March 05, 2013
Eleventh Circuit Finds Violation of Customs Regulation Not Criminal
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)
November 07, 2012
Billion Dollar "Unauthorized Trade" Suggests Criminal Statute Prohibiting "Reckless Trading"
As the New York Times reports (see here), once again a trader has apparently taken an enormous bet with his employer's money and lost, thereby costing his employer, a small Connecticut brokerage firm, millions of dollars and threatening its continued existence. David Miller, described by the Times as a "journeyman" with a career that includes stints at some of Wall Street's less distinguished firms, bought roughly $1 billion of Apple stock hours before Apple was to announce its earnings for his employer Rochdale Securities in what the firm's president called an "unauthorized trade." When the announced earnings were below expectations, Apple's stock price fell and the firm was then forced to sell the securities at a considerable loss.
I have no idea whether Miller's trading was a calculated effort of his own to secure a huge gain for his employer and perhaps a corresponding large bonus for himself, an execution of a strategy approved by supervisors, a ministerial error resulting from a "fat finger" (as Rochdale has reportedly told potential financial rescuers) or something else. However, this situation, along with better-known recent examples of purportedly unauthorized trades which have caused massive losses (some of which, potentially at least, might eventually be borne by taxpayers) lead me to wonder whether there should be a criminal statute prohibiting "reckless" trading of other people's money. Many statutes, generally state, prohibit reckless behavior which causes, or just puts people at risk of, death or physical harm, including in New York reckless assault, reckless endangerment, and reckless driving. I wonder whether just as the law criminalizes reckless conduct which may cause physical harm, it should criminalize reckless conduct which may cause monetary harm. Such a statute might criminalize conduct when one "takes a substantial and unjustifiable risk in making trades with money other than his own and that such risk is a gross deviation from the standard of conduct a reasonable person would observe in that position." (Cf. N.Y. Penal Law Section 15.05).
The bonus system which gives great incentives to hugely successful trading by one whose own funds are not put at risk (at least directly) and lesser disincentives to hugely unsuccessful trading encourages taking long-shots. Perhaps that is the way the markets should work. However, contrary to my visceral feeling that governments enact too many penal statutes, I believe a prohibition of reckless trading which results in severe financial loss might be worthy of consideration.
February 08, 2012
Prosecutorial Discretion Is The Better Part Of Valor: Lance Armstrong; FCPA Gabon Sting
One of the supposed hallmarks of the American criminal justice system is the prudent exercise of prosecutorial discretion. But prosecutorial discretion, even when it works, is a blessing and a curse. A blessing, because it allows for the flexibility and compromise without which most systems, even well-constructed ones, cannot function. A curse, because liberty should not depend upon the the character and wisdom of the person temporarily wielding power.
The U.S. Attorney's Office for the Central District of California has decided not to prosecute Lance Armstrong. An announcement to that effect was made last Friday. The L.A. Times story is here. A good Washington Post piece is here. Today's Wall Street Journal discusses the declination and a potential future probe of of improper leaks related to the case. (An internal investigation of some kind appears to be warranted given the massive leaking that has occurred.) According to the WSJ, the declination decision by U.S. Attorney Andre Birotte and his top aides went against the recommendation of the two line AUSAs handling the case. Maybe, but take it with a grain of salt. News stories about the internal machinations of prosecution teams often get it wrong.
Based on what I know about the case, the decision to decline appears to have been a no-brainer. Recent federal prosecutions involving alleged drug use by star athletes have expended enormous sums of money with mixed or poor results. In the Armstrong matter, the doping, if it occurred, was not itself a federal crime. Prosecutors would have been peddling a wire fraud theory under which Armstrong allegedly defrauded team sponsors by intentionally violating a contractual obligation to avoid improper drug use. Not very sexy. Twelve typical American jurors might well wonder at the start of such a case, "Why are we even here?" Finally, Armstrong is enormously popular and has a sterling defense team with unlimited resources.
The U.S. Anti-Doping Agency (USADA) vows to continue its investigation, accurately noting that its "job is to protect clean sport rather than enforce specific criminal laws." But USADA wants the grand jury materials. This would be a travesty, and is unlikely to happen. Federal grand jury materials are presumptively secret by law for good reason. Don't count on a federal court sanctioning transfer of grand jury materials to an agency like USADA.
In other declination news, the DOJ attorneys prosecuting the Gabon sting case have informed U.S. District Judge Richard Leon that DOJ is considering dropping all future prosecutions. A decision will be made by February 21. The BLT piece is here. Full disclosure: I briefly represented one of the defendants, and considered representing another of the defendants, neither of whom has gone to trial. My comments here are based on the public record. The two cases brought to date have resulted in three acquittals and two hung juries. Nobody going to trial has been convicted in what DOJ thought was a sure win. Whatever merit there was in initially bringing the case, reconsideration is in order. The two trials to date have revealed a number of weaknesses. First, this was a sting--a crime engineered by the U.S. Government. Second, the informant who helped orchestrate it was far more compromised than the typical informant in a white collar case. Third, in a key tape recorded conversation between that informant and one of the defendants, the defendant seeks to back out of the alleged unlawful transaction, but the informant reels the defendant back in by telling him that attorneys have approved the deal. Fourth, the inherent ambiguities and weaknesses in the FCPA itself.
If there has been a benefit to the Gabon FCPA prosecution it is this--it has taught the white collar defense bar that FCPA cases can be fought and won and, presumably, has taught DOJ that FCPA cases aren't as easy to win as they first appear.
February 8, 2012 in Celebrities, Corruption, Current Affairs, FCPA, Fraud, Government Reports, Grand Jury, Investigations, Media, Prosecutions, Prosecutors, Sports, Statutes | Permalink | Comments (0) | TrackBack
August 07, 2011
What's Happening in Congress - Clean Up Government Act & FCPA
It isn't all about the budget. And perhaps this one is ironic in many ways. But there have been some interesting hearings that are well worth noting. NACDL has a press release on the "Clean Up the Government Act" here. Also they have a Section-by-Section Analysis of the Clean Up the Government Act of 2011 (HR 2572). The hearing can be found here. And don't miss Tim P. O'Toole's (Miller & Chevalier) testimony before the House Committee on the Judiciary, Subcommittee on Crime, Terrorism & Homeland Security - Download OTooleTestimony_07262011
(esp) (blogging from Ottawa)
April 23, 2011
Lauren Stevens Case To Start Tuesday: Has The Government Overcharged?
The federal criminal trial involving former GlaxoSmithKline ("GSK") Vice President and Associate General Counsel Lauren Stevens commences this Tuesday in Greenbelt, Maryland. When I first read the Indictment, without knowing anything else about the facts, it struck me that the government may have overcharged. That is probably not a good sign for the feds, since the Stevens charging instrument is a classic one-sided speaking Indictment that seeks to put the United States' case in the best possible light.
The crux of the prosecution theory is that Stevens, who headed up a team of inside and outside GSK counsel responding to an FDA inquiry, withheld information about off-label marketing of Wellbutrin. Specifically, Stevens allegedly learned that several doctors, paid by GSK and speaking at GSK-sponsored events, promoted off-label (weight-loss) use of the drug. GSK's responses were part of a voluntary production pursuant to a written request from the FDA's Division of Drug Marketing, Advertising, and Communications ("DDMAC"). Stevens allegedly agreed, orally and in writing, to provide DDMA with "materials and documents presented at GSK-sponsored promotional programs, even if not created by, or under the custody or control of GSK." But, according to the Indictment, Stevens knowingly failed to produce numerous off-label promotional and presentation materials, provided to GSK by the doctors in question, with intent to obstruct an FDA proceeding. Rather than focusing entirely or primarily on this failure to produce, the Indictment lumps in many other broad statements contained in Stevens' various cover letters to the government. It seems to me that at least some of these statements are open to differing interpretations. Perhaps the government should have more narrowly honed in on the failure to turn over the presentation/promotional materials.
Part of Stevens' defense will entail her purported reliance on the advice of outside counsel in sending GSK's written responses to the FDA. The original Indictment was thrown out by Judge Roger Titus, because federal prosecutors incorrectly instructed the grand jury that reliance on the advice of counsel is only an affirmative defense. In fact, good faith reliance on advice of counsel negates the specific intent element under the federal obstruction and false statement statutes at issue in the trial.
This prosecution should strike terror into the hearts of inside and outside counsel throughout corporate America. Of particular note is that the FDA inquiry into off-label Wellbutrin marketing did not involve a compelled production and was not even quasi-criminal in nature.
Attached for our readers' benefit are some documents setting out the government's case and what are likely to be key portions of Ms. Stevens' defense.
April 23, 2011 in Arthur Andersen, Corruption, Current Affairs, Defense Counsel, Fraud, Grand Jury, Judicial Opinions, Legal Ethics, Obstruction, Prosecutions, Statutes | Permalink | Comments (0) | TrackBack
September 06, 2010
The Patient Protection and Affordable Care Act of 2010 Reduces the Criminal Mens Rea Requirement for Healthcare Fraud and Increases Penalties Under the Federal Sentencing Guidelines
GUEST BLOGGER-BENSON WEINTRAUB
There has been a significant uptick in the number of criminal statutes enacted by Congress that diminish or eliminate the mens rea or “guilty mind” requirement. The Patient Protection and Affordable Care Act of 2010 (“PPACA”), Pub. L. No. 111-148, Title VI, §§ 10606, 6402, 124 Stat. 1008 (Mar. 23, 2010), is the most recent and significant example of legislative relaxation of the standard of criminal culpability in federal courts and healthcare fraud cases in particular.
The PPACA added subsection (b) to the healthcare fraud statute, 18 U.S.C. §1347, stating: “With respect to violations of this section, a person need not have actual knowledge of this section or specific intent to commit a violation of this section.” The same language was added to the Anti-Kickback Statute now codified at 42 U.S.C. 1320a-7b(h).
Section 1347 previously contained elements of the offense underscoring that a specific intent to knowingly or willfully violate the criminal healthcare fraud statute is necessary before imposing criminal liability:
To support a conviction for health care fraud under 18 U.S.C. § 1347, the government must prove that the defendant: (1) knowingly and willfully executed, or attempted to execute, a scheme or artifice; to (2) defraud a health care benefit program or to obtain by false or fraudulent pretenses any money or property under the custody or control of a health care benefit program; (3) in connection with the delivery of or payment for health care benefits, items, or services.
United States v. Abdallah, 629 F.Supp.2d 699, 720 (S.D.Tx. 2009); United States v. Choiniere, 517 F.3d 967 (7th Cir. 2008), cert. denied, 130 S.Ct. 193 (2009).
Moreover, the Patient Protection and Affordable Care Act of 2010 includes Congressional mandates increasing the Sentencing Guidelines in healthcare fraud cases. Under the PPACA, the Guidelines will be amended to provide a specific offense characteristic enhancing the otherwise applicable fraud Guideline by two to four additional levels according, again, to the amount of “loss.” Loss is an elusive term of art and the Guidelines authorize several methodologies for loss determination.
Yet, the Act materially impacts the common law of sentencing’s definitions of loss and instead directs that: “… the aggregate dollar amount of fraudulent bills submitted to the Government health care program [which] shall constitute prima facie evidence of the amount of the intended loss by the defendant. Pub. L. No. 111-148 at §10606(a)(2)(B).
In conclusion, one result of the PPACA engenders conflict between competing values of allocating criminal blameworthiness for culpable criminal conduct and reconciling social imperatives reflected by Congressional intent to deter burgeoning healthcare fraud. On balance, the legal issues that emerge from amendment of 18 U.S.C. §1347(b) and 42 U.S.C. §1320a-7b(h) will be the subject of significant litigation concerning both the guilt/innocence and penalty phases of healthcare fraud prosecutions.
August 31, 2010
Roger's Reputational Dilemma
As expected, Roger Clemens pled not guilty on Monday to charges of perjury, false statements, and obstruction of Congress. He is represented by two of the ablest white collar criminal defense attorneys in the country—Rusty Hardin of Houston and San Diego’s Mike Attanasio. I know these men and their work. They are stellar lawyers.
The government asked Judge Reggie Walton to make Clemens surrender his passport in order to reduce the risk of flight. Honest. They really did. Give me a break. Walton didn’t buy it.
It is generally assumed that Clemens could have taken five before Congress and was therefore foolish to testify and subject himself to possible perjury charges. I’m not completely convinced of this, since the activity Congress was investigating at the time appears to have been beyond the statute of limitations. How can you incriminate yourself by truthfully admitting to something that you can no longer be prosecuted for?
At any rate, Clemens appeared without a subpoena, so there was no question of him not testifying. His attorneys will be able to argue to the jury that he had everything to lose and nothing to gain by appearing and testifying. Ergo, he must have been telling the truth. This can be a powerful argument in skilled hands, particularly in front of a DC jury, but it is better not to be forced to make it at all-better not to be indicted in the first place.
Roger's dilemma is the dilemma of the client with exposure, even limited exposure, who cannot or will not do the prudent thing and shut the hell up. It is best not to testify under oath, or even talk to the government, if you face potential criminal prosecution. Just ask Martha Stewart. But some high profile clients cannot take the perceived damage to their reputations involved in invoking the privilege. Clemens had the example of Mark McGwire in front of him. McGwire’s reputation was permanently and severely damaged by his refusal, on Fifth Amendment grounds, to answer a Congressional panel’s questions.
I know, I know; the privilege protects the innocent as well as the guilty. But nobody believes that in television land. Had Clemens publicly invoked the privilege, he would have been scarred for life. And he is not some dime-a-dozen, $40 million bonus CEO. He is one of the immortals.
The reputational dilemma is not confined to high-profile clients or the decision to invoke the Fifth Amendment. As a prosecutor, I saw defendants refuse to take plea offers, including misdemeanors with no jail time, because they could not admit wrongdoing to a spouse or child. It is a reminder that the strategy and tactics of criminal defense work are not always confined to logical analysis. The human, emotional element is ever present.
August 31, 2010 in Celebrities, Congress, Current Affairs, Defense Counsel, Martha Stewart, News, Perjury, Privileges, Prosecutions, Prosecutors, Sports, Statutes | Permalink | Comments (6) | TrackBack
July 22, 2010
Dodd-Frank Criminal Provisions
Here are NACDL's updated materials on the new criminal provisions found in Dodd-Frank. Hat tip to NACDL's white-collar guru, Shana Regon.
July 20, 2010
Fabrice Tourre's Answer has been filed in SEC v. Goldman, Sachs & Co. and Fabrice Tourre. Among other things, Tourre contends that neither he nor Goldman "had a duty to disclose any allegedly omitted information" and that the ABACUS 2007-AC1 offering materials "expressly disclosed that no one was purchasing notes in the equity tranche of the transaction."
July 10, 2010
Quality Control at the Second Circuit II: United States v. Kaiser and Historical Truth
I wrote here last week about the Second Circuit's opinion in United States v. Kaiser, which overturned a long line of Second Circuit precedent establishing that willfulness in the context of criminal Exchange Act prosecutions requires the government to prove a defendant's awareness of the general unlawfulness of his/her conduct under the securities laws. I pledged to post again and focus a little more on the specifics of the opinion.
The Kaiser Court states that "[m]ore recently, we seemed to endorse a higher standard for willfulness in insider trading cases." This is misleading on several counts.
First, the higher standard for willfulness in criminal cases brought under the Exchange Act was established 40 years ago in United States v. Peltz, 433 F.2d 48 (2nd Cir. 1970). Since when is an opinion from 40 years ago considered recent? Peltz is older that any of the opinions cited by the Court in support of the lower standard of proof.
Second, not one of the higher standard cases cited by the Court explicitly confines the higher standard of proof to insider trading cases. Indeed, Peltz itself was not an insider trading case.
Third, the Court ignored published and unpublished Second Circuit case law that unequivocally applies the higher standard outside of the insider trading context. See United States v. Becker, 502 F.3d 122 (2nd. Cir. 2007); United States v. Schlisser, 168 Fed. Appx. 483 (2nd Cir. 2006) (unpublished).
The Kaiser Court states that "Unlike securities fraud, insider trading does not necessarily involve deception, and it is easy to imagine an insider trader who receives a tip and is unaware that his conduct was illegal and therefore wrongful." (emphasis added).
First, insider trading is quintessentially a species of securities fraud. Most insider trading cases are brought under Section 10(b) of the Exchange Act and SEC Rule 10b-5. These are securities fraud provisions by definition and Rule 10b-5 is well known as the classic catch-all securities fraud regulation. As the Supreme Court stated in Chiarella v. United States, "Section 10(b) is aptly described as a catch-all provision, but what it catches must be fraud." 445 U.S.222, 234-35 (1980).
Second, the essence of insider trading is fraudulent deception through failure to disclose. What Section 10(b) of the Exchange Act outlaws on its face is a "manipulative or deceptive device or contrivance." The Supreme Court in designating insider trading a "manipulative device" has stated that inside traders "deal in deception." See United States v. O'Hagan, 521 U.S. 642, 653 (1997). In fact, all insider trading prohibited by the criminal law involves deception of some party or parties by the inside trader.
The Kaiser Court also at numerous points conflates, deliberately or negligently, case law discussing Exchange Act Section 32(a)'s willfulness requirement with case law discussing Section 32(a)'s provision that "no person shall be subject to imprisonment under this section for the violation of any rule or regulation if he proves that he had no knowledge of such rule or regulation." As noted in my prior post, the Second Circuit precedent does not hold that the government must establish the defendant's knowledge of the particular rule, regulation, or statute that he/she has allegedly violated in order to prove willfulness under Section 32(a) the Exchange Act. But the government must prove the defendant's knowledge that his/her conduct was illegal in general or "wrongful under the securities laws."
As a general proposition in the Second Circuit, one panel cannot overturn another panel's recent precedent. Here, the Kaiser panel appears to have overturned recent and longstanding precedent of myriad other panels. Maybe the higher willfulness standard under Section 32(a) should go. Clearly, the case law on this issue has not always been clear or entirely consistent. But the bench and bar deserved better here.
June 24, 2010
NACDL President Comments on Honest Services Trilogy
GUEST BLOGGER-SOLOMON L. WISENBERG
Here is a press release from the National Association of Criminal Defense Lawyers ("NACDL") containing NACDL President Cynthia Orr's comments on today's U.S. Supreme Court honest services opinions. Orr is “heartened that the Court has unambiguously rejected government arguments that the ‘honest services’ fraud statute can be properly used across as broad a range of conduct as the government has sought to do in recent years.” Nonetheless she is"disappointed that the Court has held that there remains a place in our criminal justice system for a statute on whose meaning few can agree.” (In various friend of the court briefs, NACDL has taken the position, now shared by Justices Scalia, Thomas, and Kennedy, that 18 U.S.C. Section 1346 is unconstitutionally vague.)
Orr expects “to see future litigation surrounding efforts by prosecutors to wedge their cases into the ‘bribe or kickback’ paradigm to which the Court has now limited this statute.” Of this we can be sure.
The NACDL press release also bemoans the portion of the Skilling opinion which "shockingly found that pre-trial publicity and community prejudice did not prevent Mr. Skilling from obtaining a fair trial. In fact, though, there has not been a more poisoned jury pool since the notorious first robbery and murder trial of Wilbert Rideau in Louisiana."
More on Honest Services and Skilling
GUEST BLOGGER-SOLOMON L. WISENBERG
The breakdown is as follows. All nine justices agree that the judgments in the three honest services fraud cases must be vacated and remanded. The majority rules that Section 1346 honest services fraud encompasses only bribery and kickback schemes, and would be unconstitutionally vague if interpreted more broadly. The majority opinion in Skilling (and Black) is written by Justice Ginsburg, who is joined by five other justices. Justice Scalia (joined by Justices Thomas and Kennedy) concurs, but would simply hold Section 1346 unconstitutionally vague under the Due Process Clause and would not seek to salvage it through a narrowing interpretation.
The jury instructions in all of the cases allowed for conviction under the now-discredited broad view of honest services. The lower courts must decide whether the instructional errors were harmless.
Jefffrey Skilling's fair trial arguments were rejected 6-3, with Justice Sotomayor, joined by Justices Stevens and Breyer, dissenting.
Conrad Black and co-defendants properly preserved their objections to the jury charge.
All of this is based on my quick skim. More detailed analysis will come later.
Supreme Court Vacates and Remands in Skilling's Honest Services Case!
GUEST BLOGGER-SOLOMON L. WISENBERG
Here is the slip opinion. According to the Court's syllabus, Section 1346 is not unconstitutionally vague, but only proscribes the "bribe-and-kickback core of the pre-McNally case law." More to come.
June 18, 2010
GUEST BLOGGER-SOLOMON L. WISENBERG
Here is the Lee Bentley Farkas Indictment, unsealed this week in the EDVA. Farkas is charged with conspiracy, bank fraud, wire fraud, and securities fraud. I'm surprised they didn't throw in dancing with a mailman or impersonating Smoky the Bear. The government alleged securities fraud under 18 U.S.C. Section 1348, which, surprisingly, has seen very limited use since it was enacted as part of Sarbanes-Oxley. It will be interesting to see if this is part of a new trend. There are three securities fraud counts (Counts 14-16) based upon three separate reports (10-K, 8-K, and 10-Q) filed with the SEC, each one charged as an execution of the securities fraud scheme.
June 16, 2010
Ninth Circuit Affirms Brokers' Duty To Disclose Material Commissions
GUEST BLOGGER-SOLOMON L. WISENBERG
Last week, in a significant decision construing SEC Rule 10b-5 in the context of criminal prosecutions, the Ninth Circuit held that "if a broker and a client have a trust relationship...then the broker has an obligation to disclose all facts material to that relationship." The case is United States v. Laurienti and can be accessed here. Laurienti involved a pump and dump scheme in which brokers failed to disclose commissions they received equal to 5% of the purchase price of certain "house stocks" sold to clients. The defendant brokers argued that they had no legal duty whatsoever to disclose the 5% commissions to their clients. The Ninth Circuit disagreed, and noted that the 5% commissions were clearly material under the facts developed at trial, since "every former client who testified said that he or she would not have bought the house stocks had he or she known about the bonus commissions." The case was brought under all three subsections of Rule 10b-5. The Court noted in dictum that "[u]nder subsection (b) of Rule 10b-5, even in the absence of a trust relationship, a broker cannot affirmatively tell a misleading half-truth about a material fact to a potential investor." The Court also held that the defendants could have been found guilty of conspiracy in the pump and dump scheme even if the disclosure of bonus commissions had not been required by law, because "a reasonable juror...could have concluded that Defendants intentionally acted contrary to the interests of their clients by pushing house stocks as part of a fraudulent scheme to line Defendants' pockets without regard for the interest of their clients." The undisclosed bonus commissions were "circumstantial evidence of Defendants' agreement to join the conspiracy." The Court relied heavily on the Supreme Court's opinion in Chiarella v. United States, and on Second Circuit precedent, in reaching its decision.
October 02, 2009
NACDL's 5th Annual Defending the White Collar Case Seminar - "Capitol Chaos--What's Happening in D.C.?," Friday, October 2, 2009
Guest Blogger: Ross H. Garber, Shipman & Goodwin (Hartford, CT)
Shana Regon, NACDL’s Director of White Collar Crime Policy, provided an update on NACDL’s efforts on Capitol Hill. She began by talking about NACDL advocacy on attorney-client privilege and attorney work product protection issues, particularly related to DOJ policy on requesting waivers of the privilege and protection from cooperating companies. She also talked about proposed legislation, HR 1947, that would regulate deferred prosecution agreements (DPAs) and non-prosecution agreements (NPAs). Among the provisions of HR 1947 are those that would require court approval of DPAs and NPAs and require posting of all DPAs and NPAs on the DOJ website. Shana also talked about NACDL’s efforts to educate Congress about overcriminalization including ambiguous mens rea standards, mandatory minimums, the federalization of criminal conduct and the adoption of overlapping statutes covering the same conduct.
Supreme Court Update
Kathleen Sullivan of Quinn Emanuel spoke about some recent white collar cases decided by the Supreme Court in the past session: Diaz v. Massachusetts; Yaeger v. United States; and Nijhawan v. Holder. In Malendez-Diaz, the Supreme Court held in a 5-4 decision that the confrontation clause applies to an affidavit from a crime lab analyst because it is testimonial in nature. Kathleen emphasized that this decision would apply to any forensic experts. In Yaeger, the court held that when a jury acquits on some counts and hangs on others, the government may not re-try the defendant on any of the counts. In Nijhawan the Court interpreted the deportation statute for aggravated felonies with respect to crimes of fraud or deceit involving more than $10,000. The Court held that the $10,000 requirement is met based on the facts of the case, even if the underlying aggravated felony statute itself does not require a $10,000 loss
Kathleen noted that in this session, the Court is considering several honest services cases. Among the issues the Court will tackle is whether the mail fraud statute criminalizes mere ethical missteps. Among the honest services cases are United States v. Weyrauch, in which an Alaska legislator was convicted of soliciting legal work from clients when he was in a position to benefit clients and not disclosing the work. The question posed in this case is whether the government must prove violation of disclosure requirements otherwise required by state law.
In a case involving Conrad Black, the Supreme Court will evaluate whether there must be an intent to and likelihood of depriving a corporation of a business opportunity for an executive to be found guilty of the honest services provision of the mail fraud statute. Kathleen said she expects these cases to be decided for the defendants on narrow statutory grounds.
October 01, 2009
NACDL's 5th Annual Defending the White Collar Case Seminar - "Cyberspace - The Black Hole Where Ethics, Strategy, and Technology Collide," Thursday, October 1, 2009
Guest Blogger: Cynthia Hujar Orr, President, National Association of Criminal Defense Lawyers
Panel Moderator: Gerald GoldsteinPanelists: AUSA Joey Blanch, Blair Brown, Marcia Hofmann, Alexander Southwell
Gerald Goldstein grabbed the attention of the NACDL White Collar seminar telling us that each time we hit the send button on the internet a new government exhibit is created.
Blair Brown spoke about the Balco Investigation, Comprehensive Drug Testing, case and its ground breaking opinions. They answered many previously unanswered questions regarding the operation of the plain view doctrine and appropriate limits and procedures for the execution for computer search warrants. The Baseball Players Association conducted anonymous testing in order to determine whether comprehensive drug testing should be imposed on the sport. However, a search warrant issued for drug test results for specific athletes and promised to screen and limit the search of the computers to records of specific athletes through off site screening procedures. The government rejected assistance on site to produce just the records that the government sought. In fact, the case agent viewed all of the records under the theory that they were in "plain view." Three separate district judges found the government acted in an outrageous fashion, executing general warrants. Blair explained the appropriate limits and procedures that the Court held should have been followed instead.
Alexander Southwell explained the government's application of the Computer Fraud Abuse Act to the public's use of social networks in the context of the Laurie Drew case. Drew had created a fake "my space" account culminating in the suicide of a young woman distressed by the postings from the fake site. The government pressed charges for formation of a fake account, criminalizing the violation of the terms and conditions of a social network. Drew was convicted and the court entered a judgment of acquittal from which the government has taken an appeal. Therefore, the story has not been written on the sweep of the Computer Fraud Abuse Act (CFAA), 18 U.S.C. Section 1030. He explained the difficulty of the criminal law to keep up with technology and the importance for criminal defense lawyers to push back when the government attempts to apply the criminal law to current social practices.
Marcia Hofmann working for the Electronic Frontier Foundation, a techie ACLU. She encouraged defense lawyers to reach out to EFF when confronting technical issues in your criminal cases. She discussed the evolution of the CFAA covering the cases that were the vehicles that expanded its use. Her discussion opened eyes about conduct that was not traditionally addressed by the criminal law.
AUSA Joey Blanch discussed child pornography in the age of the internet. Cases are exploding and proliferating. Every section of society in every walk of life ends up with people committing these crimes because people think they are anonymous on line. Blanch told the white collar lawyers that they will have a client with a child pornography case and explained how it could arise. Importantly, she discussed the new child pornography offenses effective in October of 2009. She also discussed the circuit split on the Mona Lisa defense. One of the new crimes is the Child Pornography Enterprise offense which creates a 20 year mandatory minimum for participation in child pornography internet groups. That was just the tip of the iceberg.
Using a hypothetical containing common real life circumstances the group guided the audience through what counsel should do in tough circumstances.
October 18, 2007
Expanding the Identity Theft Statute
Senate Judiciary Committee Chairman Patrick Leahy and Ranking Member Arlen Specter introduced the "Identity Theft Enforcement and Restitution Act of 2007" to expand the power of the federal government to pursue cases of identity theft. According to a press release (here) issued by Senator Leahy, the new bill would give federal prosecutors greater authority to bring identity theft cases by lowering the jurisdictional requirements for a federal prosecution. The press release outlines some of the changes the proposed legislation would bring about:
- Expand the jurisdiction of federal computer fraud statutes to cover small businesses and corporations;
- Eliminate the prosecutorial requirement that sensitive identity information must have been stolen through an interstate or foreign communication and instead focuses on whether the victim’s computer is used in interstate or foreign commerce, allowing for the prosecutions of cases in which both the identify thief’s computer and the victim’s computer are located in the same state;
- Make it a felony to employ spyware or keyloggers to damage ten or more computers regardless of the aggregate amount of damage caused, ensuring that the most egregious identity thieves will not escape with a minimal, or no, sentence;
- Eliminate the requirement that the loss resulting from damage to a victim’s computer must exceed $5,000; under this bill violations resulting in less than $5,000 damage would be criminalized as misdemeanors.
More federal crimes, the preferred solution in Congress. (ph)
August 01, 2007
Commit a Crime, Lose a Pension?
The House overwhelmingly passed a Congressional ethics "reform" law, now called The Honest Leadership and Open Government Act of 2007, and the Senate is likely to send it to the President. One provision of the law, Sec. 401, would strip a member of Congress of his or her pension if convicted of certain specified offenses related to conduct in office. Among the statutes that can trigger the pension loss are bribery and unlawful gratuities (Sec. 201), foreign lobbying (Sec. 209), obstruction of justice, wire fraud/honest services, perjury, money laundering, and RICO, along with conspiracy to violate any of these laws. The list is more interesting for what it leaves out, however. A conviction under the wire fraud statute, Sec. 1343, triggers the pension loss, but not one under the companion mail fraud provision, Sec. 1341. These two statutes are interpreted identically regarding fraud, and are often charged together based on how the fraud was perpetrated, i.e. whether through wire communications or if the mail and interstate carriers were used. Similarly, the bill identifies Sec. 1957 of the money laundering statute, which has a $10,000 minimum for the financial transactions, but does not include Sec. 1956, which covers concealment through monetary transactions. The obstruction provision listed, Sec. 1512, is broad, but left our are Sec. 1505, which covers obstruction of Congressional committee and federal agency investigations, and Sec, 1519, an even broader provision adopted as part of the Sarbanes-Oxley Act. One perjury statute, Sec. 1621, is on the list but not the other, Sec. 1623. And not even included is Sec. 1001, the false statements statute, which covers a broader array of conduct than the perjury provisions and is frequently used in federal prosecutions involving government filings and false statements to agents.
Why the selective inclusion of some federal criminal provisions but not others covering similar conduct? Maybe I'm getting too cynical in my old age, but one possible explanation is to give future Representatives and Senators a way to protect their pensions and still plead guilty if caught in an investigation. For example, rather than pleading to a wire fraud/honest services charges, the official could offer to plead to a mail fraud charge covering the same conduct -- except that a mailing or delivery by an interstate carrier would be identified as part of the execution of the scheme. Same basic offense, and the same sentence, but no loss of pension. Is this a potential bargaining chip for prosecutors: "Take a Sec. 1001 charge, or we'll charge you with perjury so you'll lose your pension?" I'm sure there's an innocent explanation for the selective inclusion of some crimes. (ph)
January 18, 2007
Commit a Crime, Lose a Congressional Pension
The continuing investigation of corruption on Capitol Hill has triggered a move to strip any legislators convicted of certain offenses from receiving their pensions. A bill introduced in the House and Senate, the Congressional Pension Accountability Act, would forfeit any pension earned by a Representative or Senator convicted of violating the federal bribery/gratuity law, 18 U.S.C. Sec. 201, a conspiracy to violate the law, and perjury or subornation of perjury. Representative Bob Ney, the most recent Congressman to enter a guilty plea, would not fall under this provision (if it were in effect when he was in Congress) because he pleaded guilty to a false statement charge, so it would not affect his $29,000 pension. Another bill introduced in the House, the Congressional Pension Forfeiture Act, would cover a broader array of criminal statutes, including perjury and
An offense within the purview of section 201 (bribery of public officials and witnesses), 203 (compensation to Members of Congress, officers, and others in matters affecting the Government), 204 (practice in United States Court of Federal Claims or the United States Court of Appeals for the Federal Circuit by Members of Congress), 219 (officers and employees acting as agents of foreign principals), 286 (conspiracy to defraud the Government with respect to claims), 287 (false, fictitious or fraudulent claims), 371 (conspiracy to commit offense or to defraud the United States), 597 (expenditures to influence voting), 599 (promise of appointment by candidate), 602 (solicitation of political contributions), 606 (intimidation to secure political contributions), 607 (place of solicitation), 641 (public money, property or records), 1001 (statements or entries generally), 1341 (frauds and swindles), 1343 (fraud by wire, radio, or television), 1503 (influencing or injuring officer or juror), 1951 (interference with commerce by threats or violence), 1952 (interstate and foreign travel or transportation in aid of racketeering enterprises), or 1962 (prohibited activities) of title 18 or section 7201 (attempt to evade or defeat tax) of the Internal Revenue Code of 1986.
A letter from the National Taxpayers Union (here) sent in November 2006 highlighted the pensions received by former Representatives James Traficant, in prison on a RICO conviction receiving a $40,000 annual pension, and Dan Rostenkowski, who pleaded guilty to mail fraud and still receives a $125,000 annual pension. Not to worry, however, even the more stringent House bill would only take effect for violations in the 111th Congress and later, which doesn't begin until January 2009. Any current legislators under investigation are not in danger of losing their pensions. (ph)