Saturday, October 31, 2009
Today the White Collar Crime Prof Blog Turns Five (5) Years Old and I would like to thank all the readers out there who have clicked this way.
As you may imagine, blogging takes an enormous amount of time - and some days it can be difficult to find the minutes to post what needs to be said. So thanks for sticking with me during the last five years and I hope you will continue to stop by. Please continue to send items this way. If I didn't get to post it - I am sorry - but I can only do so much. I assure you that it is always appreciated.
The best to everyone out there -
Friday, October 30, 2009
Mike Scarcella, BLT Blog, Top DOJ Fraud Section Supervisors Planning to Leave Justice
Thursday, October 29, 2009
Mike Scarcella, Nat. L.J.,DOJ Witness in Stevens Case Sentenced to Prison ; DOJ Press Release, Bill Allen and Richard Smith, Former Officers of VECO Corporation, Sentenced for Roles in Alaska Public Corruption Scheme
John Bresnahan & Maru Raju, Politico,Sen. John Ensign's aides pay the price for his affair(w/ a hat tip to Dennis Beal)
Curt Anderson, AP, UBS ex-client avoids prison for tax conviction
Hans Villarica, Medill Reports, Researchers expose a pattern for white-collar crime
Richard Lacayo, Time, Skilling's Enron Appeal: Is 'Honest Services Fraud' a Bogus Charge?
Mark Hamblett, law.com, N.Y.L.J., Dead in Reported Suicide, Attorney Faced SEC Complaint Over Leak of Law Firm Data
Nicolas Vaux-Montagny, Washington Post, Church of Scientology convicted of fraud in France
Tuesday, October 27, 2009
Monday, October 26, 2009
No surprises in the Eleventh Circuit opinion affirming the trial court's dismissal of Count One in the Ben Kuehne case. The nine page opinion authored by Hon. Barkett, and joined by Hon. Hull and Quist provides a quick response to the government's contention that 18 U.S.C. 1957 (f)(1) was "nullified" by the Court's decision in Caplin & Drysdale - not so. The court states:
It would therefore make little sense- and would be entirely superfluous-to read § 1957(f)(1) as an exemption from criminal penalties for non-tainted proceeds spent on legal representation, as those funds can always be used for any legal purpose. We do not believe Congress intended such an absurd result ...
(esp)(w/ a hat tip to Joe Beeler)
Saturday, October 24, 2009
The University of Chicago's Legal Forum - 2009 Symposium on Crime, Criminal Law and the Recession -began with opening remarks from Anton Valukas(Jenner & Block), who many remember as the former United States Attorney from the Northern District of Illinois in the days of Greylord. Now appointed the Examiner in Lehman Brothers Holdings bankruptcy, he was speaking as the opening keynote on recession and crime. He reminded us of the history of downturns in the economy and how individuals "get caught" when the economy goes soar. He spoke also about the role of lawyers, accountants, and other gatekeepers.
The first panel was Brian Walsh from the Heritage Foundation and myself. Brian Walsh, in a well received talk, stressed how the tools to fight the criminality have been there and adding more to the federal criminal code is not the answer. My talk looked at accountability (the lack of it at the time), who people are blaming (not necessarily accurately), and what transparency will provide us with in the future. A concern, which will be a focus of my paper, is with the diminishing media and its potential impact on investigative reporting that brings to light criminality, oftentimes government corruption.
The second day proves to be a promising discussion with Stuart Green (Rutgers-Newark), John Pfaff (Fordham), Carol Streiker (Harvard), and Jordan Streiker (Texas) talking about the economics of punishment. Roger Fairfax (George Washington), Alex Kreit (Thomas Jefferson), Justin McCrary (Boalt), and Robert Mikos (Vanderbilt) will be speaking about state and local budgets - changes in police and prosecution. The final panel is Richard McAdams (Chicago) and Jonathan Simon(Boalt) speaking about social inequality and crime.
(esp)(written in Chicago)
Thursday, October 22, 2009
The honest services cases seem to be all over the place, with three before the United States Supreme Court this term. The Third Circuit just added its voice to the mix with a decision in United States v. McHeehan. The court addressed "honest services fraud as applied to the conduct of persons who are not public officials" finding sufficient evidence in 6 counts and vacating the judgment in 7 counts. 7 other counts need to be re-examined by the lower court to see if they were tainted by the admission of evidence for the vacated counts. Commentary on this case will be provided in the next couple of days. For now, here's the decision - Download US v McGEEHAN (3rd Cir 102209)
William Sessions confirmed as Chair of the United States Sentencing Commission (see here)
Mike Scarcella, BLT Blog, DOJ: Gang Members in LA Running Health Care Fraud Scheme
Tom Kirkendall, Houston Clearthinkers, More thoughts on business "crimes"
Grits for Breakfast Blog, Might White Collar Cases Be Next Venue for Innocence Claims?
Shannon P. Duffy, Legal Intelligencer, law.com, Former Adelphia Executives Win Chance to Quash Conspiracy Case
Wednesday, October 21, 2009
Back from the Supreme Court's decision in United States v. Yeager (see discussion here), the Fifth Circuit Court of Appeals had to decide what to do with the remains of this case. Mary Flood, Houston Chronicle, Appeals court wipes slate clean for Enron defendant Yeager reports on the Fifth Circuit Court of Appeals decision concerning this former Enron Broadband executive. Yeager, after a very long process, has now been acquitted. The Fifth Circuit Court of Appeals in United States v.Yeager stated:
Today, freed from the chains of Larkin it is clear under our initial Ashe analysis the jury made a finding in acquitting Yeager that precludes prosecution on insider trading and money laundering. We are satisfied that the panel conducted a proper review of Yeager’s claim and the required collateral estoppel analysis under Ashe and will not do so again. We decline the invitation to revisit our settled findings.
(esp)( w/ a hat tip to Bill Olis)
Barbara Kiviat, Time Magazine, Insider-Trading Arrests Open a Window on Hedge-Fund Culture
National Post, Steven Skurka: Conrad Black's last stand
Alex Berenson, NYTimes, Thin Line Separates Insider Trading and Research
Zach Lowe, American Lawyer, law.com,Did Bank of America Mess Up Its Privilege Waiver?
Mike Scarcella, National LJ, law.com,DOJ Outlines Changes After Backlash Over Handling of Stevens Case
Monday, October 19, 2009
Guest Blogger - Gail Shifman
In the 2009 sequel to the 1987 movie, Wall Street, one expects to see Michael Douglas’ Gekko talking on his cell phone on his way to a meeting in Baltimore where technology superstar and investor hottie, Tweetz, has its headquarters. The phone conversation is worth millions. Those on the phone know that to win you have to risk loss.
Welcome to the new reality: Wall Street meets The Wire.
The arrest and charging of Hedge Fund Managers, Fortune 500 Executives and a Management Consulting Director in the $20 Million Insider Trading case, the largest ever charged criminally, is just the beginning, says U.S. Attorney Preet Bharara. The arrests followed more than two years of investigation involving informants, cooperating witnesses, consensual monitoring and wiretaps on at least four phone lines. It is believed to be the first time that prosecutors have used a wiretap in an insider trading case. Bloomberg reports that federal investigators are now poised to file charges against a wider array of insider-trading networks, some linked to the criminal allegations against Rajaratnam and the other defendants. They report that some probes, like the one that focused on Rajaratnam, rely on wiretaps and that others stem from a secret Securities and Exchange Commission data-mining project set up to pinpoint clusters of people who make similar well-timed stock investments.
Beyond the initial issue of whether investigating Wall Street insiders with law enforcement tactics typically reserved for the Mob, gangs and terrorists is a wise use of resources, it also raises many legal issues quite distinct from those traditionally litigated in white collar cases. Wiretap litigation is a complex, multi-layered process. Questions arise early in the case regarding the discovery production obligations of the government. Following a review of the many months of electronic interceptions, questions will arise regarding whether the government properly sought, minimized, maintained and sealed the recordings. Did they seek proper extensions for the continued interception of the electronic recordings? And, of course, was there probable cause to seek the interceptions?
In this case, however, the legal issue regarding the use of wiretaps that immediately jump to the surface is the question about whether The Federal Wiretap Act specifically authorizes the interception of electronic recordings for alleged security fraud violations (Title 15 U.S.C. §§ 78j(b) & 78ff and Title 17 C.F.R. §§ 240.10b-5 & 240.10b5-2) as charged in the criminal complaint. These statutes are not specifically enumerated in Title III, 18 U.S.C. § 2516, which provides the authorization for electronic interception. Wire and mail fraud (18 U.S.C. §§ 1341 & 1343) anti-trust violations, money laundering and numerous other offenses are listed, but not securities fraud. Chances are good that the government could have charged these defendants with wire fraud but were they scared away by the fact that the Skilling, Weyrauch, and Black cases are on review before the Supreme Court? One would think (hope?) that the government has preliminarily determined that section 2516 provides them with the authorization they need lest they find themselves licking self-inflicted wounds.
Assuming they overcome this hurdle, the wiretap issue that likely will be the most heavily litigated, and potentially the most fruitful for the defendants, will be a motion to suppress the wiretaps because the government lacked ‘requisite necessity’ for the lawful use of electronic recordings . Electronic surveillance is one of the most intrusive means of investigation. Indeed, the inherent intrusiveness of wiretapping is the cornerstone of the so-called "necessity requirement." As the Supreme Court stated in its landmark case which led to the enactment of the current wiretapping statutes, "[f]ew threats to liberty exist which are greater than that posed by the use of eavesdropping devices." Berger v. United States, 388 U.S. 41, 63 (1967). The Court in Berger went on to recognize that although wiretapping is a more expedient form of investigation, expediency in law enforcement must ultimately yield to the requirements of the Fourth Amendment "before the innermost secrets of one's home or office are invaded." Id.
In response to the concerns and standards enunciated in Berger, Congress enacted the electronic surveillance statutes, Title III, 18 U.S.C. § 2510 et seq. Congress mandated that the government make their wiretap applications upon oath, accompanied by [A] full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous. 18 U.S.C. § 2518(1)(c).
Title 18 U.S.C. § 2518(3)(c) provides that a court issuing a wiretap authorization order must determine whether normal investigative procedures have been tried and have failed or reasonably appear to be unlikely to succeed if tried or to be too dangerous. This "necessity requirement" obligates the government to set forth a full and complete statement of specific circumstances explaining why traditional investigative techniques were insufficient or the application must be denied. In determining the sufficiency of an affidavit, a reviewing court must ensure that the issuing court properly performed [its] function and did not 'serve merely as a rubber stamp for the police'. The government is not under an obligation to exhaust all alternative means of investigation in satisfying the necessity requirement but, neither should it be able to ignore avenues of investigation that appear both fruitful and cost-effective.
Given that the government had three co-conspirators, including one as early as January 2006, acting as informants and cooperating witnesses, and that these individuals had unfettered access to Rajaratnam and others involved in the alleged conspiracies, the question arises whether the government deliberately stalled this investigation and actively resisted utilizing normal investigative techniques, hoping to induce the court into believing that only a wiretap could succeed. Were deliberate decisions made by the government not to pursue avenues which would have been fruitful, in its effort to persuade the court that it had no alternative but to seek a wiretap? Given my experience in wiretap litigation, I suspect that the government had the means through traditional, cost effective, and innovative methods to uncover the alleged conspiracies. Through the use of their informants and cooperating witnesses, data mining and analysis, trap and trace and pen register analysis and sometimes even through trash covers (yes, combing through the garbage), it is likely that the conspiracies could have been revealed and prosecuted.
Sunday, October 18, 2009
These are the words of US Attorney Preet Bharara on the charging of six defendants "with allegedly making more than $20 million in profits through insider trading." (See Statement here) What is also noteworthy here is that this, a white collar case, used wiretaps. It isn't often that we see wiretaps in white collar cases, but it does happen sometimes. US Attorney Bharara notes that "we believe that this case represents the first time that court-authorized wiretaps have been used to target significant insider trading in Wall Street."
He ends his remarks by stating - "Today, tomorrow, next week, the week after, privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?" It all sounds OK if criminality really is occurring - but the idea of someone listening to telephone calls is not otherwise particularly appealing.
Charging Documents here
Press Release here
DOJ Press Release, Chicago Man Accused of Posing As Federal Official in Alleged Scheme to Obtain and Sell Area Properties He Did Not Own (Mail fraud and Falsely Posing as a Federal Official)
Tony Mauro, NLJ, law.com, High Court Hands Former Enron CEO 'First Breakthrough' in 8 Years, Lawyer Says
Tom Kirkendall, Houston ClearThinkers, The reeling prosecution in the Skilling case
Carrie Johnson, Washington Post, Afghan Men Tricked Into U.S. Trip, Detained -Possible Witnesses Have Been Forced To Stay Since 2008 has a must read article on a key problem that arises when one prosecutes extraterritorial conduct - how do you get the witnesses into the United States. The saga of witnesses who were lured to the United States on false pretenses for a bribery trial sends a sad message of the image the United States projects to other countries.
But I have to wonder about the other side of this story - that is, how does defense counsel get its witnesses from abroad? Although the government can come up with elaborate schemes to lure witnesses into the U.S., defense counsel does not have this same ability. Defense counsel may be left to using subpoenas and be unable to secure the witnesses who fail to respond as they are beyond the jurisdiction of the United States. Luring and then holding witnesses is improper, but it is more problematic if only one side has the ability to engage in this process.
Friday, October 16, 2009
A DOJ Press Release reports that "Former General Services Administration (GSA) Chief of Staff David H. Safavian was sentenced today to one year in prison on charges of obstruction of justice and making false statements in connection with the investigation into the activities of former Washington lobbyist Jack Abramoff." He also received two years of supervised release.
The opening session of the second day of the ABA's Securities Fraud Conference is a plenary session pertaining to the Foreign Corrupt Practices Act (FCPA) - clearly a "hot" topic these days. A panel moderated by Phillip H. Hilder, started with Mark F. Mendelsohn, deputy chief of DOJ's fraud section -criminal division, answering a question regarding how many individuals he has working on FCPA cases and which areas are most vulnerable to FCPA matters. I didn't quite catch the final count of individuals handling these cases but it was clear that there were at least three folks exclusively handling FCPA cases and a good few many more working on them. Although he listed some areas that have seen prosecutions-- it was expressed more as "targeting is the wrong word." He said that its more like "following up on leads from existing cases." Peter Clark and CE Rhodes, Jr.(US Operations & Compliance Counsel - Baker Huges, Incorporated) spoke to the representation of individuals and both talked about the use of independent/separate counsel to represent individuals.
As my panel was next, I did not get to hear the remainder of the FCPA panel, which clearly was an important one. My panel on blogging was moderated by David Z. Seide and included Bruce Carton (Securities Docket), Thomas O. Gorman, (SECActions.com) and myself. It was wonderful to see and hear about the wonderful blogs and sites by my fellow panelists and to hear about what Bruce Carton was doing with Twitter and Thomas Gorman's thoughts on making resources accessible to attorneys.
One of the final breakouts of the day pertained to sentencing. The panel, moderated by Professor Steve Chanenson, (Villinova) had panelists Hon. Amy St. Eve, Christine Ewell (AUSA, Chief, Criminal Division - USAttorneys Office Central District of California), James Mutchnik, Gil Soffer, and Brian Sun. The hot topic here was a discussion about the disparity in sentencing. And as Brian Sun brought out - it is not just disparity between cases, it is also the disparity within the same case - such as disparity between those who are cooperating and your client. The Hon. Amy St. Eve noted that it's the obligation of the attorneys to bring the issues of disparity to the attention of the judge.
Risk can be a key factor in sentencing, as noted by James Mutchnik. The uncertainly and not knowing is difficult for the client, and reaching a deal with the prosecutor provides some certainty to the situation. But this won't always work, as Christine Ewell, noted the "limited circumstances when they do binding pleas." In some cases they do a range of sentence, such as in corporate "fines" cases. Hon. Amy St. Eve reminded attorneys that they need to think about pleas that might be out of line with later defendants within the same case. Atorney Mutchnik noted that so much rests on the "risk" that your client can take.
Christine Ewell noted how the guidelines can be "off the charts" in some cases. But the guidelines shouldn't be discarded in these circumstances, she said. It is more that this should be an indicator that the offense is so egregious that it merits a longer sentence. She spoke about "message sentences" when a sentence comes in at an amount that exceeds the person's life (Madoff, and a sentence in her district that was 100 years were used as examples).
Mutchnik noted that we should move away from "loss" by looking at what the client gained. Gil Soffer said that its appropriate to recognize the policy behind the guidelines, but the guidelines are just one factor. And Brian Sun reminded listeners of the sentences in cases years back (e.g., Boesky). He also noted how sentencing today can differ - it can be like doing a "murder case versus a DUI" because of the high sentences that white collar offenders are subject to. One example offered by Gil Soffer to bring to life your defendant's cause is to use a video, for example using video to show a day in the life of a doctor who was about to be sentenced.
An interesting question examined was whether "the 20 years in the middle of a person's life is more valuable than the the 20 years at the end of [his or her] life?" This was clearly a thoughtful panel that presented material to those present for the last set of breakouts.
Thursday, October 15, 2009
In a dissent on a Petition for Certiorari in the Sorich case, Justice Scalia expressed his view that section 1346 - the honest services definition used in mail/wire fraud statutes had "been invoked to impose criminal penalties upon a staggeringly broad swath of behavior, including misconduct not only by public officials and employees but also by private employees and corporate fiduciaries." He concluded his dissent by stating - "it seems to me quite irresponsible to let the current chaos prevail." It looks like Justice Scalia will have his way this term - at least in getting the other Justices to engage in the conversation - as there are now three cases before the court with questions related to the intangible rights to honest services. So will we be telling students that the cases on mail fraud in the casebook are history and they need to look somewhere else to really find out what is the law today. Or will the court provide blanket statements allowing the use of 1346 in these contexts with little change to the status quo. What is remarkable here is that 28 words will be taking up a good bit of Court time.
Tuesday, October 13, 2009
Two Questions are Presented for Review in the Jeffrey Skilling case that has been accepted on Certiorari in the U.S. Supreme Court. They are:
1. Whether the federal "honest services" fraud statute, 18 U.S.C. § 1346, requires the government to prove that the defendant's conduct was intended to achieve "private gain" rather than to advance the employer's interests, and, if not, whether § 1346 is unconstitutionally vague.
2. When a presumption of jury prejudice arises because of the widespread community impact of the defendant's alleged conduct and massive, inflammatory pretrial publicity, whether the government may rebut the presumption of prejudice, and, if so, whether the government must prove beyond a reasonable doubt that no juror was actually prejudiced.