Tuesday, February 19, 2008

The Spider and the Fly

The sentencing of Brent Wilkes for paying bribes to former Representative Randy (Duke) Cunningham may well produce the longest sentence for public corruption seen in a very long time, and perhaps ever.  As discussed in an earlier post (here), the U.S. Probation Office recommended a sixty-year prison term for the offenses, based on the amount of the bribes and business gained from them, the involvement of an elected official, Wilkes' leadership role, and obstruction of justice.  The U.S. Attorney's Office weighed in by responding to objections raised by the defense in a brief (available below) that describes Wilkes as the spider and Cunningham the fly trapped in the web of corruption -- a little cute, to be sure.  Prosecutors take shots at both Wilkes and Cunningham in the filing, describing the former as "a war profiteer, a thug, a bully, a lecherous old man who preyed on his young female staffers and hired prostitutes" and the latter as "simpleminded" and "of limited intelligence."  Certainly not the way you hear a former Congressman described very often.

According to a San Diego Union-Tribune story (here), prosecutors recommend a sentence at least double Cunningham's 100-month prison term for Wilkes, which would be nearly seventeen years, and then ask for a twenty-five year term.  Under the Sentencing Guidelines calculation in the Presentence Report, Wilkes can be sentenced to life in prison.  While I doubt U.S. District Judge Larry Burns will come in at that level, he may well sentence Wilkes to a prison term that will rival those received by Bernie Ebbers (twenty-five years) and Jeffrey Skilling (twenty-four+ years) for corporate frauds.  How often do you see the U.S. Attorney's Office recommend a  lighter sentence than the Probation Office, especially for a defendant who went to trial and is assailed as having committed perjury in his trial testimony (note the "Top Ten Lies" section of the government brief)?  (ph)

Download us_v_wilkes_government_response_to_defendant_sentencing_objections.pdf

February 19, 2008 in Corruption, Sentencing | Permalink | Comments (1) | TrackBack (0)

Plea Deal for Miami City Attorney

If looking for white collar news, one can always check out what is happening in south Florida.  This week the ABA Law Journal News Now reports on a plea agreement reached for the Miami City Attorney that will result in a resignation, a plea to two misdemeanor counts, and a term of probation.  For details also see the Miami Herald here

(esp) (w/ a hat tip to John Wesley Hall)

February 19, 2008 in Settlement | Permalink | Comments (0) | TrackBack (0)

Sunday, February 17, 2008

Tax is "IN"

Wesley Snipes is not the only one dealing with tax issues these days.  It seems the former mayor's brother in Philadelphia, in response to charges against him, is arguing that the tax code is unconstitutional.  The Philadelphia Inquirer reports here on a trial that sounds like a scene from a Broadway play. But as bizarre as the testimony may be, tax cases can be very difficult for the government.

In Cheek v. United States, the accused was unsuccessful on his claim of no knowledge as the Court noted that one cannot argue a statute's unconstitutionality without having knowledge of the statute.  But Cheek was successful in obtaining a reversal as the trial court had not given an appropriate knowledge instruction.  After all, tax statutes are complicated.

Although tax cases can be difficult ones for the government, when there is a failure to file and a proper jury instruction is given, a claim of no knowledge can be difficult for the accused.  As noted by Justice Blackmum (Marshall joining) in his dissent in the Cheek case:

"it is incomprehensible to me how, in this day, more than 70 years after the institution of our present federal income tax system with the passage of the Revenue Act of 1913, 38 Stat. 166, any taxpayer of competent mentality can assert as his defense to charges of statutory willfulness the proposition that the wage he receives for his labor is not income, irrespective of a cult that says otherwise and advises the gullible to resist income tax collections."

Stay tuned to find out how the accused fares in this trial.

(esp) (w/ a hat tip to Peter Goldberger) 

February 17, 2008 in Tax | Permalink | Comments (1) | TrackBack (0)

Wabtec Deals With Government

A DOJ press release tells of their recent "agreement with Westinghouse Air Brake Technologies Corporation (Wabtec) regarding improper payments to government officials in India in violation of the Foreign Corrupt Practices Act." The release states that

"[t]he agreement requires that Wabtec pay a $300,000 penalty, implement rigorous internal controls, and cooperate fully with the Department. The agreement acknowledges Wabtec’s voluntary disclosure and thorough self-investigation of the underlying conduct, the full cooperation provided by the company to the Department, and the remedial efforts undertaken by the company."

(esp)

February 17, 2008 in FCPA | Permalink | Comments (0) | TrackBack (0)

Former Refco CEO Pleads Guilty

Phillip Bennett, former CEO of collapsed futures and commodities trading firm Refco, entered a guilty plea to conspiracy, securities fraud, false statements to the SEC, wire fraud, false statements to Refco’s auditors, bank fraud, and money laundering charges.  Refco's demise in 2005 came only two months after the firm went public, probably the quickest collapse of a public company ever.  The markets reacted almost immediately after disclosure that its financial statements failed to disclose large liabilities that Bennett moved off its books periodically to avoid detection by the auditors.  Add Bennett's name to the list of corporate chieftains convicted of significant fraud. 

According to a press release issued by the U.S. Attorney's Office for the Southern District of New York (here), the total loss from Refco's collapse was over $2.4 billion, and the crimes for which Bennett pleaded guilty triggered losses of over $400 million.  Under the Sentencing Guidelines, Bennett is looking at what would amount to a life term in prison if the government does not move for a lower sentence due to cooperation and the district court adheres to the Guidelines range.  Given the size of the loss, the Guidelines call for an increase of thirty over the base offense level of seven, and add in the four-level enhancement for being the CEO of a publicly-traded company, and Bennett's offense level is at least 41.  That triggers a sentencing range of 324 to 405 months, which is well over twenty-five years in prison.  Bennett is 59 years old, and with sentencing set for May 20, 2008, he could easily receive a sentence that will put him in jail into his eighties, which means possibly for life. (ph)

February 17, 2008 in Fraud | Permalink | Comments (0) | TrackBack (0)

Saturday, February 16, 2008

Will White Collar Prosecutions Get New Life?

Chicago Business News reports here, and the law firm of Katten Muchin Rosenman LLP reports here, that Attorney Gil Soffer's new role in DOJ will be counsel to the Deputy Attorney General.  His focus will be one that may bring white collar prosecutions back onto the stage. Katten Muchin Rosenman's press release states that:

"In 1994, Mr. Soffer joined the United States Attorney's Office in Chicago as an Assistant U.S. Attorney in the Criminal Division. In that capacity, he prosecuted a wide range of federal crimes, including bank, mail, wire, tax, and insurance fraud; narcotics and firearms trafficking; bank robbery; embezzlement; and money laundering. In November 1996, Mr. Soffer received the Director's Award for Superior Performance as an Assistant U.S. Attorney from then Attorney General Janet Reno.

Mr. Soffer graduated magna cum laude from Brown University in 1986 and earned his J.D. cum laude from Harvard Law School in 1989. Upon graduating from law school, Mr. Soffer clerked in the U.S. District Court for the Northern District of Illinois under Judge John A. Nordberg. After his clerkship, Mr. Soffer became an associate with the law firm of McCutchen, Doyle, Brown & Enersen in San Francisco, where he practiced in the general litigation department."

This appointment is a clear indication that appointments at DOJ are moving in a new direction - one where experience and credentials matter.

(esp) (w/ a hat tip to Stephanie Martz)

February 16, 2008 in News, Prosecutors | Permalink | Comments (0) | TrackBack (0)

When You Need to Proofread the Brief

The government's response to the motion to dismiss filed by Barry Bonds argues that the indictment is not ambiguous or duplicitous -- yet the filing contains a typographical error that indicated Bonds failed a drug test a year later than alleged in the indictment.  If you're going to defend the precision of the charges, then the brief should at least be read carefully enough to ensure it is accurate, or the whole issue of sloppy drafting comes to the surface.

The brief (uncorrected version available below) responds to the defense arguments that the questions are too ambiguous to be the basis for a perjury charge, and that by citing multiple false statements in a single count the charges are duplicitous in violation of Bonds' due process rights.  The government's position on duplicity seems to concede that each count could in fact charge separate violations of the perjury statute, but essentially tries to shrug off the problem.  According to the brief, "[T]he government may remedy any duplicity in the indictment against Bonds by asking the grand jury to return a superseding indictment charging separate counts for each allegedly perjured statement. Accordingly, rather than electing among the charges in a duplicitous count, the government may elect to obtain a superseding indictment if the defendant is unwilling to remedy any duplicity by agreeing to a jury instruction that requires the jury to be unanimous in finding that at least one of the statements alleged in each count constituted perjury."  Thus, if pushed by Bonds (and the court) to cure the duplicity problem, prosecutors may just seek another indictment with more counts of perjury, perhaps as many as ten or twelve. 

In arguing that the first perjury charge is not based on ambiguous questions, the brief states, "At trial, the government’s evidence will show that Bonds received steroids from Anderson in the period before the November 2001 positive drug test, and that evidence raises the inference that Anderson gave Bonds the steroids that caused him to test positive in November 2001."  The indictment references Bonds failing a drug test in November 2000, but not in 2001.  The media immediately picked up on this, but the U.S. Attorney's Office in San Francisco said it was just a typo, that the brief was referring to the November 2000 failed drug test cited in the indictment, and has since filed a corrected version.  That type of mistake does not enhance the credibility of the prosecutors, especially when the issue is the clarity of the questions.

The government's primary argument on ambiguity is that the questions are sufficiently clear, although perhaps a bit inartful, and that Bonds never indicated he was confused.  Thus, the issue of ambiguity is one for the jury and not for the court.  The Supreme Court's seminal decision in Bronston v. United States on perjury, however, makes it clear that a court can decide as a matter of law whether a question is sufficient to be the basis for a perjury charge, and to determine whether the defendant's answer is literally true.  That is clearly Bonds' first line of defense, that poor questioning by prosecutors caused him to make statements he did not intend to be false, even if they were a bit misleading.  Throw in an attack on IRS Special Agent Jeff Novitzky, the government's lead investigator who was also at the Roger Clemens hearing, as the embodiment of outrageous government conduct, and there may be enough there to raise a reasonable doubt.  While it is tough to win dismissal of an indictment at this stage, there may well be some significant reworking of the document because of its drafting problems. (ph)

Download us_v_bonds_government_response_to_motion_to_dismiss_feb_14_2008.pdf

February 16, 2008 in Obstruction, Perjury, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Friday, February 15, 2008

Fifth Circuit Continues to Rule Against the Government - Honest Services Issue

The Fifth Circuit Court of Appeals, in a unanimous opinion written by Hon. W.  Eugene Davis, refused to accept the government claim that the case of United States v. Brown did not apply to one of the counts dismissed in the case against the former CFO of Enron Broadband. The appellee had initially been convicted of  five counts, but the court dismissed these convictions post-Brown. The district court had vacated the conviction on Count 5 because "there was a reasonable possibility that ....Count Five was indeed tethered to Count One." The government, unhappy with this decision, appealed.

The Brown court ruled that "honest services" did not apply "where an employer intentionally aligns the interests of the employee with a specific corporate goal where the employee perceives his pursuit of that goal as mutually benefiting him and his employer, and where the employer's conduct is consistent with that perception of mutual interest."  Because the jury "could have based its conviction on the tainted conspiracy charge" the district court refused to accept the government's argument that this count should be reinstated.  The Fifth Circuit agreed.

This decision is fascinating on several levels:

  • A Pinkerton instruction is a powerful tool for the government as it allows them to proceed against individuals on substantive acts that they may not have been directly involved in -- acts that were foreseeable and in furtherance of the conspiracy. This may be a unique instance showing how the government can get trapped by its own stretching of statutes.  By using Pinkerton, when the conspiracy fell - it also caused the charged substantive act to fall. An after-the-fact claim of -  I really didn't mean it to apply here, does not carry much weight.  The lesson of this case is that prosecutors need to think of the ramifications of having a Pinkerton instruction if they truly believe it isn't necessary.   
  • Should prosecutor's have a second chance when they stretch a statute and get caught?  How much of the taxpayer's money should they be allowed to spend?  In other words - should they be allowed to retry this count? (See Tom Kirkendall's comment on Houston ClearThinkers)
  • The Fifth Circuit is very clearly saying that the Brown decision is here to stay.
  • This decision may be particularly helpful to Jeff Skilling as it not only fortifies Brown, a case focused on in Skilling's appeal, but it also takes a strong position that counts within the "spill-over" of tainted counts, will not stand.

U.S. v. Howard - Download HowardAppealOpinion.wpd.pdf

(esp)

February 15, 2008 in Enron, Fraud | Permalink | Comments (1) | TrackBack (0)

Should Lawyers Learn to Speak Less, and Other Random Thoughts On the Clemens-McNamee Showdown

I promise this is my last post on the face-off between Roger Clemens and Brian McNamee before the House Oversight and Government Affairs Committee . . . until my next one, of course.  Here are some random thoughts about the lawyers involved before I move on from the farce on Capitol Hill:

  • One thing that struck me throughout the whole build-up to the hearing, during in which Clemens visited a number of Committee members in their offices, was that one of his attorneys, Rusty Hardin, seemed to say things that only focused more attention on his client's alleged use of performance-enhancing drugs without putting the situation in the best light.  I understand the whole sports analogy that "the best defense is a good offense," but I've also thought that sometimes the lawyer needs to keep a case out of the news if the glare of the cameras is not going to do the client much good.  Hardin's comments about the potential presence of IRS Special Agent Jeff Novitzky, the scourge of Barry Bonds and other athletes who testified before the Balco grand jury, certainly did not serve his client well.  Novitzky attended the hearing, and upon learning that he would be there, Hardin stated in an interview, "I can tell you this: If [Novitzky] ever messes with Roger, Roger will eat his lunch."  I generally make it a policy not to make negative comments about people who carry a gun for a living, and launching a broadside at a federal agent who can investigate Clemens is not necessarily in the client's best interest.  Hardin's comment even drew a rebuke from Oversight Committee Chairman Henry Waxman, whose letter (here) issued on a Sunday states, "If today's quotation is accurate, however, it goes beyond any personal enmity that exists between Roger Clemens and Mr. McNamee. I do not know your intent in making this statement, but under one interpretation it can be seen an attempt to intimidate a federal law enforcement official in the performance of his official duties."  Not the best way to impress the Committee chairman. 
  • Not to be outdone, McNamee's lawyer, Richard Emery, launched his own attack after the hearing, claiming that the harsh questioning was a Republican plot because of Clemens' friendship with the Bush family, and even claimed that the President was likely to pardon Clemens, much like he commuted the sentence of I. Lewis (Scooter) Libby after his conviction on perjury and obstruction of justice charges.  [Trivial point: Libby's sentence was commuted, and he did not receive a pardon, at least not yet.  There is nothing to commute for Clemens at this point.]  An AP story (here) quotes Emery as stating, ""It would be the easiest thing in the world for George W. Bush, given the corrupt proclivities of his administration, to say Roger Clemens is an American hero, Roger Clemens helped children . . . It's my belief they have some reason to believe they can get a pardon."  I guess the President could issue a pardon in advance of any criminal charges being filed against Clemens, but that has not been done since the Nixon pardon, and seems a bit far-fetched at this point.  Does it boost McNamee's credibility, damaged as it was at the hearing, for his attorney to claim there is a conspiracy to protect Clemens that somehow involves the President? 
  • One point cited by Emery as supporting his pardon theory was Clemens testified that he spoke with the first President Bush shortly after the Mitchell Report came out.  That disclosure came in one of the more rambling non-sequiturs in Clemens' testimony, which can be found starting on page 141 of the hearing transcript (here).  In response to a question from Representative John Duncan, Jr. (R-Tenn.) about why he didn't speak with Senator Mitchell during the major league baseball investigation, Clemens said that no one told him about it, and then discussed how easy he is to find, including the following:

When all this happened, the former President of the United States found me in a deer blind in south Texas and expressed his concerns, that this was unbelievable, and to stay strong and keep your -- hold your head up high. These people found me.

All due respect to Senator Mitchell, I am on the same subject with him and steroids and baseball. But Bud Selig, that league, Bud Selig could have found me. If he knew that within days what this man said was going to destroy my name, he could have found me.

I am an easy person to find. I am an easy person to find in the public.

Got that?  No, I can't really follow the logic myself.  Senator Mitchell's investigation was widely known, especially in baseball circles, and the fact that former President Bush could find Clemens in a duck blind does not really answer the question, but then that didn't seem to be the Rocket's intention as he meandered through his time on the U.S. Olympic baseball team and other extraneous matters.  Very odd.

I won't inflict this on you again, at least not until there's something new and interesting to talk about. (ph)

February 15, 2008 in Congress, Investigations | Permalink | Comments (4) | TrackBack (0)

Thursday, February 14, 2008

House Votes to Hold Miers and Bolten In Contempt, and Grants Itself Power to Pursue the Subpoenas

The issue over subpoenas to former White House aides Harriet Miers and Joshua Bolten related to the firing of eight U.S. Attorneys that the President asserted they could simply ignore under a claim of Executive Privilege has come to a head in the House of Representatives.  Following a Republican walk-out from the chamber, the Democrats voted in favor of contempt citations for the two, which now authorizes the Attorney General to bring the case to a grand jury.  Because the White House and Attorney General Mukasey have already indicated that the cases will not be pursued, the House adopted a second resolution (available below) authorizing the Judiciary Committee to file a declaratory judgment action to seek a determination of the enforceability of the subpoenas.  The Resolution states:

[T]he Chairman of the Committee on the Judiciary is authorized to initiate or intervene in judicial proceedings in any Federal court of competent jurisdiction, on behalf of the Committee on the Judiciary, to seek declaratory judgments affirming the duty of any individual to comply with any subpoena that is a subject of House Resolution 979 issued to such individual by the Committee as part of its investigation into the firing of certain United States Attorneys and related matters, and to seek appropriate ancillary relief, including injunctive relief.

This is an interesting way to redress the problem of the Executive Branch ignoring the contempt citations, but I'm not sure how it will play in the courts.  Can Congress authorize its own suit to review a subpoena when there is a federal statute on the issue of contempt (2 U.S.C. Sec. 192)?  I suspect the Department of Justice will argue that the only means to have the subpoena reviewed is through the contempt procedure, which is how a failure to respond to a grand jury subpoena is normally handled.  While this will bring the issue to a head, I will look to those with greater expertise in constitutional law and the power of the federal courts to shed some light on this one.  (ph)

Download house_resolution_980_feb_14_2008.pdf

February 14, 2008 in Congress | Permalink | Comments (0) | TrackBack (0)

A Tale of Two Witnesses

The hearing before the House Oversight and Government Affairs Committee was not very edifying as Roger Clemens and Brian McNamee tried to defend their veracity in occasionally sharp questioning from Congressmen, and neither man ended up coming across as particularly believable in my opinion.  From the outset, the hearing was simply a perjury trap, or at least an exercise to determine whether we could figure out if either one was telling the truth.  The prepared statements set the stage for the face-off about whether or not Clemens used performance-enhancing drugs.  Clemens' statement (here) asserts:

I appreciate the opportunity to tell this Committee and the public—under oath—what I have been saying all along: I have never used steroids, human growth hormone, or any other type of illegal performance enhancing drugs. I think these types of drugs should play no role in athletics at any level, and I fully support Senator Mitchell’s conclusions that steroids have no place in baseball. However, I take great issue with the report’s allegation that I used these substances. Let me be clear again: I did not.

McNamee was equally insistent, stating in the the first paragraph (here):

I was once the personal trainer for one of the greatest pitchers in the history of baseball, Roger William Clements.  During the time that I worked with Roger Clemens I injected him on numerous occasions with steroids and human growth hormone. 

While it's clear that at least one of the two is lying, by the end of the hearing both came across as less than truthful.  Clemens made any number of inconsistent statements in his deposition and testimony, and had a difficult time expressing himself when challenged (e.g. "misremembering").  McNamee fared little better, explaining that he failed to disclose information to prosecutors and changed his story by adding details as he remembered them, so he never told the same tale twice.  We were even treated to an extended discussion about whether Clemens attended a party at fellow baseball star Jose Canseco's house, an issue of almost no relevance to the Mitchell Report but the Committee investigation included an interview with Clemens' former nanny about whether he was at the event.  Clemens (and Canseco) denied he was there, while the nanny said he was -- who cares, because there was no indication that anything having to do with steroids or HGH took place, unless anyone seen in the vicinity of Canseco is presumed to use the stuff. 

The Committee made all of the documents, including deposition transcripts and affidavits, available on its website (here), in case you want to torture yourself further.  The big question that hung over the entire proceeding was whether the Committee would refer the case to the Department of Justice for a perjury investigation.  I suspect the Committee will forward the information to the Department and ask that prosecutors look into the matter, but the chances of a perjury prosecution emerging from this entire process are pretty slim, at least based on the evidence produced to date. 

If prosecutors want to go after Clemens, they will be hard pressed to get a jury to believe McNamee, who effectively admitted that he does not handle the truth very well (e.g. "a partial lie").  Information provided by Clemens' former teammate Andy Pettitte about conversations they had concerning HGH use was not helpful, but it is hardly the type of clear contradiction needed for a perjury investigation, especially when one of the discussions took place nearly ten years ago.  Clemens could not bring himself to call Pettitte a liar, but he did dispute his friend's memory of the conversations, throwing up enough dust to make it hard to figure exactly what was said.  The Committee also obtained an affidavit from Pettitte's wife confirming that he told her about a conversation with Clemens, but that is hearsay of the first order and would not be admissible at a criminal trial to prove what Clemens said.  While the syringes and other items produced by McNamee could well link Clemens to HGH and steroids, issues about chain of custody and McNamee's veracity in recounting why he held on to such materials don't make this anything like a smoking gun, or even one a little bit warm.

Could McNamee face perjury charges?  He is a linchpin of the Mitchell Report, so it would hardly be a ringing endorsement of the information it contains if a key witness was charged for lying to Congress.  McNamee admitted that his memory is faulty, but he certainly provided enough truthful information, confirmed by Pettitte and former Yankee second baseman Chuck Knoblauch, that you would not want to build the case around Clemens any more than you would make McNamee the star witness.

In math, when two negative numbers are multiplied, the product is a positive number, although I've never been sure why.  In an investigation of possible perjury, when two less-than-reliable witnesses make statements such that one must necessarily be false, it is nearly impossible to bring a charge against either when the other will be the key witness.  The Congressional circus is probably over, and while the Justice Department might be asked to take a look, I doubt it will go much further.  So the issue of Clemens' truthfulness will be left to the court of public opinion.  (ph)

February 14, 2008 in Congress, Investigations | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 13, 2008

A Barrage From the Scruggs Defendants

Any federal criminal prosecution will trigger motions from the defendant, and the hotly-contested prosecution of Dickie Scruggs and two other lawyers from his firm, his son Zach and Sidney Backstrom, has resulted in a veritable barrage of filings from the defense.  Federal Rule of Criminal Procedure 12(b)(3) requires that most substantive motions that go to the charges or the institution of the prosecution be made before trial or they are waived (absent a claim of plain error, an almost sure loser).  So the defendants fired at the prosecution in a series of motions (available below) that, while unlikely to be granted, at least protect their positions for an appeal if there is a conviction.  So here they come:

  1. Get Me the Heck Away From Dickie:  Not that a son should spend too much time with his dad, so Zach filed a motion to sever his trial from his father's, as did co-defendant Backstrom.  Among the reasons cited by both is the potential spill-over from other alleged wrongdoing by Dickie for supposedly bribing another state court judge in a different fee dispute.  The government gave notice under Federal Rule of Evidence 404(b) that it intended to introduce such prior bad acts evidence against Dickie, and no one wants to be near that stuff if it is admitted.  While Zach and Backstrom are not turning on Dickie necessarily, their attorneys do understand that there is a significant danger the jury will take a "pox on all defendants" approach if the three are sitting together at trial and they hear about a second bribe.  This motion has at least a reasonable chance of succeeding, although Senior U.S. District Judge Neal Biggers certainly would not relish hearing the same case three times, and prosecutors lose much of their leverage over Backstrom if his trial is split off from Dickie's, so look for strong opposition from the U.S. Attorney's Office.
  2. The Government Was Simply Outrageous:  Here the defendants are the Three Musketeers, filing a joint motion to dismiss for outrageous government conduct.  Citing to the dismissal of charges in U.S. v Stein (KPMG prosecution), U.S. v. Scrushy (perjury charges in the HealthSouth prosecution), and U.S. v. Stringer (misleading defendants by the SEC), the defendants cite the conduct of the state court judge in encouraging the purported bribe as evidence that the government manufactured the charges.  Unfortunately for the Scruggs defendants, the three cases they rely on also involved other constitutional violations found by the district courts as supporting the dismissal, and dismissing charges purely on the ground of outrageous government conduct happens about as often as Ole Miss challenges for the SEC title in football, and maybe even less frequently than that.  It's always worth a shot, but don't look for this one to gain much traction.
  3. What Does That Statute Mean: The defendants moved to dismiss three of the charges filed under Sec. 666, the broad federal statute that applies to bribery of "agents" of state and local government.  The argument is largely a statutory one, that the state court judge who was to receive the putative bribe does not meet the statutory requirements to be an agent of a local government because he has no administrative duties and that the bribe would not affect the operations of the county in which he sat.  They also throw in a constitutional argument that the statute violates the Tenth Amendment -- you don't hear that one very often, and it's not something that has gotten defendants very far in other cases challenging federal criminal statutes. 
  4. Get That Bribery Evidence Away from Me: The three defendants also moved to keep out the evidence of the other alleged bribe by Dickie, raising the usual arguments that it is prejudicial character evidence and has not been proven so it will trigger the much-feared "trial within a trial."  The mention of a second bribe could be powerful evidence against all three because it would establish a pattern of misconduct, so this may be the most important motion filed by the defense.  This type of ruling is always fraught with danger for the district court because an erroneous decision to admit the evidence can result in a reversal of a conviction.
  5. Get Us the Heck Out of Mississippi: While Dickie has certainly never been shy about publicity, the defendants did ask for a change of venue to move the case out of Mississippi because of prejudicial pretrial publicity.  The case is certainly a very big deal in the Magnolia State, but change-of-venue motions are almost sure losers -- just ask Jeffrey Skilling, who faced the wrath of a Houston jury.  Except in perhaps the extreme cases involving significant violence that triggers a strong community reaction, such as the Oklahoma City bombing, venue motions just don't go over very well with federal judges, who pride themselves on being able to seat an unbiased jury even if they might overestimate their abilities in this regard.

The three defendants also refiled their motion to suppress evidence from the wiretaps and search of the Scruggs Law Firm office, arguing that the government misled the magistrate who issued the warrants.  Another tough one to win, but necessary to avoid waiving the claim.  After a quiet couple weeks, it's back to the fireworks down in the Northern District of Mississippi. (ph)

Download us_v_scruggs_zach_scruggs_motion_to_sever.pdf

Download us_v_scruggs_sidney_backstrom_motion_to_sever.pdf

Download us_v_scruggs_motion_to_dismiss_outrageous_government_conduct_feb_11_2008.pdf

Download us_v_scruggs_motion_to_dismiss_666_charges_feb_11_2008.pdf

Download us_v_scruggs_defense_motion_in_limine_feb_11_2008.pdf

Download us_v_scruggs_motion_to_change_venue_feb_11_2008.pdf

February 13, 2008 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (2)

Monday, February 11, 2008

Reply Brief in KPMG Related Case

We have seen the different briefs filed by the parties in the government's appeal of the dismissal of charges against the thirteen former KPMG partners and employees by U.S. District Judge Lewis Kaplan.  There was the government's initial brief here, followed by several briefs of the appellees (here, here, here, here, and here) and some amici briefs (here).  Now filed is the government's reply brief - a brief that totals 70 pages.  The following is an outline of the arguments:

POINT I—The Government Cured Any Sixth Amendment Violation

A. The Government Did Not Waive The Cure Argument

B. Dismissal Was Not The Most Narrowly- Tailored Remedy To Address Any Sixth Amendment Violation

POINT II—KPMG’s Decision Not To Pay The Defendants’ Attorneys Fees Was Not State Action

A. The Government Did Not Waive The State Action And Coercion Arguments

B. The State Action Doctrine Applies To The Defendants’ Claims

C. KPMG’s Decision Cannot Be Imputed To The Government

1. The Government Did Not Compel KPMG Not To Pay Fees

2. The Government Did Not Significantly Encourage KPMG’s Decision

3. The Government Did Not Participate In KPMG’s Decisionmaking Or Become Entwined In KPMG’s Management

POINT III—KPMG’s Decision To Terminate Fee Payments For Indicted Defendants Did Not Violate The Sixth Amendment

A. Standard Of Review

B. Discussion

1 . Caplin & Drysdale Controls This Issue

2. The Defendants’ Restatement Of Their Argument And Recitation Of Unrelated Sixth Amendment Authorities Do Not Change The Result

3. The Government Did Not Violate The Right To Counsel Of Choice

POINT IV—The Government Did Not Violate The Defendants’ Due Process Rights

A. The Defendants’ Claim Arises Under The Sixth Amendment And Is Barred By Graham

B. The Defendants’ Claim Does Not Implicate Fundamental Right

C. The Government’s Conduct Did Not “Shock The Conscience”

POINT V—The District Court’s Dismissal Of The Indictment Cannot Be Sustained Under The Federal

Courts’ Supervisory Powers

CONCLUSION

The Reply Brief -  Download 073042cr_u.S. v. Stein Reply Brief.pdf

(esp)

February 11, 2008 in KPMG | Permalink | Comments (0) | TrackBack (0)

Lerach Draws a Two-Year Prison Sentence

William Lerach became the first partner from law firm Milberg Weiss to be sentenced for his role in paying kickbacks to representative plaintiffs in class actions in which the firm served as lead counsel.  U.S. District Judge John Walter sentenced Lerach to two years in prison -- he will serve about eighteen months of that in a federal correctional institution or work camp -- along with 1,000 hours of community service, two years supervised release, and a $250,000 fine.  The Judge stated that "[t]his whole conspiracy corrupted the law firm and it corrupted it in the most evil way" in giving Lerach the maximum sentence under the plea agreement.  Lerach's lawyers argued for a much reduced punishment of six months in prison and six months home confinement, while the government sought the full two years permissible.

With Lerach sentenced, the other two major cooperators in the case, former name partners Steven Schulman and David Bershad, will have to ponder what this means for them.  Each has provided information to prosecutors, and Bershad was especially important because he handled Milberg Weiss' finances.  Perhaps the greatest anxiety is being felt by Melvyn Weiss, who with Lerach served as the public face of Milberg Weiss and faces a multi-count indictment that includes RICO and money laundering charges.  While those who plead guilty get the benefit of cooperation through a substantially reduced sentence, Weiss has vowed to go to trial to clear his name.  Lerach got a particularly favorable deal in light of the potential Sentencing Guidelines range of 27 to 33 months for even the reduced charge to which he pleaded guilty.  RICO or money laundering convictions would likely put Weiss in at least a four to five year prison sentence range, and he could easily be bumped up to ten years with various enhancements.  Other charges in the indictment include obstruction of justice and false statement counts, and if Weiss is convicted of those that will only exacerbate the sentence.  The trial penalty that could be assessed if Weiss is convicted on all counts will be substantial, and he would likely receive a far longer sentence than his erstwhile partner Lerach, who will probably be out of prison not all that long after Weiss' trial is concluded, if it takes place.

The other major remaining defendant in the case is the law firm itself, which still has not entered into a plea agreement.  The admissions of Lerach, Schulman, and Bershad that they engaged in criminal conduct while at Milberg Weiss will make any defense nearly impossible under the principle of vicarious liability applied to organizations.  Predictions of the demise of Milberg Weiss and its plea agreement have all been proven wrong to this point, however, so I'm not going to hazard another guess about what the firm might do.  Judge Walter showed that he is not a softie on this case, so anyone going to trial will do so with some trepidation. An AP story (here) discusses the Lerach sentencing. (ph)

February 11, 2008 in Fraud, Legal Ethics, Sentencing | Permalink | Comments (2) | TrackBack (0)

Sunday, February 10, 2008

Injunctive Relief to Avoid Tax Crimes

Tax Indictments seem to always be in the news around April 15th (see, e.g, here).  So it is interesting to see tax issues coming up this time of year - a time when people are often in the preliminary stages of preparing materials for filing their tax returns. There, of course, was the Wesley Snipes prosecution that ended with a conviction for 3 misdemeanors and acquittals on the remaining counts (see here), a case that is now set for sentencing on April, 24, 2008.

But it is interesting to see the tax division using injunctions to stop individuals from preparing tax returns. According to the DOJ, "Since 2001, the Justice Department has obtained injunctions against more than 305 tax preparers and tax-fraud promoters."  Most recently, the following injunctions were issued -

  • A federal court today permanently barred a Memphis, Tenn., woman from preparing federal income tax returns for others. (see here)
  • A Texas man barred from preparing tax returns for others (see here)
  • Federal Court bars Charlotte man from preparing tax returns (see here)

One has to applaud the tax division for trying to stop criminal conduct prior to it occurring. The use of a civil remedy to avoid criminality should also be applauded. As opposed to waiting for a crime to occur and then have to spend tax dollars on the prosecution, the DOJ is using injunctive relief to promote compliance with the law.

(esp)

February 10, 2008 in Tax | Permalink | Comments (0) | TrackBack (0)

Settlement in Merck Drug Case

A press release of the DOJ reports that "Merck & Company has agreed to pay more than $650 million to resolve allegations that the pharmaceutical manufacturer failed to pay proper rebates to Medicaid and other government health care programs and paid illegal remuneration to health care providers to induce them to prescribe the company’s products..." "The allegations were brought in two separate lawsuits filed by whistleblowers under the qui tam, or whistleblower, provisions of the False Claims Act."

(esp)

February 10, 2008 in Qui Tam | Permalink | Comments (0) | TrackBack (0)

Which Government Office is Behind This One?

Ben Kuehne's Indictment (see here) is not signed by the United States Attorney's Office for the Southern District of Florida. For the most part, the signatures are from folks at the Asset Forfeiture and Money Laundering Section. The Southern District of Florida Blog discusses that this indictment comes from D.C.. The Miami Herald reports that "The Kuehne investigation was handled in Washington to avoid a conflict of interest in the U.S. attorney's office in South Florida."  But did this DC office investigate the individual charged?  Does the fact that 50 lawyers showed up to support Kuehne (see here) mean anything?  And did the fact that this top criminal defense attorney (see here) who represented former Vice-President Al Gore make a difference in the DC office bringing this indictment? Clearly the government will say "no" to this last question.  But one does have to wonder who has the conflict here?

Several items still baffle this blogger -

  • Why did the government select to proceed criminally here?  Do they really want opinion letters to be considered an indictable offense? Will they be proceeding criminally against government individuals who gave opinions on matters that might be considered illegal?
  • If the government knows the source of the funds is improper because of their "undercover operation" would it not be logical that the defense attorney could not know the source of these funds - after all it would mean that the government undercover operation was not working effectively.

(esp)

February 10, 2008 in Prosecutions | Permalink | Comments (1) | TrackBack (1)

Saturday, February 9, 2008

What Will Come of All the Subprime Investigations

With the subprime mortgage meltdown undermining the balance sheets of companies ranging from bond insurers to banks and brokerage firms, the possibility that fraud crept into the market is being explored by the SEC, the FBI, and the Department of Justice.  According to various media reports, the United States Attorney's Offices for the Southern and Eastern Districts of New York have begun to look at Merrill Lynch and UBS related to their pricing of CDOs tied to mortgages, if the firms issued false information about the value of the securities they were peddling.  The SEC has bumped up its inquiries into the companies' practices to formal investigations, which means subpoena authority for the Commission staff.  More broadly, the FBI disclosed that it is looking at fourteen companies for their roles in the subprime mortgage market, including possible insider trading. (See articles from MarketWatch here, the Toronto Star here, and CNN.Money here)

With all these federal resources being brought to bear on the subprime market, should we expect a cascade of criminal and civil enforcement actions in the near future?  The government never moves all that quickly, of course, so "near future" could be anywhere from one to two years from now.  The investigations themselves are at a fairly early stage at this point, with the SEC still gathering information.  The Department of Justice usually waits until the Commission is fairly well along in the investigation before jumping in because the SEC can help winnow down the mountain of documents such investigations generate.  Even then, I would not expect to see many criminal cases come out of these investigations, and it's unlikely any company would be charged.  At most we might see a few deferred or non-prosecution agreements, because no one wants to risk a prosecution that could put a major financial firm out of business -- the Arthur Andersen effect once again. 

Trying to track down the appropriate price of CDOs and other mortgage related securities is probably just this side of impossible, so proving that prices were inflated might not be achievable.  The Wall Street firms were not involved in the actual writing of the subprime or other mortgages, only the process of securitizing pools of mortgages to sell to investors.  Regardless of whether any of the firms made misstatements in marketing the securities, or placing clients in inappropriate investments, these investigations will not do anything to provide relief from the rising number of foreclosures that are spreading through the market as housing prices drop.  Part of the problem with the subprime market was that it worked so well, encouraging firms to make riskier and riskier loans because they could be sold off quickly to investors.  Stupidity is not a federal offense, at least not yet, and losing the game of financial musical chairs by being left with cratering securities on your balance sheet does not mean the company committed fraud.  Firms no doubt cut corners, but whether there are real fraud cases that go beyond second-guessing remains to be seen. (ph)

February 9, 2008 in Fraud, Investigations | Permalink | Comments (0) | TrackBack (0)

Indicted for Writing Opinion Letters

Would the government actually indict an attorney premised upon allegations that the attorney wrote several opinion letters for another lawyer?  As surprising as it might seem, the answer is "yes." The government has indicted Attorney Ben Kuehne for his alleged writing of six opinion letters based upon his investigation of whether funds being paid to an attorney were proceeds of criminal conduct.

Several observations and comments on the Indictment and the accompanying Motion to Seal:

  • The indictment is preceded by a page titled - "Motion to Seal."  It is signed by a "trial attorney - DOJ." It requests the indictment be sealed "for the reason that the named defendants may flee and the integrity of the ongoing investigation may be compromised." - Did the government really believe that Attorney Ben Kuehne would flee?  A later sentence states that"many of the named defendants are foreign nationals." But the government fails to limit the language used in the prior sentence that explicitly states "that the named defendants may flee" to only those who might be foreign nationals.  That is a powerful statement to claim that a prominent Miami attorney might flee.  If they didn't mean to apply this statement to him, is it prosecutorial over-reaching, an attempt to taint the accused, or just sloppy drafting? 
  • The indictment alleges that Kuehne's opinion letters were inaccurate in stating that some of the moneys had come from an individual/company that "his investigation" "had determined.... were reputable and well-established, without any connection to illegal activities."  The indictment claims that some of these opinions were untrue because moneys had in fact come from "undercover law enforcement operations."  ----  Isn't the very purpose of an undercover operation to make it seem like things are real?  Is this a situation of accusing someone of issuing incorrect opinion letters because the government did a good job of misleading him?
  • Count Six of the Indictment charges Obstruction of Justice. The charge is expressed in a total of 2 sentences. It states: 

"From on or about January 23, 2003, continuing to the date of this indictment, the defendants, .......did corruptly endeavor to influence, obstruct and impede the due administration of justice; that is investigations by the grand jury; to wit, endeavoring to influence, obstruct, and impede a federal investigation, as set forth above.  In violation of Title 18, United States Code, s 1503."  (names omitted)

A charge without any facts?  Did the government actually put a mere restatement of section 1503 as the basis of a criminal charge against an attorney? Co-blogger Peter Henning called the Indictment of Ben Kuehne a "head-scratcher," but that was prior to receiving the document. But after reading it, I'd go a step further - they have actually indicted an attorney for obstruction of justice and alleged no facts in this count to support the charge.  It almost sounds like a case the 11th Circuit reversed, U.S. v. Thomas, 916 F.2d 547 (11th Cir. 1990).

Perhaps the most troubling aspect of this indictment is that it represents yet another instance of the government interfering in the payment of attorney fees for the criminally accused.  As opposed to going to court and asking for the fees to be returned as improper, they have opted to proceed with criminal charges that in some cases carry up to 20 years.

Indictment - Download us_v_kuehne_indictment_oct_2007.pdf

(esp)

February 9, 2008 in Attorney Fees, Money Laundering, Obstruction, Prosecutions | Permalink | Comments (3) | TrackBack (0)

Friday, February 8, 2008

The Smoking Syringe?

If you've ever been tempted to say "I've seen everything," then the absurd theater that took place in the Rayburn House Office Building between Roger Clemens and his former trainer Brian McNamee should give you pause.  With a phalanx of cameras and reporters at every turn, Clemens visited a number of Congressional offices to pitch his story, no doubt signing a few autographs for starry-eyed staffers, and may even a couple Representatives, too.  This is all in preparation for the very public House Oversight and Government Reform Committee hearing scheduled for Wednesday, February 13, when Clemens, McNamee, and two other players, Andy Pettitte and Chuck Knoblauch, will testify about performance-enhancing drugs in major league baseball. 

How often does a witness meet with most of the Committee members in advance to just shoot the breeze and hang out?  The timing of Clemens' appearance put him in the same building as McNamee, who met for eight hours with investigators from the Committee for his deposition in advance of the hearing, thus stealing at least some of the limelight from his former trainer.  In the pre-hearing jousting, McNamee's lawyers fired back by releasing pictures of syringes and gauze pads that their client claims were used for the steroid and HGH injections of Clemens, and they purportedly may have traces of The Rocket's DNA on them. 

Is this the "smoking gun" that will somehow prove whether McNamee or Clemens is lying?  The answer, of course, is that there are no smoking guns -- or syringes in this instance -- except if you're reading a Sherlock Holmes story or listening to the Nixon White House tapes.  McNamee's evidence dates from six to eight years ago, and may not yield any link to Clemens.  But even if it does, will that somehow prove that Clemens knowingly took steroids and has been lying about his use of performance-enhancing drugs?  While everyone talks about perjury charges, none have been filed or are even in the offing at the moment, so this is all a bit premature.  Moreover, remember that Clemens did say earlier that McNamee gave him vitamin B-12 injections, so there is surely a Barry Bonds "I thought it was flaxseed oil" defense available, if it comes to it.  On a second front, Clemens' lawyer, Rusty Hardin, has been hard at the vilification of McNamee: "How do you deal with someone who comes out with a psycho thing like sitting on a syringe for nine years?"  The fact that McNamee kept such items for a number of years raises questions about what he intended to do with the materials, assuming they are what he claims them to be.  Even if there are traces of Clemens' DNA on the syringes, that does not establish what was in his mind, which is required for any perjury (or false statement) charge.  It isn't just what you say, but more importantly your knowledge that the assertion was not truthful that gets you convicted.  And proving what's in a person's mind, especially if the syringes could be explained as coming from vitamin B-12 injections, makes a perjury charge very difficult to establish.  The absurdity of the whole process certainly raises the questions about why the valuable time of Congressmen and their staff is being used for meetings with Clemens and a deposition of McNamee.  In the end, does any of this really matter, aside from the opportunity to appear on camera? 

On the lighter side, one of the photographs (here) released by McNamee's lawyers was of a syringe in a pile of rather nasty looking gauze and cotton balls, with a crushed Miller Lite beer can in the background.  Are we being asked to believe that Clemens drinks Miller Lite along with his steroids and HGH injections?  Or is the can there to give a little perspective to the pile?  I doubt we will see this shot in a future Super Bowl commercial.  A Newday story (here) discusses the day's events. (ph)

February 8, 2008 in Congress, Investigations | Permalink | Comments (0) | TrackBack (0)