Tuesday, September 8, 2009
The Annual Report of Statewide Prosecutor William N. Shepard, from the Office of the Attorney General in Florida, presents prosecutions of some white collar crimes. With respect to white collar crime, the Report states that "Fighting fraud is an integral part of the Statewide Prosecution mission and mandate. We target three specific areas: (1) mortgage fraud, (2) health care fraud, and (3) securities fraud." The Report details some of the prosecutions in these three areas, as well as in non-white collar areas.
The case against Kevin Ring, a former associate of Jack Abramoff, is a case well worth watching. Ring faces "a ten count indictment for [allegedly] paying illegal gratuities in violation of" section 201, honest services fraud under wire fraud and the honest services provision (sections 1343 and 1346), conspiracy, and obstruction under section 1512. Back in June, the district court denied a motion to dismiss when Ring had argued the lack of an "official act" element of the crime, that "the honest services wire fraud charges are invalid as a matter of law because the statute cannot be used to prosecute a private lobbyist who did not prevent a federal lawmaker's breach of congressional ethics rules," that the conspiracy count premised on other charges should therefore fall, and that there was a lack of nexus for the obstruction charges. Although the court did not dismiss the case on pre-trial, these arguments sent the message that this case was going to present some tough legal issues for the government.
But it sounds like the legal issues are not the only problems facing the government. See Joe Palazzolo, Main Justice, Case Against Ex-Abramoff Associate Hits Curves
Video Highlights of Aaron Beam, co-founder of HealthSouth, speaking at the Association of Certified Fraud Examiners here. As noted on the webpage written by Dick Carozza (editor of Fraud Magazine), "Beam pleaded guilty to bank fraud." He served "three months in federal prison in return for his testimony against former HealthSouth Chief Executive Officer Richard Scrushy."
(esp) (w/ a hat tip to Gary Zuene)
David Glovin, Bloomberg, Fundraiser Nemazee Defrauded Other Banks, U.S. Says
David Glovin, Bloomberg, Monster’s James Treacy Gets Two-Year Sentence in Options Case
Amanda Bronstad, NLJ, law.com, 9th Circuit Invites Additional Briefing on Former Broadcom Exec's Privilege Claim
Snitching Blog, New ABA opinion on prosecutorial duty to disclose information
A New FCPA blog - by Mike Koehler here
Kate Moser, The Recorder, Law.com, Wilson Sonsini Staffer Charged in $1 Million Office-Supply Scam
Todd Foster, Bottom Line Blog, SEC Ramping Up Efforts
Sunday, September 6, 2009
As noted here, the SEC's release of the executive summary of the Madoff Report (Investigation of Failure of the SEC to Uncover Bernard Madoff's Ponzi Scheme) demonstrated that there was no finding of corrupt conduct. But the bottom line was that the ball was dropped on more than one occasion. It is, of course, easy to look back and examine the mistakes made. The 477 page Report, now released, allows that to be done. But as people ponder the sad findings in this report, the more important report and findings that need to now be made - is what to do about all of this to make certain it won't happen again. Clearly the new SEC chair has put into place some measures to allow for better regulations and control. But is this enough? Some thoughts -
- If this had been a company that had missed the red flags, the DOJ would be making them pay a lot of money, institute a more effective corporate compliance program, and probably have monitors in place to make certain that wrongdoing would not occur again.
- Is Madoff no different from the rogue employee who operates improperly and hurts innocent victims (in this case the victims are those who invested, those who benefitted from entities that had invested, and the general public).
- Will there ever be sufficient controls in place without thorough outside monitoring? In the case of corporations, the DOJ typically wants more than a company compliance program and looks for outside monitors to make certain there are no future violations. Should the SEC be held to a lesser standard? No - I am not suggesting that we employ John Ashcroft for this one.
- An Inspector General Report after-the-fact is wonderful, but where was the oversight when this fraud was occurring.
- It is easy to put blame on individuals who may have missed items, but we need to also consider their workload and whether it was reasonable for them to discover this fraud and whether more resources and systems are needed to assure they can properly perform their jobs.
- Clearly it is easy to Monday morning quarterback, especially on a Sunday over Labor Day - but this amount of fraud needs more thought and consideration.
The 477 pages tells us what happened. Now we need to examine the controls in place to assure it will never happen again.
Saturday, September 5, 2009
Dan Hurson, The New SEC Whistleblower Proposal: Make It Fair, Make it Pay, and They Will Come - Download THE NEW SEC WHISTLEBLOWER PROPOSAL
Houston Business & Tax Law Journal here with articles by Geraldine Szott Moohr, Introduction: Tax Evasion as White Collar Crime; John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough?; Robert Edwin Davis & Danny S. Ashby, Federal Criminal Tax Enforcement in 2009: The Role of Criminal Tax Enforcement in the Federal 'Voluntary' Self-Assessment and Payment Tax System; John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough? Online Appendix; Stuart P. Green, What is Wrong With Tax Evasion?
Stuart Michelson, Jud Stryker, Betty Thorne, Stetson University, The Sarbanes-Oxley Act of 2002: What Impact Has It Had on Small Business Firms, forthcoming Managerial Accounting Jrl. - Download MAJ 287_final 110609
Friday, September 4, 2009
The Ninth Circuit Court of Appeals issued a decision in U.S. v. Hickey, a case "from a massive fraud scheme that resulted in protracted civil and criminal proceedings spanning more than ten years." The court stated that the accused and his business partner "induced over 700 individuals to invest approximately $20 million in two real estate development funds." The "investors were duped by false representations regarding land title, guarantees, and securization of the funds." The court stated that "[a]s the investment scam progressed, it devolved into a Ponzi scheme." Several grounds were raised on appeal including jurisdiction, statute of limitations, evidentiary errors and sentencing. The court affirmed the decision of the lower court rejecting these issues.
There were two superseding indictments in this case, and a concurring opinion takes issue with the court's definition of the word "superseding" and offers an interesting approach. Circuit Judge Reinhardt states in part:
Here, I see no reason, rational or otherwise, to treat the word "superseding" as meaning "not replacing," as we have done before and as we do again here. An abundance of judicial creativity has been devoted to tasks like interpreting "another" to mean "the same"; "slight" to mean "substantial"; and "superseding" to mean "not superseding." I propose redirecting that creativity to better uses, such as finding terms that actually mean what they appear to mean. We could start by using "second indictment" or "first additional indictment" to describe an indictment that follows the original indictment, but does not "supersede" it. Were we to do so, we might earn more public trust and respect than we are accorded now. Any additional amount, no matter how slight, i.e. substantial, would be most welcome.
Thursday, September 3, 2009
The investigation into what happened that allowed a Bernie Madoff fraud to exist is now complete and the bottom line is that there was no corruption on the part of SEC personnel. But the sad fact is that the ball was dropped on more than one occasion. The Executive Summary of the report states:
"The OIG investigation did not find evidence that any SEC personnel who worked on an SEC exmination or investigation of Bernard L. Madoff Investment Securities, LLC (BMIS) had any financial or other inappropriate connection with Bernard Madoff or the Madoff family that influenced the conduct of their examination or investigatory work." ....
"The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed."
Chair Mary L. Schapiro (to my chagrin, the SEC continues to list her as chairman) issued a press release that acknowledges "that the agency missed numerous opportunities to discover the fraud." It is impressive that the agency is recognizing the importance of transparency here, recognizing the importance of learning from past mistakes, and recognizing the importance of putting into place a set of controls that will keep this from happening again.
This is indeed a sad chapter, and one that hopefully will never be repeated. It probably serves little to assist those who were the victims of this fraud, but it does represent the importance of presenting to this country and the outside world that the US is going to crack down and regulate fraud with sufficient scrutiny.
Addendum - Amir Efrati, WSJ Blog, A First Look at the Big Ol’ Madoff SEC Report
Wednesday, September 2, 2009
Associate AG Perrelli states at the Pfizer Settlement Press Conference:
"today’s settlement reflects the Department of Justice working hard to protect American taxpayer dollars. This case is a great example of the Department’s commitment to fiscal accountability, combating fraud, and returning much-needed dollars back to the U.S. Treasury and state treasuries."
It is good to know that in these days of fiscal downturn, money is being obtained from a company that engaged in conduct disapproved by DOJ. (see here for background) But wouldn't it have been better if the wrongdoing had not occurred in the first place. I have to wonder what the government is doing pro-actively as opposed to re-actively to assure corporate compliance. Perhaps more dollars need to to be spent on "Educating Compliance" My forthcoming article, "Educating Compliance" to be published in Georgetown's American Criminal Law Review can be found here.
Associate AG Tom Perrelli called it "the largest health care fraud settlement ever in the history of the Department of Justice." (see here) Pfizer, Inc. agreed to pay $2.3 billion to settle a case "arising out of civil and criminal allegations relating to Pfizer’s allegedly illegal promotion of certain drugs, most notably Bextra."
Its subsidiary, "Pharmacia & Upjohn Company [ ] agreed to plead guilty to a felony violation of the Food, Drug and Cosmetic Act for misbranding Bextra with the intent to defraud or mislead." (See DOJ Press Release) "Pharmacia & Upjohn will also forfeit $105 million, for a total criminal resolution of $1.3 billion." "In addition, Pfizer has agreed to pay $1 billion to resolve allegations under the civil False Claims Act that the company illegally promoted four drugs . . . ." The DOJ Press Release notes that "[a]s part of the settlement, Pfizer also has agreed to enter into an expansive corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services. That agreement provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to this matter." On the Pfizer website one finds the press release of the company. It states in part:
"... A portion of the civil payments will be distributed to 49 states and the District of Columbia pursuant to agreements with each state’s Medicaid division.
"The terms of the DOJ settlement require Pfizer to pay approximately $503 million to resolve civil allegations concerning past promotional practices related to Bextra. In addition, the company will make payments to resolve other civil allegations involving past promotional practices as follows: approximately $301 million for Geodon, approximately $98 million for Zyvox, and approximately $50 million for Lyrica. The settlement also includes a civil payment of approximately $48 million to resolve allegations relating to certain payments to healthcare professionals involving nine other Pfizer medicines."
See also Devlin Barrett (AP), law.com, Pfizer to Pay Record $2.3 Billion Penalty Over Off-Label Promotions
The Supreme Court accepted for certiorari the case of U.S. v. Weyhrauch (see here), a case involving honest services mail fraud. The court earlier had accepted for cert another mail fraud case with a different issue (Conrad Black's case here). The Ninth Circuit, in anticipation of the Weyhrauch case, stayed the issuance of a mandate in U.S. v Inzuna. The Ninth Circuit, however, did go ahead and affirm the district court's judgments against two former members of the San Diego City Council. The court adopts what it terms "the majority rule" -- "that private gain is not an element of honest services fraud." In so doing it rejects strong precedent coming from the Seventh Circuit. The Ninth Circuit also rejected a requirement to "prove an independent violation of state law to sustain an honest services fraud conviction." There are other issues in the case, such as those related to the Hobbs Act and arguments premised on objections to closing arguments. The key in this case will be how the Supreme Court decides the Weyhrauch case.
U.S. v. Inzuna - Download Honest Services Fraud - US v Inzunza - 9th Cir 9-1-09
See also Kevin Cole, "Strippergate" Appeal, CrimProf Blog here
(esp) (w/ a hat tip to Evan Jenness)