CrimProf Blog

How to Approach a Federal Prosecutor

"When a corporation or executive is facing potential criminal charges, what's the best approach to take with an investigating prosecutor? According to Assistant U.S. Attorney Howard Sklamberg, many defense attorneys take the wrong one. That's unfortunate, because in white-collar investigations, unlike other criminal investigations, defense lawyers can affect how a prosecutor treats a client before an indictment has been returned. Sklamberg gives some advice for successful attorney proffers." More from Legal Times. . . [Mark Godsey]

Enron Jury Chosen & Sworn-in

10 women and 6 men have been selected and sworn-in to be the 12 jurors and 4 alternates in the trial of former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling, accused in a massive fraud and conspiracy scandal. Story. . . [Mark Godsey]

Cybercriminals = Profit-driven Techies Who Think Big

In its 2005 Global Business Security Index Report, IBM explained that the environment of cyber-crime has shifted from general virus outbreaks, to more targeted and damaging profit-seeking ventures directed at companies rather than individuals.

From Security Focus: "Cybercrime is moving from broad ego-driven outbreaks to much smaller targeted attacks aimed at stealing sensitive data or extorting money from companies, IBM stated in its 2005 Global Business Security Index Report released on Monday. The company, however, saw a major increase in the number of targeted attacks, which generally are not well covered by the media. Between two and three targeted attacks were intercepted each week in 2005, according to a summary of the IBM report." [Mark Godsey]

Enron Guilty Plea Expected

From NPR All Things Considered, December 27, 2005 · Enron's former chief accounting officer, Richard Causey, is expected to enter a guilty plea Wednesday rather than stand trial. That could be bad news for the energy corporation's former chairman, Kenneth Lay, and its ex-chief executive officer, Jeffrey Skilling. The Houston Chronicle's John Roper has details of the case.  Listen here.  [Mark Godsey]

Searchspace Technology's Anti Money Laundering Solution

From ComputerBusiness Review online: Following an extensive due diligence process, the American Bankers Association has endorsed Searchspace's Anti Money Laundering solution, software designed to tackle financial crime across markets. UK-based Searchspace currently monitors nearly 500 million accounts a day working with regional, national and global banks. The software monitors every transaction for unusual activity, immediately notifying compliance staff about those that may require further investigation and providing them with automated administration of cases found. [Mark Godsey]

Canada a Haven for White Collar Criminals, eh?

According to Bank of Canada's Governor David Dodge, "Economic crime erodes the faith of Canadians and foreign investors in the integrity of our financial systems, our currency, our governments, our businesses, and our products." Why? The lack of a united law enforcement effort and public perception of unsafe markets. [Mark Godsey]

Corporate Crime on the Upswing

Story here.   But stats may be result of greater detection efforts in recent years.  [Mark Godsey]

Corporate Fraud Mostly Detected by Luck

Despite tough regulations aimed at improving corporate governance, financial fraud is still on the rise around the world, and most is still detected by chance, a study from auditing firm PriceWaterhouseCoopers (PWC) showed on Tuesday. Globally, the number of companies that reported financial fraud increased 22 percent in the last two years, according to the PWC study, which conducted 3,634 interviews with corporate officers in 34 countries...For the roughly one-third which said they could quantify the cost of the fraud, the total losses exceeded $2 billion, or an average of $1.7 million per company...The survey showed that the most common methods of finding out about financial fraud were still accidental, like calls to hotlines or tips from whistle-blowers." Full story from NYTimes.com. . . [Mark Godsey]

U.S. Abandons Prosecution of Arthur Andersen

From NACDL.com: "The Justice Department [on Tuesday] abandoned its prosecution of Arthur Andersen LLP, walking away from one of the signature cases in its drive to eradicate corporate fraud. The announcement came six months after the U.S. Supreme Court tossed the accounting firm's 2002 conviction on obstruction-of-justice charges related to its work for client Enron Corp. In a 9 to 0 decision, the court ruled that the jury instructions were so broad that jurors could have found Andersen guilty even if officials did not intend to break the law and impede a looming investigation.

Andersen's indictment sent clients scrambling for the exits and quickly led the firm to shut its doors -- at a cost of 28,000 jobs in the United States...Andersen came under intense scrutiny in 2002 amid disclosures that the firm had shredded tons of Enron-related documents as investigators probed accounting troubles at the Houston energy trader. Several jurors said they voted to convict Andersen based on evidence that an in-house lawyer had tampered with language in a memo about Enron.

The controversy served as a catalyst for a series of significant changes to the accounting industry, which had been largely self-regulated for more than 70 years. Congress imposed new criminal penalties on auditors who destroyed or tampered with work papers. It also created an independent oversight board to monitor the work of accounting firms and inspect their operations.

"It was a wake-up call," said Donald T. Nicolaisen, who served as the chief accountant at the Securities and Exchange Commission until last month. "I believe that wake-up call has been largely heeded. . . . It has been a period of very dramatic change, and mostly good change."...Critics of the government's aggressive efforts to crack down on business wrongdoing say the Andersen decision is the latest signal that prosecutors have overreached in an effort to boost investor confidence and calm the markets." More from the Washington Post. . . [Mark Godsey]

"Business is Booming for White Collar Criminal Defense Bar"

From Law.com: (The National Law Journal): "Business is booming for the white-collar criminal defense bar. Corporate officials -- both the legitimately worried as well as the unnecessarily paranoid -- see themselves as possible criminal targets and are lawyering up. What's spurring this significant ramp-up in corporate defense work? A major shift in the federal government's approach to corporate crime, says one white-collar criminal defense lawyer...

It all stems from the government's practice of considering indictments not just against individuals but also against companies, he said. Companies can avoid or defer prosecution by handing over to the government any findings from their internal investigations or implicating wrongdoers. That Justice Department policy was in effect earlier but was underscored in 2003 in the so-called Thompson memo, issued by then-Deputy Attorney General Larry D. Thompson...

In theory, creating conflicts between a company and its allegedly criminal officials helps the government get to the facts of a case faster. In practice, it has been a boon for defenders. "It's absolutely a criminal defense lawyers' employment initiative," said Stephanie A. Martz, director of the White Collar Crime Project at the National Association of Criminal Defense Lawyers. "Definitely, this is a boom time right now."

Even so, many white-collar defenders decry the Justice Department's cooperation program. "The fact that business is good doesn't mean that it's either pleasant or healthy for the system," said Joseph F. Savage Jr., a former prosecutor and member of the white-collar defense team at Goodwin Procter in Boston.

"When I first started [defense work], the government would go after people, not typically the company," he said. "Now it's a given the company is in the mix."

The Thompson memo says that indicting corporations for wrongdoing "enables the government to address and be a force for positive change of corporate culture, alter corporate behavior, and prevent, discover, and punish white collar crime."  The memo adds that in gauging the extent of a corporation's cooperation, the prosecutor may consider the company's willingness "to identify the culprits within the corporation, including senior executives; to make witnesses available; to disclose the complete results of its internal investigation; and to waive attorney-client and work product protection."...

Prosecutors use cooperation pressure as a "very powerful tool," said Mary Jo White, chairwoman of New York-based Debevoise & Plimpton's 200-plus-lawyer litigation practice... But coercing a company to cooperate by waiving a privilege under threat of indictment is "being asked for too routinely and too often," White said. "Prosecutors shouldn't be saying, 'Waive the privilege or else be indicted.'" Story... [Mark Godsey]

Russia: Moscow Police Smoke Counterfeit Cigarette Ring

From Mosnews.com: "The Moscow police department for combating economic crime has broken up the activities of a large organized crime group engaged in manufacturing counterfeit cigarettes of well-known global brands and selling them in Russia and Western European countries." Story... [Mark Godsey]

Blog Watch: White Collar CrimeProf Blog in the NYTimes

From NYTimes.com: "Should white-collar criminals receive harsher sentences than street thugs or drug peddlers?...Ellen S. Podgor of the White Collar Crime Prof Blog doesn't think so...While deterrence may work for common criminals, "the SHAME in the community is by far the harshest punishment felt by the white-collar offender," Ms. Podgor writes.

Maybe. But given the shamelessness with which these crimes were committed, relying on shame as a deterrent seems inadequate, somehow. The Tyco execs were taken to state prison, not the relatively comfortable federal system. Brooks Holland, a lawyer, ruminates on Prawsfblog whether prison conditions should be a consideration in sentencing. His take is that most judges wouldn't buy it." Story... [Mark Godsey]

Berkeley LawProf Comments on Sentencing for White-Collar Criminals

From NYTimes.com: In the post-Enron world, debate is ensuing about how much prison time is enough for white collar criminals, and how much is too much.  "No lawyer is suggesting that white-collar criminals not serve time. Rather, lawyers and jurists are asking what the appropriate sentence is for white-collar crimes relative to punishments for other crimes in a post-Enron world.

Jonathan Simon, a professor of law [and associate dean] at the University of California, Berkeley, said: 'The most obvious comparison for the emerging attitude toward white-collar criminals is the harsh punishment we give to people involved in the drug trade. But both represent increasingly irrational and inhumane levels of punishment.'  Noting that he considered Mr. Ebbers's sentence 'draconian,' he added that '25 years is more than most people would get for rape or a nonaggravated murder.'"

Along these lines, others have noted that 25 to 30 year sentences for chairmen and CEO's like Ebbers, the former Chairman of WorldCom, are tantamount to life sentences.  "'[W]hite-collar workers are extraordinarily sensitive to threats since their whole socialization and environment encourage calculation of future benefit and cost,'" so whether lenghty sentences are necessary to provide a deterrent effect is questionable.  Professor Simon suggests that "'it would be far more effective to impose a lot of short sentences on a wider group of offenders rather than the example model of harshly punishing a few celebrity cases while most potential offenders know that they are unlikely ever to be caught and punished.'" Story here... [Mark Godsey]

Quoted CrimProfs: John Strait and Peter Henning Comment on KPMG's Resistance to Investigation by the Senate

Wayne State's Peter J. Henning and Seattle University's John Strait are quoted in this story about the accouting firm KPMG's resistance to a Senate subcommittee's investigation into "four questionable tax shelters created and sold by KPMG that earned the firm $124 million in fees, but cost the Treasury, according to Senate investigators, at least $1.4 billion in unpaid taxes." 

According to emails and documents KPMG tax executives pushed the tax shelters off to clients.  But when questioned about this allegation by the Senate subcommittee, KPMG execs "were evasive."  Since the hearings, KPMG has settled with "the Justice Department over the creation and sale of the arcane tax shelters, which the Internal Revenue Service contends helped wealthy investors illegally hide billions of dollars in taxable income. The agreement, which is expected to be announced tomorrow, calls for the firm to pay $456 million and accept an outside monitor of its operations. Former partners separately may face criminal charges."

CrimProf Peter J. Henning commented, "KPMG viewed its conduct as above reproach, in a sense viewing itself as smarter than the I.R.S. and Department of Justice by developing these creative tax shelters."...

"It's a very high-risk strategy to start out stonewalling," said CrimProf John A. Strait..."when KPMG came under scrutiny, it chose to fight. And it did so after the collapses of Enron and WorldCom, at a time when the tide of corporate history was turning decisively in favor of corporate accountability and government regulators." Story here... [Mark Godsey]

China to Enact Anti-Money Laundering Legislation

From ChinaDaily.com: "China is speeding up legislation of its first anti-money laundering law, the draft of which will be submitted to the National People's Congress, China's top legislature, for review this year....An official with PBC, China's central Bank, said the law will probably expand the scope of application into the other major areas of "upstream crimes" the sources of illicit money in money laundering.  The existing Criminal Law only extends to money laundering involving drug trafficking, organized crime gangs, terrorism and smuggling. Once extended the law is likely to include the crimes of embezzlement and bribery. The report also said the PBC is drafting regulations to tackle money laundering in the securities and insurance industries." Story... [Mark Godsey]

SCOTUS To Hear Oral Argument in Arthur Anderson Case Today

Today the Supreme Court will hear oral argument in the Arthur Anderson case.  Question presented: Whether Arthur Andersen LLP's conviction for witness tampering under 18 U.S.C. § 1512(b) must be reversed because the jury instructions upheld by the 5th Circuit misinterpreted the elements of the offense, in conflict with decisions of the Supreme Court and the Courts of Appeals for the 1st, 3rd, and D.C. Circuits.  Story and details of case here.  [Mark Godsey]

Trial Underway for Enron Tech Execs

From NPR:  "A trial for five former executives of Enron's Internet technology division begins Monday in Houston. They are charged with artificially inflating stock prices in 1999 by lying about the company's broadband Internet network's capabilities and benefiting from selling their own stocks."  Listen to the NPR story here.  [Mark Godsey]

Breaking News: WorldCom's Ebbers Convicted on All Counts

Forbes.com story quoting me here.  WhiteCollarCrimeProf's post is here. [Jack Chin]

Georgia State CrimProf Ellen Podgor Comments on Martha Stewart

Martha Stewart refers to her prison time as "life affirming and life altering."  Stewart, who spent much of her prison time focusing on sentencing guideline-reform, claims she has truly changed.  Georgia State CrimProf Ellen Podgor, who recently authored Arthur Andersen, LLP and Martha Stewart: Should Materiality be an Element of Obstruction of Justice?, explained to the AP that Stewart probably is changed because the stigma of prison time affects white collar criminals much more than other criminals, and causes white collar criminals to genuinely reflect on their poor judgments that landed them with hard time.  A prison term ''is mind altering. I don't think it's just for the press what's being said (by Stewart about being changed)'' said Podgor.  On the other hand, noting the public's increased interest in Stewarts products and the increasing price of Martha Stewart Living Omnimedia Inc. stock, Podgor differentiated Stewart's case from other white collar criminals: ''[T]he stigma, society's stigma, that is the greatest penalty faced by white-collar criminals...is not happening here."  So as Stewart begins her 5 months of house arrest, only time will tell if her prison time affected her as it does most white collar criminals.  Fred Shapiro, a lawyer who served time for bank fraud in Philadelphia in the 1990s, and went back to prison for a separate episode of white-collar crime 10 years later commented, ''Everyone says they've changed after they've left prison, but...[c]haracter is who you are when no one is looking...[o]nly she will know if she has changed.'' More... [Mark Godsey]

Criminal Investigation of GE's Military Helicopter Production

AP reports on a worker at a Kentucky GE plant's testimony before a federal grand jury, alleging that helicopter parts were being shipped in spite of being below specifications.  The Department of Defense Criminal Invetigation Service confirmed that an investigation had been ongoing at the plant since 2000; a GE spokesman said the company was cooperating and conducting its own internal investigation. The allegations are all the more disturbing given the heavy use of helicopters in Iraq and the ensuing casualties.  [Jack Chin]