White Collar Crime Prof Blog

Do You Really Need Five DOJ Lawyers to Prosecute John Edwards

A key problem when a DC Prosecution team is sent in to investigate and perhaps indict on conduct, is that they examine the conduct out of the context of the typical case seen in the local U.S. Attorneys' Office.  They don't see the run-of-the-mill drug, immigration, or fraud case that typically comes through the U.S. Attorneys' Office. They become champions of a single or multiple case that they investigate, and with a single lens proceed or not proceed with their cause. 

One has to wonder if this may be playing a part in the John Edwards prosecution.  Mike Scarcella, over at the BLT Blog, notes here that the Public Integrity prosecutors are teaming up with some local prosecutors in this case. But it seems according to his blog entry that "a former chairman of the Federal Election Commission," is saying that the alleged activity is not criminal - and is not even a civil violation.

Whether the prosecutors, or Edwards and his defense team and others, are correct on whether this is a crime or even civil violation, is only half the problem. The other half is why are five lawyers from the department of justice working on an alleged election violation case.  There is some real crime out there - even some real white collar crimes like identity theft and credit card fraud.  Wouldn't our tax dollars be better spent on this?

(esp)   

The Cost of Cooperation

Is the cost of cooperation really worth it?  In some instances you get a 5K1.1 motion that offers a reduction in sentence for substantial assistance.  In some cases you get the benefit of arguing to the court for a lower sentence.  And in some matters, it may even provide a basis for a non-prosecution. 

But what does this all mean for the person cooperating?  What are the internal costs that this person suffers? This sad story tells it all - Peter Lattman & William K. Rashbaum, NYTimes, A Trader, an F.B.I. Witness, and Then a Suicide

(esp)

EVA Airways Corporation Agrees to Plead Guilty

A DOJ Press Releasereports that "EVA Airways Corporation has agreed to plead guilty and to pay a $13.2 million criminal fine for its role in a conspiracy to fix prices in the air cargo industry."  The press release states that "[u]nder the plea agreement, which is subject to court approval, EVA has agreed to cooperate with the department’s antitrust investigation."  This sometimes means that indictments will follow against some individuals in the corporation.

(esp)

Dog Bites Man. Rajaratnam Guilty On All Counts.

Read all about it. Here is Katya Wachtel's report for businessinsider.com. Carrie Johnson of NPR's All Things Considered discusses the deterrent effect of Wall Street wiretaps in Wiretaps: Not Just For Mob Bosses Anymore, with a quote thrown in from yours truly.

(wisenberg)

20th Annual National Seminar on Federal Sentencing Guidelines - Corporate Plea Negotiations and Sentencing

This panel was moderated by Jeff Ifrah (Ifrah Law), with AUSA Arlo Devlin-Brown (SDNY) and Steven Bunnell (O'Melveny & Myers) as speakers.  After the typical DOJ disclaimer that he was not speaking on behalf of DOJ, AUSA Devlin-Brown said that monitors are still in use.   Monitors, he said, are usually selected by the US Attorney, but getting input in the selection from defense counsel is something done in some cases. The panelists spoke about the lack of attorney-client privilege with the monitor.  Steven Bunnell  spoke about how expensive monitors can be. One of the items discussed is how the scope of the monitorship is negotiated.  

Steven Brunnell noted that corporate plea bargaining is a kind of begging. The corporate reputation is important. Sentencing guidelines are usually not a direct concern.  AUSA Devlin-Brown noted how the collateral consequences of charging a corporation, make a difference (I call that the Arthur Andersen effect). As a result both sides try to reach a settlement. He also spoke about the delicate interests of parallel proceedings.

Hypotheticals were used to consider some of the issues.  For example, what is the government view of the corporation indemnifying the CEO?  How do you deal with employee resistance?  One thing was clear from each hypo - the government has a lot of power.

My commentary - One topic discussed during this panel discussion concerned the level of trust between the corporation's attorney and the DOJ. It seemed to make a difference. But I have to ask the academic question -- should the trust between the private attorney and DOJ be a factor in how things progress in a criminal investigation? It is always interesting to see DOJ looking for consistency in sentencing, but then having individual US Attorneys and AUSAs making decisions on different aspects of a case that will be inconsistent based upon the AUSA or the defense attorney handling the matter.

(esp)

Discovery

Check out David Markus' op ed on discovery here. The last line is a classic -

"Perhaps the Department of Justice would like to amend the plaque found in federal courtrooms that reads: "We who labor here seek the truth" with the addition, "only if we think it is material."

(esp)

En Banc Petition Filed in Norris case

The Third Circuit recently ruled in a closely watched case, on the issue of whether corporate counsel had in fact represented an individual within the corporation and as such the attorney-client privilege should apply.  (see here) The unpublished opinion of the court found no error on the part of the district court.  Counsel for Appellant Norris has now filed for a rehearing en banc.   Three issues are presented in this Petition:

 "I. The Panel Decision Squarely Conflicts With Shramm, Arthur Andersen, and Aguilar as to the Requisite Specific Intent for a Conspiracy to Obstruct a Grand Jury Proceeding;

 II.The Panel Decision Squarely Conflicts with Farrell's Holding that 'Corrupt Persuasion' Does Not Include Persuading an Alleged Co-Conspirator to Withhold Incriminating Information;

III. The Panel Decision Misapplied Bevill to Permit the Evisceration of a Corporate Officer's Personal Attorney-Client Privilege."

Petition for Rehearing En Banc - Download 2011-04-06 Petition for Rehearing En Banc

(esp)

Commentary on Court Dismissal of Indictment Against Former VP & Associate General Counsel of GlaxoSmithKline

Check out - Sue Reisinger, Corporate Counsel, She Asked, Counsel Told: Case Against Glaxo Attorney Is Dismissed

The former VP and Associate General Counsel of GlaxoSmith Kline had been charged with a 6-count Indictment for the alleged crimes of obstruction (1512), falsification and concealment of documents (1519) and false statements (1000). The Indictment against Lauren Stevents has now been dismissed, but it is without prejudice.

Stevens claimed a defense to the charges of advice of counsel in her responses to the FDA's inquiry. The government response was that 18 USC 1519 is a general intent crime and therefore a "good faith reliance on advice of counsel is only a defense to specific intent crimes." 

The court did not agree with the government, citing applicable sources that provide a solid basis for its holding.  My take is that the statute clearly is requiring two intents - to "knowingly alters, destroys, multilates, conceals, coversup, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impeded, obstruct, or influence the investigation ....."  With two intents it seems clear that one should use specific intent here. 

But what is more questionable here is that the government thinks that specific intent should not be required here.  Should you really prosecute someone who may not have had the specific intent to do these alleged acts?  Will this achieve the deterrence from criminality that we desire?  Irrespective of whether one accepts the government's claim that advice of counsel is an affirmative defense or the defense and court position that it negates the mens rea, is prosecution of this alleged conduct the way we want to spend valuable tax dollars?

This case is a perfect example of how we are failing to use our resources wisely.  Do we really need to spend money prosecuting folks who may not have complied with a government discovery request properly? Or would the money be better spent using it for educating lawyers and others of how to respond to government inquiries correctly.  And what happens if we turn the tables - should we start prosecuting Assistant United States Attorneys who do not comply with constitutional requirements of discovery, or would our resources be better spent educating them of the importance of upholding these constitutional rights. 

Bottom line - don't refile this case. 

(esp) 

Addendum - See here

DOJ Says "Arrests Follow Largest Corporate Fraud Investigation" for Indiana

A DOJ Press Release says: "Three former executives of Fair Financial Company, an Ohio financial services business, were arrested today and charged in an indictment filed in the Southern District of Indiana for their roles in a scheme to defraud approximately 5,000 investors of more than $200 million."  The press release also states that "'These arrests follow the largest corporate fraud investigation in the history of the FBI in Indiana which resulted in over 5,000 victims and an estimated loss of $200 million dollars,'said Special Agent in Charge Welch."

Indy.com here.  Check out the picture - Was a perp walk really necessary in a case like this?

Indictment - Download Durham

(esp)

Government Withdraws Objection to the Filing of Amici Briefs in Rubashkin Case

Blogged here was a discussion of the initial government response to amici filing briefs in the Rubashkin case.  It is nice to see that the government has now withdrawn its objection to the filing of these briefs. Govts. Withdrawal of Objection - Download Government withdrawal of objection As previously stated, amici briefs serve an important function and courts often rely on amici to present matters that need to be addressed in a case.   So it is good to see the government - acting as "ministers of justice" - and having trust in the courts  to hear and read everything.

(esp)

First Indictment Returned In Upper Big Branch Mine Investigation

The government has unsealed the Hughie Elbert Stover Indictment in the Southern District of West Virginia. Stover is charged with one count of 18 U.S.C.Section 1001 false statements and one count of 18 U.S.C. Section 1519 concealment, mutilation, and destruction of records and documents. This is the first indictment coming out of the government's investigation of the 2010 Upper Big Branch Mine explosion in Montcoal, West Virginia. The charges do not appear to be directly related to the explosion itself, which may account for the relative restraint of the well-crafted speaking indictment and DOJ's Press Release on Hughie Stover. Stover, head of security for Massey subsidiary Performance Coal Company, Inc., is accused of lying to federal investigators by stating that: 1) Performance security guards were forbidden to give advance warning of Mine Safety and Health Administration ("MSHA") Inspectors' presence at the mine; and 2) he would fire any guard who gave such advance notice. According to the indictment, Stover actually devised the system under which advance notice of MSHA Inspectors' presence was quickly relayed through the mine via a mine communications channel. Stover is also accused of directing an employee to destroy records of the warning system. Section 1519 was enacted as part of Sarbanes-Oxley. The indictment nowhere mentions Massey Energy or the explosion itself. The press release does, including quotes from U.S. Attorney Booth Goodwin and Assistant Attorney General Lanny Breuer. Therefore, the press release clearly goes beyond what is in the indictment. I am generally not a fan of broad speaking indictments or lengthy press releases that announce indictments. But here, as mentioned, the indictment, although speaking, is restrained and well-crafted. The purpose of the relatively brief press release is to send a message that any obstruction of an important ongoing investigation will be swiftly and ruthlessly punished. In this regard, it is important to note that both the alleged false statements and the alleged records destruction occurred in January of this year. To me, this is one of the very few valid reasons for any kind of an extended press release announcing an indictment--that is, to send a message that obstruction of a major ongoing investigation will not be tolerated and that those who engage in it will pay a price. Press reports indicate that Stover was arrested at his home. This was unfortunate and unfair. Stover is innocent until proven guilty and, as Stover's Conditions of Pretrial Release indicate, nobody considers him a flight risk or danger to the community. He was released on an unsecured $10,000.00 bond.

(wisenberg)

 

Grand Juries Are Not For Trial Preparation

In a case pending and set for trial in March in the Central District of California, with allegations of FCPA and money laundering violations, DOJ prosecutors are seeking to start another grand jury investigation of the defendants. Lawyers for the defendants cried foul and moved to quash five subpoenas calling for testimony today. As a result, the federal judge presiding over the case imposed stringent conditions on any use of the grand jury by DOJ prosecutors. 

A grand jury is not to be used for "strengthening [a] case on a pending indictment or as a substitute for discovery." (Beasley, Simels, Arthur Andersen).  Prosecutors claimed that their purpose in questioning these witnesses, all current employees of the company under indictment, was for a "new" investigation. Interestingly, the filings show that this "new" grand jury investigation came immediately after DOJ prosecutors were denied access to the employees for pre-trial, witness preparation interviews.

Defense lawyers Jan Handzlik and Janet Levine also argued that the DOJ prosecutors were "manufacturing" a new investigation to create reasons to postpone the trial, set for March 29th. They suspected the government would seek a superseding indictment leading to a trial continuance. Prosecutors disagreed and filed an under seal, in camera declaration to justify the new investigation.

US District Judge Howard Matz denied the defense motion to quash the grand jury subpoenas, but issued an order that handed the DOJ prosecutors what some of us consider to be a stinging defeat. He placed conditions on what the government could do if it chose to proceed with its "new" investigation, stating in part:

(1) At the upcoming trial, the Government may not proffer or refer to any newly obtained evidence derived from the testimony of any witness before any grand jury session conducted after the return of the First Superseding Indictment on October 21, 2010. . . .

(2) The Government may not, and shall not, question any witness about any business and financial relationship that the [defendant ] Company had with [other individuals and entities named in the pending indictment]

(3) The Government may not, and shall not, question any witness about any of the other events that directly form the basis for the charges contained in the first superseding indictment.

(4) The Government shall file under seal a transcript or transcripts of the grand jury testimony it obtains from the aforementioned witnesses, and it shall do so by not later than one week before the start of trial, and

(5) The Government may not point to or rely on whatever evidence it obtains at the upcoming grand jury sessions to seek or obtain a continuance of the trial date.

Defense counsel in this case are Jan L. Handzlik (Greenberg Traurig LLP) and Janet I. Levine (Crowell Moring).

See Court's Order - Download Matz min order re GJ

See also Richard Cassin, FCPA Blog, Sparks Fly Before LA Trial

(esp)

Professional Misconduct Review Unit

Attorney General Eric Holder announced a new Professional Misconduct Review Unit (see press release) that will "handle disciplinary actions for career attorneys at the Department of Justice that arise from Office of Professional Responsibility (OPR) investigations."  The new chief of this unit is Kevin Ohlson. The press release states that "[t]he Professional Misconduct Review Unit (PMRU) will be responsible for all disciplinary and state bar referral actions relating to OPR findings of professional misconduct against career attorneys."

When a criminal defense attorney commits "intentional or reckless" professional misconduct, they can find themselves the subject of a bar disciplinary action.  When a US Attorney or his or her assistant engages in such conduct, what happens?  They are subject to the disciplinary rules, but there are few cases of prosecutor discipline. One has to wonder if this new review unit is an attempt to make sure that there are fewer disciplinary actions.

See also Mike Scarcella, BLT Blog, DOJ Creates Professional Misconduct Review Unit

(esp) 

Speech and Debate Clause Hampers DOJ

Boo hoo. The Washington Post has a good article here, by Jerry Markon and R. Jeffrey Smith, about the Constitution's Speech and Debate Clause, and the various ways in which it is hampering DOJ corruption probes. Unfortunately, the article implies that certain high-profile cases were dropped primarily or solely because of Speech and Debate. This unfairly maligns the named lawmakers and/or former lawmakers in question, and makes it seem that they were let off on a technicality. That damned technical Constitution--always getting in DOJ's way. In fact, the very idea that DOJ wiretapping of House members was, until recently, considered a legitimate and entirely appropriate law enforcement tool is a testament to how out of whack the balance of powers between the Legislative and Executive Branches has become. Congress finally woke up and smelled the coffee and, with an assist from the DC Circuit in U.S. v. Rayburn House Office Building, is resisting Exective Branch encroachment on its institutional powers. 

(wisenberg)

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

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

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

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

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

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

(wisenberg)

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

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

(wisenberg)

Government Investigations

A government investigation, especially one in the white collar sphere, is extremely difficult on the individual and his or her family.  It makes no difference which side one is on - the criminal defendant being investigated or the government investigating its own.  Everyone needs to recognize this. It is so very sad to see a headline that reads Prosecutor in Failed Ted Stevens Corruption Case KIlls Self (article by Erika Bolstad - McClatchy Newspapers)

(esp)

Fraud Rules the Roost in FBI Press Release Count

I believe that I subscribe to every DOJ press release service pertaining to federal criminal law. My favorite press releases to read are those put out by the FBI. World class self-promoters, the folks at the Bureau like to brag every time one of their investigations results in an arrest, indictment, guilty plea, trial conviction, or sentence. Following the FBI's press releases can give you a quick, informal, and unscientific sense of what's hot and happening in federal law enforcement--at least according to the FBI. Yesterday, the Bureau issued 19 press releases related to specific federal criminal cases. Fraud is in first at 8 press releases. Robbery comes in a strong second at 5. Child pornography is third with 2. Piracy, stolen firearms, stolen cars, and prescription drug abuse limp in at 1 each. White collar crime rules the roost. We're number one!

(slw)

Feds are armed and dangerous in BP criminal investigation

Guest Blogger - Dan Cogdell  

As the Justice Department prepares a grand jury investigation of possible crimes involved in the BP oil spill, ex-CEO Tony Hayward is looking smarter for leaving this country for reasons beyond his lack of popularity. 

Multiple indictments are likely to be sought, charges could reach well up the corporate ladder and British citizens who are not in this country when indicted might have protection from “double criminality,” which prevents extradition unless the same action is a criminal offense in both countries. It’s very possible the Justice Department will stretch the envelope and that could put their use of U.S. laws in a place not covered by European Union law.

There is no question the federal government is taking dead aim at environmental crimes in the BP oil spill or that the legal artillery is formidable. Federal prosecutors were already ramping up their environmental crime filings before the Deepwater Horizon started spewing oil into the gulf. Now, with massive public pressure, this could be the environmental version of the Enron prosecutions.

This week (8/23-8/27) the U.S. Coast Guard and the Interior Department are holding hearings in Houston to further investigate the BP disaster. Witnesses who invoke the Fifth Amendment may not look like team players, but they will be taking the smartest path.

Expect prosecutors to take fullest advantage of the powerful and far-reaching tools they have available. Expect them to issue more than just wrist slaps and corporate fines out of the Refuse Act, the Migratory Bird Treaty Act and the Clean Water Act. Expect them to seek jail time. There is a lot going in their favor.

Prosecutors will most assuredly rely on the “Responsible Corporate Officer Doctrine,” which allows Clean Water Act violations to be directed at even top corporate officers. Prosecutions under this theory have resulted in convictions of people who were not even at work sites and, in one case, not even working for a company but had “honorary power.” (See United States v. Hanousek, 176 F. 3^rd 1116 (9^th Cir. 1999), cert. denied, 528 U.S. 1102 (2000), and United States v Brittain, 931 F2d 1413 (10^th Cir. 1991)) The “Responsible Corporate Officer Doctrine” may be the prosecutor’s ticket to tag BP’s hierarchical elite while soothing the related political nightmare currently facing the U.S. government.

In a Clean Water Act misdemeanor case, the government does not have to prove that anyone intentionally caused this enormous harm. Negligence is a comfortably lower bar for these prosecutors. And this isn’t BP’s first rodeo. A company culture that prosecutors contend encourages money-saving over safety has landed BP in the government’s sights time and time again, and will only bolster the prosecutor Howard Stewart’s efforts.

Whether BP employees or contractors believe they are targets or not, they must balance the idea of seeing justice done with protecting themselves and their employer. Taking the Fifth at this point may be the least popular but most prudent move.

Dan Cogdell is a Houston-based criminal defense attorney with Cogdell & Ardoin who has represented numerous clients in environmental and white-collar criminal cases.

(DC)

Roger Clemens Indicted

The Washington Post story is here and has a link to the indictment. Nothing yet up on PACER. Clemens is charged in six counts with perjury, false statements, and obstruction of Congress.

(slw)