Saturday, September 5, 2009

New Books & Articles

Miriam Weisman,Crime, Incorporated: Legal and Financial Implications of Corporate Misconduct

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

(esp)

September 5, 2009 in Books | Permalink | Comments (0) | TrackBack (0)

Friday, September 4, 2009

What is a Superseding Indictment?

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.

(esp)

September 4, 2009 in Judicial Opinions, Securities | Permalink | Comments (1) | TrackBack (0)

Thursday, September 3, 2009

Madoff Report - No Corruption, Just Incompetence

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.

(esp)

Addendum - Amir Efrati, WSJ Blog, A First Look at the Big Ol’ Madoff SEC Report

September 3, 2009 in Fraud, Investigations, SEC, Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 2, 2009

Commentary on Pfizer Settlement - "Educating Compliance"

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.

(esp)

September 2, 2009 in Deferred Prosecution Agreements, Fraud, Scholarship | Permalink | Comments (0) | TrackBack (0)

Pfizer Settlement

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

September 2, 2009 in Settlement | Permalink | Comments (4) | TrackBack (0)

9th Circuits Stays Mandate on Honest Services Case Pending Supremes Ruling

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)

September 2, 2009 in Corruption, Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Sunday, August 30, 2009

Supreme Court Review

Published with permission - Hugh Kaplan's BNA's Criminal Reporter 2008-09 Term in Review - Download SCOTUS2008-09

(esp)

August 30, 2009 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Search Warrants, Steroids, & Baseball

The Ninth Circuit Court of Appeals decision in United States v. Comprehensive Drug Testing, Inc. & Major League Baseball Players Association v. United States looked at "the procedures and safeguards that federal courts must observe in issuing and administrating search warrants and subpoenas for electronically stored information."

It all started in 2002 when the "federal government commenced an investigation into the Bay Area Lab Cooperative (BALCO), which [was] suspected of providing steroids to professional baseball players." It is always interesting to see how an investigation can lead to people well beyond the initial scope of inquiry.  Oftentimes the government obtains incriminating evidence against some that is used to move an investigation far from its initial roots.  Those that are trapped by the government may provide pleas with coooperation -- as one way to lower a sentence may be to implicate others. 

In this case baseball players had been tested under terms that "the results would remain anonymous and confidential."  Ten players turned up as testing positive and the government secured a grand jury subpoena in the Northern District of California "seeking all 'drug testing records and specimens'" pertaining to the baseball player's testing. The subpoena was quashed and the government went in with a search warrant for the "records of the ten players as to whom the government had probable cause." Nothing like the government not getting their way and circumventing the order by using a search. But the government did not stop there, as they went to the District of Nevada and also obtained a warrant - a place where the drug tests had been performed. 

In total it ended up being three judicial opinions with the judges "express[ing] grave dissatisfaction with the government's handling the investigation, some going so far as to accuse the government of manipulation and misrepresentation." The government appealed and the en banc court eventually ended up with the case.  A summary of the court's ruling can be found here.

Clearly there are grave concerns here with respect to the government's conduct. But the decision, with its majority opinion authored by Judge Alex Kosinski, also explores how to handle searches of electronically stored files.  On one hand you have a government wanting to obtain information for an investigation and on another hand you have Fourth Amendment's rights to privacy. The court sets forth a framework for how these searches should occur including requiring that "magistrates should insist that the government waive reliance upon the plain view doctrine in digital evidence cases." The decision calls for "[s]egregation and redaction" to be "either done by specialized personnel or an independent third party."  And it goes on from there. The bottom line is that the court is trying to bring us into a new and modern age that understands and considers how best to handle computerized material.

Whether this framework is the best one, remains to be seen.  But it certainly is good to see that a court is recognizing the need to re-examine the plain view doctrine in this computer and information age.

(esp)

August 30, 2009 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Reactions to UBS Settlement and Possible Future Prosecutions

Some folks are voicing an opinion on the UBS settlement and what may result from it.  Check out the following:

Three American U. Law Profs (Nancy S. Abramowitz, Andrew Pike, and Robin Westbrook) state in the second paragraph of their letter:

We have also watched with interest the IRS' efforts to promote voluntary disclosure by US taxpayers prior to IRS' commencement of examination. With the lure of amnesty in the form of no criminal action and reduced civil penalties, the IRS hopes taxpayers will come forward "voluntarily." This general concept is equally laudable. However, the IRS' promise to keep open the September 23 amnesty deadline for taxpayers who come forward even after they receive notice from UBS that their names are about to be revealed is the point at which we depart company with IRS policy.

They state later in their letter:

Our law school operates a low income taxpayer clinic. In the last few years, we have seen an increase in the assertion of penalties against the poorest, least sophisticated taxpayers with virtually negligible room for negotiation by the IRS. It would seem that a blanket program of offering reduced penalties and no criminal action to wealthy, sophisticated tax dodgers who come forward on the eve of their names being turned over to the IRS and with prior knowledge of the forthcoming disclosure, is suggestive of something less than even handed tax administration.


For background on the UBS Settlement see here, here, and here.

(esp)

August 30, 2009 in Tax | Permalink | Comments (0) | TrackBack (0)