Saturday, December 15, 2007

Indictments in the Northern District of Illinois

It may be snowy and icy in Chicago these days, but Patrick J. Fitzgerald, U.S. Attorney for the Northern District of Illinois,  has been keeping things pretty hot when it comes to prosecuting people. His latest this week may at first blush seem like an simple tax fraud charge as he states in his press release that "[a] suburban businessman was indicted today on federal tax fraud charges for allegedly understating his true personal and business income by more than $1.3 million over five years, in part by concealing the use of corporate funds for personal expenses including gambling debts to sports bookmakers." 

But the Chicago Tribune points out that these charges, charges that the government will be required to prove to sustain this criminal case, just happen to be against a person close to the governor, this time Gov. Rod Blagojevich.  The Chicago Tribune also notes that others around the governor also seem to be having some legal problems. (see here)  Attorney Michael Monico, representing the individual indicted on the tax charges aptly points out that there is nothing related to politics in the indictment.  And looking at the document, this proves accurate. But the indictment does raise a few eyebrows.  For one it hardly seems like a simple tax case when there are 12 counts and a forfeiture action, and when there are words in the indictment like bookmaking, sports wagers, 2 pizza companies, Vegas, Saudi Arabia, and yes, Florida.  It may not be politics, but one has to wonder how much time and energy the government put into investigating this case.


December 15, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Tinkering With Waiver of the Attorney-Client Privilege and Work Product Protection

A new bill (available below) introduced by Senate Judiciary Committee Chairman Patrick Leahy and cosponsored by Senator Arlen Specter, the Committee's ranking member, would add a new Rule 502 to the Federal Rules of Evidence to deal with waiver of the attorney-client privilege and work product protection when a litigant discloses such information to a federal office or agency or in federal litigation.  Companies are often reluctant to disclose the results of internal investigations to the government because giving protected information to an adversary means the privilege and work product claims are waived for all other cases, and it may be difficult to determine in advance how broadly the waiver will be construed.  The new legislation seeks to give a measure of protection by limiting waiver to those materials actually disclosed unless the party intended the waiver to reach undisclosed information or communications.  The new rule also addresses inadvertent disclosures in the same way.   

An earlier proposal to add a provision to the FRE to allow for "selective waiver" of protected information appears to have been dropped, so this new legislation is taking a different tack.  Rather than an across-the-board rule allowing such a waiver, the proposed rule would put the issue in the hands of a federal judge when the disclosure occurs in litigation.  The bill, S. 2450, provides: "A Federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court — in which event the disclosure is also not a waiver in any other Federal or State proceeding."  Importantly, the new rule also overrides state provisions that would construe the waiver in one proceeding as applying in others, so that the protection afforded by a federal court order will also apply in state court litigation.  This is an important protection for companies disclosing internal investigations because they are subject to shareholder derivative suits in state court, so if adopted new Rule 502 will apply uniformly.

The legislation is new, and there have not been any hearings on it at this point.  But the sponsors are the leaders of the Judiciary Committee, so it's likely to get a favorable reception.  (ph)

Download s_2450_privilege_waiver_legislation.pdf

December 15, 2007 in Congress, Privileges | Permalink | Comments (1) | TrackBack (0)

Blue Cross Enters Into a Deferred Prosecution Agreement for Rhode Island Corruption

The on-going corruption probe in Rhode Island -- dubbed Operation Dollar Bill -- snared another non-profit when Blue Cross & Blue Shield of Rhode Island entered into a deferred prosecution agreement with the U.S. Attorney's Office.  The case involves payments by BCBSRI to three members of the state Senate while the insurer was lobbying for favorable legislation.  The illicit payments involved $75,000 to a communications company for a cable television show one senator hosted, $175,500 to a second Senator for 10 million paper bags for a pharmacy promotion by BCBSRI but only 2 million were delivered, and $400,000 in insurance commissions to the president of the state Senate.

The DPA is similar to others we are seeing with increased regularity.  BCBSRI will pay a $20 million fine, which will go to a foundation to be used to provide affordable health services, and must appoint an independent monitor with the U.S. Attorney's approval.  The attorney-client privilege waiver provision is a bit more onerous than I've seen in recent DPAs.  BCBSRI agrees not to assert the attorney-client privilege or work product protection for any factual material generated in its internal investigation, except for communication with counsel about the criminal investigation.  Another provision states that providing the materials does not constitute a waiver of the protections as to third parties, but that may be worthless under the majority rule on selective waiver.

Prior to the disclosure of the DPA, four BCBSRI executives were terminated by the company, and I suspect we will see one or more indicted on corruption charges in the near future.  Two of the state Senators who received money from the company have entered guilty pleas, and Roger Williams Medical Center, a Rhode Island hospital caught up in Operation Dollar Bill, got its own DPA in 2006, one of the first cases involving a non-profit organization. (ph)

Download us_v_bcbsri_deferred_prosecution_agreement_dec_2007.pdf

December 15, 2007 in Corruption, Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (0)

Stick to Acting

Blog emperor Paul Caron has a post (here) on the Tax Prof Blog linking to an interview actor Wesley Snipes gave to Entertainment Weekly (here) discussing his pending criminal tax fraud case.  Snipes claims that he was simply following the advice of two accountants who said he could claim a substantial refund, which turns out to have been based on an interpretation of an Internal Revenue Code provision that has been roundly rejected by all courts to consider it.  Snipes then offers what may be his core defense to the charges: "I never got a dime . . . I didn't defraud the government by taking money that was not mine. We never got it!"  This is a defense heard before, that the intended victim of a fraud was not in fact defrauded, so the defendant is not guilty without proof of a gain.  While the defense has an intuitive appeal, and may well be Snipes' position at trial, it is not an assertion that works in most cases.   A fraudulent scheme does not have to be successful to be a criminal violation, and the fact that the refund was sought, not whether it was paid, can establish the offense. 

Snipes also points the finger at the two accounts who are also his codefendants, accusing them of suggesting the tax strategy he followed without understanding what they were doing.  If the case dissolves into finger-pointing by the defendants, that could ultimately redound to the government's benefit because the skirmish among the defendants may cause the jury to believe that all are guilty and now just want to escape blame.  (ph)

December 15, 2007 in Prosecutions, Tax | Permalink | Comments (0) | TrackBack (0)

Friday, December 14, 2007

Quid Pro Quo Ad Absurdum

I’ve been talking during my week-long guest stint at White Collar Crime Prof Blog about the crime of bribery and some of its enduring problems. The Second Circuit has recently issued an opinion in United States v. Ganim (available below), that reminds us of just how thoroughly confused the law in this area has become. The case involves a former mayor of Bridgeport, Connecticut, who was convicted of numerous counts of racketeering, mail fraud, conspiracy, filing false income tax returns, and federal programs bribery.

In appealing his conviction, Ganim relied on United States v. Sun-Diamond Growers of California, 526 U.S. 398 (1999). That case involved a prosecution for gratuities under 18 U.S.C. § 201(c)(1)(A), which makes it a crime to give anything of value to a public official "for or because of any official act performed or to be performed by such public official." The question in the case was whether the prosecution had to prove a link between the gift and some specific official act, or whether it was enough that the gift was given in the interest of building goodwill between the giver and official. The Court held that the former interpretation was the correct one: in order to prove a gratuity, the prosecution had to prove a nexus between the gift and a specific official act.

In Ganim, the defendant argued that the demanding rule in Sun-Diamond should be extended beyond gratuities to apply as well to extortion and other bribery-related offenses. In upholding the conviction, the Second Circuit rejected this approach, reasoning that the nexus requirement is limited to gratuities. As a matter of statutory interpretation, this is surely correct. There is simply no basis for reading such a requirement into the extortion and bribery statutes. But the case also demonstrates just how wrongheaded the original decision in Sun-Diamond really was. For the fact is that there was no basis for reading such a requirement into the gratuities statute in the first place.

As the court in Ganim put it, "[u]ndergirding the Court’s decision in Sun-Diamond was a need to distinguish legal gratuities (given to curry favor because of an official’s position) from illegal gratuities (given because of a specific act)." Framed this way, one gets a sense of what was wrong with the Court’s holding in Sun-Diamond. Could Congress really have intended to protect from liability gifts given to public officials for the purpose of "curry[ing]" their favor? This seems to me quite unlikely. Gifts given merely to curry favor with officials are hardly less troubling to the political process than gifts given to obtain action on specific acts. The rule in Sun-Diamond has the effect of blurring the distinction between bribes and gratuities by grafting onto the gratuities provision what amounts to a quid pro quo requirement that Congress never intended to be there.

Stuart Green

Download us_v_ganim_dec_4_2007.pdf

December 14, 2007 in Corruption, Judicial Opinions | Permalink | Comments (1) | TrackBack (0)

The Mitchell Report Is Unlikely to Trigger a Wave of Prosecutions

The long-awaited report by former Senator George Mitchell and a cast of associates and partners from DLA Piper has landed -- all 400+ pages counting appendices -- and the sensational headlines are already available.  The report (here) names a few prominent players for their use of performance enhancing drugs, including future Hall of Famers Barry Bonds (no great shock there) and Roger Clemens (plus Gary Sheffield if you think he'll make the Hall), and many who were at best obscure (including one I taught when he was an undergrad).  Mitchell relied primarily on two witnesses who spoke with him as a condition of their agreements with federal prosecutors, plus statements from a few players and club officials.  The recurrent theme in the report is the lack of cooperation from the players identified.

With so many individuals named as having purchased illegal substances, will we see the federal government unleash a tide of prosecutions?  My short answer is "no."  While one should never say "never," the report is just that -- a conclusion by Senator Mitchell based on the evidence he accumulated, without any outside scrutiny of his determinations.  Is there enough there for a criminal case?  Federal prosecutors have heard much the same thing, and I think it is unlikely that they would seek indictments based primarily on the word of cooperating witnesses who are admitted steroids dealers.  Mitchell also has some documentary evidence for transactions with a few players, which would bolster a case against them.  But going after the end-users is not very appealing when the bad guys -- the dealers -- provide the bulk of the evidence.

Even if prosecutors wanted to pursue prosecutions, they would have a substantial statute of limitations problem for a number of players.  The federal statute of limitations period is five years, as provided in 18 U.S.C. sec. 3282, so any transaction before December 2002 would be out, unless prosecutors could charge a conspiracy to bring the case within the limitations period.  For example, in looking at the information about Clemens, much of the discussion involves supposed steroids use before 2002, and while the report insinuates it continued there are no claimed instances of use within the limitations period.  Mitchell smartly doesn't talk about prosecution because it would be difficult for most of the players.

Because Mitchell didn't get much if any cooperation from players, most of those named -- excluding former players like David Segui and Jose Canseco who have admitted to steroid use -- have not boxed themselves in with prior statements that can be used to undermine their credibility.  They may be able to assert the "Barry Bonds Defense" offered in his 2003 grand jury testimony: I didn't know what I took was steroids, I thought it was _______ [flaxseed oil in his case]."  Do prosecutors want to bring a series of cases throughout the country against athletes, some with very deep pockets, who may be quite appealing to jurors?  Never say never, but I have to think that we won't see any criminal cases emerging from the Mitchell report because there's unlikely to be much public support for such a use of resources. (ph)

December 14, 2007 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Senate Judiciary Committee Approves Contempt Citations for Rove and Bolten

The Senate Judiciary approved by a 12-7 vote -- Senators Specter and Grassley joined the ten Democrats in favor -- contempt citations (here) for former White House aides Karl Rove and Josh Bolten for their refusal to produce documents or even appear before the Committee as part of its investigation of the firing of eight U.S. Attorneys in 2006.  The contempt citation for Rove sets forth the crux of the dispute over Executive Privilege:

WHEREAS, Mr. Fielding, in an August 1, 2007 letter to the Chairman and Ranking Member, informed the Committee that the President would invoke a claim of executive privilege and a claim of immunity from congressional testimony for Mr. Rove, and directed Mr. Rove not to produce responsive documents or testify before the Committee about the firings, and that Mr. Rove would not appear in response to the Committee’s subpoena;

WHEREAS, Mr. Rove refused to appear or to produce documents or to testify at the Committee’s August 2, 2007, hearing in compliance with the subpoena;

Bolten, the President's former chief of staff, has the dubious honor of also being named, along with former White House Counsel Harriet Miers, in the earlier contempt citations approved by the House Judiciary Committee over the same claim of Executive Privilege.  Whether either side on Capitol Hill seeks a full vote of the chamber to authorize the contempt remains to be seen.  Of course, all Congress can do in these citations is ask the Department of Justice to pursue the case.  Whether or not Attorney General Mukasey would authorize a contempt proceeding remains an open question. (ph)

December 14, 2007 in Congress, Contempt | Permalink | Comments (0) | TrackBack (0)

Thursday, December 13, 2007

Iowa State Senator Found Not Guilty

An Iowa state Senator charged with one count of attempted extortion under the Hobbs Act was found not guilty of by a jury.  As discussed in an earlier post (here), the defense had filed a motion to dismiss for prosecutorial misconduct.  The case involved recordings by a prosecuting witness with the state Senator, and he was rather substantially impeached by the defense.  A Des Moines Register story (here) discusses the jury verdict. (ph)

December 13, 2007 in Corruption, Verdict | Permalink | Comments (0) | TrackBack (0)

Margy Love on Bush's 2007 Holiday Pardons

Margaret Colgate Love, who served as US Pardon Attorney for seven years, comments on the recent Bush pardons as follows:

"It has been more than a year since Bush issued any post-sentence pardons so it was encouraging to see a fairly substantial batch of cases this time -- though, as in the past, most of the offenses involved were dated and minor (car theft, moonshining, teller embezzlement, letter carrier mail theft, etc.).  Most of the sentences involved probation and/or a fine, and the longest prison term was five years.  While there are a few new law drug cases, the sentences suggest that they were very minor crimes indeed. 
"Bush has now granted 142 pardons, which puts him on track to being the stingiest two-term president in U.S. history.  While he may overtake his father in absolute number of grants by the end of his term, if you compare the number of cases available for consideration in each administration, the comparative compassion quotient is not even close.  Ditto for his general housekeeping practices:  there are now over 1000 pardon cases awaiting consideration, in addition to more than 3000 commutation cases, no applications in either category having been denied in over a year.   Some applications (including those of a couple of my clients)  have been awaiting consideration since the Clinton Administration. One can only hope that he picks up the pace in his final year or he will leave a frighteningly large backlog of cases for his successor.
"If Monday's pardons were pretty thin gruel, the same cannot be said for the sentence commutation granted crack offender Michael Dewayne Short.   The President's personal intervention to reduce Short's 235-month prison sentence could be read as an indication that he too believes that crack sentences are excessively lengthy, which puts him on the side of the courts and the angels, and in opposition to Congress and his own Justice Department.  (I found it interesting that DOJ held the press release announcing the grants until after the Attorney General's Tuesday press conference, at which he reaffirmed the Department's position against making the reduction in the crack guidelines retroactive.)   I think you have to regard the timing of this grant as particularly significant, given the really minuscule number of commutations he has granted to date (three, not counting the outlier Libby).  It came just hours after the Supreme Court recognized the unjust nature of crack sentencing in Kimbrough, and just the day before the Sentencing Commission was scheduled to act on the highly politicized crack retroactivity issue.  So I would like to read it as a message to Congress from the president's bully pulpit, joining his voice to that of the judicial branch to urge comprehensive reform of these unjust laws. 
"On the other hand, the possibility that this was an entirely random act whose timing was entirely fortuitous cannot be ruled out, and the fact that Short's prison sentence was reduced by less than a year made it a pretty safe grant.  Short was a very minor player in a large conspiracy who had nothing to bargain with, and I would be willing to bet that there were other indices of low risk.  President Clinton had already commuted the sentence of one of Short's co-defendants, Derrick Curry, years before.  While the realist in me will wait to see if President Bush grants any more of the 3000 pending commutation applications before I change my view of his clemency policies, this doesn't mean I won't try to argue the symbolic importance of the Short grant wherever it would help the cause of law reform."   
Attorney Margaret Colgate Love - website.

December 13, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Be Kind to Your Corporate Monitor

An article on Law.Com (here) discusses how counsel for public companies have to deal with that new animal, the corporate monitor, if there is a government investigation of significant wrongdoing at the organization.  The advent of deferred and non-prosecution agreements since the demise of Arthur Andersen made federal prosecutors chary about indicting companies, has usually included the company paying for an independent monitor to ensure that it implements the terms of the agreement, which usually includes beefing up the internal compliance program and developing better reporting mechanisms to prevent a recurrence of the misconduct.  The article concludes, "Since monitorships -- whether bane or benefit -- are likely to remain a fixture in the legal and regulatory landscape for the foreseeable future, corporations and their counsel must learn how to deal with them."  I suspect most corporate counsel would vote for "bane" but there's not much they can do about them.

With deferred and non-prosecution agreements becoming almost the norm in corporate crime investigations, I think we should expect at some point to see the Department of Justice create some routine procedures for the appointment of monitors, the scope of authority, and their reporting responsibilities.  To this point, however, the agreements have been developed fairly haphazardly, with different districts following their own internal rules for appointing the monitor and the scope of authority to intervene in corporate affairs.  The monitor for Bristol-Myers Squibb essentially got the company's CEO and general counsel fired because of a criminal investigation initiated while the company was operating under a deferred prosecution agreement -- a rather significant level of involvement in corporate governance.  The appointment of individuals or firms as monitors has drawn criticism in a few instances for the possible appearance of impropriety, with former colleagues of the U.S. Attorney appointed in one district. 

The monitorships can be quite lucrative, and the company has almost no power to control the costs.  As discussed in an earlier post (here), former Attorney General John Ashcroft's firm will likely bill a medical device manufacturer between $29 million and $52 million for work as a monitor for 18 months, which is between $1.5 and $3 million per month.  A company has no real avenue to object to the bills, because the key to escaping the deferred prosecution agreement is cooperating fully with the monitor.  The cost of the monitor is a fairly small price for a company to pay for getting an investigation resolved without a criminal conviction.

As deferred and non-prosecution agreements become more routine, will the Department of Justice, or perhaps even Congress, try to institute regular procedures for them?  Perhaps one day there will be a group of approved corporate monitors who will work for a fixed fee or discounted rate that a company could chose from.  The lack of regular procedures works to the benefit of the local U.S. Attorney's Offices at this point, because without procedures there can be no real oversight.  The day may come, however, when the "wild west" aspects of these agreements comes to an end. (ph)

December 13, 2007 in Settlement | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 12, 2007

More on Public and Private Bribery

Yesterday, I talked a bit about a new consultation paper on the law of bribery issued by the Law Commission of England and Wales.  One of the report’s most striking recommendations is that bribery in the private sector be treated the same as bribery in the public sector.  From an American perspective, the recommendation is surprising.  The law of bribery, particularly at the federal level, is focused primarily on bribes involving public officials engaged in official acts.  Legislation concerning bribes in the commercial sphere occurs only in the case of certain specific industries in which side payments have proved to be a problem, such as in the case of investment advising, banking, labor unions, radio disc jockeys, and television quiz shows.  Only a few states have more general laws broader laws that apply broadly in all commercial contexts.

The consultation paper’s principal rationale for treating public and private sector bribery the same is that both involve a "betrayal of a relation of trust or a breach of a duty to act impartially or in the best interests of another."  At the most abstract level, perhaps, this is true.  But the problem is that the nature of the relation of trust in the private sphere tends to be much more varied and complex than in the public sphere.

Consider the following hypotheticals: (1) a waiter at a restaurant accepts a payment from a customer in return for reserving a particular table; (2) a supermarket manager accepts a payment from a breakfast cereal sales representative in return for ensuring prominent shelf space for a product; (3) a teacher accepts a gift from a favorite student at Christmas time shortly after the teacher has written the student a recommendation letter.  In each case, it’s unclear that any relation of trust or duty to act impartially has been betrayed. Waiters regularly receive money from customers for their services. Indeed, they depend on such payments for their livelihood.  There is no clear line between payments given to recognize service given and payments to receive some special treatment. The same is true in the case of the supermarket. Sales representatives regularly pay money for prominent product placement.  Unless there is a clear rule that prohibits sales managers from taking side payments, we cannot know whether the manager has done anything wrong.  Similarly in the case of the teacher, without more context, we have no indication that there has been a breach of any duty of impartiality.

In the public sector, the lines are much clearer. It’s hard to imagine any circumstances in which it would be appropriate for a public official to accept a gift from anyone in connection with his official duties.  (One possible exception might be a case in which an official receives a gift from a foreign head of state or diplomat, but even here it’s doubtful that it would be appropriate for the public official to keep the gift for his own use.)  We have no problem in categorically prohibiting public officials from accepting payments beyond the regular salaries they receive from the state. But private industry functions very differently.  There are various industries in which it is expected and appropriate for such side payments to be made. To regard all such payments as bribes would entail significant chilling effects on business practices. For this reason, the ad hoc, industry-by-industry approach to legislation seems more likely to provide an optimal level of criminalization.

Stuart Green

December 12, 2007 in Corruption | Permalink | Comments (0) | TrackBack (0)

Fraud Without Loss in the Reyes Case

Former Brocade CEO Gregory Reyes got a dose of pretty good news from U.S. District Judge Charles Breyer about his upcoming sentencing for options backdating at the company.  In an opinion (available below) discussing various sentencing issues, Judge Breyer determined that the government did not propose any reasonable method for determining the loss from the backdating, and therefore he would not apply an enhancement under the Sentencing Guidelines for loss to increase the offense level.  The Judge did not find the loss was zero, which could be a more problematic conclusion, but instead found that the government's various proposed methods of calculating the loss were inadequate to fairly estimate the harm.  Complicating matters in this case, which may make it sui generis, is that Reyes did not personally profit from the backdating, at least not as charged in the indictment, so intended gain is not available.  The government argued that Reyes did profit from other the backdating of other options not charged in the case, but the court rejected that as not proven by the government.

One method proposed by the government was to look at the decline in Brocade's stock price on the day the company disclosed the improper accounting for the options, which triggered a loss of over $3 million.  Judge Breyer rejected that method, finding that it did not adequately measure any loss directly from the backdating but only how the market reacted on one particular day to a news event.  The Judge also rejected using a "recissory" method to estimate the value of the options as backdated because in fact they turned out to be worthless, due to the significant decline in Brocade's stock price when the tech bubble burst and all the options ended up under water.  Finally, he rejected using the amount of the SEC fine Brocade paid, which was $7 million, and the tax liability it assumed for covering the tax consequences of the backdating, which was over $3 million.  On the SEC fine, the court stated that this method had never been used before, and for such a significant enhancement he would not adopt a novel method of calculating the loss.  The amount of the loss is the primary driver of sentences under the Guidelines, and by finding no loss from the backdating, Reyes avoided a sentence that could have stretched past twenty years if a particularly high figure was calculated. 

Judge Breyer did enhance the sentence on two grounds: Reyes' role as an officer of a public company and as an organizer of the criminal conduct.  Together with the base offense level, the Guidelines sentencing range is 15-21 months, based on an Offense Level of 14.  Not a walk in the park for Reyes, for sure, but substantially less than what has been seen in other CEO prosecutions.

After the Supreme Court's recent decisions in Gall and Kimbrough granting district judges considerably more discretion in sentencing, I suspect Judge Breyer may depart from the Guidelines recommendation.  It would not surprise me if he gave Reyes a split sentence, perhaps the old "double nickel" of five months in prison and five of home confinement, and could even give a pure home confinement/probation sentence.  Prior to Gall, I would have expected prosecutors to appeal the district court's loss analysis.  But now that the standard of review is abuse-of-discretion, I doubt the Judge's analysis is so off base as to draw a reversal from the Ninth Circuit.  Reyes is sure to appeal the conviction, but I think the sentencing will be good news, at least to the extent one can ever say that being sentenced in federal court provides a measure of good news.

The court's loss determination is definitely good news for Stephanie Jensen, Brocade's former human resources manager who was also convicted in a separate trial on conspiracy and false SEC filings charges for the Brocade backdating.  Given that she is unlikely to qualify for the organizer enhancement like Reyes, and probably was not in a senior position to trigger the four-level enhancement for being an officer of a public company, her offense level would be 6, leading to a sentencing range of 0-6  months.  At that level, she would be eligible for probation, or home confinement at worst, a far better outcome for her than a term of imprisonment. (ph)

Download us_v_reyes_sentencing_guidelines_loss_opinion_nov_27_2007.pdf

December 12, 2007 in Fraud, Securities, Sentencing | Permalink | Comments (0) | TrackBack (1)

Tuesday, December 11, 2007

The Lawyer Gets Probation

With the recent focus on the Conrad Black sentencing of 6.5 years, many failed to notice the co-defendants.  Yet there were three and one was an attorney.  Judge Amy St. Eve placed Conrad Black's former corporate counsel at Hollinger International on five years probation.  The government wanted significantly more time, but the court recognized that the attorney had received no profit/gain and was the least culpable individual.  (see Chicago Tribune here, Wall St Jrl here). 

A July 17, 2007 DOJ Corporate Task Force News Release reporting on the prior five years states that "23 corporate counsel or attorneys" had been convicted during this time span - a number that Alice Fisher proudly spoke to at the Second Annual ABA Securities Fraud Conference. (see here)  Perhaps this number seems low to some, but it actually should be considered very high. If a client fails to follow the advice of outside counsel it is easy for the lawyer to disclaim responsibility. But when the attorney is inside counsel, more responsibility may fall into his or her lap. The question now becomes: how far must corporate counsel protest when conduct within the corporation presents problems, especially problems that a prosecutor may decide to call criminal down the road.

Although corporate counsel here will not have to suffer prison time, the conviction in this white collar case carries severe consequences -especially to the ability to continue to practice law.  This conviction, even with a sentence of probation, sends a clear message that corporate counsel should dust off the resume when there is any possibility that corporate management is not following the law. But one has to wonder if fleeing corporate counsel when matters get tough will be in the best interest of the corporation and its shareholders.


December 11, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Upcoming Conferences

12/13/07 - ABA - Thompson/McNulty Memorandum and Beyond - details here.

12/6-7/07 - ABA - Criminal Tax Fraud - details here

1/9/08 - Strafford - Foreign Corrupt Practices Act - Voluntary Disclosures - details here

3/5-7/08 - ABA 22nd National White Collar Crime Institute - details here.

5/1-4/08 - NACDL - White Collar Crime Track - details here.


December 11, 2007 in News | Permalink | Comments (0) | TrackBack (0)

We Mourn the Passing of Professor Stanton Wheeler

Wheeler_stanton We mourn the passing of Professor Stanton Wheeler. Professor Wheeler was the Ford Foundation Professor Emeritus of Law and Social Sciences and Professorial Lecturer in Law at Yale Law School. Bio here.  NYTimes Obit here. A list of his extraordinary works in the area of white collar crime can be found here. He was well known for his leadership on the Yale White Collar Crime Studies and for reminding us that sociology plays an important role in this area of the law.

(esp & ph)

December 11, 2007 in News | Permalink | Comments (0) | TrackBack (0)

Monday, December 10, 2007

The Timing on Libby Dropping His Appeal

Yesterday was Sentencing Day.  From the Gall and Kimbrough decisions by the Supreme Court (here), the sentencing of Michael Vick (here) and Conrad Black (here), Libby dropping his appeal could easily have slipped by without much notice.  But in the new world of blogs, that seldom happens.  It was mentioned here, as well as Doug Berman's Sentencing Law & Policy Blog, Jerri Meritt's Talk Left, Huffington Post here, and a host of other places.  And many were speculating on why I "Scooter" Libby would make this strange move of dropping his appeal.  Several things to notice here:

  • Although Libby might not have known that the Supreme Court decisions would be issued Monday, the sentencing of Conrad Black was a foregone conclusion. How best to remove oneself from being a "front-pager" then to move when other news is hot.
  • Some are speculating as to whether this dismissal is in anticipation of a possible pardon (see here)- but that's just speculation, and a pardon might not be a positive act to assist in a legal disciplinary matter.

The Libby Legal Defense Trust Fund contains a statement by Libby's lawyer Ted Wells (here) that includes the statement that

"the realities were, that after five years of government service by Mr. Libby and several years of defending against this case, the burden on Mr. Libby and his young family of continuing to pursue his complete vindication are too great to ask them to bear."

In many ways this statement tells it all for anyone who has been through a government investigation, followed by a trial, and then a conviction.  This may in some ways have been the worst part, both on Libby and his family. The strain of a long white collar investigation is grueling on not only the individual being investigated, but also those around that person.  At some point one says - enough is enough and lets move on.  Irrespective of whether Libby gets a pardon or not, one has to credit him with doing something that may not have been best for him (a possible vindication if completely successful on appeal and retrial) but is probably best for those around him. 


December 10, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Conrad Black Sentenced to 6 1/2 Years

Conrad Black received a sentence of  6 1/2 years. (see here, here, and here).  This is far from the 24 years requested by the government. (Sun Times calls it giving him a break here) But it is also above some predictions (see here).  Black made a statement at the sentencing hearing (he did express regret to shareholders), but an apology with an admission was not forthcoming (see here).  With an appeal of the conviction about to start, it would be difficult to provide an apology that admitted to wrongdoing as the statement could prove detrimental to his claim of innocence. 

Defendants are placed in a precarious situation of wanting to show remorse to reduce their sentence, but also wanting to continue their claims of innocence for appeal.  This is yet another example of when going to trial severely disadvantages the accused.  Not only does the person accused of the crime lose out on the opportunity for a lower sentence via a plea, but they also lose on reducing their sentence by not presenting acceptance of responsibility and remorse, factors that mitigate a sentence.  After all, how can one claim that they have remorse or accept responsibility if they are arguing that they are legally innocent.

Conrad Black can be very thankful to the judge, in that according to the Star he was given 12 weeks before having to report to prison.  (see here).   More on this later.  


December 10, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Vick Sentenced to 23-Month Term

Things are happening so fast today that it's hard to keep up.  Former Atlanta Falcons quarterback Michael Vick received a 23-month prison term, at the higher end of the Sentencing Guidelines range.  The sentencing played out along the same lines as two co-defendants in the dog fighting case, who also were sentenced on the higher end of the Guidelines to 18 and 21 months.  Interestingly, while one co-defendant had a prior criminal record that would usually trigger a longer sentence, Vick received the longest term so far, by two months.  The district court's Sentencing Minutes (available below) indicate that U.S. District Court Judge Henry Hudson rejected Vick's request for a reduction in the applicable Guidelines range based on his acceptance of responsibility, which is usually granted in cases in which the defendant pleads guilty.  Vick also surrendered in advance to begin serving his expected prison term, but that was insufficient to persuade the Judge that he had truly accepted responsibility for his conduct.  The denial of the two-level reduction probably kept Vick from falling in the 12-18 month range under the Sentencing Table.

A 23-month sentence means that Vick will have to serve about 20 months in prison because he will most likely receive a 15% good time reduction under the Bureau of Prisons rules.  In addition, he could be released to a half-way house for the last part of his term, so he could be out of a federal correctional institution by June 1, 2009, or thereabouts.  While residing in a half-way house he could begin training for the upcoming football season.  Vick was also sentenced to a three-year term of supervised release, but the only significant conditions there are that he undertake a drug/alcohol abuse program -- recall that he tested positive for marijuana while awaiting sentencing -- and not acquire any dogs.  So Vick may be able to point to returned for the 2009 NFL season, assuming Commissioner Roger Goodell's suspension does not stretch into that season.  Will an NFL team take a chance on Vick?  Given the state of quarterback play this past weekend, I think you can count on it. (ph)

Download us_v_vick_sentencing_minutes.pdf

December 10, 2007 in Sentencing | Permalink | Comments (0) | TrackBack (0)

What do Gall and Kimbrough Mean for White Collar Cases

The Supreme Court issued opinions today in the long awaited cases of Kimbrough v. United States and Gall v. United States.  Both decisions provide added deference to the district court decision on sentencing. In Kimbrough the Court finds that a "judge may consider the disparity between the Guidelines' treatment of crack and powder cocaine offenses." And in Gall the Court finds that "while the extent of the difference between a particular sentence and the recommended Guidelines range is surely relevant, courts of appeals must review all sentences -- whether inside, just outside, or significantly outside the Guidelines range-- under a deferential abuse-of-discretion standard."  In Gall, the Court found "that the sentence imposed by the experienced District Judge.... was reasonable."

These decisions may be important in white collar cases, especially those with absurd loss values that provide unreasonable and draconian sentences. One need only look to our President's words in pardoning commuting the sentence of I "Scooter" Libby when he found a guideline sentence "excessive" in a white collar case to say that a below guidelines sentence may be more reasonable.

Justice Stevens in Gall is critical of the exclusive mathematical computation as the end-all decision.  He places much power in the hands of the district court -- the trier of fact.  He states,  "if the sentence is outside the Guidelines range, the court may not apply a presumption of unreasonableness.  It may consider the extent of the deviation, but must give due deference to the district court's decision that the section 3553(a) factors, on a whole, justify the extent of the variance."

What does this mean in the white collar world?

  • For the defendant - you have much to gain in the trial court, but you also have a lot to lose -  be sure and present strong sentencing evidence before the district court judge.
  • For the district court judge - you now have more power and your decision carries a lot more weight; you also have discretion to move beyond the guidelines when the guideline sentence is "excessive."
  • For the government - don't just assume the guidelines will be imposed.


Addendum - CNN reports that I Scooter Libby is dropping his appeal. (see here)

December 10, 2007 in Judicial Opinions, Sentencing | Permalink | Comments (0) | TrackBack (0)

Every Man Has His Price

Professor Stuart Green is joining us this week as a guest blogger.  He is Louis B. Porterie Professor of Law at the Paul M. Hebert Law Center at Louisiana State University, where he has taught since 1995.  His current project is a monograph entitled Property, Crime, and Morals: Theft Law in the Information Age, which will be published by Harvard University Press.  Stuart has written extensively on white collar crime issues, and his post is about a subject near and dear to our hearts here are the White Collar Crime Prof Blog: corruption.  Welcome, Stuart, and thanks for joining us.


My thanks to Peter Henning and Ellen Podgor for inviting me to serve as a guest blogger this week at White Collar Crime Prof Blog. I am a professor of law at Louisiana State University and author of Lying, Cheating, and Stealing: A Moral Theory of White Collar Crime (OUP, 2006), now available in paperback.

I plan to spend at least some of the week talking about bribery. The last several weeks have brought a steady stream of such cases in the news: That of Dickie Scruggs, the big time Mississippi torts lawyer who has been indicted on charges that he offered $50,000 to sway a local judge in a relatively small fee dispute, has already received some excellent discussion on this site. Reports out of Iraq indicate that widespread theft and bribery are hindering the country’s ability to achieve political and social stability. And Pete Kott, former Speaker of the Alaska House, was sentenced to six years in a federal prison for accepting $9,000 in bribes from the founder of an oil field services company, in a case that may well end up implicating Alaska Senator Ted Stevens.

Bribery is an elusive crime. Particularly in the United States, where the political process is so thoroughly permeated by private contributions and log-rolling, it can be hard to distinguish between what’s truly corrupt and what’s not. The British, though less encumbered with the problem of political contributions, have nevertheless struggled to make sense of bribery, and the Law Commission of England and Wales has just issued a major new consultation paper calling for reform in this area. (Full disclosure: I served as a consultant on the report, writing an Appendix on the law of bribery in the U.S.) The study recommends a complete overhaul of the law of bribery.

Among its most striking recommendation is that bribery in the private sector be treated on the same terms as bribery in the public sector. The study offers both moral and instrumental reasons for abrogating the traditional distinction. It views the moral wrong of bribery as involving the "breach of a legal or equitable duty that involves a betrayal of a relation of trust or a breach of a duty to act impartially or in the best interests of another." It says that "[w]here a person breaches such a duty in return for the conferral or promise of an advantage from another, both should be guilty of bribery irrespective of whether the recipient is a public official." ¶1.16. As for practical reasons, according to the report, "the main objection to having separate offences is that it is very difficult to define with sufficient clarity the distinction between public sector and private sector functions. Increasingly, what were formerly public sector functions are sub-contracted out to the private companies while public bodies now frequently form joint ventures with private companies." ¶1.14.

Both propositions seem to me problematic. First, it could be argued that government officials who accept bribes breach a duty to the public good that is more significant than the duty breached by employees of a private firm. Second, while it is true that the lines between public and private functions has become increasingly blurred in recent years, it may make more sense simply to err on the side of treating some quasi-private functions as public (as in the case of U.S. federal program bribery) without going so far as to treat all private functions as public. Those, at least are a couple of my initial reactions to the report. I’ll have more to say about it tomorrow.

Stuart Green

December 10, 2007 in About This Blog, Corruption | Permalink | Comments (0) | TrackBack (0)