Tuesday, December 31, 2013

2013 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 2013:

The Collar for Sweeping Things Under the Rug - To the Ninth Circuit's En Banc majority in U.S. v. Olsen which swept another Brady violation under the rug of immateriality

The Collar for Least Bang for the Buck - To Rajat Gupta for spending over 30 million on a conviction and jail sentence 

The Collar for the Best Game of Hide and Seek – To the DOJ for having to be sued for its lack of transparency in Non-Prosecution Agreements

The Collar for the Most Missed Math Questions - To those trying to interpret sentencing guideline 2B1.1

The Collar for Kicking the Constitution the Most Times – To prosecutors who ask for greater penalties for defendants, like Kevin Ring, who exercise their Sixth Amendment right to a jury trial

The Collar for the Most Likely to be Indicted - Your choices are: Governor, Senator, Mayor, recreational pot smoker (unless you're in Colorado), penny-ante mortgage broker

The Collar for the Worst Continuing Political Prosecution – To the Travis County District Attorney's Office which brought the indictment against Tom Delay that was reversed, and then promptly filed a petition for discretionary review with the Texas Court of Criminal Appeals

The Collar for the Next Pending Legal Dilemma – To jurists deciding whether extraterrestrial is included within extraterritoriality

The Collar for an Arrow Least Likely to Hit a Bullseye – To allegations that the IRS Engaged in Targeting of organizations entitled to tax exempt status

The Collar for Stonewalling - To the IRS for its Congressional Investigation Evasion

The Collar for Destroying Another Country's Growth Industry – To the DOJ for its U.S.- Swiss Tax Evasion Cases

The Collar for the Most Likely to Strip the Government of Power – To judges who start scrutinizing corporate pleas

The Collar for Who Missed the Most Law School Exam Questions on Discovery Even When the Answer Was Provided in Advance – To DOJ Attorneys

The Collar for the Most Willful Blindness – To Prosecutors and jurists who misinterpret the Supreme Court’s decision in Global-Tech

The Collar for the Best Houdini Imitation - To Steven A. Cohen for escaping a personal indictment

The Collar For Breaking the Rubber Band When It Was Stretched to Far -  To DOJ for its Hobbs Act prosecution in Sekhar v. United States

The Collar for Recognizing that the Criminal Justice System is Broken – To AG Holder in his comments on the 50th Anniversary of Gideon

The Collar for Best Newspeak (aka Baron Munchausen Collar) - To DOJ and DEA for using the term "parallel investigation" as a substitute for "pervasive government lies"

The Collar for Disappearing Ink - To DOJ for its failure to post anything critical of the Ted Stevens prosecution team on its own website

The Collar for the Best Child– to Don Siegelman’s daughter who continues to fight to Free Don

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, may he rest in peace.

(wisenberg), (goldman), (esp)

December 31, 2013 in About This Blog | Permalink | Comments (0) | TrackBack (0)

Friday, December 27, 2013

Judge Rakoff Wades In

In the current New York Review of Books, Judge Jed Rakoff presents the most thoughtful, balanced analysis I have seen to date regarding DOJ's failure to prosecute high-level executives at elite financial institutions in connection with the recent financial crisis. Appropriately entitled, The Financial Crisis: Why Have No High Level Executives Been Prosecuted?, Judge Rakoff is careful not to point fingers, rush to judgment, or even allege that fraud has definitively been established. And that's a big part of the DOJ's problem. How can you establish fraud if the effort to investigate it has been haphazard and understaffed from the outset? Rakoff is someone worth listening to. An unusually thoughtful federal district judge, he has presided over many significant securities and bank fraud cases, served as chief of the Securities Fraud Unit in the SDNY U.S. Attorney's Office,  and worked as a defense attorney. Oh yeah. He also hates the Sentencing Guidelines. 

Among the many theories Rakoff posits for the failure to prosecute what, it bears repeating, only may have been fraud, are two that I take issue with. These investigations were apparently parceled out to to various OUSA districts, rather than being concentrated in the SDNY. Judge Rakoff believes that the SDNY would have been the more logical choice, as it has more experience in sophisticated fraud investigations. This may be true as a general proposition. But the most plausible historical fraud model for the mortgage meltdown-fueled financial crisis is the Savings & Loan Scandal of the late 1980s, so successfully prosecuted by DOJ into the mid-1990s. The SDNY had very little of that action.

Judge Rakoff also notes the government's role in creating the conditions that led to the current crisis as a potential prosecution pitfall. But this did not stop the S&L prosecutors from forging ahead in their cases. Back then, virtually every S&L criminal defendant claimed that the government had created that crisis by establishing, and then abandoning, Regulatory Accounting Principles, aka RAP. (One marked difference between the two scandals is that the S&L Scandal was immediately met with public outrage and a sustained Executive Branch commitment to investigate and prosecute where warranted. The sustained Executive Branch commitment has not happened this time around, for whatever reason.)

But these are minor quibbles and Judge Rakoff is spot on in most of his observations.

Judge Rakoff is right to reject the "revolving door" theory of non-prosecution. Any prosecutor worth his salt would love to make a name for himself, and would definitely enhance his private sector marketability, by winning one of these cases. Judge Rakoff also correctly notes that these cases are hard and time-consuming to investigate.

The judge's most salient point has nothing to do with the various theories for DOJ's failure to prosecute. Instead, it is his observation that there is no substitute for holding financial elites responsible for their major criminal misdeeds. The compliance and deferred prosecution agreements favored today are simply a cost of doing business for most big corporations. What's worse, in the current environment, DOJ is giving a walk to elite financial actors and simultaneously prosecuting middle-class pikers with a vengeance that is sickening to behold. The elite financial actors may not have committed criminal fraud, but many of them bear heavy responsibility for the ensuing mess. It is so much easier for DOJ to rack up the stats by picking the low hanging fruit.

The one thing Judge Rakoff cannot do, and does not try to do, is answer the question of whether criminal fraud occurred in the highest sectors of our financial world. The answer to that question can only be supplied, at least as an initial matter, by the AUSA in charge of each investigation. And if no prosecution occurs, you and I are unlikely to ever know the reason why.


December 27, 2013 in Fraud, Investigations, Judicial Opinions, Mortgage Fraud, Prosecutions, Prosecutors, Securities | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 18, 2013

Judge Kozinski's Dissent Scolds The Ninth Circuit's Majority On Brady/Giglio

What a marvelous dissent by Chief Judge Alex Kozinski, joined by judges Pregerson, Reinhardt, Thomas, and Watford, in United States v. Olsen. He dissented from the Ninth Circuit's refusal to rehear en banc the panel decision which excused an appalling example of Brady/Giglio error as immaterial. As Judge Kozinski so eloquently put it: "There is an epidemic of Brady violations abroad in the land. Only judges can put a stop to it." 


December 18, 2013 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Monday, December 16, 2013

Solomon Wisenberg Moves to Nelson Mullins Riley & Scarborough LLP

Congratulations to co-blogger Solomon L. Wisenberg who has gone to lead the white collar practice at Nelson Mullins Riley & Scarborough LLP.   Check out Sol's Nelson Mullins web bio here.


December 16, 2013 in About This Blog, Defense Counsel | Permalink | Comments (0) | TrackBack (0)

Saturday, December 14, 2013

Fourth Circuit Extends Required Records Exception to Foreign Bank Accounts

Yesterday, in U.S. v. Under Seal (4th Cir. 2013), the Fourth Circuit, joining several other federal circuits, extended the Fifth Amendment's Required Records Exception to records of foreign bank accounts required to be maintained pursuant to the Bank Secrecy Act ("BSA"). John and Jane Doe received a subpoena to turn over records of their Swiss bank accounts. They responded that complying with the subpoena compelled them to testify against themselves, as they were required to create and maintain such records pursuant to the BSA. They also argued that the long-standing, judicially-created, Required Records Exception did not apply in this case, because the BSA's record-keeping provisions are essentially criminal, rather than regulatory, in nature. The district court disagreed, the Does took civil contempt, and an appeal ensued. Unsurprisingly, the Fourth Circuit sided with the government, accepting its argument that the BSA's record-keeping provisions are essentially regulatory in nature. You are shocked? There's not exactly a strong constituency, public or judicial, for foreign bank account tax evasion. 


December 14, 2013 in Antitrust, International, Investigations, Judicial Opinions, Prosecutions, Prosecutors, Qui Tam, Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, December 12, 2013

Second Circuit Reverses Convictions, Rejecting Government’s Expansive “Continuing Conspiracy” Theory

Guest Blog by -  Sara Kropf, Law Offices of Sara Kropf; Grand Jury Target Blog

The Second Circuit recently reversed the convictions of three defendants convicted in a municipal bond bid-rigging scheme, rejecting the government’s attempt to rely on an attenuated theory of continuing conspiracy. The three defendants were immediately released from prison and the indictment was dismissed. The opinion sets a much-needed limit on the government’s unfettered use of the continuing conspiracy theory to avoid the statute of limitations.

Background: The World of Municipal Bond Taxes

The case involves the somewhat esoteric world of municipal bond taxes. Municipalities issue bonds. Because the bond funds are usually used for long-term projects, municipalities often do not spend the bond funds immediately.

To earn additional revenue from the funds, the municipal bond issuer may invest in “guaranteed investment contracts” (“GICs”) provided by financial institutions, such as GE (called a “provider”). GICs pay predetermined interest payments to the municipality, providing an additional source of income. Municipalities must rebate to the Treasury any interest earned over bond interest rate.

The tax code has certain provisions to prevent arbitrage in GICs. Important here, municipalities must determine the “fair market value” of the GIC. This is difficult because, as the Second Circuit noted, “GICs are not regularly traded.”

To ease the burden on municipalities, IRS regulations provide for a safe harbor to the “fair market value” calculation if the municipality holds a competitive bidding process among GIC providers. Third-party brokers solicit blind bids from several providers. The bidders do not know who else is bidding or the rates of interest being offered by their competitors.

The Defendants’ Role

Three defendants  worked for a unit of GE that provided GICs. One left in 2001 to work with a company called Financial Security Assurance, Inc. Between 1999 and 2004, “the Defendants (on behalf of their employers GE and FSA) agreed to pay kickbacks to three brokers . . . and the brokers obliged by rigging the bidding process in several ways.” For example, the broker would disclose the amount of other bids or keep other bidders off the bid list.

The kickbacks helped GE and FSA win bids to provide GICs to municipalities at a lower interest rate. This, in turn, potentially affected whether any interest payments would be rebated to Treasury. According to the Second Circuit, “each deal defrauded the municipality, the Treasury, or both.”

The Indictments

On July 27, 2010, a grand jury returned an indictment. A superseding indictment was then returned for one count of wire fraud and six counts of conspiracy.

The defendants moved to dismiss on statute of limitations grounds. The district court granted the motion as to the substantive wire fraud count but refused to dismiss the conspiracy counts. It reasoned that as long as unindicted co-conspirators GE and FSA made interest payments on the GICs, the conspiracy was continuing.

The defendants were convicted after a three week-trial and three days of deliberations.

The Second Circuit’s Reversal

The Second Circuit reversed, in an opinion authored by Judge Jacobs. United States v. Grimm, No. 12-4310. Judge Kearse dissented.

The applicable statute of limitations for general conspiracy is five years and for conspiracy to commit tax fraud is six years. The court noted that although the indictment listed 55 overt acts, the only ones within either limitations period “were the periodic interest payments made by providers to issuers pursuant to the GICs.”

The court explained that only acts within the scope of the conspiracy could be properly considered in the statute of limitations analysis. The indictment alleged two purposes—the defendants sought to (1) “deprive issuers of money by causing them to award investment agreements at artificially determined or suppressed rates . . . “ and (2) to impede the government’s collection of tax revenue.

The court relied heavily on United States v. Salmonese, 352 F.3d 608 (2d Cir. 2003). That case held that a co-conspirator’s receipt of profits from a financial instrument that was part of the fraud was an overt act in furtherance of the conspiracy because it was part of the co-conspirators’ “anticipated economic benefits.” But Salmonese also explained that the conspiracy ends if the “payoff merely consists of a lengthy, indefinite series of ordinary, typically noncriminal, unilateral actions . . . and there is no evidence that any concerted activity posing the special societal dangers of conspiracy is still taking place.”

The Second Circuit explained that Salmonese’s list of factors was not exclusive. It provided a more general enunciation of the rule:

[G]enerally, overt acts have ended when the conspiracy has completed its influence on an otherwise legitimate course of common dealing that remains ongoing for a prolonged time, without measures of concealment, adjustment or any other corrupt intervention by any conspirator.

Here, the court concluded, the GIC payments satisfied this rule and therefore were not within the scope of the conspiracy. The payments were indefinite (because they were “prolonged beyond the near future); they were ordinary (part of a commercial obligation); and they were made unilaterally (by the provider).

The court held that the interest payments were the “result of a completed conspiracy” and not “in furtherance of one that is ongoing.” It noted that there was no indication that making the payments prolonged the conspiracy in any way. Because the payments were not overt acts in furtherance of the conspiracy, the government could not rely on them to satisfy the statute of limitations.

The Limits

Because white collar indictments frequently arise out of complex, long-term financial instruments (and are often the result of lengthy government investigations), the Grimm opinion is of note. The opinion announces a general rule that may be application to other financial fraud cases. And, of course, it is a refreshing change to see a court limit the government’s use of the continuing conspiracy theory. Every minor ripple effect of a conspiracy should not be used to excuse the government’s failure to bring a case within the already lengthy limitations period.


December 12, 2013 in Judicial Opinions | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 3, 2013

DOJ Transparency in Deferred Prosecution Agreements

Check out Mike Scarcella's BLT Blog item, Justice Dept. Sued Over Access to Non-Prosecution Agreement.  It is hard to believe that someone would have to file a lawsuit to obtain information about a non-prosecution agreement of a corporation.  One can understand the need to protect individuals from the sting of criminality when an agreement is reached to defer a prosecution or when an individual is being spared a prosecution as an alternative method to rehabilitate that individual.  But corporations are not afforded the same rights as individuals. The government is quick to note that corporations do not have the same rights as individuals when they are trying to obtain corporate documents. 


December 3, 2013 in Deferred Prosecution Agreements, News | Permalink | Comments (0) | TrackBack (0)

Monday, December 2, 2013

In the News & Around the Blogosphere