Friday, December 30, 2016
Each year this blog has honored individuals and organizations for their work in the white collar crime arena by bestowing "The Collar" on those who deserve praise, scorn, acknowledgment, blessing, curse, or whatever else might be appropriate. With the appropriate fanfare, and without further ado, The Collars for 2016:
The Collar for the Best Left Hand Turn – To the Supreme Court following Justice Scalia’s death in affirming both insider trading and bank fraud convictions.
The Collar for Failing to Deliver the Goods – To the government for prosecuting Fed Ex and then needing to dismiss the case following opening statements.
The Collar for Needing New Glasses – To James Comey so that he can read Agency policy to not do anything election related within 60 days of an election.
The Collar for Sports MVP – To the world of tennis, which stole some of the focus from FIFA this year with the BBC's allegations of significant match-fixing.
The Collar for Slow and Steady – To Britain's Serious Fraud Office, which, after announcing the implementation of DPAs in October 2012, entered into its first DPA in November 2015 and its second in July 2016.
The Collar for Quick and Steady – To the DOJ, which, according to Professor Brandon Garrett’s website, has entered into well over 100 DPAs and NPAs since October 2012.
The Collar for Best Reading of this Blog– To the Supreme Court in reversing Virginia Governor Bob McDonnell’s conviction, this blog’s 2015 case of most needing review.
The Collar for the Longest Attempt to Justify a Decision – To the 11th Circuit for its 124-page decision in United States v. Clay that attempts to justify how “deliberate indifference” meets the Global Tech standard.
The Collar for Worst Schmoozing at an Airport – To former President Bill Clinton for causing AG Loretta Lynch to accept the FBI’s decision-making after Bill Clinton came abroad her airplane.
The Collar for the Most Underreported Settlement – To Trump University’s agreement to pay $25 million settlement in the Trump University case.
The Collar for Mandating Corporate Backstabbing – To Deputy AG Sally Yates, who keeps insisting her memo that promoted a corporate divide from its constituents – widely referred to as the “Yates Memo” -- should be called the Individual Accountability Policy.
The Collar for the Pre-mature Weiner Release – To James Comey for his overly excited announcement about the former Congressman’s emails.
The Collar for Community Service to Russia – To all those who failed to investigate and release reports on computer hacking that caused the release of information during the election.
The Collar for the Quickest Backpeddling – To Rudy Giuliani for “clarifying” his statement that he knew about a confidential FBI investigation related to Hillary Clinton’s emails.
The Collar for Best Game of Hide and Seek – To Donald J. Trump for explaining that he could not release his already-filed tax returns because he was under an IRS audit.
The Collar for Best Self-Serving Confession – To the Russian Sports Federation for admitting there was systematic doping of Olympic athletes (but Putin didn't know about it).
The Collar for Quickest Recantation (aka the "Mea Culpa Collar") – To DOJ Chief Leslie Caldwell for criticizing overly aggressive AUSAs at a Federalist Society function and apologizing to DOJ attorneys a few days later.
The Collar for Best Judicial Watchdog – To Judge George Levi Russell III of the United States District Court for the District of Maryland for his post-trial decision reversing the conviction of Reddy Annappareddy and dismissing the indictment with prejudice based on prosecutorial misconduct.
The Collar for Never Giving In – To Josh Greenberg and Mark Schamel who tirelessly and brilliantly represented Reddy Annappareddy post-trial and secured his freedom.
The Collar for Best Money Laundering – To the New York City and Los Angeles real estate developers who sell eight-figure condo apartments to anonymous LLP's owned by foreign officials and their families.
The Collar for the Best Child – To Don Siegelman’s daughter, who continues to fight to “Free Don.”
The Collar for the Best Parent – Retired years ago and renamed the Bill Olis Best Parent Award –not awarded again this year since no one comes even close to Bill Olis, may he rest in peace.
(wisenberg), (goldman), (esp)
December 30, 2016 in About This Blog, Current Affairs, Deferred Prosecution Agreements, Government Reports, Investigations, Judicial Opinions, Money Laundering, News, Prosecutions, Prosecutors | Permalink | Comments (0)
Friday, December 2, 2016
Readers of this Blog are no doubt familiar with United States v. Reddy Annappareddy, the District of Maryland case in which a guilty verdict was overturned (and new trial granted) with the grudging, belated concurrence of government prosecutors, because the government presented false testimony to the jury. The indictment was then dismissed with prejudice, over government objection, due to the government's destruction of potentially relevant evidence and the trial court's finding of prosecutorial misconduct. All of this was the result of the tireless and brilliant work of Annappareddy's post-trial attorneys, Josh Greenberg and Mark Schamel of Womble Carlyle. See my prior posts here, here, here, here, and here. Since my last post, the government moved to withdraw its appeal, the Fourth Circuit granted the motion, and the mandate has issued.
Now, Josh Greenberg, who played a key role in devising and implementing the post-trial strategy, has decided to open his own shop, focusing on white collar criminal defense, civil litigation, and appeals. Congratulations to Josh. We wish him the best.
Tuesday, November 22, 2016
We have been critical of FBI Director Comey's comments (see here and here) during the email investigations of Hillary Clinton. On a positive note, it was good to see him pull together the FBI for a quick review of Hillary Clinton's emails after his missteps, although this should never have been necessary if commenting during the election had not initially occurred.
But one has to wonder what kind of investigation has been occurring on the overarching problem - email hacking that is reported to be coming from outside the United States that disrupts and influences a U.S. election. (see here) The integrity of elections is crucial and a failure to assure that integrity is maintained is of the utmost importance. So where is FBI Director Comey now, and why are we hearing nothing about this important investigation?
The NYMag.com is reporting here that "academics presented findings showing that in Wisconsin, Clinton received 7 percent fewer votes in counties that relied on electronic-voting machines compared with counties that used optical scanners and paper ballots." In light of prior hacking of the DNC and the release of emails of individuals associated with Hillary Clinton, one would think the FBI would be conducting an immediate investigation to assure voters of the integrity of our election process. So where is FBI Director James Comey now?
Monday, September 12, 2016
I agree with my colleague Prof. Podgor that DOJ made the "right decision" to drop the prosecution of former Virginia governor Robert McDonnell. Under the narrow definition of "official act" given by the Supreme Court a re-prosecution was doomed. I further agree with Prof. Podgor that McDonnell's legal team, led by Hank Asbill and Noel Francisco, deserves plaudits for its determined and outstanding lawyering.
I do not, however, criticize DOJ for bringing this case. McDonnell's acts - accepting $175,000 in money and gifts in exchange for favorable treatment for the donor - although ultimately determined not to be "official acts" and thus not criminal, were unseemly and corrupt. That the Commonwealth of Virginia, in its wisdom or lack of it, chose not to criminalize such activity to me was a reason for federal prosecution, not for abstention. To be sure, the government should have been aware that there was Supreme Court case law arguably undermining its position. On balance, the egregiousness of McDonnell's conduct, I believe, justified a prosecution, even if it "pushed the envelope."
The McDonnell decision will allow federal prosecutions of politicians accepting things of value for favorable votes or actions on legislation or favorable decisions awarding governmental appointments, contracts and benefits, the areas within which most corruption cases fall. It will, however, eliminate or preclude almost any prosecution for payments to officials for access, referrals and introductions, allowing donors an advantage over non-payers. "Pay-for-play" systems do not guarantee winning a contract, but do allow one to be among those considered - a giant and necessary step. Thus, the decision will, like Citizens United, most benefit the rich, powerful and politically-connected.
I, like many others, was surprised by the unanimity of the court. Although I am no expert on Supreme Court internal politicking, I suspect some justices might have gone along with the decision to prevent a broader decision which would have greatly limited, or even eliminated, federal prosecutions of state and local corruption, either by finding the term "official acts" constitutionally void for vagueness, or on federalism grounds. In his opinion, Chief Justice Roberts mentioned, but did not rule on, both considerations.
I cannot dismiss an undiscussed "elephant in the room," alluded to by Prof. Podgor. The American election system commonly allows campaign contributions to be rewarded by at the least access to elected and appointed officials. It is extremely doubtful whether McDonnell would have been prosecuted for accepting campaign contributions and rewarding the donor with access to state officials. It seems to me extremely difficult to make a lawful/unlawful distinction between situations involving gifts to politicians for their personal use, as in McDonnell, and those involving gifts to politicians for campaign purposes. Absent such a distinction, an affirmance of McDonnell might have led to cases concerning campaign contributions, which might have led to an upheaval in campaign financing practices generally accepted in America. Thus, it is not surprising that a host of former Counsels to the President and Attorneys General submitted amicus briefs in support of McDonnell, a fact noted with apparent respect in the opinion.
Lastly, I wonder whether the Court was wary of allowing federal prosecutors expansive power to prosecute political officeholders. There is always a danger - at least theoretical - that a prosecutor will misuse her power to indict political opponents, as is not infrequently done in foreign nations, and perhaps occasionally done in the United States. It may well be that the case should be considered primarily as a limitation of prosecutorial and executive branch power.
Thursday, September 8, 2016
As noted here by Solomon Wisenberg, DOJ moved to remand the case against Robert F. McDonnell to the district court in order to dismiss the indictment with prejudice. Many in the media have reported about this dismissal (e.g., Washington Post here, USA Today here) The Washington Post states that this results from a "new legal definition" being given to public corruption (Washington Post). While others criticize the Supreme Court with comments such as "[w]e are now seeing that the Supreme Court's decision will in fact result in corrupt conduct going unpunished, just as we feared it would." See Statement here - Citizens for Responsibility and Ethics in Washington.
But some media and critics are missing the point here. The McDonnell decision was not a close call - it was a unanimous decision of the Supreme Court. There were no dissents.
This is not a case that puts a stop to prosecuting bribery and extortion cases. The law clearly allows such prosecutions and there have been many such prosecutions without reversals.
The McDonnell case was one we see too many times, where prosecutors push the envelope and prosecute conduct that does not meet the statute. And Hank Asbill, Noel Francisco, and the rest of McDonnell's legal team did a wonderful job showing this.
Elected officials who corruptly take money or items of value for an official act can be prosecuted. And prosecutors need to focus on bringing cases that meet the language of this statute. But the receipt of money or items of value alone are not a crime. If a politician's merely taking money is considered to be a crime, then politicians would be unable to accept any campaign contributions. And although many may find this result good - it is not the law.
So, DOJ should be applauded for making the right decision here. Spending more time or money on a case that does not meet the legal mandates is a poor choice of how to spend limited resources. What is particularly outstanding on the part of DOJ here is that they issued a press release stating, ""[a]fter carefully considering the Supreme Court's recent decision and the principles of federal prosecution, we have made the decision not to pursue the case further."
It is rare that DOJ issues a press release noting a not guilty verdict, a court dismissal, or something other than an indictment or conviction. It is hopeful that what DOJ has done with the McDonnell case, of issuing a statement of dismissal, will be replicated in non-white collar cases.
It's now official. Former Virginia Governor Robert McDonnell and his wife Maureen will not be retried and all charges are to be dropped. The Washington Post has the story here. It is unclear whether Main Justice overruled the EDVA or caused that office to change its mind regarding proceeding to a second trial. More analysis to come.
Wednesday, September 7, 2016
Finally, as promised, here is the U.S. v. Reddy Annappareddy 9-1-16 Motion to Dismiss Hearing Transcript. At the conclusion of that hearing Judge George Levi Russell dismissed the Indictment with prejudice. Judge Russell's rationale for his ruling can be found at pages 49-62 of the transcript. This was a health care fraud case and a core government theory was that Mr. Annappareddy received Medicaid reimbursement for pills that were never given to patients. The government sought to prove its theory by showing that Mr. Annappareddy's pharmacies billed for more pills than they received. The most significant evidence that the prosecutors offered in support of this allegation was a calculation of the purported “loss” from the alleged fraud. The following factors were key to the Court's finding that the government committed due process violations that shocked the conscience and rendered it impossible to put Mr. Annappareddy back on an even footing with the government: 1) the government violated Brady by failing to disclose loss calculations from its initial auditing team that were significantly smaller (in total and with respect to two key pharmacies) than the calculations of a subsequent government auditor who testified at trial; 2) the government violated Brady by failing to disclose the risk of double-counting errors in the loss calculations; 3) the government presented false testimony regarding the loss calculations due to double counting errors; 4) the government presented false testimony by a government agent, based on her examination of the wrong set of phone records, that Mr. Annappareddy had NOT made any calls to a key individual in response to a material email from that individual, when in fact Annappareddy had several phone contacts with the individual within minutes of the material email; and 5) the government destroyed potentially key exculpatory evidence without a court order or the defense's permission. The Court also sent a not so subtle warning to the government: "In the event that my record is not clear or exercise of my discretion too broad, this Court will conduct an extensive time-consuming and costly hearing as to these matters and the other grounds supporting the motion to dismiss and other motions which have already been filed. To that end, the balance of all other motions in this case are denied as moot." Translation: If you appeal this ruling and I am reversed, we will delve in detail into the other grounds of error raised by the defense. And it will not be a pleasant process. Hat Tip to David Debold of Gibson Dunn for sending along the transcript.
Thursday, September 1, 2016
The case against Reddy Annappareddy is over. The Government's case has been dismissed with prejudice by U.S. District Court Judge George Russell because of a pattern of government misconduct that shocks the conscience. As soon as I obtain a copy of today's hearing transcript we will post it. Congratulations are in order for Mr. Annappareddy and his Womble Carlyle defense team of Mark Schamel and Josh Greenberg. Greenberg's relentless motions work over the past 11 months has been particularly brilliant. Anybody who does white collar work in the federal courts knows how difficult it is to obtain a result like this, post-trial. This is a magnificent victory.
As we write this post U.S. District Court Judge George Russell is holding a hearing on Defendant's Motion to Dismiss with prejudice. I have previously discussed this case here and here. The motion is bottomed on various alleged prosecutorial errors and misdeeds. In a bad omen for the Government, Judge Russell only set arguments on the Motion to Dismiss (despite the pendency of other motions) and summarily denied the Government's motion to delay the hearing. The Government wanted a delay in the wake of an onslaught of defense motions, authored by Womble Carlyle's Josh Greenberg, alleging additional Government misbehavior, including destruction of potentially exculpatory evidence at a time when the Defendant's Motion for New Trial was filed and awaiting a decision. The Government later joined in the Motion for New Trial after admitting that it presented false material testimony to the jury. Meanwhile, in a filing that can only be described as stunning, the Government yesterday attempted to defend its admitted document destruction. Here lies the Government's Response Re Document Destruction.
Tuesday, August 30, 2016
The Supreme Court decision in McDonnell v United States, decided June 27, has given several politicians whose corruption convictions are on appeal both a cause for optimism and freedom on bail pending appeal. Last week SDNY District Judge Valerie Caproni granted former New York Assembly Speaker Silver's request for bail pending appeal on the grounds that there was a "substantial question" whether the court's instruction defining "official act" passed muster in light of the narrow definition of that term announced in the later Supreme Court decision.
Judge Caproni made it clear that she had little doubt about Silver's guilt of the major accusations against him, stating, "There is no question that Silver took a number of official acts - most obviously passing legislation and approving state grants and tax-exempt financing - as part of a quid pro quo scheme." These acts would clearly fall within the Supreme Court definition of "official act." But the judge recognized that there were other acts committed by Silver that were presented to the jury by the government, such as holding a meeting or arranging an internship, that might not fall within the narrow Supreme Court definition of "official acts." The jury was thus presented with instructions which may have permitted it to find Silver guilty for actions that were not criminal even if bought and paid for.
18 USC 3143(b)(1) allows a convicted defendant to be granted bail pending appeal if, inter alia, there is "a substantial question of law or fact likely to result in (i) reversal [or] (ii) an order for a new trial...." Finding the existence of a "substantial question," despite the literal language of the statute, does not mean that the judge believes there is a likelihood of reversal, only that if there were a substantial question which if decided in the defendant's favor would bring such relief. United States v. Miller, 750 F2d 19 (3d Cir 1985). Appellate courts deal with a lot of "substantial questions" that have led to bail pending appeal, but rarely reverse trial convictions.
Here, it appears that under the instructions it was given, the jury could have convicted Silver based on acts not within the statute as limited by the Supreme Court.. But that is not the end of the analysis. The appellate court will also consider, and the decision is likely to turn on, whether the evidence is considered so strong that the jury would have undoubtedly convicted Silver under a proper charge - in other words, whether the erroneous instruction constituted "harmless error."
I hesitate to predict the outcome of the appeal. Cases of political figures, as demonstrated by McDonnell, are scrutinized by appellate courts more carefully than, for instance, cases of drug dealers. I believe it is likely, and will appear likely to the appellate court, that Silver would have been convicted upon a proper instruction. How likely is the issue. Is it so likely that the court will find the error "harmless?" What is "harmless error' is in many ways just a visceral judgment by the judges putting themselves in the role of jurors. Harmless error analysis, thus, arguably deprives an accused of his basic constitutional right to a determination by a properly-instructed jury of peers and I believe should be applied rarely.
Other factors the appellate court will probably consider include whether the defense proposed an instruction in accord with the standard set forth in McDonnell, and whether the defense specifically objected to the definition given by the trial court as too broad. Another factor that may conceivably affect the decision, although unlikely to be mentioned, is whether the judges believe the 12-year prison sentence imposed on the 72-year old Silver is excessive. And, of course, there may be other, unrelated issues raised. In any case, based on the "official act" issue issue alone, a reversal will likely not give Silver a dismissal, but only a new trial, presumably with proper jury instructions.
One lesson that lawyers - both prosecutors and defense lawyers - might learn from this situation is to be aware and up-to-date on cases for which the Supreme Court has granted cert and, if any concern issues that might arise in a pending case, to craft requests to charge in anticipation of the possible result of the Supreme Court case. Another lesson - for judges and prosecutors more than defense lawyers - is to adjourn a pending case that might be affected by a pending Supreme Court case until after that decision. A third lesson - for prosecutors - is to analyze all aspects of their prospective case and discard legally or factually questionable ones when there are strong aspects.
Monday, August 29, 2016
Things are getting personal in U.S. v. Annappareddy. I posted here last week about this District of Maryland case in which the Government ultimately admitted to having presented false evidence to the trial jury, and grudgingly joined Defendant's new trial motion--granted the next day by Judge George Russell. Now the Government has admitted to "disposal" of certain documents while defendant's New Trial Motion was pending in March 2015. Annappareddy's current trial team was not notified of the disposal until August 19, 2016, and claims, in Defendant's Motion for Extension of Time to File Motions In Limine, that some of the destroyed documents were exculpatory in nature. No court order authorized the destruction at the time it was accomplished.
The DOD/OIG Evidence Review Disposal Sheet from March 11, 2015 states that AUSA Sandy Wilkinson determined that the items in question "were not used as exhibits in trial and would not be used in future proceedings against Annaparreddy." In other words, Wilkinson acted unilaterally, apparently consulting no one on the defense team before making her decision. The Government's response to the allegation is a footnote stating in part that "in early March 2015, after the trial, the government began to clean up papers and documents not used from the Washington Blvd collection and store the trial exhibits post- trial. The government began purging the contents of several unused boxes. These were items Defendant and his own attorneys had reviewed at length and were never marked as exhibits or used in any way by them at trial. Yet they couch their complaint again in the most accusatory of tones. "
Well, yes. Destruction of potential evidence prior to final judgment on appeal is quite rare, if not unheard of, in federal criminal practice. That an AUSA would do it on her own is remarkable. The Government's Response to Annappareddy's Motions to Limit Government Evidence complains further that Annappareddy's new lawyers don't play nice in the sandbox, unlike the original trial lawyers--you know, the ones who lost after the Government presented false testimony. That's right, Ms. Wilkinson. Lawyers tend to get angry when false testimony is put in front of the jury and potentially exculpatory evidence is destroyed.
The case is far more involved, and the issues more complex, than I can do justice to here. Annappareddy has moved to dismiss with prejudice and a hearing on that motion is set for September 1. Failing that, the defense wants to limit the Government's evidence at a new trial to the evidence presented at the first trial. One thing absent from the Government's papers that I have had an opportunity to review is any recognition of the emotional, financial, and strategic harm suffered by defendants when the Government screws up, forcing a new trial. It's as if Ms. Wilkinson wants a cookie and a pat on the back for deigning to agree that Reddy Annappareddy gets to go through the whole damn thing again.
Tuesday, August 23, 2016
In June 2016, the U.S. District Court for the District of Maryland (Judge George Levi Russell III, presiding) granted Reddy Annappareddy a new trial on the grounds that the prosecutors presented false evidence to the jury at his first trial and that the outcome might have been different without the false evidence. This ruling is part of a remarkable turnaround for Mr. Annappareddy, whose case appeared to be over after the first trial ended in December 2014.
The case is captioned as United States v. Annappareddy, No.1:13-cr-00374 (D. Md.). The prosecutors’ main allegation during the first trial was that Mr. Annappareddy’s chain of pharmacies, known as Pharmacare, committed health care fraud by billing government insurance programs for prescriptions that were never picked up or delivered. The most significant evidence that the prosecutors offered in support of this allegation was a calculation of the purported “loss” from the alleged fraud. Mr. Annappareddy’s current counsel, Mark Schamel and Josh Greenberg of Womble Carlyle, began working on the case in the spring of 2015. In September 2015, they filed a Supplement to the one-and-a-half-page Motion for New Trial filed by Annappareddy's original trial counsel. The Supplement and a Reply in support of it argued, among other things, that the prosecutors presented materially false evidence to the jury on a number of important subjects in violation of the Due Process Clause.
After many months, during which the parties took depositions of trial counsel and Greenberg and Schamel filed extensive additional briefs raising troubling issues, the Court scheduled a hearing for June 3 on Annappareddy's Motion for New Trial. On the afternoon of June 2, the prosecutors filed a letter with the Court conceding that the "inventory analysis" it presented to the jury, in an effort to prove purportedly enormous losses caused by Annappareddy, was in "substantial error", rendering its own evidence "wrong", and violative of Due Process. The Government effectively joined Annappareddy's Motion for New Trial, which was granted the next day by Judge Russell during a status conference.
Judge Russell scheduled a second trial – to last eight weeks, three weeks longer than the first trial – to begin on September 19. Last month, the Court entered an Order denying the Government's motion to delay the second trial. The Order emphasizes that the Court granted a new trial because the prosecutors presented “significant material and false testimony” at the first trial and that the delay they sought “would be fundamentally unfair” to Mr. Annappareddy.
While government admissions of error are always welcome, one of the striking things about this case has been the prosecution's reluctance to admit that the evidence it presented to the jury was not just wrong or in error--it was false.
The defense recently filed a motion calling for dismissal with prejudice. Check this space for further details. The multiple briefs filed by Greenberg and Schamel since they entered their appearances represent outstanding work.
Here are some relevant documents pertaining to the case: a partial transcript from the U.S. v. Annappareddy 6-3-16 Status Conference; Judge Russell's 7-6-16 Order Denying Gov't's Motion for Modification of Trial Schedule; and the Government's Letter to Court Conceding that New Trial is Warranted.
Wednesday, July 20, 2016
Earlier this month, the UK Serious Fraud Office announced the approval by Lord Justice Leveson of the country's second deferred prosecution agreement. Readers may recall that the implementation of a DPA process is relatively new in the UK (see prior post here). According to the SFO press release in the matter, the company, which remains nameless due to ongoing, related legal proceedings, was subject to an indictment charging "conspiracy to corrupt, contrary to section 1 of the Criminal Law Act 1977, conspiracy to bribe, contrary to section 1 of the same Act, and failure to prevent bribery, contrary to section 7 of the Bribery Act 2010, all in connection with contracts to supply its products to customers in a number of foreign jurisdictions."
Pursuant to the terms of the DPA, the indictment was suspended and the company agreed to pay a total of 6,553,085 British Pounds. The company also agreed to continue to cooperate with the ongoing SFO investigation and conduct a review of all third party transactions and its existing compliance measures.
The SFO press release went on to state:
In passing the judgment, Lord Justice Leveson said:
“[This conclusion] provides an example of the value of self-report and co-operation along with the introduction of appropriate compliance mechanisms, all of which can only improve corporate attitudes to bribery and corruption.”
SFO Director David Green CB QC said:
“This case raised the issue about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfill the terms of a DPA but demonstrates exemplary co-operation.
“The decision as to whether to force a company into insolvency must be balanced with the level and nature of co-operation and this case provides a clear example to corporates. The judgment sets out the considerations in detail and endorses the approach we took. As with the first DPA with Standard Bank, the judgment provides clear and helpful guidance.”
The suspended charges relate to the period of June 2004 to June 2012, in which a number of the company’s employees and agents was involved in the systematic offer and/or payment of bribes to secure contracts in foreign jurisdictions. The SFO undertook an independent investigation over a period of two years, concluding that of the 74 contracts examined 28 were found to have been procured as a result of bribes.
The SME’s parent company implemented a global compliance programme in late 2011. In August 2012, this compliance programme resulted in concerns being raised within the SME about the way in which a number of contracts had been secured. The SME took immediate action, retaining a law firm that undertook an independent internal investigation. The law firm delivered a report to the SFO on 31 January 2013, after which the SFO conducted its own investigation.
The SFO would like to thank HM Treasury, HM Revenue & Customs and the Department for Business, Innovation & Skills for their assistance in this investigation.
The final redacted judgement in the matter is available here.
This week, WilmerHale released a piece entitled "The UK's second DPA: a hopeful judgment." In the piece, author Lloyd Firth argues that several revelations from the DPA are encouraging as we consider the role the new DPA system will have in the UK. For those interested in the evolving DPA process in the UK, I recommend you give both the final redacted judgment and the WilmerHale piece a read.
Friday, July 15, 2016
In 2014, prosecutors proceeded with a case against fed ex. Unlike many companies in a post-Arthur Andersen world, they would not be bullied into folding and taking a non-prosecution or deferred prosecution agreement. Instead, they took the risk - and it is always a risk - of going to trial. What makes this case particularly puzzling is that the company had cooperated with the government. They hired a top-notch white collar attorney Cristina Arguedas and the government folded shortly after the trial began. Now, according to Dan Levine and David Ingram in their Reuter's story, U.S. Prosecutors Launch Review of Failed Fed Ex Drug Case, the DOJ is reviewing this matter. Some thoughts -
1. It is good to see DOJ re-examining this case. What happened here should not have happened, and learning from this case is important.
2. The review should not be limited to the fed ex case. There needs to be an examination, especially for the smaller companies that cannot afford to go to trial, of the government cooperation tactics.
3. If cooperation is going to work, then credit needs to rightfully be given.
4. The government's pitting employees (the corporate constituents) against the employers (company) needs to also be examined. This practice defeats the ability of corporations and individuals working together to root out corporate misconduct.
5. Criminal defense attorneys need to recognize that one can successfully take a corporation to trial against the government. The risk is enormous, but innocence needs to matter.
Thursday, July 7, 2016
I agree with guest bloggers Ziran Zhang and Eugene Gorokhov in their thoughtful blog post (here) that "[i]f Director Comey is right that individuals in similar circumstances in the past were only subjected to administrative sanctions, then its decision to recommend no prosecution in this case may be the right one."
I would, however, go a step further - a declination of prosecution was the right decision here even without the long precedent of not bringing these cases. After listening to FBI Director Comey's testimony in an over four hour hearing of the House Oversight and Government Reform Committee on the "Hillary Clinton Email Investigation" (see here) we find out that the 3 emails that were alleged to be classified were not in fact properly marked. And they looked at "tens of thousands of emails." Here there was no header on the documents or in the text. And FBI Director Comey stated that it would be a reasonable inference to think it was not classified when there was no header on the document.
Attorneys Zhang and Gorokhov reference the US Attorneys Manual, specifically the Principles of Prosecution in 9-27.000 and 9-27.220(A). But let me add to their discussion part of the Comment from that portion of the Manual -
Comment. USAM 9-27.220 expresses the principle that, ordinarily, the attorney for the government should initiate or recommend Federal prosecution if he/she believes that the person's conduct constitutes a Federal offense and that the admissible evidence probably will be sufficient to obtain and sustain a conviction. Evidence sufficient to sustain a conviction is required under Rule 29(a), Fed. R. Crim. P., to avoid a judgment of acquittal. Moreover, both as a matter of fundamental fairness and in the interest of the efficient administration of justice, no prosecution should be initiated against any person unless the government believes that the person probably will be found guilty by an unbiased trier of fact. (emphasis added)
Put the format of the emails together as testified to by Director Comey, with no intent, no evasiveness, and no false statements - Director Comey would be justified in believing that such a case would not return a conviction. Using the guidance of the US Attorney's Manual FBI Director Comey's recommendation to DOJ was justified.
But there is another fascinating aspect to this hearing. One of the key aspects of the Overcriminalization Movement (a bi-partisan coalition) is the need to include a mens rea in statutes. (see here). Yet in this hearing we see some members of Congress, albeit different ones from the committee looking at Overcriminalization, arguing that in this case a strong mens rea should not be needed for this criminal statute.
Recently, Professor Podgor wrote two informative posts covering FBI Director James Comey’s public statement about the FBI’s year-long investigation into Hillary Clinton’s use of private e-mail servers, its recommendation that no criminal charges be filed (here), and AG Loretta Lynch’s acceptance of the FBI’s recommendation (here). Professor Podgor noted many unusual aspects about Director Comey’s statement, including the fact that the FBI does not usually publicize its recommendations. The short version of Director Comey’s speech is that the FBI did find “evidence of potential violations of the statutes regarding the handling of classified information,” but is recommending against criminal prosecution for a variety of reasons. This post examines two questions: (1) Is Director Comey right when he says that the evidence indicated potential violations of federal laws? (2) if so, why is the FBI recommending against prosecution?
What laws did Hillary Clinton’s conduct potentially violate?
While the FBI’s investigation undoubtedly looked at many federal statutes, the one that Director Comey referenced in his statement appears to be 18 U.S.C. 793(f), which makes it a federal crime for anyone “through gross negligence" to permit classified information "to be removed from its proper place of custody or delivered to anyone in violation of his trust, or to be lost, stolen, abstracted, or destroyed[.]”
In this case, classified information was undoubtedly removed from its proper place of custody. According to Director Comey, of the approximately 30,000 emails provided by Hillary Clinton, 110 contained classified information at the time they were sent or received. (Another 2,000 emails were later determined to contain classified information, although those were not formally classified at the time they were sent or received). A small number of emails also contained documents with markings that indicated the presence of classified information. Comey noted that “none of these e-mails [containing classified information] should have been on any kind of unclassified system,” let alone “unclassified personal servers not even supported by full-time security staff[.]”
Whether the act of communicating classified information through personal servers constitutes “gross negligence” is a more difficult question to answer. The Supreme Court has called “gross negligence” a “nebulous” term “lying somewhere between the poles of negligence at one end and purpose or knowledge at the other[.]” Farmer v. Brennan, 511 U.S. 825, 836 n.4 (1994).
Reported decisions of prosecutions under 18 U.S.C. § 793(f) are rare. In one case, a Marine Corps intelligence officer pled guilty to a violation of § 793(f) where he inadvertently packed classified documents into his gym bag along with his personal papers and took the classified documents home. United States v. Roller, 42 M.J. 264 (CAAF 1995). Former FBI Agent James J. Smith, who had an affair with suspected Chinese spy Katrina Leung, was also charged under this provision for taking classified documents to Leung’s home, resulting in Leung covertly copying the documents without Smith’s knowledge. Smith later pled guilty to a charge of false statements.
Director Comey opined that the use of a private server was “extremely careless” and that any “reasonable person” in Hillary Clinton’s position would know better than to use an unclassified system to discuss classified information. A jury looking at the full evidence, including the actual content of the emails and the context in which these events occurred, may have agreed with Comey, or may have decided that although negligent, Clinton’s conduct did not rise to gross negligence.
Why did the FBI recommend that no criminal charges be filed?
Director Comey’s primary reason for not recommending criminal charges in this case appears to be the lack of precedent for criminal charges in similar cases in the past. According to Director Comey, “[a]ll the cases prosecuted involved some combination of: clearly intentional and willful mishandling of classified information; or vast quantities of materials exposed…; or indications of disloyalty to the United States; or efforts to obstruct justice.” Whereas “in similar circumstances,” “individuals are often subject to security or administrative sanctions”
While the decision to prosecute is ultimately up to the prosecutor, what some may not realize is that in federal cases, the prosecutor’s decision to bring criminal charges is governed by the United States Attorney’s Manual. USAM 9-27.000, titled “Principles of Federal Prosecution” contains the DOJ’s written guidance to prosecutors about decisions to initiate or decline prosecution. Specifically, 9-27.220(A) instructs prosecutors to file criminal charges in all cases where there is a violation of federal law and the evidence is sufficient to obtain a conviction, unless one of three grounds exist:
- Lack of a substantial federal interest;
- The defendant is subject to prosecution in another jurisdiction; or
- The existence of adequate non-criminal alternatives to prosecution.
In this case, both the first and third grounds are potential reasons that a federal prosecutor can rely on to justify not bringing any charges.
The first ground, “substantial federal interest,” is a composite factor that weighs a number of considerations including federal law enforcement priorities, the nature and seriousness of the offense, the deterrent effect of prosecution, the personal characteristics of the individual, and the probable sentence upon conviction. Nationally, the DOJ’s number one law enforcement priority is protecting U.S. citizens from national security threats. See Memorandum re: Federal Prosecution Priorities. However, a prosecutor can potentially justify declining prosecution based on Hillary Clinton’s personal characteristics and the nature and seriousness of the offense.
The third ground, the existence of adequate non-criminal alternatives, appears to have been the one that Director Comey relied upon. In this case, for example, Hillary Clinton could potentially face security and administrative sanctions such as revocation of her security clearance, and such a sanction may be “adequate” in light of past practice. (How such a sanction would work if Clinton is elected President, however, is a question we can’t answer).
The FBI’s investigation uncovered sufficient evidence for a reasonable jury to find that Hillary Clinton did violate the law. However, the federal government does not (and should not) bring criminal charges in every case. If Director Comey is right that individuals in similar circumstances in the past were only subjected to administrative sanctions, then its decision to recommend no prosecution in this case may be the right one.
(ZZ & EG)
Wednesday, July 6, 2016
Attorney General Loretta Lynch issued a statement today regarding the DOJ's decision to close the investigation without charges. (see here). It's 3 1/2 lines shows the proper way to handle a declination of prosecution. It simply tells the individual and public that the investigation is over and that there will be no charges.
Unlike FBI Director Comey's comments it does not state opinions and hypotheticals. Further, it does not carelessly accuse a person of conduct that they did not and will not have an opportunity to refute in a legal forum. One also has to give AG Lynch credit for removing herself from the decision-making function and leaving this matter to career prosecutors.
From the perspective of process - Attorney General Loretta E. Lynch gets an "A" in my book.
Tuesday, July 5, 2016
An interesting case is pending in the 11th Circuit that considers whether a breach of a real estate contract can be the basis for a wire fraud conviction. The case involves a failure to disclosure a sinkhole when selling a residence. There is a huge federalism question here that is magnified by the fact that Alabama "employ[s] the cannon of caveat emptor in real estate transactions." But the most interesting aspect of the case is the government's taking a civil action and using the wire fraud statute to prosecute the conduct. I'll withhold further comment until after I have seen the government's brief - but I have to wonder if this is the case that the late-Justice Scalia was waiting for to limit the reach of the mail/wire fraud statutes.
Appellant's Brief - Download Defendant-Appellant's Initial Brief
Wednesday, June 29, 2016
I received the McDonnell decision with mixed feelings. Initially, I was happy for my colleague Hank Asbill, one of the nation's top criminal defense attorneys, for a great victory. Asbill and his co-counsel litigated this case the "old-fashioned way" - they fought it, and fought it, and then fought it. Their tenacity, dedication and skill make me proud to be a defense lawyer.
Not having read the briefs of the parties, or of the amici, or heard the oral arguments, I am hesitant to criticize the opinion, especially an opinion by a brilliant chief justice for a unanimous court (I suspect due to a compromise by potential dissenters, possibly to avoid an outright dismissal). Indeed, the opinion makes a strong case that the decision was required by precedent. However, I do question several aspects of the opinion. First, I find questionable Justice Roberts' Talmudic crucial narrowing of the definition of "official act" by virtually eliminating the broad catch-all words "action" and "matter," largely by resort to the Latin word jurisprudence that is often an indication that the interpretation is on shaky ground.
Second, while I am less troubled than the Court about the federal assumption of power to monitor the conduct of state officials for purportedly violating their offices, there is something bothersome about federal officials by criminal prosecutions in effect setting ethical standards for state officials. However, as a practical matter it appears that with rare exceptions local prosecutors lack the will and/or the resources to prosecute high state officials. In New York City, for instance, U. S. Attorney Preet Bharara has in recent years prosecuted about ten state legislators on corruption charges, while New York's five district attorneys combined have not prosecuted any.
Third and most importantly, I am concerned by the decision's enablement of business-as-usual pay-to-play practices. By narrowing the definition of "official act, the Court has legalized (at least federally) the practice of paying a government executive to set up a meeting with a responsible official. By doing so, the Court has given such "soft" corruption a green light. Under the opinion, a businessperson does not violate federal bribery law by paying a governor, mayor - or even the President - tens of thousands of dollars to make a phone call to a purchasing official asking or directing her to meet with the businessperson. And that call, however innocuous that actual conversation may sound, will have real consequences - otherwise, why would the businessperson pay for it? Even absent a verbal suggestion that the executive wants the official to do business with the caller, the official cannot but think that the executive would like that she do business with that person. I imagine a New Yorker cartoon with a governor sitting at a phone booth with a sign saying, "Phone calls, official meetings. $10,000 each."
To be sure, the law concerning bribery - not alone among federal statutes - vests too much power in the government. At argument government counsel conceded (candidly but harmfully) that a campaign contribution or lunch to an official could constitute the quid in a quid pro quo. That is frightening, but the problem is in the quid, not in the quo - about which this case is concerned. (I applaud Chief Justice Roberts statement in response to the standard "Trust me, I'm the government" argument that "We cannot condone a criminal statute on the assumption the government will use it responsibly.") And, certainly, if this case were to apply to campaign contributions - and not, as in this case personal receipt of money and goods-in the words of the amicus brief of former White House counsel - it would be "a breathtaking expansion of public corruption law." Indeed, a distinction should be made between personal and campaign contributions. But this case applied to the quo - what the governor did in exchange for $175,000 worth of goods and money. And, in my view he took "action" as the governor on a "matter" by "official acts" - hosting an event at the official mansion, making calls and arranging meetings.
Tuesday, June 21, 2016
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.