White Collar Crime Prof Blog

In the News & Around the Blogosphere

Law.com (AP), N.Y. Investment Adviser Indicted in $413 Million Ponzi Scheme

Sheri Qualters, National LJ, Foreign affairs -As enforcement goes global, so do white-collar crime lawyers.

Lynnley Browning, NYTimes, Swiss Ask U.S. to Drop Demand for Names of UBS Customers

(esp)

In the News & Around the Blogosphere

Alana Roberts, Daily Business Review.com, Attorney-Client Privilege - Miami Attorney Refuses to Release all Stanford Documents to Receiver

DOJ Press Release, Promoter of Fraudulent Tax Defiance Scheme Pleads Guilty to Mail Fraud

Tom Hamburger & Ralph Vartabedian, LATimes, Tennessee financial advisor is indicted in TARP-related Ponzi scheme

Bob Johnson, LA Times, 75 former attorneys general ask Holder to investigate conviction of former Alabama governor; Editorial, NYTimes, The Seigelman Case

Mark Hamblett & Noeleen G. Walder, NY L.J., law.com, New Charges in Dreier Case as Hearing Airs Forfeiture Issues 

(esp)

Mourning the Passing of William B. Moffitt

  We mourn the passing of former National Association of Criminal Defense Lawyers (NACDL) President William B. Moffitt. The NACDL press release states:

"Bill served as NACDL’s president from 1999 to 2000. He also served as president of the Virginia College of Criminal Defense Lawyers, now the Virginia Association of Criminal Defense Lawyers, a NACDL affiliate organization. He was a member of the bars of Virginia and the District of Columbia, the Alexandria (Va.) Bar Association, the American Board of Criminal Lawyers, and the International Association of Criminal Lawyers."    

Bill, in addition to handling many high-profile cases, was also a voice for constituencies that needed a voice. (see here).  He testified before Congress against mandatory minimum sentences (see here), he fought against racial injustice (see here), and always aimed for a just and fair system (see here). And despite his incredibly busy schedule, he found the time to stop and speak to law students so that they could learn from his accomplishments. He will be missed.

(esp)

Upcoming Conference

An upcoming panel at the ABA Litigation Section's Annual Conference on Friday, May 1 at 3:15 P.M. -"Is Your Data Secure?  Responding to Next-Generation Computer Crimes."  (see here) Panelists include Wesley Hsu (AUSA & Chief of the Cyber & Intellectual Property Crimes Section (C.D. Cal.), Susan Brenner (NCR Distinguished Professor of Law & Tech - U. of Dayton School of Law), Aaron Philipp(Navigant Consulting), and Aaron Danzig(Arnall, Golden & Gregory).

(esp)

Cybersecurity Legislation

Senators Rockefeller and Snowe have proposed extensive legislation on Cybersecurity.  

Michael L. Volkov (Dickinson Wright) provides a summary of that legislation - Download Volkov_-cyber_security

Legislation -Download S._773_Cybersecurity_bill

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Lanny A. Breuer - Head of DOJ Criminal Division

Lanny A. Breuer was confirmed as Assistant Attorney General and will be heading up the DOJ's criminal division. The vote was 88 yea, 0 nays, and 11 not voting. See here.  DOJ issued this press release here.

For an article by Mr. Breuer, see Lanny A. Breuer & Christopher J. Burke, Washington Legal Foundation, Lawyers, Accountants and Other Capital Market "Gatekeepers" Come Under Prosecutors' Scrutiny (2003); also see other information - Kenneth P. Vogel, Politico, Lanny Breuer's rogue's gallery.

(esp)

In the News & Around the Blogosphere

Joe Palazzolo, BLT Blog, Stevens Six Lawyering Up -- Big Time

John Council, National LJ, law.com, Three former U.S. attorneys launch new law firm with John Ashcroft

Amanda Bronstad, National LJ, Former GC of Peregrine Systems Sentenced to One Day in Custody, Six Months of Home Detention

DOJ Press Release, Illinois Refuse Container Repair Company Executives Indicted in Conspiracy to Defraud the City of Chicago

Robbie Brown, NYTimes, Mississippi Mayor Faces Re-Election and a Trial

Kate Phillips, NYTimes, Senate Approves Select Panel to Investigate Financial Crises

John Schwartz & Charlie Savage, NYTimes, Review of Governor’s Conviction Sought

Sarah N. Lynch, WSJ, Senators Seek To Boost SEC Enforcement Budget By $20M

Amir Efrati, WSJ, Post-Stevens, Other Defendants Trying to Join the Brady Bunch

Thomas Withers, Federal Criminal Defense Blog, Roy Black on the Castroneves Trial

Jennifer Liberto, CNN Money,Bailout cop busy on the beat -Neil Barofsky, who is overseeing the $700 billion TARP, says he has 20 criminal probes and calls for changes to prevent fraud.

DOJ Press Release,Subsidiaries of Swedish Company, Trelleborg AB,Agree to Plead Guilty and Pay $11 Million in Criminal Fines

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Conference - NYC Bar Association

On May 12 at 6:30 pm, the New York City Bar Association’s Criminal Law Committee will present “Attacks on the Independence of the Judiciary: A roundtable discussion on the effects of press coverage of unpopular judicial decisions, and the intersection of the First Amendment and the Judicial Code of Conduct.”  The panel includes several federal judges from the Southern and Eastern Districts of New York, as well as reporters from the New York Times, Wall St Journal, New York Post, and Newsday.  The program is free and all are welcome.  For more details see here - Download City_Bar_Crim_Law_Forum_-_May_12

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NY Corruption Investigation

New York Attorney General Andrew Cuomo is in the middle of conducting a corruption investigation - a Pay-to-Play kickback scheme - with the past chair of the former state liberal party being mentioned in this investigation.  In a press release by Cuomo's office it states that the individual allegedly "obtained over $800,000 in illegal fees on State pension fund investments as a reward for opening up a State Assembly seat . . .and for over 30 years of prior political endorsements." "Cuomo also announced that hedge fund manager and classical music impresario Barrett Wissman has pled guilty to a Martin Act felony for his role in the pay-to-play scheme and will pay $12 million in penalties and forfeiture to New York State over a period of three years."  The SEC previously had complaints against two individuals in this matter, but added the former leader of the New York Liberal Party and Wissman to the SEC complaint. (see here) The New York Times reported on this recent investigation related to pension funds. See Danny Hakim & Mary Williams Walsh, NYTimes, In State Pension Inquiry, a Scandal Snowballs. 

(esp)

In the News & Around the Blogosphere

Alison Fitzgerald & Michaerl Forsythe, Bloomberg, Stanford Coaxed $5 Billion as SEC Weighed Powers

Karl Ritter, Law.com (AP), Four Convicted in Pirate Bay File-Sharing Trial

DOJ Press Release, Virginia Man Pleads Guilty to Selling Counterfeit Computer Software Worth $1 Million

DOJ Press Release, Minnesota Man Pleads Guilty to Running Ponzi Scheme

(esp) (blogging from Washington, D.C.)

Kozlowski and Swartz File Cert Petition

L. Dennis Kozlowski and Mark H. Swartz, the former CEO and CFO of Tyco International were convicted in New York State court and are presently serving their prison sentences. (see here for background). They are now petitioning the Supreme Court for cert with the following question being presented for review:

Whether a criminal defendant's right to present a defense under the sixth and fourteenth amendments is violated when the court quashes his subpoena for the recorded, investigatory-stage statements of the key prosecution trial witnesses - statements which were found likely to be exculpatory - because the defendant did not seek to interview the witnesses himself before he had been accused of the crime for which he was tried.

Petition for Cert - Download Kozlowski_Cert_Petition_April_2009

(esp)(w/ a hat tip to Peter Henning)(blogging from Washington, D.C.)

Minor Denied the Right to Be At His Wife's Funeral

Paul Minor was denied the right to be at the funeral of his wife of 41 years.  The press reports that the reason given was that he had visited her prior to her death. The Legal Schnauzer blog reports that prosecutors filed a lengthy response to the request. See here. Sentenced to 11 years in prison, Minor's case is pending in the Fifth Circuit Court of Appeals.

At oral argument there was an interesting exchange about the wording of the instruction regarding section 1346, the honest services aspect of the case.  The state law alleged is bribery, and the question becomes as to whether the standard McCormick quid pro quo requirement needs to be adhered to when bribery is used as the state law for 1346. After all, campaign contributions are given all the time and 1346 is an enormously broad statute.

It was surprising the see such opposition on the part of the government to allowing Minor to be with his children at his wife's funeral. 

 Holbrook Mohr, (AP) Clarionledger.com, Imprisoned Minor to miss wife's funeral;Anita Lee, Sunherald.com, Bureau mum on rejection of Minor’s leave

(esp)(blogging from Chicago)

Wire Fraud is Not Limitless - It Requires "in Furtherance"

The Ninth Circuit Court of Appeals in U.S. v. Lazarenko tells the story of an international money laundering, wire and mail fraud, and transportation of stolen property case that is much reduced from the original charges/convictions brought by the government.  It started as a 53-count indictment, but after the government dismissal of some, and the court dismissal of others, what remained was 14 counts.  This decision brings it even lower.

The facts of this case present a unique international flavor, in that Ukrainian law is the specified unlawful activity for the money laundering charges. The breadth of the money laundering statute is clearly reaching international levels when a US jury is being asked to determine whether there has been a violation of another countries laws. Although the Ninth Circuit upholds the money laundering convictions, the court does reverse the interstate transportation of stolen property count. 

But the more fascinating part of this decision relates to the wire fraud counts.  In reversing the convictions here, the court focuses on the "in furtherance" element of wire fraud. The court states:

"If the government's theory were correct, then it would be possible for an ordinary fraud to be converted into wire fraud simply by the perpetrator picking up the telephone three years later and asking a friend if he can store some fraudulently obtained property in his garage before the police execute a search warrant or later taking the proceeds of fraud and transferring them to another bank. The government's theory extends an already broad statute too far."

It is good to see a court requiring strict adherence to the "in furtherance" element.

(esp) (w/ a hat tip to Evan Jenness)

Sentencing - Tomko

Guest Blogger Peter D. Hardy, of Post & Schell -

Only one day after a panel of the Third Circuit reversed a sentence as substantively unreasonable in  US v. Olhovsky, No. 07-1642 (3d Cir. April 16, 2009) (a holding in favor of the defendant), the Third Circuit issued today its en banc opinion in US v. Tomko, No. 05-4997 (3d Cir. April 17, 2009), in which it upheld a sentence which the government had described as substantively unreasonable.  In Tomko, a divided three-judge panel originally reversed, as substantively unreasonable, a  sentence of probation in a tax evasion case.  The defendant had pleaded guilty to tax evasion and stipulated to a tax loss of $228,557 resulting from his use of false invoices to disguise work done on his home as being expenses of his company.  The Sentencing Guideline range was 12 to 18 months of incarceration, but the district court imposed a sentence of probation, with a special condition of one year of house arrest; however, the court ordered an above-Sentencing Guideline range fine of $250,000.  The government appealed, and the divided panel reversed the sentence as unreasonable.  One interesting fact about the case was that the defendant's year of house arrest was to be spent in the defendant's luxurious home, built in part through his tax evasion scheme.  The defendant obtained his downward variance by arguing that his incarceration could lead his employees to lose their jobs; he had performed exceptional charitable acts and good works; and he had demonstrated an extraordinary degree of acceptance of responsibility.

 

 

In a lengthy and detailed opinion, the Tomkoen banc court vacated the panel decision and upheld the sentence on the basis of Gall.  The government had argued strongly that the sentencing court had made a procedural and substantive error by failing to properly address or give weight to the sentencing factor of deterrence:  a critical consideration for the government in criminal tax cases, because such cases are rare and the national tax gap -- the amount of taxes collected vs. the amount of taxes truly due -- is enormous.  The court, after noting that most of the appellate judges personally disagreed with the sentence imposed, rejected that concern by observing in part that the typicality or uniqueness of a case does not alter the deferential standard of review.  The court also observed that a concern relating to sentencing disparities "is not new," and that the Supreme Court recognized and accepted that sentencing disparities would increase when it rendered the Sentencing Guidelines advisory in Booker.  Ultimately, and in light of Gall, the grounds provided for the downward variance reflected that the district court did not abuse its broad discretion, in part because the difference between the actual sentence and the low end of the Guidelines range was only 12 months.

 

In contrast, the five-judge dissent found the sentence of probation quantitatively unreasonable, as well as qualitatively unreasonable when compared to the advisory Guideline range.  The dissent wrote that Gall still envisioned appellate courts as having a meaningful role in reviewing for substantive unreasonableness, that the Guidelines continue to be a "vital force" in sentencing, and that the Guidelines "serve a particularly important purpose in the area of white-collar crime."  According to the dissent, the defendant did not distinguish himself sufficiently from other tax evaders, and the sentence imposed sends the wrong message regarding tax evasion, which generally should receive sentences of imprisonment in order to create sufficient deterrence.

 

 

Both the majority and the dissent opinions in Tomko contain additional and very interesting discussions of the sometimes competing values of sentencing court discretion, the current role of the Sentencing Guidelines, and the government's desire for deterrence in tax and other white collar crime cases.  The above is just a summary of some of the highlights.

 

U.S. v. Tomko - Download Tomko

 

(PDH)

Discovery, Deferred Prosecution Agreements & the Attorney-Client Privilege

The threat of indictment to a corporation is huge, and one need only look at what happened to Arthur Andersen LL.P to reach this conclusion. In the aftermath of Andersen, many corporations have entered into deferred and non-prosecution agreements with the government, paying huge fines but avoiding prosecution.  With their "backs against the wall" the companies agree to many controversial terms, including in some cases the waiver of the attorney-client privilege. The net result to the government is not only money, but also evidence that can be used to proceed against individuals within the company.

But how does this scenario play out in the long run. The case of U.S. v. The Williams Companies provides an interesting glance at what can happen when the attorney-client privilege is violated by the company. Williams, an opinion issued this past week by the DC Court of Appeals has the individual asking for discovery in the criminal case, and wanting the government to produce the discovery they received from the company.  The problem is that the company does not want the evidence to be produced to the defendant.  So the court is left to rule on "a third-party appeal of a discovery order in a criminal case compelling the government to produce 'all materials disclosed' by the third party pursuant to its cooperation with federal investigators during a criminal investigation of the third party and others." The court remands the case to the district court to assess "which documents were material to the defense."

The moral of the story is - you may think that your back is against the wall to enter into a deferred prosecution agreement, but before you agree to waive the attorney-client privilege, be aware of the long-term ramifications of this decision. 

(esp) (blogging from Chicago)

Conferences

Northwestern University Law - Judicial Symposium - Criminalization of Corporate Conduct - April 20 - here

Georgetown Law Corporate Criminal Law Conference - Achieving the Right Balance: The Role of Corporate Criminal Law in Ensuring Corporate Compliance- April 21 - here

ABA - Insider Trading, April 29, webcast here

ABA - Internal Corporate Investigations and IN-House Counsel, May 6-8 here

ABA - 19th Annual Institute on Health Care Fraud, May 13-15 here

18th Annual Federal Sentencing Guidelines Conference in Clearwater, Florida, May 21-22 - Download 290200_09_guidelines_book

7th Annual OffshoreAlert Financial Due Diligence Conference, April 26 - here

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Race Car Driver Not Guilty of Tax Evasion

Discussed here are recent DOJ press releases related to tax charges and pleas - all immediately prior to the April 15th tax deadline. But the government was fortunate that this result occurred after the 15th -  Helio Castroneves was found not guilty of all six counts of tax evasion at his recent trial. See AP, Castroneves not guilty of tax evasion;Jay Weaver & David Ovalle, Miami Herald, Helio Castroneves found not guilty in tax-evasion trial

The government can use tax charges filed near the 15th to stimulate compliance with the law. It can serve as a general deterrence to future criminality. Having a "not guilty" of tax related offenses near this same time, certainly would not be beneficial to the government.  But Castroneves' jury result of "not guilty" was immediately after the 15th.

The jury did not reach a verdict on the conspiracy charge against Castroneves, but the conspiracy charge was premised on the tax evasion charge so it presents difficult issues for the prosecution if they do decide to try again. The conspiracy count was worded "to defraud the United States for the purpose of impeding, impairing, obstructing, and deteating the lawful government functions of the Internal Revenue Service of the United States Department of Treasury in the ascertainment, computation, assessment, and collection of United States income taxes." (See Indictment)  Hopefully prosecutors will not spend tax money trying to convince a jury that the inchoate crime of conspiracy does not require a completed act. Section 371 does require an overt act and the rejection of the substantive offenses sends a loud message to the government here.

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The New SEC

PBS Nightly Business report had an exclusive interview with SEC Chair Mary Schapiro and one particular interchange caught my eye/ear. Schapiro was asked by Stephanie Dhue whether more people were calling in with tips about Ponzi schemes. Noting the backdrop of the Madoff scandal, SEC Chair Schapiro was asked what they were doing with this information.  The response:

"We receive close to a million tips per year at the agency and we need to handle them better and more effectively then we have historically, and we are reviewing from A to Z our process so we can be more effective with them.  But I tell you the number of Ponzi schemes that we are detecting early on and stopping, shutting down immediately has grown dramatically in the time that I've been here and I think to quote Warren Buffet, 'when the tide goes out we see who's been swimming naked' and that's what happened with Ponzi schemes.  They can't maintain the scheme in more difficult economic times and as a result they are being exposed earlier on."

It will be interesting to see what the A to Z review produces and whether there will be a strong "effective program" of compliance implemented by the SEC.

(esp)

In the News & Around the Blogosphere

Paul N. Monnin & R. Joseph Burby IV, Legal Times (law.com), Dead Companies Can Tell Tales - After a bankruptcy, corporate officers may no longer control the privilege

Askby Jones, WSJ Blog, Joe Nacchio Reports to FCP Schuylkill

Emily Chasan, Reuters,Ex-Deloitte exec loses bid to dismiss trading case

Pamela A. MacLean, National LJ, law.com, Many GCs Still Fighting Backdating Charges

Mike Robinson, law.com (AP), Former Ill. Governor Headed for Arraignment Despite Uncertainty Over Legal Team; Chicago Tribune, Blagojevich pleads not guilty

Kieran Crowley, New York Post, Jail for Dummies

DOJ Press Release, Oregon Corporation Sentenced for Clean Water Act Violation

Mike Scarcella, BLT Blog, Ted Stevens Rejected Plea Deal, Records Show

Amir Efrati, WSJ Blog, Second American Client Charged in UBS Tax Probe

Joe Palazzolo, BLT Blog, King & Spalding's Gary Grindler Joins DOJ Criminal Division

Josh Gerstein, Politico, Under the Radar -Sky’s the limit for punishment in Stevens case

DOJ Press Release, UBS Client Pleads Guilty to Filing False Tax Return Hid Assets Worth $3 Million in Secret Swiss Bank Account -Ft. Lauderdale Yacht Broker Second UBS Client Charged, First to Plead Guilty

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April 15th - Tax Day Is Approaching

One can easily tell that tax day is getting near by just looking at the DOJ Press Releases.  Although tax prosecutions occur year round, one can't help but notice the many appearing around April 15th.  In a way this publicity is good, because what better way to achieve general deterrence then publicizing the ramifications of not filing a tax return, or filing an improper one. Although some of these are indictments, and the individuals are of course presumed innocent until convicted, if they are, here are some of the latest press releases -

DOJ Press Release, Louisiana Tax Defier Convicted on Federal Tax Charges -Defendant Had Filed Millions of Dollars in Fictitious Liens to Harass Law Enforcement

DOJ Press Release, Federal Court Blocks Chicago Tax Preparation Firm from Claiming Improper Tax Credits -Tax Preparer Allegedly Claimed Fraudulent Fuel Tax Credits for Customers

DOJ Press Release, Bronx Return Tax Preparer Indicted for Aiding in Preparation of False Tax Returns

DOJ Press Release, Disbarred Maryland Attorney Pleads Guilty to Preparing False Tax Returns

And of course, one also finds DOJ issuing this week the highlights of the 2008 year, which includes mention and reference to the  UBS deferred prosecution agreement.

(esp)