Friday, April 24, 2015
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."
Thursday, April 23, 2015
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
Tuesday, March 17, 2015
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).
Wednesday, October 29, 2014
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.
Wednesday, October 1, 2014
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.
Wednesday, September 3, 2014
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.
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 here , here 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.
Wednesday, July 16, 2014
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.
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.
Tuesday, June 24, 2014
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).
Tuesday, June 3, 2014
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.
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.
Wednesday, May 28, 2014
Tim Tucker, AJC, Jury finds Jim Donnan not guilty on all counts (he was represented by Ed Tolley & Jerry Froelich)
David Deitch, Crime in the Suites, Another SDNY Judge Finds the U.S. Sentencing Guidelines Wanting
Wednesday, May 21, 2014
Two New York State legislators have proposed the creation of a state commission on prosecutorial misconduct to review and investigate complaints of prosecutorial misconduct and to discipline prosecutors who have been found to have acted improperly. See here.
The proposed commission would, it is said, be the first in the nation of its kind. It will be modeled upon New York's Commission on Judicial Conduct, which investigates allegations of misconduct by judges and, if misconduct is found, may discipline a judge by public admonition, censure or removal from the bench.
Virtually every state (but not the federal government) has a commission on judicial conduct and these commissions, it is generally agreed, have had a positive effect in limiting judicial misconduct, removing unfit judges who had committed serious misconduct and increasing public confidence in and awareness of the workings of the court system. (I note that I am a past chair of New York's Commission.) There is, I believe, no good reason that there should not be an analogous agency to review instances of alleged prosecutorial misconduct, sanction offending prosecutors, and remove the most serious offenders from their positions. Indeed, there are stronger reasons for a commission concerning prosecutorial misconduct than for one concerning judicial misconduct. Much of the most serious prosecutorial misconduct, such as concealing exculpatory material and suborning perjury, occurs in the investigative and preparatory stages of a case and is hidden from the view of judges, defense attorneys, and the public and thus not detectable and reviewable by a court. Almost all judicial misconduct, on the other hand, occurs on the bench in public view, is recorded and observed by lawyers and the public, and is readily reviewable by appellate courts.
With rare exception, see here, prosecutorial misconduct has gone unpunished by prosecutorial offices, bar disciplinary committees and judicial authorities. Although grievance committees have authority over the improprieties of prosecutors as much as other lawyers, they have historically shown little interest in sanctioning prosecutorial misconduct. See, e.g., Gershman, Reflections on Brady v. Maryland, 47 S. Tex. L. Rev. 685 (2006); Yaroshefsky, Wrongful Convictions: It is Time to Take Prosecution Discipline Seriously, 8 D.C. L. Rev. 275 (2004). Similarly, judges, even when they reverse a conviction due to egregious prosecutorial misconduct, almost always conceal the prosecutor's identity and rarely refer the prosecutor for professional discipline. And, prosecutorial offices themselves often defend on appeal and thus ratify even serious misconduct of line prosecutors, and fail to sanction even those prosecutors whose serious misconduct they concede. See, Rudin, The Supreme Court Assumes Errant Prosecutors Will Be Disciplined By Their Offices or the Bar: Three Case Studies That Prove That Assumption Wrong, 80 Fordham L. Rev. 537 (2011).
Further, potentially criminal misconduct by judges may be investigated and prosecuted by the District Attorney, an agency wholly independent from the judiciary. However, except in the extremely rare instances where a special prosecutor is appointed, potentially criminal misconduct by prosecutors generally may only be investigated or prosecuted by the very same prosecutorial office that committed that misconduct, which in almost all instances will be hesitant to prosecute one of its own and embarrass the office.
Additionally, there is a stark imbalance in the adversarial criminal justice system where one adversary -- the prosecutor -- may criminally charge the other adversary -- the defense attorney -- when he tampered with evidence or suborned perjury, but where the defense attorney who believes the prosecutor committed such criminal acts may only make a shout in the wilderness by a futile complaint to an overprotective disciplinary agency with no criminal prosecution power. A commission on prosecutorial conduct will not wholly right this imbalance, but will tilt it in the right direction.
Sunday, May 18, 2014
Blank Rome hires Carlos Ortiz as a partner in the White Collar Defense and Investigations Group- here
Scott Neuman, NPR, Congress Holds Former IRS Official Lois Lerner In Contempt
Tony Mauro, NLJ, U.S. gives up a widely decried charging theory
Todd Ruger, Legal Times, Leslie Caldwell Confirmed to Lead DOJ Criminal Division
Monday, April 28, 2014
Tony Mauro, Legal Times, Ted Stevens’ Defense Lawyers Honored As ‘Constitutional Champions’ (congratulations to Brendan Sullivan Jr. & Robert Cary)
Amanda Bronstad, The National Law Journal, Ex-KPMG Partner Gets 14 Months for Insider Trading
Paul Mogin, National Law Journal, DOJ Relents on False-Statements Policy
Tuesday, April 15, 2014
Last week, as reported in the New York Times (see here), the House of Representatives Oversight and Government Reform Committee voted to hold in contempt Lois Lerner, the Internal Revenue Service official who after making a brief statement declaring her innocence invoked her Fifth Amendment privilege and refused to answer questions from the Committee members. The Committee action will be referred to the entire House of Representatives for its consideration. If the House votes to hold Ms. Lerner in contempt, it would refer the matter to the United States Attorney for the District of Columbia, Ronald C. Machen, Jr., a Democrat who in my view is unlikely to pursue this politically-charged case.
The Committee vote was based on party lines, with the Republican majority voting against Ms. Lerner. A vote of the entire Congress, if it occurs, will most likely similarly be so based. Indeed, Representatives on the Committee took exaggerated and hyperbolic positions. Republican John J. Duncan claimed if Ms. Lerner's position were accepted, "every defendant . . . would testify and plead the Fifth so they couldn't be cross-examined . . . ." Democrat Elijah Cummings said if he were to vote to hold Ms. Lerner in contempt, it would "place him on the same page of the history books as Senator Joseph McCarthy."
As I said before (see here), I believe that Ms. Lerner's general declaration of innocence, before she invoked the Fifth, does not constitute a waiver, but I do not believe the issue is crystal-clear. Lawyers who represent witnesses before legislative committees (or in other matters) should be cautious about taking such positions.
Wednesday, March 12, 2014
The big news on the white-collar crime front in New York last week was the long-expected indictment of persons involved in the defuct law firm of Dewey & LeBoeuf. Charged were its chairman, executive director and chief financial officer, as well as a low-level client relations manager. Seven not-yet-identified others have pleaded guilty. Only two of the eleven criminally charged appear to be lawyers, and the cases against them may be the weakest. See James B. Stewart, "In Dewey's Wreckage, Indictments," New Yorker Blog, March 7, 2014, see here.
The charges essentially are that the defendants cooked the books in order to keep the failing firm alive with institutional financing. More specifically, it is charged, they falsified financial records submitted to banks and investors to demonstrate that the firm had complied with existing loan covenants and were worthy of further investor loans, and made fraudulent accounting entries to support their false representations. The top charge is grand larceny in the first degree, theft in excess of $1 million, a Class B felony with a potential sentence of 25 years, and a minimum sentence of one to three years.
In many ways, as the facts are alleged, this is a not untypical case, where businesspeople -- ordinarily law-abiding -- fall into financial situations where they desperately need to borrow money to keep their businesses going and falsify income, receivables, expenses and the like in order to get it. Such chicanery is far from rare and is often undetected or overlooked, particularly if the borrower improves its financial position and pays off all or a substantial part of the amount owed. And, if detected, such wrongdoing is often made public only in private civil litigation and without criminal prosecution. Generally, the borrowers have an expectation and/or hope, often unreasonable, that they will ultimately be able to pay off the loan and thus arguably lack the intent to permanently deprive (an element of larceny) the lenders.
There are several interesting aspects of the case. It is being brought by a state prosecutor -- the District Attorney of New York County -- rather than the United States Attorney for the Southern District of New York, the predominant prosecutor of white-collar crime in Manhattan. The District Attorney, like most state and local prosecutors forced to deal with every police street arrest, whether for murder or disorderly conduct, and lacking sufficient available personnel and resources to conduct many complicated and lengthy white-collar investigations, generally has a far less significant presence in white-collar prosecution than his federal counterpart.
More unusual, in this case, much of the legwork for the state prosecution apparently was done by the FBI (and not a state or city police agency). Almost always, when the FBI does the investigative work on a white-collar case (or even when the work is done jointly by federal and state investigators), that case is prosecuted by federal authorities. I do not know why this case is an exception. Perhaps the United States Attorney declined the case because he questioned its strength or jurisdictional basis, or, even less likely, felt his resources were better used on other goals. My best guess is that the case was prosecuted by the District Attorney because he jumped on it first, and/or was first provided evidence of alleged wrongdoing by some of the firm's unhappy partners. In any case, if this joint effort between federal investigators and New York State prosecutors is a harbinger of further cooperative efforts, it will be a significant step forward for white-collar prosecution in New York City, the financial (and probably white-collar crime) capital of the country. Far too often, federal authorities let significant matters brought to their attention go by the wayside because of jurisdictional problems or federal lack of interest rather than turn them over to state prosecutors. And, far too often, state prosecutors let significant matters go by the wayside because of their lack of resources and expertise rather than turn them over to federal prosecutors.
The New York County District Attorney, Cyrus R. Vance, Jr., in a press statement, claimed that the victims were not just the lending financial institutions but also the thousands of people who lost their jobs when the firm failed. I strongly disagree. The firm's employees actually were for the most part beneficiaries of the loan proceeds, and therefore if the allegations are true, unknowing beneficiaries of the criminality that enabled that borrowing, which kept the firm alive and staved off bankruptcy for a time. Those who lost their jobs when the firm ultimately failed and went into bankruptcy most likely kept those jobs much longer than they would have had the law firm not been able to secure the funding. Dewey & LeBoeuf failed not because of criminal acts, but, if criminal acts did occur, in spite of them.
The real victims in this case, the only direct victims, are the banks and other financial institutions which loaned the firm unrecovered money. Sometimes, in cases of this kind, the bankers are negligent in their due diligence and occasionally actually compliant with the borrowers in order to achieve short-term profits for their institutions and immediate benefits for themselves in bonuses and salary increases. I have no knowledge that either negligence or complicity happened here.
Tuesday, February 11, 2014
To the surprise of nobody I know, Mathew Martoma, the former SAC Capital portfolio manager, was convicted of insider trading last Thursday by a Southern District of New York jury. The evidence at trial was very strong. It demonstrated that Martoma had befriended two doctors advising two drug companies on the trial of an experimental drug, received confidential information from them about the disappointing result of the drug trial prior to the public announcement, and then had a 20-minute telephone conversation with Steven A. Cohen, the SAC chair, a day or so before Cohen ordered that SAC's positions in these companies be sold off. The purported monetary benefit to SAC, in gains and avoidance of loss, of the trades resulting from the inside information is about $275 million, suggesting that Martoma receive a sentence of over 15 years under the primarily amount-driven Sentencing Guidelines (although I expect the actual sentence will be considerably less).
Cohen is white-collar Public Enemy No. 1 to the Department of Justice, at least in its most productive white-collar office, the U.S. Attorney's Office for the Southern District. That office has already brought monumental parallel criminal and civil cases against SAC, receiving a settlement of $1.8 billion, about a fifth of Cohen's reported personal net worth, but it has apparently not garnered sufficient evidence against Cohen to give it confidence that an indictment will lead to his conviction. It had granted a total "walk" -- a non-prosecution agreement -- to the two doctors whose testimony it felt it needed to convict Martoma, unusually lenient concessions by an office that almost always requires substantial (and often insubstantial) white-collar wrongdoers seeking a cooperation deal to plead to a felony. As an FBI agent told one of the doctor/co-conspirators, the doctors and Martoma were "grains of sand;" the government was after Cohen.
In an article in the New York Times last Friday, James B. Stewart, an excellent writer whose analyses I almost always agree with, asked a question many lawyers, including myself, have asked: why didn't Martoma cooperate with the government and give up Cohen in exchange for leniency? Mr. Stewart's answer was essentially that Martoma was unmarketable to the government because he would have been destroyed on cross-examination by revelation of his years-ago doctoring his Harvard Law School grades to attempt to secure a federal judicial clerkship and covering up that falsification by other document tampering and lying. Mr. Stewart quotes one lawyer as saying Martoma would be made "mincemeat" after defense cross-examination, another as saying he would be "toast," and a third as saying that without solid corroborating evidence, "his testimony would be of little use." See here.
I strongly disagree with Mr. Stewart and his three sources. The prosecution, I believe, would have welcomed Mr. Martoma to the government team in a New York minute -- assuming Martoma would have been able to provide believable testimony that Mr. Cohen was made aware of the inside information in that 20-minute conversation. When one is really hungry -- and the Department of Justice is really hungry for Steven A. Cohen -- one will eat the only food available, even if it's "mincemeat" and "toast." And there is certainly no moral question here; the government gave Sammy "the Bull" Gravano, a multiple murderer, a virtual pass to induce him to testify against John Gotti. Given the seemingly irrefutable direct, circumstantial and background evidence (including, specifically, the phone call, the fact that Cohen ordered the trades and reaped the benefit, and generally, whatever evidence from the civil and criminal cases against SAC is admissible against Cohen), testimony by Martoma to the effect he told Cohen, even indirectly or unspecifically, about the information he received from the doctors would, I believe, have most likely led to Cohen's indictment.
I have no idea why Martoma did not choose to cooperate, if, as I believe, he had the opportunity. "Cooperation," as it is euphemistically called, would require from Martoma a plea of guilty and, very likely in view of the amount of money involved, a not insubstantial prison term (although many years less than he will likely receive after his conviction by trial). Perhaps Martoma, who put on a spirited if unconvincing defense after being caught altering his law school transcript, is just a fighter who does not easily surrender or, some would say, "face reality," even if the result of such surrender would be a comparatively short jail sentence. (In a way, that choice is refreshing, reminding me of the days defense lawyers defended more than pleaded and/or cooperated.) Perhaps Martoma felt cooperation, a condition of which is generally full admission of all prior crimes and bad acts, would reveal other wrongs and lead to financial losses by him and his family beyond those he faces in this case. Perhaps he felt loyalty -- which it has been demonstrated is a somewhat uncommon trait among those charged with insider trading -- to Cohen, who has reportedly paid his legal fees and treated him well financially (and perhaps Martoma hopes will continue to do so), or perhaps to others he would have to implicate.
And perhaps -- perhaps -- the truth is that in his conversation with Cohen, he did not tell Cohen either because of caution while talking on a telephone, a deliberate effort to conceal from Cohen direct inside information, or another reason, and he is honest enough not to fudge the truth to please the eager prosecutors, as some cooperators do. In such a case his truthful testimony would have been unhelpful to prosecutors bent on charging Cohen. That neutral testimony or information, if proffered, which the skeptical prosecutors would find difficult to believe, would at best get him ice in this very cold wintertime. Lastly, however unlikely, perhaps Martoma believed or still believes he is, or conceivably actually is, innocent.
In any case, it is not necessarily too late for Martoma to change his mind and get a benefit from cooperation. The government would, I believe, be willing to alter favorably its sentencing recommendation if Martoma provides information or testimony leading to or supporting the prosecution of Cohen. Indeed, I believe the government would ordinarily jump at a trade of evidence against Cohen for a recommendation of leniency (or less harshness), even if Martoma is now even less attractive as a witness than before he was convicted (although far more attractive than if he had testified as to his innocence). However, the five-year statute of limitations for the July 2008 criminal activity in this matter has apparently run, and an indictment for substantive insider trading against Cohen for these trades is very probably time-barred.
To be sure, federal prosecutors have attempted -- not always successfully (see United States v. Grimm; see here) -- imaginative solutions to statute of limitations problems. And, if the government can prove that Cohen had committed even a minor insider trading conspiratorial act within the past five years (and there are other potential cooperators, like recently-convicted SAC manager Michael Steinberg, out there), the broad conspiracy statutes might well allow Martoma's potential testimony, however dated, to support a far-ranging conspiracy charge (since the statute of limitations for conspiracy is satisfied by a single overt act within the statutory period). In such a case, Martoma may yet get some considerable benefit from cooperating, however belatedly it came about.
Thursday, January 2, 2014
Corporate Crime Reporter, Brandon Garrett Talks Corporate Crime
Scott Cohn, USA Today, CEO in cuffs? 2014 Wall Street crime predictions
Ed BAllard, Marketwatch WSJ, U.K. corruption probe begins at Rolls-Royce
Benjamin Weiser, Judge Orders Release of Dying Lawyer Convicted of Aiding Terrorism
Alan Farnham, ABC News, Dennis Kozlowski's Life After Prison
Walt Pavlo, Forbes, The Top White-Collar Cases of 2013