Saturday, February 23, 2008

Jury Tells Government to Stick to Tax Charges

The government was again sent the message to stick to tax charges.  The brother of the former mayor of Philadelphia was acquitted of mail and wire fraud charges (See Phil. Inquirer here).  After a three day deliberation, the jury found T. Milton Street Sr. (also a former state senator) guilty of three counts of failure to file income tax returns. Other tax counts resulted in a hung jury.

As previously discussed here, this case has similarities with the prosecution against Wesley Snipes in that both were charged and acquitted of substantive charges beyond the failure to file taxes.  In both cases, the individuals accused of crimes was only found guilty of misdemeanor tax offenses for some of the years in question. And in both cases the jury did not immediately reach a verdict.  This last factor was also exhibited in the case of U.S. v. Cheek, where the accused represented himself pro se and kept the jury out for some time.

(esp)(w/ a hat tip to Peter Goldberger)

February 23, 2008 in Fraud, Tax, Verdict | Permalink | Comments (0) | TrackBack (0)

Arizona Congressman Indicted

Add Arizona Representative Rick Renzi to the list of Congressmen indicted over the past couple years.  A grand jury in Tuscon, Arizona indicted the three-term Representative -- who announced in August 2007 that he would not stand for re-election -- on thirty-five counts of mail and wire fraud (including right of honest services), insurance fraud, money laundering, Hobbs Act, and conspiracy for his role in a purported land swap that netted a business partner $4.5 million (indictment available below).  According to a press release issued by the U.S. Attorney's Office for the District of Arizona (here), Representative Renzi allegedly demanded that two companies purchase his partner's interest in land on which Renzi held a note in exchange for the Congressman's support for land exchange legislation.  The partner and a third participant were also indicted.

Representative Renzi is the second member of the current Congress to be indicted, joining Louisiana Representative William Jefferson, who was charged with soliciting bribes and violating the Foreign Corrupt Practices Act.  As a side note, Representative Jefferson filed a notice of appeal of the district court's decision (available below) rejecting his motion to dismiss the indictment because of violations of the Speech or Debate Clause immunity.  This is one of only two constitutional protections that can be the basis for an interlocutory appeal, the other being a claimed violation of the Double Jeopardy Clause.  That will delay Representative Jefferson's trial at least six months, and possibly a year depending on how quickly the Fourth Circuit acts.  Because the charges against Representative Renzi involve what may constitute legislative acts, i.e. his support for legislation, a Speech or Debate Clause claim will come at some point, no doubt.  Two other Representatives who entered guilty pleas while in Congress in its last term are Randy (Duke) Cunningham, serving a 100-month sentence for bribery, and Bob Ney, sentenced to thirty months for not reporting gifts (and recently transferred to a half-way house in Cincinnati).  Other members of the House of Representatives remain under investigation for transactions with former superlobbyist Jack Abramoff, who has been cooperating with prosecutors.  Another black eye for the House of Representatives. (ph) 

Download us_v_renzi_indictment_feb_21_2008.pdf

Download us_v_jefferson_memorandum_opinion_feb_13_2008.pdf

February 23, 2008 in Congress, Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

NatWest Three Sentenced to 37 Months and May Be Headed Back to England . . . Eventually

Three former British investment bankers for NatWest Bank who were charged for their role in helping former Enron CFO Andrew Fastow dress up the company's balance sheet were sentenced to thirty-seven month prison terms.  The so-called "NatWest Three" -- David Bermingham, Giles Darby, and Gary Mulgrew -- became a cause célèbre over their extradition from Great Britain under a new treaty between the U.S. and U.K. designed to facilitate the transfer of terrorist suspects.  The appeal went to the House of Lords, which upheld the extradition order, and the three have been living in Houston for the past two years.  Their guilty plea in November 2007 to wire fraud ended one of the few remaining cases arising from the Enron collapse.  A Houston Chronicle story (here) discusses the sentencing.

As foreign nationals, the NatWest Three will be eligible to apply to the Department of Justice's International Prisoner Transfer Program to serve their terms in Great Britain.  The DOJ website on the Program (here) notes that "[w]hen a prisoner is transferred to another country, the completion of the transferred offender's sentence is carried out in accordance with the laws and procedures of the receiving country, including those governing the reduction of the term of confinement by parole, conditional release, or otherwise."  The Chronicle article points out that in England a defendant has to serve one-half the prison term and is then released on a type of probation.  This is much less stringent than the federal sentencing law, which requires a prisoner sentenced to a term such as those given here to serve 85% of the time, i.e. about two and one-half years. 

Among the criteria considered for authorizing a prisoner transfer are acceptance of responsibility, criminal history, seriousness of the offense, and ties to the two nations.  Also considered is whether the prisoner will remain in the home country or return to the United States -- rest assured, the NatWest Three are unlikely to darken our shores again any time soon.  In addition, according to the Bureau of Prisons Policy Statement (here) on transferring foreign prisoners, the transfer cannot be authorized until the prisoner pays any outstanding fine.  In addition to the sentence in this case, U.S. District Court Judge Ewing Werlein ordered the three to repay the $7.3 million they received from the transaction that triggered the charges.  While not a fine but restitution, I suspect there won't be a transfer until that money is repaid.  Even then, the application process will take at least a few months to complete ,once they begin their prison terms, as the bureaucracy processes the requests. (ph)

February 23, 2008 in Enron, International, Sentencing | Permalink | Comments (0) | TrackBack (1)

Friday, February 22, 2008

Can Prosecutors Call Lott to Testify at the Scruggs Trial?

The latest bombshell in the prosecution of Dickie Scruggs and two co-defendants on charges related to an attempted bribe of a state judge was the revelation by federal prosecutors that they intend to call former Senator Trent Lott -- Scruggs' brother-in-law -- to testify at trial about conduct that may involve a scheme to influence a second state court judge.  The government notified the defendants earlier that it intends to offer Rule 404(b) evidence against Dickie regarding his conduct to influence Judge Bobby DeLaughter in a case over which he was presiding involving a dispute over attorney's fees, the same type of suit in the main corruption prosecution.  Unlike the attempted bribe, however, the alleged influencing of Judge DeLaughter involved the possibility that Senator Lott would recommend him for appointment as a federal district court judge, and Dickie purportedly offered to intercede with his brother-in-law to help get the appointment. 

At a hearing on various defense motions (see Clarion-Ledger story here), the prosecutors revealed the potential witnesses they would call to establish the influencing of Judge DeLaughter, including the fact that Senator Lott called the judge to discuss his interest in an appointment to the federal bench.  Records indicate that the call was in fact made, although Judge DeLaughter was never nominated and it appears that the issue never went any further than the single telephone call.  The federal corruption statutes do not require success for a violation, and the quid pro quo need not be money or property, only something of value to the recipient, so an offer to help get a federal judgeship would likely constitute a criminal violation.  Senator Lott's involvement appears to be innocent on his end, making what appears to be largely a courtesy call to someone who had virtually no chance of being nominated -- Judge DeLaughter is a Democrat.  The fact that Senator Lott resigned his seat two days before Dickie's indictment is certainly fodder for the conspiracy theorists, but the fact that he made a telephone call, even at the behest of his brother-in-law, does not mean Senator Lott knew there was anything questionable taking place.

An interesting question is whether Senator Lott can be called to testify, or will the immunity granted under the Speech or Debate Clause bar any questioning about the telephone call to Judge DeLaughter.  That provision provides that "for any Speech or Debate in either House, [Members of Congress] shall not be questioned in any other Place.”  U.S. Const. Art. I, Sec. 6 (italics added).  The protection afforded by the Constitution means a Senator or Representative cannot be charged with a crime or sued in a civil case about the person's legislative acts.  The language of the provision would also appear to include questioning in a criminal investigation or prosecution, such as a grand jury or at trial.  In Gravel v. United States, 408 U.S. 606 (1972), the Court described what comes within the immunity provided to legislators:

The heart of the Clause is speech or debate in either House. Insofar as the Clause is construed to reach other matters, they must be an integral part of the deliberative and communicative processes by which Members participate in committee and House proceedings with respect to the consideration and passage or rejection of proposed legislation or with respect to other matters which the Constitution places within the jurisdiction of either House.

Id. at 626.

The Senate is required to give advice and consent to judicial nominees, and contacting someone about an appointment to the federal bench sure looks like it comes within Gravel's description of a legislative act.  Thus, naming Senator Lott as a witness to testify about the telephone call, which could include questions his motivations for it or discussions that led up to it, would appear to come within the prohibition on questioning a member of Congress about their legislative activities.  Imagine the questions that might be posed by either prosecutors or defense counsel to Senator Lott, such as "Was Judge DeLaughter a serious candidate for a nomination, and what other candidates were you considering?" or "What is the process by which you review candidates for nomination as a federal district court judge?"

The Speech or Debate Clause protection is jealously guarded by Congress, and I doubt counsel to the Senate would be willing to allow such questions, even if Senator Lott wants to testify.  While the Senator could give a voluntary statement because he would not be "questioned" in violation of the Congressional immunity, I doubt it would be admissible for any number of reasons, including problems under the Confrontation Clause if Dickie is not given the chance to cross-examine him under oath.  While the prosecutors and perhaps even the defendant are anxious to have Senator Lott testify, I don't know if we will ever see that take place in this always-interesting case.  (ph)

February 22, 2008 in Congress, Corruption | Permalink | Comments (0) | TrackBack (0)

Thursday, February 21, 2008

Deferred Prosecution Agreement with Flowserve

A press release of the DOJ states that "Flowserve Corporation (Flowserve) has agreed to pay a $4 million penalty as part of an agreement with the U.S. government regarding charges brought in connection with an ongoing investigation related to the United Nations Oil for Food program." Flowserve notes the agreed upon penalty on their website as being "a fine, profit disgorgement and related prejudgment interest to the SEC totaling $6,574,225 and a penalty to the DOJ of $4,000,000."

DOJ notes that "[t]he Information [filed by the government] charges that Flowserve Pompes engaged in a conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act."

(esp)

February 21, 2008 in Deferred Prosecution Agreements, FCPA, Settlement | Permalink | Comments (0) | TrackBack (0)

Société Générale Isn't Too Hard On Itself Despite Losing $7.2 Billion

When you are the victim of a $7.2 billion fraud perpetrated by an employee, one would think that there would be a fair measure of self-criticism for not detecting the misconduct.  French banking giant Société Générale issued an progress report (available below) on its internal investigation, called "Mission Green," into the losses caused by rogue trader Jerome Kerviel, based on the work of its General Inspection department -- which sounds like the equivalent of the internal auditors -- and reviewed by PriceWaterhouseCoopers.  While Kerviel's unauthorized trades began in 2005 or 2006, they increased substantially in size in March 2007, and went undetected until mid-January 2008.  That's nine months in which he took increasingly risky positions, estimated to total as much as 50 billion euros at the peak. 

The obvious question is how Kerviel could get away with trading such huge amounts when he was a fairly low-level trader dealing in a narrow range of market indexes.  The progress report is not particularly critical, making Kerviel's trading the result of what almost seems like just minor oversight glitch:

The General Inspection department believes that, on the whole, the controls provided by the support and control functions were carried out in accordance with the procedures, but did not make it possible to identify the fraud before January 18th 2008. The failure to identify the fraud until that date can be attributed firstly to the efficiency and variety of the concealment techniques employed by the fraudster, secondly to the fact that operating staff did not systematically carry out more detailed checks, and finally to the absence of certain controls that were not provided for and which might have identified the fraud. The Inspection General department has refrained from drawing any conclusions at this stage regarding the responsibility of the front office managers supervising the fraud's author, given the ongoing legal investigation which has not enabled it to interview all those concerned. At this stage of the investigations, there is no evidence of embezzlement or internal or external complicity (i.e. the existence of a third party who knowingly assisted the fraudster to conceal his positions).The investigations are continuing, in particular, to cover a wider area than the activities of the author of the fraud. [Italics added]

Société Générale may give itself only a B- in the internal controls department, but it's hard to see any oversight system that misses such a large amount of unauthorized trading for nearly nine months as anything other than a  abject failure.  The bank continues to maintain that Kerviel acted alone, and to this point it hasn't identified any accomplices nor even any theft or personal enrichment from the trading.  Kerviel admitted his role in the transactions, but asserts that there were warning signs about what he was doing that were ignored by his superiors, or perhaps even worse, they acquiesced in his conduct because at one point he had generated profits for Société Générale of over 1 billions euros.  An International Herald Tribune story (here) discusses the report. (ph)

Download socit_gnrale_progress_report_feb_20_2008.pdf

February 21, 2008 in Fraud, International, Investigations | Permalink | Comments (2) | TrackBack (0)

Wednesday, February 20, 2008

Is Sid in Some Trouble?

In response to the flurry of defense motions (severance, change of venue, dismissal for outrageous government conduct, bar 404(b) evidence, and suppression of evidence) from the defendants in the Scruggs corruption prosecution (see earlier post here), the government filed its responses that set forth a number of details about the case (see WSJ Law Blog here for links to the filings).  The most interesting part of the government response is the inclusion of transcripts from two recorded conversations between Tim Balducci, who was cooperating in the case after being caught trying to bribe a state court judge, and the three members of the Scruggs Law Firm under indictment: Dickie Scruggs, his son Zach, and fellow associate Sidney Backstrom (available below).

The recordings include the usual male bonding-type locker room banter, with lots of "hey dude" and swearing, in addition to discussions of upcoming parties and Halloween candy.  I have viewed Sid Backstrom as the pressure point in the case, and the one most likely to make a deal if indeed anyone from the Scruggs Law Firm does agree to cooperate.  It is not clear from the indictment how Backstrom is involved in the alleged attempted bribe, and the transcript fleshes out his role as one of the main contacts with Balducci.  The tapes may present him with a problem because it appears that Backstrom understood what was going on related to the payment to the judge, even if he did not orchestrate it.

As with many cooperating witnesses, Balducci comes across as talking too much, and making vague references to the bribe that do not elicit much in response.  For example, at one point he says in reference to making another payment that "I've gotta go back for another delivery of uh, another bushel of sweet potatoes down there."  Backstrom's response of "Mm-hmm" is hardly telling, and the use of "sweet potatoes" is not very incriminating.  Unfortunately for Backstrom, later on he implicates himself and Dickie when he says, "DICK was like, no we can go about this another way.  Don't call TIM.  I'll, I'll go about it another way . . . a more indirect way.  And I was like well what are you plannin' on doin'?  And he was like, I'm, I'ma handle it.  I'ma handle it.  And kinda givin' me the you don't wanna know kinda thing."  In a telephone conversation two weeks later, Backstrom responds to Balducci's suggestion to get the state court judge to just dismiss the whole case that led to the attempted bribe: "I think we're gonna get ourselves in trouble by you know, just f***** around with the thing to be honest.  I mean I, I think if we um, if we overreach again probably come back to bite us, so."

While there is nothing plainly incriminating in the transcripts, such as one of the defendants using the word "bribe" or speaking directly about how much was to be paid to the judge, there are enough comments that show Backstrom's involvement with Balducci -- not to mention other conversations with Dickie and Zach -- that the case is likely to move forward with all three defendants sitting together in court.  The severance claim is a difficult one to win, and the transcripts show the involvement of Backstrom and Zach along with Dickie, so I think it's unlikely the judge will split either one off for a separate trial. That puts Backstrom in particular in the difficult position of facing the potential spill-over from the other bad acts evidence that government has against Dickie and takes away the "empty chair" defense of blaming it all on the boss (i.e. Dickie).  I think Backstrom remains the focal point for the government, and if he enters into a plea agreement then Dickie and Zach Scruggs will face an even more difficult task of defending themselves. (ph)

Download us_v_scruggs_transcript_of_nov_1_2007_recording_01.pdf

Download us_v_scruggs_transcript_of_nov_1_2007_recording_02.pdf

Download us_v_scruggs_transcript_of_nov_13_2007_recording.pdf

February 20, 2008 in Corruption | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 19, 2008

Collateral Consequences After a Plea

The Wall Street Jrl reports on the SEC suing the former chief at Refco.  This comes on the heals of Phillip Bennett entering a plea with the government (see here). He is set to be sentenced on May 20, 2008 (see here).  This recent suit emphasizes the importance of looking at white collar cases globally - that is beyond the individual criminal charges.  The collateral consequences of a white collar matter can result in civil law suits, loss of licenses, debarment and a host of other ramifications that need to be factored in when handling this type of case. Sometimes, despite efforts to resolve extraneous matters as part of the plea in a criminal case, one can be left with significant exposure because the collateral consequences are just not a part of the criminal matter.

(esp)

February 19, 2008 in Civil Litigation | Permalink | Comments (1) | TrackBack (0)

White Collar Crime Blog Ranking

Paul Caron, over at TaxProf Blog, ranks the law professors blogs (see here) with the White Collar Crime Prof Blog coming in at # 15 on traffic ranking.  He also ranks page views.  So thanks to all who are reading this blog.

Law Prof Blog Traffic Ranking -- Visitors (Feb. 2007 - Jan. 2008)

1.   InstaPundit 70,748,231
2.   Hugh Hewitt 13,392,343
3.   Volokh Conspiracy 8,647,368
4.   Althouse 4,429,672
5.   Leiter Reports: Philosophy Blog 1,629,699
6.   TaxProf Blog 1,358,016
7.   Balkinization 1,294,363
8.   Concurring Opinions 1,125,512
9.   Sentencing Law & Policy 907,141
10. Professor Bainbridge.com 856,240
11. Jack Bog's Blog 776,272
12. Leiter's Law School Reports 726,005
13. PrawfsBlawg 639,468
14. Discourse.net 451,091
15. White Collar Crime Prof Blog 383,443
16. Conglomerate 378,787
17. Opinio Juris 323,519
18. Workplace Prof Blog 298,525
19. Is That Legal? 242,119
20. Chicago Faculty Blog 235,028
21. CrimProf Blog 211,119
22. Wills, Trusts & Estates Prof Blog 202,324
23. Ideoblog 186,511
24. ImmigrationProf Blog 181,055
25. ContractsProf Blog 167,861
26. Empirical Legal Studies 148,157
27. Election Law Blog 127,488
28. Religion Clause 122,352
29. Family Law Prof Blog 108,608
30. MoneyLaw 100,298

(esp)

February 19, 2008 in About This Blog | Permalink | Comments (1) | TrackBack (0)

The Spider and the Fly

The sentencing of Brent Wilkes for paying bribes to former Representative Randy (Duke) Cunningham may well produce the longest sentence for public corruption seen in a very long time, and perhaps ever.  As discussed in an earlier post (here), the U.S. Probation Office recommended a sixty-year prison term for the offenses, based on the amount of the bribes and business gained from them, the involvement of an elected official, Wilkes' leadership role, and obstruction of justice.  The U.S. Attorney's Office weighed in by responding to objections raised by the defense in a brief (available below) that describes Wilkes as the spider and Cunningham the fly trapped in the web of corruption -- a little cute, to be sure.  Prosecutors take shots at both Wilkes and Cunningham in the filing, describing the former as "a war profiteer, a thug, a bully, a lecherous old man who preyed on his young female staffers and hired prostitutes" and the latter as "simpleminded" and "of limited intelligence."  Certainly not the way you hear a former Congressman described very often.

According to a San Diego Union-Tribune story (here), prosecutors recommend a sentence at least double Cunningham's 100-month prison term for Wilkes, which would be nearly seventeen years, and then ask for a twenty-five year term.  Under the Sentencing Guidelines calculation in the Presentence Report, Wilkes can be sentenced to life in prison.  While I doubt U.S. District Judge Larry Burns will come in at that level, he may well sentence Wilkes to a prison term that will rival those received by Bernie Ebbers (twenty-five years) and Jeffrey Skilling (twenty-four+ years) for corporate frauds.  How often do you see the U.S. Attorney's Office recommend a  lighter sentence than the Probation Office, especially for a defendant who went to trial and is assailed as having committed perjury in his trial testimony (note the "Top Ten Lies" section of the government brief)?  (ph)

Download us_v_wilkes_government_response_to_defendant_sentencing_objections.pdf

February 19, 2008 in Corruption, Sentencing | Permalink | Comments (1) | TrackBack (0)

Plea Deal for Miami City Attorney

If looking for white collar news, one can always check out what is happening in south Florida.  This week the ABA Law Journal News Now reports on a plea agreement reached for the Miami City Attorney that will result in a resignation, a plea to two misdemeanor counts, and a term of probation.  For details also see the Miami Herald here

(esp) (w/ a hat tip to John Wesley Hall)

February 19, 2008 in Settlement | Permalink | Comments (0) | TrackBack (0)

Sunday, February 17, 2008

Tax is "IN"

Wesley Snipes is not the only one dealing with tax issues these days.  It seems the former mayor's brother in Philadelphia, in response to charges against him, is arguing that the tax code is unconstitutional.  The Philadelphia Inquirer reports here on a trial that sounds like a scene from a Broadway play. But as bizarre as the testimony may be, tax cases can be very difficult for the government.

In Cheek v. United States, the accused was unsuccessful on his claim of no knowledge as the Court noted that one cannot argue a statute's unconstitutionality without having knowledge of the statute.  But Cheek was successful in obtaining a reversal as the trial court had not given an appropriate knowledge instruction.  After all, tax statutes are complicated.

Although tax cases can be difficult ones for the government, when there is a failure to file and a proper jury instruction is given, a claim of no knowledge can be difficult for the accused.  As noted by Justice Blackmum (Marshall joining) in his dissent in the Cheek case:

"it is incomprehensible to me how, in this day, more than 70 years after the institution of our present federal income tax system with the passage of the Revenue Act of 1913, 38 Stat. 166, any taxpayer of competent mentality can assert as his defense to charges of statutory willfulness the proposition that the wage he receives for his labor is not income, irrespective of a cult that says otherwise and advises the gullible to resist income tax collections."

Stay tuned to find out how the accused fares in this trial.

(esp) (w/ a hat tip to Peter Goldberger) 

February 17, 2008 in Tax | Permalink | Comments (1) | TrackBack (0)

Wabtec Deals With Government

A DOJ press release tells of their recent "agreement with Westinghouse Air Brake Technologies Corporation (Wabtec) regarding improper payments to government officials in India in violation of the Foreign Corrupt Practices Act." The release states that

"[t]he agreement requires that Wabtec pay a $300,000 penalty, implement rigorous internal controls, and cooperate fully with the Department. The agreement acknowledges Wabtec’s voluntary disclosure and thorough self-investigation of the underlying conduct, the full cooperation provided by the company to the Department, and the remedial efforts undertaken by the company."

(esp)

February 17, 2008 in FCPA | Permalink | Comments (0) | TrackBack (0)

Former Refco CEO Pleads Guilty

Phillip Bennett, former CEO of collapsed futures and commodities trading firm Refco, entered a guilty plea to conspiracy, securities fraud, false statements to the SEC, wire fraud, false statements to Refco’s auditors, bank fraud, and money laundering charges.  Refco's demise in 2005 came only two months after the firm went public, probably the quickest collapse of a public company ever.  The markets reacted almost immediately after disclosure that its financial statements failed to disclose large liabilities that Bennett moved off its books periodically to avoid detection by the auditors.  Add Bennett's name to the list of corporate chieftains convicted of significant fraud. 

According to a press release issued by the U.S. Attorney's Office for the Southern District of New York (here), the total loss from Refco's collapse was over $2.4 billion, and the crimes for which Bennett pleaded guilty triggered losses of over $400 million.  Under the Sentencing Guidelines, Bennett is looking at what would amount to a life term in prison if the government does not move for a lower sentence due to cooperation and the district court adheres to the Guidelines range.  Given the size of the loss, the Guidelines call for an increase of thirty over the base offense level of seven, and add in the four-level enhancement for being the CEO of a publicly-traded company, and Bennett's offense level is at least 41.  That triggers a sentencing range of 324 to 405 months, which is well over twenty-five years in prison.  Bennett is 59 years old, and with sentencing set for May 20, 2008, he could easily receive a sentence that will put him in jail into his eighties, which means possibly for life. (ph)

February 17, 2008 in Fraud | Permalink | Comments (0) | TrackBack (0)