White Collar Crime Prof Blog

Rezko Convicted

The press is reporting on the conviction of Antoin Rezko:

Bob Secter & Jeff Coen, Rezko Convicted of Corruption

Peter Slevin, The Trail Blog, Washington Post - Rezko Convicted of Influence Peddling

Fox News, Rezko Convicted on 16 Counts in Corruption Trial

Catrin Einhorn & Susan Sauley, NYTimes - Fund-Raiser Convicted in Illinois Bribery Scheme

Ilan Brat & T.W. Farnam, Wall St Jrl, Fund-Raiser Rezko Found Guilty in Illinois Corruption Trial

The case drew national attention when the names of Obama and Blagojevich surfaced during the trial. For background see here, here, here, here and here.  The initial DOJ Press Release can be found here.

(esp)(blogging from Atlanta)

Not Guilty for 2 Former CVS Vice-Presidents

W. Zachary Malinowksi over at Projo.com reports (here) on the not guilty verdicts entered against the two former VPs from CVS.  Perhaps the most amazing aspect here is that the jury issued the verdict in 90 minutes. This is particularly noteworthy as one often does not find the quick verdict in white collar cases.  And although this case was not a heavy document case, it still involved allegations of fraud.  The accused individuals had been charged with bribery, conspiracy, and mail fraud (see here).  The case was built largely with testimony of a cooperating witness. One of the individuals in this case was represented by David B. Fein and Scott Corrigan of  Wiggin and Dana.   

Even though successful in court, it is never really a "win" for a criminal defendant who goes to trial. One cannot bring back the agony of facing the charges, the strain of the trial, and the personal costs one faces in maintaining innocence.

(esp)

Former CEO of PurchasePro Convicted

"The principal founder and former Chief Executive Officer of PurchasePro.com, Inc. . . . , a now-defunct internet company that specialized in business-to-business commerce ('B2B')" was found guilty after a bench trial of "conspiracy to commit securities fraud, securities fraud and witness tampering."  The court noted that "PurchasePro established and promoted virtual 'marketplaces' in which buyers and sellers of goods could interact with one another." The opinion describes the relationship of this company with AOL.

In a press release issued by the US Attorney for the Eastern District of Virginia it states:

"[the defendant] originally faced trial on the securities fraud and witness tampering charges in a jury trial that began in October 2006 before Judge Kelley. [The defendant’s] first trial ended after Judge Kelley granted a motion from [the defendant]’s defense attorney to withdraw from the case and a mistrial was declared. The remaining defendants were subsequently acquitted. In the retrial, which began in October 2007, an obstruction of justice charge was consolidated with the original securities fraud charges. In addition to the guilty verdict on the original charges, Judge Kelley also found [the defendant] guilty of obstructing a federal proceeding as a result of his conduct during his original trial."

The U.S. Attorney did not issue a press release when the initial defendants were acquitted and there is only one sentence of the acquittal in this press release. (see here)

The opinion -  Download johnson_final_verdict_and_opinion_w_esig.pdf

(esp)

Pellicano Convicted of RICO

A DOJ Press Release reports that

"Former private investigator Anthony Pellicano and two associates were found guilty today of federal racketeering charges for participating in a criminal enterprise in which Pellicano paid tens of thousands of dollars to police officers in exchange for confidential law enforcement information on numerous individuals who were being investigated by Pellicano.

"A federal jury today also found that Pellicano and others were involved in the installation of wiretaps on the phones of numerous individuals whom Pellicano had been hired to investigate."

See also WSJ Blog here.  For bckground on this and related matters see here, here, and here.

(esp)(w/ thanks to Bill Olis)

Guilty Verdict in Securities Case

A DOJ Press Release notes how "[a] federal jury has found five former executives of National Century Financial Enterprises (NCFE) guilty of conspiracy, fraud and money laundering, following a six-week trial and less than two days of deliberation." The press release noted that "[t]he Columbus, Ohio, jury returned the guilty verdict on all charges contained in a 27-count superseding indictment stemming from a scheme to deceive investors about the financial health of NCFE. The company, which was based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November 2002. " "This case is one of the largest corporate fraud investigations involving a privately held company headquartered in small town America," said Assistant Director Kenneth W. Kaiser of the FBI Criminal Investigative Division.  The press release states that "[a]t trial, the government presented evidence that the defendants engaged in a scheme to deceive investors and rating agencies about the financial health of NCFE and how investor monies would be used."

(esp)

Defense Wins Bankruptcy Fraud Case

A lawyer who was charged with 11 counts of bankruptcy fraud had the last two remaining counts dismissed this past week by a District Court Judge in D.C.  Initially 5 counts were dismissed pre-trial. The jury heard the remaining 6 counts against the attorney who is licensed to practice in DC and California, and acquitted the lawyer on 4 counts.  This left 2 counts, counts that were hung when the jury failed to reach a verdict.  The court, in a 15 page opinion, dismissed these remaining two counts finding that the only evidence presented at trial "can hardly be the basis for a criminal conviction."

The remaining two counts had charged a violation under 18 U.S.C. s 152 for allegedly making false material statements.   The statements related to whether a contingency fee needed to be reported on a bankruptcy schedule.

The attorneys representing the accused included John Rogovin (Wilmer Hale) and Jonathan Jeffress (FPD).

(esp)

Insurance Executives Convicted

Five former insurance company executives, four from General Re and one from American International Group, were convicted of conspiracy, securities fraud, false statements to the SEC, and mail fraud in connection with a "finite insurance" contract used to make AIG's reserves look stronger than they were.  The defendants include the former CEO of General Re, Robert Ferguson, the company's former CFO, senior vice president, and long-time assistant general counsel in addition to a vice president from AIG.  The case revolved around reinsurance transactions in 2000 and 2001 that helped AIG report an increase in its insurance loss reserves, something that analysts had been critical about, negatively affecting the stock price.  According to prosecutors, the contracts were a sham transaction because no real risk passed to General Re, so AIG's accounting for it as a reinsurance agreement was improper.

An interesting twist in the case was the government's identification of former AIG CEO Maurice Greenberg as an unindicted co-conspirator, although he has never been charged with any crime.  Naming such a well-known executive as a member of the conspiracy may have been a means to undermine the defendants' "empty chair" defense that sought to blame the problems with the transactioin on Greenberg.  He was forced out of his position as CEO by then-New York Attorney General (and now Governor) Eliot Spitzer, who demanded Greenberg's termination on the threat of criminal prosecution of the company, an almost sure death sentence for an insurer.  General Re is a wholly-owned subsidiary of Berkshire Hathaway, whose CEO is Warren Buffett, once named as a potential witness in the case but never called by either side.

While the case is primarily an accounting fraud prosecution, it is different from more typical cases of this type because the main defendants were not from the company whose accounting was improper.  Indeed, there was no claim that General Re's recording of the transaction was improper, only AIG's.  In that sense, General Re was an enabler of AIG, the type of enterprise liability rejected by the Supreme Court in the Stoneridge case for private securities fraud actions.  One rationale for rejecting that theory of liability in Stoneridge was the presence of the SEC and federal prosecutors to crack down on companies that aid others in violating the securities laws.  An AP story (here) discusses the verdict, which the defendants have vowed to appeal. (ph)

Jury Tells Government to Stick to Tax Charges

The government was again sent the message to stick to tax charges.  The brother of the former mayor of Philadelphia was acquitted of mail and wire fraud charges (See Phil. Inquirer here).  After a three day deliberation, the jury found T. Milton Street Sr. (also a former state senator) guilty of three counts of failure to file income tax returns. Other tax counts resulted in a hung jury.

As previously discussed here, this case has similarities with the prosecution against Wesley Snipes in that both were charged and acquitted of substantive charges beyond the failure to file taxes.  In both cases, the individuals accused of crimes was only found guilty of misdemeanor tax offenses for some of the years in question. And in both cases the jury did not immediately reach a verdict.  This last factor was also exhibited in the case of U.S. v. Cheek, where the accused represented himself pro se and kept the jury out for some time.

(esp)(w/ a hat tip to Peter Goldberger)

Venue in Snipes Case

Several posts have focused on the Wesley Snipes case, the trial and the verdict (see here, here, and here).  Actor Snipes was convicted on 3 misdemeanor tax counts, but acquitted on all other charged conduct including a count charging conspiracy. As previously discussed, the conspiracy count may have had a venue basis when charged, as venue can be found in either the place of the agreement or where any of the acts occurred.  But the tax counts have been argued as improper from the initial days.

Can the two be separated?  One case, United States v. Ebersole, 411 F.3d 517 (4th Cir. 2005) does a good job of noting an important policy argument in this area  of law -

"The Supreme Court has cautioned that the question of venue in a criminal case is more than a matter 'of formal legal procedure'; rather, it raises 'deep issues of public policy in the light of which legislation must be construed.' United States v. Johnson, 323 U.S. 273, 276 (1944). The Court also has observed that the venue provisions of the Constitution are meant to act as safeguards, protecting the defendant from bias, disadvantage, and inconvenience in the adjudication of the charges against him. Travis v. United States, 364 U.S. 631, 634 (1961) (citing U.S. Const. Art. III, § 2 (pertaining to venue)); U.S. Const. amend. VI (pertaining to jury trials)."

Was Snipes biased and disadvantaged here?  Does the fact that the jury venire that he as selecting jurors was all-white make a difference?

For comments from Paul Caron's Tax Prof Blog, see here.

(esp)

Will the Wesley Snipes Convictions Hold Up on Appeal?

Previously blogged was the acquittal of Wesley Snipes on the conspiracy and fraud counts, and also on three of the six tax filings counts. (see here). Peter Goldberger sent in an important comment on the Wesley Snipes three misdemeanor convictions.  He stated:

"Also worth noting is that Snipes was convicted only on counts where venue was much contested, both legally and factually.  Was he really a legal resident, for tax-filing purposes, of the Florida town where he went to high school, while living for years in NYC and LA as a movie star?  If not, the counts of conviction are precisely those most vulnerable on appeal."

This is an important point because conspiracy cases allow the prosecutor to bring charges in a host of different venues.  It can be the place of agreement or the place of any of the overt acts. With the acquittal of the conspiracy charge, is venue is lacking? Also lacking perhaps is the venue that might have been present if Snipes had been convicted on the fraud count (a count that included an aiding and abetting aspect).  So how does one get this case to Florida?  Couple these questions with a strong objection raised by defense counsel pre-trial to the venue, and the fact that the venire failed to include the race of the accused. But does the fact that the issue gains viability after trial, because of the acquittal of several counts, make a difference? 

(esp)

Snipes Not Guilty of Fraud & Conspiracy Charges; Guilty of 3 Misdemeanors

The press (here, here, here, and here) is reporting that Wesley Snipes has been found guilty of three misdemeanors and not guilty of the charges that carried more severe penalties.  Unlike his co-defendants, Snipes was acquitted of the conspiracy charge that he faced.

The indictment against Snipes had charged him with conspiracy under section 371, and if convicted this charge could have produced a hefty sentence for the actor.  In addition to being found not guilty on this charge, Snipes was also acquitted of count two which charged him with a fraud related offense under 18 U.S.C. 287.    Finally, the government was only successful on half of the tax charges brought against Snipes, in that he was acquitted of three of the years charged under 26 U.S.C. 7203.

The minor convictions for Snipes and major ones for his co-defendants sends the message that one cannot claim ignorance if they follow a promoter of a tax scheme. But more importantly, those who promote such conduct can be charged and convicted of crimes such as conspiracy.

The numerous acquittals in the Snipes case should be making the government wonder whether it was worth the time, cost, and effort to proceed criminally against him, and whether civil penalties may have been more appropriate.

(esp)

Iowa State Senator Found Not Guilty

An Iowa state Senator charged with one count of attempted extortion under the Hobbs Act was found not guilty of by a jury.  As discussed in an earlier post (here), the defense had filed a motion to dismiss for prosecutorial misconduct.  The case involved recordings by a prosecuting witness with the state Senator, and he was rather substantially impeached by the defense.  A Des Moines Register story (here) discusses the jury verdict. (ph)

Former Brocade HR Manager Found Guilty

The second defendant from Brocade Communications was found guilty by a jury in San Francisco on charges related to options backdating at the company.  Stephanie Jensen, the former human resources manager for the company, was convicted on one count of conspiracy and one count of filing false records with the SEC.  Jensen was charged with former Brocade CEO Gregory Reyes in 2006, and initially there were eight charges against her.  After the district court granted a severance motion, the government dismissed six counts, presenting a simpler case that focused on her work with Reyes to backdate options grants to a number of new hires at Brocade and the resulting false statements to the SEC because the backdated options were not properly accounted for in the financial statements.  According to an AP story (here), Jensen's primary defense was her lack of knowledge about the accounting for stock options.

Similar to the Reyes conviction, the government's case did not include evidence that Jensen benefited personally from the backdating, which is often a key component in such prosecutions.  The government relied in large part on the testimony of co-workers who raised questions about the backdating practices and Jensen's reassurances about who would be held responsible.

For a white collar crime case, this one was over almost before it began, with the trial lasting just a bit over one week.  The district court postponed the sentencing of Reyes until after Jensen's trial, so that should take place in the near future. (ph)

Former Alaska State Rep Convicted

A press release of  the DOJ reports that a "federal jury in Anchorage, Alaska, has found former Alaska State Representative Victor H. Kohring guilty of conspiracy, bribery and attempted extortion." The press release states that "[f]ollowing an eight-day jury trial, Kohring, ... was convicted ... for corruptly soliciting and receiving financial benefits from a company in exchange for performing official acts in the Alaska State Legislature on the company’s behalf. Unlike two executives from VECO, who plead guilty (see here), Kohring decided to go to trial.  Typically, taking the risk of trial has had severe consequences when it comes to the sentencing phase. Whether this holds true in this circumstance remains to be seen.

(esp)

Former Federal Prosecutor Acquitted on Obstruction Charges

Former assistant U.S. Attorney Richard Convertino and a former State Department security officer were acquitted of all charges relating to their alleged obstruction of justice for not turning over evidence in the first post-September 11 terrorism trial.  Three of the four defendants were convicted in the original case, U.S. v. Koubriti, the so-called "Detroit Terrorism Trial," but the Department of Justice asked that the convitions be reversed and the charges be dismissed because of prosecutorial misconduct.  Convertino was the lead prosecutor in Koubriti, and was indicted on conspiracy, obstruction, and false declaration charges in 2006.  The trial lasted nearly three weeks, and the jury deliberated less than a day before returning the "not guilty" verdicts.  One obstruction charge against Convertino alone, related to the sentencing in an unrelated drug case, was severed before trial, and it's not clear whether prosecutors will pursue that charge in a second trial. 

The charges related in large part to discovery in the Koubriti case, and involved questions of whether evidence was suppressed in violation of Brady v. Maryland.  The prosecution was unprecedented in making a claim of prosecutorial misconduct the basis for a criminal case, at least when there were no allegations of falsified evidence or perjury by fact witnesses.  A Detroit News story (here) discusses the trial and "not guilty" verdicts. (ph)

Former General Counsel Convicted of Insider Trading in His Company's Stock

The former general counsel for Amkor Technology, Inc. was convicted on securities fraud charges related to his trading in company stock (indictment here).  According to a press release (here) issued by the U.S.  Attorney's Office for the Eastern District of Pennsylvania:

Heron traded Amkor securities while in possession of material, non-public information including, among other things, the company’s financial condition, proposed mergers and/or acquisitions, and potential litigation exposure. He generally made his trades via the Internet using his office computer to access his online personal brokerage account. As a result of his illegal trades, Heron realized approximately $290,000 in gains and/or avoided losses.

The trades included buying put options on Amkor's stock as a bearish bet on the stock before the announcement of an earnings decline that caused a 32% drop in the share price.  It's not clear whether the former GC tried to hide his trading by using a fictitious name on the account, and he placed the trades from his office computer, so it was easy to trace.  This was not exactly the most sophisticated insider trading scheme even launched.  The SEC has a pending civil injunctive action (here) alleging the same violations. (ph)

Conviction in Health Fraud Case Involving Compounded Aerosols

A DOJ Press Release reports that following a seven day trial in Miami, Florida, "[t]he owner and operator of a Florida durable medical equipment company and an assisted living facility has been convicted by a federal jury."  She was convicted of "conspiracy to defraud the U.S. government, to submit false claims to Medicare, and to receive kickbacks; conspiracy to commit health care fraud; and three counts of receiving kickbacks in exchange for referring patients to a co-conspirator pharmacy."  Sentencing is set for November 9th.

The case involved “compounded” aerosols. The press release notes that "[c]ompounding is the process of a pharmacist making medication as opposed to a pharmaceutical manufacturer."  The press release states that:

"In 2006, the Medicare program paid for over $155 million worth of aerosol medications in Miami-Dade County alone. These drugs amassed the single most common item billed to Medicare Part B and accounted for over 32 percent of all claims filed with the Durable Medical Equipment Regional Carrier (DMERC) in Miami-Dade County. From 2005 to 2006, claims for aerosol medications rose approximately 115 percent. According to Medicare data, Miami-Dade County alone accounted for more paid DME claims than every state in the country except California, Texas, New York, Michigan, and Ohio.

"Centers for Medicare and Medicaid Services recently announced that it will no longer pay for compounded aerosol, as it has concluded that such drugs are medically unnecessary."

(esp)

Reyes Convicted on All Counts for Options Backdating

A federal court jury in San Francisco convicted former Brocade Communications CEO Gregory Reyes on all ten counts related to options backdating at the Silicon Valley company (see San Jose Mercury-News story here).  Among the charges against Reyes are securities fraud and mail fraud for engaging in a scheme to defraud Brocade investors and deprive them of the right of honest services.  Reyes was represented by Richard Marmaro from Skadden Arps, and the case involved some significant head-butting between Marmaro and U.S. District Judge Charles Breyer, including accusations of judicial bias.  These issues are likely to be brought up on appeal. 

This case represents a significant victory for federal prosecutors, and may well encourage U.S. Attorney's Offices to pursue charges in other cases.  The Reyes prosecution was challenging because the defendant did not "line his own pocket" by receiving any of the backdated options, so a key piece of evidence found in fraud cases to support an inference of intent -- self-dealing -- was missing, yet the jury still returned a guilty verdict on the key securities and mail fraud counts.  At a minimum, Reyes' co-defendant, former Brocade human resources manager Stephanie Jensen, whose trial was severed, has to be concerned about her exposure. (ph)

Lord Black Found Guilty on Three Counts of Mail Fraud and One Count of Obstruction, Acquitted on Other Counts

CBC is reporting that Lord Conrad Black has been convicted of three counts of mail fraud and one count of obstruction of justice, and not guilty on other counts of mail/wire fraud, RICO, and tax fraud.  He was not convicted on the largest transaction, the Can-West non-compete, and found guilty on a charge related to another non-compete.  The other three defendants, Peter Atkinson, Jack Boultbee, and Mark Kipnis, were also found guilty on some fraud counts and acquitted of others. Further updates on the verdict later. (ph)

Attorney's Fees for Olis' Counsel

The attorney for former Dynegy executive Jamie Olis won a civil fraud claim against the company for failing to pay the legal fees in defending Olis in a criminal prosecution arising from his work at the company.  Although Olis was convicted and has now served four years in prison, the issue at the trial concerned whether Dynegy's by-laws required it to advance attorney's fees for an officer subject to judicial proceedings for conduct undertaken in the course of employment.  Although it is a standard by-law provision to advance such fees, at least during an investigation and trial, the government pressured Dynegy into denying fees to Olis' counsel.  A jury in Houston found Dynegy liable for $450,000 in fees and recommended $2 million in punitive damages for Olis' lawyer, Terry Yates.  A Reuters story (here) discusses the verdict.

The theory here is interesting because attorney's fees claims are usually brought as a contract law action, or as an equitable proceeding under the law of the state of incorporation.  Dynegy is a Delaware corporation, so that state's liberal indemnification laws would have required payment of at least a portion of Olis' attorney's fees.  But, such an action could not have been the basis for punitive damages, which are limited to tort cases.  Rather than a claim by Olis for reimbursement, Yates brought a fraud action in his own right, apparently claiming that the denial of fees after he undertook the representation defrauded him of the payment because of his obligation to defend Olis regardless of whether he was paid by the company.  A novel theory, and one that may result in a punitive damage award, although courts tend not to give what a jury recommends.  I have not seen this theory used to recover attorney's fees under a corporate by-law, and Dynegy could pursue an appeal challenging what appears to be a new application of civil fraud.

Tom Kirkendall of the Houston's Clear Thinkers blog has an interesting post (here) discussing the government's policy of pressuring organizations to deny attorney's fees for their officers and employees, including the KPMG tax shelter case in New York.  The most recent iteration of the government's policy on charging corporations -- the McNulty Memo -- no longer mentions payment of legal fees for employees as a sign of a lack of cooperation, but whether there is a real change in attitude on this front remains to be seen.  (ph)

Ex-Stripper Convicted of Fraud For Posing as a Psychologist

A former Boston-area stripper who entertained under the name Princess Cheyenne in the infamous Combat Zone in the 1980s was convicted in Massachusetts state court on fraud and larceny charges for treating patients for seven years at a clinic while purporting to be a licensed psychologist with a Ph.D.  According to a Boston Globe story (here), the defendant argued that she never claimed to any patients to be licensed as a psychologist, and she believed that she'd earned her degree even though she withdrew from the Massachusetts School of Professional Psychology without receiving a doctorate despite taking classes for five years.  She eventually received a Ph.D. from a Dominica-based university through on-line courses that turned out to be bogus. The jury convicted her on 19 of the 25 counts charges.  No word on what type of therapy she practiced on her patients, although I suspect that praciting for seven years means there were a number of successes during that time. (ph)

Former Serono Executives Acquitted of Kickback Charges

Four former executives of biotech pharmaceutical manufacturer Serono S.A. were acquitted on charges that they sought to bribe doctors to prescribe the company's leading medicine, Serostim, as part of a program to pump up sales.  The four defendants were charged in a federal indictment in Boston in April 2005 with violating the anti-kickback statute for allegedly offering doctors an all-expense-paid trip to Cannes, France, for a medical conference in exchange for prescribing the human growth hormone that is used to treat AIDS-wasting.  According to an AP story (here), the jury was out less than three hours before it returned the not guilty verdicts on all counts, after a two-and-one-half week trial. (ph)

Lawyer Convicted

Newsday (AP) reports that an Atlanta lawyer was convicted in a "pump and dump" securities case following a trial in which he represented himself.

(esp)

Investment Banker Convicted of Tax Evasion

Investment banker Richard Josephberg was convicted of 21 counts of tax evasion, conspiracy, and health care fraud for his failure to pay taxes owed since 1977.  In the mid-1980s, the IRS determined that Josephberg owed over $1.5 million in taxes from the illegal tax shelter scheme his firm sold, and over the next fifteen years he took various measures to avoid paying the taxes, including putting assets into accounts in the names of his children, one of whom was an infant at the time.  The jury also convicted Josephberg of failing to file his taxes for a three-year period and conspiracy.  Interestingly, one tax evasion count alleged that Josephberg paid his housekeeper/nanny in cash to avoid filing the required tax reports and paying FICA and social security taxes for her.  This is one of the few times the failure to pay the "nanny tax" -- made famous in 1993 when a nominee for Attorney General was tripped up on the same issue -- has been the basis for a criminal charge.  The last count, which seems to be the icing on the cake, accused Josephberg of lying to his investment firm's health insurer that his wife was an employee of the company and therefore covered by the health plan.  Anything to avoid a co-payment, I guess.  A press release issued by the U.S. Attorney's Office for the Southern District of New York (here) discusses the conviction, and the indictment is below. (ph)

Download us_v_josephberg_indictment.pdf

Nacchio Convicted on 19 Counts of Insider Trading

Former Qwest CEO Joseph Nacchio was convicted on 19 counts of insider trading and acquitted on 23 other counts by a jury in Denver, Colorado.  According to a report from the Rocky Mountain News (here), the acquittals came on the counts during the earlier part of the five-month period charged in the indictment, and the convictions were for the later transactions, totaling $52 million in sales.  Under the Federal Sentencing Guidelines in effect for 2001, that amount of gain would result in a sentence of 57-71 months, but it could increase if the district court were to add any enhancements for abuse of a position of trust or more than minimal planning, which could take the range up to 8-10 years.  Of course, the Sentencing Guidelines are no longer mandatory, but judges frequently use them as the starting point for the determination of an appropriate sentence, and they give a good idea of the general range for a likely prison sentence. 

In light of the defense's decision to go with a scaled-down presentation and not deal with the whole "national security" information that was only available to Nacchio, a natural question will be whether the defense was over-confident that the government had not established its case.  Of course, the decision not to call Nacchio to testify will be second-guessed, but it is always difficult to say whether that would have made a difference, and if he had come across poorly, he could well have been convicted on all 42 counts and even faced an obstuction of justice enhancement to the sentence. (ph)

Cheese Company Executives Found Guilty

Two former executives of Suprema Specialties, Inc., a publicly-traded specialty cheese company in New Jersey, were found guilty of 38 counts of conspiracy, bank fraud, and securities fraud related to fictional revenues at the company, which collapsed in 2002.  Mark Cocchiola, a founder and former CEO of the company, and Steve Venechanos, its former CFO, were found guilty after the jury initially told the judge they were deadlocked, but then returned for more deliberations and returned the guilty verdicts on all counts.  According to a press release issued by the U.S. Attorney's Office (here): "The government presented evidence at trial that between July 2000 and January 2002, Suprema reported approximately $400 million in sales to its six biggest customers, which accounted for over half of its total reported sales for that period. The government’s evidence showed that over 99 percent of that $400 million in sales were entirely fictitious, with no product actually having been sold or shipped."  A story in the Newark Star-Ledger (here) notes that the defendants used the "Richard Scrushy" defense at trial, that they did not know anything about the fraud and were lied to by various subordinates and customers who entered guilty pleas and cooperated with the government.  While that defense worked for Scrushy, it was less successful for Cocchiola and Venechanos, who maintain their innocence and will appeal. (ph)

Lawyer Convicted of Theft for Threatening Suits Against His Wife's Paramours

A Texas jury found lawyer Ted Roberts guilty of two counts of theft and one count of a scheme to commit theft for threatening to file law suits against two men who had affairs with his wife.  The evidence at trial was that Roberts told the men he would give some of the money they paid to avoid litigation to a children's charity he founded, but then he took money from the charity.  Roberts' lawyer said he will pursue an appeal of the convictions, and the jury returned not guilty verdicts for threats Roberts made against two other men for similar conduct.  Roberts' wife, who is also an attorney, is facing charges for the threats that will be tried later.  A Texas Lawyer article (here) discusses the verdict. (ph)

Ten Defendants Convicted in Mortgage Fraud Scheme

A jury in the Northern District of Georgia returned guilty verdicts against ten defendants accused of a mortgage fraud scheme that involved 50 houses and 250 condominiums in the Atlanta area.  The lead defendant, Phillip Hill, operated through his company, Pinnacle Development Property, in a series of transactions involving inflated appraisals and straw borrowers that led to charges of conspiracy, mail and wire fraud, and money laundering.  According to a press release issued by the U.S. Attorney's Office (here):

Each property was sold at an inflated price to a “straw purchaser” who applied for a mortgage loan based upon the inflated price. Such a fraudulent transaction is called a mortgage “flip.” The straw purchasers who participated in these mortgage flips were paid a kick-back out of the excess loan proceeds for the use of their name and credit. The victim-lenders granted the loans based upon numerous false representations and documents regarding the credit qualifications of the straw purchaser, as well as false representations that the straw purchaser had paid a down payment, would reside in the home, and would be responsible for the loan payment. In addition, the lenders were induced to make the loans based on fraudulently inflated appraisals. Some of the properties were “flipped” more than one time.

The nine other defendants were released on bail while they await sentencing, but the court ordered Hill to be held because he posed a flight risk due to the lengthy sentence he faces from a scheme that caused $41 million in losses.  Two co-defendants were acquitted at the close of the evidence, and two more await trial.  An Atlanta Journal-Constitution article (here) discusses the convictions. (ph)

Initial Thoughts on Libby Verdict

I. Lewis "Scooter" Libby was convicted of 4 of 5 counts. After 10 days of deliberation, an 11 person jury returned with convictions of obstruction of justice, false statements and perjury.  Libby was found not guilty of one count of false statements. Some thoughts:

1.  This is clearly a victory for the CIA. The government will prosecute individuals because of a leak of classified information, no matter how high up the individual is within the administration. (Thanks to the commenter below -- Libby was not prosecuting for leaking classified information, and no one was actually charged with leaking classified information.  But it does show the government was willing to investigate based upon the leaking of information).

2. The investigation and prosecution of crimes needs to be non-political so that prosecutions such as this can continue. The recent "firings" of U.S. Attorneys causes some concern here.

3. Sentencing is set for June 5th. Obstruction of Justice comes under 2J1.2 of the US Sentencing Guidelines and has a base level of 14.  Perjury is under 2J1.3 and also has a base level of 14.  Check out Professor Doug Berman's Sentencing Blog for some of the forthcoming sentencing issues. I keep wondering if the prosecution might say that Libby had a "special skill" and try to increase the sentence for this - 3B1.3 states that "[i]f the defendant abused a position of public or private trust, or used a special skill, in a  manner that significantly facilitated the commission or concealment of the offense..."

4. Martha Stewart now has company in the obstruction of justice club.

5. Obviously he was allowed to be free pending the sentencing.  Many defendants are not given this opportunity, but rather are incarcerated immediately upon conviction. Clearly, people do not consider Scooter Libby as a threat that he needs to be incarcerated immediately.

6. President Bush should be pleased that this prosecution moved slowly and did not occur prior to his re-election.

7. Did the executive have an "effective program" to keep crimes from occurring within its midst? Did they operate with "due diligence" to make certain that confidential information was kept secret?  If these rules apply to organizations under a respondeat superior rule, should they also apply to the executive?

(esp)

Libby - Guilty

Libby - Guilty on 4 or 5 counts.  More to follow.  Indictment is here.

(esp)

International Pyramid Scheme

A press release of the US Attorney of Oregon, Karin J. Immergut, reports on a recent conviction of a North Carolina man "for his role in spearheading a pyramid scheme, which he promoted in 41 countries, causing more than 5,000 victims to lose a total of $4 million."  He was convicted on 29 counts including charges of "mail fraud, money laundering, and tax fraud." The press release notes that "[t]he victims were mainly from the United States, England, and Canada, but also involved victims in Africa and Australia."

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Life for Rigas As He Awaits the Appeal Process

Paul Heimel of the Orlean Times Herald has a story on what life is like for 82-year-old John Rigas as he awaits word from the appellate tribunal on whether he will have to begin serving his 15 year prison sentence.

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Not Guilty for AOL Executives

Mid-level AOL executives were found not guilty after a lengthy jury trial. (see Business Week here) Carrie Johnson of the Washington Post reports on the details of the trial and the "not guilty" verdicts for the three defendants. It is admirable to see Chuck Rosenberg, the U.S. Attorney for the Eastern District of Virginia commenting that he respected the jury's decision.  This is the kind of comment that should be forthcoming from a prosecutor who acts as a minister of justice.  The government did not "lose" this case as the government wins every time they present evidence fairly to a jury. But one also has to congratulate defense counsel Mark J. Hulkower, Terrence Reed,  and Hank Asbill who spent the last months of their lives representing the defendants in this case.

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Fourth Day Defense Victory in AOL Execs Case

First it was 29 of 31 counts dismissed.  And on the 4th day the jury returned with the not guilty verdict.  Details to follow.  But the news is that the AOL executives have been acquitted.  For background see here.

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Secretary in Coke Trade Secrets Case Convicted

A jury convicted Joya Williams, a former secretary to the global brand director of the Coca-Cola Company in Atlanta, of conspiracy to steal trade secrets and sell them to rival Pepsi.  Williams was one of three defendants arrested in July 2006 after Pepsi notified the FBI that individuals were trying to sell information and samples of Coke products.  An undercover operation involved giving $30,000 as a down payment for the trade secrets.  Two co-defendants pled guilty and one testified against Williams, who maintained her innocence when she testified at trial.  She asserted that the two defendants may have stolen the items that were to be sold to Pepsi by using a key under the front mat to enter her house, and that she had the company's secret information to protect herself from a claim that she was not working.  Williams also testified that a $4,000 cash deposit to her account after the $30,000 payment was a loan from a friend, but the friend testified that the most he had lent her was $400 after her arrest. 

It's not clear whether Williams' testimony helped or hurt her.  The jury initially told that court it was deadlocked before being instructed to continue deliberating, so it was at least a close enough case to require the jury to resolve significant differences before returning their jury verdict.  An Atlanta Journal Constitution story (here) discusses the jury deliberations, and an AP story (here) discusses Williams' testimony at trial. (ph)

Conviction in Health Care Fraud Case

The jury returned a verdict convicting Dr. Luis Jacinto Marti of one count of conspiracy to defraud and fifteen counts of health care fraud.  The verdict related to Medicaid claims in "2000-01 for payment for expensive drugs used to treat AIDS and HIV patients." A press release of the U.S. Attorney for the Southern District of Florida states:

"The evidence at trial showed that various, expensive blood-based immune globulins were fraudulently prescribed by Marti and dispensed at a local pharmacy. The evidence showed that there was no medical need for the medications. The pharmacy that dispensed the drugs billed the Florida Medicaid program for the cost of the medications, which were never delivered to the Medicaid patients and were instead fraudulently diverted for illegal resale."

The initial indictment included charges against others, including another Florida-licensed physician.  These individuals plead guilty to the scheme before Marti's trial, and like Marti now await sentencing.

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Split Verdict in Enterasys Execs Case

Four former Enterasys executives were convicted on securities fraud and conspiracy charges, while another had an acquittal on one count and a hung jury on other counts. (see here) The company where they worked focuses on providing its customers with a secure network.  Founded in 1983, as Cabletron Systems, the company is now a private company.

This case is particularly interesting in that a question regarding payment of attorney fees arose in a pre-McNulty hearing. For background, see here.

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Protecting the Record

According to an article in the National Examiner a judge in Wise County, Virginia had a defendant who was pleading guilty to 243 felonies, enter a plea individually to each one.  The case involved the former mayor of Appalachia, Mayor Ben Cooper, who plead guilty to an array of charges including "stealing election records, forging ballots, hindering the rights of citizens to vote freely, voting more than once in an election and violating absentee voting procedures."  Was it really necessary for the state to charge so many felonies?  It sure adds time to the court process when the individual wants to plead guilty. 

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Defendant in Sept. 11 Perjury Case Acquitted

A jury in New York acquitted Osama Awadallah of two counts of perjury the government charged took place during testimony before a grand jury in October 2001 investigating the September 11 terrorist attacks.  Awadallah was a student in San Diego in 2000 when he became acquainted with one of the hijackers who was on the plane that flew into the Pentagon, and he was arrested as a material witness shortly after the attacks.  In grand jury testimony given while he was handcuffed and had been held in solitary confinement for weeks, he admitted knowing Nawaf al-Hazmi but denied knowing the name of al Hazmi's companion, Khalid al-Mihdhar, or that it was his handwriting in a notebook with their first names in it.  In a subsequent grand jury appearance, he testified that he was mistaken about knowing Khalid, whom he met a few times, and in not recognizing his handwriting, but he was charged anyway with perjury.  The first trial ended in a hung jury with a single juror holding out for an acquittal, while the second case ended with a unanimous verdict in his favor.  According to an AP story (here), the jury forewoman stated that Awadallah's testimony appeared to be immaterial to the government's investigation because it already knew the identity of the two hijackers, so he could add little to the inquiry. (ph)

Marketing Executive Convicted of Accounting Fraud

Former U.S. Foodservice chief marketing office Mark Kaiser was convicted in New York of securities fraud, conspiracy, and filing false documents with the SEC in connection with an accounting fraud at the company, a subsidiary of Royal Ahold N.V.  Kaiser and a number of senior executives at the company were charged in connection with inflating revenues by recording bogus vendor rebates, totaling approximately $800 million from 2000 to 2003.  The government's chief witness was Timothy Lee, another former U.S. Foodservice executive, and the defense contended that Kaiser was dup