October 7, 2010
Harvard Law and Policy Review - Online Jrl - Miranda
With more and more white collar cases experiencing issues that normally would come up in street crime cases, it becomes important to see what is happening with topics such as Miranda. So check out the Harvard Law & Policy Review - Online Jrl article, Death by a Thousand Cuts: Miranda and the Supreme Court’s 2009-10 Term by Anthony J. Franze.
The Post-Skilling Battle That Could Decide the War
We’ve all memorized Skilling’s core holding: 18 U.S.C. § 1346 (“honest-services fraud”) criminalizes only “bribe or kickback schemes” that violate a “fiduciary duty.” Prosecutors and criminal defense attorneys are now fighting over questions like: What kind of “fiduciary duty” is required—one created by state or federal law, contract, or simply a relationship of trust? What’s the definition of “bribe or kickback”—a quid pro quo or something less? Though these are important issues, regardless their outcome Skilling will remain a significant victory for the criminal defense bar.
But a more dangerous battle is being fought in the Northern District of New York in United States v. Queri. This battle could decide the war—if the government wins, Skilling may end up meaning next to nothing.
In Quire the government has taken the position that Skilling-barred honest services theories (e.g., undisclosed self dealing or conflicts of interest) are viable traditional money and propertyfraud theories under §§ 1341 and 1343. The government reasons that such nondisclosures deprive others of an intangible property right to information that “could impact financial decisions” or cause a “change in business conduct.”
If the criminal defense bar is to successfully respond, it must understand Skilling at a deeper level than “honest-services fraud prosecutions require a bribe or kickback scheme.” At a minimum, it must be made clear (to lower courts) that:
- Skilling must mean something. And the government’s approach in Queri renders Skilling meaningless. An employer may always claim that disclosure of a conflict or self dealing would have caused it to “change its business conduct.” It would have investigated, demoted, suspended, terminated the employee or avoided a deal altogether if tainted by “misconduct.”
- It is not just unlikely, but unthinkable that in Skilling’s 3 opinions and 60 pages, 9 Justices failed to mention that the case actually was a waste of time because the honest-services fraud theories at issue were viable intangible property rights theories. Their silence does not leave the questions open—there was no reason to address this issue because the government asserted in extensive briefing that § 1346 was a crucial enforcement tool that catches many schemes that fall through the cracks of §§ 1341 and 1343. The government certainly did not take the position that the very same theories at issue in Skilling also passed scrutiny under §§ 1341 and 1343. A wise decision considering that § 1346 is a definitional statute (not a separate crime) expanding the universe of actionable schemes under the mail and wire fraud statutes.
- Finally, and perhaps most importantly, morphing Skilling-barred honest-services fraud theories into traditional money and property fraud theories does not avoid the constitutional problems Skillingsought to remedy: wishy-washy theories based on undisclosed self dealing and conflicts of interest are too “amorphous” to provide fair notice to criminal defendants. Removing the “right to honest services” label and replacing it with “intangible property right to information” is constitutionally insignificant. Such repackaging also ignores the federalism concerns that run throughout Skilling and earlier decisions like McNally and Cleveland.
In sum, we must understand and explain that Skilling has meaning outside the honest-services fraud context. If we fail, we will have snatched defeat from the jaws of victory.
 The facts in the Quire—employees received side payments from those doing business with the employer and didn’t tell anyone—demonstrate that Skilling’s “bribe or kickback scheme” requirement appears to have teeth. The government dropped its honest-services theory after Skilling and opted for more clever traditional money and property theories that look a whole lot like honest-services theories, but require no true “bribe” or “kickback.”
October 6, 2010
In the News & Around the Blogosphere
David Gialanella, law.com, New Jersey Law Journal, Former Prosecutor Charged With Aiding False Confession
Mike Scarcella, BLT Blog, PMA Group Founder Pleads Guilty to Campaign Contribution Charges
Michael L. Volkov joins Mayer Brown
Geraldine Baum and Stuart Pfeifer, LATimes, Dozens charged in schemes to steal from bank accounts using computer viruses (hat tip to Ted Gest)
DOJ Press Release, ABB Ltd and Two Subsidiaries Resolve Foreign Corrupt Practices Act Investigation and Will Pay $19 Million in Criminal Penalties- Company to Pay More Than $58 Million in Criminal and Civil Penalties, Disgorgement and Interest
Daniel Wise, NYLJ, law.com, 2nd Circuit Upsets Order Requiring Wiretap Turnover in SEC Case Against Galleon
Julie Kay, Daily Business Review, law.com, Fla. Judge Quashes State Subpoena in Foreclosure Probe -State attorney general had hoped to discipline three attorneys
Lionel Laurent, Wash Post, French trader jailed, told to pay $6.7 billion (Hat Tip to Ivan Dominguez)
Jerry Mitchell, Jackson Clarion Ledger, Appeal by Minor declined - Former lawyer, ex-judges await resentencing
Stephanie Ebbert, Boston Globe, Congressman Tierney's wife convicted in federal tax fraud case
20th Annual National Seminar on the Federal Sentencing Guidelines - hold the date - May 4-6th - Buena Vista Palace Hotel & Spa in Orlando, Florida (more to come)
ABA Criminal Tax Fraud Conference, Dec. 2-3, 2010, San Francisco here
ABA, The Fourth Annual National Institute on Criminal Enforcement of Intellectual Property Rights, Nov. 5, 2010, San Francisco here
ABA, The Fifth Annual National Institute on Securities Fraud, October 7-8, New Orleans here
Strafford Webinars & Teleconferences - Foreign Corrupt Practices Act in Sub-Saharan Africa -Compliance Strategies Given the Region's Unique Cultural and Governmental Intricacies - Oct. 7, here
ABA 2010 Fall Conference, Third Annual Sentencing and Reentry Institute and Criminal Justice Legal Educators Colloquim, Nov. 5, Washington, D.C. here On November 4th there will be a White Collar Crime (WCC) Town Hall Meeting to discuss the latest developments in WCC practice.
ABA 3rd Annual National Institute on the Foreign Corrupt Practices Act, Oct. 21-22. Washington, D.C. here
October 5, 2010
A government investigation, especially one in the white collar sphere, is extremely difficult on the individual and his or her family. It makes no difference which side one is on - the criminal defendant being investigated or the government investigating its own. Everyone needs to recognize this. It is so very sad to see a headline that reads Prosecutor in Failed Ted Stevens Corruption Case KIlls Self (article by Erika Bolstad - McClatchy Newspapers)
Legislators and Lobbyists Charged in Alabama
Here is the Alabama Electronic Bingo Indictment, unsealed yesterday.
October 4, 2010
What Is Insider Trading?
A Fifth Circuit Court of Appeals decision in the case of Securities Exchange Commission v. Mark Cuban ("a well known entrepreneur and current owner of the Dallas Mavericks and Landmark theaters) offers an interesting discussion of the scope of liability under the misappropriation theory, Unlike the district court that had dismissed the case, the fifth circuit elected to vacate and remand the case for further proceedings. Cuban was alleged to have "received confidential information from the CEO of Mamma.com, a Canadian search engine company in which Cuban was a large minority stakeholder. The court looking at the allegations from only the perspective of the SEC said that Cuban allegedly had "agreed to keep the information confidential, and acknowledged he could not trade on the information." The issue for the court was whether "a simple confidentiality agreement [was sufficient] to create a duty to disclose or abstain from trading under the securities laws?"
The Fifth Circuit stated that "[t]he allegations, taken in their entirety, provide more than a plausible basis to find that the understanding between the CEO and Cuban was that he was not to trade, that it was more than a simple confidentiality agreement." The court noted that "[g]iven the paucity of jurisprudence on the question of what constitutes a relationship of 'trust and confidence' and the inherently fact-bound nature of determining whether such a duty exists, we decline to first determine or place our thumb on the scale in the district court’s determination of its presence or to now draw the contours of any liability that it might bring, including the force of Rule 10b5-2(b)(1)." (citations omitted). So, the bottom line is that we have a lot more to learn about what constitutes insider trading.
Hearing on “Reining in Overcriminalization: Assessing the Problems, Proposing Solutions”
NACDL (Tiffany Joslyn) and the Heritage Foundation (Brian Walsh) wrote a groundbreaking report titled, Without Intent: How Congress Is Eroding the Criminal Intent Requirement in Federal Law, that was the subject of a congressional hearing this past week. I had the pleasure to provide testimony at that hearing (my testimony). Others testifying included, NACDL President Jim Lavine (testimony), Brian Walsh of the Heritage Foundation (testimony), former head of the Enron Task Force Andrew Weissmann (testimony) and law professor Stephen Smith (Notre Dame)(testimony). Abner Schoenwetter (testimony) and former race car driver Bobby Unser (testimony) told of their experiences as victims of overcriminalization. The hearing before the House Judiciary Committee, Subcommittee of Crime, Terrorism and Homeland Security was the wonderful work of Subcommittee Chairman Bobby Scott and Ranking Member Louie Gohmert. It was also wonderful to see House Judiciary Committee Chairman John Conyers, Jr. participating in this hearing.
NACDL Press Release here
October 3, 2010
Commentary on Recent Decisions in the Second Circuit Related to International Matters
Kiobel v. Royal Dutch Petroleum - the Second Circuit looks at whether a corporation can be held liable under the Alien Tort Statute (ATS). Circuit Judge Jose Cabranes in his decision asked "whether a plaintiff bringing an ATS suit against a corporation has alleged a violation of customary international law." He holds "[t]he concept of corporate liability for violations of customary international law has not achieved universal recognition or acceptance as a norm in the relations of States with each other. Inasmuch as plaintiffs assert claims against corporations only, their complaint must be dismissed for lack of subject matter jurisdiction." (citation omitted). Circuit Judge Leval, authoring a concurring opinion, agreed that the "claims pleaded against the Appellants must be dismissed," but noted that he could not join "the majority’s creation of an unprecedented concept of international law that exempts juridical persons from compliance with its rules. The majority’s rule conflicts with two centuries of federal precedent on the ATS, and deals a blow to the efforts of international law to protect human rights."
Commentary - One has to wonder whether this case can be used to show why corporate criminal liability should be treated differently on occasion from individual liability?
Norex Petroleum v. Acess Industries - the Second Circuit looks at "whether a United States federal court can properly hear a claim under the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. § 1961 et seq, arising from allegations of a conspiracy which primarily involves foreign actors and foreign acts." The court refers to the recent decision in Morrison v. National Australian Bank Ltd., 130 S. Ct. 2869 (2010) and holds, "that absent an express intention by Congress of extraterritorial effect, a statute applies only domestically." The court notes that "RICO 'is silent as to any extraterritorial application.'" The court states that "Morrison wholeheartedly embraces application of the presumption against extraterritoriality, finding that 'unless there is the affirmative intention of the Congress clearly expressed to give a statute extraterritorial effect, we must presume it is primarily concerned with domestic conditions.'" (citations omitted).
Commentary - As RICO is both a criminal and civil statute, will this mean that prosecutors can not apply RICO extraterritorially?