Tuesday, July 5, 2016
An interesting case is pending in the 11th Circuit that considers whether a breach of a real estate contract can be the basis for a wire fraud conviction. The case involves a failure to disclosure a sinkhole when selling a residence. There is a huge federalism question here that is magnified by the fact that Alabama "employ[s] the cannon of caveat emptor in real estate transactions." But the most interesting aspect of the case is the government's taking a civil action and using the wire fraud statute to prosecute the conduct. I'll withhold further comment until after I have seen the government's brief - but I have to wonder if this is the case that the late-Justice Scalia was waiting for to limit the reach of the mail/wire fraud statutes.
Appellant's Brief - Download Defendant-Appellant's Initial Brief
Wednesday, June 29, 2016
I received the McDonnell decision with mixed feelings. Initially, I was happy for my colleague Hank Asbill, one of the nation's top criminal defense attorneys, for a great victory. Asbill and his co-counsel litigated this case the "old-fashioned way" - they fought it, and fought it, and then fought it. Their tenacity, dedication and skill make me proud to be a defense lawyer.
Not having read the briefs of the parties, or of the amici, or heard the oral arguments, I am hesitant to criticize the opinion, especially an opinion by a brilliant chief justice for a unanimous court (I suspect due to a compromise by potential dissenters, possibly to avoid an outright dismissal). Indeed, the opinion makes a strong case that the decision was required by precedent. However, I do question several aspects of the opinion. First, I find questionable Justice Roberts' Talmudic crucial narrowing of the definition of "official act" by virtually eliminating the broad catch-all words "action" and "matter," largely by resort to the Latin word jurisprudence that is often an indication that the interpretation is on shaky ground.
Second, while I am less troubled than the Court about the federal assumption of power to monitor the conduct of state officials for purportedly violating their offices, there is something bothersome about federal officials by criminal prosecutions in effect setting ethical standards for state officials. However, as a practical matter it appears that with rare exceptions local prosecutors lack the will and/or the resources to prosecute high state officials. In New York City, for instance, U. S. Attorney Preet Bharara has in recent years prosecuted about ten state legislators on corruption charges, while New York's five district attorneys combined have not prosecuted any.
Third and most importantly, I am concerned by the decision's enablement of business-as-usual pay-to-play practices. By narrowing the definition of "official act, the Court has legalized (at least federally) the practice of paying a government executive to set up a meeting with a responsible official. By doing so, the Court has given such "soft" corruption a green light. Under the opinion, a businessperson does not violate federal bribery law by paying a governor, mayor - or even the President - tens of thousands of dollars to make a phone call to a purchasing official asking or directing her to meet with the businessperson. And that call, however innocuous that actual conversation may sound, will have real consequences - otherwise, why would the businessperson pay for it? Even absent a verbal suggestion that the executive wants the official to do business with the caller, the official cannot but think that the executive would like that she do business with that person. I imagine a New Yorker cartoon with a governor sitting at a phone booth with a sign saying, "Phone calls, official meetings. $10,000 each."
To be sure, the law concerning bribery - not alone among federal statutes - vests too much power in the government. At argument government counsel conceded (candidly but harmfully) that a campaign contribution or lunch to an official could constitute the quid in a quid pro quo. That is frightening, but the problem is in the quid, not in the quo - about which this case is concerned. (I applaud Chief Justice Roberts statement in response to the standard "Trust me, I'm the government" argument that "We cannot condone a criminal statute on the assumption the government will use it responsibly.") And, certainly, if this case were to apply to campaign contributions - and not, as in this case personal receipt of money and goods-in the words of the amicus brief of former White House counsel - it would be "a breathtaking expansion of public corruption law." Indeed, a distinction should be made between personal and campaign contributions. But this case applied to the quo - what the governor did in exchange for $175,000 worth of goods and money. And, in my view he took "action" as the governor on a "matter" by "official acts" - hosting an event at the official mansion, making calls and arranging meetings.
Tuesday, June 21, 2016
Elkan Abramowitz, one of the best and most-respected white collar crime defense practitioners in the nation, last week received the Robert Louis Cohen Award for Professional Excellence from the New York Criminal Bar Association. At the dinner at which he received the award, Mr. Abramowitz spoke thoughtfully about the pernicious effect of prosecutions of corporations, particularly on the rights corporate employees.
The recent focus on perceived corporate wrongdoing, he said, "has seriously impeded the rights of individual employees caught up in the web of ... corporate investigations." He pointed out that the "simple threat"of a corporate investigation has forced corporations "to conduct internal investigations upon any suspicion of wrongdoing" and, because corporations rarely, if ever, can risk going to trial, they will end up disclosing alleged criminality to the prosecutors to work out the best deal they can. The results as to the corporations themselves are non-prosecution or deferred prosecution agreements "which typically give the prosecutors much more power over the corporation than [they] would have if the corporation were actually convicted of a crime in court." The results as to corporate employees are at the insistence of prosecutors as a condition for a deal with the corporation that "the heads of individual employees be handed to them on a silver platter."
Mr. Abramowitz made a distinction between investigations by prosecutors who "hopefully most of the time" investigate without bias toward a particular result and corporations which in an internal investigation "are incentivized to find out and expose criminality." Thus, corporate employees are explicitly made to understand that if they refuse to testify they will be terminated and often told that their legal fees will not be paid if they chose to defend themselves." And, since these individuals accordingly sometimes choose not to hire counsel and to talk to internal investigators, the information presented to prosecutors by corporations often provides "more ammunition" than an investigation conducted by the FBI, police or another federal agency.
The results are, Mr. Abramowitz said, cases against individuals "that might never have been brought without the corporation's coercion." Thus, he believes, "Whatever social utility is believed to be served by this system,..this outsourcing of a purely governmental function is extremely dangerous and [causes] great injustices to individuals working in companies under investigation."
Mr. Abramowitz's observations of the systemic changes, most obviously the role of corporations and their special prosecutors (who, interestingly, he did not mention specifically) as quasi-prosecutors, are right on the mark. And, he is quite correct that the prosecution of individuals coerced into giving up their rights to silence and to counsel in response to their employer's demands "flies in the face of the restraining values of our society as expressed in the Bill of Rights." However, I suspect that most prosecutors and many others (including those liberals and others who like Bernie Sanders are still complaining that no individuals from the big institutions involved in the 2008 financial crisis were jailed) would not say that on balance the addition of corporations to those ferreting out financial crime is a negative one. After all, that addition presumably has or will result in more indictments, convictions, and jail sentences of individuals who have committed financial crimes. While I too bemoan the incursion into fundamental individual rights as a result of corporate prosecutions, I suspect Mr. Abramowitz and I are in the minority.
Thursday, May 26, 2016
The Supreme Court this week in Foster v. Chatman (14-8349, decided May 23,2016) reversed a Georgia murder conviction because the prosecutors violated the requirement of Batson v. Kentucky, 476 U.S. 79 (1986) that lawyers not use race-based peremptory challenges to remove jurors. The Court, in an exquisitely detailed factual analysis by Chief Justice Roberts, dissected the prosecutors' purported reasons for challenging two prospective African-American jurors and found them disingenuous.
In a Slate article, my friend and colleague, the prolific and invaluable Prof. Bennett Gershman ("How Prosecutors Get Rid of Black Jurors," May 26,2016) writes that, notwithstanding Batson and now Foster, prosecutors will continue to "remove black persons from jury service with impunity simply by concocting purportedly race-neutral reasons." He points out that the Foster reversal occurred only because of the random discovery of the prosecutors' file containing telltale notations and comments about their intentions to strike black jurors.
I agree with Prof. Gershman. Prosecutors will continue to use race as a basis, sometimes the predominant or even only basis, in their determinations which jurors to challenge. And, so will defense lawyers. Given the limited knowledge lawyers have about the predelictions and potential biases of jurors, especially in jurisdictions which prohibit or severely limit lawyer questioning of jurors. a juror's's race is perceived by trial lawyers, reasonably I believe (although not to my knowledge based on any scientific proof), as an indication of how he will vote in the jury room, just as how he will vote in the voting booth.
As Prof. Gershman states with respect to prosecutors (generally applicable also to defense lawyers), "Prosecutors have long believed that striking black jurors improves their chances of convicting a black defendant. Prosecutors assume that black people are more likely than white people to have negative feelings about government, to have had bad experiences with the police, are more likely to have been targeted for arrests and forcible stops than white people, are more likely to have been imprisoned for minor drug crimes, and are more likely to believe that crimes against black victims are prosecuted less aggressively than crimes against whites." Thus, generally, prosecutors (and defense lawyers) believe that, all other things being equal, black jurors are more likely to acquit black defendants than other jurors. (I am not aware of any empirical studies of how race affects jury decisions. Empirical studies of jury verdicts are, it seems, far fewer than analyses of voting decisions.)
Accordingly, prosecutors and defense lawyers, both seeking to win (and believing that jury composition is a major factor as to whether they will), and therefore desiring jurors likely to favor their clients, consider race in their jury selection decisions and, when challenged (as are prosecutors more often than defense lawyers) employ less than candid justifications for their choices. And, since judges are hesitant to call lawyers, especially prosecutors, liars, the lawyers' justifications, if at all plausible, are almost always accepted. Compliance with Batson's dictates therefore is essentially, as Prof. Gershman states, "a charade," commonly violated by prosecutors (and also by defense lawyers).
To be sure, there are some differences between race-based challenges by prosecutors and by defense lawyers. Prosecutors' race-based challenges more often are exercised in order to deprive a defendant from a cross-section of the community and a jury including some of his peers; defense lawyers' race-based challenges are more often designed to reach those goals. Prosecutors' race-based challenges more often deprive black citizens of the right to serve on juries; defense lawyers' challenges enhance that (but diminish the right of whites and others to serve). Additionally, to discriminate - which is what challenging a juror based on race is - is presumably more invidious if done by an agent of the state than a private citizen. But race-based challenges by either side are common, and violate the constitutional principles of Batson.
Batson, therefore, simply does not work. Both sides commonly violate its principles to achieve their own goals. It may be considered a noble experiment with a lofty goal that has failed, or perhaps an example of a short-sighted Supreme Court just not realizing how things are done down in the pits. What can or should be done? I am sure many trial lawyers, both criminal and civil, prosecutor or defense counsel, would prefer it be eliminated. Prof. Gershman mentions a proposal to limit peremptory challenges to situations where attorneys give a "credible reason" for their exercise, what I call a challenge for "semi-cause." Another proposal he mentions is to track carefully all prosecutorial challenges similar to the way police stops are tracked. An obvious way is to eliminate all peremptory challenges, as Justice Marshall had suggested in Batson. And, of course, professional sanctions against lawyers who violate Batson might help enforce its dictates. (However, the history of lack of sanctions against prosecutors for other areas of prosecutorial misconduct suggests increased sanctions would have little effect). Lastly, more lengthy voir dire of jury panels, especially if by lawyers and not judges, would provide the litigants with a greater basis to exercise challenges than racial generalizations.
As Prof. Gershman says, "[Batson] diminishes the integrity of the criminal justice system." The decision in Foster is unlikely to solve that problem.
Wednesday, April 20, 2016
Judge Valerie Caproni, the Southern District of New York judge presiding over the case of convicted former New York State Assembly Speaker Sheldon Silver, has unsealed papers submitted by United States Attorney Preet Bharara alleging that the convicted politician had affairs with two women who allegedly received favorable treatment from him in his professional capacity. The women, whose names were redacted from court papers (but identified, with accompanying photos, by the New York Daily News) were allegedly a prominent lobbyist who dealt regularly with Silver in his official capacity and a former state official whom Silver allegedly helped get a state position.
The government, whose efforts to introduce evidence of the relationships at trial were rebuffed by the judge, argued it should be able to provide such evidence at sentencing, purportedly to demonstrate that these relationships and favors provided by Silver demonstrated a pattern of abuse of power and possibly to rebut any evidence, including Silver's 50-year marriage, of Silver's good character. The judge seemed to accept the first argument, stating that she viewed this information "as a piece with the crimes for which Mr. Silver stands convicted," although "not exactly the same since no one is suggesting a quid pro quo, but of a piece of a misuse of his public office, and that's why I think it is relevant."
Generally, a federal judge has a right to consider virtually any information on sentencing, but I am uneasy about the injection of information of extramarital affairs of a defendant into the sentencing decision. If "no one is suggesting a quid pro quo," as Judge Caproni said, I question its relevance. Unless there is some basis that Silver did something favorable for these women because of their alleged sexual relationships - which I would call a "quid pro quo - I wonder whether his alleged actions constitute a "misuse of public office."
There, of course, is a difference between allowing a party to present evidence or argument at sentencing and factoring that information into the sentencing decision, and, absent specific facts, I am hesitant to say the material should not be considered. I am troubled, however, by the possibility that a defendant's alleged marital infidelity will become a regular part of a prosecutor's sentencing toolbox.
I am relatively sure that my first boss, from almost fifty years ago, Frank Hogan, the legendary and exemplary longtime District Attorney of New York County, would not have proffered such evidence, but Mr. Hogan was a man with a perhaps old-fashioned notion of fair play in a perhaps gentler age in which prosecutors rarely took aggressive (or even any) positions on sentencing (and the press did not publicize the dalliances of public officials).
(I note that Mr. Silver, whom I never met or spoke with, or contributed to, appointed me three times (and failed to reappoint me a fourth) to serve on the New York State Commission on Judicial Conduct).
Monday, March 14, 2016
In November 2014, the American Bar Association Criminal Justice Section Task Force on the Reform of Federal Sentencing for Economic Crimes published its final report. The report recommended major changes to the structure of the Federal Sentencing Guidelines for economic crimes. In particular, the report sought to reduce the current Guideline's dominant focus on loss in favor of a more balanced approach that weighed loss, culpability, and victim impact. I discussed these proposed amendments more fully here. Though the ABA CJS Task Force recommendations were not adopted by the Federal Sentencing Commission (see here and here), some courts have begun to use the ABA "Shadow Guidelines" when varying in economic crimes cases.
Last week, a federal judge in New York used the ABA "Shadow Guidelines" in sentencing Mair Faibish, former CEO of Synergy Brands, Inc. Faibish was accused of kiting checks worth in excess of $1 billion. According to the DOJ press release in the case:
Synergy was a publicly-held food products company that traded on the NASDAQ and Over-the-Counter exchanges and manufactured and distributed various food products. As proven at trial, Faibish and his co-conspirators, on behalf of Synergy, funneled approximately $1.3 billion in checks that were not backed by sufficient funds through Signature Bank, Capital One Bank, and various Canadian bank accounts of associated food manufacturers and distributors in Canada. The Canadian companies then sent checks in corresponding amounts, which were also not backed by sufficient funds, back to Faibish-controlled shell companies. Because the banks made deposited funds immediately available for withdrawal, the scheme artificially inflated the companies’ account balances. Faibish and his co-conspirators used Synergy’s inflated bank account balances to book millions of dollars in fictitious accounts receivable and revenue.
As a result of this fraud, FDIC-insured Signature Bank lost approximately $26 million that Faibish and his co-conspirators had withdrawn before the bank uncovered the scheme. Following the scheme’s collapse, Synergy was taken into bankruptcy, and its publicly traded stock became essentially worthless, causing millions of dollars in investor losses. On November 4, 2014, the Court ordered Faibish to pay $51,166,000 in forfeiture.
The trial evidence also established that Faibish falsely inflated the values of Synergy’s sales, cost of goods sold, and pre-paid expenses in filings with the SEC for the quarter ending June 30, 2008. These material misrepresentations were breaches of the defendant’s fiduciary duties to investors.
The Federal Sentencing Guideline range in the case was life in prison, though the maximum available sentence was actually less due to applicable statutory maximums. Despite the Federal Sentencing Guideline range and the government's request for decades in prison for Faibish, the Court rejected these arguments and sentenced him to 63 months in prison (see here and here). According to LAW360, the judge stated at sentencing that the Federal Sentencing Guidelines for economic crimes are "almost useless" because of their reliance and focus on loss in calculating the applicable sentencing range. Instead, the judge used the ABA "Shadow Guidelines" to determine what he considered to be a more appropriate sentence.
This seems to be yet another indication of the growing dissatisfaction among judges with the Federal Sentencing Guidelines for economic offenses (see here and here) and should serve as yet another call for the Federal Sentencing Commission to consider more significant reforms in the future.
Monday, March 7, 2016
What do Bill Cosby and Whitey Bulger have in common? Both have lost challenges to criminal accusations based on the claim that their prosecutions were barred because they received oral, informal grants of immunity from prosecutors.
Last week, the First Circuit denied the appeal of Joseph (Whitey) Bulger, the notorious Boston mobster who was on the lam for 17 years until his 2011 arrest in California. Bulger was convicted after trial in 2013 for racketeering for participating in eleven murders and other crimes, and was sentenced to two life sentences plus five years. He is now 86.
Bulger's primary claim on appeal was that he was denied his constitutional rights to testify and to present an effective defense by the refusal of the trial judge to allow him to testify before the jury that he was granted immunity for both past and future crimes by a now-deceased high-ranking DOJ prosecutor. Interestingly, Bulger claimed that that the purported immunity grant was not in exchange, as one might suppose, for his providing information to or testifying for the prosecutor, but for his protecting the prosecutor's life. He insisted, contrary to widely-accepted reports, that he was not an informant.
The Court of Appeals upheld the district court's rulings that whether the prosecution was barred because of immunity was to be determined prior to trial by the judge, and not by the jury, and thus Burger could not present to the jury testimony about the purported immunity promise . Although the appeals court ruled that Burger had waived consideration of the issue on the merits by his failure to present the trial judge with any evidence, but only with a "broad, bald assertion from defense counsel lacking any particularized details," it reviewed the judge's merits determination on a "plain error" standard, and found that the judge was not "clearly wrong" in deciding that Bulger had failed to demonstrate either that the promise had been made, or, that if it had been made, that the promising prosecutor had authority to make it..
The government described Bulger's claim that the prosecutor promised him immunity "frivolous and absurd." What did give Bulger's contention an infinitesimally slight possibility of credibility, however, was that there was a demonstrated history (although not presented at the trial) that the Boston FBI had for years ignored Bulger's criminal acts when he served as an informant for them.
To be sure, the similarities between the Cosby and Bulger situations are limited. In the Cosby case the then District Attorney, the prosecutor who, if anyone, had authority to grant immunity, testified that he did promise not to prosecute Cosby. Here, there was no corroboration whatsoever of the purported promise by a now-dead prosecutor, and the Department of Justice strongly contended that even had such a promise been made, the prosecutor had no authority to make it. However, the decision, made by a respected appellate court (although under a different set of procedural rules and no binding or other authority over a Pennsylvania state trial court) does squarely hold that whether a prosecutor has granted immunity is not a jury question. And, should Cosby try to re-litigate the immunity issue before his jury, the decision will likely be cited by the District Attorney.
Texas Disciplinary Rule of Professional Conduct 3.09(d) requires a prosecutor to:
make timely disclosure to the defense of all evidence or information known to the prosecutor that tends to negate the guilt of the accused or mitigates the offense, and, in connection with sentencing, disclose to the defense and the tribunal all unprivileged mitigating information known to the prosecutor, except when the prosecutor is relieved of this responsibility by a protective order of the tribunal.
Rule 3.04(a) requires, among other things, that "a lawyer shall not obstruct another party's access to evidence."
In a highly significant ethics opinion, signed and delivered on December 17, 2015, the Texas Board of Disciplinary Appeals ("BODA") ruled that Rule 3.09(d) does not contain the Brady v. Maryland materiality element, or any de minimus exception to the prosecutor's duty to disclose exculpatory information in a timely manner. BODA also held that Rule 3.09(d) applies in the context of guilty pleas as well as trials. In other words, the prosecutor cannot negotiate a guilty plea without beforehand disclosing exculpatory information to the defense.
The case decided by BODA is Schultz v. Commission for Lawyer Discipline. William Schultz was the Assistant District Attorney in Denton County. He prosecuted Silvano Uriostegui for assaulting Maria Uriostegui, his estranged wife. Maria testified at a protective order hearing that Silvano was her attacker. Schultz never disclosed to the defense that Maria could only identify Silvano by his smell, boot impression, and stature "as seen in the shadow," as it was dark at the time and Maria could not see her attacker's face. Schultz learned this information from Maria one month prior to the trial date. Silvano entered a guilty plea. At the sentencing hearing, Maria testified "that she did not see her attacker's face and that she did not know whether her attacker was Silvano. Maria also testified that she had told the prosecutor earlier that she did not see who attacked her." (With respect to the protective order hearing, Maria "explained that she had testified...that Silvano was her attacker because she had assumed it was him from his smell and boot.")
The testimony at the sentencing hearing was the first time defense counsel Victor Amador learned of the exculpatory information, despite having filed broad pre-trial requests for exculpatory evidence. Amador moved for a mistrial which was granted by the trial court. Amador next filed an application for writ of habeas corpus. The trial court granted habeas relief, allowing Silvano to withdraw his guilty plea. The court also ruled that double jeopardy had attached.
Amador filed a grievance against Schultz with the State Bar, which was the basis of the disciplinary proceeding. Schultz contended that the information in question was neither exculpatory or material. The Commission for Lawyer Discipline disagreed, as did BODA. BODA based its holding primarily on the plain language of Rule 3.09(d) and on commentary to the Rule and to the ABA Model Rule on which Rule 3.09(d) is based. BODA also held that Schultz's failure to disclose the exculpatory information constituted obstruction of another party's access to evidence under Rule 3.04(a). Schultz received a six month fully probated suspension.
The only Texas attorney disciplinary authority higher than BODA is The Supreme Court of Texas. Schultz did not appeal BODA's decision to The Supreme Court of Texas. Thus BODA's decision in Schultz is now the governing ethical interpretation of Rule 3.09(d) in Texas. Ergo, under the McDade Act, it now appears that both state and federal prosecutors litigating in Texas are under an ethical duty to timely disclose to the defense all evidence or information "that tends to negate the guilt of the accused or mitigates the offense," irrespective of its materiality. The disclosure must be made prior to any guilty plea.
The defense bar owes a great debt of gratitude to defense attorney Victor Amador, the Committee for Lawyer Discipline of the State Bar, and BODA. It should also be noted that many other jurisdictions have rules containing similar or identical wording to 3.09(d). There is much more work to be done. Hat Tip to Cynthia Orr of Goldstein, Goldstein & Hilley for bringing this opinion to our attention.
Friday, March 4, 2016
There was an incredible presentation on implicit bias, moderated by Hon. Bernice B. Donald, who chairs the ABA Criminal Justice Section. This was a real highlight of the program and the audience was glued to the screen for a short video of images. The discussion that followed was truly enlightening. Also hats off to the Hon. Mark W. Bennett, who comes off the bench to shake the hand of the defendant in order to explain the presumption of innocence.
One panel, moderated by Morris "Sandy" Weinberg, looked at the The Future of White Collar Criminal Law. The incredible array of panelists discussing the past and future were: Robert B. Fiske, Jr., Gary Naftalis, Dan Webb, Robert Bennett, John Keker, Larry Thompson, Karen Seymour, Leslie Caldwell.
There was another panel titled: Women in the Courtroom: A View from the Jury Box. Moderated by Hon. Patricia Brown Holmes, a retired associate judge in the Circuit Court of Cook County and a partner at Schiff Hardin LLP (Chicago), the panelists continued the discussion from earlier in the program on implicit bias. Joan McPhee, a partner at Ropes & Gray LLP asked the question, “[d]oes gender matter in the courtroom?”
This panel started by saying that there was no real studies, so the panelists decided to do their own research and study.
Dr. Ellen Brickman, Director in the Jury Consulting practice at DOAR Inc., a litigation consulting firm in New York, explained how the juror study was conducted. Ms. McPhee then explained the survey of attorneys and Laura C. Marshall, a partner at Hunton & Williams LLP, described comments received from the surveys.
Bottom line - Women jurors had a stronger preference for women attorneys.
There was discussion of the importance of being careful of distractions and to watch speech patterns in front of jurors. This was in addition to a discussion of who to select on the jury. It was noted that the government tends to have more women on their teams and some of the panelists looked at the challenges of getting more women on trial teams. Although Dr. Ellen Brickman noted that having women on teams as tokens can work negatively. There was also a discussion on the role of emotion and how anger plays out in the courtroom.
I can't wait to read this study.
Wednesday, February 24, 2016
This morning the Texas Court of Criminal Appeals put the final nail in the coffin of former Governor Rick Perry's criminal case. The indictment was returned to the trial court to be dismissed. Here is the majority opinion in Ex Parte Rick Perry.
Tuesday, December 8, 2015
Not surprisingly, New York County District Attorney Cyrus Vance's office has announced it will after a hung jury retry, albeit in slimmed-down form with fewer defendants and counts, the criminal case involving the defunct firm of Dewey & LeBoeuf's alleged misrepresentations in seeking financing during its desperate dying days. Prosecutors rarely admit defeat in big cases after a single hung jury. Double jeopardy does not apply.
The major defendant, against whom (as often happens with the highest-ranking officer) there is the least evidence, Steven H. Davis, its former chair, has been pared from the case and apparently will receive a deferred prosecution. "Deferred prosecutions" are rarely, if ever previously, given to individuals by New York state prosecutors, at least by that name. Although the terms have not been announced, this disposition, I suspect will essentially be just a dismissal dressed up so that the prosecutor can save some face and not admit a total loss.
The prosecutor, as is a custom in New York County, announced publicly on the record his plea offers to the three defendants remaining. I find this custom repugnant and sometimes in return I announce the defendant's terms for a final disposition - such as, a dismissal, an apology by the prosecutor and a testimonial dinner in the defendant's honor.
The plea offers here were a felony plea with a one-to-three year jail term to Joel Sanders, a felony plea with 500 hours of community service to Stephen DiCarmine, both of whom spent six months at the trial that ended in a hung jury, and a misdemeanor plea with 200 hours of community service, to Zachary Warren, who was severed and has not yet gone to trial. I would not be surprised if these cases were settled before trial, not necessarily at the offered price.
Saturday, December 5, 2015
Congratulations to the defense team members and their client in U.S. v. Bajoghli. After a 16 day trial, the dermatologist defendant was acquitted on all counts--over 40. Dr. Bajoghli was represented by Peter White and Nicholas Dingeldein of Schulte Roth & Zabel and Kirk Ogrosky and Murad Hussain from Arnold & Porter. The jury was out a day and a half.
There was some interesting motion work during the pre-trial phase, for those of us interested in government efforts to affect witness testimony. Six weeks before the original trial date, the government sent "victim impact notification" letters to several of Dr. Bajoghli's patients. Dr. Bajoghli complained that the patients, many of whom were scheduled to be defense witnesses, were not victims and that the letter was intended to prejudice the patients against him. Judge Gerald Lee granted the motion and issued a corrective letter. Here are the relevant papers: Bajoghli Motion in Limine Seeking Corrective Witness Instructions, Exhibit A Ogrosky Letter to DOJ, Exhibit B to Bajoghli Motion, Order Granting Motion for Corrective Witness Instruction, Court's Corrective Witness Letter.
Monday, November 30, 2015
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.)
Tuesday, November 24, 2015
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.
Monday, November 2, 2015
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.
Friday, October 30, 2015
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.
Thursday, October 29, 2015
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.
Wednesday, October 7, 2015
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.
Monday, September 28, 2015
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).
Friday, September 18, 2015
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.