December 04, 2012
Second Circuit Vacates Part of Tax Shelter Case
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.
June 19, 2012
Reactions to Gupta Verdict
The jury deserves credit - they clearly evaluated all the counts as evidenced by their finding of guilt in some and not guilty in others. The judge deserves credit - Hon. Jed Rakoff is a leading scholar and superb jurist.
But should this be a crime? And exactly what is the crime? Should individuals who obtain little or no personal profit be subject to criminal penalties?
And what evidence should a jury hear during the trial? Should wiretaps that are select conversations of the government be allowed to be used against a defendant in a securities fraud case, when this crime is not included in the criminal activity of our wiretap laws (see here)?
There is an interesting interplay here. On one hand we have someone being convicted for using "secret" information - the insider trading. On the other hand we have the government using "secret" information to convict the individual - the wiretaps. I keep wondering if there is anything that can be "secret" anymore. In this information age it seems like information is so accessible that it is difficult to claim anything as being "insider."
June 18, 2012
Government Strikes Out in Clemens - Ballgame Over
This nine week trial cost us how much? And what about the first mistrial, too (here)?
And while this was going on, how many cybercrimes and identity thefts have gone unnoticed. And when the investigation of this case was occurring, did we miss some Ponzi schemes and mortgage frauds?
We have limited resources - we need to use them wisely.
June 15, 2012
Gupta Convicted On Some Counts & Acquitted On Others
Peter Lattman & Azam Ahmed, NYTimes, Rajat Gupta Convicted of Insider Trading
Patricia Hurtado & David Glovin, Bloomberg, Ex-Goldman Director Rajat Gupta Convicted of Insider Trading
May 31, 2012
Should Edwards Be Retried?
As noted here, John Edwards was found not guilty on one count, and the jury was unable to reach a verdict on the remaining counts. Prosecutors should now move on and not retry Edwards on these remaining counts.
The government has expended enough taxpayer money on this case and Edwards most likely has had to incur the cost of his defense. Prosecutors have already hurt Edward's reputation with the evidence presented at trial - so there is no punishment basis for proceeding further. Evidence not presented at trial left the murky question of whether this money was even a political contribution, and the testimony of Federal Election Commissioner Scott E. Thomas that was not heard by the jury raises additional issues on campaign contributions. But the place to resolve this is not in the criminal courtroom. More importantly, if skilled folks can differ on this question then one certainly should not hold someone criminally liable.
No one walks out unhurt by this trial. And that is the huge cost that comes with a prosecution. It is for this reason that prosecutors need to consider carefully prior to charging anyone with criminal conduct.
March 06, 2012
Clifford Krauss, NYTimes, Jury Convicts Stanford in $7 Billion Ponzi Fraud
Houston Business Journal, Stanford Found Guilty on 13 Counts in Fraud Trial
July 06, 2011
Not Guilty of OSHA Violations
It is not often that companies are criminally charged, and usually when it happens, regardless of the merits, we see the company enter a guilty verdict or enter into a deferred prosecution agreement (see here). But not Xcel Energy, Inc. and Public Service Company of Colorado. They were charged, they exercised their right to a jury trial, and were found not guilty after close to a month-long trial.
The Justice Department brought criminal charges against this Fortune 250 public company alleging safety violations - OSHA violations - in the deaths of five contractors at a hydro-electric power plant in Colorado.
Clearly this is an incredibly sad situation, with many families suffering and one cannot help but have the deepest sympathy for each person who has suffered here.
But one also has to wonder whether our criminal justice system should be used for prosecutions alleging OSHA violations from industrial accidents. Would these matters be better left for the administrative and civil process? And would our scarce resources be better spent educating companies on how best to keep workers' safe?
The company was represented by Cliff Stricklin, Chair of Holme Roberts & Owen's White Collar & Securities Litigation Group in Denver, Colorado. Stricklin also is an adjunct professor teaching white collar crime at University of Colorado School of Law.
See also John Ingold, Denver Post, Xcel Energy Found Not Guilty in 2007 Deaths of Five Workers in Colorado
June 27, 2011
Blagojevich Found Guilty on 17 of 20 counts - Joining The Illinois Governor Convicted Felon Club
The press is reporting here, here, here, and here, that Former Illinois Governor Rod Blagojevich has been found guilty of 17 counts, not guilty on one count, and two counts with no verdict. This was the second trial, the first ending in a hung jury except for one count. The jury was out this time for 10 days. Blagojevich did not testify in the first trial, but did testify this time.
A second trial was an enormous benefit to the government. They had the opportunity to re-evaluate their case and to see that keeping it simple was the smarter choice. They also had the conviction on one count to allow them to start cross-examination against him with the "convicted felon question."
Why is it that so many Illinois Governors wind up as convicted felons? (e.g. Otto Kerner, Dan Walker, George Ryan, and Rod Blagojevich).
Addendum - Doug Berman, Sentencing Law and Policy Blog here
May 25, 2011
Mixed Verdict in Alleged Tax Fraud Scheme
The DOJ Press Release is titled, Jenkens & Gilchrist Attorneys, Former BDO Seidman CEO and Deutsche Bank Broker Found Guilty in New York of Multi-Billion Dollar Criminal Tax Fraud Scheme - Massive, 10 Year Criminal Scheme Generated More Than $7 Billion Dollars of Fraudulent Tax Losses
The Press Release states in part:
"NEW YORK – Paul M. Daugerdas, Donna M. Guerin, Denis M. Field and David Parse were convicted today in Manhattan federal court for their roles in a tax shelter scheme in which they designed, marketed and implemented fraudulent tax shelters used by wealthy individuals to avoid paying taxes to the Internal Revenue Service (IRS), announced Preet Bharara, U.S. Attorney for the Southern District of New York; John A. DiCicco, Principal Deputy Assistant Attorney General for the Justice Department’s Tax Division; and Victor S.O. Song, Chief of the IRS Criminal Investigation. Together, Daugerdas, Guerin and Field made $130 million in profits from the 10-year scheme.
But the press release also notes that, "Raymond Craig Brubaker,. . . a banker at Deutsche Bank who was also charged along with the defendants, was acquitted by the jury on all counts."
Brubaker was represented by the law firm of Kramer, Levin, Naftalis & Frankel.
May 23, 2011
President Obama Grants Eight Pardons
It is good to see that President Obama is using his pardon powers, granting eight pardons this past week. (See Press Release here) Clearly more pardons would have been better as there are many suffering from the collateral consequences of a conviction that should not have happened. Likewise, there are many that have significantly reformed their lives and are deserving of a second chance. Some observations about these pardons:
- Four of the eight included a conspiracy count.
- Three of the eight had a drug related charge.
- The largest sentence that had been given in any of these offenses was five years.
- Four had a sentence of no prison time.
- The most recent sentencing from these cases was 2001.
- Seven of the eight cases were prior to 2000.
- Only two cases were from the same state, that being Indiana.
An important question to ask is whether any of these cases should have been criminal activity in the first place. Did we really need to send someone to prison for "the possession and sale of illegal American alligator hides" in violation of the Lacey Act? Would a civil fine have been sufficient?
April 18, 2011
Reflecting on Skilling after the Barry Bonds Verdict
I was annoyed by the result in Skilling—that the unquestionable honest-services error was “harmless” beyond a reasonable doubt. But at the time I couldn’t articulate exactly why. After the Bonds verdict, I can. In short, the Bonds verdict illustrates the silliness of the conclusion in Skilling that appellate courts can and should sit as the 13th, 14th, and 15th jurors, then use a cold record to speak for the first 12 jurors while pretending appellate courts have crystal balls that make this okay.
Compare the two cases. Skilling’s trial was infected by honest-services error: in the indictment; in the evidence; in the argument; and in the instructions. Kicking a door cracked open by the Supreme Court in Pulido, the Fifth Circuit swept this under the rug—finding harmlessness—by pretending it could satisfactorily predict that the jury would have convicted on all counts even absent the error. To be sure, this put the nail in the coffin for the Yates standard of review, which said that when multiple theories are charged and instructed and one is impermissible, reversal usually is automatic because it is “impossible to tell” whether the jury relied on the impermissible theory. The Yates standard respected the constitutional right to an impartial jury of one’s peers (which appellate courts concerned with finality and efficiency certainly are not); it recognized the limitations of an appellate court’s ability to predict the past under changed circumstances; and it acknowledged that juries are composed of human beings (not robots) who can be and often are influenced by intangibles not apparent in a paper record.
The Bonds verdict illustrates why eradicating the Yates standard was a bad idea—and indeed leads to a standard that infringes the right to an impartial jury of one’s peers. Bonds was charged with repeatedly lying to a grand jury, and obstruction of justice essentially based on repeatedly lying to that grand jury. With a proper indictment and charge, the impartial jury of Bonds’ peers hung on whether Bonds lied to the grand jury, but agreed that he obstructed by lying to the grand jury. There are hyper-technical legal ways to attempt to explain this—but in reality (where jurors live), the verdict makes little sense. And surely Bonds’ attorneys will file a motion challenging the sole conviction on this basis.
But more importantly to me, Bonds illustrates what was right with Yates and what is wrong with Skilling. Appellate court’s aren’t very good at predicting the past under changed circumstances. I’d venture to guess that if the Fifth Circuit judges who decided Skilling had placed bets on the Bonds verdict, they’d have batted 0 for 3 predicting hung counts on lying but conviction on obstruction based on lying.
I hope the defense bar won’t give up on the Yates standard.
April 13, 2011
News Reports on Verdict in Barry Bonds Trial
Maura Dolan, LATimes, Barry Bonds Convicted of Obstruction of Justice in Steroids Case
Ben Forer, ABC News, Barry Bonds Convicted of Obstruction of Justice, but Jury Hung on Other Charges
Fox News, Bonds guilty of obstruction of justice
Juliet Macur, NYTimes, Bonds Guilty of Obstruction of Justice
Laird Harrison & Dan Levine, Reuters, U.S. jury finds Barry Bonds guilty on one count
Alan Duke, CNN, Bonds convicted of obstruction of justice
Why is it that the headlines tend to focus on the conviction and not the counts that did not result in a conviction (although it is noticed that ABC News did not do this). Was this long investigation and trial worth it? Is this how our tax dollars should be spent?
For background see here.
November 15, 2010
Kevin Ring Convicted Yet DOJ Wants More in an Honest Services Statute
According to a DOJ Press Release, "a federal jury in Washington convicted Kevin A. Ring, a former lobbyist who worked with Jack A. Abramoff, on five counts related to a scheme to corrupt public officials by providing a stream of things of value." The Press Release states that:
"The jury found Ring guilty on one count of conspiring to corrupt congressional and executive branch officials by providing things of value to them and their staff in order to induce or reward those who took official actions benefitting Ring and his clients. In addition, Ring was convicted of one count of paying a gratuity to a public official and three counts of honest services wire fraud for engaging in a scheme to deprive U.S. citizens of their right to the honest services of certain public officials. The jury acquitted Ring on three counts of honest services fraud. A previous federal jury failed to reach a verdict in the case and the court declared a mistrial."
Interestingly, this verdict comes on the heels of a response by Assistant AG Lanny Breuer to a question by Senator Patrick Leahy, where Breuer claims that there is a need to revise the honest services statute post Skilling. The Court's decision in the Skilling case had limited honest services to "bribery and kickbacks." Breuer's first answer to a question posed to him tells of two cases where honest services premised on self-dealing was charged - but in both instances he says that it was in addition to bribery charges. If bribery was present in these two cases, then why should Congress revise the mail fraud statute? DOJ fails to present a specific need for this legislation.
Breuer then proceeds to state that "without a legislative fix, it will be more difficult and, in some instances, impossible to prosecute federal officials, as well as state and local officials for significant corrupt conduct." See letter -Download Breuer_Answers But he can provide no cases and his reasoning for not using existing statutes like section 208 is because this statute is not a predicate for a RICO charge, while mail fraud does serve this function. Is Assistant AG Breuer telling us that he can't circumvent the limits of RICO without this mail fraud fix? Is he saying that Congress should extend a statute so that he can get around congressional intent in the RICO statute? It's also, he says, because he needs honest services as a predicate for Title III wiretaps. Here again is he saying that he can't circumvent the limits of Title III wiretaps without having a loose mail fraud statute that allows DOJ to use and abuse their discretion.
With a conviction in the Ring case, it is hoped that the Senate will look closely at the rationale offered by DOJ for needing to expand the honest services provisions of the mail fraud statute. It is also hoped that DOJ will think twice about allowing the possible use of mail fraud to circumvent the existing RICO and wiretap mandates. It is a sad day when prosecutors ask for more power in a statute so that they can use it to circumvent existing laws.
August 17, 2010
Blago Verdict: Read All About It
The former Governor of Illinois is convicted on one Section 1001 count while the jury hangs on the other 23 charges. The jury hangs on all counts against Blago's brother. The Los Angeles Times has the story here. When the testimony wrapped up two weeks ago, Esquire asked its reporter John Bohrer to pretend he was a juror and opine on the outcome. Bohrer's analysis of the evidence is here. In a remarkable bit of prescience, Bohner noted that, "the Government couldn't close the deal. And that's why I'm voting to acquit." Bohrer still hated Blago, but did not feel that he belonged in prison or was worth the expense to prosecute. "I'll hand it to the prosecution on one of these charges: It does seem like he stone-cold lied to the FBI when they questioned him about whether he mixed state business with fundraising." Pretty close call. Pretty amazing.
June 21, 2010
Not Guilty for Miami Cops Charged With Perjury
Three Miami police officers were found not guilty after a trial by jury on charges of conspiracy to make false statements, perjury and obstruction of justice. One of the individuals was represented by Attorney Richard Sharpstein.
See also David Oscar Markus, Southern District of Florida Blog, NGs for the cops on trial before Judge Middlebrooks; David Ovalle, Miami Herald, Federal Jury Acquits Miami-Dade Cops of Perjury in Weapons case
June 12, 2010
Charging Many Counts Can Result in Hearing the Words "Not Guilty" Many Times
December 03, 2009
Steve Karnowski, law.com (AP), Jury Finds Minn. Businessman Petters Guilty in $3.5 Billion Ponzi Scheme; Steve Karnowki, StarTribune (AP), Petters defense team plans appeal It will be interesting to see if the sentences given to Petters is vastly different from those individuals who plead guilty and cooperated.
November 19, 2009
Shelnutt - Not Guilty
The U.S. Attorney's Office for the Southern District of Georgia has their press release telling the world of a 40 count indictment of a Columbus, Georgia attorney. But no where on the website is the fact that a jury acquitted this same individual on all counts. As ministers of justice it should not be enough for prosecutors to merely say on the courthouse steps that they accept the jury verdict. Prosecution press releases should not be limited to indictments and guilty verdicts, but should also include the not guilty verdicts.
Shelnutt had been charged with a list of offenses that reads like someone opening the federal statutes and trying to find anything that could be used to destroy an attorney especially one who represents criminal defendants. They charged him with money laundering, aiding and abetting a cocaine conspiracy, attempted bribery of a federal official, witness tampering, failure to file cash reporting forms, and making false statements to an FBI agent.
The bottom line is that the jury did not accept the government's case. See Chuck Williams, Ledger - Enquirer, Shelnutt acquitted -Juror says government's case 'had a lot of holes'
November 10, 2009
Not Guilty for Former Bear Stearns Managers
Zachery Kouwe, NYTimes, Bear Stearns Managers Acquitted of Fraud Charges reports on the acquittal of two former Bear Stearns Managers who faced government indictment. Unlike many, these two individuals risked going to trial and were acquitted by a jury that heard the evidence. As initially noted on this blog here, "[t]he case is the classic case of the funds going down and everyone then looking for someone to blame." This blog also stated:
Clearly honesty in the market is important. But one also has to wonder if the use of criminal charges is appropriate in cases that would not have occurred but for the poor economy. It is also a concern that the government is using overly broad statutes to criminalize an alleged lack of honesty.
Interestingly, although one rarely finds press releases from a U.S.Attorney following a not guilty verdict, one was issued by the U.S. Attorney's Office from the Eastern District of New York. The press release is definitely a step in the right direction for the DOJ, but they should not be "disappointed by the outcome in this case" as "ministers of justice" should be elated with all jury verdicts as they demonstrate that justice has been served.
August 17, 2009
Former Credit Suisse Broker Convicted
Following a three week trial, a former Credit Suisse broker was convicted of conspiracy and securities fraud. The DOJ press release from the Eastern District of New York tells how "the scheme was discovered when the market for the mortgage-backed CDOs purchased by the companies collapsed and various auctions for CDO-ARS began to fail." Many frauds are coming to light as a result of the financial downturn.