Tuesday, July 17, 2012

Libor: The Regulatory Mind And the Prosecutorial Mind (2)

As I mentioned here last Wednesday:

"By ignoring material financial falsehoods, the regulators and examiners allow frauds to continue and decrease the likelihood of future accountability through the criminal process."

The New York Fed's Friday data dump reveals beyond question that some of its officials, including Timothy Geithner, were aware of intentionally misreported Libors by 2008 at the latest. Today's Wall Street Journal editorial lays out the damning transcripts.

What does this mean? For openers it means that DOJ's announcement of a criminal investigation is a joke. Regulators and government officials at the highest levels knew of the misrepresentation. By not immediately raising bloody hell and putting a stop to it they either sanctioned the conduct, rendering it non-criminal, or themselves became co-conspirators.

Do you really think DOJ is about to investigate Geithner or drag him into somebody else's criminal defense? Get real. These people can't even prosecute robo-signers.

(wisenberg)

July 17, 2012 in Civil Enforcement, Current Affairs, International, Investigations, News | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 11, 2012

Libor: The Regulatory Mind And the Prosecutorial Mind

The news that Barclays officials told the New York Fed in 2007 about potential problems with Libor highlights key differences between the regulatory mind and the prosecutorial mind. It also shows the difficulty in successfully prosecuting white collar fraud in the wake of regulatory incompetence.

When the typical federal prosecutor learns that a financial institution or corporation has lied, his instinct is to prove and charge a crime against the individuals responsible for the falsehood. Virtually any material lie in the context of publicly traded or federally insured entities constitutes a federal crime.

When a regulator learns that he has been lied to, the response is not necessarily the same. A famous example of this occurred during one of the SEC’s many examinations of Bernie Madoff’s shop. Madoff was caught flat out lying to SEC examiners. Did the scope of the examination expand? No. Were prosecutors immediately informed? No. Madoff was given a slap on the wrist. His massive Ponzi scheme continued for several years, claiming thousands of new victims.

While prosecuting S&L fraud twenty years ago, I was appalled to discover repeated instances in which the very fraud I was investigating had been contemporaneously revealed in some format to federal banking regulators and/or examiners who had often done nothing in response. This put putative defendants in the position of arguing that their frauds really weren’t frauds at all, because they had not deceived anyone. They argued that the regulators knew all about their conduct and failed to act, so: 1) it wasn’t deceptive conduct; and 2) they thought they had a green light going forward. Sometimes our targets and subjects were right. Sometimes they had only disclosed the tip of the iceberg.

By ignoring material financial falsehoods, the regulators and examiners allow frauds to continue and decrease the likelihood of future accountability through the criminal process.

But sophisticated fraudsters often reveal their conduct to regulators through a glass darkly. They are hoping that overworked regulators, with whom they are friendly, will miss, or misunderstand, the half-assed disclosures being made. The trick is to disclose just enough, but not too much. The typical regulator, unlike the typical prosecutor, does not distrust mankind or see a fraudster around every corner. The typical regulator has known the institution and executives he is currently monitoring for years. Often his ass has been kissed during that period in perfectly appropriate ways. He has been respected and deferred to. These intangibles, and his workload, may prevent him from noticing or following up on potential red flags.

We don’t have the full story yet on what the New York Fed knew about Barclay’s Libor problems, but the alacrity of the New York Fed’s acknowledgement that it knew something is striking. Timothy Geithner ran the New York Fed at the time, and we know that he has never met a wrist that couldn’t be slapped or a falsehood that couldn’t be excused.

The question remains—how can we bridge the regulatory/prosecutorial mental divide in order to punish real corporate fraud? Here is one answer—by training regulators and examiners to have zero tolerance for misleading or obstructionist behavior. The discovery of any lie or intentionally misleading conduct by a publicly traded or federally insured institution in any context should result in immediate fast-tracking to appropriate civil and/or criminal enforcement officials and/or federal prosecutorial authorities. This does not mean that prosecution should automatically or even usually ensue. It does mean that individuals who actually know something about fraud can take a critical and timely look at red flag behavior.

Once this process is in place, it may create a business climate in which elite corporate and financial institutions, and their officers, directors, and employees, will know that lying in any form will not be tolerated. The success of such a structure depends on the DOJ green-lighting prosecutors fearless enough to investigate and charge the flesh and blood financial elites who commit fraud. Almost every indication to date (outside of the insider trading context) is that current DOJ leadership is not up to the task.

(wisenberg)

July 11, 2012 in Civil Enforcement, Current Affairs, Fraud, Insider Trading, Investigations, News | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 27, 2012

Barclays Bank to Pay - $160 Million - as Part of Non-Prosecution Agreement

A DOJ Press Release reports, Barclays Bank PLC Admits Misconduct Related to Submissions for the London Interbank Offered Rate and the Euro Interbank Offered Rate and Agrees to Pay $160 Million Penalty

Some highlights of the press release -

  • "Barclays Bank PLC, a financial institution headquartered in London, has entered
    into an agreement with the Department of Justice to pay a $160 million penalty
    to resolve violations arising from Barclays’s submissions for the London
    InterBank Offered Rate (LIBOR) and the Euro Interbank Offered Rate (EURIBOR),
    which are benchmark interest rates used in financial markets around the world..."
  • "To the bank’s credit, Barclays also took a significant step toward accepting
    responsibility for its conduct by being the first institution to provide
    extensive and meaningful cooperation to the government."
  • "Barclays’s cooperation has been extensive, in terms of the quality and type of
    information and assistance provided, and has been of substantial value in
    furthering the department’s ongoing criminal investigation." 
  • "The agreement requires Barclays to continue cooperating with the department in
    its ongoing investigation."
  • "As a result of Barclays’s admission of its misconduct, its extraordinary
    cooperation, its remediation efforts and certain mitigating and other factors,
    the department agreed not to prosecute Barclays for providing false LIBOR and
    EURIBOR contributions, provided that Barclays satisfies its ongoing obligations
    under the agreement for a period of two years.  The non-prosecution agreement
    applies only to Barclays and not to any employees or officers of Barclays or any
    other individuals."

Commentary - As a non-prosecution agreement it does not go through the courts and DOJ has the power to enforce or proceed should it believe there is a violation of the agreement. It also sounds like the white collar defense bar may have some new clients as the government has secured the cooperation of the company to go after individuals.

See also Jenna Greene, BLT Blog, Barclays Agrees to Pay $360M to Settle with CFTC, DOJ
over Interest Rate Manipulation

(esp)

June 27, 2012 in Defense Counsel, Deferred Prosecution Agreements, Investigations, Prosecutors, Settlement | Permalink | Comments (1) | TrackBack (0)

Tuesday, June 19, 2012

Reactions to Gupta Verdict

The jury deserves credit - they clearly evaluated all the counts as evidenced by their finding of guilt in some and not guilty in others.  The judge deserves credit - Hon. Jed Rakoff is a leading scholar and superb jurist. 

But should this be a crime? And exactly what is the crime? Should individuals who obtain little or no personal profit be subject to criminal penalties?

And what evidence should a jury hear during the trial?  Should wiretaps that are select conversations of the government be allowed to be used against a defendant in a securities fraud case, when this crime is not included in the criminal activity of our wiretap laws (see here)?

There is an interesting interplay here.  On one hand we have someone being convicted for using "secret" information - the insider trading. On the other hand we have the government using "secret" information to convict the individual - the wiretaps.  I keep wondering if there is anything that can be "secret" anymore.  In this information age it seems like information is so accessible that it is difficult to claim anything as being "insider."

 (esp)

June 19, 2012 in Investigations, Securities, Verdict | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 23, 2012

FBI Investigates JPMorgan Chase Trading Loss. Why?

Here is a Huffington Post piece from several days ago on the FBI probe of JPMorgan Chase's $2 billion trading loss. Can anybody tell me what the crime is here? Doesn't there have to be a potential crime before the FBI investigates? Can somebody please identify that potential crime? The probe is a farce, and the mainstream press's failure to ask the most obvious question is par for the course.

(wisenberg)

May 23, 2012 in Investigations, Media | Permalink | Comments (1) | TrackBack (0)

Tuesday, May 15, 2012

Should the NFL Bounty Case Be Looked at By Outside Agencies?

Some years ago, I represented a landlord who was indicted and convicted for offering a bounty to a thug if he beat up the leader of the tenants' committee, which was opposing a rent increase.  This behavior does not seem all that much different from what the National Football League has alleged New Orleans Saints linebacker Jonathan Vilma did.  Vilma, four other players, and his coach Sean Payton and others, have been disciplined by NFL Commissioner Roger Goodell for allegedly conspiring to offer rewards to teammates to maim opposing players, particularly star quarterbacks.

News about this alleged conspiracy has been widely publicized, but I have yet to read of any current or impending federal or state criminal or legislative inquiry.  While certain violence in football is accepted, deliberate maiming goes beyond any acceptable norms.  Nonetheless, it would not surprise me that neither federal nor state prosecutors, especially in the New Orleans area, where Vilma and his alleged player co-conspirators played, view such an investigation as crowd-pleasing.  Realistically, it is quite possible that a New Orleans jury would nullify and acquit Vilma even if there were convincing evidence against him.

In virtually every other area of business activity where there is a tenable allegation that a person had conspired to maim a competitor or opponent, there would be a serious prosecutorial investigation.  In sports, what is ordinarily considered criminality, at least physical criminality, is often given a bye.

One might think that Congress has a legitimate reason and special responsibility to investigate alleged orchestrated maiming in professional football, a national sport/business.  The National Football League, as it is now, exists due to Congressional largess.  Congress has given the NFL a special exemption to antitrust rules which allows it to function as a lucrative monopoly with an all-powerful commissioner.  Professional football (which to my wife's chagrin I watch virtually every fall Sunday), if fairly and properly played, is a dangerous game, as reflected by the frequent injuries and limited career span of its players, and the reported unusual rates of early brain damage, suicides and deaths among its retirees.  When improperly played -- played with a purpose of injuring others -- it is even more brutal.

Of course, just as an indictment might not be popular with local fans, a Congressional investigation into football brutality would probably not be favorably received by the voters back home, who like their contact sports (at least professional sports) such as football and hockey to be rough.  Congress appears to be more interested in whether baseball players engage in taking illegal drugs, which, if it harms anyone, hurts only themselves or perhaps also competing players who perform at a comparative disadvantage without such presumed aids.  Such an investigation also continues to feed the anti-drug attitude Congress has fostered and to justify the harsh drug laws Congress has enacted.  Of course, Congress might also be gunshy in view of the embarrassment that the baseball steroid investigation and resulting Roger Clemens trial became.

This is not to say that I presume Vilma is guilty.  I have not seen or heard any concrete evidence that he in fact did orchestrate a bounty program.  The NFL investigation was conducted in secret and with only a sparse controlled public report by the NFL of its findings.  Vilma's attorney, in a letter roughly equivalent to a motion for discovery in a criminal case, has asked for 17 points of information.  The NFL's response is essentially that its special counsel, Mary Jo White, a respected and liked, and generally prosecution-minded, former United States Attorney, has reviewed the secret evidence and has found it sufficient.  The NFL also claims that it had shared some of the evidence with the alleged offenders and the NFL Players Association.  The association, while supporting the players' right to arbitration, presumably represents both Vilma and the alleged offenders, and is barely a substitute for a single-minded advocate on Vilma's behalf.

Thus, Vilma, subject to possible reversal by arbitration or court action, will be punished with a suspension of one year (a significant time in a football player's limited career span), and the loss of millions of dollars without even rudimentary due process.  And, unlike many persons suspended or fired from jobs, Vilma is practically unable to ply his trade anywhere else besides the monopolistic NFL.

I do not know enough about the NFL's collective bargaining agreement, which apparently allows the Commissioner to be both prosecutor and judge, or about labor law to know whether Vilma has been treated properly.  I do, however, have a visceral feeling that he deserves more rights than a secret investigation and a conclusory decree by a commissioner with dictatorial power.

(goldman)

May 15, 2012 in Congress, Current Affairs, Investigations, Prosecutors, Sports | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 1, 2012

Tom Dewey May Be Rolling Over in His Grave

In an ironic twist, the New York County (Manhattan) District Attorney's Office is investigating the recently-deposed chairman of Dewey LeBouef, the firm that still carries the name of Thomas Dewey, the near-president who rose to national prominence as a gangbusting nonpolitical Manhattan District Attorney.

The investigation, apparently based on facts brought to the District Attorney's attention by disgruntled partners as the firm teeters on the verge of extinction, concerns whether the former chairman, Steven H. Davis, committed financial improprieties.  One area of investigation reportedly is whether Davis misled investors, presumably insurance companies and/or banks, about the firm's financial condition, see here, perhaps involving its commitments to highly-compensated partners, many lateral hires.  American Lawyer last month announced that it was revising the figures it published based on the firm's report of its finances since those numbers differed from what the firm reported to the media.  The firm defended its numbers, claiming that it used different methodologies at different times. 

Certainly, different financial reports made at different times using different methodologies for different purposes may reasonably be different.  And, even giving false figures to American Lawyer may not be criminal (I hesitate to state so definitively in this day of overcriminalization of law and overreaching by law enforcement).  However, false statements to lenders or investors, who potentially will incur severe losses, because of the firm's inability to pay its debts, is a less certain matter.

The firm has mounted its own internal investigation -- by two of its partners.  While I have no reason to believe that the investigation will be less than thorough and fair (and will likely save considerable money), the firm might have more prudently hired independent investigators invulnerable to accusations of conflict of interest, if only for public relations purposes.  Of course, if the firm dissolves, any internal investigation may fall by the wayside.

(goldman)

May 1, 2012 in Investigations | Permalink | Comments (1) | TrackBack (0)

Sunday, April 29, 2012

Ten Basic Observations About Discovery Call for New Legislation

Here are ten basic observations regarding criminal discovery.  They send a loud message that the proposed  Senator Lisa Mukowski (Alaska) (along with Senators Inouye, Hutchinson, Begich and Akaka) "Fairness in Disclosure of Evidence Act" legislation is needed to codify the holding in Brady and add teeth to making certain that defendants receive a fair trial.

Ten Basic Premises:

  1. Most prosecutors play by the rules.
  2. One of the rules is you have to give up Brady material.
  3. Brady is going to be 50 years old in 2013.
  4. The ethics rules require prosecutors to give up exculpatory material.
  5. Some prosecutors have no clue what Brady material really is.
  6. In some cases prosecutors can’t tell if something is favorable to the defense because they don’t know what the defense will be presenting.
  7. Discovery in national security cases, terrorism, and cases where someone will get hurt needs to be treated differently.
  8. The chances of prosecutors being caught if they fail to give up Brady material is slim.
  9. If Brady material is not given or given late, most courts will find it to be harmless error.
  10. The chances of a prosecutor being disciplined for not giving up exculpatory material is slim.

(esp)

April 29, 2012 in Investigations, Prosecutions, Prosecutors | Permalink | Comments (1) | TrackBack (0)

Wednesday, April 25, 2012

Should Wal-Mart Be Prosecuted, Really Prosecuted?

I expect that any day now one of my non-white-collar criminal clients will come to my office and ask me to incorporate him to protect him from future criminal liability.  Of course, incorporation does not immunize an individual from criminal liability.  Nor, generally, does it protect small corporations from prosecution.

However, it appears that just as massive corporations are "too big to fail," they are too big to prosecute.  In the wake of the government's destruction of Arthur Andersen because of an ill-conceived, aggressive and ultimately unsuccessful indictment which caused the loss of thousands of jobs, DOJ has been highly reluctant to aggressively prosecute major corporations.

Although there are occasionally indictments of major corporations, most often these are disposed of by "deferred prosecutions," which are essentially delayed dismissals with financial penalties in numbers that are large in absolute terms but meager in comparison to the profits and assets of the corporation.  To be sure, even when prosecuted to conviction, corporations do not go to jail and thus there may be little practical difference between a conviction of a corporation and a deferred prosecution.  However, to the extent a goal of the criminal justice system is to achieve apparent fairness and equality, there is a genuine, if symbolic, reason for the prosecution of the large and powerful, whether they be individuals or corporations.

According to a thorough account in the New York Times this past Saturday, April 21, see here, Wal-Mart in Mexico, where the company has, according to the Times, one-fifth of its stores, engaged in a systemic countrywide scheme in which it spent millions of dollars to bribe hundreds of Mexican officials to gain favorable and expedited treatment and a competitive advantage.  According to the Times, this conspiracy was not, as is often the case in corporate wrongdoing, the act of a rogue individual or group.  Rather, it was orchestrated from the very top of the Wal-Mart Mexican hierarchy.  Additionally, again according to the Times, when reports of this corruption reached Wal-Mart's U.S. headquarters, top executives took great pains to cover up the wrongdoing.

The alleged conspiracy, if the Times report is accurate, appears to be the kind of corporate crime, therefore, that deserves aggressive prosecution (not just an indictment and a deferred prosecution), especially if the government wants the Federal Corrupt Practices Act ("FCPA") to be taken seriously.  Of course, there may be statute of limitations or other fact-finding or evidentiary problems involved in putting together a case involving facts from 2005, the year, according to the article, the bribe payments were made.  It is far easier to write an article reporting corruption than to prove it under the rules of evidence beyond a reasonable doubt.  It will be interesting to see what, if anything, DOJ does with respect to this matter.

(goldman)

April 25, 2012 in Arthur Andersen, Corruption, Deferred Prosecution Agreements, FCPA, International, Investigations, Obstruction, Prosecutions, Prosecutors | Permalink | Comments (2) | TrackBack (0)

Sunday, April 15, 2012

Indemnification Agreements - Pay the Lawyers

Many companies, as part of their compensation and benefits packages, have indemnification agreements that allow for payment of attorney fee expenses to company officers, directors, and others.  Some may be surprised to learn that Fannie Mae and Freddie Mac have such agreements as part of Enterprise Bylaws or individual agreements.  "Between 2004 and October 31, 2011, Fannie Mae advanced $99.4 million in legal expenses to cover the representation of" three former officers "in connection with government investigations and lawsuits stemming from accounting irregularities uncovered in 2004." The Office of Inspector General issued a report that offers some suggestions on reducing future costs. The "evaluation was led by Director of Special Projects David Z. Seide, and Investigative Counsel Stephen P. Learned contributed to its completion."  The report can be found here.

(esp)

April 15, 2012 in Attorney Fees, Government Reports, Investigations | Permalink | Comments (0) | TrackBack (0)

Saturday, March 3, 2012

ABA 2012 White Collar Crime Conference - Environmental Enforcement

This panel was moderated by Joseph G. Block (Venable). Panelists were Richard E. Byrne (Exxon), Marc R. Greenberg (Keesal, Young, & Logan), Gregory F. Linsin (BlankRome), and Stacey H. Mitchell (Chief, Environmental Crimes Section of the Environment and Natural Resources Division of the Department of Justice). The panel covered issues related to the ongoing investigation into Deepwater Horizon, Lacey Act violations, vessel pollution, and a host of other white collar related environmental matters.

The panelists talked about how to handle legal issues arising with emergency responders. Several panelists noted that the most important thing is to mitigate damages to injured, being candid to first responders, and telling them what they need to know - such as where folks may be.

When there is death or significant environmental damage occurs, you can expect that the government might investigate. Richard Bryne said you need to presume investigation - you need to set up a privileged internal investigation

The panelists talked about how to handle searches. Some panelists on the corporate side commented that you should have a developed plan in place; get to the facility as quickly as possible; instruct individuals to cooperate with the search warrant but also telling them that there is no way they must agree to be interviewed. The importance of truthfulness was stated. From the government perspective there is concern about the safety of agents.

The corporate and defense attorney panelists discussed approaches in giving Upjohn warnings to employees being interviewed. It was noted that Upjohn warnings can trigger questions from the employees being interviewed. It may be difficult for the company because they may not know at this point whether they will cooperate with the government in resolving the matter. There is also the question of whether to appoint counsel for company employees.

(esp)(blogging from Miami Beach, Florida)

March 3, 2012 in Conferences, Environment, Investigations | Permalink | Comments (0) | TrackBack (0)

2012 ABA White Collar Crime Conference - Internal Investigations

Internal Investigations in the Age of Voluntary Disclosure

This breakout session, moderated by Keely Rankin (Dechert), concerned internal investigations. A hypothetical, about a telephone message left by a rambling anonymous whistleblower reporting on activities from another country, was used to discuss a variety of issues unique to internal investigations.

Catherine Razzano started the discussion from the perspective of corporate counsel trying to decide whether to investigate and who should do the investigation. She said that you need to do some immediate investigation just to decide how to proceed (e.g., can you do a routine audit; can you trace the call; can local counsel be of assistance). It is important to keep in mind that if it is a public company it has certain reporting obligations. If an HR person does the initial investigation, and the individual is not an attorney, you may lose the privilege. In house counsel brings a certain expertise and outside counsel brings a certain independence. It was emphasized that one needs to take a measured and consistent approach – these investigations cost money.

Angela M. Machala (Scheper Kim & Harris) looked at whether there might be a reason to launch more of an investigation and she also spoke to the advantages and disadvantages of starting with the most culpable employees in setting up interviews. Cultural differences can play a part in how you proceed.

Jonathan Leiken (Jones Day) looked at the problem of what happens when you're reviewing emails and you find more problems. He said to remember - when the movie gets played back, how will the client look the most responsive.

Ryan K. Stumphauzer (O'Quinn Stumphauzer) emphasized the importance of sitting down with the control group to define expectations.

On one hand you don’t want to give incomplete or inaccurate information and on the other hand you want to act quickly. The panelists discussed the possibility that the whistleblower could beat the company to the DOJ in reporting a problem.

One thing was clear - Dodd-Frank is very scary for counsel. Ms. Razzano notes - "[w]e want to protect our employees but we want to protect company to."

(esp)(blogging from Miami)

March 3, 2012 in Conferences, Investigations | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 22, 2012

Strauss-Kahn Involved Again in Sex Case

Dominique Strauss-Kahn is once again in trouble with the law in relation to an investigation involving sexual activity.  Strauss-Kahn was detained overnight in Lille, France, for questioning in a French investigation related to an alleged prostitution ring that purportedly supplied women for sex parties with Strauss-Kahn in Brussels, Paris and Washington.

Strauss-Kahn contends that he had no reason to believe that the women at these parties were prostitutes.  His French lawyer bared that defense to French radio in December, "People are not always clothed at these parties.  I challenge you to tell the difference between a nude prostitute and a classy lady in the nude."  Reuters article, see here.  This lack of scienter defense ironically appears to be the converse of what many believed would have been Strauss-Kahn's defense had the New York case in which he was accused of sexual assault gone to trial.  In that case, it was expected that his defense would have been that he did believe that the woman in question was a prostitute.

The investigation, in which eight people have been charged, involves alleged misuse of corporate funds to pay for the services of the prostitutes.  Engaging prostitutes is not illegal in France (although it is in Washington), but if the investigators determine that Strauss-Kahn had sex with prostitutes he knew had been paid for out of company funds, he might be charged as a beneficiary of that misuse of funds.  Most likely, it will be difficult to prove that Strauss-Kahn, even if he were found to have known the women involved were prostitutes, knew how they were paid.

High-profile cases in other jurisdictions often affect prosecutorial priorities.  One wonders whether this case will lead American prosecutors to scrutinize corporate books to determine whether corporate funds have been used to supply prostitutes to customers, political figures and others.  I suspect that such payments (and consequent tax deductions as business expenses) are not wholly uncommon, at least for non-public businesses.  Any resulting cases, involving both sex and corporate corruption, are sure to draw media attention.

(goldman)

February 22, 2012 in Celebrities, Corruption, International, Investigations, Media, News, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 8, 2012

Prosecutorial Discretion Is The Better Part Of Valor: Lance Armstrong; FCPA Gabon Sting

One of the supposed hallmarks of the American criminal justice system is the prudent exercise of prosecutorial discretion. But prosecutorial discretion, even when it works, is a blessing and a curse. A blessing, because it allows for the flexibility and compromise without which most systems, even well-constructed ones, cannot function. A curse, because liberty should not depend upon the the character and wisdom of the person temporarily wielding power.

The U.S. Attorney's Office for the Central District of California has decided not to prosecute Lance Armstrong. An announcement to that effect was made last Friday. The L.A. Times story is here. A good Washington Post piece is here. Today's Wall Street Journal discusses the declination and a potential future probe of of improper leaks related to the case.  (An internal investigation of some kind appears to be warranted given the massive leaking that has occurred.) According to the WSJ, the declination decision by U.S. Attorney Andre Birotte and his top aides went against the recommendation of the two line AUSAs handling the case. Maybe, but take it with a grain of salt. News stories about the internal machinations of prosecution teams often get it wrong.  

Based on what I know about the case, the decision to decline appears to have been a no-brainer. Recent federal prosecutions involving alleged drug use by star athletes have expended enormous sums of money with mixed or poor results. In the Armstrong matter, the doping, if it occurred, was not itself a federal crime. Prosecutors would have been peddling a wire fraud theory under which Armstrong allegedly defrauded team sponsors by intentionally violating a contractual obligation to avoid improper drug use. Not very sexy. Twelve typical American jurors might well wonder at the start of such a case, "Why are we even here?" Finally, Armstrong is enormously popular and has a sterling defense team with unlimited resources.

The U.S. Anti-Doping Agency (USADA) vows to continue its investigation, accurately noting that its "job is to protect clean sport rather than enforce specific criminal laws." But USADA wants the grand jury materials. This would be a travesty, and is unlikely to happen. Federal grand jury materials are presumptively secret by law for good reason. Don't count on a federal court sanctioning transfer of grand jury materials to an agency like USADA.

In other declination news, the DOJ attorneys prosecuting the Gabon sting case have informed U.S. District Judge Richard Leon that DOJ is considering dropping all future prosecutions. A decision will be made by February 21. The BLT piece is here.  Full disclosure: I briefly represented one of the defendants, and considered representing another of the defendants, neither of whom has gone to trial. My comments here are based on the public record. The two cases brought to date have resulted in three acquittals and two hung juries. Nobody going to trial has been convicted in what DOJ thought was a sure win. Whatever merit there was in initially bringing the case, reconsideration is in order. The two trials to date have revealed a number of weaknesses. First, this was a sting--a crime engineered by the U.S. Government. Second, the informant who helped orchestrate it was far more compromised than the typical informant in a white collar case. Third, in a key tape recorded conversation between that informant and one of the defendants, the defendant seeks to back out of the alleged unlawful transaction, but the informant reels the defendant back in by telling him that attorneys have approved the deal. Fourth, the inherent ambiguities and weaknesses in the FCPA itself.

If there has been a benefit to the Gabon FCPA prosecution it is this--it has taught the white collar defense bar that FCPA cases can be fought and won and, presumably, has taught DOJ that FCPA cases aren't as easy to win as they first appear. 

(wisenberg)

February 8, 2012 in Celebrities, Corruption, Current Affairs, FCPA, Fraud, Government Reports, Grand Jury, Investigations, Media, Prosecutions, Prosecutors, Sports, Statutes | Permalink | Comments (0) | TrackBack (0)

Monday, January 30, 2012

New Financial Unit Raises Questions

Virtually every presidential State of the Union speech, or its gubernatorial equivalent, calls for tougher criminal laws and/or new investigative resources.  President Obama's address last week was no exception.  The President called for the establishment of a new unit "to crack down on large scale fraud and protect people's investments."  As blog editor Ellen S. Podgor wondered, see here, it was unclear how this unit would differ from the Financial Fraud Enforcement Task Force established in 2009.  I too asked whether this purportedly new unit was anything other than a repackaged version.

The announcement of a new prosecutorial unit also was perhaps an unintended implicit admission that existing federal law enforcement agencies had been less than successful in dealing with serious alleged crimes which some believed had caused the financial crisis.  Both Attorney General Eric Holder and SEC Enforcement Director Robert Khuzami defended their record, stating that not every mistake is a violation of law.  Holder said, "We also have learned that behavior that is reckless or unethical is not necessarily criminal," a statement which (aside from leading me to ask why it had taken him so long to realize it) should be painted on the walls of every prosecutorial office.

The principal apparent structural difference between this unit, entitled the Unit on Mortgage Origination and Security Abuses ("UMOSA"), and the prior one is, besides its more focused jurisdiction, that this is a joint task force of both federal and state officials.  One of its co-chairs -- albeit one of five, four being DOJ or SEC officials -- is New York State Attorney General Eric Schneiderman, who has shown his independence and aggressiveness toward Wall Street by pushing for stronger sanctions against financial institutions for robo-signing and other improprieties committed after the crisis arose.

Generally, joint federal-state task forces are a one-way street.  The feds take the best criminal cases and leave the dregs to the state.  One purported justification for such selection is that federal laws and rules of evidence make it easier for federal prosecutors to bring cases and win convictions.  Schneiderman has indicated somewhat to the contrary -- that New York and other state laws give state attorneys general greater means to bring both civil and criminal prosecutions.

The idea of combining federal and state resources is generally a good one.  Too often law enforcement agencies refuse to share information with other agencies, if at all, until they have determined the information was insufficient for them to act on, often too late for use by the other agencies.  On the other hand, I fear that some task force constituents might attempt to make an end run around constitutional and statutory laws and rules, specificially Fed.R.Crim.Pro. 6(e), which, generally, as relevant here, prohibits disclosure of grand jury information to non-federal officials.  Of particular concern is whether information secured by federal grand juries, much of which is through immunized testimony, will be provided for use by the states.  Both Attorneys General Holder and Schneiderman seem aware of this restriction, but both appear to view it as an obstacle to overcome rather than a right to ensure.  How scrupulous they will be in upholding the rule and spirit of grand jury secrecy will be seen.

(goldman)

January 30, 2012 in Current Affairs, Fraud, Grand Jury, Investigations, Mortgage Fraud, Prosecutors, SEC, Securities | Permalink | Comments (2) | TrackBack (0)

Tuesday, January 24, 2012

Financial Crimes Unit

President Obama's State of the Union Address spoke to many important issues.  One was financial crime.  He said "[w]e will also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people's investments." (see full text Wash Po here).  He later states, "[s]o pass legislation that makes the penalties for fraud count."

Some may recall that back in 2009 President Obama created the Financial Fraud Enforcement Task Force that had as its purpose "to hold accountable those who helped bring about the last financial crisis as well as those who would attempt to take advantage of the efforts at economic recovery." (see here)  I am a bit uncertain how this existing body will or will not interact with the new Financial Crimes Unit, but the concept of further enforcement in this area sounds impressive.  Perhaps more funding will be supplied to the SEC through this initiative so that they can properly regulate improprieties and avoid Ponzi schemes of the past.  Perhaps more FBI investigators will be hired to work on building these cases. I applaud the President for this one - especially if he goes in this direction.

On the other hand, we really do not need new legislation to make "the penalties of fraud count."  The legislation is there, and if one looks at the website of the Financial Fraud Enforcement Task Force, there have been a significant amount of prosecutions with existing statutes. (see here). The statutes are there -it is the money that is needed to make these difficult and often complex cases.  Please don't add more to the already approximately 4,500 federal statutes out there. 

So more regulatory oversight, more prosecutors and SEC folks working on financial matters will help.  But the legislation and penalties are already there.  I look forward to seeing this Financial Crime Unit up and running and cracking down on improprieties in our financial world. 

(esp)

January 24, 2012 in Investigations, Prosecutions, Prosecutors | Permalink | Comments (2) | TrackBack (0)

Paterno's Death May Affect Trial of Penn State Officials

Joe Paterno is dead, his legacy as one of the greatest coaches in the history of sports tarnished by his termination -- unjust, I believe -- on the grounds that he inappropriately failed to pursue vigorously an allegation of child sex abuse (see herehere and here).

Paterno's death and absence as a witness will likely have little or no effect on the trial of Jerry Sandusky, the former Penn State assistant coach who was the subject of the allegation reported to Paterno by a Penn State graduate assistant coach, Mike McQueary.  Paterno's only information about the Sandusky issues appears to have been the hearsay report by McQueary, and thus it is unlikely that he would have been a witness.

Paterno's unavailability, however, may have a considerable impact on the trials of Tim Curley, the former university athletic director, and Gary Schultz, a former university senior vice president, both of whom have been charged with failure to report the suspected child abuse and perjury.  Both have been charged with falsely testifying that McQueary, when he spoke with them, did not mention serious or criminal sexual conduct.  McQueary, whom the grand jury report (presumably written by the prosecutors) deemed "extremely credible," testified that he reported the specific act to both Curley and Schultz, and seemingly also to Paterno.  Paterno's grand jury testimony, however, apparently was that what McQueary related to him was far less specific, and thus more ambiguous.  Accordingly, while the grand jury report indicated that Paterno would be a corroborative witness for the prosecution in that he was told by McQueary of the alleged "sexual exploitation" and then reported what McQueary had said to Curley and Schultz, his testimony would apparently also have to an extent corroborated their defenses that McQueary was less explicit than he now claims.

In another highly-publicized investigation involving a former college sports coach, former Syracuse University assistant basketball coach Bernie Fine, it has been reported that two of the four men who had accused Fine of molesting them when they were children have admitted that they committed perjury in connection with the case.  One has admitted that he lied when he claimed Fine molested him.  The second, the only one whose allegations fall within the applicable criminal statute of limitations, while still claiming that abuse occurred, has admitted doctoring purportedly supporting emails.

The Fine situation is a reminder that not every allegation of child sexual abuse is true.  Indeed, in my experience, there is a far higher percentage of false accusations of sexual misconduct than of any other criminal activity.  Thus, such accusations should be scrutinized especially carefully before they are acted upon by law enforcement or others.

(goldman)

January 24, 2012 in Celebrities, Grand Jury, Investigations, News, Perjury, Sports | Permalink | Comments (0) | TrackBack (0)

Friday, January 20, 2012

The Lesson of Joe Paterno

Yesterday's New York Times has an extremely lengthy but disappointingly unilluminating article about the firing by the Penn State Board of Trustees of legendary football coach Joe Paterno (and also Penn State president Graham Spanier) for purportedly failing to take adequate action after being informed that former coach Jerry Sandusky had molested a boy in a Penn State locker room shower (discussed earlier herehere).  The article reports that the Board telephoned Paterno and said, "The Board of Trustees has determined effective immediately you are no longer the football coach."  Paterno immediately hung up.  Shortly thereafter, his wife called the Board and said, "After 61 years he deserved better."

I agree with Mrs. Paterno.  In the months since the Penn State grand jury report became public, I have seen nothing that to me indicates that Paterno acted improperly by promptly reporting the alleged incident to his superiors, even if not to law enforcement.

The lesson of Paterno's firing appears to be that, even if not required by statute or internal rule, one in authority in a corporation, government agency, institution of learning, or similar entity, should protect himself by reporting any tenable allegation of sexual abuse, whether or not substantiated and whether or not he believes it, to law enforcement.  While such a rule might protect the reporter from termination, it might lead to a heyday for defamation lawyers, as well as severe harm to innocent people.

(goldman)

January 20, 2012 in Celebrities, Grand Jury, Investigations, Sports | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 30, 2011

Brady Again: Some Thoughts

Judge Emmet Sullivan's Order in relation to the Stevens case summarizing some of the findings of the special report by Hank Schuelke and William Shields was reported last week by my editor Ellen Podgor here and discussed in depth by my co-editor Solomon Wisenberg here.  I add some thoughts on Brady violations in general.

First, as Mr. Wisenberg points out, few Brady violations are intentional.  Although there are some rogue prosecutors who deliberately conceal what they know is information which would be beneficial to the defendant, the vast majority of Brady violators are well-meaning prosecutors who in their focus on their proof do not realize that certain information would be helpful to the defense.

Second, Brady is counterintuitive.  Requiring a participant in any contest to provide information to his adversary which will decrease his chance of winning goes against the grain.  Expecting a prosecutor who believes that such information is merely a means of enabling a guilty person to get off (since the material in question presumably has not changed the prosecutor's mind that the defendant is guilty beyond a reasonable doubt) to provide it to his opponent is even more problematical.

Third, Brady violations are not uncommon, although few are revealed.  Since Brady violations are done in secret and the concealed evidence is unlikely ever to reach the light of day, most are undetectable.  As Judge Sullivan's Order notes, many of the Brady violations in the Stevens case would never have been revealed but for the exhaustive investigation by the court's appointed investigators.  And, this case, it should be remembered, involved a U.S. Senator represented by Brendan Sullivan, a superb, highly-respected and aggressive lawyer, and an outstanding law firm with considerable resources, not an overwhelmed court-appointed attorney with limited time and resources.

Fourth, as Mr. Wisenberg notes, prosecutors are rarely punished for Brady violations.  Most judges either ignore the violations or gently chide the prosecutors.  DOJ internal reviews of alleged prosecutorial misconduct are viewed by defense lawyers and many judges as whitewashes.  Disciplinary committees historically have treated errant prosecutors gently in the few cases of prosecutorial misconduct of which they become aware, and prosecutions of prosecutors for obstruction of justice and the like for withholding evidence are virtually nonexistent.

Fifth, the legal standards for Brady disclosure are confused.  Most prosecutors and judges think of Brady material as "exculpatory" material, that is, something that might have a significant impact on the determination of guilt, a standard that, to most prosecutors, eliminates all but a very few items of evidence.  In fact, what should be disclosed is evidence "favorable" to the accused, a much broader category than "exculpatory."  Additionally, many prosecutors believe that the standard used by reviewing courts to determine whether non-disclosure of Brady evidence requires reversal -- whether it is "material" -- is the proper standard to be used by a trial prosecutor in the initial disclose-or-not determination.  "Materiality" in this context is essentially a "harmless error" standard of review used to decide whether the withheld evidence mandates reversal, not the standard to determine whether to disclose in the first instance.  Just as a prosecutor's argument in summation may be improper, even if unlikely to result in reversal, concealment from the defense of favorable evidence is improper, even if not so serious that it later will be found "material" by an appellate court.

In sum, under current conditions, Brady just doesn't work.  More explicit guidelines, as recently published by DOJ, will help, as would standing court orders making a violation contemptuous (as has seemingly not happened in Stevens) and stronger punishments for violations by judges, prosecutorial agencies, and disciplinary committees (and perhaps also a statute criminalizing deliberate and knowing Brady violations).  But, in the end, the only real solution to Brady violations may just be, as Mr. Wisenberg suggests, open discovery in criminal cases.

(goldman)

November 30, 2011 in Contempt, Current Affairs, Investigations, Judicial Opinions, Legal Ethics, Obstruction, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 23, 2011

Some Further Thoughts On Judge Sullivan's Order

My colleague Ellen Podgor recently commented here on Judge Emmet Sullivan's 11-21-11 ORDER in In Re SPECIAL PROCEEDINGS, the ancillary proceedings initiated by Judge Sullivan to investigate the multiple Brady violations committed by DOJ prosecutors in U.S. v. Theodore Stevens. The ensuing investigation was conducted, on Judge Sullivan's behalf, by veteran DC lawyers Hank Schuelke and William Shields, who have now issued a report that is, I hope, only temporarily under seal.

It is obvious from reading his Order that Judge Sullivan is still outraged. That's a good thing. Until enough federal judges get hopping mad about systemic DOJ Brady violations, we will have no real legislative discovery reform at the federal level.

In addition to the points highlighted by Professor Podgor, Judge Sullivan's Order notes the following findings and conclusions by Schuelke and Shields:

1. "[T]he investigation and prosecution of Stevens were 'permeated by the systematic concealment of significant exculpatory evidence which would have independently corroborated his defense and his testimony, and seriously damaged the testimony and credibility of the government's key witness.'"

2. "[A]t least some of the concealment was willful and intentional, and related to many of the issues raised by the defense during the course of the Stevens trial."

3. Schuelke and Shields "found evidence of concealment and serious misconduct that was previously unknown and almost certainly would never have been revealed--at least to the Court and to the public--but for their exhaustive investigation."

4. Schuelke does not recommend criminal contempt proceedings, because "in order to prove criminal contempt beyond a reasonable doubt under 18 U.S.C. [Section] 401 (3), the contemnor must disobey an order that is sufficiently 'clear and unequivocal at the time it is issued'... [but] no such Order existed in this case. Rather, the Court accepted the repeated representations of the subject prosecutors that they were familiar with their discovery obligations, were complying with those obligations, and were proceeding in good faith."

5. "Mr. Schuelke also notes that '[i]t should go without saying that neither Judge Sullivan, nor any District Judge, should have to order the Government to comply with its constitutional obligations, let alone that he should feel compelled to craft such an order with a view toward a criminal contempt prosecution, anticipating its willful violation.'"

6. "Mr. Schuelke 'offers no opinion as to whether a prosecution for Obstruction of Justice under 18 U.S.C. [Section] 1503 might lie against one or more of the subject attorneys and might meet the standard enunciated in 9-27.220 of the Principles of Federal Prosecution.'" 

It is clear that most or all of this Report is going to be publicly released. It will be interesting to compare it to DOJ OPR's report, assuming that DOJ decides to release it. Two attorneys for two of the prosecutors under scrutiny have already announced that OPR's report clears their respective clients. DOJ has a long history of ignoring the critical comments of federal judges. The latest example of this took place in reference to the prosecution of former Blackwater employees. Despite Judge Ricardo Urbina's scathing factual findings regarding the conduct and credibility of the original set of prosecutors, they were treated to a laudatory/fawning DOJ press release upon reassignment. Urbina, like Sullivan, is one of the most respected federal judges in the country and his factual findings were not questioned or disputed on appeal. 

Some final thoughts.

1. For every Emmet Sullivan (or Ricardo Urbina or Howard Matz) there are 10 federal judges who unquestioningly accept the Government's representations regarding Brady issues, irrespective of non-frivolous matters brought to their attention by the defense bar.

2. The defense attorney has an obligation to ferret out Brady issues through the filing of detailed, fact-specific Brady motions closely tied to the formal allegations in the case.

3. We must rapidly move toward open discovery in the federal criminal system, with appropriate safeguards in place to protect witnesses where necessary. The presumption, however, must always be in favor of open discovery. Many states have gone this route without any disastrous consequences. It is appalling that civil litigants have substantially more access to discovery at the federal level than do people who are literally fighting for their liberty.

4. In the meantime, federal prosecutors must be relieved of the burden of determining whether exculpatory information is material. DOJ already recommends this in the Ogden Memo, but it should go one step further and require it. The rule should be: IF IT HURTS MY CASE IN ANY WAY, TURN IT OVER! When a man judges himself, the verdict is always in his favor. When a federal prosecutor, in the heat of trial or pretrial battle, is deciding whether exculpatory evidence is material, the verdict will too often be that it is not. Let's end this invitation to injustice.

5. Of course, federal prosecutors do not think like criminal defense attorneys. That's okay. We don't want them to! But this is the very reason why they cannot ultimately be trusted to make the determination of what is or is not exculpatory. The competent defense attorney headed to trial or sentencing is constantly thinking about anything that will help the defense. Prosecutors are not trained or inclined to do this. Even when they are trying to fulllfil their Brady obligations, AND THE VAST MAJORITY OF FEDERAL PROSECUTORS ARE TRYING TO DO THIS, they cannot be trusted to spot the issues. This difference in outlook/inclination/thought processes really comes to the fore during the period leading up to sentencing hearings, when the prosecutor looks at the defense attorney like a deer in the headlights when reminded of his/her obligation to provide any and all mitigating evidence!

6. Please. Let's have no more: "We understand our Brady obligations and intend to abide by them." Congress should pass a statute requiring some form of detention for any prosecutor who utters this bromide.

(wisenberg)

November 23, 2011 in Contempt, Corruption, Current Affairs, Government Reports, Investigations, Judicial Opinions, Legal Ethics, Media, Obstruction, Perjury, Prosecutions, Prosecutors | Permalink | Comments (4) | TrackBack (0)