Tuesday, November 24, 2015

Yates Memo Hot Topic

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

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

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


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

Tuesday, November 10, 2015

Fantasy Sports

Looks like the NY Attorney General has decided to take a lead in stopping some fantasy sports companies. (see Walt Bogdanich, Joe Drape, and Jacqueline Williams, Attorney General Tells DraftKings and FanDuel to Stop Taking Entries in New York.)  Some are wondering if other states will get on the bandwagon.  But others of us are wondering what role the federal government may decide to take, or not take here.  I'm not betting on this one.


November 10, 2015 in News | Permalink | Comments (0)

Friday, October 30, 2015

Why Hastert Had To Be Prosecuted

Guest Blogger - Steven H. Levin

White-collar laws are written broadly in order to permit federal prosecutors to combat the increasingly creative, technologically complex efforts of enterprising criminals.  Most, but certainly not all, prosecutors make rational decisions based upon the best possible expenditure of resources, the assessment of the jury appeal of a particular case, and the desire to maintain a good reputation with the bench, if not the bar.  In bringing a case, prosecutors also must consider the deterrent effect of a particular prosecution.

In the case involving Dennis Hastert, it has been reported that he was paying “hush money” to cover up alleged misconduct that occurred several decades ago.  Mr. Hastert’s structuring fell squarely within the broadly worded federal statute.   In his piece (“Should Hastert Have Been Prosecuted?”) Lawrence Goldman is correct to question the purpose such a prosecution serves.  The answer is found in the concept of deterrence.  Mr. Hastert’s prosecution has potential deterrent effect, both in terms of deterring those engaged in structuring (to cover up crimes) and those engaged in blackmail (threatening to expose crimes).

Once the investigation became known, the public learned that Mr. Hastert had been accused of taking money out of a bank account in order to pay an extortionist.  Both would-be structurers and would-be extortionists were put on notice by the federal government: blackmailing may not be successful in the future, because the victim of the extortion may be better off going to law enforcement rather than a bank.  Further, it might deter an individual from engaging in the initial misconduct in the first place, knowing that such actions may ultimately see the light of day, even decades later.

Still, as Mr. Goldman writes, Mr. Hastert is, at least in part, a victim.  And the decision to prosecute is different than a demand for jail time, which, under the plea agreement, is what prosecutors may seek.  Mr. Hastert’s conduct does not warrant jail time, as the collateral consequences of the prosecution itself are significant enough to deter at least some future would-be extortionists from engaging in blackmail and their victims from submitting to it.  This fact is all-too-often overlooked by prosecutors.


October 30, 2015 in Fraud, Money Laundering, News, Prosecutions, Prosecutors, Sentencing | Permalink | Comments (1)

Wednesday, October 28, 2015

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

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

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

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

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


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

Wednesday, September 9, 2015

It's Official - Throw the Employees Under the Bus

The new DOJ Policy (see here for the NYTimes story that includes DOJ Policy) makes the current practice of corporations "throwing employees under the bus," official. It states, "[t]o be eligible of any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct."  Corporations have received deferred and non-prosecution agreements (DPAs and NPAs) that often provide for the corporation cooperating with the government in the investigation of alleged criminally culpable individuals.  Now it is clear that to obtain "any" cooperation credit it will be necessary to provide the evidence against these individuals. 

Three concerns here: 

1) what is meant by providing "all relevant facts"?  Does this mean only information that is relevant to the government's case against the individuals?  Will the government also be asking for Brady material that might be exculpatory for the individuals? Does this mean that the corporation now is officially a member of the government team?  

2) what does this mean for the corporate culture?  The concept of the individuals in the company working together, asking for legal advice from corporate counsel, and working to resolve problems in an open environment may now be officially over.  This policy pits the corporation against the individual.  Is this a wise approach to correcting business misconduct?

3) does this make it more important that there be fairness in internal investigations?  See here for a discussion of the importance of fairness in internal investigations.

Interestingly, the new policy calls for starting with the individual and also calls for sharing information between civil and criminal attorneys. It also requires "a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized." This is a clear message that individual prosecutions are now a priority.

The message to white collar criminal defense attorneys - corporate prosecutions may no longer be the focus.  Get ready for more prosecutions against individuals.


September 9, 2015 in Deferred Prosecution Agreements, News, Privileges, Prosecutions, Prosecutors | Permalink | Comments (0)

Tuesday, July 21, 2015

7th Circuit Overturns Rod Blagojevich Convictions

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."


July 21, 2015 in Corruption, Judicial Opinions, News, Sentencing | Permalink | Comments (0)

Friday, July 10, 2015

Holder Returns to Covington & Burling

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

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


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

Friday, April 24, 2015

DP for Deutsche Bank Subsidiary to Pay $2.5 Billion

DOJ Press Release here today -

"DB Group Services (UK) Limited, a wholly owned subsidiary of Deutsche Bank AG (Deutsche Bank), has agreed to plead guilty to wire fraud for its role in manipulating the London Interbank Offered Rate (LIBOR), a leading benchmark interest rate used in financial products and transactions around the world.  In addition, Deutsche Bank entered into a  deferred prosecution agreement to resolve wire fraud and antitrust charges in connection with its role in both manipulating U.S. Dollar LIBOR and engaging in a price-fixing conspiracy to rig Yen LIBOR. Together, Deutsche Bank and its subsidiary will pay $775 million in criminal penalties to the Justice Department."

"The agreement requires the bank to continue cooperating with the Justice Department in its ongoing investigation, to pay a $625 million penalty beyond the fine imposed upon DB Group Services (UK) Limited and to retain a corporate monitor for the three-year term of the agreement."

"Together with approximately $1.744 billion in regulatory penalties and disgorgement—$800 million as a result of a Commodity Futures Trading Commission (CFTC) action, $600 million as a result of a New York Department of Financial Services (DFS) action, and $344 million as a result of a U.K. Financial Conduct Authority (FCA) action—the Justice Department’s criminal penalties bring the total amount of penalties to approximately $2.519 billion."


April 24, 2015 in Deferred Prosecution Agreements, News | Permalink | Comments (0) | TrackBack (0)

Thursday, April 23, 2015

In the News & Around the Blogosphere

Jennifer Steinhauer, NYTimes, Senate Confirms Loretta Lynch as Attorney General After Long Delay

Michael S. Schmidt  & Matt Apuzzo, NYTimes, David Petraeus Is Sentenced to Probation in Leak Investigation


April 23, 2015 in News | Permalink | Comments (0) | TrackBack (0)

Tuesday, March 17, 2015

4th NACDL White Collar Crime College at Stetson - 2105 Award to Hank Asbill (JonesDay)

The NACDL White Collar Crime College at Stetson completed an exhausting and exhilarating program with top white collar defenders teaching white collar advocacy skills to practitioners. This year, the instructors teaching in the program were:

A. Brian Albritton, Henry  "Hank" W. Asbill, Brian   H. Bieber, Barry Boss, Ellen C. Brotman, Preston Burton, Jean-Jacques Cabou, Robert M. Cary, Lee A. Coppock, David Debold, Lucian E. Dervan, James E. Felman, Drew Findling, Roberta Flowers, Ian N. Friedman, Lee Fugate, Helen Gredd, Lawrence S. Goldman, John Wesley Hall, Jr., John F.  Lauro, Bruce Lyons, Terrance MacCarthy, Edward A. Mallett, Bruce Maloy, Eric R. Matheney, Michael D. Monico, Jane W. Moscowitz, Marc L. Mukasey, Kevin J. Napper, Julie Nielsen, Cynthia Eva Orr, J. Edward Page, Marjorie J. Peerce, Patricia A. Pileggi, Ellen S. Podgor, Gregory Poe, Mark P.   Rankin, Shana-Tara Regon, Kerri L. Ruttenberg, Brian Sanvidge, Melinda Sarafa, Fritz Scheller, Adam P. Schwartz, George Ellis Summers, Brian L. Tannebaum, Kevin Tate, Larry Thompson, Gary R.Trombley, Morris (Sandy) Weinberg, Jr., Solomon L. Wisenberg

 The opening keynote was given by Cynthia Orr, with Larry Thompson speaking about things not to do in a white collar case.  The 2015 White Collar Award went to Hank Asbill of Jones Day (see here).


March 17, 2015 in About This Blog, Defense Counsel, News | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 29, 2014

Death of a Gladiator: James LaRossa Dies

James (Jimmy) LaRossa, one of New York City's top criminal defense lawyers, died recently.  LaRossa, according to the New York Times obituary, see here, was "'the last of the gladiators' -- his characterization of defense lawyers."  He was an old-fashioned criminal trial lawyer who tried big case after big case, often with little time for preparation.  For him, cooperators were snitches and cooperation akin to treason.  He was an extremely talented lawyer -- with great courtroom presence and a lightning quick mind.  He was probably the best cross-examiner I have ever seen in a courtroom.

Although not the "last" of the "gladiators," LaRossa was one of a dying breed -- the "warriors" who were combative, never brought their clients to the prosecutor's office to make a proffer, and fought the government at every turn.  The criminal defense bar and the practice of criminal law have in many ways changed in the last decade.  Defense lawyers today are, as a rule, less experienced and therefore less skilled at trial, less antagonistic toward the government, and more willing to make cooperation deals so that their clients -- and they themselves in a sense -- become part of the prosecution team.  LaRossa's death marks not only the loss of a "gladiator" but hastens the end of an era.


October 29, 2014 in News | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 1, 2014

Tom DeLay: Free At Last

This just in. The Texas Court of Criminal Appeals has affirmed 8-1 the lower appellate court ruling vacating Tom DeLay's money laundering conviction. Why was the conviction vacated? DeLay's actions, even if proven, did not constitute the crime of money laundering under Texas law at the time he committed them. Here is the brief KPRC-TV story. Hat Tip to Roger Aronoff for the alert.


October 1, 2014 in Current Affairs, News, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 3, 2014

Wine Fraudster Gets Ten-Year Sentence

Last month Prof. Douglas Berman reported in his indispensable Sentencing Law and Policy blog about a ten-year prison sentence imposed by SDNY judge Richard Berman upon defendant Rudy Kurniawan, who had sold counterfeit wine to the very rich, including billionaire William Koch (one of the less political Koch brothers), and allegedly profited by over $28 million (see here by scrolling down to August 10, "Can wine fraudster reasonably whine that his sentence was not reduced given wealth of victims?"  See also here).  Some of the ersatz wine sold for as much as $30,000 per bottle.

Having a somewhat perverse sense of humor, I found it somewhat amusing that the 1% paid astronomical sums for and presumably sometimes drank the same wine that the other 99% of us drink.  However, neither the judge nor the prosecutor (nor certainly the defendant and his lawyer) viewed the sentencing proceeding as a laughing matter.

To be sure, a $28 million fraud is a serious matter deserving serious punishment.  Additionally, the judge seemed to view the crime in part as a public safety violation, declaring "The public at large needs to know our food and drinks are safe, -- and not some potentially unsafe homemade witch's brew," even though this was hardly a contaminated baby food case.

At the sentencing hearing, Kurniawan's attorney argued, reasonably I believe, that his client should be treated somewhat less severely since the victims were exceedingly wealthy.  That argument provoked the prosecutor to the Captain Renault-like response that it was "quite shocking" for a lawyer to argue for a different standard for theft from the rich than from the poor.

That retort reminded me of Anatole France's immortal line (although not directly on point), "The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, beg in the streets or steal bread."  In my view, a sentencing judge should certainly consider in sentencing the extent of damage to the victim(s).  A fraudster who steals a million dollars from a billionaire, notwithstanding the Sentencing Guidelines' overemphasis on absolute figures, should (all things being equal) not deserve as harsh a sentence as one who steals the same amount if it were the entire life savings of a senior citizen.

Prosecutors, when fraud victims are pensioners and widows, argue, I believe reasonably, that the judge should consider the degree of suffering of the victims.  Indeed, every seasoned white-collar trial lawyer knows that in a multi-victim fraud case the government is likely to call as "representative" witnesses those most sympathetic victims for whom the monetary loss was most damaging.

I assume that the prosecutor will get over his "shock" when he prosecutes a fraud case where a less than affluent victim's life savings are stolen.  I further assume he will not argue that the judge should impose the same sentence she would if the victim were a billionaire for whom the loss figure might be pocket change.


September 3, 2014 in Defense Counsel, Food and Drink, Fraud, News, Prosecutors, Sentencing | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 27, 2014

Article About Former Penn State President Raises Issues Concerning Independent Investigative Reports and Role of Corporate Counsel

The New York Times Magazine several weeks ago published a lengthy, largely sympathetic article about Graham Spanier, the former Penn State president (Sokolove, "The Shadow of the Valley"), see here, who is awaiting trial on charges of perjury and other crimes in connection with the Pennsylvania grand jury investigation of his alleged complicity or nonfeasance concerning the actions of now-convicted (and affirmed on appeal) former assistant football coach Jerry Sandusky.

The article rather gently criticized the Freeh report, commissioned by the university, as I too did (see here), and asserts that it "probably led to [Spanier's] indictment."  Commissioning an independent investigative report -- generally either by a former prosecutor or judge, or a large law firm -- is the de rigueur response of institutions or corporations accused of wrongdoing.  An independent investigative report, especially by a respected authority, has the weight of apparent impartiality and fairness and thus the appearance of accuracy.  However, the investigative report -- frequently done with no input from the accused or presumed wrongdoers (since, fearful of prosecution, they choose not to be interviewed) -- is often based on an incomplete investigation.  Further, since the investigator is expected to reach conclusions and not leave unanswered questions, but unlike a prosecutor may not be required to have those conclusions tested by an adversary in an open forum, such investigations, like the Freeh investigation, are often based on probability, and sometimes even speculation, more than hard evidence.  Lastly, the "independent" report, like the report concerning Gov. Christopher Christie's alleged involvement in Bridgegate, may be less than independent.

*                    *                    *

The article also discusses an interesting pretrial motion in Spanier's case concerning a question that had puzzled me since the Penn State indictments were announced over two years ago -- what was Penn State's counsel doing in the grand jury?  Sub judice for six months is a motion for dismissal of the indictment and other relief related to the role of the Penn State general counsel ("GC") who appeared in the grand jury with Spanier, and also earlier with two other officials who were indicted, Tim Curley, the former athletic director, and Gary Schultz, a vice president.

According to the submitted motions (see herehere and here ), largely supported by transcripts and affidavits, the GC appeared before the grand jury with Spanier (and also separately with Curley and Schultz) and Spanier referred to her as his counsel (as also did Curley and Schultz).  According to what has been stated, neither she, who had previously told the supervising judge -- in the presence of the prosecutor but not Spanier -- that she represented only Penn State, nor the prosecutor corrected Spanier.  Nor did the judge who advised Spanier of his right to confer with counsel advise Spanier that the GC was actually not representing him or had a potential conflict.

Later, after Spanier's grand jury testimony, according to the defense motion, the GC -- represented by Penn State outside counsel -- was called to testify before the grand jury.  Curley and Schultz -- both of whom had by then been charged -- objected in writing to the GC's revealing what they asserted were her privileged attorney-client communications with them.  Spanier apparently was not notified of the GC's grand jury appearance  and therefore submitted no objection.

Prior to the GC's testimony, Penn State's outside counsel asked the court essentially to rule on those objections and determine whether the GC was deemed to have had an attorney-client relationship with the individuals, as they claimed, before Penn State decided whether to waive its privilege (if any) as to the confidentiality of the conversations.  Upon the prosecutor's representation "that he would put the matter of her representation on hold" and not "address . . . conversations she had with Schultz and Curley about [their] testimony," the judge chose not to rule at that time on the issue of representation, which he noted "perhaps" also concerned Spanier, and allowed her to testify, as limited by the prosecutor's carve-out.

Nonetheless, despite the specific carve-out to conversations with Schultz and Curley analogous to those she had with Spanier and the judge's mention that the issue might also apply to Spanier, the prosecutor questioned the GC about her conversations with Spanier in preparation for his testimony.  Her testimony was reportedly harmful to Spanier (see here).  At no time did the GC raise the issue of whether her communications with Spanier were privileged. 

Whether the motion will lead to dismissal, suppression of Spanier's testimony or preclusion or limitation of the GC's testimony, or none of the above, will be determined, presumably soon, by the judge.  Whatever the court's ruling(s), I have little hesitation in saying that is not how things should be done by corporate or institutional counsel.   At the least, even if the GC were, as she no doubt believed, representing the university and not the individuals, in my opinion, the GC (and also the prosecutor and the judge) had an obligation to make clear to Spanier (and Schultz and Curley) that the GC was not their counsel.  Additionally, the GC had, in my view, an obligation to make clear to Spanier that the confidentiality of his communications with her could be waived by the university if it (and not he) later chose to do so.  Further, the GC, once she was called to testify before the grand jury, had in my opinion an obligation to notify Spanier that she might be questioned as to her conversations with him in order to give him the opportunity to argue that they were privileged.  And, lastly, the GC had, I believe, an obligation to ask for a judicial ruling when the prosecutor went beyond at least the spirit of the limit set by the judge and sought from her testimony about her communications with Spanier.


August 27, 2014 in Current Affairs, Defense Counsel, Grand Jury, Investigations, Legal Ethics, News, Perjury, Privileges, Prosecutors, Sports | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 16, 2014

Rengan Rajaratnam Acquittal Good for Criminal Justice System

As my editor, Ellen Podgor, noted last week (see here), the winning streak in insider trading cases of the U.S. Attorney's Office for the Southern District of New York ended with the jury's acquittal of Rengan Rajaratnam, the younger brother of Raj Rajaratnam, who was convicted of insider trading in 2011 and sentenced to eleven years in prison.

The U.S. Attorney has done an excellent job in prosecuting insider trading, securing convictions by plea or trial of 81 of the 82 defendants whose cases have been concluded in the district court.  The office has appropriately targeted primarily professional financial people who seek or provide insider information rather than those incidental offenders who by chance have received or provided insider tips and taken advantage of their knowledge.  A few of these trial convictions, however, appear to be in jeopardy.  At oral argument in a recent case the Second Circuit Court of Appeals seemed sympathetic to the contention that a trader may not be found guilty unless he knew that the original information came from a person who had received a benefit, and not only had violated a fiduciary duty of secrecy.  Judge Naomi Reice Buchwald, who presided over the Rajaratnam case, agreed with that contention and thereupon dismissed two of the three counts.

Whether the prospective Second Circuit ruling, if it comes, will make good public policy is another matter.  Insider trading (which fifteen years ago some argued should not be a crime) is, or at least was, endemic to the industry.  Presumably, the U. S. Attorney's successful prosecutions have had a positive step in putting the fear of prosecution in traders' minds.  Such deterrent to a particularly amoral community seems necessary:  a recent study demonstrated that twenty-four percent of the traders interviewed admitted they would engage in insider trading to make $10 million if they were assured they would not be caught (the actual percentage who would, I suspect, is much higher).  See here.

The latest Rajaratnam case, indicted on the day before the statute of limitations expired, was apparently not considered a strong case by some prosecutors in the U.S. Attorney's Office.  See here and here.  Indeed, jurors, who deliberated four hours, described the evidence as "no evidence, period" and asked "Where's the evidence?"  That office nonetheless did not take this loss (and generally does not take other losses) well.  It was less than gracious in losing, making a backhanded slap at Judge Buchwald, a respected generally moderate senior  judge.  A statement by the U.S. Attorney Preet Bharara noted, "While we are disappointed with the verdict on the sole count that the jury was to consider, we respect the jury trial system . . . ."  (Italics supplied.)

Southern District judges, generally out of deference to and respect for the U.S. Attorney's Office, whether appropriate or undue, rarely dismiss entire prosecutions or even counts brought by that office, even in cases where the generally pro-prosecution Second Circuit subsequently found no crimes.  See here.  It is refreshing to see a federal judge appropriately do her duty and not hesitate to dismiss legally or factually insufficient prosecutions.

Such judicial actions, when appropriate, are particularly necessary in today's federal system where the bar for indictment is dropping lower and lower.  The "trial penalty" of a harsher sentence for those who lose at trial, the considerable benefits given to cooperating defendants from prosecutors and judges, and the diminution of aggressiveness from a white-collar bar composed heavily of big firm former federal prosecutors have all contributed to fewer defense challenges at trial and lessened the prosecutors' fear of losing, a considerable factor in the prosecutorial decision-making process.  Acquittals (even of those who are guilty) are necessary for a balanced system of justice.

Lastly, it is nice to see a major victory by a comparatively young (43) defense lawyer, Daniel Gitner of Lankler, Siffert & Wohl, an excellent small firm (and a neighbor), in a profession still dominated by men in their sixties or seventies.


July 16, 2014 in Current Affairs, Defense Counsel, Fraud, Insider Trading, Judicial Opinions, News, Prosecutions, Prosecutors, Securities, Statutes, Verdict | Permalink | Comments (0) | TrackBack (0)

Wednesday, July 2, 2014

BNP Paribas Conviction Commendable, But Length of Investigation and Failure to Prosecute Individuals Raise Questions

Both the Department of Justice (DOJ) and the District Attorney of New York County (DANY) deserve commendation for the criminal conviction of France's largest bank, BNP Paribas, and the securing of penalties of approximately $9 billion (including $2.25 billion to New York State's bank regulatory agency, the Department of Financial Services), and, for the first time, a seemingly not insignificant collateral sanction imposed by a regulator (although how significant remains to be seen).  BNP for ten years falsified transactions in order to be able to use the American banking system to do business with Sudan, Iran and Cuba, countries deemed rogue states by the U.S. government (but not necessarily by France).  See here.  While I accept that those crimes were serious crimes, I would much have preferred a prosecution-to-conviction of an American bank whose wrongs made it and its bankers much richer while making millions of other Americans much poorer.

The investigation, according to a story in the New York Times (see here) began in 2006 under the venerable New York County District Attorney Robert Morgenthau, whose expansive view of jurisdiction included the planet of Saturn (one of his bureaus was called "DANY Overseas"), when an Israeli-American DANY financial analyst developed a lead from reviewing the court papers of a civil suit against Iran brought by a grieving lawyer father whose daughter was killed in a terrorist suicide bombing in Gaza in 1995.  See here.  The investigation was continued by District Attorney Cyrus Vance when he took office in 2009.

No individuals have been indicted (although 13 have been required to leave their jobs), perhaps because the statute of limitations had run during the lengthy investigation.  One wonders why such an important investigation took seven to eight years and has resulted (at least so far) in no indictment of individuals.  Perhaps it was due to the difficulty to forge cooperation between federal and state law enforcement agencies.  New York's federal and state prosecutors have not always played well together.

In any case, the appearance of the District Attorney of New York as a player in the prosecution of big banks is a welcome step.  New York is, as Mr. Vance said, "the financial capital of the world," and therefore probably the financial crime capital of the world.  Perhaps strong prosecutorial action by a local prosecutor -- in a sense a competitor with DOJ for high-profile cases -- will goad DOJ into stronger actions against financial institutions.  Although the U.S. Attorney's Office under Preet Bharara has done a creditable job in fighting insider trading, it -- and DOJ -- had not until six weeks ago (see here) secured a criminal conviction against a major financial institution.


July 2, 2014 in International, News, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 24, 2014

Evidence Suppressed in New York State Prosecution of Aleynikov

One of the more fascinating cases around is the case of former Goldman Sachs programmer Sergey Aleynikov.  Aleynikov was convicted in the Southern District of New York for stealing secret high-frequency trading computer code from Goldman Sachs and sentenced to eight years in prison.  His conviction was reversed by the Second Circuit on the grounds that his actions were not covered by the federal statutes under which he was charged.  Aleynikov had already served a year in prison.

Then, Manhattan District Attorney Cyrus Vance, apparently provided the testimonial and tangible evidence used in the prosecution of Aleynikov by the U.S. Attorney, decided to prosecute him in state court under state statutes, a decision I criticized because it violated at least the spirit of double jeopardy protection (see here).  Last week, a New York State judge threw out much of the evidence underlying the state prosecution on the ground that Aleynikov's arrest and related searches by federal agents were not supported by probable cause that he committed the underlying federal crimes, even though the agents acted in good faith.  See here.  New York has rejected on state constitutional grounds the "good faith exception" to unlawful searches applicable in federal courts.  Compare People v. Bigelow, 66 N.Y.2d 417 (1985) with United States v. Leon, 468 U.S. 897 (1984).  Mr. Vance's choice now is either to concede that the judge's suppression has made his case untriable and make an interlocutory appeal or go forward to trial without that evidence (or, of course, move to dismiss the case).

Ironically, Goldman Sachs, the purported victim of Aleynikov's alleged criminality, is laying out millions of dollars to afford Mr. Aleynikov the energetic and aggressive defense his lawyer, Kevin Marino, is providing.  A New Jersey federal judge last October ordered Goldman to advance Mr. Aleynikov's legal fees based on a corporate bylaw that required it to advance legal fees for officers charged in civil and criminal proceedings.  Aleynikov v. Goldman Sachs (Civ. No. 12-5994, DNJ, October 22, 2013).


June 24, 2014 in Attorney Fees, Current Affairs, Judicial Opinions, News, Prosecutions, Prosecutors, Statutes | Permalink | Comments (0) | TrackBack (0)

Tuesday, June 3, 2014

Tilting Toward a Travesty in Texas: The Wallace Hall Referral

If it was not such a serious abuse of power, it would almost be funny. It certainly has its comic elements. Wallace Hall is a Member of the University of Texas System Board of Regents, appointed to that position in 2011 by Governor Rick Perry. The Board of Regents is the governing body for the entire University of Texas System. Hall started snooping around and uncovered several things that troubled him, including:

1. An allegedly secret forgivable loan program for favored law professors at the University of Texas School of Law.

2. Allegedly incorrect accounting treatment of certain in-kind donations to the University's fund-raising campaign. The University had to restate its fund-raising figures after the Council for the Advancement and Support of Education rejected the school's accounting theory.

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

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

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

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

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

One of the House Transparency Committee members made the mistake of asking the U.T. System to review whether Hall had violated state or federal law. The U.T. System hired outside counsel Philip Hilder, a nationally known and well-regarded white-collar heavyweight, to research the issue and write a report. The Hilder Report found "no credible evidence" that Hall violated the Texas Government Code or "any other state or federal law."

In a normal world Hall would be breathing easier. But with the Public Integrity Unit lurking in the background, anything is possible.

To me Hall looks like a classic whistle-blower, albeit a powerful one. He may not have the purest of motives. I really don't know and certainly don't care. But he has uncovered, or helped to uncover, potentially serious problems in the U.T. System. His reward? A criminal referral by the powerful interests whom he has offended. And that is an outrage.


June 3, 2014 in News, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Thursday, May 29, 2014

Credit Suisse Conviction Does Not Demonstrate Substantial Change In Department Of Justice Enforcement

The Department of Justice (DOJ) and Attorney General Eric Holder were strutting last week over the criminal conviction by plea of guilty of Credit Suisse, a major financial institution.  "This case shows that no financial institution, no matter its size or global reach, is above the law," declared the Attorney General.  Recent prosecutions of major financial institutions had resulted in lesser results,  "deferred prosecutions," a somewhat deceptive term for "delayed dismissals," or a guilty plea by a minor affiliate.

The Credit Suisse guilty plea does not represent a sea change in the attitude of DOJ toward major financial institutions; rather, it appears to be a small ratcheting-up of the baseline penalty for serious criminal financial acts by such institutions.  Credit Suisse, despite paying a hefty $2.6 billion fine, will not suffer the severe collateral consequences that ordinary individual defendants do upon a criminal conviction.  (See here, NACDL's report "Collateral Damage:  America's Failure to Forgive or Forget in the War on Crime -- A Roadmap to Restore Rights and Status After Arrest or Conviction," released today, Thursday, May 29, 2014.)  It will still be able to act as an investment advisor, due to waivers agreed to by federal and New York State governmental agencies.  Thus, its conviction, according to its chief executive Brady Dougan, will not have "any material impact on our operational or business capabilities."  In other words, for Credit Suisse, it will be business as usual. 

I hold no sympathy for Credit Suisse.  Its crimes, continuous and notorious, have enabled American citizens and citizens of other countries to launder and evade tax payments on billions of dollars.  In effect, Credit Suisse (not alone among Swiss banks) (see here) was a criminal enterprise, for many years making huge profits from extraordinary fees for its knowing and willful provision of a presumably safe haven for untaxed income, ill-gotten or otherwise.  Mr. Dougan had stated to a Senate hearing in February that the tax evasion scheme was the work of a small group of private bankers that was hidden from senior management.  That hard-to-believe claim was challenged in a statement by Schweitzerisher Bankpersonalverband, the organization representing the bank's employees:  "It was common knowledge that tax evasion was the strategy, a business model pursued by many banks for a long time."  See here

To be sure, Credit Suisse's crimes did not cause the vast hardship to tens of millions of Americans that the wrongs -- criminal or not -- of other major financial institutions did in the last several years.  And, further, its acts -- while subject to the long-arm jurisdiction of American courts -- were apparently legal under Swiss law, and seemingly condoned by the Swiss government.

Some commentators have suggested that there is considerable unfairness in prosecuting corporations for acts of low- or mid-level employees without knowledge of corporate leaders (see here), a position with which I generally agree.  The demi-prosecution of Credit Suisse, however, does not appear to fit within that category, despite Mr. Dougan's claim.  I see no unfairness in the government's requiring Credit Suisse to plead guilty.

I do, however, wonder about the effectiveness of the insistence on a guilty plea if the collateral consequences are waived.  The conviction of a major financial institution with a considerable financial penalty but a waiver of regulatory bars is to me little different from a civil finding of wrongdoing with such a penalty.  Other than its current status as a convicted felon, Credit Suisse today is essentially in the same position it was two weeks ago.

Given the legitimate (but probably exaggerated) fear that a felony conviction of a major financial institution without regulatory waivers will have on its existence and thus on the economy and societal well-being, it may well be that guilty pleas (and trial convictions too) of such corporations should be accompanied by limited collateral consequences.  Such prosecutions, however, will then serve little more than a symbolic purpose (which I accept as a legitimate purpose).  Overall, DOJ's prosecution to conviction of Credit Suisse is a positive step, albeit a small one.

The resolution here suggests again that the criminal process is inadequate to prosecute large financial institutions.  Society looks to the criminal law to solve far more problems than the criminal law is capable of solving.  Meaningful reform of a flawed financial system will not come from criminal prosecutions of corporations, but, if at all, from strong, substantial regulatory rulemaking and non-criminal legislation.



May 29, 2014 in Current Affairs, Deferred Prosecution Agreements, International, Money Laundering, News, Prosecutions, Prosecutors, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, May 28, 2014

In the News & Around the Blogosphere