Thursday, December 3, 2015
The New York Times reported today (Goldstein, "Witness in Insider Trading Inquiry Sentenced to 21 Days, see here) what it called a "surprising" 21-day prison sentence imposed by Judge P. Kevin Castel upon a felony conviction broke "what has been the standard practice" in insider trading cases in the Southern District of New York. Anyone not familiar with the customs of that court's prosecutors and judges might think that such a sentence was out-of-the-ordinary lenient. However, as the article makes clear, that sentence, for a major cooperator, was apparently considered out-of-the-ordinary harsh.
The defendant, Richard Choo-Beng Lee, was a California hedge-fund owner who, after being approached by FBI agents with evidence that he (and his partner, Ali Far, who was later sentenced to probation by a different judge) had broken securities laws, cooperated with the government by recording 171 phone calls with 28 people, including Steven A. Cohen, DOJ's no. 1 target, who has not been indicted (although his firm, SAC Capital Advisers, was and pleaded guilty and paid a multi-billion dollar fine).
New York City is the cooperation capital of the world. As the Times article indicates, cooperators in white-collar (and other) cases in the Southern District of New York are given considerable benefits for cooperating (far greater than in most jurisdictions) and the default and almost uniform sentence for them is probation and not jail. To be sure, cooperators make cases, and many of those cases and the individuals charged would go undetected without cooperators looking to provide assistance to the government to lessen their own potential sentences.
However, the cooperation culture in New York has many deleterious consequences. To the extent that deterrence is achieved by jail sentences (and I believe it is in white-collar cases, but not in many other areas), its effect has been minimized. The clever white-collar criminal (and most but not all are intelligent) knows that he has in his pocket a "get-out-of-jail card," the ability to cooperate against others and get a non-jail sentence. The mid-level financial criminal can commit crimes, enjoy an outrageously lucrative, high-end life style, and, when and if caught, cooperate, stay out of jail and pay back what assets, if any, remain from his wrongdoing.
Knowledgeable white-collar defense attorneys are well aware of the benefits of cooperation. It is often good lawyering to urge cooperation, at times even in marginal cases, to avoid jail sentences. Indeed, more than a a trifling number of those who plead guilty in white-collar cases are actually innocent, often because they lack the requisite mens rea (a difficult, even when accurate, defense). And sometimes, at the urging of their lawyers, they admit guilt and tailor their stories and testimony to what the prosecutors and agents (who usually see only the dark side of equivocal facts and circumstances) believe actually occurred so that others actually innocent are convicted (or also choose to plead guilty and perhaps cooperate against others). The bar for indictment and conviction has been lowered. The adversary system has been turned sideways, if not upside-down.
To many, probably most, lawyers, cooperation is personally easier than going to trial. Cooperation avoids the stress of battle and the distress of (statistically probable) defeat at trial. No longer do lawyers walk around with "no-snitch" buttons. The white-collar bar has become generally a non-combative bar. To the extent it ever had one, it (with notable and not-so-notable exceptions) has lost its mojo. The first (and often only) motion many lawyers make upon being retained is to hail a taxi to the prosecutor's office.
I write about the role of the bar as a lament more than a criticism. I too represent cooperators when I think cooperation is to their benefit. There is a great penalty (or, to put it gently, "loss of benefit") for not cooperating. Those accused who choose not to cooperate, or those whose own scope of criminality and knowledge of wrongdoing of others is so limited that they cannot, receive (in my opinion sometimes, but far from usually, appropriate) severe jail sentences. Those who cooperate, except for the unfortunate Mr. Lee, almost always avoid jail.
Lawyers and professors talk about the "trial penalty," the extra, often draconian, prison time one receives for exercising his right to trial. The principal "penalty" in white-collar cases is not the trial penalty, but the "non-cooperation penalty." Even those who choose not to go to trial and plead guilty are punished much more severely than those who cooperate.
Sunday, September 20, 2015
Guest Blogger - Erin Okuno Foreman Biodiversity Fellow, Institute of Biodiversity Law and Policy, Stetson University College of Law
Recently, the U.S. Court of Appeals for the Fifth Circuit overturned convictions under the Migratory Bird Treaty Act ("MBTA") and the Clean Air Act ("CAA") in the case of United States of America v. CITGO Petroleum Corp., Case No. 14-40128 (5th Cir. Sept. 9, 2015). The U.S. District Court for the Southern District of Texas had previously found CITGO Petroleum Corp. and CITGO Refining and Chemicals Company, L.P. ("CITGO") guilty of three counts of violating the MBTA for "taking" migratory birds because birds (including pelicans, ducks, and cormorants) had died in uncovered equalization tanks at CITGO’s petroleum refinery. A jury had also found CITGO guilty on two CAA counts. The district court issued a $15,000 fine for each violation of the MBTA and a $2 million fine for the CAA violations. CITGO appealed, and the Fifth Circuit reversed the MBTA and CAA convictions.
In reversing the MBTA convictions, the Fifth Circuit focused largely on the definition of "take" under the MBTA and concluded that "the MBTA’s ban on ‘takings’ only prohibits intentional acts (not omissions) that directly (not indirectly or accidentally) kill migratory birds." As noted by the court, under the MBTA, it is "‘unlawful at any time, by any means or in any manner, to pursue, hunt, take, capture, kill, attempt to take, capture, or kill . . . any migratory bird,’ in violation of regulations and permits." The Fifth Circuit reasoned that while Congress had expanded the definition of "take" in both the Endangered Species Act ("ESA") and the Marine Mammal Protection Act ("MMPA"), it had not done so in the MBTA. A "take" under the ESA and the MMPA includes terms ("harm" and "harass") that encompass negligent acts or omissions, but these terms are not included in the MBTA’s "take" definition. Instead, the Fifth Circuit determined that the MBTA applies a more limited common law definition of "take."
Those who violate the MBTA are subject to strict liability, but a circuit (and district) split exists about the scope of liability under the act. The Fifth Circuit joined the Eighth and Ninth Circuits by focusing on the meaning of "take" and concluding that "a ‘taking’ is limited to deliberate acts done directly and intentionally to migratory birds." The court chose not to follow the Second and Tenth Circuits’ broader interpretations, which did not focus on the meaning of "take": the Fifth Circuit disagreed "that because misdemeanor MBTA violations are strict liability crimes, a 'take' includes acts (or omissions) that indirectly or accidently kill migratory birds." It was the Fifth Circuit’s position that the Second and Tenth Circuits had confused mens rea and actus reus. As the court explained, a strict liability crime does not require mens rea, but an actus reus is still required to hold a defendant criminally liable.
The district court had also distinguished this case from other MBTA oil field cases because CITGO’s underlying conduct violated the CAA and state law. The Fifth Circuit rejected this argument, explaining that the MBTA provides no basis for such an argument, but even if it did, the Fifth Circuit held that CITGO had not committed a CAA violation (and CITGO was not charged or convicted of any state law crimes). The court concluded its MBTA discussion by suggesting that a broader interpretation of the statute would lead to absurd results, such that people who own windows, power lines, cars, and domestic cats could be potentially liable for misdemeanors under the MBTA. Interpreting the statute more narrowly and relying on a limited common law meaning of "take," the Fifth Circuit reversed CITGO’s MBTA convictions.
A few thoughts:
- The Fifth Circuit’s decision about the scope of criminal liability under the MBTA further contributes to the split on this issue. The Fifth Circuit may have interpreted the MBTA narrowly, but other circuits have been, and may be, willing to interpret the statute more broadly, which could have serious implications for companies operating in those circuits. The statute’s effectiveness in preserving migratory birds could also vary circuit to circuit.
- What effect might the Fifth Circuit’s interpretation of "take" under the MBTA have on other courts’ interpretations of the term under the ESA and the MMPA? Although the Fifth Circuit distinguished the use of the term in the MBTA from the ESA and the MMPA, it is conceivable (although probably unlikely) that another court could find the Fifth Circuit’s reasoning persuasive and interpret the term under the ESA and MMPA a bit more narrowly. Conversely, a court could also use the Fifth Circuit’s distinction to bolster an even broader interpretation of the term under the ESA and MMPA.
- Will the Fifth Circuit’s reasoning about strict liability and the mens rea/actus reus distinction have any implications for other environmental statutes that contain strict liability provisions, such as the Clean Water Act?
Thursday, September 3, 2015
Earlier this year, the Wall Street Journal ran an interesting story about several cases in which U.S. courts refused to recognize the attorney-client privilege for communications between in-house counsel and overseas companies. The article focused on two cases in particular – Wultz et al. v. Bank of China Limited and Anwar et al. v. Fairfield Greenwich Limited.
Just recently, Janet Levine, Gail Zirkelbach, Derek Hahn, and Danielle Rowan wrote an article in the Summer 2015 edition of the ABA CJS Criminal Justice magazine on the topic of The Evolving Landscape of Legal Privilege in Internal Investigations. Along with the Bank of China case, the article provides summaries of three other cases involving the privilege issue during internal investigations – In re Kellogg Brown & Root, Inc. (KBR) (previously discussed on this blog here and here), Wal-Mart Stores, Inc. v. Ind. Elec. Workers Pension Trust Fund IBEW (previously discussed on this blog), and Paterno v. NCAA).
As an update to the above excellent reads, it is important to note that the U.S. Court of Appeals for the District of Columbia recently released another opinion in the KBR matter. This opinion vacated additional orders by the District Court that would have required KBR to turn over the materials at issue in the case. See In re Kellogg Brown & Root, Inc., -- F.3d –, 2015 WL 4727411 (August 11, 2015).
According to the appellate court in the new KBR opinion:
More than three decades ago, the Supreme Court held that the attorney-client privilege protects confidential employee communications made during a business’s internal investigation led by company lawyers. See Upjohn Co. v. United States, 449 U.S. 383, 101 S. Ct. 677, 66 L. Ed. 2d 584 (1981). In this case, the District Court denied the protection of the privilege to a company that had conducted just such an internal investigation. The District Court’s decision has generated substantial uncertainty about the scope of the attorney-client privilege in the business setting. We conclude that the District Court’s decision is irreconcilable with Upjohn. We therefore grant KBR's petition for a writ of mandamus and vacate the District Court's March 6 document production order.
The issue of attorney-client privilege in the internal investigation context is one that is growing in both complexity and significance. Keep an eye out for more court decisions on this issue in the future as companies, attorneys, and courts struggle to find a balance in today’s complex legal and business environment.
Wednesday, July 22, 2015
John Quincy Adams and Henry Clay can rest quietly in their graves. Their "corrupt bargain" would not be considered a federal crime today. The same goes for Ike and Earl Warren. In United States v. Blagojevich, decided yesterday by the Seventh Circuit and discussed here by contributing editor Lucian Dervan, the panel vacated five counts of conviction based on partially faulty jury instructions. Under those instructions, the jury could have convicted the former Illinois Governor based on his attempt to obtain a Cabinet seat in the incoming Obama Administration in exchange for appointing Valerie Jarrett to President Obama's soon-to-be-empty Senate seat. This was just logrolling and Judge Easterbrook and his colleagues were having none of it. "It would be more than a little surprising to Members of Congress if the judiciary found in the Hobbs Act, or the mail fraud statute, a rule making everyday politics criminal." The same was true of the Government's efforts to shoehorn the Cabinet seat/Jarrett offer into 18 U.S.C. 666--the notorious mark of the beast. Altogether a sound public policy decision, although the statutory analysis is not as clear cut.
Tuesday, July 21, 2015
The Seventh Circuit has overturned five of 18 counts against former Illinois Governor Rod Blagojevich. While the government could pursue a third trial on the overturned counts, it is more likely that the former Governor will simply be re-sentenced on the remaining convictions. It is unclear whether the ruling will result in a different sentence for Blagojevich, who was sentenced to 168 months in prison after his conviction in 2011. Judge Frank Easterbrook, writing for a unanimous three judge panel, wrote, "It is not possible to call the 168 months unlawfully high for Blagojevich's crimes, but the district judge should consider on remand whether it is the most appropriate sentence." Blogojevich will not be released awaiting his re-sentencing on the counts. The Appellate Court stated, "Because we have affirmed the convictions on most counts and concluded that the advisory sentencing range lies above 168 months, Blagojevich is not entitled to be released pending these further proceedings."
Tuesday, June 9, 2015
Three years ago, I wrote a lengthy blog piece about U.S. v. Daguerdas, a case in which a SDNY judge ordered a new trial for three of four defendants because of juror misconduct. ("Lying Juror Requires New Trial in Tax Fraud Case," July 12, 2012). The judge denied a new trial for the fourth defendant, Parse, because his lawyers, said the judge, knew or should have known of the juror's misconduct and chose not to report it to the court, and thus Parse waived the misconduct. On appeal to the Second Circuit, U.S. v. Parse (13-1388, June 8, 2015)), the Court, with Judge Amalya Kearse writing the majority opinion, reversed Parse's conviction and remanded for a new trial as to him also.
The Court spent a considerable time reviewing the record to conclude that the district court's factual findings (by Judge William Pauley) that prior to the verdict the lawyers knew about the misconduct or failed to exercise due diligence to determine whether it had occurred was "clearly erroneous" and "unsupported by the record." This ruling, with which Judge Chester Straub, while concurring in the reversal, disagreed, I am sure gave some measure of relief to the trial lawyers, from the firm of Brune and Richard, whom Judge Pauley had chastised. Those lawyers appeared to have been faced with the difficult dilemma of whether and when a lawyer is obliged to report suspected misconduct by a trial participant that is likely to be favorable to her client and to have chosen not to report something that would have diminished his (and their) chance of winning. (It is also possible that during the heat and travail of trial the lawyers never focused on the reporting issue.)
This ethical/practical dilemma arises, for instance, when an attorney suspects or believes - but lacks actual knowledge - about trial misconduct, whether minor misconduct such as a juror engaging a defendant in casual conversation outside a courtroom despite a court admonition, or major misconduct such as a witness or defendant perjuring himself. Reporting the misconduct would likely result in removing a potentially favorable juror in the first example and in striking favorable testimony and severely limiting the defense in the second, in both cases lessening the client's (and attorney's) chance of a favorable outcome.
The Court declined to adopt a general rule, as requested by the defendant and amicus New York Council of Defense Lawyers, that lawyers (including prosecutors presumably) need not bring juror misconduct to the attention of the court unless counsel actually knew that such misconduct had occurred. Nonetheless, I suspect lawyers will cite the case for that specific proposition and the broader proposition that lawyers need not report any trial misconduct unless they have actual knowledge.
Interestingly, the extensive, case-specific factual analysis about the extent of the attorneys' knowledge of the juror's misconduct was unnecessary to the Court's decision, as both the two-judge majority and concurring opinions demonstrated. Even assuming the district court was correct in its negative evaluation of the attorneys' conduct, the Court found the denial to Parse of his basic Sixth Amendment right to an impartial jury by the improper presence of the lying juror was so significant that it could not be, as the district court had found, "waived" by the lawyers' conduct, and warranted reversal.
Wednesday, April 22, 2015
An en banc decision of the Ninth Circuit, United States v. Bonds, reverses the obstruction of justice conviction against then professional baseball player Barry Bonds finding insufficient evidence of materiality under the statute, 18 U.S.C. s 1503. The decision is per curiam, with several concurring opinions, and one dissent.
Hon. Kozinski, joined by Judges O'Scannlain, Graber, Callahan, and Nguyen commence with a single question - "Can a single non-responsive answer by a grand jury witness support a conviction for obstruction of justice under 18 U.S.C. s 1503? In answering this question, they speak about how "[s]tretched to its limits, section 1503 poses a significant hazard for everyone involved in our system of justice, because so much of what the adversary process calls for could be construed as obstruction." They continue to state that "[b]ecause the statute sweeps so broadly, due process calls for prudential limitations on the government's power to prosecute under it." The limitation they place is a requirement of materiality. They find materiality lacking here.
The next concurring opinion also speaks to a requirement of materiality, finding that "a single truthful but evasive or misleading statement can never be material." Hon. Reinhardt's concurring opinion simply says that a single non-responsive answer by a grand jury witness cannot support a 1503 conviction.
And although Hon. Fletcher disagrees with the rationale, focusing on the word corruptly in the statute finds it insufficient here.
Only Hon. Rawlinson does not want to second guess the jury decision and doesn't want to rely on perjury law as some of the concurrences did. The jury was instructed on materiality and that should be sufficient.
What fascinates me about this case is whether everyone is in the same ballpark. For all the reasons provided by everyone other than the dissent, one should not have an obstruction conviction based on this limited statement. But most imply that materiality is an element of obstruction. I have argued in a past Article that it should be - here. And it is wonderful to see so many on this court adhering to that position and taking this point as a given. But the statute may not be as clear and the law as consistent as it should be. This case is important for taking this important step and demonstrating the absurdity of a conviction that fails to have materiality as a key component.
Tuesday, April 14, 2015
Earlier this month, the Second Circuit, as expected (at least by me), denied Southern District of New York U.S. Attorney Preet Bharara's request for reargument and reconsideration of its December 2014 ruling in United States v Newman which narrowed, at least in the Second Circuit, the scope of insider trading prosecutions. I would not be surprised if the government seeks certiorari, and, I would not be all that surprised it cert were granted.
In Newman, the defendants, Newman and Chiasson, were two hedge fund portfolio managers who were at the end of a chain of recipients of inside information originally provided by employees of publicly-traded technology funds. The defendants traded on the information and realized profits of $4 million and $68 million respectively. There was, however, scant, if any, evidence that the defendants were aware whether the original tippors had received any personal benefit for their disclosures.
The Second Circuit reversed the trial convictions based on an improper charge to the jury and the insufficiency of the evidence. Specifically, the court ruled that:
1) the trial judge erred in failing to instruct the jury that in order to convict it had to find that the defendants knew that the corporate employee tippors had received a personal benefit for divulging the information; and
2) the government had indeed failed to prove that the tippors had in fact received a personal benefit.
Thus, at least in the Second Circuit, it appears that the casual passing on of inside information without receiving compensation by a friend or relative or golf partner does not violate the security laws. "For purposes of insider trading liability, the insider's disclosure of confidential information, standing alone, is not a breach," said the court. Nor, therefore, does trading on such information incur insider trading liability because the liability of a recipient, if any, must derive from the liability of the tippor. To analogize to non-white collar law, one cannot be convicted of possessing stolen property unless the property had been stolen (and the possessor knew it). Those cases of casual passing on of information, which sometimes ensnared ordinary citizens with big mouths and a bit of greed, are thus apparently off-limits to Second Circuit prosecutors. To be sure, the vast majority of the recent spate of Southern District prosecutions of insider trading cases have involved individuals who have sold and bought information and their knowing accomplices. Although Southern District prosecutors will sometimes now face higher hurdles to prove an ultimate tippee/trader's knowledge, I doubt that the ruling will affect a huge number of prosecutions.
The clearly-written opinion, by Judge Barrington Parker, did leave open, or at least indefinite, the critical question of what constitutes a "personal benefit" to a provider of inside information (an issue that also might impact corruption cases). The court stated that the "personal benefit" had to be something "of consequence." In some instances, the government had argued that a tippee's benefit was an intangible like the good graces of the tippor, and jurors had generally accepted such a claim, likely believing the tippor would expect some personal benefit, present or future, for disclosing confidential information. In Newman, the government similarly argued that the defendants had to have known the tippors had to have received some benefit.
Insider trading is an amorphous crime developed by prosecutors and courts - not Congress - from a general fraud statute (like mail and wire fraud) whose breadth is determined by the aggressiveness and imagination of prosecutors and how much deference courts give their determinations. In this area, the highly competent and intelligent prosecutors of the Southern District have pushed the envelope, perhaps enabled to some extent by noncombative defense lawyers who had their clients cooperate and plead guilty despite what, at least with hindsight, seems to have been a serious question of legal sufficiency. See Dirks v. S.E.C., 463 U.S. 646, 103 S.Ct. 3255 (1983)(test for determining insider liability is whether "insider personally will benefit, directly or indirectly"). As the Newman court refreshingly said, in language that should be heeded by prosecutors, judges, and defense lawyers, "[N]ot every instance of financial unfairness constitutes fraudulent activity under [SEC Rule] 10(b)."
As I said, I would not be shocked (although I would be surprised) if Congress were to enact a law that goes beyond effectively overruling Newman and imposes insider trading liability on any person trading based on what she knew was non-public confidential information whether or not the person who had disclosed the information had received a personal benefit. Such a law, while it would to my regret cover the casual offenders I have discussed, would on balance be a positive one in that it would limit the unequal information accessible to certain traders and provide a more level playing field.
Friday, April 10, 2015
District of Columbia Court of Appeals Makes It Official: Prosecutor's Duty To Disclose Exculpatory Evidence Is Broader Than Brady
Kline was prosecuting Arnell Shelton for the shooting of Christopher Boyd. Shelton had filed an alibi notice and "the reliability of the government's identification witnesses" was the principal issue at the 2002 trial, according to the Report and Recommendation of Hearing Committee Number Nine ("Report and Recommendation").
Kline spoke with Metropolitan Police Department Officer Edward Woodward in preparation for trial. Kline took contemporaneous notes. Woodward was the first officer at the scene of the crime and spoke to victim Boyd at the hospital shortly after the shooting. According to the Report and Recommendation, Kline's notes of his conversation with Woodward were, in pertinent part, as follows: "Boyd told officer at hospital that he did not know who shot him–appeared maybe to not want to cooperate at the time. He was in pain and this officer had arrested him for possession of a machine gun."
At trial Boyd identified Shelton as the shooter. According to Bar Counsel, Kline never disclosed Boyd's hospital statement to the defense despite a specific Brady/Giglio request for impeachment material. The other identification witnesses were weak and/or impeachable. The case ended in a hung jury mistrial and the alleged Brady material (that is, Boyd's hospital statement to Woodward) was not revealed to the defense until literally the eve of the second trial, even though DC-OUSA prosecutors and supervisors had known about it for some time.
The court offered defense counsel a continuance, but she elected to go to trial as her client was then in jail. The second trial ended in Shelton's conviction. You can consult my earlier posts for a more detailed factual and case history background.
Rule 3.8(e) of the DC Rules of Professional Conduct states in pertinent part that: "The prosecutor in a criminal case shall not . . . intentionally fail to disclose to the defense, upon request and at a time when use by the defense is reasonably feasible, any evidence or information that the prosecutor knows or reasonably should know tends to negate the guilt of the accused...except when the prosecutor is relieved of this responsibility by protective order of the tribunal."
The District of Columbia Court of Appeals upheld the position of D.C. Bar Counsel and the Board that Rule 3.8(e) is not synonymous with Brady v. Maryland. The Court declined to import Brady's materiality test into Rule 3.8(e), making it clear that at the pre-trial and trial stages of a case, no prosecutor is fit to make a speculative materiality analysis. The rule is now clear. Any evidence that tends to negate the guilt of the defendant must be disclosed under the D.C. Rules of Professional Responsibility.
The Court overturned the Board's 30-day sanction imposed against Kline, given the confusion engendered by the Commentary to Rule 3.8(e). The Commentary states in part that: "The rule...is not intended either to restrict or to expand the obligations of prosecutors derived from the United States Constitution, federal or District of Columbia statutes, and court rules of procedure." Courts in other jurisdictions, as well as the ABA, have construed the D.C. Rule as including the Brady materiality standard, based on this Commentary. Additionally, at the time of Kline's actions, DC-USAO's training taught that Rule 3.8(e) was synonymous with Brady. The Court held that even if the Commentary was inconsistent with the Rule, the plain language of the Rule, and its legislative history, prevailed.
"However, while clear and convincing evidence has been presented that Kline violated Rule 3.8 when he failed to turn over the Boyd Hospital Statement to the defense prior to trial, we are mindful of the fact that our comment to Rule 3.8 (e) has created a great deal of confusion when it comes to a prosecutor’s disclosure obligations under Rule 3.8. Thus, Kline's understanding of his ethical obligations, while erroneous, does not warrant an ethical sanction."
The Board originally found that the suppressed exculpatory statement was material, even though a subsequent jury in possession of the material convicted the defendant. I don't know if that finding was ever revisited. I mention it because the Court's opinion nowhere discusses this point and seems to assume that the withheld statement was immaterial.
The opinion by Chief Judge Washington is extremely well-crafted and enormously significant.
Hat Tip to Charles Burnham of Burnham & Gorokhov for informing me of this ruling and sending a copy.
Tuesday, March 31, 2015
Practice Notes: First Circuit Cases Yield White Collar Rulings on Materiality and Upward Variance/Departure
Two white collar decisions emerged last week from the First Circuit, both related to the Rwandan genocide.
United States v. Kantengwa reinforces an old truth for white collar practitioners. If you don't win on materiality at trial, you are totally screwed on appeal. According to the First Circuit, the appellant was "a member of a prominent political family allegedly involved in the Rwandan genocide." Katengwa was indicted for perjury under 18 U.S. Code 1621 (1) for false statements she told under oath in an asylum application and subsequent removal proceedings. Katengwa argued, among other things, that the government was precluded from bringing perjury charges against her because an immigration judge had already ruled that her false statements did not "go to the heart" of her asylum claim. Assuming, without deciding, that an administrative finding of fact can preclude later criminal charges, the First Circuit rejected Katengwa's collateral estoppel claim, because "materiality" under 1621 (1) and the "heart of the matter rule" in immigration law involve two distinct standards. "The heart of the matter rule from immigration law prohibits basing an adverse credibility determination on inconsistencies in an applicant's testimony that do not go to the heart of [her] claim." (Internal quotes and citations omitted.) But, "a statement is material in a criminal prosecution for perjury under § 1621(1) if it is 'material to any proper matter of the [decisionmaker's] inquiry.' United States v. Scivola, 766 F.2d 37, 44 (1st Cir. 1985) (emphasis added)." The First Circuit made clear, through a litany of examples, that this test can cover a multitude of subsidiary matters to the decisionmaker's overall inquiry. Translation: In all but the rarest cases, materiality is an argument you make to the jury. It can serve as a nice hook for jury nullification. Don't expect it to lead to victory on appeal.
In United States v. Munyenyezi, Katengwa's sister was indicted on "two counts of procuring citizenship illegally by making false statements to the government. See 18 U.S.C. §§ 1425(a) and (b)." The jury hung in her first trial, but the second trial produced convictions. She raised several issues on appeal, but the one that concerns me here is the sentence of 120 months, the statutory maximum. Munyenyezi's Guidelines Range was 0-6 months, and she attacked the sentence on appeal as substantively unreasonable. The First Circuit called this, "a tough sell," reiterating its abuse of discretion standard of review and precedent that "as long as we see 'a plausible sentencing rationale' that reaches 'a defensible result,' the sentence stands. United States v. Martin, 520 F.3d 87, 96 (1st Cir. 2008)." The trial judge imposed the 120 month sentence under alternative theories. He granted an upward departure under Guidelines Section 5K2.0 for an aggravating circumstance of a kind or degree not adequately taken into accoount by the Guidelines. He also upwardly departed under 18 U.S.C. Section 3553 (a). As every schoolboy knows, and as the First Circuit reminds us, "Section 3553(a) lets a judge vary upward based on factors listed there, like the defendant's background (including her criminal history), the circumstances of the offense, the seriousness of the offense, the need to protect and deter others, the need to promote respect for the law and to provide a just punishment, and the need to eliminate unjustified sentencing disparities." And the First Circuit also reminds us, albeit in a footnote, that "[u]nder certain circumstances a judge can also vary downward using section 3553(a)." You don't say!
Interestingly, the trial judge did not upwardly depart/vary because of Munyenyezi's alleged "participation in genocidal conduct." He sentenced her to the statutory maximum because, "'lying about participation in genocide when specifically asked,' the judge explained, knowing full well 'that such conduct is automatically disqualifying with respect to immigration and citizenship seriously undermines the integrity of this country's immigration standards in the most offensive way' imaginable." The judge later noted that if he had sentenced Munyenyezi for her alleged genocidal conduct, he would not have imposed concurrent sentences.
There are often silver linings in decisional clouds. An appellate court that uphold a 3553 (a) upward variance of ten years can also uphold a 10 year downward variance. The precedent cuts both ways.
Saturday, March 28, 2015
Christine Wright-Darrisaw was found guilty of threatening the President under 18 U.S. Code Section 871(a). Ms. Wright-Darrisaw experienced a negative result in her local Family Court. She called the White House switchboard and, after two and one-half minutes of incoherent barnyard gibbersih, threatened to fornicate and kill President Obama. She was entitled to a four point reduction in her offense level under Guidelines Section 2A6.1(b)(6) if the sentencing court found that "the offense involved a single instance evidencing little or no deliberation." The trial judge refused to grant the reduction, noting that the very act of contacting the White House involved deliberation. According to the Second Circuit, "the explanation provided by the district court suggests that the court may have been too sweeping in its consideration of what constitutes deliberation cognizable under U.S.S.G. § 2A6.1(b)(6)." The "deliberation" to be considered under 2A6.1(b)6) "is deliberation related to the communication of the threat itself. Only if a defendant's course of conduct leading up to and following the time the threat was made is closely tied to the communication of the threat, or if the defendant makes any effort to carry out the threat, may the conduct then provide a basis for inferring deliberation sufficient to reject the four-level reduction." Although the call here was deliberate, the threat may not have been. Since it appears that the district court conflated the two concepts, the Second Circuit remanded for re-analysis of the deliberation issue. Examining holdings in sister circuits, the Second Circuit focused on two critical factors in determining whether deliberation is present: "(1) whether, and under what circumstances, the threat itself has been repeated and (2) whether there is evidence of planning or some effort to carry out the threat." In Wright-Darrisaw's case, it is undisputed that the threat against President Obama was not repeated. (However, there were abundant past threats against neighbors, strangers, President Bush, and other officials.) Thus, the only question on remand is whether "there is sufficient evidence of planning or some effort to carry out the threat." The case is United States v. Wright-Darrisaw.
Wright-Darrisaw's challenge to the sufficiency of the evidence against her was deferred pending the U.S. Supreme Court's decision in United States v. Elonis, 730 F.3d 321 (3d. Cir. 2013), cert. granted, 134 S.Ct. 2819 (2014).
Wednesday, February 25, 2015
Co-blogger Solomon Wisenberg's post on today's Supreme Court decision in Yates v. United States highlights the plurality opinion that focuses on a straight statutory interpretation analysis. But there is an interesting and important note in the dissent that is worth mentioning.
In Part III of the dissent it states, "That brings to the surface the real issue: overcriminalization and excessive punishment in the U.S. Code." - So even though the dissenters are not willing to toss out the statute with the fish, they are recognizing the overcriminalization movement.
Second, the dissenters state - ". . . , I tend to think, for the reasons the plurality gives, that s 1519 is a bad law -- too broad and undifferentiated, with too-high maximum penalties, which give prosecutors too much leverage and sentencers too much discretion. And I'd go further: In those ways s 1519 is unfortunately not an outlier, but an emblem of a deeper pathology in the federal criminal code."
The recognition by these dissenting justices of the growing problem of overcriminalization in the United States is an important step. In many ways this decision is really a 9-0 decision in that the plurality tossed the fish case out because it did not fit in this sea. The dissenters felt their hands were tied to allow the fish case to stay, but they weren't happy with what Congress was doing and sent their message in the sentences above. Will Congress listen, that is the important question here.
The U.S. Supreme Court has rendered its opinion in Yates v. United States. A fish is still a fish, but it is not a tangible object under 18 U.S.C. Section 1519, which was passed as part of the Sarbanes-Oxley Act. Under Section 1519:
Whoever knowingly alters, destroys, mutilates, conceals, covers-up, falsifies, or makes a false entry in any record, document, or tangible object, with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under Title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned for not more than 20 years, or both.
Yates was charged under 1519 with destroying, concealing, and covering-up some undersized groupers which he threw overboard after they were segregated and ordered preserved by Officer John Jones of the National Marines Fisheries Service.
The Court ruled 5-4 that Yates' conduct did not run afoul (or a fish) of 1519, because the little fishies were not tangible objects under that particular statute which was clearly aimed, as an examination of its title and overall language shows, at document-related cover-ups. Justice Ginsburg, writing the Opinion of the Court for a four person plurality, held that a tangible object under 1519 is really only a tangible object "used to record or preserve information." She was joined by Chief Justice Roberts and Justices Breyer and Sotomayor. Justice Alito concurred in the judgment alone, but used a textual-contextual approach similar to that employed by the plurality, stating that a tangible object under 1519 had to be "something similar to records or documents." Always careful not to offend the federal prosecutorial apparatus, Alito called it a very close case.
In dissent Justice Kagan, joined by Justices Scalia, Kennedy, and Thomas, used a straight textual approach and pointed to the plain and ordinary meaning of tangible object--an object that is touchable. You can touch a fish. Ergo, a fish is a tangible object. You can destroy, cover-up, or conceal a fish. By doing so with the right amount of intent, you can violate 1519. End of story.
Monday, January 19, 2015
The case is United States v. Dibe. Claudio Dibe pled guilty, without a plea agreement, to wire fraud and received a below Guidelines sentence. He complained on appeal that his sentence would have been lower if the sentencing court had considered his counsel's ineffective assistance in failing to adequately explain the benefits of the government's initial plea offer. The Ninth Circuit held that ineffective assistance of counsel cannot be considered as a mitigating under 18 U.S.C. Section 3553(a). Distinguishing the U.S. Supreme Court's opinion in Pepper v. United States, 131 S.Ct. 1229 (2011), the Ninth Circuit noted that counsel's alleged ineffective assistance "has nothing to do with [Dibe's] own conduct."
Tuesday, January 6, 2015
Thursday, December 11, 2014
Here are two (ahem) differing views on yesterday's Second Circuit insider trading decision in United States v. Newman. The Wall Street Journal editorial writers are understandably happy at the ruling and contemptuous of Preet Bharara, dubbing him an Outside the Law Prosecutor. The Journal exaggerates the extent to which the case was an outlier under Second Circuit precedent and incorrectly states that "the prosecution is unlikely to be able to retry the case." The prosecution cannot retry the case, unless the full Second Circuit reverses the panel or the U.S. Supreme Court takes the case and overturns the Second Circuit.
Over at New Economic Perspectives, Professor Bill Black insists that the Second Circuit Makes Insider Trading the Perfect Crime. Black thinks Wall Street financial firms will enact sophisticated cut-out schemes in the wake of the opinion to give inside traders plausible deniability. He compares the fate of Newman and his co-defendant to that of Eric Garner and calls for a broken windows policing policy for Wall Street. Black's piece is outstanding, but in my view he underestimates the extent to which the Newman court was influenced by Supreme Court precedent and ignores the opinion's signals that the government needed to do a much better job of proving that the defendants knew about the tipper's fiduciary breach. As a matter of fact, in the typical insider trading case it is relatively easy to show such knowledge. That's what expert testimony and willful blindness instructions are for.
Wednesday, December 10, 2014
The Second Circuit's decision in United States v. Newman is out. The jury instructions were erroneous and the evidence insufficient. The convictions of Todd Newman and Anthony Chiasso are reversed and their cases have been remanded with instructions to dismiss the indictment with prejudice. Here is the holding in a nutshell:
We agree that the jury instruction was erroneous because we conclude that, in order to sustain a conviction for insider trading, the Government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit. Moreover, we hold that the evidence was insufficient to sustain a guilty verdict against Newman and Chiasson for two reasons. First, the Government’s evidence of any personal benefit received by the alleged insiders was insufficient to establish the tipper liability from which defendants’ purported tippee liability would derive. Second, even assuming that the scant evidence offered on the issue of personal benefit was sufficient, which we conclude it was not, the Government presented no evidence that Newman and Chiasson knew that they were trading on information obtained from insiders in violation of those insiders’ fiduciary duties.
Wednesday, November 19, 2014
Special Prosecutor Mike McCrum has survived an attempt to quash the Rick Perry indictment based on alleged procedural irregularities connected to McCrum's appointment. Courthouse News has the story here. The Order Relating to Authority of Attorney Pro Tem, written by Assigned Judge Bert Richardson, appears to be carefully and thoughtfully crafted. We can expect a similar approach to the more substantive constitutional issues awaiting Judge Richardson's pen.
Monday, October 27, 2014
Imagine being so angry at prosecutorial shenanigans in one of your cases that you decide to write a book. A book that names names and settles scores. A book that details the Brady violations you believe occurred in your client's trial. A book that compares those purported violations to the undeniable Brady errors judicially noticed in the Ted Stevens prosecution. A book that identifies the DOJ officials connected to both your case and the Ted Stevens case and traces the rise, high within the ranks of DOJ and the White House, of the prosecutors you loathe. A book with a forward by none other than Ninth Circuit Chief Judge Alex Kozinski. Imagine this and you have imagined Sidney Powell's Licensed to Lie: Exposing Corruption in the Department of Justice.
This book is a terrific read, particularly for anyone making a living in the world of federal white collar investigations and trials. Both the federal white collar specialist and the intelligent lay reader should find it engrossing. I particularly enjoyed the "you are there" descriptions of defense strategy sessions and courtroom hearings.
Powell played a minor role on the Arthur Andersen appellate team and the lead role in the post-trial defense of Enron Barge defendant, and former Merrill Lynch executive, Jim Brown. She covers most or all of the Enron Task Force sins that have long been the subject of controversy in the white collar defense bar, including the practices of: providing mere summaries, rather than full interview reports, of exculpatory materials to the defense; withholding certain exculpatory information altogether; withholding agent notes of witness interviews; creating composite 302s that fail to reveal changing witness statements over time; designating potential defense witnesses as targets, in effect threatening them with prosecution if they testify; convincing compliant trial judges to approve clearly faulty jury instructions.
Powell reminds us as well that every Enron-related conviction that went up on appeal resulted in a partial or complete reversal. And although she had no involvement in the Ted Stevens case, Powell does an excellent job of summarizing, based on two publicly released investigations, the multiple material Brady/Giglio violations that occurred in that prosecution.
And yet this book, as informative and fun to read as it is, has some problems.
For openers, Powell sees the world in black and white terms. You are with her or against her on this ride, and God help you if get on Sidney's bad side. You tend to get painted in black and white terms. Ergo:
Enron Task Force Chief Andrew Weissman is "a narrow faced man with a beak of a nose."
DOJ Criminal Division Chief Michael Chertoff is "sharp-featured."
DOJ's Rita Glavin has "long black hair, sharp features, an easy smirk, and an affinity for androgynous attire."
Original Enron Task Froce Chief Leslie Caldwell is "a short no-nonsense looking woman with closely cropped hair."
FBI Special Agent Raju Bhatia is "smarmy."
Enron Barge Case prosecutor Kathryn Ruemmler, who later served President Obama as White House Counsel, has "a well known passion for expensive Chrisitan Louboutin red-soled stiletto heels." Those heels show up in more than one description of Ruemmler.
Matthew Friedrich, later Acting Assistant AG in charge of the Criminal Division, has "a boyish face that easily appeared smug."
You get the picture. But if you are lucky enough to be on Sidney's side. Well:
Ike Sorkin is "a handsome man with thick gray hair."
Richard Schaeffer is "a tall handsome impeccably dressed New York lawyer."
And so on.
Fifth Circuit Judges who might rule against Powell are suspected of being politically biased or intellectually corrupt. Thus, in describing the panel she drew for her Fifth Circuit argument that Jim Brown deserved a new trial (based on multiple Brady violations), Powell wonders "if [Judge] Graves...might have some connection with Ruemmler. She, logically, would have been the person to advise the president on Graves' nomination and assist Graves in the confirmation process." Powell also wonders "if Friedrich had been part of the confirmation process with [Judge] Southwick. Friedrich's meteoric rise within the department placed him as chief of staff to Attorney General Gonzalez when Southwick was nominated and confirmed." After the panel ruled unanimously against her, in an opinion authored by Judge Jerry Smith, Powell "struggled to grasp how a court that I had respected so much for so long could issue an opinion as result-driven, tortured, and just plain bad as this one was."
Second, Powell posits a past DOJ Golden Age, when prosecutors were fair and committed to doing justice, and contrasts it unfavorably with our present era of so-called corruption. Here's a news flash for Ms. Powell. There was never a Golden Age of prosecutorial fairness in the DOJ. There have always been good prosecutors and bad prosecutors, and Assistant U.S. Attorneys have long played a prosecutorial game quite legally and openly rigged in favor of the house.
Last, but by no means least, Powell refuses to deal seriously, or to deal very much at all, with Judge Jerry Smith's Fifth Circuit panel opinion denying Jim Brown a new trial. Powell passionately argues throughout the book that the government hid Brady material from Brown's trial defense team in a grave miscarriage of justice. Virtually every argument she makes, in front of every federal tribunal, is meticulously rendered in 400 plus pages. But her discussion of Judge Smith's opinion is curiously brief, covering two pages, and fails to address Smith's main points.
The Enron Barge case concerned an allegedly sham transaction between Enron and Merrill Lynch to purchase Enron barges. The government maintained that the deal was a sham, and not a real purchase, because Enron orally promised/guaranteed to take Merrill out of the transaction, by buying back the barges, or finding a third party buyer, within six months. Although Jim Brown and the other Enron Barge defendants saw their fraud convictions overturned by the Fifth Circuit, Brown had also been convicted of perjury and obstruction of justice for grand jury testimony regarding his understanding of the transaction.
Prosecutors refused to disclose the FBI's raw notes of Andrew Fastow's interviews to Brown's trial team, instead providing summaries. The raw notes, unlike the summaries, quoted Fastow as saying that he "never used the word promise" in conversations about a buy-back with Merrill executives. Judge Smith pointed out, however, that "any potential exculpatory value of the passages from the Fastow notes that were not disclosed to the defense is eliminated when we read them in context rather than looking just to the portions of the sentences that Brown cherry-picks."
Smith pointed to other portions of the raw notes and explained that:
The notes say, to give only a few examples, (1) “It was [Enron’s] obligation to use ‘best efforts’ to find 3rd party takeout + went on to say there would be 3rd party b/c AF is manager of third party,” (emphasis added); (2) “LJM was 3rd party + was already found;” (3) “[Fastow] told [Merrill Lynch] that [Enron] would get [Merrill Lynch] out, would get [illegible] or LJM to buy out;” and (4) “Come June 2000, if [Enron] did not have a buyer then LJM would step in to buy out.”
In other words, Fastow controlled a captive third party, LJM, and could effectively guarantee that if a buyer could not be found, LJM would take Merrilll out of the transaction in six months. Judge Smith noted that:
[T]he sentences that Brown cites from the Fastow notes do not say that the agreement as a whole was a “best efforts” agreement, pace Brown’s testimony; they say only that Enron would use its “best efforts” to find a buyer but that Fastow guaranteed that LJM2, which he controlled, would be that buyer if no one else was found. Indeed, Fastow admitted that, “[i]f call was transcribed—it should have blown the accounting.”
Now I'm perfectly willing to believe, and in fact I assume, that the Enron Barge defendants, including Jim Brown, got a really raw deal and should never have been indicted. And I'm also willing to hear a good argument that Judge Smith got his Brady analysis backasswards. But in a book devoted to exposing Brady error, written by one of the country's foremost appellate lawyers, I expect more than two pages of cursory, conclusory attacks on a key federal appellate decision. Powell fails to fairly present, much less refute, Judge Smith's specific points (incorrectly referring to his careful 19 page opinion as a "meager" nine pages). I call this a material omission.
Wednesday, October 1, 2014
And here it is. DeLay v. State of Texas. To clarify my ealier comments, the majority held that DeLay did not commit or conspire to commit money laundering. He did not launder or conspire to launder criminally derived proceeds, because the facts proved by the State failed to prove a violation of the Texas Election Code. In other words, the State proved no underlying crime.