Friday, December 24, 2010

Happy Holiday

Wishing everyone a healthy, happy, and peaceful holiday.

(esp)

December 24, 2010 in About This Blog | Permalink | Comments (0) | TrackBack (0)

11th Circuit Reversal on Rehearing

Probably the rarest of decisions is a reversal on a rehearing. But this week, the Eleventh Circuit Court of Appeals did just that in the case of United States v. Kottwitz.  In the original decision (see here), the court had concluded that the refusal to give the jury an instruction about reliance on an accountant's advice was error as to Counts Three, Four, and Five.  In this rehearing, the court extended this decision to Count One - a conspiracy count.  The court stated,  "[e]ven though no evidence directly showed that Defendants’ accountant was involved in initially entering/hiding transactions on the corporate books (for example, the personal-expense transactions), Defendants introduced enough circumstantial evidence to warrant an instruction that -- at some pertinent point -- Defendants may have relied on the accountant’s advice."

Representing the defendant in this case was Jerry Froelich, Jim Jenkins, and Bruce Maloy of Atlanta, Georgia and the lawfirm of Bernhoftlaw was co-counsel and lead on the Kottwitz appeal for a lead defendant in the case.  See Robert G. Bernhoft's Petition for Panel Rehearing -Download 1_09-09-10_PetitionPanelRehearing

(esp)

December 24, 2010 in Judicial Opinions, Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, December 23, 2010

In the News & Around the Blogopshere

DOJ Press Release, Manhattan Federal Jury Convicts U.S. Military Officer of Honest Services Fraud and Accepting Bribes while Stationed in Iraq

Michael Pollick, Herald Tribune, Beau Diamond sentenced to 15.5 years

David Ingram, BLT Blog, Congressmen Ask About Probe of GAO Probe

Sue Reisinger, Corporate Counsel, Half-Baked Justice? Corporate Prosecutions Are All Over the Map

M.L. Elrick, Tresa Blades, David Ashenfelter & Jim Schaefer, Detroit Free Press, Some Who Paid to Play in Detroit Corruption Probe Won't Be Charged

DOJ Press Release, Former Senior Executives of Latin Node Inc. Charged with Bribing Honduran Officials and Money Laundering

Brian Baxter, AmLaw Daily, Record-Setting Madoff Settlement Announced with Picower Estate

Rami Grunbaum, Seattle Times, Tax-fraud figure has lesson for UW business students

Jenna Greene, BLT Blog, SEC Appoints Stephen Cohen as Associate Director of Enforcement Division

Shana-Tara Regon & Robert Alt, AOL News, Opinion: You Might Be Committing a Federal Crime

DOJ Press Release, Former UBS Investment Banker Pleads Guilty in Manhattan Federal Court to Insider Trading Charges

Liz Rappaport & Michael Rapoport, WSJ, Ernst Accused of Lehman Whitewash

DOJ Press Release, Georgia Hospital Pays U.S. $13.9 Million to Resolve Medicaid False Claims Act Allegations

Sheri Qualters, NLJ, DOJ announces $280M settlement with Dey Pharma over inflated drug pricing

Nathan Vardi, Forbes, Deutsche Bank Will Pay $554 Million For Illegal Tax Shelter Activity

Julie Triedman, AmLaw, Name Partner at Elite Italian Firm Gets Suspended Sentence in Parmalat Trial (hat tip to Professor Clark Furlow, Stetson)

Charlie Savage, NYTimes, Justice Dept. Is Criticized as Corruption Cases Close (hat tip to Attorney Linda Friedman Ramirez)

AP, NewJersey.com, N.J. man sentenced for not reporting Swiss account

Craig R. McCoy & Nathan Gorenstein, Philadelphia Inquirer, Fumo fights federal bid for longer sentence

(esp)

December 23, 2010 in News | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 22, 2010

People of the State of New York v. Ernst & Young LLP

Here is the civil complaint filed in New York v. Ernst & Young LLP. The pleading is a well drafted speaking complaint detailing Ernst & Young LLP's auditing actions, and alleged failures to act, in connection with Lehman's Repo 105 transactions. New York is seeking the return of $150 million in auditing fees earned by Ernst & Young on the Lehman account. Assuming that the allegations are true, the complaint is a powerful argument in favor of Dodd-Frank's enhanced whistleblower provisions. Most of the alleged activities occurred after Sarbanes-Oxley was enacted into law. 

(wisenberg)

December 22, 2010 in Civil Enforcement, Civil Litigation, Current Affairs, Fraud, Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 21, 2010

Ryan Denied Skilling Relief and Bail

A US District Court for the Northern District of Illinois- Eastern Division, denied former Illinois Governor George H. Ryan Sr.'s request of Skilling relief  and "bail pending the ultimate resolution of this motion."  In a 59 page order here, the court held:

  • The Skilling decision "announces a new substantive rule of criminal law" allowing the "re-set[ting] the clock for filing [  ] post-conviction" relief.
  • Ryan's "conduct for which he was convicted - steering contracts, leases, and other governmental benefits in exchange for private gain - was well-recognized before his conviction as conduct that falls into the 'solid core' of honest services fraud."
  • Claiming improper jury instructions, the court finds "that the Bloom instruction, the conflict-of-interest instruction, and the state law instructions should not have been given"  but then holds the error as harmless.
  • Page 42 et seq. of the opinion has a wonderful footnote (# 14) and text that reviews relevant post-McNally and Skilling holdings. 
  • The court rejects any spillover effect of Ryan being prejudiced "by the admission of evidence that would not have been admissible in a post-Skilling honest services fraud prosecution." 

But the saddest part of this decision is that the court fails to grant bail to Ryan pending the resolution of this motion despite acknowledging "the sad news that his wife of more than fifty years is suffering from a terminal illness."  This is particularly troubling as the court notes that Ryan "poses no risk of recidivism nor danger, were he to be released."  Sometimes the law is very cold to humanity and this is sad.

(esp)

December 21, 2010 in Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Medicaid fraud crackdown threatens citizens’ rights

Guest Blogger - Philip Hilder

Constitutional protections are being hastily overlooked in our government's zeal to crack down on Medicaid fraud. But even that worthy cause doesn't merit a denigration of citizens' rights. In the case of Medicaid fraud, the Texas Legislature has not only encouraged but required government agencies to mix civil and criminal investigations on such a regular basis that the constitutional rights of the people and businesses being investigated are being trampled routinely.

Any television police drama will tell you that subjects of a government investigation have the right to remain silent and to be told they have the right to remain silent. But the arm of Texas government that conducts criminal Medicaid fraud investigations is gathering information under the guise of the arm that looks at possible civil violations. Both civil and criminal investigators work for the Texas attorney general.

The problem is that the targets lawfully need to know when they are being targeted by the criminal group. But instead they are being asked for documents using a civil process and they aren't being told the information is being shared with criminal investigators.

You might think it's just the government either way. If these folks might have done something wrong, why should we care? But these rights are there to protect the innocent and the guilty. They are there to protect someone being investigated now, as well as you and me, who could be investigated for something else another day.

We all must care when a target isn't given the opportunity to invoke his or her rights in a criminal investigation because the state has purposefully made it appear there is no such investigation. In its zeal to control the state's annual $17 billion in Medicaid costs, Texas has lost its grip on protecting the rights of its citizenry.

The Texas Legislature has blurred what should be clearly demarcated barriers between civil and criminal investigations of health care providers. Various state agencies investigate Medicaid providers for compliance issues and fraud. The Medicaid Fraud Control Unit oversees relevant state felonies, such as fraud and theft, and its investigations may result in imprisonment, fines and exclusion from the Medicaid program. But this criminal arm has concurrent jurisdiction with the Civil Medicaid Fraud Division, which pursues civil fraud.That means the civil division can issue a subpoena for documents from a Medicaid provider who doesn't even know that a parallel criminal investigation is ongoing when the information is shared with criminal investigators.

And the criminal investigators supplement the civil staff by conducting site inspections, usually for providers who meet the profile for criminal fraud. That means criminal investigators are using the guise of an administrative review to start a criminal investigation. This level of cooperation and coordination is statutorily required so the two sides of the legal coin don't run parallel investigations, but rather attack a case in a coordinated effort.

Parallel civil and criminal proceedings that examine the same conduct are not only permissible but often are labeled as being in the public interest. However, when parallel civil and criminal investigations become too intertwined, they cease to be parallel and create ample opportunities for violations of the Constitution's Fourth, Fifth and/or Sixth Amendments.

Courts have found that such efforts can cross the line and to determine whether that's happened, they look at: (1) whether there was notice that evidence could be used in a criminal proceeding; (2) whether a civil investigation was brought in bad faith; and (3) whether the target of the investigation had a lawyer.In the securities cases against HealthSouth mogul Richard Scrushy, a court reasoned that there was a "danger of prejudice flowing from testimony out of a defendant's mouth at a civil proceeding [which] is even more acute when he is unaware of the pending criminal charge."

Texas HB 2292 may appear to have created efficiency but it actually created dangerous legal territory. Until the criminal and civil investigations in Texas are taken out of lock step, judges should toss the evidence gathered under a civil ruse and used in criminal investigations. Our Legislature needs to go back to the drawing board and protect us both against Medicaid fraud and the erosion of civil rights.

Philip H. Hilder, a former federal prosecutor and founder of Hilder & Associates, P.C., focuses on white-collar criminal defense.

Reprinted from the Houston Chronicle - With Permission

December 21, 2010 in Fraud | Permalink | Comments (3) | TrackBack (0)

Monday, December 20, 2010

SEC Agrees to First Non-Prosecution Agreement in Fraud and Insider Trading

Guest Blogger - Michael Volkov (Mayer Brown)

The SEC announced that it has entered a non-prosecution agreement with Carter's Inc. under which the Atlanta-based company will not be charged with any violations of the federal securities laws relating to its Executive Vice President’s (Joseph M. Elle’s) alleged role in insider trading and financial fraud.  The non-prosecution agreement reflects the first use of the SEC’s cooperation policy announced earlier this year which seeks to incentivize cooperation in SEC investigations.

In support of its decision, the SEC cited the relatively isolated nature of the unlawful conduct, Carter's prompt and complete self-reporting of the misconduct to the SEC, its exemplary and extensive cooperation in the investigation, including undertaking a thorough and comprehensive internal investigation, and Carter's extensive and substantial remedial actions. 

According to the SEC's complaint filed in U.S. District Court for the Northern District of Georgia, Elles allegedly conducted his scheme from 2004 to 2009 while serving as Carter's Executive Vice President of Sales. The SEC alleges that Elles fraudulently manipulated the dollar amount of discounts that Carter's granted to its largest wholesale customer — a large national department store — in order to induce that customer to purchase greater quantities of Carter's clothing for resale. Elles then allegedly concealed his misconduct by persuading the customer to defer subtracting the discounts from payments until later financial reporting periods. He allegedly created and signed false documents that misrepresented to Carter's accounting personnel the timing and amount of those discounts.

The SEC further alleges that Elles realized sizeable gains from insider trading in shares of Carter's common stock during the fraud. Between May 2005 and March 2009, Elles realized a profit before tax of approximately $4,739,862 from the exercises of options granted to him by Carter's and sales of the resulting shares. Each of these stock sales occurred prior to the company's initial disclosure relating to the fraud on Oct. 27, 2009, immediately after which the company's common stock share price dropped 23.8 percent.

After discovering Elles's actions and conducting its own internal investigation, Carter's was required to issue restated financial results for the affected periods.

Under the terms of the non-prosecution agreement, Carter's agreed to cooperate fully and truthfully in action filed against any further investigation conducted by the SEC staff as well as in the enforcement Elles.

(mlv)

December 20, 2010 in Deferred Prosecution Agreements, SEC | Permalink | Comments (0) | TrackBack (0)