October 25, 2008
ABA Sentencing Advocacy, Practice and Reform Insitute
The ABA's recent sentencing institute was packed full of wonderful discussion on the effect of Booker, Rita, Gall, and Kimbrough, as well conversations on many other issues related to sentencing. Just a few comments, related to white collar matters:
At lunchtime, Professor Doug Berman of the Sentencing Law & Policy Blog spoke. His theme was that "perspectives matter more than politics." He advocated, in this regard, for "more perspectives." He said that it is "very hard to change people's politics" but noted that it is easier to influence their perspective.
Two afternoon sessions were directly relevant to white collar matters. The first, Sentencing in White Collar Cases: Sarbanes-Oxley, A Five Year Retrospective, was moderated by Anthony Joseph of Maynard Cooper & Gale, PC. Michael Horowitz, a Commissioner on the US Sentencing Commission started with statistical data. David Nahmias, US Attorney from the Northern District of Georgia and Pravin B. Rao of Perkins Coie offered comments on the status of sentencing in white collar cases. It was clear that attorneys had been targets in some of the mortgage fraud cases and that first offenders had received stiff sentences - for example, a 30 year sentence. (see here)
The next panel, one that I moderated, started with Beryl Howell, a Commissioner of the US Sentencing Commission providing statistics on recent white collar prosecutions. For those who were claiming that white collar prosecutions were down, they would be pleased to find that incarcerations had in fact gone up. Further the average prison term of 17 months in 2000 was up to 25 months in 2007 and so far for 2008 running at an average of 27 months. There were many other wonderful statistics offered and I will likely blog on these down the road, but the one that I found the most telling was that there had been an increase in upward departures in white collar cases since 2000.
Attorney Art Leach and Joshua Hochberg (McKenna, Long, and Aldridge) offered the audience a lively discussion that looked at binding agreements, whether charge bargaining would still play an important role in the criminal process, what practitioners should focus on in prepping a white collar case, and what role "loss" calculations might or should continue to play in sentencing. The program, The Future of White Collar Sentencing Practice: What Practitioners Need to Know, ended with the panelists offering thoughts on what changes should be made to the guidelines and what might be on the horizon. For more information on this program see here.
The University of Houston Law Center Tax Fraud Symposium
Guest Blogger Geraldine S. Moohr:
The University of Houston Law Center’s symposium, "White Collar Crime: Issues in Tax Fraud" was held on October 14, 2008. Gerry Moohr, Alumnae Professor of Law at the Law Center moderated the event and provided this summary of the presentations by scholars and tax specialists with experience on both sides of the courtroom.
Stuart Green, Professor of Law and Justice Nathan L. Jacobs Scholar at Rutgers School of Law - Newark, answered the question, "Is tax evasion a moral wrong?" He noted first that there was little consensus on this point. There are many aspects to the moral ambiguity of income tax evasion, including the difficulty in drawing a clear line between aggressive accounting and criminality, the fact that tax evasion causes a small harm to a large number of victims, and concerns that the criminalization of both inchoate and successful crimes dilutes the seriousness of the offense.
Indeed, the tax laws and their enforcement may foster the idea that tax evasion is not a serious wrong. For instance, the heightened mens rea of "willful" (defined as an intentional violation of known legal duty) makes tax offenses difficult to prove, lowering the deterrent impact of enforcement. The heightened mens rea may also downplay the significance of the actus reas of tax evasion.
Returning to his larger theme of the morality of tax evasion, Stuart addressed the effect of the deep ambiguity about the norms governing tax avoidance and tax evasion. Ultimately, the moral content of tax evasion depends to some extent on the fairness of the underlying tax code.
Stuart asked whether these crimes are punished because they represent a breach of the overarching moral obligation to obey the law, because they are a species of cheating, (focusing on the horizontal relationship between the tax avoider and her fellow citizens), or because they are analogous to stealing (focusing on the harm to the government fisc).
Bob Davis, a tax specialist at K & L Gates, noted Justice Holmes’ belief that an income tax is the price of living in a civilized community. Notwithstanding Holmes’ support for the income tax, Bob emphasized that paying them is no longer voluntary. Withholding, civil fines, high interest rates on taxes owed, and criminal fines and penalties add an element of coercion that belies the myth of voluntary compliance. Bob also noted distinctions between enforcement actions that involve illegal income and income from legal sources that raised questions about case selection. Increasing the budget of the DOJ Tax Division will not significantly increase the number of charged cases because the Tax Division, positioned between the IRS and U.S. Attorneys, pursues cases referred to it by those entities.
Jack Townsend, of Townsend & Jones, specializes in tax controversies and represented one of the KPMG defendants in the Stein case, which dismissed charges because of prosecutorial misconduct. Noting the difficulty of proving evasion and tax perjury, he emphasized the government’s increasing use of the tax obstruction provision, 26 U.S.C. § 7212, patterned after the general obstruction statute, 18 U.S.C. § 1503. Jack also noted the use of the general conspiracy statute, 18 U.S.C. § 371, making it a crime to "defraud the government" by interfering with the operation of the IRS.
The roundtable discussion, with panelists Professor Linda Fentiman, Professor of Law at Pace University School of Law (visiting this semester at the University of Houston), and two litigators in Houston’s white collar bar, Larry Finder, and George Connelly, Jr., considered these and other topics, including the policy and political choices inherent in criminal enforcement and the special problems posed by tax protestors (a.k.a. "deniers," according to the IRS).
Look for the symposium essays and articles in the Houston Business and Tax Law Journal next spring. A podcast will be available soon. For details, contact Kacie Bevers, Symposium Editor, here.
October 21, 2008
In the News and Blogosphere
DOJ Press Release, Former FAMU Director Sentenced to Federal Prison, ("sentenced to 46 months in federal prison based upon her conviction on conspiracy and theft from Federal programs charges.")
Susanne Craig & Randall Smith, Wall St. Jrl, U.S. to Ask Analysts if Lehman Misled
Mary Flood, Houston Chronicle, Houston lawyer found guilty in mortgage fraud case
And a happy birthday to Sentencing Law & Policy Blogger Doug Berman.
October 20, 2008
Stevens Trial Nearing Conclusion
It looks like the Ted Stevens case is nearing its conclusion as one seldom finds many, if any, witnesses following the testimony of the accused. Ted Stevens took the stand at the end of last week and his cross-examination finished today. (see Joe Palazzolo and Mike Scarcella, Legal Times, Now, It's All About Stevens Senator takes stand?and spotlight?at his trial. Will it pay off?); Del Quentin Wilber, Washington Post, Sen. Stevens Wraps Up Testimony in His Trial, So far this trial has been riddled with problems for the government (see here and here). But for the accused, it is the final verdict that will make the difference. Stay tuned.
In the News and Blogosphere
Tom Kirkendall, Houston Cleakthinkers, Refracting Enron myopia
Wall Street Jrl (AP), U.S. Special Counsel Bloch To Step Down in January
David Glovin & Patricia Hurtado, Seattle Times (Bloomberg News), Financial firms face probe in subprime-mortgage fallout
October 19, 2008
Response to NYTimes Article on Financial Fraud Cases
Several people have been emailing me the New York Times article by Eric Lichtblau, David Johnston and Ron Nixon, titled, F.B.I. Struggles to Handle Financial Fraud Cases, as it discusses the problems that are faced in the prosecution of white collar crime. It is a wonderful article that emphasizes how post 9-11, investigative resources were moved from areas related to fraud to matters of national security. Although I am not convinced by the figures that seem to reflect an enormous decrease in the prosecution of white collar crimes, it is clear that investigations of financial institution fraud have not been to an acceptable level. But more importantly, there are a host of other areas that deserve attention and because there has fortunately been no devastating event to trigger these investigations, they have not received the resources they too deserve. So lets look at the figures and more importantly at the problem with approaching regulation, legislation, and prosecutions in a reactive manner - which is the way it has and continues to be approached.
To begin, one can't be so sure about the "statistics" on white collar prosecutions. (see here) The problem here is that there is no clear definition of what constitutes white collar crime. Many fail to include statutes of RICO prosecutions figuring that these fall under the rubric of organized crime. (see here and here) In reality, however, the most used predicate acts in RICO are crimes such as mail fraud and wire fraud - crimes that are clearly white collar. So many RICO prosecutions are in fact white collar under any definition that one might use, but these statistics are not reflected when looking at the reportings of white collar crime. The same analysis can be said for the crime of money laundering. Although the statute has its roots in drug activity, one finds this offense in many white collar cases. (see here). So it is quite possible that some of the alleged decrease in white collar prosecutions may be nothing more than a function of the statistics failing to appear in the category being used to measure the level of reported white collar prosecutions. DOJ's attempt to overcriminalize some of the improper white collar activities, by using non-white collar crimes as the basis of the prosecution, causes a problem in trying to determine the extent to which white collar prosecutions have decreased.
But that said, it is clear that we aren't seeing as many white collar prosecutions. Some may claim that this is a function of the DOJ's use of deferred prosecutions to replace the actual prosecution. In the corporate sphere there may be some truth here - but if the deferred prosecutions curtail criminal conduct as they often do, is that so bad? Some may also claim that the prosecutions are occurring to low-level individuals who are receiving heavy sentences under the guidelines while more culpable individuals skate with cooperation agreements.
What I think we all can agree upon is that everything seems to be based upon a reactive approach. 9-11 moved resources to national security, Enron's happenings moved the establishment of a Corporate Task Force, fraud post-Katrina created a Katrina Task Force. This approach is nothing new, and can be seen in the added resources given after the Savings and Loan crisis years ago. Oddly enough, there has been no unitary task force established by DOJ to investigate and prosecute matters from the existing financial mess. (see here)
DOJ and FBI clearly need more resources, but there also needs to be more accountability on how these resources are used. Perhaps less resources should be spent on pornography prosecutions and more on computer crimes like identity theft. And why are we wasting precious resources to have a prosecution against Ben Kuehne, a respected attorney who is basically charged for writing an opinion letter. (see here) And yes, perhaps more resources need to be spent on educating individuals on what is criminal and the ramifications of criminal activity. Before Congress, the DOJ, or the FBI, just dumps money someplace so that someone can be blamed for the financial mess we now face, it might be wise to re-evaluate what are the criminal issues of the future and how are scarce resources best spent to deter future criminality.
Podcast on RICO Case By Interim Dean Alan Michaels
Brian Leiter on his blog links to the May 28, 2008 appointment of Alan Michaels as Interim Dean at Ohio State. Michael's appointment results from Dean Nancy Rogers stepping down as dean to serve as the Interim Ohio Attorney General. It reminded me that Dean Michaels, who teaches white collar crime, has a link to a thoughtful podcast on his webpage that discusses the RICO decision - Wilkie, Charles, et al. v. Robbins, Harvey. Check it out here.