Friday, November 1, 2013
Business Week has the story here. Former BDO Seidman CEO Denis Field, represented by Sharon McCarthy of Kostelanetz & Fink LLP, was acquitted on all seven counts he faced. Paul Daugerdas, former head of now-defunct Jenkens & Gilchrist's Chicago office, was convicted on seven of 16 counts. The original convictions against Daugerdas and Field were thrown out by SDNY Judge William Pauley after a juror's misconduct was brought to light.
Thursday, October 31, 2013
The opinion is in United States v. Kyle. Although not a white collar prosecution, the ruling applies to all federal criminal cases in the Ninth Circuit. The Ninth Circuit noted that when a district court goes beyond giving the reasons for its rejection of a plea agreement and starts discussing hypothetical agreements that it might accept, "it crosses over the line establsihed by Rule 11."
Wednesday, October 30, 2013
In United States v. Miller, the Sixth Circuit today reversed three of four counts of conviction in a mortgage fraud prosecution. The court held that appellant Miller did not unlawfully "use" a means of identification within the meaning of 18 U.S.C. Section 1028A, the Aggravated Identity Theft statute, when he falsely stated that two named individuals had given him authority to act on behalf of an LLC. Since Miller did not steal their identity, pass himself off as them, or purport to be acting on their behalf as individuals, he is not guilty of violating the statute. The government had argued for a broader construction, but the Sixth Circuit applied the rule of lenity.
The court also reversed a Section 1014 count, because it was bottomed on Miller's signing of a loan renewal and modification agreement. Since the modification and renewal agreement did not repeat the false statement contained in the original loan papers, Miller could not be guilty under Section 1014. The court indicated that Miller had engaged in fraud and false pretenses during the loan modification process. But this was not enough to support a Section 1014 conviction, which requires a knowingly false statement.
Tuesday, October 29, 2013
USA Today has this story. Here is the interesting part, at least to federal sentencing aficionados. Renzi took the government to trial. Judge David Bury calculated Renzi's U.S. Sentencing Guidelines range at 97-121 months. (The government asked for a 9-12 year sentence.) Judge Bury downwardly varied to 36 months. This is striking, and yet another example of the Guidelines losing their luster in white collar cases. Under the law the Guidelines must be considered, but in an increasing number of cases they are being considered and ignored or discounted.
Monday, October 28, 2013
We live in an age of massive arrogance, misconduct and lawlessness--individual, governmental and corporate. In the realm of federal criminal investigations, as each new outrage reveals itself, a federal law enforcement flak is trotted out to announce that "this program is entirely legal" or "you can trust us not to abuse our power" or my all-time personal favorite, "we have always done it this way."
"We have always done it this way," is particularly pernicious, because, generally speaking, the longer a practice has been engaged in by law enforcement, the more likely it is to be unlawful. This is because such practices typically begin inside of law enforcement agencies without the benefit of legal advice and review by DOJ prosecutors. The prosecutors find out about these practices in after-the-fact, incremental, and desultory fashion and often do not pay attention to, or care about, the unconstitutional or improper nature of said practices.
"We have always done it this way," as an excuse for impropriety, can also be false. What is really meant is "we have always done it this way since 9-11, because now we can pretty much do whatever we want." The original Stellar Wind warrantless wiretapping program and various forms of parallel construction are good examples of this phenomenon. These questionable practices go on until some person with integrity, sanity, and authority, a Jack Goldsmith or a Donald Verrelli, steps forward to remind everybody that the emperor has no clothes.
This post will be the first in an occasional series about current improper and/or "worst practices" taking place within federal law enforcement.
One such practice is the composite interview report. Federal law enforcement agents are required to write interview reports of the witness interviews that they conduct. The most common report is the FBI 302. Prosecutors read and rely upon these reports in conducting their investigations. These reports are often handed over to the defense as potential Jencks material (witness statements, usually of a testifying case agent) or Brady/Giglio material (statements containing exculpatory or impeachment information). The vast majority of such reports are records of a particular interview at a particular place and time.
But a composite interview report purports to document several interviews occurring over an extended time period. A key witness might be interviewed six times during the course of a year. The composite interview report memorializes in one document the information obtained in all of the interviews without revealing what particular statement was made in which distinct interview.
What is wrong with this practice? The accused does not get an accurate picture of the interview subject's story as it evolves, which it inevitably does. Take the following example. Jane Doe, a key government witness in a bank fraud prosecution, is interviewed nine times between 2007 and 2009. The 16-page composite interview report presents an overall narrative of what Jane allegedly told the agents. According to the composite interview report, Jane said that the defendant told her in 2006: "I am scared about the government's investigation. I don't look good in stripes."
The problem is that Jane did not reveal this tidbit until the seventh government interview. That Jane sat through six government interviews without revealing this highly incriminating statement by the defendant says a lot about her credibility. A good defense attorney will have a field day with this information on cross. But the defense attorney does not know about this information because the composite interview report will not pinpoint when Jane revealed the defendant's bombshell admission. The Giglio material gets hidden through the format of the composite report.
Assume further that Jane's seventh interview occurs two weeks before the new bank managers are about to announce a major layoff. These same managers are cooperating closely, and regularly, with the FBI and FDIC in an effort to avoid having the bank shut down. Perhaps Jane is becoming a better witness, because she wants to become indispensable to the FBI and have the agents put in a good word for her with bank officials. A composite interview report will reveal nothing about the crucial timing of Jane's key disclosure.
In the above hypothetical, the prosecutor is still duty bound to reveal that Jane did not remember the defendant's admission until her seventh interview. Why? Because the tardy nature of Jane's revelation weakens her credibiltiy as a witness and is therefore impeaching and exculpatory. But what if the prosecutor does not know the precise timing of Jane's bombshell, because he is only looking at a composite report? Or, what if the prosecutor participated in the interview, but does not remember or focus on the tardiness of Jane's recollection, because he is only reviewing the composite report? What happens is that the material exculpatory information gets buried--a constitutional violation.
In reality, the prosecutor may be directing the agents to file a composite report for the precise purpose of limiting exculpatory disclosures. Hiding exculpatory evidence seems to me to be the whole point of the composite interview report. Even if he is not explicitly directing the agents to create a composite 302, the prosecutor implicitly ratifies the composite 302 by tolerating its creation. Any AUSA worth his salt will have no problem directing the case agent to prepare individual interview reports of each interview session. The case agent does not technically work for the prosecutor, but as a practical matter he takes orders from the prosecutor regarding the conduct of the investigation. As an AUSA, I would have never tolerated a composite 302, as described above, for one moment.
Of course, case agents usually take handwritten notes of each interview report. Why can't the prosecutor solve his Brady/Giglio composite interview problem by reviewing these notes and turning over any Brady/Giglio materials to the defense? Because prosecutors rarely do this. Most of them are under the incorrect impression that handwritten interview reports never need to be turned over to the defense once they are "incorporated" into a final 302. But this is only true if the final interview report includes the Brady/Giglio material contained in the rough interview notes. And the composite interview reports that we have been discussing, by their very nature, hide Brady/Giglio material.
Many prosecutors never even review agent interview notes, simply assuming that the agents will transfer all relevant information from the notes to the final interview report. But agents are not trained or programmed to decipher exculpatory information. Some piece of information that is unimportant to the agent, might be critical to the seasoned criminal defense attorney. For example, the timing of Jane Doe's recollection in relation to her fear of an impending layoff, and the significance of that timing, is not likely to even register with the typical case agent or federal prosecutor. They are simply not hard-wired to look for such impeaching information, and would in all sincerity be shocked to be accused of hiding it. This professional myopia would not be a problem, in our hypothetical case, if there were nine interview reports for Jane Doe's nine interviews. The diligent defense attorney would have learned about the proposed layoff through case investigation and would immediately recognize the added potential significance of Jane Doe's belated bombshell. She not only forgot about the defendant's supposed confession through the first six interviews, but conveniently remembered it in time to help stave off her forced retirement. All of this is lost, if her interviews are compressed into a composite 302 that does not account for the nuanced changes in Jane's story from interview to interview.
When you step back and think about it, in addition to all of its other problems, the type of composite interview report that I have been discussing is an inherently false and artificial document. It is not in fact a report of a law enforcement interview. It is a narrative report of several different interviews that distorts those individual interviews by failing to identify what was asked and what was said in each particular interview session.
The composite interview report as I have described it is a sham and a disgrace. No ethical prosecutor should tolerate it. No ethical FBI SAC should tolerate it. James Comey should not tolerate it. Astonishingly, current FBI policy does not explicitly prohibit the use of composite interview reports. This must change.
Friday, October 25, 2013
According to the New York Times (Deal Book), the Federal Housing Finance Agency has announced its own $4 billion dollar settlement with JPMorgan Chase, covering the bank's sale of mortgage-backed securities to Fannie Mae and Freddie Mac in the period (2005-2007) leading up to the financial crisis. FHFA's original suit alleged that JPMorgan Chase, and predecessor entities Bear Stearns and WAMU, sold mortgage-backed securities to Fannie and Freddie without sufficiently full disclosure of their risky nature. This FHFA settlement was supposed to be part of the broader $13 billion dollar tentative settlement that has been the subject of so much public speculation in the past week. Apparently FHFA got tired of waiting for the broader deal to be finalized. Here is the signed settlement agreement and FHFA press release, posted on FHFA's web site. Under the terms of this particular settlement agreement, JPMorgan Chase pointedly does NOT admit "any liability or wrongdoing whatsoever, including, but not limited to, any liability or wrongdoing with respect to any of the allegations that were or could have been raised in the Actions." Further, "[t]he Parties agree that this Agreement is the result of a compromise within the provisions of the Federal Rules of Evidence, and any similar statutes or rules, and shall not be used or admitted in any proceeding for any purpose including, but not limited to, as evidence of liability or wrongdoing by any JPMorgan Defendant." Deal Book reports that the broader non-FHFA portion of the $13 billion tentative settlement includes fine payments "to prosecutors in California." I had not heard this before today. Hard to believe that any fines will be paid to prosecutors by JPMorgan Chase unless such fines are part of a final agreement to shut down the ongoing federal criminal investigation being run out of California.
Wednesday, October 23, 2013
Tuesday, October 22, 2013
Last week in United States v. Willena Stargell, the Ninth Circuit declared, in effect, "we are family with our sister circuits" in interpreting the federal wire fraud statute. Stargell, a tax preparer, was charged and convicted under 18 U.S.C. Section 1343 with wire fraud "affect[ing] a financial institution." Based on her filing of false tax returns, Stargell obtained Refund Anticipation Loans ("RALs") from financial institutions. Even though three of the four loans involved in Stargell's convictions did not result in a loss to any bank, the Ninth Circuit held that the statute was violated because, "[t]he increased risk of loss presented by fraudulent terms is sufficient to 'affect' a financial institution." The Ninth Circuit joined "our sister circuits in defining such term to include new or increased risk of loss to financial institutions." In fact, the only circuits the Ninth joined were the Seventh and Tenth. "The banks were affected because the risk of loss on the RALs was increased by the fraudulent nature of the related returns." The opinion takes a sledgehammer to the rule of lenity.
Monday, October 21, 2013
Wednesday, October 16, 2013
Last Friday, in United States v. Brown, the Seventh Circuit upheld an upward variance from the calculated U.S. Sentencing Guidelines range of 21-27 months to 60 months. Appellant, the office manager, bookkeeper, and accountant for a small family business, embezzled several hundred thousand dollars over a twenty year period.
"Before imposing sentence the district court thoroughly
examined the sentencing factors listed in 18 U.S.C. § 3553(a),
placing special emphasis on the sophisticated nature of
Brown’s embezzlement scheme, its long duration, and the deep
breach of trust that his conduct entailed. The judge accepted
the results of the Walker family’s internal audit and explained
that the loss—more than $600,000—was significant for a small
Like so many appellate decisions affirming upward variances, the Brown opinion has wonderful language describing the sentencing court's broad discretion to impose sentences outside the recommended Guidelines range. The federal criminal defense bar has reaped enormous rewards from the post-Gall/Kimbrough deference to district court sentencing determinations, but with these gains come occasional losses. The Brown affirmance is a good example of the latter phenomenon.
After the sentencing hearing, in conjunction with a technical amendment to the judgment, the district court entered a written Statement of Reasons that purported to upwardly adjust the Guidelines range to 41-51 months. The 60 month sentence remained unchanged. The Seventh Circuit treated this Statement of Reasons as a nullity, since Brown had already filed a notice of appeal, stripping the district court of jurisdiction, and since the written Statement of Reasons was so clearly at odds with the district court's oral pronouncements during sentencing. This odd procedural move by the sentencing court appears to have been an after-the-fact effort to bolster its upward variance. The Seventh Circuit made clear, between the lines, that such gyrations are unnecessary.
Tuesday, October 15, 2013
In what appears to be a case of nationwide first impression, the Third Circuit ruled today that federal district courts may require a defendant's sentencing allocution to be sworn, without violating Federal Rule of Criminal Procedure 32 or the U.S. Constitution. The textual Rule 32 discussion seems particularly weak as the rule itself nowhere requires the allocution to be sworn. The case is United States v. Ward. The opinion is here.
Monday, October 14, 2013
Tuesday, October 8, 2013
The statute of limitations, I used to think, was designed to allow a wrongdoer who is not arrested for a period of years to have a certain sense of repose to be able to go on with his life without fear of arrest for that wrongdoing. Recent legislative and prosecutorial activity in extending statutes of limitations in areas such as child sex crimes and sex crimes where DNA of the otherwise-unidentified perpetrator has been preserved has undermined this rationale. Further, the use of conspiracy statutes in federal prosecutions also allows prosecutors to effectively punish defendants for acts committed beyond the ordinary statute of limitations as part of a conspiracy that continues into a period within the statutory limit.
White-collar prosecutors often view the statute of limitations, generally five years from the date of occurrence of the crime, as the period which they have to prepare a case to secure an indictment. Courts rarely, if ever, dismiss a case for a delay in indictment if the indictment is returned within the statutory period even if the defendant can demonstrate that the delay was due solely to prosecutorial lassitude and that the defendant has been prejudiced by loss of witnesses, dimming of witnesses' memories, and other factors that hamper her right to present a defense. And arguments at sentencing that the defendant has led a blameless but fearful life for the many years the prosecution took to indict him generally fall on deaf ears.
Occasionally, prosecutors find they are unable to prepare to their satisfaction cases within the statute of limitations period and ask defense counsel to agree to extend the limit. Unless there is a possibility that additional time would afford a defense lawyer a realistic possibility of dissuading the prosecutor from indicting or of securing a favorable pre-indictment plea disposition, there is rarely a good reason for a defense lawyer to agree to such an extension. Yet, defense lawyers frequently acquiesce to the prosecutor's request.
Some years ago, in a matter involving a series of allegedly false billings to the government, a federal prosecutor asked me to agree on behalf of my client to extend the statute of limitations. In response to my question why he sought an extension, the prosecutor said, quite frankly, that he had been too busy with other matters to bring the matter before a grand jury and that some (but not all) of the charges would soon be time-barred. I asked him why I, on behalf of the defendant, should therefore consent to a waiver of the statute. He responded that if I did not consent to the extension, he would charge my client as part of a massive conspiracy to defraud the United States in order to include the false billings on the expired dates (but not as separate charges). I told him that I would not agree.
A few days later, I received a letter from the prosecutor, thanking me for agreeing to an extension of the statute of limitations and including a waiver form to be signed by my client and me. Concerned that a failure to protest might be construed at a later time by a judge as an acquiescence to the prosecutor's request for an extension, especially if the prosecutor (or a successor) contended that I had agreed orally, I fired off a letter expressing my surprise at the letter and reiterating that I did not and would not consent to an extension. (I do not know whether the prosecutor's letter was prepared prior to our conversation in the expectation that I would consent and then sent in error, or was sent in the hope that I would change my mind or execute it without paying attention.) The client was never indicted.
As this case illustrates, it is my belief that defense lawyers too readily consent to prosecutors' requests to extend the statute of limitations. Although I personally am generally agreeable to consenting to an extension of time because an adversary is busy and needs more time to prepare papers, when such consideration clearly is to the detriment of a client, I believe a lawyer should not extend such professional courtesy, even if she fears she would be marked by the prosecutor's office as an attorney who deserves no personal consideration. Effective advocacy should generally trump civility.
I therefore note with interest that Reed Brodsky, the defense lawyer for Paul J. Konigsberg, a targeted long-time accountant for and close associate of Bernard Madoff, reportedly had refused to consent to an extension of the limitations period on behalf of his client. See here. I do not know what reasons, if any, the prosecution gave for its request and what reasons Brodsky had to refuse the request. I do know that a trial of some of Mr. Madoff's former employees, which is expected to go beyond the statute of limitations cutoff date, began this week. Of course, in the event any or all of those employees are convicted (or even not convicted), they might well then agree to cooperate with the authorities against Mr. Konigsberg.
If any of those defendants are available to testify against Mr. Konigsberg, the prosecutor will certainly be able to use them as witnesses. The prosecutor should not, however, properly be able to use the grand jury subpoena power or the grand jury itself to obtain their testimony or other additional evidence to prosecute Mr. Konigsberg for the crimes for which he was charged since a grand jury cannot be used to gain evidence for already-indicted cases or for additional Madoff-related crimes since they are time-barred. To be sure, at times prosecutors do secure additional evidence for use in a pending case when they conduct a grand jury investigation with a view toward indicting additional defendants or prosecuting not-yet-charged crimes against an already-indicted defendant. That is unlikely here.
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 30, 2013
Tuesday, September 24, 2013
Many years ago I authored an article titled, "Do We Need a 'Beanie Baby' Fraud Statute?" The Article considered how specific a statute needs to be to provide proper due process to a criminal defendant. It focused on the breadth of the mail fraud statute, while also recommending that criminal statutes cannot be created for every unique circumstance - like "Beanie Baby" fraud. It was written at the height of the time when individuals were committing crimes of fraud with "Beanie Babies." In some cases, the company producing this product was the victim of the fraud.
Another side of "Beanie Babies" is mentioned this past week - and it relates to the CEO of Ty Warner, who was the creator of "Beanie Babies." A DOJ Press Release tells that H.Ty Warner was charged with tax evasion for allegedly hiding funds in a secret Swiss offshore account. The press release states, "[t]hrough his attorney, Warner authorized the government to disclose that he is cooperating with the Internal Revenue Service and will plead guilty to the charge." According to the DOJ Press Release, "Warner is the second taxpayer charged in Federal Court in Chicago in connection with an ongoing investigation of U.S. taxpayer clients of Union Bank of Switzerland (UBS) and other overseas banks that hid foreign accounts from the Internal Revenue Service."
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, September 20, 2013
The U.S. Sentencing Commission held a conference that examined 2B1.1 - the Fraud Guideline. A proposal offered from the ABA Task Force on the Reform of Federal Sentencing for Economic Crimes was one topic of discussion. (See ABA Task Force Report Download USSC Presentation 9-17-13). This proposal, presented by James E. Felman, came with several caveats, most importantly that the existing statutory structural framework would remain in effect, although their "Prinicples of Consensus" presented weaknesses to this framework.
The ABA Proposal focuses on three key specific offense characteristics - loss, culpability, and victim impact. But unlike the existing 2B1.1 guideline, levels of culpability would play a significant role in determining the sentence. Although loss continued to remain a component in determining a sentence under this proposal, the sentence would not be a function of a mathematical computation that was basically driven by the amount of loss. The proposal appeared to be a framework for discussion, as opposed to an in-depth description as to exactly how it would operate. And although it left open many questions, it offered a strong base for starting a conversation that would move the sentencing guidelines away from being predominantly loss-focused and also away from including "intended loss." The proposal also appeared to provide the judiciary with more influence in the sentence received, something that might not be as appealing to the government.