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
Tuesday, December 3, 2013
Check out Mike Scarcella's BLT Blog item, Justice Dept. Sued Over Access to Non-Prosecution Agreement. It is hard to believe that someone would have to file a lawsuit to obtain information about a non-prosecution agreement of a corporation. One can understand the need to protect individuals from the sting of criminality when an agreement is reached to defer a prosecution or when an individual is being spared a prosecution as an alternative method to rehabilitate that individual. But corporations are not afforded the same rights as individuals. The government is quick to note that corporations do not have the same rights as individuals when they are trying to obtain corporate documents.
Monday, December 2, 2013
Sara Randazzo, AM Law Daily, Former Dewey Leader Hires Criminal Defense Lawyer
Charles Huckabee, The Chronicle of Higher Education, Prosecutors List Statements by Graham Spanier That They Say Are Lies
Suzi Ring, Bloomberg, FX to Libor Probes Leave U.K. Traders Looking for Lawyers
Thursday, November 21, 2013
Wednesday, November 13, 2013
Sean Radcliffe & T. Markus Funk, Investigating Alleged Board Member Misconduct, ACC Docket
Brandon L. Garrett & David Zaring, Dealbook, For a Better Way to Prosecute Corporations, Look Overseas
Zoe Tillman, BLT Blog, D.C. Circuit Weighs Ex-Congressional Aide's Corruption Fight
Monday, November 11, 2013
Tuesday, November 5, 2013
The defendant was charged with two counts of allegedly mailing threatening communications (18 U.S.C. § 876) and two counts of intentionally conveying false and misleading information (18 U.S.C. § 1038(a)(1)). The defendant challenged the "government's introduction of testimony by a handwriting expert pursuant to Federal Rules of Evidence 702 and 403." In this case it was a report and expert testimony of a US Postal Service handwriting analyst. The district court found that under the Daubert and Kumho standards "that the science or art underlying handwriting analysis falls well short of a reliability threshold when applied to hand printing analysis." This case was handled by Stephen J. Meyer (Madison, Wisconsin).
Monday, October 7, 2013
Jim Galloway, AJC, State Sen. Don Balfour indicted on 16 counts
Andy Vuong, Denver Post, Former Qwest CEO Joe Nacchio in post-prison interview: “I trust Spoonie and Juice with my back.”
Ciara Torres-Spelliscy, Brennan Center Blog, Scandal Built for Two
Daniel Beekman, NYDaily News, Giant screw Bernie Madoff kept in office won't be shown in criminal trial of former employees
David Koenig, Yahoo Sports, Mark Cuban's drive to win led him to cheat
Elkan Abramowitz & Jonathan Sack, New York Law Journal, Why So Few Prosecutions Connected to the Financial Crisis?
Sunday, October 6, 2013
The New York Times' Gretchen Morgenson should be declared a national treasure. She continues to write about the financial crisis, and legal and regulatory issues related to the crisis, at a level far above most of her contemporaries. In today's New York Times she explains the administrative law process through which the SEC brings many of its enforcement actions against individuals. The Administrative Law Judges deciding the cases are SEC employees and appellate reversals are rare. Dodd-Frank expanded the kinds of cases that can be heard by the ALJs. All of this is known to the securities bar, but not to otherwise intelligent and informed lay readers, because hardly anyone ever writes about it. Morgenstern's story is here.
Monday, September 23, 2013
Mark Hamblett & Sara Randazzo, The AmLaw Daily, Ex-Kirkland Partner Sentenced to One Year For Tax Fraud
George J. Terwilliger III, National Law Journal, Walking a Tightrope in White-Collar Investigations
AP, Las Vegas Sun, Ex-Akamai exec barred for 5 years in SEC case; Bob Van Voris, Bloomberg, Ex-Akamai Executive Settles SEC Suit Over Rajaratnam Tips
Nate Raymond, Reuters, Baltimore Sun, U.S. prosecutor cautions against white-collar sentencing revamp
Jennifer Koons, Main Justice, Former Enron Prosecutor Tapped to Head Criminal Division
Zachery Fagenson, Reuters, Ex-Bolivian anti-corruption official denied bail in Miami extortion case
Friday, June 28, 2013
Amanda Bronstad, Nat L.J., Report: Bribery Prosecutions Revive Following 2012 Lag
Walter Pavlo, Forbes, The High Cost Of Mounting A White-Collar Criminal Defense
Covington & Burling, Senior DOJ Criminal Division Official Rejoins Covington (Daniel Suleiman)
Bernie Madoff Exhibit Opens at Crime Museum here
Wiliiam Shepherd (Chair, ABA Criminal Justice Section; Hollad and Knight, partner), recently testified before the U.S. House of Representatives Committee on the Judiciary Task Force on Overcriminalization. See here and here.
Monday, June 24, 2013
In what should be a surprise to no one, the Wall Street Journal editorial page today launched an attack on James Comey, President Obama's nominee to be the next FBI Director. The primary offenses? Comey's objection to the Bush Administration's illegal warrantless wiretapping and Comey's appointment of Patrick Fitzgerald as Special Counsel to investigate the Valerie Plame leak. The editorial is here. More commentary on this in the next few days.
Coming soon: Professor Podgor's analysis of the Second Circuit's opinion afffirming Raj Rajaratnam's conviction for insider trading violations.
Tuesday, June 18, 2013
In Salinas v. Texas, the Supreme Court in a bizarre, unrealistic 5-4 (or more precisely 3/2-4) decision announced yesterday seemed to rule that the pre-arrest silence of a person not in custody may be introduced at trial against that person and commented upon in summation by the prosecutor -- unless that person specifically invoked his Fifth Amendment privilege against self-incrimination. Justice Thomas, joined by Justice Scalia, concurred only in the result, arguing that Griffin v. California, 380 U.S. 609 (1965), which prohibited prosecutorial use of a defendant's invocation of silence at trial, should not be extended to pre-arrest situations.
According to Justice Alito and two others (Chief Justice Roberts and Justice Kennedy), the individual had the responsibility to demonstrate at the time of his invocation of silence that it was based on his constitutional rights. ("[I]t would have been a simple matter for him to say that he was not answering the officer's questions on Fifth Amendment grounds.") Much like a trial lawyer, the defendant thus had the responsibility to make a proper contemporaneous record or forfeit any future legal claim. ("A witness's constitutional right to refuse to answer questions depends on his reasons for doing so, and the courts need to know those reasons to evaluate the merits of a Fifth Amendment claim.") Thus, the rules for making a record for a defendant represented by counsel in a courtroom have apparently been extended to an uncounseled layperson on the street or in a police station.
Salinas may affect the advice a white-collar lawyer (or any lawyer) might provide to a non-arrested client who the lawyers suspect might be approached by a law enforcement agent. Instead of advising the client merely to decline to speak with the law enforcement official, the lawyer should also probably advise the client to explicitly state that his refusal is based on the Fifth (and perhaps also the Sixth) Amendment. Indeed, perhaps white-collar lawyers should follow the lead of some other criminal lawyers and print the invocation of the Fifth (and Sixth) on the reverse side of their business cards.
Wednesday, June 12, 2013
Gerald Shargel, perhaps the pre-eminent criminal defense lawyer in New York City, has left his solo practice to join the 900-lawyer firm of Winston & Strawn. Shargel's move is embelmatic of two trends: the expansion of white-collar and not so white-collar criminal defense practices of large firms and the exodus of criminal practioners from solo or small partnership practices.
Mr. Shargel's transition is a boon to Winston & Strawn but a loss to the independent, private defense bar that is diminishing in number, income and quality.
Friday, May 24, 2013
Most witnesses with potential criminal exposure who are called to testify before Congressional hearings take the stand, with their lawyers behind them, and repeat the incantation "I respectfully decline to answer the question based on my Fifth Amendment privilege against self-incrimination," or some variation. Occasionally, a witness insists on testifying in spite of a danger that his answers might incriminate him or, if in conflict with other witnesses' statements or other evidence, might lead to a perjury or obstruction prosecution. One notable example is Roger Clemens, who chose to testify and, although ultimately acquitted, was indicted and lost millions of dollars in legal fees and endorsements.
Lois Lerner, an embattled Internal Revenue Service official called to testify before a Congressional hearing earlier this week, tried to have her cake and eat it too. She made a brief opening statement declaring her innocence ("I have not done anything wrong. I have not broken any laws. I have not violated any I.R.S. rules and regulations, and I have not provided false information to this or any other Congressional committee."). She then invoked her constitutional right not to testify. Committee Chair Daryl Issa (R-Calif.) and other Congressmen claimed that, by her opening declaration, she had waived her privilege and therefore was required to answer the Committee's questions.
Some lawyers have criticized Ms. Lerner's counsel, William Taylor III, one of the most highly-respected criminal defense lawyers in the nation, for allowing Ms. Lerner to make an opening statement, claiming that at the very least that she placed herself at risk of waiving her constitutional privilege against self-incrimination. See here. Although the area of waiver of privilege is indeed murky, with cases going in different directions, I believe Ms. Lerner did not waive her right to silence by her unspecific denials. As Miranda v. Arizona itself says, "If the individual indicates in any manner, at any time prior to or during questioning, that he wishes to remain silent, the interrogation must cease." 384 U.S. 436, 473-4, fn. 44.
Nonetheless, courts sometimes bend over backwards to "punish" what appears to them as gamesmanship. Many years ago, a New York City Congressman, Mario Biaggi, in response to a "leak" disclosing he had invoked his privilege in the grand jury and refused to answer questions, declared publicly that he had cooperated fully and answered all the jury's questions -- a statement which was far from true -- and that he had instructed his attorneys to seek release of his testimony to prove it. His attorneys moved for disclosure of testimony, no doubt expecting the motion to be denied. (The United States Attorney also so moved.) The district court, however, as later affirmed by the Court of Appeals, held that Biaggi had waived the privilege and ordered the release of his entire transcript. In re Biaggi, 478 F.2d 489 (2d Cir. 1973).
Even though I believe that ultimately it will not be determined (or probably even litigated) that Ms. Lerner waived her privilege against self-incrimination, I wonder whether her brief declaration of innocence -- by itself unlikely to persuade anyone -- was worth the risk, however slight. My guess -- pure guess -- is that the decision to allow her to make her brief opening statement was a compromise made between a careful lawyer and a client, like many I have represented, who adamantly desired to testify. Of course, professional discretion would prevent Mr. Taylor from shifting any blame.
Tuesday, May 14, 2013
DOJ Press Release, Parker Drilling Company Resolves FCPA Investigation and Agrees to Pay $11.76 Million Penalty; Corporate Crime Reporter, Parker Drilling Gets FCPA Prosecution Deferred, to Pay $11.76 Million
Phil Willon, LATimes, Charges filed in San Bernardino airport corruption probe
Adam Kaufmann & Arthur Middlemiss Join Lewis Baach PLLC - see here
Monday, April 22, 2013
The government decision to delay Miranda warnings, and also the first appearance before a judge and the assignment of counsel, for Dzhokhar Tsarnaev, the surviving alleged Boston Marathon bomber, was a tactical one, no doubt based largely on an evaluation that any admission Tsarnaev makes is unnecessary to a government case (eyewitnesses, an admission, videotapes, possession of explosives, flight, etc.) which appears to be overwhelming.
The broad "public safety emergency exception" which the government asserts is a questionable Department of Justice attempt to expand the narrow exception announced in New York v. Quarles, 467 U.S. 649 (1984). The government's aggressive stance is based in part on a belief that Miranda does not prescribe a procedural requirement for police questioning, but is only a prerequisite for the admissibility at trial of statements made by a defendant. Under such reasoning, government agents are free to violate the dictates of Miranda (and perhaps other constitutional rights) with no harm to their case except a return to the status quo ante.
Aggressive law enforcement tactics against criminal suspects accused of particular heinous crimes, such as terrorism, murder, kidnapping and large-scale drug dealing, gradually work their way into the general law enforcement toolbox. Tactics used against drug dealers and organized crime figures, such as extensive electronic surveillance, undercover agents, forfeiture of assets and disallowance of attorneys' fees, and exceedingly high bail requests, for instance, are no longer uncommon in white collar cases.
I wonder whether the "public safety emergency exception" is so far off. If it is acceptable under this exception to allow the government to disregard Miranda and Federal Rule of Criminal Procedure 5(a)(1)(A) (requiring agents to bring one arrested before a court "without necessary delay") in order ostensibly to prevent future terrorist crimes, will it also become acceptable to detain for 48 hours and question without Miranda warnings, for instance, those who have provided inside information about unknown persons to whom they might have provided such information in order to deter imminent or future insider trading or those who have hacked computers about accomplices or others who might commit imminent or future computer crimes?
Thursday, April 11, 2013
An administrative judge for the Merit Systems Protection Board has overturned the DOJ internal decision finding reckless misconduct for violating Brady obligations by two prosecutors of Senator Ted Stevens, Joseph Bottini and James Goeke, and ordering their suspensions. See here.
The administrative judge ruled that DOJ had violated its own disciplinary procedures which require a rank-and-file DOJ attorney in the Professional Misconduct Review Unit to review OPR findings and determine whether misconduct had occurred. The career attorney who reviewed the OPR findings, Terrence Berg (now a federal district judge in Michigan), decided in favor of the prosecutors, but his ruling was reviewed and reversed by his superiors, who found that misconduct had occurred and suspensions were appropriate. Review and reversal by the superiors, said the administrative judge, was improper procedurally, and the rank-and file attorney's decision was non-reviewable and final.
I lack sufficient familiarity with administrative law to opine whether this decision is wrong (although Prof. Bennett L. Gershman has made a strong case that it is). See here. I recognize that prosecutors, like those they prosecute, are entitled to due process. However, procedural infirmities aside, the actions of the prosecutors were clear enough and serious enough to warrant on the merits a finding of misconduct and a suspension. See here.
I find it ironic that DOJ's finding of misconduct was (according to the administrative judge) based on DOJ's own procedural misconduct. More seriously, however, I find extremely troubling the notion that a DOJ prosecutor's misconduct should be finally determined by a fellow career DOJ prosecutor. Defense lawyers, for instance, are not entitled to have their alleged misconduct weighed by a fellow defense lawyer.
A prosecutor's alleged misconduct ideally should be determined by the appropriate state bar disciplinary committee, not a fellow prosecutor (or fellow prosecutors). Of course, bar disciplinary committees, as several commentators have pointed out, have been extraordinarily hesitant to discipline prosecutors, especially with respect to Brady violations.
DOJ has the right to appeal to the three-judge Merit Systems Protection Board. It will be interesting to see if it does.
Friday, March 29, 2013
Two news items today highlight that the white collar area continues to be a key component of the criminal justice system. In Atlanta we see a Fulton County Grand Jury issuing indictments for claims that an alleged test cheating scandal involves criminal activity. See Michael Winerip, NYTimes, Former Atlanta Schools Chief Is Charged in Testing Scandal.
And the headline of the Tampa Bay Times is FBI Raid Signals End of Universal - an article describing the FBI raid of Universal Health Care.