Saturday, March 3, 2012
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)
Wednesday, February 22, 2012
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.
Wednesday, February 8, 2012
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.
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
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.
Tuesday, January 24, 2012
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.
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 here, here 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.
Friday, January 20, 2012
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 here, here). 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.
Wednesday, November 30, 2011
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.
Wednesday, November 23, 2011
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.
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)
Sunday, September 25, 2011
The Washington Post's Chris Cillizza thinks Solyndra had the worst week in Washington, because its CEO and CFO invoked the Fifth Amendment's Privilege Against Self-Incrimination in front of the House Energy and Commerce Committee. According to Cillizza, the silence of the executives "won't win them any allies in Washington." What allies? These guys already have bruises all over their bodies from where politicians have been touching them with eleven foot poles. Cillizza believes that their taking five "ensures that the probe into how Solyndra won the initial loan in 2009...will not only continue...but grow." This is silly. A vigorous criminal investigation is already assured. If the execs had talked they only would have made the DOJ's job easier.
The first place a bank looks when a big loan goes bad is the borrower's application, including the financial statement. For decades the DOJ has operated as a criminal collection agency for our country's financial institutions. It only gets worse if the loan, in this case about a half billion, is guaranteed by Uncle Sugar. Add in the DC gang mentality attendant upon what has become a political scandal and you would have to be a cretin to open yourself up to possible charges of false statements, perjury, or obstruction of justice. This one was a no-brainer. Kudos to the executives and their attorneys for not being idiots.
Monday, September 12, 2011
A DOJ Press Release here states that "Maxim Healthcare Services Inc., one of the nation’s leading providers of home healthcare services, has entered into a settlement to resolve criminal and civil charges relating to a nationwide scheme to defraud Medicaid programs and the Veterans Affairs program of more than $61 million." The Deferred Prosecution Agreement (DPA) provides that Maxim will pay "a criminal penalty of $20 million and to pay approximately $130 million in civil settlements in the matter." The DPA, which requires the company to meet reform and compliance measures, lasts for two years.
As with many companies who enter into DPAs, there are also individuals being prosecuted. In this case the press release notes that "[t]o date, nine individuals – eight former Maxim employees, including three senior managers and the parent of a former Maxim patient – have pleaded guilty to felony charges arising out of the submission of fraudulent billings to government health care programs, the creation of fraudulent documentation associated with government program billings, or false statements to government health care program officials regarding Maxim’s activities."
The press release also states that "[t]he government’s willingness to enter into a DPA with Maxim is due, in significant part, to the company’s cooperation and the reforms and remedial actions the company has taken – beginning particularly in May 2009 – including significant personnel changes: terminating senior executives and other employees the company identified as responsible for the misconduct; establishing and filling of positions of chief executive officer, chief compliance officer, chief operations officer/chief clinical officer, chief quality officer/chief medical officer, chief culture officer, chief financial and strategy officer, and vice president of human resources; and hiring a new general counsel."
Tuesday, September 6, 2011
The Fifth Circuit Court of Appeals affirmed the James A Brown case (U.S. v. Brown), in which a "managing director at Merrill Lynch and the head of its Strategic Asset and Lease Finance group" had been indicted in the Nigerian Barge case coming from the Enron events. The indictment was for "short-cut" offenses of perjury and obstruction of justice and the convictions had previously been affirmed by a three judge panel. Brown was now challenging his conviction on the basis that "the government violated his rights to due process by withholding materially favorable evidence that it possessed pre-trial."Specifically that it failed to disclose three pieces of evidence which included "1) The FBI notes of its interview with Fastow, 2) Senate investigators' notes of their interview with McMahon, and 3) transcripts of Zrike's pretrial testimony before the grand jury and the SEC." Although some of this evidence was shown to the court in camera before Brown's trial, the government admitted "that it did not submit the Fastow notes to the district court for in camera review." The Court takes the position that the government "did not suppress favorable evidence and that, even if it did, it was not material."
As noted by the defense in its en banc petition request and rehearing request, the court uses a standard other than de novo in reviewing part of this Brady violation claim. This presents an interesting question for an en banc or later Supreme Court to examine.
Brown En Banc Petition -Download 10-20621 Brown En Banc Petition FILED COPY
Brown Rehearing Petition -Download 10-20621 Brown Panel Rehearing FILED COPY
These events are also a perfect reason why there needs to be a statutory change in the discovery rules. NACDL has a proposal that would assist in making certain that favorable evidence is provided to the defense (see here) and hopefully Congress will take up this issue. Examining these issues after the fact only creates added issues.
Friday, September 2, 2011
CNN has the story here. Judge Reggie Walton apparently blasted prosecutors, accusing them of deliberately violating his rulings during the truncated first trial. But Judge Walton believes that governing law prevents him from barring retrial on Double Jeopardy grounds. The leading Supreme Court case is Oregon v. Kennedy, 459 U.S. 812 (1982), which holds that a mistrial granted upon the request of a defendant, even if necessitated by government misconduct, only bars retrial on Double Jeopardy grounds if the prosecution intended to goad the defendant into moving for a mistrial.
September 2, 2011 in Celebrities, Current Affairs, Defense Counsel, Investigations, Judicial Opinions, Legal Ethics, News, Obstruction, Perjury, Prosecutions, Prosecutors | Permalink | Comments (1) | TrackBack (0)
Friday, August 12, 2011
SEC's Dodd-Frank Whistleblower Regulations Take Effect Today. Corporate America Expects More FCPA Woes.
Politico has a story about it here. The new regs implement Section 21F of the Dodd-Frank Act, which authorizes the SEC to award 10 to 30 percent of the monetary sanctions it recovers in a given case to a qualified whistleblower. What seems to most annoy the business community about the implementing regs is the SEC's insistence that whistleblowers are under no obligation to make use of a company's internal complaint procedures before running to the SEC. But the regs do say that an employee who goes through internal company whistleblower protocols is eligible for a Dodd-Frank whistleblower award if his/her employer subsequently self-reports to the SEC, based on the whistleblower's complaint, and a recovery is had. Further, an employee has a 120-day grace period after whistleblowing to his/her company, within which to bring his/her complaint to the SEC. Finally, in determining the amount of a whistleblower reward, the SEC will consider whether the whistleblower made use of his/her internal company procedures. The new regs contain enhanced anti-retaliation provisions as well, which prohibit direct or indirect retaliation for making whistleblower complaints to the SEC and other government entities.
There is an inherent tension between the anti-retaliation provisions and the SEC's and DOJ's often-emphasized warnings to companies that they should have vigorous and authentic internal whistleblower procedures. What if a company's pre-existing compliance policy requires the prompt internal reporting of whistleblower complaints? Can a company punish an employee who ignores such a provision and goes straight to the SEC? What if the employee declines to internally report, even after going to the SEC, because he/she feels that the company procedure is a sham? My guess is that such punishments will occur and that they will be deemed to run afoul of the anti-retaliation provisions. The retaliatory response is an instinctiual, persistent, and virtually universal impulse. It is really hard to eradicate.
Monday, July 25, 2011
This weekend saw something unusual in the nation's elite newspapers. Three detailed stories about white collar crime issues.
WSJ Weekend carried this in-depth and outstanding piece by Gary Fields and John R. Emshwiller about overcriminalization--the proliferation of criminal statutes, particularly at the federal level, covering more and more aspects of everyday life. The article also focused on Congress's increasing enactment of statutes that dispense with any meaningful mens rea element. Although both of these problems have been around for years, and the article makes no effort to treat the matter historically, it does a generally good job of framing the issues.
Fields and Emshwiller detail how the Idaho U.S. Attorney's Office successfully prosecuted a father and son for attempting "to take artifacts off federal land without a permit" under the Archaeological Resources Protection Act of 1979. They were out camping and looking for arrowheads, which they failed to find, and apparently did not know that the law existed. According to Fields and Emshwiller, the Act "doesn't require criminal intent." This is true of the Act on its face, but the father and son clearly intended to search for arrowheads and did not have a permit. This case is really more an example of obscure administrative criminal statutes that no normal person can be expected to master. Hence it is terribly unfair in such circumstances to apply the old saw that "ignorance of the law is no excuse." But don't tell that to Idaho U.S. Attorney Wendy Olson. She will just answer that "[f]olks do need to pay attention to where they are."
The article also details how Olson's office convicted an inventor for abandoning covered chemicals under the Resource Conservation and Recovery Act. This was after the inventor had been acquitted in an Alaskan federal court for illegally shipping the same chemicals without proper labeling. Would this have been the proper occasion for the exercise of prosecutorial discretion? Not a chance. According to Ms. Olson, her "office will continue to aggressively prosecute" such crimes.
Meanwhile, on Friday, the Washington Post's David Hilzenrath wrote a story with the headline, Quandary for U.S. companies: Whom to Bribe? The piece purported to give both sides of the FCPA debate, but I found it slanted towards the DOJ view. While discussing the recent convictions in the Lindsey Manufacturing case, Hilzenrath never mentions that the Lindsey guilty verdicts are in serious doubt post-trial, with further briefing due from the parties and a federal district judge who has questioned the case and is angry at the government. Even more amazingly, Hilzenrath nowhere references the recently concluded 10-week jury trial in D.C. against the first wave of defendants in DOJ's heavily publicized African Sting FCPA bribery case. The trial resulted in a hung jury mistrial. According to one of the defense attorneys, Todd Foster, the main theme of the defense was that the FCPA was too complicated to be understood by the defendants. Yet this trial, occurring right under the Post's nose, was not deemed worthy of mention. Hat tip to Todd for bringing the article to my attention.
Finally, the Sunday New York Times focuses on Murdoch's Unlikely Ally, former New York City schools chancellor and DOJ Antitrust Chief Joel Klein, in an article by Jeremy Peters, Michael Barbaro, and Javier Hernandez. It is a very good story and remarkable for its focus on the mechanics of News Corporation's internal investigation. Instead of following the "best practice" and hiring an outside law firm to conduct the investigation and report to an audit or special committee controlled by independent outsiders, News Corporation is employing something of a hybrid. It has appointed Lord Anthony Grabiner as the internal investigation's "Independent Chairman." But Grabiner sat behind, and presumably advised, the Murdochs during last week's parliamentary testimony. Grabiner will report to Klein, a News Corporation executive and trusted Murdoch adviser who also sat behind the Murdochs. Klein will report to Viet Dinh, "an independent director on the News Corporation board," for whom I have enormous respect. The article quotes University of Delaware corporate governance expert Charles Elson to the effect that this arrangement "is not standard practice." It may be more standard than Professor Elson realizes. It is obviously not the best practice for ensuring a truly independent investigation. Virtually by definition, there is no way that such an investigation can be wholly and truly independent.
By the way, even an investigation conducted by outside counsel and reporting to the audit committee (or a specially created independent committee) may only be independent up to a point. Let's say that the investigation is completed and outside counsel submits a report to the audit or independent committee. What happens next? Is the Board of Directors required to follow the recommendations of the independent committee? If not, then what is the point of the process in the first place? But that is a topic for another day.
Monday, July 18, 2011
The National Association of Criminal Defense Lawyers (NACDL) issued a news release here titled "Legislation Would Enforce Government's Duty to Disclose Favorable Information to Accused." The essense is that it calls for new legislation. The press release states:
"To help ensure fairness in federal criminal proceedings, the Board of Directors of the National Association of Criminal Defense Lawyers (NACDL) has endorsed model legislation drafted by NACDL’s Discovery Reform Task Force that would require the government to disclose all information favorable to the accused in relation to any issue to be determined in a federal criminal case."
(esp)(disclosure that this author served on the committee working on this suggested legislation)
Sunday, July 10, 2011
It is hard to move businesses in different directions. I like to use the analogy of turning a ship around -- it takes time, dedication and a steady hand.
Corporate governance is shifting again. We had the revolution of Sarbanes-Oxley in the early 2000s and now we have a new movement afoot. It is no coincidence that aggressive changes in white collar enforcement coincide with significant changes in the corporate governance landscape.
The newest trend -- which I fully endorse -- is the creation of corporate compliance committees. For most businesses, a separate compliance committee is an effective means to focus on difficult compliance issues, demonstrate a management commitment to compliance, and facilitate communications on compliance issues within an organization. By establishing such a committee, a company sends a very clear message. But the committee has to be more than just window dressing -- it has to have the support, the resources, and dedicated members with real expertise in the compliance area.
I like to use another analogy -- a compliance committee is like your dashboard on your car, telling you how fast you are going, how much fuel you have, and allowing you to signal others on the road.
A compliance committee should help your company navigate your legal obligations by empowering your decision makers with the right information. It serves a proactive role, separate from the audit committee which has a number of critical obligations related to Sarbanes-Oxley enforcement.
The compliance committee is responsible for ensuring that the company is complying with key legal and regulatory obligations. It is your primary vehicle by which to manage risk.
The compliance committee must actively gather and disseminate information reporting on overall compliance efforts. It must also communicate compliance issues and business risks to the right people. The right people include responsible managers, who are directly responsible for significant day-to-day business decisions.
The compliance committee must include one or more independent members who understand the regulatory environment, as well as the principles of good governance. This has a number of advantages. The independent member can test reports and statements, and mine discussions for issues that may otherwise go uncovered; may be able to share broad industry information and trends; and is likely to be less susceptible to a company’s internal culture (which might be reluctant to discuss certain risks and violations).
A well-structured compliance committee is your ultimate protection against potential legal and regulatory violations. I encourage others to look at such committees as part of an overall compliance program.
Friday, July 1, 2011
Dominique Straus-Kahn has received from the district attorney what most defendants never get -- early Brady material. Today's New York Times reports that "Strauss-Kahn Case Seen as Near Collapse" because prosecution investigators have discovered "major holes in the credibility" of the housekeeper who claims he sexually attacked her.
The District Attorney should be commended for the early disclosure of the purported victim's credibility problems. I cannot help wonder, however, whether such disclosure would have been made -- certainly so early -- in a case where the defendant did not have such considerable legal and investigative firepower that it could be predicted that his team would itself eventually discover at least some of the victim's credibility problems. I also would love to know, and am sure I never will, what the discussions were in the prosecutor's office about whether and when to disclose this Brady material. In this connection, I also wonder whether the resignation of the head of the sex crimes unit a few days ago is just a coincidence.
Brady revelations by prosecutors are rarely easily made, especially when they are serious enough, as may well be the case here, to destroy the prosecution case. It goes against the grain for any competitor -- and most prosecutors are competitors trying to win -- to provide information that will hurt his case, let alone destroy it. And I have no doubt that at least some of the prosecutors involved in this case still firmly believe that Strauss-Kahn did sexually attack the housekeeper and that all this stuff about money laundering and the like is besides the point or, in legal parlance, immateriaL.
Experienced prosecutors know that they can almost always get away with Brady violations. The number of prosecutions or disciplinary actions against prosecutors for Brady violations is miniscule. Appellate courts are generally loathe to reverse convictions for anything but egregious Brady violations, generally finding that the withheld information was immaterial. There are certainly generally well-meaning prosecutors who would have withheld the exculpatory information here to increase their chances of achieving what they believe is the just result. And there are others less well-meaning, and far fewer, who would have withheld the information to advance their own careers.
Response by Professor Larry Ribstein here. (esp)
Friday, June 24, 2011
The Seventh Circuit on June 17 issued a ruling in a drug case that appears to have general applicability to criminal cases, including white-collar cases. In United States v. Freeman, 09-cr-4043, 2011 WL 2417091 (7th Cir., June 17, 2011), the Seventh Circuit affirmed a district court’s grant of a new trial on the ground that the prosecutors presented testimony of a key cooperating witness on the stand who they knew or at least should have known was lying. In that case, a defense lawyer, after reading the witness’s grand jury testimony, sent the prosecutors a letter stating that the defendant had been incarcerated at the time the witness claimed the defendant had participated in important events in the charged conspiracy. The prosecutors apparently failed to investigate this claim and called the cooperating witness, who testified falsely (the prosecutors did later stipulate that the defendant had been incarcerated at the time of the events the witness described).
The court’s opinion forcefully stated the prosecutor’s obligation to present accurate and candid information:
[T]he governing principle is simply that the prosecutor may not knowingly use false testimony. This includes "half-truths" and vague statements that could be true in a limited, literal sense but give a false impression to the jury.
The court went on, more remarkably, to impose a duty upon the government to investigate plausible allegations that a government witness’s expected testimony was false:
[I]t is obvious that when the government received the letter from [the defendant’s] attorney, it knew there were problems with [the witness’s] testimony – problems it should have cleared up well before [the witness] was allowed to testify . . . .
[W]hen the government learns that part of its case may be inaccurate, it must investigate. It cannot simply ignore evidence that its witness is lying. Here, the government abdicated its responsibility by failing to investigate . . . .(Citations omitted.)
The case is significant not so much for its statement that the government must not knowingly present false or misleading testimony, a rather obvious principle, but on its imposing on the government a duty to investigate a specific allegation that its cooperating witness had testified falsely or was about to testify falsely. Prosecutors, in white-collar and other cases, often wholly and uncritically accept the stories told by cooperating witnesses, particularly the first to "turn," regardless of the witness’s blemished background and huge personal motivation, and stubbornly cling to the belief the witness is telling the truth despite indications to the contrary. Too often consequently, prosecutors turn a deaf ear to substantial allegations brought to them by defense lawyers that their witnesses are lying. And perhaps too often defense lawyers, fearing that the prosecutors will not seriously investigate matters that will undermine their cases but rather will make efforts to minimize their significance, choose not to bring such information to the prosecutors’ attention.
This case suggests that a prosecutor who makes no effort to investigate a plausible allegation that a major government witness will give false testimony may imperil a conviction if it is later revealed that the witness lied, ordinarily not by itself grounds for reversal. At the same time it may indicate that a defense lawyer who chooses not to approach the prosecutor with evidence of a prosecution witness’s expected perjury and instead uses such evidence unsuccessfully at trial may weaken or undermine a post-trial motion based on that false testimony.
(Goldman)(hat tip Evan Jenness)
Thursday, June 16, 2011
NACDL's 1st Annual West Coast White Collar Conference, “Turning The Tables On The Government” – “Finding the Line: Ethical Considerations When Contacting and Interviewing Witnesses,” Thursday, June 16, 2011
Guest Blogger: Darin Thompson, Assistant Federal Public Defender, Office of the Federal Public Defender (Cleveland,OH)
Day One of the seminar concluded with a panel discussion of the various ethical pitfalls surrounding the interviewing of witnesses. Patrick Robbins moderated the discussion. The panel included Blair G. Brown, David Fechheimer, Nina J. Ginsberg, Marc S. Harris, and Steven Singer.
The panel first discussed hypotheticals involving a lawyer who first represents a company (through an audit committee) under investigation. Ms. Ginsberg pointed out the first potential conflict that lawyers face when interviewing employee witnesses under these circumstances is that the witness’s interests may be adverse to the company client. She further noted that such adverse interests would preclude dual representation as well. She discussed the burdens the model rules place upon lawyers interviewing witnesses. Model Rule 4.3 requires an explanation of the lawyer’s role, prior to interviewing, where the witness may be confused regarding the lawyer’s role, and that this explanation approaches that required by Miranda warnings. As Mr. Brown noted, these warnings are in the interest of the lawyer as well, as they will protect the company and the lawyer from subsequent motion, though he doubted that the warnings ever approach the standard of Miranda. The panel agreed that the overriding goal of representing the company by ferreting out information, and convincing the government that the company is being aggressive in its investigation, runs directly contrary to strong warnings. Marc Harris noted that it was common to demand cooperation from employee witnesses, upon threat of termination.
The panel discussed the problems presented by the question: “Should I get a lawyer?” Everyone agreed that the question required the lawyer to walk a fine line. The lawyer should not give the witness legal advice by opining whether a lawyer is a good idea, but must accurately answer that the witness has the option to get a lawyer.
The next hypothetical involved a lawyer advising an AUSA that he represents all current employees of the corporation and the current and former CFO and CEO, but the AUSA sends the agents to interview the employees. Mr. Brown started his response by cautioning against such blanket assertions of representation unless the facts truly warrant it. He continued by noting that the state ethics rules may provide the best barrier to this kind of conduct. The panel agreed, with Mr. Singer noted that many state ethics rules specifically include corporate employees as represented parties.
Marc Harris noted that another fine line exists when advising all employees of a company that they need not talk to agents, and that flatly advising against it may constitute obstruction of justice. Ms. Ginsberg further cautioned that it created an impression on the part of the employees that they are being represented. Mr. Brown noted that Model Rule 8.4 allows a lawyer to advise a client’s employee not to talk to an adverse party.
One questioner noted that the trend toward “hyper-co-operativity” on the part of companies has only aggravated the problems faced by the employees on the other side of the hypotheticals discussed.
Another questioner asked about government pressure to not interview government witnesses. Mr. Singer commented that such efforts to intimidate the defense must not be allowed to succeed, and discussed taking steps to protect oneself during those scenarios, i.e., having multiple people present for any interviews.
The final hypothetical involved a grand jury witness taking the 5th Amendment privilege to protect another individual and advising the lawyer he was doing so. Mr. Harris indicated that this is not problematic, but, advising a witness to do so might constitute obstruction of justice, especially if that advice was motivated by a desire for financial gain by securing further employment by the corporation at issue.