November 10, 2007
New Age Crime - Identity Theft
The U.S. Attorney's Office for the Central District of California reports on a plea agreement reached in an identity theft case that has some unusual twists. The press release describes:
"In the first prosecution of its kind in the nation, a well-known member of the 'botnet underground' was charged today with using 'botnets' – armies of compromised computers – to steal the identities of victims across the country by extracting information from their personal computers and wiretapping their communications."
According to the release, the accused has agreed to enter a plea to "four felony counts: accessing protected computers to conduct fraud, disclosing illegally intercepted electronic communications, wire fraud and bank fraud." The alleged conduct is described in part as follows:
"installing malicious computer code, or 'malware,' that acted as a wiretap on compromised computers. Because the users of those compromised computers were unaware that their computers had been turned into 'zombies,' they continued to use their computers to engage in commercial activities. [the accused] used the malware, which he called a 'spybot,' to intercept electronic communications being sent over the Internet from those zombie computers to www.paypal.com and other websites. Once in possession of those intercepted communications, [he] and the others sifted through the data to mine usernames and passwords. With Paypal usernames and passwords, [he] and the others accessed bank accounts to make purchases without the consent of the true owners. [He] also acknowledged in the plea agreement that he transferred both the wiretapped communications and the stolen Paypal information to others."
The press release states that this "is the first time in the nation that someone has been charged under the federal wiretap statute for conduct related to botnets."
You Must Be A Genius?
You must be a genius if you are reading and understanding this blog.
Dan Solove over at Concurring Opinions has a site to a Blog Readibility Level (see here). So if you plug in the white collar crime blog site - it comes up as Genius Level. Now Professor Solove doesn't point out this white collar crime blog as one of the law school blogs that has been designated at the Genius Level, but he does show that Brian Leiter's Law School Reports rates a - COLLEGE (POSTGRAD), to which Professor Leiter suggests that we check out some of his other blogs. (see here). He might also have considered that if you plug in the entire law professors blog network ( lawprofessors.typepad.com/) it comes up as genius.
The Three Most Dangerous Buttons: Send, Forward, and Reply All
An interesting article from the Fulton County Daily Report (available on Law.com here) discusses the persistent problems e-mails present in cases. While the article largely focuses on employment discrimination cases, the point is equally applicable to white collar crime investigations in which e-mails continue to play such a prominent role. One e-mail discussed began, "This is off the record" -- except, of course, anything in an e-mail is definitely preserved and forever on the record. According to the writer, "The 'send' button -- together with its evil cousins, 'forward' and 'reply all' -- are causing a world of trouble for corporations as they connect to evidence in legal proceedings and create a new mess for in-house lawyers to clean up."
Who among us hasn't regretted hitting the send button on an e-mail, as former New York City Police Commissioner and erstwhile nominee to head the Department of Homeland Security Bernie Kerik has discovered in his indictment (here) on corruption, mail/wire fraud, tax, and false statement charges. How do I segue from e-mail to Kerik? The indictment quotes an e-mail he sent in July 1999, shortly after a meeting Kerik had with City officials in which he defended the bona fides of a company seeking a contract, allegedly in exchange for $255,000 in renovations to his Bronx apartment. Kerik complained about being on "welfare" compared to "John Doe #3" who worked for the company whose virtues he extolled, and then bemoaned the fact that there was still "A b***s*** $170,000., [sic] I had to beg, borrow and [expletive] for the down payment and I'm still [expletive] over the $5,000. [sic] I need for closing." [NB: we're still a family-friendly blog, so naughty words are edited.] Needless to say, the e-mail may be a bit hard to explain.
The Kerik indictment has tax charges that include a claim he did not properly report the "nanny tax," which is the second time now that this has shown up in a criminal indictment (see earlier post here for the first case with a "nanny tax" charge, also in the SDNY). A handy chart provided by the U.S. Attorney's Office (here) outlines the basis for the tax counts. The corruption charges are based on the right of honest services fraud, and there are a number of false statement counts related to Kerik's abortive nomination to be Secretary of DHS, including false statements to White House officials and on federal financial disclosure forms. (ph)
70-Month Prison Term for Former CFO
The former CFO of Safety-Kleen Corp. received a 70-month prison term for his role in an accounting fraud at the company. According to a press release (here) issued by the U.S. Attorney's Office, the defendant "was indicted by a federal grand jury in December 2002 on charges relating to a scheme to manipulate Safety-Kleen’s financial statements in connection with the reporting of more than $250 million in 'adjustments to Safety-Kleen’s books and records in 1998, 1999 and 2000. It was alleged in the Indictment that the fraud was part of an attempt to meet earnings targets the Company had predicted at the time Safety-Kleen was acquired by Rollins Environmental Services, Inc. in 1998." The defendant pleaded guilty to conspiracy, securities fraud, bank fraud, and false statements to the SEC charges, and the accounting fraud included capitalizing the value of gasoline in company trucks in order to inflate earnings in advance of the merger. (ph)
November 9, 2007
Help for Homeless Vets
The Race to the Bottom blog has an interesting post here on ways to provide help for homeless veterans. (ph)
Siegelman Bounces Back to the District Court on Bail Pending Appeal
Former Alabama Governor Don Siegelman and his lawyers must feel a bit like a ping-pong ball at this point as his request for bail pending appeal of his conviction on corruption charges goes back before U.S. District Judge Mark Fuller for a third time. After turning down the original request for bail by Siegelman and his co-defendant, former HealthSouth Richard Scrushy, after their convictions, Judge Fuller took the unusual step -- at least in a white collar case -- of ordering the defendants to begin their prison terms immediately after sentencing. The defendants appealed to the Eleventh Circuit for bail, and that court remanded the requests of both defendants to the district court for further consideration.
On October 4, Judge Fuller again rejected Siegelman's request for bail, stating that he did not find the defendant carried his burden under 18 U.S.C. Sec. 3143(b) of showing a substantial question that would lead to reversal of the conviction. The Judge gave no real explanation for his conclusion, stating, "This Court is mindful of the Eleventh Circuit's order, which requests 'expeditious consideration and disposition' of these issues. Therefore, while this Court has given the merit of the issues due consideration, it will not issue a lengthy written opinion on this matter." That didn't quite cut it with Eleventh Circuit Judges Black and Marcus, who remanded the case again for a bit more thorough discussion of the denial of bail. In its limited remand order (available below), the appellate judges wrote, "We believe, however, that a more detailed explanation of the district court's reasoning would facilitate meaningful appellate review. Thus, while we appreciate the district court's alacrity in issuing its order on limited remand, we REMAND this matter once again to the district court, on a limited basis, so that we can properly determine whether Siegelman has met his burden of entitlement to release pending the resolution of this appeal."
While I doubt Judge Fuller will change his mind, and we're probably going to get that more "lengthy written opinion" on the issues, I suspect the Eleventh Circuit is sending a signal about granting bail here, despite the assertion that the remand is not a decision on the merits. The Siegelman prosecution has been the subject of a House Judiciary Committee hearing into political motivations for prosecutions, and the court of appeals judges noted that it was a "complex" trial, so maybe bail would be a good thing. It's not clear why the panel does not just order bail for Siegelman on its own rather than sending the case back again. A decision in favor of a defendant on the bail issue is certainly not unknown -- the Tenth Circuit granted former Qwest CEO Joseph Nacchio's request for bail after the denial by the district court without requiring an explanation of the decision.
With Siegelman's case remanded, co-defendant Scrushy's bail request may be headed for a similar bounce back from Atlanta to Montgomery. In an opinion (available below) issued on November 1, Judge Fuller gave the same basic reason for denying Scrushy's request, noting again that he chose to abjure a "lengthy written opinion." Unlike Siegelman's case, however, Judge Fuller also found that Scrushy posed a flight risk. The Judge wrote:
The Court rejects Scrushy’s creative argument that once sentence was imposed and he learned that he would be incarcerated for a period of time less than the Government had sought he had less reason than ever to flee. In this Court’s view, there is a significant difference between facing the abstract possibility of imprisonment for a period of time and the knowledge that a sentence of eighty-seven months of incarceration will be imposed if his appeal fails. The circumstances have changed. Scrushy now knows how much time in prison he faces. The Court finds that he has failed to show by clear and convincing evidence that he is not likely to flee if allowed to be released on bond pending appeal.
Whether the Eleventh Circuit judges will view Scrushy's case differently because of the flight risk determination remains to be seen. That issue is a tougher one for the appellate court to overcome because the district court is much closer to the situation, and flight is more of a judgment call that a court of appeals may not want to second guess, while the "substantial question" standard is more a legal determination in which appellate judges will have their own opinions on the merits. Scrushy is certain to cite to the limited remand in Siegelman's case to get another shot in the district court, and a decision should be forthcoming soon. (ph)
$16 Million Embezzlement from DC Property Tax Office
Embezzlement is bad enough, and when it involves the theft of tax money, the corruption overlay just spreads the harm even further. Two officials in the Washington, D.C. real property tax office were arrested for stealing approximately $16 million through bogus tax refunds that were directed to straw accounts maintained by three other defendants also charged in the case. The charges are mail fraud, bank fraud, money laundering, interstate transportation of stolen property, and conspiracy. According to a press release (here) from the U.S. Attorney's Office:
The District of Columbia tax code imposes property taxes on real estate in the District and provides a mechanism for property tax refunds when, for example, an individual or company overpays real estate taxes. According to the affidavits filed in support of the arrest and search warrants, from 2004 through the present, Harriette Walters, Diane Gustus, and other D.C. government employees were involved in preparing or approving fraudulent property tax refund requests to generate over 40 separate fraudulent refund checks averaging over $388,000 each. Those fraudulent tax refund checks were deposited primarily into sham corporate accounts controlled by Harriette Walters’s relatives, including Turnbull’s “Chappa Home Services” and “Legna Home Services” accounts, and Richard Walters’s “Helmet Plumbing and Heating” account.
The fraudulently obtained funds then allegedly were distributed through cash, cashier’s checks, and wire transfers to the co-conspirators and family members, who used the funds to purchase homes, vehicles, jewelry, luxury clothing and houseware items, and other real and personal property, among other things. For example, it is alleged that between September 2000 and the present, Harriette Walters spent more than $1.4 million at Neiman Marcus. Additionally, the affidavits allege, some of the money stolen from the District of Columbia has been sent to a money exchange institution in the Dominican Republic that has no bank branches in the United States.
$1.4 million at Needless Markup?! Now that's a spending spree. According to the Washington Post (here), the search turned up a receipt for a handbag purchased for $26,000, although it has not been located yet.
The Post article notes that the investigation is continuing, and others in the real estate tax office may have had some involvement in the scheme, or at least an inkling of what was going on, because they received lavish gifts from the two officials. Even worse, while the investigation to this point has identified improper tax refund checks from 2004, there's a chance that the scheme began as far back as 2000, so the loss to the D.C. government may be even worse. That's an awful lot of money to skim off without anyone noticing for over three years, especially in these days of tight government budgets. (ph)
November 8, 2007
House Judiciary Committee Files Report Seeking Contempt for Miers and Bolten
The House Judiciary Committee moved a step closer to seeking contempt citations for former White House aides Harriet Miers and Joshua Bolten when it filed a Report (here) with the House of Representatives. The two aides had been subpoenaed to testify and produce documents to the Subcommittee on Commercial and Administrative Law related to the firing of eight U.S. Attorneys in 2006. In addition to a claim of Executive Privilege for the documents, the White House asserted the position that neither witness must even appear before the Subcommittee to answer any questions because of the protections afforded by Executive Privilege. The Report identifies three grounds for contempt against Miers -- for not appearing before the Subcommittee, for not testifying, and for not producing documents -- while Bolten is only subject to one contempt citation for refusing to turn over documents. The first Miers contempt citation states:
Resolved, That pursuant to 2 U.S.C. §§ 192 and 194, the Speaker of the House of Representatives shall certify the report of the Committee on the Judiciary, detailing the refusal of former White House Counsel Harriet Miers to appear before the Subcommittee on Commercial and Administrative Law of the Committee on the Judiciary as directed by subpoena, to the United States Attorney for the District of Columbia, to the end that Ms. Miers be proceeded against in the manner and form provided by law . . . .
Even if the House were to vote favorably on the contempt citations, which is certainly not a foregone conclusion, the U.S. Attorney's Office would have to pursue the case. It's not entirely clear whether the likely new Attorney General will allow the case to move forward, and there is at least the possibility that the White House could order that the contempt citation be ignored on the ground that it would interfere with Executive Privilege. Of course, that could end whatever short honeymoon Judge Mukasey might have with Capitol Hill, which has not looked very kindly on the Department of Justice over the past year, i.e. since the 2006 mid-term election changed the leadership in the House and Senate. (ph)
Former NYC Police Commissioner Expected to Be Charged
The media is quoting unnamed government sources that former New York City Police Commissioner Bernard Kerik is likely to be indicted by a federal grand jury on bribery and tax evasion charges, with an arraignment to occur on Friday, November 9. Kerik was briefly nominated to head the Department of Homeland Security in 2004 before withdrawing from consideration due to "nanny tax" issues. The charges relate to a $240,000 renovation of his Bronx apartment in 1999 -- pretty swanky for that part of town, but then nothing is cheap in New York -- that was allegedly paid for by contractors seeking his help in obtaining city contracts. An AP story (here) notes that Kerik agreed earlier to extend the statute of limitations on the charge, and that waiver expires on November 15, so the indictment will come shortly if there is to be charges. (ph)
Cuomo Subpoenas Fannie and Freddie
New York Attorney General Andrew Cuomo's office issued subpoenas to government-sponsored mortgage finance giants Fannie Mae and Freddie Mac requiring the production of documents related to mortgages issued by Washington Mutual, a large thrift, that included allegedly inflated home appraisals. The AG sued First American Corp. earlier for providing inflated appraisals in response to pressure from WaMu to increase the valuation of the property to support larger home mortgage loans. A press release (here) states:
The Martin Act subpoenas sent by Cuomo seek information on the mortgage loans Fannie Mae and Freddie Mac purchased from banks, including Washington Mutual, the nation’s largest savings and loan. The subpoenas also seek information on the due diligence practices of Fannie Mae and Freddie Mac, and their valuations of appraisals. Today’s announcement marks the latest expansion of Cuomo’s industry-wide investigation of mortgage fraud. Last week, Cuomo filed suit against First American Corporation (NYSE: FAF), and its subsidiary eAppraiseIt, one of the nation’s largest real estate appraisal management companies, for colluding with Washington Mutual to inflate the appraisal values of homes.
Fannie and Freddie also acceded to Cuomo's demand that they appoint an independent examiner to review all mortgages they purchased from WaMu to determine whether the loan files include faulty appraisals. (ph)
November 7, 2007
Acquittal Motion Denied, Lord Black and Co-Defendants Head Toward Sentencing
U.S. District Judge Amy St. Eve denied the request of Lord Conrad Black and his three co-defendants to acquit them of all charges for which they were convicted in July 2007, although she did grant the motion for one charge for one defendant. The Judge issued an opinion (available below) finding sufficient evidence for the three mail fraud convictions related to two transactions in which Hollinger International sold newspapers and the defendants received non-compete payments that were not fully disclosed. In addition, she upheld Lord Black's conviction for obstruction of justice when he tried to remove documents from his office in Toronto that had been subpoenaed by the SEC and were the subject of an Ontario court order prohibiting him from taking the records. Hollinger's former general counsel was acquitted on one mail fraud charged, with Judge St. Eve finding the prosecution's evidence, primarily from former Black lieutenant David Radler, actually showed he had no involvement in the payment or any intent to defraud. The mail fraud counts involve both money/property and right of honest services theories, and the latter will be subject to challenge on appeal. The defendants' new trial motions were also denied
With the acquittal (and new trial) motions out of the way, the final step will be the sentencing of the four defendants, currently scheduled for November 30. Judge St. Eve asked the parties to submit their views on what version of the Federal Sentencing Guidelines should be applied in the case -- the 2000 edition, which was in effect when the mailings occurred, or the current 2007 edition. This is an important issue because of the impact it will have on calculating the Guidelines sentence recommendation. Because the Guidelines are now advisory after Booker, the Seventh Circuit allows a trial judge to use the current version if that results in a reasonable sentence, without concerns about ex post facto issues because the Guidelines are no longer mandatory.
Lord Black submitted a brief (available below) that highlights the differences between the two sets of Guidelines, assuming the loss calculation is based on the total amount of the payments in the counts of conviction. In 2001 and 2003, there were substantial increases in the enhancements for losses from fraud and for convictions of executives of publicly-traded companies. Under Lord Black's analysis, the difference on those two issues alone is eight levels, which means the sentence could go from 33-41 months under the 2000 version to 78-97 months under the 2007 version. Needless to say, the prosecutors argue for the current edition of the Guidelines (brief available below).
The parties have not yet filed their briefs on the recommended sentence that the Probation Office will submit, so its too early to tell the likely sentences each side will propose, and any grounds for departures. I expect the government to seek at least eight years for Lord Black under the Guidelines, and to argue for an upward departure based on the obstruction of justice and abuse of his position as CEO of Hollinger. Lord Black and the others are likely to seek a downward departure from the Guidelines calculation, and probably will ask for probation or a split sentence, perhaps a double-nickel (five months in prison, five months home confinement).
Another issue Judge St. Eve will have to decide is whether to grant the defendants bail pending appeal. Her opinion makes it clear that she does not see any problems with the convictions, rejecting all of the defense arguments on sufficiency and evidentiary issues. That may signal a denial of bail, but it remains to be seen. (ph)
November 6, 2007
Plea in International Bid-Rigging Case
A DOJ Press Release reports that "[t]wo executives of Trelleborg Industrie S.A.S., a manufacturer of marine hose located in Clermont-Ferrand, France, agreed to plead guilty to participating in a conspiracy to rig bids, fix prices and allocate market shares of marine hose in the United States and elsewhere." They are pleading to a "one-count felony charge" and the fines agreed to be paid are $75,000 and $100,000. The pleas include cooperation and 14 months in jail, although the pleas are subject to court approval.
Ryan to Prison - No Supreme Court Relief For Now
Former Governor of Illinois, George Ryan, who had been ordered to report to prison (see here), will not be receiving bail relief from the Supreme Court. The Chicago Tribune reports here that the Supreme Court denied his request to remain free. Despite this denial for bail, the case presents some interesting issues that may interest the Supreme Court. This is especially true with a strong three-person dissent to the en banc decision that affirmed the conviction. (the dissent includes Judge Posner).
ABA Criminal Tax Fraud Conference
ABA 2007 National Institute on Criminal Tax Fraud is set for December 6-7th in San Francisco, California. For details, see here.
November 5, 2007
Convicted for Bribing Former Rep. Randy "Duke" Cunningham
Former Representative Randy "Duke" Cunningham did not take the witness stand, but the individual accused of bribing him was convicted despite this. (see here) The defense contractor, who continues to maintain his innocence despite this jury verdict, was accused of charges arising from his alleged providing of "cash, meals, trips and other gifts in exchange for nearly $90 million in Pentagon work." (see here) One issue likely to be mentioned on appeal is whether the government improperly leaked information to the press. Although presently free on bond, the court has advised the accused of incarceration pending appeal.
Yet Another FCPA Case - Individual Pleads Guilty
On the heels of a Fifth Circuit Appellate decision affirming a Foreign Corrupt Practices Act (FCPA) conviction (here), the DOJ reports on a plea to a FCPA charge. The press release states that "[a] former executive of a subsidiary of Houston-based Willbros Group Inc. (WGI) has pleaded guilty to conspiring to bribe officials of the government of Nigeria with more than $6 million in violation of the Foreign Corrupt Practices Act (FCPA)." The press release notes that this former executive admitted that "[t]hese payments were offered and made to officials of the Nigerian National Petroleum Corporation (the Nigerian state-owned oil company) and its subsidiary, National Petroleum Investment Management Services, a Nigerian political party, and a senior official in the executive branch of the Nigerian federal government, in order to assist in securing a major gas pipeline construction contract in Nigeria." Willbros Group Inc. had announced the sale of its Nigerian Operations back in February of 2007 (see here).
November 4, 2007
15 Years to Former Museum President
Fifteen years and an order to report to prison in 45 days, was the court's ruling for the former president of the Independence Seaport Museum, according to the Philadelphia Inquirer (see here). This sentence exceeds many sentences given in corruption cases (although Congress will probably argue that this is a basis to try and increase sentences in corruption cases). This is yet another example of the sentencing guidelines providing for an extremely high sentence because of a loss figure, with little regard to the fact that the individual had letters from "more than 80 people" "praising his ethics and character." (See Phil Inquirer).
Will society feel safer having a first offender of an economic crime imprisoned for 15 years as opposed to perhaps 5 years? Wouldn't any federal criminal sentence preclude this type of individual from being in a position again to commit such a crime? Wouldn't a future offender be equally deterred by hearing that someone received a 5 year sentence and is a 15 year sentence really necessary here? After all, the sentence should be deterring like minded individuals - the white collar offender.
(esp)(w/ a hat tip to Peter Goldberger)
Former Alaska State Rep Convicted
A press release of the DOJ reports that a "federal jury in Anchorage, Alaska, has found former Alaska State Representative Victor H. Kohring guilty of conspiracy, bribery and attempted extortion." The press release states that "[f]ollowing an eight-day jury trial, Kohring, ... was convicted ... for corruptly soliciting and receiving financial benefits from a company in exchange for performing official acts in the Alaska State Legislature on the company’s behalf. Unlike two executives from VECO, who plead guilty (see here), Kohring decided to go to trial. Typically, taking the risk of trial has had severe consequences when it comes to the sentencing phase. Whether this holds true in this circumstance remains to be seen.