Saturday, February 2, 2008

The Many Battles of Dickie Scruggs

Two hoary maxims that Napoleon ignored were never fight a two front war and never invade Russia in the winter.  Famed Mississippi tort lawyer Dickie Scruggs is fighting on more than two fronts these days, although under the terms of his bail I don't think he'll be heading to Russia any time soon.  His criminal entanglements began with a contempt charge in the Northern District of Alabama, a case we haven't heard much about lately but that continues to percolate.  The contempt came out of Scruggs' possession of information taken from State Farm Insurance related to payment of claims from damager caused by Hurricane Katrina.  The most recent filing (available below) by the Special Prosecutors attacks Scruggs' motion to strike a request for Rule 17(c) subpoenas.  Among the points mentioned in the brief is a claim by Mississippi Attorney General Jim Hood that Scruggs was working as a "confidential informant" on the Hurricane Katrina litigation, and thus should not be found in contempt for his alleged defiance of a federal judge's order.

The second front, much more well known, is the prosecution of Scruggs and two others for their alleged involvement in the attempted bribe of a Mississippi state court judge in litigation over attorney's fees.  A recent government filing (available below) states cryptically that "the United States will seek to introduce similar act evidence pursuant to Rule 404(b) . . . ."  That Rule prohibits the use of other "crimes, wrongs, or acts" of a defendant except as "proof of motive, opportunity, intent, preparation, plan, knowledge, identity, or absence of mistake or accident."  A confederate of Scruggs' has entered a guilty plea to paying a bribe to a judge in a different case, and that certainly may be the evidence the government is referring to, but it could be that there is more prosecutors may want to bring in at trial.  Rule 404(b) evidence is often quite powerful because, while it cannot be used directly to establish the defendant's "bad" character, once admitted the jury can do with the evidence what it will.

Recently, a third front has opened up for Scruggs, this time a civil suit filed by State Farm accusing Mississippi Attorney General Jim Hood of conspiring with Scruggs to threaten the insurer with criminal charges if it did not settle Hurricane Katrina litigation brought by -- you guessed it -- Scruggs.  State Farm noticed the deposition of Scruggs for February 1, which caused his attorney, John Keker, to send a series of e-mails (available below) stating that his client would assert the Fifth Amendment and not show for the deposition.  Any criminal defense lawyer would instruct a client to assert the privilege against self-incrimination before trial, and that's usually the end of the matter.  But State Farm has advanced a particularly aggressive argument in a brief (available below) for wanting Scruggs to appear and take the Fifth in response to specific questions: "Even if Mr. Scruggs invokes the Fifth Amendment, his testimony is necessary because that invocation will entitle State Farm to a negative inference against Mr. Scruggs’ principal and co-conspirator, General Hood." 

Can that argument really work?  While taking the Fifth can be a ground for inferring that the witness' testimony would be incriminating, I have never heard of that inference being drawn against another person.  [UPDATE: A sharp-eyed reader pointed out that I'm mistaken in my belief, and that courts have permitted a negative inference to be drawn from one witness' assertion of the Fifth Amendment against another party.  Those cases tend to involve corporations or other organizations and the witness is an employee or former employee, but the language in the opinions is clear that it is not limited to only that situation and depends on the circumstances.  I happily stand corrected.]  While a statement of one conspirator may be used against another, that's only for what was said during the conspiracy -- and in furtherance of it -- not at a subsequent deposition.  It's hard to see a court extending the potential inferential value of asserting the self-incrimination privilege from one non-party individual (Scruggs) to another individual (AG Hood) based solely on a claimed conspiracy, especially when Scruggs is facing two pending criminal prosecutions that may be the reason for asserting the Fifth Amendment.  I doubt State Farm will be able to make this argument stick, but it's worth a shot.  The litigation points up another potential area for a government investigation, the relationship between Scruggs and AG Hood, which could spread quite far and wide in Mississippi.  I suspect we have not seen the last set of criminal charges involving Scruggs. (ph)

Download us_v_scruggs_response_to_motion_to_strike_feb_1_2008.pdf

Download us_v_scruggs_notice_of_prior_act_evidence_jan_28_2008.pdf

Download state_farm_v_hood_plaintiff_brief_re_deposition_of_dickie_scruggs.pdf

Download state_farm_v_hood_keker_emails_re_scruggs_deposition.pdf

February 2, 2008 in Civil Litigation, Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (1)

Friday, February 1, 2008

Can a Disqualified Lawyer Continue to Help Out?

[Moved up from January 28 with a brief update at the end]

The prosecution of Dickie Scruggs has been fascinating, to say the least, including the view it has provided on the web of connections between the various lawyers in and around the case.  The latest filing by Scruggs' defense counsel raises an interesting issue of legal ethics that could present problems down the road.  Earlier, Scruggs sought to hire a well-regarded local Mississippi attorney, Kenneth Coghlan, to be part of his defense team in the bribery case.  Unfortunately, Coghlan had earlier represented a co-defendant, Steve Patterson, for a brief period before withdrawing, and Patterson has now entered a plea agreement and will testify against Scruggs.  Needless to say, this presents a clear conflict of interest problem, despite the waivers by both Scruggs and Patterson because of the possibility that privileged information will be made available to Scruggs' defense team or Coghlan cannot provide effective representation because of his confidentiality obligations to Patterson -- the privilege lasts forever, of course.  Not surprisingly, Senior U.S. District Judge Neal Biggers denied Scruggs' motion to have Coghlan appear as his counsel on January 16.

Scruggs' defense team has filed a motion to reconsider, arguing that the waivers by Scruggs and Coghlan dissipate any problems from the potential conflict created by the confidential information received from Patterson.  No great surprise there, and it's doubtful Judge Biggers will grant the motion because allowing conflicted counsel to appear would be playing with fire.  The interesting issue, especially from a legal ethics point of view, is the following statement in the defense filing (available below):

In the event that the Court does not permit Mr. Coghlan to enter an appearance on behalf of Mr. Scruggs, the undersigned counsel wishes to notify the Court that counsel intends to consult with Mr. Coghlan on issues related to local custom and practice, jurisdiction, jury selection and other strictly legal and procedural (i.e., non-evidentiary issues) that may be pertinent to the defense of the case but which do not implicate any attorney-client privileged communications or information. Mr. Coghlan will have no role in the trial of this matter and will not render any legal advice or consultation to Mr. Scruggs. Furthermore, Mr. Coghlan will not be consulted regarding the specifics of either Mr. Scruggs’s or Mr. Patterson’s alleged involvement in the conduct at issue in the Indictment.

Can it be that a lawyer prohibited from representing a defendant because of a potential conflict of interest can continue to work on the case?  That strikes me as a bit odd.  While Coghlan was not disqualified by Judge Biggers, because he had not yet entered an appearance to represent Scruggs in the case, the district court's denial of the appearance motion seems to me to be the functional equivalent of disqualification under Wheat v. United States.  In that case, the Supreme Court gave trial judges broad discretion to disqualify lawyers because of potential conflicts of interest, especially based on concurrent or prior representation of co-defendants.  If a lawyer is disqualified due to a potential (or even actual) conflict, I take that to mean the lawyer may not continue any form of representation under the professional responsibility rules.  Therefore, can Coghlan consult on Scruggs' case without representing him in court?

It is not clear whether Coghlan would have an attorney-client relationship with Scruggs, or only be a "consultant" to the lead defense lawyer, John Keker.  An argument can be made that Mississippi Rule of Professional Conduct 1.9(a) would allow Coghlan to continue to represent Scruggs, only not in court.  The Rule states: "A lawyer who has formerly represented a client in a matter shall not thereafter: (a) represent another in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client unless the former client consents after consultation . . . ."  Because Patterson agreed to waive any conflict of interest claims against Coghlan, it could be that the continuing representation does not violate the rule.  But if Coghlan continues to represent Scruggs, only not appear in court, that seems to go against the spirit of Judge Biggers order, which looked to be based on the district court's authority under Wheat to disqualify an attorney due to the potential conflict.  Judge Bigger's decision may have been to remove Coghlan from representing of Scruggs to protect against any possibility of an ineffective assistance claim by Scruggs if there was a conviction.

If Judge Biggers understood his decision to be a disqualification under Wheat, then hiring Coghlan as a "consultant" looks more like a subterfuge to get around the effect of the court's order.  If a lawyer has a conflict of interest due to possessing privileged information, then that attorney must be completely removed from the case.  The whole idea behind screening lawyers with conflicts is that they can have no contact with the attorneys representing a client, so the lawyer cannot be consulted for general knowledge and background with a promise that no confidential information will be passed.  Moreover, if Coghlan is not representing Scruggs, then discussions with him would not necessarily be privileged, although they could qualify for protection under the attorney work product doctrine.

When a judge decides to disqualify an attorney from a case, I always assumed that it meant the lawyer was completely removed from any aspect of the client's legal representation.  The Scruggs prosecution once again presents a new and interesting twist.  It remains to be seen whether the U.S. Attorney's Office will seek a complete disqualification if Coghlan continues to do some work on the case, but it would not surprise me to see the prosecutors challenge this type of consultation on behalf of Scruggs. (ph)

Download us_v_scruggs_motion_to_reconsider_jan_25_2008.pdf


UPDATE: Judge Biggers denied the motion for reconsideration in a short opinion (available below), stating that Scruggs could hardly complain about a lack of defense help with "five eminent attorneys" already on his team.  Interestingly, the Judge passed on making any decision about whether Coghlan could continue to help out with Scruggs' defense, stating in a brief footnote at the end of the opinion, "As to the extra-judicial matters for which the defendant states he intends to employ Mr. Coghlan, the court has no opinion at this time."  I suspect that if Coghlan starts showing up in the courthouse for hearings the judge may express an opinion. (ph)

Download us_v_scruggs_order_denying_motion_for_reconsideration_jan_30_2008.pdf

February 1, 2008 in Corruption, Defense Counsel, Legal Ethics | Permalink | Comments (0) | TrackBack (0)

Snipes Not Guilty of Fraud & Conspiracy Charges; Guilty of 3 Misdemeanors

The press (here, here, here, and here) is reporting that Wesley Snipes has been found guilty of three misdemeanors and not guilty of the charges that carried more severe penalties.  Unlike his co-defendants, Snipes was acquitted of the conspiracy charge that he faced.

The indictment against Snipes had charged him with conspiracy under section 371, and if convicted this charge could have produced a hefty sentence for the actor.  In addition to being found not guilty on this charge, Snipes was also acquitted of count two which charged him with a fraud related offense under 18 U.S.C. 287.    Finally, the government was only successful on half of the tax charges brought against Snipes, in that he was acquitted of three of the years charged under 26 U.S.C. 7203.

The minor convictions for Snipes and major ones for his co-defendants sends the message that one cannot claim ignorance if they follow a promoter of a tax scheme. But more importantly, those who promote such conduct can be charged and convicted of crimes such as conspiracy.

The numerous acquittals in the Snipes case should be making the government wonder whether it was worth the time, cost, and effort to proceed criminally against him, and whether civil penalties may have been more appropriate.


February 1, 2008 in Celebrities, Tax, Verdict | Permalink | Comments (3) | TrackBack (0)

Adventures in Witness Recollection

Preparing your client for a hearing is a must for every attorney.  But offering to have your client's memory fade in exchange for favors is a major problem, as illustrated in a recent SEC case.  The SEC filed an administrative action (here) to bar an attorney licensed in New York from appearing before the Commission because of what he told the attorney for a brokerage firm and its president who were being investigated.  The attorney's client came to the SEC's attention as a potential witness, and so the attorney began dealing with the investigators seeking to arrange her testimony.  At the same time, the attorney also had some conversations with the brokerage firm's lawyer that were rather revealing.  How did the SEC learn what was said, you might ask?  Well, it seems that the brokerage firm's attorney taped the conversations, as summarized in the administrative filing:

During the taped conversations, Respondent requested that Blumer [the brokerage firm's president] arrange for a "severance package" (i.e., removing his client as the co-signer on two car leases with Blumer and paying her salary) for his client. In return for this severance package, Respondent indicated that his client might not cooperate with the Commission and/or that her recollection of the relevant events might "fade." In the last of these conversations, Blumer’s attorney asked Respondent "what package" his client wanted to "not cooperate." Respondent stated, "Get her off those leases and, you know, your salary, and you can even pay it out over a year." Blumer’s attorney then asked, "what will we get if they do that, she won't cooperate or she won't remember?" Respondent stated "probably both."

New York is a one-party consent state for taping telephone calls, so there's no problem on that front.  Can't you trust the attorney you're trying to extort in exchange for having your client's memory "fade" a little bit?  It seems not, and the New York attorney may find himself in a bit of hot water with the Bar authorities who tend to take a dim view of such conduct.  Whether the U.S. Attorney's Office takes an interest in a possible obstruction of justice case remains to be seen.  Be careful what you offer in exchange for favorable testimony, it can cost you your career. (ph)

February 1, 2008 in Civil Enforcement, Investigations, Legal Ethics, Securities | Permalink | Comments (0) | TrackBack (0)

Thursday, January 31, 2008

Doing Business in Iraq & Afghanistan

Guest Blogging  - Professor Christopher W. Behan writes:

In Catch-22, Milo Minderbender started a successful enterprise, the Syndicate, that accomplished extraordinary feats of logistical and financial legerdemain: the Syndicate bought eggs for seven cents apiece and sold them at a profit for five cents apiece, used American military assets to transfer goods and products throughout an entire war theater, and even contracted with the American military to bomb a bridge that the German military was under contract with the Syndicate to defend. An amoral war profiteer, Milo defended his actions by saying, "I just saw a wonderful opportunity to make some profit out of the mission, and I took it. What’s so terrible about that?"

Milo’s Syndicate flourished in an atmosphere of enormous temptation and little oversight. In many respects, military operations in Iraq and Afghanistan offer similar temptations and remarkably, not much oversight at all given the scope of contracting operations. To an unprecedented extent, US forces rely on contractors to provide everything from bullets and beans, to translation services, maintenance, and security. Contractors have billed United States taxpayers enormous amounts of money since the beginning of the war, much of it from cost-plus contracts in which incentives for efficiency (and in some cases, even honesty) do not exist. Individuals and corporations alike have succumbed to the temptation to bribe and accept bribes, double-bill, bill for services not provided, or engage in what might charitably be called "fraud, waste and abuse."

In the past two weeks, the government has taken steps to increase oversight and end contracting abuses. The Army has transferred significant responsibility for contract oversight from the troubled Kuwait contracting office to Rockford, Illinois, Rockford Link Transferring oversight of contract activity to Rockford will permit the Army to use the technical contracting expertise and experience that seems to be in short supply in a deployed environment. According to news reports, the Army took this action after identifying the Kuwait office as a hub of corruption. The Army Criminal Investigation Command (CID) has 87 ongoing criminal investigations related to contract fraud in Iraq, Kuwait and Afghanistan, and 24 individuals have been charged with contract fraud so far. CID has uncovered evidence of more than $15 million in bribes. Those bribes involved military and civilian personnel. An Army officer, Major Gloria Davis, committed suicide after an investigation revealed she had accepted at least $225,000 in bribes; another investigation found that Army Major John Cockerham and his wife and sister accepted up to $9.6 million in bribes for defense contracts. Davis Article

Congress has begun a round of hearings into the matter of contract oversight in Iraq, Kuwait and Afghanistan. Last week, the House Appropriations defense subcommittee released a GAO report that details the Department of Defense’s shortcomings in managing contracting operations in a deployed environment. Those shortcomings include failure to plan, failure to integrate lessons learned, failure to supervise and failure to devote sufficient resources to tackling the problems. GAO Report

Still, the Department of Defense’s failure to properly plan for and supervise contractors provides no excuse for fraudulent behavior. American corporations have a shameful history of placing profits over patriotism during wartime: in past conflicts, American troops have endured rotten food, shoddy uniforms, substandard equipment, defective arms and ammunition and inadequate shelter because of the malfeasance of individuals and corporations. In the current conflicts, the American taxpayer seems to be the chief victim of contracting abuses; it’s as if the Department of Defense is a giant ATM dispensing gobs of free money to whomever will take it. And plenty of corporations and individuals have stepped up to take the money.

On Monday the 28th of January, a federal judge unsealed an indictment against Elie Samir Chidiac, a U.S. citizen, and Raman International Inc. of Cypress, Texas, which does business as Raman Corporation. Samir and Raman are charged with conspiracy to commit bribery and contract fraud with respect to military contracts in Iraq and Kuwait. [Download chiriac_indictment.pdf ] According to the DOJ press release, Chiriac Release An unidentified military contracting officer canceled contracts that were already awarded to, and often had been performed by, third-party contractors;

  • The unidentified military contracting officer re-awarded those contracts to Raman and fraudulently verified that Raman had performed the requisite service or delivered the requisite goods;
  • Chidiac and the unidentified military contracting officer forged various contracting documents and fraudulently modified the military contracting database in order to create the appearance of propriety with respect to these canceled and re-awarded contracts;
  • The unidentified military contracting officer authorized Chidiac to receive cash payment on those contracts, which Chidiac did, despite the fact that neither Chidiac nor Raman performed any work, provided any service, or delivered any good with respect to these contracts; 
  • Upon receipt of cash payment from the United States, typically in U.S. $100 bills, Chidiac remitted a portion of the money back to the unidentified military contracting officer, often delivering the money to the officer at Raman’s compound, adjacent to Camp Victory; and
  • The unidentified military contracting officer sent money received from Chidiac via U.S. Postal Service to a family member in Midwest City, Okla.

All of these allegations, if true, are disturbing. They illustrate the harm that can arise from greed and a lack of oversight on the part of the government. One hopes that a combination of increased congressional oversight, improved Army and DoD accountability, and an active justice system will help stem the tide of modern-day war profiteers doing business in Iraq and Afghanistan.

January 31, 2008 in Government Reports, Prosecutions | Permalink | Comments (9) | TrackBack (0)

Is the Government Going Soft in the Lerach Sentencing

It isn't every day that federal prosecutors point to the collateral consequences of a white collar defendant's guilty plea as a reason to impose a lighter sentence, but that seems to be what happened in the recommended sentence for leading plaintiffs lawyer William Lerach.  The government's sentencing memorandum, available below, tries to walk a fine line between advocating for a higher sentence than  the one recommended by the Probation Office while still adhering to the plea agreement that capped Lerach's potential prison term at twenty-four months for his role in making secret payments to representative plaintiffs in cases litigated by his former firm, Milberg Weiss.  So in the same filing prosecutors asked for a higher Sentencing Guidelines calculation to trigger the maximum twenty-four month sentence, nine months longer than recommended in the Presentence Report.  Then in defending the decision to limit the potential punishment to a maximum of two years, the government states:

Defendant, who will be sixty-two years old upon commencement of his sentence, now stands in disgrace before the profession of which he considered himself a national leader, and the courts before which defendant practiced. Given what is surely an ignominious conclusion to an otherwise successful career, a period of incarceration greater than twenty-four months is not necessary to promote the sentencing goals set forth in Section 3553(a).

While that position is nothing new in argument by defense lawyers on behalf of their clients, I don't recall seeing prosecutors point to the reputational effects of a guilty plea as a justification for a sentence lower than the one called for in the Guidelines. 

In Lerach's case, it is an odd argument because his reputation was built at least in part on the very conduct involved in the prosecution.  In a different section of the brief seeking a higher sentence, albeit still within the twenty-four month limit, the government asserts that "[t]he conduct at issue amounted to a systematic effort to obstruct and undermine the lawful functioning of the judicial system in hundreds of lawsuits brought in federal and state courts throughout the United States."  So Lerach attacked the heart of the legal system, while the "ignominious conclusion" of his career argues in favor of some measure of leniency.  Part of his prominence in the profession likely contributed to his ability to pursue class action lawsuits while making the secret payments, so the loss of prestige is not just a tangential result of his crime.  I almost get the feeling that portraying Lerach's fall from grace as a justification for a lighter sentence is a bit like the person convicted of setting fire to his home for the insurance money begging for mercy because he's now homeless -- this isn't so much a "collateral consequence" as a direct result of one's choice to commit a crime.

So, have prosecutors gone soft?  The language arguing for a more limited sentence is sure to be used in other white collar cases in which a defendant suffers from collateral personal and career consequences as a result of a guilty plea or conviction.  It may be that prosecutors have to take this almost schizophrenic approach because the plea agreement ended up being potentially too favorable to the second most powerful lawyer at Milberg Weiss, which itself is under indictment.  You learn to live with your deals, but the rhetoric used in defending this one could come back to haunt prosecutors later on. (ph)

Download us_v_lerach_government_sentencing_memorandum_jan_28_2008.pdf

January 31, 2008 in Legal Ethics, Sentencing | Permalink | Comments (0) | TrackBack (0)

Yet Another Difference With the French

The Wall Street Jrl (here) points out yet another difference between the French and the United States when discussing the support the CEO received from the board of directors at Societe Generale. Prior differences were discussed here and here. In the United States, the board might be very reluctant to back a company head or individuals within a company when there is a potential investigation or potential civil or criminal liability.  With deferred and non-prosecution agreements, companies often leave the individuals at risk and without support, as the entity becomes the sole focus in saving the company from the devastating effect of a possible prosecution.  So far, it appears that in France the decision is to support the CEO, at least in this case. Will a difference like this move more companies into operating abroad?


January 31, 2008 in International, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 30, 2008

Proposed Legislation on Deferred Prosecution Agreements

One need only look at Carrie Johnson's Washington Post article of today to realize the importance of deferred prosecution agreements and the controversy on the appointment of monitors. The article focuses on how Attorney General Mukasey, prior to his approval as AG, had been a finalist for such an appointment. In the background is legislation proposed by Rep. Frank Pallone (D-NJ) which would provide transparency and oversight on some of the existing DOJ practices with respect to deferred prosecution agreements.  It reads as follows:


2d Session H. R. 5086

To require the Attorney General to issue guidelines delineating when to enter into deferred prosecution agreements, to require judicial sanction of deferred prosecution agreements, and to provide for Federal monitors to oversee deferred prosecution agreements.

IN THE HOUSE OF REPRESENTATIVES January 22, 2008 Mr. PALLONE introduced the following bill; which was referred to the Committee on the Judiciary A BILL To require the Attorney General to issue guidelines delineating when to enter into deferred prosecution agreements, to require judicial sanction of deferred prosecution agreements, and to provide for Federal monitors to oversee deferred prosecution agreements.

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,


(a) In General- The Attorney General shall issue guidelines delineating when United States attorneys should enter into deferred prosecution agreements, including appropriate factors for United States attorneys to consider in determining whether to enter such agreements as described in subsection (b).

(b) Appropriate Factors for Consideration- Appropriate factors for consideration in the determination of whether to enter into a deferred prosecution agreement include--

(1) the potential harm of entering into a deferred prosecution agreement to employees, shareholders, and other stakeholders of the corporation that is to enter into the deferred prosecution agreement who are not potential parties to litigation relative to the corporate wrongdoing;

(2) the degree of cooperation by a corporation that is to enter into a deferred prosecution agreement with investigators including the corporation's willingness to provide documents and make available for questioning employees, officers, and directors of the corporation;

(3) remedial action taken by the corporation that is to enter into a deferred prosecution agreement in response to wrongdoing such as internal investigation, dismissal of employees, acknowledgment of wrongdoing, payment of restitution, and other structural, management, and policy changes;

(4) availability of criminal charges against specific employees who may have engaged in illegal acts relative to the corporate wrongdoing; and

(5) availability of sufficient alternative punishments or remedial actions pursuant to a deferred prosecution agreement.


(a) In General- A deferred prosecution agreement shall be approved by a United States district court judge or a United States magistrate judge in the United States district court where criminal charges would be prosecuted by a United States attorney.

(b) Submission of Deferred Prosecution Agreement- A deferred prosecution agreement shall be submitted to the appropriate United States district court where criminal charges would be prosecuted by a United States attorney to receive judicial sanction.

(c) Judicial Review and Sanction- A United States district court judge or a United States magistrate judge shall review the terms of a deferred prosecution agreement to ensure that the agreement comports with public interest and all applicable laws and legal precedent before authorizing the deferred prosecution agreement to be entered into by the parties.


(a) In General- A Federal monitor shall oversee a deferred prosecution agreement.

(b) Appointment of Federal Monitors- A Federal monitor shall be appointed by an independent third party (a United States district court judge or a United States magistrate judge) from a pool of pre-qualified firms or individuals (or both).

(c) Qualifications of Federal Monitors- A Federal monitor shall have experience in criminal and civil litigation.

(d) Payment of Federal Monitors- A Federal monitor shall be paid according to a pre-determined fee schedule set by the United States district court.

(e) Report Requirement in Deferred Prosecution Agreement-

(1) A deferred prosecution agreement shall include a requirement that a Federal monitor submit reports to the United States attorney and to the United States district court.

(2) A deferred prosecution agreement shall include the number and frequency of reports required by a Federal monitor.

SEC. 4. BREACH OF DEFERRED PROSECUTION AGREEMENTS. Upon request from a United States attorney, the presiding judge in the district court where a deferred prosecution agreement was approved shall determine if the deferred prosecution agreement has been breached.

(esp) (w/ a hat tip to Stephanie Martz)

January 30, 2008 in Deferred Prosecution Agreements | Permalink | Comments (1) | TrackBack (0)

Wesley Snipes Trial: Rolling the Dice

The Wesley Snipes tax trial is moving very quickly as the defense decided to rest without calling any witnesses (see here and here). The celebrities mentioned earlier did not appear on the witness stand. The pros and cons of offering no evidence, and Snipes not testifying, are discussed here. And although a jury is clearly instructed that the defense does not have to prove anything, one often wonders if the jury will follow this mandate. The defense resting moved the case quickly into closing arguments (see here and here). 

There are many levels to this trial.  On the surface we see the courtroom battle with many years without tax returns, but also a question as to why he may not have filed them.  Was it a conspiracy or was there a legitimate question?  We also see a case in closing arguments while outside the courthouse an election is occuring.  And finally we see an all-white jury coming from an all-white venire deciding the guilt or innocence of Snipes.


January 30, 2008 in Celebrities, Tax | Permalink | Comments (0) | TrackBack (0)

Comverse Comes Clean on Kobi, and He Countclaims for $72 Million

Comverse Technology issued the final report (here) on its internal investigation of options backdating and earnings manipulation, blaming the misconduct squarely on its founder and former CEO, Kobi Alexander, and other senior executives.  In 2006, Alexander fled -- or chose to relocate -- to Namibia shortly before his indictment in the Eastern District of New York on conspiracy, securities fraud, and obstruction of justice charges.  According to the company's report:

In reviewing the Company's practices relating to option grants from 1991 through 2005, the Special Committee reviewed 39 separate grants of more than 82 million options to approximately 6,200 employees and consultants, as well as 22 grants of approximately 1.2 million options to eight non-employee directors of the Company. It found that between 1991 and 2001, almost 54 million stock options (issued via 29 grants to 5,386 grantees) were backdated to obtain advantageous exercise prices, with the knowledge and participation of the Company's former Chairman and Chief Executive Officer, Jacob "Kobi" Alexander ("Alexander"), the Company's former director and General Counsel, William Sorin ("Sorin") and, at times, the Company's former Executive Vice President and Chief Financial Officer, David Kreinberg ("Kreinberg"). 

Kreinberg and Sorin earlier entered guilty pleas and settled securities fraud cases filed by the SEC.  The accounting improprieties involved "cookie jar" reserves used to smooth out Comverse's earnings so that they appeared to be less volatile than they were, a major no-no in financial reporting.

Alexander has been living in Windhoek, Namibia's capital, for over eighteen months, and an extradition request by the United States has been repeatedly postponed by the Namibian courts at his request; the next one is scheduled to take place in March, although given past practices it too is likely to be delayed.  One would think Alexander would not want to pick a fight with his former employer in the United States, even after it filed a lawsuit against him in New York state court to recover for the damages he allegedly caused it through the options backdating and accounting problems.  Instead, however, he filed a counter-claim to Comverse's suit, seeking $72 million in severance pay and for options that he claims the company improperly canceled.  Given that the Super Bowl is almost upon us, perhaps this is the "best defense is a good offense" approach.

If one were trying to stay away from the United States, would you file a claim in a state court lawsuit that might subject you to the jurisdiction of an American court and require you to appear for a deposition?  New York's civil discovery provision, CPLR 3110, provides: "Where the deposition is to be taken within the state. A deposition within the state on notice shall be taken: 1. when the person to be examined is a party or an officer, director, member or employee of a party, within the county in which he resides or has an office for the regular transaction of business in person or where the action is pending . . . ."  A party can seek to have a deposition taken outside the state, but it requires a showing of "substantial hardship" in order to avoid appearing in New York. 

Is a federal indictment a "substantial hardship" that might be grounds for Alexander to avoid returning to New York?  I'm certainly not an expert in New York civil procedure, but the few cases I saw on the topic allowing depositions outside the state generally involved issues related to illness or infirmities, or where the person would appear at a time closer to the trial so initial discovery could be taken through written interrogatories or video deposition.  Somehow, I suspect a New York state Supreme Court judge is not going to view a claim that a party wishes to avoid being arrested on federal charges -- even when that person proclaims his innocence -- as meeting the requisite standard to avoid appearing for a deposition, particularly when a counter-claim has been filed.  Even if Alexander is deposed in Windhoek, don't be surprised if the federal prosecutors get ahold of the transcript to use in his trial -- if there ever is one, givenn how well his attorneys are delaying the extradition process in Namibia.  Comverse doesn't appear to harbor any warm feelings for its former CEO these days, so it will look to make the case against him almost as much as the U.S. Attorney's Office will.  A Reuters story (here) discusses Alexander's counterclaim. (ph)

January 30, 2008 in Civil Litigation, Securities | Permalink | Comments (2) | TrackBack (0)

Tuesday, January 29, 2008

Sigue Enters Deferred Prosecution Agreement

As anticipated here, the DOJ has announced in a press release that "Sigue Corporation and Sigue, LLC (“Sigue”), San Fernando, California-based money service businesses, entered into a deferred prosecution agreement on charges of failing to maintain an effective anti-money laundering program and will forfeit $15 million to the U.S. government."  In addition the "Financial Crimes Enforcement Network (FinCEN) announced the assessment of a civil money penalty in the amount of $12 million against Sigue Corporation and Sigue, LLC, . . . . for violations of the Bank Secrecy Act (BSA). Sigue, without admitting or denying the allegations, consented to the civil money penalty." (see here)

The DOJ reports that the Information was filed in the Eastern District of Missouri and that it "charges Sigue with one count of failing to maintain an effective anti-money laundering program."  The press release states that

"The company will pay $15 million to the United States, representing funds that are subject to forfeiture as a result of the criminal charge, and has agreed to commit an additional $9.7 million to improving its anti-money laundering program. In light of Sigue’s remedial actions to date and its willingness to accept responsibility for its anti-money laundering failures, the government will recommend the dismissal of the charge in 12 months, provided the company fully implements the significant anti-money laundering and Bank Secrecy Act measures required by the agreement, and complies in all other respects with the terms of the agreement."

The requirements placed by the government on those doing money transfers in the United States is highlighted in this passage of the DOJ press release -

"The charges filed today arose out of transactions conducted by Sigue and its authorized agents from November 2003 through March 2005. Sigue operates by and through more than 7,000 money remitter agents across the country. During this time, more than $24.7 million in suspicious transactions were conducted through registered agents of Sigue, including transactions conducted by undercover U.S. law enforcement agents using funds represented to be proceeds of drug trafficking.  Sigue filed suspicious activity reports (SARS) on the obviously structured transactions, but ultimately failed to identify the broader patterns of money laundering activity and prevent the unlawful activity from continuing. Sigue failed to create systems and procedures to identify suspicious financial transactions being conducted by related senders and beneficiaries, from the same or multiple remitter agent locations on the same day, or over several days, months, and, in some cases, years."

The agreement makes it very clear that companies, like Sigue, who are in the business of handling money transfers will pay dearly if they fail to implement systems that will assist the government in monitoring monetary transfer activities.  One can anticipate a strong corporate compliance program being used at Sigue.   


January 29, 2008 in Deferred Prosecution Agreements | Permalink | Comments (0) | TrackBack (0)

Monday, January 28, 2008

The French Do It Differently

The media has been covering the French financial trader who is accused of trades resulting in significant losses. Co-blogger Peter Henning points out some contrasts with the U.S. system (see here).  Here are more to consider:

  • What is fascinating is that the focus of the blame is not always on the individual accused of wrongdoing.  Rather, the Societe Generale is receiving media jabs as questions arise about their oversight.  If DOJ were investigating this case would they have given a non-prosecution or deferred prosecution agreement to the company in return for providing the case against the individual?
  • If this were the U.S., would other companies/banks be considering buying the company out as is reported by the N.Y.Times as a possibility (see here)?  Or would fear of DOJ prosecutions preclude such a market resolution?
  • Another difference is that there is discussion as to the motivation, or in this case the lack of monetary motivation of the individual charged here. In the United States, loss would be the driver of the train and there would be no stopping the engines once significant losses were determined.  The motive of the accused plays a part in some cases, but there are many that overlook this consideration.  The cold sentencing guidelines of the U.S. seldom offer relief in a system that examines whether the crime occurred and the amount of loss incurred.
  • Finally, John Ward Anderson at the Washington Post notes that if convicted, the accused individual could face up to seven years in prison, in addition to a fine.  As one might suspect, if the losses measure the amounts anticipated and reported in newspapers, if this individual had been charged in the United States, he would be facing a devastating penalty if convicted -- just ask Jeff Skilling and Bernie Ebbers.

In looking at all of these differences, one has to realize that when the U.S. Sentencing Commission considered uniformity, it doesn't look like they went beyond the boundaries of this country. In a "flat world" perhaps it is important to start noticing these differences.


January 28, 2008 in Prosecutions, Sentencing | Permalink | Comments (0) | TrackBack (0)

Political Liabilities

A front page political candidate can be just one of the many feeling the collateral consequences of a criminal indictment, or in this case a bond revocation. Presidential hopeful Barack Obama is feeling the sting of being associated with someone accused of criminal conduct. The NYTimes headline is One Time Obama Donor is Ordered Jailed; the Wall Street Jrl calls it Obama Supporter is Jailed, and the Chicago Tribune offers a less offensive title for the candidate in Bond For Tony Rezko Revoked, but then goes on to say how the more than $80,000 donated to the Obama campaign by the charged individual had been given to charity. Apparently prosecutors were concerned when a wire transfer from "Lebanon and Luxembourg"was used to pay off individuals who had assisted with the bond money  for the accused individual. A key issue on whether to allow bond pending trial is whether the accused would flee. This alleged wire payment raised questions concerning flight, and the judge therefore acted to minimize the risk. Unfortunately for Senator Obama, it happened to be someone who had contributed to his campaign. Now the question will be - why did this individual give so much money in political campaign contributions.


January 28, 2008 in News | Permalink | Comments (0) | TrackBack (0)


Professors Doug Berman and Mark Osler have been blogging on law profs writing amici briefs, with discussion of the pros, cons, and the experience it can offer (see here).  But the Ohio State Criminal L.J. has a new fora for amici views (here), that debuts with a cast of incredible authors writing on the topic of sentencing.  It states:

The Ohio State Journal of Criminal Law is very pleased to introduce OSJCL Amici: Views from the Field, a first-of-its-kind, online resource for timely and critical commentaries on the cutting edge of criminal law. Our hope in creating this resource is to help bridge the divide between the academy and the practicing community by creating a venue for leading practitioners to engage with academics, students, the public, and others in the criminal law field.

The U.S. Supreme Court’s recent sentencing decisions in Gall v. United States and Kimbrough v. United States provide the focal point for our first four commentaries, all written by federal district court judges and published for the first time here.

Check out the Sentencing Law & Policy Blog here.


January 28, 2008 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Wesley Snipes: What to Expect This Week

The prosecution rested in the Wesley Snipes case with a prosecution tax witness making the final statement to the jury. (See Orlando Sentinel AP here and Stephen Hudak here and here).  Rick Cundiff at reports on discovery issues regarding one of the prosecution witnesses. And the star, Snipes, seems to be getting a crowd for the show (see here).  There is even a blog devoted to following the trial (here).

Next week is defense week, although the defense does not have to present any witnesses or do anything for that matter. A defendant in a criminal case is presumed innocent and the burden never shifts to the defense on the crucial issue of whether the accused is guilty of the crimes charged. The initial list of witesses included many a celebrity (e.g. Sylvester Stallone), but whether that will happen is an unknown, just as having Snipes testify is uncertain. Here are some pros and cons of having Snipes take the stand -

Cons -

  • There are a lot of years without tax returns to explain away.
  • It provides an opportunity for the government to increase the amount of potentially damaging evidence as Snipes would be required to answer questions posed to him.

Pros -

  • Unlike so many witnesses, he has experience speaking to a crowd.
  • It would give him a chance to provide the jury with an explanation of his lack of intent - a crucial hurdle faced by the prosecution.

It could be a long or very short week, depending on what the defense decides to do here.


January 28, 2008 in Celebrities, Prosecutions, Tax | Permalink | Comments (1) | TrackBack (0)