Saturday, July 17, 2010
I was thinking last night about the criminal law implications of the Goldman-SEC settlement. The settlement only confirms what has been fairly apparent from the get-go--this was never a strong fraud case. The SEC extorted a nuisance payment from Goldman and simultaneously sent a signal to the markets that it is serious about its new proactive role.
If the SEC thought that it had a winner, it never would have settled on these terms. Goldman essentially pays 14 days in first quarter profits, admits to a mistake, and agrees to strengthen some aspects of its corporate governance. Goldman avoids lengthy, costly, profit-threatening, and Pandora's Box-opening litigation. And no big shots are forced to resign. When you have to caution your employees not to whoop, holler and smirk in the wake of such a settlement, you know you have made a good deal.
Oh yeah. Goldman agrees to cooperate in the SEC's probe of Fabrice Tourre. All this means is that Goldman's people will come in and talk to SEC attorneys. Tourre has already done plenty of talking himself to Congress, in public and under oath. This was foolish, in my view, for somebody in his position. But it is unlikely that any prosecutor will go after Tourre alone. Goldman was a market-maker here, the parties were sophisticated, and Tourre was hardly off the reservation. Some player's misunderstanding of John Paulson's position, even if caused by a Goldman mistake, is not the same thing as an intentional effort to deceive and defraud.
A key early sign that this was not going to be some slam-dunk fraud action was the SEC's press conference statement, on the day it filed suit, effectively clearing Paulson & Co. of wrongdoing. The SEC, unlike private litigants, can sue, under Rule 10b-5, based on aider and abettor liability. According to the public record, Paulson & Co. took part in several key discussions between Goldman and ACA Capital Management during the time period that the Abacus 2007-ACI CDO deal was being structured. If the SEC seriously believed that big-time fraud was afoot in the Abacus 2007-ACI CDO transaction, it is hard to believe that Paulson & Co. would have been treated in this fashion. If I were a government attorney and thought I had the fraud of the century on my hands, I would want to rope in every potential aider and abettor, and would think very carefully before giving a significant player in an allegedly fraudulent transaction a publicly announced clean bill of health. This is not to say that Paulson & Co. engaged in any wrongdoing. It is instead to suggest exactly the opposite.
So, I do not expect any criminal cases to come out of Abacus 2007-ACI. Of course I have been wrong before. In 1972 I thought McGovern would kick Nixon's ass. But here I will go out on the limb.
Friday, July 16, 2010
As noted here, the 11th Circuit affirmed the lower court's decision in the Snipes case. The unanimous decision authored by Circuit Judge Marcus did not find error in the sentencing, jury instructions, or venue issues raised by Snipes. Snipes had been found guilty after a trial by jury of three misdemeanor offenses and had been acquitted of conspiracy and false claim charges. He also was acquitted on failure to file charges premised on the years 2002, 2003, and 2004. The district court sentenced Snipes to 36 months, which was "comprised of three one-year terms for the failure-to-file convictions, to be served consecutively," followed by additional terms.
Noteworthy in this decision is the court's discussion on the change of venue issue. Snipes's attorneys challenged venue "alleging that the government had chosen Ocala County, Florida, for trial for racially discriminatory reasons." Of particular interest is that the district court granted Snipe's request for a jury instruction on venue and "instructed the jury that the government must prove venue -- the district of Snipe's legal residence -- by a preponderance of the evidence, and that the jury must acquit Snipes if the government had not met its burden." But Snipes was not given the pretrial hearing he wanted on the venue issue and he argued on appeal that "a pretrial hearing was necessary because a defendant cannot be forced to cede his Fifth Amendment right against self-incrimination in order to enforce his right to testify about venue at trial." This argument has worked for some defendants with respect to the Fourth Amendment. The Eleventh Circuit held that Snipe's "Sixth Amendment rights were not impaired in this case." The court stated:
"Snipes had a constitutional right to have venue decided by the jury. It did just that. Both parties presented evidence on venue at trial in great detail. Moreover, the district court fully instructed the jury that venue is an element of the offense and that Snipes must be acquitted if the government failed to establish venue by a preponderance of the evidence."
This could well be an issue that progresses to a higher court. If one is arguing improper venue and saying that the venue was selected for "racially discriminatory reasons," should the jury in that locale decide the issue of venue? Can the accused be placed in the situation of choosing between presenting evidence contrary to the venue and having to forgo rights against self-incrimination? (see background here) Venue motion timing issues may cloud this being the case for determination of these questions. But it is interesting to note that the decision includes no mention of the makeup of the venire or jury.
In addition to all the questions raised by this decision, the case may well be examined because of new evidence. (see here) Stay tuned.
The Eleventh Circuit issued an opinion in the Wesley Snipes case (background here and here) denying defendant's arguments with respect to sentencing, jury instructions, and venue. Snipes had been convicted of three misdemeanor counts of willful failure to file federal income tax returns for three years in violation of 26 U.S.C. s 7203. Commentary forthcoming.
Opinion - Download 11Op071610
A DOJ Press Release reports that "[n]inety-four people have been charged for their alleged participation in schemes to collectively submit more than $251 million in false claims to the Medicare program in the continuing operation of the Medicare Fraud Strike Force in Miami; Baton Rouge, La.; Brooklyn, N.Y.; Detroit and Houston. It is noted that this "is the largest federal health care fraud takedown since Medicare Fraud Strike Force operations began in 2007."
Thursday, July 15, 2010
The SEC website is calling this the "largest-ever penalty paid by a Wall Street firm." (see here) This record penalty of $550 million and agreement to "reform its business practices" will likely be the talk of Wall Street. The SEC Press Release notes that the acknowledgment, "in the settlement papers" by Goldman, is to providing incomplete information. That being:
"Goldman acknowledges that the marketing materials for the ABACUS 2007-AC1 transaction contained incomplete information. In particular, it was a mistake for the Goldman marketing materials to state that the reference portfolio was "selected by" ACA Management LLC without disclosing the role of Paulson & Co. Inc. in the portfolio selection process and that Paulson's economic interests were adverse to CDO investors. Goldman regrets that the marketing materials did not contain that disclosure."
But it is also noted that "Goldman agreed to settle the SEC's charges without admitting or denying the allegations by consenting to the entry of a final judgment that provides for a permanent injunction from violations of the antifraud provisions of the Securities Act of 1933." Not all the money will go to the U.S. treasury as the settlement provides that "$250 million would be returned to harmed investors through a Fair Fund distribution." The settlement is subject to court approval,
The final judgment calls for the company to "expand the role of its Firmwide Capital Committee" in certain respects, and it also calls for some internal legal and compliance measures, and education and training. If you take a position in the mortgage securities offerings it sounds like you will be going through a "training program that includes, among other matters, instruction on the disclosure requirements under the Federal securities laws and that specifically addresses the application of those requirements to offerings of mortgage securities."
Tuesday, July 13, 2010
July 14, 2010- ABA/NACDL Program - The Supreme Court Rules on Honest Services, 4 p.m. - 6 p.m. EDT-American Bar Association, 740 15th Street, N.W., Washington, D.C., John Marshal Conference Room, 9th FL - Wine and light fare will be served. Please RSVP to email@example.com if you plan on attending.
Sept 30- Oct.1, 2010 -6th Annual Defending the White Collar Case Seminar - NACDL and the Louis Stein Center for Law & Ethics at Fordham University Law School
Monday, July 12, 2010
The Bureau of Justice Statistics Website, in a Report authored by Katrina Baum and Lynn Langton, is reporting that 2007 statistics show that identity theft is increasing. Specifically they note that "[t]he number of households with at least one member who experienced one or more types of identity theft increased 23% from 2005 to 2007." One can only imagine what the figures will show for 2010.
(esp) (w/ a hat tip to Ted Gest)
Cindy Chang, The Times-Picayune, Supreme Court's 'honest services' ruling could affect local public corruption cases
Lynnley Browning, NYTimes, U.S. Widens Tax Inquiry Into HSBC
Zachary A. Goldfarb, Wash Post, SEC Chairman Mary Schapiro considers overhauling rules to help investors
Nate Raymond, law.com, NYLJ, N.Y. Firm Sued for Advising Clients to Invest in Ponzi Scheme
ModernHeathcare.com,Urciuoli attorneys move to leverage recent high court ruling
Voiceof America News, China Issues New Anti-Corruption Regulations
Vicki Needhman, The Hill, Former Renzi associate guilty on conspiracy, embezzlement charges (hat tip to Ivan Dominguez)
AOLNews, Hundreds of Federal Agents Fall Victim to Ponzi Scheme (hat tip to Ivan Dominguez)
Mark Hamblett, NYLJ, law.com, 2nd Circuit Panel Probes Ruling on Wiretap Discovery in SEC Case
Noeleen G. Walder, law.com, NYLJ, Former Executives' Convictions Upset Over AG's Failure to Turn Over Documents to Defense