December 7, 2012
New Article - Unregulated Corporate Internal Investigations: Achieving Fairness for Corporate Constituents
Professor Bruce Green (Fordham) and I have a new article coming out in Boston Colleg Law Review, titled Unregulated Corporate Internal Investigations: Achieving Fairness for Corporate Constituents. You can download the article here. The SSRN abstract states:
This Article focuses on the relationship between corporations and their employee constituents in the context of corporate internal investigations, an unregulated multi-million dollar business. The classic approach provided in the 1981 Supreme Court opinion, Upjohn v. United States, is contrasted with the reality of modern-day internal investigations that may exploit individuals to achieve a corporate benefit with the government. Attorney-client privilege becomes an issue as corporate constituents perceive that corporate counsel is representing their interests, when in fact these internal investigators are obtaining information for the corporation to barter with the government. Legal precedent and ethics rules provide little relief to these corporate employees. This Article suggests that courts need to move beyond the Upjohn decision and recognize this new landscape. It advocates for corporate fair dealing and provides a multi-faceted approach to achieve this aim. Ultimately this Article considers how best to level the playing field between corporations and their employees in matters related to the corporate internal investigation.
New Article - Can the CEO Learn from the Condemned? The Application of Capital Mitigation Strategies to White Collar Cases
Todd Haugh has a forthcoming article in the American University Law Review titled, Can the CEO Learn from the Condemned? The Application of Capital Mitigation Strategies to White Collar Cases
. The Abstract states:
Ted Kaczynski and Bernie Madoff share much in common. Both are well-educated, extremely intelligent, charismatic figures. Both rose to the height of their chosen professions — mathematics and finance. And both will die in federal prison, Kaczynski for committing a twenty-year mail-bombing spree that killed three people and seriously injured dozens more, and Madoff for committing the largest Ponzi scheme in history, bilking thousands of people out of almost $65 billion. But that last similarity — Kaczynski’s and Madoff’s plight at sentencing — may not have had to be. While Kaczynski’s attorneys tirelessly investigated and argued every aspect of their client’s personal history, mental state, motivations, and sentencing options, Madoff’s attorneys offered almost nothing to mitigate his conduct, simply accepting his fate at sentencing. In the end, Kaczynski’s attorneys were able to convince the government, the court, and their client that a life sentence was appropriate despite that he committed one of the most heinous and well-publicized death penalty-eligible crimes in recent history. Madoff, on the other hand, with almost unlimited resources at his disposal, received effectively the same sentence — 150 years in prison — for a nonviolent economic offense. Why were these two ultimately given the same sentence? And what can Madoff, the financier with unimaginable wealth, learn from Kaczynski, the reclusive and remorseless killer, when it comes to federal sentencing?
The answer lies in how attorneys use sentencing mitigation strategies. This Article contends that federal white collar defendants have failed to effectively use mitigation strategies to lessen their sentences, resulting in unnecessarily long prison terms for nonviolent offenders committing financial crimes. The white collar defense bar has inexplicably ignored the mitigation techniques perfected by capital defense attorneys, and in the process has failed to effectively represent its clients. After discussing the development of the mitigation function in capital cases and paralleling it with the evolution of white collar sentencing jurisprudence, particularly post-Booker, this article will present seven key mitigation strategies currently used by capital defense teams and discuss how these strategies might be employed in federal white collar cases. The goal throughout this Article will be to highlight new strategies and techniques available in defending white collar clients and to enhance sentencing advocacy in federal criminal cases.
December 5, 2012
Second Circuit Rules Off-Label Promotion Is Protected Free Speech
The U.S. Court of Appeals for the Second Circuit in a 2-1 split vote overturned the misdemeanor conviction of a former Orphan Medical, Inc. (now Jazz Pharmaceuticals Inc.), sales representative who had been charged with "misbranding" under 21 U.S.C. § 331(a) and (a)(1). The sales representative, Alfred Caronia, and Dr. Peter Gleason (now deceased) had been charged with conspiring with Orphan to promote Xyrem, a powerful depressant known as the "date rape drug," for various off-label purposes. Although the trial record showed that Caronia and Gleason were caught on tape speaking to a physician (who was cooperating with the government) about various off-label uses, and even though Gleason and Orphan had pleaded guilty, Caronia fought the charges, arguing that his off-label promotion was truthful, accurate and not misleading and, therefore, was constitutionally protected free speech. While the trial court recognized that off-label promotion implicated speech, it denied Caronia's motion to dismiss and he was later convicted.
On appeal, Caronia continued to press his First Amendment argument. The government responded that Caronia's off-label speech was relevant only as "evidence" of Caronia's intent that Xyrem be used off-label and that the First Amendment does not proscribe the use of speech as evidence of criminal intent. Although the Second Circuit majority acknowledged that the FDA regulations don't criminalize off-label promotion per se, it ultimately concluded that Caronia's conviction rested entirely on his speech and that, under Sorrell v. IMS Health, 131 S. Ct. 2653 (2011) and Central Hudson Gas & Elec. Corp. v. Pub. Serv. Comm'n of N.Y., 447 U.S. 557 (1980), the First Amendment required that his conviction be vacated. In arriving at its decision, the majority reasoned that because the FDA regulations effectively regulated "content" (favoring on-label speech and disfavoring off-label speech) and discriminated among speakers (penalizing manufacturers, but not physicians, academics and other speakers), it was required to apply "heightened scrutiny" to the regulations. Under the heightened scrutiny standard, the majority found that while the government had substantial interests in ensuring drug safety, public health, and the effectiveness and integrity of the FDA drug approval process, the FDA's off-label regulations neither directly advanced those interests nor were narrowly drawn to further the interests served. For example, the majority noted numerous examples of less restrictive regulations that could effectively advance the Government's interests, including "warning or disclaimer systems" that could alert physicians that the certain uses have not been FDA-approved.
The dissent took the government's view that what was at issue was Caronia's intent that Xyrem be used off-label and that Caronia's off-label speech could have been properly used as evidence of his intent to sell off-label without implicating the First Amendment and putting into question the FDA's well-established regulatory scheme. As the dissent noted in its first paragraph: "By holding, instead, that Caronia's conviction must be vacated - and on the theory that . . . he was in fact convicted for promoting a drug for unapproved uses, in supposed violation of the First Amendment - the majority calls into question the very foundations of our century-old system of drug regulation."
Given the significant implications of the Caronia decision in the area of qui tam false claims act litigation, particularly for pharmaceutical, medical device and other life science companies, as well as for the medical community, we anticipate further developments and will be monitoring those carefully.
December 4, 2012
Second Circuit Vacates Part of Tax Shelter Case
On November 29, a divided panel of the Second Circuit vacated two out of four convictions obtained at trial by the government in the massive Ernst & Young (E&Y) tax shelter case, due to insufficient evidence. The opinion, United States v. Coplan et al, 10-583-cr(L), is available here.
In Coplan, four defendants were convicted after a 10-week trial on a variety of criminal tax charges arising out of their alleged involvement in the development and defense of five complicated tax shelters that were sold or implemented by E&Y to wealthy clients. Two defendants, Nissenbaum and Shapiro, had been tax attorneys at E&Y who were each convicted of conspiracy to defraud the United States and to commit tax evasion (18 U.S.C. §371) and two substantive counts of tax evasion (26 U.S.C. §7201). Nissenbaum also was convicted of one count of obstructing the IRS, in violation of 26 U.S.C. §7212(a), on the basis of allegedly causing false statements to be submitted to the IRS in response to an Information Document Request (IDR) submitted when the IRS was examining one of the tax shelters at issue.
The opinion is lengthy and complex, and resists easy summarization. It is well worth reading because it discusses in detail a kaleidoscope of issues relevant to any "white collar" criminal trial, from evidentiary rulings to jury instructions to sentencing. This commentary is limited to the sufficiency of evidence claims, and some of their implications for lawyers as potential defendants.
The panel in Coplan displayed a remarkable willingness to comb through an extremely complicated trial record and test every nuanced inference that the government urged could be drawn from the evidence in support of the verdicts. The bottom-line holding of the panel was that, after making all inferences in favor of the government, the convictions had to be vacated because the evidence of guilt was at best in equipose.
Although this general principle can be stated easily, its practical application in Coplan involved the panel conducting a particularized review of the evidence that appellate courts often forego. For example, one important fact for Shapiro was that a tax opinion letter provided to shelter clients stated that, for the purposes of the "economic substance" test governing tax-related transactions, the clients had a "substantial nontax business purpose" (OK, per the Coplan panel), rather than stating, as it had before Shapiro’s revisions, that the clients had a "principle" investment purpose. Likewise, although Shapiro had reviewed letters and attended phone conferences deemed incriminating by the government, his involvement in such conduct was not "habitual" or otherwise substantial. As for Nissenbaum’s Section 7212(a) conviction, his response to the IDR that the government characterized as obstructive – a partial explanation of the clients’ subjective business reasons for participating in the tax shelters – could not sustain the conviction because the IDR drafted by the IRS had sought all reasons held by the clients, rather than their primary reason. If this sounds somewhat murky and convoluted, it is. The point is that multiple convictions for very significant offenses were vacated after much effort at extremely fine line-drawing.
The implicit theme running throughout the discussion of the evidence was that it was not sufficiently clear that these lawyers had crossed the line while attempting to assist their clients, to whom they owed a duty. The competing tensions that lawyers can face was encapsulated in a jury instruction discussed later in the opinion. Although the trial court instructed the jury as requested by the defense that "[i]t is not illegal simply to make the IRS’s job harder[,]" it declined to instruct the jury on the larger defense point that "[t]his is particularly true for the defendants, whose professional obligations as attorneys or certified public accountants required them to represent the interests of their clients vigorously in their dealings with adversaries, such as the IRS."
The Coplan case echoes partially the case of Lauren Stevens, the former in-house counsel for GlaxoSmithKline who was indicted and tried in 2011 by the government for allegedly obstructing a U.S. Food and Drug Administration investigation of alleged off-label practices by the company. The district court dismissed all charges against Ms. Stevens at the end of the government’s proofs for insufficient evidence. The ruling was a tremendous defense victory and underscored, like the Coplan case, the difficulties that the government can face when it targets a lawyer on the basis of alleged conduct undertaken on behalf of a client. Nonetheless, these cases still stand as cautionary tales to practitioners. Although there are important differences between Coplan and Ms. Stevens' case, both cases remind us of the pitfalls that can await advocates who stumble into the cross-hairs of the government. Ms. Stevens – like Shapiro and Nissenbaum – was fortunate enough to have an extremely conscientious court willing to parse through the nuances of the evidence, a great defense team, and the resources for extended litigation. It is no slight to these clients or their lawyers to recognize that, in many ways, sheer luck played a role in their ultimate outcomes. Although acquittals can provide vindication, such finales may provide limited comfort to the client after the excruciating process of being investigated, charged and tried. That such a process might turn eventually on the precise phrasing of a document, or how a conference call might be handled, is sobering.
December 3, 2012
United Water Case
Co-blogger Solomon Wisenberg previously reported the not guilty verdicts here in the United Water case. Corruption Crime and Compliance also notes here. Representing United Water along with partner Kristine Rembach and associate Rob Smith, was Steven P. Solow of Katten Muchin Rosenman LLP.
In the News & Around the Blogosphere
Mike Scarcella, BLT Blog, AG Eric Holder's Chief of Staff Announces Departure
Covington & Burling, An Analysis of the FCPA Resource Guide
Catherine Dunn, Corporate Counsel, DOJ and SEC's New FCPA Guidance Provides a Desktop Compliance Reference for Companies (w/ a hat tip to Ryann McConnell)
Lawrence Cunningham, KIlling N.Y.'s Horses for an Extra Buck
December 2, 2012
In the News & Around the Blogopshere
DOJ Press Release, Former Fair Financial Company CEO Sentenced In Indianapolis to 50 Years in Prison for Role in $200 Million Fraud Scheme Two Other Fair Financial Executives Sentenced Today for Roles in Scheme
The Economic Times, US prosecutors oppose Rajat Gupta's plea to remain free on bail; Basil Katz, Appeals court to hear arguments on ex-Goldman director's bail
Tu Thanh Ha, The Globe and Mail, Third Quebec Mayor Resigns Amidst Corruption Allegations
Philip Van Doorn, The Street, Schapiro to Exit SEC, Walter Named Chairman