Monday, November 30, 2015

Former New York State Speaker Silver is Convicted

Longtime New York State Assembly Speaker Sheldon Silver, a Democrat, was found guilty today by a Southern District of New York federal jury on corruption charges, including honest services theft and extortion under color of law.  As Speaker and majority leader, Silver was one of the "three men in a room" who controlled the New York Legislature (the others being the Governor and Senate majority leader, almost always a Republican, one of whom, Dean Skelos, is now on trial on corruption charges in the same courthouse as Silver was - an apparent show of federal prosecutorial bipartisanship).

Silver had requested and received case referrals to the tort specialty law firm where he was counsel from a doctor to whose university-affiliated clinic he later directed a half-million dollar state grant.  He also requested from two major real estate firms that they send business to a different law firm from which he received large referral fees.  Although the doctor and the real estate firm officers testified that they made the referrals to curry favor and influence Silver, no witness testified that there was an explicit quid pro quo or specific agreement that Silver would perform a specific (or even unspecific) act, although the government maintained that Silver did perform official actions that benefited the doctor and the real estate firms.

The defense argued that there was no quid pro quo, that the referrals were made out of friendship and respect, and that the official acts performed by Silver were legitimate and not performed because of the referrals.

The verdict was no surprise.  Although the defense portrayed the incidents as "politics as usual," the "politics" just stunk.  Silver had clearly received benefits, referrals to law firms from which he received millions of dollars only because those who had provided these benefits thought that Silver as a powerful official would do things - unspoken, unspecific and perhaps then unknown - that would benefit them.  The cases, on which Silver did no actual legal work, were not referred to him because of his reputation as a lawyer.

On the one hand, as one who loathes corruption, I am somewhat gratified that it now appears (subject to judicial reversal of the jury verdict) that a public official may not request   a substantial valuable benefit, direct or indirect, if he or she knows or believes, that the donor is conferring the benefit because the donor believes that the official will exercise his or her official power to the donor's advantage, even in the absence of an agreement that the official do anything in his official capacity. 

On the other hand, I am concerned about what in effect is legislation by prosecution, even if it is good legislation.  However unwholesome Silver's conduct was, he might have been convicted for what had been generally perceived as acceptable conduct in his world that he believed was not criminal.  For better or worse, U.S. Attorney Preet Bharara has essentially changed the rules.  A corruption conviction does not require as a quid pro quo that there be an agreement by a public servant to do a specific act or at least generally to act favorably in the future when circumstances arise, as many prosecutors had believed for years (and some still do).   While the "new" rule is certainly better for society as a deterrent to corruption, I have some concern whether it is just to convict, and likely imprison for a considerable time, someone who acted within what he believed the rules were.

Perhaps this case will embolden prosecutors to go further in charging public officials.  Here, Silver clearly solicited benefits, received benefits, and, at least in the case of the doctor, in return provided a benefit, even if not pursuant to an agreement.  Will cases now be brought where public official receive monetary or equivalent benefits from those intending to influence them even where there is no evidence of solicitation by the officials and/or no evidence that the officials did anything in return for the benefits received?  And what about cases involving campaign contributions made by donors and accepted by a candidates in the expectation that the candidates will act favorably toward their causes, and the candidates (if elected) do so act?  (Or should there be an exemption for cases involving campaign funding?)

(Note - Silver, whom I have never met or spoken with, reappointed me three times as his designee to serve on  the New York State Commission on Judicial Conduct, but did not reappoint me a fourth time.)

November 30, 2015 in Corruption, Current Affairs, Prosecutions, Prosecutors, Verdict | Permalink | Comments (0)

Tuesday, November 24, 2015

Yates Memo Hot Topic

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

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

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


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

Monday, November 2, 2015

A Reply to Steven H. Levin's Responsive Blog on Hassert

   Last Friday attorney Steven H. Levin posted a guest blog disagreeing with my view in a blog earlier that day that Dennis Hastert should not have been prosecuted.  Hastert was charged with, and pleaded guilty to,  structuring withdrawals from financial institutions of his own apparently legitimately derived funds, purportedly to conceal payoffs to an alleged extortionist whom he had purportedly sexually victimized over 30 years ago.  Hastert, Mr. Levin said, "had to be prosecuted" because his prosecution had "potential deterrent effect" on "would-be structurers" and "would-be extortionists."

  Even if the Hastert prosecution were to  have a deterrent effect on such "would-be" criminals, I still believe, for the reasons I expressed, that this case was an appropriate one for the exercise of prosecutorial discretion.  I do recognize that deterrence is a commonly recognized goal of prosecution and sentencing, and accept that prosecutions do have a deterrent effect on some "would-be" white-collar criminals (but far less an effect on those who might commit crimes involving violence and narcotics).  Nonetheless,  I question whether this prosecution will cause a positive deterrent effect on those who are considering the commission of either structuring or extortion.

   I do accept that the publicity attendant to the prosecution will to an extent increase public awareness of the existence of a crime called structuring whose broad expanse covers acts committed by otherwise law-abiding citizens to maintain their privacy and avoid disclosure of things they prefer be confidential, and therefore may have some deterrent effect on those persons.  However, deterring people from committing essentially harmless acts even though criminalized by an overbroad statute does not appear to me to be much of a societal benefit.  And, to the extent that the attendant publicity will educate money launderers of criminal proceeds and deter them from violating the structuring statute, of which sophisticated criminals are overwhelmingly aware in any case, the positive effect is also questionable since its potential effects will be further concealment and consequent limitations on governmental discovery of criminality.

   Additionally, I doubt that many would-be extortionists would be deterred from acts of extortion by this prosecution, in which, it so far appears, the purported extortion victim has been prosecuted and the purported extortion perpetrator remains free and also has probably received millions of dollars in payments (and also perhaps achieved some measure of retribution by the exposure, so far limited, of Hassert's alleged misdeeds) .  To the extent it has any effect on rational would-be extortionists who weigh the benefit/risk ratio, this prosecution encourages rather than deters them.

November 2, 2015 in Celebrities, Legal Ethics, Money Laundering, Prosecutions, Prosecutors, Sentencing | Permalink | Comments (0)

Friday, October 30, 2015

Why Hastert Had To Be Prosecuted

Guest Blogger - Steven H. Levin

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

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

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

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


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

Thursday, October 29, 2015

Should Hastert Have Been Prosecuted?

   Former Speaker of the House Dennis Hastert yesterday pleaded guilty to money laundering in a Chicago federal court.  Hastert admitted that he structured banking transactions by taking out amounts under $10,000 to avoid reporting requirements in order to conceal the reason he was using the money, which according to the plea agreement was "to compensate and keep confidential his prior misconduct."  Although the facts were not revealed in court (but may later be in sentencing  proceedings), sources reported that he was paying "hush money" to a former student he allegedly molested over 30 years ago when he taught high school and coached wrestling. 

   It thus appears that Hastert was an extortion victim, coerced into paying a former student millions of dollars to avoid public disclosure of his misdeeds and the destruction of his reputation.   (I assume that the applicable Illinois statute of limitations had passed.) 

   I question whether Hastert should have been prosecuted.  The money laundering statutes, although clearly an intrusion into privacy, serve a generally laudable purpose in making it difficult for criminals to accumulate and spend ill-gotten gains.  Here, however,  Hastert (although he may have done serious wrongs many years ago) was not a criminal, but a victim.

   Congress has given the government broad power to prosecute violators of the money laundering laws well beyond those who derive funds from crime.    I do not know what drove the decision to prosecute Hastert.  Perhaps it was outrage over his long-ago sexual misconduct;  perhaps it was to put forth a case which would derive considerable publicity, something to which prosecutors are not averse;  perhaps it was just a rigid application of the law.   Although Hastert's banking conduct does clearly fall within the statutory bounds,  and there may be arguably legitimate reason to prosecute him, on balance I believe prosecutorial discretion should have been exercised and a case not brought.  I wonder whether it would have been brought against an ordinary Joe Smith.

October 29, 2015 in Celebrities, Legal Ethics, Money Laundering, Prosecutions, Prosecutors | Permalink | Comments (0)

Wednesday, October 7, 2015

Making the Yates Memo Work: Two Reform Proposals

The Yates Memo is all the rage. DOJ is saber-rattling at various CLE events and bloggers are holding forth on what it actually means. But wanting isn't getting. The question remaining is how to make sure that the company coughs up, or an investigation reveals, wrongdoing that occurred at the highest levels.

Here are two modest reform proposals I offer free of charge to the DOJ and FBI, based on my own experience defending individuals and. far less often, companies under investigation.

1. Modify Standard DOJ Proffer Letters. Mid-level corporate employees often possess very damaging information about those higher up the food chain. But these same mid-level employees can themselves be the subjects or targets of DOJ. At some point the employees are given the opportunity to proffer in front of the lead prosecutor. But the standard DOJ Proffer Agreement is riddled with loopholes. Assume that the proffer session does not result in a plea or immunity agreement and the employee is indicted. The primary loophole allows the government to use the proffered statement against the client at trial if the statement is in any way inconsistent with the defense presented. That's not much protection, which is why most seasoned white collar attorneys will not let a client with exposure proffer in front of DOJ. Thus, DOJ loses valuable information. DOJ should offer true non-Kastigar immunity for the information revealed in its proffer sessions. Nothing is lost by doing this, but much can be gained.

2. Demand Independent Internal Investigations. The first question every prosecutor should ask the corporation's outside attorney who is conducting an internal investigation or tendering an internal investigation report to DOJ is, "What is your reporting chain?" If outside counsel is not reporting to the Audit Committee or some other independent entity within the corporation there is absolutely no assurance that culpable upper management will be identified. Management can edit the final report and its conclusions to protect top executives and throw lower level employees to the DOJ wolves. Meanwhile, employees are less likely to truthfully cooperate with the internal investigation if they think the boss is reviewing interview reports every night after drinks. I am astounded at how often internal investigations are reported right up the chain of command at small and large publicly traded companies. DOJ prosecutors can make it clear that the procedural independence of the internal investigation will affect how the company is treated.


October 7, 2015 in Fraud, Government Reports, Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Monday, September 28, 2015

Food for Thought re Last Week’s Peanut Sentencing in Georgia

Just over a year ago, Stewart Parnell, the former CEO of Peanut Corporation of America (PCA), was convicted by a jury in the Middle District of Georgia of charges related to a deadly nationwide salmonella outbreak.  The matter came to the government’s attention in late 2008 when people began falling ill across the country.  The illnesses were eventually linked back to PCA’s peanut processing plant in Georgia.  As investigators continued to examine the salmonella outbreak, they discovered that the case involved potential criminal misconduct by Parnell and others who allegedly knew about the contamination, attempted to cover it up, and continued to ship contaminated and potentially contaminated product.  In one now infamous email from 2007, after being informed that batch test results were not back from the lab, Parnell wrote, “Just ship it.”  The outbreak killed nine people and injured thousands more.  Eventually, Parnell and others were charged in a 76-count indictment that alleged mail and wire fraud, introducing adulterated and misbranded food into interstate commerce, conspiracy, and obstruction of justice.  A jury found Parnell guilty of 67 of the 68 charges against him on September 19, 2014. 

On Monday of last week, U.S. District Court Judge W. Louis Sands sentenced Parnell to 28 years in federal prison.  One interesting aspect of the sentencing is that because authorities charged this case as a “white collar” matter involving fraud, rather than a homicide case, the most significant factor driving the guideline sentencing range was not the deaths of nine people, but the loss of over $100 million by the various food companies that were forced to recall their products because of Parnell’s actions.

According to last week’s DOJ press release:

Judge Sands took into account the fraud loss of PCA’s corporate victims when imposing today’s sentence.  The court found that Stewart Parnell and Mary Wilkerson should be held accountable for more than $100 million but less than $200 million in losses, and Michael Parnell should be held accountable for more than $20 million but less than $50 million in losses.  The court also found the government established evidence that Stewart Parnell and Mary Wilkerson should be accountable for harming more than 250 victims, and Michael Parnell should be accountable under federal sentencing guidelines for harming more than 50 victims.  The court additionally found that the Parnells should have known that their actions presented a reckless risk of death or serious bodily injury.

Looking at the applicable 2009 Federal Sentencing Guidelines (the Guidelines in place at the time of the offense conduct), one finds the following point allocations:

  • Base Offense – 7 points
  • Loss of more than $100 million – 26 points
  • 250 or more victims – 6 points
  • Risk of death – 2 points
  • TOTAL: 41 points

While there were likely other applicable sentencing points, such as obstruction of justice and role in the offense, the above point allocations alone result in 41 total points.  This translates into a guideline sentencing range of 324-405 months (27.00 – 33.75 years) for a defendant with no criminal history.  Steward received 336 months (28 years).

To highlight the importance of the loss amount in the Guideline’s calculation, note that if this case had involved nine deaths, but no financial loss to food companies, the sentencing range under section 2B1.1 of the Federal Sentencing Guidelines would have dropped to 18-24 months in the above calculation.  Obviously, this would have been a grossly unreasonable sentence given the devastating harm caused by Parnell.

I don’t know why this case was charged as a fraud and not a homicide.  Perhaps it was to send a clearer message about national food safety by bringing federal charges, including charges directly related to the introduction of adulterated and misbranded food into interstate commerce.  One additional item to note, however, as we think about the way this case proceeded, is that federal white collar sentences in high loss cases can often dwarf sentences for other crimes, including homicide.  Consider that involuntary manslaughter in Georgia carries a maximum sentence of ten years in prison.  Georgia also has automatic parole eligibility for most inmates.  By comparison, Parnell received 28 years in prison using federal fraud statutes and their applicable sentencing guidelines.  Further, there is no parole in the federal system.    

Federal fraud offenses are often attractive to prosecutors because they are broad enough to apply in all manner of situations and carry potentially significant sentences.  It should be no surprise, therefore, that we continue to see these statutes used in many cases that do not fit neatly into our traditional definitions of “white collar crime.”  For a further discussion of the way “white collar offenses” are used in a vast array of cases, many of which do not involve traditional white collar criminal activity, see “White Collar Crime”: Still Hazy After All These Years, 50 Georgia Law Review Issue 3 (Lead Article) (forthcoming).


September 28, 2015 in Food and Drink, Fraud, Prosecutions, Sentencing | Permalink | Comments (0)

Friday, September 18, 2015

GM Deferred Prosecution Agreement and the "New" DOJ Corporate Prosecution Policy

Just days ago, DOJ came down with a new corporate directive (discussed here) describing a shift in investigation policy.  The new focus would be on the prosecution of individuals within the entity.  It states:

"2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.

Both criminal and civil attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct. By focusing on building cases against individual wrongdoers from the inception of an investigation, we accomplish multiple goals. . . . "

So much for this new policy, as the GM Deferred Prosecution Agreement comes before any individual prosecutions. (see Corporate Crime Reporter here).  It has the company paying $900 million, accepting responsibility, agreeing to cooperate, and providing information to the government.  

Both the old DOJ approach and this new one, that seems to exist only on paper and not in practice, have problems.  Both have the company serving as "agents" of the government.  Both have the company doing the investigative work for the DOJ.  Both have the company "throwing employees under the bus." And both show a disrespect for individual attorney-client relations.  

Corporate and individual criminal actions are a problem that needs to be corrected.  But as previously said, pitting the entity against its constituents will not correct misconduct.  And telling the public that you intend to take a different approach and just days after you do the opposite fosters a lack of trust. It also demonstrates the importance of Congressional action as opposed to reliance on DOJ internal guidelines.


September 18, 2015 in Deferred Prosecution Agreements, Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Tuesday, September 15, 2015

In the News & Around the Blogosphere

Sue Reisinger, Corporate Counsel, AG Lynch Sounds Warning Bell, Says FIFA Probes Expand


September 15, 2015 in Prosecutions, Prosecutors, Sports | Permalink | Comments (0)

Monday, September 14, 2015

Sentencing the Wolf of Wall Street

I have just released a new article discussing the sentencing of Jordan Belfort, better known as the "Wolf of Wall Street."  I use this case as a mechanism for considering how white collar sentencing has evolved from the 1980s until today.  In particular, the article examines the growth in uncertainty and inconsistency in sentences received by major white collar offenders over this period of time and considers some of the reasons for this trend.  The article also examines the impact of recent amendments adopted by the U.S. Sentencing Commission on white collar sentences.

Lucian E. Dervan, Sentencing the Wolf of Wall Street: From Leniency to Uncertainty, 61 Wayne Law Review -- (2015).


This Symposium Article, based on a presentation given by Professor Dervan at the 2014 Wayne Law Review Symposium entitled "Sentencing White Collar Defendants: How Much is Enough," examines the Jordan Belfort (“Wolf of Wall Street”) prosecution as a vehicle for analyzing sentencing in major white-collar criminal cases from the 1980s until today. In Part II, the Article examines the Belfort case and his relatively lenient prison sentence for engaging in a major fraud. This section goes on to examine additional cases from the 1980s, 1990s, and 2000s to consider the results of reforms aimed at “getting tough” on white-collar offenders. In concluding this initial examination, the Article discusses three observed trends. First, today, as might be expected, it appears there are much longer sentences for major white-collar offenders as compared to the 1980s and 1990s. Second, today, there also appears to be greater uncertainty and inconsistency regarding the sentences received by major white-collar offenders when compared with sentences from the 1980s and 1990s. Third, there appear to have been much smaller sentencing increases for less significant and more common white-collar offenders over this same period of time. In Part III, the Article examines some of the possible reasons for these observed trends, including amendments to the Federal Sentencing Guidelines, increased statutory maximums, and judicial discretion. In concluding, the Article offers some observations regarding what the perceived uncertainty and inconsistency in sentencing major white-collar offenders today might indicate about white-collar sentencing more broadly. In considering this issue, the Article also briefly examines recent amendments adopted by the U.S. Sentencing Commission and proposed reforms to white-collar sentencing offered by the American Bar Association.


September 14, 2015 in Film, Fraud, Insider Trading, Prosecutions, Scholarship, Securities, Sentencing | Permalink | Comments (0)

Wednesday, September 9, 2015

It's Official - Throw the Employees Under the Bus

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

Three concerns here: 

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

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

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

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

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


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

Tuesday, July 14, 2015

New Article Regarding How We Define White Collar Crime

Ellen Podgor and I have just released a new article discussing the complexities of defining the term “white collar crime.”  The ability to define and identify white collar offenses is vital, as it allows one to track, among other things, the number of these cases prosecuted each year, the frequency with which particular types of charges are brought in these matters, and the sentences imposed on those convicted.  This new article begins with a brief historical overview of the term “white collar crime.”  The piece then empirically examines several specific crimes to demonstrate that statutory approaches to defining and tracking white collar offenses are often ineffective and inaccurate.  The article then concludes by recommending that the U.S. Sentencing Commission adopt a new multivariate definitional approach that recognizes the hybrid nature of many white collar offenses.  The final version of the article will appear next year in Volume 50 of the Georgia Law Review

Ellen S. Podgor and Lucian E. Dervan, “White Collar Crime”: Still Hazy After All These Years, 50 Georgia Law Review -- (forthcoming 2016).


With a seventy-five year history of sociological and later legal roots, the term “white collar crime” remains an ambiguous concept that academics, policy makers, law enforcement personnel and defense counsel are unable to adequately define. Yet the use of the term “white collar crime” skews statistical reporting and sentencing for this conduct. This Article provides a historical overview of its linear progression and then a methodology for a new architecture in examining this conduct. It separates statutes into clear-cut white collar offenses and hybrid statutory offenses, and then applies this approach with an empirical study that dissects cases prosecuted under hybrid white collar statutes of perjury, false statements, obstruction of justice, and RICO. The empirical analysis suggests the need for an individualized multivariate approach to categorizing white collar crime to guard against broad federal statutes providing either under-inclusive or over-inclusive examination of this form of criminality.


July 14, 2015 in Fraud, Obstruction, Perjury, Prosecutions, Scholarship, Statutes | Permalink | Comments (0)

Monday, June 8, 2015

Acquittal for BP Executive

"The highest ranking BP exec charged in the fatal 2010 Deepwater Horizon disaster," was acquitted on Friday after two hours of jury deliberations. Initially charged with false statements and Obstruction of Congress, the court dismissed the obstruction charge, leaving the jury to consider the false statements charge. Interestingly the dismissal of the obstruction charge was "after three members of Congress and six staffers subpoenaed by" the accused "sought to be kept from having to testify, citing the speech and debate clause in the U.S. Constitution." (Steptoe & Johnson LLP here). The case was handled on the defense side by Brian Hererlig and Reid Weingarten.


June 8, 2015 in Prosecutions | Permalink | Comments (0)

Tuesday, June 2, 2015

FIFA Indictment Passes on Jurisdiction, Fails on Obstruction

Yesterday I skimmed through the FIFA indictment referred to by my colleague Lucian Dervan on May 26, 2015 ("FIFA Officials Facing Corruption Charges"), primarily to determine how the government justified jurisdiction over alleged criminal activities that largely, seemingly almost entirely, occurred in other nations, a complaint made by none other than Vladimir Putin.  Upon review, I believe the indictment, apparently drafted with that question in mind, facially makes a reasonably strong case for U.S. jurisdiction, based largely, although not entirely, on money transfers through U.S. financial institutions. 

There remains, however,  the question whether the U.S. Department of Justice should assume the role of prosecutor of the world and prosecute wrongs, however egregious, that were almost wholly committed by foreigners in foreign nations and affected residents of those foreign nations much more than residents of the United States.  Our government's refusal to submit to the jurisdiction of the International Criminal Court  is arguably inconsistent with our demand here that citizens of other nations submit to our courts.

On another subject, what struck me as just wrong was a minor part of the indictment, the obstruction of justice charge against Aaron Davidson, one of the two United States citizens indicted (the other, a dual citizen, is charged with procuring U.S. citizenship fraudulently).  While the obstruction of justice count itself (count 47) is a bare bones parsing of the statute, the lengthy 112-page preamble to the actual recitation of counts (to me in clear violation of Fed. R. Crim. P. 7(c), which says the indictment "must be a plain, concise and definite written statement")(emphasis added) describes Davidson's allegedly criminal conduct as follows: "Davidson alerted co-conspirators to the possibility that they would be recorded making admissions of their crimes."

Such advice is provided as a matter of course - absolutely properly and professionally, in my opinion -  by virtually every white-collar or other criminal lawyer representing a target of a criminal investigation.  Since lawyers are given no special treatment different from others,  if these facts justify a criminal conviction, a lot of white-collar lawyers will be counting the days until the five-year statute of limitations has passed since their last pre-indictment stage client meeting.

The obstruction of justice statute is so vague that it gives the government the opportunity to charge virtually any effort by lawyers or others to advise persons under investigation to exert caution in talking with others.  The applicable statute, the one used against Davidson, prescribes  a 20-year felony for "whoever corruptly...obstructs, influences, or impedes any official proceeding, or attempts to do so..." 18 U.S.C. 1512(c)(2).  That catch-all statute, which follows one proscribing physical destruction of tangible evidence,  to me is unconstitutionally vague, but courts have generally upheld it and left the determination of guilt to juries on the ground the word "corruptly," which itself is subject to many interpretations, narrows and particularizes it sufficiently.  I hope that the presiding judge in this case, the experienced and respected Raymond  Dearie, does not allow that count to get to the jury.


June 2, 2015 in Corruption, Defense Counsel, International, Investigations, Obstruction, Prosecutions | Permalink | Comments (0)

Friday, May 29, 2015

Hastert Case Raises Questions

Former Speaker of the House Dennis Hastert has been indicted for structuring and lying to the FBI, two crimes that many reasonable people, including me, are not certain should be crimes.  Structuring involves, as alleged here,  limiting deposits and other financial arrangements so as not to trigger a bank report to the IRS. Lying to the FBI includes a denial of wrongful activity, a natural human response by those confronted (although a mere "exculpatory no" without more is no longer generally prosecuted).

The indictment states that Hastert had paid off a fellow Yorkville, Illinois resident he had known most of that person's life  $1.7 million, and promised a total of 3.5 million, "in order to compensate for and conceal...misconduct" committed "years earlier" against that person. The indictment mentions that Hastert was a teacher and wrestling coach at a local high school from 1965-1981. 

Reading between the lines of this deliberately vague and unspecific indictment, my guess is that the alleged underlying misdeeds are sexual in nature.  I also wonder whether the  considerable payment mentioned in the indictment  "to compensate for and conceal misconduct " resulted from extortion and, if so, whether as a matter of prosecutorial discretion and perhaps even as a matter of law Hastert should be prosecuted for such relatively minor crimes, and  whether Hastert is really being punished for wrongs done decades ago (and probably beyond a statute of limitations).  These thoughts, let me be clear, are based on speculation and surmise, with only preliminary knowledge of the facts.




May 29, 2015 in Celebrities, Congress, Legal Ethics, Prosecutions, Prosecutors | Permalink | Comments (0)

Wednesday, April 22, 2015

Ninth Circuit En Banc Reverses Barry Bond's Conviction

An en banc decision of the Ninth Circuit, United States v. Bonds, reverses the obstruction of justice conviction against then professional baseball player Barry Bonds finding insufficient evidence of materiality under the statute, 18 U.S.C. s 1503. The decision is per curiam, with several concurring opinions, and one dissent.

Hon. Kozinski, joined by Judges O'Scannlain, Graber, Callahan, and Nguyen commence with a single question - "Can a single non-responsive answer by a grand jury witness support a conviction for obstruction of justice under 18 U.S.C. s 1503? In answering this question, they speak about how "[s]tretched to its limits, section 1503 poses a significant hazard for everyone involved in our system of justice, because so much of what the adversary process calls for could be construed as obstruction."  They continue to state that "[b]ecause the statute sweeps so broadly, due process calls for prudential limitations on the government's power to prosecute under it."  The limitation they place is a requirement of materiality.  They find materiality lacking here.

The next concurring opinion also speaks to a requirement of materiality, finding that "a single truthful but evasive or misleading statement can never be material." Hon. Reinhardt's concurring opinion simply says that a single non-responsive answer by a grand jury witness cannot support a 1503 conviction. 

And although Hon. Fletcher disagrees with the rationale, focusing on the word corruptly in the statute finds it insufficient here.

Only Hon. Rawlinson does not want to second guess the jury decision and doesn't want to rely on perjury law as some of the concurrences did. The jury was instructed on materiality and that should be sufficient.

What fascinates me about this case is whether everyone is in the same ballpark. For all the reasons provided by everyone other than the dissent, one should not have an obstruction conviction based on this limited statement. But most imply that materiality is an element of obstruction.  I have argued in a past Article that it should be - here.  And it is wonderful to see so many on this court adhering to that position and taking this point as a given. But the statute may not be as clear and the law as consistent as it should be.  This case is important for taking this important step and demonstrating the absurdity of a conviction that fails to have materiality as a key component.


April 22, 2015 in Judicial Opinions, Obstruction, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 14, 2015

Second Circuit Denies Rehearing of Insider Trading Case Reversal

   Earlier this month, the Second Circuit, as expected (at least by me), denied Southern District of New York U.S. Attorney Preet Bharara's request for reargument and reconsideration of its December 2014 ruling in United States v Newman which narrowed, at least in the Second Circuit, the scope of insider trading prosecutions. I would not be surprised if the government seeks certiorari, and, I would not be all that surprised it cert were granted.

   In Newman, the defendants, Newman and Chiasson, were two hedge fund portfolio managers who were at the end of a chain of recipients of inside information originally provided by employees of publicly-traded technology funds. The defendants traded on the information and realized profits of $4 million and $68 million respectively. There was, however,  scant, if any, evidence that the defendants were aware whether the original tippors had received any personal benefit for their disclosures.

   The Second Circuit reversed the trial convictions based on an improper charge to the jury and the insufficiency of the evidence. Specifically, the court ruled that:

       1)  the trial judge erred in failing to instruct the jury that in order to convict it had to find that the defendants knew that the corporate employee tippors had received a personal benefit for divulging the information; and

       2)  the government had indeed failed to prove that the tippors had in fact received a personal benefit.

   Thus, at least in the Second Circuit, it appears that the casual passing on of inside information without receiving compensation by a friend or relative or golf partner does not violate the security laws. "For purposes of insider trading liability, the insider's disclosure of confidential information, standing alone, is not a breach," said the court.  Nor, therefore,  does trading on such information incur insider trading liability because the liability of a recipient, if any, must derive from the liability of the tippor.  To analogize to non-white collar law, one cannot be convicted of possessing stolen property unless the property had been stolen (and the possessor knew it).  Those cases of casual passing on of information, which sometimes ensnared ordinary citizens with big mouths and a bit of greed, are thus apparently off-limits to Second Circuit prosecutors. To be sure, the vast majority of the recent spate of Southern District prosecutions of insider trading cases have involved individuals who have sold and bought information and their knowing accomplices.  Although Southern District prosecutors will sometimes now face higher hurdles to prove an ultimate tippee/trader's knowledge, I doubt that the ruling will affect a huge number of prosecutions.

   The clearly-written opinion, by Judge Barrington Parker, did leave open, or at least indefinite, the critical question of what constitutes a "personal benefit" to a provider of inside information (an issue that also might impact corruption cases). The court stated that the "personal benefit" had to be something "of consequence."  In some instances, the government had argued that a tippee's benefit was an intangible like the good graces of the tippor, and jurors had  generally accepted such a claim, likely believing the tippor would expect some personal benefit, present or future, for disclosing confidential information. In Newman, the government similarly argued that the defendants had to have known the tippors had to have received some benefit.

   Insider trading is an amorphous crime developed by prosecutors and courts - not Congress - from a general fraud statute (like mail and wire fraud) whose breadth is determined by the aggressiveness and imagination of prosecutors and how much deference courts give their determinations. In this area, the highly competent and  intelligent prosecutors of the Southern District have pushed the envelope, perhaps enabled to some extent by noncombative defense lawyers who had their clients cooperate and plead guilty despite what, at least with hindsight, seems to have been a serious question of legal sufficiency.  See Dirks v. S.E.C., 463 U.S. 646, 103 S.Ct. 3255 (1983)(test for determining insider liability is whether "insider personally will benefit, directly or indirectly").  As the Newman court refreshingly said, in language that should be heeded by prosecutors, judges, and defense lawyers, "[N]ot every instance of financial unfairness constitutes fraudulent activity under [SEC Rule]  10(b)."

  As I said, I would not be shocked (although I would be surprised) if Congress were to enact a law that goes beyond effectively overruling Newman and imposes insider trading liability on any person trading based on what she knew was non-public confidential information whether or not the person who had disclosed the information had received a personal benefit. Such a law, while it would to my regret cover the casual offenders I have discussed, would on balance  be a positive one in that it would limit the unequal information accessible to certain traders and provide a more level playing field.




April 14, 2015 in Congress, Corruption, Defense Counsel, Fraud, Insider Trading, Judicial Opinions, Prosecutions, Prosecutors, Securities, Statutes | Permalink | Comments (0) | TrackBack (0)

Wednesday, April 1, 2015


Here is the Indictment in United States v. Robert Menendez and Salomon Melgen. Here is the Washington Post story.


April 1, 2015 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Thursday, January 22, 2015

New York State Assembly Speaker Sheldon Silver Faces Federal Fraud Charges

The New York Times has the story, with a link to the criminal complaint, here. U.S. Attorney Preet Bharara followed his longstanding tradition of holding a press conference in order to make inflammatory, prejudicial, and improper public comments about the case.


January 22, 2015 in Corruption, Current Affairs, Fraud, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 7, 2015

Collateral Consequences in 2015

As we start off the year, I thought I would mention an issue that will likely be widely discussed in 2015 – collateral consequences.

As I mentioned in this 2014 post, I moderated a panel discussion regarding collateral consequences at the 2014 ABA CJS White Collar Crime Institute in London last October.  That discussion raised a number of interesting issues and made clear that this is a topic that is growing in prominence internationally.  As we move into 2015, the ABA continues to work on the ABA National Inventory of Collateral Consequences of Conviction, a database with which every attorney should be familiar.  Later this year, the ABA will also convene a National Summit on Collateral Consequences, which will bring together a host of experts from around the country to discuss important issues related to this topic.

The NACDL has also been working hard on the issue of collateral consequences.  According to the organization, over 70 million Americans have some form of criminal record and there are over 50,000 known collateral consequences of conviction.  In May of last year, the NACDL launched a major new report entitled Collateral Damage: America’s Failure to Forgive or Forget in the War on Crime – A Roadmap to Restore Rights and Status After Arrest and Conviction.  According to the NACDL website, “The report is a comprehensive exploration of the stigma and policies relegating tens of millions of people in America to second-class status because of an arrest or conviction. In addition, the report lays out ten recommendations to ensure that the values of life, liberty and the pursuit of happiness are within reach of all, regardless of past mistakes.”  It is certainly worth a read. 

As 2015 gets underway, this is one topic to keep an eye on, and the above resources from the ABA and NACDL are a great way to get up to speed. 


January 7, 2015 in International, Prosecutions, Sentencing | Permalink | Comments (0) | TrackBack (0)