Tuesday, March 15, 2011

Holder on Health Care Fraud

AG Holder speaking at the Detroit Health Care Fraud Prevention Summit stated:

"In just the last fiscal year, we obtained settlements and judgments amounting to more than $2.5 billion in False Claims Act matters alleging health care fraud – the largest annual figure in history and an increase of more than 50% from fiscal year 2009.  We also opened more than 2,000 new criminal and civil health care fraud investigations, reached an all-time high in the number of health care fraud defendants charged, stopped numerous large-scale fraud schemes in their tracks, and returned more than $2.5 billion to the Medicare Trust Fund and more than $800 million to cash-strapped state Medicaid programs."

Full press release here.

(esp)

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

Friday, March 11, 2011

Third Circuit Post Skilling Decision

The Third Circuit Court of Appeals examined convictions on five counts of honest services mail fraud in violation of 18 U.S.C. §§ 1341 and 1346 and one count of extortion under color of official right in violation of 18 U.S.C. § 1951(a) and vacated the convictions and sentences on the honest services counts, See opinion here. The defendant had argued:

"(1) in light of Skilling, the District Court erred in instructing the jury that it could convict him under the [honest services mail fraud] HSMF Counts based on the Concealed Conflict Object; (2) his HSMF convictions must be vacated because the error concerning the Concealed Conflict Object was not harmless beyond a reasonable doubt and (3) his Extortion Count conviction should be vacated due to "prejudicial spillover" from the HSMF Concealed Conflict Object error. Alternatively, [the defendant] contends that his convictions should be vacated because the District Court erroneously charged the jury in several other respects."

The court held:

"Upon careful review of the record below, it is not possible for us to conclude beyond a reasonable doubt that a rational jury would have convicted [the defendant] based solely upon the Bribery Object. At trial, the Government inextricably intertwined evidence of bribery and concealment. The District Court itself specifically charged the jury that it might convict [the defendant] on either the Bribery Object or the Concealed Conflict Object, and the District Court's evidentiary rulings throughout the trial may have been affected by the existence of the Concealed Conflict Object charges. Moreover, there is no escaping the fact that, while understandably emphasizing the Bribery Object to a greater degree, the United States did argue that the Concealed Conflict Object alone was a sufficient basis for conviction."

(esp) 

March 11, 2011 in Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Thursday, March 3, 2011

ABA White Collar Crime Conference - Honest Services Fraud Panel

This panel was moderated by Professor Julie O'Sullivan of Georgetown Law School.

It started with Denis J. McInerney, Chief of the Fraud Section of the Criminal Division of the Department of Justice, who gave the history of the mail fraud statute from its inception up to the Court's decision in Skilling.

The second panelist was Martha Boersch of Jones Day.  She spoke about the 110 cases that have been examined post-Skilling. Some circuits have said a fiduciary duty is required - but not all circuits have held this. Another big issue is whether the government has to prove a quid pro quo - she noted the split in some court cases on this issue. There is also uncertainty as to what a quid pro quo would be in this context. Does the government have to prove a contemplated economic harm? There are likely to be future cases on the definition of honest services coming from instructions given in mail fraud cases.

The third speaker wasFrank Razzano, Pepper Hamilton,who spoke about five open questions: 1) Does it require a fiduciary duty? (He said you should make sure that there is a breach on the part of the payor); 2) Is legislation necessary to address this issue or is there a way around this for prosecutors; (He spoke about the case of U.S. v. Jain here- how you can use a pecuniary theory of mail fraud; 3) Does Skilling limit the stream of benefits theory?  4) He noted that you need to analyze the intent of the payor and payee carefully   5) Gratuities - does honest services fraud include this, or is it limited to bribery?  He looked at some of the cases where these issues had arisen.

Finally Professor Julie O'Sullivan talked about congressional acts that have been introduced since Skilling.

(esp)(blogging from San Diego)

March 3, 2011 in Conferences, Congress, Fraud, Prosecutions | Permalink | Comments (2) | TrackBack (0)

ABA White Collar Crime Conference - Public Corruption Panel

This afternoon breakout session on public corrruption was moderated by Joshua R. Hochberg (McKenna, Long & Aldridge).

Jack Smith, Chief of the Public Integrity Section of the Criminal Division of the Department of Justice,spoke about how his office was moving cases along. He stressed the importance of maintaining the deadlines that are established.  He also stated he has not found a problem finding statutes to use when bringing state and local corruption cases post the Supreme Court's modification of 1346. He said that other statutes are available to bring conflict of interest cases.

Robert M. Cary, a partner in the Washington, D.C., office of Williams & Connolly LLP,  noted the lack of transparency in discovery.  Until there is an enforceable rule, it will be a problem.

Laura A. Miller, Nixon Peabody LLP, said that "successful representation is when my name and my client's name does not appear in the press."

Patrick M. Collins, Perkins Coie LLP questioned why the government can't go the extra mile and have open file discovery.

The panel discussed the Speech & Debate Clause and how it can affect a case.  They also looked at discovery issues - Laura Miller noted the lack of uniformity on discovery issues.  She mentioned how in the "rocket docket" they receive Jencks material the Friday before trial. Jack Smith said that if it is close - turn it over.Jack  Smith said they sometimes he will highlight documents for the defense. He recognized his duty to go through documents and find Brady material.  Laura Miller noted that we should all work together to manage discovery.  A final topic discussed was venue.

(esp)(blogging from San Diego)

March 3, 2011 in Celebrities, Conferences, Corruption, Fraud | Permalink | Comments (0) | TrackBack (0)

ABA White Collar Crime Conference - Lessons Learned From Recent Trials

The opening panel of this morning discussed some recent white collar cases: Karatz (alleged options backing); WebMD (alleged financial statement fraud), and Petters (alleged Ponzi scheme).  Ronald J. Nessim was listed as moderating this panel, but Vince Marella filled in for him. Particularly interesting were the remarks of John Lauro, who talked about how a group of defendants stuck together for a long time - and the importance of this for the case. Both he and John Keker discussed the initial corporate investigation in their cases and how the companies did not conduct it with a purpose to demonize their clients, although in one instance the later relationship might not have been as amicable.

In the Petters  case, the prosecutor explained how the case came to light and how quickly it moved forward.  This was contrasted with the WebMD case where there was no discussion with the prosecutors. What was noted in the WebMD case was the importance of having resources to make the case -  Lauro said it would not have been possible without resources. 

John Lauro explained that one of the biggest challenges for the defense was the discovery.  He also explained how a Daubert challenge allowed them to educate the judge about the case.

I only wish I could have stayed to listen to more of this fascinating presentation - but off to a meeting for my panel on ethics.

(esp)(blogging from San Diego)  

March 3, 2011 in Conferences, Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Monday, February 21, 2011

DOJ Budget Request - Financial Fraud and Transnational Intellectual Property

DOJ's requested budget focuses a good bit on national security.  But there is also money for continued activity on financial fraud.  In a DOJ Press Release it states,

"The FY 2012 budget also supports the continued efforts to crack down on financial fraud.   From August through December 2010, the Attorney General’s Financial Fraud Enforcement Task Force brought charges against over 500 criminal and civil defendants for fraud schemes that have harmed more than 120,000 victims throughout the country, involving more than $8.0 billion in estimated criminal losses and more than $2.1 billion in estimated civil losses. In addition, the FY 2012 budget requests $3.0 million of program increases for the Criminal Division for transnational enforcement of intellectual property law."

(esp)

February 21, 2011 in Computer Crime, Fraud | Permalink | Comments (0) | TrackBack (0)

Sunday, February 20, 2011

A Tale of Two Plea Agreements

Thursday's Wall Street Journal has a fascinating piece here by Steve Eder, Michael Rothfeld, and Jenny Strasburg on the friendship, between Donald Longueuil and Noah Freeman, that was shattered by the SDNY's insider trading probe. As the white collar world now knows, Freeman secretly recorded Longueuil. Longueuil's damaging admissions were captured, quoted in the criminal complaint against Longueuil and Samir Barai, and splashed across the headlines. Freeman has pled guilty and his plea agreement is publicly available.

I thought it might be interesting to compare Freeman's plea agreement to that of Danielle Chiesi, who recently pled guilty in the Raj Rajaratnam case. Chiesi has not agreed to cooperate against Rajaratnam as part of her deal, but Freeman has agreed to cooperate with the government against Longueuil. The Noah Freeman Plea Agreement is a classic, bare bones, SDNY white collar plea deal. Unlike the vast majority of federal criminal plea agreements in other jurisdictions, the Freeman agreement contains no Sentencing Guidelines calculations or stipulations. Freeman agrees to plead to two felony counts--securities fraud and conspiracy to commit wire and securities fraud. The maximum statutory term for those two counts combined is 25 years. Freeman agrees to pay restitution and to forfeit proceeds traceable to the charged offenses. The government agrees not to prosecute him further, except for tax crimes, and to recommend a Section 5K1.1 downward departure if he continues to truthfully cooperate. And that's about it.  

Why is the agreement structured this way? Because SDNY prosecutors do not want want to put anything into the agreement which would indicate to a jury what actual sentence Freeman might get. If hard Guidelines numbers were put into the agreement, even as non-binding stipulations, Longueuil's attorney could compare those numbers, during Freeman's cross-examination, to the stratospherically higher Guidelines sentence Freeman would have received sans cooperation. Now, when Freeman takes the stand against his former friend, he can truthfully tell the jury that he has no idea what sentence he will ultimately receive. Sure, he wants a light sentence or probation, but all he knows is that he is looking at a statutory max of 25 years and some kind of 5K1.1 motion if he tells the truth.

And what is Freeman's attorney told by the prosecutors, or what does the attorney already know without being told if he or she has practiced long enough in the SDNY? "Trust us. We are not going to promise your guy anything other than a 5K1.1, but if you look at what past white collar targets have received when they came in early and cooperated, you will see that we treated them fairly. Many of them received probation or light sentences. By the way--if you come in on the eve of trial, don't expect to be treated as well." The defense attorney relays this information in some form or another to the client and tells the client that there is no guarantee. He also tells the client that the people who came in early and cut plea deals in the World Com case got probation or light sentences. That fellow who came in right before trial got five years. The guy who went to trial and lost got hit with 25. The client ususally takes the deal. (Who wants to roll the dice with those odds?) It all makes for a much cleaner trial and cross-examination in the government's view.

Contrast this with Chiesi whom the government does not need and who litigated her case like crazy almost until the eve of trial. The Danielle Chiesi Plea Agreement is highly structured and much more like those you will see in other parts of the country. Chiesi pled to three conspiracy counts, each carrying a five year max. The government and Chiesi stipulated as to the appropriate version of the Guidelines, the Guidelines section applicable to her conduct, the base offense level, the adjusted offense level based on an agreed-upon amount of gain, and Chiesi's acceptance of responsibility. The parties stipulated that Chiesi's Guidelines offense level is 21, her criminal history category is I, and her Guidelines sentencing range is 37-46 months. Either side is free to argue for a Booker downward variance, but neither side can argue for an upward or downward Guidelines departure or adjustment unless it is specifically called for in the agreement. Because the prosecutors do not particularly need Chiesi, they are not worried about how her 37-46 month range compares to what her range would have been sans cooperation.

In one of those delightful traditions peculiar to the SDNY, neither of these plea agreements has been publicly filed with the appropriate district court, although neither agreement is under seal. This is insane. Jason Pflaum's plea agreement is virtually identical to Freeman's. Pflaum consensually monitored the conversations/messages of Sam Barai and is expected to testify against Barai and others.

(wisenberg)

 

February 20, 2011 in Fraud, Insider Trading, Prosecutions, Securities | Permalink | Comments (0) | TrackBack (0)

Thursday, February 17, 2011

"Largest Ever Health Care Fraud Takedown"

A DOJ Press Release issued today titled, Medicare Fraud Strike Force Charges 111 Individuals for More Than $225 Million in False Billing and Expands Operations to Two Additional Cities tells that "[t]he Medicare Fraud Strike Force today charged 111 defendants in nine cities, including doctors, nurses, health care company owners and executives, and others, for their alleged participation in Medicare fraud schemes [allegedly] involving more than $225 million in false billing,..." It states that "[t]oday’s operation is the largest-ever federal health care fraud takedown."  

The press release notes that:

"The defendants charged today are accused of various health care fraud-related crimes, including conspiracy to defraud the Medicare program, criminal false claims, violations of the anti-kickback statutes, money laundering and aggravated identity theft.   The charges are based on a variety of alleged fraud schemes involving various medical treatments and services such as home health care, physical and occupational therapy, nerve conduction tests and durable medical equipment.   

"According to court documents, the defendants charged today participated in schemes to submit claims to Medicare for treatments that were medically unnecessary and oftentimes, never provided.   In many cases, indictments and complaints allege that patient recruiters, Medicare beneficiaries and other co-conspirators were paid cash kickbacks in return for supplying beneficiary information to providers, so that the providers could submit fraudulent billing to Medicare for services that were medically unnecessary or never provided. Collectively, the doctors, nurses, health care company owners, executives and others charged in the indictments and complaints are accused of conspiring to submit a total of more than $225 million in fraudulent billing."

AG Holder, speaking at a press conference stated that "[w]e are also pleased to announce the expansion of the Medicare Fraud Strike Force – which currently operates in Baton Rogue, Brooklyn, Detroit, Houston, Los Angeles, Miami, and Tampa – to two additional cities: Dallas and Chicago."

(esp)

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

Monday, February 7, 2011

Post-Skilling Conviction Overturned on Corum Nobis

Finding no bribery or kickbacks, a U.S. District Court in the Eastern District of California set aside and vacated in its entirety an honest services mail fraud conviction. See here - Download Judicial Order The Motion to Vacate this Conviction was presented via a Motion of Coram Nobis - Download Corum Nobis Petition Some will obviously claim that this is why section 1346, the honest services fraud provision, should be rewritten.  Others of us will say - this is exactly why such a prosecutorial extension should not be allowed.  When prosecutors have a deprivation of "money or property," even when the property is intangible property, there is ample basis for prosecuting mail and wire fraud. But to allow prosecutions premised on intangible rights, with little understanding of what constitutes intangible rights, provides prosecutors with discretion that allows them to stretch prosecutions beyond what folks would recognize to be criminal conduct. Attorney Doug A. Goss represented the accused in this case.

See also Scott Smith, Recordnet, Judge vacates conviction of ex-prosecutor

(esp)

February 7, 2011 in Corruption, Fraud, Judicial Opinions, Prosecutors | Permalink | Comments (4) | TrackBack (0)

Thursday, January 20, 2011

Siegelman & Scrushy - Post Skilling - Is 1346 Really Necessary?

The Skilling case proved consequential in the discussion before the the Eleventh Circuit in the Siegelman and Scrushy cases. Check out this story on the oral argument -

John Schwartz, NYTimes, Judges Take Another Look at Ex-Alabama Governor’s Conviction

Some may claim that it is cases like this that should influence Congress to re-examine section 1346. Perhaps - but only to void the entire statute as recommended by Justice Scalia. One lesson that should be learned from both the McNally case, and now Skilling is that if the government is criminalizing conduct, it is necessary to require strict legal lines and those lines should not cross into legitimate conduct. 1346 should be voided because it is unnecessary.  The basic mail fraud statute, 1341, and wire fraud, 1343, as well as the other fraud statutes, criminalize deprivations of "money or property."  The Supreme Court has clearly held that "money or property" includes intangible property (Cleveland). To include "intangible rights" is therefore unnecessary for the prosecution of criminal misconduct. If the self-dealing does not involve money or property, should we really waste government resources on the prosecution?

(esp)

January 20, 2011 in Fraud, HealthSouth | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 18, 2011

What is Bribery in a Post-Skilling World?

The Paul Minor case (see here) may flesh out some of the questions left unresolved by the Court ruling inSkilling. Across the country we are seeing cases being reexamined to determine whether the conduct, indictment, jury instructions, and trial focused on "bribery or kickbacks" - the one permissible activity for "honest services" in the fraud statute - 18 USC 1346. In this regard, in the Paul Minor case we see several interesting issues - 1) Does the Mississippi bribery law meet the Skilling Court's test of "a uniform national standard,"; and 2) How should a court factor in that the prosecution used "concealment" and "self-dealing" in the indictment and closing argument as opposed to terms that would represent bribery. The high powered lineup to present these issues are: Ted Olson and David Debold of Gibson, Dunn & Crutcher.

Motion to Vacate Convictions -Download Motion to Vacate

Memo in Support of Motion to Vacate Convictions-Download Motion to Vacate - Memo

Government Response - Download 46738335-US-Response-to-Paul-Minor-s-lastest-motion-to-dismiss-010711

(esp)

January 18, 2011 in Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Friday, January 7, 2011

Bill Black Sounds The Toscin: Whatever Happened To Prosecuting Real Fraud?

Okay, let me take off my white collar defense attorney hat and put on my former prosecutor hat for a minute. Call it my citizenship hat. Don't most of us want real, unadulterated big-time crooks to be investigated and, where appropriate, charged? Where are all the investigations and prosecutions of the accounting control fraud that caused one of the greatest recessions in U.S. history? You know, the current recession. 

Back in the late 1980s, when the S&L Crisis hit and the Dallas-based S&L Task Force was formed, federal law enforcement officials quickly realized that, in many instances, colossal fraud had been committed by the very players who controlled the S&Ls. The S&L fraud was overwhelmingly based on sham transactions and sham accounting for those transactions. Massive resources were committed to investigating and prosecuting the S&L fraud. It was understood that the crooked players had hijacked their S&Ls and defrauded depositors and/or the FSLIC. This rather elementary distinction between the savings and loan as an institution and the fraudsters who controlled it was grasped by AUSAs and effectively conveyed to juries across the land.

Nothing like this is happening today with respect to the federal government’s investigation of the housing bubble, liars’ loans, and Wall Street's subprime lending scandal. The overwhelming number of investigations and prosecutions seem to be focused on piker fraudsters—corrupt individual borrowers or mortgage brokers. These cases are easy pickings, but do not get to the massive fraud that clearly permeated the entire financial system.

Professor William Black, of Keating Five fame, has written a scathing piece all about this for the Huffington Post. Here it is. Among Black's revelations? "During the current crisis the OCC and the OTS - combined - made zero criminal referrals." Astounding. These two agencies accounted for thousands of criminal referrals per year during the S&L Task Force years. More fundamentally, Black argues that today's federal prosecutorial authorities do not comprehend that individuals in control of an institution can have an incentive to engage in short-term fraud that enriches them individually while destroying the long-term prospects of the institution and the larger economy.

Nobody should be charged with a white collar crime unless the crime is serious and the prosecution believes in good faith that a jury will find guilt beyond a reasonable doubt. But how about a substantive investigative effort, including commitment of appropriate resources? Why are such huge resources being spent on dubious endeavors like insider trading and FCPA enforcement, while elite financial control fraud goes largely unaddressed? Professor Black's piece is highly recommended reading.

(wisenberg)

January 7, 2011 in Current Affairs, FCPA, Fraud, Insider Trading, Investigations, Mortgage Fraud, Prosecutions, Prosecutors, Scholarship, Securities | Permalink | Comments (0) | TrackBack (0)

Monday, December 27, 2010

Mens Rea Under Section 1001: Judge Kavanaugh's Concurrence in Moore

My colleague Ellen Podgor posted here about the Ninth Circuit's reversal of a securities fraud conviction on sufficiency grounds in United States v. Goyal, and specifically recommended Judge Alex Kozinski's concurrence. That concurrence led me to Judge Brett Kavanaugh's equally outstanding concurrence in United States v. Moore, 612 F.3d 698, 702-04 (D.C. Circuit 2010).

Moore involved an expansive application of 18 U.S.C. Section 1001. As explained by Judge Kavanaugh, "This  case is novel: The Government has obtained a false statements conviction under 18 U.S.C. [Section] 1001 against an individual who signed the wrong name on a postal delivery form....Federal prosecutors tried Moore twice for various drug offenses, but both times the jury hung. In the second trial, prosecutors tacked on a false statements charge under [Section] 1001."

Judge Kavanaugh wrote separately to discuss the mens rea issues which can arise under the "ever-metastasizing" statute. His concurrence should be required reading for all white collar practitioners. In essence, Judge Kavanaugh argues that the Government must prove, in a Section 1001 prosecution, that the defendant knew he was violating the law.  This is because Sectiuon 1001 contains a willfulness element. As Judge Kavanaugh points out, recent and not-so-recent Supreme Court pronouncements, in cases such as Bryan v. United States, 524 U.S. 184, 191-92 (1998), Safeco Ins. Co. of America v. Burr, 551 U.S. 47, 57 n.9 (2007), and Dixon v. United States, 548 U.S. 1, 5 (2006), establish that a defendant cannot harbor willful criminal intent unless he knows in some sense that his conduct is unlawful. (The defendant need not know the specific code provision he is accused of violating, except in the case of highly technical statutes.) 

There is no reason, absent some particular statutory twist, why this principle should not apply across the board to statutes containing a willfulness element. But many of the federal circuit courts take a different approach with respect to certain fraud statutes, such as Section 1001, apparently because some of their precedents predate the most recent Supreme Court holdings and dicta. Judge Kavanaugh, who once clerked for Judge Kozinski, concurred with the majority opinion in Moore, but only because the defendant did not request an appropriate jury instruction on the willfulness element. Here is Judge Brett Kavanaugh's Concurrence in U.S. v. Moore.

(wisenberg)

 

December 27, 2010 in Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 22, 2010

People of the State of New York v. Ernst & Young LLP

Here is the civil complaint filed in New York v. Ernst & Young LLP. The pleading is a well drafted speaking complaint detailing Ernst & Young LLP's auditing actions, and alleged failures to act, in connection with Lehman's Repo 105 transactions. New York is seeking the return of $150 million in auditing fees earned by Ernst & Young on the Lehman account. Assuming that the allegations are true, the complaint is a powerful argument in favor of Dodd-Frank's enhanced whistleblower provisions. Most of the alleged activities occurred after Sarbanes-Oxley was enacted into law. 

(wisenberg)

December 22, 2010 in Civil Enforcement, Civil Litigation, Current Affairs, Fraud, Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 21, 2010

Ryan Denied Skilling Relief and Bail

A US District Court for the Northern District of Illinois- Eastern Division, denied former Illinois Governor George H. Ryan Sr.'s request of Skilling relief  and "bail pending the ultimate resolution of this motion."  In a 59 page order here, the court held:

  • The Skilling decision "announces a new substantive rule of criminal law" allowing the "re-set[ting] the clock for filing [  ] post-conviction" relief.
  • Ryan's "conduct for which he was convicted - steering contracts, leases, and other governmental benefits in exchange for private gain - was well-recognized before his conviction as conduct that falls into the 'solid core' of honest services fraud."
  • Claiming improper jury instructions, the court finds "that the Bloom instruction, the conflict-of-interest instruction, and the state law instructions should not have been given"  but then holds the error as harmless.
  • Page 42 et seq. of the opinion has a wonderful footnote (# 14) and text that reviews relevant post-McNally and Skilling holdings. 
  • The court rejects any spillover effect of Ryan being prejudiced "by the admission of evidence that would not have been admissible in a post-Skilling honest services fraud prosecution." 

But the saddest part of this decision is that the court fails to grant bail to Ryan pending the resolution of this motion despite acknowledging "the sad news that his wife of more than fifty years is suffering from a terminal illness."  This is particularly troubling as the court notes that Ryan "poses no risk of recidivism nor danger, were he to be released."  Sometimes the law is very cold to humanity and this is sad.

(esp)

December 21, 2010 in Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Medicaid fraud crackdown threatens citizens’ rights

Guest Blogger - Philip Hilder

Constitutional protections are being hastily overlooked in our government's zeal to crack down on Medicaid fraud. But even that worthy cause doesn't merit a denigration of citizens' rights. In the case of Medicaid fraud, the Texas Legislature has not only encouraged but required government agencies to mix civil and criminal investigations on such a regular basis that the constitutional rights of the people and businesses being investigated are being trampled routinely.

Any television police drama will tell you that subjects of a government investigation have the right to remain silent and to be told they have the right to remain silent. But the arm of Texas government that conducts criminal Medicaid fraud investigations is gathering information under the guise of the arm that looks at possible civil violations. Both civil and criminal investigators work for the Texas attorney general.

The problem is that the targets lawfully need to know when they are being targeted by the criminal group. But instead they are being asked for documents using a civil process and they aren't being told the information is being shared with criminal investigators.

You might think it's just the government either way. If these folks might have done something wrong, why should we care? But these rights are there to protect the innocent and the guilty. They are there to protect someone being investigated now, as well as you and me, who could be investigated for something else another day.

We all must care when a target isn't given the opportunity to invoke his or her rights in a criminal investigation because the state has purposefully made it appear there is no such investigation. In its zeal to control the state's annual $17 billion in Medicaid costs, Texas has lost its grip on protecting the rights of its citizenry.

The Texas Legislature has blurred what should be clearly demarcated barriers between civil and criminal investigations of health care providers. Various state agencies investigate Medicaid providers for compliance issues and fraud. The Medicaid Fraud Control Unit oversees relevant state felonies, such as fraud and theft, and its investigations may result in imprisonment, fines and exclusion from the Medicaid program. But this criminal arm has concurrent jurisdiction with the Civil Medicaid Fraud Division, which pursues civil fraud.That means the civil division can issue a subpoena for documents from a Medicaid provider who doesn't even know that a parallel criminal investigation is ongoing when the information is shared with criminal investigators.

And the criminal investigators supplement the civil staff by conducting site inspections, usually for providers who meet the profile for criminal fraud. That means criminal investigators are using the guise of an administrative review to start a criminal investigation. This level of cooperation and coordination is statutorily required so the two sides of the legal coin don't run parallel investigations, but rather attack a case in a coordinated effort.

Parallel civil and criminal proceedings that examine the same conduct are not only permissible but often are labeled as being in the public interest. However, when parallel civil and criminal investigations become too intertwined, they cease to be parallel and create ample opportunities for violations of the Constitution's Fourth, Fifth and/or Sixth Amendments.

Courts have found that such efforts can cross the line and to determine whether that's happened, they look at: (1) whether there was notice that evidence could be used in a criminal proceeding; (2) whether a civil investigation was brought in bad faith; and (3) whether the target of the investigation had a lawyer.In the securities cases against HealthSouth mogul Richard Scrushy, a court reasoned that there was a "danger of prejudice flowing from testimony out of a defendant's mouth at a civil proceeding [which] is even more acute when he is unaware of the pending criminal charge."

Texas HB 2292 may appear to have created efficiency but it actually created dangerous legal territory. Until the criminal and civil investigations in Texas are taken out of lock step, judges should toss the evidence gathered under a civil ruse and used in criminal investigations. Our Legislature needs to go back to the drawing board and protect us both against Medicaid fraud and the erosion of civil rights.

Philip H. Hilder, a former federal prosecutor and founder of Hilder & Associates, P.C., focuses on white-collar criminal defense.

Reprinted from the Houston Chronicle - With Permission

December 21, 2010 in Fraud | Permalink | Comments (3) | TrackBack (0)

Monday, December 13, 2010

Kozinski Tells Prosecutors to Quit Wasting Taxpayer Resources

The Ninth Circuit Court of Appeals reversed the conviction of Prabhat Goyal, former chief financial officer of Network Associates (formerly known as McAfee), holding that the government "failed to carry its burden" on an issue of materiality.  The court stated that "Goyal's desire to meet NAI's revenue targets, and his knowledge of and participation in deals to help make that happen, is simply evidence of Goyal's doing his job diligently." The court noted that "Goyal's presumed knowledge of GAAP as a qualified CFO does not make him criminally responsible for his every conceivable mistake."

But be sure to read the concurring opinion by Hon. Kozinski.  He states in part:

This case has consumed an inordinate amount of taxpayer resources, and has no doubt devastated the defendant's personal and professional life.  The defendant's former employer also paid a price, footing a multimillion dollar bill for the defense.  And, in the end, the government couldn't prove that the defendant engaged in any criminal conduct.  This is just one of a string of cases in which courts have found that federal prosecutors overreached by trying to stretch criminal law beyond its proper bounds." (citations omitted)

He ends his concurrence with: "Although we now vindicate Mr. Goyal, much damage has been done.  One can only hope that he and his family will recover from the ordeal.  And perhaps, that the government will be more cautious in the future."

Opinion here

(esp)(hat tip Christopher R. Noyes)

December 13, 2010 in Fraud, Judicial Opinions | Permalink | Comments (1) | TrackBack (0)

Sunday, December 12, 2010

Operation Broken Trust - But Who Broke the Trust?

The government is announcing here some statistics from Operation Broken Trust. (see also here) They are stating:

"Starting on Aug. 16, 2010, to date Operation Broken Trust has involved enforcement actions against 343 criminal defendants and 189 civil defendants for fraud schemes involving more than 120,000 victims throughout the country. The operation’s criminal cases involved more than $8.3 billion in estimated losses, and the civil cases involved estimated losses of more than $2.1 billion"

But the real question is who broke the trust, not what are the ramifications of the eventual trust being broken.  Would earlier enforcement have resulted in less damage to individuals?  And would proactive education have proved even more significant in curtailing these fraud schemes?

(esp)

December 12, 2010 in Fraud | Permalink | Comments (0) | TrackBack (0)

Friday, December 17, 2010

Can You Convict for Honest Services When You Haven't Charged Honest Services?

According to the 8th Circuit Court in the case of United States v. Redzic, the answer to this question is "yes." The defendant was convicted of mail fraud, wire fraud, bribery, and conspiracy.  The mail fraud and wire fraud charges were premised upon sections 1341 and 1343, not 1346. The defendant notes on appeal  that he had been indicted, that the government's argument at trial, and that the jury instructions at trial all pertained to a defrauding of property under 1341 and 1343.  The problem was that the property in this case happened to be licenses and as previously held in the Cleveland case, regulatory licenses are not property for purposes of mail fraud. So the government's response is - well then let's call this honest services.  But there appears to be one problem in doing that - they failed to charge the case this way.

The 8th Circuit holds "[w]hile we believe it would have been preferable in Redzic's case for the indictment to have included the term 'honest services,' its omission was not fatal." 

To put this all in context -  this opinion is a post-Skilling remand. And yes, the 5th Cicuit held in United States v. Griffin, 324 F.3d 330 (2003):

There is no doubt that the district court erred by instructing the jury that a scheme to defraud includes "a scheme to deprive another of the intangible right to honest services" because the indictment did not contain a reference to 18 U.S.C. § 1346 or its language. And, that error was obvious. Furthermore, we can not permit the district court to second guess "what was in the mind[ ] of the grand jury at the time [it] returned the indictment." Russell,369 U.S. at 770, 82 S.Ct. 1038. To do so would violate the Appellants' Fifth Amendment right to indictment by a grand jury and undermine the public's faith in the integrity of our judicial proceedings. 

I wonder what Justice Scalia will think about the 8th Circuit's decision in Redzic?

(esp) (with a hat tip to Dane Ball)

December 17, 2010 in Fraud, Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Monday, November 15, 2010

Kevin Ring Convicted Yet DOJ Wants More in an Honest Services Statute

According to a DOJ Press Release, "a federal jury in Washington convicted Kevin A. Ring, a former lobbyist who worked with Jack A. Abramoff, on five counts related to a scheme to corrupt public officials by providing a stream of things of value."  The Press Release states that:

"The jury found Ring guilty on one count of conspiring to corrupt congressional and executive branch officials by providing things of value to them and their staff in order to induce or reward those who took official actions benefitting Ring and his clients.   In addition, Ring was convicted of one count of paying a gratuity to a public official and three counts of honest services wire fraud for engaging in a scheme to deprive U.S. citizens of their right to the honest services of certain public officials.   The jury acquitted Ring on three counts of honest services fraud.   A previous federal jury failed to reach a verdict in the case and the court declared a mistrial."

Interestingly, this verdict comes on the heels of a response by Assistant AG Lanny Breuer to a question by Senator Patrick Leahy, where Breuer claims that there is a need to revise the honest services statute post Skilling. The Court's decision in the Skilling case had limited honest services to "bribery and kickbacks."  Breuer's first answer to a question posed to him tells of two cases where honest services premised on self-dealing was charged - but in both instances he says that it was in addition to bribery charges.  If bribery was present in these two cases, then why should Congress revise the mail fraud statute?  DOJ fails to present a specific need for this legislation.

Breuer then proceeds to state that "without a legislative fix, it will be more difficult and, in some instances, impossible to prosecute federal officials, as well as state and local officials for significant corrupt conduct."  See letter -Download Breuer_Answers  But he can provide no cases and his reasoning for not using existing statutes like section 208 is because this statute is not a predicate for a RICO charge, while mail fraud does serve this function. Is Assistant AG Breuer telling us that he can't circumvent the limits of RICO without this mail fraud fix? Is he saying that Congress should extend a statute so that he can get around congressional intent in the RICO statute?  It's also, he says, because he needs honest services as a predicate for Title III wiretaps. Here again is he saying that he can't circumvent the limits of Title III wiretaps without having a loose mail fraud statute that allows DOJ to use and abuse their discretion. 

With a conviction in the Ring case, it is hoped that the Senate will look closely at the rationale offered by DOJ for needing to expand the honest services provisions of the mail fraud statute. It is also hoped that DOJ will think twice about allowing the possible use of mail fraud to circumvent the existing RICO and wiretap mandates. It is a sad day when prosecutors ask for more power in a statute so that they can use it to circumvent existing laws. 

(esp)

November 15, 2010 in Fraud, Verdict | Permalink | Comments (0) | TrackBack (0)