Saturday, July 21, 2012
By - Lucian Dervan & Markus Rubenstahl - available here
Abstract: Written for a European publication focusing on internal investigations, this piece seeks to introduce the reader to the fundamental elements of the American FCPA, including discussion of available defenses under the statute. Further, this piece discusses some of the collateral considerations that must be made during the investigation of an FCPA matter, particularly given the existence of overlapping anti-bribery provisions in various countries throughout the world and the likelihood of concurrent parallel proceedings both in the United States and abroad during the pendency of any international bribery matter. Finally, this piece offers some thoughts regarding FCPA compliance programs.
Thursday, July 19, 2012
The Supreme Court, in Southern Union Co. held that "where a fine is so insubstantial that the underlying offense is considered 'petty' the Sixth Amendment right of jury trial is not triggered and no Apprendi issue arises." But the Court then went on to say that "not all fines are insubstantial, and not all offenses punishable by fines are petty." The final ruling was that "Apprendi applies to the imposition of criminal fines." (see here)
Today a district court interpreted that decision with the Hon. Beryl A. Howell penning the decision in United States v. Sanford LTD & James Pogue. The court looked at whether "evidence of monetary proceeds is either permitted or required to be presented to the jury." So the court needed to examine Southern Union and also the Alternative Fines Act, 18 U.S.C. s 3571(d) and determine whether gross revenues offered by the government should be admitted under the Fed. R. Evid. Rules 402 and 403.
The district court starts by noting that motive is admissible evidence and that the "relevance is not substantially outweighed by a danger of unfair prejudice." That said, the court goes a step further holding "that the government's proposed specific measure of monetary proceeds ($24,045,930.79 in gross revenues) may not be admitted, standing alone, to establish the 'gross gain' that Sanford 'derive[d]...from' the charged offenses under 18 U.S.C. s 3571(d)." The court stated, "[t]he government may not admit that specific monetary figure except to the extent, and only if, necessary for the jury to establish or calculate the appropriate measure of 'gross gain' 'derive[d] ...from' the charged offense, which the Court defines" later in its opinion.
It is here that things get particularly interesting. Hon. Howell notes the ambiguity in the term "gross" monetary amount. Being a master of the sentencing guidelines, Hon. Howell points out how the guidelines provide guidance on the meaning of "gross gain." She provides a wonderful lesson on the legislative history, even referencing the Model Penal Code. She notes how there are conflicting opinions on what constitutes gross gains. (nice law review topic for a student looking for the jurisdictional split for his or her student note). In the end she defines "gross gain" to mean "any additional before-tax profit to the defendant that derives from the relevant conduct of the offense."
But she also notes the importance of the term "derived from" and "concludes that the term ...requires that the government prove that a given monetary amount (either a gain or a loss) was proximately caused by the conduct of the charged offense in order to qualify as a 'gross gain' under s 3571(d)."
The court noted that it "requires additional information before deciding whether allowing the government to seek a fine under s 3571(d) would 'unduly complicate or prolong' the trial."
Hats off here to Attorney Greg Linsin of Blank Rome who raised this issue.
(esp) (w/ a hat tip to Irwin Schwartz).
The First Circuit affirmed the sentences of Robert Prosperi and Gregory Stevenson. The government appealed the sentences following their convictions for mail fraud, highway project fraud and conspiracy to defraud the government. "Both appellees were employees of Aggregate Industries NE, Inc. ('Aggregate'), a subcontractor that provided concrete for Boston's Central Artery/Tunnel project, popularly known as the 'Big Dig.'" The judge calculated the sentence under the guidelines as 87-108 months and then gave the defendants 6 months of home monitoring, 3 years probation, and 1,000 hours of community service.
The appellate court found the sentences met the reasonableness standard. The First Circuit stated:
Although the degree to which the sentences vary from the GSR gives us pause, the district court's explanation ultimately supports the reasonableness of the sentences imposed. The district court emphasized that its finding on the loss amount caused by the crimes, the most significant factor in determining the GSR, was imprecise and did not fairly reflect the defendants' culpability. Hence it would not permit the loss estimate to unduly drive its sentencing decision. Relatedly, it found that there was insufficient evidence to conclude that the defendants' conduct made the Big Dig unsafe in any way or that the defendants profited from the offenses. The court then supplemented these critical findings with consideration of the individual circumstances of the defendants and concluded that probationary sentences were appropriate. We cannot say that it abused its discretion in doing so.
The judges ended this thoughtful opinion with:
In this case, the district court carefully explained its sentencing decisions. Most significantly, the court explained why the estimated loss amount was an unfair proxy for culpability, and why it should not drive the sentencing process. Importantly, it also found that there was insufficient evidence to conclude that the defendants' conduct compromised the structural integrity of the Big Dig, or that they sought to enrich themselves. Coupled with the individual circumstances of the defendants, these findings provided a "plausible explanation [for the sentences], and the overall result is defensible." Innarelli, 524 F.3d at 292.
It is nice to see judges looking at the individuals and not sentencing by the numbers.
See also Doug Bermans, Sentencing Law & Policy here
Tuesday, July 17, 2012
Joe Paterno was buried a second time last week -- partly by a report of former judge and FBI Director Louis Freeh and partly by accounts like that of the New York Times, which in a four-column lead story headlined "Abuse Scandal Inquiry Damns Paterno and Penn State," wrote "Mr. Freeh's investigation makes clear that it was Mr. Paterno . . . who persuaded the university president and others not to report Mr. Sandusky to the authorities . . . ." (emphasis added). See here. A reading of the report, however, shows that its conclusions as to Paterno are based on hearsay, innuendo and surmise. While a report such as the Freeh Report certainly need not be based on court-admissible testimony, if indeed the evidence referred to in the report constituted the sole basis for a criminal and/or civil charge against Paterno, the case undoubtedly would be thrown out and would not reach a jury.
The relevant evidence involving Paterno is as follows:
- In May 1998, with respect to an allegation that Sandusky had showered with an eleven year-old on the Penn State campus, Tim Curley, the Penn athletic director, notified his superiors that he had "touched base" with Paterno about the incident and days later sent to them an email "Anything new in this department? Coach [Paterno] is anxious to know where it stands."
- In February 2001, after he observed Sandusky sexually molesting a youth in a Penn State shower room, Mike McQueary, a graduate assistant, reported the incident to Paterno, who told him, "You did what you had to do. It is my job now to figure out what we want to do." The following day, a Sunday, Paterno reported the incident to Curley and Gary Schultz, a Penn State vice-president. Paterno waited a day or so not to "interfere with their weekend."
- Later in the month, Graham Spanier, the Penn State president, Schultz and Curley devised an action plan which included reporting the incident to the state welfare agency. A day or so later, Curley emailed Schultz and Spanier and said that he had changed his mind about the plan "after giving it more thought and talking it over with Joe [Paterno] yesterday," and now felt that they should instead tell Sandusky to seek professional help and not report him to the welfare authorities unless he did not cooperate.
The first item, the 1998 Curley email, merely demonstrates that Paterno showed an interest in what was happening with reference to the 1998 incident, which ultimately was reported to both the welfare department and the local prosecutor and resulted in no findings or charges. Paterno reportedly in 2011, after the incident involving Sandusky's 2001 conduct and the failure to report it to authorities raised public attention, denied that he was aware of the 1998 incident. In fact, Paterno's testimony in the grand jury in which he purportedly denied any such knowledge was in response to an imprecise, general and unfocused question, and his answer was accordingly unclear. Additionally, the reported statement denying any prior knowledge was by his "family" and not by him.
In any case, while a denial, if made directly by Paterno or even an authorized agent, might arguably be admissible in court as evidence of consciousness of guilt, such evidence is weak proof of guilt since even wholly blameless people often make false statements distancing themselves from wrongdoing.
The second item, Paterno's response to McQueary is by itself of little moment and says no more than that Paterno, having been apprised of the incident, would now have to figure out what he and the others will do. Of course, one can read into that facially bland statement a more sinister meaning -- that Paterno intended to tell McQueary to remain silent. Such a meaning, however, is supported only by surmise and suspicion. The report also states that Paterno waited a day before reporting the information to Curley and Schultz so as not to "interfere with their weekends." This one-day delay is not meaningful.
The third item, Curley's change of mind after "talking it over with Joe," might, not unreasonably, albeit with a considerable leap, be construed to indicate that Paterno suggested not reporting the incident to the authorities. However, it might also be that Curley changed his mind on his own after airing his thoughts with Paterno and deciding that the earlier plan was not preferable. It is, of course, also possible that whatever Curley wrote, his mention of discussions with Paterno (without any direct or indirect report of Paterno's own views) was an attempt by Curley to minimize or shift personal responsibility from himself. In any case, any probative value this email has as to Paterno's intent is also based on speculation.
Freeh himself seems to recognize that his conclusions are far from "clear." He mentions that Curley and Schultz contended that they acted "humanely" and sought "the best way to handle vague and troubling allegations," that Paterno had told a reporter he had "backed away and turned it over to . . . people I thought would have a little more expertise," and that Spanier had denied knowledge "Sandusky was engaged in any sexual abuse of children."
He then rejects these explanations and concludes, "Taking into account the available witness statements and evidence, the Special Investigative Counsel finds that is more reasonable to conclude that, in order to avoid the consequences of bad publicity, the most powerful leaders at the University -- Spanier, Schultz, Paterno and Curley -- repeatedly concealed critical facts relating to Sandusky's child abuse from the authorities, the University's Board of Trustees, the Penn State community, and the public at large" (emphasis added). During a press conference specifically focusing on Paterno's culpability, Freeh, seemingly inconsistently with the qualified "available witness statements and evidence" language of the report, appeared to exaggerate, "There's a whole bunch of evidence here." He continued, "And we're saying that the reasonable conclusion from that evidence is that [Paterno] was an integral part of this active decision to conceal" (emphasis added).
I tend to agree that Freeh's conclusion is the "more reasonable" hypothesis, but I do so based more on a visceral feeling and some understanding of Paterno's power and status at the university than an evidentiary basis. The "facts" demonstrating Paterno's "active" role in the cover-up are insubstantial and equivocal. The case against Paterno is, as a Scotch jury might say, "not proven." Perhaps we should require more substantial proof before we topple Paterno's statue -- figuratively and actually.
As I mentioned here last Wednesday:
"By ignoring material financial falsehoods, the regulators and examiners allow frauds to continue and decrease the likelihood of future accountability through the criminal process."
The New York Fed's Friday data dump reveals beyond question that some of its officials, including Timothy Geithner, were aware of intentionally misreported Libors by 2008 at the latest. Today's Wall Street Journal editorial lays out the damning transcripts.
What does this mean? For openers it means that DOJ's announcement of a criminal investigation is a joke. Regulators and government officials at the highest levels knew of the misrepresentation. By not immediately raising bloody hell and putting a stop to it they either sanctioned the conduct, rendering it non-criminal, or themselves became co-conspirators.
Do you really think DOJ is about to investigate Geithner or drag him into somebody else's criminal defense? Get real. These people can't even prosecute robo-signers.