Saturday, December 12, 2009
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)
Thursday, December 10, 2009
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.
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
Wednesday, December 9, 2009
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:
AG Holder comments on this new task force here.
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.
Michael F. Perlis & Wrenn E. Chais, Forbes, Investigating The FCPA
Ben Hallman, AmLawLitigationDaily, SEC to Insider Traders: Watch What You Say
John Pacenti, law.com, Daily Business Review, Why Suspicions About Fla. Firm's Alleged Ponzi Scheme Weren't Voiced
Letter of Apology, Memo To Holder: Broadcom Trial Shows Need For More Ethics Training
Mark Fass, NYLJ, law.com, Defense Attorney Gets 14 Years in Prison for Conspiring to Threaten Witnesses
Eric Lipton & Eric Lichtblau, NYTimes, Rules for Congress Curb but Don’t End Junkets
Chicago Breaking NewsCenter, Blagojevich evidence stolen from his lawyers' offices
Amanda Bronstad, National L J, law.com, Ex-Broadcom GC Avoids Criminal Charges Amid Claims of Prosecutor Misconduct
Hank Grezlak and Leo Strupczewski, The Legal Intelligencer, law.com, Feds Charge Third Luzerne County, Pa., Judge With Fraud
Grits for Breakfast, Parole Board: Texas Created 59 New Felonies This Year
Florida Attorney General, Statement from Attorney General on Supreme Court's Order to Convene a Statewide Grand Jury (pertains to public corruption)
Matt Ackermann, OnWallStreet, SEC Settlements Fall For Second Year
Jeff Jeffrey, BLT Blog, Two Top SEC Officials Leave For Private Practice
Tuesday, December 8, 2009
Reviewing the transcripts of today's Oral Arguments in the Black and Weyhrauch cases (for background see here), here are some additional highlights:
- Justice Scalia - "you speak as though it is up to us to write the statute. We can make it mean whatever it - you know, whatever would -- would save it or whatever we think is a good idea, but that's not our job."
- Chief Justice Roberts -"I don't know where the concept of 'right' comes in, which is in the statute." ...."The right is not limited to specific legal obligations, but to a developing Federal common law of criminal liability?"
- Justice Alito - "Well, since the -- since the body of pre-McNally lower court cases was hardly completely consistent, do you think this is a workable approach?
- Justice Ginsburg - "The real problem with your approach, which I take it is you have to find these duties in State law, is that some States will classify the same conduct as a felony that another will classify it as a misdemeanor. So that line won't work. And then some States will make something criminal that other States won't. So you are going to have, depending on geography, people potentially subject to a 20-year term because of the particularities of -- of a -- the State law."
- Chief Justice Roberts - "Well, that is a familiar common law term (referring to the phrase 'malice aforethought'). Honest services is not."
One of the most interesting aspects of the argument was to hear the government using "materiality" as their claim for protecting the statute from the host of problems being raised. It was an argument in their brief, so this was no surprise. But hearing this argument and noting what Conrad Black's attorneys point out was said by the Government in the Neder case, the case where the Court found the requirement of materiality, has a certain irony. (see here).
Weyhrauch Argument here
Black Argument here
Guest Blogger Timothy O'Toole provides commentary on the oral arguments here. Scotus Blog commentary can be found here. Mark Sherman, USA Today (AP), Court Reviews Law Used Against Abramoff, Skilling, Others
Guest Blogger - Timothy O'Toole - Miller & Chevalier
This morning's arguments before the Supreme Court raised important questions related to a species of federal mail and wire fraud known as "honest services" fraud. The statutory basis for this theory is 18 U.S.C. 1346, a 28 word law passed in 1988 that essentially says that depriving someone of the intangible right of honest services can be a form of wire or mail fraud. The law has engendered considerable confusion in the federal courts of appeal, but the Supreme Court had never interpreted the statute before this term. This morning's arguments were the first glimpse into what the Supreme Court's thinks the honest services fraud statute means and whether the Court thinks that the statute is unconstitutionally vague.
1. In both cases argued this morning, the Court had granted review on fairly narrow questions, but the real issue at both arguments was whether the Court could "save" the statute from constitutional challenges by narrowing its reach. In Black, the Court had granted certiorari to decide the question of whether a private individual could be prosecuted for honest services fraud without any proof that his allegedly deceitful conduct economically harmed his employer. In Weyhrauch, the question presented was whether a state public official (an
2. In both arguments, at least 8 justices (Justice Stevens dissented from a1987 decision striking down a prior version of the law, and he seemed the least troubled by the current statute) seemed to want to focus on the constitutional question Justice Scalia had identified, and all seemed to be really struggling with how to make sense of the vague statutory text. Most justices expressed some discomfort with having the Court identify a "core" of conduct that the statute outlaws when Congress utterly failed to do so. In the Black argument, counsel for Petitioner focused directly on this constitutional vagueness problem even though his briefing did not. In the Weyhrauch argument, counsel for Petitioner tried mightily to avoid the constitutional issues, arguing that he should win the case regardless of whether the statute was constitutional because any sensible view of the statute would require a state law-based disclosure duty, and he had none. The government sought to avoid the constitutional issues in both cases, faulting petitioner in Black for raising the question at argument, and repeatedly pointing out that Weyhrauch had not pursued the constitutional issues either. Amicus briefs in both cases, by the NACDL and by the Chamber of Commerce (in Black only) had squarely challenged the statute on vagueness grounds.
3. Ultimately, most members of the Court seemed resigned to the fact that the constitutional issue is one that cannot go away because it is an essential prerequisite to the statutory interpretation issues, and because it is raised in another pending case involving Jeffrey Skilling. Justice Kennedy described the issue as "lurking." The Chief Justice at one point noted the unfairness that would occur if the Court said to Mr. Weyhrauch and Mr. Black, no disclosure duty is required and no economic harm is required, and then held in Skilling that the statute was unconstitutional. Justice Sotomayor kept wanting to discuss the Skilling scenario, particularly with the Solicitor General. Justice Scalia told the Solicitor General that he didn't think that the Court's hands would be tied if it tried to find a limiting construction of the statute but could not do so because the statute was unconstitutional; under those circumstances, Justice Scalia suggested that the Court could act to strike down the statute. Justice Breyer repeatedly asked the Solicitor General in both cases whether it would like the opportunity to fully brief the constitutionality of the statute, in order to address any concerns raised by the failure to squarely address the issue in the question presented.
4. Two primary concerns stand out from today's argument: (1) all justices expressed unease with identifying what sort of "bad conduct" is covered by the statute in the absence of any meaningful guidance from Congress; and (2) the Solicitor General's proposed test is not going to sufficiently narrow the statute. No one, in fact, seemed particularly inclined to adopt the SG's interpretation of the statute. At one point, Justice Breyer suggested that 140,000,000 people throughout the country had probably violated the honest services law as the SG described it, by fibbing to an employer in order to do something his or her boss wouldn't like. Justice Scalia described a similar scenario in which an employee tells the boss he is going to work hard all afternoon if the boss leaves him alone, but makes this misstatement so the boss will go away and he can sit at his desk and read the racing form. The government had a very hard time explaining why this conduct would not fall within the statute as it had defined it, and ultimately suggested that prosecutors wouldn't bring those sort of cases and/or jurors wouldn't convict. That answer did not engender a positive response. No one seemed comfortable with leaving such broad, undefined discretion in the hands of prosecutors and juries.
Conclusion: In the end, its really hard to tell how the cases will come out because, while there was general consensus that the Court has a mess on its hands, there was not much seeming consensus on how to fix it. One interesting thing to note is that, just yesterday, the Court denied certiorari in an honest services fraud out of Las Vegas (United States v. Kincaid Chauncey), which may provide some indication that it is not inclined to invalidate the statute entirely. But the Court is clearly struggling with how "save" what on its face is an utterly standardless law, and nothing that it heard at argument seemed to provide a way out. It would not be surprising if the Court's next step after argument is to ask for additional briefing aimed directly at the Constitutional issues that were the focus of today's argument.
Monday, December 7, 2009
The media and blogs have been buzzing for the last few days, all discussing the big oral arguments of today. For at long last, the Supreme Court will examine the "honest services" statute (18 U.S.C. 1346), a statute that claims itself to be a definition statute for use with many of the fraud statutes. Defendants in mail and wire fraud cases have long argued issues of vagueness with respect to the statute that allows for prosecutions for a deprivation of an intangible right to honest services.
Up today for discussion is the Conrad Black case (for background see here) and the Bruce Weyhrauch case (for background see here). The Court will look at whether section 1346 requires that the defendants “reasonably contemplated identifiable economic harm" and "whether to convict a state official for depriving the public of its right to the defendant's honest services through the non-disclosure of material information, in violation of the mail-fraud statute (18 U.S.C. Sec. 1341 and 1346), the government must prove that the defendant violated a disclosure duty imposed by state law." And in the backdrop we have Justice Scalia's pronouncement that the "28 words" in the statute had "been invoked to impose criminal penalties upon a staggeringly broad swath of behaviour, including misconduct not only by public officials and employees but also by private employees and corporate fiduciaries." He makes it clear that "it seems to [him] quite irresponsible to let the current chaos prevail." (See discussion of Sorich here) On the government side, will likely be arguments on the necessity of having a "stopgap device" in the statutes to criminalize conduct prior to Congress acting. (Maze)
This is not the first time that the Court will examine "intangible rights." It's 1987 decision in McNally tossed out cases that failed to be premised on "money or property" a requirement of the mail fraud statute according to the Court. Congress came back in response to the McNally decision with section 1346, the statute now under review in these two cases and also in the forthcoming Skilling case.
The issue raises an interesting question of how specific a statute needs to be. In 1999, I wrote an article titled Criminal Fraud that emphasized the need to have fraud statutes that clearly outlined the criminal conduct. On the other hand, in an essay a year later, Do We Need A Beanie Baby Fraud Statute, I noted how there are limits to how much specificity should be required for a fraud statute. The line between letting the public know what is criminal and yet also allowing the government some leeway is at stake here. But that said, my own bias is that the existing statute - 1346 - allows for absurd applications. The net result is that prosecutors have greater power to pick and choose who they want to prosecute and for what acts. The absurd example I use is whether a potential President could be prosecuted for saying "read my lips, no new taxes" and then raising taxes (see here) - of course using the mails or wires in disseminating the political message. Will every dishonesty, or statement later found to be untrue, be the subject of criminal conduct? And if intent can be inferred from the circumstances, will it allow for absurd examples such as this one to be the subject of a prosecution? Will prosecutors have the power to decide what is and is not subject to criminal charges? And how best to balance the three branches of government in stopping criminal conduct. (see here) Stay tuned for a discussion of the Court arguments.
But the interesting question is what will happen in the next months regarding section 1346 of the mail/wire/other fraud statutes. Tomorrow the Supreme Court will hear oral arguments in Black and Weyrauch, cases that look at different issues regarding this definition section - a statute that many argue provides little guidance to individuals is discerning what is legal and what is not. Additionally, the Skilling case later this term also concerns section 1346. The bottom line is that although Bruno stands convicted of two counts, the case is far from over.
What does the death penalty have to do with white collar crime? Perhaps the most obvious item to those who practice white collar criminal defense work, is that many white collar attorneys handle or assist on capital cases. It therefore seems important to notice the white collar attorneys of a recent American Law Institute change.
On October 23, 2009, the ALI Council voted overwhelmingly, with some abstentions, to accept the resolution of the capital punishment matter as approved by the Institute’s membership at the 2009 Annual Meeting in May. The resolution adopted at the Annual Meeting and now accepted by the Council reads as follows:
“For reasons stated in Part V of the Council’s report to the membership, the Institute withdraws Section 210.6 of the Model Penal Code in light of the current intractable institutional and structural obstacles to ensuring a minimally adequate system for administering capital punishment.”