Friday, July 29, 2011

Clemens to Government: "You're Outta Here!"

William Roger Clemens's Motion to Prohibit Retrial and Dismiss the Indictment was filed today, and it is a very good one. Hats offs to Rusty Hardin, Mike Attanasio and the entire defense team. Judge Walton's ultimate decision, and the inevitable appellate review of that decision, will hinge heavily on the quality and detail of the judge's factual findings.

(Wisenberg)

July 29, 2011 in Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Thursday, July 28, 2011

Chiesi Sentenced to 30 Months

Danielle Chiesi, the former beauty queen, hedge fund trader, and fount of inside information to Raj Rajaratnam, was sentenced last week to 30 months in prison. We had blogged about her earlier. (see here)

Ms. Chiesi, who had extracted information from lovers and passed it on to Rajaratnam, was described by United States Attorney Preet Bharara in interesting imagery as "the vital artery through which inside information flowed between captains of industry and billionaire hedge fund managers."

The 30-month sentence was three months greater than that imposed on her former lover and boss, Mark Kurland, whom she blamed for involving her in criminality. Ms. Chiesi had specifically asked for a sentence equal to or lesser than Mr. Kurland’s. The government sought a sentence within the advisory guideline range of 37 to 46 months.

Retaining her sense of style to the end, Ms.Chiesi wore an atypical outfit for a defendant about to be sentenced, a sleeveless pink dress and matching pumps. And, after the sentence, alluding to her early morning arrest, she told the FBI agents at the prosecution table that the next time they knocked on her door they should do it in the afternoon. I suspect that she’ll be up early for the next 30 months.

(Goldman)

July 28, 2011 in SEC, Securities, Sentencing | Permalink | Comments (0) | TrackBack (0)

Monday, July 25, 2011

"Folks do need to pay attention to where they are."

This weekend saw something unusual in the nation's elite newspapers. Three detailed stories about white collar crime issues.

WSJ Weekend carried this in-depth and outstanding piece by Gary Fields and John R. Emshwiller about overcriminalization--the proliferation of criminal statutes, particularly at the federal level, covering more and more aspects of everyday life. The article also focused on Congress's increasing enactment of statutes that dispense with any meaningful mens rea element. Although both of these problems have been around for years, and the article makes no effort to treat the matter historically, it does a generally good job of framing the issues.

Fields and Emshwiller detail how the Idaho U.S. Attorney's Office successfully prosecuted a father and son for attempting "to take artifacts off federal land without a permit" under the Archaeological Resources Protection Act of 1979. They were out camping and looking for arrowheads, which they failed to find, and apparently did not know that the law existed. According to Fields and Emshwiller, the Act "doesn't require criminal intent." This is true of the Act on its face, but the father and son clearly intended to search for arrowheads and did not have a permit. This case is really more an example of obscure administrative criminal statutes that no normal person can be expected to master. Hence it is terribly unfair in such circumstances to apply the old saw that "ignorance of the law is no excuse." But don't tell that to Idaho U.S. Attorney Wendy Olson. She will just answer that "[f]olks do need to pay attention to where they are."

The article also details how Olson's office convicted an inventor for abandoning covered chemicals under the Resource Conservation and Recovery Act. This was after the inventor had been acquitted in an Alaskan federal court for illegally shipping the same chemicals without proper labeling. Would this have been the proper occasion for the exercise of prosecutorial discretion? Not a chance. According to Ms. Olson, her "office will continue to aggressively prosecute" such crimes.

Meanwhile, on Friday, the Washington Post's David Hilzenrath wrote a story with the headline, Quandary for U.S. companies: Whom to Bribe? The piece purported to give both sides of the FCPA debate, but I found it slanted towards the DOJ view. While discussing the recent convictions in the Lindsey Manufacturing case, Hilzenrath never mentions that the Lindsey guilty verdicts are in serious doubt post-trial, with further briefing due from the parties and a federal district judge who has questioned the case and is angry at the government. Even more amazingly, Hilzenrath nowhere references the recently concluded 10-week jury trial in D.C. against the first wave of defendants in DOJ's heavily publicized African Sting FCPA bribery case. The trial resulted in a hung jury mistrial. According to one of the defense attorneys, Todd Foster, the main theme of the defense was that the FCPA was too complicated to be understood by the defendants. Yet this trial, occurring right under the Post's nose, was not deemed worthy of mention. Hat tip to Todd for bringing the article to my attention.

Finally, the Sunday New York Times focuses on Murdoch's Unlikely Ally, former New York City schools chancellor and DOJ Antitrust Chief Joel Klein, in an article by Jeremy Peters, Michael Barbaro, and Javier Hernandez. It is a very good story and remarkable for its focus on the mechanics of News Corporation's internal investigation. Instead of following the "best practice" and hiring an outside law firm to conduct the investigation and report to an audit or special committee controlled by independent outsiders, News Corporation is employing something of a hybrid. It has appointed Lord Anthony Grabiner as the internal investigation's "Independent Chairman." But Grabiner sat behind, and presumably advised, the Murdochs during last week's parliamentary testimony. Grabiner will report to Klein, a News Corporation executive and trusted Murdoch adviser who also sat behind the Murdochs. Klein will report to Viet Dinh, "an independent director on the News Corporation board," for whom I have enormous respect. The article quotes University of Delaware corporate governance expert Charles Elson to the effect that this arrangement "is not standard practice." It may be more standard than Professor Elson realizes. It is obviously not the best practice for ensuring a truly independent investigation. Virtually by definition, there is no way that such an investigation can be wholly and truly independent.

By the way, even an investigation conducted by outside counsel and reporting to the audit committee (or a specially created independent committee) may only be independent up to a point. Let's say that the investigation is completed and outside counsel submits a report to the audit or independent committee. What happens next? Is the Board of Directors required to follow the recommendations of the independent committee? If not, then what is the point of the process in the first place? But that is a topic for another day.

(Wisenberg)

July 25, 2011 in Current Affairs, FCPA, Investigations, Legal Ethics, Media, News, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Sunday, July 24, 2011

In the News & Around the Blogosphere

Carrie Johnson, NPR, FBI Begins Investigation of News Corp (includes comment by contributing blogger Sol Wisenberg)

DOJ Press Release, Hacker Sentenced in Virginia to 10 Years in Prison for Stealing 675,000 Credit Card Numbers Leading to $36 Million in Losses

(esp) (blogging from Hilton Head, South Carolina)

July 24, 2011 in News | Permalink | Comments (0) | TrackBack (0)

Friday, July 22, 2011

In the News & Around the Blogopshere

Thursday, July 21, 2011

The Prosecutor's Pep Talk

Some folks are talking (see here and here) about Assistant AG Lanny Breuer's speech at the National District Attorneys Association Summer Conference.  He is definitely correct to say that there has been an improved DOJ on many fronts, especially discovery. (see here). The creation of a Professional Misconduct Review Commission, for one, should be applauded (see here

But I have to agree with David Oscar Marcus (Southern District of Florida Blog) (here) on a few things such as why is DOJ "opposing a change to Rule 16 (as suggested by the ABA and on July 7, by NACDL) requiring what their guidelines merely suggest." And DOJ certainly could do more - like supporting NACDL's recent discovery statute change here.

Lanny Breuer, speaking to this supportive audience said, "[c]ertain defense lawyers nevertheless continue to want to try and turn honest mistakes into instances of misconduct. This kind of gamesmanship is unfortunate."  But did the DOJ attorneys come out in these instances and say - "we made an honest mistake?"  I think it would go a long way when a mea culpa is expressed.  I think it would also go a long way when the office starts taking steps to assure that discovery rules are enforced - like agreeing that this requires statutory oversight to achieve compliance.

But we need to remember that this was the prosecutor's pep talk and his making a comment like  "[o]ur job is not just to win cases, but also to do justice in every case,” should be applauded.  We have come a long way to be hearing this important statement from a prosecutor in a key position.

(esp)

July 21, 2011 in Prosecutors | Permalink | Comments (1) | TrackBack (0)

Wednesday, July 20, 2011

Apprendi Applies to Alternate Fines Act - Corporate Fines Require Jury Determination

In the Northern District of California, the court in United States v. Au Optronics Corporation, et. al (AUO) was faced with the question of whether Apprendi applied to criminal fines that the government was seeking under the alternative fine statute, 18 U.S.C. s 3571(d). The company and nine individuals were charged with price-fixing in violation of the Sherman Act. A Superceding Indictment claimed that the government would seek a criminal fine against the corporate defendants (not the individuals)  under the alternative fine statute, which would mean that "the government could seek a fine in this case of up to $1 billion against AUO." The government sought bifurcation into separate guilt and penalty phases and also sought an "order that the evidence presented in the penalty phase need not be presented to a jury."  In essence they were arguing that Apprendi did not apply here.  

The court saw it differently then the government. Initially two circuits had found that Apprendi applied and even a declaration of the antitrust division had said it was applicable with fines.  Then came the case of Oregon v. Ice, where the Court held "that a judge could impose consecutive sentences without any jury findings beyond those of guilt."  Following this decision, the First Circuit found that criminal fines were exempt from Apprendi.

The government argued here that the First Circuit decision should be followed because "under historical practices fines fell within the sole discretion of the trial judge."

The problem for the government, however, is that they were relying on dicta from the Ice case.  Thus, the court in AUO held that Apprendi's mandate applied here.  Hon. Illston states, "[t]he magnitude and primacy of such punishment puts it in a separate class from an ordinary criminal fine imposed against a defendant who faces incarceration." (the government was seeking a fine that could amount to $1 billion, which is "ten times more than the fine authorized by the Sherman Act")

The court also denied the government's request to bifurcate the trial into a guilt phase and penalty phase, stating that "the Court is disinclined to bifurcate without a more substantial showing that a separate penalty phase will save judicial resources."

Court's Order - Download July 18 2011 Order re bifurcation motion

There are two lessons for the government here  - 1) there are consequences to overcharging, and 2) stop wasting money.  

(esp)

July 20, 2011 in Antitrust, Judicial Opinions, Sentencing | Permalink | Comments (0) | TrackBack (0)

In the News & Around the Blogosphere

Tuesday, July 19, 2011

Double Jeopardy Unlikely to Bar Clemens Retrial

Much has been written in the last few days about whether the government will be precluded on double jeopardy grounds from retrying Roger Clemens. (see here, here, here, here, and here) I think the answer is relatively clear; the government will be able to try Clemens again. (Whether they should is another matter.)

The issue is to me controlled by Oregon v. Kennedy, 456 US 667 (1982), a case that makes it almost impossible for a defendant to successfully claim double jeopardy after he is granted a mistrial on his lawyer’s motion based on prosecutorial misconduct. Double jeopardy, according to the case, does not apply unless the prosecutor’s "conduct…is intended to provoke the defendant in moving for a mistrial." This narrow exception is designed to prevent a prosecutor who feels his case is going down the drain to goad defense counsel into a mistrial in the hope that the prosecution will fare better in a new trial. See, US v GAF Corp., 884 F26 670 (2d Cir 1989). Although I think Kennedy is bad law since it precludes any sanction against the government where the exception does not apply, it is the prevailing law. .

Under the Kennedy standard, Judge Walton, in order to grant a mistrial, must find not only that the behavior of the prosecutors was intentional, but that their intent was to goad the defense into seeking a mistrial. Arguably, the cumulation of what the judge found to be the egregious nature of the error by veteran prosecutors, the compounding of the error by leaving the excluded testimony on a screen in front of the jury during a conference with counsel, and the apparent prior disregard by the government in its opening of another ruling not to discuss drug use by other ballplayers might suggest that the error that led to a mistrial was intentional. On the hand, the declarations of the prosecutor (which ranged from justification to moderate mea culpa), the judge’s own statement about the lack of specificity of his order (apparently not directly ordering redaction of the videotape), the failure of the defense to object either before or during the playing of the videotape, the defense attorney’s positive comments about the prosecutors, and the prosecutors’ good reputation sway me to believe that their error, although unjustifiable in a case of this magnitude (at the least, they should sought judicial guidance if they felt they could rightly put in Rep. Cummings’ entire "question"), was just sloppy. In my personal determination that it was not intentional I also consider that these local and experienced prosecutors would not deliberately cross Judge Walton, who is not known to be tolerant of attorney excesses.

In any case, even if the judge were to find that the conduct of the prosecutors was intentional, it is a huge jump for him to find that their intention was not just to gain a tactical advantage, but to provoke a retrial in order to get a do-over. In view of the apparent government satisfaction with the jury, the very early stage of the trial, the absence of any obvious advantage a retrial would give the government, the defense’s hesitancy in asking for a retrial, and the government’s objection to it, I see no basis for a determination that the goal of the prosecutors was declaration of a mistrial.

(Goldman)

July 19, 2011 | Permalink | Comments (1) | TrackBack (0)

Monday, July 18, 2011

Discovery Reform

The National Association of Criminal Defense Lawyers (NACDL) issued a news release here titled "Legislation Would Enforce Government's Duty to Disclose Favorable Information to Accused." The essense is that it calls for new legislation.  The press release states:

"To help ensure fairness in federal criminal proceedings, the Board of Directors of the National Association of Criminal Defense Lawyers (NACDL) has endorsed model legislation drafted by NACDL’s Discovery Reform Task Force that would require the government to disclose all information favorable to the accused in relation to any issue to be determined in a federal criminal case."

 Proposed Legislation here and Commentary here.

(esp)(disclosure that this author served on the committee working on this suggested legislation)

July 18, 2011 in Defense Counsel, Investigations, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Saturday, July 16, 2011

Clemens Error: Deliberate or Inadvertent

The transcript can be found on Talkleft here. Now Talkleft, along with the Daily Beast here and Houston Clearthinkers here present one view to consider in the key issue that remains to be decided by the court.  On the other side you see Tom Schoenberg and Ann Woolner here who say that it is "likely" to be a new trial.  The title to Del Quetin Wilber's story in the Washington Post shows his cards -Veteran prosecutors’ rookie mistake, no-nonsense judge lead to Clemens mistrial.A more neutral stance is taken by TJQuinn at ESPN here. But perhaps this is just a question that is too close to call, even with the replay.

There appear to be basically two violations here: 1) the first one that was being discussed at the bench; 2) the second one when the tape is left in view of the jury while they were discussing this issue at the bench. Both, however, go to whether the prosecution failed to redact the inadmissible parts of the transcript.

You have one prior call by the judge of a violation which goes against the government. (The defense can use this to argue that they were on notice of the judge's ruling). You also have a clear cut present violation of his order and no mea culpa on the spot - although the prosecutor later says that "there was no intention to run afoul of any Court ruling." But the prosecutor also argues that the exhibits were admitted into trial without objection.  The prosecutor even says that "this video clip and this transcript was turned over in early May."  (but wouldn't that have been before the judge's order? )

On the other hand, the defense did not initially object to the admission of the tape and only raises the issue when the judge initiates a discussion of the issue. But then again - the defense did object for the record and move for a mistrial after the judge raises the issue.

But there's another subsidiary issue here.  Did the government not turn over the evidence (a supposedly redacted video) in sufficient time for defense counsel to realize that it had not been redacted? One question is whether counsel in fact traded exhibits in sufficient time prior to trial that the defense could have realized that it was not a redacted tape/transcript and could have objected prior to it even coming in front of the jury. On the other hand, should defense counsel have had to verify everything that was supposed to be done by the court's order. In the transcript the defense says

"...that when the Court makes a ruling on a motion in limine, it's incumbent on the prosecutor to then redact or alter his exhibits, not hand them to counsel and tell us, I'm admitting 3-A through 3-H and expect counsel for the defense to read them in 30 seconds and then move them in. They should have been changed." 

Does this justify a failure to immediately object. And did counsel have the exhibits in advance and just expect that the prosecution would do what the court had instructed.

So one goes in circles until the judge says "stop" and gives us a ruling. And that perhaps resolves this case.  Although, as previously noted, it could go into extra innings if the judge rules against the defense (see here).

I keep wondering if we had better and more advanced (earlier) discovery to the defense if this would have presented as much of an issue.

But I also continue to say to the government that even if this is inadvertent, lets call an end to this game. We have significant crime and limited funds, lets use it wisely.

(esp)

Addendum - Check out Maureen Dowd's op ed in the NYTimes, Why Are Prosecutors Striking Out?

July 16, 2011 in Celebrities, News, Perjury, Prosecutions | Permalink | Comments (7) | TrackBack (0)

Friday, July 15, 2011

In the News & Around the Blogosphere

Thursday, July 14, 2011

Clemens - This Case Could Go Into Extra Innings

Clearly the first question that will need to be answered is whether Roger Clemens can be retried.  As noted here, double jeopardy will be the source of the controversy.  The defense will likely argue that they had no choice but to ask for a mistrial and were provoked by the prosecutorial misconduct into taking this course.  In contrast, the prosecution may resort to an argument that the conduct was inadvertent and that a retrial will not jeopardize Clemens. See Del Quentin Wilber, Washington Post, Roger Clemens perjury trial ends in mistrial after prosecution error

Prosecutors enter the next inning with two strikes against them - they had not one, but two instances where the judge needed to reign them in for not adhering to his rulings. If they get a third strike they are out.

On the other hand, if the defense loses the double jeopardy motion, there is the possibility that they will seek to take this issue up on an interlocatory appeal.  This means we are into extra inning as a higher court is asked to review the double jeopardy ruling.

And the equally significant issue is what about the collateral consequences that continue to remain in question.  That being, does Roger Clemens join the folks in the Hall of Fame? 

What continues to bother me is whether the government should be playing this game.  Should our precious taxpayer's dollars be used on such a case?   

(esp)

July 14, 2011 in Celebrities, Prosecutions, Prosecutors | Permalink | Comments (3) | TrackBack (0)

Clemens - The Game Should Have Been Played

I must respectfully disagree with my colleague. (see here)

The judge appears to me to have jumped the gun. The defense, shown the videotape ahead of time, made no motion to redact. It didn’t object when it was shown to the jury. Apparently, the defense didn’t see it as harmful. Most likely, as Clemens said before Congress, the defense will agree that Pettite (Clemens’ good friend) was honest but argue that he was mistaken about what Clemens said (and I wouldn’t be surprised if Pettite admits he might have misunderstood Clemens), and thus the hearsay evidence as to what Pettite told his wife didn’t bother the defense.

Perjury cases, especially those involving investigations and grand jury proceedings, often include hearsay in questions: "Mr. Jones testified as to x; do you agree, Mr. Witness?" And, a curative instruction that the fact that a question assumed something happened is no evidence that it did happen is considered sufficient.

To be sure, this instance is somewhat different since the judge had previously told the prosecutor that Mrs. Pettite’s proposed testimony was inadmissible. And, probably most importantly, the judge was irked by the prosecutor’s opening that mentioned that Clemens’ teammates used steroids in seeming disregard of his ruling that such testimony was inadmissible – to me, apparently a much more blatant error.

I am happy to see a judge assert his authority and strongly react to a prosecutor’s disregard of his rulings. Most do it too gently. I do think, however, based on what I know at this time, that the judge may have overreacted.

Since the defense apparently moved for a mistrial and since it is unlikely that the defense will be able to demonstrate that the prosecutorial misconduct was designed to force the defense to do so, I doubt that double jeopardy will lie. Thus, at the end of the day – or the summer – Clemens may not really benefit, as Ellen says. And besides the additional cost and loss of a possibly favorable jury Ellen mentions, there is a psychological cost to a defendant, even a Texas tough guy like Roger Clemens, to get ready again to defend himself.

Of course, even assuming that Clemens did lie, I have mixed thoughts about whether this prosecution should have been brought in the first place. Perhaps we will discuss that later.

(Goldman)

Addendum - A later press report here indicates that Judge Walton specifically instructed the prosecutors to eliminate mention of Mrs. Pettite's statements in the videotape. If so, the prosecutor's misconduct , however inadvertent, is more egregious and the judge's mistrial declaration more justifiable than I had believed based on early press reports, although I still think that the error could have been cured, and the prosecutor adequately "punished," by a strong curative instruction. Nonetheless, perhaps I, and not Judge Walton, jumped the gun.  (lsg)

July 14, 2011 in Celebrities, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Commentary on Roger Clemens Mistrial - Called for Rain

Judge Reggie Walton, nominated to the federal bench by President George W. Bush, just tossed out for today (mistrial) the Roger Clemens case.  Hon. Walton had previously been appointed an Associate Judge of the Superior Court of the District of Columbia by President Ronald Reagan and later George H. W. Bush.  He has sat on several high profile cases and been tough. For example, he was the judge that gave a sentence to Scooter Libby of 30 months in federal prison and a fine of US$250,000, a sentence on which Libby was later granted clemency.(see here) This is not the first case that prosecutors have had issues on with regard to abiding by the rules (e.g.,Ted Stevens discovery fiasco here). Several thoughts:

  • Some will argue that Judge Walton did what needed to be done.  After all, one can't erase from the minds of jurors inadmissible evidence of this magnitude.  This is a he said -he said case and the veracity of a key witness will be crucial in this trial.  An inadmissible compromise of this evidence could unfairly slant the case against the defendant. Others will take the opposite position.
  • Judges make tough calls and it is easy to call something "harmless error" and hope that there is later overwhelming evidence that will support that position. But that isn't the right way to judge the case - it needs to be examined at the specific point in time when the violation occurs, as was done by Judge Walton.
  • This is not necessarily a "win" for the defense.  Clemens, if paying his lawyers by the hour (more than likely), could have additional attorney fees to contend with.  Not to mention that the defense seemed to like this jury - and there is no assurance that if this case is retried they will have as favorable a jury.
  •  Prosecutors need to be careful.  They guard our most important rights.
  • A key issue that will be up to bat next is whether Clemens can be retried.  The defense will likely argue that the jury was sworn and double jeopardy bars a retrial.  The prosecution will argue that trial is permitted and that what happened was inadvertant (see LA Times here).  Key issues here may be whether the defense asked for the mistrial and whether the prosecutorial conduct goaded the defense into having to ask for a mistrial (if in fact they even did). The leading Supreme Court decision that will be examined is Oregon v. Kennedy, 456 U.S. 667 (1982).  One case interpreting Kennedy stated: 

"[I]n Oregon v. Kennedy, the Supreme Court created an exception to this rule when it held that the Double Jeopardy Clause does bar retrial in the limited situation where the government engages in prosecutorial misconduct which gives rise to a successful motion for mistrial, and such misconduct 'was intended to provoke the defendant into moving for a mistrial.'"U.S. v. Doyle, 121 F.3d 1078 (7th Cir. 1997).

  • The more important question, however, is whether such a case is worth expending our precious tax dollars. Hopefully prosecutors will carefully consider this question.

(esp)

July 14, 2011 in Celebrities, Judicial Opinions, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Roger Clemens Trial - Mistrial

Check out Juliet McCur, NYTimes Clemens Judge Declares Mistrial here; Washington Post's Del Quentin Wilber is tweeting it here;  Richard Serrano, LATimes, Judge declares mistrial in Roger Clemens perjury case. Commentary to follow.  And Mr. Murdoch start writing your thank you to the judge for getting you off the front page of the newspaper.

(esp)

July 14, 2011 in News, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Murdoch and the Foreign Corrupt Practices Act: A Minefield

Many are talking about whether the U.S. should investigate Murdoch's News Corp for FCPA violations. Obviously no one has a crystal ball to predict whether this will or will not happen, but one thing is for sure - lodging an investigation would be like entering a minefield.

The obstacles facing prosecutors will be enormous, as they should be.  Here are a few:

  • Stretching the Statute- The FCPA, enacted in 1977, came on the heels of the Watergate Investigation that revealed extensive bribery by U.S. companies to foreign officials.  Major corporations had paid foreign officials huge sums of money in order to obtain contracts and other business abroad. The "integrity of the free market" was a key aspect in the passage of the Act. Does this really sound like the allegations here?
  • Extraterritoriality - A key concern has always been whether prosecuting extraterritorial conduct was proper.  For example, in one FCPA case (Castle), the DOJ was barred from using conspiracy to violate the FCPA when it attempted to circumvent the prohibition against charging foreign officials. Would this really be a case of policing U.S. actors?
  • Rogue Employees - Many companies have employees who break the rules.  Companies with strong compliance programs have faced prosecution when individuals within the company exceed the boundaries of acceptable conduct. Unfortunately, Congress and the Court have failed to accept a good faith defense when a company tries to comply with the law.  This case may present a testing ground for the importance of this principle that applies in many civil areas like harassment cases.
  • Overcriminalization - Many are crying for "smart on crime" approaches to crime.  Most importantly it is needed with a Congress that reacts to every public outcry with a responsive statute, irrespective of whether the conduct is already covered under law. Here the issue is more pronounced from a different perspective.  Do we really need to prosecute what is occurring on the other side of the pond?
  •  Due Process - Contributing blogger Lawrence S. Goldman said it better than I could, "As much as I would enjoy seeing Murdoch in the dock, so to speak, I think it would be a terrible stretch to punish conduct committed in Britain by British citizens bribing British citizens to invade the privacy of British citizens in Britain.  Even Murdoch and News Corp. deserve due process."
  • Economics - If everything that is alleged to happen did in fact happen, it sure sounds pretty sad and it needs to get fully exposed and punished.  But unless it will provide us with jobs, assist our budget, and not deplete from our precious prosecutorial resources, let's think twice about this one.

And we haven't even gotten to a discussion of all the procedural issues (e.g., getting the witnesses, evidence, and potential defendants to the U.S.)

(esp)

July 14, 2011 in FCPA, News | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 13, 2011

The Mets Owners -- "Conscious Avoiders"?

Criminal defense lawyers dread the jury instruction on "conscious avoidance" (also called "willful blindness" or "deliberate indifference"). It is given, almost always at the prosecution’s request, when the evidence of requisite knowledge is weak. It is, to defense lawyers, an invitation to the jury to convict based on recklessness, negligence, or surmise.

"Conscious avoidance" is a judicially-made doctrine that expands the definition of knowledge to include closing one’s eyes to the high probability a fact exists. An obvious example occurs when one agrees with a fellow air passenger to carry a suitcase through customs for $100,000 but specifically tells the other passenger he does not want to know what the suitcase contains. The doctrine has recently been reaffirmed, but apparently narrowed, by the Supreme Court in a patent infringement case, Global-Tech Appliances Inc. v. SEB S.A., 131 S. Ct. 458 (2011)(for more discussion on this case see here and here). There the Court held that one’s subjective belief that there was a high probability that a fact existed combined with his "taking steps to avoid knowing" the fact existed constituted willful blindness. The "deliberate steps" prong seemingly went beyond the prevailing definitions of willful blindness in most federal circuits, which required little, if anything, beyond awareness of the high probability that the fact exists.

The Madoff bankruptcy trustee, Irving H. Picard, is employing the conscious avoidance doctrine in a clawback action against Fred Wilpon and Saul Katz, the owners of the New York Mets. Picard’s lengthy complaint alleges that the Mets’ owners deliberately failed to investigate the tell-tale signs of Madoff’s fraud and, therefore, instead of being victims, were beneficiaries -- and by implication even accomplices – of the fraud. He is seeking not only a return of funds they received from Madoff, but also damages for the indirect benefits of their Madoff association.

Picard’s novel theory will be decided not in the bankruptcy court which is his home field, but by Jed S. Rakoff, a brilliant and hard-working Southern District judge (and a friend) who himself is not shy about innovation. It will be interesting to see what happens.

In the meantime, although it appears to go against the grain of those cases which hold in essence that negligence or stupidity of the victim is no defense to fraud (otherwise, there would be far fewer successful fraud prosecutions), defense lawyers might consider whether conscious avoidance of the purported victim may be a defense.

(Goldman)

July 13, 2011 in Judicial Opinions, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 12, 2011

Skilling Reversal Triggers Double Jeopardy

The 11th Circuit remanded a case, Cabrera, premised on Skilling, vacating all counts of the conviction.  But it allowed the lower court to determine whether a retrial was possible or whether the Fifth Amendment prohibited a retrial. Obviously, on remand the court prohibited the retrial as it would violate the Fifth Amendment's double jeopardy provisions.

It is interesting to contrast the initial portion of this case with the cases of Conrad Black, Jeffrey Skilling, and former Governor Ryan. In the Cabrera case, the jury was instructed on honest services. It was not limited to acts of bribery or kickbacks. The jury limited their decision to the scheme to defraud being premised on an alleged defrauding of investors of the intangible right to honest services. The government admitted in their sentencing memo that the "jury had not convicted defendant of a scheme to defraud investors of money."  But the government in the Cabrera case tried to use this acquitted conduct for sentencing.

Then came the Skilling decision and having stretched the statute beyond its limits, the government in the Cabrera case was caught in a bind. The Court admitted in Skilling that this "'flaw'  [not limiting the statute to bribes and kickbacks] did not necessarily require reversal of the conviction because it could have been harmless error."  And in Skilling, the case was sent back on remand for consideration, which the Fifth Circuit found harmless for Skilling.   In contrast, in the Eleventh Circuit in Cabrera, the court found the jury instructions incorrect and vacated the conviction. One could stop here and note that the differences in harmless error analysis may be an interesting question for later Court decisions.

But what is more interesting is that the government conceded the evidence in Cabrera did not meet 1346 as interpreted under Skilling.  Why didn't they take this same posture in Ryan, Black and Skilling? Did the special verdicts work in this case, just because the jury had only checked the honest services box? Did the government not want this case to be the testing ground should a case go up on appeal?

But the government  then attempted to retry the Cabrera case, despite their concessions that a Skilling reversal was warranted.. The court on remand in Cabrera starts its analysis with "The Double Jeopardy Clause of the Fifth Amendment to the United States Constitution provides in relevant part: '[N]or shall any person be subject for the same offence to be twice put in jeopardy of life or limb."  The order provides a wonderful double jeopardy analysis.

Court's Order -Download Samir Cabrera

(esp)  

July 12, 2011 | Permalink | Comments (0) | TrackBack (0)

KPMG Global Study Confirms: Most Fraud Perpetuated by Company Bosses

Guest Blogger - Carolyn F. McNiven (DLA Piper)

Although 56 percent of fraud cases were preceded by red flags, instances where actions were taken in response to those red flags "fell massively" since 2007, according to a global KPMG survey. This is probably the most surprising and eye-opening observation in KPMG’s 2011 study, which also found that most fraud was committed by long-term employees, particularly male executives between the ages of 36 and 45; and individuals who worked in the finance area. The increased failure to respond to red flags highlights the need for companies not only develop system for identifying red flags, but also acting on them.

The other notable development KPMG found was an increase in the number of fraud matters perpetrated by company board members. According to KPMG, fraud by board members increased from 11 percent in 2007 to 18 percent in the 2011 analysis. Overall, it found that, "people most often entrusted with a company’s sensitive information and able to override controls are statistically more likely to become perpetrators." Nevertheless, this increase in crimes perpetuated by board members is significant.

KPMG’s global survey was based upon a review of 368 actual fraud investigations conducted by KPMG member firms in 69 countries, over the period January 2008 and December 2010. It only took into consideration frauds that were material to the company. According to KPMG, the majority of the investigations involved matters that were not publicized.

Some might argue that the nature of the investigations themselves accounted for this result: namely that only larger companies are in a position to engage KPMG to investigate such matters, consequently perpetrators examined by KPMG are necessarily more likely to be corporate executives who are in a position to commit fraud that is material to such companies. While KPMG’s data pool was necessarily limited, I think that it would be a mistake to discount their observations. Among other things, their profile of a fraudster fits the typical demographic of white collar criminal defendants in the United States, at least those prosecuted for federal crimes in the past few years, and is consistent with what I observed during my over 13 year tenure with U.S. DOJ.

Fraud is by and large an opportunistic crime. Insider-fraud thrives in environments of trust and access, as the survey points out. Individuals in the executive suite and higher level employees in the finance area are less likely on average to be closely supervised than clerks in accounts receivable. By analogy think of the security surrounding bank employees: tellers have their cash drawers counted after every shift; bank loan officers, who have access to vastly larger sums of bank funds, are generally not scrutinized in the same way although they too are human and subject to the same impulses to steal and self-deal.

That being said, KPMG’s observation that most perpetrators were long term company employees, is noteworthy. KPMG found in its 2011 survey that a solid majority (60 percent) of perpetrators worked at the company for more than five years; and 33 percent of perpetrators had worked at the company over 10.

So what turns a good employee into one who commits fraud? KPMG found that the primary motivators behind the fraud they investigated were greed and work pressure. KPMG found that attempts "to conceal losses or poor performance (possibly due to pressures to meet budgets and targets, to enhance bonuses, or to safeguard against loss of employment)" were motivating factors in many cases. Of course, greed – satisfied by misappropriating assets – was the other primary motivator that they identified.

Good employees turning bad may well also result from the same economic and cultural shifts we have seen in other areas. People -- particularly the middle class -- were hard hit in the recession resulting in increased financial pressure, which in turn can create the incentive to steal or "borrow" from one's employer. That incentive combined with a fairly systemic disenchantment with employers -- particularly those that downsized significantly --creates an environment where workers may be more likely to take what they can get from an employer, particularly if they believe that they are being undercompensated or the employer has transgressed in some way (for example, by paying its upper level management disproportionately while cutting staff and middle management).

All-in-all, KPMG’s 2011 global survey is eye-opening, and a reminder to all companies that they cannot be complacent. At a minimum, companies should regularly ensure that internal controls are operating effectively to prevent and detect insider fraud; and that red flags are not only seen, but acted upon.

Carolyn F. McNiven is a partner in DLA Piper’s San Francisco office where she is a Partner in the White Collar, Corporate Crime and Investigations practice. She is a former long-time federal prosecutor, and handles white collar criminal defense and related administrative, regulatory and compliance matters for individuals and companies. She has particular expertise in the areas of health care, food and drug, and FCPA compliance counseling, risk assessment and litigation.

July 12, 2011 in Corruption, Fraud | Permalink | Comments (0) | TrackBack (0)