Wednesday, October 30, 2013

Sixth Circuit Reverses Convictions Under 18 USC Sections 1014 and 1028A

In United States v. Miller, the Sixth Circuit today reversed three of four counts of conviction in a mortgage fraud prosecution. The court held that appellant Miller did not unlawfully "use" a means of identification within the meaning of 18 U.S.C. Section 1028A, the Aggravated Identity Theft statute, when he falsely stated that two named individuals had given him authority to act on behalf of an LLC. Since Miller did not steal their identity, pass himself off as them, or purport to be acting on their behalf as individuals, he is not guilty of violating the statute. The government had argued for a broader construction, but the Sixth Circuit applied the rule of lenity.

The court also reversed a Section 1014 count, because it was bottomed on Miller's signing of a loan renewal and modification agreement. Since the modification and renewal agreement did not repeat the false statement contained in the original loan papers, Miller could not be guilty under Section 1014. The court indicated that Miller had engaged in fraud and false pretenses during the loan modification process. But this was not enough to support a Section 1014 conviction, which requires a knowingly false statement.

(wisenberg)

October 30, 2013 in Fraud, Judicial Opinions, Money Laundering, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Tuesday, October 29, 2013

Former Congressman Rick Renzi Sentenced to 36 Months

USA Today has this story. Here is the interesting part, at least to federal sentencing aficionados. Renzi took the government to trial. Judge David Bury calculated Renzi's U.S. Sentencing Guidelines range at 97-121 months. (The government asked for a 9-12 year sentence.) Judge Bury downwardly varied to 36 months. This is striking, and yet another example of the Guidelines losing their luster in white collar cases. Under the law the Guidelines must be considered, but in an increasing number of cases they are being considered and ignored or discounted.

(wisenberg)

October 29, 2013 in Corruption, Prosecutions, Sentencing | Permalink | Comments (0) | TrackBack (0)

Tuesday, September 24, 2013

Beanie Babies - A New Issue?

Many years ago I authored an article titled, "Do We Need a 'Beanie Baby' Fraud Statute?"  The Article considered how specific a statute needs to be to provide proper due process to a criminal defendant.  It focused on the breadth of the mail fraud statute, while also recommending that criminal statutes cannot be created for every unique circumstance - like "Beanie Baby" fraud.  It was written at the height of the time when individuals were committing crimes of fraud with "Beanie Babies."  In some cases, the company producing this product was the victim of the fraud.

Another side of "Beanie Babies" is mentioned this past week - and it relates to the CEO of  Ty Warner, who was the creator of "Beanie Babies."  A DOJ Press Release tells that H.Ty Warner was charged with tax evasion for allegedly hiding funds in a secret Swiss offshore account. The press release states, "[t]hrough his attorney, Warner authorized the government to disclose that he is cooperating with the Internal Revenue Service and will plead guilty to the charge." According to the DOJ Press Release, "Warner is the second taxpayer charged in Federal Court in Chicago in connection with an ongoing investigation of U.S. taxpayer clients of Union Bank of Switzerland (UBS) and other overseas banks that hid foreign accounts from the Internal Revenue Service."

(esp)

September 24, 2013 in Fraud, Prosecutions, Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, September 19, 2013

Insufficient Evidence: Tom DeLay Convictions Reversed on Appeal

Political prisoner Tom DeLay had his money laundering convictions reversed today, based on insufficency of the evidence, by Texas' Third Court of Appeals sitting in Austin. The 2-1 majority opinion held that there was no underlying violation of the Texas Election Code, and hence no illegal proceeds to be laundered. Thus ends, for now, one of the most abusive and unfair political prosecutions in recent Texas history. The State can appeal to the Texas Court of Criminal Appeals. The majority opinion is here.  The opinion reveals that the jury twice asked, in essence, whether DeLay could be guilty of money laundering if the "proceeds" were not originally procured in violation of law. In each instance, the trial court refused, at the State's urging, to answer the jury's question. How pathetic.  Hat tip to Dave Westheimer for bringing the decision to my attention.

(wisenberg)

September 19, 2013 in Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Wednesday, September 18, 2013

Qualsiasi Mezzo: Danziger Bridge

Move over, Emmet Sullivan and Carmac Carney. Add Kurt D. Engelhardt to the Honor Roll roster of federal district judges willing to speak truth to the U.S. Department of Justice. Willing to speak truth and to do something about it. Here is Judge Engelhardt's  Danziger Bridge Mistrial Order, issued yesterday in the Eastern District of Louisiana, and dismissing without prejudice all guilty verdicts obtained by the government in United States v. Kenneth Bowen, et al. This was the federal civil rights prosecution of New Orleans police officers allegedly involved in a horrific shooting of civilians in the wake of Hurricane Katrina.

The mistrial was granted primarily due to a secret campaign of prejudicial publicity carried out through social media by members of the U.S. Attorney's Office in New Orleans and a DOJ Civil Rights Division attorney in DC. But Judge Engelhardt's opinion raises several other troubling issues concerning the conduct of the trial, DOJ's post-trial investigation of what happened during the trial, and possible meddling by the Deputy AG's office in that investigation.

I will have more to say about these issues in the coming days. It is clear that Judge Engelhardt does not believe he has received anything like the full story from DOJ. It is clear that appointment of a Special Counsel to investigate the entire affair is in order. And it is clear, if history is any judge, that no such appointment will be forthcoming from this attorney general.

Judge Engelhardt's opinion is lengthy, but one that should be required reading for every criminal defense attorney who practices in federal court and every DOJ prosecutor throughout the land. For now, I leave you with Judge Engelhardt's stirring words, taken from some of the closing paragraphs:

    On July 12, 2010, the indictment in this case was announced with much fanfare, a major press conference provided over by  U.S. Attorney General Eric Holder, and widespread media attention. On that occasion, a DOJ representative said that the indictments 'are a reminder that the Constitution and the rule of law do not take a holiday--even after a hurricane.' While quite true in every respect, the Court must remind the DOJ that the Code of Federal Regulations, and various Rules of Professional Responsibility, and ethics likewise do not take a holiday--even in a high-stakes criminal prosecution, and even in the anonymity of cyberspace. While fully appreciating the horrific events of September 4, 2005, and those who tragically suffered as a result, the Court simply cannot allow the integrity of the justice system to become a casualty in a mere prosecutorial game of qualsiasi mezzo.

    Some may consider the undersigned's view of the cited rules and regulations as atavistic; but courts can ignore this online 'secret' social media misconduct at their own peril. Indeed the time may soon come when, some day, some court may overlook, minimize, accept, or deem such prosecutorial misconduct harmless 'fun.' Today is not that day, and Section N of the United States District Court for the Eastern District of Louisiana is not that court.

    (wisenberg)

September 18, 2013 in Obstruction, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Thursday, September 5, 2013

18 U.S.C. Section 1014: Dick and Frank (Posner and Easterbrook to you) Duke it Out.

Yesterday the Seventh Circuit, sitting en banc, reversed and remanded (7-2) a Section 1014 (and Section 317) conviction connected to the mortgage meltdown crisis. Judge Posner wrote the majority opinion. Chief Judge Easterbrook (joined by Judge Bauer) dissented. The opinion is United States v. Lacey Phillips and Erin Hall.

Section 1014 prohibits making any false statement or report for the purpose of influencing in any way a federally insured bank. Longstanding case law requires the government to prove that the defendant knew the statement was false at the time it was made. Phillips and Hall were an unmarried couple who applied for a home loan and were rejected. Hall then contacted his friend Bowling, a mortgage broker, who began advising Hall and Phillips and ultimately led them to a different bank, Fremont Investment & Loan, which granted a home loan to Phillips. Hall was not listed as a borrower. This was a stated income loan, also known in the industry as a liar's loan.

Phillips and Hall could not keep up with the payments and lost their home. A prosecution ensued. There were several false statements on the loan application, but Phillips and Hall testified that they only were aware of one of the statements, which was as follows. Under the Borrower's Income line, Phillips put down the couple's combined income.

Phillips and Hall wanted to testify that Bowling told them: 1) Phillips should be the only applicant for the stated-income loan, because her credit history was good while Hall's was bad because of the recent bankruptcy; 2) Hall's income should be added to Phillips' on the line that asked for borrower's gross monthly income; and 3) adding the incomes together was proper in the case of a stated income loan, because the bank was actually asking for the total income from which the loan would be repaid, rather than just the borrower's income.

The government wanted to keep this testimony from the jury and U.S. District Court Barbara Crabb (I kid you not) agreed. The Seventh Circuit, per Posner, reversed, in an unnecessarily complicated opinion, but one that is nevertheless fun and instructive to read.

I see it this way. According to Phillips and Hall, Bowling told them that, to Fremont Investment & Loan, Borrower's Income meant the total income from which the loan would be repaid. They were in essence informed that Borrower's Income was a term of art for Fremont. If Phillips and Hall believed that Borrower's Income meant (to Fremont) Combined Income of the People Repaying the Loan, then Phillips and Hall were not making a statement to Fremont that they knew was false. Their state of mind on this point was directly at issue. Theirs may have been be an implausible story, but the jury was allowed to hear it. Judge Posner's opinion has some important things to say about terms of art and interpretation of seemingly simple terms.

 This case reminds me of a home loan I took out while I was an AUSA. The bulk of the down payment was being paid through my Thrift Savings Plan. That is, I was loaning myself money out of my government retirement fund. At the time, all of the standard loan applications required the borrower to state that no part of the down payment was coming from a loan. I asked my real estate agent and the mortgage broker whether that language applied to a Thrift Savings Plan Loan. They assured me that it did not. So, when I wrote down on the application that no part of my down payment came from a loan, I knew that in one sense this might be considered false, but to the bank, and presumably to any bank, it would be considered true, because the bank did not consider a Thrift Savings Plan Loan to be a loan. Had I defaulted and been prosecuted, I would have liked to present this as a defense, and it is hard to believe that any competent judge would have prevented me from doing so. But Judge Crabb did not allow this kind of evidence in, and Judge Easterbrook cheers her on.

Judge Easterbrook points out that the jury, in finding Phillips and Hall guilty, already determined that the couple knew several statements on the loan application were false. This is back-asswards and misses the point. This is not a sufficiency of the evidence case. If the jurors had heard the excluded testimony, they may well have been more likely to believe Phillips' and Halls' testimony that the rest of the false statements were made and submitted by Bowling without their knowledge. According to Posner, there was evidence to the effect that Phillips and Hall were naive, while Bowling (who pled guilty and cooperated) and Fremont (a bank that Posner deems disreputable) were sophisticated.

Of course, it is appalling and embarrassing that any self-respecting U.S. Attorney's Office would prosecute a case like this, but it is all part of DOJ's Piker Mortgage Fraud Initiative. Even more embarrassing was the government's contention on appeal that the excluded statements were hearsay. Posner called this a "surprising mistake for a Justice Department lawyer." I'm not so sure. Maybe it wasn't a mistake.

(wisenberg)

September 5, 2013 in Fraud, Judicial Opinions, Mortgage Fraud, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Monday, September 2, 2013

Second Circuit Rules 10(b) Does Not Apply Extraterritorially

In United States v. Vilar, the Second Circuit examined a post-Morrison decision with an issue of whether Section 10(b) of the Securities Exchange Act of 1934 applies to extraterritorial criminal conduct.  The government had argued that the Supreme Court's decision in Bowman allowed for an extraterritorial application and that civil and criminal conduct should be treated differently and thus Morrison should not apply. The Second Circuit  disagreed with the government saying that the Bowman decision was limited to conduct that was "aimed at protecting 'the right of the government to defend itself.'" In contrast, statutes such as 10(b) have as its "purpose [  ] to prohibit 'crimes against private individuals or their property,'"  and therefore "the presumption against extraterritoriality applies to criminal statutes, and Section 10(b) is no exception."

The court also noted that "[a] statute either applies extraterritorially or it does not, and once it is determined that a statute does not apply extraterritorially, the only question we must answer in the individual case is whether the relevant conduct occurred in the territory of a foreign sovereign." Despite this legal analysis and ruling, the court found that there was no plain error with respect to territoriality on the counts here and thus no need to reverse on this issue.

Other issues raised by the defendants, such as those relating to a search warrant, jury instructions, and the admission of statements were found not to be in error.  The court did, however, remand the sentence.

(esp) 

September 2, 2013 in International, Judicial Opinions, Prosecutions, SEC | Permalink | Comments (0) | TrackBack (0)

Wednesday, August 28, 2013

Judicial Oversight of Corporate Pleas -Protection of the Public Interest

United States v. Orthofix, Inc was an important decision for several reasons. First, the Memorandum  Opinion issued by Judge Young (D. Mass), on July 26, 2013, takes a turn in what typically happens when there is a corporate plea arrangement.   Second, the judge explains at length policy considerations for sentencing corporations.  The case also raises questions for the future of corporate plea agreements.  

This decision involves two cases involving corporate pleas where the court rejected the pleas.  The court notes the importance of considering the "public interest" in accepting pleas. Hon. Young states:

"Just as the Court must take account of the public interest when it exercises its discretion to fashion its own sentence, so too the Court must take account of the public interest when called upon to review a sentencing recommendation attached to a plea bargain."

The court considers the history behind plea bargains and contract law and notes the problem of considering it as a prosecution-defense relationship as opposed to a triadic relationship. Hon. Young states, that "this Court makes no attempt to question the policy choices of executive administrative agencies; it merely seeks to ensure that the sentence imposed upon Orthofix fosters (1) the protection of the public, (2) specific and general deterence, and (3) respect for the law."

The court states that "[o]rganizational criminals pose greater concerns than natural persons for two important reasons."  One of the concerns raised in the case of Orthofix, by the court, was that the plea of five years failed to impose the Corporate Integrity Agreement as part of the probation.

This Memorandum decision raises other interesting questions that were not discussed here, and perhaps not relevant to these matters. But one has to wonder whether courts should also be examining plea agreements that place undue pressure on corporations and individuals to plea because the risk of going to trial is too severe? In a post-Arthur Andersen world do corporations have the choice of risking a trial or is the necessity  of entering a plea too great to avoid the repercussions of an indictment and possible conviction? Should oversight of pleas go beyond the sentencing aspect to also scrutinze the bargaining position of the parties and the fairness of the general bargain?

See also Doug Berman's Sentencing Law & Policy Blog here, Jef Feeley & Janelle Lawrence, Bloomberg's,  Orthofix’s Settlement of Medicare Probe Rejected by Judge

(esp)

August 28, 2013 in Arthur Andersen, Deferred Prosecution Agreements, Judicial Opinions, Prosecutions, Sentencing | Permalink | Comments (0) | TrackBack (0)

Tuesday, August 27, 2013

A Rare Rebuke.

The Fourth Circuit has issued a rare and stern rebuke to the Eastern District of North Carolina U.S. Attorney's Office, for what the panel describes as repeated failures to disclose exculpatory evidence on the part of some of the office's prosecutors. Judge Floyd also directed that the opinion be sent to AG Holder and DOJ's OPR. This is remarkable. EDVA District Court Judge Henry Hudson was on the panel, sitting by designation, and concurred in the opinion. The Raleigh News & Observor has the story here. The opinion, U.S. v. Bartko, is here. The pertinent pages are 24-30.

(wisenberg)

August 27, 2013 in Judicial Opinions, Prosecutions, Prosecutors | Permalink

Thursday, August 22, 2013

Financial Meltdown Prosecutions Against Elite Actors? File Them Under "I'll Believe It When I See It."

In an interview with the Wall Street Journal, reported here, Attorney General Holder promises that "he plans to announce new cases stemming from the economic meltdown in the coming months." Some media outlets have interpreted this as a harbinger of criminal prosecutions, but Holder did not indicate whether the cases would be civil or criminal. Any civil case against the likes of a major bank or investment house can be filed under "Costs of Doing Business." In addition to the civil-criminal wiggle room Holder allowed himself, the definition of "cases stemming from the economic meltdown" is broad enough to cover a multitude of alleged malfeasance.  Is DOJ going to prosecute people who purportedly contributed to the meltdown through fraudulent omissions and commissions? Or will it bring desultory civil cases based on conduct that occurred in the wake of the meltdown? According to the article, Professor John Coffee "expected the five-year statute of limitations on many white-collar crimes may bar a successful prosecution of a number of pre-crash abuses." But virtually any federal criminal financial institution fraud case can be brought within 10 years, thanks to FIRREA. Criminally fraudulent activity involving a financial institution that occurred in May 2006 could be charged as late as 2016.

(wisenberg)

August 22, 2013 in Prosecutions, Prosecutors | Permalink

Tuesday, August 13, 2013

DOJ's Admission: Our Mortgage Fraud Numbers Were Phony

by: Soloman L. Wisenberg

Well, DOJ didn't admit it in those exact words. The tone and content were more Ziegleresque: "[T]he announcement overstated the number of defendants that should have been included as part of the Distressed Homeowner Initiative, as well as the corresponding estimated loss amount and number of victims." The original press release and press conference in October 2012 touted "the results of the Distressed Homeowner Initiative, the first-ever nationwide effort to target fraud schemes that prey upon suffering homeowners. The yearlong initiative, launched by the FBI, a co-chair of the Financial Fraud Enforcement Task Force’s Mortgage Fraud Working Group, resulted in 107 criminal defendants charged in U.S. District Courts across the country. These cases involved more than 17,185 homeowner victims and total losses by those victims estimated by law enforcement at more than $95 million." It turns out the numbers given for people arrested, victims affected, and losses incurred were grossly inflated. Jonathan Weil's blistering Bloomberg.com column discussing the rigged numbers is here. The original press release and Newspeak retraction are here. No doubt DOJ is working up a Section 1001 case right now against the folks who gave out these numbers. I don't usually quote socialists, but I.F. Stone's favorite saying now comes to mind: "All governments are run by liars." Hat Tip to Professor William Black for bringing this story to my attention.

(wisenberg)

August 13, 2013 in Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Monday, August 12, 2013

An Enormously Important Ethics Opinion From the DC Bar

by: Solomon L. Wisenberg

I posted here last October on Guts and the DC Bar Counsel: The Case of Andrew J. Klineand asked:

"What is the solution to the persistent blight of jaw-droppingly obvious Brady/Giglio violations? One solution is to bring ethical complaints against purportedly miscreant prosecutors in appropriate instances. Which brings us to the case of former DC AUSA Andrew J. Kline, currently making its way through the bar disciplinary process . . . DC Bar Counsel wants Kline censured for an alleged Brady/Giglio violation that also runs afoul, according to Bar Counsel, of the arguably broader Rule 3.8(e) of the DC Rules of Professional Conduct . Rule 3.8(e) states in pertinent part that: 'The prosecutor in a criminal case shall not . . . intentionally fail to disclose to the defense, upon request and at a time when use by the defense is reasonably feasible, any evidence or information that the prosecutor knows or reasonably should know tends to negate the guilt of the accused . . . .'

The defense bar often talks about using various state versions of Rule 3.8(e) in tandem with Brady/Giglio, in part to get around the Brady/Giglio materiality problem. Here is a Bar Counsel actually doing something about it. Kline vigorously denies that the withheld information was material or that he intentionally engaged in any wrongdoing.

What information did Kline actually withhold? He was prosecuting Arnell Shelton for the shooting of Christopher Boyd. Shelton had filed an alibi notice and 'the reliability of the government's identification witnesses' was the principal issue at the 2002 trial, according to the Report and Recommendation of Hearing Committee Number Nine ("Report and Recommendation"). Kline spoke with Metropolitan Police Department Officer Edward Woodward in preparation for trial. Kline took contemporaneous notes. Woodward was the first officer at the scene of the crime and spoke to victim Boyd at the hospital shortly after the shooting.

According to the Report and Recommendation, Kline's notes of his conversation with Woodward were, in pertinent part, as follows: 'Boyd told officer at hospital that he did not know who shot him–appeared maybe to not want to cooperate at the time. He was in pain and this officer had arrested him for possession of a machine gun …'

At trial Boyd identified Shelton as the shooter. According to Bar Counsel, Kline never disclosed Boyd's hospital statement to the defense despite a specific Brady/Giglio request for impeachment material. The other identification witnesses were weak and/or impeachable.

The case ended in a hung jury mistrial and the alleged Brady material (that is, Boyd's hospital statement to Woodward) was not revealed to the defense until literally the eve of the second trial, even though DC-OUSA prosecutors and supervisors had known about it for some time. When the trial court found out about the hospital statement and that it had not been disclosed before the first trial because Kline did not consider it exculpatory, the court was thunderstruck: 'I don’t see how any prosecutor could take that position. . . I don’t see how any prosecutor anywhere in any state in the country, could say I don’t have to turn that over because I think I know why he said that.' See DC Bar Counsel's corrected Brief at 8.

The court offered defense counsel a continuance, but she elected to go to trial as her client was then in jail. The second trial ended in Shelton's conviction.

Kline's position now is that the hospital statement was not material, hence not Brady, because Boyd was in pain and being treated for a gunshot wound at the time and because Shelton was ultimately convicted upon retrial.

Bar Counsel's position is that the withheld hospital statement was material and exculpatory and therefore Brady material, but that even if it was not Brady material, the failure to turn it over violated Rule 3.8(e). Bar Counsel seeks a public censure of Mr. Kline."

That was back in October 2012. At the time of the original post, Kline was in the process of contesting Hearing Committee Number Nine's Report and Recommendation to the District of Columbia Court of Appeals Board on Professional Responsibility (Board). The Board issued its own Report and Recommendation on July 31, 2013, upholding the Hearing Committee, but changing the recommended sanction from public censure to 30 days suspension.

The Board accepted the Hearing Committee's factual and legal conclusions and found that: 1) the withheld statement was material; and 2) even if it had not been material, Rule 3.8(e) required its disclosure, because Rule 3.8(e) does not contain a materiality element. The Board also agreed that: 1) Kline knew or should have known that the information tended to negate the guilt of the accused; 2) the defense requested the exculpatory information at a time when its use was reasonably feasible; and 3) the failure to turn over the statement was intentional.

BLT has a story here, stating that the matter is likely headed to the DC Court of Appeals. Here is the Board's opinion, styled In the Matter of Andrew J. Kline.

The DOJ, which says it cares so much about respecting the constitutional rule announced 50 years ago in Brady v. Maryland, came in with an amicus brief arguing that the withheld statement was not material. How appalling.

(wisenberg) 

August 12, 2013 in Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 30, 2013

Ten Things To Know About The SAC Case

by: Solomon L. Wisenberg

1. Barring a miracle, the government will win.

2. The law on corporate criminal liability may be unfair, but it has been around since 1909.

3. The government has to prove that: a) at least one SAC employee committed securities/wire fraud (several have already pled guilty); b) the employee was acting within the actual or apparent scope of his/her authority/employment at the time; and c) the employee intended, even in part, to benefit the corporation.

4. If the government can prove the above elements it will win, even if the employees who engaged in securities fraud/insider trading violated SAC's insider trading compliance policies or Steven Cohen's direct orders.

5. Give credit where credit is due. This is a well-crafted speaking indictment. Preet Bharara alleged more than he will technically need to prove at trial. He charged that SAC created an atmosphere in which insider trading was bound to flourish. Why did he do this? First, to make his case in the court of public opinion. Second, to help prevent jury nullification. Third, to rebut a defense that the guilty employees were acting against the interests of the company. Here is the SAC Indictment.

6. The attempt to obtain all of SAC's profits through criminal forfeiture allegations is, to put it mildly, a stretch. Significantly, the government did not try to seize funds through civil forfeiture in conjunction with the indictment. This was only partly to protect innocent third parties. The government also did not want to see its resources diverted, give up unnecessary discovery, or embarrass itself.

7. Like John Dowd in the Rajaratnam case, Ted Wells is in the catbird seat. No one in the criminal defense bar expects him to win. If he loses it will in no way dim his reputation. If he wins, he achieves true legendary status. Conversely, no AUSA worth his/her salt can afford to lose this case.

8. How to defend this case? By arguing that all the employees who pled guilty were greedy sorts who were in it 100% for themselves. They could not have intended to benefit the company, because the company made it so clear, time and again, that insider trading actually was bad for the company. Hence the key importance of the indictment's allegations that SAC's compliance policy was essentially a sham.

9. Insider trading law may be stupid, but, contrary to popular myth, is not for the most part vague or confusing to the professionals who have spent their careers in the securities industry.

10. When an employee vocalizes his reluctance to say more over the telephone, concomitantly referencing his "compliance" training, it's a pretty safe bet he knows insider trading is illegal.

(wisenberg)

July 30, 2013 in Insider Trading, Prosecutions, Prosecutors, Securities | Permalink | Comments (0) | TrackBack (0)

Saturday, July 27, 2013

Five Years Later, Almost No Charges

by: Solomon L. Wisenberg

Yet another story from NPR, with the obligatory quotes from Bill Black and Neil Barofsky, about DOJ's abject failure to properly investigate and prosecute high-ranking corporate insiders for fraud-related activity in connection with the financial crisis. This is the major criminal justice story, and scandal, of the Obama-Holder Administration. From the standpoint of elite corporate fraudsters, the Republicans could not have fashioned a better Dream Team at DOJ. The glaring exception here appears to be Preet Bharera. But it's  easier to go after insider trading than control fraud.

(wisenberg)

July 27, 2013 in Fraud, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 2, 2013

Global-Tech? Can't Get No Respect!

by: Solomon L. Wisenberg

Yesterday, in United States v. Goffer, an insider trading/securities fraud criminal appeal, the Second Circuit again refused to alter a standard conscious avoidance jury instruction to comport more fully with the Supreme Court's opinion in Global-Tech Appliances, Inc. v. SEB S.A., 131 S.Ct. 2060, 2068-72 (2011). According to Judge Wesley, Global-Tech was not "designed to alter the substantive law. Global-Tech simply describes existing case law." The instruction given by the trial court "properly imposed the two requirements imposed by the Global-Tech decision." Moreover, Appellant Kimelman's request "that the district court insert the word 'reckless' into a list of mental states that were insufficient" was unnecessary, because "Global-Tech makes clear that instructions (such as those in this case) that require a defendant to take 'deliberate actions to avoid confirming a high probability of wrongdoing' are inherently inconsistent 'with a reckless defendant...who merely knows of a substantial and unjustified risk of such wrongdoing."

I don't know. Sounds a little circular to me. According to Global-Tech, willful blindness has "an appropriately limited scope that surpasses recklessness and negligence." Why not just say it squarely in a jury instruction? The problem here is that district courts are generally afraid to alter standard jury instructions in light of emerging case law. And appellate courts are generally reluctant to vacate major securities fraud convictions unless the jury instructions are blatantly improper. The Goffer opinion can be found here.

(wisenberg)

July 2, 2013 in Fraud, Insider Trading, Judicial Opinions, Prosecutions, SEC, Securities | Permalink | Comments (0) | TrackBack (0)

Thursday, June 27, 2013

First Circuit Holds That 18 U.S.C. Section 666 Doesn't Criminalize Gratuities

by: Solomon L. Wisenberg

The mark of the beast is fading a little, at least in the First Circuit. Amidst the hubbub of the Supreme Court's Wednesday rulings, the First Circuit quietly decided that 18 U.S.C. Section 666 can't be read to prohibit gratuities. This sets up a circuit split. The opinion in United States v. Fernandez & Maldanado is here.

Congratulations to Martin Weinberg, David Chesnoff, Kimberly Homan and Jose Pagan, who were on the brief for Appellant Bravo Fernandez. Congratulations to Abbe Lowell and Christopher Man, who were on the brief for Appellant Martinez Maldonado.

(wisenberg)

June 27, 2013 in Corruption, Fraud, Judicial Opinions, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Wednesday, June 26, 2013

Supremes Strike Down the Government's Attempt to Stretch The Hobbs Act

In Sekhar v. United States, the Supreme Court looked at the question of "whether attempting to compel a person to recommend that his employer approve an investment constitutes 'the obtaining of property from another' under 18 U.S.C. s 1951(b)(2),"  the Hobbs Act.  The Hobbs Act has been a statute of choice for federal prosecutors in many white collar cases.  Its heavy penalty provisions offer increased sentence posibilities when the defendant knowingly and willfully induced someone to part with property by extorionate means and there has been interstate commerce. 

In Sekhar, the issue arose from an alleged threat to disclose an alleged affair following a general counsel's written recommendation to a state comptroller not to invest in a fund. Although the jury form offered three options of the possible property of the attempted extortion, the jury selected only the third option - "the General Counsel's recommendation to approve the Commitment." The Supreme Court reversed the Second Circuit finding that this was not extortion.

The Court issued an unanimous holding with three concurrences.  Justice Scalia, writing for the Court, stated that:

"As far as is known, no case predating the Hobbs Act - English, federal, or state - ever identified conduct such as that charged here as extiotionate.  Extortion required the obtaining of items of value, typically cash, from the victim."

 The opinion provides a wonderful history of the Hobbs Act, and highlights how "extortion" requires "obtaining property from another." The Court holds that "[t]he property extorted must therefore be transferable - that is, capable of passing from one person to another." Finding that the alleged property fails here, the Court reverses the convictions. The Court also goes on to say that you need "something of value." The Court states:

"The principle announced there [referencing its prior opinion in Scheidler] - that a defendant must pursue something of value from the victim that can be exercised, transferred, or sold - applies with equal force here. Whether one considers the personal right at issue to be property in a broad sense or not, it certainly was not obtainable property under the Hobbs Act." (footnotes omitted).

Citing to the prior decision in Cleveland, the Court holds that "an employee's yet-to-be-issued recommendation" is not obtainable property. Intangible property is not enough, it must be "obtainable property."

The Court emphasizes that coercion is not extortion, and Congress has not criminalized coercion in the Hobbs Act.

The three-person concurrence (Justices Alito, Kennedy, and Sotomayor), focuses on property and tries to limit the decision by saying that this case is an "outlier and that the jury's verdict stretches the concept of property beyond the breaking point." They reference the rule of lenity and although this concurrence agrees that Congress did not "classify internal recommendations pertaining to government decisions as property," they leave open the possibility that the government could perhaps have prosecuted "under some other theory."

My Commentary -  

Bottom line - the government stretched the statute and they were caught.

This decision offers defense counsel strong arguments and requests for instructions in Hobbs Act cases.  Limiting the definition of property to "obtainable property" and requiring a clear definition of when "something is of value" are likely to be requests coming from defense counsel in the future.

My advice to the government - -  there is real crime out there, please put our valuable resources into prosecuting it! 

(esp)  

June 26, 2013 in Judicial Opinions, Prosecutions | Permalink | Comments (2) | TrackBack (0)

Tuesday, June 25, 2013

Second Circuit Affirms Rajaratnam Case - But Goes A Step Further in Supporting the Government

It's a relatively short opinion issued by the Second Circuit, and 24 of the 29 pages pertain to a summary of the holding, facts, and the wiretap order used in this case.  For background on the issues raised, the briefs (including amici briefs), see here. Judge Cabranes wrote the majority opinion, joined by judges Hon. Sack and Hon. Carney. A summary of the holding states:

In affirming his judgment of conviction, we conclude that: (1) the District Court properly analyzed the alleged misstatements and omissions in the government’s wiretap application under the analytical framework prescribed by the Supreme Court in Franks; (2) the alleged misstatements and omissions in the wiretap application did not require suppression, both because, contrary to the District Court’s conclusion, the government did not omit information about the SEC investigation of Rajaratnam with "reckless disregard for the truth," and because, as the District Court correctly concluded, all of the alleged misstatements and omissions were not "material"; and (3) the jury instructions on the use of inside information satisfy the "knowing possession" standard that is the law of this Circuit.

Some highlights and commentary:

1. The Second Circuit goes further than the district court in supporting the government's actions with respect to the wiretap order.

2.  The Second Circuit agrees with the lower court that a Franks hearing is the standard to be used with a wiretap order where there is a claim of misstatements and omissions in the government's wiretap application. The Second Circuit notes that the Supreme Court has "narrowed the circumstances in which ...[courts] apply the exclusionary rule."  But the question here is whether the Supreme Court has really addressed the wiretap question in this context and whether a cert petition will be forthcoming with this issue.

3. Although the Second Circuit uses the same basic test in reviewing the wiretap, it finds that "the District Court erred in applying the 'reckless disregard' standard because the court failed to consider the actual states of mind of the wiretap applicants."  The Second Circuit then goes a step further and finds that omission of evidence does not mean that the wiretap applicant acted with "reckless disregard for the truth."

4.  The court states that "the inference is particularly inappropriate where the government comes forward with evidence indicating that the omission resulted from nothing more than negligence, or that the omission was the result of considered and reasonable judgment that the information was not necessary to the wiretap application."  - This dicta provides the government with strong language in future cases when they just happen to negligently leave something out of a wiretap application.

5.  Does the CSX Transportation decision by the Supreme Court call into question Second Circuit precedent?  The Second Circuit is holding firm with its prior decisions.  But will the Supreme Court decide to take this on, and if so, will it take a different position.

Stay tuned.

(esp)

June 25, 2013 in Celebrities, Civil Enforcement, Judicial Opinions, Prosecutions, Prosecutors, SEC, Securities | Permalink | Comments (0) | TrackBack (0)

Monday, June 24, 2013

The Wall Street Journal Takes Aim At Comey

by: Solomon L. Wisenberg

In what should be a surprise to no one, the Wall Street Journal editorial page today launched an attack on James Comey, President Obama's nominee to be the next FBI Director. The primary offenses? Comey's objection to the Bush Administration's illegal warrantless wiretapping and Comey's appointment of Patrick Fitzgerald as Special Counsel to investigate the Valerie Plame leak. The editorial is here. More commentary on this in the next few days.

Coming soon: Professor Podgor's analysis of the Second Circuit's opinion afffirming Raj Rajaratnam's conviction for insider trading violations.

(wisenberg)

June 24, 2013 in Current Affairs, Legal Ethics, Media, News, Plame Investigation, Prosecutions, Prosecutors, Statutes | Permalink | Comments (0) | TrackBack (0)

Friday, June 21, 2013

Jeff Skilling Sentence Reduced To 14 Years

by: Solomon L. Wisenberg

Judge Lake effectively ratified the deal struck months ago by federal prosecutors and the former Enron CEO. The agreement called for a sentence of from 14 to 17.5 years. Skilling agreed to stop fighting his conviction and to hand over restitution funds to the victims. He obviously gets credit for time already served. WSJ has the story here.

(wisenberg)

June 21, 2013 in Arthur Andersen, Enron, Prosecutions, Prosecutors, Sentencing | Permalink | Comments (0) | TrackBack (0)