Monday, August 1, 2011

Execs of Gen Re and AIG - Convictions Vacated

The Second Circuit vacated and remanded for a new trial the convictions of four executives of General Re and AIG. The decision is here.  Commentary to follow.

(esp)

August 1, 2011 in AIG, Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 12, 2011

KPMG Global Study Confirms: Most Fraud Perpetuated by Company Bosses

Guest Blogger - Carolyn F. McNiven (DLA Piper)

Although 56 percent of fraud cases were preceded by red flags, instances where actions were taken in response to those red flags "fell massively" since 2007, according to a global KPMG survey. This is probably the most surprising and eye-opening observation in KPMG’s 2011 study, which also found that most fraud was committed by long-term employees, particularly male executives between the ages of 36 and 45; and individuals who worked in the finance area. The increased failure to respond to red flags highlights the need for companies not only develop system for identifying red flags, but also acting on them.

The other notable development KPMG found was an increase in the number of fraud matters perpetrated by company board members. According to KPMG, fraud by board members increased from 11 percent in 2007 to 18 percent in the 2011 analysis. Overall, it found that, "people most often entrusted with a company’s sensitive information and able to override controls are statistically more likely to become perpetrators." Nevertheless, this increase in crimes perpetuated by board members is significant.

KPMG’s global survey was based upon a review of 368 actual fraud investigations conducted by KPMG member firms in 69 countries, over the period January 2008 and December 2010. It only took into consideration frauds that were material to the company. According to KPMG, the majority of the investigations involved matters that were not publicized.

Some might argue that the nature of the investigations themselves accounted for this result: namely that only larger companies are in a position to engage KPMG to investigate such matters, consequently perpetrators examined by KPMG are necessarily more likely to be corporate executives who are in a position to commit fraud that is material to such companies. While KPMG’s data pool was necessarily limited, I think that it would be a mistake to discount their observations. Among other things, their profile of a fraudster fits the typical demographic of white collar criminal defendants in the United States, at least those prosecuted for federal crimes in the past few years, and is consistent with what I observed during my over 13 year tenure with U.S. DOJ.

Fraud is by and large an opportunistic crime. Insider-fraud thrives in environments of trust and access, as the survey points out. Individuals in the executive suite and higher level employees in the finance area are less likely on average to be closely supervised than clerks in accounts receivable. By analogy think of the security surrounding bank employees: tellers have their cash drawers counted after every shift; bank loan officers, who have access to vastly larger sums of bank funds, are generally not scrutinized in the same way although they too are human and subject to the same impulses to steal and self-deal.

That being said, KPMG’s observation that most perpetrators were long term company employees, is noteworthy. KPMG found in its 2011 survey that a solid majority (60 percent) of perpetrators worked at the company for more than five years; and 33 percent of perpetrators had worked at the company over 10.

So what turns a good employee into one who commits fraud? KPMG found that the primary motivators behind the fraud they investigated were greed and work pressure. KPMG found that attempts "to conceal losses or poor performance (possibly due to pressures to meet budgets and targets, to enhance bonuses, or to safeguard against loss of employment)" were motivating factors in many cases. Of course, greed – satisfied by misappropriating assets – was the other primary motivator that they identified.

Good employees turning bad may well also result from the same economic and cultural shifts we have seen in other areas. People -- particularly the middle class -- were hard hit in the recession resulting in increased financial pressure, which in turn can create the incentive to steal or "borrow" from one's employer. That incentive combined with a fairly systemic disenchantment with employers -- particularly those that downsized significantly --creates an environment where workers may be more likely to take what they can get from an employer, particularly if they believe that they are being undercompensated or the employer has transgressed in some way (for example, by paying its upper level management disproportionately while cutting staff and middle management).

All-in-all, KPMG’s 2011 global survey is eye-opening, and a reminder to all companies that they cannot be complacent. At a minimum, companies should regularly ensure that internal controls are operating effectively to prevent and detect insider fraud; and that red flags are not only seen, but acted upon.

Carolyn F. McNiven is a partner in DLA Piper’s San Francisco office where she is a Partner in the White Collar, Corporate Crime and Investigations practice. She is a former long-time federal prosecutor, and handles white collar criminal defense and related administrative, regulatory and compliance matters for individuals and companies. She has particular expertise in the areas of health care, food and drug, and FCPA compliance counseling, risk assessment and litigation.

July 12, 2011 in Corruption, Fraud | Permalink | Comments (0) | TrackBack (0)

Thursday, July 7, 2011

7th Circuit Affirms Denial of George Ryan's 2255 Motion

Former Governor George Ryan brought a collateral attack, pursuant to 28 U.S.C. s 2255, following the Supreme Court's decision in Skilling.  He argued among other things "that the jury instructions were defective because they permitted the jury to convict him on an honest-services theory without finding a bribe or a kickback."  The district court, however, found his errors harmless. Interestingly the prosecutor conceded that despite Ryan not filing his 2255 motion within the one year time period, "2255(f)(3) restarts the time when a 'right has been newly recognized by the Supreme Court and made retroactively applicable to cases on collateral review,'"  and Ryan met this standard.  Did the government want this case heard because they want to find the contours of what is encompassed within Skilling?

The Seventh Circuit  issued its opinion in which it states that "[c]ollateral review is not just a rerun of the direct appeal, in which a defendant can use hindsight to craft better arguments." They go on to stress the limits of collateral review. The court states that Ryan's "current argument that the jury instructions were defective because they did not track Skilling is novel."  But they also state that "[i]f Ryan's lawyers had done what Skilling's lawyers did, the controlling decision today might be Ryan rather than Skilling.  The bottom line is that the court holds that "[o]n the record at trial, a jury could have convicted Ryan of mail fraud using the legal standard set by Skilling."

Commentary:  1) Even white collar cases are seeing the problems created by limits to collateral attacks. 2) Skilling is certainly not like McNally was to mail fraud cases when the Court issued it in 1987.

(esp) 

July 7, 2011 in Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 28, 2011

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)

June 28, 2011 in Forfeiture, Fraud | Permalink | Comments (0) | TrackBack (0)

Monday, June 27, 2011

Blagojevich Found Guilty on 17 of 20 counts - Joining The Illinois Governor Convicted Felon Club

The press is reporting herehere, here, and here, that Former Illinois Governor Rod Blagojevich has been found guilty of 17 counts, not guilty on one count, and two counts with no verdict. This was the second trial, the first ending in a hung jury except for one count. The jury was out this time for 10 days.  Blagojevich did not testify in the first trial, but did testify this time. 

A second trial was an enormous benefit to the government.  They had the opportunity to re-evaluate their case and to see that keeping it simple was the smarter choice. They also had the conviction on one count to allow them to start cross-examination against him with the "convicted felon question."  

Why is it that so many Illinois Governors wind up as convicted felons?  (e.g. Otto Kerner, Dan Walker, George Ryan, and Rod Blagojevich).  

(esp)

Addendum - Doug Berman, Sentencing Law and Policy Blog here

June 27, 2011 in Fraud, Verdict | Permalink | Comments (6) | TrackBack (0)

Friday, June 24, 2011

Not a Good Day for Conrad Black

Ameet Sachdev, Chicago Tribune, Black headed back to prison; wife collapses in court

(esp)

June 24, 2011 in Fraud, News | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 22, 2011

Second Chance for Bad Guess?

          The appeal of former New York State Senate majority leader Joseph L. Bruno, argued last week before the United States Court of Appeals for the Second Circuit, has raised some interesting double jeopardy issues which may or may not be addressed by the court.  Bruno was convicted of honest services fraud under 18 U.S.C. 1346 based on an undisclosed self-dealing theory.  After Bruno’s conviction and while his case was on appeal, the Supreme Court in United States v. Skilling rejected the undisclosed self-dealing theory under Section 1346 and limited the statute’s application to cases involving bribery or kickbacks (thereby making the statute virtually superfluous since such conduct is usually covered by other statutes).  On appeal in Bruno, the government, conceding reversal was required because the court’s instructions to the jury were flawed under Skilling, nonetheless argued that it should be given a second shot at Bruno, this time with a superseding indictment more specifically alleging bribery.

          Generally, an appeal of a criminal trial marred by instructions proper under prevailing law at the time given (as they apparently were here) but later found defective by a higher court in that or another case results in a retrial with proper instructions.  One underlying justification is that the prosecution cannot be expected to anticipate changes in the law and should be able to rely on current law.  This case is somewhat different, however.  Here, the government could not, or certainly should not, have failed to realize that the theory it chose to pursue was constitutionally questionable on vagueness and overbreadth grounds.  The theory of prosecution had been questioned by courts, scholars, and lawyers and was about to be considered by the Supreme Court pursuant to a grant of certiorari.  The government nonetheless chose to go forward on this theory, most likely because it was easier to prove factually, rather than a bribery charge that was less assailable legally but probably more difficult to prove.  This case thus appears to be a classic example of a prosecutor deciding to seek the instant gratification of a conviction at trial and not to worry about the appeal until later.

          Last week, in Davis v. United States, the Supreme Court held in a search and seizure case that evidence should not be excluded if the evidence was seized pursuant to police procedures compliant with then-binding legal precedent even though that precedent was subsequently overruled.  Following that line of reasoning, a court may well rule that there should not be a double jeopardy bar to retrial if the prosecutor’s conduct was compliant with binding legal precedent that was subsequently overruled.  A different approach seems appropriate, however, when the law the prosecutor relied on was, as here, up in the air.  Indeed, Justice Sotomayor, concurring in Davis, made such a distinction, stating that she would have ruled differently if the law the police relied on was unsettled.  It will be interesting to see how the Second Circuit, if it reaches this issue, will decide it.

(Goldman)

June 22, 2011 in Fraud, Prosecutions, Searches | Permalink | Comments (0) | TrackBack (0)

Friday, June 17, 2011

NACDL's 1st Annual West Coast White Collar Conference, “Turning The Tables On The Government” – “The Accidental Felon: Challenging The Expansion of the Willful Blindness Doctrine,” Friday, June 17, 2011

Guest Blogger: Darin Thompson, Assistant Federal Public Defender, Office of the Federal Public Defender (Cleveland,OH)

One of two breakout sessions, two speakers (Timothy O’Toole and Professor Ellen S. Podgor) reviewed the ever-broadening scope of the willful blindness doctrine and proposed several defenses and counter-attacks to this brutally successful prosecutorial tactic.

The speakers opened by discussing a recent U.S. Supreme Court case, Global-Tech Appliances, Inc. v. SEB S.A. Though this is a patent infringement case, the Court addresses the scope of the criminal law willful blindness doctrine. The Court notes that the instruction has been applied to a wide variety of cases, but sets forth two universal requirements: (1) the defendant must subjectively believe that there is a high probability that a fact exists and (2) the defendant must take deliberate actions to avoid learning of that fact. The Court affirmed, holding there was sufficient evidence that the patent infringer was willfully blind under the criminal law standard.

Professor Podgor began by reviewing U.S. v. Jewell, the Ninth Circuit case most commonly cited as setting forth the law on willful blindness. Professor Podgor noted that Justice (then Judge Kennedy) dissented in the 9th Circuit decision in Jewell, and that he again found himself (this time alone) in the dissent in Global-Tech.

Mr. O’Toole noted that the use of willful blindness in white collar cases (even though it originated in a drug case) is an excellent example of why white collar defense attorneys should not wall themselves off from other areas of criminal defense.   With respect to Global-Tech, he noted that the second requirement of “deliberate action” appears to narrow the scope of willful blindness in comparison to existing circuit case law. The Supreme Court itself emphasized this requirement in its analysis, noting that the Federal Circuit was in error in not requiring deliberate action.

Professor Podgor emphasized the strength of the language used by the Supreme Court in this case. Powerful jury instructions can and should be crafted based upon the Global-Tech. Mr. O’Toole seconded these comments, pointing out that the willful blindness doctrine is often relied upon by the government in cases where evidence of deliberate actions is non-existent. He questioned whether any circuit’s pattern instruction remains valid in light of a universal failure to include a requirement of “deliberate actions” to avoid learning of the key fact(s). He also noted that the Supreme Court didn’t merely indicate that recklessness or negligence wasn’t sufficient, but actually set forth the definitions of those two mental states, and suggested that proposed jury instructions should do the same.

One questioner asked whether the improvement in the legal standard was so great that defense counsel should ask for this instruction, to allow focus on the absence of deliberate actions. Both speakers cautioned against it.

(dt)

Postscript -  Mentioned in this session was a wonderful article by Dane C. Ball (Gerger & Clarke) titled, Improving "Willful Blindness" Jury Instructions In Criminal Cases After High Court's Decision in Global-Tech, published in the BNA Criminal Law Reporter. With many thanks to Dane C.  Ball and the Criminal Law Reporter for allowing us to post it here - Download BNAinsights.Ball2

(esp)

June 17, 2011 in Conferences, Fraud | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 25, 2011

Government Response in Weyhrauch Hyde Act Case

The Weyhrauch case has had a long journey - but it is not over yet.  It went to the Supreme Court, along with Jeff Skilling's case. (see here). Bruce Weyhrauch came back and plead to a misdemeanor in state court - not federal court.  He then filed a Hyde Act Amendment motion to recover his attorney fees.  The government has now filed it's Hyde Act response.  A couple of sentences in this response are fascinating:

  • "[T]he Hyde Amendment does not provide for discovery, and none is appropriate here. (p. 1)
  • "The fact that Weyhrauch pleaded guilty to a state misdemeanor as opposed to the federal crimes for which he was originally indicted is irrelevant." (p. 6)
  • "...Weyhrauch fails to specify how the government's position in this litigation has been vexatious, frivolous, or in bad faith ...The closest Weyhrauch comes to making an argument on this point is claiming that an FBI agent testified falsely before the grand jury ..." (p. 7)

See also Richard Mauer, Anchorage Daily News, Justice Department rejects Weyhrauch reimbursement WEYHRAUCH: Prosecutors say guilt admission negates his claim.

  (esp)

May 25, 2011 in Fraud, Judicial Opinions, Prosecutions, Prosecutors | Permalink | Comments (2) | TrackBack (0)

Mixed Verdict in Alleged Tax Fraud Scheme

The DOJ Press Release is titled, Jenkens & Gilchrist Attorneys, Former BDO Seidman CEO and Deutsche Bank Broker Found Guilty in New York of Multi-Billion Dollar Criminal Tax Fraud Scheme - Massive, 10 Year Criminal Scheme Generated More Than $7 Billion Dollars of Fraudulent Tax Losses

The Press Release states in part:

"NEW YORK – Paul M. Daugerdas, Donna M. Guerin, Denis M. Field and David Parse were convicted today in Manhattan federal court for their roles in a tax shelter scheme in which they designed, marketed and implemented fraudulent tax shelters used by wealthy individuals to avoid paying taxes to the Internal Revenue Service (IRS), announced Preet Bharara, U.S. Attorney for the Southern District of New York; John A. DiCicco, Principal Deputy Assistant Attorney General for the Justice Department’s Tax Division; and Victor S.O. Song, Chief of the IRS Criminal Investigation. Together, Daugerdas, Guerin and Field made $130 million in profits from the 10-year scheme. 

But the press release also notes that, "Raymond Craig Brubaker,. . . a banker at Deutsche Bank who was also charged along with the defendants, was acquitted by the jury on all counts."

Brubaker was represented by the law firm of Kramer, Levin, Naftalis & Frankel.

(esp)

May 25, 2011 in Fraud, Tax, Verdict | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 11, 2011

Dog Bites Man. Rajaratnam Guilty On All Counts.

Read all about it. Here is Katya Wachtel's report for businessinsider.com. Carrie Johnson of NPR's All Things Considered discusses the deterrent effect of Wall Street wiretaps in Wiretaps: Not Just For Mob Bosses Anymore, with a quote thrown in from yours truly.

(wisenberg)

May 11, 2011 in Current Affairs, Fraud, Insider Trading, Investigations, Prosecutions, Securities | Permalink | Comments (0) | TrackBack (0)

Monday, April 25, 2011

Holder Recognizes the Importance of being "Smart on Crime"

AG Holder spoke about the DOJ's Priorities and Mission (see here)  He listed four essential priorities:

"In the critical days ahead, these four essential priorities – protecting Americans from national security threats, protecting Americans from violent crime, protecting Americans from financial fraud, and protecting the most vulnerable members of our society – will guide our work."

Specifically when speaking to financial fraud, he stated:

"Third: we will protect Americans from the financial fraud that devastates consumers, siphons taxpayer dollars, weakens our markets, and impedes our ongoing economic recovery.   As we’ve seen, the impact of financial crime is not confined to Wall Street – and many times the victims of fraud have worked hard and played by established investment rules, only to see their retirement and life savings vanish at hands of white-collar criminals. 

"Over the last two years, through reinforced interagency partnerships and new joint initiatives – such as the Financial Fraud Enforcement Task Force and the Health Care Fraud Prevention and Enforcement Action Team – we have transformed the way we deal with fraud crimes.   Not only have we secured record recoveries totaling billions of dollars, we have raised awareness about these crimes and improved the ability of consumers and victims to report suspected fraud schemes.   In the coming months, we must take all of these efforts to the next level.   

"We will vigorously investigate financial crimes and ensure that those who commit them are made to pay the price – by serving long sentences and making restitution to taxpayers, as well as victims.    To identify the most effective ways to prevent and combat financial fraud, senior Department leaders will continue to meet with victims, medical providers, business leaders, and key government and law enforcement partners around the country.   We will also work to bring our HEAT task forces to new problem areas, and to expand other successful programs that will allow us to maximize both our efficiency and our impact."

But it was particularly good to hear that he recognized the importance of using "smart of crime" approaches as opposed to prosecuting haphazardly.  He stated: "We also will invest in scientific research to make certain that this Department is both tough and smart on crime, and that our decisions are economically sound.   This means working closely with state, local, and tribal partners.   It also means broadening our support for effective crime prevention, intervention, enforcement, and reentry strategies."

Thank you, AG Holder.

(esp)

April 25, 2011 in Fraud, Prosecutions, Prosecutors | Permalink | Comments (1) | TrackBack (0)

Saturday, April 23, 2011

Lauren Stevens Case To Start Tuesday: Has The Government Overcharged?

The federal criminal trial involving former GlaxoSmithKline ("GSK") Vice President and Associate General Counsel Lauren Stevens commences this Tuesday in Greenbelt, Maryland. When I first read the Indictment, without knowing anything else about the facts, it struck me that the government may have overcharged. That is probably not a good sign for the feds, since the Stevens charging instrument is a classic one-sided speaking Indictment that seeks to put the United States' case in the best possible light.

The crux of the prosecution theory is that Stevens, who headed up a team of inside and outside GSK counsel responding to an FDA inquiry, withheld information about off-label marketing of Wellbutrin. Specifically, Stevens allegedly learned that several doctors, paid by GSK and speaking at GSK-sponsored events, promoted off-label (weight-loss) use of the drug. GSK's responses were part of a voluntary production pursuant to a written request from the FDA's Division of Drug Marketing, Advertising, and Communications ("DDMAC"). Stevens allegedly agreed, orally and in writing, to provide DDMA with "materials and documents presented at GSK-sponsored promotional programs, even if not created by, or under the custody or control of GSK." But, according to the Indictment, Stevens knowingly failed to produce numerous off-label promotional and presentation materials, provided to GSK by the doctors in question, with intent to obstruct an FDA proceeding. Rather than focusing entirely or primarily on this failure to produce, the Indictment lumps in many other broad statements contained in Stevens' various cover letters to the government. It seems to me that at least some of these statements are open to differing interpretations. Perhaps the government should have more narrowly honed in on the failure to turn over the presentation/promotional materials.

Part of Stevens' defense will entail her purported reliance on the advice of outside counsel in sending GSK's written responses to the FDA. The original Indictment was thrown out by Judge Roger Titus, because federal prosecutors incorrectly instructed the grand jury that reliance on the advice of counsel is only an affirmative defense. In fact, good faith reliance on advice of counsel negates the specific intent element under the federal obstruction and false statement statutes at issue in the trial.

This prosecution should strike terror into the hearts of inside and outside counsel throughout corporate America. Of particular note is that the FDA inquiry into off-label Wellbutrin marketing did not involve a compelled production and was not even quasi-criminal in nature.

Attached for our readers' benefit are some documents setting out the government's case and what are likely to be key portions of Ms. Stevens' defense.

Here are: Court's Memorandum Opinion Dismissing Indictment, Lauren Stevens Indictment(2), Background Section of Defense Response on Opinion Testimony, and Declaration of Brian O'Connor.

(wisenberg) 

April 23, 2011 in Arthur Andersen, Corruption, Current Affairs, Defense Counsel, Fraud, Grand Jury, Judicial Opinions, Legal Ethics, Obstruction, Prosecutions, Statutes | Permalink | Comments (0) | TrackBack (0)

Monday, April 18, 2011

Ninth Circuit Offers No Relief in Post-Skilling Case

The Ninth Circuit Court of Appeals in U.S. v. Pelisamen ruled that "where the jury returned a special verdict form indicating that it had convicted the defendant on both theories" ("money and propery" and "honest services") the conviction remains valid post-Skilling because the jury has designated that it convicted the defendant on both theories. This case differs from the Skilling remand, where there was an alternative theory issue.  Here in Pelisamen it is clear that the jury looked at both items and convicted on both.  But one also has to wonder if evidence of honest services taints the jury with prejudicial evidence. And one additionally has to wonder why the government felt it necessary to charge honest services if they had such a strong case premised on "money or property."

(esp)(hat tip to Linda Friedman Ramirez)

April 18, 2011 in Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Thursday, April 14, 2011

Sixth Circuit Vacates Wire Fraud and False Statement Convictions of Former Tennessee State Senator

A fascinating opinion vacating convictions and reversing the district court, was issued by the Sixth Circuit in the case of U.S. v. Ford. This appeal concerned convictions for false statements and two counts of "honest services" wire fraud.  This case does not pertain to another case against Ford in which he was sentenced to 5 1/2 years imprisonment.

The government's problem with the 1001 conviction was that the statute was inapplicable to the defendant's conduct. Section 1001 requires federal jurisdiction. As stated by the court in noting the defendant's argument, "while the facts that he failed to disclose concerned an entity inseparable from federal ties, the entities to which he failed to disclose those facts were anything but federal."  The court noted that the "failures to disclose financial interests were related to functions of the state government of Tennessee - the senate's and election registry's reporting requirements."  The court also used the rule of lenity in support of its vacating these convictions.

The wire fraud counts were easier - Skilling limited honest services to "bribery and kickbacks," and that was not the case here.

Attorneys Representing Ford were Paul Mogin, William E. McDaniels, & M. Jesse Carlson (Williams & Connolly LLP).

(esp) 

April 14, 2011 in Enron, Fraud, Judicial Opinions, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Friday, April 1, 2011

Downward Variances at the District Court: Beware of Pyrrhic Victories

This week's Sentencing Guidelines opinion from the Third Circuit in United States v. Negroni underscores the importance of forcing district courts to create an adequate record at sentencing hearings. Paul Negroni and James Hall IV pled guilty to mail and wire fraud, among other crimes. They were knowing participants in a massive fraud scheme. Hall's original Guidelines range was 87-108 months, reduced to 46-57 months after the district court struck Paragraph 45 of the PSR, which had provided the factual support for a 6-level "250 or more victims" enhancement. The judge then downwardly varied to a 15 month sentence. Negroni's Guidelines range was 70-87 months. The judge downardly varied to a probated sentence with 9 months home detention. The Third Circuit vacated both sentences, because of the procedural unreasonablemess of the downward variances, and remanded for resentencing, I have commented previously on the disturbing trend in federal circuit courts of reversing downward variances based on alleged procedural irregularities, thereby gutting Gall and Kimbrough. The Fourth Circuit is particularly notorious for this.

But district judges must step up to the plate and do their part. In Negroni, the sentencing court struck Paragraph 45 of Hall's PSR, but clearly failed to articulate on the record its reason for doing so. The district court also failed to adequately articulate the substantial downward variance it granted to Negroni. Instead, like so many sentencing judges, it rather rotely recited the Section 3553 factors without intelligently discussing most of them or specifically applying them to the facts of Negroni's case and personal history.

It is really not that hard for a district judge to make an adequate procedural record. Defense counsel must force the sentencing court to discuss each Section 3553 factor and apply it in some fashion to a defendant's unique circumstances. How does counsel do this? By literally providing, in writing and in advance, a paint-by-numbers guidebook for the court. I do not know if that was attempted in Negroni. Perhaps it was. It is not always psychologically easy, in the midst of a hearing, to convince a judge who is ruling in your favor to touch all the bases. But don't kid yourself--the circuit courts are waiting, and itching, to send these babies back. Better to educate the district court beforehand, through your sentencing memorandum, about the procedural requirements for a downward variance.

Here is the opinion. Hat tip to Greg Poe for sending this decision our way.

(wisenberg)

 

April 1, 2011 in Fraud, Sentencing | Permalink | Comments (0) | TrackBack (0)

Thursday, March 17, 2011

Ninth Circuit Says Predicates for Section 1028A Are Merely Descriptive

A Ninth Circuit opinion in United States v. Harrell examines a question of first impression for the 9th Circuit: "whether the 'relating to' parentheticals within 18 U.S.C. s 1028A(c) limit the statute's otherwise clear articulation of which offenses may serve as predicates for application of s 1028(a)." Among the charges against Harrell were a charge of aggravated identity theft. The court held that "'relating to'parentheticals do not limit the statute's effect, but serve simply as descriptive aids."  Finding the plain text clear, the court did not "trudge through the deep mud of legislative history." Neither did the court use the rule of lenity.

(esp)

March 17, 2011 in Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

DOJ Says "Arrests Follow Largest Corporate Fraud Investigation" for Indiana

A DOJ Press Release says: "Three former executives of Fair Financial Company, an Ohio financial services business, were arrested today and charged in an indictment filed in the Southern District of Indiana for their roles in a scheme to defraud approximately 5,000 investors of more than $200 million."  The press release also states that "'These arrests follow the largest corporate fraud investigation in the history of the FBI in Indiana which resulted in over 5,000 victims and an estimated loss of $200 million dollars,'said Special Agent in Charge Welch."

Indy.com here.  Check out the picture - Was a perp walk really necessary in a case like this?

Indictment - Download Durham

(esp)

March 17, 2011 in Fraud, Investigations, Prosecutions | Permalink | Comments (2) | TrackBack (0)

Government's Response in Brown - Just a Clerical Error

Discussed here is the alleged Brady violations in the James A. Brown case, a former Merrill Lynch executive who was convicted of perjury and obstruction and is contesting these charges on several grounds. Then posted here was a brief filed in the Brown case that argued concerning a possible conflict because Lanny Breuer's name appeared on the brief and he was conflicted out of the case.  The government now responds basically saying that this is just a clerical error.

Government's Brief - Download Filed Version of Government's Opposition to Brown's Motion to Strike

(esp)

March 17, 2011 in Enron, Fraud | Permalink | Comments (1) | TrackBack (0)

Tuesday, March 15, 2011

Weyhrauch Mail Fraud Case Finally Dismissed

As noted here (KTUU.com, Weyhrauch Gets Fine, Probation in Corruption Case Plea) and also Becky Bohrer, Anchorage Daily News (AP),Weyrauch Gets Suspended Jail Sentence, $1,000 Fine , the Weyhrauch case is finally being resolved.  But lets look at what is happening here -

Weyhrauch was initially charged with an individual named Kott, who is now awaiting a ruling on whether his case will be dismissed for discovery violations. Perhaps we have a preview of the reasoning of the Ninth Circuit Court of Appeals by the decision last week in the Kohring case that found that the government had failed to provide Brady material to the defense. (see here, here, and here).

Weyhrauch's case went to the Supreme Court as one of three cases being examined as part of the "honest services" doctrine that prosecutors stretched to a point that the Court decided to place new limits upon -- requiring a showing of  "bribery and kickbacks."  In its ruling in Skilling, the Court did not directly address the question raised in the Weyhrauch case as to whether you needed a violation of state law for a mail fraud charge that uses honest services.  Rather the Court reframed the question with a new test of "bribery or kickbacks."  (see also here)

Now Weyhrauch is back in court pleading to the charge noted in the articles above.  In dismissing the federal case against him he filed a non-opposition to the motion to dismiss as follows:

"Weyhrauch non-opps the motion to dismiss for two reasons.  First, this was a very weak case from the beginning and all the evidence the government ever really had was that Weyhrauch had participated in, aided, or abetted a lobbyist engaging as a lobbyist without being registered.  See, attached Exhibit 1, Information and Plea Agreement.  Now that Weyhrauch has pled to that crime in state court, there are no longer facts to support a federal indictment.  Second, Weyhrauch believes there is evidence to support dismissal of the indictment because of "misconduct before the grand jury which returned the indictment against Weyhrauch." (reference to a letter filed under seal), which is filed under seal because it refers to grand jury testimony and other grand jury proceedings.  If the standard is that dismissal is appropriate when the ends of justice are served, then this case qualifies by any measure."

The more important question is:  Did the ends of justice warrant the federal government using the mail fraud statute to bring this alleged state case in the first place?

(esp) 

March 15, 2011 in Fraud, Prosecutions, Prosecutors, Sentencing, Settlement | Permalink | Comments (0) | TrackBack (0)