Tuesday, June 29, 2010
In today's Supreme Court Order, we see the first wave of cases being affected by the Skilling decision. The Court granted the Petitions for Writ of Certiorari in the following cases, and remanded them to the circuits listed below for reconsideration in light of the Skilling decision. This does not mean that the cases will automatically be dismissed, but it does open each of them to review in light of the fact that section 1346 only includes bribery and kickbacks.
Richard Scrushy v.United States; Don E. Siegelman v. United States - remanded to the Eleventh Circuit
Jack L. Hargrove v. United States - remanded to the Seventh Circuit (same Circuit as the Conrad Black case)
Imad S. Hereimi v. United States - remanded to the Ninth Circuit
Paula Harris v. United States - remanded to the Ninth Circuit
Mustafa Redzic v. United States - remanded to the Eighth Circuit
GUEST BLOGGER-SOLOMON L. WISENBERG
Attached is SDNY U.S. District Judge John G. Koeltl's Opinion and Order in SEC v. Jon-Paul Rorech and Renato Negrin, issued last Thursday. With the exception of Koeltl's ruling that the VNU credit default swaps at issue are covered under Section 10(b) of the Exchange Act and Rule 10b-5, the holding was a total defeat for the SEC. For those not wanting to read the entire 122-page opinion, here is the SEC v. Rorech-Introduction and Conclusions of Law portion.
The case centered around Negrin's purchase of VNU credit default swaps from Deutsche Bank's high-yield bond salesman Rorech. Negrin was a portfolio manager for Millennium Partners hedge fund. The case was brought under the misappropriation theory of insider trading. The SEC alleged that Rorech misappropriated confidential information from his employer Deutsche Bank and provided it, during two cell phone calls, to Negrin. The allegedly confidential information was that VNU, a Dutch media holding company, was going to restructure a bond offering and that another Deutsche Bank customer had placed a $100 million indication of interest in such an offering. The restructured bond offering would provide "deliverable instruments" for VNU credit default swaps that were being traded at the time.
Judge Koeltl concluded that:
1. The inside information about the restructured bond offering did not yet exist when Rorech allegedly passed it to Negrin.
2. The information that Rorech did possess at the time of the calls was not material. Rorech's knowledge about a potential restructuring of the bond offering was speculative in nature and already widely shared in the marketplace. Rorech's knowledge regarding another customer's indication of interest was not materially different from information already in the market regarding substantial investor demand for deliverable VNU bonds, through a restructured bond offering.
3. Rorech did not breach any duty of confidentially owed to Deutsche Bank because Deutsche Bank did not consider Rorech's ideas or opinions or, any general information, about a possible VNU bond offer restructuring to be confidential. Rorech was expected by Deutsche Bank to share such information with prospective customers and this was standard practice in the high-yield bond market. The same went for sharing information regarding other customers' indications of interest.
4. Courts cannot infer that inside information was passed from phone calls followed by trading, without something more. Additionally, Negrin's trades were consistent with his past investment practices.
5. There was no evidence of scienter. Rorech and Negrin had no prior personal relationship, there was no quantifiable or direct personal benefit to Rorech from any tip, and there was no deception by Rorech of Deutsche Bank. (This lack of deception is also relevant to the "disclose or refrain from trade" principle of insider trading. Judge Koeltl found that Rorech had in fact disclosed his interactions with Negrin to Deutsche Bank supervisors.) Moreover, Negrin did nothing to hide his dealings with Deutsche Bank.
There is considerably more in the Opinion and Order. The decision is worth reading alone for Judge Koeltl's succinct recapitulation of governing Rule 10b-5 case law, and for his analysis of why the credit default swaps at issue here fall under the purview of Rule 10b-5. Rule 10b-5 often forms the basis of criminal securities fraud charges brought under the Exchange Act (through 15 U.S.C. Section 78ff), and the civil case law, although not identical to the criminal case law, can be highly relevant.
The facts were obviously important here. The SEC didn't have any.
As a result of the Skilling decision see here, here, here, here, and here, many questions are left for consideration by lower courts and perhaps Congress and the Supreme Court in future cases. What are some of these questions:
- Can Congress rewrite a statute that would pass constitutional muster? (but perhaps they should think twice about doing this - see here)
- Did the Court engage in interpretation or invention?
- What cases will require reversal as a result of the holding in Skilling (e.g., Will Governor Ryan's conviction stand?)
- Are there other available statutes to prosecute conflicts of interest and self-dealing?
- When does harmless error require a reversal of a case that alleged honest services?
- The Court in footnote 37 notes the disagreement of lower courts on whether one has to violate state law, is this now an irrelevant question?
- The Court limits "bribery and kickbacks" to the "core of the pre-McNally case law. What does this include?
- Does the Rule of Lenity only apply after the Court has made its interpretive (inventive) decision?
- The Court states that its definition only covers "serious culpable conduct." Does this mean that minor frauds cannot be prosecuted under the honest services provisions?
- Does the Court really set up a "uniform national standard" for honest services, and therefore can state law not be used to determine whether it is a bribery or kickback?
- If the Court says you use pre-McNally caselaw on bribery and kickbacks, how do you interpret conflicting opinions by lower courts?
- What does bribery mean? The Court references 201 (b) and not (c), so is bribery limited?
- In footnote 46 the Court refers to state and local corruption - but what statutes get included here?
- Has the Court redefined what constitutes vagueness for purposes of statutory interpretation?
- In adopting a position expressed by a law professor in an amicus brief, is the Court saying that law professors should focus on writing amici briefs and not law review articles?
Monday, June 28, 2010
David Glovin, Bloomberg, Reputations Don't Return When Prosecutors Drop Charges
Christopher M. Matthews, Main Justice,Terwilliger to Propose New Rules for FCPA Disclosures
Chloe Albanesius, PC Magazine, DOJ, FBI to Monitor Foreign Web Sites for IP Piracy
Mark H. Tuohey III Joins Brown Rudnick's Washington DC Office - see here
Geogrey Dunn, Huffington Post, Palin Guilty of Major Ethics Act Violation: Must Return $386,000 in Contributions
Sue Reisinger, Corporate Counsel, law.com, U.S. Government's FCPA Probe of Weatherford Expands
Keith L. Alexander, Wash Post, As Wone trial closes, judge questions defendants' reticence
Thursday, June 24, 2010
It was a Thanksgiving Day turkey carving by the Court, and they left a lot more meat on the bones then many imagined.
Will We See More Government Stretching? The Court says, "[a]s to arbitrary prosecutions, we perceive no significant risk that the honest-services statute, as we interpret it today, will be stretched out of shape." Gosh I hope they are correct. Based upon the DOJ's track record, that has not been the case. They started the ball rolling with intangible rights well before the Supreme Court knocked it out in 1987. And even when raised as an issue in these three cases, the government argued for more to be included in the statute's sphere.
Should Congress Rewrite the Statute? The Court said - ""The 'vast majority' of the honest-services cases involved offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes." - This should be a statement Congress should look at when and if the government takes up the Court's second invitation to rewrite the statute.
What happens now? We saw that after the McNally case crushed the government's intangible rights theory, many cases required interpretation to see if they deserved to be tossed, or whether they could survive the holding. In the next few weeks and months, we are likely to see a good number of these type of arguments being made.
Will DOJ learn from this? They have bribery, they have mail fraud and wire fraud with money or property, and they have section 666 for the state/local officials. The government has plenty of tools to prosecute crime. The question is whether they will be happy with what they have, or instead decide that they want to try for more.
(esp)(blogging from Lisbon, Portugal)
Check out the prior posts of Solomon Wisenberg here, here, and here, that include summary and links to the three decisions. Looking at Skilling specifically, here are some important items to note from the decision-
1. As discussed by Attorney Tim O'Toole in an NACDL press conference - the Court rejects the government's attempt to include a third category beyond bribery and kickbacks, that category being "undisclosed self-dealing by a public official or private employee."
2. The Court states - "The 'vast majority' of the honest-services cases involved offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes."
3. The Court states - "Reading the statute to proscribe a wider range of offensive conduct, we acknowledge, would raise the due process concerns underlying the vagueness doctrine."
4. Is it judicial legislating when the Court states in footnote 43 - "Apprised that a broader reading of §1346 could render the statute impermissibly vague, Congress, we believe, would have drawn the honest-services line, as we do now, at bribery and kickback schemes."
5.Footnote 45 - the Court tells Congress if it really wants to include "self-dealing" there needs to be a whole lot of questions examined first.
6. The Court says, "Its prohibition on bribes and kickbacks draws content not only from the pre-McNally case law, but also from federal statutes proscribing—and defining—similar crimes. See, e.g., 18 U. S. C. §§201(b), 666(a)(2); 41 U. S. C. §52(2)." John D. Cline noted in the NACDL Press Conference how the Court used section (b) of the bribery statute, but did not include (c) which is the gratuities section.
7. The Court says in footnote 46 that "[o]verlap with other federal statutes does not render s1346 superfluous." The Court then notes how section 201 only applies to federal public officials. What about section 666, a section they mentioned previously (see note above)
Concurring opinion of Scalia, Thomas and Kennedy -
1. They say - " in transforming the prohibition of honest services into a prohibition of 'bribery and kickbacks" it is wielding a power we long ago abjured: the power to define new federal crimes."
2. In speaking to the Court's allowing bribery and kickbacks to remain within the statute, the three justices state that "arriving at that conclusion requires not interpretation, but invention." They later remark - "the Court today adds to our functions the prescription of criminal law." They also state "that is a dish the Court cooked up all on its own."
(esp)(blogging from Lisbon, Portugal)
GUEST BLOGGER-SOLOMON L. WISENBERG
Here is a press release from the National Association of Criminal Defense Lawyers ("NACDL") containing NACDL President Cynthia Orr's comments on today's U.S. Supreme Court honest services opinions. Orr is “heartened that the Court has unambiguously rejected government arguments that the ‘honest services’ fraud statute can be properly used across as broad a range of conduct as the government has sought to do in recent years.” Nonetheless she is"disappointed that the Court has held that there remains a place in our criminal justice system for a statute on whose meaning few can agree.” (In various friend of the court briefs, NACDL has taken the position, now shared by Justices Scalia, Thomas, and Kennedy, that 18 U.S.C. Section 1346 is unconstitutionally vague.)
Orr expects “to see future litigation surrounding efforts by prosecutors to wedge their cases into the ‘bribe or kickback’ paradigm to which the Court has now limited this statute.” Of this we can be sure.
The NACDL press release also bemoans the portion of the Skilling opinion which "shockingly found that pre-trial publicity and community prejudice did not prevent Mr. Skilling from obtaining a fair trial. In fact, though, there has not been a more poisoned jury pool since the notorious first robbery and murder trial of Wilbert Rideau in Louisiana."
GUEST BLOGGER-SOLOMON L. WISENBERG
The breakdown is as follows. All nine justices agree that the judgments in the three honest services fraud cases must be vacated and remanded. The majority rules that Section 1346 honest services fraud encompasses only bribery and kickback schemes, and would be unconstitutionally vague if interpreted more broadly. The majority opinion in Skilling (and Black) is written by Justice Ginsburg, who is joined by five other justices. Justice Scalia (joined by Justices Thomas and Kennedy) concurs, but would simply hold Section 1346 unconstitutionally vague under the Due Process Clause and would not seek to salvage it through a narrowing interpretation.
The jury instructions in all of the cases allowed for conviction under the now-discredited broad view of honest services. The lower courts must decide whether the instructional errors were harmless.
Jefffrey Skilling's fair trial arguments were rejected 6-3, with Justice Sotomayor, joined by Justices Stevens and Breyer, dissenting.
Conrad Black and co-defendants properly preserved their objections to the jury charge.
All of this is based on my quick skim. More detailed analysis will come later.
Weyhrauch Honest Services Judgment Vacated and Case Remanded to Ninth Circuit for Further Consideration in Light of Skilling Decision
Here is the slip opinion. More to come. The decision was 9-0 to vacate and remand for harmless error analysis re honest services jury instructions. Scalia (joined by Thomas) and Kennedy concur, and would hold Section 1346 unconstitutionally vague. Defendants properly preserved error on jury instructions.
GUEST BLOGGER-SOLOMON L. WISENBERG
Here is the slip opinion. According to the Court's syllabus, Section 1346 is not unconstitutionally vague, but only proscribes the "bribe-and-kickback core of the pre-McNally case law." More to come.
Wednesday, June 23, 2010
GUEST BLOGGER-SOLOMON L. WISENBERG
Here is the SDNY's press release regarding the civil forfeiture complaints filed yesterday against property "traceable" to Bernard Madoff's Ponzi scheme "and paid to or on behalf of" former Bernard L. Madoff Investment Securities LLC ("BLMIS") employees, Annette Bongiorno and Joann Crupi. Here is the Bongiorno-related complaint and here is the Crupi-related complaint.
It is clear from the complaints that the government believes Bongiorno and Crupi were knowing participants in Madoff's fraud. They each allegedly "knowingly perpetuated the fraud" by, among other things, overseeing, preparing, or assisting in the preparation of fabricated account statements and other documents.
By proceeding civilly against the properties at this time, the government lowers its burden of proof and puts the longtime, back-office BLMIS employees in the unenviable position of possibly incriminating themselves if they seek to retain their assets through the in rem forfeiture litigation. Hat tip to forfeiture expert David B. Smith of English and Smith for pointing out to me that invocation of the Fifth Amendment in the context of a civil forfeiture proceeding may not automatically result in the drawing of an adverse interest.
Tuesday, June 22, 2010
Some cases continue - like Jim Brown of the Enron Barge Case. The latest is that Hon. Werlein denied the defense Speedy Trial Act Motion. (Download Memorandum & Order 61510 Dkt. 1208) The defense had claimed that "[s]ince August 13, 2009, the government has failed to take even a first step to bring Brown to trial."
This case also includes claims of discovery violations on the part of the Enron Task Force, with the defense arguing that "[a]fter Brown's trial and appeal, a new prosecutor finally produced the government's notes of multiple conversations with Fastow, the grand jury testimony of Merrill counsel, and other Brady material -all which proves Brown's innocence on all charges." (Download SuppMtnNewTRIAL.Dkt.1160).
Discovery violations have been prominent issues in several recent cases (see here) including the prosecution of former Senator Ted Stevens. Most recently, DOJ issued new guidelines pertaining to discovery practices in the DOJ (see here). With strong claims of discovery violations and prosecutorial selectivity in the Brown case, one has to wonder if DOJ will re-examine what has transpired in this case.
Doug Berman, Sentencning Law & Policy, You make the sentencing call: resentencing of Qwest's Nacchio on tap for this week
Voiceof America, Nigeria Launches Corruption Investigation into House Leadership
DOJ Press Release, Puerto Rico Senator and Businessman Charged in Bribery Scheme
FCPA Professor, Honest Services Fraud and the FCPA
Phil Jacobs, JewishTimes.com, Abramoff To Work At Tov Pizza
Mike Scarcella, BLT Blog, Rubashkin Lawyers to Challenge 27-Year Sentence in Fraud Case
Marcy Gordon, law.com, SEC Accuses Money Manager of Fraud Tied to Housing Bust
Monday, June 21, 2010
The Hon. Linda R. Reade issued a sentencing memorandumin the case of Sholom Rubashkin who is scheduled to be sentenced tomorrow. The case arose from a raid of his plant for alleged illegal aliens. The grand jury issued a 163 count Indictment against the defendant that charged him with conspiracy to harbor undocumented aliens for profit, harboring and aiding and abetting the harboring of undocumented aliens for profit, conspiracy to commit document fraud, aiding and abetting document fraud, bank fraud, false statements and reports to a bank, wire fraud, mail fraud, money laundering and willful violation of an order of the secretary of agriculture and aiding and abetting willful violation of an order of the secretary of agriculture.(see here for prior discussion of sentencing), He took the risk of going to trial and the jury returned some not guilty verdicts, but also many guilty ones. Interestingly, in state court he also risked trial and was found not guilty there. (see here) The government moved to dismiss the immigration counts. The court's Sentencing Memo methodically goes through the arithmetic of how the sentence was computed. The court fails to adjust the sentence to account for the defendant's son being "developmentally disabled" saying "such considerations of sympathy and compassion are present in all criminal cases that come before this court."
For those who claim that Booker and its progeny will be the demise of long sentences in white collar cases, they need only read this memorandum to see otherwise.
See also Grant Schulte, Des Moines Register, Rubashkin’s wife to leave Postville; Michael J. Crumb, Baltimore Sun, Judge: Former Iowa kosher slaughterhouse manager will get 27 years in prison, pay $27M; Doug Berman, Sentencing Law & Policy Blog, Kosher plant CEO Sholom Rubashkin sentenced to 27 years imprisonment
Three Miami police officers were found not guilty after a trial by jury on charges of conspiracy to make false statements, perjury and obstruction of justice. One of the individuals was represented by Attorney Richard Sharpstein.
See also David Oscar Markus, Southern District of Florida Blog, NGs for the cops on trial before Judge Middlebrooks; David Ovalle, Miami Herald, Federal Jury Acquits Miami-Dade Cops of Perjury in Weapons case
The Supreme Court continues to hold us in suspense with no honest services cases issued today. The next day for opinions will be this Thursday, and then the following Monday unless the Court adds other days. Stay tuned.
Sunday, June 20, 2010
Mike Scarcella, BLT Blog, DOJ Wants Indictment Reinstated in Blackwater Manslaughter Case
USA Today, Hartford Mayor Eddie Perez resigns after corruption conviction; Jenna Carlesso, Courant.com, Perez Expected To Resign After Conviction; Washington Post, (AP), Jury finds mayor of Hartford, Conn., guilty of corruption
Mike Scarcella, BLT Blog, Ted Stevens' Lawyers Criticize DOJ Discovery Guidance
Steve Hargreaves, CNN Money, Jail time for BP CEO? (Hat tip to Tiffany M. Joslyn)
Peter Jackson, AP, Pa. ex-lawmaker gets 6 to 14 years for corruption
Martha Neil, ABA Journal, Real Estate Attorney Indicted re $1.5M in Personal Loans His Lawyer Says Are Paid-Up (Hat tip to Ivan Dominguez)
Analysis Group, Webcast: White Collar Criminal and SEC Cases - New Issues and Challenges, June 23
NACDL,6th Annual 'Defending White Collar Cases: In & Out of Court' -Sponsored by NACDL & Fordham Law School's Stein Center for Law and Ethics, New York, NY, Sept. 30-Oct. 1st
Saturday, June 19, 2010
Robert W. Tarun, ABA Book Publishing, The Foreign Corrupt Practices Act: A Practical Guide for Multinational General Counsel and White Collar Criminal Practitioners
Stuart Green,Thieving and Receiving: (Over)Criminalizing the Possession of Stolen Property - New Criminal Law Review, Forthcoming
Samuel W. Buell, Good Faith and Law Evasion - UCLA Law Review Forthcoming
Edited - Timothy Lynch, In the Name of Justice: Leading Experts Reexamine the Classic Article "The Aims of the Criminal Law" (CATO Institute)
Grant Thornton LLP, CorporateGovernor white paper, Fraud in the economic recovery