Saturday, January 12, 2008

Upcoming Conferences

Foreign Corrupt Practices Act: Bribery in the International Marketplace (January 17, 2008) here

Third Annual ABA Homeland Security Institute (January 17-18, 2008) here

ABA 22nd Annual National Institute on White Collar Crime (March 5-7, 2008) here

Beyond Legal: A Business Approach to Corporate Governance (May 8-9, 2008)   here

Foreign Corrupt Practices Act: Voluntary Disclosures (CD) here

(esp)

January 12, 2008 in Conferences | Permalink | Comments (0) | TrackBack (0)

Marion Jones Sentenced to Six Months

Former Olympic gold medalist Marion Jones received a six-month prison sentence from U.S. District Judge Kenneth Karas for her guilty plea to two counts of making false statements, the maximum recommended term under the Federal Sentencing Guidelines for the offenses.  Jones was interviewed by federal agents in 2003 and again in 2006, the first time about the Balco (Bay Area Laboratory Co-operative) steroids operation and the second time about a check-kiting scheme involving her former boyfriend, sprinter Tim Montgomery.  In the Balco case, she denied ever receiving steroids and even filed a defamation suit against Victor Conte, the founder of Balco, for his statements about her use of performance-enhancing drugs; that civil case was eventually dropped, for obvious reasons.

The Sentencing Guidelines range was 0-6 months, and I speculated earlier (here) that she might receive probation or home confinement.  The prosecutors did not recommend any particular sentence other than staying within the Guidelines recommendation, and when Judge Karas floated the possibility of giving her consecutive sentences for each count of conviction or to exceed the recommended sentence, the prosecutors filed a letter (available below) urging the court to give a sentence within the 0-6 months range and not any higher.  While in other white collar crime cases prosecutors have taken a more aggressive stance on sentencing, here they urged the court to stay within the Guidelines and gave the impression that a sentence with no incarceration would be acceptable. 

Judge Karas' indication before sentencing that he was considering a longer prison term made it likely he would sentence Jones at the high end of the Guidelines range.  In explaining the sentence, the Judge stated that he wanted to send a message to other athletes who do not adhere to the values of "hard work, dedication, teamwork and sportsmanship."  In addition, Judge Karas said, "Athletes in society have an elevated status, they entertain, they inspire, and perhaps, most important, they serve as role models."  An AP story (here) discusses the sentencing.

After the Supreme Court's decision in Gall granting district courts broader discretion in sentencing, individualized factors now play a greater role in the punishment determination.  But, should an athlete's celebrity status be a basis for imposing an increased sentence in order to "send a message" to others?  Jones did not plead guilty to using performance-enhancing drugs, although she had now admitted to using them, so the message is not one tied to the underlying crime.

It is interesting to consider Jones' six-month prison term in comparison with other sentences handed down in white collar crime cases.  Mark Kipnis, a former general counsel for Hollinger International who was convicted along with Lord Conrad Black for his role in a scheme to defraud the company, received probation after a sentencing hearing held the very day Gall came down.  The fraudulent scheme cost the company approximately $6 million, and Kipnis was the attorney whose job was to protect his client, the company.  I. Lewis Libby's thirty-month sentence for obstruction of justice and perjury was commuted by the President because it was excessive, and he had at least as high a profile as Jones when he breached the public trust.  Even in the Balco prosecution, Conte received a four-month prison term for his role in the distribution of illegal narcotics, while Jones' sentence is 50% higher for lying to agents in the case. 

In the world of sentencing reasonableness in federal cases fostered by the Supreme Court's decisions in Booker and Gall, it is hard to say that a sentence is "unfair" in comparison with another because the focus now is on an individualized assessment of culpability.  One result of this new -- or perhaps return to -- sentencing discretion is that there will be greater disparity, and the "luck of the draw" regarding which judge a defendant draws takes on added importance.  The luck of this judicial draw will see Jones beginning a six-month prison term in March, and she will have to serve virtually the entire term because there is no good-time credit for a sentence of less than a year. (ph)

Download us_v_jones_government_sentencing_letter_jan_9_2008.pdf

January 12, 2008 in Obstruction, Sentencing | Permalink | Comments (0) | TrackBack (0)

Friday, January 11, 2008

Who Picks the Monitors

A standard feature of most deferred and non-prosecution agreements involving corporations is the appointment of an outside monitor to ensure the company's compliance with the terms of the settlement, which often includes increased internal controls and other changes to the line of business that triggered the investigation.  These agreements have become the norm these days, and hardly a month goes by without an announcement that a case has been resolved and a monitor appointed.  There are no rules related to DPAs, with each U.S. Attorney's Office and the Department of Justice sections pretty much on their own regarding the particulars of the agreement.  The "Wild West" aspect may be coming to an end, however, as the Department disclosed that it is looking at adopting internal guidelines for the selection of monitors and the standards for entering into DPAs.  This comes on the heels of Congressional pressure to rein in the discretion of U.S. Attorneys, specifically the U.S. Attorney in New Jersey, who picked the monitors for five medical implant suppliers as a condition of settling a case involving improper kickbacks.  The tipping point was the revelation that one of the five, former Attorney General John Ashcroft, the monitor for Zimmer Holdings, will be paid anywhere from $29 million to $52 million for the work by his firm.  These positions can be quite lucrative, and as I discussed in an earlier post (here), the monitored company has little leverage in controlling the costs of the monitorship because it has a powerful incentive to cooperate at almost any cost to get out from under the DPA.

Congress has started to weigh in on the matter.  Letters from the chairmen of the House and Senate Judiciary Committees to Attorney General Mukasey seek information about the appointment of monitors.  Senator Leahy's letter (here) states, "Please provide the Judiciary Committee with a list of all contracts, including dollar amounts, awarded since 2001 to outside lawyers retained by companies for monitoring compliance with out-of-court settlements reached in criminal investigations between companies and the Department.  Please also explain the procedure followed to select the person or firm monitoring compliance."  The monitors work for the company, not the federal government, so it is unlikely the Department of Justice has access to most contracts for serving as a monitor.  The Department has little interest in getting involved in such details, so to gather that information the Committee may have to contact each company, a much more laborious process.  Regarding the procedure for selection, the simple answer is that there does not appear to be one, or at least each district has its own process.  The promise of Congressional hearings will likely push the Department of complete its internal guidelines as soon as possible to avoid having legislation proposed on the issue.

One appeal of DPAs has been the fact that they are subject to almost no outside oversight: the judiciary does not become involved in the negotiation or approval of the agreement because it is only a contract between the parties, and there have been no general guidelines by the Main Justice about what types of cases are appropriate for resolution by a DPA.  That will change in the near future now that the agreements, especially the appointment of monitors, has come under greater scrutiny.  An interesting question will be whether greater regulation means these agreements will be used less frequently.  A Newark Star-Ledger story (here) discusses the situation. (ph)

January 11, 2008 in Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (0)

Immunity Demands on Capitol Hill

Immunity has become an issue in two high-profile Congressional investigations: the House Oversight and Government Affairs hearings on steroid use in baseball and the House Intelligence Committee session on the destruction by the CIA of the interrogation videotapes in 2005.  Jose Rodriguez, the former Director of the CIA's National Clandestine Service who order the tapes be destroyed, has informed the Committee through his attorney, leading white collar practitioner Bob Bennett, that he will not testify unless granted immunity by Congress.  Given that the Department of Justice has initiated a criminal inquiry into the decision to destroy the tapes, it is unlikely that an immunity grant will be forthcoming because it would, in all likelihood, mean that no criminal charges could be brought against Rodriguez.  As the one responsible for the destruction, it's unlikely the Department will acquiesce in an immunity grant, and Democrats on Capitol Hill are unlikely to give a free pass in a case that could be used for political gain.  An AP story (here) discusses the immunity request.

Over at the steroids hearings, Brian McNamee, former trainer for Roger Clemens and Andy Pettitte, has asked for immunity as a condition for testifying at the now-rescheduled February 13 session of the Committee.  It is not entirely clear what arrangement McNamee has with federal prosecutors in providing information to Senator Mitchell, which included the allegations about Clemens.  Earlier media reports indicated that he was operating under a letter agreement with the Department of Justice, essentially a "Queen for a Day" limited immunity arrangement, and not a full grant of immunity.  According to an AP story (here), McNamee meet with federal agents again on January 10, which in all likelihood would be based on a "Queen for a Day" agreement.  McNamee has asked for a grant of statutory use/fruits immunity before testifying at the hearing, which I suspect indicates that he has not been granted that level of immunity to this point.  Most limited immunity agreements allow prosecutors to use the information provided to gather additional information against the witness, and in some cases if the person is prosecuted later to use the statements at trial.  If Congress grants immunity, then none of the statements can be used in any way, giving McNamee greater protection.  I'm not aware of Congressional committees giving the more limited "Queen for a Day" immunity like U.S. Attorneys offices do, so McNamee's attorney is protecting his client and seeking an arrangement that would make it almost impossible to prosecute him down the road for providing steroids and HGH to players.

The wild-card witness in the steroids hearing may be former Yankees second baseman Chuck Knoblauch, who has been invited to testify along with McNamee, Clemens, and Pettitte (and also Kirk Radomski, who had no direct dealings with these players but supplied some of the substances involved).  It's not clear why Knoblauch is included in the case, although according to a story on ESPN.com (here) he shares the same agent as Clemens and Pettitte and was on the Yankees at the same time they were.  Knoblauch has neither admitted nor denied using HGH, as described in the Mitchell Report based on McNamee's statements.  Perhaps he is being called to bolster McNamee's statements if Knoblauch did received the HGH, but at this point he looks like the fifth wheel at the hearing.  (ph)

January 11, 2008 in Congress, Investigations | Permalink | Comments (0) | TrackBack (0)

Thursday, January 10, 2008

Stupid Fraud Tricks

In a scene reminiscent of 1988's Weekend At Bernie's -- or perhaps out of the horrible 1993 sequel, Weekend At Bernie's II -- two men took the body of a dead friend to a check-cashing store to try to cash his what was probably his last Social Security check.  A New York Times story (here) describes the escapades of the two men, one a long-time friend of the dead man, who put his body into a computer chair and pushed it a block and left it outside while they went inside with the check.  What is not entirely clear is why they needed the body, or how its presence would somehow make it easier to get the store to cash the check.  It's doubtful they could fake having the intended recipient sign the back of the check.  While one of the men was trying to push the body into the store, a detective intervened after noticing that the occupant of the chair was rather rigid and didn't look very good.  In Bernie's, the protagonists use the dead body to ward off hit men, so at least there's a reason for carting Bernie around Long Island.  No such reason is apparent here, and it's not clear who gets credit for hatching the plan.  The two men were charged with attempted forgery, attempted possession of a forged instrument and petty larceny -- no word yet on whether the "I'm an idiot" defense will rear its ugly head, but one can only hope. (ph)

January 10, 2008 in Fraud | Permalink | Comments (0) | TrackBack (0)

Can't Tell the Attorneys in the Scruggs Case Without a Scorecard

The prosecution of famed plaintiffs tort attorney Dickie Scruggs and three other defendants accused of bribing a Mississippi state court judge in a case involving a fee dispute has seen a whirlwind of motions by attorneys seeking to withdraw or appear in the case, and Senior U.S. District Judge Neal Biggers has called a halt to the movement for the moment.  According to the docket sheet in the case, on January 8, attorneys for Dickie from The Langston Law Firm moved to withdraw.  That firm was searched on the day the indictment was returned, and at one time former co-defendant and now cooperating witness Tim Balducci worked there.  Whether the law firm or any of its partners are a target of a grand jury investigation remains to be seen, but Balducci boasted on tape about knowing where "bodies" were buried involving Dickie.  The Langston Law Firm could be one of the cemeteries.

Next came a withdrawal motion on January 9 from Anthony Farese, the only counsel of record for co-defendant Zach Scruggs, Dickie's son who works for his father's firm.  According to Farese's motion, Zach terminated him and plans to hire new counsel.  At about the same time, Dickie moved to add Kenneth Coghlan as a new member of his defense team.  Here's where Judge Biggers threw up a "Stop" sign in an order issued at the end of the day (available below).  First, the Judge noted that there was no motion by a new attorney to appear for Zach, so he would be left without counsel.  Judge Biggers expressed concern about waiting for a new lawyer to appear who then may ask for a postponement of the trial, so for the moment Farese's motion to withdraw is denied.  It will likely be granted once the new lawyer shows up, but don't be surprised to see Judge Biggers hold that attorney's feet to the fire to avoid a postponement of the trial.  The Judge also denied the motion to have Coghlan appear as counsel for Dickie because of a potential conflict of interest.  Coghlan previously represented co-defendant Steven Patterson, who was a partner of Balducci.  As the Judge explained in the order, if Patterson or Dickie were to break ranks and cooperate with the government, Coghlan could well have a conflict because of confidential information learned from one client that could not be used to the benefit of the other.  While Dickie will, in all likelihood, be happy to waive a conflict, the same may not be true of Patterson, who terminated Coghlan in favor of a new attorney.  And even in the event both waive the conflict, the district court has fairly wide discretion to disqualify an attorney with a potential conflict.  Given that Dickie already has other lawyers, including well-known white collar defense lawyer John Keker, Judge Biggers may not feel constrained to accept a waiver from the defendants.

Why all these attorney machinations at the same time?  I would certainly expect Dickie and Zach Scruggs to coordinate their defenses, so Zach's new attorney will likely come with his father's seal of approval.  The withdrawal of The Langston Law Firm could indicate an expansion of the case into other areas, and the lawyers would have to withdraw because of the conflict with their client if they were targets of an investigation involving Dickie, or there is the possibility that the lawyers could be witnesses against their client, which would knock them off the case.  Prosecutors may well seek a separate indictment if there is evidence of bribes in other cases, so the problems for Dickie may not be over any time soon.  The Wall Street Journal Law Blog has an excellent summary of the attorney shuffling (here).  (ph)

Download us_v_scruggs_counsel_motion_jan_9_2007.pdf

January 10, 2008 in Corruption, Defense Counsel | Permalink | Comments (0) | TrackBack (0)

More Problematic E-Mails From Houston DA

We've discussed the problem that a set of steamy e-mails to an administrative assistant caused Harris County (Texas) DA Chuck Rosenthal, who dropped out of the race for reelection at the last minute (see earlier post here).  Another week, another batch of e-mails from his files, and these have led to calls for Rosenthal's resignation and, even worse, could put him in the cross-hairs of a criminal investigation.  The latest e-mails disclosed in connection with a civil rights case in Houston include some with attachments containing nude pictures and videos, and one with a racist joke about former President Clinton.  Certainly inappropriate, but then DA Rosenthal has already shown that he doesn't quite understand just how dumb it is to have such things on your government computer. 

What may cause him a criminal problem are messages about political activities related to his abortive re-election campaign, including e-mails to staff discussing an upcoming barbecue fundraiser.  As a Houston Chronicle story notes (here), "It is widely considered illegal in Texas for public officials to campaign during work hours using government-owned equipment. Such instances in the past have led to charges of official misconduct, or theft by a public official."  The same is true at the federal level, which is why there have been questions raised about e-mail accounts at the Republican National Committee maintained by White House officials and whether they were used for official business when that should only be done on a government computer.  This latest round of embarrassing, and potentially incriminating, e-mails triggered calls for Rosenthal's resignation, but whether that happens remains to be seen.  According to a report on KPRC Channel 2 in Houston (here), he had said he will serve out the rest of his term.  I suspect DA Rosenthal is hoping that no more e-mails emerge. (ph -- with thanks to an Austin reader)

January 10, 2008 in Prosecutors | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 9, 2008

"Short-Cuts" - Obstruction of Justice

Obstruction of justice, perjury, and false statements prove particularly easy charges for the government when the conduct would require extensive investigation prior to indictment. I often call them the government "short-cut" offenses.  So it is no surprise to see the government using them extensively. 

A press release of the DOJ reports that:

"Iona Uiagalelei, former Assistant Chief of the Department of Property Management for the American Samoan government, was sentenced Monday, Jan. 7, 2008, in federal court in Hawaii for obstructing a federal sex trafficking investigation. In August 2007, Uiagalelei pleaded guilty to witness tampering for instructing two Chinese women to provide false and misleading information to a federal grand jury, the federal prosecutor, and Federal Bureau of Investigation agents.

Uiagalelei was a business partner with Chinese national Fu Sheng Kuo, who, along with several co-defendants, operated a scheme to recruit and import Chinese women and hold them in prostitution in nightclubs and brothels in American Samoa.  Upon arrival, the victims, who were unpaid, were denied access to their passports and return airline tickets, and the opportunity to leave until they had paid off increasing debts. Uiagalelei sponsored numerous Chinese nationals to enter and reside in American Samoa who then engaged in Kuo’s prostitution business.

Uiagalelei was sentenced to 13 months imprisonment and three years of supervised leave. Uiagalelei reports to federal prison Monday, Jan. 14, 2008. Four other defendants in this case have pleaded guilty and have been sentenced."

What might normally not be considered a white collar offense can become one when you use charges such as obstruction and witness tampering.  The question becomes where these cases fall with respect to government statistics.

(esp)

January 9, 2008 in Obstruction | Permalink | Comments (1) | TrackBack (0)

A Couple of Empty Chairs At the General Re Trial

The prosecution of General Re's former CEO Ronald Ferguson and four others for a reinsurance transaction that allegedly was designed only to help prop up the stock price of American International Group (AIG) is a bit odd because of who is not there as much as those who are on trial.  General Re is a subsidiary of Berkshire Hathaway, and opening defense statements invoked the name of that company's CEO, Warren Buffett, as having blessed the deal, and therefore how could anyone think there was something wrong in the transaction.  While prosecutors had originally listed Buffett as a possible witness (see earlier post here), before trial they tried to keep the defense from mentioning his name, asserting that Buffett would only be a rebuttal witness and not part of the government's case-in-chief.  That motion failed, and the defendants are sure to refer to him whenever possible as a paragon of proper business dealings to show they did not intend to engage in any fraud.

The second empty chair is former AIG CEO Maurice Greenberg, mentioned in the government's opening statement as the one who initiated the deal to bolster the company's stock price by inflating its insurance reserves, an important measure of an insurer's financial health.  While prosecutors pointed the finger at Greenberg, who is an unindicted coconspirator, he's notably absent from the courtroom because he was never charged.  While the government often fears an "empty chair" defense at trial that blames someone who is not present for the wrongdoing, it's rather uncommon to see prosecutors reference an unindicted coconspirator as a key player without having charged him or reached some type of plea agreement.  Greenberg has denied any wrongdoing, and one has to wonder whether references to the two CEOs -- Greenberg and Buffett -- might work in the defendants' favor. 

The case involves some fairly arcane insurance and accounting rules, so anything that moves the focus away from the minutiae might be welcomed by the jurors who will have to sit through the trial.  The government has estimated it will take twenty trial days to present its case, and that may be an underestimate given that there are five sets of defense lawyers ready to cross-examine each witness.  It may well be springtime before there's a verdict in the case.  A Bloomberg story (here) discusses the opening days of the case. (ph)

January 9, 2008 in Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Defense Procurement Charges

Will we call 2008 the year of defense procurement prosecutions?  It appears to be starting this way as the opening days of the year find the DOJ proceeding with charges against defense contractors.  A press release of the DOJ states that "[t]wo Department of Defense contractors were arrested in New York City on Jan. 6, 2008, and charged with conspiring to steal information relating to U.S. Department of Defense (DOD) contracts to supply fuel to DOD aircraft worldwide." "Two contractor firms and a third individual are also charged with participating in the conspiracies." 

One individual is charged by way of an Information here.  The use of an Information is often indicative of a future plea and cooperation. Then there is a separate Indictment here for others. 

Pleas and cooperation can eliminate the risk to a defendant who may be facing enormous consequences if found guilty. But it can also raise issues for the government as to whether they have selected the correct person to receive a cooperation agreement.  Are they proceeding against the most culpable person, or is it a situation of the more blameworthy person escaping criminal liability merely because they are talking to the government?  Often these questions do not get answered until the evidence is presented at trial.

(esp)

January 9, 2008 | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 8, 2008

Brian Asks Roger "What Do You Want Me To Do?"

The issue of Roger Clemens' alleged steroid and HGH use has taken a new -- and somewhat bizarre -- twist.  Since the broadcast of his interview on Sixty Minutes to deny any usage of performance-enhancing substances, Clemens has filed a defamation suit against his former trainer and chief accuser, Brian McNamee, then held a press conference to play a seventeen-minute tape of a telephone conversation between the two, recorded a few days earlier in response to an e-mail from McNamee to Clemens about serious medical issues McNamee's son faces.  In the press conference, Clemens asserted that he will testify before Congress, thus placing himself under oath to deny using steroids and HGH at the same time that McNamee is scheduled to appear and will likely reiterate his statements about Clemens. 

While the tape (available here) is intriguing, ultimately I think it is inconclusive because both sides sounded as if they knew this was all a set-up, and indeed I suspect McNamee might have taped the call himself.  Texas allows recording of a telephone call so long as one party consents (Texas Penal Code Sec. 16.02(c)(4)(A)), as does New York, so there is no problem in taping the conversation.  In conducting an undercover conversation that will be recorded, it is important that anything incriminating comes from the target and not the cooperator, so the conversation cannot be too explicit nor can the questioning be leading.  In that regard, McNamee said to Clemens a number of times, "What do you want me to do?", as if he was inviting Clemens to tell him to lie or at least change his statements, which could establish an obstruction of justice.  Clemens asserted in the call that he never used steroids and just wanted the truth to come out, as if he wanted McNamee to agree that there had never been any steroid or HGH use.  Neither side took the bait, and while Clemens' position remains the same McNamee hardly said anything that contradicts his earlier disclosures about steroids and HGH use. 

Enticing someone into making incriminating statements is difficult enough in most cases, and this situation shows that it is almost impossible to conduct a successful undercover operation after the investigation has been revealed.  I have no doubt that McNamee's attorney warned him about saying anything that might contradict his earlier statements to prosecutors and Senator Mitchell, so his repeated question "What do you want me to do?" was a way to deflect the conversation away from himself. 

This issue appears to be dissolving into a "he said, he said" situation because there is no documentary evidence to support McNamee's assertions, and I doubt there were any witnesses to the alleged injections of steroids and HGH.  Clemens admitted that McNamee gave him B-12 injections, so the picture is even more clouded and could give Clemens an out by asserting that McNamee lied to him about what was being injected -- the Barry Bonds flaxseed defense.  The dueling testimony before Congress will hardly be conclusive, and the defamation suit may well end without any real conclusion if it's a matter of who is more believable. (ph)

January 8, 2008 in Congress, Investigations | Permalink | Comments (1) | TrackBack (0)

Monday, January 7, 2008

Recent Statistics on Deferred Prosecution Agreements

A new item on SSRN provides some interesting statistics on deferred prosecution agreements. AUSA Ryan McConnell (not writing on behalf of the department) and Lawrence D. Finder of Haynes & Boone posted a piece entitled, "Annual Corporate Pre-Trial Update 2007."  They present three trends from 2007.

  • "First, the number of corporate pre-trial agreements rose sharply from 2006 to 2007."
  • "Second, the number of corporate pre-trial agreements containing attorney client privilege and work-product waivers has declined significantly."
  • "Finally, two thirds of all agreements involved violations of either the Foreign Corrupt Practices Act (FCPA) or the federal health care laws."

The piece provides a detailed analysis of each of these conclusions.

(esp)

January 7, 2008 in Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (0)

CEO Flight in the New Year

Does it seem like CEOs keep stepping down?

Starbucks here

Krispy Kreme here

Bear Stearns Co. here

Whether it's the government (here) or McDonalds (here) being the threat, the business world presents some tough challenges these days.

(esp)

January 7, 2008 in News | Permalink | Comments (0) | TrackBack (0)

Sunday, January 6, 2008

UMDNJ Deferred Prosecution Agreement

Just a week ago the deferred prosecution agreement between DOJ and University of Medicine and Dentistry of New Jersey ended.  But a news report (Newsday-AP) is saying that the monitor's report does not give this medical facility a completely clean bill of health. (see here).

(esp)

January 6, 2008 in Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (0)

Two Recent White Collar Sentences

The Wall Street Jrl's article, Fundraiser Hsu Gets Prison Term, can be found here.

The Wall Street Jrl's article, Goldman Ex-Analyst Gets 4 Years in Insider Scheme, can be found here.

(esp)

January 6, 2008 in Sentencing | Permalink | Comments (0) | TrackBack (0)