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.
Sunday, August 31, 2014
The New York Times had an interesting article this week by Steven Davidoff Solomon entitled “Keeping Corporate Lawyers Silent Can Shelter Wrongdoing.” The piece centers on the recent decision out of the Delaware Supreme Court in the case of Wal-Mart Stores, Inc. v. Indiana Electrical Workers Pension Trust Fund IBEW,Del. Supr., No. 614, 2013 (July 23, 2014), and notes that the attorney-client privilege can be used to “shelter potential wrongdoing, perhaps to the detriment of many people, including shareholders.” As discussed at length in the article, the IBEW case permits stockholders to unilaterally breach the attorney-client privilege when there is suspected wrongdoing at a corporation.
The IBEW case is one many have followed in recent years. The controversy began after the New York Times broke the story of potential Foreign Corrupt Practices Act violations by Mar-Mart in April 2012. In response to that initial article, the IBEW, a Wal-Mart stockholder, sent a letter to the company demanding inspection of a number of documents related to the potential FCPA matter, including documents regarding the corporation’s initial internal review of the situation. Wal-Mart declined to provide certain of the documents and, with regard to some of those materials, claimed they were protected by the attorney-client privilege. The issue of whether Wal-Mart could properly withhold these materials from shareholders was litigated at length and finally made its way to the Delaware Supreme Court. In the ruling from last month, the Delaware Supreme Court sided with the IBEW and ordered Wal-Mart to produce the materials. Referring to the Fifth Circuit Court of Appeals case of Garner v. Wolfinbarger (1970), which recognized a fiduciary exception to the attorney-client privilege, the court in IBEW said:
With regard to the other Garner good cause factors, the record reflects that disclosure of the material would not risk the revelation of trade secrets (at least it has not been argued by Wal-Mart); the allegations at issue implicate criminal conduct under the FCPA; and IBEW is a legitimate stockholder as a pension fund. Accordingly, the record supports the Court of Chancery's conclusion that the documentary information sought in the Demand should be produced by Wal-Mart pursuant to the Garner fiduciary exception to the attorney-client privilege.
It is important to note, of course, that the shareholders are meant to keep the information they receive confidential and use it only to decide whether to file a claim against Wal-Mart directors related to the FCPA matter.
In reading the most recent New York Times article, I kept coming back to Upjohn v. United States and the ever present debate regarding the proper role of privilege in the world of internal investigations and potential corporate wrongdoing. In particular, I was drawn to the important language in Upjohn regarding the reasons for applying the privilege: “The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyers being fully informed by the client.” As the New York Times states in its piece from this week, “the attorney-client privilege for companies is increasingly under attack.” I wonder now what impact the IBEW decision and related issues regarding lawyer whistleblowers, such as in the ongoing Vanguard case, will have on the future of internal investigation strategy and, in particular, the role of internal counsel in such situations.
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, August 20, 2014
My favorite statement so far on the Rick Perry indictment comes from Senator Ted Cruz: "Unfortunately there has been a sad history of the Travis County District Atttorney's Office engaging in politically-motivated prosecutions, and this latest indictment of the governor is extremely questionable." The second part of the statement is yet to be proved. The first part is true but misleading. As Cruz certainly knows, Special Prosecutor Michael McCrum (a good friend of mine) has no affiliation whatsoever with the Travis County District Attoney's Office or its pathetic Public Integrity Unit.
The Wall Street Journal runs a close second, with its Texas Chainsaw Prosecution editorial falsely claiming that McCrum is "a Travis County prosecutor," and bemoaning "the tactic of using a special prosecutor to disguise political motives." As the Journal undoubtedly knows, McCrum is a Special Prosecutor appointed by a Republican judge after Travis County DA Rosemary Lehmberg recused herself and her office from the investigation. Perhaps the WSJ can enlighten us as to how Ms. Lehmberg manuevered McCrum's appointment and controls him to this day. I'll look for the editorial staffers to run that story right after they find Saddam Hussein's Weapons of Mass Destruction.
The real danger comes from the Journal's suggestion that Perry file a federal civil rights action against McCrum in McCrum's personal capacity. This invites the kind of personal and institutional attack on a public servant (which is excactly what McCrum is) that the Journal rightly bemoaned during Ken Starr's tenure as Independent Counsel. There is an explanation for the Journal's turnaround on this issue. Blatant partisan hypocrisy.
The Journal's bully-boy editorial plays right into the vigilante component in Perry's persona. Let's not forget the Governor's infamous threat to former Fed Chairman Ben Bernanke during the 2012 primary campaign: "If this guy prints more money between now and the election, I dunno what y'all would do to him in Iowa, but we would treat him pretty ugly down in Texas." And in his first public statement after the indictment, Perry, true to form, threatened that "those responsible" for his prosecution "will be held accountable." That's a threat, pure and simple, against the public servant McCrum, the Republican judge who appointed him, and, last but not least, the citizens who served as grand jurors. I am reminded of another infamous comment, from James Carville in 1996, that Judge Starr was "one mistake away from not having any kneecaps."
So here is my unsolicited advice to Governor Rick Perry. Attack the indictment all you want. Attack the theory behind it. Attack the wisdom, judgment and prudence of the prosecutor who brought it. Attack the overcriminalization of political acts. All of this is fair game and nobody, least of all a prosecutor, should be immune from public criticism. But try to remember that you are the "new" Rick Perry. Put on your glasses and your big boy pants and stop making threats, or I'll have to come back home. And hold you accountable.
Tuesday, August 12, 2014
As I mentioned in my post last week, I moderated a roundtable discussion at this year's ABA annual meeting entitled Navigating the White Collar Crime Landscape in China. While the discussion included many unique and interesting insights into current trends and challenges in the field of white collar crime in China, I thought I might share just a few of the themes we heard from participants.
First, according to our participants, we should expect to see a continued focus on anti-corruption enforcement actions by both the United States and China. Second, it is important to note that China has begun focusing on the prosecution of high-level corporate employees, not just low-level employees and the corporation. Third, we should anticipate that China will continue to expand its anti-corruption mission, including directing more attention towards U.S. entities. In this regarding, it was also predicted that China may soon explore the adoption of an anti-corruption statute with extraterritorial jurisdiction to assist it in undertaking a broader anti-corruption mission similar to the U.S. This might mean we will soon see a Chinese version of the FCPA. Finally, several of our panelists noted that China is increasing its focus on data privacy and state secrets laws, including enforcing such laws against foreigners more vigorously.
Regarding this last theme from the discussion, I'll note that on the morning of our program two corporate investigators in China, one from the UK and the other from the U.S., were found guilty of purchasing private information regarding Chinese citizens. The pair, who are married, were well known in the internal investigation community in China and regularly performed work for large U.S. corporations, including GlaxoSmithKline. According to the charges, the pair violated Chinese law by illegally acquiring personal information on Chinese citizens and then selling that information to their clients. The first defendant, Peter Humphrey, was sentenced to two and a half years in prison. The second defendant, Yu Yingzeng, was sentenced to two years in prison. Those who perform due diligence and internal investigation work in China are keeping a close eye on this and related matters. You can read more about the prosecution in The Wall Street Journal.
Sunday, August 10, 2014
Court E. Golumbic & Albert D. Lichy, The 'Too Big to Jail' Effect and the Impact on the Justice Department's Corporate Charging Policy, ssrn abstract -
In the wake of the 2008 financial crisis, the failure of the Department of Justice (“Justice Department” or “DOJ”) to bring criminal charges against any financial institutions prompted critics to question whether
the DOJ maintained a policy that certain corporations are “too big to jail.” The criticism piqued after the DOJ announced that it had entered into a deferred prosecution agreement (“DPA”) with HSBC to resolve a massive money laundering and government sanctions investigation.
This wave of criticism is the backdrop for what the Authors call the “too big to jail” effect — two related developments, each of which has the potential to impact the future of DPAs in the corporate crime context. The first is a willingness on the part of at least one federal district court to inject a level of judicial intervention into the process of structuring DPAs. In approving the HSBC, Judge John Gleeson issued a groundbreaking opinion articulating, for the first time, a standard for district court review of the terms of a DPA. The second is an emerging willingness on the part of the DOJ to pursue criminal charges over DPAs in high-profile cases involving financial institutions. In a strong departure from past practice, the DOJ recently secured guilty pleas from the foreign subsidiaries of UBS and RBS, SAC Capital Advisors and three related entities, and the parent of Credit Suisse.
This Article examines the impact of the “too big to jail” effect on the Justice Department’s corporate charging practices. The Authors argue that DPAs should not be abandoned. Instead, Congress should amend the Speedy Trial Act to require substantive, judicial review of the terms of DPAs. To
this end, the Authors propose a standard of review that is designed to maximize the benefits of DPAs, while minimizing the concerns that have historically accompanied their use.
Monday, August 4, 2014
For those attending this year's ABA Annual Meeting in Boston, I wanted to alert you to a roundtable discussion occurring on Friday, August 8 from 3-5pm (Room 308, Level 3, Hynes Convention Center) entitled Navigating the White Collar Crime Landscape in China.
The event, which is co-sponsored by the Chinese Business Lawyers Association, will focus on emerging trends and challenges in the field of white collar crime in China. The event will begin with short presentations by a host of experts in the area, each of whom will offer their own unique insights. Following these brief introductory remarks, everyone in attendance will participate in an open dialogue. During the discussion portion of the program, panelists and audience members are encouraged to ask questions and share insights and experiences. It is anticipated that a wide variety of topics will be discussed and analyzed during this roundtable discussion, including strategies for conducting corporate internal investigations, advice for dealing with government agencies, best practices for corporate compliance, and current trends regarding cybercrime and corporate espionage, whistle-blower programs, anti-corruption enforcement, money laundering, and trade violations.
I will be moderating the program and will be joined by the following featured discussants:
Ronald Cheng - USAO, Central District of California
William McGovern - Kobre & Kim LLP, Hong Kong
Karen Popp - Sidley Austin LLP, Washington DC
Zaldwaynaka (Z) Scott - Kaye Scholer LLP, Chicago, Illinois
Philip Urofsky - Shearman & Sterling LLP, Washington, DC
Keith Williamson - Alvarez & Marsal, Hong Kong
Debra Yang - Gibson Dunn, Los Angeles, California
It should be a wonderful event. I hope to see some of our readers there.
Sunday, August 3, 2014
Article by Sara Sun Beale (Duke) - The Development and Evolution of the U.S. Law of Corporate Criminal Liability (SSRN)-
In the United States, corporate criminal liability developed in response to the industrial revolution and the rise in the scope and importance of corporate activities. This article focuses principally on federal law, which bases corporate criminal liability on the respondeat superior doctrine developed in tort law. In the federal system, the formative period for the doctrine of corporate criminal liability was the early Twentieth Century, when Congress dramatically expanded the reach of federal law, responding to the unprecedented concentration of economic power in corporations and combinations of business concerns as well as new hazards to public health and safety. Both the initial development of the doctrine and the evolution in its use reflect a utilitarian and pragmatic view of criminal law.
This article describes the evolution of the practice of corporate criminal liability and sentencing, arguing that administrative responses by the Department of Justice and the U.S. Sentencing Commission have responded to widespread criticism of the existence of corporate liability as well as the breadth of the respondeat superior standard of liability. As a result of this evolution in enforcement, only a very small number of corporations are convicted, and the penalties imposed on those that are convicted are adjusted to reflect corporate culpability. Nevertheless, the broad potential for criminal liability has significant consequences for a wide range of corporate behavior. Corporations have powerful incentives to perform internal investigations, cooperate with both regulators and prosecutors, and actively pursue settlement of claims of misconduct. To avoid criminal liability, corporations also enter into deferred prosecution agreements that often require changes in corporate business practices and governance as well as monitoring to ensure compliance. The purpose of these administrative responses attempt is to reduce or eliminate the negative effects of imposing criminal liability while exploiting the law’s power to deter criminal behavior, improve corporate citizenship, and bring about beneficial structural reforms.
The persistence of the doctrine of respondeat-superior-based corporate criminal liability and its limitation in practice shed light on three key aspects federal criminal law. First, the Sentencing Guidelines have served as a more limited substitute for comprehensive criminal code reform. Second, the federal justice system lacks the resources to process the vast majority of cases falling under the criminal code, and prosecutorial discretion is relied upon to select a small fraction of cases for prosecution. Finally, like corporations, all defendants receive incentives for cooperation that may effectively compel them to plead guilty and/or assist in the investigation and prosecution of others.
Friday, August 1, 2014
New Article by Professor Lucian Dervan - White Collar Over-Criminalization: Deterrence, Plea Bargaining, and the Loss of Innocence published in 101 Kentucky Law Journal. The abstract states:
Overcriminalization takes many forms and impacts the American criminal justice system in varying ways. This article focuses on a select portion of this phenomenon by examining two types of overcriminalization prevalent in white collar criminal law. The first type of over criminalization discussed in this article is Congress’s propensity for increasing the maximum criminal penalties for white collar offenses in an effort to punish financial criminals more harshly while simultaneously deterring others. The second type of overcriminalization addressed is Congress’s tendency to create vague and overlapping criminal provisions in areas already criminalized in an effort to expand the tools available to prosecutors, increase the number of financial criminals prosecuted each year, and deter potential offenders. While these new provisions are not the most egregious examples of the overcriminalization phenomenon, they are important to consider due to their impact on significant statutes. In fact, they typically represent some of the most commonly charged offenses in the federal system.
Through examination of the Sarbanes-Oxley Act of 2002 and examples of these two types of over criminalization within that law, this article seeks to understand whether new crimes and punishments really achieve their intended goals and, if not, what this tells us about and means for the over criminalization debate and the criminal justice system as a whole.
Wednesday, July 30, 2014
Amanda Bronstad, NLJ, Indictments for Two Former Attorneys General in Utah
Oral Argument in the 11th Circuit on Don Siegleman, former governor, postponed to October 13, 2014 - two issues: 1)sentencing; 2) conflict of interest
Matt Zapotosky & Rosalind S. Helderman, Washington Post, Jury chosen in McDonnell corruption case
Friday, July 25, 2014
In re Kellogg Brown & Root – Privilege, Internal Investigations, and International White Collar Crime – Part II of II
In last week’s post, I discussed the recent case of In re Kellogg Brown & Root (“KBR”) from the perspective of privilege issues and internal investigations generally. Today, I would like to focus our consideration of the KBR case on international investigations and privilege issues.
In the KBR matter, a whistleblower alleged that the defense contractor defrauded the government by “inflating costs and accepting kickbacks while administering military contract in wartime Iraq.” During the whistleblower’s case, he sought discovery of materials from an internal investigation of the matter previously conducted by KBR. As discussed last week, the U.S. Court of Appeals for the District of Columbia Circuit concluded that the whistleblower was not entitled to the materials, stating that the “same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.”
In rendering its opinion, the DC Circuit offered several important clarifications regarding the applicability of the attorney-client privilege to internal investigations. One of those was to note that Upjohn v. US (1981) does not require the involvement of outside counsel for the privilege to apply.
From In re KBR:
First, the District Court stated that in Upjohn the internal investigation began after in-house counsel conferred with outside counsel, whereas here the investigation was conducted in-house without consultation with outside lawyers. But Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply. On the contrary, the general rule, which this Court has adopted, is that a lawyer’s status as in-house counsel “does not dilute the privilege.” In re Sealed Case, 737 F.2d at 99. As the Restatement’s commentary points out, “Inside legal counsel to a corporation or similar organization . . . is fully empowered to engage in privileged communications.” 1 RESTATEMENT § 72, cmt. c, at 551.
While this is accurate with regard to domestic internal investigations, one must be cognizant of the fact that various jurisdictions around the globe interpret the privilege differently. When an internal investigation crosses borders, a failure to examine the breadth and scope of attorney-client privilege protections in the relevant jurisdictions could unexpectedly expose vast quantities of materials to production or seizure.
Take for example, the case of Akzo Nobel Chemicals Ltd. v. European Commission (European Court of Justice 2010). The case involved an antitrust investigation during which a dawn raid was carried out on Akzo’s Manchester, England, offices. During the raid, two emails were seized. The emails were an exchange regarding relevant antitrust issues between a general manager and the company’s in-house counsel. Despite the fact that such communications would almost certainly be privileged under U.S. standards and the ruling in In re KBR, the European Court of Justice rejected Akzo’s position that the emails were protected under the EU rules of privilege. Relying on an earlier ruling, the European Court of Justice reiterated that in EU investigations the attorney-client privilege only applies where (1) the communication is given for purposes of the client’s defense and, (2) the communication is with an independent lawyer, which does not including in-house counsel. See AM&S v. Commission (European Court of Justice 1982). The Akzo court went on to state, “It follows, both from the in-house lawyer’s economic dependence and the close ties with his employer, that he does not enjoy a level of professional independence comparable to that of an external lawyer.”
While such a limited application of the attorney-client privilege will not be present in every jurisdiction encountered during an international internal investigation, it is an important issue to consider both when structuring and conducting such inquiries in a cross-border setting.
For more on the dynamics of international internal investigations, see my recent article entitled International White Collar Crime and the Globalization of Internal Investigations (Fordham Urban Law Journal), available for free download here.
Sunday, July 20, 2014
I enjoy studying upward variance opinions, as they usually contain language and rules that can be used by the defense to support downward variances in other cases. This is true because, whatever specific factors are discussed, federal appeals courts typically speak of what justifies such variances in general terms, not distinguishing between upward and downward excursions. United States v. Ransom, decided earlier this month by the D.C. Circuit in an opinion by Judge David Sentelle, is no exception. Chester Ransom and Bryan Talbott each pled guilty to a fraud scheme and stipulated to a non-binding Guideline range of 46-57 months. The sentencing court calculated Ransom's range at 46-57 months but upwardly varied to a 72 month sentence. The court calculated Talbott's range at 63-78 months but upwardly varied to a 120 month sentence.
The Court initially held that Ransom's upward variance for lack of remorse was not inconsistent with the three point downward adjustment he received for acceptance of responsibility under Section 3E1.1(a) and (b). The Court in essence stated that one can plead guilty early and cooperate with the government without showing any remorse.
Next the Court rejected appellants' argument that the sentencing court improperly relied on factors in varying upward that the Guidelines had already accounted for. Joining some sister circuits the Court held (internal quotes and citations omitted) that:
It is not error for a district court to enter sentencing variances based on factors already taken into account by the Advisory Guidelines, in a case in which the Guidelines do not fully account for those factors or when a district court applies broader [Section] 3553(a) considerations in granting the variance.
As anyone who does federal sentencing work knows, those broader 3553(a) factors are often the key to obtaining a downward variance if the court is otherwise inclined to do so. To take one example, in the Mandatory Guidelines era it was almost impossible to obtain a downward departure based on family circumstances, but they can, and must, at least be "considered" by the sentencing court under the current regime. Believe it or not, not every district judge comprehends this simple rule. Ergo, it is nice to have additional case law on one's side.
Friday, July 18, 2014
In re Kellogg Brown & Root – Privilege, Internal Investigations, and International White Collar Crime – Part I of II
I am honored to join Ellen Podgor, Lawrence Goldman, and Solomon Wisenberg as a blogger on the White Collar Crime Prof Blog. My focus on the blog will be matters related to internal investigations and international white collar crime.
To get us started, let’s take a quick look at a new case that relates to both of these topics – In re: Kellogg Brown & Root, Inc., et al.
As readers of this blog will no doubt recall, the U.S. Supreme Court held in 1981 that attorney-client privilege protections may apply to internal corporation investigations. See Upjohn Co. v. United States, 449 U.S. 383 (1981). The Court stated:
The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law. Its purpose is to encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyers being fully informed by the client.
Despite the strong language in the Upjohn case, a U.S. District Court in Washington, DC ruled that a whistleblower at Kellogg Brown & Root (“KBR”), a defense contractor, was entitled to production of documents related to an internal investigation. The lower court concluded that the internal investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”
Last month, the U.S. Court of Appeals for the District of Columbia Circuit overruled that lower court decision in the case of In re: Kellogg Brown & Root, Inc., et al. (Decided June 27, 2014). The court concluded that the “same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.”
In overruling the lower court’s decision, the DC Circuit offered several important clarifications regarding the applicability of the attorney-client privilege to internal investigations. First, the court clarified that Upjohn does not require the involvement of outside counsel for the privilege to apply. Second, the court noted that the privilege may apply even when many of the employee interviews are conducted by non-attorneys, as long as those interviewers are serving as the agents of attorneys. Third, the court explained that even though the employees in the KBR case were not explicitly informed that the purpose of the interviews were to assist the company in obtaining legal advice, Upjohn does not require any “magic words” for the privilege to apply. Further, the court noted that the employees in the KBR case knew that the company’s legal department was conducting an investigation and that the investigation was highly confidential.
Finally, and, perhaps, most importantly, the court rejected the lower court’s argument that the attorney-client privilege did not apply in this investigation because KBR was acting to comply with Department of Defense regulatory requirements, not to obtain legal advice. In ruling on the matter, the appeals court stated, “So long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.” This is important language from the court, particularly given the increasing regulatory compliance obligations imposed on corporations and the fact that many internal investigations today are instigated at the behest of the government. See e.g. Computer Associates – discussed here and here.
In my next post, we’ll consider how the In re: KBR case fits into the larger legal framework of international internal investigations. In particular, we’ll examine whether attorney-client privilege extends to internal investigations undertaken solely by internal counsel when the investigation extends outside the United States.
Welcome to Professor Lucian Dervan, who is joining the White Collar Crime Prof Blog. Professor Dervan is a professor of Southern Illinois School of Law, where he also serves as the Director of Faculty Development. A prolific scholar, Professor Dervan is also a member of the Advisory Committee of the NACDL White Collar Criminal Defense College at Stetson.
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.
David Gerger just joined Quinn Emanuel Urquhart & Sullivan, LLP with the opening of their office in Houston. (see here) Gerger will be the managing partner of the new Houston office. He will be joined by Shaun Clarke, who will become Special Counsel and Co-chair of the Houston office’s white collar group. Also joining the firm will be Dane Ball, Sammy Khalil and David Isaak, who will be Of Counsels to the firm.
Gerger, a top white collar practitioner, has handled cases across the United States including matters related to Enron and the BP Deepwater Horizon oil spill. David Gerger has also taught as part of the NACDL White Collar Criminal Defense College at Stetson.
Sunday, July 13, 2014
Mark Whitacre, the informant from the ADM scandal, tells his story in an Essay in 45 Loy. U. Chi. L.J. 525 (2014). He discusses three paradigms in white collar cases, including how he and "top executives (my supervisors) at ADM were very focused on the short term when we should have been focused on the long term." He discusses how he ended up in prison, despite being a whistleblower, and how he chose going to trial as opposed to taking a plea. He ends the Essay with some advice, including the importance of work-life balance.
Tuesday, July 8, 2014
Matthew Goldstein & Rachel Abrams, NYTimes, Jury Clears Rengan Rajaratnam in Insider Trading Case
Chrsitopher M. Matthews, WSJ, Jury Acquits Rengan Rajaratnam in Insider-Trading Case
Nate Raymond & Joseph Ax, Reuters, Rengan Rajaratnam cleared, U.S. insider trading streak snapped
He was represented by Daniel M. Gitner of Lankler, Siffert & Wohl LLP.
Friday, July 4, 2014
Guest Blogger - Jon May
In United States v. Miller, 425 U.S. 435, 96 S.Ct. 1619 (1976) the Supreme Court held that a depositor does not have a reasonable expectation of privacy in the records of his account maintained by a bank pursuant to the Bank Secrecy Act. Justice Powell, writing for the majority of the Court, reasoned that there was no expectation of privacy in the contents of a bank record. According to Justice Powell, “checks are not confidential communications but negotiable instruments to be used in commercial transactions.” Specifically, “financial statements and deposit slips, contain only information voluntarily conveyed to the banks and exposed to their employees in the ordinary course of business.” As such, “The depositor takes the risk, in revealing his affairs to another, that the information will be conveyed by that person to the Government.” Id. at 443-444.
In so holding, the Court did not consider the extent to which the government can obtain information about a person’s most confidential affairs through an analysis of bank account records. But such an analysis was made by Justice Roberts, speaking for a unanimous Court in Riley v. California, which held that the Fourth Amendment prohibits the government from examining the contents of a person’s cell phone absent a warrant.
In Riley Justice Robert’s rejected the government’s argument that an individual did not enjoy an expectation of privacy in those records maintained in electronic devices carried on the person. In so holding, Justice Roberts analyzed the expectation of privacy in a very different way than did Justice Powell. According to Justice Roberts, the arrest of an individual may diminish the person’s expectation of privacy, but it does not do away with it entirely. Slip op. at 20. Justice Roberts pointed out that cell phones are mini-computers which just “happen to have the capacity to be used as a telephone.” This gives people the ability to lug around “every picture they have taken, or every book or article they have read” without the need to schelp around the kind of trunk that the Court would require a search warrant to search under Chadwick.
Seizing the contents of a cell phone gives the government the ability to reconstruct the sum of an individual’s private life, “reconstructed through a thousand photographs labeled with dates, locations, and descriptions….” Justice Roberts observed that while “A person might carry in his pocket a slip of paper reminding him to call Mr. Jones; he would not carry a record of all his communications with Mr. Jones for the past several months, as would routinely be kept on a phone. Id. at 23. Indeed, “it is no exaggeration to say that many of the more than 90% of American adults who own a cell phone keep on their person a digital record of nearly every aspect of their lives—from the mundane to the intimate.” Id.
For example, the government could readily learn everything about an individual’s “private interests or concerns—perhaps a search for certain symptoms of disease, coupled with frequent visits to WebMd.” Further, “Data on a cell phone can also reveal where a person has been.” Id. As a result a person’s “specific movements down to the minute, not only around town but also within a particular building,” could be uncovered. Id. at 24. A mere examination of the “apps” found on a cell phone could reveal whether a person was a Democrat or a Republican, whether they had an addiction, or were pregnant, etc. Id.
Almost everything that can be said regarding the violation of an individual’s privacy resulting from the government’s search of the person’s cell phone can be said about a search of a person’s bank accounts. You can even trace their movements through time through their credit card charges. Consequently to the extent that it is reasonable for society to expect that the government have a search warrant or a grand jury subpoena as a condition of invading that zone of privacy, the same could be said of searches of an individuals banking records. It appears that this sort of argument, which would have fallen on deaf ears 15 years ago, may find a receptive ear in the courts today. Lawyers may wish to argue now that Miller’s narrow view of society’s expectations regarding privacy are no longer valid.
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.