Tuesday, June 25, 2013
It's a relatively short opinion issued by the Second Circuit, and 24 of the 29 pages pertain to a summary of the holding, facts, and the wiretap order used in this case. For background on the issues raised, the briefs (including amici briefs), see here. Judge Cabranes wrote the majority opinion, joined by judges Hon. Sack and Hon. Carney. A summary of the holding states:
In affirming his judgment of conviction, we conclude that: (1) the District Court properly analyzed the alleged misstatements and omissions in the government’s wiretap application under the analytical framework prescribed by the Supreme Court in Franks; (2) the alleged misstatements and omissions in the wiretap application did not require suppression, both because, contrary to the District Court’s conclusion, the government did not omit information about the SEC investigation of Rajaratnam with "reckless disregard for the truth," and because, as the District Court correctly concluded, all of the alleged misstatements and omissions were not "material"; and (3) the jury instructions on the use of inside information satisfy the "knowing possession" standard that is the law of this Circuit.
Some highlights and commentary:
1. The Second Circuit goes further than the district court in supporting the government's actions with respect to the wiretap order.
2. The Second Circuit agrees with the lower court that a Franks hearing is the standard to be used with a wiretap order where there is a claim of misstatements and omissions in the government's wiretap application. The Second Circuit notes that the Supreme Court has "narrowed the circumstances in which ...[courts] apply the exclusionary rule." But the question here is whether the Supreme Court has really addressed the wiretap question in this context and whether a cert petition will be forthcoming with this issue.
3. Although the Second Circuit uses the same basic test in reviewing the wiretap, it finds that "the District Court erred in applying the 'reckless disregard' standard because the court failed to consider the actual states of mind of the wiretap applicants." The Second Circuit then goes a step further and finds that omission of evidence does not mean that the wiretap applicant acted with "reckless disregard for the truth."
4. The court states that "the inference is particularly inappropriate where the government comes forward with evidence indicating that the omission resulted from nothing more than negligence, or that the omission was the result of considered and reasonable judgment that the information was not necessary to the wiretap application." - This dicta provides the government with strong language in future cases when they just happen to negligently leave something out of a wiretap application.
5. Does the CSX Transportation decision by the Supreme Court call into question Second Circuit precedent? The Second Circuit is holding firm with its prior decisions. But will the Supreme Court decide to take this on, and if so, will it take a different position.
Monday, June 24, 2013
In what should be a surprise to no one, the Wall Street Journal editorial page today launched an attack on James Comey, President Obama's nominee to be the next FBI Director. The primary offenses? Comey's objection to the Bush Administration's illegal warrantless wiretapping and Comey's appointment of Patrick Fitzgerald as Special Counsel to investigate the Valerie Plame leak. The editorial is here. More commentary on this in the next few days.
Coming soon: Professor Podgor's analysis of the Second Circuit's opinion afffirming Raj Rajaratnam's conviction for insider trading violations.
Friday, June 21, 2013
Judge Lake effectively ratified the deal struck months ago by federal prosecutors and the former Enron CEO. The agreement called for a sentence of from 14 to 17.5 years. Skilling agreed to stop fighting his conviction and to hand over restitution funds to the victims. He obviously gets credit for time already served. WSJ has the story here.
Despite all the promises and policy iterations we continue to see blatant DOJ Brady violations. These are violations that first year criminal procedure students would know not to commit. The latest to come to light is from the Eastern District of Tennessee.
Yesterday, the U.S. Court of Appeals for the Sixth Circuit reversed Abel Tavera's conviction for conspiracy to distribute meth and possession with intent to distribute meth. Tavera was the passenger in a truck involved in an undercover drug deal. He plausibly claimed no knowledge of the drug transaction, testifying that he thought he was heading to a roofing job. Some of the physical evidence tended to corroborate Tavera's story. The evidence against Tavera was almost entirely bottomed on the testimony of co-defendant Granado. Non-testifying co-defendant Mendoza debriefed. He first told the government that Tavera had no knowledge of the drug transaction. Later the same day Mendoza told the government that Tavera only gained knowledge of the drug transaction upon entering the truck on the day of the transaction. Mendoza also denied that Tavera came along to count money and provide security, and consistently stated that one of the purposes of the truck ride was to work on a roofing job. All of this was contradictory to Granado's ultimate testimony. Mendoza later pled guilty. Mendoza's written plea agreement stated: "Tavera knew that they were transporting methamphetamine from North Carolina to be delivered to another person in Tennessee and agreed to accompany [Mendoza]. Since they were transporting methamphetamine, Tavera told [Mendoza] that they needed to be careful." The prosecutor, AUSA Donald Taylor, failed to disclose Mendoza's earlier debriefing statements to the defense.
Judge Merritt, speaking for the majority, decided to send a message:
"This particular case is not close. Prosecutor Taylor's failure to disclose Mendoza's statements resulted in a due process violation. We therefore vacate Tavera's conviction and remand for a new trial. In addition, we recommend that the U.S. Attorney's office for the Eastern District of Tennessee conduct an investigation of why the prosecutorial error occurred and make sure that such Brady violations do not continue."
Tavera's attorney never tried to interview Mendoza. The government argued that no Brady violation occurred, under Sixth Circuit precedent. because Mendoza was equally available to both sides. The majority disagreed with this contention,and further found it foreclosed by the U.S. Supreme Court's ruling in Banks v. Dretke, 540 U.S. 668 (2004). Judge Clay accepted the government's position regarding Sixth Circuit precedent and dissented.
The statements were plainly material and exculpatory. So the question remains, why is such conduct continuing to occur and what is the DOJ doing about it when it comes to light? Here, what one branch of the DOJ did was to argue that Brady wasn't violated.
These constitutional violations directly affect the fairness of federal criminal trials. They will never stop, absent legislation with teeth and/or a federal criminal defense bar willing to be fanatical in its intolerance of Brady violations.
Here is the decision in United States v. Tavera.
Wednesday, June 5, 2013
FBI Special Agent Reginald Reyes' affidavit supporting DOJ's search warrant application for Fox News Reporter James Rosen's Google email account was ordered unsealed in November 2011. But it wasn't actually unsealed by the DC U.S. District Court's staff until late May of 2013. In other words, the affidavit was only unsealed several days after AG Holder testified that, "[w]ith regard to potential prosecution of the press for the disclosure of material, that is not something that I have ever been involved in, heard of, or would think would be a wise policy." Once the affidavit and search warrant application were unsealed, it became clear that Holder's testimony was inacurrate, as he had personally authorized the search warrant application. See here for yesterday's post on this issue.
DC Chief Judge Royce Lamberth is not happy about his staff's failure to unseal the affidavit and related documents. Here is Chief Judge Royce Lamberth's 5-23-2013 Order expressing his unhappiness.
Tuesday, June 4, 2013
“Well, I would say this. With regard to potential prosecution of the press for the disclosure of material, that is not something that I have ever been involved in, heard of, or would think would be a wise policy.” Attorney General Eric Holder testifying under oath before the House Judiciary Committee on May 15, 2013.
"For the reasons set forth below, I believe there is probable cause to conclude that the contents of the wire and electronic communications pertaining to SUBJECT ACCOUNT, are evidence, fruits and instrumentalities of criminal violations of 18 U.S.C. [Section] 793 (Unauthorized Disclosure of National Defense Information), and that there is probable cause to believe that the Reporter has committed or is committing a violation of section 793(d), as an aider and abettor and/or co-conspirator to which the materials relate." FBI Special Agent Reginald B. Reyes' May 28, 2010, Affidavit in Support of Search Warrant Application for Fox News Chief Washington Correspondent James Rosen's Google email account. The warrant was authorized by Attorney General Holder.
Note than in addition to identifying "the Reporter" as a probable aider, abettor and/or criminal co-conspirator, the affidavit explains that the Department of Justice is not bound by the Privacy Protection Act, otherwise prohibiting warrants for First Amendment work product, precisely because "the Reporter" was "suspected of committing the crime [18 U.S.C. Section 793(d)] under investigation."
There is no doubt that AG Holder gave false testimony to House Members under oath. He is an idiot if he did so intentionally, and he isn't an idiot. What should Holder have done to fix this mess? Corrected the record, of course. In the immortal words of Richard Nixon, "that would have been the easy thing to do."
Holder should have said: "Dear Representatives Goodlatte and Sensenbrenner. I screwed up. My testimony to you is now inoperative. I forgot that I authorized this affidavit, which clearly identifies a 'Reporter' as somebody under investigation for a crime. I did not intentionally try to deceive you. My statement was careless and overbroad. Please accept my apologies."
But the Attorney General apparently cannot not bring himself to do anything as straightforward as that. Instead he spends days sending out spinmeisters, most recently, and regrettably, Deputy Assistant AG Peter Kadzik, as reported here by Sari Horwitz in today's Washington Post.
How sad. Can you imagine anything like this happending under Attorney General Griffin Bell? Bell, a genuine protector of our civil liberties, most likely would have nixed the supboena in the first place. But if Bell had authorized it, he never would have shied away from the ensuing controversy or hidden behind his DOJ underlings.
Mr. Holder has received his fair share of undeserved, demagogic criticism from the kooky right. He deserves what he's getting now.
Here is a copy of the Reyes Affidavit.
Tuesday, May 14, 2013
Prosecutors who have committed Brady violations, even those which have been later demonstrated to have resulted in wrongful convictions and lengthy terms of imprisonment for persons later proven innocent, are rarely prosecuted. Courts tend to find Brady violations inconsequential, prosecutor's offices generally defend or at the least refuse to acknowledge them, disciplinary committees overlook them, and defense lawyers, out of timidity and self-interest, rarely press for sanctions. One notable exception to this general disregard by institutions and the bar is DOJ's commendable effort, at the moment thwarted by a questionable administrative law decision, to sanction prosecutors in the Senator Ted Stevens trial (see here and here).
The State of Texas, whose criminal justice system is often disparaged by commentators and defense lawyers, recently took a giant step in holding prosecutors sanctionable for egregious Brady violations. A Texas judge, acting as a court of inquiry, under Texas law, after a hearing ordered the arrest of a current Texas state court judge, Ken Anderson, for contempt and withholding evidence from the court and defense attorneys when Anderson was a District Attorney prosecuting Michael Morton, who was recently demonstrated to be actually innocent for the murder of his wife for which he served 25 years of a life sentence. See here.
The inquiry judge, District Judge Louis Sturns, found probable cause to believe that Anderson had concealed two crucial pieces of evidence: a statement by Morton's three-year old son that Morton was not home at the time of the crime and a police report which revealed that an unknown suspicious man had been seen on several occasions stalking the Morton house.
For denying to the trial judge that there was exculpatory evidence and for failing to provide a full copy of a police report demanded by the judge, Anderson was charged with tampering with evidence, tampering with a government document, and contempt. The most serious charge, evidence tampering, carries a maximum prison term of ten years, far short of the 25 years Morton served.
Criminal prosecution of prosecutors for Brady violations has been to my knowledge totally or almost totally nonexistent. Thirty-five years ago I drafted a proposed New York State statute criminalizing intentional and knowing Brady violations. As expected, the proposal went nowhere. The statute, as I wrote it, had such strict scienter requirements that the crime was virtually unprovable. It was written more to stress to prosecutors the seriousness of such misconduct than to lead to actual prosecutions. The Anderson prosecution, if it occurs, may fill that function.
Thursday, April 11, 2013
An administrative judge for the Merit Systems Protection Board has overturned the DOJ internal decision finding reckless misconduct for violating Brady obligations by two prosecutors of Senator Ted Stevens, Joseph Bottini and James Goeke, and ordering their suspensions. See here.
The administrative judge ruled that DOJ had violated its own disciplinary procedures which require a rank-and-file DOJ attorney in the Professional Misconduct Review Unit to review OPR findings and determine whether misconduct had occurred. The career attorney who reviewed the OPR findings, Terrence Berg (now a federal district judge in Michigan), decided in favor of the prosecutors, but his ruling was reviewed and reversed by his superiors, who found that misconduct had occurred and suspensions were appropriate. Review and reversal by the superiors, said the administrative judge, was improper procedurally, and the rank-and file attorney's decision was non-reviewable and final.
I lack sufficient familiarity with administrative law to opine whether this decision is wrong (although Prof. Bennett L. Gershman has made a strong case that it is). See here. I recognize that prosecutors, like those they prosecute, are entitled to due process. However, procedural infirmities aside, the actions of the prosecutors were clear enough and serious enough to warrant on the merits a finding of misconduct and a suspension. See here.
I find it ironic that DOJ's finding of misconduct was (according to the administrative judge) based on DOJ's own procedural misconduct. More seriously, however, I find extremely troubling the notion that a DOJ prosecutor's misconduct should be finally determined by a fellow career DOJ prosecutor. Defense lawyers, for instance, are not entitled to have their alleged misconduct weighed by a fellow defense lawyer.
A prosecutor's alleged misconduct ideally should be determined by the appropriate state bar disciplinary committee, not a fellow prosecutor (or fellow prosecutors). Of course, bar disciplinary committees, as several commentators have pointed out, have been extraordinarily hesitant to discipline prosecutors, especially with respect to Brady violations.
DOJ has the right to appeal to the three-judge Merit Systems Protection Board. It will be interesting to see if it does.
Thursday, March 7, 2013
Attorney General Eric Holder yesterday defended the Department of Justice's treatment of Aaron Swartz, the 26 year-old internet activist who committed suicide three months before his scheduled trial in federal court in Boston. Specifically, Holder, in response to questioning by Sen. John Cornyn, a Texas Republican, defended the prosecution by citing the plea offer, stating, "There was never an intention for him to go to jail for longer than a 3-, 4- potentially 5-month range . . . . Those, those offers were rejected."
Holder's response troubles me in at least two regards. First is his implicit belief that a five-month jail sentence for Swartz was lenient. Swartz' alleged crimes were clearly based on a heartfelt belief that the public was entitled to free access to knowledge, specifically to academic journals. He would receive no personal benefit for his actions. Perhaps in these days, where sentences of years in double digits are commonplace, a sentence of five months seems to Holder like a trip to Disneyland, but five months in jail for a fragile young man acting out of humanistic belief and causing only comparatively light physical damage does not seem lenient to me. Apparently, Swartz did not see it as light.
Second is Holder's further implicit assumption that government decency is satisfied by a reasonable plea offer and available only to those who plead guilty. Swartz was indicted originally for crimes theoretically punishable by up to 35 years in prison. Later, a superseding indictment which ratcheted the potential sentence up to 50 years was filed. Had Swartz exercised his constitutional right to go to trial and been convicted, I would have been shocked if the government would have sought a sentence of five months or less. Rather, it undoubtedly would have sought a long sentence, most likely in the sentencing guideline range of approximately seven years.
I do not condemn the government for prosecuting Swartz. Perhaps prosecuting him was cruel, but prosecutions are often cruel to defendants. Despite his noble intentions, Swartz arguably violated the law, and I do not believe a victim should control the decision to prosecute, one way or the other. I do not, however, believe that Swartz' purported crimes deserved the full-blown zealous prosecution they received. A prosecutor in the appropriate case should charge less than the most serious crimes available and not always exercise her power to the "full extent of the law." Prosecutorial decency, or prosecution discretion, should not be confined only to plea offers.
Tuesday, March 5, 2013
One of the several troubling aspects of the continuing overcriminalization of federal law is the frequent elevation of a violation of civil regulation to a crime. In United States v. Izurieta, 11th Cir., 11-13585 (February 22, 2013), the Eleventh Circuit addressed this issue.
The defendants in Izurieta were convicted after trial by jury of violating the general smuggling statute, 18 U.S.C. 545, importing goods "contrary to law," by violating a customs regulation, 19 C.F.R. 142.113(c), in failing to redeliver to Customs for exportation or destruction goods purportedly contaminated with E. coli, Staphylococcus aureus and/or Salmonella which had been conditionally released.
The defendants appealed on various grounds -- significantly not including whether the indictment sufficiently charged a crime by relying on the Customs regulation. At oral argument, however, the Court raised this issue sua sponte and ordered supplemental briefing.
Section 545, as pertinent here, reads:
Whoever fraudulently or knowingly imports or brings into the United States, any merchandise contrary to law, or in any manner facilitates the transportation, concealment, or sale of such merchandise after importation, knowing the same to have been imported or brought into the United States contrary to law . . . shall be fined . . . or imprisoned . . . .
The regulation or "law" upon the charges here were based covered the "failure to deliver, export, and destroy with FDA supervision" certain foods found to be adulterated. 19 C.F.R. 141.113(c).
The Court in its opinion recognized a split among circuits on when a regulation constitutes the "law" upon which a Section 545 indictment may be based. The Ninth Circuit in United States v. Alghazouli, 517 F.3d 1179, 1187 (9th Cir. 2008) took what the opinion called "a relatively narrow interpretation" of Section 545 that regulations are included in "law" only when "there is a statute (a 'law') that specifies that violation of that regulation is a crime." The Fourth Circuit in United States v. Mitchell, 39 F.3d 465, 470 (4th Cir. 1994), to the contrary, took what the opinion called a "more expansive" view, deciding that Section 545 criminalizes violations of any regulation "having the force and effect of law" based on a three-prong test.
The Court, while claiming its binding authority, Bobb v. United States, 252 F.2d 702, 707 (5th Cir. 1958) was consistent with the Fourth Circuit's "expansive" approach in Mitchell, applied the rule of lenity and held that the regulation in question did not qualify as a "law" for purposes of Section 545 liability. It found that the regulation in question was primarily to reflect contractual requirements between Customs and the importer and thus was "civil only."
The rule of lenity was premised, it said, on two ideas: first, that "a fair warning should be given . . . of what the law intends to do if a certain line is passed" and, second, that "legislators and not courts should define criminal activity."
This apparent case-by-case approach, of course, does not establish a "bright line" as to when violations of an administrative regulation become a crime. Citizens and attorneys will often have to guess whether a violation of a regulation is a crime; that is, "what the law intends to do if a certain line is passed." The case may, however, curb the government's increasing efforts to convert violations of ostensible civil regulations into crimes.
This case should remind lawyers that the uncertainties in this area require that they pay attention at both the trial and appellate levels to the issue of whether a violation of an administrative regulation is a crime.
(A hat tip to Paul Kish and the Federal Criminal Lawyer Blog)
Tuesday, February 26, 2013
In Caldwell v. Cablevision, 2013 N.Y. Slip Op. 00783, the New York Court of Appeals two weeks ago unanimously affirmed a trip-and-fall civil defendant's verdict in which an emergency room physician subpoenaed by the defense as a fact witness was paid $10,000 for one hour of testimony to verify an entry he made in the "history" section of the hospital records. That note read that the plaintiff had "tripped over [her] dog while walking in the rain," seemingly contradicting the plaintiff's claim that she tripped because of an unfilled trench dug by the defendant.
The court was "troubled" by what was clearly an exorbitant fee paid to a witness for minimal testimony. The relevant statute provided that a witness was entitled to a fee of $15 per day and $.23 per mile travel, but the court wrote it was not improper to pay a witness "reasonable" compensation beyond those amounts for attending, testifying and preparing. The court noted that a witness, however, could not be paid based on the outcome of the litigation.
The court, disturbed by what it called a "disproportionate fee for a short amount of time" and realizing that an excessive payment tended to influence witnesses to testify favorably for the party that paid them, also stated "[a] line must be drawn." However, it not only failed to draw that line, but did not set forth any criteria for when a payment to a witness becomes a bribe. It did hold that the trial court should have tailored a specific jury instruction for the situation, but found the failure to do so was harmless error.
Initially, I thought the court's opinion might provide some limited protection to a New York criminal defense lawyer to offer a witness in a state case a substantial payment to overcome the typical witness reluctance to testify against the prosecution. After a moment's reflection, however, I concluded that such protection was illusory. A criminal defense lawyer who pays a fact witness $10,000 for an hour of testimony is likely to face indictment for bribery. What is acceptable in civil cases is often not acceptable in criminal cases, especially if one's adversary has the power to prosecute. Further, what is acceptable conduct by a prosecutor in criminal cases is often not acceptable if done by a defense lawyer.
Prosecutors routinely induce testimony from witnesses by offering "something of value" greater than money -- a witness' freedom from incarceration, something a defense lawyer obviously cannot offer. While one federal appellate court shook the foundations of federal prosecution offices by holding that the government could not induce testimony by offering such leniency to a witness, United States v. Singleton, 144 F.3d 1343 (10th Cir. 1998), that case was swiftly and soundly overruled en banc, 165 F.3d 1302 (10th Cir. 1999).
In white collar and other cases, the defense often is hampered by its inability to induce a witness to testify by offering something of value for fear that the defendant or her attorney will be prosecuted for bribing a witness. While the defendant has a Sixth Amendment right to subpoena and call fact witnesses (and to pay witness fees and the "reasonable value of lost time"), that right is considerably limited by the witness' Fifth Amendment right to assert his privilege against self-incrimination and decline to testify. Further, defense attorneys lack a mechanism (such as a grand jury) to test what an unamenable witness will state under oath.
One instance where witnesses are often necessary for a viable defense in white-collar cases is where the defendant claims she acted with a lack of criminal intent, often evidenced by a direction or assurance by superiors of the propriety of her conduct or her openness and expressions to her co-workers. Witnesses who might substantiate the defendant's good faith who were somewhat involved in, or just near, the questioned activity, generally at the direction of prudent counsel will often refuse to testify for fear they will be prosecuted. This foreclosure of potentially favorable testimony is sometimes reinforced by prosecution sabre-rattling, often disingenuous, that the witness himself is a potential defendant. Such a declaration almost always will frighten the witness from testifying and deter a judge from granting the witness immunity over prosecutorial objection. But see here.
Allowing white-collar defendants to "buy" (honest) testimony from a reluctant witness -- that is, to pay the witness to give up his constitutional right not to testify -- conceivably theoretically acceptable under the Caldwell case -- might somewhat level the playing field in which the prosecutor to a considerable extent controls who will testify for either side. However, until a court or legislature "draws a line" that clearly allows it, such a payment is fraught with danger to the defendant and the defense lawyer.
Thursday, January 24, 2013
It is hard to argue against the idea of criminal forfeiture; fairness demands that one convicted of a crime give up his ill-gotten gains. A recent article in the New York Times seemed to give its full unstinting approval to federal asset forfeiture (see here).
However, asset forfeiture, aside from its several unfair procedural aspects, has its downsides. It has to an extent diverted prosecutorial resources from investigation and prosecution of more serious cases to "sitting duck" targets involved in lucrative but arguably harmless violations of law, such as offshore gambling enterprises.
And, primarily because of pre-trial restraints, it has, with the 5-4 imprimatur of the Supreme Court in Caplin & Drysdale v. United States, 491 U.S. 617 (1989), and United States v. Monsanto, 491 U.S. 600 (1989), turned the presumption of innocence on its head and allowed pre-trial restraint of funds to leave many defendants without sufficient funds to hire experienced, able (and often expensive) counsel of choice. While court-appointed counsel assigned to represent those now-indigent defendants are generally competent or better than competent, they often lack the experience, resources, aggressiveness and time to provide a first-rate defense. Thus, asset forfeiture often tilts the board in the prosecutor's favor.
Prosecutors are obviously aware that broad pretrial restraint of assets may skew the results of a litigation by preventing the defendant from hiring top-notch counsel. While I do not believe that prosecutors often seek pre-trial restraint for that reason, eliminating experienced and able counsel is an obvious byproduct of many such restraints.
Even in New York State, where the Legislature has, alone among the 50 states, specifically provided for expenditures of seized funds to pay reasonable legal fees, some prosecutors, notably the New York County District Attorney, have taken a strong position, "play[ing] hardball" in the words of a senior forfeiture prosecutor, against release of seized funds for legal fees to private counsel. In New York County, a defendant seeking release of restrained funds for private counsel must initially fill out a sworn 40-page detailed financial questionnaire to demonstrate her lack of access to funds for legal fees. On the other hand, a defendant in New York County who seeks assigned counsel paid for by public funds needs only to say he cannot afford counsel, and such a statement is rarely questioned.
The District Attorney in New York and many places elsewhere receives a portion of forfeited funds; thus, he has an extra incentive to fight the release of funds for private counsel, as well as to prosecute those with substantial assets. An objective observer might question whether the crucial decision whether to prosecute should be made by one with a financial interest in the proceeds of the prosecution. Compare Tumey v. Ohio, 273 U.S. 510 (1927) (conviction at trial by magistrate/mayor where municipality retains part of fine proceeds violates due process).
Wednesday, January 2, 2013
It is not often that I praise the Department of Justice ("DOJ"), especially for bringing a prosecution. However, I commend the decision to prosecute -- really prosecute, and not just indict and offer a deferred prosecution -- a UBS subsidiary for its role in manipulating the benchmark LIBOR interest rate. See here.
To be sure, UBS was allowed to offer as the defendant in this case a Japanese subsidiary (UBS Securities Japan Co. Ltd.), for which a conviction would bring considerably less collateral damage than it would upon the parent company. Substituting others for prosecution, whether corporations or individuals, of course, is not a common benefit offered to criminal targets. Nonetheless, for DOJ, bringing a prosecution against a major financial institution, even a subsidiary, is a considerable and commendable step.
Generally, I believe that prosecutions should not be brought against large institutions because of a few rogue employees, unless at least one is a director or "a high managerial agent acting within the scope of his employment and in behalf of the corporation." New York Penal Law Section 20.20(2)(b). See also Model Penal Code Section 2.07. UBS, however, is a serial offender with a history (not alone among Swiss and other banks) as an eager accomplice of money launderers and tax evaders throughout the world. Although UBS' belated and commendable efforts to clean up its act and cooperate deserve credit, in this case DOJ apparently felt it did not make up for its past conduct enough to deserve non-prosecution, and appropriately broke its usual pattern of allowing major financial institutions to avoid criminal convictions.
As a practical matter, one may ask what the difference is between an indictment/deferred prosecution (as occurred in the case of the parent, UBS AG of Zurich) and indictment/conviction if both ultimate results carry huge financial penalties and other requirements, such as monitoring. Aside from the collateral consequences -- which can, as in the obvious case of Arthur Andersen, be fatal to a major financial institution (although I agree to an extent with Gabriel Markoff (see here) that such a fear is exaggerated) -- the conviction here has importance as a symbol, and perhaps also a deterrent in both the specific and general aspects.
Although the huge UBS fines will be borne by current UBS shareholders (not necessarily the same stockholders who benefited from the LIBOR bid-rigging), one would hope that UBS makes an effort to recoup the substantial financial gains through bonuses and other compensation geared to profits that those in leadership and supervisory roles made as a result of UBS' now-admitted criminality even if those leaders were uninvolved or unaware of the wrongdoing. I suspect that there will be no such serious effort, or at least little or no success if there is one.
Monday, December 17, 2012
You can debate all day whether the government should allow any financial institution to get too big to fail. You can also debate whether such an institution, if it is too big to fail, should be too big to prosecute, even when it engages in blatantly criminal conduct over a lengthy period of time. However, you cannot seriously debate whether to prosecute senior bank officials of an international mega-bank who knowingly directed the criminal enterprise in question. Corporations only act through agents. Those agents are human beings.
We are not talking about technical matters here. This is not a question of whether each party to a complex transaction understood the fine print which revealed, or obscured, that an investment bank was betting against the deal it was pushing. According to the published reports and press statements, obvious narcotics-related money laundering was repeatedly facilitated by the bank, despite multiple regulatory warnings. The sources of funds connected to outlaw regimes were intentionally and repeatedly hidden. If this stuff happened, people did it. And they were no doubt high-ranking people.
No credible person will contend that the prosecution of corrupt bank officers can ever endanger the financial community. No matter how important the institution or high-ranking the officer, employees are fungible. The global financial impact of prosecuting these officers, no matter how important they think they are, will always be negligible.
Assistant AG Lanny Breuer said at his press conference that individual prosecutions were not being ruled out. (Similar statements were made at the time of the robo-signing settlement press conference, and we all know what an avalanche of individual DOJ prosecutions followed in the wake of that!) But other comments Breuer made, discussing how hard it supposedly is to prosecute the individuals involved, appear to be window-dressing rehearsals for future DOJ declinations.
Reporters should not let this issue slide into oblivion. The DOJ does not typically comment upon pending investigations of individuals. (Of course this does not stop some FBI and IRS agents from telling all of a target's friends that he is being criminally investigated, thereby ruining the target's life.) Here is an occasion where the policy should be ignored, particularly since the DOJ can comment on a pending investigation without revealing the names of the subjects and targets.
The question every self-respecting reporter should be asking AG Holder and Assistant AG Breuer is not whether individual indictments have been ruled in or out. The questions to be asked at every opportunity in the coming weeks and months are:
"What is the status of the investigation?"
"Is there really any investigation?"
"Are you treating this investigation like you treat the investigation of other individuals suspected of facilitating murder and drug crimes?"
Here is an account by Rolling Stone's Matt Taibbi of his appearance on Eliot Spitzer's Viewpoint program discussing the HSBC settlement. Taibbi's account contains a link to the Spitzer interview. Hat tip to Jack Darby of Austin's Krimelabb. com for alerting me to this posting. Taibbi also has an interesting opinion piece about the HSBC settlement on his Rolling Stone TAIBBLOG.
Sunday, December 9, 2012
One of the hottest issues these days concerns discovery violations by prosecutors. Check out Professor Ellen Yaroshefsky's article, New Orleans Prosecutorial Disclosure in Practice after Connick v. Thompson in the Georgetown Journal of Legal Ethics that provides a view of this issue in looking at the New Orleans Prosecutor's Office.
Friday, December 7, 2012
New Article - Unregulated Corporate Internal Investigations: Achieving Fairness for Corporate Constituents
Professor Bruce Green (Fordham) and I have a new article coming out in Boston Colleg Law Review, titled Unregulated Corporate Internal Investigations: Achieving Fairness for Corporate Constituents. You can download the article here. The SSRN abstract states:
This Article focuses on the relationship between corporations and their employee constituents in the context of corporate internal investigations, an unregulated multi-million dollar business. The classic approach provided in the 1981 Supreme Court opinion, Upjohn v. United States, is contrasted with the reality of modern-day internal investigations that may exploit individuals to achieve a corporate benefit with the government. Attorney-client privilege becomes an issue as corporate constituents perceive that corporate counsel is representing their interests, when in fact these internal investigators are obtaining information for the corporation to barter with the government. Legal precedent and ethics rules provide little relief to these corporate employees. This Article suggests that courts need to move beyond the Upjohn decision and recognize this new landscape. It advocates for corporate fair dealing and provides a multi-faceted approach to achieve this aim. Ultimately this Article considers how best to level the playing field between corporations and their employees in matters related to the corporate internal investigation.
Tuesday, December 4, 2012
On November 29, a divided panel of the Second Circuit vacated two out of four convictions obtained at trial by the government in the massive Ernst & Young (E&Y) tax shelter case, due to insufficient evidence. The opinion, United States v. Coplan et al, 10-583-cr(L), is available here.
In Coplan, four defendants were convicted after a 10-week trial on a variety of criminal tax charges arising out of their alleged involvement in the development and defense of five complicated tax shelters that were sold or implemented by E&Y to wealthy clients. Two defendants, Nissenbaum and Shapiro, had been tax attorneys at E&Y who were each convicted of conspiracy to defraud the United States and to commit tax evasion (18 U.S.C. §371) and two substantive counts of tax evasion (26 U.S.C. §7201). Nissenbaum also was convicted of one count of obstructing the IRS, in violation of 26 U.S.C. §7212(a), on the basis of allegedly causing false statements to be submitted to the IRS in response to an Information Document Request (IDR) submitted when the IRS was examining one of the tax shelters at issue.
The opinion is lengthy and complex, and resists easy summarization. It is well worth reading because it discusses in detail a kaleidoscope of issues relevant to any "white collar" criminal trial, from evidentiary rulings to jury instructions to sentencing. This commentary is limited to the sufficiency of evidence claims, and some of their implications for lawyers as potential defendants.
The panel in Coplan displayed a remarkable willingness to comb through an extremely complicated trial record and test every nuanced inference that the government urged could be drawn from the evidence in support of the verdicts. The bottom-line holding of the panel was that, after making all inferences in favor of the government, the convictions had to be vacated because the evidence of guilt was at best in equipose.
Although this general principle can be stated easily, its practical application in Coplan involved the panel conducting a particularized review of the evidence that appellate courts often forego. For example, one important fact for Shapiro was that a tax opinion letter provided to shelter clients stated that, for the purposes of the "economic substance" test governing tax-related transactions, the clients had a "substantial nontax business purpose" (OK, per the Coplan panel), rather than stating, as it had before Shapiro’s revisions, that the clients had a "principle" investment purpose. Likewise, although Shapiro had reviewed letters and attended phone conferences deemed incriminating by the government, his involvement in such conduct was not "habitual" or otherwise substantial. As for Nissenbaum’s Section 7212(a) conviction, his response to the IDR that the government characterized as obstructive – a partial explanation of the clients’ subjective business reasons for participating in the tax shelters – could not sustain the conviction because the IDR drafted by the IRS had sought all reasons held by the clients, rather than their primary reason. If this sounds somewhat murky and convoluted, it is. The point is that multiple convictions for very significant offenses were vacated after much effort at extremely fine line-drawing.
The implicit theme running throughout the discussion of the evidence was that it was not sufficiently clear that these lawyers had crossed the line while attempting to assist their clients, to whom they owed a duty. The competing tensions that lawyers can face was encapsulated in a jury instruction discussed later in the opinion. Although the trial court instructed the jury as requested by the defense that "[i]t is not illegal simply to make the IRS’s job harder[,]" it declined to instruct the jury on the larger defense point that "[t]his is particularly true for the defendants, whose professional obligations as attorneys or certified public accountants required them to represent the interests of their clients vigorously in their dealings with adversaries, such as the IRS."
The Coplan case echoes partially the case of Lauren Stevens, the former in-house counsel for GlaxoSmithKline who was indicted and tried in 2011 by the government for allegedly obstructing a U.S. Food and Drug Administration investigation of alleged off-label practices by the company. The district court dismissed all charges against Ms. Stevens at the end of the government’s proofs for insufficient evidence. The ruling was a tremendous defense victory and underscored, like the Coplan case, the difficulties that the government can face when it targets a lawyer on the basis of alleged conduct undertaken on behalf of a client. Nonetheless, these cases still stand as cautionary tales to practitioners. Although there are important differences between Coplan and Ms. Stevens' case, both cases remind us of the pitfalls that can await advocates who stumble into the cross-hairs of the government. Ms. Stevens – like Shapiro and Nissenbaum – was fortunate enough to have an extremely conscientious court willing to parse through the nuances of the evidence, a great defense team, and the resources for extended litigation. It is no slight to these clients or their lawyers to recognize that, in many ways, sheer luck played a role in their ultimate outcomes. Although acquittals can provide vindication, such finales may provide limited comfort to the client after the excruciating process of being investigated, charged and tried. That such a process might turn eventually on the precise phrasing of a document, or how a conference call might be handled, is sobering.
Friday, November 2, 2012
The case of Ali Shaygan v. United States is set for distribution for conference on November 9, 2012 in the United States Supreme Court (see here). David Oscar Markus represents the Petitioner on a Hyde Amendment case that asks the question of "[w]hether the Government is exempted as a matter of law for Hyde Amendment sanctions under the statute’s prohibition on "bad faith" prosecutions despite subjective malice in its filing decision and extensive and pervasive prosecutorial misconduct during the course of the litigation, merely because there was probable cause to support the filing of the indictment." The Petition for Cert can be found here. See also Mike Scarcella, In the Supreme Court, a Fight Over Sanctions for Government Misconduct
The NACDL (here) raises the issue of the wide discretion afforded to prosecutors and how "'bad faith' surely includes situations where the government adds numerous charges for an illegitimate reason, such as retaliation for exercising a constitutional right, or engages in discovery abuse." The question here is whether the Hyde Amendment will have any teeth left, and whether there will be a check on government misconduct.
This case raises the important issue of whether there will be any ramifications to the government when it misuses its power.
Monday, October 22, 2012
Rajat Gupta is scheduled to be sentenced by Judge Jed Rakoff on Wednesday. The Rajat Gupta Sentencing Memo filed last week by his attorneys is an outstanding work of its kind, and the Government's Sentencing Memo in U.S. v. Gupta is also quite good.
Gupta's Guidelines Range, according to the Government and the Probation Office, is 97-121 months. Gupta's attorneys, led by Gary Naftalis, put Gupta's Guidelines Range at 41-51 months. The different calculations appear to be based entirely on different views of the gain and/or loss realized and/or caused by Gupta. Key issues are whether Judge Rakoff should include the acquitted conduct in the loss calculations (which he is allowed but not required to do) and whether the gain should be confined to Gupta and his co-conspirators, as opposed to other investors. Gupta's attorneys are arguing for probation, with a condition of rigorous community service in New York or Rwanda.
My guess is that, however he gets there, Judge Rakoff will impose a prison sentence of 3 to 6 years. The judge is a well-known critic of the Guidelines and Gupta has apparently led a life of extraordinary kindness and good works. On the other hand, Gupta is an enormously wealthy member of the financial elite to whom much has been given. He stands convicted of insider trading, which everybody on Wall Street knows is illegal. This was not a case in which ambiguous admitted conduct did or did not violate the outer edges of the insider trading laws. This was a case in which Gupta either tipped clearly confidential, proprietary inside information or he didn't. The jury has ruled that he did, at least with respect to four of the six charged counts. Judge Rakoff must and will accept that verdict. I believe that Judge Rakoff will see it as his judicial duty to send, through Gupta's sentence, a message of general deterrence.
Tuesday, October 9, 2012
We all make mistakes. We are all flawed. It is a relatively rare prosecutor who has not committed, overseen, or sufferred on his watch some kind of Brady error somewhere along the way. Usually it is unintentional. Prosecutors are not naturally inclined or oriented to sniff out Brady materials. (They are paid to win.) And case law is clear. Brady error occurs irrespective of prosecutorial knowledge or intent. Indeed, defense attorneys are trained to make Brady arguments that do not impugn the integrity of prosecutors. This is because most judges, particularly federal judges, do not like to see personal attacks on prosecutors.
But then there are the egregious cases-- blatantly obvious examples of Brady/Giglio materials that should have been, but were not, disclosed to the defense. What is the bar to do when confronted with such cases? One thing is clear. Congress to date has not had the guts to deal with this problem. The Department of Justice lacks both the guts and inclination to do anything about it. Do you doubt me for one moment? You only have to look at the pathetic administrative punishment meted out to the Ted Stevens line prosecutors, and the complete whitewash of their superiors. You only have to search the DOJ website for DOJ-OPR's Report on the Stevens debacle. Hint--you won't find it there.
What is the solution to the persistent blight of jaw-droppingly obvious Brady/Giglio violations? One solution is to bring ethical complaints against purportedly miscreant prosecutors in appropriate instances. Which brings us to the case of former DC AUSA Andrew J. Kline, currently making its way through the bar disciplinary process.The BLT has posted on the Kline case here and here. DC Bar Counsel wants Kline censured for an alleged Brady/Giglio violation that also runs afoul, according to Bar Counsel, of the arguably broader Rule 3.8(e) of the DC Rules of Professional Conduct. Rule 3.8(e) states in pertinent part that: "The prosecutor in a criminal case shall not . . . intentionally fail to disclose to the defense, upon request and at a time when use by the defense is reasonably feasible, any evidence or information that the prosecutor knows or reasonably should know tends to negate the guilt of the accused . . . ."
The defense bar often talks about using various state versions of Rule 3.8(e) in tandem with Brady/Giglio, in part to get around the Brady/Giglio materiality problem. Here is a Bar Counsel actually doing something about it. Kline vigorously denies that the withheld information was material or that he intentionally engaged in any wrongdoing.
What information did Kline actually withhold? He was prosecuting Arnell Shelton for the shooting of Christopher Boyd. Shelton had filed an alibi notice and "the reliability of the government's identification witnesses" was the principal issue at the 2002 trial, according to the Report and Recommendation of Hearing Committee Number Nine ("Report and Recommendation"). Kline spoke with Metropolitan Police Department Officer Edward Woodward in preparation for trial. Kline took contemporaneous notes. Woodward was the first officer at the scene of the crime and spoke to victim Boyd at the hospital shortly after the shooting.
According to the Report and Recommendation, Kline's notes of his conversation with Woodward were, in pertinent part, as follows: "Boyd told officer at hospital that he did not know who shot him–appeared maybe to not want to cooperate at the time. He was in pain and this officer had arrested him for possession of a machine gun …"
At trial Boyd identified Shelton as the shooter. According to Bar Counsel, Kline never disclosed Boyd's hospital statement to the defense despite a specific Brady/Giglio request for impeachment material. The other identification witnesses were weak and/or impeachable.
The case ended in a hung jury mistrial and the alleged Brady material (that is, Boyd's hospital statement to Woodward) was not revealed to the defense until literally the eve of the second trial, even though DC-OUSA prosecutors and supervisors had known about it for some time. When the trial court found out about the hospital statement and that it had not been disclosed before the first trial because Kline did not consider it exculpatory, the court was thunderstruck: "I don’t see how any prosecutor could take that position. . . I don’t see how any prosecutor anywhere in any state in the country, could say I don’t have to turn that over because I think I know why he said that." See DC Bar Counsel's corrected Brief at 8.
The court offered defense counsel a continuance, but she elected to go to trial as her client was then in jail. The second trial ended in Shelton's conviction.
Kline's position now is that the hospital statement was not material, hence not Brady, because Boyd was in pain and being treated for a gunshot wound at the time and because Shelton was ultimately convicted upon retrial.
Bar Counsel's position is that the withheld hospital statement was material and exculpatory and therefore Brady material, but that even if it was not Brady material, the failure to turn it over violated Rule 3.8(e). Bar Counsel seeks a public censure of Mr. Kline.
DOJ argues, via the DC U.S. Attorney's Office amicus brief, that DC Rule 3.8(e) is no broader than Brady. This is not a surprising or frivolous argument. What is surprising is DOJ's position that Boyd's withheld hospital statement was not material under Brady. DOJ is taking this position at the same time it is trying to convince Congress and the Courts that it can be trusted to discipline and police prosecutors for discovery violations. Is anybody watching?
A further subject for investigation is the decision of DC-OUSA supervisors to withhold the Boyd hospital statement until the evening before the retrial. Let's see if DOJ takes the lead on that.
DC Bar Counsel and Hearing Committee Nine should be commended for addressing this issue. Oral Argument is scheduled to take place before the District of Columbia Court of Appeals Board on Professional Responsibility on October 11, 2012, at 2:00 PM in Courtroom II of the Historic Courthouse of the District of Columbia Court of Appeals, located at 430 E Street NW.