Tuesday, February 28, 2012
In its lead editorial yesterday, entitled "Justice and Open Files," the New York Times proposed an "open files policy" for criminal discovery (see here). It based its reasoning largely on the several recently exposed cases of Brady violations by DOJ attorneys, including most prominently the case of Senator Ted Stevens. (Similar arguments have been made on this blog. See Wisenberg 11/23/11 (here), Goldman 11/30/11 (here); see also Podgor 11/21/11 (here), Wisenberg 2/21/12 (here).)
Open-files (or open-file or open) discovery, with protections available to prosecutors in those rare cases where there are threats to witness safety or other convincing reasons, would lead to trials that are much fairer, limit Brady violations, make unnecessary many court appearances and much motion litigation, and save the federal government and litigants tens of millions of dollars annually. Open-files discovery is especially appropriate in white collar cases, where the volume of discovery is often voluminous and the threat to witness safety virtually non-existent.
The ostensible argument given by opponents of open-files discovery is that providing the defense with names and statements of witnesses would endanger those witnesses. To be sure, the fear is realistic in some few drug, racketeering, and violence cases, but almost never in white collar cases. The real reason many prosecutors and their allies oppose open-files discovery, or any other meaningful expansion of pretrial prosecutorial discovery, is that the lack of knowledge by the defense of the prosecution's case and/or the delay in obtaining that knowledge give the prosecution a considerable advantage. The less information the defense has and/or the later it receives that information the less time it has to consider it, investigate it and prepare for it.
Legislators, fearful of being attacked as "soft on crime," are generally reluctant to go against the wishes of prosecutors and pass meaningful discovery legislation. I had hoped, perhaps naively, that in the wake of the Stevens revelations that the Senate might consider a "Ted's Law" to enhance discovery and/or punish Brady violators. So far, it has not. Open-files discovery is practiced in a few jurisdictions primarily because of strong, confident, fair-minded prosecutors who are willing to take positive steps over any objection by senior prosecutors. Those jurisdictions are unfortunately few.
Wednesday, February 22, 2012
Dominique Strauss-Kahn is once again in trouble with the law in relation to an investigation involving sexual activity. Strauss-Kahn was detained overnight in Lille, France, for questioning in a French investigation related to an alleged prostitution ring that purportedly supplied women for sex parties with Strauss-Kahn in Brussels, Paris and Washington.
Strauss-Kahn contends that he had no reason to believe that the women at these parties were prostitutes. His French lawyer bared that defense to French radio in December, "People are not always clothed at these parties. I challenge you to tell the difference between a nude prostitute and a classy lady in the nude." Reuters article, see here. This lack of scienter defense ironically appears to be the converse of what many believed would have been Strauss-Kahn's defense had the New York case in which he was accused of sexual assault gone to trial. In that case, it was expected that his defense would have been that he did believe that the woman in question was a prostitute.
The investigation, in which eight people have been charged, involves alleged misuse of corporate funds to pay for the services of the prostitutes. Engaging prostitutes is not illegal in France (although it is in Washington), but if the investigators determine that Strauss-Kahn had sex with prostitutes he knew had been paid for out of company funds, he might be charged as a beneficiary of that misuse of funds. Most likely, it will be difficult to prove that Strauss-Kahn, even if he were found to have known the women involved were prostitutes, knew how they were paid.
High-profile cases in other jurisdictions often affect prosecutorial priorities. One wonders whether this case will lead American prosecutors to scrutinize corporate books to determine whether corporate funds have been used to supply prostitutes to customers, political figures and others. I suspect that such payments (and consequent tax deductions as business expenses) are not wholly uncommon, at least for non-public businesses. Any resulting cases, involving both sex and corporate corruption, are sure to draw media attention.
Reported here was the dismissal by the government of the FCPA Sting case. This is a huge dismissal as two cases had already been tried. Comments from some of the defense counsel:
Stephen Bronis, Carlton Fields and defense counsel to Stephen G. Giordanella states "This FCPA sting investigation was ill conceived and ill executed. Our client, Mr. Giordanella, was acquitted and the foreperson of the jury observed that "a number of jurors were troubled by the nature of the FBI sting operation." Unfortunately it took 2 trials spanning a total of 6 months for the Government to pull the plug. Millions of dollars, much of it taxpayer money, have been wasted and the lives of those accused have been forever changed. This sort of injustice should never have happened."
Morvillo Abramowitz partner Lisa Prager, who represented Israel Weisler in this matter, commented, "I am very pleased with the government's dismissal. For my client, it has been a long two years. I believe it was a wise decision to put this case, finally, to rest."
Attorney Todd Foster commented that "I am very pleased with the government’s decision to drop the case against John Wier, but wish they had come to this realization that the charges were unproveable before we spent almost two months in trial and Mr. Wier exhausted most of his financial resources and he and his family had to go through the legal trauma they did."
Attorney Dee Wampler, Joseph S. Passanise & Adam D. Woody noted in a press release that "[u]ltimately, the Government finally did the right thing today and should think twice about going after honest business people in the future."
Trial counsel for group one was Eric Bruce, Matthew Menchel, and David McGill (Patel); Todd Foster, Michael Rubinstein, and Christina Kimball (Wier); Lawrence Jacobs and Connie Mederos-Jacobs (Bigelow); and Joseph Passanise and Dee Wampler (Tolleson). Post-trial, Bigelow hired David Benowitz.
Group two defense attorneys were: David Krakoff and Lauren Randell (John Mushriqui), Charles Leeper (Jeana Mushriqui), Eric Dubelier (Caldwell), Paul Calli and Stephen Bronis (Giordanella); Michael Madigan and Shana Madigan Feldman (Godsey); and Steven McCool (Morales).
The NACDL White Collar Criminal Defense College at Stetson announces inaugural White Collar Criminal Defense Award recipients
The NACDL White Collar Criminal Defense College at Stetson has announced the recipients of the inaugural White Collar Criminal Defense Award. Jan Lawrence Handzlik and Janet Levine have both been selected by the NACDL White Collar Criminal Defense College advisory board to receive the award, which honors individuals who have made a profound impact on the field of white collar criminal defense advocacy. Read more here.
Tuesday, February 21, 2012
[All of the facts in this post come from the 11th Circuit opinion in United States v. Ignasiak, publicly available on the 11th Circuit's website (here) or from PACER.]
Arthur Jordan used a counterfeit badge and posed as an on-duty U.S. Marshal in order to carry firearms onto commercial airplanes while on personal travel. He did this nine times. According to the United States Court of Appeals for the 11th Circuit, Jordan's "criminal conduct" resulted in "multiple violations" of 18 U.S.C. Sections 912 and 1001 and 49 U.S.C. Section 46505, and "could have been charged as felonies."
But Jordan wasn't even charged with a misdemeanor. He got pretrial diversion from the South Dakota U.S. Attorney's Office, paid $2,000.00, and agreed never to carry firearms on an airplane again, except while on official business.
Jordan is not your everyday citizen. He is none other than Dr. Arthur Jordan, who goes around the country testifying as an expert for the U.S. Government in Health Care Fraud/Controlled Substances Act prosecutions against pain management physicians. He charges $300 per hour and, during his November 2008 testimony in U.S. v. Ignasiak, claimed to have earned around $30,000.00 as a government expert up to that point in time. Dr. Jordan was the key government expert against Robert Ignasiak in the latter's criminal jury trial, testifying for almost three days. (Roy Black was lead defense counsel during the trial.)
But there's much more to the story. Given its reversal, and its finding that the evidence was sufficient, the 11th Circuit declined to address the other issues raised by Ignasiak on appeal--except for one.
You see, none of the Ignasiak defense attorneys knew during the trial about Dr. Jordan's "criminal conduct" or his South Dakota pretrial diversion agreement. Several months after the Ignasiak guilty verdicts, the government filed the Government's In Camera Notice to the Court ("Notice"). The Notice, and an accompanying affidavit, were filed under seal. This post-trial Notice revealed Dr. Jordan's conduct and his South Dakota pretrial diversion deal to Judge Lacey Collier and Robert Ignasiak's defense team for the first time. The government requested that the Notice be kept under seal, in order to protect Dr. Jordan's privacy interests.
In the Notice, the government also argued that its prior failure to disclose the Arthur Jordan impeachment material did not violate Brady/Giglio, because the Ignasiak prosecutor had not personally known about Dr. Jordan's conduct, or the South Dakota pretrial diversion agreement, during the Ignasiak trial.
Judge Collier summarily granted the government's request to seal the Notice, despite defense opposition. The defense filed a New Trial Motion based on the alleged Brady/Giglio violations. Much of that litigation was conducted under seal. A few documents are publicly available, but they are heavily redacted. The defense lost its New Trial Motion as well.
The 11th Circuit did not decide whether the government's failure to discover and disclose Dr. Jordan's conduct, before or during trial, violated Brady/Giglio. But it did order the government's Notice unsealed and, through its opinion, disclosed Dr. Jordan's "criminal conduct" and pretrial diversion deal to the bench and bar. This was an admirable public service.
The 11th Circuit was clearly displeased by DOJ's effort to shield Dr. Jordan. As the Court succinctly put it:
"Perhaps ironically, by arguing that there was no Brady violation in this case because the AUSA prosecuting Ignasiak was unaware of Dr. Jordan’s history, it is actually the government that most persuasively highlights the value in unsealing the Notice. Indeed, should the Notice remain sealed, the significant likelihood is that in the next CSA prosecution in which Dr. Jordan testifies as an expert, both the prosecuting AUSA and the defense counsel will again be unaware of the highly relevant impeachment evidence contained in the Notice. And in that case, as in this one, should the truth ever come to light, the government could again point to its own ignorance and claim immunity from Brady error. Stated this way, we would have expected the government to condemn, rather than condone, such a problematic outcome."
In light of the 11th Circuit's opinion, several questions present themselves.
1. Who Protected Jordan? In other words, why did he get what looks on its face like a very favorable pretrial diversion deal from the South Dakota U.S. Attorney's Office? Who approved the deal and who within DOJ was informed about it? How long did the diversionary period last? Was it unusually short and, if so, why?
2. Who Revealed or Failed to Reveal Jordan's Conduct and Pretrial Diversion Deal? The Ignasiak prosecution team, from the Northern District of Florida, purportedly did not know about Dr. Jordan's "criminal conduct" or his South Dakota pretrial diversion agreement until after trial. Why not? The South Dakota U.S. Attorney's Office is part of the DOJ and the U.S. Attorney network, and Dr. Jordan is fairly well known as a government expert in pain clinic cases. It is difficult to imagine that South Dakota prosecutors were not aware of Dr. Jordan's ongoing role as a government expert. Assuming that they were aware, why didn't this raise any red flags, and who, if anyone, made the decision to quarantine this obvious Brady/Giglio material? If this is a cover-up, how high did it go? Was Jordan's pretrial diversion completed before Ignasiak's trial? Was it still in force when Jordan traveled, as he surely must have, to Pensacola for trial prep? Wouldn't Jordan need permission from pretrial services in order to travel to Pensacola, and wouldn't he have to tell pretrial service the purpose of his trip? Did the South Dakota U.S. Attorney's Office know of the trip and its purpose? If so, why didn't it notify N.D. Florida?
3. Why Did N.D. Florida Try to Seal and Suppress Dr. Jordan's "Criminal Conduct" and Pretrial Diversion Deal? As the 11th Circuit correctly noted, the government's effort to seal its own Notice had the effect of shielding Dr. Jordan's misconduct from other federal prosecutorial offices. Even assuming, as the government argued in Ignasiak, that an AUSA in one federal district has no obligation to obtain Brady/Giglio from a fellow AUSA in another federal district, what possible justification is there for the active effort to suppress Brady/Giglio material that occurred post-trial in Ignasiak?
4. What Subsequent Prosecutions Have Been Sullied by the Ignasiak Brady/Giglio Suppression? Did the Florida AUSAs ask Dr. Jordan about any upcoming trials Jordan may have had on tap with other U.S. Attorney Offices? If so, did the N.D. Florida make an attempt to tell the other offices about Dr. Jordan? It unquestionably had an ethical duty to do so. What has been done since the Ignasiak opinion to look into this issue?
5. Does the DOJ Really Believe that Brady/Giglio Material Known Only to a Federal Prosecutor in South Dakota is not Brady/Giglio Material in any Other Federal District? What duty does DOJ impose upon its federal prosecutors to tell prosecutors in other federal districts about Brady/Giglio problems with testifying agents and expert witnesses? If there is no policy in this area, why not?
6. How Could This Happen? More to the point, how could this happen post-Stevens? The government filed its Notice in Ignasiak six months after DOJ moved to dismiss the Stevens Indictment with prejudice and six months after Judge Emmet Sullivan ordered his own investigation of Brady/Giglio violations. Apparently AG Holder's message fell on some deaf ears. And I guess the N.D. Florida never thought to re-examine its position, after the DOJ issued, to much fanfare, the Ogden Memo in early 2010. Even now, after the 11th Circuit's pointed comments, the government has not voluntarily moved to unseal the Notice, or the motions and responses from the New Trial Motion, in the Ignasiak case. Why not?
It is extremely difficult for me to believe that either AG Eric Holder or Assistant AG Lanny Breuer knew about the Arthur Jordan issue prior to last month's Ignasiak opinion. And therein lies the problem. Even an Attorney General and Criminal Division Chief publicly committed to rooting out Brady/Giglio abuses could not prevent the Arthur Jordan debacle.
What is the real lesson here? That prosecutors can't be trusted to make their own judgments about what is or is not exculpatory and material under Brady/Giglio. Disclosure must be the norm.
DOJ has done everything in its power to prevent meaningful statutory reform of Fed.R.Crim.App.16 and federal criminal discovery procedures. DOJ says that it can be trusted to prevent Brady/Giglio violations from occurring. The Ted Stevens prosecution is Exhibit 1 in the argument against DOJ. Now we have Exhibit 2. His name is Dr. Arthur Jordan.
The government filed a dismissal with prejudice in an FCPA African Sting case stating:
"(1) the outcomes of the first two trials in which, after extensive deliberations, the juries remained hung as to seven defendants and acquitted two defendants, and one defendant was acquitted on the sole charge against him pursuant to Fed. R. Crim. P. 29; (2) the impact of certain evidentiary and other legal rulings in the first two trials and the implications of those rulings for future trials, including with respect to Rule 404(b) and other knowledge and intent evidence the government proposed to introduce; and (3) the substantial governmental resources, as well as judicial,defense, and jury resources, that would be necessary to proceed with another four or more trials, given that the first two trials combined lasted approximately six months. In light of all of the foregoing, the government respectfully submits that continued prosecution of this case is not warranted under the circumstances."
See Motion - Download 954646
Thursday, February 16, 2012
The Wall Street Journal editorial page weighs in on FCPA prosecutions here this morning, bewailing DOJ's increasingly broad construction of the statute and calling for reform. The editorial hits the FCPA nail right on the head, noting Mother Justice's recent setbacks in three FCPA cases, but also noting that big companies settle FCPA cases for outrageously large sums instead of shouldering the risks and further financial burdens of protracted litigation against the DOJ and SEC.
Don't expect any of this to change without a statutory fix. DOJ has proven itself remarkably tone deaf, stubborn, and obtuse with respect to FCPA enforcement. Besides, FCPA investigations bring in the big bucks, concomitantly creating a specialty practice that is easily marketable to the private and in-house bar after government employment.
Tuesday, February 14, 2012
If you are planning to attend the NACDL White Collar Criminal Defense College at Stetson, please book a room quickly - the room block will soon be closed.
The NACDL White Collar Criminal Defense College at Stetson is a “boot-camp” program for practitioners wishing to gain key advocacy skills and learn substantive white collar law. The program will cover client retention, investigation in a white collar case, handling searches and grand jury subpoenas, and dealing with parallel proceedings. Participants will have the experience of negotiating a plea, making proffers, and examining which experts to hire and how to protect the client in this process. Interactive sessions with top white collar practitioners will allow the participants to learn trial skills such as opening statements, cross-examination, jury instructions, closing arguments, and sentencing – all in the context of a white collar matter.
More Information and to registrar here
A. Brian Albritton, Phelps Dunbar, LLP
Henry W. Asbill (Hank), Jones Day
Joe Bodiford, BodifordLaw
Barry Boss, Cozen O'Connor
Ellen C. Brotman, Montgomery McCracken
Robert M. Cary, Williams & Connolly LLP
Vince J. Connelly, Mayer Brown
Lucian E. Dervan, Southern Illinois University School of Law
Donna Lee Elm, Federal Public Defender, Middle District of Florida
James E. Felman, Kynes, Markman & Felman, P.A.
Jack E. Fernandez, Zuckerman Spaeder, LLP
Todd Foster, Cohen & Foster, P.A.
David Gerger, Gerger and Clarke
Nina J. Ginsberg, DiMuroGinsberg, PC
Lawrence S. Goldman, Law Offices of Lawrence S. Goldman
John Wesley Hall, Jr., John Wesley Hall Little Rock Criminal Defense
A. Jeff Ifrah, Ifrah Law
Anthony A. Joseph, Maynard Cooper and Gale, PC
Frank Klim, Stetson University College of Law
John F. Lauro, Lauro Law Firm
Bruce Lyons, Lyons and Sanders Chartered
Terence F. MacCarthy, Distinguished Professorial Lecturer, Stetson
Edward A Mallett, Mallett and Saper, L.L.P.
Bruce Maloy, Maloy, Jenkins, & Parker
David Oscar Markus, Markus and Markus, PLLC
James McComas, Retired
Michael D. Monico, Monico, Pavich and Spevack
Jane W. Moscowitz, Moscowitz and Moscowitz, P.A.
William Nortman, Akerman
Kevin J. Napper, Carlton Fields
Cynthia Eva Orr, Goldstein, Goldstein and Hilley
Patricia A. Pileggi, Schiff Hardin, LLP
Barry J. Pollack, Miller & Chevalier
Mark P. Rankin, Shutts and Bowen, LLP
Shana-Tara Regon, NACDL
Michele A. Roberts, Skadden Arps Slate Meagher and Flom, LLP
Charles H. Rose III, Stetson University College of Law
Kerri L. Ruttenberg, Jones Day
Gail Shifman, Shifmangroup
Adam P. Schwartz, Carlton Fields
William N. Shepherd, Holland & Knight LLP
Neal R. Sonnett, Law Offices of Neal R. Sonnett, PA
Ed Suarez, The Law Offices of Ed Suarez, P.A.
Larry Thompson, Former Deputy Attorney General U.S. Department of Justice and Vice President of PepsiCo
Gary R. Trombley, Trombley & Hanes
Albert A. Vondra, PricewaterhouseCoopers, LLP
Morris “Sandy” Weinberg, Jr., Zuckerman Spaeder LLP
Peter H. White, Schulte Roth & Zabel LLP
Solomon L. Wisenberg, Barnes & Thornburg LLP
Monday, February 13, 2012
Today's WSJ reports here, in an article by Joe Palazzolo and Emily Glazer, that Avon is facing a DOJ and federal grand jury invesitgation of FCPA allegations. It is unclear who leaked the grand jury aspect of the case, but Avon does not deny that there is an investigation and you can't run a federal FCPA probe without a grand jury. According to the article, an internal 2005 audit report revealed questionable payments to Chinese officials and third parties, but the report wasn't shared with the audit committee, the full Board of Directors, or the finance committee. The article gives no details on the 2005 internal audit report. Avon apparently launched a full fledged internal investigation, but not until 2008. No discussion in the article of any potential statute of limitation issues.
Thursday, February 9, 2012
The House passed the Stock Act which makes members of Congress subject to insider trading scrutiny. With both Senate and House approval (although there are diffferences in the two bills) this is moving in the direction of becoming law. (see Talk Left here). But the House shot down the "Public Corruption" Amendment to the Stock Act which sought a Skilling and Sun-Diamond fix. The NACDL Press Release reports in part:
"The amendment had sought to re-write multiple criminal laws in precisely the way the Supreme Court has declared would be unconstitutionally vague and overbroad. See Skilling v. United States, 130 S.Ct. 2896 (2010); United States v. Sun-Diamond Growers of California, 526 U.S. 398 (1999). Importantly, decades of successful prosecutions of corrupt public officials with the over two dozen federal criminal statutes already in existence belies all assertions that the Department of Justice desperately needs more tools in order to prevent public corruption. The “Public Corruption” Amendment, both in its substance and in the manner in which it was piggybacked onto the STOCK Act, provides further compelling evidence of a disturbing and costly overcriminalization trend in Congress."
"According to NACDL President Lisa Wayne, “There are over 4,450 federal criminal laws on the books and tens of thousands more in the regulations. It’s actions like these – the unconsidered rushing through of harsh criminal law solutions to vague or undefined problems – that got our nation to this terrible place.”
From the Department of Justice Press Release:
"The agreement resolves certain violations of civil law based on mortgage loan servicing activities. The agreement does not prevent state and federal authorities from pursuing criminal enforcement actions related to this or other conduct by the servicers. The agreement does not prevent the government from punishing wrongful securitization conduct that will be the focus of the new Residential Mortgage-Backed Securities Working Group. The United States also retains its full authority to recover losses and penalties caused to the federal government when a bank failed to satisfy underwriting standards on a government-insured or government-guaranteed loan. The agreement does not prevent any action by individual borrowers who wish to bring their own lawsuits. State attorneys general also preserved, among other things, all claims against the Mortgage Electronic Registration Systems (MERS), and all claims brought by borrowers."
This does not resolve the question of whether any federal robo-signing fraud prosecutions will occur or why none have been brought to date.
Here is Judge Emmet Sullivan's Memorandum Opinion ordering unredacted release of Hank Schuelke's Report on prosecutorial misconduct in the Ted Stevens prosecution. Any comments or objections to the report by the attorneys involved are due by March 8 and will be published along with the Report.
Wednesday, February 8, 2012
The New York Times has the story here. The official announcement may come as early as tomorrow. As always, the devil will be in the details. Here is the $64,000.00 question. What if any limitation of liability for past criminal acts will the banks obtain through this agreement? If there is any limitation on the ability of federal authorities to prosecute the obvious, widespread, and easily provable robosigning fraud that took place in this country, the agreement will constitute a disgrace.
One of the supposed hallmarks of the American criminal justice system is the prudent exercise of prosecutorial discretion. But prosecutorial discretion, even when it works, is a blessing and a curse. A blessing, because it allows for the flexibility and compromise without which most systems, even well-constructed ones, cannot function. A curse, because liberty should not depend upon the the character and wisdom of the person temporarily wielding power.
The U.S. Attorney's Office for the Central District of California has decided not to prosecute Lance Armstrong. An announcement to that effect was made last Friday. The L.A. Times story is here. A good Washington Post piece is here. Today's Wall Street Journal discusses the declination and a potential future probe of of improper leaks related to the case. (An internal investigation of some kind appears to be warranted given the massive leaking that has occurred.) According to the WSJ, the declination decision by U.S. Attorney Andre Birotte and his top aides went against the recommendation of the two line AUSAs handling the case. Maybe, but take it with a grain of salt. News stories about the internal machinations of prosecution teams often get it wrong.
Based on what I know about the case, the decision to decline appears to have been a no-brainer. Recent federal prosecutions involving alleged drug use by star athletes have expended enormous sums of money with mixed or poor results. In the Armstrong matter, the doping, if it occurred, was not itself a federal crime. Prosecutors would have been peddling a wire fraud theory under which Armstrong allegedly defrauded team sponsors by intentionally violating a contractual obligation to avoid improper drug use. Not very sexy. Twelve typical American jurors might well wonder at the start of such a case, "Why are we even here?" Finally, Armstrong is enormously popular and has a sterling defense team with unlimited resources.
The U.S. Anti-Doping Agency (USADA) vows to continue its investigation, accurately noting that its "job is to protect clean sport rather than enforce specific criminal laws." But USADA wants the grand jury materials. This would be a travesty, and is unlikely to happen. Federal grand jury materials are presumptively secret by law for good reason. Don't count on a federal court sanctioning transfer of grand jury materials to an agency like USADA.
In other declination news, the DOJ attorneys prosecuting the Gabon sting case have informed U.S. District Judge Richard Leon that DOJ is considering dropping all future prosecutions. A decision will be made by February 21. The BLT piece is here. Full disclosure: I briefly represented one of the defendants, and considered representing another of the defendants, neither of whom has gone to trial. My comments here are based on the public record. The two cases brought to date have resulted in three acquittals and two hung juries. Nobody going to trial has been convicted in what DOJ thought was a sure win. Whatever merit there was in initially bringing the case, reconsideration is in order. The two trials to date have revealed a number of weaknesses. First, this was a sting--a crime engineered by the U.S. Government. Second, the informant who helped orchestrate it was far more compromised than the typical informant in a white collar case. Third, in a key tape recorded conversation between that informant and one of the defendants, the defendant seeks to back out of the alleged unlawful transaction, but the informant reels the defendant back in by telling him that attorneys have approved the deal. Fourth, the inherent ambiguities and weaknesses in the FCPA itself.
If there has been a benefit to the Gabon FCPA prosecution it is this--it has taught the white collar defense bar that FCPA cases can be fought and won and, presumably, has taught DOJ that FCPA cases aren't as easy to win as they first appear.
February 8, 2012 in Celebrities, Corruption, Current Affairs, FCPA, Fraud, Government Reports, Grand Jury, Investigations, Media, Prosecutions, Prosecutors, Sports, Statutes | Permalink | Comments (0) | TrackBack (0)
Tuesday, February 7, 2012
Joelle Scott, Forbes, Bharara's Wiretaps: The Latest Insider Trading Charges
Mike Scarcella, BLT Blog, Federal Appeals Court Upholds Abramoff Associate's Plea Deal (w/ a hat tip to Ivan Dominguez)
BLoomberg, Rajat Gupta May Face More Charges, U.S. Says
Kevin McCoy, USA Today, Swiss bank indictment details tax evasion ploys; Lynnley Browning, Reuters,
U.S. indicts Wegelin bank for helping Americans avoid tax
Shannon Green, Corporate Counsel, law.com, Was Penn State's GC Counsel for University Officials?
Mike Scarcella, BLT Blog, DOJ Considers Abandoning Its FCPA Sting Prosecution
Monday, February 6, 2012
In criticizing Judge Jed Rakoff's refusal to rubber-stamp its proposed settlement agreement with Citibank, the SEC has claimed that if it has to require companies to admit wrongdoing as a condition of settlement, there will be far fewer settlements and more trials. As a result, says the SEC, its resources would be so strained so that it would bring considerably fewer enforcement actions. The New York Times on Friday, February 3, cited unnamed "legal experts" as endorsing that view, saying that companies will be less likely to admit facts which could be used against them in shareholder lawsuits. See here.
There is a certain logic to that argument. Companies that have committed misconduct now do choose to pay the SEC rather than admit or reveal their wrongdoing to the public (and to class action lawyers). Companies that believe they have not committed misconduct sometimes decide it is less costly to pay the SEC than fight it. Few SEC cases go to trial. This settlement model works well for the SEC, which gets a check with less sweat, and for most defendants, which conceal their misconduct and/or save money.
But is that in the public good? More trials should lead to more public knowledge, promote more curative government action, and add an additional deterrent to corporate misconduct. Additionally, it should force the SEC to be more scrupulous in bringing marginal or questionable cases since they would more often be required to justify the charges in court.
I also question whether these "experts" are right in their expectation that there would be far more trials. I am not so sure that many corporate executives want public airings of the factual details of the company's wrongdoing. "Experts" predicted that the enactment of the Sentencing Guidelines would overwhelm the federal courts with trials since many more criminal defendants would exercise their right to trial because of the perceived (and actual) harshness and rigidity of the Guidelines upon a conviction. That simply has not happened. The percentage of cases settled by plea has remained relatively constant, if not increased, since the enactment of the Guidelines.
Sunday, February 5, 2012
As we get closer to the 50th Anniversary of the Gideondecision, it is wonderful to see Attorney General Eric Holder being a true "minister of justice" in his support for counsel for indigent defendants. (see here) It is wonderful to see his recognition of the problems with indigent defense -
"Across the country, public defender offices and other indigent defense providers are underfunded and understaffed. Too often, when legal representation is available to the poor, it’s rendered less effective by insufficient resources, overwhelming caseloads, and inadequate oversight."
Across the country, public defender offices are handling cases of defendants charged with crimes related to mortgage fraud, Ponzi schemes, and other white collar offenses. AG Holder's recognition of the problems here and efforts to correct this situation are important to assuring a fair criminal justice process.
Saturday, February 4, 2012
Last week, after President Obama announced a purportedly new initiative, see here and here, to combat fraud, government law enforcement officials, criticized for their lack of activity, promised action in the very near future. It is not clear whether the indictment returned Wednesday in the Southern District of New York for crimes committed four years ago is the action referred to. It certainly is not an earth-shattering case.
On Wednesday, three former Credit Suisse traders were indicted for inflating the worth of collateralized debt obligations (CDOs) to avoid recognition of market losses and thereby increase their bonuses. See here.
The CDOs consisted of pooled, presumably at least in part subprime, mortgages that were sold to investors in packages by presumably reputable institutions with high ratings provided by presumably reputable credit agencies. The presence of large amounts of overvalued CDOs in firm inventories is considered by some a major cause of the financial crisis.
Unlike securities such as listed stocks, there was no liquid market for these mortgage securities and therefore no easily ascertainable market value. Some financial firms were hesitant to mark down these failing obligations because it would considerably decrease reported earnings. Here, it is alleged -- and two of the three indicted have pleaded guilty -- that the traders knowingly concealed the loss in value and secured a bogus evaluation from a friendly small investment bank in order to support the inflated value of the securities. The overvaluation -- or failure to recognize the loss -- resulted in increased compensation for the traders, whose year-end bonuses were based considerably on the profits of their groups.
This case is interesting for several reasons. It is one of the relatively few brought so far that concern alleged criminal wrongdoing after the financial crisis arose. Most previous criminal prosecutions involving failed mortgages have focused on the origination of mortgages and comparatively small-time people such as aggressive mortgage brokers, perjurious buyers and conniving lawyers, and not their securitization.
It is also one of the few instances in which employees of a major financial institution have been prosecuted criminally in a case related to the financial crisis. Nonetheless, it would be a stretch to say that this overvaluation, discovered and corrected by Credit Suisse in days, had a major impact.
This is one of the rare criminal accusations, to my knowledge, involving mismarking or deliberately overvaluing illiquid assets in order to inflate profits. These valuations have a major effect on the profit and loss statements of financial institutions, including hedge funds, and the consequent bonuses or incentive compensation of traders and managers. False marking, often using evaluations by supposed experts or comparable institutions of the worth of securities with no easily-defined market value, is an area which deserves more governmental scrutiny and probably more governmental legal action.
Of course, care must be taken to distinguish deliberate falsity from good faith but erroneous evaluation in this uncertain area.
Wednesday, February 1, 2012
Mike Scarcella, law.com, Two auto parts companies to pay $548M in antitrust prosecution
Mike Scarcella, BLT Blog, Jury Acquits Two Businessmen In FCPA Sting Case
Washington Post (AP), Fresh NY indictment boosts insider trading charges against Ex-Goldman Sachs board member
DOJ Press Release, Yazaki Corp., Denso Corp. and Four Yazaki Executives Agree to Plead Guilty to Automobile Parts Price-Fixing and Bid-Rigging Conspiracies -Companies Agree to Pay a Total of $548 Million in Criminal Fines–Includes Second Largest Criminal Fine Ever for an Antitrust Violation; Executives Agree to Serve Prison Time
DOJ Press Release, Two Shipping Corporations Plead Guilty and Are Sentenced in Maryland for Obstruction of Justice and Environmental Crimes - Companies Each Sentenced to Pay $1.2 Million, Including $550,000 to Benefit Chesapeake Bay
Sue Reisinger, Corporate Counsel, SEC Dismisses Case Against Ex-GC, Leaves Larger Questions Open
David Gialanella, NJLJ, Federal Prosecutors Want Martini Off Bergrin Case, Doubting Impartiality