Saturday, October 20, 2007

DOJ Successful on Motion in KPMG Case

The government had asked for the removal of one of the defense counsel in the KPMG case claiming a conflict of interest (see here). The Washington Post reports (here) that the court has accepted the argument, removing counsel and delaying the trial yet again.  The Order (available below) begins by noting that "[t]he government belatedly called to the Court's attention certain possible conflicts of interest . . . ." (italics added)  Trial was scheduled to start October 23 with the opening statements, but that has now been postponed, with a new trial date to be set at a hearing on November 16.  With the government's appeal of the dismissal of thirteen defendants from the case pending before the Second Circuit, it will be interesting to see if the appellate process beats the start of the trial.  If the court of appeals were to reverse Judge Lewis Kaplan's dismissal order before the trial begins, it's likely that would engender even further delay as the court then would have to schedule a trial of all defendants, working with the schedules of seventeen lawyers -- something akin to herding cats.

The prosecutors argued that defense counsel may have provided legal advice to a defendant who is now cooperating with the government.  This is yet another example of the issues counsel faces if entering into a joint defense agreement.  These agreements are often necessary to exchange information and also to keep the costs for preparation of trial at a lower level.  When counsel can share experts, the client saves funds.  But when one client flips, and the deal includes that they will cooperate against another who was part of the joint defense agreement, problems can arise.  And counsel can be left without a client if the sharing of information causes a conflict to arise.

(esp & ph)

Download us_v_stein_order_oct_18_2007.pdf

October 20, 2007 in Defense Counsel | Permalink | Comments (0) | TrackBack (0)

Petition for Cert Filed in Rigas Cases

A petition for certiorari (available below) was filed on behalf of Timothy and John Rigas, former CFO and CEO of Adelphia. The elder Rigas, now 82 years old, is serving a 15-year sentence, and Timothy is serving 20 years.  A couple of fascinating questions are raised for the Supreme Court to consider. One issue relates to GAAP [Generally Accepted Accounting Principles], and whether it is possible that the level of proof could be lower in a criminal case, with liberty interests at stake, than in a civil case?  Should the government be required to present certain evidence to meet its burden of proof on the GAAP issue? These are some of the questions under review.


Download cert_petition_101007.pdf

October 20, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Thursday, October 18, 2007

Milberg Weiss Missteps

Justin Scheck has an interesting and thorough article in The Recorder (here) discussing the recent superseding indictment of Melvyn Weiss and his firm, Milberg Weiss, and how the firm appears to have made a series of missteps that jeopardizes its continued existence.  While former Milberg Weiss partner William Lerach's plea deal gets extricates his new firm -- formerly Lerach Coughlin, now Coughlin Stoia with Lerach's retirement -- from the criminal investigation, Weiss' indictment keeps his firm in the cross-hairs, with no resolution of the charges in sight yet.  With the plea agreements of two former Milberg Weiss name partners, Steven Schulman and David Bershad, it will be just this side of impossible for the firm to defend itself from the charges because of the acts of its agents can be attributed to the entity.  The article describes the firm's leadership as being in turn "indecisive, myopic, stubborn and simply unlucky."  Milberg Weiss has been under indictment for almost a year and a half now, and it continues to survive, although perhaps not thrive with the indictment hanging over its head.  Getting out of the case will cost it millions, so it won't be easy to resolve the case. (ph)

October 18, 2007 in Legal Ethics, Prosecutions | Permalink | Comments (0) | TrackBack (0)

SEC Backlog

Wilmer Hale's David Z. Seide and David A. Wilson have a fascinating commentary in the Legal Times titled, "Left Hanging: New Report Shows Need to Clear Up SEC Backlog."  The piece examines a recent GAO report that evaluates "the SEC Enforcement Division's systems for planning investigations and providing information to subjects of investigations."  The commentary discusses the difficulties faced by those under investigation, individuals who may be forced to put many things on hold just waiting for word on their case.


October 18, 2007 in Securities | Permalink | Comments (0) | TrackBack (0)

Baseball and Inside Information

Nothing goes better with the great American pastime than passing a little inside information to your friend about a pending corporate transaction.  The SEC filed a settled civil enforcement action against a former director of of NSD Bancorp who disclosed a pending merger of the company with F.N.B. Corp. that was announced in October 2004.  The tippee bought 2,000 shares, and after the announcement NSD's stock price jumped 52%, allowing him to reap over $25,000 in profits.  According to the SEC Litigation Release (here), the director provided the information at or before the September 22 Pittsburgh Pirates game.  According to Baseball-Reference.Com (here), the Pirates lost to the Chicago Cubs 1-0 that evening -- the type of pitcher's duel that has a lot of down time to discuss a proposed buyout, no doubt.  The SEC alleges that "the morning of September 23, 2004, Pitterich, who had no prior history of trading in the securities of NSD Bancorp, purchased 1,000 shares of NSD Bancorp's stock on the basis of the material, nonpublic information provided to him by Lenzner. On October 1, 2004, Pitterich, on the basis of the same information, purchased an additional 1,000 shares."  The tippee disgorged his profits plus payed a one-time penalty, and the director/tipper also payed a one-time penalty.  Given that the Bucs haven't had a winning season since 1992, when Barry Bonds was on the team -- with a much smaller head -- there's got to be some reason to attend a late-season game. (ph)

October 18, 2007 in Civil Enforcement, Insider Trading, Securities, Settlement | Permalink | Comments (0) | TrackBack (0)

Feds Try to Trump State in Corruption Investigation

The Department of Justice has made public corruption one of its main priorities, and the number of investigations of members of Congress, along with state and local officials, shows that this area is receiving increased attention.  The states also have authority to investigate corruption involving their own officials, although parallel federal and state investigations can present problems.  In the investigation of corruption in the Alaska legislature and its elected federal representatives, the Department of Justice has -- politely -- asked Alaska's Attorney General not to pursue a separate state investigation.  A letter (here courtesy of TPMuckraker) from the principal deputy chief of the Public Integrity Section in Washington, D.C., says that "because of the long-standing federal investigation into these matters, we believe that concurrent state investigative activity will have the effect of compromising certain aspects of the ongoing federal public corruption investigation."  In other words, don't mess with our case . . . please. 

While the federal government cannot stop a state from conducting its own investigation, and under the Double Jeopardy Clause's dual sovereignty doctrine the state could file its own charges in addition to any federal prosecution, the specter of interfering with an ongoing investigation may be enough to cause Alaska to back away.  I argued in a law review article, Federalism and the Federal Prosecution of State and Local Corruption, 92 Ky. L.J. 75 (2003), that federal prosecutors are best equipped to pursue corruption cases involving state officials because of their relative detachment from the political ties that can affect local prosecutors and state attorneys general.  Asking the Alaska Attorney General to defer to the federal investigation may be more than just a fight over turf. (ph)

October 18, 2007 in Corruption, Investigations | Permalink | Comments (0) | TrackBack (0)

Here Comes the Next AG

The confirmation hearings for Judge Michael Mukasey before the Senate Judiciary Committee went about as smoothly as anyone might want.  Mukasey told the panel that he did not agree with the Department of Justice's 2002 torture memo, and would make sure that there was no political interference with prosecutorial decisions.  That was music to the ears of the Senators on the Committee, along with this statement in his prepared remarks (here):

[Y]ou have been generous with your time and your advice in the past couple of weeks. I believe that the Department’s relationship with this Committee and with Congress is vital to fulfilling its mission. I want to assure you that, if confirmed, I will always appreciate and welcome your advice, as I have since my nomination, and that I and others in the Department will try to be available to you. In that spirit, I am ready to answer the questions you have for me today.

There's nothing like playing to the audience, and he has been endorsed by Senator Charles Schumer and other foes of the Bush Administration.  The eighty-first Attorney General should be in office fairly soon, at which point a key issue for Mukasey will be filling the many openings in senior positions. A Reuters story (here) discusses the hearing. (ph)

October 18, 2007 in Prosecutors | Permalink | Comments (0) | TrackBack (0)

Expanding the Identity Theft Statute

Senate Judiciary Committee Chairman Patrick Leahy and Ranking Member Arlen Specter introduced the "Identity Theft Enforcement and Restitution Act of 2007" to expand the power of the federal government to pursue cases of identity theft.  According to a press release (here) issued by Senator Leahy, the new bill would give federal prosecutors greater authority to bring identity theft cases by lowering the jurisdictional requirements for a federal prosecution.  The press release outlines some of the changes the proposed legislation would bring about:

  • Expand the jurisdiction of federal computer fraud statutes to cover small businesses and corporations;
  • Eliminate the prosecutorial requirement that sensitive identity information must have been stolen through an interstate or foreign communication and instead focuses on whether the victim’s computer is used in interstate or foreign commerce, allowing for the prosecutions of cases in which both the identify thief’s computer and the victim’s computer are located in the same state;
  • Make it a felony to employ spyware or keyloggers to damage ten or more computers regardless of the aggregate amount of damage caused, ensuring that the most egregious identity thieves will not escape with a minimal, or no, sentence;
  • Eliminate the requirement that the loss resulting from damage to a victim’s computer must exceed $5,000; under this bill violations resulting in less than $5,000 damage would be criminalized as misdemeanors.

More federal crimes, the preferred solution in Congress. (ph)

October 18, 2007 in Statutes | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 17, 2007

Gifts That Keep on Giving

Campaign contributions are given for a variety of reasons, and I suspect most donors don't think that their donations will be used to pay lawyers advising elected officials in government investigations.  TPM Muckraker reports (here) that a number of Congressmen are using funds from campaign committees to pay their lawyers because they have been caught up in a variety of federal corruption probes.  Among those using campaign money for legal fees, as reported in the most recent quarterly campaign finance reports, are:

  • Rep. Jerry Lewis (Calif.): $26,982 in the quarter and a total of nearly $1 million in the past year to two law firms, including Gibson Dunn;
  • Rep. Don Young (Alaska): $183,785 and a total of $447,000 to two law firms, including Akin Gump.
  • Rep. Rick Renzi (Arizona): $111,042 and a total of $148,000 to two law firms (Patton Boggs and Steptoe & Johnson).
  • Rep. Alan Mollohan (West Virginia): $55,000 and a total of $78,000 to one law firm.

Can it be legal to use campaign contributions for legal expenses?  The Federal Election Commission has interpreted the campaign finance laws as permitting such payments.  In AO 2005-11 (Sept. 26, 2005) (available below), the FEC responded to a request by former Rep. Randy "Duke" Cunningham's campaign committee for a ruling whether it could pay his attorneys during the federal investigation that led to his guilty plea and lengthy prison sentence on bribery charges.  The Opinion states:

The Commission concludes that the Committee may use campaign funds to pay for the legal fees and expenses incurred in connection with the grand jury investigation and legal proceedings that may arise from this investigation because the investigation concerns allegations that are related to Representative Cunningham’s campaign activities or his duties as a Federal officeholder and the legal fees and expenses would not exist irrespective of Representative Cunningham’s campaign or duties as a Federal officeholder. The Committee may also use campaign funds to pay for the legal fees and expenses incurred in responding to the press regarding the grand jury investigation and legal proceedings that may arise from this investigation.

Maybe it's just me, but an investigation of misuse of office for personal gain does not seem to be related to a Congressman's "duties as a Federal officeholder," but that's what the FEC has decided.  It may be that the campaign committee is a bit like an indemnification provision in a corporation's by-laws -- a special form of protection in case there's an investigation related to conduct during the term of office, even it the conduct is criminal, as in the case of Cunningham.  That said, I doubt most donors understand that their contributions can be used to pay lawyers to defend the official in a corruption probe.

The more traditional method for government officials to take donations to pay their lawyers is to set up a legal defense fund, which is subject to different reporting requirements and donation limits than a campaign committee.  Representative William Jefferson of Louisiana, who is under indictment on a variety of corruption-related charges, has decided to go that route rather than use campaign donations to pay for his lawyers. (ph)

Download fec_ao_200511_september_26_2005.pdf

October 17, 2007 in Defense Counsel | Permalink | Comments (0) | TrackBack (0)

Food Companies Under Investigation for Fraud

The Wall Street Journal reports (here) in a front-page article that a number of food companies, including Sara Lee Corp. and ConAgra Foods Inc., are being investigated by the Department of Justice and the Pentagon for their role in providing supplies through a Kuwait company for the troops in Iraq.  Among the areas under investigation are whether discounts and rebates provided to the Kuwaiti company were passed on to the government under its cost-plus contracts, and whether military contracting officials were designating specific companies as providers rather than allow for a more competitive selection process.  This is the latest in a string of investigations related to the award of contracts in the Iraq and Afghanistan wars, and the Department of Justice's Procurement Fraud Task Force will likely have even more work to do. (ph)

October 17, 2007 in Fraud, Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 16, 2007

A New Chapter in the Jamie Olis Story

From 24 years, to 6 years, and now finally to a camp setting.  Jamie Olis has finally arrived in a prison camp in Three Rivers, Texas.  No bars, and most of all - an ability to perhaps walk hand in hand with his child.  For someone serving a white collar sentence, this is a major achievement.  Like most individuals who fit the white collar category - Olis has no priors and can hardly be considered a security risk.  With new motions filed and pending, it will be interesting to see if the next step in this story is even better. (see here)


October 16, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Lobbyist Pleads

Miami reports on a plea of a lobbyist.


October 16, 2007 in Settlement | Permalink | Comments (0) | TrackBack (0)

Monday, October 15, 2007

White Collar Crime Prosecutions Down

TRAC summarizes the changes in the prosecutions of white collar cases during the Bush Adminstration stating that "[t]he prosecution of all kinds of white-collar criminals is down by 27% since FY 2000, before President Bush came to office."  Perhaps the methodology here is uncertain, because as previously noted what DOJ includes within the definition of white collar crime and what is not  included, is subject to argument. (see here).  But irrespective of how one defines white collar crime, the consistency of this definition makes this number significant. It means that this definition of white collar crime, a definition very reliant on fraud, has suffered an enormous decrease in prosecutions during President Bush's term as President.

(esp) (w/ disclosure that she is a B.S. graduate of Syracuse U.- home of the Trac Reports). 

October 15, 2007 in Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Supremes Take Money Laundering Case

The United States Supreme Court accepted certiorari on a money laundering case.  (Cuellar v. United States) The question the petitioner raises is "[w]hether merely hiding funds with no design to create the appearance of legitimate wealth is sufficient to support a money laundering conviction." (See Scotus Blog here)  The Brief of the National Association of Criminal Defense Lawyers here explains that "[t]he expansive and unwarranted interpretation adopted by the Courts of Appeals for the Second, Third, Fifth, and Eleventh Circuits improperly expands the scope of an already broad statute far beyond its intended reach."   

Although the case accepted by the court is not a white collar crime case, the Court's decision here could make a difference in the white collar world.  One finds money laundering charges in white collar crime cases as charges that are "tacked" onto the substantive offenses. (See Teresa E. Adams, Tacking on Money Laundering Charges to White Collar Crimes: What Did Congress Intend, and What Are the Courts Doing?, 17 Ga. St. L.Rev. 531 (2000)) (see also here)  Applying a strict interpretation to the statute and reading the legislative intent narrowly could assist in keeping money laundering as the crime it should be, as opposed to one that can be used as a bargaining chip to secure a plea agreement in a white collar case.


October 15, 2007 in Money Laundering | Permalink | Comments (0) | TrackBack (0)

Sunday, October 14, 2007

Indictments in Case Related to Export-Import Bank

The Department of Justice issued a press release stating that "eight defendants have been charged in connection with an [alleged] $80 million scheme to defraud the Export-Import Bank of the United States."  The release says that five of the eight have plead guilty.The press release states:

"Five of the eight individuals charged have pleaded guilty in connection with a scheme involving $80 million worth of fraudulent loan transactions between companies located in the Philippines and United States lending banks, in which the Export-Import Bank of the United States (Ex-Im Bank) acted as guarantor or insurer. As part of the scheme, a loan broker in the Philippines assisted borrowers in executing loan agreements with the lending banks and in obtaining loan guarantees or insurance policies from the Ex-Im Bank as part of the loan agreements. The loan broker then recruited United States exporters for the purpose of purchasing U.S. goods and shipping those goods to the Philippine borrowers, and then instructed the exporters to prepare false shipping documents and submit those false documents to the lending banks to make it appear that they had purchased and shipped goods. In reality, the exporters did not purchase the goods called for in the loan agreements, and instead misappropriated a majority of the loan proceeds."

Because the U.S. Federal Sentencing Guidelines factor in the amount of fraud loss when computing an individual's sentence, the risk of going to trial on these type of cases is enormous.  Often, the government is able to secure quick pleas because those facing a large sentence are anxious to reduce that sentence.  Agreements to cooperate often accompany the pleas, as an accused individual seeks to reduce his or her prison time.  This is possible through a government 5K1.1 motion, a motion made by the government when an individual provides substantial assistance.


October 14, 2007 in Fraud | Permalink | Comments (0) | TrackBack (0)

Mortgage Fraud in Georgia

There is no doubt that mortgage fraud is a hot topic across the United States.  In Georgia, Chalana McFarland received a 30 year sentence on a mortgage fraud conviction (see here).  But there are other cases pending in Georgia, and (Fulton County Daily Reporter) looks at a recent case involving an attorney who is cooperating with the government on mortgage fraud matters, and notes other attorneys who have been charged with criminal conduct related to mortgage fraud.


October 14, 2007 in Fraud | Permalink | Comments (0) | TrackBack (0)

One Million Viewers

Today the White Collar Crime Prof Blog recognizes that there have been one million viewers to the blog since it started in November of 2004. We'd like to take a moment from our white collar crime entries to say thank you to all our viewers. We appreciate all the material you send our way, all the comments you make to our entries, and most of all - your clicks returning to what we write.

(ph & esp)   

October 14, 2007 in About This Blog | Permalink | Comments (0) | TrackBack (0)