Saturday, April 21, 2007
Michele Berry at Crimprof - has a fascinating post on a recent en banc decision from the Ninth Circuit. The Heredia case is not a white collar case, but this decision will likely influence the white collar world. With Ken Starr as one of the authors of the National Association of Criminal Defense Lawyers (NACDL) amici briefs, this case was certainly not a lightweight in the legal field.
The government in a drug case sought to have the jury instructed on willful blindness. This court was thus left to decide the fate of the long established precedent of the Jewell case. Jewell, a case from 1976, is well recognized with many referring to the willful blindness instruction as the "Jewell Instruction." And although the en banc court does not overturn the Jewell decision, it does reverse a panel opinion. The court in Heredia states, "while the particular form of the instruction can vary, it must, at a minimum, contain the two prongs of suspicion and deliberate avoidance." A concurrence focuses on "motive," and a 4-person dissent demonstrates the tenuous nature of this decision. One walks away from this case realizing that the standard for giving a "willful blindness" instruction can be extremely low.
Willful blindness comes up in cases beyond drug offenses and it will be interesting to see if this becomes a prominent issue in white collar cases.
(esp) (w/ a hat tip to Stephanie Martz)
FBI agents searched the Virginia home of California Congressman John Doolittle as part of the continuing probe of the Capitol Hill connections of former superlobbyist Jack Abramoff. Representative Doolittle's wife, Julie, runs Sierra Dominion Financial Services, which was paid over $60,000 by Abramoff's firm from 2002 to 2004 for event planning, and other Abramoff clients made substantial contributions to Representative Doolittle's campaigns. Interestingly, the company was subpoenaed for its records earlier, so the search was likely triggered by additional information about records that were not furnished and, perhaps, a fear that they would disappear. Abramoff has been cooperating with the government's continuing corruption investigation that has already netted guilty pleas from one Congressman and a number of House aides. Representative Doolittle stepped down from his position on the House Appropriations Committee, and has vowed to fight any federal charges if they are brought. Doolittle has been in Congress since 1991, although he won reelection in 2006 by only 49%-45%. A News10 (Sacramento) story (here) discusses the search, although Representative Doolittle's blog (here) makes no mention of it or the investigation. (ph)
Investment banker Richard Josephberg was convicted of 21 counts of tax evasion, conspiracy, and health care fraud for his failure to pay taxes owed since 1977. In the mid-1980s, the IRS determined that Josephberg owed over $1.5 million in taxes from the illegal tax shelter scheme his firm sold, and over the next fifteen years he took various measures to avoid paying the taxes, including putting assets into accounts in the names of his children, one of whom was an infant at the time. The jury also convicted Josephberg of failing to file his taxes for a three-year period and conspiracy. Interestingly, one tax evasion count alleged that Josephberg paid his housekeeper/nanny in cash to avoid filing the required tax reports and paying FICA and social security taxes for her. This is one of the few times the failure to pay the "nanny tax" -- made famous in 1993 when a nominee for Attorney General was tripped up on the same issue -- has been the basis for a criminal charge. The last count, which seems to be the icing on the cake, accused Josephberg of lying to his investment firm's health insurer that his wife was an employee of the company and therefore covered by the health plan. Anything to avoid a co-payment, I guess. A press release issued by the U.S. Attorney's Office for the Southern District of New York (here) discusses the conviction, and the indictment is below. (ph)
The prosecution of Lord Conrad Black and three other former executives of Hollinger International trudges forward into its fifth week with more testimony from the company's lawyers explaining not only the deals at issue, but their mistakes and fees. Hollinger had leading firms in Canada (Torys) and the U.S. (Cravath) representing it in the CanWest transaction that is at the heart of the government's corporate looting case. The jury listened to the videotaped testimony of Elizabeth DeMerchant from Torys, who was the lead lawyer on the transaction that involved an $80 million non-compete payment to Black and others. When asked about her compensation in 2000, DeMerchant replied, "Is that a fair question?" before conceding it was between $600,000 (Cdn.) and $900,000 (Cdn). Cravath lawyer John Saunders, who insisted that the non-compete payment be disclosed, could not recall his hourly billing rate, finally saying, "I guess if you have to ask, you can't afford it." I doubt many lawyers forget their billing rate at the end of the year when trying to collect on their unpaid bills.
The defense has argued that these expensive lawyers were the ones responsible for structuring the deal, and that Lord Black and the others followed their advice and did not try to hide anything by only doing what was approved by the attorneys. The fact that they make so much money could blunt some of the prosecution's claims that the defendants enriched themselves when Hollinger's lawyers were not exactly reticent on their fees. Whether any of this is making an impression on the jury is difficult to tell, of course. A Toronto Globe & Mail story (here) discusses the testimony of DeMerchant and Saunders. (ph)
Friday, April 20, 2007
Former Qwest CEO Joseph Nacchio was convicted on 19 counts of insider trading and acquitted on 23 other counts by a jury in Denver, Colorado. According to a report from the Rocky Mountain News (here), the acquittals came on the counts during the earlier part of the five-month period charged in the indictment, and the convictions were for the later transactions, totaling $52 million in sales. Under the Federal Sentencing Guidelines in effect for 2001, that amount of gain would result in a sentence of 57-71 months, but it could increase if the district court were to add any enhancements for abuse of a position of trust or more than minimal planning, which could take the range up to 8-10 years. Of course, the Sentencing Guidelines are no longer mandatory, but judges frequently use them as the starting point for the determination of an appropriate sentence, and they give a good idea of the general range for a likely prison sentence.
In light of the defense's decision to go with a scaled-down presentation and not deal with the whole "national security" information that was only available to Nacchio, a natural question will be whether the defense was over-confident that the government had not established its case. Of course, the decision not to call Nacchio to testify will be second-guessed, but it is always difficult to say whether that would have made a difference, and if he had come across poorly, he could well have been convicted on all 42 counts and even faced an obstuction of justice enhancement to the sentence. (ph)
Attorney General Alberto Gonzales faced sharp questioning for five+ hours before the Senate Judiciary Committee as he discussed the process by which eight U.S. Attorneys were fired in December 2006. Having listened to a fair amount of the hearing, the Attorney General's testimony boiled down to the following three points, reiterated ad nauseum: he does not recall participating in the decision; the decision-making process was flawed; the decision was, in hindsight, the correct one. The last point is premised on the President's authority to terminate the U.S. Attorneys at will, and the use of that power in this case was not flawed because there were no improper motives, just a flawed process. For all the hullabaloo, the hearing shed little light on the decision because, as Gonzales admitted repeatedly, he did not participate in the decision and could not recall any details. It is unlikely the Attorney General's critics will be sated by his statements, and supporters will cite the lack of a "smoking gun" showing the decision was improper. With another Republican Senator (Coburn of Oklahoma) joining the call for his resignation, Gonzales may become completely irrelevant to the investigation if he decides to leave.
Like so much in this Congressional investigation, it will be the e-mail traffic that tells the tale, particularly communications through the Republican National Committee e-mail accounts maintained by White House political aides. With the Attorney General off the hot seat, at least for the moment, the issue becomes whether there are any more e-mail "shoes" to drop, and whether the testimony of former Gonzales adviser Monica Goodling will provide fresh information, assuming she receives a grant of immunity (see earlier post here). A Washington Post article (here) discusses the Senate Judiciary Committee hearing. (ph)
Former Miami plaintiffs class action attorney Louis S. Robles will enter a guilty plea to mail fraud charges for defrauding asbestos clients out of over $13 million that will result in a ten-year prison sentence, according to a Daily Business Review article (here). At one time, Robles represented over 7,000 asbestos clients, and according to a press release issued by the U.S. Attorney's Office for the Southern District of Florida at the time of his indictment in May 2006 (here), he was accused of using money from his firm's lawyer's trust account for "financing his movie production and waste management companies, leasing apartments in New York and Los Angeles, making mortgage payments of up to $101,000 per month on four different properties, including a 9,000 square-foot waterfront mansion in Key Biscayne, and paying his ex-wife’s alimony, as well as payments to other clients." While the court will doubtlessly require Robles to pay restitution to his numerous former clients, whether they ever see any money is an open question. This type of case imposes a particularly difficult burden on the victims because they lost their chance at obtaining some compensation for a debilitating disease. (ph)
Former student Hakan Yalincak received a 42-month prison term for his role in a bank and securities fraud scheme that involved soliciting over $8 million in investments for a bogus hedge fund and an attempted check kite involving a counterfeit $25 million check. At the time of his arrest, Yalincak was a senior at New York University, and his parents had made a multi-million pledge to the school. It turned out that they were also involved in at least part of the scheme. According to a press release (here) issued by the U.S. Attorney's Office for the District of Connecticut:
[O]n March 14, 2005, YALINCAK sent two counterfeit checks totaling $17,748,000, purportedly from his business account at Bank of New York, to his account in a bank in Switzerland, UBS Zurich AG. The checks, which appeared to be official Bank of New York checks, were marked “certified funds.” On March 23, 2005, YALINCAK deposited a counterfeit J.P. Morgan Chase check in the amount of $25,000,000 into that same business account at the Greenwich branch of Bank of New York. The day before depositing the counterfeit $25,000,000 check, YALINCAK instructed UBS Zurich AG to transfer $2,500,000 to a second business account at Bank of New York that he controlled. UBS Zurich AG transferred the funds as instructed. On March 24, 2005, YALINCAK attempted to withdraw $1,700,000 from the business account into which the $2,500,000 had been deposited by UBS Zurich AG. By that time, however, Bank of New York had determined that the $25,000,000 check was counterfeit and froze all accounts on which YALINCAK was a signatory.
YALINCAK also solicited approximately $8.8 million from several investors by falsely representing that the money would be invested in hedge funds, under YALINCAK’s management, in various financial markets. YALINCAK knew that a substantial sum of money solicited from investors would be used for purposes other than investments, including his own enrichment and the enrichment of others, and concealed his fraudulent conduct from some or all of the investors by falsely representing to them the value of the investments being managed, the share of certain investors in those investments, and returns on their investments.
Yalincak spent twenty months in jail after his arrest until the guilty plea in January 2007, so he will only have to serve approximately another 16 months before he is released. The sentence also included a restitution order of $4 million. According to a Hartford Courant story (here), in sentencing Yalincak, U.S. District Judge Janet Arterton said that his moral compass was "either not present or not functioning," and that "the majority of his life has been spent engaged in fraud. Whether at the behest of others or not, leading a lawful life has not been part of his past life." I suspect he didn't take an Ehtics course as part of his core curriculum. (ph)
Thursday, April 19, 2007
While the Supreme Court denied certiorari challenging the abatement of Ken Lay's convictions (see earlier post here), the fight over his assets continues in the U.S. District Court for the Southern District of Texas. According to a Houston Chronicle report (here), Lay's widow, Linda, filed papers in the government's civil asset forfeiture case claiming that she is entitled to the assets the government is seeking, including the couple's Houston condominium worth $2.5 million and $10 million held by a partnership. The article indicates that the parties are negotiating a settlement of the civil proceeding. The conviction would have supported a criminal forfeiture, which would have allowed the government to pursue any assets owned by Lay to satisfy the amount ordered by the court, including "substitute" assets. His death and the subsequent abatement of the conviction means that only the civil asset forfeiture avenue is open, which requires the government to trace any assets it claims to the fraud. That is a more difficult standard to meet, and probably means that it will have to settle for less than it would have gotten in a criminal forfeiture action. (ph)
Love is certainly blind, and it can cause people to fall for a fast-talking scam artist out to take advantage of them. Patrick M. Giblin, who formerly frequented the casinos in Atlantic City and Las Vegas, received a 115-month sentence for defrauding more than 100 women he met through telephone dating services. After contacting women in a number of different cities and feigning interest in moving closer to them to pursue a relationship, he would get them to loan him money to help out with his moving expenses. According to a press release issued by the U.S. Attorney's Office for the District of New Jersey (here), "Giblin admitted he spent the money he received from the women at casinos in Atlantic City and Las Vegas and for personal expenses." In addition to his nearly ten year sentence, Giblin was ordered to pay restitution of $184,000 and, perhaps even worse, must put himself on a self-exclusion list maintained by the gambling industry so that if he enters a casino he can be arrested for trespassing -- an interesting way to commit a crime, that's for sure. (ph)
The SEC filed a civil enforcement action accusing Kevin J. Heron of selling shares in Amkor Technology, Inc., while he served as the company's general counsel, ahead of corporate announcements. Making it unlikely that he can offer an ignorance defense, Heron's responsibilities included serving as the chief insider trading compliance officer at the Arizona semiconductor packaging and testing company. The SEC Litigation Release (here) states:
[F]rom October 2003 through June 2004, Heron engaged in a pattern of insider trading by trading in Amkor securities prior to five Amkor public announcements relating to financial results and company business transactions. During this period, Heron executed more than fifty illegal trades in Amkor stock and options on the basis of material, nonpublic information that Heron had learned as a result of his position as general counsel. Heron executed nearly all of these illegal trades while he and other company employees were subject to company blackout periods that prohibited them from trading in Amkor stock. Even though Heron was the person at Amkor who was responsible for administering these blackout periods, Heron routinely violated Amkor's blackout periods by trading on inside information. Heron's trading yielded profits, and losses avoided, totaling approximately $290,000.
Amkor terminated Heron, who worked out of the company's West Chester, Pennsylvania office, from his position in September 2005. Heron was indicted in December 2005 on four counts of securities fraud (indictment here) in the Eastern District of Pennsylvania. (ph)
Wednesday, April 18, 2007
The House Judiciary Committee has a meeting scheduled for April 18 to consider whether to grant immunity to Monica Goodling, a former senior adviser to Attorney General Alberto Gonzales who asserted her Fifth Amendment privilege and refused to testify about the process that led to the firing of eight U.S. Attorneys. According to a statement on the Committee website (here):
Meeting to consider: A resolution authorizing the Chairman to issue a subpoena to Monica Goodling for testimony and related documents at a hearing before the Committee regarding the circumstances surrounding recent terminations of U.S. Attorneys, representations to Congress regarding those circumstances, and related matters. A resolution directing the House General Counsel to apply to a United States district court for an order immunizing from use in prosecutions the testimony of, and related information provided by, Monica Goodling under compulsion at proceedings before or ancillary to the Committee regarding the circumstances surrounding recent terminations of U.S. Attorneys, representations to Congress regarding those circumstances, and related matters. Approval of assignment to subcommittee vacancies.
Giving a witness immunity is always risky if the Committee has not received a proffer from Goodling's attorney about what she plans to say. In the common parlance of prosecutors, that involves buying a "pig in a poke" -- a bucolic way of saying that you don't know what you're getting in exchange for the immunity grant, which makes it very difficult to prosecute the witness at a later date (think Ollie North). Goodling was a key player in the decision to terminate the eight U.S. Attorneys along with former Gonzales chief of staff Kyle Sampson, who did not invoke the Fifth Amendment and has provided information to Congress about the process.
A request for immunity requires a two-thirds vote by the Committee, and an interesting question is whether a sufficient number of Republican members will vote in favor of it. The Committee rules require a 2/3 vote for the resolution, and there are 21 Democrats and 16 Republicans, so four Republicans would have to vote in favor to approve the immunity. The White House has already blocked two senior aides who appear to be involved in the firing decision, Karl Rove and Harriet Miers, from testifying to this point. While a claim of executive privilege could not block obtaining testimony from Goodling, her assertion of the Fifth Amendment is the functional equivalent and keeps her from testifying about interactions with the White House on the issue. The Judiciary Committee has been privately interviewing a number of Department of Justice officials about the firings, but Goodling's role as Gonzales' liaison with the White House makes her a linchpin in the investigation of possible political interference with ongoing prosecutions. If Goodling does not talk, and Rove and Miers will not testify, then the investigation could hit a dead end. Each day seemingly brings a new development, and with Attorney General Gonzales scheduled to testify on April 19, look for things to get even more interesting. (ph)
Tuesday, April 17, 2007
Carol D. Leonnig of the Washington Post reports on developer Douglas Jemal being given probation for a wire fraud conviction. This appears to be an important sentencing decision as the judge decided to give probation despite prosecution arguments for jail time. The judge's rationale, as provided in the Washington Post article, is that "he compared two disparate groups in reaching his decision: convicted felons-turned-cooperators for whom prosecutors urge reduced sentences, and community members who attested that Jemal's generosity changed their lives."
It is good to see a judge recognizing that an individual who decides to go to trial should not be punished simply by making this choice. If cooperation can yield probation, then perhaps asserting one's constitutional right to a jury trial should also allow for probation. The judge also shows consideration of beneficial qualities that warrant a reduction in sentence. Some may argue that this is exactly why the sentencing guidelines need to be strictly enforced. Others, however, will note that courts need this discretion to consider the individual defendant being sentenced (see my piece in the Yale PocketPart here)
(esp)(w/a hat tip to individual who alerted me to this article)
A DOJ Press Release reports that "Cell Therapeutics Inc. (CTI) of Seattle, Wash., has agreed to pay the United States $10.5 million to resolve allegations of the company’s illegal marketing of the anti-cancer prescription drug Trisenox." This case was resolved by the Department of Justice within the civil division.
New York Attorney General Andrew Cuomo is not wasting any time in his new position to demonstrate that his office will actively investigate business practices that he believes warrant scrutiny. We reported here, here, and here on the student loan investigation he is pursuing. According to the Wall Street Jrl here, that investigation is now expanding.
Monday, April 16, 2007
Attorney General Gonzales will not be before Congress tomorrow as the decision was made to continue this hearing in light of yesterday's tragedy at Virginia Tech. (See Wall Street Jrl here)
Attorney General Gonzales' formal statement includes a wide array of different topics. Although he offers 6 3/4 pages on the "firings" scandal, he offers a good bit more in his 25 page statement that has nothing to do with why these attorneys were dismissed. One finds a discussion of the Adam Walsh Act, Terrorism, Gangs, Drug Enforcement, and a host of other topics that move past the issue at hand. So, why were these U.S. Attorneys let go? And when focusing on the U.S. Attorneys dismissals, he is basically at the same point as his preview statement.
He starts with his definition of terms and quotes former Acting Solicitor General and Assistant Attorney General Walter Dellinger who stated that an "improper reason" for dismissal would be: "The replacement of one or more U.S. attorneys in order to impede or speed along particular criminal investigations for illegitimate reasons." The basic premise Gonzales starts with implies that prosecutors in office can act politically, as long as the "criminal investigation" isn't political. What happened to the reason of poor performance? And although he now praises these former U.S. Attorneys, he tells us little of any investigation to see if outsiders were attempting to use political influence on criminal matters.
It is obvious that the issues that need to be discussed will be left to the questions and answers in the forthcoming hearing. In the meantime, the Wall Street Journal is reporting that Deputy Attorney General Paul J. McNulty may be "testing the waters" on other employment options.
Not unexpectedly, the Supreme Court refused to review the vacating of Ken Lay's conviction. (See here and here; see also Wall Street Jrl here) The law clearly holds that when an accused passes away prior to being sentenced, the indictment gets dismissed.
Today marks the three-year anniversary of TaxProf Blog - the blog of Professor Paul Caron (Cincinnati). On his blog you will find incredible statistics demonstrating the growth of his blog and the many blogs that have come from the Law Professor Blogs Network he created. Congratulations, Paul.
Sunday, April 15, 2007
The Washington Post carried Attorney General Alberto Gonzales' preview to his forthcoming testimony that is scheduled for this coming Tuesday. One certainly has to give credit to the Attorney General for speaking publicly and accepting responsibility for what he calls his "role in allowing this matter to spin into an undignified Washington spectacle." But his remarks do raise some concerns:
1. Gonzales states that he has "no basis to believe that anyone involved in this process sought the removal of a U.S. Attorney for an improper reason." Can we be so sure? Who is conducting the investigation? And was anyone outside the process seeking the removal of a U.S. Attorney for an improper reason, and who is investigating outsiders? And why does it seem that there are contradictions here (see Washington Post here)?
2. Gonzales states that he has "asked the Justice Department's Office of Professional Responsibility to further investigate this matter." (emphasis added). Note the organization chart that shows that this office reports to the Deputy Attorney General who reports to the Attorney General. Is this an independent investigation? Further, this body would be limited to internal individuals and would not be focused on improper activity that might have occurred outside the office.
3. Gonzales states that "[i]n recent weeks I have met with more than 70 U.S. attorneys around the country to hear their concerns and discuss ways to improve communication and coordination between their offices and the Justice Department." Doesn't he have an "effective program" already in place to provide oversight? Would the operation of this office be sufficient if a U.S. Attorney were looking at this conduct as they typically look at corporations to determine if there was "due diligence"?
4. Gonzales states that "I have ordered the release of thousands of pages of internal documents." But has he provided everything that is relevant and was it provided timely? Congress has the power to subpoena, but are we missing the possibility of a search here, a search like DOJ did to the office of Rep. William Jefferson (see here). And who is determining what is being turned over? Is there an independent person examining the documents to make certain that all items of importance are in fact being released?
5. Gonzales does not state anything about the lost emails at the White House (see here). Is he investigating this? Does he find this odd? If this happened in activity unrelated to his office, how would he handle these lost emails?
Gonzales piece is titled "Nothing Improper," and he may be accurate that nothing improper occurred here. But is he willing to allow for an independent investigation to confirm this?