Monday, October 10, 2016

ABA CJS London WCC Institute - Weissmann/Steward on Enforcement

I’m attending the Fifth Annual ABA Criminal Justice Section London White Collar Crime Institute this week and the program will be touching on various important issues in the field. I thought I might share some of what was discussed with our readers.

In this first post, I’ll focus on what was discussed during the first morning session where we heard from Andrew Weissmann, Chief of the DOJ Criminal Division’s Fraud Section, and Mark Steward, Director of Enforcement and Market Oversight at the Financial Conduct Authority (“FCA”) in London. During the panel, Mr. Weissmann and Mr. Steward focused on four themes – cooperation, corporate compliance programs, individual accountability, and reliance on internal investigations.

Regarding the first issue, Mr. Steward noted that currently there is significant contact between the FCA and the DOJ. In particular, he noted that there is little preclusion today regarding regulators and prosecutors collaborating on investigations and how they might conclude. Mr. Weissmann agreed that there is significant cooperation today, not just between the U.S. and U.K., but also with many other countries around the globe. The challenge he noted is that moving forward global enforcement bodies need to be cognizant of what each other wants and ensure that the penalty at the end of the day is fair.

Regarding compliance programs, there was discussion of the DOJ compliance expert, Hui Chen. Mr. Weissmann noted that there are two key questions for Ms. Chen based on the Principles of Prosecution. He described those as (1) did the company have an adequate compliance program and (2) did the company adequately remediate the issue? The DOJ, he noted, looks at compliance programs through this lens. The take-away from the discussion was that the process of receiving credit for a compliance program is much more rigorous than in the past and is, at least in part, data driven. Mr. Steward stated that compliance programs are important because of the manner in which they speak to a company’s culture.

Regarding individual accountability, Mr. Weissmann stated that the Yates Memo has been somewhat misunderstood. To illustrate this point, he noted that the DOJ Fraud Section prosecuted 225 individuals and 11 corporations last year. So it has not been the case, he emphasized, that the DOJ has been focusing only on corporations. There was a focus on individuals before the Yates Memo, he said, and that focus remains after the Yates Memo. Mr. Weissmann also noted that it is important to recognize that the issue of individual responsibility is important when considering compliance programs and remediation. From his comments, it appears clear that corporations must consider not only how to sanction those responsible for the actions under investigation, but also those who were responsible for monitoring or supervising these individuals.

Regarding internal investigations, Mr. Weissmann stated that the DOJ finds it very helpful for a company to conduct an internal investigation. He encouraged cooperation and coordination during such inquiries. For example, he said that the DOJ is interested in learning who will be interviewed in an investigation because the government might like a particular issue asked during the interview or might like to interview the employee before investigating counsel. In general, Mr. Weissmann stated that the DOJ is looking for investigations that are “independent and candid.” Mr. Steward was more skeptical of the value of internal investigations because of what he described as an inherent conflict of interest. He stated that he must base a decision in a matter on evidence gathered and corroborated by his organization, not by a private law firm. Mr. Weissmann stated that internal investigations are particularly helpful in complex cases. For example, he stated that in large cases it could be difficult to determine who might actually have valuable information. Investigating counsel, he said, can help focus the DOJ on the right individuals so the government can use its resources in a targeted manner. As another example, Mr. Weissmann noted that many cases today have international components. In such matters, it can be difficult or time consuming to gather information from abroad through the MLAT process. Law firms, he noted, can be very helpful is assisting to get information and determine where further inquiry might be valuable.


October 10, 2016 in Conferences, Fraud, Prosecutors | Permalink | Comments (0)

Monday, August 29, 2016

U.S. v. Reddy Annappareddy: Government Admits Destroying Evidence While New Trial Motion Is Pending

Things are getting personal in U.S. v. Annappareddy. I posted here last week about this District of Maryland case in which the Government ultimately admitted to having presented false evidence to the trial jury, and grudgingly joined Defendant's new trial motion--granted the next day by Judge George Russell. Now the Government has admitted to "disposal" of certain documents while defendant's New Trial Motion was pending in March 2015. Annappareddy's current trial team was not notified of the disposal until August 19, 2016, and claims, in Defendant's Motion for Extension of Time to File Motions In Limine, that some of the destroyed documents were exculpatory in nature. No court order authorized the destruction at the time it was accomplished.  

The DOD/OIG Evidence Review Disposal Sheet from March 11, 2015 states that AUSA Sandy Wilkinson determined that the items in question "were not used as exhibits in trial and would not be used in future proceedings against Annaparreddy." In other words, Wilkinson acted unilaterally, apparently consulting no one on the defense team before making her decision. The Government's response to the allegation is a footnote stating in part that "in early March 2015, after the trial, the government began to clean up papers and documents not used from the Washington Blvd collection and store the trial exhibits post- trial. The government began purging the contents of several unused boxes. These were items Defendant and his own attorneys had reviewed at length and were never marked as exhibits or used in any way by them at trial. Yet they couch their complaint again in the most accusatory of tones. "

Well, yes. Destruction of potential evidence prior to final judgment on appeal is quite rare, if not unheard of, in federal criminal practice. That an AUSA would do it on her own is remarkable. The Government's Response to Annappareddy's Motions to Limit Government Evidence complains further that Annappareddy's new lawyers don't play nice in the sandbox, unlike the original trial lawyers--you know, the ones who lost after the Government presented false testimony. That's right, Ms. Wilkinson. Lawyers tend to get angry when false testimony is put in front of the jury and potentially exculpatory evidence is destroyed.

The case is far more involved, and the issues more complex, than I can do justice to here. Annappareddy has moved to dismiss with prejudice and a hearing on that motion is set for September 1. Failing that, the defense wants to limit the Government's evidence at a new trial to the evidence presented at the first trial. One thing absent from the Government's papers that I have had an opportunity to review is any recognition of the emotional, financial, and strategic harm suffered by defendants when the Government screws up, forcing a new trial. It's as if Ms. Wilkinson wants a cookie and a pat on the back for deigning to agree that Reddy Annappareddy gets to go through the whole damn thing again.


August 29, 2016 in Current Affairs, Defense Counsel, Fraud, Investigations, Judicial Opinions, Prosecutions, Prosecutors | Permalink | Comments (0)

Tuesday, August 23, 2016

Reddy Annappareddy: Innocent Victim of the Government's False Evidence

In June 2016, the U.S. District Court for the District of Maryland (Judge George Levi Russell III, presiding) granted Reddy Annappareddy a new trial on the grounds that the prosecutors presented false evidence to the jury at his first trial and that the outcome might have been different without the false evidence. This ruling is part of a remarkable turnaround for Mr. Annappareddy, whose case appeared to be over after the first trial ended in December 2014.

The case is captioned as United States v. Annappareddy, No.1:13-cr-00374 (D. Md.). The prosecutors’ main allegation during the first trial was that Mr. Annappareddy’s chain of pharmacies, known as Pharmacare, committed health care fraud by billing government insurance programs for prescriptions that were never picked up or delivered.  The most significant evidence that the prosecutors offered in support of this allegation was a calculation of the purported “loss” from the alleged fraud.  Mr. Annappareddy’s current counsel, Mark Schamel and Josh Greenberg of Womble Carlyle, began working on the case in the spring of 2015.  In September 2015, they filed a Supplement to the one-and-a-half-page Motion for New Trial filed by Annappareddy's original trial counsel.  The Supplement and a Reply in support of it argued, among other things, that the prosecutors presented materially false evidence to the jury on a number of important subjects in violation of the Due Process Clause.

After many months, during which the parties took depositions of trial counsel and Greenberg and Schamel filed extensive additional briefs raising troubling issues, the Court scheduled a hearing for June 3 on Annappareddy's Motion for New Trial. On the afternoon of June 2, the prosecutors filed a letter with the Court conceding that the "inventory analysis" it presented to the jury, in an effort to prove purportedly enormous losses caused by Annappareddy, was in "substantial error", rendering its own evidence "wrong", and violative of Due Process. The Government effectively joined Annappareddy's Motion for New Trial, which was granted the next day by Judge Russell during a status conference.

Judge Russell scheduled a second trial – to last eight weeks, three weeks longer than the first trial – to begin on September 19.  Last month, the Court entered an Order denying the Government's motion to delay the second trial.  The Order emphasizes that the Court granted a new trial because the prosecutors presented “significant material and false testimony” at the first trial and that the delay they sought “would be fundamentally unfair” to Mr. Annappareddy.

While government admissions of error are always welcome, one of the striking things about this case has been the prosecution's reluctance to admit that the evidence it presented to the jury was not just wrong or in error--it was false.

The defense recently filed a motion calling for dismissal with prejudice. Check this space for further details. The multiple briefs filed by Greenberg and Schamel since they entered their appearances represent outstanding work.

Here are some relevant documents pertaining to the case: a partial transcript from the U.S. v. Annappareddy 6-3-16 Status Conference; Judge Russell's 7-6-16 Order Denying Gov't's Motion for Modification of Trial Schedule; and the Government's Letter to Court Conceding that New Trial is Warranted.


August 23, 2016 in Defense Counsel, Fraud, Judicial Opinions, Prosecutions, Prosecutors | Permalink | Comments (0)

Tuesday, July 5, 2016

Can a Breach of Contract Be the Basis for a Wire Fraud Conviction

An interesting case is pending in the 11th Circuit that considers whether a breach of a real estate contract can be the basis for a wire fraud conviction. The case involves a failure to disclosure a sinkhole when selling a residence.  There is a huge federalism question here that is magnified by the fact that Alabama "employ[s] the cannon of caveat emptor in real estate transactions." But the most interesting aspect of the case is the government's taking a civil action and using the wire fraud statute to prosecute the conduct.  I'll withhold further comment until after I have seen the government's brief - but I have to wonder if this is the case that the late-Justice Scalia was waiting for to limit the reach of the mail/wire fraud statutes.  

Appellant's Brief - Download Defendant-Appellant's Initial Brief


July 5, 2016 in Fraud, Prosecutions, Prosecutors | Permalink | Comments (0)

Tuesday, June 28, 2016

Bob McDonnell, Arthur Andersen and the Failure of District Court Gatekeeping

McDonnell v. United States and Arthur Andersen v. United States are remarkably similar Supreme Court reversals. In both cases, aggressive federal prosecutors pushed obviously dubious jury instructions on all-too-willing federal district judges.  In Arthur Andersen, Enron Task Force prosecutors convinced Judge Melinda Harmon to alter her initial jury charge, defining the term "corruptly." Judge Harmon's charge was right out of the form book, based on the approved Fifth Circuit Pattern Criminal Jury Instruction. The Government's definition allowed conviction if the jury found that Andersen knowingly impeded governmental fact-finding in advising Enron's employees to follow Enron's document retention policy. The 5th Circuit Pattern's requirement that the defendant must have acted "dishonestly" was deleted by Judge Harmon and the jury was allowed to convict based on impeding alone. Thus, at the government's insistenceknowingly impeding the fact-finding function replaced knowingly and dishonestly subverting or undermining the fact-finding function. This effectively gutted the scienter element in contravention of the standard Pattern definition. Local observers were not surprised by Judge Harman's ruling. Her responses to government requests are typically described as Pavlovian. Judge James Spencer, the trial judge in McDonnell, is also an old pro-government hand. Generally well regarded, he was a military judge and career federal prosecutor prior to ascending the judicial throne. In McDonnell, the government's proposed jury instructions regarding "official act" flew in the face of the Supreme Court's Sun Diamond dicta. They were  ridiculously expansive, with the potential to criminalize vast swaths of American political behavior. In both cases, Andersen and McDonnell, the Supreme Court unanimously reversed. In both cases, careful attention to the law, even-handedness, and a willingness to stand up to the government would have saved taxpayer dollars and prevented human suffering. Careful attention to the law, even-handedness, and a backbone. That's what we expect from an independent federal judiciary.


June 28, 2016 in Current Affairs, Enron, Fraud, Judicial Opinions, Statutes | Permalink | Comments (0)

Monday, April 25, 2016

Supremes Take A Bank Fraud Case

The United States Supreme Court accepted cert this morning in Shaw v. United States here. In 2014 the Court had looked at section 1344(2) of the bank fraud statute. (Loughrin v. United States).  In contrast to Loughrin, this new case examines subsection (1), specifically the "scheme to defraud a financial institution" and whether it requires proof of a specific intent not only to deceive.  The case comes from the 9th Circuit where the court examined the question of "whether that means the government must prove the defendant intended the bank to be the principal financial victim of the fraud."  The Ninth Circuit  held that although there needs to be an intent to defraud the bank under section 1, there is no requirement that the bank "be the intended financial victim of the fraud." Other circuits, however, have "held that risk of financial loss to the bank is an element that must be proven under section 1344(1). Stay tuned...


April 25, 2016 in Fraud, Judicial Opinions | Permalink | Comments (0)

Saturday, April 9, 2016

Settlement by Trump Required Alleged Victims to Tell DA They Don't Want to Assist

The New York Times reported on Tuesday, April 5 that Donald Trump, contrary to his asserted practice of refusing to settle civil cases against him, had settled a civil fraud suit brought by disgruntled purchasers of Trump SoHo (New York) condos setting forth fraud allegations that also were being investigated by the District Attorney of New York County ("Donald Trump Settled a Real Estate Lawsuit, and a Criminal Case Was Dismissed").  The suit alleged that Trump and two of his children had misrepresented the status of purchaser interest in the condos to make it appear that they were a good investment.

What made this case most interesting to me is language, no doubt inserted by Trump's lawyers, that required as a condition of settlement that the plaintiffs "who may have previously cooperated" with the District Attorney notify him that they no longer wished to "participate in any investigation or criminal prosecution" related to the subject of the lawsuit.  The settlement papers did allow the plaintiffs to respond to a subpoena or court order (as they would be required by law), but required that if they did they notify the defendants.

These somewhat unusual and to an extent daring conditions were no doubt designed to impair the District Attorney's investigation and enhance the ability of the defendants to track and combat it, while skirting the New York State penal statutes relating to bribery of and tampering with a witness.  The New York statute relating to bribery of a witness proscribes conferring, offering or agreeing to confer a benefit on a witness or prospective witness upon an agreement that the witness "will absent himself or otherwise avoid or seek to avoid appearing or testifying at [an] action or proceeding" (or an agreement to influence his testimony). Penal Law 215.11 (see also Penal Law 215.30, Tampering with a Witness).  Denying a prosecutor the ability to speak with prospective victims outside a grand jury makes the prosecutor's job of gathering and understanding evidence difficult in any case.  Here, where it is likely, primarily because of a 120-day maximum residency limit on condo purchasers, that many were foreigners or non-New York residents and thus not easily served with process, the non-cooperation clause may have impaired the investigation more than it would have in most cases. 

A clause requiring a purchaser to declare a lack of desire to participate, of course, is not the same as an absolute requirement that the purchaser not participate.  And, absent legal process compelling one's attendance, one has no legal duty to cooperate with a prosecutor.  It is questionable that if, after one expressed  a desire not to participate, his later decision to assist the prosecutor voluntarily would violate the contract (but many purchasers would not want to take a chance).  The condition of  the contract thus, in my view,  did not violate the New York statutes, especially since the New York Court of Appeals has strictly construed their language.  People v. Harper, 75 N.Y.2d 373 (1990)(paying victim to "drop" the case not violative of statute).

I have no idea whether the settlement payment to the plaintiffs would have been less without the condition they notify the District Attorney of  their desire not to cooperate.  And, although the non-cooperation of the alleged victims no doubt made the District Attorney's path to charges more difficult, the facts, as reported, do not seem to make out a sustainable criminal prosecution.  Allegedly, the purchasers relied on deceptive statements, as quoted in newspaper articles, by Mr. Trump's daughter Ivanka and son Donald Jr. that purportedly overstated the number of apartments sold and by Mr. Trump that purportedly overstated the number of those who had applied for or expressed interest in the condos,  each implying that the condos, whose sales had actually been slow, were highly sought.  A threshold question for the prosecutors undoubtedly was whether the statements,  if made and if inaccurate, had gone beyond acceptable (or at least non-criminal) puffing into unacceptable (and criminal) misrepresentations.

Lawyers settling civil cases where there are ongoing or potential parallel criminal investigations are concerned whether payments to alleged victims may be construed by aggressive prosecutors as bribes, and often shy away from inserting restrictions on the victims cooperating with prosecutors.  On the other hand, those lawyers (and their clients) want some protection against a criminal prosecution based on the same allegations as the civil suit.  Here, Trump's lawyers boldly inserted a clause that likely hampered the prosecutors' case and did so within the law.  Nonetheless, lawyers seeking to emulate the Trump lawyers should be extremely cautious and be aware of the specific legal (and ethical) limits in their jurisdictions.  For instance, I personally would be extremely hesitant to condition a settlement of a civil case on an alleged victim's notifying a federal prosecutor he does not want to participate in a parallel federal investigation.  The federal statutes concerning obstruction of justice and witness tampering are broader and more liberally construed than the corresponding New York statutes.


April 9, 2016 in Celebrities, Civil Litigation, Current Affairs, Defense Counsel, Fraud, Investigations, Legal Ethics, News, Obstruction, Prosecutors | Permalink | Comments (0)

Friday, March 18, 2016

Two Defense Victories: M.D. Florida and E.D. Virginia

We note two recent victories in federal white collar jury trials, one by a seasoned hand and another by an up and coming star. In U.S. v. Kallini, Dr. Adel Kallini, a former anesthesiologist and now pain management physician practicing in Broward County, Florida, was indicted in the Middle District of Florida, Tampa Division.  Dr. Kallini was charged with one count of conspiracy to commit health care fraud and wire fraud, as well as one count of falsification of records in a federal investigation.  The Government also sought forfeiture of over $1MM. 

Dr. Kallina was defended by longtime NACDL Board Member Brian Bieber of Gray Robinson, and his associate Alex Strassman. According to Bieber:

Our sole defense at trial was good faith reliance upon the advice of counsel.  In June, 2013, Dr. Kallini’s tax attorney presented him with a business “deal”, proposed to the attorney by two people who claimed to be legitimately involved in the health care field.  (Unbeknownst to Dr. Kallini and his lawyer, the two were involved in health care fraud for the past three years which included, but was not limited to, paying kickbacks to patients and doctors in South Florida).  The “deal” presented to Dr. Kallini, through his lawyer, essentially required Dr. Kallini to “rent” out his Medicare provider number for (what he was told) the billing of legitimate services provided to patients by other physicians who, for one reason or another, could not bill Medicare for the services provided.  From the payments, Dr. Kallini was to receive 25%, his lawyer 10%, and the two others 65%.  Dr. Kallini’s lawyer prepared a written agreement/contract reflecting the above.

Dr. Kallini has been practicing medicine since 1971 and had a Medicare provider number since 1973.  Having never previously done anything of this nature, he asked his lawyer point blank: “Is this legal?”  His lawyer told him it was.  Dr. Kallini signed the agreement/contract.

On cross examination, the Government’s expert witness was forced to concede the critical differences between intentional fraud and unintentional "abuse" of the Medicare payment system. The expert also acknowledged that if the defense's factual theory of the case was correct, Dr. Kallini's conduct could fall into the non-criminal category. Bieber's cross examination of the expert on this point was greatly aided by Strassman's discovery on the internet of a six year old Power Point presentation prepared by the expert in which he taught a group of Government investigators the differences between the intentional defrauding of Medicare and the “unintentional abuse” of the payment system. Dr. Kallini was the sole defense witness. 

In U.S. v. Upchurch, et al.,  in the EDVA (Alexandria Division), Eugene Gorokhov of Washington DC's Burnham & Gorokhov, assisted by Ziran Zhang, represented defendant Matthew Jones. According to Gorokhov:

A group of young adults, to include my client, went to a Six Flags amusement park on a Saturday in the Summer of 2015.  On the day they were there, numerous people at Six Flags had their belongings stolen, to include bags containing wallets and credit cards.  Later surveillance videos showed that several individuals in my client’s group used the stolen credit cards at nearby stores on the same days.  My client, however, was not in any of the videos. 

Despite the apparent lack of evidence against my client, the Government still charged him, along with the others, with conspiracy to commit wire fraud and access device fraud.  As to my client, the only evidence of his involvement was: (1) the appearance of his home address on a fraudulent credit card application, made in the name of a victim who had her belongings stolen from the park; (2) the use of the fraudulently obtained card to pay a phone bill under his name.  Multiple people lived at my client’s home address.  After indictment, phone records showed that his phone account had two phone numbers, and other evidence the investigator had showed that one of these numbers was used by another resident of his house, giving that person incentive to pay the phone.

The Government investigator, during the course of his investigation: (1) did not interview any of the other residents living at my client’s home address, despite knowing that more than one person lived at my client’s address; (2) overlooked the fact that the fraudulent credit card application listed an email address associated with one of the other residents at my client’s address (and admitted that he overlooked it at trial); (3) did not subpoena any of ATM surveillance videos associated with several fraudulent ATM transactions on the credit card, and those videos were ultimately erased in accordance with the bank's retention policy; and (4) did not obtain recorded phone calls between the credit card company and the individual who made the fraudulent card application, even though there were about a dozen such calls.  Those calls surfaced 24 hours before trial and were, for unknown reasons, not previously produced by the bank.  Those calls showed that it was someone else, and not my client, attempting to activate the fraudulent card.

During deliberations, the jurors came back with a question that asked, in essence, whether they could find a defendant guilty based only on his knowledge of a crime, and his presence at the scene.  The defense asked Judge Brinkema for a "mere presence" instruction, which she gave.  Thirty minutes later, the jury came back with a verdict of not guilty with respect to Eugene's client. 

Congratulations to Bieber and Gorokhov and their respective teams. And if you have a federal white collar jury trial victory to report do not hesitate to let me know. We'll do our best to publish it and discuss its significance here.



March 18, 2016 in Fraud, Verdict | Permalink | Comments (0)

Monday, March 14, 2016

Judge Uses ABA CJS "Shadow Guidelines" To Sentence CEO

In November 2014, the American Bar Association Criminal Justice Section Task Force on the Reform of Federal Sentencing for Economic Crimes published its final report.  The report recommended major changes to the structure of the Federal Sentencing Guidelines for economic crimes.  In particular, the report sought to reduce the current Guideline's dominant focus on loss in favor of a more balanced approach that weighed loss, culpability, and victim impact.  I discussed these proposed amendments more fully here.  Though the ABA CJS Task Force recommendations were not adopted by the Federal Sentencing Commission (see here and here), some courts have begun to use the ABA "Shadow Guidelines" when varying in economic crimes cases.  

Last week, a federal judge in New York used the ABA "Shadow Guidelines" in sentencing Mair Faibish, former CEO of Synergy Brands, Inc.  Faibish was accused of kiting checks worth in excess of $1 billion.  According to the DOJ press release in the case:

Synergy was a publicly-held food products company that traded on the NASDAQ and Over-the-Counter exchanges and manufactured and distributed various food products. As proven at trial, Faibish and his co-conspirators, on behalf of Synergy, funneled approximately $1.3 billion in checks that were not backed by sufficient funds through Signature Bank, Capital One Bank, and various Canadian bank accounts of associated food manufacturers and distributors in Canada. The Canadian companies then sent checks in corresponding amounts, which were also not backed by sufficient funds, back to Faibish-controlled shell companies. Because the banks made deposited funds immediately available for withdrawal, the scheme artificially inflated the companies’ account balances. Faibish and his co-conspirators used Synergy’s inflated bank account balances to book millions of dollars in fictitious accounts receivable and revenue.

As a result of this fraud, FDIC-insured Signature Bank lost approximately $26 million that Faibish and his co-conspirators had withdrawn before the bank uncovered the scheme. Following the scheme’s collapse, Synergy was taken into bankruptcy, and its publicly traded stock became essentially worthless, causing millions of dollars in investor losses. On November 4, 2014, the Court ordered Faibish to pay $51,166,000 in forfeiture.

The trial evidence also established that Faibish falsely inflated the values of Synergy’s sales, cost of goods sold, and pre-paid expenses in filings with the SEC for the quarter ending June 30, 2008. These material misrepresentations were breaches of the defendant’s fiduciary duties to investors.

The Federal Sentencing Guideline range in the case was life in prison, though the maximum available sentence was actually less due to applicable statutory maximums.  Despite the Federal Sentencing Guideline range and the government's request for decades in prison for Faibish, the Court rejected these arguments and sentenced him to 63 months in prison (see here and here).  According to LAW360, the judge stated at sentencing that the Federal Sentencing Guidelines for economic crimes are "almost useless" because of their reliance and focus on loss in calculating the applicable sentencing range.  Instead, the judge used the ABA "Shadow Guidelines" to determine what he considered to be a more appropriate sentence. 

This seems to be yet another indication of the growing dissatisfaction among judges with the Federal Sentencing Guidelines for economic offenses (see here and here) and should serve as yet another call for the Federal Sentencing Commission to consider more significant reforms in the future. 


March 14, 2016 in Fraud, Prosecutions, Sentencing | Permalink | Comments (0)

Saturday, December 5, 2015

Total Defense Victory in EDVA Health Care Fraud Trial

Congratulations to the defense team members and their client in U.S. v. Bajoghli. After a 16 day trial, the dermatologist defendant was acquitted on all counts--over 40. Dr. Bajoghli was represented by Peter White and  Nicholas Dingeldein of Schulte Roth & Zabel and Kirk Ogrosky and Murad Hussain from Arnold & Porter. The jury was out a day and a half.

There was some interesting motion work during the pre-trial phase, for those of us interested in government efforts to affect witness testimony. Six weeks before the original trial date, the government sent "victim impact notification" letters to several of Dr. Bajoghli's patients. Dr. Bajoghli complained that the patients, many of whom were scheduled to be defense witnesses, were not victims and that the letter was intended to prejudice the patients against him. Judge Gerald Lee granted the motion and issued a corrective letter. Here are the relevant papers: Bajoghli Motion in Limine Seeking Corrective Witness Instructions,  Exhibit A Ogrosky Letter to DOJExhibit B to Bajoghli Motion,  Order Granting Motion for Corrective Witness InstructionCourt's Corrective Witness Letter.


December 5, 2015 in Defense Counsel, Fraud, Judicial Opinions, Prosecutions, Verdict | Permalink | Comments (0)

Friday, October 30, 2015

Why Hastert Had To Be Prosecuted

Guest Blogger - Steven H. Levin

White-collar laws are written broadly in order to permit federal prosecutors to combat the increasingly creative, technologically complex efforts of enterprising criminals.  Most, but certainly not all, prosecutors make rational decisions based upon the best possible expenditure of resources, the assessment of the jury appeal of a particular case, and the desire to maintain a good reputation with the bench, if not the bar.  In bringing a case, prosecutors also must consider the deterrent effect of a particular prosecution.

In the case involving Dennis Hastert, it has been reported that he was paying “hush money” to cover up alleged misconduct that occurred several decades ago.  Mr. Hastert’s structuring fell squarely within the broadly worded federal statute.   In his piece (“Should Hastert Have Been Prosecuted?”) Lawrence Goldman is correct to question the purpose such a prosecution serves.  The answer is found in the concept of deterrence.  Mr. Hastert’s prosecution has potential deterrent effect, both in terms of deterring those engaged in structuring (to cover up crimes) and those engaged in blackmail (threatening to expose crimes).

Once the investigation became known, the public learned that Mr. Hastert had been accused of taking money out of a bank account in order to pay an extortionist.  Both would-be structurers and would-be extortionists were put on notice by the federal government: blackmailing may not be successful in the future, because the victim of the extortion may be better off going to law enforcement rather than a bank.  Further, it might deter an individual from engaging in the initial misconduct in the first place, knowing that such actions may ultimately see the light of day, even decades later.

Still, as Mr. Goldman writes, Mr. Hastert is, at least in part, a victim.  And the decision to prosecute is different than a demand for jail time, which, under the plea agreement, is what prosecutors may seek.  Mr. Hastert’s conduct does not warrant jail time, as the collateral consequences of the prosecution itself are significant enough to deter at least some future would-be extortionists from engaging in blackmail and their victims from submitting to it.  This fact is all-too-often overlooked by prosecutors.


October 30, 2015 in Fraud, Money Laundering, News, Prosecutions, Prosecutors, Sentencing | Permalink | Comments (1)

Wednesday, October 7, 2015

Making the Yates Memo Work: Two Reform Proposals

The Yates Memo is all the rage. DOJ is saber-rattling at various CLE events and bloggers are holding forth on what it actually means. But wanting isn't getting. The question remaining is how to make sure that the company coughs up, or an investigation reveals, wrongdoing that occurred at the highest levels.

Here are two modest reform proposals I offer free of charge to the DOJ and FBI, based on my own experience defending individuals and. far less often, companies under investigation.

1. Modify Standard DOJ Proffer Letters. Mid-level corporate employees often possess very damaging information about those higher up the food chain. But these same mid-level employees can themselves be the subjects or targets of DOJ. At some point the employees are given the opportunity to proffer in front of the lead prosecutor. But the standard DOJ Proffer Agreement is riddled with loopholes. Assume that the proffer session does not result in a plea or immunity agreement and the employee is indicted. The primary loophole allows the government to use the proffered statement against the client at trial if the statement is in any way inconsistent with the defense presented. That's not much protection, which is why most seasoned white collar attorneys will not let a client with exposure proffer in front of DOJ. Thus, DOJ loses valuable information. DOJ should offer true non-Kastigar immunity for the information revealed in its proffer sessions. Nothing is lost by doing this, but much can be gained.

2. Demand Independent Internal Investigations. The first question every prosecutor should ask the corporation's outside attorney who is conducting an internal investigation or tendering an internal investigation report to DOJ is, "What is your reporting chain?" If outside counsel is not reporting to the Audit Committee or some other independent entity within the corporation there is absolutely no assurance that culpable upper management will be identified. Management can edit the final report and its conclusions to protect top executives and throw lower level employees to the DOJ wolves. Meanwhile, employees are less likely to truthfully cooperate with the internal investigation if they think the boss is reviewing interview reports every night after drinks. I am astounded at how often internal investigations are reported right up the chain of command at small and large publicly traded companies. DOJ prosecutors can make it clear that the procedural independence of the internal investigation will affect how the company is treated.


October 7, 2015 in Fraud, Government Reports, Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Monday, September 28, 2015

Food for Thought re Last Week’s Peanut Sentencing in Georgia

Just over a year ago, Stewart Parnell, the former CEO of Peanut Corporation of America (PCA), was convicted by a jury in the Middle District of Georgia of charges related to a deadly nationwide salmonella outbreak.  The matter came to the government’s attention in late 2008 when people began falling ill across the country.  The illnesses were eventually linked back to PCA’s peanut processing plant in Georgia.  As investigators continued to examine the salmonella outbreak, they discovered that the case involved potential criminal misconduct by Parnell and others who allegedly knew about the contamination, attempted to cover it up, and continued to ship contaminated and potentially contaminated product.  In one now infamous email from 2007, after being informed that batch test results were not back from the lab, Parnell wrote, “Just ship it.”  The outbreak killed nine people and injured thousands more.  Eventually, Parnell and others were charged in a 76-count indictment that alleged mail and wire fraud, introducing adulterated and misbranded food into interstate commerce, conspiracy, and obstruction of justice.  A jury found Parnell guilty of 67 of the 68 charges against him on September 19, 2014. 

On Monday of last week, U.S. District Court Judge W. Louis Sands sentenced Parnell to 28 years in federal prison.  One interesting aspect of the sentencing is that because authorities charged this case as a “white collar” matter involving fraud, rather than a homicide case, the most significant factor driving the guideline sentencing range was not the deaths of nine people, but the loss of over $100 million by the various food companies that were forced to recall their products because of Parnell’s actions.

According to last week’s DOJ press release:

Judge Sands took into account the fraud loss of PCA’s corporate victims when imposing today’s sentence.  The court found that Stewart Parnell and Mary Wilkerson should be held accountable for more than $100 million but less than $200 million in losses, and Michael Parnell should be held accountable for more than $20 million but less than $50 million in losses.  The court also found the government established evidence that Stewart Parnell and Mary Wilkerson should be accountable for harming more than 250 victims, and Michael Parnell should be accountable under federal sentencing guidelines for harming more than 50 victims.  The court additionally found that the Parnells should have known that their actions presented a reckless risk of death or serious bodily injury.

Looking at the applicable 2009 Federal Sentencing Guidelines (the Guidelines in place at the time of the offense conduct), one finds the following point allocations:

  • Base Offense – 7 points
  • Loss of more than $100 million – 26 points
  • 250 or more victims – 6 points
  • Risk of death – 2 points
  • TOTAL: 41 points

While there were likely other applicable sentencing points, such as obstruction of justice and role in the offense, the above point allocations alone result in 41 total points.  This translates into a guideline sentencing range of 324-405 months (27.00 – 33.75 years) for a defendant with no criminal history.  Steward received 336 months (28 years).

To highlight the importance of the loss amount in the Guideline’s calculation, note that if this case had involved nine deaths, but no financial loss to food companies, the sentencing range under section 2B1.1 of the Federal Sentencing Guidelines would have dropped to 18-24 months in the above calculation.  Obviously, this would have been a grossly unreasonable sentence given the devastating harm caused by Parnell.

I don’t know why this case was charged as a fraud and not a homicide.  Perhaps it was to send a clearer message about national food safety by bringing federal charges, including charges directly related to the introduction of adulterated and misbranded food into interstate commerce.  One additional item to note, however, as we think about the way this case proceeded, is that federal white collar sentences in high loss cases can often dwarf sentences for other crimes, including homicide.  Consider that involuntary manslaughter in Georgia carries a maximum sentence of ten years in prison.  Georgia also has automatic parole eligibility for most inmates.  By comparison, Parnell received 28 years in prison using federal fraud statutes and their applicable sentencing guidelines.  Further, there is no parole in the federal system.    

Federal fraud offenses are often attractive to prosecutors because they are broad enough to apply in all manner of situations and carry potentially significant sentences.  It should be no surprise, therefore, that we continue to see these statutes used in many cases that do not fit neatly into our traditional definitions of “white collar crime.”  For a further discussion of the way “white collar offenses” are used in a vast array of cases, many of which do not involve traditional white collar criminal activity, see “White Collar Crime”: Still Hazy After All These Years, 50 Georgia Law Review Issue 3 (Lead Article) (forthcoming).


September 28, 2015 in Food and Drink, Fraud, Prosecutions, Sentencing | Permalink | Comments (0)

Monday, September 14, 2015

Sentencing the Wolf of Wall Street

I have just released a new article discussing the sentencing of Jordan Belfort, better known as the "Wolf of Wall Street."  I use this case as a mechanism for considering how white collar sentencing has evolved from the 1980s until today.  In particular, the article examines the growth in uncertainty and inconsistency in sentences received by major white collar offenders over this period of time and considers some of the reasons for this trend.  The article also examines the impact of recent amendments adopted by the U.S. Sentencing Commission on white collar sentences.

Lucian E. Dervan, Sentencing the Wolf of Wall Street: From Leniency to Uncertainty, 61 Wayne Law Review -- (2015).


This Symposium Article, based on a presentation given by Professor Dervan at the 2014 Wayne Law Review Symposium entitled "Sentencing White Collar Defendants: How Much is Enough," examines the Jordan Belfort (“Wolf of Wall Street”) prosecution as a vehicle for analyzing sentencing in major white-collar criminal cases from the 1980s until today. In Part II, the Article examines the Belfort case and his relatively lenient prison sentence for engaging in a major fraud. This section goes on to examine additional cases from the 1980s, 1990s, and 2000s to consider the results of reforms aimed at “getting tough” on white-collar offenders. In concluding this initial examination, the Article discusses three observed trends. First, today, as might be expected, it appears there are much longer sentences for major white-collar offenders as compared to the 1980s and 1990s. Second, today, there also appears to be greater uncertainty and inconsistency regarding the sentences received by major white-collar offenders when compared with sentences from the 1980s and 1990s. Third, there appear to have been much smaller sentencing increases for less significant and more common white-collar offenders over this same period of time. In Part III, the Article examines some of the possible reasons for these observed trends, including amendments to the Federal Sentencing Guidelines, increased statutory maximums, and judicial discretion. In concluding, the Article offers some observations regarding what the perceived uncertainty and inconsistency in sentencing major white-collar offenders today might indicate about white-collar sentencing more broadly. In considering this issue, the Article also briefly examines recent amendments adopted by the U.S. Sentencing Commission and proposed reforms to white-collar sentencing offered by the American Bar Association.


September 14, 2015 in Film, Fraud, Insider Trading, Prosecutions, Scholarship, Securities, Sentencing | Permalink | Comments (0)

Tuesday, July 14, 2015

New Article Regarding How We Define White Collar Crime

Ellen Podgor and I have just released a new article discussing the complexities of defining the term “white collar crime.”  The ability to define and identify white collar offenses is vital, as it allows one to track, among other things, the number of these cases prosecuted each year, the frequency with which particular types of charges are brought in these matters, and the sentences imposed on those convicted.  This new article begins with a brief historical overview of the term “white collar crime.”  The piece then empirically examines several specific crimes to demonstrate that statutory approaches to defining and tracking white collar offenses are often ineffective and inaccurate.  The article then concludes by recommending that the U.S. Sentencing Commission adopt a new multivariate definitional approach that recognizes the hybrid nature of many white collar offenses.  The final version of the article will appear next year in Volume 50 of the Georgia Law Review

Ellen S. Podgor and Lucian E. Dervan, “White Collar Crime”: Still Hazy After All These Years, 50 Georgia Law Review -- (forthcoming 2016).


With a seventy-five year history of sociological and later legal roots, the term “white collar crime” remains an ambiguous concept that academics, policy makers, law enforcement personnel and defense counsel are unable to adequately define. Yet the use of the term “white collar crime” skews statistical reporting and sentencing for this conduct. This Article provides a historical overview of its linear progression and then a methodology for a new architecture in examining this conduct. It separates statutes into clear-cut white collar offenses and hybrid statutory offenses, and then applies this approach with an empirical study that dissects cases prosecuted under hybrid white collar statutes of perjury, false statements, obstruction of justice, and RICO. The empirical analysis suggests the need for an individualized multivariate approach to categorizing white collar crime to guard against broad federal statutes providing either under-inclusive or over-inclusive examination of this form of criminality.


July 14, 2015 in Fraud, Obstruction, Perjury, Prosecutions, Scholarship, Statutes | Permalink | Comments (0)

Tuesday, April 14, 2015

Second Circuit Denies Rehearing of Insider Trading Case Reversal

   Earlier this month, the Second Circuit, as expected (at least by me), denied Southern District of New York U.S. Attorney Preet Bharara's request for reargument and reconsideration of its December 2014 ruling in United States v Newman which narrowed, at least in the Second Circuit, the scope of insider trading prosecutions. I would not be surprised if the government seeks certiorari, and, I would not be all that surprised it cert were granted.

   In Newman, the defendants, Newman and Chiasson, were two hedge fund portfolio managers who were at the end of a chain of recipients of inside information originally provided by employees of publicly-traded technology funds. The defendants traded on the information and realized profits of $4 million and $68 million respectively. There was, however,  scant, if any, evidence that the defendants were aware whether the original tippors had received any personal benefit for their disclosures.

   The Second Circuit reversed the trial convictions based on an improper charge to the jury and the insufficiency of the evidence. Specifically, the court ruled that:

       1)  the trial judge erred in failing to instruct the jury that in order to convict it had to find that the defendants knew that the corporate employee tippors had received a personal benefit for divulging the information; and

       2)  the government had indeed failed to prove that the tippors had in fact received a personal benefit.

   Thus, at least in the Second Circuit, it appears that the casual passing on of inside information without receiving compensation by a friend or relative or golf partner does not violate the security laws. "For purposes of insider trading liability, the insider's disclosure of confidential information, standing alone, is not a breach," said the court.  Nor, therefore,  does trading on such information incur insider trading liability because the liability of a recipient, if any, must derive from the liability of the tippor.  To analogize to non-white collar law, one cannot be convicted of possessing stolen property unless the property had been stolen (and the possessor knew it).  Those cases of casual passing on of information, which sometimes ensnared ordinary citizens with big mouths and a bit of greed, are thus apparently off-limits to Second Circuit prosecutors. To be sure, the vast majority of the recent spate of Southern District prosecutions of insider trading cases have involved individuals who have sold and bought information and their knowing accomplices.  Although Southern District prosecutors will sometimes now face higher hurdles to prove an ultimate tippee/trader's knowledge, I doubt that the ruling will affect a huge number of prosecutions.

   The clearly-written opinion, by Judge Barrington Parker, did leave open, or at least indefinite, the critical question of what constitutes a "personal benefit" to a provider of inside information (an issue that also might impact corruption cases). The court stated that the "personal benefit" had to be something "of consequence."  In some instances, the government had argued that a tippee's benefit was an intangible like the good graces of the tippor, and jurors had  generally accepted such a claim, likely believing the tippor would expect some personal benefit, present or future, for disclosing confidential information. In Newman, the government similarly argued that the defendants had to have known the tippors had to have received some benefit.

   Insider trading is an amorphous crime developed by prosecutors and courts - not Congress - from a general fraud statute (like mail and wire fraud) whose breadth is determined by the aggressiveness and imagination of prosecutors and how much deference courts give their determinations. In this area, the highly competent and  intelligent prosecutors of the Southern District have pushed the envelope, perhaps enabled to some extent by noncombative defense lawyers who had their clients cooperate and plead guilty despite what, at least with hindsight, seems to have been a serious question of legal sufficiency.  See Dirks v. S.E.C., 463 U.S. 646, 103 S.Ct. 3255 (1983)(test for determining insider liability is whether "insider personally will benefit, directly or indirectly").  As the Newman court refreshingly said, in language that should be heeded by prosecutors, judges, and defense lawyers, "[N]ot every instance of financial unfairness constitutes fraudulent activity under [SEC Rule]  10(b)."

  As I said, I would not be shocked (although I would be surprised) if Congress were to enact a law that goes beyond effectively overruling Newman and imposes insider trading liability on any person trading based on what she knew was non-public confidential information whether or not the person who had disclosed the information had received a personal benefit. Such a law, while it would to my regret cover the casual offenders I have discussed, would on balance  be a positive one in that it would limit the unequal information accessible to certain traders and provide a more level playing field.




April 14, 2015 in Congress, Corruption, Defense Counsel, Fraud, Insider Trading, Judicial Opinions, Prosecutions, Prosecutors, Securities, Statutes | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 28, 2015

More Information Regarding the Proposed Amendments to the Fraud Guidelines

There has been much talk recently regarding Section 2B1.1 of the Federal Sentencing Guidelines, commonly referred to as the Fraud Guidelines.  Earlier this year, I noted in a post that the American Bar Association had issued a report calling on the Sentencing Commission to revise Section 2B1.1.  Specifically, this report contained a number of suggestions regarding loss calculations and the impact of the current loss table.  Earlier this month, Ellen Podgor posted regarding the release of the Proposed Amendments to the Sentencing Guidelines (Preliminary), which included proposed amendments to Section 2B1.1.

As readers begin to digest the proposed amendments from the Sentencing Commission and the Commission’s determination that they “have not seen a basis for finding the guideline to be broken for most forms of fraud…,” I wanted to provide a link to some additional information.  The first is a video presentation by Commission staff regarding a detailed examination of economic crime data.  The presentation was given at a January 9, 2015 public meeting and offers some extremely interesting analysis of data collected regarding sentencing under Section 2B1.1.  The second is a copy of the PowerPoint presentation from the January 9, 2015 presentation.  In particular, I direct readers to Figure 1, showing the growth in below range sentences since 2003, and Figure 5, showing the number of cases within range decreasing sharply as the loss figure in the case grows.  For those who enjoy statistics, there is a wealth of information for consideration in these materials.


January 28, 2015 in Fraud, Government Reports, Sentencing | Permalink | Comments (0) | TrackBack (0)

Thursday, January 22, 2015

New York State Assembly Speaker Sheldon Silver Faces Federal Fraud Charges

The New York Times has the story, with a link to the criminal complaint, here. U.S. Attorney Preet Bharara followed his longstanding tradition of holding a press conference in order to make inflammatory, prejudicial, and improper public comments about the case.


January 22, 2015 in Corruption, Current Affairs, Fraud, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 21, 2015

Australian Bank Bill Swap Rate Investigation Continues

For more than a year now, the Australian Securities and Investments Commission has been investigating a number of large Australian banks regarding allegations of collusion in the setting of the Bank Bill Swap Rate (BBSR).  The BBSR is an interest rate benchmark that is used when banks lend to one another.  This rate also impacts business and home loan rates.  As details regarding the investigation begin to trickle out, one Australian commentator in the Sydney Morning Herald has said that this “could well prove to be the largest corporate scandal of 2015.”  According to the commentator’s article, one bank, ANZ, has suspended seven BBSR traders, including the suspension of the head of the bank’s balance sheet trading earlier this month (see here).  The article further states that ANZ has launched an internal investigation into the matter.  While the article notes that other Australian banks may have also launched internal investigations, the banks have made no public statements regarding any such inquiries. 

As readers of this blog will recall, in 2012 an investigation began into allegations that several large banks had been manipulating the London Interbank Offered Rate (Libor).  The scandal received significant international attention.  Eventually, the US, UK, and EU fined the banks involved more than $6 billion.  Further, several traders were prosecuted for their roles in the manipulation.  For more on the Libor Scandal, see the Council on Foreign Relations Backgrounder available here.

Based on recent reports from Australia, it sounds like the Australian BBSR investigation might be the next big international white collar case to watch in 2015.


January 21, 2015 in Fraud, International, Investigations | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 14, 2015

Powell on Weissmann

To no one's surprise, Sidney Powell is not happy with the selection of Andrew Weissman to head up DOJ's Fraud Section. Here is her take on the decision in this week's New York Observer.


January 14, 2015 in Fraud, Prosecutors | Permalink | Comments (0) | TrackBack (0)