White Collar Crime Prof Blog

New Scholarship

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

Elizabeth R. Sheyn, The Humanization of the Corporate Entity: Changing Views of Corporate Criminal Liability in the Wake of Citizens United

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

(esp)

Farkas Indictment

GUEST BLOGGER-SOLOMON L. WISENBERG

Here is the Lee Bentley Farkas Indictment, unsealed this week in the EDVA. Farkas is charged with conspiracy, bank fraud, wire fraud, and securities fraud. I'm surprised they didn't throw in dancing with a mailman or impersonating Smoky the Bear. The government alleged securities fraud under 18 U.S.C. Section 1348, which, surprisingly, has seen very limited use since it was enacted as part of Sarbanes-Oxley. It will be interesting to see if this is part of a new trend. There are three securities fraud counts (Counts 14-16) based upon three separate reports (10-K, 8-K, and 10-Q) filed with the SEC, each one charged as an execution of the securities fraud scheme.

(slw)

Operation Stolen Dreams - Mortgage Fraud Prosecutions

The catchy title for this latest government initiative was announced today as a "nationwide takedown" and "the largest collective enforcement effort ever brought to bear in confronting mortgage fraud." (see press release here) The press release states:

"Starting on March 1, to date Operation Stolen Dreams has involved 1,215 criminal defendants nationwide, including 485 arrests, who are allegedly responsible for more than $2.3 billion in losses. Additionally, to date the operation has resulted in 191 civil enforcement actions which have resulted in the recovery of more than $147 million."

(esp)

In the News & Around the Blogosphere

Nathan Vardi, Forbes,How Federal Crackdown on Bribery Hurts Business And Enriches Insiders

Amanda Bronstad, NLJ, Former chief of KB Home argues that conviction should be tossed

Amy Miller, law.com, SEC Suspends Former McKesson General Counsel

Mark Hamblett, law.com,Perjury Charge Is Focus of Debate Over Lynne Stewart Resentencing

Jim Puzzanghera and E. Scott Reckard, Los Angeles Times, Former mortgage firm executive accused of fraud;  Mike Scarcella, BLT Blog, Mortgage Executive Charged in $1.9 Billion Fraud Scheme; DOJ Press Release,  Former Chairman of Taylor, Bean & Whitaker Indicted for His Role in a More Than $1.9 Billion Fraud Scheme That Contributed to the Failure of Colonial Bank

(esp)

Ninth Circuit Affirms Brokers' Duty To Disclose Material Commissions

GUEST BLOGGER-SOLOMON L. WISENBERG

Last week, in a significant decision construing SEC Rule 10b-5 in the context of criminal prosecutions, the Ninth Circuit held that "if a broker and a client have a trust relationship...then the broker has an obligation to disclose all facts material to that relationship." The case is United States v. Laurienti and can be accessed here. Laurienti involved a pump and dump scheme in which brokers failed to disclose commissions they received equal to 5% of the purchase price of certain "house stocks" sold to clients. The defendant brokers argued that they had no legal duty whatsoever to disclose the 5% commissions to their clients. The Ninth Circuit disagreed, and noted that the 5% commissions were clearly material under the facts developed at trial, since "every former client who testified said that he or she would not have bought the house stocks had he or she known about the bonus commissions." The case was brought under all three subsections of Rule 10b-5. The Court noted in dictum that "[u]nder subsection (b) of Rule 10b-5, even in the absence of a trust relationship, a broker cannot affirmatively tell a misleading half-truth about a material fact to a potential investor." The Court also held that the defendants could have been found guilty of conspiracy in the pump and dump scheme even if the disclosure of bonus commissions had not been required by law, because "a reasonable juror...could have concluded that Defendants intentionally acted contrary to the interests of their clients by pushing house stocks as part of a fraudulent scheme to line Defendants' pockets without regard for the interest of their clients." The undisclosed bonus commissions were "circumstantial evidence of Defendants' agreement to join the conspiracy." The Court relied heavily on the Supreme Court's opinion in Chiarella v. United States, and on Second Circuit precedent, in reaching its decision.

(slw)

In the News & Around the Blogosphere

Zachary A. Goldfarb, Wash Post, SEC is hiring more experts to assess complex financial systems

Mike McKee, law.com, 9th Circuit Backs Barry Bonds in Perjury Case

John Pacenti, Daily Business Review, law.com, Rothstein Gets 50-Year Sentence for $1.2 Billion Ponzi Scheme

Eliane Engeler, law.com, (AP), Swiss Parliament Approves Tax Deal With U.S. in UBS Dispute

Chicago Tribune, Blagojevich on Trial (running blog on the trial)

Houston Chronicle (AP), Dallas City Hall corruption figure sentenced

Megan O'Matz, Sun Sentinel, Records sought in Broward schools corruption investigation

DOJ Press Release, Acting Deputy Attorney General Gary G. Grindler Speaks at the National Association of Attorneys General Summer Meeting (sounds like health care fraud and financial fraud are included at the top of the priorities list)

Amanda Bronstad, NLJ, 9th Circuit reinstates criminal charges against Pierce O'Donnell

Jenna Greene, NLJ, Imprisoned ex-Mayer Brown partner settles SEC charges

NYTimes, AP,3 Years in Prison for an Ex-Official

Opinion, NYTimes, Can the U.S. Punish BP’s Shareholders?  (inlcudes pieces by Professor Lynn A. Stout, William K. Black, and J.W. Verret)

(esp)

Mass State Court Rejects Collective Knowledge

In determining the mens rea under corporate criminal liability, federal courts have sometimes used a theory of "collective knowledge." In U.S. v. Bank of New England, 821 F.2d 844 (1st Cir. 1987), the court found that the knowledge of a corporation "is the sum of the knowledge of all of the employees." This appears not to be the case in Massachusetts state court, which held in Commonwealth v. Life Care Centers of America, Inc., 926 N.E.2d 206 (2010), that "this theory is illogical and such an argument cannot succeed.  If at least one employee did not act wantonly or recklessly, then the corporation cannot be held to a higher standard of culpability by combining various employees' acts."  The court notes several federal cases that have not endorsed collective knowledge, and also notes that this case is different from the Bank of New England case because it does not involve a Federal regulatory offense. In this case the crime charged was involuntary manslaughter, which the court noted "requires an act taken in disregard of a high probability of harm to others so that the act is wanton or reckless."

(esp)(w/a hat tip to Professor Robert Batey)

BP Redux

Guest Blogger - Benson Weintraub

The daily images of oil soaked wildlife and soiled beaches—not to mention the loss of human life from British Petroleum’s Deepwater Horizon explosion on April 20, 2010—is a reminder that corporate crime can only be reduced by a change in corporate culture. However, BP failed to heed this organizational imperative.

In United States v. BP Products of North America, Inc., 610 F.Supp.2d 655, 660 (S.D. TX. 2009),"BP Products North America, Inc. entered a plea of guilty to an information charging a felony violation of the federal Clean Air Act. The charge arises from the March 23, 2005 explosion at the Texas City, Texas plant that killed 15 and injured scores. The plea agreement stipulates the sentence: a $50 million fine and three years of probation with the conditions that BP Products comply with a Settlement Agreement reached with the Occupational Safety and Health Administration ("OSHA") and an Agreed Order imposed by the Texas Commission on Environmental Quality ("TCEQ")."). BP also paid more than $1 billion in restitution.　

The 74 page decision addresses restitution, corporate fines, Apprendi, and claims under the CVRA.

DOJ has now commenced a criminal investigation of BP’s handling of the 2010 explosion and events leading up to it.

Be assured that one focus of BP’s counsel is on application of the Corporate Sentencing Guidelines and the firm’s prior criminal history. One point would be assessed under USSG §8C2.5(c)(1) because the instant offense was committed by "the organization (or separately managed line of businesses)" after a "criminal adjudication based on similar misconduct" within the past 10 years. Id.

Before the threat of receivership takes hold, BP’s lawyers would be well-advised to get ahead of this problem by enforcing their compliance programs and making voluntary disclosures rather than obstructive comments.

(bw)

Skilling Magazine Article - Well Worth the Time to Read

With no ruling on the Jeffrey Skilling case today, you might have time to read what Dr. Archelle Georgiou has written in CNN Money - Fortune titled, Skilling speaks: Enron CEO's jailhouse interview.

(esp)

No Supreme Court Opinions on Mail Fraud Today

Many anxiously await the trilogy of cases pending on section 1346.  But today will not be the day.

(esp)(back in Gulfport, Florida)