White Collar Crime Prof Blog

Blackwater Case Tossed - Commentary

On the last day of 2009, Hon. Ricardo M. Urbina issued a 90 page order that grants the defendants' Motion to Dismiss. The decision and a wonderful discussion of the case can be found in Del Quentin Wilber's, Washington Post article titled, Judge Dismisses All Charges in Blackwater Shooting. Although the alleged crime charged here was not white collar related, the opinion provides a discussion of important issues that can arise in federal white collar decisions - issues related to Kastigar.  The defendants had argued that the "government violated their constitutional rights by utilizing statements they made to Department of State investigators, which were compelled under a threat of job loss."  The government admitted that these statements cannot be used. (Garrity v. New Jersey)  So the government was left trying to bring the case without using any of the statements. (Kastigar v. United States).

The court noted that "[t]he explanations offered by the prosecutors and investigators in an attempt to justify their actions and persuade the court that they did not use the defendants' compelled testimony were all too often contradictory, unbelievable and lacking in credibility."  The bottom line, according to the court, was that the government "utterly failed to prove that it made no impermissible use of the defendants' statements or that such use was harmless beyond a reasonable doubt."

Some highlights and my commentary:

• This one is perhaps a minor point in the decision, but one that should be noted by white collar prosecutors and defense attorneys. DOJ had presented evidence to a second grand jury in this case, but they failed to present some evidence that the defense claimed was exculpatory. Although in the case U.S. v. Williams the Supreme Court did not mandate that prosecutors present exculpatory material to a grand jury, DOJ guidelines tell prosecutors to do otherwise.  This court noted, that "DOJ guidelines require prosecutors to present exculpatory evidence to the grand jury" and the court cited to the US Attorneys' Manual s 9-11.233.  The reference to the US Attorneys' Manual, even though it is an internal document, is good to see as it is important for DOJ to stick with their internal guidelines. (My article on this issue is here).
• The court stated - "The Circuit's analysis in North I suggests that although no Kastigar violation occurs when a prosecutor's fleeting exposure to immunized testimony has a merely tangential influence on his or her thoughts about a case, a Kastigar violation may result when a prosecutor has had significant exposure to immunized testimony and makes significant nonevidentiary use of that testimony" p. 29-30. The government has faced this issue before.
• In discussing "harmless error" the court stated - "the defendants' compelled statements pervaded nearly every aspect of the government's investigation and prosecution, and the government's use of those statements appears to have played a critical role in the indictment against each of the defendants."
• Publicity surrounding a case can make it difficult for the government to get around Kastigar.
• Government agencies need to work closely with DOJ in cases that could involve criminal charges.

See also NYTimes, (AP) All Charges in Blackwater Case Are Dismissed

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2009 White Collar Crime Awards

2009 White Collar Crime Awards

Each year this blog has honored individuals and organizations for their work in the white collar crime arena by bestowing "The Collar" on those who deserve praise, scorn, acknowledgment, blessing, curse, or whatever else might be appropriate. I welcome comments from readers who would like to suggest additional categories or winners (or losers?).

With the appropriate fanfare, and without further ado,

The Collars for 2009:

The Collar for Causing the Most Dominoes to Fall - To Bernie Madoff for causing more Ponzi schemes to come to light

The Collar for Missing the Boat -To the past SEC that failed to notice Madoff and other schemes

The Collar for Best U-Turn - To the new DOJ for dismissing Ben Kuehne's case and exposing discovery violations, like seen in the Stevens case

The Collar for the Most Needing a Hearing Aid - For whoever decided to use a wiretap for alleged securities violations in the Rajaratnam case

The Collar for the Latest Fashion - To the DOJ for changing the name of the corporate crime task force to, what else - the financial fraud task force

The Collar for the Hottest Freezer - To William Jefferson, convicted after a search found cash in his freezer

The Collar for Adhering to Terry MacCarthy's Rule of Threes - To the Supreme Court for accepting three mail fraud cases, all pertaining to the honest services statute's 28 words

The Collar for Least Likely to Survive -  A backdating prosecution 

The Collar for Most in Need of a Geography Lesson- Tied - 1) To the prosecutors who brought the eventually dismissed Lori Drew case in California when all the alleged cyberbullying had occurred in "nearby" Missouri; 2) And the prosecutors who brought Wesley Snipes case in Florida where he went to high school

The Collar for the Most Likely to Have its Theme Song "I Won't Back Down" - W.R. Grace

The Collar for the Best Avis - To Rod Blagojevich, for trying to be the most recognized name with a white collar charge - he'll have to try harder to beat Bernie Madoff

The Collar for US News WannaBe- To the ABA for its method of selecting best blogs

The Collar for Least Likely to be Teaching Professional Responsibility at a Law School- Marc Dreier

The Collar for Least Likely to Appear Together in "Dancing With the Stars" - AG Eric Holder and former AG Alberto Gonzalez

The Collar for Least Likely to Appear on the T.V. Show "I've Got a Secret" - UBS

The Collar for the Best Parent - retired years ago and renamed the Bill Olis Best Parent Award - unawarded this year since no one comes even close to Bill Olis.

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Holiday Plea

White Collar investigations can last for years, often with continued pressure upon the person being investigated. So seeing a holiday plea is no surprise - after all it brings a finality. See DOJ Press Release,

Ohio Attorney Charged with Tax Fraud, Obstruction of Justice for Scheme to Hide Income and Assets Through Trusts and in Foreign Bank Account - Second Ohio Attorney Agrees to Plead Guilty to Making False Statement 

 

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Upcoming Conferences

ABA, 24th Annual National Institute on White Collar Crime, February 24-26, 2010, Miami Beach, Fl.- here

ABA, Enforcement Trends in Securities and Commodities Actions 2010, Jan. 13, 2010, Washington, D.C.- here

Securities Regulation & Enforcement, March 22-23, 2010, NYC - here 

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Wishing Everyone A Happy Holiday

Wishing everyone a healthy, happy, and peaceful holiday.

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Another State Highlighting White Collar Crime

Federal prosecutions of white collar crime have been the norm for many years. And the New York Attorney General's Office under Spitzer and now Cuomo made it a part of their workload (see here).  But recently we see more and more states are making white collar investigations a priority.  We have seen it in Florida (see here) and Ohio (see here).  Indiana, now. appears to also be stepping up its white collar prosecutions. Jon Murray, Indystar.com reports on how the "4-person unit in state Securities Division has helped with 44 cases since '07." (see here) (w/ a hat tip to Ted Gest)

With a decreased media bringing to light public corruption and state white collar crimes, it is important that individual states step to the plate and provide increased prosecutions of state and local white collar crimes. 

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Catch-up on Some Recent White Collar Cases

Ninth Circuit - United States v. Berger -  Court stated:

"While we decline to extend the Dura Pharmaceuticalsprinciple to criminal securities fraud, we conclude that the district court's loss calculation approach was nevertheless flawed.  Thus, although we conclude that the district court used the correct standard of proof in determining the total loss, we vacate Berger's sentence and remand to the district court for resentencing." 

(Check out this super article on this case in the Criminal Law Reporter, authored by Hugh B. Kaplan - reprinted with permission here -  Download Berger).  The case offers an interpretation on  the applicable standard that should be used in finding sentencing facts.  It also sets the stage for a jurisdiction split on Dura's applicability.  (hat tip also to Evan Jenness).

Fifth Circuit - United States v. Whitfield (Minor & Teel) -

The "government claimed that by virtue of their judicial offices, Whitfield and Teel were agents of the Mississippi Administrative Office of the Courts (AOC)" and that the AOC received $10,000. in federal funds for a Section 666 prosecution.  The court, however, held -

"Whitfield’s and Teel’s role as presiding judges in Marks and Peoples Bank had no "connection with any business, transaction, or series of transactions" of the AOC. See 18 U.S.C. § 666(a)(1)(B), (2). Therefore, by its own plain language, section 666 applies neither to Whitfield’s and Teel’s acceptance of bribes nor to Minor’s offering of bribes in connection with those cases. The Government has cited no authority supporting a contrary conclusion. As such, we hold that the district court committed plain error when it denied appellants’ Rule 29 motions for judgment of acquittal on the section 666 counts of the indictment."

Other convictions were upheld, but the case was remanded for resentencing.

Third Circuit - United States v. McGeehan

This blog previously noted this decision and said commentary would follow.  That commentary did not follow because it seems that this case, like others will await the Supreme Court decision in the three honest services cases under review (see here). So stay tuned.

Second Circuit - United States v. John Doe (Download 08-4064-cr_so[1])

The Second Circuit appointed amici counsel - Lee G. Dunst (Gibson, Dunn & Crutcher LLP) - to argue the case as amici as the government joined the defense in arguing for permanent sealing of the sentencing transcript. The court affirmed the "district court's denial of the application for a total and permanent sealing of the sentencing transcript, but" the court did "remand the case to the district court to afford the parties an opportunity to apply for a sealing of the sentencing transcript that is partial, non-permanent, or both." 

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Recent Articles

Albert Alschuler, Two Ways to Think About the Punishment of Corporations - here

George M. Cohen, Of Coerced Waiver, Government Leverage, and Corporate Loyalty: The Holder-Thompson-McNulty Memos and Their Critics

John Humbach, Director Liability for Corporate Crimes: Lawyers as Safe Haven?

Cindy A. Schipani, The Future of the Attorney-Client Privilege in Corporate Criminal Investigations

Larry Ribstein, How Movies Created the Financial Crisis

Geraldine Szott Moohr, The Balance Among Corporate Criminal Liability, Private Civil Suits, and Regulatory Enforcement

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In the News & Around the Blogosphere

Ben Hallman, American Lawyer, law.com, Comverse to Pay $225 Million in Backdating Settlement

Michael Pollick, Herald Tribune.com, Ponzi convictions are weightier now - FRAUD CHARGES: Sarasotans will face more than a slap on the wrist if found guilty

DOJ Press Release, Three Detroit-Area Residents Plead Guilty to Health Care Fraud

DOJ Press Release, Former FBI Contract Linguist Pleads Guilty to Leaking Classified Information to Blogger

Jenny Anderson & Zachery Kouwe, NYTimes, Claims of Insider Trading From Trader’s Ex-Wife

R. Robin McDonald, Fulton County Daily Report, law.com,Acquitted of Money Laundering, Defense Attorney Sets Sights on Legal Fees - Attorney must demonstrate that the government's prosecution was frivolous, carried out in bad faith or constituted a form of harassment

Hilary Potkewitz, Crain's New York Business, After lull, financial-crime prosecutions seen set to rise

DOJ Press Release, Attorney General Appoints Gary Grindler Acting Deputy Attorney General

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In the News & Around the Blogosphere

Joel Stashenko, NYLJ, law.com, Former N.Y. Judge Sentenced to 27 Months in Jail for Attempted Bribery

DOJ Press Release, Oklahoma Man Sentenced to 12 Months in Prison for Kickback Scheme Involving Government Contract in Afghanistan

Bill Mateja, Op-ed, Dallas Morning News, Supreme Court should void 'honest services'

Mike Scarella, The National Law Journal, DOJ Urges Closed Hearing in Blackwater Criminal Case

James Barron, NYTimes, Brooke Astor’s Son Is Sentenced to Prison

Lawrence Delevingne, Business Insider, The Decade's 10 Biggest Financial Crimes

Treasury Press Release,U.S. Treasury Department Announces Settlement With Lloyds TSB Bank, PLC -Settlement Reached for Apparent Violations of Treasury Sanctions Regulations

Jenna Greene, law.com, The Decade's Biggest Stories, Accounting scandals flood the courts - Enron and WorldCom usher in wave of fraud cases targeting corporate executives

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In the News & Around the Blogosphere

DOJ Press Release, Retired Army Major Sentenced to 57 Months in Prison for Role in Bribery Scheme Involving DOD Contracts in Kuwait

Justin Blum, Bloomberg, Prosecution Drop May Embolden Bankruptcy Fraud as Filings Surge

Dan Levine, The Recorder, law.com, Feds Want Former McKesson HBOC Chairman Taken Into Custody

Michael Pollick, HeraldTribune.com, Grand jury indicts 3 on Sarasota-based Ponzi charges -Currency trader Beau Diamond

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In the News & Around the Blogosphere

Lyle Denniston, Scotus Blog, Two Argument Changes Set - Skilling Case Moved Up to March 1

David Ingram, BLT Blog, Former Office Manager in U.S. Senate Indicted

Press Release, Department of Treasury, U.S. Treasury Department Announces Joint $536 Million Settlement with Credit Suisse AG

Brad Heath, USA Today, Fraud Prosecutions Fell as Crisis Loomed

Larry Ribstein, Ideoblog, The real backdating scandal

Ray Rivera, NYTimes, Ex-Councilman Miguel Martinez Sentenced to 5 Years in Theft of $106,000

NYTimes, AP, 26 Arrested in Three States in Medicare Fraud Schemes; DOJ Press Release, Medicare Fraud Strike Force Expands Operations into Brooklyn, N.Y.; Tampa, Fla.; and Baton Rouge, La.

Tom Hays, law.com (AP), Billionaire Hedge Fund Manager Indicted in Insider Trading Case; DOJ Press Release, Hedge Fund Manager and New Castle, LLC, Employee Indicted in Galleon Insider Trading Case

Mike Koehler, FCPA Professor, Siemens...The Year After 

Erik Larson, Bloomberg, SEC Seeks Dismissal of Madoff Victims Negligence Suit

DOJ Press Release, Manhattan U.S. Attorney Charges Two Lawyers in [Alleged] $3.9 Million Mortgage Fraud Scheme

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Government Misconduct Results in Dismissal of Backdating Case

It is rare that a judge uses supervisory powers to correct an injustice, but sometimes it is the right action - especially when there has been government misconduct. The Hon. Cormac J. Carney used his supervisory powers to dismiss the case against former Broadcom's Henry Nicholas III, and former CFO William Ruehle, stating:

"Based on the complete record now before me, I find that the Government has intimated and improperly influenced the three witnesses critical to Mr. Ruehle's defense.  The cumulative effect of that misconduct has distorted the truth-finding process and compromised the integrity of the trial."

The court noted how the government had intimated three witnesses.  He includes how the government improperly leaked items to the press, put a witness through "30 grueling interrogations,"  pressured the company to terminate the employment of this witness, and obtained a plea from a witness for crimes he did not commit -  and there were more improprieties noted by the court. The court ends with the words from the Supreme Court decision in Berger, and then states: "I sincerely regret that the government did not heed the righteous words of the Supreme Court."

Court's Order -Download RUEHLE_DEC__15

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Jenia Turner - New Book on Plea Bargaining

Jenia Turner, Southern Methodist University Dedman Law School, has a new book titled, Plea Bargaining Across the Borders.  It provides a "comparative, transnational, and global analysis" on plea bargaining.

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SEALS - CALL FOR PAPERS

SEALS Call for Papers

Law Professors -  The Southeastern Association of Law Schools (SEALS) has a call for papers -

CALL FOR PAPERS

A roundtable discussion will be held at SEALS 2010 on "Re-evaluating Corporate Criminal Liability."

Among the questions that deserve focus in this area are the following:

• Should we discard corporate criminal liability?
• Should we expand corporate criminal liability?
• Should we modify the ALI standard for corporate criminal liability?
• Can tort actions properly accommodate corporate misconduct?
• Is corporate regulation sufficient to handle corporate misconduct?

Participants will prepare a paper of approximately ten pages related to this topic, and the papers will be distributed prior to SEALS 2010. At SEALS, each of the participants will be given a few minutes to summarize their paper, which will be followed by a moderated discussion on the topic.

Two of the participants in this roundtable will be selected from a Call for Papers that will be reviewed by Professor Joan Heminway (Tennessee), Professor Andrew Taslitz (Howard), and Professor Ellen S. Podgor (Stetson).

Papers must be received by January 1st to be considered for this Roundtable. You are welcome to submit an abstract by this deadline, but papers are more likely to be given stronger consideration. Submit all papers to Ellen S. Podgor at epodgor@law.stetson.edu

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In the News & Around the Blogosphere

NYTimes, AP, Mississippi: Executive Pleads Guilty

Gary S. Chafetz, Huffington Post, The Final Days of Honest-Services Fraud

Diana B. Henriques, NYTimes, ,S.E.C. Proposal May Help Some of Madoff’s Early Investors Press Their Claims

Zachery Kouwe, NYTimes, Lawyer Pleads Guilty to Selling Insider Tips

Amanda Bronstad, National LJ, law.com, Additional Allegations of Prosecutorial Misconduct Raised in Broadcom Case; Broadcom judge sets dismissal hearing

Mark Fass, NYLJ, law.com, Dissenting Judge Blasts Reduced Sentence for Diamond Scam

Vanessa Furhman & David Crawford, WSJ, MAN Gets Fine in Bribe Case (Germany)

DOJ Press Release, Taiwan LCD Producer Agrees to Plead Guilty and Pay $220 Million Fine for Participating in LCD Price-Fixing Conspiracy.

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Without Honest Services, the Government Will Live

The WSJ Blog asks - "If Honest-Services Law is Struck, Will an "Earthquake Ensue?" During the hearing on Mortgage Fraud, Securities Fraud, and the Financial Meltdown: Prosecuting Those Responsible, Assistant AG Lanny Breuer, in response to a question, talked about the importance of having a statute such as the honest services statute. (see here) 

But is it really necessary? And will it really hurt the government's ability to prosecute criminal cases if the Supreme Court decides otherwise?

After the Supreme Court in McNally struck down "intangible rights," some convictions needed to be re-evaluated - most noteworthy here were cases from Chicago's Operation Greylord. From the defense side there was a growth of the Writ of Corum Nobis to assist those who had been convicted and finished their sentences. And yes, some convictions were overturned.

What happened from the government side post-McNally, was that cases being brought that included "money or property" for the mail or wire fraud charge survived the Supreme Court decision. Most interesting after McNally was the fact that the Supreme Court came back on its heels and issued the Carpenter case, a case that expanded property to include "intangible property."  This provided a new avenue for government prosecutions.  The government was not put out of business by the Supreme Court decision in McNally as they could still bring mail and wire fraud cases alleging a deprivation of money or property.  But even here, the government pushed the envelope, such as trying to include regulatory licenses as property.  The Supreme Court saw otherwise. (Cleveland) 

The government was given a second chance with the passage of section 1346 on intangible rights to honest services. But they pushed the envelope, over-used the statute, and now we all wonder whether the Court will react by eliminating the definition statute. After all, the 28 words in the statute leave many wondering what is criminal and what is not. 

But to answer the WSJ Blog's question, one needs to examine the cases that have been brought under 1346. The question that really needs to be considered is whether these cases could still have been brought.  Clearly if there was a false statement or bribery, other federal statutes allow for the prosecution.  Likewise, if there was a money or property deprivation, then the prosecution could proceed with mail or wire fraud.   

The bottom line is that the arsenal of federal statutes remains strong (perhaps too strong with enormous overlapping crimes and disorganization in the federal code).  Yes, removing honest services may make it more difficult for the prosecution to proceed in some cases. (for background see here) But what is important is that people understand that the conduct they are committing is a violation of law and subject to criminal penalties.  In the white collar world, this realization can often suffice to avoid the commission of the wrongful act as people are not inclined to do something criminal if they know the act is subject to a prison term.  And this certainly will cost us all a lot less time and money then having a statute that people have no clue as to what it includes and what is excludes.

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Ben Kuehne's Speech to Supporters

David Oscar Markus, Southern District of Florida Blog, Ben Kuehne Thanks His Supporters

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Senate Judiciary Hearing on Financial Crisis

Yesterday, the Senate Judiciary Committee held a full committee hearing on "Mortgage Fraud, Securities Fraud, and the Financial Meltdown: Prosecuting Those Responsible."  Testifying at the hearing were: Assistant AG Lanny Breuer, Director Enforcement Division SEC Robert Khuzami, and FBI Assistant Director Kevin Perkins.  One can listen to the hearing here.  The opening speaker, Lanny Breuer (see written testimony here) spoke about the new Financial Fraud Enforcement Task Force (see here for background).  In his written statement he says that "Since 2002, the Department has obtained approximately 1,300 corporate fraud convictions, including convictions of more than 200 corporate chief executives or presidents, more than 120 vice presidents, and more than 50 chief financial officers." He also gave examples of the coordinated efforts of mortgage fraud prosecutions stating: 

"Operation "Malicious Mortgage," conducted last year, included charges against more than 400 defendants in cases across the nation. Operation "Quick Flip" in 2005 featured a nationwide takedown of mortgage fraud cases charging a total of approximately 155 defendants. Operation "Continued Action" in 2004 targeted mortgage fraud and other schemes in more than 150 cases in more than 35 states."

Robert Khuzami, speaking next outlined some of the recent initiatives at the SEC.  The final speaker from the FBI, Kevin Perkins, spoke about a wide array of conduct talking about matters related to Madoff,  Petters, and others. (see written testimony here) He spoke about a new proactive approach being taken to financial fraud. The approach he spoke about highlighted  investigation.

See also David Ingram, National LJ, law.com, Senators Impatient With Fraud Prosecutions

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Corporate Fraud Task Force Moves Into the Financial Fraud Task Force

In a recent press release, President Barak Obama announced that he was establishing an interagency Financial Fraud Enforcement Task Force. The executive order (13519) lists a long list of individuals offices that will be represented on this task force (e.g. Homeland Security, FTC, SBA). Yes, TARP is also at the table. At the head of the task force is the Attorney General with the Deputy AG directing the work of the task force. The task force clearly has a mission of coordinating efforts for financial fraud prosecutions. Perhaps the most interesting aspect of the task force is found near the end of the executive order - "The Task Force shall replace, and continue the work of, the Corporate Fraud Task Force" which had been created by a 2002 Executive Order.  The use of a task force is not new for DOJ.  In addition to the Corporate Fraud Task Force, we have seen task forces like the Katrina Hurricane Task Force that focused on fraud. (see here). 

One aspect that is particularly good to see as an aspect of this task force is its "Outreach" section.  It states:

Outreach. Consistent with the law enforcement objectives set out in this order, the Task Force, in accordance with applicable law, in addition to regular meetings, shall conduct outreach with representatives of financial institutions, corporate entities, nonprofit organizations, State, local, tribal, and territorial governments and agencies, and other interested persons to foster greater coordination and participation in the detection and prosecution of financial fraud and financial crimes, and in the enforcement of antitrust and antidiscrimination laws.

 AG Holder comments on this new task force here.

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