Tuesday, March 25, 2008
Financial Week - Former Pharma CFO Faces Fewer Charges - Bristol-Myers' Frederick Schiff set to go on trial today, but not for failing to correct misstatements
Darryl Fears, Washington Post - Refusal Keeps Terrorism Convict in Prison - Former Professor Fights Attempts to Force His Testimony Against Muslim Charities
Wall StreetJournal (AP) - Prosecutor's Need More Time to Rework Bonds Indictment
Law School Rankings are about to be released and the ABA Journal is ready and waiting. The ABA Journal sent out an email and asked that bloggers pass it along to readers. It begins by telling of the recent article on the cover of the ABA Journal that talks about U.S. News & World Report’s law school rankings. (see here) Edward A. Adams, Editor and Publisher of the ABA Journal, states that "Morse will be taking questions from the public on ABAJournal.com on Friday, April 11, from 3 to 4 p.m. ET. We hope you and your readers will participate."
Now back to white collar crime....
P.S. For those who don't know, Robert Morse is "the man who created the law school rankings for U.S. News." (per ABA email)
Monday, March 24, 2008
Tom Kirkendall's Houston ClearThinkers has the Motion to Dismiss filed on behalf of a former Merrill Lynch executive who is awaiting retrial (see here). As anticipated, the Fastow Notes - and the alleged failure of the prosecution to provide exculpatory material to the defense - may prove devastating to this prosecution. The Motion includes numerous references to the Model Rules of Professional Conduct, the ABA Standards for Criminal Justice, and the Restatement (Third) Law Governing Lawyers. Although ethics rules are usually not enforceable at law, they have been used to provide a standard for appropriate conduct in the community. In this case, the Motion alleges many different violations of ethics rules.
The key issues for the court will likely be: 1) did the prosecution withhold exculpatory material; and 2) what is the appropriate remedy. Both of these issues offer interesting aspects. On the first one, a question will be whether the Enron prosecutors will be testifying or is the paper trail sufficient to present each side of the argument. It is likely that the prosecution will vigorously argue the second issue (that a retrial cures this problem) in an attempt to avoid losing the case on a court dismissal. But the more important question remains - why are the Fastow notes so late in coming (see here).
A press release of the Department of Justice states that an individual was "found guilty by a federal jury in May 2007 of conspiracy, two counts of attempting to violate export control laws, failing to register as an agent of a foreign government and making false statements to federal investigators." The sentence imposed was 293 months in prison. The press release also states that the defendant is "[a]n engineer who conspired with family members to export United States sensitive military technology to the People’s Republic of China." White collar cases will sometimes implicate military and defense issues.
Perjury, obstruction, conspiracy, and misconduct, are the charges brought by the Wayne County prosecutor against the Mayor of Detroit and his former chief of staff. Dan Webb is representing the mayor and is calling this a "selective prosecution." The prosecutor in this case chose to respond to what was said by defense counsel.
The press reports that the basis for the "selective prosecution" claim is that the prosecutor has never charged anyone with the crime of perjury for statements made during a civil matter.
Selective prosecution claims are difficult to win in the pre-trial stage. Prosecutors have broad discretion in their charging powers and as long as there is probable cause of the commission of the crime charged, the decision "generally rests entirely within the prosecutor's discretion." See Bordenkircher v. Hayes, 434 U.S. 357, 364 (1978). That said, if the prosecutor uses an impermissible factor, such as race or religion, it's a different story. Although selective prosecution claims may be difficult to prove in a pre-trial stage, if allowed into evidence it can make for an interesting jury consideration. Couple that with perjury, a difficult charge for prosecutors in that it requires clear questions with clear answers, and the case will be one to follow.
The fact that AB Volvo entered into a deferred prosecution agreement was previously discussed here. Based upon this agreement it seems unlikely that there will be a company statement, at least one that has not first been vetted through the DOJ. The deferred prosecution agreement in paragraph 14 states:
"14. Statements to the Media: In connection with this Agreement, AB Volvo, Renault Trucks and VCE shall only issue a press release if they first determine that the text of the release is acceptable to the Department."
And it further looks like some of the terms of the agreement seriously diminish the attorney-client privilege rights. The Department reserved the right to ask for attorney-client privileged material. And yes, the company can withhold them, but -
iii. In the event that AB Volvo, Renault Trucks and VCE withhold access to the information, documents, records, facilities and/or employees, the Department may consider this fact in determining whether AB Volvo, Renault Trucks and VCE has fully cooperated with the Department."
And breaches of the agreement, it looks like the Department gets to decide that also, and the company loses some of their statute of limitation rights. To view a copy of the agreement, see here -
If you find this agreement problematic from a contracts perspective, you'll probably be interested in this article by Professor Candace Zierdt (Stetson) and myself here.
(esp) (w/ a Stetson thank you to Librarian Whitney Curtis).
Glenn R. Simpson, of the Wall Street Journal, has an article this morning titled, "U.S. Opens Alcoa Bribery Probe." Alcoa, a global company, clearly has internal rules related to the giving and taking of company gifts. For example, one finds this one on the company website:
"Gifts, favors and entertainment may be given at company expense or accepted by directors, officers or employees from a competitor or an individual or firm doing or seeking to do business with the company only if they meet all of the following criteria:
- they are consistent with customary business practices and do not violate applicable law or ethical standards;
- they are not excessive in value;
- they cannot be construed as a bribe, payoff or improper inducement; and
- public disclosure of the facts would not embarrass the company or the director, officer or employee.
Payments or gifts of cash (or of cash equivalents such as stocks or commodities) to or from a competitor or an individual or firm doing or seeking to do business with the company are never permitted and may not be solicited, offered, made or accepted by directors, officers or employees"
Although a big believer in the presumption of innocence, one has to wonder what could happen if this investigation turns up a bribe to a foreign official. The Foreign Corrupt Practices Act is easily explained in this DOJ Layperson's Guide discussed here. But one notices in looking at the results of a good number of cases (see here) against companies, that if the DOJ does decide to proceed, there is little likelihood of a trial. When a company is involved, the matter tends to end with a payment of a fine and in some cases a deferred prosecution agreement. In a post-Arthur Andersen world, this is easily explained as the cost of fighting can be a death sentence to a company. If the government does find something here, one has to wonder if this will be the result. But, on the other hand, if there is nothing to this investigation - it is hoped that the press received will not hurt the company.
Wesley Snipes is set for sentencing on April 24, 2008. (see here) Although found not guilty on the majority of counts against him, he was convicted of a couple of misdemeanor tax counts (see here). In addition to sentencing, it is likely that we will see an appeal down the road.
On March 19, 2008, the Supreme Court issued a decision in Synder v. Louisiana, a case that bears little resemblance to Wesley Snipes tax matters as it is a death penalty case. What perhaps might be relevant is that the Court struck down Allen Synder's conviction as a result of how the trial court handled jury strikes by the prosecution. The Court held that the rejection of a Batson claim as to one of the jurors was improper. In Synder, the accused ended up with an all-white jury. (see also Scotus Blog here)
Now lets look at the Snipes trial. Snipes did not even have an opportunity to contest prosecutor's striking of black jurors as there were no blacks on the venire.(see here). It will be interesting to see if the decision in Synder will make the rejection of Snipe's change of venue motion more powerful. (see here). It's not that Snipes was deprived of a chance of the prosecutor or judge making an error in violating Batson. Rather it's the fact that he has no claim whatsoever because of the venue where this case was prosecuted. The prosecutor did the striking by the selection of the venue.
News Update - Stephen Hudak, Orlando Sentinal story related to Snipes -IRS chases cheaters after figure in Wesley Snipes tax case gives up names
Addendum - Paul Caron's TaxProf Blog here.
Sunday, March 23, 2008
Deliberations in the Wecht trial resume on Tuesday. See Pittsburgh Post Tribune here
A decision on what happens to Detroit's Mayor Kilpatrick will likely be announced on Monday here
One interesting aspect about these two matters, is that Wecht is being tried by federal prosecutors for crimes that involve state conduct. (see here) In Kilpatrick's case, it is a Wayne County prosecutor who will be making the decision of whether to proceed criminally with any alleged matters. (see here)
These days the line between federal and state jurisdiction is very blurred. The dual sovereignty rule often permits both to proceed. It all depends on who has a criminal statute that can be applied to the specific situation, and which prosecutor wishes to proceed. It makes you wonder if individuals should have such extraordinary power to make these decisions. Overly broad criminal statutes drafted by the legislature allow prosecutors this discretion.
The Federal Bar Association and the US Sentencing Commission, with the ABA as a co-sponsor, is having its 17th Annual National Seminar on the Federal Sentencing Guidelines Conference May 21-23, 2008 in Orlando, Florida. For information, see here.
National Consitution Center - How to Conduct Internal Investigations - and Not Screw it Up. April 23 - audio conference For information, see here.
NACDL - 50th Anniversary - White Collar Crime Track- May 1-4th New York City here.
Friday, March 21, 2008
With the recent disbarment of I. "Scooter" Libby, there have been questions regarding the effect of the president commuting his sentence on his later disciplinary matter. The bottom line is - probably none. This issue was examined in the context of Eliot Abrams, the former Assistant Secretary of State for Inter-American Affairs. In the case In re Abrams, 689 A.2d 6 (1997), the court held that a presidential pardon does not negate the ability of a disciplinary committee from imposing professional discipline. The Abrams case resulted after President Bush gave Abrams a "full and unconditional pardon" on Christmas Eve in 1992. Although there are four judges that offer a dissent in the Abrams case, the precedent remains for saying that a presidential commutation of sentence does not change the disciplinary board's decision.
(esp)(w/ a hat tip to Professor Greg Miller)
With political candidates Obama, Clinton, and now McCain receiving word from the State Department that their passport files had been breached (see here, here), an interesting question will be whether the perpetrators of this activity can suffer consequences beyond the loss of their jobs.
Back in 1997, the First Circuit reversed wire and computer fraud convictions brought against an individual who was accused of browsing in an Internal Revenue Computer. The court held that the government had not provided sufficient evidence that the accused had received "anything of value." In reversing the conviction, the court found that "mere browsing" was not enough, even if the information viewed was "about friends, acquaintances, and political rivals," as the accused did not "printed out, record[ ], or use  the information he browsed." 106 F.3d 1069 (1st Cir. 1997).
But the present happenings may be different as the Freedom of Information Act and the Privacy Act of 1974 may apply. 18 U.S.C. s 552(a) provides for misdemeanor penalties in certain circumstances. It states:
"(i)(1) Criminal penalties
Any officer or employee of an agency, who by virtue of his employment or official position, has possession of, or access to, agency records which contain individually identifiable information the disclosure of which is prohibited by this section or by rules or regulations established thereunder, and who knowing that disclosure of the specific material is so prohibited, willfully discloses the material in any manner to any person or agency not entitled to receive it, shall be guilty of a misdemeanor and fined not more than $5,000.
(2) Any officer or employee of any agency who willfully maintains a system of records without meeting the notice requirements of subsection (e)(4) of this section shall be guilty of a misdemeanor and fined not more than $5,000.
(3) Any person who knowingly and willfully requests or obtains any record concerning an individual from an agency under false pretenses shall be guilty of a misdemeanor and fined not more than $5,000."
Exceptions are noted in the statute. But the statute explicitly applies to contractors working for an agency. Specifically the statute states:
"(m) Government contractors
(1) When an agency provides by a contract for the operation by or on behalf of the agency of a system of records to accomplish an agency function, the agency shall, consistent with its authority, cause the requirements of this section to be applied to such system. For purposes of subsection (i) of this section any such contractor and any employee of such contractor, if such contract is agreed to on or after the effective date of this section, shall be considered to be an employee of an agency."
But there are more important questions that we should be asking here -- Why are we seeing security breaches of this nature? As this is not a new problem, what steps were taken to make sure that this didn't happen again? Was there a corporate compliance program in place and why did it not work? It is pretty frightening that our State Department can have security breaches like this occurring on several occasions. If someone did this haphazardly, perhaps in fun, punishing them may not be the answer. The more important point is to educate those who work with these type of documents on the importance of their confidentiality. If this were a corporation, might the government be offering the corporation a deferred prosecution agreement, in order to make certain that there was future compliance with the law.
A DOJ Press Release states that "AB Volvo has agreed to pay a $7 million penalty as part of an agreement with the U.S. Department of Justice regarding charges brought in connection with an ongoing investigation related to the U.N. Oil for Food program." The release describes the breadth of the investigation in stating:
"The Department of Justice today filed an agreement with AB Volvo, as well as criminal informations against AB Volvo subsidiaries, Renault Trucks SAS (Renault Trucks) and Volvo Construction Equipment AB (VCE), in the U.S. District Court for the District of Columbia. The informations charge that Renault Trucks and VCE engaged in separate conspiracies to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act.
According to the agreement, AB Volvo has acknowledged responsibility for the actions of its subsidiaries, whose employees, agents and distributors paid kickbacks to the Iraqi government in order to obtain contracts for the sale of trucks and heavy commercial construction equipment. The agreement requires the company to cooperate fully with the Department’s ongoing Oil for Food investigations.
The SEC press release also notes that the "SEC Files Settled Books and Records and Internal Controls Charges Against AB Volvo For Improper Payments to Iraq Under the U.N. Oil for Food Program - Company Agrees to Pay Over $12.6 Million in Civil Penalties, Disgorgement of Profits, and Interest."
The company issued a statement saying that "'[t]he incident is, of course, regrettable, but we do note with some satisfaction that the authorities spoke favorably of the cooperation by Volvo as well as Volvo’s own investigation and measures', says Volvo CEO Leif Johansson. 'It is important that we all now learn from what occurred.'”
SEC Complaint here
Information (Renault) here
Thursday, March 20, 2008
Nathan Koppel, Wall Street Jrl. - Weiss Faces up to 33 Months Under Plea in Kickbacks Case
SEC Press Release - SEC Charges W.P. Carey and Two Senior Executive in Fraudulent Payment Scheme
According to the Indictment, the accused, a medical doctor in California is accused of marketing the drug Actimmune beyond what it had been approved for with the FDA. The former CEO of InterMune Inc. was indicted in Count One with "Wire Fraud, Aiding and Abetting," and Count Two with "Doing Acts, With Intent to Defraud and Mislead, Resulting in Drugs Being Misbranded While Held for Sale Following Shipment in Interstate Commerce." The website of InterMune states that the company "is a biopharmaceutical company focused on developing and commercializing innovative therapies in pulmonology and hepatology." The company entered into a deferred prosecution agreement in 2006. (see here)(although the link to the press release on the government's deferred prosecution agreement no longer works). The company now issued a press release letting people know that the former CEO hasn't been with the company for over four years. The company press release also states:
"In 2006, InterMune settled all government claims related to that conduct, without criminal sanctions against the company. At the time, the government acknowledged that InterMune fully cooperated with its investigation and had instituted numerous and comprehensive compliance changes before the investigation even began. Today's government action does not affect the Company's settlement in any way.
'In today's action, the government is bringing charges against a former employee, not against InterMune, its current employees or its Directors."
Dan Levine (The Recorder) initially wrote about this matter here (subscription required) and now writes here in an article on Law.com titled Biotech Executive Indicted for Off-Label Claims. In reading the latter article, it looks like there are some facts in dispute between the prosecution and defense.
Indictment - Download harkonen_indictment.pdf
(esp) (w/ a Stetson hat tip for assistance from librarian Whitney Curtis).
Wednesday, March 19, 2008
Forbes (Reuters) - Reddy Ice Management Receives Grand Jury Subpoenas
Pittsburgh Post-Gazette - Wecht Jury Still Deliberating
The former KPMG partner is charged with "participating in a conspiracy to defraud the IRS by [allegedly] concealing fee income received by [the accused] and his co-conspirators from tax shelter transactions." He is "also charged for [allegedly] conspiring to defraud a company located in Saipan .... of the right to the honest services of its employees, by sharing tax shelter fee income with officers of that company who failed to disclose those secret payments to the Saipan Company's Board of Directors."
This individual, according to the government, "is currently awaiting trial before Judge Lewis A. Kaplan on charges relating to other tax shelters not at issue in today's indictment."
Some questions that are likely to arise are: Why is the government filing a separate action when there already is a case pending against this defendant? Did the prosecutors know of this alleged activity at the time of the filing of the initial charges, and only chose to file this action now in order to secure a prosecutorial advantage? Is this a case of the government trying to separate the accused from others charged with him, so that the government receives the benefit of moving ahead on trial on this individual alone? Is this a situation of the government hoping to convict the individual so that he can be offered immunity and forced to testify against other actors? There are clearly a good number of unanswered questions here, and one has to think that motions made by defense counsel will bring to light some of the answers to these questions. For more see Business Week here.
An indictment was issued today to a former "partner or 'member' of the accounting firm KPMG." More details will follow, but for now, the Indictment and forfeiture claim are below.
Indictment - Download pfaff_indictment.pdf
Forfeiture - Download pfaff_civil_forfeiture_complaint.pdf