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
Tuesday, March 18, 2008
Economist - Enron Revisited: Is Jeff Skilling Innocent?
Denver Post - SEC's Nacchio Suit Could be Stalled
Atlanta Jrl Constitution - State Rep Pleads Guilty to Money Laundering
Houston Chronicle - Olis Case May Affect Many Others
Fortune-CCN Money - Frank Quattrone Returns to Banking
Bloomberg - SEC Opens Up Stock Manipulation Inquiry
The Second Circuit Court of Appeals in the case of Cutler v. United States, vacated the sentence and remanded for a new sentencing, stating in part:
"procedural errors, the clear factual errors, and the misinterpretations of the § 3553(a) factors discussed above--in particular of the needs to provide just punishment, to afford adequate deterrence of crimes by others, to avoid unwarranted disparities among similarly situated defendants, and to promote respect for the law--we conclude that the court's sentence on Cutler insofar as it ordered him to serve a relatively short term of imprisonment, and its sentence on Freedman insofar as it imposed no term of imprisonment, are substantively unreasonable and constituted an abuse of discretion. Accordingly, the sentences imposed on Cutler and Freedman are vacated, and the matters are remanded for further proceedings not inconsistent with this opinion."
The defendants were convicted of "bank fraud, tax evasion, and false statements, and conspiracy to commit those offenses and mail fraud, 18 U.S.C. §§ 371, 1014, 1341, 1344, and 1623, and 26 U.S.C. § 7201." On appeal the government argued:
"[T]he government contends that the district court erred or abused its discretion (a) in depreciating the seriousness of the bank fraud offenses based on the sums of money that Cutler and Freedman personally received and finding that the total amount of loss suffered by the defrauded banks overstated these defendants' roles and culpability; (b) in fashioning its sentence on Cutler without giving sufficient consideration to his conviction on the tax counts; (c) in refusing to adjust Freedman's offense level on account of, inter alia, obstruction of justice; (d) in granting these defendants downward departures for family circumstances; and (e) in concluding that Freedman could not be incarcerated because of his age and health. The government contends that the sentences imposed, to the extent that they ordered imprisonment of no more than one year and a day for Cutler and no iimprisonment at all for Freedman, are substantively unreasonable. For the reasons that follow, we conclude that there were errors in certain of the district court's Guidelines applications and in its departure decisions; that the sentences imposed did not properly interpret certain of the sentencing factors that the court was required to consider under 18 U.S.C. § 3553(a), such as just "punishment" and deterrence of others; and that some of the court's rationales would promote disrespect for the law."
Circuit Judge Pooler authored a concurring opinion that expressed the position that the sentence needed to be remanded for reconsideration because of procedural errors, but believed that a determination of the unreasonableness of the sentence should be left for the trial court on remand.
(esp) (w/ a hat tip to John Wesley Hall)
45 years ago, Justice Black issued the famed decision in Gideon v. Wainwright. One would have never suspected then that the right to counsel would be an issue in white collar cases. One has to wonder whether the high cost of legal fees makes it difficult for many facing these complex cases to receive the representation that they deserve. An accused may be too wealthy to secure a public defender, but too poor to secure counsel that can spend the time examining the many documents that may be found in something like a fraud case. In no way diminishing the need for proper indigent defense, something needed in so many parts of our country, it is also important to note that white collar cases raise new issues with regard to securing proper representation for the accused individual. [See, e.g. Stein (KPMG) case]
(esp) (w/ a thank you to IntLawGrrls Blog for reminding me of this historic day).
Monday, March 17, 2008
** Legal Profession Blog - What do needles and vials in Vegas have in common with Jeff Skilling's appeal? (Recommended highly - a wonderful piece by Nancy Rapoport)
Sidley Austin - Deputy Chief of Southern District of New York Organized Crime Unit Joins Sidley Austin, LLP (Timothy Treanor's practice will focus on white collar defense and investigations).
Larry Ribstein's Ideoblog here.
Doug Berman's Sentencing Law & Policy Blog here.
Washington Park Prophet here.
Denver Post here.
NYTimes (Reuters) here.
Cara Ellison here.
Addendum - Stephen Bainbridge's Business Associations Blog here
Tom Kirkendall's Houston ClearThinkers here
"Armchair economics is not the way to decide complex securities cases."This line from the Tenth Circuit decision in the Nacchio case says it all. The decision discussed here recognizes that white collar crime cases are not simplistic cases. Document cases need to be explained to the jury, and this can require testimony from qualified experts. In reversing and remanding the Nacchio conviction, the court recognizes that white collar cases deserve to be treated with a high standard. Not only do juries need to be provided with the expert opinions that will allow them to understand the financial matters being presented, but the accused also deserves to have his or her day in court. This is especially true given the large sentences that are being given to those convicted of corporate related crimes. The right to present a defense is an important principle in our criminal system. This decision reaffirms that principle and emphasizes that included in the right to present a defense is the right to explain that defense to the jury.
The Tenth Circuit Court of Appeals reversed and remanded the case against Joseph Nacchio, the former CEO of Qwest Communications International, Inc., who had been convicted of nineteen counts of insider trading. The court stated that "the improper exclusion of his expert witness merits a new trial, but we conclude that the evidence before the district court was sufficient for the government to try him again without violating the Double Jeopardy Clause." In allowing for a new trial, the Tenth Circuit does provide for a new judge, saying that "it would be unreasonably difficult to expect this judge to retry the case with a fresh mind."
Some of the points made in the decision:
- The Tenth Circuit rejects the trial court's statement that "the deficiencies under Daubert and Kumho Tire in these disclosures are so egregious that they hardly warrant the 63 page of ink the Government has spilled in opposing the testimony." It sounds like the government should have written more than 63 pages here.
- "Rule 16 disclosure is not designed to allow the district court to move immediately to a Daubert determination without briefs, a hearing, or other appropriate means of testing the proposed expert's methodology." (the court cites to Margaret Berger's article, Procedural Paradigms for Applying the Daubert Test, in 78 Minn. L. Rev. 1345 (1994)).
- The court notes the difference between civil and criminal cases - "Unlike under the civil rules, an expert in a criminal case is not required to present and disclose an expert report in advance of testimony."
- The court recognizes that sometimes courts will not allow defense counsel to make their argument, and this should not be held against counsel. The court states,
"[T]he defense was never permitted to speak to the issue in court. When Professor Fischel was called, the district judge immediately announced that he was excluding the testimony. A defense lawyer asked to speak. The judge silenced him immediately, saying that once the court had ruled, the trial was '[n]ot... an interactive process where you get to argue later on.' App. 3921. When the court does not allow a lawyer to present arguments, we will not penalize him for failing to present them."
- The court finds prejudice warranting reversal here, noting that "the exclusion of Professor Fischel was not inconsequential under any standard." The court emphasizes the due process right of the accused to present his or her defense.
- And my favorite line from this decision - "Armchair economics is not the way to decide complex securities cases."
The opinion is authored by Circuit Judge McConnell and there is dissent and concurrence in part by Judge Holmes.
The Opinion - here
Sunday, March 16, 2008
A DOJ Press Release notes how "[a] federal jury has found five former executives of National Century Financial Enterprises (NCFE) guilty of conspiracy, fraud and money laundering, following a six-week trial and less than two days of deliberation." The press release noted that "[t]he Columbus, Ohio, jury returned the guilty verdict on all charges contained in a 27-count superseding indictment stemming from a scheme to deceive investors about the financial health of NCFE. The company, which was based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November 2002. " "This case is one of the largest corporate fraud investigations involving a privately held company headquartered in small town America," said Assistant Director Kenneth W. Kaiser of the FBI Criminal Investigative Division. The press release states that "[a]t trial, the government presented evidence that the defendants engaged in a scheme to deceive investors and rating agencies about the financial health of NCFE and how investor monies would be used."
Closing arguments are set for today in the federal trial of Cyril Wecht. Jonathan D. Silver and Paula Reed Ward at the Pittsburgh Post-Gazette have provided some wonderful coverage of the trial (see here). This federal corruption case has lasted 7 weeks, had hundreds of exhibits, and the government presented 44 witnesses. The defense rested without presenting anything, which is not surprising considering the nature of this case.
The case is a relatively simple one. The government charges corruption with expansive statutes like wire fraud and honest services fraud under section 1346. They take each fax and make it into separate counts, even when the faxes were sent the same day. The Indictment makes one wonder what a case like this is doing in federal court, except for the fact that the accused is charged with activities while in his role as a county coroner.
The Indictment is here - Download wecht_redacted_indictment.pdf
The Wall Street Jrl just reported on the release of Skilling's Supplemental Brief and its discussion of the Fastow Notes. As the White Collar Crime Prof Blog noted here, if prosecutors failed to provide Brady material, Jeff Skilling's conviction could be in jeopardy. Also discussed here was the importance of full and open discovery by prosecutors. When a prosecutor provides limited discovery, the prosecutor opens him/herself up to being accused of not giving the defense exculpatory material.
Discovery violations, if they in fact happen, can also violate ethical rules for attorneys. The applicable rules depend on what has or has not been adopted in the particular jurisdiction. The ABA Model Rule provides in Rule 3.8 that:
"The prosecutor in a criminal case shall: ...
(d) make timely disclosure to the defense of all evidence or information known to the prosecutor that tends to negate the guilt of the accused or mitigates the offense, and, in connection with sentencing, disclose to the defense and to the tribunal all unprivileged mitigating information known to the prosecutor, except when the prosecutor is relieved of this responsibility by a protective order of the tribunal;"