Tuesday, June 21, 2016

Abramowitz Decries Effect of Corporate Prosecutions on Employees

Elkan Abramowitz, one of the best and most-respected white collar crime defense practitioners in the nation, last week received the Robert Louis Cohen Award for Professional Excellence from the New York Criminal Bar Association.   At the dinner at which he received the award, Mr. Abramowitz spoke thoughtfully about the pernicious effect of prosecutions of corporations, particularly on the rights corporate employees. 

The recent focus on perceived corporate wrongdoing, he said, "has seriously impeded the rights of individual employees caught up in the web of ... corporate investigations."  He pointed out that the "simple threat"of a corporate investigation has forced corporations "to conduct internal investigations upon any suspicion of wrongdoing" and, because corporations rarely, if ever, can risk going to trial, they will end up disclosing alleged criminality to the prosecutors to work out the best deal they can.   The results as to the corporations themselves are non-prosecution or deferred prosecution agreements "which typically give the prosecutors much more power over the corporation than [they] would have if the corporation were actually convicted of a crime in court."  The results as to corporate employees are at the insistence of prosecutors as a condition for a deal with the corporation that "the heads of individual employees be handed to them on a silver platter." 

Mr. Abramowitz made a distinction between investigations by prosecutors who "hopefully most of the time" investigate without bias toward a particular result and corporations which in an internal investigation "are incentivized to find out and expose criminality."   Thus, corporate employees are explicitly made to understand that if they refuse to testify they will be terminated and often told that their legal fees will not be paid if they chose to defend themselves."  And, since these individuals accordingly sometimes choose not to hire counsel and to talk to internal investigators, the information presented to prosecutors by corporations often provides "more ammunition" than an investigation conducted by the FBI, police or another federal agency.

The results are, Mr. Abramowitz said, cases against individuals "that might never have been brought without the corporation's coercion."   Thus, he believes, "Whatever social utility is believed to be served by this system,..this outsourcing of a purely governmental function is extremely dangerous and [causes] great injustices to individuals working in companies under investigation."

Mr. Abramowitz's observations of the systemic changes, most obviously the role of corporations and their special prosecutors (who, interestingly, he did not mention specifically) as quasi-prosecutors, are right on the mark.   And, he is quite correct that the prosecution of individuals coerced into giving up their rights to silence and to counsel in response to their employer's demands "flies in the face of the restraining values of our society as expressed in the Bill of Rights."  However, I suspect that most prosecutors and many others (including those liberals and others who like Bernie Sanders are still complaining that no individuals from the big institutions involved in the 2008 financial crisis were jailed) would not say that on balance the addition of corporations to those ferreting out financial crime is a negative one.  After all, that addition presumably has or will result in more indictments, convictions, and jail sentences of individuals who have committed financial crimes.  While I too bemoan the incursion into fundamental individual rights as a result of corporate prosecutions, I suspect Mr. Abramowitz and I are in the minority.

 

June 21, 2016 in Attorney Fees, Defense Counsel, Deferred Prosecution Agreements, Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Monday, June 13, 2016

The Baylor Findings of Fact: All Too Transparent.

When I first read the Baylor University Board of Regents FINDINGS OF FACT, it was immediately obvious that these were not factual findings at all, not in any sense that lawyers would recognize. They were normative conclusions almost completely unsupported by detailed facts, particularly with respect to the individuals who have been publicly shamed by the Board. Say what you will about Pepper Hamilton's report on the Penn State Jerry Sandusky debacle, that report at least contained a detailed, chronological factual narrative. Not so with Baylor's findings, which were promulgated by the Regents under Pepper Hamilton's guidance. Want to find out what Ken Starr did to warrant removal? His name is nowhere mentioned in the findings. Is Starr mentioned by title? Yes, the President and Chancellor are referenced exactly three times. "A Special Committee of the Board of Regents, on behalf of the University, accepted the President and Chancellor’s recommendation to engage Pepper in order to ensure objectivity, and Pepper was provided with unfettered access to personnel and data." Wow. What an indictment! It was Starr who recommended, almost immediately after learning about Baylor's problems, that Pepper Hamilton be hired in the first place. "Pepper interviewed witnesses across multiple departments, including the President’s Office..." There you go! Fire the bastard! Pepper Hamilton was given unfettered access to his office. How about Coach Art Briles? Surely his dastardly deeds would be dealt with in the findings. But Briles is not mentioned by name or by his Head Coach title. There are six references to "coaches" in the Findings, but no way of telling if Briles is one of them or even knew or approved of what the others did.

So I was all set to call for releasing the real report, the Pepper Hamilton Report of Internal Investigation. You know what I'm talking about, right? The report that law firms produce after conducting internal investigations of purported misconduct for companies and other entities? The kind of report that companies typically do NOT release except to DOJ, but that universities, such as Penn state, do? But then I read the Board of Regents' Statement posted on Baylor's website and realized that there is no report! That's right folks, the Board met with Pepper Hamilton from time to time and was "updated" with factual findings. "Over the course of the investigation, a special committee of the Board of Regents was periodically updated on Pepper's work. Additionally, in early May, Pepper presented their findings of fact and recommendations to Board leadership in Philadelphia and was onsite to brief the full Board during its May meeting in Waco. While no written report has been prepared, the Findings of Fact reflect the thorough briefings provided by Pepper and fully communicates the need for immediate action to remedy past harms, to provide accountability for University administrators and to make significant changes that can no longer wait." Translation: the Pepper Hamilton investigation was structured in such a way that no written report would be generated. This was obviously done for reasons of litigation and public relations strategy.

Now the Baylor Board can pretend that it has issued detailed findings admitting its sins in the interest of transparency. It isn't true. There is not one fact in the findings justifying the firing of Starr, or even Briles for that matter. There isn't any information about any improprieties that may or may not have been committed by Board members themselves. The conflict of interest here is palpable, as the Board is currently being sued and can probably expect more suits in the future. Do we really think that no member of the Board ever intervened in any manner in Baylor's athletic programs?

There is only one action the Baylor Board can take to assure its students and alumni that the full facts of the scandal, and the justifications for the Board's actions and inactions in the wake of its findings, are set out for all to see. Release the factual materials actually presented to the Board and/or its subcommittee by Pepper Hamilton, with appropriate redactions to protect any victims. Release all interview summaries. Release all PowerPoint presentations. In the alternative, Pepper Hamilton can be directed to draft the report it should have done in the first place. Only then can the Baylor Board say that it has come clean.

(wisenberg)

  

 

 

June 13, 2016 in Current Affairs, Investigations, News | Permalink | Comments (0)

Saturday, April 9, 2016

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

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

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

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

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

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

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

 

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

Monday, March 21, 2016

New Paper re Internal Investigations and Privilege

I have just published a new article in the Compliance Elliance Journal entitled "Internal Investigations and the Evolving Fate of Privilege."  

Abstract

In 1981, the United States Supreme Court delivered a landmark ruling in Upjohn Co. v. United States. The decision made clear that the protections afforded by the attorney-client privilege apply to internal corporate investigations. This piece examines the fundamental tenets of Upjohn, discusses some recent challenges to the applicability of privilege to materials gathered during internal investigations, and considers the manner in which the international nature of modern internal investigations adds complexity and uncertainty to the field.

The article is available for free download here

(LED)

March 21, 2016 in International, Investigations, Privileges, Scholarship | Permalink | Comments (0)

Friday, November 27, 2015

Extortion, Government Style.

If you  want to know why companies settle with the government, even when they aren't guilty of anything, look no further than Ally Financial LLC's $98 million "no admit or deny" settlement with the Consumer Financial Protection Bureau (CFPB) over alleged racial bias in auto lending. As Wednesday's Wall Street Journal reports here, the CFPB chose questionable statistical methods, had questionable legal authority, and used the threat of unfavorable action by the Federal Reserve and the FDIC in a wholly separate matter, to coerce a settlement. Ally was eager to receive approval from the Fed and FDIC to convert to holding company status, in order to avoid having to shed some of its business units. The Fed was only too happy to oblige CFPB in its bullying tactics. As an internal CFPB memo makes clear, a Fed finding of improper discrimination would "most likely result in the denial of holding company status," but the Fed "also indicated that if Ally takes prompt and corrective action, it would consider such a factor in its determination."   The House Financial Services Committee Report, Unsafe at any Bureaucracy, carefully documents CFPB's sordid tactics . Incredibly, CFPB referred the matter to DOJ. This kind of stuff happens, and dictates business litigation strategy with the government, quite often. So, when people complain that the failure to prosecute corporate insiders is inevitably suspicious in light of large civil settlements, I always want to know the industry, the company and other important details.

(wisenberg)

 

November 27, 2015 in Civil Enforcement, Congress, Current Affairs, Government Reports, Investigations, News | Permalink | Comments (0)

Tuesday, November 24, 2015

Yates Memo Hot Topic

Sally Yates' new DOJ Memo has been a hot topic. (see here, here, here).  Check out Sara Kropf's terrific entry here reporting and questioning the Yates Memo influence in a recent indictment of a corporate employee. 

But one wonders if this DOJ claim that they have changed their policy is anything new. Has DOJ forgotten Enron and Jeff Skilling, who remains incarcerated?

My take continues to be that all the Yates really does is make it official that companies have to throw individuals under the bus  (see here). And knocking NPAs and DPAs is not the answer.  Yes, the terms within these documents are often offensive. (see here)  But getting compliance from companies and changing corporate culture is an important goal and one needs to remain focused on how best to achieve this goal.  Working with companies, as opposed to against companies, is the best way to foster compliance.  Likewise, pitting individuals within a company against the entity and the entity's counsel is not the answer.

(esp) 

November 24, 2015 in Deferred Prosecution Agreements, Investigations, News, Prosecutions, Prosecutors | Permalink | Comments (0)

Wednesday, October 28, 2015

The Growing Role of Technology and Big Data in White Collar Cases

Three recent articles confirm the growing significance of technology and big data to both the general practice of law and the field of white collar crime in particular.

The first article, appearing in Enterprise Tech, is entitled Big Data Plays Arresting Role in White Collar Crime.  The piece discusses the manner in which analytical tools and big data are making it easier for law enforcement to discover and understand fiscal anomalies.

The second article, appearing earlier this year in Forbes, reiterates the role of big data in white collar investigations.  In the article, entitled Analysis of Big Data Leads to Big Arrests in Medicare Part D Fraud, Walt Pavlo explores the important role of technology in the arrest of 243 people in an alleged $712 million scheme.

The final article, appearing in the ABA Journal, is entitled What the Jobs Are: New Tech and Client Needs Create a New Field of Legal Operations.  This article is not about white collar crime.  However, it does offer a detailed discussion of the use of technology and data to increase the efficiency of law firm management and the provision of legal services.  When read in combination, the three pieces provide a fascinating glimpse into the future of legal practice and the important role technology and big data are already playing in a changing landscape. 

(LED)

October 28, 2015 in Investigations, News, Science, Web/Tech | Permalink | Comments (0)

Wednesday, October 7, 2015

Making the Yates Memo Work: Two Reform Proposals

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

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

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

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

(wisenberg)

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

Friday, September 18, 2015

GM Deferred Prosecution Agreement and the "New" DOJ Corporate Prosecution Policy

Just days ago, DOJ came down with a new corporate directive (discussed here) describing a shift in investigation policy.  The new focus would be on the prosecution of individuals within the entity.  It states:

"2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.

Both criminal and civil attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct. By focusing on building cases against individual wrongdoers from the inception of an investigation, we accomplish multiple goals. . . . "

So much for this new policy, as the GM Deferred Prosecution Agreement comes before any individual prosecutions. (see Corporate Crime Reporter here).  It has the company paying $900 million, accepting responsibility, agreeing to cooperate, and providing information to the government.  

Both the old DOJ approach and this new one, that seems to exist only on paper and not in practice, have problems.  Both have the company serving as "agents" of the government.  Both have the company doing the investigative work for the DOJ.  Both have the company "throwing employees under the bus." And both show a disrespect for individual attorney-client relations.  

Corporate and individual criminal actions are a problem that needs to be corrected.  But as previously said, pitting the entity against its constituents will not correct misconduct.  And telling the public that you intend to take a different approach and just days after you do the opposite fosters a lack of trust. It also demonstrates the importance of Congressional action as opposed to reliance on DOJ internal guidelines.

(esp)

September 18, 2015 in Deferred Prosecution Agreements, Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Thursday, September 3, 2015

Privilege and Internal Investigations

Earlier this year, the Wall Street Journal ran an interesting story about several cases in which U.S. courts refused to recognize the attorney-client privilege for communications between in-house counsel and overseas companies.  The article focused on two cases in particular – Wultz et al. v. Bank of China Limited and Anwar et al. v. Fairfield Greenwich Limited

Just recently, Janet Levine, Gail Zirkelbach, Derek Hahn, and Danielle Rowan wrote an article in the Summer 2015 edition of the ABA CJS Criminal Justice magazine on the topic of The Evolving Landscape of Legal Privilege in Internal Investigations.  Along with the Bank of China case, the article provides summaries of three other cases involving the privilege issue during internal investigations – In re Kellogg Brown & Root, Inc. (KBR) (previously discussed on this blog here and here), Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW (previously discussed on this blog), and Paterno v. NCAA).

As an update to the above excellent reads, it is important to note that the U.S. Court of Appeals for the District of Columbia recently released another opinion in the KBR matter.  This opinion vacated additional orders by the District Court that would have required KBR to turn over the materials at issue in the case.  See In re Kellogg Brown & Root, Inc., -- F.3d –, 2015 WL 4727411 (August 11, 2015).

According to the appellate court in the new KBR opinion:

More than three decades ago, the Supreme Court held that the attorney-client privilege protects confidential employee communications made during a business’s internal investigation led by company lawyers. See Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981). In this case, the District Court denied the protection of the privilege to a company that had conducted just such an internal investigation. The District Court’s decision has generated substantial uncertainty about the scope of the attorney-client privilege in the business setting. We conclude that the District Court’s decision is irreconcilable with Upjohn. We therefore grant KBR's petition for a writ of mandamus and vacate the District Court's March 6 document production order. 

The issue of attorney-client privilege in the internal investigation context is one that is growing in both complexity and significance.  Keep an eye out for more court decisions on this issue in the future as companies, attorneys, and courts struggle to find a balance in today’s complex legal and business environment.

(LED)

September 3, 2015 in Civil Litigation, Investigations, Judicial Opinions, Privileges | Permalink | Comments (0)

Friday, July 10, 2015

Holder Returns to Covington & Burling

Though it may come as no surprise given his long history with the firm, Covington & Burling has announced that former United States Attorney General Eric Holder will return to the firm.  Holder previously worked at the firm from 2001 to 2009.  According to the release, Holder will be in the "firm’s Washington office and focus on complex investigations and litigation matters, including matters that are international in scope and raise significant regulatory enforcement issues and substantial reputational concerns."  

Holder also recently gave an interview to The American Lawyer, in which he discusses his return to private practice and his plans to work on a mix of projects at the firm, including pro bono and access-to-justice issues.  In addition, The American Lawyer published an article on the subject of Holder's return.

(LED)

July 10, 2015 in Investigations, Media, News | Permalink | Comments (0)

Saturday, June 6, 2015

When is there Entity Liability - Archdiocese of St. Paul and Minneapolis Charged

The DOJ has prosecuted many companies, often resolving the cases with Deferred and Non-Prosecution Agreements.  And on occasion, states have also proceeded against companies alleging corporate criminal liability. But how far does entity liability go, and can you extend corporate criminality to entities like the Archdiocese of St. Paul and Minneapolis.  According to Jean Hopfensperger's article in the Star Tribune, Archdiocese Charged in Sex Abuse Coverup, the Ramsey County Attorney's Office has filed these charges against this entity and that the entity reports it will cooperate in this state investigation.  Will we start seeing states adopting the federal path of proceeding criminally against entities, getting them to cooperate, followed by individual indictments premised upon the information provided? Does it make a difference here that an individual has already been indicted? And will proceeding against this particular entity, present a different model?  And should corporate criminality versus civil liability be used here? 

(esp) 

June 6, 2015 in Investigations, Prosecutors | Permalink | Comments (0)

Tuesday, June 2, 2015

FIFA Indictment Passes on Jurisdiction, Fails on Obstruction

Yesterday I skimmed through the FIFA indictment referred to by my colleague Lucian Dervan on May 26, 2015 ("FIFA Officials Facing Corruption Charges"), primarily to determine how the government justified jurisdiction over alleged criminal activities that largely, seemingly almost entirely, occurred in other nations, a complaint made by none other than Vladimir Putin.  Upon review, I believe the indictment, apparently drafted with that question in mind, facially makes a reasonably strong case for U.S. jurisdiction, based largely, although not entirely, on money transfers through U.S. financial institutions. 

There remains, however,  the question whether the U.S. Department of Justice should assume the role of prosecutor of the world and prosecute wrongs, however egregious, that were almost wholly committed by foreigners in foreign nations and affected residents of those foreign nations much more than residents of the United States.  Our government's refusal to submit to the jurisdiction of the International Criminal Court  is arguably inconsistent with our demand here that citizens of other nations submit to our courts.

On another subject, what struck me as just wrong was a minor part of the indictment, the obstruction of justice charge against Aaron Davidson, one of the two United States citizens indicted (the other, a dual citizen, is charged with procuring U.S. citizenship fraudulently).  While the obstruction of justice count itself (count 47) is a bare bones parsing of the statute, the lengthy 112-page preamble to the actual recitation of counts (to me in clear violation of Fed. R. Crim. P. 7(c), which says the indictment "must be a plain, concise and definite written statement")(emphasis added) describes Davidson's allegedly criminal conduct as follows: "Davidson alerted co-conspirators to the possibility that they would be recorded making admissions of their crimes."

Such advice is provided as a matter of course - absolutely properly and professionally, in my opinion -  by virtually every white-collar or other criminal lawyer representing a target of a criminal investigation.  Since lawyers are given no special treatment different from others,  if these facts justify a criminal conviction, a lot of white-collar lawyers will be counting the days until the five-year statute of limitations has passed since their last pre-indictment stage client meeting.

The obstruction of justice statute is so vague that it gives the government the opportunity to charge virtually any effort by lawyers or others to advise persons under investigation to exert caution in talking with others.  The applicable statute, the one used against Davidson, prescribes  a 20-year felony for "whoever corruptly...obstructs, influences, or impedes any official proceeding, or attempts to do so..." 18 U.S.C. 1512(c)(2).  That catch-all statute, which follows one proscribing physical destruction of tangible evidence,  to me is unconstitutionally vague, but courts have generally upheld it and left the determination of guilt to juries on the ground the word "corruptly," which itself is subject to many interpretations, narrows and particularizes it sufficiently.  I hope that the presiding judge in this case, the experienced and respected Raymond  Dearie, does not allow that count to get to the jury.

 

June 2, 2015 in Corruption, Defense Counsel, International, Investigations, Obstruction, Prosecutions | Permalink | Comments (0)

Tuesday, May 26, 2015

FIFA Officials Facing Corruption Charges

According to CNN, the U.S. Department of Justice is preparing to bring corruption charges against up to 14 senior officials at FIFA, the world's soccer governing body.  The reports from CNN come from "law enforcement officials."  According to the New York Times, several FIFA officials have already been arrested in Switzerland in a "extraordinary early-morning operation." 

FIFA has been under investigation for some time, including with regards to the bidding process for the 2018 and 2022 World Cups, which will occur in Russia and Qatar.  FIFA conducted an internal investigation of the selection process for each event.  The investigation was led by Michael Garcia of Kirkland & Ellis.  Garcia submitted his report to FIFA in September 2014.  FIFA then released a "summary" of the report's findings, which summary Garcia alleged was "erroneous."  Garcia resigned as independent chair of the FIFA Ethics Committee's Investigatory Chamber in December 2014.

One issue that will be interesting to watch in this case is the manner by which the U.S. alleges jurisdiction over the senior FIFA officials despite the fact that alleged corruption occurred overseas and FIFA is an association governed by Swiss law.  According to CNN, the U.S. will allege jurisdiction exists because of the breadth of U.S. tax and banking regulations.  Further, the government will reportedly rely in part on the fact that significant revenue is generated by the U.S. television market.  This is certainly a case we will be hearing a lot about in the coming months. 

(LED)

May 26, 2015 in Corruption, Current Affairs, International, Investigations, Sports, Tax, Television | Permalink | Comments (0) | TrackBack (0)

Thursday, April 30, 2015

False Accusation of Rolling Stone Article Suggests prior Notification of Targets in White-collar Cases

In November Rolling Stone published a blockbuster article about a student's account of being  gang-raped at a University of Virginia frat house.  Within days others, primarily the Washington Post, sharply questioned the truthfulness of the student's claim.  Rolling Stone then commissioned an independent investigation by Steve Coll, the respected Dean of Columbia Journalism School, to review the magazine's reporting, editing and fact-checking.  That report, written by Coll and two colleagues, came out a few weeks ago.  See hereRolling Stone also "withdrew" the article.

The report (Sheila Coronel, Steve Coll, Derek Kravitz, "An Anatomy of a Journalistic Failure") is "intended as a work of journalism about a failure of journalism." It is thorough and comprehensive and, as expected, clear and thoughtful.  Although the purpose of the report was to investigate the conduct of Rolling Stone and not the conduct of the student, it treats the student who made the false accusation and continued it over months of questioning by the reporter much too gently and itself is affected by the implicit bias that it suggests motivated the writer.  For instance, it takes pains to state that the student who made the indisputably false accusation may well have in fact been a victim of some predatory sexual act(s), and does not even speculate that she might have made up the incident out of whole cloth.  It expresses its regret that the the widely-disseminated revelation of the false accusation might cast doubt on other campus sex accusations (accepting the questionable estimates that false charges make up  less than 8% of rape allegations) and fails even to consider the possibility that the false claim here might not be such an aberration , and perhaps will serve a salutary purpose by increasing public (and governmental and institutional) awareness that false accusations are not so infrequent. 

To be sure, campus sexual abuse by male students against women is a serious problem and deserves vigorous, but measured and fair, action by universities and, when appropriate, law enforcement, and aggressive reporting on that subject is important to increase public knowledge.  School officials, and magazine and newspaper writers (and also law enforcement officers)  should be mindful, however, that this is an area where accusations are often inaccurate,  exaggerated, and sometimes downright false, and that there are sometimes unjust findings and convictions, by courts and schools, that wrongly destroy the lives of those accused.  Indeed, in my opinion, rape is the area of criminal law in which there are the most intentionally false (as opposed to mistaken) accusations by civilian complainants.

The report demonstrates convincingly that there were a series of errors in the investigation, review, fact-checking and editing of the story before it appeared.  Among those errors was the failure to give the person accused an opportunity to refute the accusations.  "Journalistic practice - and basic fairness - require that if a reporter intends to publish derogatory information about anyone, he or she should seek that person's side of the story."

I could not help but thinking that the defective  oversight  of the Rolling Stone journalists and their seemingly limited concern for the reputations of the institutions accused were nonetheless far greater and far more likely to uncover false accusations than the minimal or nonexistent review by law enforcement  that typically occurs in a criminal case prior to an arrest (and sometimes even after).  Once law enforcement officers decide to make an arrest, why should the accused not be allowed to present beforehand his "side of the story?"  Obviously, in many cases, such as where there is a need for immediate apprehension by a police officer, no pre-arrest review or notification is possible. Further,  in many other cases, for instance where the identity of the alleged perpetrator is unknown, or where there is a reasonable fear that if not arrested he will flee and not be available to face charges, an immediate unannounced arrest is called for. 

However, in many, probably most, white-collar cases, there is no such need. In those cases, as a general rule a prosecutor should notify a target that he is under investigation and seek his "side of the story."  Nonetheless, many prosecutors proceed the "old-fashioned" way by ordering an arrest first without giving the defendant an opportunity to hire a lawyer and present, should he choose to, his side of the story.

Notifying a prospective defendant that he is likely to be arrested and may choose to present his case beforehand has advantages for prosecutors in many situations. The defendant and his lawyer might provide evidence or legal arguments that will persuade the prosecutor to seek lesser charges or not to go forward at all.  Sometimes a plea agreement might be reached with the defendant which will eliminate the need for a time-consuming grand jury presentation.  And, should the defendant decide to cooperate, he may be able to do so proactively and generally more effectively since an indictment often tips off others to steer clear of him.

There are, arguably, certain benefits to law enforcement in making surprise arrests. There is a  possibility that an upset, unprepared  and  uncounseled defendant will make incriminating statements.  And, a defendant may have on his person or in proximity evidentiary items which will be found by a search.  Those advantages, however,  are less likely to occur in white-collar case, where defendants are less likely to make statements without lawyers or carry contraband or evidence.  Another potential benefit to prosecutors  is that at bail hearings a defendant's attorney may not be able to argue  that the defendant did not flee after becoming aware of the charges.  Such an argument, I have found, does not carry as much weight as it should. In any case, prosecutors are unlikely to provide prior notification of their intent to arrest to any who are conceivable flight risks.

For these reasons, the most successful and sophisticated prosecutors in white collar cases, such as the United States Attorney for the Southern District of New York, generally notify white-collar targets of their investigations and give them or their attorneys an opportunity to dissuade, minimize or deal.  Less sophisticated prosecutors of white-collar crimes, often state prosecutors, are more likely to make summary arrests.  These cases, generally not well vetted since there was no input from the accused or his counsel, more often lead to dismissals, acquittals or cheap pleas.

Not only is pre-arrest notification to a prospective defendant more fair to him in that it gives him  an opportunity to defend, explain, negotiate or prepare psychologically, it will benefit judicial and prosecutorial economy of resources by allowing for some matters to be settled with less or no litigation and court involvement.  And, as discussed above, it helps law enforcement.   It should be the default position in white-collar (and many other) cases, and deviated from only when there are genuine countervailing reasons.

 

April 30, 2015 in Attorney Fees, Books, Current Affairs, Investigations, Legal Ethics, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Thursday, April 2, 2015

More on Menendez

Courtesy of NPR.

(wisenberg)

 

April 2, 2015 in Investigations | Permalink | Comments (0) | TrackBack (0)

Tuesday, February 17, 2015

The Kroll Report on UT-Austin and the Limits of Internal Investigations

Any internal white collar invesitgation is limited by the nature and scope of the investigation and the power of the entity conducting it. And those are just the tangible, objective limiting factors. Are you reporting to the Audit Committee or directly to the Board? Does your law firm (or audit firm or private investigation firm) have other business, or seek further business, with the company or governmental unit that has ordered the investigation? Are subtle signals being sent your way?

Last week the University of Texas System released the Kroll Final Report on Admissions Practices and Allegations of Undue Influence at University of Texas at Austin. The Kroll Report was commissioned by the Chancellor and Vice Chanchellor of the U.T. System after a former U.T.-Austin Admissions Office official came forward alleging that the office of U.T.-Austin President William Powers had "at times exerted pressure on the [Admissions Office] to admit some applicants of lesser qualifications in response to external influences." This official came forward after an earlier, strictly internal, investigation was completed, with its attendant report released to the public. The earlier investigation included interviews of Powers and his top assistant.

As I wrote here last June, this is all part of a long-running battle between former U.T. System Regent Wallace Hall (plus some of his colleagues) and President Powers. Hall started snooping around, which is actually his duty as a Regent, and found several things that troubled him, including:

Admission of students to the University of Texas School of Law who had LSAT scores below the average for entering U.T. Freshlaws. Some of the admitted students were related or connected to powerful state legislators with key roles in funding the university and law school.

 

That last revelation was apparently too much for the legislature (or "the leg" as we called it in my day) and impeachment hearings were commenced by the House Select Committee on Transparency in State Agency Operations ("Transparency Committee").

 

As I said, the controversy has had its comic moments. The Transparency Committee voted to recommend impeachment of Hall before deigning to draft any Articles of Impeachment. And Transparency Committee Co-Chair Dan Flynn wrote a public letter stating that: 1) there were insufficient grounds to impeach Hall; 2) Hall should resign anyway; and 3) Hall should be impeached if he did not resign. When Hall refused to resign, Flynn voted to impeach him. (The Texas Tribune has a good story here on Flynn's remarkable letter and the response he received from Representative Eric Johnson. Both letters are attached to the story in PDF format.)

 

The fight between Hall and the legislature is apparently part of a larger years-long battle between th Board of Regents and UT President Bill Powers. The Regents have Governor Perry and company on their side and Powers has legislative allies on his. I'm not concerned about that. I have reviewed Hall's purportedly impeachable offenses and find the allegations against him unpersuasive, but I would not be writing about these things on a white collar blog if impeachment hearings were the only thing going on. Unfortunately, there's more.

 

The Transparency Committee's Co-Chairs also referred Hall to the Travis County District Attorney's Public Integrity Unit, which has opened an investigation into possible criminal wrongdoing by Hall. This is the same office that brought dubious charges against former U.S. House Speaker Tom DeLay and has a long history of questionable public corruption prosecutions. The Public Integrity Unit is an odd creature of Texas law, housed in the Travis County DA's Office with statewide jurisdiction to investigate and prosecute state officials. The old Travis County DA was Ronnie Earle. The current Travis County DA is Rosemary Lehmberg, an Earle disciple, who refused to resign from office after pleading guilty to Driving While Intoxicated.

The Kroll Report found no violation of law, but did not, and apparently was not asked to, consider any state or federal criminal laws.

The Kroll Report found no proof of a quid pro quo, but did not directly investigate, and with few exceptions did not question, individuals who did not work within the university system.

The Kroll Report found no lies by President Powers when he was questioned as part of the earlier inquiry, noting that he "answered specific questions with technical precision." But Kroll also found that Powers, through material omissions, apparently misled that inquiry, and that Powers "failed to speak with the candor and forthrightness" expected of someone in his position "of trust and leadership."

A Wall Street Journal editorial on the Kroll Report characterizes it as a vindication of Wallace Hall and calls for an "end to the campaign to punish Mr. Hall." But the Journal speaks only of Hall's censure by the legislature and the effort to impeach him, never mentioning the still active criminal investigation hanging over Hall's head.

Holding a press conference after the Kroll Report was issued, Powers called the Report "thorough, accurate and fair" and said that he thinks it clears him. Powers, however, denied being evasive in his answers to the earlier inquiry, noting that the lawyers conducting that inquiry had stressed its limited nature. Powers, after initially refusing to discuss individual regents or donors, also claimed that Hall himself "has exerted influence over the admissions process." But Powers declined to comment on whether the Report exonerated Hall, noting that "there is an investigation going on about his conduct." I find Powers' statement quite chilling. It serves as a reminder that this is Texas and Hall is not out of the woods.

(wisenberg)

February 17, 2015 in Investigations | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 21, 2015

Australian Bank Bill Swap Rate Investigation Continues

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

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

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

(LED)

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

Thursday, December 11, 2014

Two Views on Second Circuit's Insider Trading Decision

Here are two (ahem) differing views on yesterday's Second Circuit insider trading decision in United States v. Newman. The Wall Street Journal editorial writers are understandably happy at the ruling and contemptuous of Preet Bharara, dubbing him an Outside the Law Prosecutor. The Journal exaggerates the extent to which the case was an outlier under Second Circuit precedent and incorrectly states that "the prosecution is unlikely to be able to retry the case." The prosecution cannot retry the case, unless the full Second Circuit reverses the panel or the U.S. Supreme Court takes the case and overturns the Second Circuit.

Over at New Economic Perspectives, Professor Bill Black insists that the Second Circuit Makes Insider Trading the Perfect Crime. Black thinks Wall Street financial firms will enact sophisticated cut-out schemes in the wake of the opinion to give inside traders plausible deniability. He compares the fate of Newman and his co-defendant to that of Eric Garner and calls for a broken windows policing policy for Wall Street. Black's piece is outstanding, but in my view he underestimates the extent to which the Newman court was influenced by Supreme Court precedent and ignores the opinion's signals that the government needed to do a much better job of proving that the defendants knew about the tipper's fiduciary breach. As a matter of fact, in the typical insider trading case it is relatively easy to show such knowledge. That's what expert testimony and willful blindness instructions are for. 

(wisenberg)

December 11, 2014 in Fraud, Insider Trading, Investigations, Judicial Opinions, Prosecutions, Prosecutors, SEC, Securities | Permalink | Comments (0) | TrackBack (0)

Friday, October 31, 2014

3rd Annual ABA CJS International White Collar Crime Institute

Earlier this month, I had the pleasure of once again attending the ABA Criminal Justice Section’s annual International White Collar Crime Institute in London.  This year’s event included a host of excellent speakers from around the world addressing some of the most pressing issues in the field.  I thought I would take just a few moments to share some of the insights and themes from the conference.

First, there was much discussion about deferred prosecution agreements in the UK.  Though a very common means of resolving a criminal investigation in the US, DPAs only became possible in the UK earlier this year.  Thus far, no DPAs have been announced in the UK.  That might be about to change, however, as several speakers informed the audience that there are rumors in London that the first such DPA may be entered into towards the end of this year.  We’ll be keeping an eye out for this significant development.

Second, many speakers pointed out important differences that exist globally when discussing white collar crime and enforcement.  For example, in the UK, the SFO prefers that corporations not interview employees during an internal investigation.  Once the US DOJ becomes involved, however, the DOJ tends to insist on interviews, thus creating a conflict of approaches.  As another examples, the trend of requiring monitors as part of settlements is beginning to lose favor in the US.  By comparison, the UK is currently moving towards monitorships.  As a final example, the role of whistleblowers remains drastically different around the globe.  In the US, whistleblowers and whistleblower incentive programs like the FCA and Dodd-Frank are generally considered important tools for discovering misconduct.  In France, by comparison, whistleblowing is discouraged.  In fact, according to our speakers, in France it would be illegal for an employer to require employees to engage in any form of whistleblowing.  These are just a handful of examples of the significant differences that exist around the world and that create complex issues for resolution in cross-border criminal investigations and prosecutions.

Finally, I’ll briefly mention the panel I moderated.  The panel examined collateral consequences of conviction around the world.  Collateral consequences are an issue that is garnering much attention in the United States today.  This is partly because of the ABA’s collateral consequences website, which is an excellent tool for researching the collateral consequences that might be applicable in a particular case.  The website also gives some incredible insights into the breadth and scope of these collateral consequences.  In Illinois, for examples, there are 2,266 statues, rules, and regulations imposing various collateral consequences.  These include things like losing the right to vote, the right to drive, and the right to hold public office.  One might lose a public pension, a business license, or even parental rights.  One might lose access to public housing and food stamps.  The list is voluminous.  One of the most unusual collateral consequences in Illinois makes it a felony for a felon to “knowingly own, possess, have custody, or reside in residence with… an unspayed or unneutered dog or puppy older than 12 weeks of age…."  Our conversation in London revealed that the trend of expanding collateral consequences is not limited to the United States.  In the UK, prosecutors are now more likely to put forward collateral consequences during a prosecution and the courts are becoming more likely to impose them on individual defendants.  

While there are many other fascinating issues that were covered during the conference, including discussion of virtual currencies, anti-bribery initiatives, whistleblowing generally, financial regulations, anti-trust prosecutions, and cyber security, I’ll stop here.  But I hope this gives some insight into the complexities of international white collar crime in a global environment where significant differences abound.  

(LED)

October 31, 2014 in Conferences, Current Affairs, Deferred Prosecution Agreements, International, Investigations | Permalink | Comments (0) | TrackBack (0)