, adjudicating all appeals from denials by any Department component under the FOIA, and handling FOIA litigation matters." FOIA is clearly not the same as Congress asking for materials via its recent subpoena (see here). But one has to wonder if the DOJ is gearing up for a fight on turning over the requested documents. A new chief of staff was also appointed at DOJ. (see here)
House Judiciary Committee Subpoenas Gonzales to Produce Documents
The House Judiciary Committee has sent a formal letter and subpoena to Attorney General Alberto Gonzales requesting that he produce at 2 P.M. on April 16th a list of documents. The subpoena and accompanying letter include documents related to the termination of former U.S. Attorneys. It explicitly requests that certain items being requested be "complete and unredacted." It does, however, exclude certain private information and other information, such as "non-public information that pertains solely to an open criminal investigation." The letter accompanying the subpoena notes "[t]he Department is currently withholding significant information concerning U.S. Attorneys who were considered for termination but were ultimately retained, and concerning individuals considered as replacement candidates." The letter also states that "[u]nder these circumstances, you must understand why we cannot accept the Department's unilateral judgment as to how much of this information it needs to disclose, or its unilateral judgment as to whether limited viewing of certain information, on Department premises and under Department supervision, and with no copying or note-taking permitted, is sufficient to permit effective and efficient review."
April 9, 2007
Keep Your Eye on the Inglesias Issue
The DOJ attorney dismissal fiasco just doesn't seem to go away. And the departure of former U.S. Attorney Inglesias is clearly one that merits closer scrutiny. The Washington Post reports that Inglesias has filed a complaint that his "dismissal amounted to discrimination based on his status as an officer in the Navy Reserve." And the Washington Post also discusses Senator Domenici's connection to Inglesias.
In the meantime, the NYTimes is reporting that Senators want more documents. And they should be asking for more. It is not enough to limit this inquiry to emails of those who left posts as US Attorneys. What perhaps is more frightening is whether any who remain in office had to make any concessions or proceed in a certain way to appease political influences.
Tennessee Waltz Trial to Starts
Posted here was a discussion of Tennessee State Senator John Ford, who resigned his position following his indictment. The case is an outgrowth of an undercover operation called the Tennessee Waltz that originates from the United States Attorney's Office for the Western District of Tennessee. (see here). Ford, a Democrat, is now beginning trial on bribery, extortion, and witness tampering charges. (see here).
Former "Olympic Sprinter' Pleads
In April 2006, the New York Times reported that "Olympic sprinter" Tim Montgomery, was indicted for bank fraud and money laundering. Montgomery's name was also mentioned during the BALCO investigation when his grand jury testimony was said to be leaked. (see here) The bank fraud and money laundering case is now resolved, as Sports Illustrated (AP) reports on the guilty plea entered by Montgomery.
(esp)(w/ a Stetson hat tip to Dean Darby Dickerson)
April 8, 2007
Three interesting articles related to the US Attorney happenings -
1. Richard Cohen has a column in the Washington Post titled, "Gonzales the Cipher" that compares the AGs memos written to Bush on death penalty cases, when Bush was Governor, to his present handling of the controversy in his office.
2. Carl Hulse of the NYTimes has a story looking at Senator Peter Dominici's role as it relates to the former United States Attorney David C. Inglesias departure from the U.S. Attorney's office. Was there interference on a potential federal prosecution? Did Inglesias suffer because he would not play politics? As the investigation unfolds, these are questions that are likely to be at the forefront.
3. And as it all heats up for Gonzales, it looks like he is practicing his testimony. According to a Washington Post article by Dan Eggen and Paul Kane, Gonzales is off preparing for what awaits him when he will have answer the comments of those in the legislature.
Tax Charges at the Forefront With April 15th Approaching
Immediately prior to April 15th each year one sees a good number of tax cases being charged or plead. Clearly this can have the effect of deterring those who might be tempted to avoid paying taxes or perhaps not bothering to filing a tax return. For example:
A DOJ Press Release (Central District of California) reports that "the owner and operator of Newport Tux and Uniform in Newport Beach, California, pleaded guilty [ ] to evading the payment of his federal taxes." (see here -Download HannaPR.46.pdf ).
For a list of recent tax charges and convictions see TAXNEWS of the Tax Division of the Department of Justice.
The National Association of Criminal Defense Lawyers has a full day on white collar crime at their upcoming conference in Cincinnati (April 25-28, 2007). Using experts in white collar cases, parallel proceedings, internal investigations, and litigating intent, are some of the topics being discussed. Registration Information is here.
The American Bar Association has an upcoming program on May 16-18, 2007 on Health Care Fraud. This 17th Annual Institute covers topics like civil and criminal enforcement, new developments with civil false claims act matters and Medicaid fraud enforcement. Alice Fisher is billed as the luncheon speaker. The program can be found here and registration information is here.