Saturday, November 24, 2007
A DOJ Press Release reports that "[t]he former president and owner of ATE Tel Solutions Inc., which does business as ATE Telecom Solutions Inc. (ATE Tel), was sentenced to serve three years in prison following his conviction for his involvement in a scheme to defraud the federal E-Rate program, the Department of Justice announced today." The case originated as an Antitrust investigation and "resulted from an ongoing national investigation of fraud in the E-Rate program." The conviction was for 9 counts of wire fraud.
Deferred and non-prosecution agreements are fast becoming the accepted means for corporations to settle a range of criminal investigations, from FCPA violations to healthcare fraud to accounting problems. What little law there is in the area has developed haphazardly, and there has not been much attention paid to these agreements in academia. Stetson law professors Candace Zierdt and Ellen Podgor, co-editor of this blog, have contributed to the discussion with their new article, Corporate Deferred Prosecutions Through the Looking Glass of Contract Policing. From the abstract:
This article examines deferred and non-prosecution agreements entered into between corporations and the Department of Justice (DOJ) through the lens of contract policing theory. It adds a new dimension to the contractual law now applicable to plea bargains and proffer agreements by suggesting key provisions that should be prohibited in deferred prosecution agreements. Three provisions common to many deferred prosecution agreements, or used by the government as leverage to secure a deferred prosecution agreement, are of particular interest here. These are: (1) the requirement of a corporation to waive its attorney-client privilege; (2) the determination of a breach of the agreement being within the sole province of the government; and (3) the provision that corporations not abide by previously negotiated contract terms that allow the corporation to pay the attorney fees of corporate employees. Specifically, this article examines the viability of specific provisions within these agreements when matched up against contract policing principles such as duress and unconscionability. This article concludes that corporations are deprived of basic contract rights as a result of the over-powering prosecutorial power used in reaching these agreements.
The article is available to download on SSRN (here). (ph)
Friday, November 23, 2007
The prosecution of homerun king Barry Bonds for four counts of perjury requires prosecutors to establish that he lied and not just made misleading statements. The testimony recounted in the indictment shows Bonds clearly denying any knowing use of steroids, and placing his inadvertent use of "the cream" in and around the 2003 season. A "literal truth" defense (see earlier post here) will be difficult to mount when the testimony is explicit and a clear denial. To prove Bonds lied, prosecutors will need to produce evidence that he did in fact use steroids at various times, and that it was done at least with his knowledge of a strong possibility that what he ingested or administered into his body was steroids. While the indictment identifies the alleged lies, it says almost nothing about the government's proof to show the statements were in fact false, and Bonds' knowledge of their falsity.
One avenue of evidence involves documents seized from Balco (Bay Area Laboratory Cooperative), which was the source of the steroids Bonds allegedly used. There is a reference in the indictment to an exchange in the grand jury in which the prosecutor shows Bonds a Balco document with a date for possible steroid use and the notation "BB" next to it, but Bonds disclaims any use at that time. The purported creator of the document is former Bonds trainer Greg Anderson, who refused to testify before the grand jury and his attorney recently vowed in an interview (see MSNBC story here) that he will not testify at trial. Anderson would be key to identifying whether BB is Bonds, and he can authenticate the documents for admission in to evidence. While there is a chance prosecutors will call Anderson at trial to at least get the documents into evidence, I doubt they will go down that road. There may be other means to have the document admitted. Moreover, Anderson has shown no willingness to provide any information that could harm Bonds, and if he were to testify prosecutors would have no idea what he would say. He could even "fall on his sword" and testify as a means to exculpate Bonds. While that would subject Anderson to the risk of a perjury prosecution, it would be little comfort to prosecutors if Bonds were found not guilty based on reasonable doubt raised by Anderson's testimony. If he refuses to testify at trial, Anderson could be charged with criminal contempt, but that doesn't help prosecutors much in the Bonds case and gives at least the appearance of vindictiveness against Anderson, who has made his position clear.
Other sources of evidence speculated about in the press (see AP story here) include a former long-time friend and business partner of Bonds and a former mistress, but each carries significant baggage and would not be particularly strong witnesses, or at least not the type of witness on which one centers a case. A likely source of information may be documents and testimony from the staff of the San Francisco Giants, Bonds' former employer for fifteen years. In July 2006, prosecutors allowed the term of an earlier grand jury investigating Bonds to expire because the government had just received Bonds' team medical records pursuant to a subpoena. Those documents, and perhaps testimony from medical personnel with the Giants, could be used to establish his likely usage of steroids, thus bolstering the testimony of any witnesses who might recount statements made by Bonds about his steroids use. In the credibility battle like to unfold at trial, the documents can be the government's best evidence because they don't hold a grudge or have deals with prosecutors.
As a final note, one criticism of the indictment from the media and even Bonds' lawyers was the delay in seeking the charges, that the government had all its evidence back in 2005. The problem with this criticism is that it's not yet clear what evidence the prosecutors plan to use, and whether they obtained any in the past year or so. For example, the medical records were not delivered until July 21, 2006, and that was over the objection of Bonds, who tried to quash the subpoena to the Giants (see San Francisco Chronicle story here). Anderson spent over a year in jail for civil contempt because he refused to testify before the grand jury, and prosecutors cannot be faulted for trying to obtain information from a potentially key witness that results in delaying the investigation. The Bonds case played out over a long period of time, but whether that is a ground for criticism is certainly not clear. (ph)
UPDATE: A New York Times story (here) indicates that Bonds is shopping for new counsel with more experience in federal prosecutions, something lacking on his current legal team. There are plenty of outstanding white collar defense counsel in San Francisco, although a local attorney is not necessary for a case like this, so the search may well involve lawyers throughout the company. Whoever wins the sweepstakes will see his or her name in the newspaper and on ESPN quite a bit. (ph)
Thanksgiving is a time to express gratitude for the benefits of the previous year, and former Attorney General John Ashcroft may well be counting quite a few of them from his appointment as an outside monitor for Zimmer Holdings, Inc. The company was one of four medical device makers that entered into a deferred prosecution agreement (here) with the U.S. Attorney's Office for the District of New Jersey in September 2007 that included the now-standard provision requiring the appointment of an outside monitor. According to a Newark Star-Ledger column (here), U.S. Attorney Christopher Christie approved the appointments of the monitors that included two former U.S. Attorney's and his former boss at the Department of Justice. The Ashcroft Group LLC, which advertises itself on its website (here) as specializing "in strategic consulting for corporations worldwide in homeland security, corporate governance, litigation strategy, and data security," expects to charge Zimmer somewhere between $29 million and $52 million for the eighteen months that the firm acts as a monitor. That's not a bad payday, and Zimmer -- like every other company that enters into a deferred or non-prosecution agreement -- can hardly object to the fees lest it look uncooperative and bring down the wrath of the U.S. Attorney's Office. So much to give thanks for this Thanksgiving. (ph)
Thursday, November 22, 2007
Former Atlanta Falcon's quarterback Michael Vick opted to begin his expected prison term almost three weeks before sentencing when U.S. District Judge Henry Hudson signed an order (available below) directing the U.S. Marshal to "take custody of the Defendant immediately upon his surrender." By choosing to start his term now, Vick probably will spend his first -- and I suspect his only -- Thanksgiving in prison. While the maximum term Vick is facing is five years, I expect he will receive a sentence of a year-and-a-day or thereabouts. There's an outside chance of a split sentence that would include home confinement, but his use of marijuana while on bail pending sentencing probably jeopardizes his hopes for such a modest punishment. I think the upside to entering the Bureau of Prisons system now is that the expected term will be completed by October 1 because of the 15% good time credit he would receive for a sentence of more than one year -- the extra day effectively cuts off about six weeks. Vick would likely be released in August to a half-way house, at which point he could begin workouts in the hope of resuming his football career, perhaps even as early as the end of the 2008 season if NFL Commissioner Roger Goodell were to suspend him for one year from the date of sentencing on December 10.
The pressure on Vick to start generating an NFL salary again is enormous. Federal prosecutors filed a motion for a restraining order (available below) seeking to keep Vick from dissipating assets before he pays approximately $930,000 in restitution for the care of the pitbulls seized from his property in Virginia. The motion outlines other pending proceedings against Vick seeking to recover money from him that include: (1) the Falcons' arbitration proceeding to recoup almost $20 million of bonus money paid to Vick based on his being on the team's roster during his contract, which has now been voided; (2) a claim by Wachovia Bank for $1.3 million in loans for a wine store; (3) RBC Centura Bank's claim to recover on a $2.5 million line of credit extended to Vick; and, (4) 1st Source Bank's suit to recover on a $2.5 million loan for a car rental business. That's a lot of money being sought by creditors, and the sooner Vick can get back to the NFL -- some team will certainly take a chance on a quarterback with his talent, even if he sits out two seasons -- the quicker he can start rebuilding his financial life. Trading a Thanksgiving in prison for a shot at an earlier release may be a worthwhile exchange when prison is inevitable. (ph)
Wednesday, November 21, 2007
The contradictory statements of State Department Inspector General Howard "Cookie" Krongard and his brother, A.B. "Buzzy" Krongard, about Buzzy's joining an advisory board for Blackwater Worldwide will be the subject of an early December hearing before the House Oversight and Government Reform Committee. The issue will be whether Cookie Krongard committed perjury when he first denied to the Committee knowing about his brother's connection to Blackwater, which is being investigated by the IG's office, and then said his brother told him that there were no financial ties with the company. Buzzy says he told his brother about the financial arrangements related to the advisory committee and his intention to take the position. A memorandum (here) from Committee Chairman Henry Waxman states that
discrepancies between the testimony of Howard Krongard and the information from Buzzy Krongard raise questions about the truthfulness of Howard Krongard's testimony. During the hearing, there were a number of other discrepancies between Howard Krongard's testimony and what the Justice Department and senior officials in the Inspector General's office told the Committee. This is a serious matter given Howard Krongard's position as the Inspector General of the State Department. I expect the Committee to hold a hearing during the week of December 3,2007,to provide members the opportunity to assess whether the Inspector General provided truthful testimony to the Committee.
Like anyone subject to a potential perjury charge, Cookie has retained counsel, who sent a letter (here on TPMmuckraker) to Representative Waxman asking that the hearing be canceled because "there is no legitimate legislative purpose to be gained by publicly pitting two brothers against each other." The usual Thanksgiving contest to see who wins pulling apart the turkey wishbone may be just a prelude to more discomfort between Cookie and Buzzy. (ph)
Lawyers for former Brocade CEO Gregory Reyes filed a number of letters requesting that U.S. District Judge Charles Breyer show him leniency when Reyes is sentenced in December on the ten charges related to options backdating at the company. It is commonplace in white collar crime cases -- particularly for convicted CEOs -- for a deluge of letters in support of the defendant to come to the sentencing judge. A sample of the letters (available below) includes a number written by former Brocade employees attesting to Reyes' good character. In addition, there are letters from the CEO and chairman of VeriSign, which recently announced that the SEC closed its investigation of the company for options backdating, the former U.S. CEO of PricewaterhouseCoopers who served on Brocade's audit committee, and a senior partner at McKinsey.
Whether these types of letters have any appreciable effect on the sentencing is an open question. The Federal Sentencing Guidelines is usually the main driver of the sentence, but if Judge Breyer is willing to depart from the recommended sentence then they could provide the support necessary. The sentencing will take place after the trial of a second Brocade officer, the former manager of its HR department, scheduled to begin after Thanksgiving. (ph)
Tuesday, November 20, 2007
The Minnesota US Attorney, who has been in the news quite a bit lately, will be shifting her employment venue to DC. Philip Shenon (NYTimes) reports that Rachel K. Paulose will be moving to legal policy issues in the main office. (see here)
ABA - Criminal Tax Fraud - December 6-7, 2007 San Francisco
ABA New Issues in Attorney Client Privilege for Corporate Counsel - December 13, 2007
ABA - Internal Investigations for Multi-National Corporations - December 14, 2007
NACDL - White Collar Crime Track - May 1-4, 2008, New York City
Monday, November 19, 2007
The New York Times reports that a grand jury has issued subpoenas into matters related to the Blackwater investigation. Obviously, this is no indication that there will be indictments coming from this grand jury. One consideration, however, is that once an enormous amount of money is spent on an investigation, there is a desire to show that the expenditure was worthwhile.
A DOJ Press Release reports on the indictment of a Texas company and two individuals associated with the company. The Press Release states that "the president and owner of [a Texas Oil Company], and .... the company’s operations manager, were arrested and charged today with illegally disposing of hazardous waste at facilities only approved to take oil and gas production waste. [The company], a licensed hazardous waste transporter and used oil handler, was also named in the indictment." They were "charged with 14 felony counts including conspiracy, violating the Safe Drinking Water Act and violating the Resource Conservation and Recovery Act."
Sunday, November 18, 2007
"The settlement resolves allegations that Physiotherapy, which is based in Memphis, Tenn., submitted claims for services to Medicare, state Medicaid programs, and the Department of Defense’s TRICARE program that were falsely billed as one-on-one services and that Physiotherapy improperly retained excess or duplicate payments it received from federal health care programs. Under the terms of the settlement, Physiotherapy agreed also to enter into a corporate integrity agreement with the Office of Inspector General for the Department of Health and Human Services."
The case came from two qui tam actions, with the two whistleblowers receiving nearly three (3) million dollars. The case was resolved civilly.
Amy Koltz at the American Lawyer has an article titled, A Jury Without Peer, that places you in the jury room during the decision-making process of the trial of AOL employees. It is truly an extraordinary piece, detailing the reactions of lay jurors to a white collar case. It is an excellent read for what works and what does not work in these cases. Most important is that it emphasizes the need for professionalism and that credibility of the case may rest on the how the prosecution handles its deals, its presentation of evidence, and the courtroom presentation. One has to respect the jury in this case.
(esp) (w/ a hat tip to Attorney Hank Asbill)