White Collar Crime Prof Blog

Pre-trial Restraints Have Negative Side Effects

It is hard to argue against the idea of criminal forfeiture; fairness demands that one convicted of a crime give up his ill-gotten gains.  A recent article in the New York Times seemed to give its full unstinting approval to federal asset forfeiture (see here).

However, asset forfeiture, aside from its several unfair procedural aspects, has its downsides.  It has to an extent diverted prosecutorial resources from investigation and prosecution of more serious cases to "sitting duck" targets involved in lucrative but arguably harmless violations of law, such as offshore gambling enterprises. 

And, primarily because of pre-trial restraints, it has, with the 5-4 imprimatur of the Supreme Court in Caplin & Drysdale v. United States, 491 U.S. 617 (1989), and United States v. Monsanto, 491 U.S. 600 (1989), turned the presumption of innocence on its head and allowed pre-trial restraint of funds to leave many defendants without sufficient funds to hire experienced, able (and often expensive) counsel of choice.  While court-appointed counsel assigned to represent those now-indigent defendants are generally competent or better than competent, they often lack the experience, resources, aggressiveness and time to provide a first-rate defense.  Thus, asset forfeiture often tilts the board in the prosecutor's favor.

Prosecutors are obviously aware that broad pretrial restraint of assets may skew the results of a litigation by preventing the defendant from hiring top-notch counsel.  While I do not believe that prosecutors often seek pre-trial restraint for that reason, eliminating experienced and able counsel is an obvious byproduct of many such restraints.

Even in New York State, where the Legislature has, alone among the 50 states, specifically provided for expenditures of seized funds to pay reasonable legal fees, some prosecutors, notably the New York County District Attorney, have taken a strong position, "play[ing] hardball" in the words of a senior forfeiture prosecutor, against release of seized funds for legal fees to private counsel.  In New York County, a defendant seeking release of restrained funds for private counsel must initially fill out a sworn 40-page detailed financial questionnaire to demonstrate her lack of access to funds for legal fees.  On the other hand, a defendant in New York County who seeks assigned counsel paid for by public funds needs only to say he cannot afford counsel, and such a statement is rarely questioned. 

The District Attorney in New York and many places elsewhere receives a portion of forfeited funds; thus, he has an extra incentive to fight the release of funds for private counsel, as well as to prosecute those with substantial assets.  An objective observer might question whether the crucial decision whether to prosecute should be made by one with a financial interest in the proceeds of the prosecution.  Compare Tumey v. Ohio, 273 U.S. 510 (1927) (conviction at trial by magistrate/mayor where municipality retains part of fine proceeds violates due process).

(goldman) 

What If Ruth and Bernie Madoff Had Divorced?

White-collar defense attorneys are often asked by clients accused of or investigated for theft or fraud, or by their client’s spouses, what could be done to protect the spouse financially. My advice had always been for the spouse to seek advice from a knowledgeable and independent debtor-creditor attorney. As a result of the New York Court of Appeals ruling in CFTC v. Walsh last week, my current advice is to consult with a knowledgeable and independent matrimonial attorney.

In that case, the CFTC and SEC attempted to claw back from a divorced "innocent spouse" funds allegedly stolen by her ex-husband that she received in a divorce settlement. The state court, basing its decision largely on issues of finality and fair consideration (and perhaps that a different ruling would disproportionately harm women), ruled that a wife uninvolved and unaware of her husband’s criminality could not be required to disgorge the proceeds to the theft victims.

The case came to the New York court in a peculiar posture. The federal Second Circuit Court of Appeals referred the case to the New York State court to answer two questions of law, one of which the state court modified before answering.

I am far from sure that the Second Circuit will be comfortable ratifying the state court’s ruling, which I personally find questionable on both logical and policy grounds. If, however, the Second Circuit does accept the state court’s reasoning and precludes disgorgement from the wife, fraudsters fearful of eventual apprehension and considerate of their spouses might seek or encourage divorce to assure the spouse’s secure financial future. And if Bernie and Ruth Madoff had been divorced before Bernie’s fraud was revealed, under such a ruling Ruth Madoff (presumably an "innocent spouse") would now be a very, very, very rich woman.

(Goldman)

SDNY Goes After Bongiorno and Crupi Assets

GUEST BLOGGER-SOLOMON L. WISENBERG

Here is the SDNY's press release regarding the civil forfeiture complaints filed yesterday against property "traceable" to Bernard Madoff's Ponzi scheme "and paid to or on behalf of" former Bernard L. Madoff Investment Securities LLC ("BLMIS") employees, Annette Bongiorno and Joann Crupi. Here is the Bongiorno-related complaint and here is the Crupi-related complaint.

It is clear from the complaints that the government believes Bongiorno and Crupi were knowing participants in Madoff's fraud. They each allegedly "knowingly perpetuated the fraud" by, among other things, overseeing, preparing, or assisting in the preparation of fabricated account statements and other documents.

By proceeding civilly against the properties at this time, the government lowers its burden of proof and puts the longtime, back-office BLMIS employees in the unenviable position of possibly incriminating themselves if they seek to retain their assets through the in rem forfeiture litigation. Hat tip to forfeiture expert David B. Smith of English and Smith for pointing out to me that invocation of the Fifth Amendment in the context of a civil forfeiture proceeding may not automatically result in the drawing of an adverse interest.

(slw)

NACDL's 5th Annual Defending the White Collar Case Seminar - "Getting Paid, Not Charged--Avoiding Indictment by Collecting Fees Ethically," Friday, October 2, 2009

Guest Blogger:  Jon May, Chair, White Collar Crime Section, National Association of Criminal Defense Lawyers

Panelists:  Jane Moscowitz, Martin Pinales

Over the last ten years, and particularly as a result of the indictment of prominent Miami Attorney Ben Kuehne, criminal defense counsel have had cause to be concerned that they could be the subject of prosecution solely for taking a legitimate legal fee. In this morning’s presentation by Jane Moscowitz and Martine Pinales, lawyers found reasons to be hopeful that such fears may be overblown, at least as to potential prosecution. Forfeiture of fees, on the other hand, remain a significant concern.

The Kuehne prosecution is an instance of ideology trumping common sense. Benedict P. Kuehne is the most unlikely of government targets. As Jane Moscowitz, who is one of his attorneys observed, Ben is the best of all of us. He is not just a leader of the bar—having been the President of the Miami-Dade County Bar Association and a member of the Board of Governors of the Florida Bar—he has devoted countless hours to pro bono activities on behalf of organizations representing the interests of African-Americans, Hispanics, Gays and others. He was also one of Al Gore’s principal attorneys during the Florida recount. Not surprisingly, he was Roy Black’s choice for counsel when Roy Black needed an attorney to vet the legal fees he was to be paid to represent notorious Colombian cartel leader Fabio Ochoa.

Roy Black was ultimately paid $5 million for his representation of Ochoa. Ben Kuehne earned approximately $175,000 for vetting this fee. Ben was indicted for conspiracy to launder, what the government recognized, and the indictment stated, was a bona fide legal fee.  This is despite the fact that the money laundering statute 18 U.S.C. Sec. 1957 contains a specific exemption for the receipt of funds necessary to preserve the Sixth Amendment. It was the government’s position before the District Court and just recently before the Eleventh Circuit in their appeal from the dismissal of this count, that the decision of the Supreme Court in Caplin and Drysdale nullified this exemption. The district court, however, was persuaded that it was the intent of Congress to protect counsel from prosecution, even if attorney’s fees could be forfeited. It appears from the tenor of the oral argument, which I was present to see, that the government’s theory is being met with the same level of skepticism that it received by Judge Cooke.

Martin Pinales discussed his experience dealing with government efforts to seize legal fees. Even in instances where the AUSA states that she has no intent to seize fees, counsel can be faced with a post trial effort by the government’s money laundering/forfeiture counsel to claw back those fees. Strategies were discussed for dealing with that problem. One way is to be paid by a third party from monies totally unconnected to any alleged criminal activity. Where money is obtained from the defendant, it is important to insure that the money did not come from any source named in a forfeiture count. And counsel should do due diligence even as to assets that could be later characterized as a substitute asset. It was also important to have your retainer agreement tie fees received to services provided. Where the funds are clearly substitute assets, counsel who takes these steps will have a better chance of demonstrating that they are bona fide purchasers for value in later forfeiture proceedings.

During the seminar, other important issues were raised. In many districts, counsel do not have to worry about their fees if their clients cooperate. Doesn’t that create a conflict of interest? You can charge a flat fee so long as you can demonstrate that it was earned. But don’t call it non-refundable (unless you practice in Florida, but it still has to be reasonable). The final irony, and outrage, discussed was the fact that the indictment against Ben also includes forfeiture count. The government is seeking to forfeit from Ben,  the $5 million that Roy Black received. 

(jm)

NACDL's 5th Annual Defending the White Collar Case Seminar - "Keynote Address: Lanny A. Breuer, Assistant Attorney General, Criminal Division, U.S. Department of Justice," Thursday, October 1, 2009

Guest Blogger:  Ivan J. Dominguez, Assistant Director of Public Affairs & Communications, National Association of Criminal Defense Lawyers

Keynote Address:  Lanny A. Breuer, Assistant Attorney General, Criminal Division, U.S. Department of Justice*

Assistant Attorney General of the Criminal Division Lanny A. Breuer traveled from Washington, D.C., to deliver a lunchtime address to NACDL’s 5th Annual White Collar Seminar at Fordham Law School in New York City.

Breuer, who was confirmed almost six months ago, repeatedly emphasized his admiration for the professionalism and commitment of career prosecutors. He shared his perspective that, as a general proposition, career law enforcement officials have an “abiding commitment to the highest standards of ethical conduct.” He also told of how he recently returned from Mexico City where he met with a U.S. resident legal adviser and said that it is his goal to meet all resident legal adviserss around the world. 

The focus of his talk was an overview of some of the DOJ’s, and specifically the Criminal Division’s, law enforcement priorities, stating that “the risks we face from white collar criminals have never been greater.” This is so, he said, because of the ever-growing sophistication of white collar criminals combined with a financial intervention by the government “on a massive scale…unparalleled in our history.”  “We’ve already seen egregious instances of fraud and abuse on the road to [economic] recovery,” he said.

Breuer specifically identified the “unprecedented amounts” that Congress has made available to facilitate recovery as giving rise to the government’s focus here. Indeed, he further explained that Congress has expressed its concern that government be vigilant as it guards against those who would take advantage of the $787 billion American Recovery and Reinvestment Act. In order to accomplish its goals in the face of these challenges, Breuer explained that his mantra is that the Department be “smart, nimble and focused” in fighting white collar crime. Specifically, throughout his speech he emphasized (i) the importance of interagency cooperation and collaboration and (ii) the value of using vast storehouses of data to drive the Department’s work.

Breuer also individually explored the following “white collar crime priorities”: health care fraud, financial fraud (including mortgage fraud) and public corruption.

On the topic of health care fraud, which he called “particularly severe,” Breuer said that much of the $800 billion dollars per annum that the government spends on Medicare and Medicaid is lost to “waste, fraud and abuse,” which he estimated at a minimum of 3% of those expenditures. In this context, interagency efforts are being pursued in what he characterized as an “innovative, data driven approach.” For example, pointing to multiple recent indictments in Detroit, Mich., he said that government investigation is driven by data such as information about which geographic areas have higher Medicare billing. He promised that such enforcement action will be spreading to new cities, explaining that government data shows that Medicare billings go down after the strike force goes into cities.

“Nowhere do you see [interagency] collaboration as much as in [financial fraud] arena,” Breuer said. In the area of mortgage fraud, he said that the Department is focused on those exploiting the most vulnerable homeowners among us.” He pointed to the National Mortgage Fraud team’s access to a “warehouse” of FBI data to aid in their work, explaining that the team at the FBI has developed sophisticated techniques with the data and that law enforcement is using this intelligence to combat mortgage fraud in “a very targeted” way.

On the specific subject of the $787 billion American Recovery and Reinvestment Act, Breuer pointed out that more than 20 federal agencies are slated to receive these funds. Early detection “is absolutely critical,” he said, explaining that the Inspector General is monitoring where the recovery money is going. He also spoke of how future public access to the data concerning where these funds are going will enable the government to enlist the aid of private citizens, journalists and others in monitoring whether the money is going where intended.

As a general proposition, Breuer emphasized that all Criminal Division prosecutors must discuss the possibility of forfeiture in every case because “history has taught us time and again that forfeiture is a powerful tool.”

The final specific area of enforcement focus that Breuer discussed was public corruption. He explained that the Department will continue to pursue violations of the Foreign Corrupt Practices Act (FCPA) and to know that the Department does not simply react to disclosures. “As in many other areas, the Department is being proactive and aggressive,” he said, adding that it is using all available law enforcement tools on this front. Breuer “fully expects” that FCPA prosecutions will continue to rise, as well as the level of cooperation with foreign officials. He also said that there will be a future focus on international organized crime, in which the Federal Trade Commission will also play a role. He emphasized that the Department strives to be “careful and deliberate,” but will bring cases whenever they are “deserved,” with a “consistent, non-partisan and absolute highest degree of professionalism and ethics.”

Upon concluding his presentation, Breuer made himself available to answer questions from the audience. Those questions ranged from topics such as private contractor corruption in foreign wars to renditions and torture. One questioner asked about whether the enforcement focus is disproportionately on smaller cases, “minnows” as she referred to them. Breuer said that is not the case, leaving all categories of potential wrongdoers on notice, adding, though, that “We are not going to charge you criminally if we have doubts about it.”

No subject, however, generated as many questions as that of prosecutorial violations of Brady disclosure obligations. While he acknowledged that “sometimes there are mistakes....They are not meant with intent,“ adding, “I don’t accept that there is a massive abuse of Brady" afoot. He said that the Attorney General is currently considering an internal memo on the broad subject of federal discovery obligations.

Finally, there was the question about rendition- and torture-related allegations concerning Alberto Gonzales and other former administration officials. Breuer said that those matters are “clearly the province of the Independent Counsel” and that the Criminal Division is not dealing with those issues.

During the question and answer period, Breuer explained that the Department is committed to indigent defense, re-entry programs and alternatives to incarceration. In addition, he re-emphasized the Attorney General Holder’s recognition of the terrible effect of the crack/cocaine disparity on minority communities. He also said that he welcomes an “open dialogue” with the criminal defense bar.

*Biography: Lanny A. Breuer was confirmed as the Criminal Division’s Assistant Attorney General on April 20, 2009. Mr. Breuer began his career in 1985 as an Assistant District Attorney in Manhattan, where he prosecuted various criminal cases, including murder, gang violence, armed robbery, child abuse, burglary, white collar crime and larceny. In 1989, he joined Covington & Burling LLP, where he became a Partner in 1995 and served as co-chair of the White Collar Defense and Investigations practice group. At Covington, Mr. Breuer specialized in white collar criminal and complex civil litigation, internal corporate investigations, congressional investigations, antitrust cartel proceedings, and other matters involving high-profile legal, political, and public relations risks. From 1997 to 1999, Mr. Breuer left Covington to serve as Special Counsel to President William J. Clinton. He has been recognized by numerous publications as a leading litigator, and he is a fellow of the American College of Trial Lawyers. Mr. Breuer received his B.A. from Columbia University in 1980 and his J.D. from Columbia Law School in 1985. (Source: U.S. Department of Justice Web site).

(ijd)

Federal Forfeiture- One Strike and You May Be Out

Guest Blogger Todd Foster, Esq. (Cohen, Foster & Romine, P.A.) writes:

I was recently hired to do something different in a federal criminal case, represent a third party claimant in a criminal forfeiture proceeding.  After the defendants pled guilty in a large fraud case, items of their real property were criminally forfeited to the government. As you may know, federal forfeiture statutes attempt to protect innocent lien holders (claimants) in these circumstances, but in doing so, impose strict requirements. A very recent Eleventh Circuit Opinion, U.S. v. Marion, required full compliance with the statute as a condition of a claimant obtaining relief.

In my case, we determined that certain institutional claimants failed to comply with the statute's technical requirements. Rather than wait for the government to seek dismissal of these deficient claims, I filed a third party motion to dismiss those petitions under Marion. My reasoning was that the fewer claimants left standing, the more equity available to satisfy "qualified" claims (including ours). I have put together a brief paper on Marion, soon to be published, which I think you may find helpful. (see here)

Bottom line: Federal statutes setting forth time or technical requirements must be fully reviewed and complied with before any claim thereunder is filed. In 2007, the U.S. Supreme Court in Bowles v. Russell dismissed an appeal in a death case because the petition was three days late. Marion follows that trend. Potential serious consequences loom for those who do not understand and comply with the dictates of these laws.

(TF)

The Madoff Forfeiture

Previously posted here was the court's forfeiture order in the Madoff case. Guest blogging on the Madoff forfeiture is Attorney Peter Goldberger who writes:

The criminal forfeiture order, negotiated between the defendant and the government w/o input from the victims as guaranteed by the CVRA (see 18 USC 3664(d) and FedRCrimP 32(i)(4)(B)), ensures Mrs. Madoff a couple of million to live on for the rest of her lonely life.  It takes all of the defendant's assets and makes them property of the United States. (It also disregards the binding Santos definition of "proceeds," but never mind that.)  By leaving the defendant with nothing, it prevents him from making restitution to any victim (although he can and will be ordered to make restitution, he won't have a penny other than prison earnings with which to comply).  While a victim can apply to the Attorney General for a partial "remission" of the forfeiture (see 21 USC 853(i)(1)(incorporated by reference into other forfeiture laws), there are no governing standards, no due process, and no judicial supervision -- it is 100% in the discretion of the DOJ.  Section 3572(b) of title 18, however, prohibits the judge from ordering any "financial penalty" (which would include criminal forfeiture) if doing so would impair the ability of the defendant to pay restitution.  On that basis, I believe the forfeiture order in Madoff's case is illegal.  I wonder if any victim will take that position and file a mandamus under the CVRA ((3771(d)(3) & FedRCrimP. 60 (b)(5)(B)) against it?

(pg)

Madoff- Preliminary Order on Forfeiture

The Preliminary Order on Forfeiture has been issued.  See here.  Commentary to follow. 

(esp)