White Collar Crime Prof Blog

In the News & Around the Blogosphere

John Pacenti, Daily Business Review, law.com,Former Law Firm COO Charged in Alleged Money-Laundering Conspiracy

Washington Post, Reuters, Indonesia launches special jail for the corrupt

MercuryNews.com, AP,Not guilty pleas in SoCal political corruption

Steven Cohen, Huffington Post, The Continued Corruption of New York's Politics

CBC News, Quebec corruption probe nets 2 more arrests

Pter Krouse, The Plain Dealer, Lawyer Joseph O'Malley pleads guilty as part of county corruption probe

DOJ Press Release, Four Individuals and Three Corporations Indicted for Roles in Mail and Wire Fraud Conspiracies at a New York City Hospital

DOJ Press Release, Antiques Dealer Agrees to Plead Guilty to Federal Charges Related to Sale of Fake Picasso for $2 Million

Mike Scarcella, BLT Blog, Former Special Counsel Scott Bloch Pleads Guilty to Contempt

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Ted Olson Takes on Paul Minor's Case

Former United States Solicitor General Theodore B. Olson will represent Mississippi attorney Paul Minor in his upcoming appeal to the Supreme Court of the United States.  Olson, now with the law firm Gibson, Dunn & Crutcher LLP, moved immediately into action with an extension of time application that provides clues as to the arguments that will be forthcoming. For openers Minor's convictions are tied to the "honest services" statute, a statute under review this term in three cases (Skilling, Black, and Weyrauch). Also mentioned is the tension between the Fifth Circuit's decision in Minor's case and the McCormick and Sun-Diamond Supreme Court decisions that necessitate a quid pro quo.  The Fifth Circuit had previously vacated the convictions premised on section 666 and remanded the case for resentencing.  The Fifth Circuit in its decision also noted that both the McCormick and Evans cases "left open the question of what level of specificity is required to prove a quid pro quo in regard to the 'quo' or agreed-upon official act."  What is particularly fascinating about this case is that it has "honest services" but also includes bribery allegations.  If 1346 is unconstitutionally vague this issues may be resolved.  But if the Court distinguishes bribery cases under honest services fraud, it may open up other arguments on when a bribery would fall within the reach of the "honest services" fraud statute.

Motion - Download Minor--Extension Application (2)

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A Reasonable Sentence

There is growing support in the case of Sholom Rubashkin for the court not to follow the government's sentencing plan. After all, it is extreme for the government to want to give this first offender something like "three decades" or a life sentence -

Mike Scarcella, BLT Blog, More Former AGs Question Sentence Sought in Bank Fraud Case

Professor Alan M. Dershowitz here

Professor Paul Cassell here

Other professors here

I agree with these professors and former prosecutors.  This type of white collar crime does not deserve a sentence in excess of a second degree murderer. In the post-Booker world, we need to see more courts looking beyond mathematical computations or mere loss figures, and looking at the individual offender. Hopefully this court will do just that.

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Upcoming Conferences

ABA, Internal Corporate Investigations and Forum for In-House Counsel 2010, May 5-7, 2010 Washington, D.C.  here

19th Annual National Seminar on the Federal Sentencing Guidelines (Tampa Bay Federal Bar & NACDL), May 12-14, St Petersburg, Florida - program - Download 100127 2010 guidelines book

Society of Corporate Compliance and Ethics, Four-Day Intensive Training Course on Compliance, London, England, May 17-20 here

Society of Corporate Compliance and Ethics, Managing Third Party Anti-Corruption, Compliance, and Ethics Risk, London, England, May 20-21 here

20th Annual National Institute on Health Care Fraud, May 12-14, Miami Beach, Florida here

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Animal Cruelty and White Collar Crime

The Supreme Court issued its decision in United States v. Stevens invalidating a statute "to criminalize the commercial creation, sale, or possession of certain depictions of animal cruelty." This is not a white collar crime case, but the decision provides interesting language that may be relevant for the forthcoming trilogy of cases pertaining to "honest services." (see here and here)  Professor Doug Berman over at the Sentencing Law & Policy Blog (here and here) discusses the decision and asks about the effect of this case on the pending Black and Skilling cases. He notes key language from the Court's decision - "We would not uphold an unconstitutional statute merely because the Government promised to use it responsibly."  A few other lines from the majority should also be noted -

• "The only thing standing between defendants who sell such depictions and five years in federal prison - other than the mercy of a prosecutor - is the statute's exceptions clause."
• "The government's assurance that it will apply section 48 far more restrictively than its language provides is pertinent only as an implicit acknowledgment of the potential constitutional problems with a more natural reading."
• "We 'will not rewrite a ...law to conform it to constitutional requirements,' ... for doing so would constitute a 'serious invasion of the legislative domain' ...and sharply diminish Congress's 'incentive to draft a narrowly tailored law in the first place.'"
• "To read section 48 as the Government desires requires rewriting, not just reinterpretation."

This decision sends a message that the Court is open to striking down statutes that are overbroad.  Many contend that the honest services definition statute for mail fraud fits this bill. Some may claim that there is a difference in how one interprets overbreadth for purposes of the First Amendment (Stevens) versus overbreadth for purposes outside this context.  But such a distinction should not be controlling.  If we desire to put individuals on notice of what should be criminal then due process requires that the statute have clear language that is not subject to prosecutorial legislating.

One final point - Justice Alito is the sole dissenter in the Stevens decision. When it comes to the trilogy of cases on honest services perhaps he will be on the other side.  The difference with Skilling is that Justice Alito's home-run question in the Skilling oral argument proved that there were no pre-McNally cases that presented a similar fact scenario (see here).

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In the News & Around the Blogosphere

Gene Johnson, Seattle Post Intelligencer (AP), Feds in Wash. vow new focus on white-collar crime

Ken Thomas, AJC.com, Moving faster, Toyota recalls SUVs, agrees to fine

Marcia Coyle, BLT Blog, New Guidelines on Corporate Offenders and Prison Alternatives Approved

HDTVPhilly57, 2 Face Additional Charges In NJ Corruption Probe

Myfoxdc.com, Blagojevich Wants to Subpoena Obama in Corruption Trial; Chicago Breaking News, Blagojevich defense wants Obama subpoenaed

David Ingram, BLT Blog,Judge Who Sentenced Madoff Confirmed to 2nd Circuit

Andy Jones, BLT Blog, Lawyers Argue Over Timing, Divided Trial in Mass Bribery Case

Amanda Bronstad, law.com, NLJ,  Ex-KB Home CEO Convicted on 4 Counts in Backdating Trial

DOJ Press Release, Financial Fraud Enforcement Task Force Hosts Fair Lending Forum in Chicago

Amanda Bronstad, NLJ, law.com, Judge tosses investors' Madoff-related claims against SEC

Richard Perez-Pena, NYTimes, Former Mayor of Hoboken Pleads Guilty to Corruption

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Federal Sentencing Commission Modifies Sentencing Guidelines Pertaining to Organizations

Guest Bloggers - Raymond Banoun, Margaret Ryznar*

Earlier this month, the United States Sentencing Commission voted to change the Sentencing Guidelines pertaining to organizations, which included modifications to Chapter 8 of the Federal Sentencing Guidelines Manual—the provisions governing the sentencing of organizations in federal court. These changes will take effect November 1, 2010, barring any Congressional action against them.

Most of these modifications aim to eliminate the automatic bar to the compliance credit based on the actions of high-level personnel. Before these changes, and since 1991, Chapter 8 of the Guidelines has permitted a reduction of the culpability score—and therefore the sentence—for convicted organizations if they had an effective compliance and ethics program in place at the time of the offense. However, this reduction automatically became inapplicable if high-level personnel of the organization participated in, condoned, or were willfully ignorant of the offense. With the Sentencing Commission’s recent amendments, the actions of high-level corporate personnel with respect to the offense no longer serve as an automatic bar to the compliance credit.

Nonetheless, the Sentencing Commission has introduced four new requirements for the receipt of the compliance and ethics program credit: (1) those with operational responsibility of the compliance and ethics program must report directly to the governing authority or its subgroup, such as an audit committee of the board of directors; (2) the compliance and ethics program must detect the offense before its discovery outside the organization or before such discovery was reasonably likely; (3) the organization must promptly report the offense to the proper governmental authorities; and (4) no person with operational responsibility in the compliance program participated in, condoned, or was willfully ignorant of the offense. If these requirements are met, corporations may receive credit for their compliance and ethics program.

Furthermore, the Sentencing Commission has clarified the definition of an effective compliance and ethics program for the purposes of the culpability score reduction. The Commission elaborates upon the previous requirement of the Guidelines that, after criminal conduct has been detected, the organization must take reasonable steps to respond appropriately and to prevent similar criminal conduct in the future. Specifically, newly added language to the Guidelines clarifies that an appropriate response to criminal conduct is to remedy the conduct’s harm through, for example, restitution to victims, and that the organization must assess its compliance program, potentially with the assistance of an outside professional advisor.

These recent changes appear to shift the inquiry from an organization’s high-level personnel to the effectiveness of its compliance and ethics program. The changes also clarify the reasonable steps that an organization must take to respond appropriately to criminal conduct and to prevent similar criminal conduct in the future. Organizations may, therefore, choose to tailor their approach to their compliance and ethics programs based on these modifications, unless Congress prevents the changes from taking effect on November 1, 2010.

*Raymond Banoun is the Managing Partner of the Washington, D.C. office of Cadwalader, Wickersham & Taft LLP, and head of the firm’s Business Fraud and Complex Litigation Practice; he represents corporations and their audit committees on all aspects of business fraud issues and advises them on corporate compliance and governance matters. Margaret Ryznar is a member of the Group.

The CIA & Liability For Rogue Employees

Many have been advocating for a "good faith" defense when a rogue employee does an act within the corporation that is diametrically opposed to company policy (see here).  There is an understanding that corporate compliance cannot control every action, and that on occasion the best of corporations will not be able to control the activities of an employee that goes beyond what the corporation authorizes.  The difficulty here is in deciding whether the corporation really allowed for this activity and then decided when caught that this was unauthorized, or whether the corporation truly had a corporate compliance program that tried to preclude this activity.

Place this backdrop on the recent disclosure that individuals may have destroyed videotapes that may have provided evidence of improper interrogation techniques by individuals, perhaps ones associated with the CIA. If there was an ongoing investigation into the interrogation methods being used, the destruction of evidence relevant to that investigation would be wholly improper and perhaps criminal. The first question will be whether there was an ongoing investigation, and whether these individuals were aware or should have been aware of that investigation.  If so, the destruction of possible evidence could be considered an obstruction of justice.

News reports say that white house counsel Miers and CIA lawyer Rizzo were "livid" and "upset" to learn of this destruction. (see Mark Mazzetti, NYTimes, C.I.A. Document Details Destruction of Tapes).  But the real question should be how could this have happened and what kind of compliance measures were in place to make certain that this would not happen. If this were a corporation, the fact that leaders were displeased with the activity of individuals within the entity would not serve to keep that entity from being held criminally liable of the conduct of the rogue employees.  

The CIA is not a corporation, but if the government is demanding that corporations are going to be subject to penalties for the acts of rogue employees, then they too must bear the same consequences when someone bypasses their internal directives.

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Well Done DOJ - StopFraud.gov

A DOJ Press Release announces the new website StopFraud.gov. It comes out of the Financial Fraud Enforcement Task Force.  DOJ describes it as, "a one-stop shop for the American people to learn how to protect themselves from fraud and to report it wherever - and however - it occurs. It will also serve as a hub of information about the task force’s work."

One finds on this website, a running list of news releases from DOJ that describe some of the criminal activities out there. It has clear tabs giving guidance on how to protect oneself from fraud and how to report fraud. It does exactly what is needed to meet the new generation of students by providing a tab with multimedia links that can help with education on identity theft, dealing with debt collectors, scams, and foreclosure scams.

This is first class website and should be recognized by everyone as a step forward in educating against fraud.

What needs to happen now is that middle school and high schools teachers need to look at this website and incorporate it into their lesson plans so that students can avoid being victims of fraud.

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In the News & Around the Blogopshere

DOJ Press Release, Two Houston-area Residents Convicted in Medicare Fraud Scheme Involving Fraudulent Claims of Hurricane Damage to Power Wheelchairs

Jenna Greene, BLT Blog, SEC Charges Goldman, Sachs with Fraud 

Mike Scarcella, law.com, Federal prosecutors seek testimony of company's lawyers in Ponzi scheme investigation 

Matt A Puzzi & Adam Goldman, AP, Yahoo News, Destruction of videotapes documented in CIA e-mail

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Former NSA Senior Executive Charged

A DOJ Press Release tells of a 10-count Indictment (Main Justice Blog has Indictment here) against a former senior National Security Agency official.  The charges include "the willful retention of classified information, obstruction of justice and making false statements."  The allegations are extremely serious - although he is not charged with leaking information, but rather the retention of national security information and then "short-cut" after the events type of offenses. 

The immediate question one has relates to motive.  If the allegations are true, why would a senior NSA official do this? There are no allegations of money being received by this individual.  Nor are there any allegations of political power as a motivation. The best one sees in this Indictment is a reference to a person A, a former congressional staffer, and Reporter A, from an unknown newspaper. With respect to Person A, the indictment states that the accused "had a self-described 'close, emotional friendship' and 'different and special' relationship with Person A that included the unauthorized disclosure of unclassified and classified information to Person A . . ."

So what was the motive for releasing this information to the press, if it in fact happened?  And was it a good motive?  This is definitely a case to follow.

See also Scott Shane, NYTimes, N.S.A. Official Facing Charges In Leaks Case

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In the News & Around the Blogosphere

Fox 8 News, AP, Former transit agency official in Cleveland sentenced to 8 years for corruption

CNN, Details of prosecution case against Blagojevich revealed

DOJ Press Release, Former ATF Agent Pleads Guilty to Making False Statements

DOJ Press Release, Costa Rica-Based Business Opportunity Fraud Operator Sentenced to 115 Months in Prison by Miami Judge

Mike Scarcella, BLT Blog, DOJ's Top Foreign-Bribery Prosecutor Heads to Paul Weiss

Mary Ellen Klas, Miami Herald, Florida Bill Would Give Attorneys MOre Tools Against Corrupt Officials 

DOJ Press Release, Former UBS Client Pleads Guilty to Hiding Assets in Secret Offshore Bank Accounts; UBS Client Pleads Guilty to Failing to Report Over $1 Million in Swiss Bank Accounts

Mike Scarcella, NLJ, law.com, DOJ: No Widespread Abuse of Prosecutors' Disclosure Obligations

DOJ Press Release,More Than $40 Million Worth of Gold, Silver and Jewelry Forfeited in International Money Laundering Case

DOJ Press Release,  Los Angeles Business Owner Pleads Guilty to Submitting Nearly Half a Million Dollars in False and Fraudulent Claims to Medicare

DOJ Press Release, Miami Beach Hotel Developers Charged with Conspiring to Defraud United States

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Tax, Tax, Tax

As April 15th was approaching, an increasing number of tax related cases were being prosecuted. Here are just a few recent DOJ Press Releases:

Former Hope, Idaho Resident Indicted on Tax Charges

Justice Department Sues to Stop Birmingham-Area Tax Return Preparers

U.S. Sues Missouri Lawyer to Halt Alleged Tax-Fraud Schemes

Phoenix Men Charged in Money Laundering and Tax Fraud Scheme

Idaho Businessman Pleads Guilty to Failure to Pay Employment Taxes

Ponzi Scheme Operator Pleads Guilty to Tax Charges

Justice Department Highlights Tax Enforcement Results

Will this deter future criminality?

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New Scholarship

James K. Robinson, Jeannine F. D'Amico & Anne Marie Helm, Recent Developments in Requiring Expert Testimony in Criminal Securities Fraud Cases

Michael Seigel, Corporate America Fights Back: The Battle Over Waiver of the Attorney-Client Privilege

Lisa Casey, Twenty-Eight Words: Enforcing Corporate Fiduciary Duties Through Criminal Prosecution of Honest Services Fraud

Amanda P. Reeves & Maurice E. Stucke, Behavioral Antitrust

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Justice Stevens on White Collar Issues

As everyone remarks on the forthcoming retirement of Justice Stevens from the Supreme Court bench, I have to include mention of two white collar crime decisions that he authored.  They show the breadth of his jurisprudence. 

First in 1992, he wrote the majority decision in Evans v. United States.  This Hobbs Act case came in the aftermath of the McCormick decision, a case that emphasized the need for a quid pro quo in extortion cases. Justice Stevens, in Evans, narrowed this doctrine finding that an affirmative act of inducement was not necessary. This one went to the prosecution.

In 2000, he authored the Court's decision in United States v. Hubbell. In this case Justice Stevens describes the "foregone conclusion" standard, holding it applicable to acts of production. With 13,120 pages of documents, he noted that "[t]he government cannot cure this deficiency through the overbroad argument that a businessman such as respondent will always possess general business and tax records that fall within the broad categories described in this subpoena."  This one went to the defense.

Justice Stevens will leave the Court with many noteworthy decisions that affect white collar cases, such as those in the sentencing sphere.  And his votes, including those in which he concurred or dissented are equally noted. We can hope that his replacement will offer the care and understanding to legal doctrine that he has provided.

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New Sentencing Resource for Federal Public and Community Defenders

Jennifer Niles Coffin and other members of the Sentencing Resource Counsel's Office have a wonderful new resource, and I vote it - very impressive - to assist with sentencing research. Here is how it was described to me:

"a website devoted to making available a large number of documents and materials from the Commission's public record that are not currently available on the Commission's website (and are otherwise difficult to obtain). These include nearly all public comment (including public comment regarding the initial guideline development process), written hearing testimony from early amendment cycles (and some others), hearing transcripts (before 1997), and various reports (including the mythical 1990 Firearms Working Group Report). The documents themselves are posted just as they appear in the records of the Sentencing Commission, and each document is fully searchable (although the site itself is not). The website address is https://src.fd.org/.

You can use these documents to figure out whether the provision was developed by the Commission in its characteristic institutional role, as the Sentencing Reform Act envisioned and as the Supreme Court has now re-emphasized. What comments did the Commission receive from stakeholders when it was contemplating the guideline or a subsequent change? What was said at the hearings? What did that staff report say? Because much of the administrative record is not available on the Commission's website (especially for the earlier amendment cycles), the answers to these questions have often remained mysteries.

You should think of this website as a library or repository for primary documents. The documents are arranged by category (public comment, transcripts, testimony, reports), so the website will be most useful when you have already targeted an amendment for an inquiry into its "legislative history" and you know the amendment cycle[s] in which the issue was under consideration. This information can be obtained by looking at the Historical Note in the Manual at the end of the guideline or policy statement at issue, then at the "Reason for Amendment" in Appendix C.

In addition, the Commission publishes every proposed and final action in the Federal Register. To find the administrative record of proposed amendments that were not adopted, or to find out whether the language of a proposed amendment evolved after the public comment period, search the Federal Register database on Westlaw or LEXIS for any notice of proposed amendments to the guideline or policy statement at issue. Then go to https://src.fd.org/ (and the Commission's website, as appropriate) to examine the relevant materials."

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Another Ponzi Scheme Sentence - 50 Years for Petters

Charles Ponzi, for the scheme named after him, received a sentence of five years. Ponzi's sentence was given after he pleaded guilty in 1920 to one count of mail fraud.  More recently Bernie Madoff received a 150- year sentence after a plea for activities related to a Ponzi scheme.  Another recent Ponzi scheme netted the defendant a 100-year sentence (see here).  This past week there is another sentence to add to the list of long sentences for Ponzi schemes. Tom Petters received a sentence of 50 years.  See Annalyn Censky, CCN, Tom Petters gets 50 years for Ponzi scheme;David Phelps & Dan Browning, StarTribune,com, Tom Petters is sentenced to 50 years in prison

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Third Circuit Says No to DOJ Stretching & "Musical Chairs"

In the Third Circuit Court of Appeals decision, U.S. v. Schiff, the court stated:

"Frederick Schiff and Richard Lane were high-ranking corporate executives at the pharmaceutical giant Bristol-Myers Squibb ("Bristol"). They were criminally indicted for allegedly orchestrating a massive securities fraud scheme related to Bristol’s wholesale pharmaceutical distribution channels in the early 2000s, in violation of, inter alia, 15 U.S.C. § 78j(b) and Securities and Exchange Commission ("SEC") Rule 10b-5. The Government filed this interlocutory appeal in response to the District Court’s March 19, 2008 opinion that addressed several contested theories of liability as well as expert witness issues under Daubert v. Merrell Dow Pharms., Inc., 509 U.S. 579 (1993).1 On appeal are two issues: (1) whether the DistrictCourt properly dismissed the Government’s theories of omission liability under Rule 10b-5 that attempted to hold Schiff accountable for omissions in quarterly SEC 10-Q filings based on his and Lane’s alleged misstatements in Bristol’s quarterly conference calls; and (2) whether the District Court abused its discretion in excluding the Government’s expert, following a Daubert hearing, who would have testified to Bristol’s stock price drop as evidence of Rule 10b-5’s materiality element. Because we agree that the Government’s omission liability theories are not viable, we affirm the District Court’s dismissal of these theories. As to the expert testimony, we conclude that the District Court’s ruling excluding the Government’s materiality expert was not an abuse of discretion." (footnote omitted)

A telling line from the decision -

"Throughout the pretrial proceedings, and even in this appeal, the Government has engaged in a game of musical chairs with their pursuit of changing legal theories under Rule 10b-5."

See also Jonathan Stempel, Reuters, Bristol-Myers ex-CFO wins ruling in criminal case

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In the News & Around the Blogosphere

John Grobler, NYTimes, 3 Plead Not Guilty to Corruption in Namibia

Rick Everett, NJ.com, Parsippany developer's federal trial on bribery charges remains on hold

DOJ Press Release, Clinic Manager and Patient Recruiter Plead Guilty for Roles in $2 Million Medicare Fraud Scheme

DOJ Press Release, Ponzi Scheme Operator Pleads Guilty to Tax Charges

Jennifer Lebovich, David Ovalle & Charles Rabin, Miami Herald, Miami Police Announce Arrests of 8 People, Including 3 Cops

Zachary A. Goldfarb, Washington Post, SEC proposes tighter rules on securities that helped fuel financial crisis

Stephanie Woodrow, Main Justice,Miami Banker Can Pursue Case Against DOJ

Mark Fass, NYLJ, law.com, N.Y. Lawyers Charged in $10 Million Mortgage Fraud Scheme

Mary Flood, Houston Chronicle, Judge allows Stanford to change lawyers one more time (hat tip to Ivan Dominguez)

Ken Stier, Time,U.S. Cashes In on Corporate Corruption Overseas

Laurie L. Levenson, National LJ, Interference with potential defense witnesses -Prosecutors are increasingly being admonished or penalized for trying to stop or influence such testimony

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In the News & Around the Blogopshere

Kerri Panchuk, Dalllas Business Journal, City Hall corruption defendant sentenced to 24 months; Houston Chronicle, AP, Man sentenced to 2 years in corruption case

Peter Henning, NYTimes, Mark Cuban’s Grudge Match With the S.E.C.

LATimes, Bloomberg News, Two Daimler units settle bribery case; Christopher M. Matthews, Main Justice, Daimler Settles FCPA Charges, Owes $185 Million

AP, MercuryNews.com, Commerce councilman arrested for [alleged] corruption

Michael J. Jordan, Christian Science Monitor, Bulgaria steps up its crackdown on government corruption

Mike Scarcella, BLT Blog, No Ethics Charges Filed Against Lawyer in Ted Stevens Case

Elaine Silvestrini, Tampa Tribune, Ponzi scheme suspect commits suicide, Clearwater police say 

Zachary A. Goldfarb, Washington Post, SEC may require more details of wrongdoing to be disclosed in settlements

Juan A. Lozano, law.com (AP), Jailed Financier Stanford Wants New Attorney

DOJ Press Release, Former Contractor Indicted in Bid-Rigging Conspiracy at New Yoork City Hospital and for Tax Fraud

Washington Post (Reuters), Afghanistan seeks arrest of ex-minister over graft

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