Wednesday, April 11, 2007
It started as a major conspiracy case, but ended with the defendant receiving probation after a plea to a charge of lying to a federal officer under 18 U.S.C. s 1001.
The accused had been the subject of a FISA warrant and the charges in the SDNY were initially violating the International Emergency Economic Powers Act (IEEPA) and in D.Conn. he was charged with acting as an agent of the Chinese government. The Hartford Courant notes that the accused "originally was accused of conspiring with Chinese officials to sell $27 million in telecommunications equipment to the Iraq government from 1999 to 2001." But in the end all that happened was the accused pleading guilty to this single charge and receiving probation. Attorney Ross Garber represented the accused. The prosecuter being quoted in the Hartford Courant is Kevin O'Connor, the U.S. Attorney in Connecticut and AG Alberto Gonzales' new chief of staff.
Tuesday, April 3, 2007
Two from South Carolina were indicted as part of a "15-count indictment, which was returned by a federal grand jury in the District of Columbia and unsealed on March 23, [that] charges the defendants with violating the International Emergency Economic Powers Act and the Arms Export Control Act and with acting as illegal agents of a foreign government." Two individuals from India was also indicted. The DOJ Press Release states that without proper export licenses:
"the defendants acquired in the United States for VSSC and BDL electrical components that could have applications in missile guidance and firing systems. According to the indictment, the defendants concealed from vendors the true end-users of the goods. In particular, the indictment alleges how, in the case of one vendor, Cirrus provided the company with fraudulent certificates that claimed that the end-user in India was a non-restricted entity, when, in fact, the items were for VSSC."
Sunday, April 1, 2007
Monday, March 5, 2007
A press release of the US Attorney's Office for the Central District of California reports that "[a] federal grand jury in Los Angeles has indicted two attorneys with one of the West Coast's largest immigration law firms on charges of filing fraudulent employment visa applications on behalf of foreign nationals, including some of the law firm's own workers." The two attorneys were charged with 33 counts including charges of "visa fraud, making false statements and conspiring to commit visa fraud." Others in this law firm had previously plead guilty.
Friday, February 23, 2007
Just in time for the end of Carnival, two Brazilians settled an SEC insider trading civil suit arising from purchases in the target of an impending tender offer. The defendants are Luiz Gonzaga Murat was the chief financial officer and investor relations director at Sadia S.A., a Sao Paulo frozen food company, and Alexandre Ponzio De Azevedo, who formerly worked for ABN AMRO's Brazilian affiliate. Sadia planned a tender offer for Perdigão S.A., another Brazilian company, and ABN AMRO's investment banking unit advised on the deal. According to the SEC's Litigation Release (here):
[O]n April 7, 2006, representatives of an investment bank met with Murat and another Sadia executive to propose that Sadia make a tender offer for Perdigão. According to the complaint, Murat proceeded to purchase American Depositary Shares ("ADSs") of Perdigão both later the same day and subsequently on June 29, 2006, on the basis of material, nonpublic information concerning the proposed acquisition, and in breach of a duty of trust and confidence he owed to Sadia. The complaint alleges that Murat's holdings totaled 45,900 ADSs of Perdigão by the time Sadia announced the tender offer. On July 17, 2006, the price of Perdigão ADSs increased to $24.50, up $4.25 (21%) from the previous closing price. According to the complaint, Murat had imputed illicit profits of $180,404 from his unlawful trading.
The Commission's complaint against Azevedo alleges that he learned of the possible tender offer on April 11, 2006, in his capacity as an employee of ABN AMRO assigned to the tender offer financing team, and that ABN AMRO later placed Perdigão on a list of securities in which ABN AMRO employees could not trade. According to the complaint, Azevedo subsequently purchased 14,000 ADSs of Perdigão on June 20, 2006, on the basis of material, nonpublic information concerning the proposed acquisition, and in breach of a duty of trust and confidence he owed to ABN AMRO. Azevedo sold 10,500 ADSs on July 17, 2006, one day after Sadia had publicly announced its tender offer for Perdigão. According to the complaint, Azevedo realized illicit profits of $52,290 on the 10,500 ADSs he sold on July 17 and had imputed profits of $14,875 on his remaining 3,500 ADSs.
Murat agreed to pay $184,028 in disgorgement and a civil penalty of $180,404, while Azevedo will pay $68,215.45 and a civil penalty of $67,165.
An interesting aspect of the case is that neither defendant ever set foot in the United States in connection with the transaction, and none of their trading involved an American company or even any communications that passed through the U.S. The jurisdictional hook is the securities of each company, which are traded on the New York Stock Exchange as ADS. Under Section 10(b) of the Securities Exchange Act, the general antifraud prohibition applies to any person who "directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange . . . ." The fact that the securities of the target trade on the NYSE brings the case under the Act, although it is a fair question whether conduct wholly outside the United States with only a tangential connection to this country should be subject to a civil enforcement action by the SEC. The trades were placed in Brazil, and the companies were incorporated and operated there, but the transaction ultimately occurred in New York, bringing it into the SEC's cross-hairs. The case shows the long arm of the insider trading prohibition. (ph)
Sunday, January 28, 2007
The sentences for two individuals who plead guilty to a 3 count indictment that related to polluting navigable waters were: 1) 5 months in prison and 2 months supervised release and 2) 3 years probation. Both individuals had restrictions placed upon them to preclude them from polluting U.S. waters. According to the DOJ press release,
"A joint factual statement filed in federal district court in New Jersey stated that on the night of Jan. 3, 2006, U.S. Coast Guard inspectors boarded the Sun New and discovered that members of the engine room crew had used bypass hoses to discharge oily wastes overboard into the ocean without using the vessel’s oily water separator. Upon further investigation, inspectors discovered that the crew of the Sun New had disposed of significant amounts of oil waste into the ocean at least twice during the voyage from South Korea to New Jersey. In September a grand jury in Newark, N.J., returned a three-count indictment charging Chang-Sig O and Mun Sig Wang with conspiracy, obstruction of justice, and a violation of the Act to Prevent Pollution from Ships in connection with the use of the two bypass hoses."
It is interesting to see the sentences given with respect to an environmental offense, albeit an obstruction of justice charge in one case and a violation of the Act to Prevent Pollution from Ships in the other case. Perhaps the greatest deterrent in this sentence was their restrictions on operating ships in U.S. navigable waters. The company, Sun Ace Shipping Company, had previously plead guilty and was "fined $400,000 [and] ordered to pat $100,000 as a community service payment. They were prohibited from "returning to the U.S. for three years for similar violations in conjunction with this case."
Sunday, December 17, 2006
Identity Theft is clearly a national problem. And when one thinks of the problem, computer fraud or credit card schemes come to mind. But DOJ has a new category to add to the list - immigration violations. The Washington Post reports in an article by Spencer Hsu and Krissah Williams that federal authorities arrested hundreds of people on identity theft charges for what in fact appears to be allegations of immigration violations.
It is nothing new for prosecutors to use a charge that may not have initially been intended for the purpose it is now being used. Years ago, one saw tax offenses used to prosecute organized crime and corruption matters. Recently, money laundering charges have been tacked onto white collar crimes. So I guess, it should not be surprising to see identity theft being pulled from the hat for alleged immigration violations.
Friday, December 15, 2006
The U.S Attorney's Office for the Northern District of California announced the first two convictions under 18 U.S.C. Sec.1831 for foreign economic espionage in a case that began with an arrest back in 2001. According to a press release (here):
Fei Ye and Ming Zhong pleaded guilty today to two counts each of economic espionage. Ming and Zhong were arrested at the San Francisco International Airport on November 23, 2001, with stolen trade secret information in their luggage while attempting to board an aircraft bound for China. The defendants today admitted to possessing stolen trade secrets from Sun Microsystems, Inc. and Transmeta Corporation with the intent to benefit the Peoples Republic of China.
Mr. Ye and Mr. Zhong today admitted that they intended to utilize the trade secrets in designing a computer microprocessor that was to be manufactured and marketed by a company that they had established, known as Supervision, Inc. In pleading guilty, Mr. Ye and Mr. Zhong admitted that Supervision was to have provided a share of any profits made on sales of chips to the City of Hangzhou and the Province of Zhejiang in China, from which Supervision was to receive funding. Mr. Ye and Mr. Zhong further admitted that their company had applied for funding from the National High Technology Research and Development Program of China, commonly known as the “863 Program.”
Federal prosecutors in the Northern District of California also announced a superseding indictment in another Sec. 1831 case. According to a press release (here), the defendant was "charged with stealing military combat and commercial simulation software and other materials from his former employer Quantum3D, a company based in San Jose, California. The economic espionage charges allege that Meng, formerly a resident of Beijing, China, and a resident of Cupertino, California, stole the trade secrets from Quantum3D with the intent that they would be used to benefit the foreign governments of China, Thailand, and Malaysia." (ph)
Saturday, November 25, 2006
While our primary focus is on the United States, instances of white collar crime can occur anywhere money flows and businesses fight for a competitive advantage. A Wall Street Journal article (here) discusses pending investigations in Germany of Siemens AG and Daimler-Chrysler AG related to potentially illegal payments. The Siemens investigation involves a fraud that involving over $200 million, and German police searched a number of the company's offices and seized over 36,000 documents. Searches are becoming more common in U.S. white collar crime investigations, although the German authorities also arrested six employees, something that tends not to happen here until charges have been filed. As one would expect to hear in an American corporate crime investigation, Siemens stated that it is cooperating with investigators. The Daimler-Chrysler case involves possible violations of the FCPA for bribes paid from allegedly secret bank accounts.
An AP story (here) discusses a report issued by China's National Audit Office that over $900 million in government pension funds have been misused or stolen. China is reputed to impose severe penalties for corruption, including the possibility of a death sentence, which is a bit more extreme than the punishments imposed in the U.S. and elsewhere. (ph)
Monday, November 20, 2006
Playing in the international market can have severe ramifications for a company. Not only must they fear the US Foreign Corrupt Practices Act (FCPA), but they also have to be apprised of the law of other countries and be knowledgeable of how best to operate in these countries. And it is not always easy.
It is, therefore, not surprising to see that that Lone Star Funds is having some difficulty with South Korean prosecutors. According to the Wall Street Jrl here, they have indicted the "Dallas private-equity firm Lone Star Funds and Korea Exchange Bank on stock-manipulation charges related to the bank's credit-card unit." And it sounds like this investigation opens up an array of accusations. The Korean Herald reports here on allegations related to a judge's failure to grant an arrest warrant in 2004 for an executive of Lone Star. Part of the question here will be whether this whole investigation really is anything new from what had previously been looked at in 2004.
Wednesday, November 1, 2006
Sony Corporation's US subsidiary, Sony Electronics Inc. stated in a corporate press release to investors here that they had "received a subpoena from the U.S. Department of Justice (DOJ) Antitrust Division seeking information about its static random access memory (SRAM) business." The company stated that it intended to cooperate with the government in its investigation.
Martin Fackler of the NYTimes reports here some background on this investigation including how four other companies have come under investigation related to SRAM business. SRAM stands for Static Random Access Memory. (See Wikepdia here)
The Wall Street Jrl reports on the raid of offices of Samsung in Germany by EU Investigators. (see here) This investigation also appears to be related to SRAM chips.
Thursday, October 26, 2006
The fallout from the collapse of futures-trading firm Refco in October 2005 has hit in Austria, where prosecutors in Vienna charged nine individuals for their role in transactions between Refco and Austrian bank Bank Fuer Arbeit und Wirtschaft AG (BAWAG) that led to large losses at the bank. BAWAG lent former Refco CEO Phillip Bennett over $400 million right before Refco's collapse, which he used to repay debts owed to Refco that were not properly accounted for by the firm. It turns out BAWAG had significant losses on trading by Wolfgang Floettl, son of a former CEO of BAWAG, in Refco accounts. The charges include embezzlement, fraud, and false entries in the bank's books, and the defendants include Floettl, two former chief executives, and an auditor from KPMG's Austrian branch. An AP story (here) discusses the charges.
Back in the U.S., federal prosecutors said in court that a new indictment will be filed in the next two weeks in prosecution of Refco executives, which comes on top of a new indictment on October 24. Bennett and former Refco CFO Robert Trosten both entered not guilty pleas to the most recent indictment, and it's not clear whether the new indictment will include additional defendants. Given the speed with which Refco collapsed, less than a week, it is not surprising that the investigation has taken time to sort out how it's demise occurred so quickly. The quick filing of charges against Bennett in November 2005 has meant that prosecutors will have to deal with an increasingly exasperated judge who wants the case pushed along, according to a New York Post story (here). (ph)
Wednesday, October 25, 2006
With more companies doing business abroad, it becomes more important to understand international criminal laws. According to the New York Times here Royal Dutch Shell is having to deal with Russian authorities to avoid criminal prosecution of some of its employees. The issue for Shell and two partners from Japan relates to environmental laws.
Friday, October 13, 2006
Former Comverse Technology CEO Kobi Alexander's days of freedom could come to an end in the near future. After fleeing -- or deciding to resettle -- in Namibia in July, shortly before federal prosecutors filed charges against him for securities fraud related to options back-dating at Comverse, he was arrested by Namibian authorities at the request of the U.S. A magistrate in Windhoek, the capitol, released Alexander after he posted $1.3 million bail and surrendered his Israeli passport. Now, Prosecutor General Olivia Imalwa has appealed that decision to the High Court, arguing that Alexander is a flight risk and could sneak out of Namibia even without the surrendered passport. Alexander has been accused by federal prosecutors of transferring over $50 million shortly before he was charged, and could have considerably more in assets available.
The U.S. is still preparing its extradition request to have Alexander returned under a law adopted by the Namibia Parliament at the request of the Justice Ministry; the two countries do not have an extradition treaty. According to an article (here) in Ha'aretz, an Israeli newspaper, the extradition request is due this week. If the court determines that Alexander can be extradited to the United States, he will be held in jail while he appeals that decision to the High Court, a process that can take years rather than months.
Meanwhile, on the U.S. side of the case, a grand jury in the Eastern District of New York returned a superseding indictment that adds obstruction of justice, bribery, and a new securities fraud charge to the thirty-two counts in the earlier indictment (see Bloomberg story here). The obstruction and bribery counts involve an alleged offer by Alexander in March 2006 to a Comverse executive to "name your price" to take the blame for the options back-dating at the company. It is not clear yet who the executive is, but the roster of those cooperating with the government may rise. Federal prosecutors disclosed that they are negotiating possible plea bargains with the two other former Comverse officers charged along with Alexander, CFO David Kreinberg and general counsel William Sorin. The defendants originally were charged in a criminal complaint, and the government requested that the court grant a thirty-day extension before a grand jury has to return an indictment because the parties were engaged in plea discussions. If either agrees to cooperate, it is very likely they will provide additional information about Alexander's involvement in the options back-dating, probably strengthening the government's case. An AP story (here) discusses the status of the case against Kreinberg and Sorin. (ph)
Friday, September 29, 2006
Former Comverse Technology CEO Kobi Alexander will be sitting in a Namibian jail for the weekend after a magistrate postponed a hearing on his extradition to the United States until Monday, October 2. Alexander was arrested on Sept. 27, after the Parliament enacted a provision authorizing the government to extradite him to the United States to face conspiracy, securities fraud, and related charges related to options backdating at the company. Alexander's lawyers requested that he be released on bail pending the extradition hearing, a position the U.S. and Namibian government will oppose because of the potential risk of flight, given that he was declared a fugitive after the initial charge was filed on August 9 and his large bank transfers into Namibia that helped to identify him. A Bloomberg story (here) discusses the status of the case. (ph)
Thursday, September 28, 2006
Former Comverse Technology CEO Kobi Alexander went into hiding in July when criminal charges appeared on the horizon, along with $57 million, according to the government, and wound up in a place few would have expected. Alexander was arrested in Namibia, which was once part of South Africa and only gained independence in 1990. The country does not have an extradition treaty with the United States, and while there is one between the U.S. and South Africa, it does not appear that it applies now that Namibia is independent. Therefore, the Republic of Namibia's Parliament enacted a law, at the request of the Justice Ministry, that went into effect on September 27 to permit Alexander to be extradited to the U.S. A Bloomberg article (here) discusses the Parliament's enactment. A press release issued by the U.S. Attorney's Office for the Eastern District of New York (here) states, "The arrest was made pursuant to a provisional warrant issued by a Namibian court at the request of the United States government. ALEXANDER will be brought before a court in Windhoek, Namibia within 48 hours. The United States intends to seek ALEXANDER’s extradition to the United States . . . ."
When he returns to the U.S., Alexander will face an extensive criminal indictment (available below courtesy of the Wall Street Journal Law Blog) related to backdating options at Comverse that was returned on September 20 and sealed until the arrest. Two other Comverse executives, former CFO David Kreinberg and former general counsel William Sorin, were initially charged in a criminal complaint with conspiracy along with Alexander in July, but they are not named in the current indictment. Given the timing of the indictment, and the decision not to include Sorin and Kreinberg in it at this time, I suspect prosecutors learned that Alexander was in Namibia and worked behind the scenes with the Namibian government to have the extradition law enacted, at which point he could be arrested and the indictment unsealed.
The 32-count indictment charges Alexander with conspiracy, securities fraud, filing false documents with the SEC, mail/wire fraud, and money laundering. Forfeiture counts seek $138 million and two apartments he owns in New York City (on West 57th and West 56th for those keeping score). The 18 mail/wire fraud counts, based largely on the filing of the false documents, allege that the scheme was to defraud "the investing public." Rather than charging Alexander with defrauding Comverse shareholders, which is the more common basis supporting a fraud claim related to options backdating, the government seems to have opted for a much more amorphous theory of the fraudulent scheme. Given that the investing public includes virtually anyone with a brokerage, mutual fund, or retirement account -- probably a large percentage of the adults in this country -- it doesn't seem that this type of allegation meets the requirements for a "money/property" scheme. Usually the government charges that the defendant gained something of value from a victim, but when that victim is just about everyone, none of whom dealt directly with the defendant, it may be harder to prove that Alexander schemed to defraud "the market." Moreover, the government does not allege a "right of honest services" fraud under Sec. 1346, which might have been a plausible charge for depriving Comverse of his honest services through the breach of fiduciary duty by filing false documents and backdating options grants.resulting in the personal gains from the options grants. I expect the defense will seek to knock out these charges early on through a motion to dismiss for failure to allege properly all the elements of the offense. (ph)
UPDATE: A Wall Street Journal article (here) discusses the circumstances surrounding the arrest of Alexander in Namibia. Apparently he did not do much, if anything, to hide his identity while living there. It may be that he believed, or was told, that the absence of an extradition treaty between Namibia and the U.S. would protect him. That assessment turned out to be wrong.
Wednesday, September 27, 2006
According to the Wall Street Jrl here, Kobi Alexander, former Comverse Energy's CEO has been found in Namibia and now awaits extradition or return to the United States. Although there is no extradition treaty with the US, this does not always mean that the individual cannot be sent to the United States. The Wall St.Jrl reports that "the Namibia government enacted a law to establish an extradition treaty with the U.S., prompted by this case." For background on the Kobi Alexander matter see here.
Extradition treaties often formalize two basic principles that operate in international law. The first is the Rule of Speciality. "The essence of the rule of speciality is that a defendant may be tried only for the crimes for which he or she is extradited." (See Podgor, Understanding International Criminal Law 98 (2005). The second principle is Dual Criminality which requires that in order for extradition to be proper, the crime must be a crime in both countries. The interesting question here is whether the alleged crime is in fact a crime in Namibia.
Sunday, August 6, 2006
According to the Washington Post here a German prosecutor is investigating possible money laundering conduct related to the transfer of funds by a contractor who may owe money resulting from a civil action regarding possible defrauding of the U.S.-led Coalition Provisional Authority in Iraq.
The United States has used "objective territoriality" as a basis for prosecuting conduct occurring outside the United States that has an effect on this country. But will those in this country find it acceptable if another country uses a similar principle to prosecute US citizens? Does it make a difference that the conduct is alleged to have occurred outside this country?
Saturday, August 5, 2006
The United States Senate ratified the Council of Europe's Cybercrime Treaty. In a statement issued by Attorney General Gonzalez he states:
" The Cybercrime Convention - the first of its kind - will be a key tool for the United States in fighting global, information-age crime. This treaty provides important tools in the battles against terrorism, attacks on computer networks, and the sexual exploitation of children over the Internet, by strengthening U.S. cooperation with foreign countries in obtaining electronic evidence. The Convention is in full accord with all U.S. constitutional protections, such as free speech and other civil liberties, and will require no change to U.S. laws. I congratulate and thank the Senate for its advice and consent, and look forward to having the United States become a party to the convention at the earliest opportunity."
The Convention itself can he found here. One of the fascinating provisions in the Convention is the jurisdiction provision which provides:
"1 Each Party shall adopt such legislative and other measures as may be necessary to establish jurisdiction over any offence established in accordance with Articles 2 through 11 of this Convention, when the offence is committed:
a in its territory; or
b on board a ship flying the flag of that Party; or
c on board an aircraft registered under the laws of that Party; or
d by one of its nationals, if the offence is punishable under criminal law where it was committed or if the offence is committed outside the territorial jurisdiction of any State.
2 Each Party may reserve the right not to apply or to apply only in specific cases or conditions the jurisdiction rules laid down in paragraphs 1.b through 1.d of this article or any part thereof.
3 Each Party shall adopt such measures as may be necessary to establish jurisdiction over the offences referred to in Article 24, paragraph 1, of this Convention, in cases where an alleged offender is present in its territory and it does not extradite him or her to another Party, solely on the basis of his or her nationality, after a request for extradition.
4 This Convention does not exclude any criminal jurisdiction exercised by a Party in accordance with its domestic law.
5 When more than one Party claims jurisdiction over an alleged offence established in accordance with this Convention, the Parties involved shall, where appropriate, consult with a view to determining the most appropriate jurisdiction for prosecution."
Monday, July 17, 2006
The DOJ is cracking down on online gambling as seen by the unsealing of an indictment that had been issued by a federal grand jury in the Eastern District of Missouri. The "22-count indictment charg[es] 11 individuals and four corporations on various charges of racketeering, conspiracy and fraud." (see DOJ Press Release here; see also Wall Street Journal here) The Press Release states:
"The indictment alleges that Gary Kaplan started his gambling enterprise via operation of a sportsbook in New York City in the early 1990s. After Kaplan was arrested on New York state gambling charges in May 1993, Kaplan moved his betting operation to Florida and eventually offshore to Costa Rica. According to the indictment, BetonSports.com, the most visible outgrowth of Kaplan’s sports bookmaking enterprise, misleadingly advertised itself as the “World’s Largest Legal and Licensed Sportsbook.” The indictment also alleges that Kaplan failed to pay federal wagering excise taxes on more than $3.3 billion in wagers taken from the United States and seeks forfeiture of $4.5 billion from Kaplan and his co-defendants, as well as various properties.
"The indictment alleges that Gary Kaplan and Norman Steinberg, as the owners and operators of Millennium Sportsbook, Gibraltar Sportsbook, and North American Sports Association, took or caused their employees to take bets from undercover federal agents in St. Louis who used undercover identities to open wagering accounts. The indictment also alleges that Kaplan and Mobile Promotions illegally transported equipment used to place bets and transmit wagering information across state lines and that DME Global Marketing and Fulfillment shipped equipment to Costa Rica from Florida for BetonSports.com."
This indictment raises a host of questions including questions on the criminality of the alleged activities, the appropriate jurisdictional base for prosecution of these alleged activities, and the credibility of witnesses who obtained their evidence via an undercover operation (a jury might be very accepting of undercover evidence when the activities involve drugs or fraud; but will they be as accepting for conduct related to gambling?). For an interesting discussion on whether online gambling should be illegal see the Wall Street Journal discussion here between Rep Jim Leach (Iowa) and David Carruthers, Chief Executive of BetOnSports Plc (both Carruthers and BetOnSports were charged in this indictment). It is interesting to see that this case comes out of the Eastern District of Missouri. With alleged online gambling, could other jurisdictions in the United States have investigated and prosecuted this case? Is the selection of this venue another example of prosecutorial discretion?