White Collar Crime Prof Blog

Abramowitz Decries Effect of Corporate Prosecutions on Employees

Elkan Abramowitz, one of the best and most-respected white collar crime defense practitioners in the nation, last week received the Robert Louis Cohen Award for Professional Excellence from the New York Criminal Bar Association.   At the dinner at which he received the award, Mr. Abramowitz spoke thoughtfully about the pernicious effect of prosecutions of corporations, particularly on the rights corporate employees. 

The recent focus on perceived corporate wrongdoing, he said, "has seriously impeded the rights of individual employees caught up in the web of ... corporate investigations."  He pointed out that the "simple threat"of a corporate investigation has forced corporations "to conduct internal investigations upon any suspicion of wrongdoing" and, because corporations rarely, if ever, can risk going to trial, they will end up disclosing alleged criminality to the prosecutors to work out the best deal they can.   The results as to the corporations themselves are non-prosecution or deferred prosecution agreements "which typically give the prosecutors much more power over the corporation than [they] would have if the corporation were actually convicted of a crime in court."  The results as to corporate employees are at the insistence of prosecutors as a condition for a deal with the corporation that "the heads of individual employees be handed to them on a silver platter." 

Mr. Abramowitz made a distinction between investigations by prosecutors who "hopefully most of the time" investigate without bias toward a particular result and corporations which in an internal investigation "are incentivized to find out and expose criminality."   Thus, corporate employees are explicitly made to understand that if they refuse to testify they will be terminated and often told that their legal fees will not be paid if they chose to defend themselves."  And, since these individuals accordingly sometimes choose not to hire counsel and to talk to internal investigators, the information presented to prosecutors by corporations often provides "more ammunition" than an investigation conducted by the FBI, police or another federal agency.

The results are, Mr. Abramowitz said, cases against individuals "that might never have been brought without the corporation's coercion."   Thus, he believes, "Whatever social utility is believed to be served by this system,..this outsourcing of a purely governmental function is extremely dangerous and [causes] great injustices to individuals working in companies under investigation."

Mr. Abramowitz's observations of the systemic changes, most obviously the role of corporations and their special prosecutors (who, interestingly, he did not mention specifically) as quasi-prosecutors, are right on the mark.   And, he is quite correct that the prosecution of individuals coerced into giving up their rights to silence and to counsel in response to their employer's demands "flies in the face of the restraining values of our society as expressed in the Bill of Rights."  However, I suspect that most prosecutors and many others (including those liberals and others who like Bernie Sanders are still complaining that no individuals from the big institutions involved in the 2008 financial crisis were jailed) would not say that on balance the addition of corporations to those ferreting out financial crime is a negative one.  After all, that addition presumably has or will result in more indictments, convictions, and jail sentences of individuals who have committed financial crimes.  While I too bemoan the incursion into fundamental individual rights as a result of corporate prosecutions, I suspect Mr. Abramowitz and I are in the minority.

 

False Accusation of Rolling Stone Article Suggests prior Notification of Targets in White-collar Cases

In November Rolling Stone published a blockbuster article about a student's account of being  gang-raped at a University of Virginia frat house.  Within days others, primarily the Washington Post, sharply questioned the truthfulness of the student's claim.  Rolling Stone then commissioned an independent investigation by Steve Coll, the respected Dean of Columbia Journalism School, to review the magazine's reporting, editing and fact-checking.  That report, written by Coll and two colleagues, came out a few weeks ago.  See here.  Rolling Stone also "withdrew" the article.

The report (Sheila Coronel, Steve Coll, Derek Kravitz, "An Anatomy of a Journalistic Failure") is "intended as a work of journalism about a failure of journalism." It is thorough and comprehensive and, as expected, clear and thoughtful.  Although the purpose of the report was to investigate the conduct of Rolling Stone and not the conduct of the student, it treats the student who made the false accusation and continued it over months of questioning by the reporter much too gently and itself is affected by the implicit bias that it suggests motivated the writer.  For instance, it takes pains to state that the student who made the indisputably false accusation may well have in fact been a victim of some predatory sexual act(s), and does not even speculate that she might have made up the incident out of whole cloth.  It expresses its regret that the the widely-disseminated revelation of the false accusation might cast doubt on other campus sex accusations (accepting the questionable estimates that false charges make up  less than 8% of rape allegations) and fails even to consider the possibility that the false claim here might not be such an aberration , and perhaps will serve a salutary purpose by increasing public (and governmental and institutional) awareness that false accusations are not so infrequent. 

To be sure, campus sexual abuse by male students against women is a serious problem and deserves vigorous, but measured and fair, action by universities and, when appropriate, law enforcement, and aggressive reporting on that subject is important to increase public knowledge.  School officials, and magazine and newspaper writers (and also law enforcement officers)  should be mindful, however, that this is an area where accusations are often inaccurate,  exaggerated, and sometimes downright false, and that there are sometimes unjust findings and convictions, by courts and schools, that wrongly destroy the lives of those accused.  Indeed, in my opinion, rape is the area of criminal law in which there are the most intentionally false (as opposed to mistaken) accusations by civilian complainants.

The report demonstrates convincingly that there were a series of errors in the investigation, review, fact-checking and editing of the story before it appeared.  Among those errors was the failure to give the person accused an opportunity to refute the accusations.  "Journalistic practice - and basic fairness - require that if a reporter intends to publish derogatory information about anyone, he or she should seek that person's side of the story."

I could not help but thinking that the defective  oversight  of the Rolling Stone journalists and their seemingly limited concern for the reputations of the institutions accused were nonetheless far greater and far more likely to uncover false accusations than the minimal or nonexistent review by law enforcement  that typically occurs in a criminal case prior to an arrest (and sometimes even after).  Once law enforcement officers decide to make an arrest, why should the accused not be allowed to present beforehand his "side of the story?"  Obviously, in many cases, such as where there is a need for immediate apprehension by a police officer, no pre-arrest review or notification is possible. Further,  in many other cases, for instance where the identity of the alleged perpetrator is unknown, or where there is a reasonable fear that if not arrested he will flee and not be available to face charges, an immediate unannounced arrest is called for. 

However, in many, probably most, white-collar cases, there is no such need. In those cases, as a general rule a prosecutor should notify a target that he is under investigation and seek his "side of the story."  Nonetheless, many prosecutors proceed the "old-fashioned" way by ordering an arrest first without giving the defendant an opportunity to hire a lawyer and present, should he choose to, his side of the story.

Notifying a prospective defendant that he is likely to be arrested and may choose to present his case beforehand has advantages for prosecutors in many situations. The defendant and his lawyer might provide evidence or legal arguments that will persuade the prosecutor to seek lesser charges or not to go forward at all.  Sometimes a plea agreement might be reached with the defendant which will eliminate the need for a time-consuming grand jury presentation.  And, should the defendant decide to cooperate, he may be able to do so proactively and generally more effectively since an indictment often tips off others to steer clear of him.

There are, arguably, certain benefits to law enforcement in making surprise arrests. There is a  possibility that an upset, unprepared  and  uncounseled defendant will make incriminating statements.  And, a defendant may have on his person or in proximity evidentiary items which will be found by a search.  Those advantages, however,  are less likely to occur in white-collar case, where defendants are less likely to make statements without lawyers or carry contraband or evidence.  Another potential benefit to prosecutors  is that at bail hearings a defendant's attorney may not be able to argue  that the defendant did not flee after becoming aware of the charges.  Such an argument, I have found, does not carry as much weight as it should. In any case, prosecutors are unlikely to provide prior notification of their intent to arrest to any who are conceivable flight risks.

For these reasons, the most successful and sophisticated prosecutors in white collar cases, such as the United States Attorney for the Southern District of New York, generally notify white-collar targets of their investigations and give them or their attorneys an opportunity to dissuade, minimize or deal.  Less sophisticated prosecutors of white-collar crimes, often state prosecutors, are more likely to make summary arrests.  These cases, generally not well vetted since there was no input from the accused or his counsel, more often lead to dismissals, acquittals or cheap pleas.

Not only is pre-arrest notification to a prospective defendant more fair to him in that it gives him  an opportunity to defend, explain, negotiate or prepare psychologically, it will benefit judicial and prosecutorial economy of resources by allowing for some matters to be settled with less or no litigation and court involvement.  And, as discussed above, it helps law enforcement.   It should be the default position in white-collar (and many other) cases, and deviated from only when there are genuine countervailing reasons.

 

Evidence Suppressed in New York State Prosecution of Aleynikov

One of the more fascinating cases around is the case of former Goldman Sachs programmer Sergey Aleynikov.  Aleynikov was convicted in the Southern District of New York for stealing secret high-frequency trading computer code from Goldman Sachs and sentenced to eight years in prison.  His conviction was reversed by the Second Circuit on the grounds that his actions were not covered by the federal statutes under which he was charged.  Aleynikov had already served a year in prison.

Then, Manhattan District Attorney Cyrus Vance, apparently provided the testimonial and tangible evidence used in the prosecution of Aleynikov by the U.S. Attorney, decided to prosecute him in state court under state statutes, a decision I criticized because it violated at least the spirit of double jeopardy protection (see here).  Last week, a New York State judge threw out much of the evidence underlying the state prosecution on the ground that Aleynikov's arrest and related searches by federal agents were not supported by probable cause that he committed the underlying federal crimes, even though the agents acted in good faith.  See here.  New York has rejected on state constitutional grounds the "good faith exception" to unlawful searches applicable in federal courts.  Compare People v. Bigelow, 66 N.Y.2d 417 (1985) with United States v. Leon, 468 U.S. 897 (1984).  Mr. Vance's choice now is either to concede that the judge's suppression has made his case untriable and make an interlocutory appeal or go forward to trial without that evidence (or, of course, move to dismiss the case).

Ironically, Goldman Sachs, the purported victim of Aleynikov's alleged criminality, is laying out millions of dollars to afford Mr. Aleynikov the energetic and aggressive defense his lawyer, Kevin Marino, is providing.  A New Jersey federal judge last October ordered Goldman to advance Mr. Aleynikov's legal fees based on a corporate bylaw that required it to advance legal fees for officers charged in civil and criminal proceedings.  Aleynikov v. Goldman Sachs (Civ. No. 12-5994, DNJ, October 22, 2013).

(goldman)

Kaley Opinion, Based on Legal Fiction, is Harmful to Defendants and Lawyers

In Kaley v. United States (12-464, decided February 25, 2014) (see here), the Supreme Court by a 6-3 vote extended the rulings of United States v. Monsanto, 491 U.S. 600 (1989) and Caplin & Drysdale v. United States, 491 U.S. 617 (1989) by determining that a grand jury finding of probable cause that a federal defendant committed a crime was conclusive in any effort by that defendant to secure funds out of temporarily restrained assets to hire a private attorney of his choice.  A defendant seeking release of funds may still be able to challenge the grand jury determination that there was probable cause that the assets seized resulted from or were involved in the purported criminal activity, but not that the activity was criminal.

The opinion, written by Justice Kagan, exalts the inviolability of the grand jury and demonstrates a naive misunderstanding of (or lack of concern about) the reality of its role in the determination of probable cause, ignores the presumption of innocence, and denigrates the importance of independent defense counsel in the criminal justice system.  It tilts the playing field of justice in the government's favor by giving the government, in some cases, the option to deprive the defendant of the counsel he has selected or intends to select.

Essentially, the premise of the opinion is that since grand juries historically have the unreviewable power to determine probable cause to indict and require a person to stand trial and thus derivatively to deprive him of pre-trial liberty, they similarly have the power derivatively to deprive him of his right to counsel of choice.  Justice Kagan, worrying that a different decision would be incongruous and unsymmetrical, seems more concerned with the effect of the decision on the pillars of architecture of the criminal justice system than the pillars of justice and fairness. 

The underlying (but unspoken) foundation of the opinion is essentially fraudulent:  the legal fiction that federal grand juries actually make independent, considered determinations of probable cause necessary to indict.  Every experienced federal prosecutor, defense attorney, or judge knows otherwise; grand juries, especially federal ones, are virtually invariably merely "rubber stamps" for the prosecution.  The government -- not the grand juries -- makes the actual decision who and for what to indict.

Former New York Court of Appeals Chief Judge Sol Wachtler famously said, "A grand jury would indict a ham sandwich" -- referring to a grand jury in a state where prosecutors are constrained because they know that judges are mandated by law upon defense motion to review the grand jury minutes to determine whether the evidence presented was legally sufficient and to dismiss the indictment if not, and where hearsay evidence is not admissible.  In contrast, in federal courts, as stated in Kaley (quoting United States v. Williams, 504 U.S. 36, 54 (1992)), "a challenge to the reliability or competence of the evidence supporting a grand jury's finding of probable cause will not be heard" (and an indictment may be, and sometimes is, based wholly on hearsay, often from a single government agent).  A federal prosecutor thus has no such constraint as his New York State counterpart; he knows that no matter how flimsy or inadmissible the evidentiary basis for an indictment may be, that basis is unchallengeable.  Thus, if a New York State grand jury would indict a ham sandwich, a federal grand jury would indict a slice of bread.

 *               *               *

Chief Justice Roberts, to my knowledge the only current justice who had a significant career representing paying clients and thus may have greater empathy for the private bar than most of  his colleagues, wrote a powerful dissent noting the basic lack of fairness allowing the prosecution essentially to disqualify an accused's counsel of choice without even a hearing.  He wrote:

[F]ew things could do more to undermine the criminal justice system's integrity than to allow the Government to initiate a prosecution and, then, at its option, disarm its presumptively innocent opponent by depriving him of his counsel of choice -- without even an opportunity to be heard. . . .  [I]t is fundamentally at odds with our constitutional tradition and basic notices of fair play. . . .

The issues presented here implicate some of the most fundamental precepts underlying the American criminal justice system.  A person accused by the United States of committing a crime is presumed innocent until proven guilty beyond a reasonable doubt.  But he faces a foe of powerful might and vast resources, intent on seeing him behind bars.  That individual has the right to choose the advocate he believes will most ably defend his liberty at trial. . . .

In my view, the Court's opinion pays insufficient respect to the importance of an independent bar as a check on prosecutorial abuse and government overreaching.  Granting the Government the power to take away a defendant's chosen advocate strikes at the heart of that significant role.

 *               *               *

Following Monsanto, which explicitly left open the question as to whether a hearing on the provenance of seized funds was required, the federal courts divided on the issue.  Some prosecutors had chosen to allow defendants to pay from restrained funds reasonable and legitimate fees to counsel of choice.  Most had done so in order to avoid giving the defendant a preview of their case; others had done so out of respect for the constitutional right to counsel and a robust adversary system -- a right apparently not as much respected by the Court majority -- and a preference for a fair fight where the accused  is not hampered by denial of his choice of counsel.

The elimination of the requirement in many courts for what was called "a Monsanto hearing" (a term likely to be soon forgotten) will undoubtedly eliminate, or at the very least severely limit, the opportunity for defendants in federal courts to pay counsel of choice from seized funds.  Prosecutors who had chosen to allow defendants to pay counsel from restrained assets in order to avoid discovery of their cases will no longer have that reason to do so.  Those who used the avoidance of discovery as a cover out of respect for the constitutional right to counsel of choice or the adversary system will no longer be able to do so.  Pre-trial forfeiture claims will now in some cases offer a prosecutor a potential bonus beyond the stated goals of depriving a defendant of wrongfully-gained assets and using them for governmental purposes -- the elimination of a top-notch adversary.  Thus, there is now a tactical trial benefit to the prosecutor to institute pre-trial asset restraint.  In white-collar cases, where the prosecutor often knows who will probably represent the defendant from pre-indictment discussions, his determination to seek pre-trial restraint may be affected by whether he likes or dislikes the attorney, whether the attorney is dogged and aggressive, or whether the attorney is likely to give the defendant a better chance of success than a replacement.

The Kaley decision will also have a severe harmful effect on the finances of an already financially-distressed private middle-class (other than big-firm) criminal defense bar, which will (as will large firms) be deprived of a considerable number of well-paying clients because of lack of available assets outside of those seized.  Defendants -- generally either drug or white-collar defendants, those who had a considerable amount of money prior to pre-trial seizure -- will be deprived of representation by the most experienced and successful criminal defense lawyers.  They will be represented by court-appointed public defenders, institutional or private appointed attorneys, or less expensive private attorneys -- often, but not always, experienced, dedicated and able, but generally less so than high-profile, high-paid private attorneys, and almost always with more cases and clients and less time and resources to devote to them than well-compensated private attorneys (and it is unlikely that government funding will be increased to provide public defenders those resources).  The ability, energy and knowledge of who represents them will often depend on the luck of the draw from assigned counsel lists, rather than their considered choice.  The gulf between counsel of choice and public defenders is greatest in white-collar cases since few public defenders have experience in these cases, or ample resources to defend them.

In his opinion, Chief Justice Roberts alluded to, but failed to state explicitly, the general disparity between the selected best of the private bar and the average (and an assignment-by-rotation system necessarily leads to the mean or average) public defender or assigned attorney.  It is unfashionable (and politically incorrect) for judges (and bar leaders) to say or write anything that might be construed to disparage public defenders (and perhaps provide ammunition to ineffective assistance claimants).  Rather, they, as did Chief Justice Roberts, often speak of "counsel of choice" when they mean "the private bar."  Lawyers -- whether chosen or assigned -- are not fungible.  Just as there is a difference in quality between a $300,000 Bentley and a $15,000 Toyota Corolla, there is usually a difference in quality between an attorney who commands large fees because of her reputation and stature and the average assigned attorney.  (To be sure, like automobiles, there are lemons and diamonds among both the expensive and the inexpensive.)

As Chief Justice Roberts said, "The possibility that a prosecutor could elect to hamstring his target by preventing him from paying his counsel of choice raises substantial concerns about the fairness of the entire proceeding."  Just as a basketball team opposing the Miami Heat might choose, if it could, that LeBron James sit out the game, so too a prosecutor, if he could, might now choose to seek pre-trial restraint to keep a first-rate private lawyer on the bench.

 (goldman)

Private Defense Lawyers for the Poor Deserve Recognition

by: Lawrence S. Goldman

Last week, in celebration of the 50th anniversary of the Gideon decision, some of the nation's leading legal figures lauded the outstanding contributions made by the public defense bar.  Public defenders indeed do deserve plaudits for their dedication and hard work in representing the poor and often despised.  Most public defenders are devoted, diligent, relatively poorly paid, and work in difficult situation and under difficult conditions.

To me, however, the unsung heroes of the defense bar are those private lawyers who ably and diligently represent persons of modest income who are not poor enough to be provided free counsel by the state, but poor enough not to be able to pay substantial legal fees.  Those lawyers, like public defenders, work in difficult situations and under difficult conditions.  They often have no steady income, no employer-provided retirement or health benefits and sometimes no office.  They do not have readily available ancillary services, such as advisory counsel, investigators, social workers and mitigation specialists.  Often, they have to perform those functions themselves.

As insubstantial as the resources for public defense are, the resources available to many private lawyers -- whatever meager savings the client is willing to part with, whatever portion of the client's paycheck he has left over after paying for shelter and food and other expenses -- are often less. 

This bar, to be sure, is an uneven one.  Unlike public defenders, almost all of whom have at least a modicum of competence and expertise and devotion, some in the private bar are part-time or occasional criminal defense lawyers with little criminal experience and little dedication to the representation of their clients.  Many, however, are able, experienced, energetic and devoted, despite being paid a fraction of what they deserve.  Those unsung lawyers deserve credit and recognition. 

(goldman)

Casey Anthony Seeks Bankruptcy Protection for Legal Fees

by: Lawrence S. Goldman

Casey Anthony, who was acquitted of murdering her daughter Caylee Marie in 2011, has filed for bankruptcy in federal bankruptcy court in Florida.  She has listed approximate assets of $1,100 and debts of $800,000, including $500,000 due Jose Baez, one of her defense attorneys.  See here.  I was pleased to see no debt listed for my colleague and friend Cheney Mason, who as Baez' co-counsel, added gravitas, savvy and experience to Ms. Anthony's defense team.

It is not surprising for a criminal defense lawyer not to be paid a large part of the legal fees owed to her.  I venture that the average criminal defense lawyer is "beat" for some 10-20% of her fees.  And I do not know how much Baez actually did receive in fees, but I am sure nothing like the fees many white-collar lawyers and firms often receive for representation in criminal matters of institutions or individuals, even those who never get close to being indicted.  Of course, the Anthony case did provide Baez considerable fame.

(goldman)

Pre-trial Restraints Have Negative Side Effects

by: Lawrence S. Goldman

It is hard to argue against the idea of criminal forfeiture; fairness demands that one convicted of a crime give up his ill-gotten gains.  A recent article in the New York Times seemed to give its full unstinting approval to federal asset forfeiture (see here).

However, asset forfeiture, aside from its several unfair procedural aspects, has its downsides.  It has to an extent diverted prosecutorial resources from investigation and prosecution of more serious cases to "sitting duck" targets involved in lucrative but arguably harmless violations of law, such as offshore gambling enterprises. 

And, primarily because of pre-trial restraints, it has, with the 5-4 imprimatur of the Supreme Court in Caplin & Drysdale v. United States, 491 U.S. 617 (1989), and United States v. Monsanto, 491 U.S. 600 (1989), turned the presumption of innocence on its head and allowed pre-trial restraint of funds to leave many defendants without sufficient funds to hire experienced, able (and often expensive) counsel of choice.  While court-appointed counsel assigned to represent those now-indigent defendants are generally competent or better than competent, they often lack the experience, resources, aggressiveness and time to provide a first-rate defense.  Thus, asset forfeiture often tilts the board in the prosecutor's favor.

Prosecutors are obviously aware that broad pretrial restraint of assets may skew the results of a litigation by preventing the defendant from hiring top-notch counsel.  While I do not believe that prosecutors often seek pre-trial restraint for that reason, eliminating experienced and able counsel is an obvious byproduct of many such restraints.

Even in New York State, where the Legislature has, alone among the 50 states, specifically provided for expenditures of seized funds to pay reasonable legal fees, some prosecutors, notably the New York County District Attorney, have taken a strong position, "play[ing] hardball" in the words of a senior forfeiture prosecutor, against release of seized funds for legal fees to private counsel.  In New York County, a defendant seeking release of restrained funds for private counsel must initially fill out a sworn 40-page detailed financial questionnaire to demonstrate her lack of access to funds for legal fees.  On the other hand, a defendant in New York County who seeks assigned counsel paid for by public funds needs only to say he cannot afford counsel, and such a statement is rarely questioned. 

The District Attorney in New York and many places elsewhere receives a portion of forfeited funds; thus, he has an extra incentive to fight the release of funds for private counsel, as well as to prosecute those with substantial assets.  An objective observer might question whether the crucial decision whether to prosecute should be made by one with a financial interest in the proceeds of the prosecution.  Compare Tumey v. Ohio, 273 U.S. 510 (1927) (conviction at trial by magistrate/mayor where municipality retains part of fine proceeds violates due process).

(goldman) 

Shaygan Set for Conference Distribution

The case of Ali Shaygan v. United States is set for distribution for conference on November 9, 2012 in the United States Supreme Court (see here).  David Oscar Markus represents the Petitioner on a Hyde Amendment case that asks the question of "[w]hether the Government is exempted as a matter of law for Hyde Amendment sanctions under the statute’s prohibition on "bad faith" prosecutions despite subjective malice in its filing decision and extensive and pervasive prosecutorial misconduct during the course of the litigation, merely because there was probable cause to support the filing of the indictment." The Petition for Cert can be found here. See also Mike Scarcella, In the Supreme Court, a Fight Over Sanctions for Government Misconduct

The NACDL (here) raises the issue of the wide discretion afforded to prosecutors and how "'bad faith' surely  includes situations where the government adds numerous charges for an illegitimate reason, such as retaliation for exercising a constitutional right, or engages in discovery abuse."  The question here is whether the Hyde Amendment will have any teeth left, and whether there will be a check on government misconduct.

This case raises the important issue of whether there will be any ramifications to the government when it misuses its power.

(esp)

Fifth Circuit Decision Has Many Inviting Issues for the Supremes

The Fifth Circuit affirmed the convictions and sentences in U.S. v. Brooks, a case involving alleged "false reporting of natural gas trades in violation of the Commodities Exchange Act and the federal wire fraud statute." 

Although the court distinguishes the Stein decision from the Second Circuit with the facts in this case, both cases had individual defendants who had their attorney fees cut off.  In Brooks, the defense claimed it was from government pressure, but the Fifth Circuit said the factual findings were not present to confirm this conduct.  The court found that the company's policy on payment of attorney fees was a discretionary policy.  But when a company gets a deferred prosecution agreement one has to wonder if there is an incentive to show cooperation, albeit payment of attorney fees can not be a factor used.

There is also an interesting question of what constitutes "reports" for purposes of the CEA or CFTC regulations.  This is an intriguing issue as one is basically violating federal law through a submission document. The Fifth Circuit rejected a void for vagueness argument here.

The Fifth Circuit also found the Fifth Circuit Pattern Jury Instruction as meeting the recent Supreme Court decision in Global Tech, although they admit it does not use the same language.  The question here is whether deliberately closing one's eyes is the same as taking "deliberate actions to avoid learning of the fact," the test set forth in Global Tech.  I see a difference in that one is passive and the other is active. The Court seems to be satisfied with the evidence in this case, but one has to wonder if the Fifth Circuit should be quickly looking to change its pattern jury instruction to avoid this issue in future cases.

Then there is the question of defense witness immunity.  A witness is on the prosecution witness list and is not called to testify because the prosecution has concerns about the witnesses truthfulness. The witness has not yet been sentenced (the government postponed sentencing for 39 months- obviously to be after this trial) and decides to take the Fifth Amendment. The prosecution called the witness the evening before the witness was to testify, but says the call was to determine if they needed to prepare the witness for cross-examination.  The defense argues that the witness has exculpatory evidence for the defense.  The defense asks for defense witness immunity and doesn't get it. One has to wonder whether the jury really had full information to resolve guilt or innocence? But the Fifth Circuit held otherwise. 

And this is not a case where defendants are receiving light sentences. All the defendants were level one and yet all of their sentences exceeded 11 years imprisonment, with one receiving a 14 year sentence.  Whoever thinks white collar offenders are getting off easy, needs to just look at this case to see that this is not the situation.

(esp) 

Indemnification Agreements - Pay the Lawyers

Many companies, as part of their compensation and benefits packages, have indemnification agreements that allow for payment of attorney fee expenses to company officers, directors, and others.  Some may be surprised to learn that Fannie Mae and Freddie Mac have such agreements as part of Enterprise Bylaws or individual agreements.  "Between 2004 and October 31, 2011, Fannie Mae advanced $99.4 million in legal expenses to cover the representation of" three former officers "in connection with government investigations and lawsuits stemming from accounting irregularities uncovered in 2004." The Office of Inspector General issued a report that offers some suggestions on reducing future costs. The "evaluation was led by Director of Special Projects David Z. Seide, and Investigative Counsel Stephen P. Learned contributed to its completion."  The report can be found here.

(esp)

How to Remedy Brady Violations

Circuit Judge Pryor not only voted to deny a rehearing en banc in the Ali Shaygan case seeking Hyde Amendment fees, but he went out of his way to explain his reasoning of why he was not supporting the factfinder district court judge. (see here). His opinion, one that seems likely to be headed for a higher review, looks at why he thinks a Hyde Amendment award was improper in this case. His decision spends several pages explaining what he believes was the evidence against the defendant, who by the way was acquitted after a trial by jury. He notes how defense counsel ( who he does not mention by name -  it's David Oscar Markus) is "an elite defense attorney, and Shaygan's superb counsel took advantage of the opportunity to focus the attention of the jury on the alleged misconduct by the government in the collateral investigation."

The district court had granted Shaygan's Hyde Amendment motion and ordered payment of $601,795.88 for attorney fees and costs. The award was a response to a finding of prosecutorial conduct including discovery violations. Circuit Judge Pryor comes to the defense of the prosecutors saying that "[t]hese public servants deserve better."  He ends his affirmation of the denial for a rehearing en banc stating that "[t]he prosecution of Shaygan, triggered by the death of his patient and supported by substantial evidence, was not wrong." Check out John Pacenti's article in the Daily Business Review, Eleventh Circuit releases new opinion on Shaygan case, criticizes dissent 

The two person dissent to this denial of a rehearing en banc by Circuit Judges Martin and Barkett present a very different picture. They note that U.S. District Judge Alan S. Gold's "comprehensive fifty-page Order awarding Hyde Amendment attorneys fees to Dr. Ali Shaygan was 'crowded with thorough findings of fact' detailing government misconduct that took place in his prosecution."  They state:

"This Court's opinion also strips our federal judges of a rarely needed, but critical tool for deterring and punishing prosecutorial misconduct.  And the prosecutorial misconduct that happened in Dr. Shaygan's case deserved punishment."

This dissent outlines the discovery that was not provided to the defense despite a court order.  They state "[t]he government violated Dr. Shaygan's rights, and now, contrary to what Congress has provided, he is left alone to pay the costs he suffered at the hands of these rule breakers." 

This case sets up a wonderful review of what should be the role of the Hyde Amendment, who should be the finder of facts when there are allegations of misconduct, what should be the standard of review, and how best to remedy claims of discovery violations.  This case also needs to be considered as Congress decides whether to pass Brady legislation.

(esp)

NACDL's 1st Annual West Coast White Collar Conference, “Turning The Tables On The Government” – Keynote Address: Benedict P. Kuehne, Friday, June 17, 2011

Guest Blogger: Darin Thompson, Assistant Federal Public Defender, Office of the Federal Public Defender (Cleveland,OH)

The Keynote Presentation, "Standing Tall: Criminal Defense Lawyers as Constitutional First Responder s in Today’s War on Crime," was given by Benedict P. Kuehne.

Benedict Kuehne spoke regarding the important role that criminal defense attorneys play in America. He noted that criminal defense lawyers often put at risk not only their fee, but their own liberty. Because the role of criminal defense lawyers is to safeguard our constitutional rights, that role itself is threatened. Mr. Kuehne used his personal story to examine these principles. In 2004, his office was searched pursuant to a federal warrant. He was the subject of a grand jury investigation into conspiracy and money laundering. His alleged crime related to legal advice he provided another criminal defense lawyer regarding the source of his fee.

This prosecution was part of an overall trend towards the broadening of the scope of money laundering prosecutions, Mr. Kuehne suggested, noting that money laundering has replaced conspiracy as the prosecution’s weapon of choice.

Mr. Kuehne noted that this prosecution theory threatened to chill the assertion of the Sixth Amendment right to counsel and the willingness of counsel to provide legal representation to individuals facing prosecution.

Mr. Kuehne then explored the history of litigation surrounding the specific statutory exemption for criminal defense fees. For 20 years, the government persisted in attempts to convince courts that the exemption did not mean what it said. These efforts, combined with the ability to seek forfeiture of fees, had a chilling effect on that Sixth Amendment right.

His case resulted in the decision U.S. v. Velez, vindicating the criminal defense fees exemption in money laundering cases.  Mr. Kuehne's story is an inspiring one that clearly demonstrates the importance of the work that we defense lawyers do everyday.

(dt)

NACDL's 1st Annual West Coast White Collar Conference, “Turning The Tables On The Government” – “Monsanto and More: Ethical Tactics for Getting Paid When the Government Gets There First,” Friday, June 17, 2011

Guest Blogger: Darin Thompson, Assistant Federal Public Defender, Office of the Federal Public Defender (Cleveland,OH)

One of two breakout sessions, this session explored the pre-conviction restrain of assets and how to get paid.  Led by John D. Cline, the panel included Mary McNamara and AUSA Steven R. Welk.

John Cline began the discussion with a hypo of an indicted individual who has millions of dollars that the government believes were garnered through criminal activity.  Mr. Welk presented the government’s perspective and outlined the steps taken to identify the assets the government believes can be tied to the charged crimes.  Typically this involves going to the Magistrate and obtaining seizure warrants for assets and then seizing them.  If it involves real property, then they will go get a lis pendens.

Mr. Cline asked about ex parte restraining orders and when and how the government uses them.  Mr. Welk explained that once he obtains the restraining order, he will typically approach the counsel for the client, inform them of the order, and then set up a plan.  Typically the parties sit down and work out the issues together.  Mr. Welk noted that going in ex parte can be extremely disruptive to the business and that is why the defense is willing to sit down.  However, there is always a concern that the assets could disappear if the government does not come in strong.

Mr. Cline then sought the defense perspective from Ms. McNamara—what steps she takes when faced with an ex parte restraining order.  She would first seek out help from an experienced forfeiture lawyer.  This is because this process is quite draconian and it allows the government to basically step into the defendant’s shoes.  However, given the practicality of the temporary restraining order, where the government must show its cards, the parties are usually willing to come to the table and talk.

A member of the audience asked about money that the lawyer already has, such as a retainer.  Mr. Welk explained that there is a wide diversity of views on how to handle this situation.  He will typically sit down with the attorney and work out an arrangement, typically involving a return of a portion of the money.

Ms. McNamara noted that there has been an uptick in asset forfeiture since the Madoff case but Mr. Welk noted that it was really a coincidence of timing.  Rather, he noted that the uptick was a product of at least five years of work by the Asset Forfeiture Working Group.  It just happened that their work aligned with the Madoff case.

Mr. Cline then asked the panelists to discuss negotiations that frequently happen in order to avoid an evidentiary hearing.  Both parties usually go in hoping to cut a deal and come out with a clear plan.  Ms. McNamara explained that the government typically comes in with a pragmatic approach, but that is not always the case.

The panelists engaged with the audience on the interaction between bail and forfeiture, the potential conflict for the defense attorney in seeking to protect the client’s assets in general and specific to defense fees, and the question of government authority over third-party assets.  Mr. Welk noted that while the government has authority to seize third-party assets, but the courts don’t like that.

Mr. Cline closed the panel with a discussion the potential for prosecutors to clawback fees that have been unfrozen for defense.  Mr. Welk said this is rare and there are other venues to explore, one of which is a strongly worded letter to counsel explaining that it is the government’s belief that all the client’s money comes from illegal activity and thus any money accepted may be subject to forfeiture.  There is serious debate over the use of these letters, but defense counsel should be aware of them and on the lookout.

(dt)

NACDL's 6th Annual Defending the White Collar Case Seminar – “Making Ends Meet: Obtaining Insurance Advancement & Indemnity in White Collar Cases,” Friday, October 1, 2010

Guest Blogger: Rodger A. Heaton, Hinshaw & Culbertson, LLP (Chicago, IL)

Panelists: Evan A. Jenness and Lee H. Shidlofsky

In his “Advice to a Young Tradesman,” Benjamin Franklin included the time honored maxim that “time is money.”  If that is clear to anyone, it is clear to defense attorneys.  Evan Jenness, an NACDL Board member, and Lee Shidlofsky, offered helpful advice to defense practitioners interested in maximizing their ability to collect attorney fees from employers and insurers.  This third breakout session of the final morning of the seminar provided several tips for obtaining advancement and indemnity for defense costs from an insurance company during an investigation and any subsequent prosecution or enforcement action.  Jenness who practices in Santa Monica, CA, and Lee Shidlofsky of Austin, TX, addressed the issues thoroughly. 

Jenness first summarized the multiple sources of indemnification.  They include corporate charters and by-laws, partnership agreements, employment contracts, employer insurance policies, and severance agreements.  In some states, there are statutes requiring companies to indemnify (e.g., California) 

Jenness reminded the audience that advancement is separate from, though related to, indemnification.  Companies often try to avoid or delay advancing fees.  Clients are often asked for an undertaking requiring the employee to repay the company if the employee is ultimately convicted of a crime, and sometimes are even asked for security to make the undertaking enforceable.  Jenness encouraged challenges to those attempts on the basis that the company could have required a secured undertaking in its by-laws or employment contract. 

Jenness also encouraged defense attorneys who are unable to get a written promise from the company or its insurer to pay right away to challenge it immediately.  As backup protection against recalcitrance from the company, defense attorneys may need to include language in retention agreements requiring a retainer from the client to be used if initial efforts to get paid by the company and insurance company fail. 

Jenness discussed Delaware’s provision of nearly unlimited capacity for companies to indemnify employees and officers, and noted that even if an employee is employed at will, some states provide that advancement and indemnity are available. 

Jenness offered several pracice tips:  1) Don’t assume your client isn’t entitled to coverage under a D&O policy due to lower rank in the company.  Many policies are interpreted to cover lower ranking employees.  2) Find sample indemnity agreements by industry on the internet.  Use them in negotiating the terms of employment and severance contracts.  3) There is no requirement that you share work product and privileged information with the third party fee payer.  Redact bills that are forwarded to the third party payer.  If the company/carrier balks because they don’t know what they are being asked to pay for, then very narrow descriptions may have to be included. 

Shidlofsky reported that D&O policies are typically broad.  Just because a client is under investigation for criminal or intentional conduct and there are “bad conduct” exclusions in the policy, it does not mean there is no coverage.  And, most policies require a final determination of the bad conduct before coverage can be denied.  There may be coverage disputes, but they are worth fighting. 

Shidlofsky also offered a few key practice tips:  1) Provide notice to the insurer as soon as you obtain knowledge of the investigation.  Failure to provide prompt notice can result in reduced or no coverage. 2) Read the definitions of “loss” and “wrongful act” in the policies very carefully.  There is limited case law interpreting these terms, but the more modern trend in policies is to provide coverage even at the investigation stage.  Much litigation is underway on these issues.  3) Evaluate whether the policy requires advancement of fees and costs, or reimbursement only.  Absent clear language on this, many states require advancement of fees and costs. 

Effective defense efforts take time and, therefore, money.  With some tenacity and diligent searching through the sources of potential indemnification, you just might find enough money to do the job right. 

(rah)

DA Vance on Attorney-Client Privilege and Fees

As noted here, New York County District Attorney Cyrus R. Vance issued via his Chief Assistant District Attorney Daniel R. Alonso a Memo pertaining to charging organizations. One aspect caught my eye - privileges and attorney fees.  The Memo states:

"... although the Office will not ordinarily request that an organization waive valid claims of attorney-client privilege or work product protection in order to be credited for its cooperation, where an organization relies on the attorney-client privilege or the work product doctrine to obstruct the investigation, or when it refuses to disclose relevant facts that will further the investigation, these factors will militate against cooperation credit. Similarly, although the Office will not ordinarily be influenced by an organization’s decision to provide for the legal expenses of its directors, officers, employees, or agents, or its decision to enter into an appropriate joint defense agreement, if such practices are made as part of an effort to obstruct, in any way, an investigation or prosecution, or if they result in relevant information’s becoming unavailable to the investigation, they will be considered in any decision whether to prosecute the organization." (footnote omitted)

On a brighter note, the policy does recognize the importance of collateral consequences in making a decision to charge a corporation.

Being corporate counsel seems to be more challenging these days in that the individual needs to be apprised of all the laws in the applicable jurisdictions - which these days can be international.  He or she also has to be familiar with the policy guidelines for the different entities they operate within - which could be many states. 

(esp)

NACDL's 5th Annual Defending the White Collar Case Seminar - "Getting Paid, Not Charged--Avoiding Indictment by Collecting Fees Ethically," Friday, October 2, 2009

Guest Blogger:  Jon May, Chair, White Collar Crime Section, National Association of Criminal Defense Lawyers

Panelists:  Jane Moscowitz, Martin Pinales

Over the last ten years, and particularly as a result of the indictment of prominent Miami Attorney Ben Kuehne, criminal defense counsel have had cause to be concerned that they could be the subject of prosecution solely for taking a legitimate legal fee. In this morning’s presentation by Jane Moscowitz and Martine Pinales, lawyers found reasons to be hopeful that such fears may be overblown, at least as to potential prosecution. Forfeiture of fees, on the other hand, remain a significant concern.

The Kuehne prosecution is an instance of ideology trumping common sense. Benedict P. Kuehne is the most unlikely of government targets. As Jane Moscowitz, who is one of his attorneys observed, Ben is the best of all of us. He is not just a leader of the bar—having been the President of the Miami-Dade County Bar Association and a member of the Board of Governors of the Florida Bar—he has devoted countless hours to pro bono activities on behalf of organizations representing the interests of African-Americans, Hispanics, Gays and others. He was also one of Al Gore’s principal attorneys during the Florida recount. Not surprisingly, he was Roy Black’s choice for counsel when Roy Black needed an attorney to vet the legal fees he was to be paid to represent notorious Colombian cartel leader Fabio Ochoa.

Roy Black was ultimately paid $5 million for his representation of Ochoa. Ben Kuehne earned approximately $175,000 for vetting this fee. Ben was indicted for conspiracy to launder, what the government recognized, and the indictment stated, was a bona fide legal fee.  This is despite the fact that the money laundering statute 18 U.S.C. Sec. 1957 contains a specific exemption for the receipt of funds necessary to preserve the Sixth Amendment. It was the government’s position before the District Court and just recently before the Eleventh Circuit in their appeal from the dismissal of this count, that the decision of the Supreme Court in Caplin and Drysdale nullified this exemption. The district court, however, was persuaded that it was the intent of Congress to protect counsel from prosecution, even if attorney’s fees could be forfeited. It appears from the tenor of the oral argument, which I was present to see, that the government’s theory is being met with the same level of skepticism that it received by Judge Cooke.

Martin Pinales discussed his experience dealing with government efforts to seize legal fees. Even in instances where the AUSA states that she has no intent to seize fees, counsel can be faced with a post trial effort by the government’s money laundering/forfeiture counsel to claw back those fees. Strategies were discussed for dealing with that problem. One way is to be paid by a third party from monies totally unconnected to any alleged criminal activity. Where money is obtained from the defendant, it is important to insure that the money did not come from any source named in a forfeiture count. And counsel should do due diligence even as to assets that could be later characterized as a substitute asset. It was also important to have your retainer agreement tie fees received to services provided. Where the funds are clearly substitute assets, counsel who takes these steps will have a better chance of demonstrating that they are bona fide purchasers for value in later forfeiture proceedings.

During the seminar, other important issues were raised. In many districts, counsel do not have to worry about their fees if their clients cooperate. Doesn’t that create a conflict of interest? You can charge a flat fee so long as you can demonstrate that it was earned. But don’t call it non-refundable (unless you practice in Florida, but it still has to be reasonable). The final irony, and outrage, discussed was the fact that the indictment against Ben also includes forfeiture count. The government is seeking to forfeit from Ben,  the $5 million that Roy Black received. 

(jm)

It's Not Just the Stevens Case - DOJ Needs A Better Compliance Program

A "not guilty" verdict was returned on a drug case in Miami, but what happened during the investigation and prosecution of this case has now resulted in an award of $601,795.88 under the Hyde Amendment. The Hyde Amendment allows for attorney fees when a "prevailing criminal defendant" can demonstrate "that the position the government took in prosecuting him was vexatious, frivolous, or in bad faith." (see Order, infra, citing U.S. v. Gilbert).

Hon. Alan S. Gold, in the Southern District of Florida, issued an Order awarding these attorney fees and enjoined the US Attorneys who practice in that court from "engaging in future witness tampering investigation of defense lawyers and team members in any ongoing prosecution before [this judge] without first bringing such matters to [the judge's] attention in an ex parte proceeding." The judge also issued a public reprimand against the US Attorneys office and specifically 2 AUSAs. And it does not end there, as the judge also makes it clear that a disciplinary body needs to review this matter. (Court's Order - Download 08-20112 (Shaygan) Prosecutorial Misconduct FINAL ) 

The judge presents a thoughtful Order that gives credit to the USA's office for taking "immediate efforts to investigate" this matter when it came to light. After all, the taping of defense counsel and a defense investigator, by government informants, does present serious concerns.  The failure to disclose this material is more problematic.  The judge tells of Brady, Giglio, and Jencks issues in this case.

Hon. Alan S. Gold could not have said it better when he stated,

"It is the responsibility of the United States Attorney and his senior staff to create a culture where 'win-at-any-cost' prosecution is not permitted,  Indeed, such a culture must be mandated from the highest levels of the United States Department of Justice and the United States Attorney General.  It is equally important that the courts of the United States must let it be known that, when substantial abuses occur, sanctions will be imposed to make the risk of non-compliance too costly."

DOJ, the enforcer against corporate misconduct and the one who requests the appointment of monitors in deferred prosecution agreements, may seem to be having its own issues.  One has to give the department credit for recognizing their lack of compliance in the Stevens case and agreeing to dismiss it.  Likewise one has to give the government credit in this recent Miami case, in that the DOJ stated that they "made serious mistakes in a collateral investigation that was an offshoot of this case and stands ready to pay the additional attorneys' fees and costs incurred by the defendant as a result." Clearly the new AG Holder is taking a strong position against prosecutorial misconduct and sending that clear message to those in his office, something that is wonderful to see happening.  But if this were a corporation that had committed misconduct, would these acknowledgments and payment be sufficient? The deferred prosecution agreement would require monitoring, and there would be a need to assure that there was now compliance. Mind you, I am not suggesting that a monitor in another deferred prosecution agreement case, John Ashcroft, be appointed here. But the concern is that both of the cases mentioned here had attorneys who could present these claims.  My concern rests with the many cases that might have similar claims of misconduct but no attorney to bring the issues to light.

(esp)

Olis & Legal Fees

The Houston Chronicle is reporting that Jamie Olis filed suit to recover legal fees. See Olis sues Dynegy over legal bills   The Second Circuit's affirming of the Stein decision certainly provides strong support for those individuals who might have been a collateral consequence of companies that were trying to secure a deal with the Government and therefore agreed not to pay legal fees of employees that might normally have been paid by the company. Stripping individuals of counsel as part of a negotiated plan with the government raises serious questions about the ability of the individuals to secure adequate representation. Whether that occurred here, remains to be seen.  But re-examining government practices that might have deprived individuals of appropriate legal counsel is important.

(esp)(w/ a hat to Bill Olis)

Commentary on Stein (KPMG)

Chief Judge Jacobs of the Second Circuit authored the 68 page opinion that affirms Judge Kaplan's prior ruling (see here and here) in the KPMG related matter.  The lower court had dismissed the defendants' indictments.  In affirming the lower court opinion, the Second Circuit states -

"We hold that KPMG’s adoption and enforcement of a policy under which it conditioned, capped and ultimately ceased advancing legal fees to defendants followed as a direct consequence of the government’s overwhelming influence, and that KPMG’s conduct therefore amounted to state action. We further hold that the government thus unjustifiably interfered with defendants’ relationship with counsel and their ability to mount a defense, in violation of the Sixth Amendment, and that the government did not cure the violation. Because no other remedy will return defendants to the status quo ante, we affirm the dismissal of the indictment as to all thirteen defendants." (footnotes omitted)

The Second Circuit stated that the Sixth Amendment right to counsel held that the amendment "protects against unjustified governmental interference with the right to defend oneself using whatever assets one has or might reasonably and lawfully obtain."  The court noted that-

"Defendants were indicted based on a fairly novel theory of criminal liability; they faced substantial penalties; the relevant facts are scattered throughout over 22 million documents regarding the doings of scores of people,; the subject matter is "extremely complex,"; technical expertise is needed to figure out and explain what happened; and trial was expected to last between six and eight months, As Judge Kaplan found, these defendants "have been forced to limit their defenses . . . for economic reasons and . . . they would not have been so constrained if KPMG paid their expenses." We therefore hold that these defendants were also deprived of their right to counsel under the Sixth Amendment. (citations and footnote omitted)

The best line from the case - "But if it is in the government’s interest that every defendant receive the best possible representation, it cannot also be in the government’s interest to leave defendants naked to their enemies."

The government did not lose this case, as some might say.  In fact, they won.  When justice is done for all, as is reflected in this opinion -- the prosecution, defense, and society wins. 

(esp)

Government Files Answer to 2255 Motion in Olis

The Government filed its Answer to the Motion to Vacate Pursuant to 28 U.S.C. s 2255, Motion for Summary Denial, and Supporting Memorandum of Law in the case of Jamie Olis. Olis, who was associated with Dynegy, was convicted for his alleged role related to "Project Alpha."  He was initially sentenced to 292 months and that sentence was reduced 72 months. One of the key issues here is whether the government interfered with the accused's right to fund his defense.This is a crucial issue as white collar cases carry with them enormous legal bills.

Government  Answer & Motion - Download 346GovtAnswer.pdf

(esp)