Wednesday, July 30, 2014
Amanda Bronstad, NLJ, Indictments for Two Former Attorneys General in Utah
Oral Argument in the 11th Circuit on Don Siegleman, former governor, postponed to October 13, 2014 - two issues: 1)sentencing; 2) conflict of interest
Matt Zapotosky & Rosalind S. Helderman, Washington Post, Jury chosen in McDonnell corruption case
Friday, July 25, 2014
In re Kellogg Brown & Root – Privilege, Internal Investigations, and International White Collar Crime – Part II of II
In last week’s post, I discussed the recent case of In re Kellogg Brown & Root (“KBR”) from the perspective of privilege issues and internal investigations generally. Today, I would like to focus our consideration of the KBR case on international investigations and privilege issues.
In the KBR matter, a whistleblower alleged that the defense contractor defrauded the government by “inflating costs and accepting kickbacks while administering military contract in wartime Iraq.” During the whistleblower’s case, he sought discovery of materials from an internal investigation of the matter previously conducted by KBR. As discussed last week, the U.S. Court of Appeals for the District of Columbia Circuit concluded that the whistleblower was not entitled to the materials, stating that the “same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.”
In rendering its opinion, the DC Circuit offered several important clarifications regarding the applicability of the attorney-client privilege to internal investigations. One of those was to note that Upjohn v. US (1981) does not require the involvement of outside counsel for the privilege to apply.
From In re KBR:
First, the District Court stated that in Upjohn the internal investigation began after in-house counsel conferred with outside counsel, whereas here the investigation was conducted in-house without consultation with outside lawyers. But Upjohn does not hold or imply that the involvement of outside counsel is a necessary predicate for the privilege to apply. On the contrary, the general rule, which this Court has adopted, is that a lawyer’s status as in-house counsel “does not dilute the privilege.” In re Sealed Case, 737 F.2d at 99. As the Restatement’s commentary points out, “Inside legal counsel to a corporation or similar organization . . . is fully empowered to engage in privileged communications.” 1 RESTATEMENT § 72, cmt. c, at 551.
While this is accurate with regard to domestic internal investigations, one must be cognizant of the fact that various jurisdictions around the globe interpret the privilege differently. When an internal investigation crosses borders, a failure to examine the breadth and scope of attorney-client privilege protections in the relevant jurisdictions could unexpectedly expose vast quantities of materials to production or seizure.
Take for example, the case of Akzo Nobel Chemicals Ltd. v. European Commission (European Court of Justice 2010). The case involved an antitrust investigation during which a dawn raid was carried out on Akzo’s Manchester, England, offices. During the raid, two emails were seized. The emails were an exchange regarding relevant antitrust issues between a general manager and the company’s in-house counsel. Despite the fact that such communications would almost certainly be privileged under U.S. standards and the ruling in In re KBR, the European Court of Justice rejected Akzo’s position that the emails were protected under the EU rules of privilege. Relying on an earlier ruling, the European Court of Justice reiterated that in EU investigations the attorney-client privilege only applies where (1) the communication is given for purposes of the client’s defense and, (2) the communication is with an independent lawyer, which does not including in-house counsel. See AM&S v. Commission (European Court of Justice 1982). The Akzo court went on to state, “It follows, both from the in-house lawyer’s economic dependence and the close ties with his employer, that he does not enjoy a level of professional independence comparable to that of an external lawyer.”
While such a limited application of the attorney-client privilege will not be present in every jurisdiction encountered during an international internal investigation, it is an important issue to consider both when structuring and conducting such inquiries in a cross-border setting.
For more on the dynamics of international internal investigations, see my recent article entitled International White Collar Crime and the Globalization of Internal Investigations (Fordham Urban Law Journal), available for free download here.
Sunday, July 20, 2014
I enjoy studying upward variance opinions, as they usually contain language and rules that can be used by the defense to support downward variances in other cases. This is true because, whatever specific factors are discussed, federal appeals courts typically speak of what justifies such variances in general terms, not distinguishing between upward and downward excursions. United States v. Ransom, decided earlier this month by the D.C. Circuit in an opinion by Judge David Sentelle, is no exception. Chester Ransom and Bryan Talbott each pled guilty to a fraud scheme and stipulated to a non-binding Guideline range of 46-57 months. The sentencing court calculated Ransom's range at 46-57 months but upwardly varied to a 72 month sentence. The court calculated Talbott's range at 63-78 months but upwardly varied to a 120 month sentence.
The Court initially held that Ransom's upward variance for lack of remorse was not inconsistent with the three point downward adjustment he received for acceptance of responsibility under Section 3E1.1(a) and (b). The Court in essence stated that one can plead guilty early and cooperate with the government without showing any remorse.
Next the Court rejected appellants' argument that the sentencing court improperly relied on factors in varying upward that the Guidelines had already accounted for. Joining some sister circuits the Court held (internal quotes and citations omitted) that:
It is not error for a district court to enter sentencing variances based on factors already taken into account by the Advisory Guidelines, in a case in which the Guidelines do not fully account for those factors or when a district court applies broader [Section] 3553(a) considerations in granting the variance.
As anyone who does federal sentencing work knows, those broader 3553(a) factors are often the key to obtaining a downward variance if the court is otherwise inclined to do so. To take one example, in the Mandatory Guidelines era it was almost impossible to obtain a downward departure based on family circumstances, but they can, and must, at least be "considered" by the sentencing court under the current regime. Believe it or not, not every district judge comprehends this simple rule. Ergo, it is nice to have additional case law on one's side.
Friday, July 18, 2014
In re Kellogg Brown & Root – Privilege, Internal Investigations, and International White Collar Crime – Part I of II
I am honored to join Ellen Podgor, Lawrence Goldman, and Solomon Wisenberg as a blogger on the White Collar Crime Prof Blog. My focus on the blog will be matters related to internal investigations and international white collar crime.
To get us started, let’s take a quick look at a new case that relates to both of these topics – In re: Kellogg Brown & Root, Inc., et al.
As readers of this blog will no doubt recall, the U.S. Supreme Court held in 1981 that attorney-client privilege protections may apply to internal corporation investigations. See Upjohn Co. v. United States, 449 U.S. 383 (1981). The Court stated:
The attorney-client privilege is the oldest of the privileges for confidential communications known to the common law. Its purpose is to encourage full and frank communication between attorneys and their clients, and thereby promote broader public interests in the observance of law and administration of justice. The privilege recognizes that sound legal advice or advocacy serves public ends and that such advice or advocacy depends upon the lawyers being fully informed by the client.
Despite the strong language in the Upjohn case, a U.S. District Court in Washington, DC ruled that a whistleblower at Kellogg Brown & Root (“KBR”), a defense contractor, was entitled to production of documents related to an internal investigation. The lower court concluded that the internal investigation was “undertaken pursuant to regulatory law and corporate policy rather than for the purpose of obtaining legal advice.”
Last month, the U.S. Court of Appeals for the District of Columbia Circuit overruled that lower court decision in the case of In re: Kellogg Brown & Root, Inc., et al. (Decided June 27, 2014). The court concluded that the “same considerations that led the Court in Upjohn to uphold the corporation’s privilege claims apply here.”
In overruling the lower court’s decision, the DC Circuit offered several important clarifications regarding the applicability of the attorney-client privilege to internal investigations. First, the court clarified that Upjohn does not require the involvement of outside counsel for the privilege to apply. Second, the court noted that the privilege may apply even when many of the employee interviews are conducted by non-attorneys, as long as those interviewers are serving as the agents of attorneys. Third, the court explained that even though the employees in the KBR case were not explicitly informed that the purpose of the interviews were to assist the company in obtaining legal advice, Upjohn does not require any “magic words” for the privilege to apply. Further, the court noted that the employees in the KBR case knew that the company’s legal department was conducting an investigation and that the investigation was highly confidential.
Finally, and, perhaps, most importantly, the court rejected the lower court’s argument that the attorney-client privilege did not apply in this investigation because KBR was acting to comply with Department of Defense regulatory requirements, not to obtain legal advice. In ruling on the matter, the appeals court stated, “So long as obtaining or providing legal advice was one of the significant purposes of the internal investigation, the attorney-client privilege applies, even if there were also other purposes for the investigation and even if the investigation was mandated by regulation rather than simply an exercise of company discretion.” This is important language from the court, particularly given the increasing regulatory compliance obligations imposed on corporations and the fact that many internal investigations today are instigated at the behest of the government. See e.g. Computer Associates – discussed here and here.
In my next post, we’ll consider how the In re: KBR case fits into the larger legal framework of international internal investigations. In particular, we’ll examine whether attorney-client privilege extends to internal investigations undertaken solely by internal counsel when the investigation extends outside the United States.
Welcome to Professor Lucian Dervan, who is joining the White Collar Crime Prof Blog. Professor Dervan is a professor of Southern Illinois School of Law, where he also serves as the Director of Faculty Development. A prolific scholar, Professor Dervan is also a member of the Advisory Committee of the NACDL White Collar Criminal Defense College at Stetson.
Wednesday, July 16, 2014
As my editor, Ellen Podgor, noted last week (see here), the winning streak in insider trading cases of the U.S. Attorney's Office for the Southern District of New York ended with the jury's acquittal of Rengan Rajaratnam, the younger brother of Raj Rajaratnam, who was convicted of insider trading in 2011 and sentenced to eleven years in prison.
The U.S. Attorney has done an excellent job in prosecuting insider trading, securing convictions by plea or trial of 81 of the 82 defendants whose cases have been concluded in the district court. The office has appropriately targeted primarily professional financial people who seek or provide insider information rather than those incidental offenders who by chance have received or provided insider tips and taken advantage of their knowledge. A few of these trial convictions, however, appear to be in jeopardy. At oral argument in a recent case the Second Circuit Court of Appeals seemed sympathetic to the contention that a trader may not be found guilty unless he knew that the original information came from a person who had received a benefit, and not only had violated a fiduciary duty of secrecy. Judge Naomi Reice Buchwald, who presided over the Rajaratnam case, agreed with that contention and thereupon dismissed two of the three counts.
Whether the prospective Second Circuit ruling, if it comes, will make good public policy is another matter. Insider trading (which fifteen years ago some argued should not be a crime) is, or at least was, endemic to the industry. Presumably, the U. S. Attorney's successful prosecutions have had a positive step in putting the fear of prosecution in traders' minds. Such deterrent to a particularly amoral community seems necessary: a recent study demonstrated that twenty-four percent of the traders interviewed admitted they would engage in insider trading to make $10 million if they were assured they would not be caught (the actual percentage who would, I suspect, is much higher). See here.
The latest Rajaratnam case, indicted on the day before the statute of limitations expired, was apparently not considered a strong case by some prosecutors in the U.S. Attorney's Office. See here and here. Indeed, jurors, who deliberated four hours, described the evidence as "no evidence, period" and asked "Where's the evidence?" That office nonetheless did not take this loss (and generally does not take other losses) well. It was less than gracious in losing, making a backhanded slap at Judge Buchwald, a respected generally moderate senior judge. A statement by the U.S. Attorney Preet Bharara noted, "While we are disappointed with the verdict on the sole count that the jury was to consider, we respect the jury trial system . . . ." (Italics supplied.)
Southern District judges, generally out of deference to and respect for the U.S. Attorney's Office, whether appropriate or undue, rarely dismiss entire prosecutions or even counts brought by that office, even in cases where the generally pro-prosecution Second Circuit subsequently found no crimes. See here. It is refreshing to see a federal judge appropriately do her duty and not hesitate to dismiss legally or factually insufficient prosecutions.
Such judicial actions, when appropriate, are particularly necessary in today's federal system where the bar for indictment is dropping lower and lower. The "trial penalty" of a harsher sentence for those who lose at trial, the considerable benefits given to cooperating defendants from prosecutors and judges, and the diminution of aggressiveness from a white-collar bar composed heavily of big firm former federal prosecutors have all contributed to fewer defense challenges at trial and lessened the prosecutors' fear of losing, a considerable factor in the prosecutorial decision-making process. Acquittals (even of those who are guilty) are necessary for a balanced system of justice.
Lastly, it is nice to see a major victory by a comparatively young (43) defense lawyer, Daniel Gitner of Lankler, Siffert & Wohl, an excellent small firm (and a neighbor), in a profession still dominated by men in their sixties or seventies.
David Gerger just joined Quinn Emanuel Urquhart & Sullivan, LLP with the opening of their office in Houston. (see here) Gerger will be the managing partner of the new Houston office. He will be joined by Shaun Clarke, who will become Special Counsel and Co-chair of the Houston office’s white collar group. Also joining the firm will be Dane Ball, Sammy Khalil and David Isaak, who will be Of Counsels to the firm.
Gerger, a top white collar practitioner, has handled cases across the United States including matters related to Enron and the BP Deepwater Horizon oil spill. David Gerger has also taught as part of the NACDL White Collar Criminal Defense College at Stetson.
Sunday, July 13, 2014
Mark Whitacre, the informant from the ADM scandal, tells his story in an Essay in 45 Loy. U. Chi. L.J. 525 (2014). He discusses three paradigms in white collar cases, including how he and "top executives (my supervisors) at ADM were very focused on the short term when we should have been focused on the long term." He discusses how he ended up in prison, despite being a whistleblower, and how he chose going to trial as opposed to taking a plea. He ends the Essay with some advice, including the importance of work-life balance.
Tuesday, July 8, 2014
Matthew Goldstein & Rachel Abrams, NYTimes, Jury Clears Rengan Rajaratnam in Insider Trading Case
Chrsitopher M. Matthews, WSJ, Jury Acquits Rengan Rajaratnam in Insider-Trading Case
Nate Raymond & Joseph Ax, Reuters, Rengan Rajaratnam cleared, U.S. insider trading streak snapped
He was represented by Daniel M. Gitner of Lankler, Siffert & Wohl LLP.
Friday, July 4, 2014
Guest Blogger - Jon May
In United States v. Miller, 425 U.S. 435, 96 S.Ct. 1619 (1976) the Supreme Court held that a depositor does not have a reasonable expectation of privacy in the records of his account maintained by a bank pursuant to the Bank Secrecy Act. Justice Powell, writing for the majority of the Court, reasoned that there was no expectation of privacy in the contents of a bank record. According to Justice Powell, “checks are not confidential communications but negotiable instruments to be used in commercial transactions.” Specifically, “financial statements and deposit slips, contain only information voluntarily conveyed to the banks and exposed to their employees in the ordinary course of business.” As such, “The depositor takes the risk, in revealing his affairs to another, that the information will be conveyed by that person to the Government.” Id. at 443-444.
In so holding, the Court did not consider the extent to which the government can obtain information about a person’s most confidential affairs through an analysis of bank account records. But such an analysis was made by Justice Roberts, speaking for a unanimous Court in Riley v. California, which held that the Fourth Amendment prohibits the government from examining the contents of a person’s cell phone absent a warrant.
In Riley Justice Robert’s rejected the government’s argument that an individual did not enjoy an expectation of privacy in those records maintained in electronic devices carried on the person. In so holding, Justice Roberts analyzed the expectation of privacy in a very different way than did Justice Powell. According to Justice Roberts, the arrest of an individual may diminish the person’s expectation of privacy, but it does not do away with it entirely. Slip op. at 20. Justice Roberts pointed out that cell phones are mini-computers which just “happen to have the capacity to be used as a telephone.” This gives people the ability to lug around “every picture they have taken, or every book or article they have read” without the need to schelp around the kind of trunk that the Court would require a search warrant to search under Chadwick.
Seizing the contents of a cell phone gives the government the ability to reconstruct the sum of an individual’s private life, “reconstructed through a thousand photographs labeled with dates, locations, and descriptions….” Justice Roberts observed that while “A person might carry in his pocket a slip of paper reminding him to call Mr. Jones; he would not carry a record of all his communications with Mr. Jones for the past several months, as would routinely be kept on a phone. Id. at 23. Indeed, “it is no exaggeration to say that many of the more than 90% of American adults who own a cell phone keep on their person a digital record of nearly every aspect of their lives—from the mundane to the intimate.” Id.
For example, the government could readily learn everything about an individual’s “private interests or concerns—perhaps a search for certain symptoms of disease, coupled with frequent visits to WebMd.” Further, “Data on a cell phone can also reveal where a person has been.” Id. As a result a person’s “specific movements down to the minute, not only around town but also within a particular building,” could be uncovered. Id. at 24. A mere examination of the “apps” found on a cell phone could reveal whether a person was a Democrat or a Republican, whether they had an addiction, or were pregnant, etc. Id.
Almost everything that can be said regarding the violation of an individual’s privacy resulting from the government’s search of the person’s cell phone can be said about a search of a person’s bank accounts. You can even trace their movements through time through their credit card charges. Consequently to the extent that it is reasonable for society to expect that the government have a search warrant or a grand jury subpoena as a condition of invading that zone of privacy, the same could be said of searches of an individuals banking records. It appears that this sort of argument, which would have fallen on deaf ears 15 years ago, may find a receptive ear in the courts today. Lawyers may wish to argue now that Miller’s narrow view of society’s expectations regarding privacy are no longer valid.
Wednesday, July 2, 2014
BNP Paribas Conviction Commendable, But Length of Investigation and Failure to Prosecute Individuals Raise Questions
Both the Department of Justice (DOJ) and the District Attorney of New York County (DANY) deserve commendation for the criminal conviction of France's largest bank, BNP Paribas, and the securing of penalties of approximately $9 billion (including $2.25 billion to New York State's bank regulatory agency, the Department of Financial Services), and, for the first time, a seemingly not insignificant collateral sanction imposed by a regulator (although how significant remains to be seen). BNP for ten years falsified transactions in order to be able to use the American banking system to do business with Sudan, Iran and Cuba, countries deemed rogue states by the U.S. government (but not necessarily by France). See here. While I accept that those crimes were serious crimes, I would much have preferred a prosecution-to-conviction of an American bank whose wrongs made it and its bankers much richer while making millions of other Americans much poorer.
The investigation, according to a story in the New York Times (see here) began in 2006 under the venerable New York County District Attorney Robert Morgenthau, whose expansive view of jurisdiction included the planet of Saturn (one of his bureaus was called "DANY Overseas"), when an Israeli-American DANY financial analyst developed a lead from reviewing the court papers of a civil suit against Iran brought by a grieving lawyer father whose daughter was killed in a terrorist suicide bombing in Gaza in 1995. See here. The investigation was continued by District Attorney Cyrus Vance when he took office in 2009.
No individuals have been indicted (although 13 have been required to leave their jobs), perhaps because the statute of limitations had run during the lengthy investigation. One wonders why such an important investigation took seven to eight years and has resulted (at least so far) in no indictment of individuals. Perhaps it was due to the difficulty to forge cooperation between federal and state law enforcement agencies. New York's federal and state prosecutors have not always played well together.
In any case, the appearance of the District Attorney of New York as a player in the prosecution of big banks is a welcome step. New York is, as Mr. Vance said, "the financial capital of the world," and therefore probably the financial crime capital of the world. Perhaps strong prosecutorial action by a local prosecutor -- in a sense a competitor with DOJ for high-profile cases -- will goad DOJ into stronger actions against financial institutions. Although the U.S. Attorney's Office under Preet Bharara has done a creditable job in fighting insider trading, it -- and DOJ -- had not until six weeks ago (see here) secured a criminal conviction against a major financial institution.