Thursday, October 27, 2011
A few months ago I wrote that "the widespread prosecutorial (and judicial) practice of giving favorable treatment . . . to those who cooperate with the government by informing, taping and/or testifying has had in many ways a pernicious effect on the criminal justice system, particularly in the white-collar area." See here.
The case of Kevin Ring, discussed last month by blog editor Ellen S. Podgor, see here, illustrates at least two detrimental effects: the harsh sentences sought by the government (and sometimes imposed by judges) against those who choose not to cooperate, especially those who exercise their right to trial, and the great pressure on potential cooperators to falsely implicate others in order to lessen their own sentences. Ms. Podgor briefly addressed the first in her blog. In this blog, I discuss the second.
Ring was the sole defendant to go to trial of the twenty indicted in the Abramoff lobbying scandal. He did so after he had thirteen proffer sessions with the government, but could not reach an acceptable plea and/or cooperation agreement. After a hung jury, at a retrial he was convicted of conspiracy, honest services wire fraud, and paying an illegal gratuity by providing meals and sports and concert tickets for political favors. He was sentenced by D.C. District Judge Ellen Segal Huvelle to twenty months yesterday, October 26.
In a sentencing letter, Ring (the editor of a book entitled Scalia Dissents, Writings of the Supreme Court's Wittiest) claimed that the government position on sentencing, which initially was for a sentence in the Guideline range of 17 to 22 years, and in other areas was retaliation for his failure to falsely implicate his friend and mentor, former Congressman John Doolittle, whose wife had been employed by Abramoff in an allegedly do-little job. He wrote, "[T]he prosecutors made it clear what I needed to say to get a deal. The prosecutors wanted me to say that Congressman Doolittle took official acts to help my clients because I gave him a stream of things of value, and if I had stopped giving him some things, he would have stopped taking official acts (or, at least, taken fewer acts). Saying these things would be a flat-out lie."
Further, he said, "It became clear at a certain point that since I was not willing to incriminate Congressman Doolittle and others that I was going to pay a heavy price. Despite my consistent statements about my relationship with Congressman Doolittle's office, the government eventually asked me to say things that were totally at odds with what I had told them." (Doolittle, interestingly, submitted a letter to Judge Huvelle seeking leniency for Ring.)
The government, as expected, denied Ring's accusation "categorically and unequivocally." "Ring's insinuation that the government was pressuring him to lie in order to implicate Congressman Doolittle seems particularly far-fetched," the prosecutors wrote. "To be clear, the government did no such thing."
I do not venture to assert who is now telling the truth -- Ring or the prosecutors. I do not know whether the prosecutors asked Ring to testify to a version of the facts they knew to be untrue, or even to a version they believed to be true which in fact was not. I do believe, however, that Ring's accusation is not as "far-fetched" as the government claims.
Prosecutors and agents not infrequently are married to the most sinister version of the facts. As Edward Bennett Williams once noted, when prosecutors look at windows, they do not see the view outside, but the dirt on the windowpanes. Although there are a few "rotten apples" among federal and state prosecutors who actually suborn perjury by urging cooperators (or other witnesses) to testify to facts the prosecutors know to be false, most prosecutors who put pressure on cooperators (or other witnesses) to implicate others are earnest, honorable lawyers acting in the good faith belief that the cooperator is holding back and that the version the prosecutors are pushing is what they believe actually happened. In effect, they intend to "suborn truth," that is, put heavy pressure on the cooperator to relate what the prosecutors actually believe is the truth.
To be sure, often the prosecutors are right: the cooperators are indeed protecting a colleague or friend or are minimizing the scope of their own wrongdoing. Often, however, the prosecutors are wrong: the witness is telling the truth and the whole truth.
The pressure on a potential cooperator who cannot truthfully testify as the prosecutors want (as Ring claims he was) is enormous. The potential cooperator is aware that unless the cooperator changes the story to conform with the prosecutors' version, the cooperator will be denied the coveted 5k1.1 "cooperation" letter which will very likely reduce (or perhaps even eliminate) a prison sentence. Some succumb to the prosecutors' importuning and falsely accuse another, and eventually testify perjuriously at trial (but, of course, are not prosecuted) and help convict innocent, or perhaps not so innocent, people. Some refuse to lie and the prosecutors, sometimes grudgingly, accept their story. Some refuse to lie (as Ring alleges he did) and suffer the consequences of not receiving a 5k1.1 letter, a favorable plea agreement and a lenient government posture on sentencing and other issues, and perhaps, as Ring has alleged, vindictive and harsh prosecutorial contentions.
It is unusual that a defendant in sentencing papers accuses the government of urging him to lie. Many defendants in the position Ring alleges he was choose at sentencing not to aggressively criticize the prosecutors out of fear of antagonizing them or the sentencing judges, who frequently tend to be hostile to allegations of prosecutorial overreaching, or perhaps because it has little direct relevance to sentencing. Indeed, Ring's able lawyers, Andrew T. Wise and Timothy P. O'Toole of Miller and Chevalier, apparently did not highlight this argument.
The issue of decent prosecutors pressuring cooperators to change their stories so as to provide testimony which falsely implicates innocent people, which Ring claims would have happened had he not resisted the prosecutorial pressure, is an important one, especially in white-collar cases.
It is an issue that has not had much exposure, primarily since white-collar defense lawyers who represent cooperators in their dealings with prosecutorial agencies (as almost every white-collar defense lawyer does) are hesitant personally or ethically to publicize it. It demands serious attention.
Wednesday, October 26, 2011
Here is the Reuters story. Nothing posted yet on PACER. WSJ Law Blog also has coverage. This will be a much tougher case than Rajaratnam was for the government to prove. This morning's WSJ has a decent background piece (subscription required) on the case.
Tuesday, October 25, 2011
Monday, October 24, 2011
David Ingram, BLT Blog, John Edwards' Lawyer Faces Conflicts Question
Mike Scarcella, BLT Blog, Ex-Lobbyist Sentenced To One Day In Jail In Corruption Case
Joe Palazzolo, WSJ Law Blog, Ethics Office Clears Lead Prosecutor in Ted Stevens Trial (w/ a hat tip to Tiffany Joslyn)
DOJ Press Release, Virginia Contractors Plead Guilty to Kickback Scheme
DOJ Press Release, FDA Chemist Pleads Guilty to Using Insider Information to Trade on Pharmaceutical Stocks Resulting in Almost $4 Million in Profits - Failed to Disclose the Illicit Profits on Financial Forms
Carrie Johnson, NPR, Businesses Push Back On Foreign Bribery Law (hat tip Amanda Whitt)
DOJ Press Release, Former United Nations Employee Found Guilty of Fraud
Saturday, October 22, 2011
The indictment returned against former United Commercial Bank senior officers Ebrahim Shabudin and Thomas Yu on September 15, 2011, was unsealed on October 11 in the Northern District of California. This is one of the very few significant bank/securities fraud cases, related to the financial meltdown, that has been brought by Attorney General Holder's Department of Justice. Here is a copy of the Ebrahim Shabudin-Thomas Yu Indictment. A virtually identical criminal information was brought against former UCB senior officer Lauren Tran on May 24, 2011. It was not unsealed until October 13, but Tran pled guilty on June 15. The plea agreement is currently unavailable on PACER, despite the Court's order unsealing the record. The essence of the various charges is that senior bank officials systematically deceived the market and bank regulators about the bank's condition, through false entries and statements.
The invaluable William K. Black has written an outstanding article in Credit Writedowns about the pathetic and long-running failure of federal banking regulators to take any meaningful action against UCB. According to Black:
"In 2002, a court found that UCB’s senior managers had engaged in fraud to hide losses on a large loan for the purpose of fraudulently inducing another bank to bear the losses. It found the senior officers’ conduct so outrageous that it awarded substantial punitive damages. The FDIC, the SEC, and the Department of Justice did nothing in response to the fraud."
The bank continued to grow at an alarming rate, continued to receive high regulatory grades, and even obtained hundreds of millions in TARP funds, despite its sordid history and the credible warnings of a concerned whistleblower.
This will be a case to follow.
Friday, October 21, 2011
In an otherwise unremarkable bank and mail fraud affirmance, the Fifth Circuit reminds us that losses cannot be included as relevant conduct unless they are bottomed on criminal and/or fraudulent behavior. The appellant in U.S. v. Bernegger (loss must be criminally derived to count as relevant conduct), obtained two grants of $250K each from the State of Mississippi, which secured a first lien on the underlying collateral. Appellant later pledged the same collateral to other entities, but there was literally no evidence indicating that the original grants were procured through fraud. Nevertheless, the probation officer included the grants in the PSR's loss calculation and the trial court accepted the figure. The Fifth Circut also reiterates that "bare assertions" in a PSR are not, standing alone, evidence. This particular error did not affect appellant's Guidelines range, but did result in a reduced restitution award. The panel consisted of Judges Wiener. Clement, and Elrod. Opinion by the Dutchman.
Thursday, October 20, 2011
Gregory Reyes, former CEO of Brocades's conviction for securities fraud and making false filings with the SEC, falsifying corporate books, and false statements to auditors was affirmed by the Ninth Circuit. The prior conviction had been vacated because of prosecutorial misconduct. Convicted after a new trial, he argued that the case should be "dismissed because of (a) prosecutorial misconduct, (b) insufficient evidence of materiality to support his conviction, and (c) various evidentiary and instructional errors at trial." The court rejected these arguments and affirmed the conviction.
Wednesday, October 19, 2011
Surprise, surprise, surprise. According to Joe Palazzolo at WSJ's Law Blog, DOJ's Office of Professional Responsibility has cleared Brenda Morris of any wrongdoing whatsoever in the Ted Stevens case. The story is here.
Thursday, October 13, 2011
Hedge fund billionaire Raj Rajaratnam was sentenced today to an 11-year prison sentence, reportedly the longest sentence ever for insider trading, by Southern District of New York Judge Richard J. Holwell. The sentence was below the approximately 19- to 24-year sentence requested by the government and above the approximately six to eight years requested by the defense.
The Southern District United States Attorney's Office has focused its guns on insider trading offenses, bringing 52 cases in the last two years, 49 of which have resulted in convictions. U.S. Attorney Preet Bharara, who has called insider trading on Wall Street "rampant," has claimed that harsh insider trading sentences are a deterrent because they "convince rational business people that the risk is not worth it." Indeed, since an individual's decision whether to cross the line to trade on confidential information is often based on the individual's benefit v. risk analysis, insider trading may well be one of the relatively few areas of criminality where harsh sentences do actually serve as a deterrent. The Rajaratnam case, which involved a pattern of seeking inside information from tipsters and trading on it for millions of dollars in profits, and cases like it, should be distinguished from those cases which involve a single instance of insider trading based on a casual tip where the decision to trade is not so deliberate and therefore not so deterrable.
The 11-year sentence given to Rajaratnam is the second double-digit insider trading sentence imposed in the Southern District in the past few weeks. A few weeks ago, Judge Richard Sullivan sentenced Zvi Goffer, a former trader at Rajaratnam's firm, Galleon Group, to a 10-year term. While Rajaratnam's criminal involvement was of far greater magnitude than Goffer's, Rajaratnam had serious medical problems and a considerable history of good works, which may well have led to a lesser sentence than he would have received otherwise. Of course, some judges sentence more severely, or more leniently, than others.
Prosecutors have decided to drop the charges against an individual who had been arrested last year as part of "Operation Copout," a mortgage fraud investigation. The individual had initially been charged with 34 criminal charges, including multiple counts of mail and wire fraud. The case had been tried in a five month jury trial that had ended in a hung jury.
Attorney Michael Pasano, a white collar crime attorney at the law firm of Carlton Fields, who represented the client stated, "The strain on the client and his family was enormous and it is with great relief that we heard today that the Government agreed not to reprosecute and dismissed the case as to Mr. Stoll. It was a hard fought case, and I applaud the prosecutors for doing the right thing,”
It is difficult for prosecutors to be "ministers of justice" with the public outcry for retribution on mortgage fraud cases. It's nice to see that there are prosecutors out there who can do the right thing when the situation warrants it.
Monday, October 10, 2011
A few weeks ago an assistant U.S. attorney told David Finn, a Dallas criminal defense lawyer, that the government lacked funds to pay for copies of the documents it had requested as reciprocal discovery, even though the government had earlier charged Mr. Finn approximately $1,000 at 22 cents per page for copies of the discovery documents it had provided.
The cost of discovery has generally been borne by the party from whom the documents are requested. Occasionally, and much more frequently recently, as in Mr. Finn's case, the government has charged defendants or their lawyers for copies of documents provided in discovery. Generally, these charges are of little significance to the defendant since either the documents are relatively few, the defendant has deep pockets and can easily afford to pay for them, or the defendant is legally indigent and the costs are borne by the government under the Criminal Justice Act. However, when the defendant is a middle-class person with private counsel and the documents are voluminous, as they often are in white collar cases, the cost to the defendant (or his attorney) can be substantial.
The cost of discovery has generally been borne by the party from whom the documents are requested. Occasionally, and much more frequently recently, as in Mr. Finn's case, the government has charged defendants or their lawyers for copies of documents provided in discovery.
Generally, these charges are of little significance to the defendant since either the documents are relatively few, the defendant has deep pockets and can easily afford to pay for them, or the defendant is legally indigent and the costs are borne by the government under the Criminal Justice Act. However, when the defendant is a middle-class person with private counsel and the documents are voluminous, as they often are in white collar cases, the cost to the defendant (or his attorney) can be substantial.
The Federal Rules of Criminal Procedure are silent on costs of providing discovery. In fact, the Rules (most likely drafted with the garden variety non-white collar criminal case in mind) actually provide not for the turning over of documents but for their disclosure and availability to the defendant "for inspection, copying or photocopying." Rule 16(E). One federal appellate court has held that in the absence of an explicit requirement in the Rules that the government bear the cost of providing documents, it is an abuse of discretion for a district court to require it do so. United States v. Freedman, 688 F.2d 1364 (11th Cir. 1982). Since the costs of litigation would almost always be greater than the cost of the documents, there understandably have been few reported cases in this area.
In my view, in a criminal case, the government should provide without cost those documents required to be disclosed under the discovery provision of the Federal Rules. One should not be required to pay the government for the privilege of being prosecuted. The cost of production, of course, can be considerably reduced by providing the documents in electronic form. Further, the expense -- in the event of a conviction -- could be recovered as a cost of prosecution (see 28 U.S.C. 1918(b)).
In any case, the cost of 22 cents per page, while perhaps not out of line with what some lawyers charge clients for copies, appears excessive, but perhaps not so excessive in view of some of the expenses paid by the Department of Justice. In a report of otherwise minimal import to the criminal justice community, the DOJ Inspector General two weeks ago noted that expenses at DOJ conferences "appear to be extravagant." The IG highlighted a $53 per person luncheon, a $5 Swedish meatball, an $8.32 cup of coffee and a $16 muffin. Perhaps if DOJ paid less for food, it would charge less for discovery and be able to pay for reciprocal discovery. (To be fair, "extravagant" refreshment costs are often required by a hotel or conference center as part of the conference package; there is no such excuse for "extravagant" costs for producing discovery.)
Saturday, October 8, 2011
New Scholarship -New Crimes and Punishments: A Case Study Regarding the Impact of Over-Criminalization on White Collar Criminal Cases
Lucian Dervan, Southern Illinois, has a new article titled, "New Crimes and Punishments: A Case Study Regarding the Impact of Over-Criminalization on White Collar Criminal Cases." The abstract states in part:
"While much has been written about the plethora of negative consequences resulting from over-criminalization generally, it is worth noting that not everyone believes these negative consequences outweigh the potential benefits that might flow from the two types of over-criminalization discussed in this article. First, some might argue that repeatedly increasing the statutory maximums for white collar offenses is justified because doing so means culpable individuals will receive longer prison sentences reflective of their conduct and, in addition, others will be deterred from committing such crimes. Second, some might argue that enacting broad new criminal provisions in areas already criminalized is justified because such enactments provide prosecutors with the tools necessary to ensure that creative and sophisticated white collar criminals are brought to justice in larger numbers, thereby deterring others from committing similar offenses. This article will examine the accuracy of the underlying premises utilized by both of these “justifications” for the over-criminalization discussed herein – (a) the assumption that increasing statutory maximums results in ever lengthening sentences for individual white collar defendants, and (b) the assumption that enacting additional laws that are vague and overlapping in areas already criminalized results in increased levels of enforcement against white collar criminals. Through such an examination, this article seeks to understand whether new crimes and punishments really achieve their intended goals and, if not, what this means for the over-criminalization debate and, in particular, the over-criminalization “justifications” discussed above."
Wednesday, October 5, 2011
Is it my imagination, or has the DOJ been picking up its numbers in prosecutions and resolutions in white collar cases? Or is it just an increase in DOJ Press Releases? -
DOJ Press Release, Superseding Indictment Filed in $670 Million Fraud Scheme
Tuesday, October 4, 2011
Some noteworthy white collar decisions from the federal circuits, published on 10-3-11:
DOJ Press Release, Hitachi-LG Data Storage Inc. Agrees to Plead Guilty to Paritcipating in Bid-Rigging and Price-Fixing Conspiracies Involving Optical Disk Drives - Company Agrees to Pay $21.1 Million Criminal Fine
DOJ Press Release, Furukawa Electric Co. LTD and Three Executives Agree to Plead Guilty to Automobile Parts Price-Fixing and Bid-Rigging Conspiracy - Company Agrees to Pay $200 Million Criminal Fine; Executives Agree to Serve Prison Time
DOJ Press Release, Six Japanese Freight Companies Agree to Plead Guilty to Criminal Price-Fixing Charges - Companies Agree to Pay a Total of $46.8 Million in Criminal Fines; DOJ Press Release, Japanese Freight Company Agrees to Plead Guilty to Criminal Price-Fixing Charge ($1.84 million fine)
Monday, October 3, 2011
Houston, Texas has been home to several important criminal prosecutions. It now has a new U.S. Attorney with the appointment of Kenneth Magidson as the "22nd presidentially-appointed United States Attorney for the Southern District of Texas (SDTX)." (see here) As noted in the DOJ Press Release, this is "the seventh largest district in the nation."
The Third Circuit, in United States v. Richardson, discusses "proceeds" and "concealment" in an alleged drug money laundering case. The court finds insufficient evidence "to establish knowledge of a design to conceal" and vacated the money-laundering conviction. This case may be helpful in white collar cases involving money laundering charges.
The lawyer handling this appeal was Ellen C. Brotman.
Sunday, October 2, 2011
Professors Jim Finckenauer and Stuart Green have created a free website titled, Criminal Law and Criminal Justice Books. It is aimed to feature "high-quality, timely, and concise on-line reviews of important and interesting new books in criminal law, criminal procedure, and criminal justice." It is here.