Wednesday, October 7, 2015

Making the Yates Memo Work: Two Reform Proposals

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

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

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

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


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

Friday, September 18, 2015

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

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

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

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

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

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

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


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

Tuesday, September 15, 2015

In the News & Around the Blogosphere

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


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

Wednesday, September 9, 2015

It's Official - Throw the Employees Under the Bus

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

Three concerns here: 

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

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

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

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

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


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

Wednesday, July 22, 2015

U.S. v. Blagojevich: Logrolling Is Not A Federal Crime

John Quincy Adams and Henry Clay can rest quietly in their graves. Their "corrupt bargain" would not be considered a federal crime today. The same goes for Ike and Earl Warren. In  United States v. Blagojevich, decided yesterday by the Seventh Circuit and discussed here by contributing editor Lucian Dervan, the panel vacated five counts of conviction based on partially faulty jury instructions. Under those instructions, the jury could have convicted the former Illinois Governor based on his attempt to obtain a Cabinet seat in the incoming Obama Administration in exchange for appointing Valerie Jarrett to President Obama's soon-to-be-empty Senate seat. This was just logrolling and Judge Easterbrook and his colleagues were having none of it. "It would be more than a little surprising to Members of Congress if the judiciary found in the Hobbs Act, or the mail fraud statute, a rule making everyday politics criminal." The same was true of the Government's efforts to shoehorn the Cabinet seat/Jarrett offer into 18 U.S.C. 666--the notorious mark of the beast. Altogether a sound public policy decision, although the statutory analysis is not as clear cut.


July 22, 2015 in Corruption, Current Affairs, Judicial Opinions, Prosecutors | Permalink | Comments (0)

Saturday, June 6, 2015

When is there Entity Liability - Archdiocese of St. Paul and Minneapolis Charged

The DOJ has prosecuted many companies, often resolving the cases with Deferred and Non-Prosecution Agreements.  And on occasion, states have also proceeded against companies alleging corporate criminal liability. But how far does entity liability go, and can you extend corporate criminality to entities like the Archdiocese of St. Paul and Minneapolis.  According to Jean Hopfensperger's article in the Star Tribune, Archdiocese Charged in Sex Abuse Coverup, the Ramsey County Attorney's Office has filed these charges against this entity and that the entity reports it will cooperate in this state investigation.  Will we start seeing states adopting the federal path of proceeding criminally against entities, getting them to cooperate, followed by individual indictments premised upon the information provided? Does it make a difference here that an individual has already been indicted? And will proceeding against this particular entity, present a different model?  And should corporate criminality versus civil liability be used here? 


June 6, 2015 in Investigations, Prosecutors | Permalink | Comments (0)

Friday, May 29, 2015

Hastert Case Raises Questions

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

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

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




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

Thursday, April 30, 2015

False Accusation of Rolling Stone Article Suggests prior Notification of Targets in White-collar Cases

In November Rolling Stone published a blockbuster article about a student's account of being  gang-raped at a University of Virginia frat house.  Within days others, primarily the Washington Post, sharply questioned the truthfulness of the student's claim.  Rolling Stone then commissioned an independent investigation by Steve Coll, the respected Dean of Columbia Journalism School, to review the magazine's reporting, editing and fact-checking.  That report, written by Coll and two colleagues, came out a few weeks ago.  See hereRolling Stone also "withdrew" the article.

The report (Sheila Coronel, Steve Coll, Derek Kravitz, "An Anatomy of a Journalistic Failure") is "intended as a work of journalism about a failure of journalism." It is thorough and comprehensive and, as expected, clear and thoughtful.  Although the purpose of the report was to investigate the conduct of Rolling Stone and not the conduct of the student, it treats the student who made the false accusation and continued it over months of questioning by the reporter much too gently and itself is affected by the implicit bias that it suggests motivated the writer.  For instance, it takes pains to state that the student who made the indisputably false accusation may well have in fact been a victim of some predatory sexual act(s), and does not even speculate that she might have made up the incident out of whole cloth.  It expresses its regret that the the widely-disseminated revelation of the false accusation might cast doubt on other campus sex accusations (accepting the questionable estimates that false charges make up  less than 8% of rape allegations) and fails even to consider the possibility that the false claim here might not be such an aberration , and perhaps will serve a salutary purpose by increasing public (and governmental and institutional) awareness that false accusations are not so infrequent. 

To be sure, campus sexual abuse by male students against women is a serious problem and deserves vigorous, but measured and fair, action by universities and, when appropriate, law enforcement, and aggressive reporting on that subject is important to increase public knowledge.  School officials, and magazine and newspaper writers (and also law enforcement officers)  should be mindful, however, that this is an area where accusations are often inaccurate,  exaggerated, and sometimes downright false, and that there are sometimes unjust findings and convictions, by courts and schools, that wrongly destroy the lives of those accused.  Indeed, in my opinion, rape is the area of criminal law in which there are the most intentionally false (as opposed to mistaken) accusations by civilian complainants.

The report demonstrates convincingly that there were a series of errors in the investigation, review, fact-checking and editing of the story before it appeared.  Among those errors was the failure to give the person accused an opportunity to refute the accusations.  "Journalistic practice - and basic fairness - require that if a reporter intends to publish derogatory information about anyone, he or she should seek that person's side of the story."

I could not help but thinking that the defective  oversight  of the Rolling Stone journalists and their seemingly limited concern for the reputations of the institutions accused were nonetheless far greater and far more likely to uncover false accusations than the minimal or nonexistent review by law enforcement  that typically occurs in a criminal case prior to an arrest (and sometimes even after).  Once law enforcement officers decide to make an arrest, why should the accused not be allowed to present beforehand his "side of the story?"  Obviously, in many cases, such as where there is a need for immediate apprehension by a police officer, no pre-arrest review or notification is possible. Further,  in many other cases, for instance where the identity of the alleged perpetrator is unknown, or where there is a reasonable fear that if not arrested he will flee and not be available to face charges, an immediate unannounced arrest is called for. 

However, in many, probably most, white-collar cases, there is no such need. In those cases, as a general rule a prosecutor should notify a target that he is under investigation and seek his "side of the story."  Nonetheless, many prosecutors proceed the "old-fashioned" way by ordering an arrest first without giving the defendant an opportunity to hire a lawyer and present, should he choose to, his side of the story.

Notifying a prospective defendant that he is likely to be arrested and may choose to present his case beforehand has advantages for prosecutors in many situations. The defendant and his lawyer might provide evidence or legal arguments that will persuade the prosecutor to seek lesser charges or not to go forward at all.  Sometimes a plea agreement might be reached with the defendant which will eliminate the need for a time-consuming grand jury presentation.  And, should the defendant decide to cooperate, he may be able to do so proactively and generally more effectively since an indictment often tips off others to steer clear of him.

There are, arguably, certain benefits to law enforcement in making surprise arrests. There is a  possibility that an upset, unprepared  and  uncounseled defendant will make incriminating statements.  And, a defendant may have on his person or in proximity evidentiary items which will be found by a search.  Those advantages, however,  are less likely to occur in white-collar case, where defendants are less likely to make statements without lawyers or carry contraband or evidence.  Another potential benefit to prosecutors  is that at bail hearings a defendant's attorney may not be able to argue  that the defendant did not flee after becoming aware of the charges.  Such an argument, I have found, does not carry as much weight as it should. In any case, prosecutors are unlikely to provide prior notification of their intent to arrest to any who are conceivable flight risks.

For these reasons, the most successful and sophisticated prosecutors in white collar cases, such as the United States Attorney for the Southern District of New York, generally notify white-collar targets of their investigations and give them or their attorneys an opportunity to dissuade, minimize or deal.  Less sophisticated prosecutors of white-collar crimes, often state prosecutors, are more likely to make summary arrests.  These cases, generally not well vetted since there was no input from the accused or his counsel, more often lead to dismissals, acquittals or cheap pleas.

Not only is pre-arrest notification to a prospective defendant more fair to him in that it gives him  an opportunity to defend, explain, negotiate or prepare psychologically, it will benefit judicial and prosecutorial economy of resources by allowing for some matters to be settled with less or no litigation and court involvement.  And, as discussed above, it helps law enforcement.   It should be the default position in white-collar (and many other) cases, and deviated from only when there are genuine countervailing reasons.


April 30, 2015 in Attorney Fees, Books, Current Affairs, Investigations, Legal Ethics, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Tuesday, April 14, 2015

Second Circuit Denies Rehearing of Insider Trading Case Reversal

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

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

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

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

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

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

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

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

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




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

Friday, April 10, 2015

District of Columbia Court of Appeals Makes It Official: Prosecutor's Duty To Disclose Exculpatory Evidence Is Broader Than Brady

The case, handed down yesterday, is In Re Kline. This matter has wound its way through the disciplinary process for years. I posted about it here in 2012 and here in 2013.

Kline 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.

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. You can consult my earlier posts for a more detailed factual and case history background.

Rule 3.8(e) of the DC Rules of Professional Conduct 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...except when the prosecutor is relieved of this responsibility by protective order of the tribunal."

The District of Columbia Court of Appeals upheld the position of D.C. Bar Counsel and the Board that Rule 3.8(e) is not synonymous with Brady v. Maryland. The Court declined to import Brady's materiality test into Rule 3.8(e), making it clear that at the pre-trial and trial stages  of a case, no prosecutor is fit to make a speculative materiality analysis. The rule is now clear. Any evidence that tends to negate the guilt of the defendant must be disclosed under the D.C. Rules of Professional Responsibility.

The Court overturned the Board's 30-day sanction imposed against Kline, given the confusion engendered by the Commentary to Rule 3.8(e). The Commentary states in part that: "The not intended either to restrict or to expand the obligations of prosecutors derived from the United States Constitution, federal or District of Columbia statutes, and court rules of procedure." Courts in other jurisdictions, as well as the ABA, have construed the D.C. Rule as including the Brady materiality standard, based on this Commentary. Additionally, at the time of Kline's actions, DC-USAO's training taught that Rule 3.8(e) was synonymous with Brady. The Court held that even if the Commentary was inconsistent with the Rule, the plain language of the Rule, and its legislative history, prevailed.

"However, while clear and convincing evidence has been presented that Kline violated Rule 3.8 when he failed to turn over the Boyd Hospital Statement to the defense prior to trial, we are mindful of the fact that our comment to Rule 3.8 (e) has created a great deal of confusion when it comes to a prosecutor’s disclosure obligations under Rule 3.8. Thus, Kline's understanding of his ethical obligations, while erroneous, does not warrant an ethical sanction."

The Board originally found that the suppressed exculpatory statement was material, even though a subsequent jury in possession of the material convicted the defendant. I don't know if that finding was ever revisited. I mention it because the Court's opinion nowhere discusses this point and seems to assume that the withheld statement was immaterial.

The opinion by Chief Judge Washington is extremely well-crafted and enormously significant.

Hat Tip to Charles Burnham of Burnham & Gorokhov for informing me of this ruling  and sending a copy.



April 10, 2015 in Judicial Opinions, Legal Ethics, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Thursday, January 22, 2015

New York State Assembly Speaker Sheldon Silver Faces Federal Fraud Charges

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


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

Wednesday, January 14, 2015

Powell on Weissmann

To no one's surprise, Sidney Powell is not happy with the selection of Andrew Weissman to head up DOJ's Fraud Section. Here is her take on the decision in this week's New York Observer.


January 14, 2015 in Fraud, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Monday, January 5, 2015

You Can’t Take Back Time Served - McDonnell Should Remain Free Pending Appeal

Many are focused on what sentence former Virginia Gov. Bob McDonnell will receive from the judge today. After all, he was convicted, and now is the time for him to be punished. But there is a second question, and an important one in this particular  case, that also warrants consideration: Whether the former governor should be allowed to remain on bond pending his appeal. It should be an easy answer - he needs to remain free.

McDonnell’s case screams, ‘let’s wait before we put him behind bars.’ That’s because this is really a case about whether prosecutors stretched the law too far.

Creative federal prosecutions are not new and higher courts have been quick to strike prosecutions that exceed the boundaries of the law. Sometimes our courts have to remind prosecutors of John Adams words that  we are “a government of laws, and not of men.”

We recently saw the Supreme Court strike down a prosecution that used the Chemical Weapons Convention Implementation Act to prosecute a woman for an attempted simple assault. And the Supreme Court is currently reviewing the government’s use of the Sarbanes  Oxley Act to prosecute a fisherman for throwing fish overboard that a state official had asked him to bring to shore.

McDonnell prosecutors used a novel approach in bringing this case. They attempted to prosecute conduct that folks may find offensive. But merely  being offensive is not enough for making something a crime. It has to be criminal under existing laws, as opposed  to a new interpretation created by the government in order to bring their case to court.

This case wasn’t the typical bribery case of someone handing a person money and that individual doing a specific official act in return. When an appellate court finally gets its hands on this case, it may all come down to whether McDonnell corruptly performed  or promised to perform an “official act.” But what constitutes an “official act” is not so easy to explain. Will it include any act that happens to be done by a government official? Will it make a difference in a federal prosecution that the government official happens to be elected to a state position? Will it make a difference that state ethics rules exist to oversee what may or may not be considered corrupt conduct?

So now an appellate court will need to decide whether McDonnell’s conduct fits within the language of the statute. And that is a substantial question of law, the test the court looks at in determining whether to grant bond pending appeal. Pending that decision, it seems that he should remain free.

Many convicted defendants before McDonnell have been allowed to stay out on bond pending their appeal. There’s Martha Stewart, who eventually decided to go ahead and serve her sentence; Bernie Ebbers who received a  25 year sentence; John and Timothy Rigas, who received 15 and 20 years, respectively, and actor Wesley Snipes, who was convicted in a tax case. All went to trial and were convicted.  And all were offered the chance to remain free pending their appeal. One even finds former governors and congressman on the list of those who have been given an appellate bond – former Illinois Gov. George Ryan was the recipient of one and so was former representative William Jefferson.

In many instances, the trial judge is the one who grants the bond pending appeal. But in some cases, it has required a higher, appellate court to step in to order the release of the accused pending his or her appeal. That happened to former Alabama Gov. Donald Siegelman, who was initially granted bail.

The bottom line in most white collar cases comes down to whether the accused has a significant issue being raised on appeal that it is better to have resolved prior to the start of the sentence. After all, once the individual is incarcerated, you can’t take back the time they have served.

Creative federal prosecutions have cost prosecutors much time and money, with few rewards. And in some cases it takes appellate courts to step in and act – and until they do, McDonnell should remain free.


January 5, 2015 in Corruption, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Thursday, December 11, 2014

Two Views on Second Circuit's Insider Trading Decision

Here are two (ahem) differing views on yesterday's Second Circuit insider trading decision in United States v. Newman. The Wall Street Journal editorial writers are understandably happy at the ruling and contemptuous of Preet Bharara, dubbing him an Outside the Law Prosecutor. The Journal exaggerates the extent to which the case was an outlier under Second Circuit precedent and incorrectly states that "the prosecution is unlikely to be able to retry the case." The prosecution cannot retry the case, unless the full Second Circuit reverses the panel or the U.S. Supreme Court takes the case and overturns the Second Circuit.

Over at New Economic Perspectives, Professor Bill Black insists that the Second Circuit Makes Insider Trading the Perfect Crime. Black thinks Wall Street financial firms will enact sophisticated cut-out schemes in the wake of the opinion to give inside traders plausible deniability. He compares the fate of Newman and his co-defendant to that of Eric Garner and calls for a broken windows policing policy for Wall Street. Black's piece is outstanding, but in my view he underestimates the extent to which the Newman court was influenced by Supreme Court precedent and ignores the opinion's signals that the government needed to do a much better job of proving that the defendants knew about the tipper's fiduciary breach. As a matter of fact, in the typical insider trading case it is relatively easy to show such knowledge. That's what expert testimony and willful blindness instructions are for. 


December 11, 2014 in Fraud, Insider Trading, Investigations, Judicial Opinions, Prosecutions, Prosecutors, SEC, Securities | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 10, 2014

Second Circuit Reverses Insider Trading Convictions And Sets New Bar For Tippee Criminal Liability

The Second Circuit's decision in United States v. Newman is out. The jury instructions were erroneous and the evidence insufficient.  The convictions  of Todd Newman and Anthony Chiasso are reversed and their cases have been remanded with instructions to dismiss the indictment with prejudice. Here is the holding in a nutshell:

We agree that the jury instruction was erroneous because we conclude that, in order to sustain a conviction for insider trading, the Government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit. Moreover, we hold that the evidence was insufficient to sustain a guilty verdict against Newman and Chiasson for two reasons. First, the Government’s evidence of any personal benefit received by the alleged insiders was insufficient to establish the tipper liability from which defendants’ purported tippee liability would derive. Second, even assuming that the scant evidence offered on the issue of personal benefit was sufficient, which we conclude it was not, the Government presented no evidence that Newman and Chiasson knew that they were trading on information obtained from insiders in violation of those insiders’ fiduciary duties.


December 10, 2014 in Insider Trading, Judicial Opinions, Prosecutions, Prosecutors, SEC, Securities | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 19, 2014

McCrum Survives First Motion to Quash Perry Indictment

Special Prosecutor Mike McCrum has survived an attempt to quash the Rick Perry indictment based on alleged procedural irregularities connected to McCrum's appointment. Courthouse News has the story here. The  Order Relating to Authority of Attorney Pro Tem, written by Assigned Judge Bert Richardson, appears to be carefully and thoughtfully crafted. We can expect a similar approach to the more substantive constitutional issues awaiting Judge Richardson's pen.


November 19, 2014 in Judicial Opinions, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Monday, October 6, 2014

Rob Cary's Book on Senator Ted Stevens

Rob Cary's book, "Not Guilty: The Unlawful Prosecution of U.S. Senator Ted Stevens" is a wonderful read and reminder of what needs to be corrected in our criminal justice system. Discovery in a criminal case is incredibly important, and this book emphasizes its importance in the criminal justice system and to society. In white collar document driven cases, the amount of paperwork can be overwhelming.  It becomes important to not merely provide discovery to defense counsel, but also  that it be given in an organized manner. Dumping documents on defense counsel is not enough.  And failing to provide crucial documents, witnesses, and evidence is even more problematic. More needs to be done to correct discovery injustices in society and hopefully this book can serve as the momentum and real-life story to make it happen.

Hats off to lawyer Rob Cary (Williams & Connolly) who took the bold step to tell this important story and to tell it in a very "real" way. 


October 6, 2014 in Books, Books [1], Defense Counsel, Legal Ethics, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Wednesday, October 1, 2014

Majority Opinion in Thomas Dale DeLay v. State of Texas

And here it is. DeLay v. State of Texas. To clarify my ealier comments, the majority held that DeLay did not commit or conspire to commit money laundering. He did not launder or conspire to launder criminally derived proceeds, because the facts proved by the State failed to prove a violation of the Texas Election Code. In other words, the State proved no underlying crime.


October 1, 2014 in Judicial Opinions, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Tom DeLay: Free At Last

This just in. The Texas Court of Criminal Appeals has affirmed 8-1 the lower appellate court ruling vacating Tom DeLay's money laundering conviction. Why was the conviction vacated? DeLay's actions, even if proven, did not constitute the crime of money laundering under Texas law at the time he committed them. Here is the brief KPRC-TV story. Hat Tip to Roger Aronoff for the alert.


October 1, 2014 in Current Affairs, News, Prosecutions, Prosecutors | Permalink | Comments (0) | TrackBack (0)

Friday, September 26, 2014

Departure of Eric Holder - From a White Collar Crime Perspective

Yesterday's announcement that Attorney General Eric Holder will be stepping down from his position makes one think back about all that he accomplished while in office.

Many have been critical of his handling of white collar cases, but few have focused on the enormous number and amount of fines given to entities during his term. There has been a growing list of deferred and non-prosecution agreements entered into between entities and the DOJ (see here).  Internal investigations are becoming routine by companies and hopefully corporations are realizing the cost-benefit of monitoring employees to adhere to the law.

Although discovery issues have not been resolved, there is certainly more focus by this Office on the importance of making sure that favorable evidence is given to defense counsel. With more time, emphasis and some new legislation this issue could move even further ahead.  

Most recently we see that DOJ is taking the ethical position in rethinking its position on waivers with guilty pleas. (see here)  Some districts, unfortunately, were asking for plea waivers on ineffective assistance and prosecutorial misconduct claims.  This practice, used by only some offices, suffered from ethics problems causing some states, like Florida, to have to issue an ethics opinion prohibiting this practice.  It is nice to see DOJ stepping to the plate to stop this conduct.  

And recently we have also seen that AG Holder has been at the forefront of enforcing the Sixth Amendment Right to Counsel. A good number of state attorney generals stood up to take this position in Gideon v. Wainwright, filing an amicus brief in support of the right to counsel for indigent defendants.  AG Holder's stance on this has been admirable.

Clearly our criminal justice system needs a good bit more work, but it is promising to see what one Attorney General has accomplished. Let's hope his successor continues advocating as a "minister of justice."


September 26, 2014 in Deferred Prosecution Agreements, Prosecutors | Permalink | Comments (0) | TrackBack (0)