Friday, June 20, 2008
U.S. Attorney's Offices throughout the United States are going to be busy prosecuting mortgage fraud cases in the next few months as Operation Malicious Mortgage brought numerous arrests this past week. An FBI Press Release noted that:
"Operation Malicious Mortgage resulted in 144 mortgage fraud cases in which 406 defendants were charged. Yesterday, 60 arrests were made in mortgage fraud-related cases in 15 districts. Charges in Operation Malicious Mortgage cases were brought in every region of the United States and in more than 50 judicial districts by U.S. Attorneys’ Offices based upon the law enforcement and investigative efforts of participating law enforcement agencies. The FBI estimates that approximately $1 billion in losses were inflicted by the mortgage fraud schemes employed in these cases."
AG Mukasey has not provided for a separate task force to investigate and prosecute mortgage fraud cases, (see NYTimes here) although some individual U.S. Attorneys Offices have created such a task force. (see here) The FBI Press Release does note that "The President’s Corporate Fraud Task Force, chaired by Deputy Attorney General Filip, is also responding to issues raised by mortgage fraud in the corporate sector."
Addendum - Remarks of Deputy Attorney General Mark R. Filip at Press Conference Announcing the Results of Operation Malicious Mortgage here
The founder and former senior portfolio manager of two Bear Stearns hedge funds, and a former portfolio manager of the funds were indicted for conspiracy, securities fraud, and wire fraud. One of the individuals was also charged with insider trading. The case is the classic case of the funds going down and everyone then looking for someone to blame.
The DOJ Press Release states that
"[T]he defendants believed that the Funds were in grave condition and at risk of collapse. However, rather than alerting the Funds’ investors and creditors to the bleak prospects of the Funds and facilitating an orderly wind-down, the defendants made misrepresentations to stave off withdrawal of investor funds and increased margin calls from creditors in the ultimately futile hope that the Funds’ prospects would improve and that the defendants’ incomes and reputations would remain intact. The subsequent collapse of the Funds during the summer of 2007 resulted in losses to investors totaling more than $1 billion."
This is likely to be yet another case in which emails will be used to try and show knowledge of problems with the funds and lack of honesty in reporting these problems to investors. Clearly honesty in the market is important. But one also has to wonder if the use of criminal charges is appropriate in cases that would not have occurred but for the poor economy. It is also a concern that the government is using overly broad statutes to criminalize an alleged lack of honesty.
Kate Kelly, Wall Street Jrl, Two Ex-Managers At Bear Indicted Over Hedge Funds
Landon Thomas Jr., New York Times, Prosecutors Build Bear Stearns Case on E-Mails
Felix Salmon, Market Movers, Conde Nast Portfolio,com, Hedge Funds: The Legal Risks
Addendum - Indictment - Download indictment.pdf
(w/ a hat tip to Whitney Curtis)
Wednesday, June 18, 2008
It all started back in September of 2005 when David Safavian, " [a] former General Services Administration (GSA) official was arrested on charges of making false statements and obstructing an investigation by the GSA’s Office of Inspector General (GSA-OIG)." (press release). And it all pertained to Jack Abramoff and a golf trip. (see here and here). At the beginning Karl Rove's name was mentioned, and one wondered whether there was a desire to have Safavian implicate someone high-up in the administration. (see here). But early on it was easy to discern that the source of the information for bringing the Safavian case was from Abramoff -- and he was talking. (see here)
The government did some unusual things in the course of this case - they went so far as to release emails between Safavian and Abramoff (see here). And one had to wonder if they were looking for a quick plea or someone who might talk and give them information in support of Abramoff. As opposed to investigating any possible real conduct, the government opted for the "shortcut" using so-called easier to prove crimes like obstruction of justice. (see here). But taking shortcuts does not always work. Safavian instead decided to take the government on - he went to trial. He was convicted and did not join the "Abramoff Club" as a cooperating witness.(see here). The government wanted a guideline sentence of 30-37 months and the defense wanted home confinement or probation. (see here). The judge went for the middle-ground and entered an 18 month sentence for Safavian. (see here). Interestingly, Safavian was not willing to offer the remorse needed for perhaps a lower sentence, but in retrospect one sees he made a good choice.
Fast forward to this week. The D.C. Circuit Court of Appeals reversed some of the counts, and vacated and remanded some other counts. Some thoughts:
- Even when you win, you lose. One can't bring back the years of turmoil and uncertainty caused by waiting for this case to be resolved. Those around him have probably suffered with him. And the attorney fee bills have probably added up throughout this process. The golf trip of August 2002 has been a costly one for David Safavian, irrespective of this recent judicial support.
- It seems bizarre to say that "once an individual starts talking, he cannot stop." The court reinforces the position that absent a legal duty to disclose there can be no concealment. The D.C. Circuit Court of Appeals even goes so far to say that there are no cases that support the government's position here.
- The exclusion of evidence was found to be improper. The district court was afraid the evidence would confuse the jury - and in white collar cases that can easily happen. But on the other hand experts are needed in these cases because there are difficult matters that a jury needs to understand in order to determine whether conduct should be considered criminal.
- The court leaves open the option for a new trial on some of the counts. But one has to wonder if this golf extravaganza is really worth any more taxpayer time and money. The game is over.
Opinion - Download Safavian.pdf
(esp) (blogging from Baltimore)
Tuesday, June 17, 2008
David Marcus, SDFL Blogspot, Former Atlanta Mayor Bill Campbell (provides thoughtful commentary to Bill Rankin's AJC Article - Ex-mayor misled officials to enter rehab program, documents say)
Brian Baxter, AMLaw Daily, Former Bear Stearns Managers Could Face Securities Fraud Charges
Carrie Johnson, Washington Post, Ex-Civil Rights Official's Testimony Under Review
Larry Ribstein, Ideoblog, Insurance and the Criminilization of Agency Costs
NYTimes Editorial, A Case of Politics (discussing the Don Siegelman case)
The BLT - Blog of Legal Times, House Panel Subpoenas Valerie Plame Records
Dan Slater, WSJ Blog, It’s Official: Feds Call Former Bayou CEO a Fugitive from the Law
Davide Beretta, WSJ, Former EADS Executive is Detained
Tenth Circuit Rules in Wittig (former CEO of Western Resources, Inc. - now Westar) - opinion here (court affirms sentence with the exception of the "special condition of supervised release") See Doug Berman's Sentencing Law & Policy - Third time's (almost) the charm in Tenth Circuit sentencing case for an excellent discussion and commentary.
Monday, June 16, 2008
A DOJ Press Release reports that the Milberg law firm will receive a non-prosecution agreement at a cost to them of $ 75 million. "The Justice Department has agreed not to pursue criminal charges against the law firm, which has agreed to employ a compliance monitor and enact “Best Practices Program” for two years." See Press Release Here - Download milberg_firm_settlement.083.pdf
Milberg's Press Release reads as follows -
"Milberg LLP announced today that federal prosecutors have agreed to dismiss all charges against the firm as part of a comprehensive settlement relating to the misconduct of certain former senior partners. The non-prosecution agreement provides that the government will promptly move to dismiss the indictment of the firm, and eliminates any plea or trial.
"Sanford Dumain, a member of the firm's Executive Committee, stated: 'We are pleased that the government specifically recognizes that none of the lawyers now at the firm was involved in any of the misconduct, and that in fact our former partners who were prosecuted were deliberately concealing their illegal activities from us. This favorable outcome now allows us to put a painful chapter behind us so that we can resume building one of the best known plaintiffs firms in the country.'
"'This settlement enables us to move forward with our continuing representation of investors and consumers in class actions and other important lawsuits, and allows us to capitalize on the tremendous talents of the lawyers at the firm,' he continued.
"The firm will make payments to the government totaling $75 million over the next five years as part of the settlement. Regarding the amount, Dumain stated: 'The firm risked having to pay forfeitures and penalties of many hundreds of millions of dollars if the criminal case against the firm had gone forward. We wanted to avoid that enormous risk, which we faced solely because of the misconduct of certain of our partners who are no longer with the firm.'
"The firm plans to make the settlement payments out of firm resources and income, and is evaluating pursuing claims against responsible parties. The firm also agreed to expand its 'best practices' compliance program, which it instituted prior to indictment.
"Dumain reiterated the firm's apology, based on the former partners' misconduct, to 'all judges, lawyers, clients and class members who deserve full and complete adherence to all legal and ethical norms. We pledge to faithfully comply with those standards as we rebuild our practice.'
"Management of the firm was taken over last year entirely by partners who were neither engaged in nor aware of the misconduct charged by the government, thereby clearing the way for the firm to expand its retention by top-tier clients and its appointment as lead or co-lead counsel in prominent cases. Recent new matters include securities cases in the fields of subprime mortgage and auction-rate obligations, and other ERISA, consumer, and antitrust cases. The firm has over 65 lawyers and 130 staff employees in New York, Los Angeles and Tampa.
"Recognizing the start of a new era for the firm, Dumain added: 'Even during our darkest times, our talented team of lawyers continued to achieve significant results for our clients. Now, with the non-prosecution agreement, we are prepared to re-affirm our position as the nation's leading class action law firm.'"
Addendum - Agreement - Download Agreement.pdf (w/ a hat tip to Peter Henning)
In a letter to Karl Rove's attorney we see John Conyors, Jr., Chair of the Subcommittee on Commercial and Administrative Law saying that "[a]s Committee staff made clear, and as we indicated in our May 1 letter, the proposal that we somehow seek to separate the Siegelman matter from the broader issue of politicization of the Justice Department is unacceptable."
The letter lets Rove know that he needs to appear on July 10th, and that if he has specific objections to questions, he can make the objections at that time. But the letter also states to Rove's attorney that, " [w]e remain very willing to meet with you and your client to discuss this matter."
In the meantime, DOJ's Office of Professional Responsibility and the Inspector General are also conducting an investigation into specific cases and looking perhaps at whether politics may have entered into the DOJ. (see here). Dan Slater, over at the Wall Street Jrl Blog, reports on some recent events in the investigation of the "attorney-firings" in his blog entry, U.S. Attorney Mess: DOJ Files First Grand-Jury Referral.
Although it it good to see Congress stepping in to provide some oversight, there is still one item missing here - where is the appointment of a special prosecutor to investigate whether politics improperly entered into the decision-making process in DOJ? Should DOJ be handling this investigation, or isn't this a conflict?
Sunday, June 15, 2008
Chronicle of Higher Education (subscription required) - Former Director of Alabama Fire College Found Guilty of Stealing $1.5-Million
Ovetta Wiggins, Washington Post, Md. Couple Indicted in Fraud Probe: Scam Allegedly Cheated Lenders And Homeowners
Jeff Coen, Chicago Tribune, Ex-Chicago Department of Buildings supervisor gets 15 months for taking bribes
Friday, June 13, 2008
Former CEO of Refco, Phillip Bennett is set for sentencing on July 3rd. He plead guilty (see here) to what the government called a 2.4 billion dollar fraud. With white collar sentences often determined by the amount of loss, this figure raises questions of whether this guilty plea will match a sentence with a comparable loss figure and whether consideration will be given for his individual circumstances. Clearly as noted in the brief of the defense, there are strong factors for a lower sentence for this 60 year old man. For example, the brief presents a strong section on his "kind works and charitable deeds." Martha Graybow (Reuters) provides a wonderful analysis of the issues to expect in this forthcoming sentencing in an article titled, Prosecutors Seek Stiff Jail Term for Ex-Refco CEO.
Below are the Defense and Government Sentencing Memorandum -
Defense - Download bennett_sentencing_memo.pdf
Government -Download usa_sentencing_memo.pdf
(esp) (w/ a hat tip to Whitney Curtis for her wonderful assistance)
Addendum - See Tom Kirkendall's Houston CleakerThinkers here.
Thursday, June 12, 2008
Without doubt, mortgage fraud is a top concern these days. The FBI is making it a key focus (see here; see also Robert Schmidt, Bloomberg, FBI Halts Some Cases to Investigate Mortgage Frauds). Attorney General Mukasey has opted against setting up a separate task force to handle these cases. (see here). Thus, U.S. Attorney offices have to proceed without a central task force.
In the U.S. Attorney's Office for the Middle District of Florida we see a coordinated effort by several entities in the prosecution of a mortgage fraud case. A Press Release of this office describes their Mortgage Fraud Task Force, "formed in January 2008," that "include[s] the United States Attorney’s Office; 25 local, state, and federal law enforcement agencies; three State Attorney’s Offices (6 , 10 and 13 Circuits), the Florida Office of Statewide Prosecution, and eight non-law enforcement partners." The result of the coordinated effort in one case was a plea agreement where the individual received a sentence of "eight and a half years' imprisonment for one count of wire fraud affecting a financial institution and one count of aggravated identity theft." The individual also had a sentence of mortgage related activity in Illinois. (see Elaine Silverstrini, TBO.com - Mortgage Scam Artist Who Helped Authorities Gets Prison) Which makes one wonder if a national effort is needed.
The Tampa case was handled by Thomas N. Palermo, an Assitant United States Attorney in the MIddle District of Florida.
Press Release - Download uribe_tpa_mtgfraudsentencelea202.pdf
Bob Martin, The Montgomery Independent, U.S. Attorney Offices in Northern Middle Districts are being probed by the Justice Department for possible political prosecution in the Siegelman cases (previously discussed here, here and here)
DOJ Press Release - Second Former Home Depot Employee Charged in Alleged Kickback Scheme
Chris Ornelas KOB-TV, and Joshua Panas KOB.com, Businessmen implicated in travel scam
Linda Stamato, NJ.com, Corporate wrongdoing and deferred criminal prosecution: An issue that won't go away
Michael Stanton, Providence Jrl, Judge rejects Licht affidavit ("Robert A. Urciuoli, the former president of Roger Williams Medical Center, is trying to convince a judge that he should not be retried on federal corruption charges because prosecutors improperly pressured the hospital to fire him and stop paying for his legal defense.')
Wednesday, June 11, 2008
Laurel Brubaker Calkins, Bloomberg, Ex-Merrill Banker Asks U.S. to Probe Enron Prosecutor
Mike Robinson, USA Today (AP) - Corruption fighters find Chicago a challenge
Ben Schmitt, Detroit Free Press, City hires lawyer to fight council's ouster of mayor (discussing the hiring of Professor Robert A, Sedler from Wayne State Law School) (see prior posts on the text message scandal here)
Johanna Newman, LA Times, Barack Obama advisor Jim Johnson quits under fire ("The former chairman of Fannie Mae was one of three advisors considering vice presidential candidates. He resigns after questions are raised about favoritism he may have received from Countrywide.")
Wall Street Jrl (AP) - China Hackers Hit U.S. Congress
Peppi Kiviniermi, Wall Street Jrl, EU Launches Probe of Alitalia Loan
Nathan Koppel, Wall Street Jrl Blog, More Details on Expected Milberg Settlement
Tuesday, June 10, 2008
Actor Wesley Snipes has hired Philadelphia lawyer Peter Goldberger as his appellate counsel. In addition to entering his appearance, Goldberger filed a Motion to Stay Further Appellate Proceedings arguing that the "Court should cancel or suspend the briefing schedule pending the entry by the district court of an amended or supplemental judgment containing all elements of the sentence to be imposed, including any imposition of costs of prosecution."
Motion - Download 11MCANBR.pdf
In United States v. Stringer, the Ninth Circuit held that "[t]here is nothing improper about the government undertaking simultaneous criminal and civil investigations." The court reversed a district court opinion that had held that "that the government had engaged in deceitful conduct, in violation of defendants' due process rights, by simultaneously pursuing civil and criminal investigations of defendants' alleged falsification of the financial records of their high-tech camera sales company."
Jeffrey B. Coopersmith and Patrick T. Jordan, DLA Piper, Stringer May Not Be Dead Yet, Securities Law 360 - Download stringer_article_final.pdf (This article was first published in Securities Law 360 and blogged with permission).
Dechert Sent out a Notice to It's Clients titled, Ninth Circuit's Decision Raises Critical Issues for Companies and Individuals Confronted with a Government Civil Investigation.
The Supreme Court ruled in Bridge et al. v. Phoenix Bond & Indemnity Co. et. al., on the role of reliance when RICO is premised on a predicate act of mail fraud (see here). The Court's opinion is not surprising. Here are some thoughts -
- Since its passage in 1970, the Court has been reluctant to restrict the reach of the RICO Act. And although the statute has long left its initial roots as a tool to combat organized crime to become a statute that is regularly used by both prosecutors and civil litigants in common cases of fraud, the Court has reigned it in.
- Even when interstate commerce was restricted in Lopez, the Court came back in the Robertson decision and held that RICO had an alternative way of proceeding - either "engaged in" or "substantially affect" interstate commence.
- The two key cases that restricted RICO, H.J. Inc. v. Northwestern Bell Telephone Co. and Reves v. Earnst & Young, both were interpreting the statutory language.
- The Court has ruled in several cases to restrict the constantly expanding mail fraud statute. Mail fraud is a commonly used predicate offense in RICO.
- Although the Court often refers to common law concepts when discussing fraud statutes, it won't help the party being subjected to a RICO claim as the Court firmly notes that "Congress chose to make mail fraud, not common-law fraud, the predicate act for a RICO violation."
- The Court sends a clear message to Congress that if you don't like this decision, then its up to you to correct it. And Congress may want to consider this challenge as this decision opens the door to increased civil litigation using RICO.
Monday, June 9, 2008
In a unanimous opinion delivered by Justice Thomas in the case of Bridge et al. v. Phoenix Bond & Indemnity Co. et. al., the Supreme Court stated:
"The Racketeer Influenced and Corrupt Organizations Act (RICO or Act), 18 U. S. C. §§1961–1968, provides a private right of action for treble damages to "[a]ny person injured in his business or property by reason of a violation" of the Act’s criminal prohibitions. §1964(c). The question presented in this case is whether a plaintiff asserting a RICO claim predicated on mail fraud must plead and prove that it relied on the defendant’s alleged misrepresentations. Because we agree with the Court of Appeals that a showing of first-party reliance is not required, we affirm."
Commentary to follow.
With unemployment high, with people desperate for jobs, we may be seeing more instances of alleged puffing or fraud in the job search process. But one doesn't expect the government to be spending its time prosecuting individuals based upon alleged fraud in the job search.
But Martha Graybow, Reuters, U.S. Businessman Accused of Fraud in Job Search reports otherwise. And to make matters even worse, the government wanted the job seeker detained. The magistrate judge in Miami responded with a $25,000 bond, which the government then sought to stay. And when that was denied, the government headed to New York to secure a stay. Again a denial for the government. The accused is represented by David Oscar Markus, who blogs at the Southern District of Florida Blog.
The Motion to Dismiss this case - Download dismiss.pdf
Jury Instructions can be important in a trial. In addition to serving as a basis for an appeal, they can also provide the jury with an understanding of the law. The legal complexities often seen in a white collar case make jury instructions particularly important.
In a recent case that alleged fraud, where the prosecution used 18 U.S.C. s 1346 the intangible right to honest services statute, the jury needed to consider state law in reaching its verdict (see here). Specifically they had to examine the role of state law in a state like Rhode Island, that has a part-time legislature and permits its senators to work privately. The court gave the following preliminary and final instructions explaining this aspect of the law to the jury. The jury returned not guilty verdicts for the two former CVS executives.
Preliminary Instructions - Download preliminary_instructions.PDF
Final Instructions - Download jury_instuctions_state_law.PDF
Sunday, June 8, 2008
The briefs in the case of United States v. Ionia Management, S.A. are now starting to appear in the Second Circuit, where the case will be heard on appeal. And although the case has worthwhile arguments related to statutory construction, sentencing, and procedure, the focus here is on the issue of whether there was sufficient evidence "to establish vicarious criminal liability for a corporate defendant under respondeat superior" and whether there was error in the "trial court's instructions on corporate liability." This case forcefully takes on corporate criminal liability both from a policy perspective and in its application. This is clearly a case that needs to be watched.
The company, "a ship management company headquartered in Piraeus, Greece," was convicted of conspiracy, pollution (Act to Prevent Pollution from Ships), and obstruction of justice, following a jury trial. The company was fined $4.9 million in addition to probation and assessments.
The amicus brief is written by Andrew Weissman (remember him from Enron), now at Jenner & Block, for a group consisting of the Association of Corporate Counsel, Chamber of Commerce, National Association of Criminal Defense Lawyers, National Association of Manufacturers, New York Association of Criminal Defense Lawyers, and the Washington Legal Foundation. This amicus brief examines the initial New York Central case that serves as the bedrock for corporate criminal liability. But it places this decision in the real world of today where a corporation may be facing scrutiny, despite the utmost care, because of a lower-level employee's alleged failure to follow the law. The brief calls for the court to "adopt a standard for vacarious corporate criminal liability" . . . that limits "the application of respondeat superior."
There are many options available to the court to limit a doctrine that needs to be examined in the real world of today, a world with international dimensions resulting from corporations that have employees on more than one continent, where statutes omit mens rea terms, and where the trial penalties can destroy a company. My personal preference here is for the establishment of a "good faith defense" for a corporation being charged criminally for the acts of a rogue employee (see here). It is good enough in the civil context, so clearly this approach should be allowed here.
Appellant's Brief -Download ionia_mgmt.Appellant Open Brief.pdf
Amicus Brief - Download Ionia_Amicus_Brief.pdf
Addendum - See Tom Kirkendall's Houston's ClearThinkers here.
Friday, June 6, 2008
The Seventh Circuit Court of Appeals listened to arguments in the Conrad Black appeal. The panel included Hon. Richard Posner. Here are stories describing the oral argument -
Chicago Tribune (AP) - Black's attorneys tell court his trial wasn't fair
Susan Chandler, Chicago Tribune - Judges appear cool to Black appeal - Media baron didn't steal, attorneys says