White Collar Crime Prof Blog

Reining In Honest Services Fraud

Guest Blogger - Stephen Richer

Stephen Richer is the Director of Outreach at Washington Legal Foundation

"Show me the man, and I will show you the crime," said Lavrenti Beria, Stalin’s Chief of Police.　

Such is the sentiment that Noel J. Francisco of Jones Day evoked when describing the Honest Services Fraud Statute at a recent Washington Legal Foundation Media Nosh.

The Honest Services Fraud refers to the 28 word addition to the mail and wire fraud statute: "For the purposes of this chapter, the term, scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right of honest services."

In so few words lies enormous prosecutorial power, and, as such, the statute has been the subject of two recent Supreme Court arguments: Weyhrauch v. United States and Black v. United States, and is the focus of the upcoming hearing of Skilling v. United States.

According to Mr. Francisco, such cases arise out of the government’s desire to respond to public outrage, and the Honest Services Fraud statute is a perfect tool for doing so. "This is a typical executive response of we've gotta’ find scalps," said Mr. Francisco.

Only later—many years after the fact—does the judiciary have the chance to review such governmental actions. Mr. Francisco predicts that after hearing this third case on the issue, the Supreme Court will "either strike down this intangible right to honest services or reign it in significantly."

To hear Mr. Francisco’s full remarks, as well as the remarks from The Honorable Dick Thornburgh, The Honorable Gregory G. Garre, and Patricia A. Millett, visit Washington Legal Foundation’s website for the archived version of the seminar.

Available here (the webcast must be accessed through Internet Explorer)

(sr) 

Happenings in Scholarship

Check out Prosecution Notes here (NYU) It includes an article by Michael L. Volkov & Allyson Miller (Dickinson Wright) titled, Prosecutorial Misconduct: An Increasing Problem or Overblown Hysteria?

(esp)

In the News & Around the Blogosphere

Larry Ribstein, Ideoblog, Businesses as movie good guys

Martha Neil, ABA Jrl, Law News Now, Attorney in Federal Wire Fraud Case Allegedly Didn’t ID Buyers at Closings; Tim McGlone, The Virginian-Pilot, Lawyer charged in $1M mortgage fraud scheme (w/ a hat tip to Ivan Dominguez)

The Record, Bruno's sentence delayed until May

DOJ Press Release, Brookhaven Memorial Hospital Medical Center in New York to Pay U.S. $2.92 Million to Resolve Fraud Allegations

(esp)

Third Circuit Remands Brown (Rite-Aid) Case for Resentencing

An opinion issued by the Third Circuit Court of Appeals here affirmed the convictions of an individual who worked for the Rite Aid Corporation, on convictions for "conspiracy to commit accounting fraud, filing false statements with the SEC, conspiracy to obstruct justice, obstruction of grand jury proceedings, obstruction of government agency proceedings, and witness tampering."  Brown, age 76, received a sentence of ten years, but the sentencing was prior to Booker.  The court stated, "[l]acking this clairvoyance the Court failed to explain, in the manner now required, how it considered the factors listed in section 3553(a) in imposing Brown’s sentence."

See also Shannon P. Duffy, Legal Intelligencer, law.com, 3rd Circuit Upholds Conviction of Former Rite Aid General Counsel

(esp)

In the News & Around the Blogosphere

Fox News,NYC Concrete Test Company Convicted on Corruption Charges

John Hielscher & Michael Pollick, Sarasota Herald Tribune, Arthur Nadel pleads guilty to Ponzi scheme

Philadelphia Inquirer, AP, Lawyers fear deadline in Veon corruption trial

Mark Hamblett, NYLJ, law.com, 2nd Circuit Denies En Banc Review of Lynne Stewart's Sentence

Mike Scarcella, BLT Blog, In Miami, Fraud Task Force Examines Mortgage Schemes

Mike Scarcella, BLT Blog, Mistrial Declared in DOJ's Corruption Case Against American Samoa Officials

Star-Ledger, NJ.com, Former aide to Newark Mayor Cory Booker is indicted on extortion, corruption charges

Dan Eggen, Washington Post, Alleged Stanford fraud victims want money that was given to campaign committees

(esp)

Nadel Pleads Guilty

Michael Pollick & John Hielscher of the Sarasota Herald Tribune has the story here.

See also Thom Weidlich, Bloomberg, Florida Money Manager Nadel Pleads Guilty to Fraud

(esp)

In the News & Around the Blogosphere

Andy Owens, Charleston Regional Business Journal, Law school panelists: White collar crime hard to deter

DOJ Press Release, Cummins Inc. Agrees to Pay $2.1 Million Penalty for Diesel Engine Clean Air Act Violations

Ken Thomas & Dan Stumpf, Huffington Post. Toyota Recall: Feds Open Criminal Investigation, Issue Grand Jury Subpoena for Documents

(esp)

99 Year Sentence in State Case

We have seen some high sentences in white collar cases in federal court.  But it now looks like a high sentence is being given in a white collar state case.  Check out, press release, Texas State Securities Board,Jury Hands Down 99-Year Sentence for Architect of Multistate Securities Fraud.

(esp)

In the News & Around the Blogosphere

Johanna Decorse, AP, law.com, 12 Convicted in Pinot Noir Fraud Scheme

Tonya Alanez, Sun Sentinel, Is Broward's state attorney soft on corruption?

Jordana Mishory, Daily Business Review, law.com, Judge Dismisses 2 Counts Against Rothstein Firm's Former Accountants

AP, Washington Post, Federal prosecutors consider charges in probe of Hilton Hotels

Amir Efrati, WSJ Blog,Possible Madoff Effect: Triple-Digit White-Collar Prison Sentences

DOJ Press Release, Florida Businessman Pleads Guilty to Money Laundering in Foreign Bribery Scheme

DOJ Press Release, Shipping Firm Sentenced to Pay $10 Million for Causing Cosco Busan Oil Spill and Coverup

Paul Egan, Detroit News, Federal case builds against Kilpatrick, father

(esp)

Memorial Site for Jack T. Litman z"l

Benjamin and Sacha Litman have created a wonderful memorial website for Jack T. Litman here. 

(esp) (see background here)

White Collar Crime - Up and Down

Trac Reporting here is saying that white collar crime prosecutions for November 2009 show a decrease of 25.0% from the prior month.  But on the other hand, when compared with a year ago, it is up 6.6 % and the percent change from 5 years ago is 18.6. (including magistrate court). The most telling increase is seen in the number of convictions.  Matched with 5 years ago, it is up 24.9% (see here). But again, these statistics need to be examined carefully. (see here and here), especially with regard to how the term "white collar crime" is defined.

(esp) (w/ disclosure that she is a B.S. graduate of Syracuse U.- home of the Trac Reports). 

In the News & Around the Blogosphere

AP, Washington Post,Bernard Kerik sentenced to four years in prison

DOJ Press Release, Five Who Targeted Homeowners in Default Sentenced to Federal Prison in $13 Million Mortgage Fraud Case

DOJ Press Release, Long Beach Man Pleads Guilty in $33 Million Ponzi That Lured Investors With Promises of Profits in Real Estate

Amir Efratt, WSJ Blog,Should Prosecutors Go After Imprisoned Adelphia Fraudsters?

Joseph DiBenedetto, Forbes, White-Collar Defendants Pay For Predecessors' Crimes

(esp)

Scholarship - Sentencing

A  Note by Duke law student Derick R. Vollrath presents an important view on white collar sentencing. The Note titled, Losing the Loss Calculation: Toward a More Just Sentencing Regime in White-Collar Criminal Cases, states in the abstract that "[m]oreover, the loss calculation fails to adequately approximate a defendant’s culpability, dwarfing traditionally relevant considerations such as the manner in which the defendant committed the crime and the defendant’s motive for doing so."

(esp)

Upcoming Conferences

24th Annual National Institute on White Collar Crime, Miami Beach, February 24-26 here

19th Annual National Seminar on the Federal Sentencing Guidelines, May 12-14, St. Petersburg, Florida here

(esp)

In the News & Around the Blogosphere

DOJ Press Release, Italian Subsidiary of U.S.-Based Company Agrees to Plead Guilty for Participating in International Price-Fixing Conspiracy

Solomon Weisenberg, Letter of Apology, Not Guilty! Leonard Lawson and Bill Nighbert Acquitted in Kentucky Federal Court

Mark Fass, NYLJ, law.com,In Rationale for Acquitting Attorney, Judge Says Proof of Role in Witness Intimidation Fell Short

Grits for Breakfast, Texas State Rep Pleads Guilty here

Mike Robinson, AP, law.com,Blagojevich Pleads Not Guilty to Revised Federal Corruption Charges

Larry Neumeister, AP, law.com, Bail Set at $10 Million for Madoff's Former Finance Chief

Sidhartha Banerjee, Canadian Press, Earl Jones gets 11-year sentence for orchestrating massive fraud scheme

Editorial, NYTimes, A Blue-Ribbon Look at Criminal Justice (endorsing the Webb Commission) (hat tip to Ted Gest)

NYTimes, Dealbook, Tax Evasion Case Draws in Another Bank

Beck Vass, New Zealand Herald, Major frauds hit $98m - but worst is yet to come

(esp)

New Scholarship

Here are some new articles that have recently been posted on SSRN:

William Black, The Disastrous Unexpected Consequences of Private Compensation Reforms - Testimony to the House Committee on Oversight and Government Reform Hearing: 'Executive Compensation: How Much is Too Much?'

Maurice E. Stucke,  Am I a Price-Fixer? A Behavioral Economics Analysis of Cartels

Elgie McFayden, Jr., Global Implications of White Collar Crime

Carlos Gomez-Jara, Corporate Criminal Liability in the 21st Century: Are All Corporations Equally Capable of Wrongdoing?

Don M. Chance & Ashley Schexnaildre, Consecutive Identical Returns and the Stanford Group Scandal

David M. Uhlmann, Environmental Crime Comes of Age: The Evolution of Criminal Enforcement in the Environmental Regulatory Scheme

(esp)

University of Texas Symposium - White Collar Crime

The University of Texas, The Review of Litigation's Symposium this year was devoted to white collar crime.  Titled,  White Collar Crime and the Changing Corporate Environment, Chief Symposium Editor Heather Mahurin and staff did an incredible job of bringing together top practitioners and a judge to examine the evolution of white collar crime and factors affecting this area. The event was sponsored by the law firm of Vinson & Elkins.  I had the pleasure of being the first speaker and providing an evolution of white collar crime.

The first panel of Tim McCormick (Thompson & Knight) and Carl Wessel (DLA Piper) looked at internal investigations and when one should seek outside counsel. It was not surprising to hear them mention the recent FCPA investigations, noting that the pharmaceutical area seems to also be part of the recent DOJ focus. Tim McCormick also talked about the concerns that get raised with Upjohn warnings.

A second panel looked at white collar crime prosecutions and it was appreciated that the Hon. Jennifer Coffman, Chief Judge of the Eastern District - Kentucky offered a judicial perspective.  Along with Kent Schaffer (Bires and Schaffer), there was a good bit provided on how emails were affecting the landscape of white collar cases. Mr. Shaffer noted how "people put things in emails that are shocking."  Telling "the story" to the jury is important, as is humanizing one's client. The participants on this panel also provided wonderful information on dealing with experts in white collar cases. The expert needs to be "not too academic" and "clear."

A final panel was focusing on  parallel proceedings and included top individuals like Solomon Wisenberg (Barnes & Thornburg).   It will be good to see the published works from this important symposium.  

(esp)

Anticipate More Health Care Fraud Cases

In a recent speech by AG Holder he recapped this year's health care fraud prosecutions and predicted that more would be coming. (see press release) Holder was speaking at the National Summit on Health Care Fraud.  He said that:

"last year brought record levels of achievement in our fight against health care fraud. In 2009, the Justice Department reached an all-time high in the number of health care fraud defendants charged, more than 800. We also obtained more than 580 convictions. And on the civil enforcement front, our health care fraud recoveries last year under the False Claims Act exceeded a stunning $2.2 billion dollars."

He spoke of five things that would be happening to combat health care fraud.  One of them was:

"we must strengthen HEAT. We will continue to combine and leverage our agencies’ resources and expertise, including the FBI and the Office of Inspector General at HHS, to prevent and prosecute fraud. HEAT will continue to work closely with local U.S. Attorneys Offices to pursue both civil and criminal cases. And in bringing these fraudsters to justice, we will use the power of the Internet and the media to inform the public and the health care industry about how to prevent future fraud schemes."

And just looking at this past month, one finds the emphasis on health care matters.  See DOJ Press Release,  Former Los Angeles Medical Center Owners Agree to $10 Million Consent Judgment for Medicare and Medi-Cal Fraud Scheme; DOJ Press Release, Jury Convicts Detroit Area Doctor of Health Care Fraud Conspiracy

(esp)

DOJ Proactive Approach in Intellectual Property

DOJ is taking a pro-active approach in fighting intellectual property crimes.  AG Holder announced in a press release "the formation of a new Department of Justice Task Force on Intellectual Property as part of a Department-wide initiative to confront the growing number of domestic and international intellectual property (IP) crimes."

(esp)

Former Wilbros Execs

Two former executives of Wilbros were sentenced with one receiving 15 months and the other 12 months. The case arose under the FCPA (see DOJ Press Release here) and involved alleged bribes in Nigeria.  These two individuals plead to one conspiracy count but had guidelines exposure higher than the amount given to them. Most likely substantial assistance proved important to these former executives. Mark Weinhardt represented one of the individuals in this case.

See also Jesse Sunenblick, Main Justice, Former Willbros Executives Sentenced for Nigeria Bribery Scheme; Mary Flood, Houston Chronicle, Former Willbros executives get prison in bribery case; FCPA Blog,  Prison for Ex-Willbros Execs

(esp)