Friday, October 30, 2015
Guest Blogger - Steven H. Levin
White-collar laws are written broadly in order to permit federal prosecutors to combat the increasingly creative, technologically complex efforts of enterprising criminals. Most, but certainly not all, prosecutors make rational decisions based upon the best possible expenditure of resources, the assessment of the jury appeal of a particular case, and the desire to maintain a good reputation with the bench, if not the bar. In bringing a case, prosecutors also must consider the deterrent effect of a particular prosecution.
In the case involving Dennis Hastert, it has been reported that he was paying “hush money” to cover up alleged misconduct that occurred several decades ago. Mr. Hastert’s structuring fell squarely within the broadly worded federal statute. In his piece (“Should Hastert Have Been Prosecuted?”) Lawrence Goldman is correct to question the purpose such a prosecution serves. The answer is found in the concept of deterrence. Mr. Hastert’s prosecution has potential deterrent effect, both in terms of deterring those engaged in structuring (to cover up crimes) and those engaged in blackmail (threatening to expose crimes).
Once the investigation became known, the public learned that Mr. Hastert had been accused of taking money out of a bank account in order to pay an extortionist. Both would-be structurers and would-be extortionists were put on notice by the federal government: blackmailing may not be successful in the future, because the victim of the extortion may be better off going to law enforcement rather than a bank. Further, it might deter an individual from engaging in the initial misconduct in the first place, knowing that such actions may ultimately see the light of day, even decades later.
Still, as Mr. Goldman writes, Mr. Hastert is, at least in part, a victim. And the decision to prosecute is different than a demand for jail time, which, under the plea agreement, is what prosecutors may seek. Mr. Hastert’s conduct does not warrant jail time, as the collateral consequences of the prosecution itself are significant enough to deter at least some future would-be extortionists from engaging in blackmail and their victims from submitting to it. This fact is all-too-often overlooked by prosecutors.
Thursday, October 29, 2015
Former Speaker of the House Dennis Hastert yesterday pleaded guilty to money laundering in a Chicago federal court. Hastert admitted that he structured banking transactions by taking out amounts under $10,000 to avoid reporting requirements in order to conceal the reason he was using the money, which according to the plea agreement was "to compensate and keep confidential his prior misconduct." Although the facts were not revealed in court (but may later be in sentencing proceedings), sources reported that he was paying "hush money" to a former student he allegedly molested over 30 years ago when he taught high school and coached wrestling.
It thus appears that Hastert was an extortion victim, coerced into paying a former student millions of dollars to avoid public disclosure of his misdeeds and the destruction of his reputation. (I assume that the applicable Illinois statute of limitations had passed.)
I question whether Hastert should have been prosecuted. The money laundering statutes, although clearly an intrusion into privacy, serve a generally laudable purpose in making it difficult for criminals to accumulate and spend ill-gotten gains. Here, however, Hastert (although he may have done serious wrongs many years ago) was not a criminal, but a victim.
Congress has given the government broad power to prosecute violators of the money laundering laws well beyond those who derive funds from crime. I do not know what drove the decision to prosecute Hastert. Perhaps it was outrage over his long-ago sexual misconduct; perhaps it was to put forth a case which would derive considerable publicity, something to which prosecutors are not averse; perhaps it was just a rigid application of the law. Although Hastert's banking conduct does clearly fall within the statutory bounds, and there may be arguably legitimate reason to prosecute him, on balance I believe prosecutorial discretion should have been exercised and a case not brought. I wonder whether it would have been brought against an ordinary Joe Smith.
Wednesday, October 28, 2015
Three recent articles confirm the growing significance of technology and big data to both the general practice of law and the field of white collar crime in particular.
The first article, appearing in Enterprise Tech, is entitled Big Data Plays Arresting Role in White Collar Crime. The piece discusses the manner in which analytical tools and big data are making it easier for law enforcement to discover and understand fiscal anomalies.
The second article, appearing earlier this year in Forbes, reiterates the role of big data in white collar investigations. In the article, entitled Analysis of Big Data Leads to Big Arrests in Medicare Part D Fraud, Walt Pavlo explores the important role of technology in the arrest of 243 people in an alleged $712 million scheme.
The final article, appearing in the ABA Journal, is entitled What the Jobs Are: New Tech and Client Needs Create a New Field of Legal Operations. This article is not about white collar crime. However, it does offer a detailed discussion of the use of technology and data to increase the efficiency of law firm management and the provision of legal services. When read in combination, the three pieces provide a fascinating glimpse into the future of legal practice and the important role technology and big data are already playing in a changing landscape.
Tuesday, October 20, 2015
The five-month criminal trial of three leaders of the defunct law firm of Dewey & LeBoeuf ended in a deadlocked jury on most major charges (and many acquittals of falsifying business records charges). Most jurors were reportedly in favor of total acquittals of Steven H. Davis, the law firm's chairman, and Steven DeCarmine, its executive director. The jurors were reportedly evenly split on Joel Sanders, its chief financial officer. Cyrus Vance, the New York County District Attorney whose office prosecuted the case, gave an equivocal statement as to whether his office will prosecute a new trial. (My guess is that it will.) The defense lawyers said they would renew their motions for dismissal.
The non-verdict against Davis and DeCarmine (whose lead lawyers respectively are my friends Elkan Abramowitz and Austin Campriello, both excellent and highly-experienced white-collar criminal lawyers who actually try cases) did not surprise me at all. There was no direct evidence that either defendant had directed or was aware of the accounting manipulations about which seven cooperating accomplice witnesses who had pleaded guilty testified. The non-verdict against Sanders, however, did to an extent surprise me since there was some, although not very much, direct evidence against him.
The prosecution case was based on what it demonstrated were accounting adjustments made to make the firm's finances look rosier than they were to lending banks and potential investors. The non-verdict against Sanders at least leads me to believe that some jurors did not find these adjustments to be criminal. (I cannot help but wonder what those witnesses who pled guilty and their lawyers are thinking now.). End-of-year accounting adjustments by businesses to make them appear more attractive to investors and lenders are not uncommon, particularly among struggling entities. Prosecutors, however, almost invariably view them as criminal. Jurors apparently are not all of the same mindset.
I am hesitant to critique the decisions or tactics of trial lawyers in a case with which I am not intimately familiar since there are wise decisions that may not appear so to those unaware of certain facts or circumstances. I was, however, somewhat surprised by the District Attorney's failure to call an accounting expert to clarify the case for the jury and to explain how the accounting adjustments created a distorted picture of the firm's finances. Of course, I do not know that such an expert was available (but it is a rare case in which an "expert" cannot be found to say almost anything).
What the case does demonstrate, I believe, is that it is not so easy to convict the heads of businesses or financial institutions as some journalists and some politicians of both stripes seem to think. Often, these business leaders are so insulated that there is only a single person who discusses the alleged criminal actvity with them. (Here, presumably that person, if there were any, would have been Sanders). And often, those leaders are just so involved in other things that they are not aware of any criminality in their institution, however widespread it might be.
Vance has recently brought two major cases in which he accused leaders of institutions with criminal responsibilty for apparently criminal acts done by their employees. The first, barely reported until recently (except in the Chinese language press), the prosecution of a Chinatown-based bank (Abacus Federal Savings Bank) and its chief officers (Yiu Wah Wong and Raymond Tam) resulted in an acquittal several months ago (also after a number of employees had pleaded guilty and testified against their bosses). The other is the Dewey & LeBoeuf case.
Whether cases like Abacus or Dewey should be brought against institutional leaders where there is considerable seeming illegality by employees but only tenuous connections to its leaders is a question worthy of serious consideration. Vance's once-removed predecessor, Manhattan District Attorney Frank Hogan, under whom I served almost 50 years ago, believed a prosecution should be brought only when the prosecutor was convinced both that the defendant is guilty and will be found guilty after trial, a belief apparently consistent with that of the Department of Justice in business organization leader situations. Vance apparently believes otherwise. He appears to believe a prosecutor should not necessarily decline to prosecute a case in which he is convinced of the defendant's guilt but is not convinced he can secure a conviction. That is not to say that such consideration was made in this case.
Wednesday, October 7, 2015
The Yates Memo is all the rage. DOJ is saber-rattling at various CLE events and bloggers are holding forth on what it actually means. But wanting isn't getting. The question remaining is how to make sure that the company coughs up, or an investigation reveals, wrongdoing that occurred at the highest levels.
Here are two modest reform proposals I offer free of charge to the DOJ and FBI, based on my own experience defending individuals and. far less often, companies under investigation.
1. Modify Standard DOJ Proffer Letters. Mid-level corporate employees often possess very damaging information about those higher up the food chain. But these same mid-level employees can themselves be the subjects or targets of DOJ. At some point the employees are given the opportunity to proffer in front of the lead prosecutor. But the standard DOJ Proffer Agreement is riddled with loopholes. Assume that the proffer session does not result in a plea or immunity agreement and the employee is indicted. The primary loophole allows the government to use the proffered statement against the client at trial if the statement is in any way inconsistent with the defense presented. That's not much protection, which is why most seasoned white collar attorneys will not let a client with exposure proffer in front of DOJ. Thus, DOJ loses valuable information. DOJ should offer true non-Kastigar immunity for the information revealed in its proffer sessions. Nothing is lost by doing this, but much can be gained.
2. Demand Independent Internal Investigations. The first question every prosecutor should ask the corporation's outside attorney who is conducting an internal investigation or tendering an internal investigation report to DOJ is, "What is your reporting chain?" If outside counsel is not reporting to the Audit Committee or some other independent entity within the corporation there is absolutely no assurance that culpable upper management will be identified. Management can edit the final report and its conclusions to protect top executives and throw lower level employees to the DOJ wolves. Meanwhile, employees are less likely to truthfully cooperate with the internal investigation if they think the boss is reviewing interview reports every night after drinks. I am astounded at how often internal investigations are reported right up the chain of command at small and large publicly traded companies. DOJ prosecutors can make it clear that the procedural independence of the internal investigation will affect how the company is treated.