Saturday, October 24, 2009

The Recession Discussion - University of Chicago Legal Forum

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) 

October 24, 2009 in Conferences, Media, Scholarship | Permalink | Comments (1) | TrackBack (0)

Thursday, October 22, 2009

Third Circuit Rules in Honest Services Case

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)


October 22, 2009 in Fraud | Permalink | Comments (0) | TrackBack (0)

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Wednesday, October 21, 2009

You Can't Prosecute An Acquittal - Yeager Case

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)

October 21, 2009 in Enron, Judicial Opinions | Permalink | Comments (1) | TrackBack (0)

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Monday, October 19, 2009

Wall Street Meets "The Wire"

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.


October 19, 2009 in Prosecutions, SEC, Securities | Permalink | Comments (1) | TrackBack (0)

Sunday, October 18, 2009

"Largest Hedge Fund Insider Trading Case Ever Charged, Criminally"

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


October 18, 2009 | Permalink | Comments (0) | TrackBack (0)

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The Problem With Extraterritorial Prosecutions -Getting the Witnesses

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.


October 18, 2009 | Permalink | Comments (0) | TrackBack (0)