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American Bar Association

Criminal Litigation

Practice Points


February 8, 2016

A 10-Point Checklist for the Criminal Appeal


1. Talk to your client. Does your client really want this appeal? The conviction may be reversed, affirmed, or remanded for a new trial. A new trial resets matters, but depending on the reason for a remand, a new trial could result in a better plea offer or a dismissal.


2. If you did not try the case, talk to the trial lawyer as soon as possible. You can get what happened at the trial from your colleague while it is still fresh.


3. File a timely notice of appeal. See Lawrence A. Kasten, “Time Limits for Filing a Notice of Appeal Are Mandatory and Jurisdictional—Really,” 30 App. Prac. 1 (Fall 2010).


4. Review the trial court’s docket entries and all records. Review the trial transcripts, noting preserved errors, to identify your strongest arguments. See Lara O’Donnell & Sonia O’Donnell, “Criminal Appeals for the Mostly Civil Lawyer,” 33 App. Prac. 2 (Summer 2014).


5. Write the opening brief. It should convey not just why the trial court erred but why the conviction must be vacated. Go with your gut in explaining your views. You do not have to argue every issue. See Cerbo v. Fauver, 616 F.2d 714, 718 (3d Cir.1980) (“counsel need not appeal every possible question of law”). But you do not have to limit the issues to only a few. See Paul Mogin, “Raising Issues on Appeal: Fewer Is Not Always Better,” 34 App. Prac. 2 (Fall 2014). The brief does not have to be short. Empirical studies show that longer briefs directly correlate with appellants’ success. Gregory C. Sisk & Michael Heise, “‘Too Many Notes’? An Empirical Study of Advocacy in Federal Courts,” 12 J. Empirical Legal Stud. 578, 580 (2015) (“Brief length proved powerfully significant in our study and with substantial effect—for appellants.”). You may have heard that we should write short sentences. This also lacks an empirical basis. See generally Michael Heise, “Federal Criminal Appeals: A Brief Empirical Perspective,” 93 Marq. L. Rev. 825 (2009) (empirical research generally lacking in criminal appeals). Shorter sentences and other indices of readability simply do not improve a brief’s success. Lance Long & William F. Christensen, “Does the Readability of Your Brief Affect Your Chances of Winning on Appeal?” 12 J. App. Prac. & Process 145, 146 (2011).


6. Review the opposition brief thoroughly. If the government does not file a brief in opposition or has failed to adequately respond to your brief and the trial court’s error remains obvious, file a motion for summary reversal. Though such motions are rarely granted, you should file it if the circumstances warrant.


7. Write a reply brief responsive to the opposition brief. It is your last word. See Sylvia H. Walbolt & Nick A. Brown, “The Reply Brief: Turning ‘Getting the Last Word’ into ‘Getting the Win’,” 35 App. Prac. 2 (Fall 2015).


8. Appear for oral argument. The utility of oral argument is in serious doubt. In courts that depend heavily on law clerks’ bench memos, despite appearances, you are often arguing against a memo, not your opponent. Support is tepid. See, e.g., Joseph W. Hatchett & Robert J. Telfer III, “The Importance of Appellate Oral Argument,” 33 Stetson L. Rev. 139, 140 (2003) (“Not only has oral argument become less common, but the time allotted for oral argument has decreased.”). Waiving oral argument in many cases will hardly hurt your client.


9. Review the court’s opinion. Was the conviction affirmed? File a petition for rehearing if the court has overlooked or misunderstood an issue. Courts hardly ever grant petitions for rehearing. See Richard S. Arnold, “Why Judges Don’t Like Petitions for Rehearing,” 3 J. App. Prac. & Process 29 (2001). It is still your obligation to file a petition in the case of an incorrect decision that affects your client’s rights.


10. Communicate the court’s decision promptly to your client. If the conviction is affirmed, tell your client and explain the next steps. There is a model letter by the U.S. Court of Appeals for the District of Columbia Circuit for practitioners under the Criminal Justice Act program.


Keywords: criminal litigation, appeals, brief writing, oral argument, appellate procedure


Kele Onyejekwe, Office of the Territorial Public Defender, St. Thomas, VI


 

November 5, 2015

Reporting from the Sixth Session of the CoSP to the U.N. Convention Against Corruption


The Sixth Session of the Conference of the State Parties (CoSP) to the United Nations Convention against Corruption is currently being held in St. Petersburg, Russia. Professor Juliet Sorensen (Northwestern University School of Law) and two Northwestern law students (Michelle Kennedy and Cassandra Myers) have been reporting on (and from) the conference regarding international corruption issues. We will be reposting their reports this week, so keep checking back for more:   


Nov. 4, 2015: Finding A Solution To The Public – Private Corruption Dichotomy

Nov. 4, 2015: International Efforts in Support of the Recovery of Stolen Assets

Nov. 6, 2015: Addressing Corruption In An Era Of Climate Change

Nov. 6, 2015: The Benefits and Tribulations of Open Data in Decreasing Corruption

Nov. 6, 2015: Combating Corruption Through Education

Nov. 6, 2015: Increasing Awareness And Cooperation To Thwart Cultural Heritage Corruption

 

September 30, 2015

DOJ Announces New Policy on Corporate Misconduct Focusing on Individual Culpability


On September 9, 2015, the Department of Justice issued a memorandum titled “Individual Accountability for Corporate Wrongdoing.” The memorandum emphasized the responsibility of individual corporate employees:


The guidance in this memo reflects six key steps to strengthen our pursuit of individual corporate wrongdoing, some of which reflect policy shifts . . . : (1) in order to qualify for any cooperation credit, corporations must provide to the Department all relevant facts relating to the individuals responsible for the misconduct; (2) criminal and civil corporate investigations should focus on the individuals from the inception of the investigation; (3) criminal and civil attorneys handling corporate investigations should be in routine communication with one another; (4) absent extraordinary circumstances or approved department policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation; (5) Department attorneys should not resolve matters with a corporation without a clear plan to resolve related individual cases, and should memorialize any declinations as to individuals in such cases; and (6) civil attorneys should consistently focus on individuals as well as the company and evaluate whether to bring suit against an individual based on considerations beyond that individual’s ability to pay.


This shift in policy is shaking up the white-collar defense community and inspiring abundant commentary. For instance, writing in her White Collar Crime Prof Blog, Professor Ellen Podgor made the following comments to the memorandum:


Three concerns here: 

1) what is meant by providing “all relevant facts”? Does this mean only information that is relevant to the government’s case against the individuals? Will the government also be asking for Brady material that might be exculpatory for the individuals? Does this mean that the corporation now is officially a member of the government team?


2) what does this mean for the corporate culture? The concept of the individuals in the company working together, asking for legal advice from corporate counsel, and working to resolve problems in an open environment may now be officially over. This policy pits the corporation against the individual. Is this a wise approach to correcting business misconduct?


3) does this make it more important that there be fairness in internal investigations? See here for a discussion of the importance of fairness in internal investigations.


James R. Wyrsch, Wyrsch Hobbs & Mirakian, P.C., Kansas City, MO


 

September 30, 2015

GM Gets Criminal Charges and Deferred Prosecution with $900 Million Forfeiture


On September 17, 2015, the U.S. Attorney for the Southern District of New York, Preet Bharara, announced a settlement with General Motors concerning the investigation of a dangerous defect in an ignition switch that could result in the disabling in frontal airbags. Under the settlement, General Motors agreed to forfeit $900 million. GM will be charged with one count of wire fraud, but the prosecution would be deferred. GM also agreed to oversight by an independent monitor. Press reports indicate that there no individuals would be prosecuted.


James R. Wyrsch, Wyrsch Hobbs & Mirakian, P.C., Kansas City, MO


 

August 26, 2015

Fourth Circuit: Government Can Prosecute Citizens for Illicit Sex Overseas


United States v. Bollinger involved a U.S. citizen defendant who engaged in sexual activities with minor females while he ran a ministry for children in Haiti. Upon his return to the United States, Bollinger was indicted for two counts of engaging in illicit sexual acts with a minor after traveling in foreign commerce, in violation of 18 U.S.C. §§ 2246 and 2423. Bollinger argued that section 2423(c) is unconstitutional because its application to non-commercial sexual activity exceeds the scope of the Foreign Commerce Clause. A unanimous panel of the Fourth Circuit Court of Appeals disagreed and upheld the convictions. The court held that the Foreign Commerce Clause allows Congress to regulate such sexual activities that demonstrably affect foreign commerce, such as sex tourism. The case is United States v. Bollinger, No. 14-4086 (4th Cir. Aug. 19, 2015).


Alexander S. Vesselinovitch, Katten Muchin Rosenman LLP, Chicago, IL


 

August 25, 2015

Feds Announce Criminal and Civil Charges Involving Hacking and Insider Trading


On August 11, 2015, federal prosecutors in Newark, New Jersey, and Brooklyn, New York, announced charges against nine defendants in an international insider-trading scheme. The defendants are alleged to have hacked three business newswires, to have stolen unpublished press releases regarding financial information, and to have made trades that generated tens of millions of dollars in illegal profits. The ring of cybercriminals, including some men from Ukraine, hacked into company press release publishers to steal corporate news before they became public. The hacked wire services included PR Newswire and Business Wire. It is reportedly the largest case brought in the U.S. alleging hacking that resulted in insider trading. The SEC also unsealed a civil complaint against 32 defendants, including the nine who were indicted.


Alexander S. Vesselinovitch, Katten Muchin Rosenman LLP, Chicago, IL


 

August 25, 2015

Seventh Circuit Affirms Some Blagojevich Convictions, Reverses Others


On July 21, 2015, the Seventh Circuit Court of Appeals reversed five of eighteen convictions of former Illinois Governor Rod Blagojevich, but it affirmed his convictions on the other counts. The court concluded that the jury instructions failed to distinguish between the defendant’s proposal to trade one public act for another (legal) as opposed to his attempt to swap an official act for a private payment (illegal). As a result, convictions under the Hobbs Act and for wire fraud and bribery were reversed because they could have been based on routine “logrolling,” which is a promise to trade one political favor for another. The government is free to retry the Blagojevich on the reversed counts, but he must be resentenced in any event. The case is U.S. v. Blagojevich, No. 11-3853 (7th Cir. July 21, 2015).


Alexander S. Vesselinovitch, Katten Muchin Rosenman LLP, Chicago, IL


 

August 16, 2015

Federal White-Collar Prosecutions Reach 20-Year Low


Data released by the Justice Department show that the federal government is prosecuting white-collar criminal cases at the lowest rate in two decades. According to an analysis conducted by the Transactional Records Access Clearinghouse at Syracuse University, if prosecutions continue at the same rate through the end of the federal fiscal year in September, the number of white-collar cases filed will have declined by nearly 37 percent since 1985.


The Syracuse analysis does not explain the reason for the decline in prosecutions during a period of economic and population growth other than by generally attributing the slide to “shifting enforcement policies,” changes in prosecutorial staffing, and revised statutes. An interesting theory for the 29 percent decline in white-collar prosecutions over the last five years and the 12 percent reduction since last year could be the “too big to jail” concept arising from the federal government’s pursuit of financial institutions for misconduct associated with the 2008 recession. Ten years ago, bank fraud charged under 18 U.S.C. § 1344 was the top lead charge filed by federal prosecutors. Five years ago, bank fraud was overtaken by aggravated identify theft as the top lead charge, and stands to fall to third-place this year behind wire fraud and public corruption.


Unsurprisingly, the data show that healthcare fraud may be the next major frontier for federal white-collar activity, with prosecutions charging 18 U.S.C. § 1347 as the lead count surging 22 percent over the last five years.


While the Southern District of New York is usually considered the epicenter of the white-collar criminal practice, 2015 stands to be the first year in which that district leads the nation in the number of white-collar prosecutions relative to its population. The Southern District of Alabama (Mobile) comes in second, followed by the Southern District of Florida (Miami), the Eastern District of Louisiana (New Orleans), and the Eastern District of Missouri (St. Louis). Washington, D.C. is in 42nd place.


Zachary H. Greene, Miller & Martin PLLC, Chattanooga, TN


 

August 16, 2015

Internal and External Whistleblowers Entitled to Same Protections


In an interpretation issued on August 4, 2015, the Securities and Exchange Commission (SEC) clarified that the employment-retaliation protections provided to whistleblowers under the Dodd-Frank Act are fully available to internal, as well as external, whistleblowers.


Section 922 of Dodd-Frank amended the Exchange Act by adding section 21F, codified at 15 U.S.C. § 78u-6(h)(1), to establish incentives and protections for individuals who report possible violations of federal securities laws. These incentives and protections are generally composed of monetary awards for reporting, assurances of confidentiality, and protections against adverse employment actions. However, section 21F narrowly defined a “whistleblower” entitled to these incentives and protections as limited to individuals who provide information relating to violations of the securities laws to the SEC in the manner provided by applicable future rulemaking. Yet the SEC’s rule-based whistleblower program, which was largely established in the wake of Sarbanes-Oxley, offers broad protection to individuals “making disclosures that are required or protected under” SOX, the Exchange Act, “and any other law, rule, or regulation” subject to SEC jurisdiction.


To resolve this ambiguity with respect to the implementation of Dodd-Frank, the SEC promulgated two definitions of “whistleblower” under Rule 21F-2. The first definition, found in Rule 21F-2(a), defines a whistleblower as an individual who provides the SEC with information pursuant to the reporting procedures outlined in Rule 21F-9(a). The second definition, found in Rule 21F-2(b)(1), specifically applies for “purposes of the anti-retaliation protections” of section 21F of the Exchange Act, and does not require reporting to the SEC.


The SEC issued its August 4 interpretation, at least in part, to avoid contrary rulings by the federal courts of appeal. In 2013, the Fifth Circuit, in Asadi v. GE Energy USA LLC, 720 F.3d 620 (5th Cir. 2013), dismissed a whistleblower claim brought by a terminated executive who never reported his corporate concerns to the SEC. In June 2015, a panel of the Second Circuit hearing argument in Berman v. Neo@Ogilvy LLC, No. 14-4626, appeared divided over whether to apply the rule from Asadi in a case filed by an employee who was terminated before raising her complaints with the SEC. In addition, over the last few years, to further combat judicial decisions undermining a robust whistleblower program, the SEC has regularly filed amicus curiae briefs in state and federal retaliatory-discharge litigation urging courts to adopt its interpretation of Rule 21F-2.


In addition to reaffirming the plain meaning of Rule 21F-2(b)(1), the SEC found that its interpretation of the applicable whistleblower protections “best comports with our overall goals in implementing the whistleblower program. Specifically, by providing employment retaliation protections for individuals who report internally first to a supervisor, compliance official, or other person working for the company . . . our interpretive rule avoids a two-tiered structure of employment retaliation protection that might discourage . . . the benefits that can result from internal reporting.”


Zachary H. Greene, Miller & Martin PLLC, Chattanooga, TN


 

August 16, 2015

D.C. Circuit Reaffirms Privilege and Protections over Corporate Investigations


For a second time, on August 11, 2015, the D.C. Circuit granted a writ of mandamus in the KBR whistleblower False Claims Act suit, again affirming important attorney-client privilege and work-product protections over corporate investigatory material. In so ruling, the D.C. Circuit vacated a ruling that “would ring alarm bells in corporate general counsel offices throughout the country.”


Henry Barko filed a False Claims Act complaint against his former employer, KBR, a defense contractor, alleging fraud associated with its administration of military contracts during the Iraq War. In discovery, he sought reports of KBR’s internal investigation into the alleged fraud, over KBR’s attorney-client privilege and work-product objections. In a 2014 ruling, the district court ordered the production of more than 80 reports, finding that KBR failed to show that the communications would not have been made “but for” the fact that legal advice was sought. The district court held that the reports were made for purposes of regulatory compliance and corporate policy, not for purposes of obtaining legal advice. On KBR’s first petition for mandamus, the D.C. Circuit rejected the district court’s overly restrictive standard as contrary to the U.S. Supreme Court’s Upjohn decision.


On remand, the district court ruled again that the same investigatory reports should be produced, this time under a theory of implied waiver and because the reports contained non-privileged fact work product that was discoverable based on substantial need. The D.C. Circuit rejected both grounds for disclosure and vacated the court’s order.


The district court found implied waiver of the privilege for two reasons, both of which the D.C. Circuit rejected. First, it found that KBR’s vice president (legal) waived the privilege when he testified during a corporate deposition about the disputed investigatory documents, which he admittedly reviewed in preparation for his deposition. The D.C. Circuit rejected that simply reviewing documents in preparation for corporate testimony constituted testimonial reliance on those documents. In fact, to adequately prepare for the topics on which he had been designated, the witness had no choice but to review the documents. To find waiver based on his preparation would be to “allow the attorney-client privilege and work product protection to be defeated routinely by a counter-party noticing a deposition on the topic of the privileged nature of the internal investigation.”


Second, the district court found implied waiver based on KBR’s reference to the reports in a footnote in its summary-judgment brief. The footnote explained that KBR has in the past made reports to the government when its investigation revealed that a legal violation has occurred, but no such reports were made here. According to the district court, KBR impliedly put the reports at issue by seeking an inference that the failure to report to the government meant that no fraud had occurred here. Acknowledging the well-settled adage that the attorney-client privilege cannot be used as both a sword and a shield, the court nonetheless found that the footnote was not sufficiently direct to create a privilege waiver.


With respect to the work-product protections, the D.C. Circuit found that the district court got the law right, but misapplied the law on the facts. Among other things, the order took too broad a view of certain investigatory mental impressions as “background materials.”


In sum, the district court’s error was “‘[c]lear and indisputable’ because the outcomes arrived at by the district court would erode the confidentiality of an internal investigation in a manner squarely contrary to the Supreme Court’s guidance in Upjohn and our own recent prior decision in this case.”


Eileen H. Rumfelt, Miller & Martin PLLC, Atlanta, GA


 

August 16, 2015

No Reasonable Expectation of Privacy in So-Called "Butt Dialed" Calls


The Sixth Circuit held on July 21, 2015, that a person who inadvertently “butt dials” someone has no reasonable expectation of privacy in conversations overheard during the inadvertent transmission. According to the court, a butt dial is akin to leaving one’s curtains open to the public street, putting an otherwise private home in plain view.


James Huff, the chairman of the Kenton, Kentucky, airport board, inadvertently dialed Spaw, an executive secretary to the airport’s CEO. He then had a conversation with a colleague on a hotel balcony about potentially terminating the airport CEO (Spaw’s boss) and later discussed the same topic with his wife in a private hotel room. Spaw listened to and took notes of the majority of the 90-minute conversation, and recorded a short portion. She presented her transcription and recording to the airport board.


Huff and his wife sued Spaw under Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. § 2510, et seq., for intentionally intercepting a covered communication. Central to the court’s analysis was whether the Huffs had a reasonable expectation of privacy in communications he exposed, albeit inadvertently. The court determined that the analysis hinges on whether the person exhibited an expectation of privacy by taking sufficient precautions. Huff was aware of the risk of inadvertent pocket dials and admitted he had made them before. He nonetheless did not lock his phone or set up a passcode and was, in the court’s view, “no different from the person who exposes in-home activities by leaving drapes open or a webcam on and therefore has not exhibited an expectation of privacy.”


Huff’s wife, however, did not waive her reasonable expectation of privacy simply by having a conversation with a person she knew to be carrying a modern smartphone. Her conversation was in a private room and “we do not require Bertha Huff to exhibit an expectation of total privacy—e.g., by searching her husband and forcing him to turn off his phone—in order to be protected.”


Eileen H. Rumfelt, Miller & Martin PLLC, Atlanta, GA


 

August 4, 2015

SCOTUS Asked to Review Third Circuit Decision on Brady Obligations


Last week, a bipartisan coalition of former federal prosecutors and former senior governmental officials filed an amicus brief urging the Supreme Court to accept certiorari in Georgiou v. United States, No. 14-1585, on petition for review from the Third Circuit. The brief argues that the prosecutors in Georgiou violated Brady v. Maryland by not turning over information favorable to the defense that was related to the credibility of a key witness for the prosecution.


Georgiou was convicted of securities fraud, based in significant part on the testimony of his former business partner, Kevin Waltzer, whose testimony corroborated certain physical evidence collected by the government and supported the government’s contention that Georgiou’s actions were willful and intentional. Defense attorneys made a pretrial Brady request for information concerning credibility, competency, bias, or motive of government witnesses, including with respect to mental-health problems or substance-abuse issues. The prosecutors did not disclose two pieces of evidence in their possession demonstrating that Waltzer had received treatment for mental-health and substance-abuse issues in the timeframe leading up to his testimony. The government argued, and the Third Circuit agreed, that because defense counsel could have discovered this information on their own through public records, no Brady violation had occurred.


In their brief, the former prosecutors argue that the government’s obligation to turn over all material, favorable evidence is “unequivocal” because the prosecutors’ responsibility “is not to win at all costs but rather to ensure that a miscarriage of justice does not occur.” The amici decry the Third Circuit’s ruling, which appears to permit prosecutors to hide potentially exculpatory evidence and to require defendants to seek it out aggressively. The brief closes by quoting the inscription on the wall in the Justice Department: “The United States wins its point whenever justice is done its citizens in the courts.” The amici argue that permitting a defendant’s lack of diligence to justify a prosecutor’s failure to disclose favorable evidence loses sight of that fundamental maxim.


Anna H. Finn, Osborn Maledon, P.A., Phoenix, AZ


 

July 27, 2015

Video of Vulnerable Adult Fails to Unseat Cochran, Results in Convictions


In early 2014, long-time U.S. Senator Thad Cochran faced the most formidable challenge to his incumbency since his first election to the Senate in 1978. Mississippi state Senator Chris McDaniel, a darling of the Tea Party, quoted Ronald Reagan and the founding fathers until he had Cochran well outflanked to the political right. Polls showed the race in a dead heat. The McDaniel campaign’s chiding of Cochran for refusing to debate gained traction as voters questioned whether the aging Cochran was running for re-election one too many times.


A handful of McDaniel supporters decided it was time to play a wild card by accusing Cochran of abandoning his bedridden wife, Rose Cochran, by pursuing a relationship with his long-time aide, Kay Webber. Rose Cochran, suffering from dementia, had for 13 years lived in a nursing home just north of capital city Jackson.


The Clarion Ledger, a Jackson newspaper, is reporting on the story. Mark Mayfield, a prominent Jackson attorney and McDaniel supporter, was approached due to the fact that his mother had recently passed away at the Alzheimer’s unit where Rose Cochran was residing. McDaniel supporter John Mary, using an alias identity on Facebook, posted a message to Mayfield, suggesting that Mayfield photograph Mrs. Cochran at the Alzheimer’s unit. Mayfield said he would not take the photograph but that he could get someone else into the nursing home.


That someone proved to be aspiring political blogger, Clayton Kelly, a 29-year-old Tea Party activist and McDaniel advocate who referred to himself as “Constitutional Clayton.” John Mary, using his Facebook alias, posted to Kelly, “What we are going to do will be EXPLOSIVE. The other side will be hunting for ANY connection to you.”


Prosecutors say that Mayfield instructed Kelly as to how to get into the facility and locate Rose Cochran’s room. Surveillance video at the nursing home, according to Madison County prosecutors, shows that on April 20, 2014, a guard allowed Kelly to enter the nursing home. District attorney Michael Guest and assistant district attorney Bryan Buckley describe the video as showing Kelly pretending to be talking on his phone and texting as he makes his way to the wing where Ross Cochran lived. According to prosecutors, the video shows Kelly, after waiting for a nurse to leave the hallway, entering Cochran’s room and exiting soon after. He then is seen photographing Rose Cochran’s nameplate outside her door before he leaves.


Within a week, “Constitutional Clayton” posted a video titled, “Does U.S. Senator Thad Cochran Have a Mistress?” The voice on the video criticizes Cochran for moving to the left politically and states that Chris McDaniel “was in diapers when Thad Cochran came to Washington.” The video then shows a picture of Senator Cochran with aide Kay Webber, followed by a still shot of Rose Cochran lying unconscious in her bed at the Alzheimer’s unit. Kelly’s narration on the video states, “This is Rose Cochran today. . . . We are calling on [Senator Cochran] to resign your campaign immediately.” Kelly ends the video with a disclaimer that the video’s production is not associated with the McDaniel campaign.


Reaction to the video was swift and extremely negative. Prosecutors moved quickly to present evidence to a grand jury, which indicted Mark Mayfield, Clayton Kelly, John Mary, and Richard Sager as having conspired to break into the Alzheimer's unit. The indictment included charges of attempted burglary and burglary. Within a month, Mayfield committed suicide.


As for the campaign, the Kelly video proved to be the watershed event from which the McDaniel campaign never recovered its pre-video momentum. The election was razor-thin with Cochran wining a run-off against McDaniel by fewer than 8,000 votes. McDaniel challenged the election results, but the challenge was ultimately dismissed for having been filed too late.


As prosecutors prepared the state’s case for trial, in December 2014, Rose Cochran passed away. In May 2015, Senator Cochran married Kay Webber.


Kelly’s defense was set for a string of adverse events. Co-conspirators Sager and Mary entered guilty pleas, receiving pretrial diversion that included an obligation to cooperate in the ongoing investigation. As his June 2015 trial approached, Kelly pursued a motion to dismiss his indictment on First Amendment grounds. Circuit Court Judge William Chapman III heard argument on the motion and denied the motion from the bench. On the eve of the June 15 trial, Kelly accepted an offer to plead guilty, and he was sentenced to two-and-a-half years.


Since the sentencing, the state’s evidence has been partially released to the press. The looming question has been whether the evidence establishes a link to Cochran’s challenger, Chris McDaniel. Assistant district attorney Bryan Buckley stated, however: “'Based upon all available evidence, to include Facebook messages, phone records and videos, we feel confident all those who were actively involved were indicted and handled by the justice system. We consider the matter closed, unless we find new evidence.”


Michael T. Dawkins, Baker Donelson, Jackson, MS


 

June 22, 2015

DOJ's Offshore Compliance Initiative Will Reach Outside Switzerland


A Senate report in 2008 estimated that offshore accounts were being used by U.S. taxpayers to evade $100 billion in tax revenue annually. That same year, the U.S. Department of Justice’s (DOJ) Tax Division focused an investigation on UBS AG, the largest bank in Switzerland. By early 2009, UBS had entered into a deferred prosecution agreement (DPA), admitting participation in a conspiracy to impede the IRS’s collection of income tax. PursUBS paid the U.S. Treasury $780 million in fines, penalties, interest, and restitution. Eventually, UBS disclosed account information on thousands of customers who had maintained secret bank accounts.


By early 2013, the U.S. Attorney’s Office for the Southern District of New York had obtained a guilty plea from Wegelin Bank, the oldest private bank in Switzerland. Wegelin admitted to a similar conspiracy of assisting American taxpayers in maintaining secret bank accounts for the purpose of evading income tax. Today, nine Swiss banks have entered into what the Tax Division calls its “Offshore Compliance Initiative.”


The Tax Division recently announced that it is investigating banks in other countries, naming India and Liechtenstein. The DOJ has also focused on banks in the Caribbean and is active in other countries it has yet to publicly identify, according to an article published by Law360 reporting on remarks by Tax Division lawyers, given at the New York University School of Professional Studies tax-controversy forum in New York earlier this month.


The article points out that Tax Division lawyers emphasized that individual taxpayers are being prosecuted, including certain persons in the voluntary disclosure program. The article also reports that, earlier this month, Swiss banks Rothschild Bank AG and Banca Credinvest SA surrendered records to the Tax Division, identifying suspect U.S. taxpayers who had maintained previously undisclosed accounts at those banks. 


Michael T. Dawkins, Baker Donelson, Jackson, MS


 

June 22, 2015

Conviction Stands Despite Defendant Not Having Sent Fraudulent Emails


Linda Deavers raised more than $5 million from individual investors in Florida using the pitch that she had connections to European trading programs that would generate large returns. Kyle Wilson, a victim of Deavers’s scheme, was also a broker whose clients were persuaded to invest millions of dollars in the scheme.


At Deavers’s trial, the government presented evidence that she spent more than $3 million of investors’ funds on personal purchases. She perpetuated her fraud by using Skype and emails to assure investors that her delays in investing the clients’ funds would soon be overcome.


Wilson relayed some of Deavers’s reassuring emails regarding the status of investments made by Wilson’s clients. In 2014, a jury convicted Deavers of 10 counts of wire fraud and five counts of money laundering.


Half of the wire-fraud counts were founded on emails to investors, not by Deavers, but by Wilson. Deavers appealed the denial of her motion for judgment of acquittal on the Wilson email wire-fraud counts, arguing that she did not transmit the Wilson emails, did not ask Wilson to send the emails, and did not even know that Wilson would send the emails. Moreover, Deavers claimed, because of a confidentiality agreement, she would not have approved the emails.


The Eleventh Circuit Court of Appeals affirmed the convictions, pointing to its precedent that “a defendant may be held liable for a communication transmitted by a victim of her fraud, if the communication furthered the defendant’s fraudulent scheme” and “communications designed to conceal a fraud by lulling a victim into inaction may constitute communications made in furtherance of the scheme.”


The court observed that the government’s evidence at trial showed that Deavers was aware that Wilson was under pressure from his clients to show returns on their investments and that Deavers knew that Wilson was in regular contact with his clients. The court reasoned that this was sufficient to sustain the wire-fraud conviction: “From this evidence, the jury reasonably could have found that, even if Deavers did not instruct Wilson to relay the misinformation she provided about the investments to his clients, she reasonably could have foreseen that he would do so.” Moreover, testimony at trial showed that Wilson’s emails did not breach the confidentiality agreement.


Michael T. Dawkins, Baker Donelson, Jackson, MS


 

June 15, 2015

Pro Bono Lawyers Obtain Reversal of Sabotage Act Conviction of Catholic Nun


One summer night in 2012, an 82-year-old nun and two army veterans cut through four fences at the Y-12 National Security Complex in Oak Ridge, Tennessee. The trio avoided detection by security and made their way to a building containing about 900,000 pounds of weapons-grade uranium stored by the Department of Energy. The three Christian pacifists proceeded to paint antiwar slogans and splash blood on the walls and hang banners containing Bible verses.


When the group refused to enter guilty pleas to charges of trespassing and injuring government property, the indictment was amended to add a charge for violating the Sabotage Act. The primary purpose of the Sabotage Act was to punish enemies of the United States who damaged the components of the country’s infrastructure devoted to the war effort.


A jury convicted the defendants of violating the Sabotage Act and injuring government property. Sister Megan Rice was sentenced to three years. Veterans Michael Walli and Greg Boertje-Obed were sentenced to five years.


The defendants appealed their convictions under the Sabotage Act on ground that they lacked the requisite intent to interfere with the national defense. According to an article in the New Yorker, the appellants were represented by William Quigley, a law professor from Loyola University in New Orleans, and two young patent, copyright, and securities lawyers (Judy Kwan and Marc Shapiro) of Orrick, Herrington & Sutcliffe. The three lawyers handled the case pro bono.


Scholosser’s article points out that prosecutors have used the Sabotage Act to prosecute acts of civil disobedience because the act broadly reaches anyone who “with intent to injure, interfere with, or obstruct the national defense of the United States.” The pro bono effort of Quigley, Kwan, and Shapiro was rewarded when, on May 8, 2015, the Sixth Circuit Court of Appeals reversed the Sabotage Act convictions of Rice, Walli, and Boertje-Obed. Interestingly, the circuit judges who voted to reverse the convictions, Judge Kethledge, the author of the opinion, and Judge Helmick, who joined, are appointees of Presidents George W. Bush and Barack Obama, respectively.


Judge Kethledge wrote that the government was required to show that “the defendant’s actions were either consciously meant or practically certain to impair the nation’s capacity to wage war or defend against attack.” The government’s main argument on appeal was that the defendants knew that their intrusion at Y-12 would shut the facility down for some period of time. In fact, the July 2012 break-in caused a two-week shutdown of Y-12, delaying a shipment of uranium. This was not enough according to Judge Kethledge: “[T]he government would need to show that the defendants knew that a weeklong shutdown of Y-12 would impair the nation’s ability to wage war or defend against attack.” The government had not, the Sixth Circuit observed, even attempted to prove this.


At oral argument before the Sixth Circuit, assistant U.S. Attorney Jeffrey Theodore, who had tried the case in Knoxville, Tennessee, argued, “These are people who have a desire, intent, to disarm, and they are taking action in furtherance of that goal.” The Sixth Circuit commented that the government was confusing motive and intent. AUSA Theodore, according to Judge Kethledge, was describing motive. With regard to intent, Judge Kethledge concluded in his opinion, “The question, then, is whether the defendants consciously meant to interfere with the nation’s ability to attack or defend when they engaged in these actions. No rational jury could find that the defendants had that intent when they cut the fences; they did not cut them to allow al Qaeda to slip in behind.”


Michael T. Dawkins, Baker Donelson, Jackson, MS


 

June 15, 2015

Former Hughes, Hubbard & Reed Partner Enters Plea of Guilty to Tax Fraud


On June 4, 2015, Jeff Galloway, a former partner at Hughes, Hubbard & Reed (the firm founded by Chief Justice Charles Evans Hughes) entered a guilty plea to charges of criminal tax fraud in New York state court. During the relevant time period, Galloway reportedly was earning about $1 million per year.


According to a press release from District Attorney Cyrus Vance, Jr., Galloway did not file tax returns with the state for the years 2005 through 2010. In 2012, state tax department investigators confronted Galloway about the unfiled returns. Galloway claimed that he had filed the returns but had apparently made an error entering his Social Security number. Galloway then proceeded to file returns for the missing years, which included fraudulent deductions, such as rent on four Battery Park City apartments and monthly parking-garage fees for two personal vehicles.


According to the terms of the guilty plea, Galloway will serve three months in jail and several years of probation. The plea agreement obligates Galloway to pay a $600,000 fine and to resign from the New York State Bar Association. Galloway’s sentencing is scheduled for July 22, 2015.


Michael T. Dawkins, Baker Donelson, Jackson, MS


 

June 8, 2015

Unsealed Indictment Charges Economic Espionage and Theft of Trade Secrets


On May 19, 2015, the U.S. Department of Justice released what was formerly a sealed indictment from the Northern District of California accusing six individuals connected to China of crimes relating to economic espionage and theft of trade secrets. The grand jury issued the 32-count indictment on April 1, 2015, and it was unsealed after one of the defendants was arrested upon re-entry to the United States on May 16, 2015.


The indictment alleges a complex and long-running conspiracy by the named defendants, in conjunction with entities ultimately funded by the Peoples Republic of China (PRC), to steal trade secrets from Skyworks Solutions, Inc., in Woburn, Massachusetts, and Avago Technologies in San Jose, California.


According to the indictment, defendant Wei Pang worked for Avago from 2006, after his graduation from the University of Southern California (USC) with a PhD in electrical engineering, until 2009. His former USC classmate, defendant Hao Zhang, worked for Skyworks Solutions during the same timeframe.


The technology in question has applications as radio-frequency filters for wireless communications. The technology also has military applications, and some of the technology alleged to have been stolen was developed using money from the Defense Advanced Research Projects Agency (DARPA). The indictment details the measures taken by Skyworks and Avago to ensure confidentiality of the information.


The defendants allegedly engaged in a scheme over almost 10 years to steal secrets from the two companies and (1) secretly transfer them to new companies in China and (2) use the secrets to establish their credentials as professors in China. To hide their activities, the defendants allegedly conspired to create a shell company in the Cayman Islands and a joint venture between the state-run Tianjin University’s
investment arm and themselves. Furthermore, the two principal defendants allegedly applied for patents in both the U.S. and China for information developed by the companies, but left Pang’s name off of U.S. patents applied for based on his company’s technology.


The indictment includes one count of conspiracy to commit economic espionage, one count of conspiracy to commit theft of trade secrets, 15 counts of aiding and abetting economic espionage, and 15 counts of aiding and abetting theft of trade secrets. See 18 U.S.C. §§ 1831–32. The indictment also alludes to, but does not charge, violations of 18 U.S.C. § 1001 for false statements in connection with patent applications, and it contains a forfeiture allegation under 18 U.S.C. §§ 1834 and 2323.


David Lincoln, Wiggin and Dana LLP, New Haven, CT


 

June 8, 2015

NV Court Dismisses Online Gambling Prosecution, Ruling Evidence Inadmissible


On June 2, 2015, the District Court for the District of Nevada dismissed charges against Wei Seng Phua, which the government had brought in connection with alleged illegal World Cup soccer gambling. Charges against Phua included transmission of wagering information in violation of 18 U.S.C. § 1084 and operating an illegal gambling business in violation of 18 U.S.C. § 1955. He faced up to seven years’ imprisonment, fines, and forfeitures of over $13,000,000.


Phua occupied a villa at Caesars Palace in Las Vegas, Nevada, where hotel employees had reportedly observed a “boiler room bookie operation.” The FBI had insufficient evidence to obtain a search warrant, so they devised a plan to obtain the necessary evidence.


In conjunction with the Nevada Gaming Control Board (NVGCB), but against the advice of the local U.S. Attorney’s Office, the FBI decided to cut off Internet service to Phua’s villa so that they could pose as repair technicians and search for evidence. This plan proved unsuccessful because no one at the villa reported an outage. The same day, however, the villa asked for a laptop to be delivered, and undercover agents made the delivery, but were intercepted by the villa’s butler. Undeterred, they entered and recorded their visit before being ushered out.


The next day, agents again cut Internet service to the villa and responded to a service call. They entered the villa and observed Phua in incriminating activities, which formed the basis for a soon-to-be-issued warrant.


The defendant filed a motion to suppress this evidence as a warrantless search, and U.S. District Judge Andrew Gordon granted the motion on April 17, 2015. The government had argued that this was a consensual encounter and there was no coercion because Internet service is not an “essential service.” In essence, the government argued that this was typical “trickery,” such as when a government agent poses as a friend or fellow criminal, or as one seeking to enter the residence to sell goods or services. The government distinguished this from improperly coercive activities, such as an agent posing as a gas-company employee and telling a homeowner that the agent must enter the residence to search for a life-threatening gas leak. The court disagreed and determined that the “[g]overnment was not just taking advantage of a fortuitous opportunity. Rather, the Government created the need for the occupant to call for assistance from a third party by cutting off a service enjoyed by the occupant.”


Following its grant of Phua’s suppression motion, the court granted another motion to suppress, making all evidence seized from Phua’s villa inadmissible. In light of this, the government conceded that it could not proceed with its case against Phua, and the court dismissed the case.


Joseph W. Martini, Wiggin and Dana LLP, Stamford, CT


 

June 8, 2015

FIFA Officials Indicted in Wide-Ranging Bribery Conspiracy


The soccer world was jolted by the May 27, 2015, indictment of nine current and former officials at FIFA, the Fédération Internationale de Football Association, most notable for the World Cup. The United States is seeking extradition of seven of the defendants, who were arrested at a five-star hotel in Zurich, Switzerland.


The indictment was issued by a grand jury in the Eastern District of New York on May 20, 2015, and unsealed after the Swiss arrests on May 27. In addition to the nine FIFA officials, the indictment includes charges against five marketing executives. Four officials and two corporations previously pleaded guilty under seal.


FIFA is an entirely legitimate enterprise and according to the indictment had revenue of $5.7 billion dollars, 70 percent of which came from the sale of television and marketing rights, between 2011 and 2014. During the same period, FIFA posted a $338 million profit and spent over $1 billion to develop soccer programs in member countries.


The indictment implicates 25 coconspirators and alleges that two generations of FIFA officials have accepted over $150 million in bribes relating to the highly lucrative media and marketing rights. The Racketeer Influenced and Corrupt Organizations Act racketeering charges in the indictment describe an enterprise that sounds more like organized crime than sports.


The U.S. case alleges corruption in the selection process for the World Cup, and Switzerland has opened its own investigation. Countries covet the right to host a World Cup because of the prestige and income that is associated with the event, but the indictment describes how one defendant shopped his vote for host of the 2010 World Cup. He flew to Morocco because of a $1 million offer but accepted a sweeter $10 million deal to vote for South Africa.


The sweeping 160-page indictment includes 47 counts against the various defendants. The counts include racketeering under 18 U.S.C. §§ 1962(d) and 1963 for conduct including wire fraud, money laundering, and obstruction of justice under federal law and bribery under the New York state law. There are numerous counts for wire fraud, money laundering, obstruction of justice, and aiding in the preparation of false tax returns. In addition, one defendant is charged with unlawful procurement of naturalization and faces revocation of his citizenship. The indictment also seeks forfeitures of property from the defendants.


Four FIFA officials waived indictment and have already pleaded guilty. The charges include charges similar to those in the indictment, structuring of financial transactions, income tax evasion, and failure to file a Report of Foreign Bank and Financial Accounts (FBAR). These individuals have already agreed to forfeit $154 million, which is being held in reserve to ensure any restitution can be provided to victims. The RICO charges are the most serious and expose the defendants to 20 years’ imprisonment. U.S. District Court Judge Raymond J. Dearie has been assigned the case.


The Justice Department’s Office of International Affairs and Organized Crime and Gang Section is assisting the prosecution team, and the government investigation is ongoing. For years, officials within FIFA have been accused of corruption but avoided prosecution so one could expect the scope of the allegations to expand as the investigation proceeds. Sepp Blatter, the long-time president of FIFA, was not named in the indictment, and won reelection as FIFA president even after the indictment was released. He later decided to resign, however.


Joseph W. Martini, Wiggin and Dana LLP, Stamford, CT


 

June 1, 2015

Sacramento Capitols Former Owner Ordered to Pay Restitution in Ponzi Scheme


Deepal Wannakuwatte, former owner of the Sacramento Capitols professional tennis team, has been ordered to pay more than $100 million in restitution to victims of a decade-long Ponzi scheme he perpetrated.


From 2002 until his arrest in February 2014, Wannakuwatte defrauded between 150 and 200 individuals, companies, and government entities out of $230,000,000 through a classic Ponzi scheme. An investigation began after a tip from an investor in 2013 and involved a joint investigation by the Federal Bureau of Investigation, the Internal Revenue Service, and the Federal Deposit Insurance Corporation, Office of the Inspector General.


The investigation determined that Wannakuwatte told his “investors” that two of his companies were involved in the international sale of latex gloves and that it did business with government agencies, in particular the Department of Veterans Affairs (VA). He further avowed that these companies had annual revenues in the tens of millions of dollars. Wannakuwatte developed false documents and relationships to prove his bona fides to investors, including false tax returns overstating income, false corporate documents, and a fake VA representative. While the company did sell latex gloves and did business with the VA, revenues were only a fraction of what he advertised and the business was in fact losing money. Wannakuwatte used the money from investors to cover these losses and pad his own pockets.


He purchased the Capitols with his ill-gotten gains and moved them to Las Vegas in February 2014. The rebranded Las Vegas Neon went defunct almost immediately after his arrest.


Wannakuwatte was sentenced to 20 years in prison after an emotional sentencing hearing on November 13, 2014. There, the judge said, “Deepal, you are a sociopath. . . . You are a liar, a serial liar. A thief, a serial thief.” In February 2015, he was ordered to forfeit more than $3 million worth of real estate, vehicles, interests in financial accounts, cash, and business interests.


The final chapter in the case came to a close on March 5, 2015, when the judge ordered that Wannakuwatte pay a total of $108,199,452.63 in restitution. Wannakuwatte claimed he had already paid back some of the victims, but the court determined that he had not met his burden of showing this to the court. Unfortunately, the victims will likely remain short-changed. While the forfeitures will go toward restitution, the remainder of the roughly $105,000,000 will be paid back at a minimum rate of a mere $25.00 per quarter during the course of his incarceration.


Joseph W. Martini, Wiggin and Dana LLP, Stamford, CT


 

May 14, 2015

Supreme Court Finds Prolonged Traffic Stop Unconstitutional


In Rodriguez v. United States, No. 13-9972 (2015), the U.S. Supreme Court held that, absent reasonable suspicion, unnecessarily prolonging a traffic stop can constitute an unreasonable seizure. In a 6–3 majority opinion authored by Justice Ruth Bader Ginsburg, the Court rejected the Eighth Circuit’s holding that a de minimis extension of a traffic stop could be justified under the Fourth Amendment.


In 2012, Nebraska police stopped Dennys Rodriguez for driving on the shoulder of the highway. The officer conducted a routine traffic stop, including questioning Rodriguez and his passenger and conducting a records check. After issuing him a traffic warning, the officer asked Rodriguez for permission to walk his narcotics-detecting canine around the perimeter of the vehicle. When Rodriguez refused to consent, the officer ordered him out of the vehicle and detained him. About seven minutes later, another officer arrived. Police conducted the canine search without consent, and the dog indicated that drugs were located in the vehicle. Rodriguez was charged with one count of possession with the intent to distribute methamphetamine.


Rodriguez moved to suppress on the ground that the officer had prolonged the traffic stop to conduct the canine search without reasonable suspicion. The magistrate judge found that although there was no reasonable suspicion, the brief extension of the stop was a permissible de minimis intrusion into Rodriguez’s Fourth Amendment rights. The Eighth Circuit affirmed, concluding that the infringement on Rodriguez’s personal liberty was not unconstitutional. United States v. Rodriguez, 741 F.3d 905 (8th Cir. 2014). The Supreme Court granted certiorari to resolve the split in authority regarding “whether police may routinely extend an otherwise compelled traffic stop, absent reasonable suspicion, to conduct a dog sniff.”


Describing a traffic stop as analogous to a Terry stop, the Court held that the tolerable duration of a traffic stop is only as long as is necessary to complete the tasks associated with the traffic infraction. Such tasks include checking the driver’s license, determining whether there are outstanding warrants against the driver, checking the car’s registration and proof of insurance, and ultimately issuing a traffic ticket when necessary.


The Court distinguished its earlier holding in Pennsylvania v. Mimms, 434 U.S. 106 (1977), which held that a de minimis intrusion during a traffic stop could be justified in the interests of officer safety. Here, the Court reaffirmed the Mimms holding, stating that the interests of officer safety are closely related to the mission of the traffic stop, and, therefore, negligibly burdensome safety precautions may be taken. Dog sniffs, in contrast, serve a general interest in criminal enforcement, which detours from the mission of a traffic stop and cannot be justified as part of the stop.


Ronaldo Rauseo-Ricupero, and Charles Dell'Anno, Nixon Peabody LLP, Boston, MA


 

May 8, 2015

Death-Penalty Case Highlights Supreme Court's Ideological Divide


On April 29, 2015, the U.S. Supreme Court heard argument in Glossip v. Gross, a high-profile case involving the constitutionality of Oklahoma’s lethal-injection protocol. The technical issue before the Court was whether the drug midazolam, administered as the first drug in a three-drug cocktail, sufficiently anesthetizes a prisoner from experiencing excruciating pain caused by the next two drugs, vecuronium bromide and potassium chloride. Citing the botched execution of Oklahoma prisoner Clayton Lockett exactly one year earlier, Petitioners alleged that because midazolam does not produce a deep-coma-like unconsciousness, its use violates the Eighth Amendment’s ban against cruel and unusual punishment.


The unusually contentious argument on the final day of the Court’s term highlighted the justices’ deep ideological divide on the issue of capital punishment and how the state may lawfully kill. The Court’s conservative justices repeatedly expressed their frustration about why midazolam is being administered instead of more reliable drugs. The “abolitionist movement” is carrying out a “guerrilla war against the death penalty” and preventing the states from obtaining drugs that “could be used to carry out capital punishment with little, if any, pain,” Justice Alito proclaimed. Justice Scalia directed similar frustrations at the petitioners’ attorney, Robin Konrad, exclaiming, “The abolitionists have rendered it impossible to get the 100 percent sure drugs.” Justice Kennedy then chimed in, asking, “What bearing, if any, should we put on the fact that there is a method, but that it’s not available because of—because of opposition to the death penalty?”


The liberal justices meanwhile focused their critique on the impact of the drug itself and criticized Oklahoma’s solicitor general, Patrick Wyrick, for relying on questionable expert reports. Justice Kagan likened Oklahoma’s drug protocol to “burning somebody alive” and questioned whether it would be constitutionally permissible to burn someone at the stake after they had been administeredan anesthetic with questionable effectiveness. Justices Sotomayor and Breyer also challenged the state’s scientific findings and aggressively criticized Wyrick for relying on unsubstantiated claims and an expert report based largely on printouts from an Internet website.


Justice Breyer was the only justice to address the broader question of whether the death penalty itself might be unconstitutional, stating, “[I]f there is no method of executing a person that does not cause unacceptable pain, that—in addition to other things—might show that the death penalty is not consistent with the Eighth Amendment.” Konrad quickly clarified that although she might agree with that characterization, her argument was focused only on the narrower question of the constitutionality of Oklahoma’s use of midazolam in its lethal-injection protocol.


The Court’s decision is expected in mid-June 2015.


Yaser Ali, Osborn Maledon, P.A., Phoenix, AZ


 

April 24, 2015

Second Circuit Denies Request to Reconsider Insider-Trading Ruling


On April 3, 2015, the U.S. Court of Appeals for the Second Circuit denied the government’s petition for en bancrehearing of the court’s decision in U.S. v. Newman, No. 13-1837, a case that the government has described as “one of the most significant developments in insider trading law in a generation.” The panel’s December 2014 decision clarified the standards for proving tippee liability and the personal-benefit element of securities fraud. The Second Circuit’s Newman decision is expected to make future insider-trading prosecutions more difficult.


In January, U.S. Attorney for the Southern District of New York Preet Bharara asked the Second Circuit to revisit the panel’s decision vacating convictions of Todd Newman and Anthony Chiasson, two hedge-fund managers. At a jury trial on charges of securities fraud and conspiracy to commit securities fraud, the government alleged that the defendants were involved in an insider-trading scheme with corporate insiders from two public companies and a group of financial analysts. The government presented evidence suggesting that Newman and Chiasson traded on material nonpublic information that they received from the analyst group, who in turn had received the information from the corporate insiders. Thus, while Newman and Chiasson executed the trades at issue, they were at least one step removed from the sources of the information.


On appeal, the Second Circuit overturned the convictions. The court acknowledged a “somewhat Delphic” body of law regarding tippee liability and explained its holding that: (i) tippee liability derives from the tipper’s breach of fiduciary duty; (ii) proof of the tipper’s breach requires proof that he or she received a personal benefit in exchange for the disclosure; and (iii) the tippee is only liable if he or she knows of the breach.


The Second Circuit also clarified the legal standard for proving personal benefit, although it nonetheless left the question somewhat open. It rejected the government’s position that a personal benefit can be inferred from proof of a casual or social personal relationship alone. Instead, the court held that a personal benefit can only be inferred from “proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” What exactly that means as applied to specific facts will be determined in future litigation.


In its petition for rehearing, the government specifically challenged the court’s view of personal benefit. The government argued that the court’s definition of personal benefit “added an unprecedented limitation that effectively upended” the Supreme Court’s decision in Dirks v. SEC, 463 U.S. 646 (1983).


In the wake of Newman, several individuals convicted of insider trading have filed motions for post-trial review, claiming that their convictions should be overturned due to faulty jury instructions regarding the personal-benefit standard. Many such motions are pending and possibly benefit from the fact that the panel decision still stands. The Second Circuit decision could also prompt the Securities Exchange Commission (SEC) to refocus some of its attention on civil-enforcement actions, in which the standards of intent are lower, as U.S. District Judge Jed Rakoff noted in an insider-trading decision issued just days after the denial of en bancreview in Newman. See Order on Motion to Dismiss [Dkt. 42] at 2, SEC v. Payton et al.,14-cv-04644, (S.D.N.Y. April 6, 2015) (“[W]hile a person is guilty of criminal insider trading only if that person committed the offense ‘willfully,’ i.e., knowingly and purposely, a person may be civilly liable if that person committed the offense recklessly, that is, in heedless disregard of the probable consequences.”).


In light of Newman, how the Department of Justice, the SEC, and defendants adjust their insider-trading litigation strategies, both inside and outside the Second Circuit, will remain closely watched in 2015.


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Charles Dell'Anno, Nixon Peabody LLP, Boston, MA


 

April 24, 2015

SCOTUS Preparing to Hear First Death-Penalty Case in Seven Years


For the first time since 2008, the Supreme Court is preparing to hear oral argument regarding the constitutionality of a state’s lethal-injection procedures. In Glossip v. Gross, the Court will decide whether Oklahoma’s use of the sedative midazolam as the first drug in a three-drug protocol violates the Eighth Amendment to the U.S. Constitution. Oklahoma currently administers midazolam to render a prisoner unconscious, followed by vecuronium to paralyze the prisoner, and potassium chloride to stop the prisoner’s heart.


Plaintiffs Richard Glossip, John Grant, and Benjamin Cole, three death-row inmates in Oklahoma, assert that the use of midazolam in lethal injections is constitutionally impermissible because it creates “an objectively intolerable risk of harm.” They contend that the drug has no pain-relieving properties, has not been approved by the Food and Drug Administration for use as a general anesthetic, and that there is well-established proof that it cannot guarantee that a prisoner will remain in a coma-like state throughout the execution.


Oklahoma’s lethal-injection process gained national attention last year after the state botched the execution of Clayton Lockett. Lawyers who were present at the execution report that after Lockett had been injected with midazolam and declared unconscious, “he began to speak, buck, raise his head, and writhe against the gurney.” He died 43 minutes later.


The Lockett execution reignited a national debate over the death penalty and led to a call from opponents for a moratorium on capital punishment. After briefly suspending lethal injections, Oklahoma reinstated its execution program and continues to administer midazolam at a higher dosage. Three other states also have also used midazolam in executions and four others have proposed its use.


The case is scheduled for argument on April 29, 2015.


Yaser Ali, Osborn Maledon, P.A., Phoenix, AZ


 

April 8, 2015

SCOTUS: Forced Accompaniment of Just Several Feet Is Enough


In Whitfield v. United States (No. 13-9026) (Jan. 13, 2015), appellant Whitfield challenged his conviction under 18 U.S.C. § 2113(e), which enhances the penalties for an individual who “forces any person to accompany him without the consent of such person” during the commission of, or when fleeing from, a bank robbery. Whitfield argued that his actions—entering Mary Parnell’s home when he was fleeing a bank robbery and guiding her down the hallway to another room in her house—did not qualify as forcing Parnell to “accompany” him. Whitfield argued that forcing an individual to “accompany” him required “substantial” movement beyond the several feet traveled by Ms. Parnell in her home.


The Court affirmed the Fourth Circuit and Whitfield’s conviction, holding that forced accompaniment of just several feet is sufficient to satisfy the enhanced penalties of section 2133(e). The unanimous opinion, authored by Justice Scalia, relied heavily on the ordinary and historical meanings of “accompanied,” including citations to the works of Charles Dickens and Jane Austen as examples in which “accompanied” is used to connote limited movement from one room to another.


The Court rejected Whitfield’s argument that the Fourth Circuit’s interpretation of “accompany” would lead to over-application of this penalty enhancement to bank robberies, as bank robbers routinely exert control over a bank teller’s movement during the commission of the crime. The Court advised that the most minimal movement of a bank teller’s feet while being grabbed by a robber would not satisfy the definition of “accompaniment.” Instead, the movement at issue must be from “one place to another.”


The Court noted that “the severity of the penalties for a forced-accompaniment conviction—a mandatory minimum of 10 years, and a maximum of life imprisonment—does not militate against this interpretation as the danger of a forced accompaniment does not vary depending on the distance traversed.”


Andrea Halverson, Stetler, Duffy & Rotert, Ltd., Chicago, IL


 

April 8, 2015

SCOTUS: Fish Are Not "Tangible Objects" under 18 U.S.C. § 1519


After ship captain Yates instructed a crewmember to throw undersized fish overboard because they were in violation of federal regulations, he was charged with violating 18 U.S.C. § 1519 and subsequently convicted. Section 1519, originally enacted as part of the Sarbanes-Oxley Act of 2002, prohibits one from knowingly altering, destroying, mutilating, concealing, covering up, falsifying, or making a false entry in “any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case.”


Yates appealed his conviction, arguing that fish are not “tangible objects” as that term is used in section 1519. The Eleventh Circuit rejected that argument and affirmed Yates’s conviction, but the Supreme Court reversed in a plurality opinion in Yates v. United States (No. 13-7451) (Feb. 25, 2015). The Court held that “tangible object” pursuant to 18 U.S.C. § 1519 does not include any object, but is instead limited to objects used to record or preserve information. The Court reasoned that this restraint on the scope of “tangible object” was necessary to effectuate the context and intent of the statute as “§ 1519 was intended to prohibit, in particular, corporate document-shredding to hide evidence of financial wrongdoing.” The plurality rejected the argument that section 1519 was meant as a “general ban on the spoliation of evidence, covering all physical items that might be relevant to any matter under federal investigation.” In addition to relying on several canons of construction, the plurality supported its interpretation of “tangible object” by finding that section 1519 would de duplicative of section 1512(c) within the same statute if “tangible object” were defined by its plain language meaning.


The dissent, authored by Justice Kagan and joined by Justices Scalia, Kennedy, and Thomas, accepted the broader meaning of “tangible object” and rejected the plurality’s use of particular canons of construction when the term at issue lacked ambiguity.


Andrea Halverson, Stetler, Duffy & Rotert, Ltd., Chicago, IL


 

November 17, 2014

NY Judge Denies Former SAC Manager's Bid to Delay Prison Sentence


On October 21, 2014, New York District Judge Paul Gardephe denied the request of former SAC Capital Advisors LP portfolio manager Mathew Martoma to stay free on bail. On February 6, 2014, a jury convicted Martoma on one count of conspiracy and two counts of securities fraud. Martoma was accused of orchestrating an insider-trading scheme in which SAC Capital netted $275 million in profits and avoided losses by trading on insider tips about the Phase II clinical trial of bapineuzumab, an experimental Alzheimer’s drug that  Elan Corp. and Wyeth were developing.


Martoma came under scrutiny based on a series of well-timed trades in Wyeth and Elan stock in July 2008. According to the indictment, from 2006 through July 29, 2008, Martoma participated in an insider-trading scheme centered around obtaining confidential data about the clinical trial before it was made public, and buying or selling stock in Elan and Wyeth depending on whether he viewed the data as positive or negative. The drug’s Phase II clinical trial attracted investor attention because of the high demand for a cure for Alzheimer’s disease. Steven Cohen, the founder of SAC Capital Advisors, had accumulated hundreds of millions of dollars’ worth of Elan and Wyeth stock. According to prosecutors, Sidney Gilman, a doctor working on the clinical trial, told Martoma that the drug had performed poorly eight days before Gilman presented the data at the July 29, 2008, International Conference on Alzheimer’s Disease. The prosecution alleged that Martoma, through a recommendation to Cohen, caused SAC to liquidate its $750 million position in Elan and Wyeth stocks, thereby avoiding significant losses when the stocks subsequently declined. Further, SAC then proceeded to short the stock, netting an additional $275 million. The government alleged that Martoma spoke with Cohen on the phone for 20 minutes shortly before SAC liquidated the holdings. However, Cohen was not criminally charged or identified as Martoma’s co-conspirator.


On September 8, 2014, Martoma was sentenced in New York federal court and was scheduled to surrender to authorities on November 10 to serve a nine-year prison sentence. Shortly thereafter, Martoma appealed both his conviction and sentence in the Second Circuit. In an October 3, 2014, letter, Martoma moved for bail pending appeal. In the October 21 decision, Judge Gardephe wrote that “the evidence of Martoma’s guilt at trial was overwhelming” and “[b]ecause Martoma has not demonstrated that his appeal is likely to raise a substantial question of law or fact, his motion for bail pending appeal, or alternatively for an extension of his surrender date, is denied.”


In March 2013, SAC Capital agreed to pay $616 million to the SEC to settle civil insider-trading charges. The Securities and Exchange Commission  (SEC) brought an additional case against Cohen himself, which is still pending. In November 2013, SAC Capital agreed to plead guilty to criminal insider-trading charges as part of a $1.8 billion settlement with the Department of Justice and the SEC. SAC Capital subsequently was renamed Point72 Asset Management and stopped managing client money.


The case is U.S. v. Martoma, case number 1:12-cr-00973, in the U.S. District Court for the Southern District of New York.


Wick Sollers, Daniel Sale, and Cassie Mathias, King & Spalding LLP, Washington, D.C.


 

November 17, 2014

Tom DeLay Cleared by Texas's Highest Criminal Court


On October 1, 2014, the Texas Court of Criminal Appeals—the highest criminal court in Texas—affirmed the acquittal of former U.S. House of Representatives Majority Leader Tom DeLay (R-TX). In 2005, DeLay stepped down from his majority leader post after a Texas grand jury indicted him on charges that he improperly funneled donations to Texas House candidates. The trial court convicted DeLay in 2010 for conspiracy to commit money laundering—funneling “soft-money” corporate donations through his Texans for a Republican Majority PAC to individual Republican candidates. He was sentenced to three years in prison. The scheme—called a soft-money-to-hard-money swap, because “hard money” is the name for contributions to individual campaigns—would be illegal under the Texas election laws. The state appellate court found, however, that there was insufficient evidence to prove either that there was an agreement to perform the swap or that the hard-money donations could be traced to corporate donations to DeLay’s PAC. Thus, the state appellate court reversed both convictions and rendered a judgment of acquittal with respect to each.


In an 8–1 decision, the Texas Court of Criminal Appeals upheld this ruling. The majority opinion, written by Judge Tom Price, declared that: “what the State has proven in this case does not constitute either of the alleged criminal offenses.” The majority concluded: “[u]ltimately, we agree with the court of appeals that the appellant’s convictions cannot stand because there is no possible view of the evidence that can establish that any transaction alleged to comprise money laundering involved the proceeds of a felony violation of the Texas Election Code, under either theory of criminal proceeds.” After nearly a decade of fighting these charges, DeLay has now been cleared.


Judge Cheryl Johnson, joined by Judge Cathy Cochran, wrote a concurring opinion, which stated that “[t]here is some evidence that [DeLay] was aware of the transfer—knowledge claimed to be acquired after the fact—but none that he was directly involved. . . . Like some of Goldman Sachs’s dealings with a Spanish bank, the wheeling and dealing was a tad shady, but legal.”


Judge Larry Meyers, the court’s only Democrat, wrote the only dissenting opinion. Judge Meyers concluded: “The majority in this case has changed the law and ignored the facts in order to arrive at a desired outcome, as it has done before.” Meyers added that the majority, by requiring that an actor be aware that his actions constitute a violation of the Texas Election Code “completely neuters this crime” and “[p]laces a burden on the State that is impossible to overcome.”


DeLay, who is now 67, told the New York Times’ First Draft that he would not rule out a future run for office. “I think a few people are worried about that,” he said.

The case is Texas v. DeLay, case number PD-1465-13, in the Texas Court of Criminal Appeals.


Wick Sollers, Daniel Sale, and Cassie Mathias, King & Spalding LLP, Washington, D.C.


 

October 21, 2014

Holder Announces Policy Ending Appellate Rights Waiver in Guilty Pleas


On October 14, 2014, Attorney General Holder announced that the Department of Justice (DOJ) will no longer ask criminal defendants who plead guilty to waive their right to bring future claims of ineffective assistance of counsel. Deputy Attorney General James M. Cole announced the new policy in a memorandum to all federal prosecutors and through a conference call. The memorandum instructs that


[f]ederal prosecutors should no longer seek in plea agreements to have a defendant waive claims of ineffective assistance of counsel whether those claims are made on collateral attack or, when permitted by circuit law, made on direct appeal. For cases in which a defendant's ineffective assistance claim would be barred by a previously executed waiver, prosecutors should decline to enforce the waiver when defense counsel rendered ineffective assistance resulting in prejudice or when the defendant's ineffective assistance claim raises a serious debatable issue that a court should resolve.


Prior to this announcement, 35 of the 94 U.S. Attorney’s offices had sought waivers that blocked defendants who pleaded guilty from later making ineffective-assistance-of-counsel claims on appeal or collateral review of their convictions. Although several courts have approved the use of waivers generally, some have indicated that such waivers could be problematic in certain circumstances. On August 21, 2014, the Supreme Court of Kentucky became the first to pronounce such waivers unethical. In U.S. v. Kentucky Bar Assn., No. 2013-SC-0270-KB (Ky. Aug. 21, 2014), the court unanimously rejected a challenge to a Kentucky Bar Association ethics opinion stating that the use of such waivers in plea agreements violates Kentucky’s Rules of Professional Conduct. Bar associations in 11 other states have advised lawyers that the waivers are improper. Although these ethics opinions are not binding on federal judges and the DOJ Press Release noted that, “the department believes such waivers are legal and ethical,” the split in authority on the ethical issue may have contributed to the change, which was put in place to “create a uniform policy for all U.S. Attorneys to follow.”


In his October 14 statement, Holder remarked,


I am confident in the ability of our outstanding prosecutors to ably and successfully perform their duties without the use of these waivers, as the vast majority of them already do. Moving forward, I am certain that this more consistent policy will help to bring our system of justice closer in line with our most fundamental values and highest ideals.


This new policy is one of several initiatives implemented by the attorney general before he steps down. His resignation will occur when a successor is confirmed by the Senate, but President Obama is not expected to nominate a successor until after the midterm elections.


Wick Sollers, Daniel Sale, and Cassie Mathias, King & Spalding LLP, Washington, D.C.


 

October 21, 2014

DOJ Announces New Review Process for Qui Tam Complaints


Leslie Caldwell, the newly appointed assistant attorney general for the Department of Justice’s Criminal Division, announced that the Criminal Division has implemented a new procedure for reviewing qui tam complaints filed under the False Claims Act. Caldwell made the announcement at the annual Taxpayers Against Fraud Education Fund conference in Washington D.C. on September 17, 2014. At the conference, Caldwell explained that the Criminal Division


recently implemented a procedure so that all new qui tam complaints are shared by the Civil Division with the Criminal Division as soon as the cases are filed. Experienced prosecutors in the Fraud Section are immediately reviewing the qui tam cases when [the Criminal Division] receive[s] them to determine whether to open a parallel criminal investigation. Those prosecutors then coordinate swiftly with the Civil Division and U.S. Attorney’s Offices about the best ways to proceed in the parallel investigations.


The False Claims Act provides for service of the sealed qui tam complaint on both the local U.S. Attorney and the attorney general. This has enabled the Civil Division to maintain nationwide oversight of False Claims Act investigations and litigation from the outset. Traditionally, Civil Division attorneys in Washington and civil Assistant U.S. Attorneys have coordinated with criminal prosecutors when they believed that the particular circumstances of a matter warranted criminal review. Generally speaking, however, the Civil Division has not been systematically involved in decisions regarding whether to open parallel criminal investigations. Rather, the local U.S. Attorney’s Office has typically determined whether a complaint warrants criminal investigation.


The new procedure announced last month provides a new layer of systematic criminal review. The Criminal Division will now review qui tam complaints automatically in every qui tam matter. This review will be in addition to the potential concurrent review by criminal Assistant U.S. Attorneys in the district where the qui tam action is filed. False Claims Act defendants may thus face a greater threat of prosecution. Assistant Attorney General Caldwell’s announcement previewed some of the department’s priorities, particularly in the area of healthcare fraud. Caldwell observed that “[t]he recent success of the Criminal Division in prosecuting health care fraud has been nothing short of extraordinary.” She noted that “[c]ases involving fraud by executives at health care providers such as hospitals are also a high priority for us, and a growing part of our strike force docket.” She further signaled that criminal charges against corporate entities are also forthcoming, explaining that “[w]e are stepping up our prosecutions of corporations involved in health care fraud. . . . We have numerous ongoing corporate health care fraud investigations, and we are determined to bring more.” As a result, companies and their executives may be exposed to greater risk of exclusion, suspension, or debarment from government programs, and other regulatory repercussions that more typically are associated with criminal investigations. Moreover, even in matters that remain civil, defendants could face additional pressure from the underlying threat of criminal prosecution.


Wick Sollers, Daniel Sale, and Cassie Mathias, King & Spalding LLP, Washington, D.C.


 

September 26, 2014

Attorney General Eric Holder Speaks at NACDL Annual Meeting


Attorney General Eric Holder addressed the NACDL on the issue of ensuring equality under the law, quoting from Robert F. Kennedy that “the scales of our legal system measure justice, not wealth.” Holder noted that the Justice Department has committed more than $24 million in grants and initiatives to supporting indigent defense work and launched the Justice Initiative—a program dedicated to improving access to counsel, increased legal assistance, and bolstered justice-delivery systems.


Holder also spoke about the “Smart on Crime” initiative, focused on increasing proven diversion and reentry strategies, making criminal justice smarter and more productive, and moving away from outdated and overly stringent sentencing regimes. Over the last few months, the U.S. Sentencing Commission—with the Department’s urging—has taken additional steps to implement such strategies throughout the sentencing guidelines, amending guidelines for low-level drug-trafficking crimes to reduce the average sentence by nearly 18 percent. These new guidelines will impact almost 70 percent of people who are convicted of these offenses.


In the context of directing law-enforcement resources and improving reentry programs, Holder stated that intensive analysis and data-driven solutions can help achieve significant successes while reducing costs. Criminal sentences must be based on the facts, the law, the actual crimes committed, the circumstances surrounding each individual case, and the defendant’s history of criminal conduct. They should not be based on unchangeable factors that a person cannot control, or on the possibility of future crime that has not taken place.


James R. Wyrsch, Christopher R. Mirakian, Nathan J. Owings, Wyrsch Hobbs & Mirakian, P.C.


 

September 26, 2014

Lawyer Accused in $6M Client Theft Won't Face Criminal or Civil Trial


Prominent Pennsylvania lawyer, Anthony J. Lupas, will face neither a criminal nor civil trial concerning some $6 million he is accused of stealing from clients in a Ponzi scheme, due to his deteriorating mental faculties. Federal prosecutors asked the judge to dismiss the fraud case against Lupas, following an earlier ruling that the 80-year-old was incompetent to stand trial. Likewise, a civil lawsuit against Lupas was dismissed because of his incompetence to stand trial. Alleged victims will, however, recover some $3.25 million from a fund maintained by the Pennsylvania Supreme Court to compensate victims of attorney wrongdoing. It is still unknown where the money went.


James R. Wyrsch, Christopher R. Mirakian, Nathan J. Owings, Wyrsch Hobbs & Mirakian, P.C.


 

September 26, 2014

Lawyer, Business Owner, and CEO Criminally Charged with Usury


Attorney Joanna Temple is facing criminal usury charges in New York for allegedly circumventing state law prohibiting high interest on loans through a complex corporate thicket of payday-loan operations. Also charged are client company owner, Carey Vaughn Brown, and CEO Ronald Beaver. The three are accused of orchestrating an illegal lending operation involving charging exorbitant interest rates and automatically withdrawing payments from borrowers’ bank accounts. With Temple providing legal counsel, Brown allegedly operated MyCashNow.com lending in the West Indies, making loans throughout the United States between 2001 and 2013, via the Internet. Along with Brown, Temple, and Beaver, the company is charged with violating lending laws in New York and other states by charging between 300 and 700 percent interest, far above the maximum rates permitted in such states.


James R. Wyrsch, Christopher R. Mirakian, Nathan J. Owings, Wyrsch Hobbs & Mirakian, P.C.


 

September 26, 2014

Advocates Pushing for Lighter Sentences for Some White-Collar Crime


The U.S. Sentencing Commission, the federal panel that sets sentencing policy, eased penalties this year for potentially tens of thousands of nonviolent drug offenders. Now, defense lawyers and prisoner advocates are pushing for similar treatment for a different category of defendants: white-collar criminals. While it is unclear what action the commission will take, the discussion about tweaking sentences for economic crimes comes as some federal judges have chosen to ignore the existing guidelines as too stiff for some cases.


Just as drug sentences have historically been determined by the amount of drugs involved, white-collar punishments are typically defined by the total financial loss caused by the crime. Advocates hope for a new sentencing scheme that removes some of the weight attached to economic loss.


James R. Wyrsch, Christopher R. Mirakian, Nathan J. Owings, Wyrsch Hobbs & Mirakian, P.C.


 

September 26, 2014

Pro Se Attorney Credits Holy Card for Acquittal in Racketeering Trial


Criminal defense attorney Donald Manno was acquitted after a six-month trial in Camden, New Jersey, on federal charges of racketeering that could have put him in prison for the rest of his life. Manno and a dozen other defendants, including four more attorneys, were originally charged in 2011 for their alleged participation in a scheme in which a publicly traded mortgage company, FirstPlus Financial Group Inc., was allegedly taken over and looted of $12 million by the defendants.


James R. Wyrsch, Christopher R. Mirakian, Nathan J. Owings, Wyrsch Hobbs & Mirakian, P.C.


 

August 28, 2014

Scope of SOX Anti-Shredding Provision at Issue in the Supreme Court


The U.S. Supreme Court will consider whether a Florida fisherman’s disposal of three undersized fish constitutes a violation of the anti-shredding provision of the Sarbanes-Oxley Act. In 2007, fisherman John L. Yates was on a fishing trip in Florida on his boat, Miss Katie, when the boat was inspected by a Florida Fish and Wildlife Conservation Commission officer. The officer inspected the fishing haul of Yates and his crew and issued Yates a citation for three fish that were smaller than the 20-inch federal minimum. Yates was directed to bring the fish back to port for seizure by the National Marine Fisheries Service. Instead, Yates is alleged to have ordered his crew to toss the fish overboard and replace them with legally sized fish.


Yates was convicted of violating the Sarbanes-Oxley Act’s record-destruction provision and sentenced to 30 days’ imprisonment. The provision is known as the “anti-shredding” provision because it was passed in response to corporate accounting scandals and intended to criminalize the destruction of records that may contain evidence of fraudulent activity. The Eleventh Circuit upheld the conviction, rejecting Yates’s argument that “tangible object” was not intended to apply to fish. The case is now before the Supreme Court to determine whether the record-destruction provision covers anything that is a “tangible object” even when there is no connection to corporate records.


Anne M. Chapman, Osborn Maledon, P.A.


 

August 28, 2014

Rick Perry Makes Bid to Dismiss Charges on Constitutional Grounds


On August 15, 2014, Texas governor Rick Perry was indicted by a Travis County grand jury for two felony counts of abusing his official capacity and coercing a public official. Perry pleaded not guilty after turning himself in for booking. The charges related to his threat to veto and his ultimate veto of $7.5 million for the Travis County District Attorney’s Office Public Integrity Unit. Perry made the veto after Rosemary Lehmberg, the Travis County District Attorney, refused Perry’s call for her to resign following her conviction for drunken driving. Perry has maintained his rights both to call for Lehmberg’s resignation and to exercise his veto power for the funding.


On August 25, Perry’s legal team filed an application for a writ of habeas corpus asking the court to dismiss the charges based on unconstitutional vagueness and an alleged violation of separation-of-powers principles because the charges insert the judiciary into the governor’s political decision to veto state funding. The application also argues that the prosecution infringes on Perry’s free-speech rights because it would criminalize Perry’s explanation for his exercising the veto power. If the writ is denied, an appeal can be taken before trial.


Anne M. Chapman, Osborn Maledon, P.A.


 

July 22, 2014

BNPP Pleads Guilty to Large-Scale U.S. Economic Sanctions Violations


On June 30, the government announced that BNP Paribas S.A. (BNPP), a global financial institution, will plead guilty to state and federal charges of illegally processing financial transactions for countries including Sudan, Iran, and Cuba. BNPP was charged in federal court with knowingly and willfully conspiring to violate the International Emergency Economic Powers Act (IEEPA) and the Trading with the Enemy Act (TWEA) from 2004 through 2012. BNPP also was charged in New York state court with falsifying business records and criminal conspiracy. Under a global plea agreement, BNPP accepted responsibility for its criminal conduct and agreed to pay nearly $9 billion in penalties. Approximately $2.24 billion of the settlement will go to the state of New York.


According to the Justice Department, BNPP aided Sudan, Iran, and Cuba by willfully moving more than $8.8 billion throughout the U.S. financial system. $4.3 billion of these transactions were on behalf of sanctioned entities. BNPP used third-party financial entities to conceal both the sanctioned entities, as well as BNPP’s own role as the facilitator. About $6.4 billion was moved through the United States on behalf of the Sudanese-sanctioned entities from 2006 to 2007; another $4 billion for a financial institution owned by the government of Sudan; $1.747 billion for the Cuban-sanctioned entities from 2004 to 2010; and more than $650 million involved Iranian-sanctioned entities until 2012. According to government attorneys, BNPP’s conduct was known at the highest levels of the organization, and continued even after officers received a legal opinion that the company’s actions were unlawful.


Because satellite banks were established to disguise the sanctioned entities’ roles and BNPP’s role as the facilitator, the illegal transactions went undetected for years. In addition to monetary penalties, BNPP agreed to restrictions on U.S. dollar transactions, including at its New York unit and Paris headquarters.


Zachary Greene, Eileen Rumfelt, and Laura DiBiase, Miller & Martin PLLC


 

July 22, 2014

Rajaratnam Brother Acquitted of Insider Trading Conspiracy Charges


On July 8, a 12-member jury acquitted Rengan Rajaratnam, brother of Raj Rajaratnam, of criminal conspiracy to commit insider trading. Rengan was the former manager at Galleon Group LLC, a hedge-fund-management firm founded by Raj, who was previously convicted and sentenced to 11 years in prison. Prosecutors alleged that Rengan engaged in an insider criminal trading conspiracy with his brother during which Rengan and Raj traded tips about multi-billion-dollar transactions involving companies such as Clearwire Corp. and Advanced Micro Devices Inc. Three of the seven initially indicted charges proceeded to jury trial on June 18, 2014, in the Southern District of New York. After Raj’s former sources at the involved companies testified that they never told Rengan that Raj was exchanging tips for money, Judge Naomi Reice Buchwald dismissed two securities-fraud counts against Rengan. The jury acquitted him on the remaining criminal-conspiracy count.


Rengan’s acquittal ends Manhattan U.S. Attorney Preet Bharara’s perfect record with regard to insider-trading cases brought during his tenure.


Zachary Greene, Eileen Rumfelt, and Laura DiBiase, Miller & Martin PLLC


 

July 22, 2014

Credit Suisse MD Sentenced for Hiding $100 Million in MBS


David Higgs, a former managing director of Credit Suisse AG, was recently sentenced to time served for his role in hiding $100 million in mortgage-backed securities (MBS) losses. Higgs, his former boss, Kareem Serageldin, and former executive Salmaan Siddiqui were charged with conspiring to inflate the value of subprime mortgage bonds. The government alleged that the defendants participated in a scheme to hide $100 million in losses associated with mortgage-backed securities, permitting them to collect larger bonuses.

As the housing market collapsed in late 2007 and early 2008, Serageldin instructed Higgs to mark the book with predetermined profit-and-loss targets. Higgs gave the same orders to Siddiqui. Credit Suisse eventually was forced to take a $2.65 billion write-down of its 2007 year-end financial results. The write-down was a result of the pricing manipulation.


Higgs and Siddiqui pled guilty in February 2012. They both provided testimony implicating Serageldin, who pled guilty in April 2013 and was sentenced to 30 months in prison. Higgs received a sentence of time served because of his cooperation in the investigation. While Higgs acted out of greed, according to sentencing judge Alison Nathan, he played a small role in the grand scheme. Higgs also will forfeit $900,000 and pay $50,000 in fines.


Zachary Greene, Eileen Rumfelt, and Laura DiBiase, Miller & Martin PLLC


 

July 22, 2014

Two Recent Verdicts Issued Against SEC


The Securities and Exchange Commission (SEC) recently was dealt its second legal blow in two weeks’ time. On May 30, a Manhattan jury returned a verdict against the SEC when it found a manager and an analyst with New York hedge fund Wynnefield Capital Inc., as well as a former employee of General Electric, not liable for a $1.3 million insider-trading scheme. A week later, on June 6, 2014, a Los Angeles jury returned a verdict against the SEC in a case against Manouchehr Moshayedi.


Moshyedi was the cofounder and CEO of STEC Inc., a computer-storage-device manufacturer. Moshyedi founded the company with his two brothers. The SEC alleged that the brothers sold a large portion of their shares in a secondary offering. Prior to the offering, STEC allegedly made a secret deal with EMC Inc., STEC’s top customer, to take a larger share of product than analysts expected. After the deal closed, STEC’s revenue remained high. The SEC alleged that at the point, Moshayedi and his brothers each sold $4.5 million of STEC stock before news of the EMC deal became public. The SEC alleged that Moshayedi’s actions allowed him to deceive shareholders in violation of Securities Act Section 17(a) and Exchange Act Section 10(b). After a 12-day trial and a few hours of deliberation, the jury was not convinced, and returned a verdict against the SEC. The jury found that Moshayedi did not engage in insider trading or make material misrepresentations or omissions to investors.


Zachary Greene, Eileen Rumfelt, and Laura DiBiase, Miller & Martin PLLC


 

June 30, 2014

"Privacy Comes at a Cost": Cellphones and the Fourth Amendment


On June 25, 2014, the U.S. Supreme Court unanimously ruled that the Fourth Amendment's prohibition against unreasonable searches and seizures obligates law-enforcement officers to obtain a search warrant before examining data on a detained suspect's cell phone. Chief Justice Roberts wrote the Court's opinion, which was premised on the Court's observation that modern cell phones contain more personal information than practically any other object someone could be carrying.


Chief Justice Roberts acknowledged that mobile devices are used by criminals and that by requiring warrants, some investigations may be impeded. However, the Court observed, today's cell phones are really "minicomputers" on which "[t]he sum of an individual's private life can be reconstructed." Chief Justice Roberts predicted that cell phones are "such a pervasive and insistent part of daily life that the proverbial visitor from Mars might conclude they were an important feature of human anatomy."


As expected, the Court's ruling is being hailed by civil-liberties advocates and bemoaned by law enforcement. The Court was unconvinced by claims of risks of harm to officers: "Digital data stored on a cell phone cannot itself be used as a weapon to harm an arresting officer or to effectuate the arrestee's escape." However, the Court recognized that a warrantless search could be sustained where police have good reason to believe a phone may be remotely wiped or that it could be used to detonate an explosive.


Michael T. Dawkins, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Jackson, MS


 

June 30, 2014

Federal Grand Jury in SDNY Investigates GM Ignition-Switch Defect


On June 26, 2014, the Wall Street Journal's Jeff Bennett reported that federal prosecutors have issued grand-jury subpoenas concerning the General Motors (GM) ignition-switch defect. The defect has been found to cause the ignition on the Chevrolet Cobalt and other small GM cars to switch off and to disable the airbags. GM has already recalled 2.6 million vehicles to replace defective ignition switches. Thirteen deaths have been associated with the defect.


Bennett reported that Delphi Automotive PLC has acknowledged that it has been served with a grand-jury subpoena and has produced documents relating to the design and production of ignition switches to a grand jury in the Southern District of New York. A day before Bennett's article, the House Energy and Commerce Committee released documents that had been marked in a way indicating that Delphi had produced documents to a federal grand jury. While GM had already disclosed the existence of a criminal investigation, the House committee's release of the Delphi documents was the first indication of grand-jury activity.


The documents released by the House committee on June 25 include an email string showing that Doug Parks, who is now GM's vice president of product programs and who has served in the inner circle of GM CEO Mary Barra, knew of the ignition-switch problems in 2005. Civil lawsuits regarding the defect allege that GM knew of the defect for a decade before taking action.


GM conducted an internal investigation of which Congress has been critical. The House Energy and Commerce Committee has questioned the conclusions drawn by GM's internal investigation, which focused on failures by GM engineering but did not address why or how the company's leadership had been aware of the defect until last year, as GM maintains it was. The internal investigation, which was headed by former federal prosecutor Anton Valukas, revealed that GM met with the National Highway Traffic Safety Administration in 2004 and argued that the engine stalling was not a safety issue.


Michael T. Dawkins, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Jackson, MS


 

June 30, 2014

Attorney Sentenced to 15 Years for Marketing of Abusive Tax Shelters


On June 25, 2014, U.S. District Court Judge William H. Pauley III of the U.S. District Court for the Southern District of New York sentenced Paul Daugerdas, the former managing partner of the Chicago office of Jenkens & Gilchrist, to serve a 15-year prison term. After a seven-week trial, Daugerdas was convicted in 2013 of conspiring to defraud the Internal Revenue Service, income-tax evasion, mail fraud, and wire fraud. His codefendant, former CEO of BDO Seidman LLP, Denis Field, was acquitted. Daugerdas and Field led an effort to market aggressive tax shelters that generated paper losses, allowing clients with large capital gains to virtually eliminate their income-tax liability.


Daugerdas designed the tax shelters and wrote tax-opinion letters affirming the legitimacy of the tax write-offs generated by the shelters. Daugerdas generated $95 million in fees while the tax shelters were marketed from 1994 to 2004. Jenkens & Gilchrist had partnered with the accounting firm of BDO Seidman to design and market these tax strategies.


Both Daugerdas and Field were convicted in 2011, but a new trial was ordered because a juror admitted that she lied about her legal and criminal background. Following the second trial, in which Daugerdas was convicted and Field was acquitted, Field's lawyer, Sharon McCarthy, explained that Field was acquitted because he "had a good faith belief in the validity of the tax shelters."


The law firm closed in 2007 after entering into a non-prosecution agreement with the United States. At the sentencing, Judge Pauley commented that Jenkens & Gilchrist had "collapsed under the weight of [Daugerdas's] criminal acts."


At Daugerdas's sentencing, Judge Pauley observed that the tax shelters marketed by Daugerdas wiped out nearly $8 billion in gains, resulting in tax loss to the United States Treasury of $1.6 billion. According to Judge Pauley, "The success of the scheme depended on the unethical and criminal behavior of highly educated and highly compensated professionals." In addition to his prison sentence, Daugerdas must forfeit $165 million of cash and property and pay restitution of $371 million.


Michael T. Dawkins, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Jackson, MS


 

May 29, 2014

WellCare Executives Sentenced to Prison for Fraud


On May 19, 2014, three former WellCare executives were sentenced to prison terms in the District Court for the Middle District of Florida for their involvement in a scheme to defraud Florida’s Medicaid program of millions of dollars. WellCare provides health and prescription drug plans to nearly 3.5 million members nationwide and continues to run two Medicaid managed-care companies in Florida. The government alleged that, between 2003 and 2007, company executives schemed to submit false documentation to meet Florida’s 2002 medical-cost-ratio rule. Under a 2002 statute, if a Florida Medicaid managed-care plan spends less than 80 percent of premiums on patient care, it is required to return the difference to the agency. By falsely reporting higher than actual patient-care expenses, the WellCare executives were able to keep money that should have been spent on patient care or otherwise returned to the government-funded program. This was one of several practices that drew concern from whistleblower Sean Hellein, a former WellCare senior finance analyst who helped launch the civil case by performing 18 months of undercover work for the FBI.


Former WellCare CEO Todd Farha was found guilty on two counts of healthcare fraud and sentenced to three years in prison and fined $50,000. Paul Behrens, WellCare’s former CFO, was sentenced to two years in prison. William Kale, the former vice president of government affairs, was sentenced to one year. Additionally, former vice president of medical economics Peter Clay was convicted of two counts of making false statements to federal agents, fined $10,000, and ordered to provide 200 hours of community service.


WellCare itself was charged with conspiracy in 2009, but ended up negotiating a deferred-prosecution agreement (DPA) with the government that required the company to cooperate with the government’s investigation of the individual employees. Under the DPA, WellCare paid $40 million in restitution and forfeited $40 million to the government for the agreement. WellCare also paid more than $137 million in civil fines and penalties in a related qui tam case. In 2012, the government dismissed its case against WellCare based on WellCare’s compliance with the terms of the DPA.


Joseph W. Martini and Elise R. Garber, Wiggin & Dana LLP


 

May 29, 2014

Botched Execution Raises Eighth Amendment Concerns


On April 29, 2014, a botched execution using a disputed new drug combination left Oklahoma inmate Clayton Lockett, 38, writhing on the gurney until prison officials halted the proceedings. Lockett eventually died of a heart attack, but not until more than 40 minutes after the injection was administered. A four-time felon, Lockett had received the death penalty following his conviction for shooting a 19-year-old woman and watching as two accomplices buried her alive, after she arrived at a house where Lockett and company were committing a robbery.


Lockett’s execution marked the first time that Oklahoma administered midazolam as the first drug in its execution drug sequence. (Other states, including Florida, have used it.) Lockett had sued the state for refusing to disclose details about the execution drugs, including where Oklahoma obtained them and whether the combination had been tested. The case placed Oklahoma’s two highest courts at odds and prompted calls for the impeachment of state supreme court justices after the court issued a rare stay of execution.


Following Lockett’s botched execution, Governor Mary Fallin ordered a 14-day stay of execution for another inmate who was scheduled to die two hours later. She also ordered the Department of Corrections to conduct a “full review of Oklahoma’s execution procedures to determine what happened and why during [the] execution.”


Joseph W. Martini and Elise R. Garber, Wiggin & Dana LLP


 

May 29, 2014

Government Criticized for Failing to Pursue Corruption Investigation


In 2009, two criminal investigators with an FBI-led task force visited Juan Collado’s bodega in Philadelphia to follow up on his allegations that narcotics officers had stolen nearly $10,000 in cash from his store after intentionally disabling the video-surveillance system. Collado was one of more than 20 Philadelphia-based bodega and corner-store owners who claimed that narcotics officers had destroyed their video cameras and stolen cash and merchandise. The Philadelphia Daily News researched the allegations and published a Pulitzer-Prize-winning article regarding its investigation.


Despite what appeared to be credible evidence of misconduct, including some video evidence that appeared to show officers cutting the wires to a video-surveillance system, the investigators never followed up with Collado or the other bodega owners even though they promised to do so, the owners say. In late April 2014, news broke that federal prosecutors have decided not to file any criminal charges against the narcotics officers. In May, the police commissioner announced that the lead officer would be suspended for 30 days with intent to dismiss, three of his colleagues would be suspended, and a member of the Narcotics Field Unit would be fired. However, much of the community was not satisfied with this delayed result. Moreover, because the five-year statute of limitations for a civil action has run, the store owners feel that the government’s failure to investigate has silenced their corruption allegations.


Joseph W. Martini and Elise R. Garber, Wiggin & Dana LLP


 

May 29, 2014

Marathon Bomber Set for Trial in Boston


April 15, 2014, marked one year since the bombing attack on the Boston Marathon that killed three people and injured more than 260 others, which the government alleges was carried out by the Tsarnaev brothers. The brother who survived the standoff following the bombing, Dzhokhar Tsarnaev, will be tried in the District Court for the District of Massachusetts, where he is facing a 30-count indictment. He has entered a plea of not guilty.


The United States has filed a notice of intent to seek the death penalty against Tsarnaev. Tsarnaev’s attorneys have asked for an extension to file motions to suppress statements and evidence seized during searches. In April, prosecutors filed a motion for notice pursuant to Fed. R. Crim. P.12.2(b), asking Tsarnaev's attorneys to inform them in May if they have any intention “to introduce expert evidence relating to a mental disease or defect or any other mental condition of the defendant which bears on either the issue of guilt or the issue of punishment.” Whether Tsarnaev will plead insanity may have an effect on the death penalty as an option.


U.S. District Judge George A. O’Toole Jr. has set the trial for November 3, 2014, and has ordered defense lawyers to notify the court by June 18, 2014, whether they will ask to move the trial to another location. Prosecutors estimate that Tsarnaev’s trial will last 12 weeks and that if he is convicted, it will take about six weeks to present evidence to jurors who must recommend a sentence of life in prison or the death penalty.


Joseph W. Martini and Elise R. Garber, Wiggin & Dana LLP


 

April 1, 2014

DOJ, Toyota Agree To $1.2 Billion Settlement


On March 19, 2014, the Department of Justice (DOJ) announced that it has entered into a deferred prosecution agreement with Toyota Motor Corp. to resolve the criminal investigation of the company’s handling of complaints about unintended acceleration of its vehicles. Toyota admitted to misleading U.S. consumers by concealing and making deceptive statements about two different safety issues affecting its vehicles that caused unintended acceleration.


Toyota agreed to pay a $1.2 billion non-tax-deductible fine to the United States by March 25, 2014. Toyota additionally agreed to retain an independent monitor for three years to review and assess Toyota’s policies, practices, and procedures, review any documents, and to interview any employees regarding Toyota’s activities in the United States.


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Anthony Chavez, Nixon Peabody LLP


 

April 1, 2014

Former Dewey & LeBoeuf Executives Indicted in New York


On March 6, 2014, the Manhattan District Attorney’s Office announced that grand jury has indicted former chairman Steven Davis, former executive director Stephen DiCarmine, and former chief financial officer Joel Sanders of the recently dissolved national law firm of Dewey & LeBoeuf LLP. According to the indictment, the former executives engaged in a scheme to hide a cash shortfall caused by the financial crisis by misrepresenting expenses and claiming revenues that did not exist. The former executives are charged with grand larceny in the first degree, scheme to defraud in the first degree, Martin Act securities fraud, falsifying business records in the first degree, and conspiracy in the fifth degree. The indictment was the culmination of a joint investigation between the Manhattan District Attorney’s Office and the FBI. The Securities and Exchange Commission conducted a parallel investigation and has filed charges against the men in a separate action.


According to the indictment, the scheme began in November 2008 and ended in March 2012, just before Dewey’s bankruptcy and dissolution. The scheme was intended to make it appear as though Dewey had made it through the financial crisis unscathed.


The alleged fraudulent accounting scheme included reversing disbursement write-offs to appear as collectibles, reclassifying disbursement payments as applying to outstanding fee amounts, reclassifying of counsel payments as equity-partner compensation, reversing $2.4 million in credit-card write-offs to appear as unbilled client-disbursement receivables, reclassifying salaried-partner expenses, seeking backdated checks, applying partner capital as fee revenue, and applying loan repayments as revenue. The indictment also alleges that Dewey misled its lenders into believing that it had complied with its cash-flow covenant, and refinanced its debt with further misleading financial statements to private-placement securities investors.


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Anthony Chavez, Nixon Peabody LLP


 

March 24, 2014

Guidance for Providing Banking Services to Marijuana-Related Businesses


In February 2014, the U.S. Department of Justice and the U.S. Department of the Treasury issued guidance memoranda stating that financial institutions may provide banking services to marijuana-related businesses in states that have legalized sale of the drug. The permission extends to both recreational-purpose and medical-purpose states.


The Treasury’s Financial Crimes Enforcement Network (FinCEN) stated that banks may provide services to marijuana-related businesses legalized under state law as long as the banks comply with the Banking Secrecy Act and other financial-reporting laws.


The Department of Justice stated in a memorandum from Deputy Attorney General James Cole its position that financial transactions derivative of marijuana sales can still be subject to prosecution, and, in particular, that banks can still face criminal liability for facilitating such transactions. In the memorandum, however, Deputy Attorney General Cole cautioned prosecutors to exercise discretion in bringing such prosecutions. Determinations regarding whether resources should be used to prosecute banks working with marijuana-related businesses should take into account whether the activity falls within the bounds of law-enforcement priorities and state law.


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Anthony Chavez, Nixon Peabody LLP


 

March 24, 2014

Privilege Cannot Be Used to Prevent Disclosure of Agency Materials


In a recent case, the Pennsylvania Supreme Court affirmed a lower court’s holding that materials belonging to the Pennsylvania Turnpike Commission, including communications between commission employees and the commission’s attorneys, cannot be withheld under the attorney-client privilege.


A state grand jury investigating the Pennsylvania Turnpike Commission and its employees issued subpoenas to the commission. The commission filed a motion for a protective order arguing that some of the materials sought by the subpoenas were privileged. The supervising judge denied the commission’s motion and ordered the commission to produce the materials. The supervising judge concluded that the attorney general had the “right to access all of the requested material” and that “the attorney-client and work product privileges do not preclude the [attorney general’s] access to these materials.”


On the commission’s appeal, the Pennsylvania Supreme Court affirmed.


The court held that interactions between the commission or its employees and the commission’s attorneys were not protected by attorney-client privilege or the attorney-work-product doctrine. The court explained that “the actual client of the agency’s lawyers in [investigations of agency wrongdoing] is the public.” The court further reasoned,“[i]t follows that the only proper manner of considering the privilege in these circumstances is that the client-citizenry has impliedly waived the attorney-client privilege that might otherwise shield from revelation evidence of corruption and criminal activity.” The court further explained that “it would be both unseemly and a misuse of public assets to permit a public official to use a taxpayer-provided attorney to conceal from the taxpayers themselves otherwise admissible evidence of financial wrongdoing, official misconduct, or abuse of power.”


The case is In re 33d Statewide Investigating Grand Jury Petition of Pa. Tpk. Comm’n, No. 85 MM 2012 (Feb. 18, 2014).


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Anthony Chavez, Nixon Peabody LLP


 

March 12, 2014

First Jury Conviction under Economic Espionage Act of 1996


On March 5, 2014, two individuals and one company were convicted of economic espionage and a host of other crimes in what marked the first-ever jury conviction under the Economic Espionage Act of 1996. The defendants were charged in February 2012 for their roles in a conspiracy to obtain U.S. trade secrets from American chemical company E.I. du Pont de Nemours & Co. and to sell the trade secrets for millions of dollars to companies owned by the government of the People’s Republic of China (PRC).


The trade secrets at issue related to DuPont’s production of chloride-route titanium dioxide, a white-pigment chemical that has generated billions of dollars per year for DuPont as a result of its application to a variety of fields, including the military and aerospace industries. The evidence at trial showed that defendant Walter Lian-Heen Liew hired former DuPont employees, including co-defendant Robert Maegerle, to assist him in conveying the technology to the PRC entities. In addition, Liew, Maegerle, and USA Performance Technology Inc. (USA PTI), the company of which Liew was owner and president, entered into contracts with the Chinese companies for chloride-route titanium dioxide projects and sold the chloride-route titanium dioxide technology to the companies for more than $20 million.


After a seven-week trial, the jury found Liew, Maegerle, and USA PTI guilty of various charges related to the trade-secrets theft. Specifically, Liew was convicted of conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted economic espionage, attempted theft of trade secrets, possession of trade secrets, conveying trade secrets, conspiracy to obstruct justice, witness tampering, conspiracy to tamper with evidence, false statements, filing false tax returns, false statements in bankruptcy proceedings, and false oath in bankruptcy proceedings. In addition, the jury found Maegerle guilty of conspiracy to commit theft of trade secrets, attempted theft of trade secrets, conveying trade secrets, and conspiracy to obstruct justice. The jury also convicted USA PTI of conspiracy to commit economic espionage, conspiracy to commit theft of trade secrets, attempted economic espionage, attempted theft of trade secrets, possession of trade secrets, conveying trade secrets, and conspiracy to obstruct justice.


Sentencing for the two defendants and USA PTI is scheduled for June 10, 2014.


Jason M. Silverman and Felicia C. Quentzel, McKenna Long & Aldridge LLP, Washington, D.C.


 

March 12, 2014

Supreme Court Hears Oral Argument in Hall v. Florida


On March 3, 2014, the U.S. Supreme Court heard oral argument in Hall v. Florida, a case that concerns whether Florida’s bright-line rule that anyone with an IQ above 70 can be executed if convicted of murder can stand in light of the Eighth Amendment and the Court’s 2002 decision in Atkins v. Virginia. Under Atkins, the execution of mentally retarded criminals is “cruel and unusual punishment” prohibited by the Eighth Amendment. (Authors’ note: While “mental retardation” may not be the clinically preferred term for the condition, it is the term used in connection with both the Atkins and Hall cases.) In Atkins, the Court did not prescribe clear guidelines for determining mental retardation, but noted that IQ scores under “approximately 70” suggest an intellectual disability.


Under Florida law, a person with an IQ of greater than 70 cannot qualify as mentally retarded, and is subject to execution. The petitioner scored slightly higher than 70. There is, however, as much as a five-point error rate in the IQ testing used. The petitioner argued that simply using a raw IQ test score is inadequate to allow for this error in testing and to ensure no mentally retarded defendants are executed. Florida argued that a more permissive rule could double the number of criminal defendants eligible to claim that they are constitutionally exempt from the death penalty.


Observers of the oral argument noted that at least six of the justices appeared to strongly favor the petitioner.


The case is Freddie Lee Hall v. Florida, No. 12-10882, on writ of certiorari from the Supreme Court of Florida.


Jason M. Silverman and Felicia C. Quentzel, McKenna Long & Aldridge LLP, Washington, D.C.


 

March 12, 2014

Pharma Co. Pays $170 Million to Settle Off-Label Marketing Case


On February 21, 2014, the Department of Justice (DOJ) settled a $192 million off-label marketing case against Endo Pharmaceuticals and Endo Health Solutions. Under the terms of the settlement, which resolved both criminal and civil charges, Endo entered into a deferred-prosecution agreement, forfeited $20 million to resolve the criminal charges, and paid $171.9 million to settle civil false-claims allegations with the United States and individual states.


Endo manufactured and marketed a drug called Lidoderm that had been approved by the Food and Drug Administration only for treatment of pain associated with shingles. The labeling therefore lacked directions on the use of the drug for other conditions. The DOJ alleged that, despite this, some of Endo’s sales representatives promoted the drug for other uses, such as treatment of diabetic neuropathy, carpal tunnel syndrome, and lower back pain. The government charged that Endo sold misbranded drugs in interstate commerce in violation of the Food, Drug and Cosmetic Act. In entering the deferred-prosecution agreement, Endo admitted that it intended that Lidoderm be used for unapproved purposes and that the company promoted Lidoderm to health-care providers for those unapproved applications.


The government alleged that by promoting Lidoderm for unapproved uses, Endo caused false claims to be submitted for payment under publicly funded programs such as Medicaid, which is jointly funded by the federal government and the states. Federal health-care programs do not cover drugs that are used for other than for their medically accepted indications.


The criminal case against Endo was filed in the Northern District of New York. The civil cases, which were already pending in the Eastern District of Pennsylvania, had begun as qui tam actions in which private party “relators” (in this case, former Lidoderm sales representatives and a doctor) brought a complaint on behalf of the United States. The relators are entitled to share in the government’s recovery, though their shares of the settlement have not yet been determined.


In addition to resolving the civil and criminal charges, Endo entered into a corporate integrity agreement (CIA) with the Department of Health and Human Services, the inspector general of which had aided the DOJ in the investigation of the case.


In its press release on the matter, the DOJ touted the case as another achievement of the government’s Healthcare Fraud Prevention and Enforcement Action Team (HEAT).


Jason M. Silverman and Felicia C. Quentzel, McKenna Long & Aldridge LLP, Washington, D.C.


 

January 28, 2014

Alcoa Settles Foreign Bribery Allegations for $384 Million


On January 9, 2014, the U.S. Department of Justice (DOJ) announced that Alcoa World Alumina LLC, a majority-owned and controlled global alumina sales company of Alcoa, Inc., agreed to plead guilty to one count of violating the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA) and pay $223 million in criminal fines and forfeiture. In a parallel SEC action, Alcoa and Alcoa World Alumina agreed to pay an additional $161 million in disgorgement.


The charging documents, which were released at the time of settlement, alleged that Alcoa Alumina violated the FCPA by paying millions of dollars of bribes to Bahrain officials through an international middleman in London. The documents alleged that in 2004, Alcoa World Alumina obtained a long-term alumina supply agreement with Aluminum Bahrain B.S.C. (Alba) by agreeing to funnel tens of millions of dollars to Bahrain’s Royal Family through an offshore shell company owned by a London-based middle man who had ties to members of the Royal Family.


Along with monetary fines and penalties, Alcoa and Alcoa World Alumina agreed to cooperate with the DOJ in its further investigation of other “individuals and institutions involved in these matters.” Prosecution of the alleged middleman, Victor Dahdaleh, was recently abandoned by the United Kingdom’s Serious Fraud Office (SFO) after the SFO’s chief witnesses withdrew evidence and cooperation.


Stephanie Ellis and Michael Scheininger, McKenna Long & Aldridge, Washington, D.C.


 

January 28, 2014

ADM and Subsidiary to Pay $54 Million for FCPA Violations


On December 20, 2013, the Department of Justice (DOJ) announced that a subsidiary of multinational agribusiness Archer Daniels Midland Co. (ADM) has agreed to pay $17 million in criminal fines and plead guilty to one count of conspiracy to violate the anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). The settlement resolves charges that ADM’s subsidiary paid bribes, through vendors, to Ukrainian government officials for the purpose of obtaining value-added tax (VAT) refunds. The DOJ also entered into a non-prosecution agreement (NPA) with parent company ADM, based on its finding that the parent company had “failed to implement sufficient policies and procedures to prevent [] bribe payments” in the Ukraine and with respect to other improper payments that were made in Venezuela.


According to the charging documents, from 2002 to 2008, Ukrainian and German subsidiaries of ADM, through kickbacks to Ukrainian tax officials, paid approximately $22 million to secure over $100 million in VAT refunds. The NPA with ADM notes that a number of ADM executives expressed concerns about the improper payments or “donations” made by the subsidiaries, but ADM failed to implement procedures to prevent the improper payments.


In addition to settling the DOJ action, ADM also consented to the filing of a settled civil action by the SEC that alleged violations of the FCPA’s books, records, and internal-controls provisions. ADM agreed to pay approximately $36.5 million in disgorgement and prejudgment interest to settle the SEC action, bringing the total to be paid by ADM and its subsidiary in both actions to $54 million.


Though the NPA does not mandate a compliance monitor, under the terms of the agreement, ADM is required to file written reports with the SEC and DOJ regarding its compliance and remediation efforts, and must do so every year for the three-year term of the NPA.


Stephanie Ellis and Michael Scheininger, McKenna Long & Aldridge, Washington, D.C.


 

January 28, 2014

Bilfinger Agrees to Pay $32 Million in EGGS Bribery Prosecution


In an action arising out of investigations that began more than seven years ago, the Department of Justice (DOJ) announced on December 11, 2013, that Bilfinger SE, an international engineering and services company based in Germany, has agreed to pay a $32 million penalty and has entered into a three-year deferred-prosecution agreement (DPA) to resolve charges that it violated the Foreign Corrupt Practices Act (FCPA). The Bilfinger settlement is the latest in a series of FCPA enforcement actions related to the bribery of Nigerian government officials in efforts to obtain contracts related to the Eastern Gas Gathering System (EGGS) project. The EGGS project was valued at roughly $387 million.


The charging documents allege that Bilfinger conspired with its EGGS joint-venture partner Willbros Group Inc. and others to make more than $6 million in corrupt “landscaping payments” to Nigerian officials to obtain and/or retain contracts related to the EGGS project.


In addition to the $32 million that Bilfinger has agreed to pay under the settlement, it will retain a compliance monitor for at least 18 months of the three-year DPA. After 18 months, the company will be permitted to self-report for the remainder of the term of the DPA.


The settlement with Bilfinger is the latest event in a series of related investigations and prosecutions that has lasted nearly a decade. Over the last seven years, the DOJ has filed criminal charges against three companies and four individuals for their roles in the EGGS bribery scheme. In 2006, Jim Bob Brown, a former Willbros executive, pled guilty to one count of conspiracy to violate the FCPA and was sentenced in 2010 to one year and one day in prison. In 2007, Jason Steph, another former Willbros executive, pled guilty to one count of conspiracy to violate the FCPA and was sentenced in 2010 to 15 months in prison. In 2009, former Willbros consultant Paul Grayson Novak pled guilty to one count of conspiracy to violate the FCPA and one substantive count of violating the FCPA and was sentenced in 2013 to 15 months in prison. In 2008, Willbros Group, Inc. and Willbros International Inc. agreed to pay $32.3 million in a combined settlement with the DOJ and SEC and entered into a DPA in connection with improper payments to government officials in Nigeria and Ecuador. Also in 2008, the DOJ brought charges of conspiracy and making improper payments in violation of the FCPA against Kenneth Tillery, a former Willbros executive. Tillery remains a fugitive.


Stephanie Ellis and Michael Scheininger, McKenna Long & Aldridge, Washington, D.C.


 

January 14, 2014

SCOTUS to Hear Restitution Argument for Child Porn Victims


On January 22, 2014, the Supreme Court will hear arguments in Paroline v. United States, a case concerning how victims of child pornography can obtain restitution from defendants convicted of possessing the pornography. In cases involving certain sexual crimes against children, a victim may recover restitution in the “full amount of the victim’s losses.” 18 U.S.C. § 2259(b)(1). The statute defines several specific types of loss (e.g., “medical services” and “lost income”) and also includes a catch-all category of loss, defined as “any other losses suffered by the victim as a proximate result of the offense.” 18 U.S.C. § 2259(b)(3). In addition, if “more than 1 defendant has contributed to the loss of a victim, the court may make each defendant liable for payment of the full amount of restitution or may apportion liability among the defendants.” 18 U.S.C. § 3664(h).


Paroline pleaded guilty to possessing child pornography. Among the hundreds of images on Paroline’s computer were two images of “Amy,” a young woman whose uncle raped and abused her when she was eight and nine years old. Images of Amy’s abuse are among the most widely distributed on the Internet. After the Department of Justice notified Amy that her images were part of Paroline’s case, she sought $3.4 million in restitution for the specific types of loss listed in 18 U.S.C. § 2259(b)(3). The district court agreed that Amy was a “victim” because she suffered harm “as a result of” Paroline’s possessing the images. The court ruled, however, that no restitution could be ordered because the government could not show that Paroline’s conduct “proximately caused” any specific losses distinct from harm caused by others who had also downloaded the same images of Amy.


The Fifth Circuit reversed in an en banc opinion. The court held that proximate causation need only be proven in connection with the last “catch-all” category of loss, not the other specific types of loss that Amy claimed. For the specific categories of loss, the victim (or the government) need only prove that the loss was “a result of” the offense, a broader concept. Furthermore, the court held that the defendant could be held jointly and severally liable for Amy’s losses under section 3664(h), even if the other defendants were in different cases.


Although the case superficially involves standard questions of statutory interpretation—the “rule of the last antecedent” is featured in the Fifth Circuit’s opinion—the Supreme Court’s decision has weighty policy implications. The Fifth Circuit’s opinion allows a victim whose sexual abuse is captured in a widely distributed image or video to choose to seek full restitution from the defendants who can actually pay, leaving it to those relatively wealthy defendants to seek contribution from other people who download the image. Paroline is urging the Supreme Court to endorse the district court’s approach, which would require proof that the defendant’s individual conduct proximately caused the claimed harm, something that Paroline insists could not be proven in this case because there was no evidence that Amy was even aware of Paroline’s conduct. The Department of Justice has filed its own brief, advocating for a middle ground that would make causation of harm easier to prove in online-pornography cases, but would not embrace full joint-and-several liability for defendants. The decision is now in the Supreme Court’s hands.


The case is 12-8561. The petition, merits briefs, and numerous amicus briefs are available here.


Joseph Roth, Osborn Maledon, P.A., Phoenix, AZ


 

January 14, 2014

J.P. Morgan Settles with DOJ in Connection with Madoff Fraud


Capping off a multi-billion-dollar year of legal settlements, J.P. Morgan recently entered into a deferred-prosecution agreement with the Department of Justice (DOJ) to avoid criminal prosecution concerning its actions in connection with the Bernie Madoff fraud. Pursuant to the agreement, the banking giant will pay $1.7 billion to the DOJ for violations of the Bank Secrecy Act (BSA) relating to the accounts held by Bernie Madoff at the bank. The $1.7 billion settlement is the largest penalty that the DOJ has ever assessed under the BSA, and the largest-ever forfeiture by a bank. The DOJ alleged that J.P. Morgan repeatedly ignored numerous red flags concerning Madoff’s accounts, failed to maintain adequate anti-money laundering controls, and failed to file required suspicious-activity reports for Madoff’s account. Materials published by the DOJ summarizing the agreement reveal that the bank filed a report with British authorities expressing that the Madoff deals seemed “too good to be true,” but did not make any reports to U.S. authorities, despite internal concerns regarding the returns on the accounts.


Under the terms of the agreement, in addition to the payment, J.P. Morgan agreed to a broad obligation to report criminal conduct by the bank or its employees during the two years that the agreement is in force, as well as an obligation to regularly brief the DOJ concerning the remediation and strengthening of the bank’s anti-money-laundering compliance efforts.


The $1.7 billion will be treated as forfeited proceeds of Madoff’s fraud, rather than as a criminal fine. As a result, the government will be able to use the money to reimburse investors who were victims of Madoff’s Ponzi scheme.


Further, to ensure that taxpayers are not subsidizing the $1.7 billion payment, the agreement also includes a provision that J.P. Morgan cannot deduct the payment from its taxable income by treating it as an ordinary business expense.


Emily Crandall Harlan, Nixon Peabody LLP, Washington, D.C.


 

December 30, 2013

Convicted Lobbyist Seeks Unsealing of Government Presentation


Former lobbyist and congressional staffer Kevin Ring, sentenced in 2011 to 20 months in prison following convictions for honest-services fraud and related counts in connection with the Jack Abramoff scandal, has filed a motion with the D.C. District Court seeking the unsealing of portions of a PowerPoint presentation that the government used during a pre-indictment proffer session with Ring in 2008. According to Ring’s motion, the purpose of the unsealing is to provide the document to “public interest groups, legal academics, and others” to bring “greater transparency to, and public scrutiny of, the daily workings of the criminal charging, plea, and sentencing processes.” In particular, Ring asserts, the presentation is relevant to the “trial penalty” that the government extracts when a defendant elects to put the government to its proof at a trial instead of pleading guilty.


Ring has long argued that the government unfairly penalized him for deciding to go to trial, namely by seeking a sentence that was grossly disproportionate to the sentences sought for other similarly situated individuals who pled guilty instead. In confronting the issue during the sentencing phase, Judge Ellen Segal Huvelle of the D.C. District Court concluded that Ring’s belief that the government had retaliated against him “might be justified,” in light of the government’s peculiar methodology for calculating Ring’s offense level. Indeed, the government initially argued that Ring’s offense level ought to be higher than Abramoff’s and another key conspirator’s, despite that those individuals were “clearly more culpable.” The court ultimately rejected the government’s Guidelines calculation.


The government has not yet filed a respond to Ring’s motion. Ring, whose sentence was stayed pending a number of now-failed appeals, is set to begin serving his 20 months on January 2, 2014.


Emily Crandall Harlan, Nixon Peabody LLP, Washington, D.C.


 

December 30, 2013

Justice Department Delays Decision to Charge Virginia Governor


Attorneys for Virginia governor Robert McDonnell and his wife reportedly met on December 12, 2013, with Deputy Attorney General James Cole and convinced the Justice Department to delay Hobbs Act charges against the two relating to alleged gifts from businessman Jonnie R. Williams Sr., the founder and former CEO of a dietary-supplement company, Star Scientific Inc. McDonnell’s term as governor will expire on January 11, 2014, and the government may seek charges after that. In addition to asking the Justice Department to delay charges, attorneys for the governor and his wife also presented arguments about why the government should forgo charges altogether, including that a key witness has significant credibility problems. A decision on charging is not expected until after January 2, but may be delayed through February. Williams recently resigned as CEO of Star Scientific.


Kathleen Brody, Osborn Maledon, PA, Phoenix, AZ


 

December 30, 2013

SEC Reports 35% Increase in FCPA Tips and Complaints


In a report released November 15, 2013, the Securities and Exchange Commission (SEC) notified Congress that whistleblower tips and complaints making allegations relating to the Foreign Corrupt Practices Act (FCPA) increased 35 percent between FY2012 and FY2013. The SEC received 149 FCPA-related allegations during FY2013, up from 115 in FY2012. The jump in FCPA allegations was part of an overall increase in whistleblower tips and complaints: the SEC received 3,238 tips and complaints in FY 2013, a small increase over the 3,001 received in FY2012.


Days after the report came out, the codirector of the SEC’s Division of Enforcement, Andrew Ceresney, underscored the importance of the SEC’s whistleblower program to the commission’s enforcement efforts. In a keynote address at the International Conference on the Foreign Corrupt Practices Act, Ceresney said that the SEC is “increasingly sourcing . . . cases through whistleblower tips.” He also emphasized the “importance of cooperation” with government investigations and made clear that when the SEC uncovers FCPA violations on its own, “the consequences will surely be worse than if you had self-reported the conduct.”


Since August 2011, more than $15 million has been paid out to six claimants under the whistleblower program. On October 1, 2013, the SEC reported its largest whistleblower award: more than $14 million. Based on Ceresney’s recent speech, recent press releases, and reports to Congress, it appears there are more to come.


James Rough, Navigant Consulting, Inc., and Joseph Roth, Osborn Maledon, PA, Phoenix, AZ


 

November 20, 2013

Second Circuit Denies Challenge to 85-Year Fraud Sentences


The U.S. Court of Appeals for the Second Circuit recently upheld an 85-year prison sentence for each of two former Cobalt Capital Co. executives relating to their involvement in a $23 million real-estate-fraud scheme. United States v. Stitsky, No. 10-2767-cr (2d Cir. Oct. 17, 2013).


The fraud scheme, which lasted approximately three years and deprived 353 victims of a total of $23 million, involved the misrepresentation of Cobalt’s operating history, assets, and the criminal histories of defendants Irving Stitsky and Mark Alan Shapiro (indeed, Shapiro was on supervised release from a former fraud conviction when he engaged in the fraud scheme). The defendants appealed the long sentences to the Second Circuit and claimed they constituted “cruel and unusual punishment” under the Eighth Amendment to the Constitution.


A three-judge panel of the Second Circuit disagreed, stating: “While the district court’s sentence is severe, the facts it identified in support of its within-guidelines sentence adequately bear the weight assigned to them.” Specifically, the Second Circuit held that the district court appropriately weighed the number of victims, the fraud-loss amount, and the use of “sophisticated means” to carry out the scheme. According to the panel, the 85-year sentences were “substantively reasonable” and did not run afoul of the Eighth Amendment.


Wick Sollers, Dan Sale, and Cassie Mathias, King & Spalding, Washington, D.C.


 

November 20, 2013

Former Detroit Mayor Kwame Kilpatrick Sentenced to 28 Years


On October 10, 2013, a federal judge in Detroit sentenced Kwame M. Kilpatrick, former Michigan state representative and former mayor of Detroit, to 28 years in prison. Kilpatrick has been held in custody since March 11, 2013, when he was convicted of public corruption in federal court.


In 2001, Kilpatrick was elected mayor at age 31, making him the youngest person to hold the position in the city. Kilpatrick was mayor from 2002 to 2008, and his gubernatorial career was rich with scandal and inquiries into alleged misuse of city finances. Kilpatrick resigned in 2008 after being charged with perjury and obstruction of justice. He pled guilty to felony counts including perjury and obstruction of justice and was sentenced to four months in county jail. He initially was released on probation after serving only 99 days. On May 25, 2010, Mr. Kilpatrick was sentenced to serve 18 months to five years in prison for violating his probation, and he served about a year in prison. In 2010, Mr. Kilpatrick was indicted again by a federal grand jury. On March 11, 2013, Mr. Kilpatrick was convicted of 24 additional felony counts in federal court.


The 2010 indictment charged Kilpatrick and codefendants with operating a criminal enterprise out of the mayor’s office. The federal grand jury spent two-and-a-half years reviewing evidence and listening to hundreds of witnesses. At trial, a jury found Kilpatrick guilty of 24 of the 30 charges filed against him, including racketeering conspiracy, extortion, mail and wire fraud, and tax counts. Prosecutors alleged that the conspiracy had exacerbated Detroit’s financial crisis. The prosecution’s sentencing memorandum stated “Kwame Kilpatrick was entrusted by the citizens of Detroit to guide their city through one of its most challenging periods. . . . The city desperately needed resolute leadership. Instead it got a mayor looking to cash in on his office through graft, extortion and self-dealing.” The prosecution accused Mr. Kilpatrick and the “Kilpatrick Enterprise” of inducing fear in city contractors for the purpose of steering $84 million of work to codefendant Bobby Ferguson, another city contractor, who would then share the proceeds with Kilpatrick. The prosecution also alleged that Mr. Kilpatrick used non-profit funds and state grants for personal expenses. As the New York Times described, “prosecutors laid out a complex case against Mr. Kilpatrick and his codefendants—including his father, Bernard, and Mr. Ferguson—arguing that they had used the mayor’s office to enrich themselves for years through shakedowns, kickbacks and bid-rigging schemes.” Kilpatrick’s restitution has not yet been determined.


Barbara McQuade, U.S. Attorney for the Eastern District of Michigan, commented on the correlation of the sentence to the convictions and the conduct: “Twenty-eight years—a very, very powerful sentence, equal to the highest sentence ever handed out in a public corruption case, but appropriate for the type of staggering corruption we saw in this case.”

Kilpatrick’s attorneys have stated that they are considering an appeal and a reduction of his presentencing time. If Kilpatrick serves his entire sentence, he will be 71 when he is released.


Wick Sollers, Dan Sale, and Cassie Mathias, King & Spalding, Washington, D.C.


 

November 19, 2013

Eli Lilly Employees Indicted for Stealing Drug Discovery Trade Secrets


On October 8, 2013, in Indiana federal court, an indictment was unsealed alleging that two former Eli Lilly scientists stole drug discovery trade secrets and leaked them to a rival Chinese drug company. The defendants, Guoqing Cao and Shuyu Li, were both senior biologists located in the Indianapolis area. The federal grand jury charged Cao and Li with seven counts of theft and conspiracy to commit theft. Prosecutors claim that from 2010 to 2012, the defendants passed on nine secrets related to cancer, cardiovascular disease, and diabetes research that Eli Lilly was conducting. The indictment alleges that Cao and Li emailed sensitive information regarding experimental drug-research programs at Lilly to “Individual #1.” According to FBI agents, Individual #1 is still under investigation and has not been arrested. The Indianapolis Business Journal has reported that Individual #1 is employed by Jiangsu Hengrui Medicine Co. Ltd., based in China. In court, an Eli Lilly executive testified that the leaked trade secrets cost Eli Lilly over $55 million over 10 years to develop.


Eli Lilly provided assistance to the FBI and the U.S. Attorney’s Office during the investigations of the three individuals. Bill Heath, the head of global product development for Eli Lilly, testified at a hearing that “[b]ecause of their know-how and their continued access to the information, they would be in a position to direct others how to use the information.”


The federal indictment results from the efforts of the Department of Justice’s Task Force on Intellectual Property, which was created to combat domestic and international intellectual-property crimes such as theft of corporate trade secrets. This is the second prosecution in the Southern District of Indiana for economic espionage. Assistant U.S. Attorney Cynthia Ridgeway argued before Magistrate Judge Mark J. Dinsmore that: “If the superseding indictment in this case could be wrapped up in one word, that word would be ‘traitor.” Scott Newman, who is representing Li, responded: “No, the word is not treason; the word is overreach.” The two defendants will remain in custody until trial.


Wick Sollers, Dan Sale, and Cassie Mathias, King & Spalding, Washington, D.C.


 

October 24, 2013

ACLU Seeks Records of FISA Surveillance Used in Criminal Prosecutions


Following its 5–4 loss before the U.S. Supreme Court in Clapper v. Amnesty International USA, 133 S. Ct. 1138 (2013), the American Civil Liberties Union (ACLU) has filed a new lawsuit seeking records related to the government’s use of information obtained under the FISA Amendments Act (FAA). Congress passed the FAA in 2008, amending the Foreign Intelligence Surveillance Act to provide a new framework for the government to seek authorization from the Foreign Intelligence Surveillance Court to intercept communications of non-U.S. persons located abroad. The Supreme Court held in Clapper that the ACLU-represented plaintiffs lacked standing to challenge the constitutionality of the FAA. The Court suggested, however, that the government’s use of intercepted communications in a criminal case may provide standing to individuals connected with the case to challenge the law. The ACLU has now sued under the Freedom of Information Act, seeking a list of cases in which the government used any information obtained from surveillance conducted under the FAA, as well as the government’s policy on whether and how it provides notice to criminal defendants who were monitored under the FAA.


Jerome Roth and Will Edelman, Munger, Tolles & Olson LLP, San Francisco, CA


 

October 24, 2013

SCOTUS to Address Definition of Mental Retardation in Capital Cases


The U.S. Supreme Court has agreed to hear a challenge by a death-row inmate to the standard used by Florida’s high court to determine whether he was mentally retarded and thus ineligible for the death penalty. In 2002, the Supreme Court held in Atkins v. Virginia that the Eighth Amendment prohibits the execution of mentally retarded criminal defendants. The Court left to the states the task of determining which offenders are in fact mentally retarded. Shortly after Atkins was decided, Freddie Lee Hall, who was convicted of murder and sentenced to death in Florida state court in 1978, sought to have his death sentence set aside on the ground that he is mentally retarded. The Supreme Court of Florida concluded that Hall is not retarded because his IQ was found to be marginally higher than 70, and Florida law requires a score of 70 or below to be classified as mentally retarded. In his certiorari petition, Hall argued that Florida’s bright-line rule is unconstitutional because it assumes a level of precision in IQ scoring that does not exist.


Jerome Roth and Will Edelman, Munger, Tolles & Olson LLP, San Francisco, CA


 

October 24, 2013

Manhattan D.A.'s Office Targets Intellectual-Property Theft


The Manhattan District Attorney’s Office recently announced the indictment of three men for copying and taking proprietary trading strategy files and computer source code from a Manhattan financial trading company where two of the men worked as traders. According to the indictment and court statements, the two traders emailed themselves and a third man copies of the sensitive information and used it to develop a trading platform for a planned startup company. The indictment comes on the heels of the Manhattan District Attorney’s Office’s first-ever intellectual-property rights conference, as well as District Attorney Cyrus Vance’s announcement of recommendations by a District Attorneys Association of the State of New York task force to reform state law to better protect intellectual-property rights. District Attorney Vance urged the legislature to adopt the task force’s proposals, saying that the reforms would better protect intellectual-property owners in cases of in-house software theft like the one leading to the charges against the traders.


Jerome Roth and Will Edelman, Munger, Tolles & Olson LLP, San Francisco, CA


 

September 30, 2013

DOJ Announces Program to Allow Swiss Bank to Avoid Prosecution


The United States and Switzerland entered an accord regarding how financial institutions that allowed U.S. clients to use secret accounts to hide assets will be punished in lieu of criminal prosecution. The accord requires banks to pay steep penalties and provide substantial information to U.S. authorities, including detailed account information, to avoid prosecution. Banks already under criminal investigation and individuals are not eligible to participate in the program. The Department of Justice’s (DOJ) primary goal for the program is to learn information that will help it pursue investigations and recoup money from other wrongdoers.


James R. Wyrsch, Nathan Owings, and Christopher R. Mirakian, Wyrsch Hobbs & Mirakian, P.C., Kansas City, MO


 

September 30, 2013

FBI Using "Port Reader" Software to Monitor Real-Time Metadata


According to an article from CNET, the FBI is pressuring some Internet service providers to install “port reader” software on their networks that would allow the FBI to intercept and monitor real-time metadata, including source and destination IP addresses and possibly other metadata. The FBI likens the use of the port reader software to pen-register and trap-and-trace requests, which receive little judicial scrutiny before they are put in place. Reportedly, the software is used only when an Internet service provider does not have its own technology that is sufficient to respond to law-enforcement requests.


James R. Wyrsch, Nathan Owings, and Christopher R. Mirakian, Wyrsch Hobbs & Mirakian, P.C., Kansas City, MO


 

September 30, 2013

AG Holder Discusses Efforts to Strengthen Criminal Justice System


On August 12, 2013, Attorney General Eric Holder addressed the American Bar Association House of Delegates in San Francisco. Holder’s speech focused on easing overcrowding in federal prisons and correcting unfairness in the criminal-justice system. Holder said that the DOJ’s efforts in this arena include a data-driven and evidence-based review of federal sentencing and corrections policy that may lead to recommendations for new legislation. The DOJ’s efforts under the plan will also include a focus on indigent defense.


James R. Wyrsch, Nathan Owings, and Christopher R. Mirakian, Wyrsch Hobbs & Mirakian, P.C., Kansas City, MO


 

August 19, 2013

Halliburton Pleads Guilty to Destroying Deepwater Horizon Evidence


The government announced on July 25, 2013, that Halliburton has agreed to plead guilty in federal court to destroying evidence related to the 2010 Deepwater Horizon oil spill in the Gulf of Mexico. In the wake of the spill, Halliburton ran two computer simulations to test whether the number of centralizers used on one of its casings could have contributed to the disaster. Though the simulations indicated that the number of centralizers would have made little difference, Halliburton’s cementing technology director instructed employees to destroy the simulation results. Pursuant to the plea agreement, Halliburton will pay the statutory maximum fine of $200,000, and will serve three years of probation. Halliburton has also made a voluntary contribution of $55 million to the National Fish and Wildlife Foundation.


Alexander Vesselinovitch and Andrea C. Halverson, Katten Muchin Rosenman LLP, Chicago, IL


 

August 19, 2013

Swiss Legislation to Allow Banks to Share Info with United States


In early July 2013, the Swiss parliament approved the establishment of a framework to allow Swiss banks to cooperate with U.S. authorities in identifying tax evaders. This framework is based upon Article 271 of the Swiss Criminal Code, a statute that restricts how investigators can collect evidence for foreign proceedings. Once the new framework is in place, Swiss banks will have the option to request permission individually, as an exception to the otherwise strict Swiss privacy laws, to share account information with U.S. investigators. The proposed framework could help to implement provisions reflected in the 2010 U.S. Foreign Account Tax Compliance Act, which requires foreign banks and other financial institutions either to report U.S. account holders who are evading taxes or to face costly penalties.


Alexander Vesselinovitch and Andrea C. Halverson, Katten Muchin Rosenman LLP, Chicago, IL


 

August 19, 2013

Bradley Manning Avoids "Aiding the Enemy" Charge


On July 30, 2013, U.S. Army Pfc. Bradley Manning was found guilty of most of the 21 criminal counts that he faced for disclosing government documents to WikiLeaks. The government established that Manning violated the Computer Fraud and Abuse Act by using unauthorized software to download government documents. Pfc. Manning was not convicted of the most serious charge—“aiding the enemy”—which carried a penalty of up to life in prison, without parole. The judge presiding over Manning’s case indicated that she will proceed directly into the sentencing phase in Manning’s court-martial. Manning faces a maximum possible sentence of more than 130 years in military jail. Prosecutors are seeking a 60-year sentence.


Alexander Vesselinovitch and Andrea C. Halverson, Katten Muchin Rosenman LLP, Chicago, IL


 

August 19, 2013

Ex-UBS Executives Found Guilty of Muni Bond Bid-Rigging


Three former UBS executives, Peter Ghavami, Gary Heinz, and Michael Welty, recently stood trial for scheming to rig bids on municipal bonds, a violation of Title 18, United States Code, sections 371 and 1343. Following trial, all three were convicted of participating in a conspiracy to rig bids, and Ghavami and Heinz were additionally convicted of wire fraud. Prosecutors alleged that the three conspired with employees of various financial institutions to manipulate the bidding process for guaranteed investment agreements and contracts. The three allegedly discussed the price that their employers intended to bid with co-conspirators and then determined who would win. Ghavami, the alleged leader of the scheme, received an 18-month sentence. Welty was sentenced to 16 months, and Heinz received 27 months. The three were additionally ordered to pay fines ranging between $300,000 and $1 million.


Alexander Vesselinovitch and Andrea C. Halverson, Katten Muchin Rosenman LLP, Chicago, IL


 

July 15, 2013

Managing Partner of U.S. Broker-Dealer Charged with Bribery


On June 12, 2013, Ernesto Lujan, an ex-managing partner of the U.S. broker-dealer Direct Access Partners, LLC, was arrested in Florida on felony charges for allegedly participating in an international bribery scheme. The charges include one count each of conspiracy to violate the Foreign Corrupt Practices Act (FCPA), violation of the FCPA, conspiracy to violate the Travel Act, violation of the Travel Act, and conspiracy to commit money laundering and money laundering. Each count carries a maximum penalty of five years in prison except for the money-laundering counts, which each carry a maximum penalty of 20 years.


The criminal complaint alleges that, in 2008, Direct Access established a group for the purpose of offering fixed-income trading services to institutional clients. One of those clients was Banco de Desarrollo Económico y Social de Venezuela (BANDES). BANDES is Venezuela’s state economic-development bank and is operated under the direction of the Venezuelan Ministry of Finance. For nearly two years, Maria De Los Angeles Gonzales De Hernandez (Gonzales), the BANDES official charged with overseeing the bank’s overseas activities, allegedly directed trading business that she controlled at BANDES to Lujan’s company and received kickbacks for her actions. From December 2008 through October 2010, Direct Access generated more than $60 million in fees charged to BANDES from markups on purchases and mark-downs on sales. Agents and employees of Direct Access, including Lujan, allegedly split the revenue with Gonzales and attempted to conceal the payments by using intermediary corporations and offshore accounts.


Several weeks prior to Lujan’s arrest, Gonzales and two employees of Direct Access were arrested on separate charges related to the scheme. In announcing the charges, Acting Assistant Attorney General Mythili Raman of the Department of Justice’s Criminal Division stated, “[b]ribery corrupts markets, and [the arrest of Lujan] . . . is yet another demonstration that, at the end of the day, the real dividends bribe payers reap are criminal charges.”


Zachary H. Greene, Eileen H. Rumfelt, and Kevin Coleman, Miller & Martin PLLC


 

July 15, 2013

Father and Son Defraud Church Members of More Than $100 Million


Brent F. Williams and his son, Guy Andrew Williams, face decades in prison and hundreds of thousands of dollars in fines as a result of their June 28, 2013, conviction on 38 federal counts of conspiracy, wire fraud, mail fraud, and money laundering. The charges stemmed from an alleged Ponzi scheme that targeted members of the Church of Jesus Christ of Latter-Day Saints.


The joint investigation was conducted by the FBI and the IRS, along with other federal and state agencies. The investigation produced evidence showing that Mahon entities, an Arizona-based group of investment funds operated in part by the father-son duo, defrauded investors of more than $100 million over a three-year period. Mahon promised investors that their money would be used to make short-term, high-interest-rate loans to third parties. Instead, the money from new investors was used to repay initial investors, the elements of a classic Ponzi scheme.


Guy and Brent Williams allegedly enjoyed salaries and bonuses in excess of $10 million at their investors’ expenses. Dawn Mertz the special agent in charge of the Phoenix Field Office of Internal Revenue Service, Criminal Investigations, stated that “[t]he defendants lived lavish lifestyles and enriched themselves at the expense of unsuspecting investors” and warns of “investment opportunities that promise returns that sound too good to be true.” U.S. Attorney John Leonardo also expressed his disdain for the duo’s affinity fraud—namely, investment fraud that targets a particular group of people by exploiting their trust—in stating that the “[t]he defendants preyed upon those with whom they made connections through church or in the community” and that the “verdict . . . sends a message to others who would engage in such misconduct.”


Zachary H. Greene, Eileen H. Rumfelt, and Kevin Coleman, Miller & Martin PLLC


 

July 15, 2013

Walmart to Pay More Than $81 Million for Law Violations


On May 28, 2013, retail giant Walmart Stores, Inc. pled guilty in three cases alleging civil and criminal violations of federal environmental laws. The cases resulted from investigations by the FBI and the Environmental Protection Agency (EPA), with assistance from state agencies. The U.S. Attorney’s offices in Los Angeles and San Francisco each filed three charges against Walmart for violating the Clean Water Act. Charges in the third case were filed in the Western District of Missouri for the alleged violation of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA).


With more than 4,000 stores nationwide, Walmart is responsible for handling thousands of hazardous materials including pesticides, solvents, detergents, paints, aerosols, and cleaners. “As one of the largest retailers in the United States, Walmart is responsible not only for the stock on its shelves but also for the significant amount of hazardous materials that result from damaged products returned by customers,” said Melinda Haag, U.S. Attorney for the Northern District of California. “By improperly handling hazardous waste, pesticides, and other materials in violation of federal laws, Walmart put the public and environment at risk and gained an unfair economic advantage over other companies,” said Ignacio S. Moreno, assistant attorney general for the Justice Department’s Environment and Natural Resources Division.


The California cases allege that Walmart lacked the proper employee training and programs necessary to identify and properly dispose of hazardous waste. As a result of its employees improperly discarding and transporting hazardous waste, Walmart was charged with and pled guilty to six misdemeanor charges of negligently violating the Clean Water Act. As a condition of the plea agreement, the retailer agreed to pay $40 million in criminal fines and $20 million to fund various community-service projects.


In the Missouri case, “[t]ruck loads of hazardous products, including more than two million pounds of pesticides, were improperly handled under Walmart’s contract,” said Tammy Dickinson, U.S. Attorney for the Western District of Missouri. Walmart employees failed to provide proper supervision of pesticides sent from the company’s return center to Greenleaf LLC, a Missouri recycling facility previously convicted of FIFRA violations. Greenleaf processed the pesticides for reuse, mixed regulated pesticides together, and offered them for sale to customers without the required registration, ingredients, or use information, in violation of FIFRA. Pursuant to a plea agreement, Walmart agreed to pay $11 million in criminal fines and $3 million to the Missouri Department of Natural Resources.


As a condition of probation in the criminal cases, Walmart is required to implement a comprehensive, nationwide environmental-compliance agreement that includes, among other things, requirements for adequate training on the proper identification and management of hazardous materials. In addition to the criminal fines, Walmart also will pay a $7.628 million civil penalty for civil violations of FIFRA and the Resource Conservation and Recovery Act.


Zachary H. Greene, Eileen H. Rumfelt, and Kevin Coleman, Miller & Martin PLLC


 

July 2, 2013

Supreme Court Rules on Guidelines and Ex Post Facto Clause


In a crucial holding for many criminal defendants, the Supreme Court ruled 5–4 in Peugh v. United States, No. 12-62, that the Ex Post Facto Clause is violated when a defendant is sentenced under guidelines promulgated after the defendant committed his or her criminal acts and the new guidelines provide for a higher sentence range than did the older version of the guidelines. Peugh was convicted on five counts of bank fraud for crimes he committed in 1999 and 2000. At sentencing, he argued that the Ex Post Facto Clause required him to be sentenced under the 1998 guidelines rather than the updated version from 2009. Under the 1998 guidelines, his sentencing range would have been significantly lower than it was under the 2009 guidelines. The district court rejected his claim and sentenced him using the 2009 guidelines. The Supreme Court reversed and remanded. The Court reasoned that although the guidelines range is no longer mandatory in the wake of the Court’s holding in United States v. Booker, 43 U.S. 220 (2005), the guidelines still play an extremely important role in sentencing procedures. Accordingly, though a district court typically should apply the guidelines “in effect on the date the defendant is sentenced,” section 3553(a)(4)(A)(ii), the court should use the guidelines that were in effect on the date the offense was committed if the newer guidelines provide for a higher sentencing range.


Caroline Polisi, Creizman LLC, New York, New York


 

July 2, 2013

High Court Rules on Warrantless DNA Collection


In a landmark case, Maryland v. King, No. 12-207, the Supreme Court ruled in a 5–4 decision that police may take DNA samples from people arrested in connection with serious crimes. The federal government and 28 states currently authorize the practice, and the Court justified the practice for reasons relating to identifying the suspect in custody. Justice Kennedy likened taking a cheek swab of DNA from a suspect to fingerprinting or photographing, both of which are legitimate procedures under the Fourth Amendment.


The case arose from the collection of DNA evidence in 2009 from Alonzo Jay King Jr. after he was arrested for assault in Maryland. The DNA collected matched evidence from an unsolved 2003 rape case. He was eventually convicted of that rape. The Maryland Court of Appeals held that the state law authorizing DNA to be collected from suspects who were not yet convicted violated the Fourth Amendment’s prohibition on unreasonable searches. The Supreme Court reversed, holding that such searches are reasonable under the Fourth Amendment because they are quick, easy, and a safe and accurate way to process and identify those in custody. In his dissent, Justice Scalia pointed out that the law actually was meant to help law enforcement solve prior cases, not identify suspects in custody, and said that solving such crimes is of lesser importance than the protections of the Fourth Amendment.


Caroline Polisi, Creizman LLC, New York, New York


 

July 2, 2013

SEC Again Proposes Safeguards for Mutual Fund Investors


In a nearly 700-page proposal, the Securities and Exchange Commission (SEC) recently unveiled its latest plans for safeguarding investors in money-market mutual funds, a $2.9 trillion market. The proposal would require some funds to abandon the fixed $1-a-share asset price and instead allow the price to float based on fluctuations in their holdings. Only prime institutional funds, which account for nearly 40 percent of the overall market, would have to show such floating net asset values under the new rules. Money funds that invest mostly in government securities and those who attract mostly individual investors would be exempt because, the SEC said, such funds have not traditionally been involved in redemption problems, unlike those funds that were involved in the 2008 crisis. The proposal additionally offers a redemption charge as another possible way to prevent possible runs on funds. Under the new rules, if any fund’s weekly liquid investments fell below 15 percent of its total assets, the fund could impose a 2 percent redemption fee. However, unlike a proposal the SEC made last year, this proposal does not require money-market funds to set aside money to protect against massive redemptions. The SEC is currently fielding comments on its proposal and proposed rule.


Caroline Polisi, Creizman LLC, New York, New York


 

May 17, 2013

SEC Seeks Enforcement, Whistleblower Program Expansion


On May 7, 2013, the newly confirmed chairwoman of the Securities and Exchange Commission (SEC), Mary Jo White, testified before a House subcommittee to push for the SEC’s 2014 budget requests. She emphasized “bolstering enforcement” as one of the key aims of the budget request, including seeking funding to add 131 new staff, trial attorneys, and forensic accountants to the SEC’s Division of Enforcement. If awarded, such funding would have a significant and direct impact on the SEC’s ability to investigate and bring enforcement cases.


One of the specific issues White raised was the need for additional resources in Enforcement to follow up on the high volume of tips and complaints received through the SEC’s whistleblower program, which was implemented as part of the Dodd-Frank reforms. She remarked on the “excellent” quality and increased quantity of tips received through the program. The SEC’s budget request included data showing that outside tips or complaints have prompted, on average, more than 300 investigations or inquiries per year since 2010: 303 tips in fiscal year 2010, 329 tips in fiscal year 2011, and 296 tips in fiscal year 2012.


In its 2012 budget request, the SEC proposed adding 43 new staff to the whistleblower program alone. Although it is unclear how many hires the SEC actually made, it is clear from the chairwoman’s request for even more enforcement personnel that expanding the SEC’s investigation and enforcement capabilities remains a top priority, with a particular focus on the whistleblower program.


James Rough, Navigant Consulting, Inc., and Joseph Roth, Osborn Maledon, PA, Phoenix, AZ


 

May 17, 2013

Ralph Lauren Settles FCPA Case with SEC and DOJ


On April 22, 2013, the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) announced that they had entered into non-prosecution agreements (NPAs) with Ralph Lauren in a Foreign Corrupt Practices Act (FCPA) case involving payments of $568,000 in bribes by a Ralph Lauren subsidiary located in Argentina. Notably, this is the first time that the SEC has entered into an NPA in an FCPA matter. The government claimed that, between 2005 and 2009, employees in Argentina worked with a customs broker to pay bribes to Argentine customs officials to assist in improperly obtaining paperwork necessary for Ralph Lauren’s products to clear customs. The employees then allegedly disguised the bribe payments through phony line items on invoices submitted by the customs broker.

According to the government, in February 2010, Ralph Lauren’s board of directors adopted a new FCPA policy and disseminated it via the company’s intranet site. Shortly thereafter, in the spring or summer of 2010, employees in Argentina reviewed the policy and raised concerns about the company’s use of the customs broker in Argentina. Heeding these concerns, Ralph Lauren conducted an internal investigation that discovered the improper payments, and within two weeks the company self-reported preliminary findings to the SEC and DOJ.


Under the terms of the NPAs, Ralph Lauren agreed to pay the SEC $734,846 and the DOJ $882,000 in disgorgement, interest, and penalties, and also agreed to enhanced FCPA-related self-reporting. The company thus emerged relatively unscathed, successfully avoiding criminal charges and evading the specter of uncertain and potentially significant liability.


The government identified several remedial factors and instances of cooperation that mitigated Ralph Lauren’s exposure. In addition to the company’s almost immediate self-reporting of the FCPA violations, Ralph Lauren terminated the customs broker and ceased retail operations in Argentina. Ralph Lauren also thoroughly reviewed its pre-existing compliance program and worked to further update and enhance it. In particular, the SEC’s NPA noted that the company adopted: “(1) an amended anticorruption policy and translation of the policy into eight languages, (2) enhanced due diligence procedures for third parties, (3) an enhanced commissions policy, (4) an amended gift policy, and (5) in-person anticorruption training for certain employees.” The SEC NPA also credited Ralph Lauren for its “extensive, thorough, real-time cooperation with the staff of the Division and the Department of Justice.” The SEC noted that Ralph Lauren voluntarily and completely disclosed, translated, and produced documents to SEC and DOJ staff, made witnesses available for interviews, and conducted a risk assessment of the company’s operations in other parts of the world. The SEC also found that “the revised compliance policies appear to be working,” citing as an example the rejection of a bribe by company employees following Ralph Lauren’s revision and dissemination of its FCPA policy. Separately, the DOJ NPA credited many of the same mitigating factors and further highlighted the company’s institution of a whistleblower hotline, and its hiring of a designated corporate-compliance attorney.


Joe Martini and Michael McGinley, Wiggin and Dana LLP, Stamford, CT


 

May 17, 2013

Bills Focus on Need for Warrant to Obtain Private Emails


Recent reports suggesting that the Department of Justice (DOJ) and the Federal Bureau of Investigation (FBI) have been able to obtain the private emails of American citizens without first obtaining warrants have generated significant congressional and media attention.

The Electronic Communications Privacy Act (ECPA), which became law in 1986, allows law enforcement to obtain certain email data from American citizens without having a warrant. For example, law enforcement may obtain emails older than 180 days that are held in remote storage with a third-party provider by means of only a subpoena. Since the act was passed, the use of email and the Internet has exploded. The upheaval in the technological landscape over the last quarter century has led to uneven interpretation of the act by various courts and agencies, resulting in a murky standard. For example, the Sixth Circuit held that the ECPA itself violates the Fourth Amendment to the extent it does not require law enforcement to obtain a warrant for email content. United States v. Warshak, 532 F.3d 521 (6th Cir. 2010).


On April 25, 2013, a bill known as the Electronic Communications Privacy Act Amendments Act of 2013 passed the Senate Judiciary Committee with bipartisan support. A companion bill was referred to the House Committee on the Judiciary on May 7. The bill represents an important stage in the debate regarding the steps the government must take before it can obtain access to its citizens’ email. Notably, the bill eliminates the “180-day rule” and requires governmental entities to obtain a warrant before obtaining the content of emails and other electronic communications when those emails are stored with a third-party service provider.


In addition, the bill requires a government entity obtaining such content to notify the individual whose electronic communications have been disclosed within 10 days of obtaining the warrant. The bill requires the government to provide the individual with a copy of the warrant and other details about the information the government obtained.


The bill does permit the government to seek a court order delaying notification to individuals and also allowing the government to ask a court to prevent a third-party service provider from informing an individual that the government has obtained his or her data.


Joe Martini and Michael McGinley, Wiggin and Dana LLP, Stamford, CT


 

May 17, 2013

Government Can't Use Advanced Search on Foreign Computer


On April 22, 2013, in In re Warrant to Search a Target Computer at Premises Unknown, H-13-234M, 2013 WL 1729765 (S.D. Tex. Apr. 22, 2013), U.S. Magistrate Judge Stephen W. Smith denied a novel attempt by the government to obtain a warrant to locate and hack an unknown computer that was allegedly used to engage in federal bank fraud and identity theft and to violate other computer-security laws. The court based its ruling on the lack of any evidence that the computer was located in a United States-controlled territory or premise.


The court noted that, at this stage of the government’s investigation, the location of the computer remains unknown, as do the location and identities of the perpetrators. The government has only established that the Internet protocol (IP) address of the computer points to a foreign country. The government sought to surreptitiously install software on the computer that “has the capacity to search the computer’s hard drive, random access memory, and other storage media; to activate the computer’s built-in camera; to generate latitude and longitude coordinates for the computer’s location; and to transmit the extracted data to FBI agents within this district.”


The court, noting that the matter was one of first impression in the federal courts of appeal, analyzed the government’s application under Rule 41 of the Federal Rules of Criminal Procedure, the particularity requirements of the Fourth Amendment, and the Fourth Amendment’s requirements pertaining to video-camera surveillance. The court found the government’s warrant application unavailing under each standard.


Notably, however, although the court concluded that while the government’s warrant request was not supported properly in this instance, the technique might be authorized under Rule 41 if it is accompanied by a more fully developed application. Further, the court observed that “there may well be good reason to update the territorial limits of [Rule 41] in light of advancing computer search technology.”


Joe Martini and Michael McGinley, Wiggin and Dana LLP, Stamford, CT


 

March 15, 2013

Border Searches of Computers Require Reasonable Suspicion


In a long-awaited decision concerning the limitations of the border-search exception to the Fourth Amendment, an en banc panel of the Ninth Circuit held that a border search of a computer requires reasonable suspicion when the computer is transported beyond the border for a forensic examination. United States v. Cotterman, No. 09-10139 (March 8, 2013) (en banc).


Defendant Cotterman attempted to cross into the United States from Mexico via Arizona. During a primary inspection by a border agent, the Treasury Enforcement Communication System (TECS) returned an alert stating that Cotterman was classified as a sex offender, based on a 1992 conviction, and that he was potentially involved in sex tourism. A TECS official instructed the border-patrol agents to search Cotterman for child pornography. Although the border-patrol agents’ initial search of Cotterman’s laptops yielded no incriminating information, the agents identified password-protected encrypted volumes on the computers. Realizing that they were unable to view the contents of the encrypted volumes with the limited resources available at the border, the agents alerted Immigration and Customs Enforcement (ICE). When the ICE agents arrived at the border stop, they gave Cotterman and his wife Miranda warnings and interviewed them separately. The ICE agents then took the laptops for forensic examination, traveling 170 miles with them to the ICE office in Tucson, Arizona. The forensic examination of the laptops conducted in Tucson lasted 48 hours and uncovered more than 350 images of child pornography, including images in which Cotterman was shown molesting a young girl.


Following his indictment, Cotterman filed a motion to suppress the child-pornography evidence on the grounds that a warrantless “border search” cannot extend so far from the physical border. The district court granted Cotterman’s motion, but a three-judge panel of the Ninth Circuit reversed, concluding that the border exception to the Fourth Amendment applied even when the laptops were transported for examination, and that thus the ICE agents did not need any suspicion to seize Cotterman’s laptop, take it 170 miles from the border, and search it for 48 hours.


A majority of the Ninth Circuit en banc panel reversed the three-judge panel, in part, holding that such forensic examinations—which the court likened to a strip search—require reasonable suspicion. Focusing on the intrusiveness of the examination, not its location, the majority found that searches of electronic devices are particularly intrusive because of the expectation of privacy in files on those devices, particularly those files that are password-protected. Thus, the majority held, a forensic examination beyond a simple “review of computer files” requires reasonable suspicion. The majority found that the border patrol and ICE agents had reasonable suspicion to search Cotterman’s laptop based on a number of factors, including Cotterman’s prior conviction, his frequent travels to Mexico (a country known for sex tourism), and the fact that certain files on his computer were password-protected (although the court emphasized that password protection, standing alone, does not amount to reasonable suspicion). Accordingly, the warrantless search was permissible, and the evidence should not have been suppressed.


View the oral arguments.


Danielle Pelot and Anthony Chavez, Nixon Peabody LLP


 

March 4, 2013

High Court Hears Argument Concerning Warrantless DNA Collection


On February 26, 2013, the U.S. Supreme Court heard oral argument in Maryland v. King, which concerns whether warrantless collection of DNA evidence from an individual upon his or her arrest for a serious crime violates the Fourth Amendment. King is the latest in a string of Supreme Court cases addressing the Fourth Amendment’s application to a variety of new technologies, including global positioning system (GPS) tracking devices (see United States v. Jones, 132 S.Ct. 945 (2012)). During argument, Justice Alito declared that King is “the most important criminal procedure case this Court has had in decades.”


Alonzo King was arrested for assault in April 2009. At the time of his arrest, police collected a sample of his DNA through a cheek swab, which they performed pursuant to a Maryland law that allows police to take DNA samples, without first obtaining a warrant, from those arrested for violent crimes and a number of specifically enumerated felonies. King’s DNA was subsequently processed through a law-enforcement database and matched to a sample from a 2003 sexual assault. Although evidence of the match was inadmissible in the sexual-assault trial, it gave law-enforcement officers probable cause to arrest King for the sexual assault and to obtain a second DNA sample from him. King moved unsuccessfully to suppress evidence of the DNA match, and was convicted of first-degree rape relating to the 2003 “cold case.”


In April of 2012, the Maryland Court of Appeals reversed King’s conviction, ruling that the DNA swab was obtained in violation of King’s Fourth Amendment rights. According to the court of appeals, arrestees are entitled to greater privacy protections than are those who have been convicted of a crime. The state, concerned that the court of appeals’ decision would interfere with its ability to connect arrestees to unsolved crimes through DNA evidence, sought an emergency order from Chief Justice John Roberts staying the state-court decision until the state of Maryland could appeal. Chief Justice Roberts granted the order, describing DNA collection as “a valuable tool for investigating unsolved crimes.” The Supreme Court granted the state of Maryland’s petition for writ of certiorari on November 9, 2012.


The state of Maryland’s primary argument on appeal is that law-enforcement interests significantly outweigh the minimal privacy intrusion suffered by an arrestee as a result of a DNA swab. King counters that a balancing test is not a sufficient substitute for the Fourth Amendment’s warrant requirement, and that the Supreme Court should not carve out a new exception to the Fourth Amendment every time law-enforcement officials decide to rely on a new form of technology. A number of amicus curiae briefs were filed in support of both sides, including one in support of King by the Electronic Privacy Information Center (EPIC), which was joined by more than two dozen technical experts and legal scholars.


Read a detailed account of the oral argument.


Jason Silverman and Felicia Quentzel, McKenna Long & Aldridge LLP, Washington, D.C.


 

February 26, 2013

SDNY Again Considers FCPA's Extraterritorial Reach


On February 19, 2013, Judge Shira Scheindlin of the Southern District of New York granted former Siemens executive Herbert Steffen’s motion to dismiss a Securities and Exchange Commission (SEC) complaint alleging violations of the Foreign Corrupt Practices Act (FCPA). The case, SEC v. Sharef, et al., No. 11-cv-9073, is the second decision from the SDNY in the past two weeks to consider the FCPA’s extraterritorial reach. The SEC complaint filed in Sharef alleged that Steffen, a foreign national and the former CEO of Siemens S.A. Argentina, facilitated the payment of bribes to Argentine officials to reinstate a national-identity-card contract.


In addressing whether the exercise of personal jurisdiction over Steffen was consistent with the Fifth Amendment’s Due Process Clause, the court concluded that Steffen did not have the requisite “minimum contacts” with the United States to give rise to personal jurisdiction, and that the exercise of jurisdiction over him was not reasonable. The court recognized that it is well established that a foreign national who commits an act abroad may be subject to U.S. jurisdiction if his or her conduct has effects in the forum; however, in emphasizing that “this is a principle that must be applied with caution, particularly in an international context,” Judge Scheindlin noted that Steffen’s actions were too attenuated from the resulting injury to confer personal jurisdiction. According to the court, if the SEC’s theory were accepted, “every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements.”


This ruling is particularly significant in light of the recent decision in SEC v. Straub, in which Judge Richard Sullivan, also of the SDNY, denied a motion to dismiss brought by three former executives of Magyar Telekom on similar personal-jurisdiction grounds. The Sharef court distinguished Straub on the basis that, unlike the defendants in that case, Steffen neither orchestrated the bribe nor directed efforts to conceal the bribery scheme through the signing of false SEC filings. It remains to be seen, however, how courts will reconcile these two decisions.


Jason Silverman and Felicia Quentzel, McKenna Long & Aldridge LLP, Washington, D.C.


 

February 19, 2013

Court Rejects Limitations on FCPA Jurisdiction for Foreign Nationals


In a recent ruling that could increase prosecutions against foreign nationals under the Foreign Corrupt Practice Act (FCPA), the Southern District of New York denied a motion to dismiss brought by three former executives of Magyar Telekom in the matter Securities and Exchange Commission vs. Elek Straub, No. 1:11-cv-09645 (S.D.N.Y). The defendants moved to dismiss the SEC’s December 2011 complaint, which alleges that the executives violated the FCPA’s anti-bribery, books-and-records, and internal-controls provisions. The complaint was filed the same day that the defendants’ company, Magyar Telecom, agreed to pay a $63.9 million criminal penalty and $31.2 million in disgorgement and prejudgment interest to settle the criminal and civil charges initiated against it by the Department of Justice  (DOJ) and Securities and Exchange Commission (SEC), respectively.


The defendants asserted three grounds for their motion to dismiss: (1) that the court lacked personal jurisdiction over them; (2) that the SEC’s claims were time-barred; and (3) that, for certain causes of action, the complaint failed to state a claim upon which relief could be granted. As to the personal-jurisdiction argument, the court took an expansive view of jurisdiction in holding that the defendants, who were foreign persons working in a foreign country for a former foreign issuer, had the requisite “minimum contacts” with the United States to establish personal jurisdiction. The court held that although the alleged bribes took place outside of the United States, the defendants’ alleged conduct—namely, false management representations and sub-representations—was directed toward the United States, which was sufficient to confer personal jurisdiction over the defendants.


With respect to the defendants’ statute-of-limitations argument, the court noted that, although more than five years had elapsed since the SEC’s claims accrued, the statute of limitations had not yet run because the defendants were not physically present in the United States during the relevant statute-of-limitations period. The court also held that the three bases for the defendants’ failure-to-state-a-claim argument were meritless, finding that the complaint sufficiently alleged that the defendants made use of interstate commerce to further their FCPA violations because emails involved in the alleged violation traversed servers in the United States. Further, the SEC was not required to plead with specificity the identity of the government official. Therefore, the court found, the SEC complied with its pleading obligation regarding the FCPA’s “foreign official” requirement. In addition, the court ruled that the SEC’s complaint adequately alleged the materiality of the defendants’ alleged misstatements to Magyar’s auditors and, thus, that the SEC’s Rule 13b2-2 claim could survive.


Jason Silverman and Felicia Quentzel, McKenna Long & Aldridge LLP, Washington, D.C.


 

February 4, 2013

SDNY Orders NYPD to Cease Stop-and-Frisk Program


On January 8, 2013, Judge Shira Scheindlin of the Southern District of New York enjoined the New York Police Department (NYPD) from stopping and frisking people outside of certain apartment buildings in the Bronx pursuant to its Trespass Affidavit Program (TAP). Ligon v. City of New York, 12-CV-2274 (Jan. 8, 2013). Under TAP, a building manager can authorize the police to enter the building, looking for “narcotics sales taking place in the common areas of private buildings.” The Ligon plaintiffs alleged that the program had been informally expanded to include outdoor stops of people entering or exiting TAP-designated buildings. In a 157-page opinion granting the plaintiffs’ motion for a preliminary injunction, Judge Scheindlin ordered the NYPD to refrain from stopping people outside of these buildings without reasonable suspicion. In granting the motion, she noted that the NYPD has recently implemented training to address at least some of the issues raised by plaintiffs, and stated that, at this stage, “the full extent of [remaining] relief has not yet been determined.”


Judge Scheindlin found that, at least with respect to the narrow question of outdoor stops at TAP buildings in the Bronx, the NYPD’s actions met the stringent standard for deliberate indifference. She emphasized that 26 randomly selected forms from the Bronx District Attorney’s Office all documented arrests “apparently made based only on a person entering or exiting a TAP building.” She noted that an NYPD inspector was aware that officers were stopping people outdoors pursuant to TAP, that the District Attorney’s Office had written a formal letter to the NYPD, and that the commissioner’s legal counsel knew about the issue. She concluded that the NYPD had allowed the unlawful practice to become “so persistent and widespread as to practically have the force of law.”


The decision is a prelude to an upcoming trial also before Judge Scheindlin. In 1999, Judge Scheindlin presided over Daniels v. City of New York, a class-action lawsuit accusing the NYPD of racial profiling and unlawful stop-and-frisk practices. The suit, filed in the aftermath of the fatal shooting of an unarmed street peddler, resulted in a settlement that placed new requirements on the NYPD. In 2006, the New York City Council, the Civilian Complaint Review Board, and others alleged that the NYPD was violating the settlement in Daniels by refusing to release stop-and-frisk data. The NYPD then released data that showed a dramatic increase in stops and large racial disparities among those stopped. See Al Baker and Emily Vasquez, “Number of People Stopped by New York Police Soars,” NY Times, Feb. 3, 2007. Three new stop-and-frisk lawsuits followed: Ligon, Davis v. City of New York (involving stops in housing projects), and Floyd v. City of New York (challenging the stop-and-frisk program in general). In an earlier Floyd ruling, Judge Scheindlin had emphasized the difficulty that plaintiffs face in meeting the standard for deliberate indifference. Floyd v. City of New York (Floyd I), 813 F. Supp. 2d 417 (S.D.N.Y. 2011). Her ruling in Ligon, however, demonstrates that plaintiffs can meet this standard in at least some circumstances. The Floyd trial begins on March 18, 2012, and will feature the same attorneys, the same expert, and some of the same witnesses as Ligon. On January 23, 2013, Judge Scheindlin stayed the order in Ligon so that the trial date in Floyd would not be delayed by an appeal, noting that the stay would be “brief.”


Andrew Case, Osborn Maledon PA, Phoenix, AZ


 

January 16, 2013

Eli Lilly Settles SEC Case Involving FCPA Violations


On December 20, 2012, pharmaceutical company Eli Lilly and Co. agreed to pay $29.4 million to settle charges brought by the Securities and Exchange Commission (SEC) alleging violations of the Foreign Corrupt Practices Act (FCPA) relating to improper payments made by Eli Lilly subsidiaries to foreign government officials in Brazil, China, Poland, and Russia. The SEC alleged that when Eli Lilly became aware of the improper payments being made through “marketing agreements,” it did very little to discontinue the practice. Eli Lilly settled the matter with the SEC without admitting or denying the allegations.


The government alleged that Eli Lilly’s Brazilian subsidiary paid bribes to government health officials to secure $1.2 million in sales of Eli Lilly’s drug to government institutions. It further alleged that employees of Eli Lilly’s Chinese subsidiary created false expense reports, then used the money to pay for improper gifts to government doctors. In Poland, the government alleged, Eli Lilly’s subsidiary made $39,000 in improper payments to a charity run by a government health authority “in exchange for the official’s support for placing [Eli] Lilly drugs on the government reimbursement list.” In Russia, Eli Lilly allegedly permitted its subsidiary to make more than $7 million in payments for “marketing services” to entities owned by and associated with government officials, even though the company recognized that the payments were to “create sales potential” and that no actual services were being provided through these “marketing agreements.”


In a press release announcing the settlement, the SEC cautioned: “When a parent company learns tell-tale signs of a bribery scheme involving a subsidiary, it must take immediate action to assure that the FCPA is not being violated. We strongly caution company officials from averting their eyes from what they do not wish to see.”


Michael Scheininger and Stephanie Ellis, McKenna Long & Aldridge, Washington, D.C.


 

January 16, 2013

UBS Pays $1.5 Million for LIBOR Rigging Scheme


On December 19, 2012, the Department of Justice (DOJ) announced a $1.5 billion settlement with Swiss banking giant UBS relating to interest-rate manipulation. A Japanese subsidiary of UBS, UBS Securities Japan Co. Ltd., agreed to pay a $100 million fine and plead guilty to wire fraud relating to its role in manipulating the London Interbank Offered Rate (LIBOR). Two former UBS traders, Roger Darin of Switzerland, and Tom Alexander William Hayes of England, were charged individually. Parent company UBS entered into a non-prosecution agreement (NPA) and has agreed to pay a $400 million penalty for its involvement in the multi-year LIBOR manipulation scheme.


For the most part, the LIBOR manipulation scheme occurred within UBS Japan, where traders worked with banks and other firms to alter the LIBOR. Over the course of the scheme, UBS traders allegedly made hundreds of requests to other banks and brokers to manipulate the LIBOR and also made quarterly payments of approximately $24,000 to outside brokers for their assistance. In addition to the two employees charged by the DOJ, a number of other UBS employees were fired or suspended following the company’s internal investigation.


The $1.5 billion UBS fine represents a global settlement, with $700 million resulting from a Commodity Futures Trading Commission (CFTC) action; $295.2 million from a U.K. Financial Services Authority action; $64.3 million from a Swiss Financial Markets Authority (FINMA) action; and $500 million from the DOJ action. In announcing the settlement, Assistant Attorney General Lanny Breuer noted the government’s continuing commitment to rooting out fraud in the financial marketplace: “We cannot, and will not, tolerate misconduct on Wall Street of the kind admitted by UBS today, and by Barclays last June. We will continue to follow the facts and the law wherever they lead us in this matter, as we do in every case.”


Michael Scheininger and Stephanie Ellis, McKenna Long & Aldridge, Washington, D.C.


 

January 16, 2013

HSBC Agrees to Record Settlement for Banking Violations


On December 11, 2012, banking giant HSBC entered into a deferred-prosecution agreement, agreeing to forfeit $1.256 billion and pay a fine of $665 million for violations of the Bank Secrecy Act (BSA), International Emergency Economic Powers Act (IEEPA), and the Trading with the Enemy Act (TWEA). HBSC’s violations permitted approximately $881 million in drug proceeds to be laundered through the U.S. banking system and permitted sanction countries, such as Cuba, Iran, Libya, Sudan, and Burma, to conduct prohibited transactions through U.S. banks.


The Department of Justice filed a four-count felony information alleging that HSBC willfully failed to “maintain an effective anti-money laundering (AML) program . . . [and] conduct due diligence on its foreign correspondent affiliates[.]” The assistant attorney general noted that “the record of dysfunction that prevailed at HSBC for many years was astonishing.”


Court documents reveal that HSBC “severely understaffed” its AML compliance program from 2006 through 2010 and that it failed to monitor the purchase of billions of U.S. dollars through its HSBC Group affiliates, in particular HSBC Mexico. Court documents also show that HSBC Group worked with and “followed instructions from sanctioned [countries] . . . to omit their names from U.S. dollar payment messages . . . which prevented the bank’s filters from blocking prohibited payments.”


Under the agreement, HSBC agreed to remedies and changes including the adoption of a compliance monitor, replacing the majority of its senior management, “clawing back” deferred-compensation bonuses given to its most senior officers, and partially deferring bonuses for senior executives for duration of the agreement. Senior executives will also have increased accountability for AML compliance failures.


The United Kingdom’s Financial Services Authority is also pursuing action against HSBC.


Michael Scheininger and Stephanie Ellis, McKenna Long & Aldridge, Washington, D.C.


 

November 21, 2012

DOJ and SEC Jointly Release Long-Awaited FCPA Guidance


On November 14, 2012, the Criminal Division of the Department of Justice (DOJ) and the Enforcement Division of the Securities and Exchange Commission jointly released a much-anticipated Resource Guide to the Foreign Corrupt Practices Act. The resource guide is intended to provide more comprehensive and meaningful guidance than was previously available from the DOJ’s “Lay Person’s Guide to the FCPA.” The agencies hope that the guide will be a useful reference for large companies familiar with the FCPA and small companies confronting the anti-bribery law for the first time.


The 120-page report provides helpful summaries, hypotheticals, and insights into enforcement practices for a range of topics that arise in enforcement of the FCPA’s anti-bribery and accounting provisions. Among other things, the resource guide discusses the meaning of the FCPA’s prohibition on giving “anything of value”; the provision of gifts, travel, and entertainment; the meaning of “foreign official”; successor liability; conducting business through foreign intermediary agents; and the narrow exception for so-called facilitating or expediting payments.


The resource guide also places significant emphasis on the development of compliance programs. At least three of the factors the DOJ considers when deciding whether to prosecute directly relate to the target’s compliance program, including the “pervasiveness of wrongdoing within the company, the existence and effectiveness of the company’s pre-existing compliance program, and the company’s remedial actions.” An effective compliance program will also affect a company’s ability to make a “timely and voluntary disclosure of wrongdoing,” another factor impacting enforcement decisions and possible penalties. To that end, the resource guide includes a detailed section describing the “hallmarks of effective compliance programs.” Although there is no “one-size-fits-all” program, this section discusses the “common-sense and pragmatic approach” the agencies take when evaluating compliance programs.


Joseph Roth, Osborn Maledon, P.A., Phoenix, AZ


 

November 20, 2012

DOJ Provides Guidance on Meaning of "Foreign Official" under the FCPA


On November 14, 2012, the Department of Justice (DOJ) and Enforcement Division of the Securities and Exchange Commission released a long-awaited Resource Guide to the Foreign Corrupt Practices Act (FCPA). The Resource Guide is not exhaustive, however. It touches on the meaning of a “foreign official” under the FCPA, but does not address when a member of a foreign royal family is a “foreign official,” a topic addressed by the DOJ’s September 18, 2012 Opinion Procedure Release. The DOJ Opinion Procedure Release—its first FCPA Opinion Release of 2012—concludes that a “person’s mere membership in the royal family . . . by itself, does not automatically qualify that person as a ‘foreign official.’”


The Opinion Release was issued in response to an American lobbying firm’s request regarding the firm’s proposed partnership with a foreign consulting company. The American lobbying firm sought guidance on the FCPA implications of the partnership insofar as a partner in the foreign consulting company was a member of the royal family of the foreign nation. After reviewing the facts and circumstances of the request, the DOJ noted that “the Royal Family Member does not qualify as a foreign official under [the FCPA] so long as the Royal Family Member does not directly or indirectly represent that he is acting on behalf of the royal family or in his capacity as a member of the royal family.” In making that determination, the DOJ pointed out that the analysis of whether a member of a foreign royal family qualifies as a foreign official “requires a fact-intensive, case-by-case determination” based on a number of factors. The Opinion Release provided a non-exhaustive list of factors to consider in making this determination.


Wick Sollers and Dan Sale, King & Spalding LLP, Washington, D.C.


 

November 20, 2012

Former CCI Executives Sentenced in FCPA Case


On April 16, 2012, the former CEO and sales manager of Control Components, Inc. (CCI) each pleaded guilty to separate criminal indictments charging them with making a corrupt payment to a foreign official in violation of the Foreign Corrupt Practices Act (FCPA). Previously, CCI, a California-based company that manufactures valves for the nuclear, oil and gas, and energy industries, pleaded guilty to FCPA-related charges in 2009.


On November 8, 2012, United States District Judge James V. Selna sentenced Stuart Carson, CCI’s former president and CEO, to a four-month prison sentence and eight months of home detention, and imposed a $20,000 fine. Separately, Judge Selna sentenced Hong “Rose” Carson, CCI’s former sales manager, to six months of home detention and also imposed a $20,000 fine. The husband and wife pair allegedly caused CCI employees to pay approximately $5 million to CCI’s state-owned customers in China, South Korea, Malaysia, and the United Arab Emirates.


The Carsons’ guilty pleas came after Judge Selna previously denied a defense motion seeking to dismiss the FCPA-related charges. Rejecting the defendants’ argument that payments to state-owned enterprises (SOEs) do not violate the FCPA because an SOE is not an “instrumentality” under the statute, Judge Selna concluded that “state-owned companies may be considered ‘instrumentalities’ under the FCPA, but whether such companies qualify as ‘instrumentalities’ is a question of fact” for the jury to decide. United States v. Carson, No. SACR 09-00077-JVS (C.D. Cal. May 18, 2011).


The government’s press release describing the Carsons’ guilty pleas can be found here.


Wick Sollers and Dan Sale, King & Spalding LLP, Washington, D.C.


 

November 20, 2012

Theft of Trade Secrets Indictment Announced


On October 18, 2012, an indictment issued by a Grand Jury in Richmond, Virginia, was unsealed and Kolon Industries Inc. and five of its executives were charged with stealing trade secrets from E.I. du Pont de Nemours and Co. (DuPont) relating to the manufacture of Kevlar, a fiber used to make body armor and other military products. The indictment was announced by United States Attorney for the Eastern District of Virginia Neil MacBride and Assistant Attorney General Lanny Breuer of the Justice Department’s Criminal Division, and comes as a result of efforts undertaken by the Department of Justice Task Force on Intellectual Property (IP Task Force) to stop the theft of intellectual property.


Kolon, which is headquartered in Seoul, South Korea, is also charged with stealing trade secrets related to Twaron, a Kevlar-like fiber manufactured by Teijin Ltd., which is based in Osaka, Japan. Kolon is alleged to have engaged in a “multi-year campaign to steal trade secrets” by soliciting confidential proprietary information from current and former employees of DuPont and Teijin. According to the DOJ press release, Kolon allegedly sought to steal trade secrets by “targeting current and former employees at DuPont and Teijin and hiring them to serve as consultants, then asking these consultants to reveal information that was confidential and proprietary.” The indictment charges Kolon and the five executives with one count of conspiracy to convert trade secrets, four counts of theft of trade secrets, and one count of obstruction of justice, and also seeks at least $225 million in forfeiture, which represents the gross criminal proceeds from the sale of Kolon’s competing product.


The IP Task Force was created by Attorney General Eric Holder to confront the growing number of domestic and international intellectual property crimes, and, as noted by United States Attorney MacBride, the Kolon indictment “should send a strong message to companies located in the United States and around the world that industrial espionage is not a business strategy.” According to Jeffrey Mazanec, FBI special agent in charge of the Richmond field office, the IP Task Force “will investigate any company, domestic or international, that steals confidential proprietary information for their own benefit.” United States v. Kolon Industries, 12-cr-137, U.S. District Court for the Eastern District of Virginia (Richmond).


Wick Sollers and Dan Sale, King & Spalding LLP, Washington, D.C.


 

October 26, 2012

Ex-McKinsey Head Sentenced to Two Years in Prison


On October 24, 2012, Rajat Gupta, a prominent Wall Street figure linked to the insider trading schemes of convicted Galleon Group founder, Raj Rajaratnam, was sentenced to two years in prison following his May conviction for insider trading. Gupta, formerly the head of consulting firm McKinsey and Co. and a director of Goldman Sachs and Procter & Gamble, was convicted of leaking confidential information about Goldman Sachs to Rajaratnam, his friend and business partner.


The government sought an eight to 10 year sentence for Gupta, consistent with the now-advisory U.S. Federal Sentencing Guidelines. Gupta’s lawyers argued for leniency and no jail time in a lengthy sentencing memorandum emphasizing Gupta’s humanitarianism, which included nearly 400 letters from supporters, including Bill Gates and Kofi Annan. Federal judge Jed Rakoff appeared persuaded by these arguments to some degree, but refused Gupta’s plea for a community service sentence to be served in Rwanda or in the United States.


In sentencing Gupta to two years in prison, Judge Rakoff specifically highlighted the timing of Gupta’s “terrible breach of trust,” noting that sharing Goldman Sachs’ corporate secrets in 2008, at the height of a financial crisis, “was the functional equivalent of stabbing Goldman in the back.”


Keywords: litigation, criminal, Galleon Group, Goldman Sachs, Jed Rakoff, U.S. Federal Sentencing Guidelines


Jerome Roth and Kyle Mach, Munger, Tolles & Olson LLP, Los Angeles, CA


 

October 26, 2012

Programmer's Prosecution Provokes Attention to Indemnification


Sergey Aleynikov, a former vice president at Goldman Sachs, recently rejected a plea deal relating to New York state criminal charges stemming from his alleged theft of sensitive computer code from the company. Aleynikov was previously tried and convicted on federal charges relating to the same conduct, but the Second Circuit overturned his conviction after concluding that the U.S. Department of Justice had failed to establish the required link between Mr. Aleynikov’s conduct and interstate commerce. The state brought its charges against Aleynikov less than sixth months after the Second Circuit’s ruling. The dual sovereignty doctrine, a loophole in the protection otherwise provided by double jeopardy, permits the state to charge Aleynikov with this similar crime.


Not surprisingly, all of this legal process has generated significant costs, and to that end Aleynikov recently filed a lawsuit seeking advancement and indemnification of his legal fees for both cases, which already amount to more than $2.4 million. Under Goldman Sachs’s bylaws, Aleynikov, as a former vice president, is entitled to coverage of his legal fees contingent on a promise of repayment if he is later determined not to be entitled (if he is convicted of conduct that would violate the terms of the indemnification). The law of Delaware, where Goldman Sachs is incorporated, similarly allows for indemnification, although it remains to be fully litigated whether a provision in the law that requires an officer to have believed he was acting in the best interests of the company applies to Aleynikov’s request.


For more information: http://dealbook.nytimes.com/2012/10/01/in-goldman-programmer-case-a-way-around-double-jeopardy/


Keywords: litigation, criminal, Goldman Sachs, Department of Justice, Second Circuit, dual sovereignty doctrine


Jerome Roth and Kyle Mach, Munger, Tolles & Olson LLP, Los Angeles, CA


 

October 26, 2012

High Court Hears Argument in 'Twelve Angry Men' Conviction


On October 3, 2012, the U.S. Supreme Court heard oral argument in Johnson v. Williams, which concerned whether a habeas petitioner’s claim was “adjudicated on the merits”—and thus entitled to deference under 28 U.S.C. § 2254(d)—when the state court’s opinion considering the claim contained no discussion of the relevant federal law issues.


The State of California, as petitioner, contends that the Ninth Circuit overstepped its authority when it granted habeas relief to respondent Tara Sheneva Williams. Williams successfully convinced a three-judge appellate panel that the state court violated the Sixth Amendment when it dismissed a lone holdout juror after concluding that the juror’s “mind [was] bent . . .against the prosecution.” The panel’s opinion, penned by Judge Reinhardt, quoted heavily from the 1957 film “Twelve Angry Men” to highlight the state court’s intrusion into the jury’s deliberations.


The Court granted certiorari only on the narrow question of the appellate court’s standard of review, not on the underlying Sixth Amendment issue.


For more information: http://www.ca9.uscourts.gov/datastore/opinions/2011/05/23/07-56127.pdf  


Keywords: litigation, criminal, Ninth Circuit, 12 Angry Men, Sixth Amendment


Jerome Roth and Kyle Mach, Munger, Tolles & Olson LLP, Los Angeles, CA


 

October 4, 2012

Tyco Pays $26 Million to Resolve FCPA–Related Allegations


On September 25, the government announced that Swiss-based security company Tyco International Ltd. agreed to pay $26 million to resolve parallel criminal and civil allegations relating to violations of the Foreign Corrupt Practices Act (FCPA) by various Tyco subsidiaries.


Tyco’s settlement with the Securities and Exchange Commission resolved allegations that Tyco subsidiaries had engaged in at least a dozen illicit payment schemes, whereby bribes were falsely recorded as business expenses in Tyco’s books. Tyco did not admit or deny the allegations, but agreed to pay approximately $13 million to the SEC. In parallel criminal proceedings, Tyco entered into a non-prosecution agreement with the U.S. Department of Justice and agreed to pay a fine of nearly $14 million. While the non-prosecution agreement did not involve an admission of guilt, on September 24, a wholly-owned Tyco subsidiary pled guilty in the Eastern District of Virginia to conspiring to bribe officials of state-owned entities in the Middle East, which is in violation of the anti-bribery provisions of the FCPA.


In reaching these resolutions with Tyco, both the DOJ and the SEC noted Tyco’s cooperation, voluntary disclosure, and robust internal investigation and remediation.   


For more information: http://www.justice.gov/opa/pr/2012/September/12-crm-1149.html and http://www.sec.gov/news/press/2012/2012-196.htm


Keywords: criminal litigation, Foreign Corrupt Practice Act, FCPA, Securities and Exchange Commission, SEC, Department of Justice, DOJ

 

 

September 18, 2012

Plea Deal Rejected on Basis of Appellate Waiver Provision


In a surprisingly candid order, a federal judge in Denver rejected the plea deal of defendant charged with child pornography offenses, citing concerns that the defendant’s agreement to waive his right to appeal contravened constitutional protections. The deal contained a provision stating that the defendant would not appeal his sentence so long as it was within the range set forth in the sentencing guidelines. Senior U.S. District Judge John Kane reasoned that the “[i]ndiscriminate  acceptance of appellate waivers undermines the ability of appellate courts to ensure the constitutional validity of convictions and to maintain consistency and reasonableness in sentencing decisions.”


The decision caught both prosecutors and defense attorneys off guard, given that the Tenth Circuit Court of Appeals has held appellate waivers to be an acceptable practice. Moreover, appellate waivers have become common practice across the county, occurring in as many as 90 percent of plea deals in some jurisdictions. Prosecutors noted that the appellate waiver provision at issue in the case promoted judicial efficiency, but the judge was unconvinced, stating that,  “[S]acrificing constitutional rights at the altar of efficiency is of dubious legality.”


Keywords: criminal litigation, Judge John Kane, Tenth Circuit Court


Jim Wyrsch and Jon Bailey of Wyrsch, Hobbs & Mirakian, P.C., Kansas City, MO

 

 

September 18, 2012

Former Goldman Employee Charged After Conviction Reversed


After his federal conviction was reversed by the appellate court, former Goldman Sachs programmer Sergey Aleynikov is once again set to stand trial based on the same set of underlying facts. Only this time, it is in the state arena. Aleynikov was charged in state court less than six months after a federal appeals court overturned his conviction for allegedly stealing source code for high-frequency trading operations from Goldman’s computers. After a federal jury found him guilty in 2010, the federal appeals court reversed his conviction, ruling that prosecutors had misapplied the federal corporate espionage laws.


Aleynikov now finds himself facing criminal charges in the state of New York for the unlawful use of secret scientific material and duplication of computer-related material. His attorneys have accused the Manhattan District Attorney’s office of acting as a tool of the U.S. Justice Department, asserting that the new prosecution violates the double jeopardy clause. While Aleynikov’s counsel acknowledges that he did violate Goldman’s confidentiality rules, they maintain that Aleynikov did not commit a crime, and that Goldman has suitable remedies available in civil court. Aleynikov’s attorneys are reportedly preparing to file malicious prosecution lawsuits against Goldman Sachs and the federal government.


Keywords: criminal litigation, Goldman Sachs, Manhattan District Attorney


Jim Wyrsch and Jon Bailey of Wyrsch, Hobbs & Mirakian, P.C., Kansas City, MO

 

 

September 18, 2012

Mental Health Corp. Convicted in Medicare Fraud Scheme


A mental health care corporation and eight of its high-ranking members were convicted by a federal jury for their participation in a Medicare fraud scheme involving the submission of more than $50 million in fraudulent billings to Medicare. The corporation, Biscayne Milieu Health Center, Inc., had purported to operate a partial hospitalization program (“PHP”) in Miami, Florida. Biscayne Milieu purported to provide PHP services—a form of intensive treatment for severe mental illness—for Medicare beneficiaries. The defendants, however, devised a scheme in which they paid patient recruiters to refer ineligible Medicare beneficiaries to Biscayne Milieu for PHP services that were never provided.


As part of the scheme, Biscayne Milieu used fraudulent documents and bogus certifications signed by psychiatrists to bill Medicare for tens of millions in false and fictitious services. Documents were forged to make it appear that ineligible patients were receiving legitimate PHP treatment. Co-conspirators solicited and received illegal kickbacks in exchange for sending ineligible patients to Biscayne Milieu. Once the corporation received reimbursement from Medicare for its fraudulent services, the company’s owners and executives laundered the money through various accounts.


The investigation was led by the FBI with assistance from the Medicare Fraud Strike Force. Since March 2007, the Medicare Fraud Strike Force, operating in nine cities across the country, has charged more than 1,330 defendants, who have collectively billed the Medicare program for more than $4 billion.


Keywords: criminal litigation, Medicare, partial hospitalization program, PHP, Medicare Fraud Strike Force


Jim Wyrsch and Jon Bailey of Wyrsch, Hobbs & Mirakian, P.C., Kansas City, MO

 

 

September 18, 2012

Catholic Bishop Guilty on One Count After Bench Trial


Following a recent bench trial on stipulated facts, a Catholic Bishop was found guilty of one count and acquitted of another count of the misdemeanor offense of failing, as a mandated reporter, to report suspected child abuse. Bishop Robert Finn of the Kansas City-St. Joseph Catholic Diocese received a two-year suspended imposition of sentence. As a result, if Bishop Finn does not violate the terms of his unsupervised probation during the two-year period, there will be no conviction imposed or reflected on his record.


Although the matter was initially set for a jury trial, defense attorneys reached an agreement with prosecutors to proceed on a set of stipulated facts at a bench trial, which obviated the need for live testimony. After hearing approximately 30 minutes of argument, Jackson County Judge John Torrence found the Bishop guilty of one count and not guilty of the other. The Diocese of Kansas City-St. Joseph also faced two counts of failure to report, but those charges were dismissed.


Keywords: criminal litigation, child abuse, Kansas City-St. Joseph Catholic Diocese, Jackson County, Judge John Torrence


Jim Wyrsch and Jon Bailey of Wyrsch, Hobbs & Mirakian, P.C., Kansas City, MO

 

 

August 24, 2012

Pfizer Settles $60 Million in FCPA Claims, Avoids Monitoring


On August 7, 2012, pharmaceutical giant Pfizer Inc. settled criminal and civil allegations relating to the Foreign Corrupt Practices Act (FCPA) on behalf of its subsidiaries Pfizer H.C.P. Corp. and Wyeth LLC. The $60 million settlement followed investigations by the U.S. Department of Justice and the Securities and Exchange Commission that revealed possible violations of the FCPA through points and bonus programs that improperly rewarded foreign officials doing business with Pfizer subsidiaries. The alleged bribery occurred in the following countries: Bulgaria, China, Croatia, the Czech Republic, Italy, Kazakhstan, Russia, and Serbia.


The settlement included $16 million in repaid profit; a $15 million criminal fine; and $10.3 million in interest to resolve civil allegations on behalf of Pfizer H.C.P. Corp. Pfizer Inc. will also pay $17.2 million in profits and $1.66 million in interest to settle civil bribery allegations against Wyeth, but will avoid corporate monitoring because of the self-disclosure and enhancement of internal compliance and control programs in response to these allegations.


Keywords: criminal litigation, foreign corrupt practices act

 

Alexander Vesselinovitch and Andrea Halverson, Katten Muchin Rosenman LLP, Chicago, IL


 

August 24, 2012

Berkshire Bank Brings Class Action Alleging LIBOR Manipulation


On July 30, 2012, New York-based lender Berkshire Bank brought a class-action lawsuit for London Interbank Offered Rate (LIBOR) manipulation against various banks, including Bank of America Corp., Barclays Bank PLC, and HSBC Holdings PLC. Berkshire alleged that the banks provided false information related to their borrowing costs, which in turn manipulated the LIBOR rate and diminished interest income earned by smaller lenders, including Berkshire. The complaint cited a lack of “[a] regulatory agency over the setting of LIBOR by the [British Bankers’ Association] and its members” as a key issue, as the “resultant rates are not reviewed by or subject to the approval of any regulatory agency, and therefore the integrity of LIBOR relies entirely upon the honesty of the contributing panel.”


Keywords: criminal litigation

 

Alexander Vesselinovitch and Andrea Halverson, Katten Muchin Rosenman LLP, Chicago, IL


 

August 24, 2012

Satyam Settles Alleged Accounting Fraud for $12M


On July 30, 2012, Satyam Computer Services Ltd. agreed to settle an accounting-fraud class-action lawsuit brought by trustee Aberdeen Claims Administration Inc. on behalf of 20 Satyam shareholders for $12 million. The suit claimed $68 million in damages for the shareholders and asserted that one of Satyam’s chairmen and its CEO created fake customer contracts that resulted in the company’s balance sheets falsely reflecting $1.4 billion in revenue. The suit also alleged that Satyam executives siphoned hundreds of millions of dollars from the company to other entities controlled by the CEO, which caused the value of the company’s shares to plummet.


After Satyam’s CEO sent a letter to the board of directors confessing to some of the alleged actions, Satyam’s shares decreased 87 percent. This action—previously incorporated into a multidistrict litigation—followed a 2011 settlement that awarded $125 million from Satyam to other shareholders.


Keywords: criminal litigation, Aberdeen Claims Administration


Alexander Vesselinovitch and Andrea Halverson, Katten Muchin Rosenman LLP, Chicago, IL


 

August 24, 2012

Congressional Act to Provide Civil Remedy for Whistleblowers


On July 24, 2012, U.S. Senators Patrick Leahy (D-VT) and Chuck Grassley (D-IA) introduced the Criminal Antitrust Anti-Retaliation Act, which would amend the Antitrust Criminal Penalties Enforcement Reform Act (ACPERA) by providing a civil remedy for whistleblowers who suffer retaliation. A report by the Government Accountability Office (GAO) assessing ACPERA in 2011 found that although ACPERA provided incentives to guilty parties informing the government of illegal activity, the current law did not provide protection for innocent parties who did the same. In response to this GAO assessment, Senators Leahy and Grassley drafted the amendment to provide protection similar to that provided in the Sarbanes-Oxley Act. Specifically, this amendment will provide a civil remedy for whistleblowers informing the U.S. Department of Justice of criminal antitrust activities.


Keywords: criminal litigation, Patrick Leahy, Chuck Grassley, criminal antitrust anti-retaliation, antitrust criminal penalties reform, government accountability office, sarbanes-oxley

 

Alexander Vesselinovitch and Andrea Halverson, Katten Muchin Rosenman LLP, Chicago, IL


 

July 17, 2012

Canadian Subsidiary of U.S. Company Guilty of Export Violations


On June 28, 2012, Pratt & Whitney Canada Corp. (PWC), a Canadian subsidiary of Connecticut-based defense contractor United Technologies Corp. (UTC), pled guilty to criminal export violations and false-statements charges in connection with assisting China in developing a new attack helicopter, the Z-10. UTC, PWC, and Hamilton Sustrand Corp. (HSC), a U.S.-based subsidiary of UTC, agreed to pay more than $75 million as part of the settlement with the Justice Department and the State Department, which includes a partial deferred-prosecution provision.


Count One of the government’s information charged PWC with violating the Arms Export Control Act by illegally exporting to China military software of U.S.-origin, which was used in the development of the Z-10. Count Two charged PWC, UTC, and HSC with making false statements to the government about their illegal exports. Count Three charged PWC and HSC with failure to timely inform the government of the exports. Following PWC’s guilty plea to Counts One and Two, the Justice Department recommended suspending prosecution of Count Three for two years, provided that the companies fulfill the terms of a deferred-prosecution agreement with the Justice Department.


While China was developing its Z-10 program, PWC supplied the engines that powered the Z-10 helicopters. The United States has prohibited defense articles’ entry into China since Tiananmen Square in 1989. PWC independently determined that these engines, delivered in 2001–02, did not constitute “defense articles.” But the engines contained electronic engine control software that was manufactured in the United States by HSC, and that had been modified for military use such that it required a U.S. export license. PWC knew that China intended to use the software as part of an attack helicopter, and knew that supplying China with components originally made in the United States would be illegal. The Justice Department noted that PWC “purposely turned a blind eye to the helicopter’s military application.” The Justice Department also suggested that PWC was motivated by profit, expecting this transaction to open an exclusive civilian helicopter market in China worth up to $2 billion.


PWC, UTC, and HSC failed to disclose any information regarding the attack helicopters to the U.S. government until 2006, when a group of investors inquired whether UTC’s involvement in the project might have violated U.S. laws. In 2006 disclosures, the companies intimated that they were unfamiliar with China’s intent to use the helicopters for military purposes until 2003 or 2004, a statement later contradicted by State Department evidence.


Travis R. McDonough and Eileen H. Rumfelt, Miller & Martin PLLC, with assistance from Allison Wiseman


 

July 17, 2012

FBI Says Insider Threat of Economic Espionage on the Rise


On June 28, 2012, C. Frank Figliuzzi, assistant director of the Counterintelligence Division of the FBI, testified before the House Committee on Homeland Security, Subcommittee on Counterterrorism and Intelligence that the percentage of cases of economic espionage due to an insider threat is on the rise. An insider threat comes from individuals either currently or formerly trusted as employees or contractors. Figliuzzi cited several reasons for the rise of insider threats, including employee financial hardships during the economic downturn; the global economic crisis; the cost-effectiveness of purchasing information rather than investing in research and development; the ease of theft of electronic information, especially for those with access; and globalization, which has led to an increased exposure of employees to foreign intelligence services.


Figliuzzi’s testimony comes on the heels of the FBI’s launch of a media campaign focused on the insider threat of economic espionage in May 2012. Through the campaign, the FBI seeks to inform the public and the business community about how it can detect, prevent, and respond to insider threats.


The FBI estimates that companies have lost more than $13 billion just in cases opened since October 2011. Particularly vulnerable are products that have not been introduced to the market but may become components in new technology. The FBI has found that persons seeking to engage in economic espionage are targeting makers of software and other products instead of defense contractors, who often have strict security protocols.


On its website, the FBI describes six steps a company can take to protect its business from espionage: (1) recognizing that a threat exists; (2) identifying and valuing trade secrets; (3) implementing a proactive plan to protect trade secrets; (4) securing physical and electronic versions of all trade secrets; (5) restricting intellectual knowledge to a “need to know” basis; and (6) training employees about the company’s plan to keep intellectual property safe.


Travis R. McDonough and Eileen H. Rumfelt, Miller & Martin PLLC, with assistance from Allison Wiseman


 

July 17, 2012

Madoff's Brother Pleads Guilty to Fraud and Conspiracy


On June 29, 2012, Peter Madoff, Bernie Madoff’s brother and the former chief compliance officer (CCO) of the storied Madoff investment firm, pled guilty to conspiracy to commit securities fraud, tax fraud, mail fraud, ERISA fraud, and falsifying records of an investment advisor. Madoff, 66, faces a statutory maximum sentence of 10 years and agreed not to seek any sentence other than 10 years. He also agreed to forfeit more than $143.1 billion in assets, including all of his real and personal property. This amount includes his wife’s and daughter’s personal assets and assets belonging to other family members. Proceeds from sale of the assets and cash forfeitures will be used to compensate the victims of Madoff’s fraud. Madoff’s sentencing is scheduled for October 4, 2012.


According to the superseding information to which Madoff pled guilty, in his role as CCO, he made false reports to the Securities Exchange Commission (SEC) and created misleading compliance documents, when in fact he had conducted no compliance reviews. Additionally, Madoff engaged in tax fraud that allowed him and other members of the Madoff family to avoid paying millions of dollars in taxes to the IRS. Madoff’s wife, by Madoff’s arrangement, also held a “no-show” job at the company for which she received a salary and benefits. In December 2008, before the company collapsed, Madoff arranged to send the remaining $300 million in assets to preferred clients and employees, though the company collapsed before the funds were disbursed. Madoff also withdrew $200,000 from the company one day prior to its collapse, for his personal use.


The SEC has filed a parallel civil case against Peter Madoff. Madoff’s plea agreement is available here.


Travis R. McDonough and Eileen H. Rumfelt, Miller & Martin PLLC, with assistance from Allison Wiseman


 

July 17, 2012

2nd Circuit Upholds 10-Year Sentence for Lawyer in Terrorism Case


On June 28, 2012, the Second Circuit upheld the 10-year sentence of Lynne Stewart, a disbarred lawyer convicted in 2005 of smuggling messages from Sheik Omar Abdel-Rahman—a client of Stewart’s imprisoned for terrorism—to his militant followers in Egypt. In the 1990s, Abdel-Rahman was convicted of plotting to blow up New York landmarks in an attempt to kill then-Egyptian President Hosni Mubarak.


A jury convicted Stewart in 2005, at which time she was sentenced to 28 months. Stewart was disbarred in 2007 after the New York bar rejected her resignation. In 2009, the court of appeals affirmed her conviction but sent her case back for rehearing on sentencing, finding that 28 months was “out of line with the extreme seriousness of her conduct” and instructing the district court to consider whether Stewart had perjured herself at trial, potentially increasing her sentence. A federal judge increased her sentence to 10 years, finding that Stewart showed no remorse for her crime. This finding was based partially on statements Stewart made to the media after her original sentencing, in which she said she would smuggle the information again and that she could complete a 28-month sentence “standing on [her] head.” In appealing her sentence, Stewart argued that the judge had impermissibly relied upon these statements in violation of her First Amendment rights. The maximum sentence for her crime, which the government had sought, was 30 years.


Regarding her claim that the district court violated the First Amendment by considering Stewart’s statements to the media, the Second Circuit noted that a district court is required to sentence a convicted defendant based on her history and personal characteristics, which can be assessed by evaluating statements he or she has made in public or in private. Thus, the court reasoned, a sentencing court may consider such evidence as long as it is relevant to the issues in the sentencing proceeding. In affirming her 10-year sentence, the Second Circuit noted that “Steward has persisted in exhibiting a stark inability to understand the seriousness of her crimes, the breadth and depth of the danger in which they placed the lives of unknown innocents, and the extent to which they constituted an abuse of her trust and privilege as a member of the bar.” Stewart has said she will continue to appeal.


Travis R. McDonough and Eileen H. Rumfelt, Miller & Martin PLLC, with assistance from Allison Wiseman


 

June 18, 2012

Jury Rejects Government's Case Against Roger Clemens


Just weeks after the government’s trial against John Edwards concluded in an acquittal and a mistrial, the jury in the Roger Clemens case delivered another blow to the Department of Justice when it delivered a not-guilty verdict on all six counts, rejecting the government’s assertion that baseball star Clemens perjured himself in connection with his testimony to Congress regarding his steroid use. The government had charged Clemens with perjury, making false statements, and obstructing Congress’s investigation of steroid use in Major League Baseball.


Most of the government’s case rested on the testimony of Brian McNamee, Clemens’s former personal trainer and “the only witness in the history of the world who says he gave or saw an injection of [Clemens],” according to Clemens’s legal team. As in the Edwards case, the defense vigorously challenged star witness McNamee’s credibility, including even introducing a chart during closing arguments titled "Brian McNamee's testimony is admittedly not credible."


The eight-week trial, which included more than 26 days of testimony, was the government’s second effort to prosecute Clemens for his comments relating to the congressional baseball investigation. In July 2011, the government’s first trial ended in a mistrial on the second day of testimony when the government left in the jury’s view information that the court had ordered redacted.


 

June 15, 2012

Gupta Convicted of Insider Trading and Conspiracy


Following a month-long trial and two days of deliberations, a federal jury in New York convicted prominent businessman Rajat K. Gupta of insider trading and conspiracy relating to his dealings with Galleon Group founder Raj Rajaratnam, who was convicted last year of a massive insider-trading conspiracy and sentenced to 11 years in prison. Remarkably, the Gupta verdict marks the seventh conviction out of seven trials relating to the Rajaratnam fraud.


The government alleged that Gupta, when he was a director on the boards of Goldman Sachs and Proctor & Gamble (roles he undertook following his retirement as the global head of McKinsey & Company), tipped insider information to Rajaratnam over a period of nearly two years. The government’s case was based largely on circumstantial evidence, though it did have some wiretapped phone calls between Gupta and Rajaratnam.


Jurors convicted Gupta of conspiracy to commit securities fraud and of three instances of leaking information to Rajaratnam (finding him not guilty of the two other instances charged). Gupta’s sentencing is set for October 18, 2012.


Gupta’s lawyer, Gary Naftalis, remarked to the court during the trial that it was “highly likely” that Gupta would testify in his own defense. Ultimately, Gupta chose not to take the stand. Did his decision hurt him? Unless the jury speaks on the issue, it is difficult to know, but at least some legal commentators viewed his decision as sound, at least in theory.  As Professor Lawrence Goldman commented in a recent blog post, a criminal defendant’s testimony may effectively dilute the burden of proof, as “rather than asking themselves whether the prosecutor has proved the case beyond a reasonable doubt, [jurors may] focus more on whether the defendant probably told the truth.”


 

June 1, 2012

Jury Acquits on One Count, Hangs on Five in Edwards Case


The high-profile campaign finance trial of former presidential candidate John Edwards concluded in a blow to the prosecution on Thursday, May 31, when the jury returned a not-guilty verdict on one count and told the judge that they were deadlocked on the remaining five counts. Having already sent the jury back to continue deliberations a few hours earlier, after jurors had indicated that they were at an impasse on five of the six counts, federal judge Catherine Eagles declared a mistrial as to those counts. In interviews following the verdict, some jurors told the media that they felt the evidence “just was not there,” and indicated that the lack of credibility of the prosecution’s star witness, Andrew Young, had seriously damaged the government’s case.


The government has not yet said whether it will retry Mr. Edwards on the deadlocked counts, though it seems unlikely given that the interpretation of campaign-finance law upon which the prosecution was based was controversial even within the Department of Justice itself. Further information can be found here and here.

 


 

May 31, 2012

Supreme Court Denies Cert Supported by the NACDL


A group of criminal law professors and the National Association of Criminal Defense Lawyers (NACDL) filed briefs of amici curiae in support of a petition for writ of certiorari in the case of Pickering v. Colorado. The amicus curiae cautioned the Supreme Court that the decision by the Colorado Supreme Court shifts the burden of proof in criminal cases where the defendant asserts an element negating defense, such as self-defense or mistake of fact. These briefs notwithstanding, on May 21, 2012, the Supreme Court denied certiorari. We note them, however, for the interesting issues of law that they raise.


At trial, the jury acquitted Jerad Pickering of second-degree murder. However, Pickering was convicted of the lesser charge of reckless manslaughter. Pickering's defense at trial was self-defense. The trial court charged the jury, over Pickering's objection, that, "the prosecution does not bear the burden of proving beyond a reasonable doubt that Defendant did not act in self-defense" with regard to the charge of reckless manslaughter. People v. Pickering, No. 07CA2322, 2010 WL 1099750 (Colo. App. Mar. 25, 2010).


The Colorado Court of Appeals reversed Pickering's conviction, agreeing with Pickering that the trial court's jury instruction unconstitutionally imposed on Pickering the burden of disproving an element of the crime with which he had been charged. Pickering's conviction was reinstated by the Colorado Supreme Court, which reasoned that the prosecution's burden is met by its having presented a "prima facie case proving all elements of the charged crime beyond a reasonable doubt," even though the defendant, by virtue of the instruction, has the burden of disproving one of those elements when the defense to the crime is self-defense.


As amici curiae, criminal law professors from 12 law schools warned the Supreme Court that the Colorado Supreme Court's ruling runs counter to In re Winship, 397 U.S. 358 (1970), and to other Supreme Court precedent by requiring a defendant "to carry the burden of proof as to any facts necessary to authorize punishment in the first instance." The law professors pointed out that the Colorado statute defines "reckless manslaughter" as recklessly causing the death of another person. Colorado law defines "self-defense" as occurring in a context where the actor reasonably believes he or she is in imminent danger. The law professors noted that when the two statutes are considered together, "Recklessly killing and killing in self-defense are thus factually contradictory possibilities. One cannot have the mens rea of recklessness if he reasonably believes his life is in danger and responds with reasonable and necessary force." Therefore, the law professors argued, self-defense is an "element-negating defense."


The NACDL also joined in support of Pickering's petition for writ of certiorari, arguing that the ruling in Colorado could lead prosecutors to pursue indictments that should not be pursued due to the lessened burden of proof. The NACDL referred to the American Bar Association's (ABA) Standards for Criminal Justice, which require prosecutors to take into account the likelihood of conviction when making a charging decision. Under ABA Standard 3-3.9(a), "A prosecutor should not institute, cause to be instituted, or permit the continued pendency of criminal charges in the absence of sufficient admissible evidence to support a conviction." The NACDL reasoned that if the Colorado ruling were allowed to stand, in similar cases it would eliminate an element of the prosecution's case that it must prove, beyond a reasonable doubt, to obtain a conviction. Consequently, the NACDL argued, "a prosecutor may well be more likely to bring that case than if he or she was required to disprove [the defense]."


Michael T. Dawkins, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Jackson, MS


 

May 24, 2012

South Carolina Businessman Charged With Illegally Exporting to Iran


On Saturday, May 19, 2012, South Carolina businessman Markos Baghdasarian was arrested at Hartsfield International Airport in Atlanta as he prepared to board a flight to the United Arab Emirates (UAE). Baghdasarian, the manager of Delfin Group USA LLC, is charged with unlawfully exporting goods from the United States to Iran without the required U.S. Department of Treasury licenses, in violation of the International Emergency Powers Act (50 U.S.C. § 1705) and the Iranian Transactions Regulations (31 C.F.R. part 560), and with making a false statement to the government relating to the transactions.


Russian-owned Delfin USA, based in North Charleston, South Carolina, is a supplier of automotive, marine, and aviation lubricants. According to an affidavit filed in support of the complaint, an Iranian businessman (Individual A) agreed to serve as Delfin’s sales agent in Iran. The Iranian businessman was associated with a business in the UAE that shipped Delfin products to Iranian customers. Another Delfin agent, Individual B, operated a different business in the UAE that also shipped Delfin products to Iran.


The affidavit quotes several emails involving some combination of Baghdasarian, Individual A, Individual B, and others that allegedly refer to ways to arrange sales or shipments from the United States to the UAE and then to Iran. In describing one of the violations, the government claims that a barrel of Delfin lubricant was intentionally mislabeled to misidentify the origin of the product, and that the emergency phone number listed on the label was in fact a toll-free number for Victoria’s Secret.


The criminal complaint also includes a false-statement charge (18 U.S.C. § 1001) relating to the government’s May 4, 2012, interview of Baghdasarian in the presence of his counsel. According to the affidavit, during that interview, Baghdasarian admitted that he knew that neither Individual B nor his company was the final end user of the Delfin products, but falsely denied knowing before the government executed a search warrant on Delfin in early 2012 that Individual A was located in Iran.


The case is United States v. Baghdasarian, No. 2:12-mj-00083-CRI (D.S.C.).


Michael T. Dawkins, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, Jackson, MS


 

May 16, 2012

First Criminal Charges Filed in 2010 BP Oil Spill


Signifying the first criminal charges resulting from the April 2010 BP oil spill, the government has issued an indictment against former BP engineer Kurt Mix, charging Mix with two counts of obstruction of justice for allegedly destroying evidence requested by federal authorities who are investigating the spill. Mix is alleged to have deleted more than 200 text messages containing significant information regarding the spill, including information collected in real time, during BP’s failed efforts to stop the oil flow, and information regarding the amount of oil that the spill was releasing into the ocean. Mix faces a maximum of 20 years in prison and a fine of up to $250,000 on each count. United States v. Mix, No. 12cr171 (E.D. La.).


Joseph Martini and Christine Jean-Louis, Wiggin and Dana LLP, New Haven, CT


 

May 16, 2012

Attempted NY Subway Bomber Convicted


Following a four-week trial, a federal jury in New York convicted Queens borough resident Adis Medunjanin of conspiring to coordinate a number of suicide bombings in the New York City subway system that were set to take place in September 2009. Evidence at trial revealed that the conspiracy began in 2008, when Medunjanin obtained terrorist training in Pakistan and returned to the United States to carry through on plans to attack well-known targets in New York. In early 2010, when Medunjanin learned that law enforcement was investigating his activities, he attempted to turn his car into a weapon by crashing it into another car on the Whitestone Expressway. Before crashing his car, Medunjanin called 911, identified himself, and shouted an al-Qaeda slogan, “We love death more than you love your life.” Medunjanin will be sentenced on September 7, 2012, and faces a mandatory sentence of life in prison. To date, six other defendants in addition to Medunjanin have been convicted of charges relating to the New York City bombing plot. United States v. Mendunjanin, No. 10cr19 (E.D.N.Y.).


Joseph Martini and Christine Jean-Louis, Wiggin and Dana LLP, New Haven, CT


 

May 16, 2012

Connecticut Passes Racial-Profiling Law for Traffic Stops


On Monday, May 7, 2012, in reaction to the January arrests of a police sergeant and three officers for profiling and harassing Latino motorists, the state legislature of Connecticut passed S.B. 364 (“An Act Concerning Traffic Stop Information”), which mandates that local and state law enforcement adopt written policies prohibiting the stopping, detention, or search of any person solely motivated by considerations of race, color, ethnicity, age, gender, or sexual orientation. Connecticut Governor Dannel Malloy is expected to sign the bill soon. Under the law, police officers who stop a motorist as of January 1, 2013, will be required to complete a standardized form that contains biographical details about the driver (including race, age, gender, color, sexual orientation, and ethnicity), the circumstances of the case, and the name and badge number of the officer. The bill also creates a right for motorists who feel they have been profiled to file a complaint with the local police department, which must be submitted to a state agency.


Joseph Martini and Christine Jean-Louis, Wiggin and Dana LLP, New Haven, CT


 

April 23, 2012

"Stand Your Ground" Law: Charges Filed in Trayvon Martin Shooting


On April 11, 2012, State Attorney Angela Corey, the special prosecutor in the investigation surrounding the controversial death of Florida teen Trayvon Martin in February 2012, charged George Zimmerman with second-degree murder for Martin’s death. Florida police initially did not charge Zimmerman, a Florida neighborhood-watch volunteer, citing Florida’s “stand your ground” law, which allows the use of deadly force by anyone who feels a reasonable threat of death or serious injury. Zimmerman has claimed that the shooting was in self-defense.


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Troy Lieberman, Nixon Peabody LLP, Boston, MA


 

April 23, 2012

President Obama Signs STOCK Act


On April 4, 2012, President Obama signed the Stop Trading on Congressional Knowledge (STOCK) Act (S. 2038), which bans insider trading for members of Congress, their staffs, and officials in the executive and judicial branches of the federal government. “The STOCK Act makes it clear that if members of Congress use nonpublic information to gain an unfair advantage in the market, then they’re breaking the law,” Obama said at the bill’s signing.


The Senate passed a version of the STOCK Act on February 2. The House voted on February 9, 2012, to pass the act, but removed from the bill an amendment included by Sen. Chuck Grassley (R-Iowa). The Grassley amendment, which would have required political-intelligence firms and consultants to register under the Lobbying Disclosure Act, prompted warnings from Wall Street that such a provision could significantly impact how private-equity funds, hedge funds, and other investors gain information from the government to guide their clients’ investment decisions. The House-passed version of the bill, which did not contain the amendment, merely requires a government study of political-intelligence companies that sell such information to investors. The Senate overwhelmingly passed the House version of the bill, 96–3.


The STOCK Act also requires lawmakers to publicly disclose their trades of stocks, bonds, and other securities within 45 days of the transaction. The information will be posted on government websites and in searchable databases in an attempt to make it easier to detect illegal insider trading. Under the act, members of Congress and certain other senior government employees also must disclose the terms of their personal mortgages.


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Troy Lieberman, Nixon Peabody LLP, Boston, MA


 

April 23, 2012

Death Penalty Trials for Five at Guantanamo Bay


On April 4, 2012, the Pentagon announced that five senior members of al Qaeda accused of planning the September 11 terrorist attacks will face a death-penalty trial at the Naval Station Guantanamo Bay. Khalid Sheik Mohammed, the alleged mastermind of the attacks, will be tried alongside four co-defendants: Ali Abdul Aziz Ali of Pakistan, who is Mohammed’s nephew; Ramzi Binalshibh and Walid bin Attash, both of Yemen; and Mustafa al-Hawsawi of Saudi Arabia. They will be arraigned next month and will be represented by military and civilian defense attorneys.


All five men were held in secret CIA custody overseas before they were transferred to Guantanamo Bay in September 2006. Their treatment, including waterboarding, is likely to be an issue at trial, despite the fact that prosecutors cannot use as evidence any statement that resulted from torture or from cruel, inhuman, or degrading treatment.


The five men were first charged in a military commission in 2008, but the case was suspended when the Obama administration took office. In a notable move for the Obama administration, military charges were resworn last summer and approved by retired Vice Admiral Bruce MacDonald, the head of the military commissions. The charges include murder in violation of the law of war, attacking civilians, hijacking aircraft, and terrorism.


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Troy Lieberman, Nixon Peabody LLP, Boston, MA


 

April 23, 2012

Biomet Resolves FCPA Investigation with $22 Million Penalty


Medical device maker Biomet, Inc. has agreed to pay a $17.28 million criminal penalty as part of a deferred prosecution agreement (DPA) with the Department of Justice to settle conspiracy and Foreign Corrupt Practices Act charges. United States v. Biomet, Inc., D.D.C. 12-CR-080-RBW (March 26, 2012). Additionally, Biomet reached a settlement agreement with the U.S. Securities and Exchange Commission to pay $5.4 million in disgorgement of profits in a related matter.


According to a five-count criminal information filed in the U.S. District Court for the District of Columbia, between 2000 and 2008, Biomet and its subsidiaries and employees made numerous improper payments to public-health-care providers in South America and China for the purpose of securing hospital contracts. Biomet also falsely recorded the payments to conceal their true nature. According to the DPA, Biomet’s direct and indirect corrupt payments totaled more than $1.5 million. The DOJ acknowledged Biomet’s cooperation with the investigation and, as part of the agreement, required Biomet to implement rigorous internal controls and retain a compliance monitor for 18 months.


Danielle Pelot, Ronaldo Rauseo-Ricupero, and Troy Lieberman, Nixon Peabody LLP, Boston, MA


 

March 9, 2012

Former Federal Prosecutor Disbarred for “Egregious” Conduct


Rejecting a lesser punishment of suspension, the District of Columbia Court of Appeals recently ordered the disbarment of a former Assistant U.S. Attorney for misconduct that the court characterized as “decidedly egregious,” including wrongfully distributing thousands of dollars’ worth of witness vouchers in felony prosecutions to witnesses ineligible to receive the vouchers, failing to disclose the voucher payments to the court or opposing counsel, and intentionally misrepresenting to the court that the proper disclosures had been made.


The court’s full opinion is available here.


 

February 14, 2012

Jury Acquits FCPA Africa Sting Defendants; Mistrial for the Rest


The end of January in the D.C. District Court saw the end of a troubled Foreign Corrupt Practices Act (FCPA) prosecution of five defendants alleged to have conspired to bribe a Gabonese official to obtain business. The case began when 22 people were arrested in July 2010 at the “Shot Show” trade expo and charged with conspiring to bribe the official, as well as with other related offenses. As it turned out, there was no Gabonese official, just a number of FBI agents running a sting operation by posing as representatives of such an official.


While a few of the people ensnared in the sting operation pled guilty, four had previously gone to trial in summer 2011, after which the jury deadlocked and Judge Leon declared a mistrial. The judge also granted a Rule 29 motion acquitting one of the defendants, and dismissed FCPA and money-laundering charges against several others.


The second trial arising from the sting began in December 2011 with six defendants. It did not go well for the government. In December, Judge Leon again granted a Rule 29 motion acquitting all defendants on the conspiracy counts, thereby reducing the number of remaining defendants to five. On January 30, 2012, the jury acquitted two of the remaining defendants. The following day, Judge Leon declared a mistrial as to the remaining three.


Following the conclusion of the case, the jury foreman wrote a guest blog post on the jury’s deliberations, which sheds light on the reasons for the jury’s decision as to the two defendants. As the jury foreman noted, the jurors ultimately were not persuaded that the two acquitted defendants fully understood or agreed to the terms of the supposed deal. Several jurors were also favorably persuaded by character evidence concerning one of the acquitted defendants.  


In addition to the jury’s reasons for acquitting the two defendants, the post also provides valuable insight into the dynamics of the jury’s deliberations. It is a worthwhile read.


Jason M. Silverman and Peter Stockburger, McKenna Long & Aldridge


 

February 14, 2012

Judge Acquits O'Shea in Mexico FCPA Case


The Department of Justices’s rough patch was not limited to the Shot Show sting trial described above. On January 16, 2011, the judge overseeing the trial of former general manager and vice president of a unit of ABB Ltd, John O’Shea, granted a Rule 29 motion for judgment of acquittal on all substantive FCPA counts. O’Shea’s case arose out of his former employer’s alleged bribery of Mexican officials to secure contracts. O’Shea was alleged to have authorized an agent, Fernando Basurto, to make millions of dollars in improper payments to two officials of Mexico's state-owned electric utility, CFE, to secure lucrative contracts for his employer. The government also alleged that O’Shea arranged kickbacks to himself from the revenue of the contracts. Basurto pled guilty in 2009.


At trial, Basurto was the government’s key witness. He testified that his company received money from ABB Ltd., which then laundered the money and provided it to CFE officials to obtain contracts for ABB Ltd. Basurto had turned over financial records to the government, which the government alleged established a link between O’Shea and ABB Ltd.’s payments. At the close of the government’s case, O’Shea successfully moved for a judgment of acquittal on the basis that the evidence was insufficient to sustain a conviction.


In granting the motion, the trial judge decried the lack of “foundation” or “specifics” in Basurto’s testimony, and opined that Basurto "knew almost nothing." What Basurto did know, the judge noted, was based on gossip. The judge also criticized the poor quality of the government's documentary evidence, opining that it showed only that the accounts involved in the alleged scheme were “undetermined rather than suspect.” Although the judge accepted that the government had established that kickbacks were paid, he found that it had not proven bribery of a public official. On that basis, the judge granted the Rule 29 motion.


Jason M. Silverman and Peter Stockburger, McKenna Long & Aldridge


 

February 14, 2012

President Obama Announces New Mortgage Investigation Unit


During the State of the Union address on January 24, 2012, President Obama announced the formation of a new unit of the existing Financial Fraud Enforcement Task Force. Called the Residential Mortgage-Backed Securities Working Group, the new unit will focus on the lending and mortgage securitization practices that led to the real-estate bubble and 2008 crash. The president tapped New York State Attorney General Eric Schneiderman to head the new unit.


Schneiderman has already been aggressively pursuing banks for their role in the mortgage crisis in his capacity as New York attorney general. The Obama administration, too, has devoted significant attention to prosecuting financial and mortgage fraud on the federal level. The new unit, however, will have a narrower focus: the conduct of banks and other financial institutions in originating subprime mortgages and then packaging them into toxic “mortgage-backed securities,” viewed as the root cause of the 2008 financial crisis.  It will also meld federal and state powers to investigate and seek redress for possible wrongdoing: In addition to Schneiderman, who is serving in his capacity as New York attorney general, the new unit includes senior SEC and DOJ criminal division personnel among its leadership.


While the extent of the new unit’s enforcement activities of course remains to be seen, it has already issued civil subpoenas to 11 financial companies. As noted by the New York Times in a recent report on the new unit, it will likely feel significant pressure to address public sentiment that the institutions and individuals truly responsible for the 2008 financial crisis have not yet been held accountable.


Jason M. Silverman and Peter Stockburger, McKenna Long & Aldridge


 

January 23, 2012

Supreme Court Rules GPS Tracking Requires Warrant


In an important decision confronting the constitutional implications of surveillance technology, the Supreme Court has ruled in United States v. Jones that using a global positioning system (GPS) device to track a criminal suspect constitutes a search for purposes of the Fourth Amendment, and that, accordingly, police must obtain a warrant before using such technology. 


We invite you to view the Court’s opinion.


Stacey Gottlieb, Maurice Suh, and Grayson Yeargin, Cochairs, Criminal Litigation Committee


 

January 20, 2012

Magyar Telekom and Deutsche Telekom Settle FCPA Allegations


On December 29, 2011, Magyar Telekom, a Hungarian telecommunications company, and Deutsche Telekom, a German telecommunications company and majority owner of Magyar Telekom, agreed to pay nearly $64 million in combined criminal penalties to resolve the Department of Justice’s (DOJ) investigation into Magyar Telekom and its subsidiary’s activities in Macedonia and Montenegro.


According to the criminal information filed by the Department of Justice, Magyar Telekom’s misconduct related to its efforts to thwart legal changes to the telecommunications market in Macedonia that it believed would be detrimental to its business. Magyar Telekom executives, assisted by intermediaries, attempted to influence Macedonian government officials to prevent the adoption of the new telecommunications laws and regulations. Magyar Telekom ultimately entered into a secret agreement with high-ranking Macedonian government officials in which the officials agreed to provide Magyar Telekom with certain “regulatory benefits” and agreed to “delay the entrance of a third mobile license into the Macedonian telecommunications market.”


Magyar Telekom executives, through “sham consultancy contracts” made through a Greek intermediary, caused approximately $6 million in payments to be made with the knowledge that such payments would likely be provided to Macedonian government officials to secure the benefits of the secret agreement.


In addition to the large monetary fine, in its deferred prosecution agreement, Magyar Telekom agreed to “the implementation of an enhanced compliance program.”


Stephanie Ellis and Michael Scheininger of McKenna Long & Aldridge, Washington, D.C.


 

January 20, 2012

Eight Former Siemens Executives Indicted


On December 12, 2011, the U.S. Department of Justice (DOJ) charged eight former executives and agents of Siemens AG of Germany and its subsidiaries with making $100 million in improper payments to government officials in Argentina to secure a $1 billion government contract to make national identity cards. The individuals attempted to conceal the bribes through various means, including using offshore shell companies and transporting large quantities of cash across international borders. The defendants were charged with conspiracy to violate the Foreign Corrupt Practices Act (FCP”), conspiracy to commit wire fraud, substantive wire fraud, and conspiracy to commit money laundering. The SEC filed a parallel action that charged seven individuals.


All eight individuals charged by the DOJ are foreign nationals from Argentina, Switzerland, and Germany. None of the defendants has yet been arrested or extradited. The most senior executive charged, Uriel Sharef, was a former Siemens managing board member. His indictment is the first FCPA action against a board member of a Fortune Global 50 company.


In 2008, Siemens AG settled a related FCPA case with the DOJ for $800 million, as well as a corruption case brought by German authorities for another $800 million. The Siemens AG case is the largest FCPA case ever filed.


Stephanie Ellis and Michael Scheininger of McKenna Long & Aldridge, Washington, D.C.


 

January 20, 2012

DOJ Enters into NPA with Wells Fargo/Wachovia


On December 8, 2011, the Antitrust Division of the Department of Justice (DOJ) announced that it had entered into a non-prosecution agreement (NPA) with Wachovia Bank N.A., now known as Wells Fargo Bank N.A., regarding the criminal conduct of the company’s former employees in entering into agreements to “manipulate the bidding process and rig bids on municipal investment and related contracts.”


In the NPA, Wells Fargo admitted that, from 1998 through 2004, certain former Wachovia employees of the bank’s municipal-derivatives desk entered into agreements to rig bids on municipal investment and related contracts and otherwise unlawfully manipulate the bidding process in violation of section 1 of the Sherman Act and sections of Title 18 of the U.S. Code. The contracts manipulated by these employees were those that “were used to invest the proceeds of, or manage risks associated with, bond issuances by municipalities and other public entities.”


Wachovia agreed to pay $148 million in restitution, penalties and disgorgement in the NPA. In its press release, the DOJ stated: “Today’s resolution achieves restitution for the victims harmed by Wachovia’s anticompetitive conduct and ensures that Wachovia disgorges its ill-gotten gains and pays penalties for its illegal conduct.” The DOJ’s investigation of anticompetitive conduct in the municipal-derivatives industry has resulted in criminal charges against 18 former executives of a number of financial-service companies and one corporation. Of these 18 executives, 9 have pleaded guilty to date.


Stephanie Ellis and Michael Scheininger of McKenna Long & Aldridge, Washington, D.C.


 

January 4, 2011

GE Funding Capital Market Services, Inc. to Pay $70 Million


On December 23, 2011, pursuant to a non-prosecution agreement, GE Funding Capital Market Services, Inc. agreed to pay $70 million in restitution, penalties, and disgorgement to the Department of Justice (DOJ), Securities and Exchange Commission (SEC), and other federal and state agencies in connection with the company’s role in anticompetitive activity in the municipal-bonds market. The SEC alleged that, from 1999 to 2004, GE Funding fraudulently manipulated bids and made improper, undisclosed payments to certain bidding agents in the form of swap fees that were inflated or unearned. These payments were made in exchange for bidding agents’ assistance in controlling and manipulating the competitive bidding process. As a result of the company’s admission of conduct, cooperation with agencies, and remedial efforts to address the anticompetitive conduct, the DOJ agreed not to bring criminal charges against GE Funding, provided that the company satisfies its obligations under the agreement.


The settlement is a part of the federal agencies’ ongoing investigation into the municipal-bonds industry. Other financial institutions that have reached agreements with the DOJ, SEC, and other federal and state agencies in 2011 include Wachovia Bank N.A., J.P. Morgan Securities LLC, and UBS Financial Services, Inc.


Joseph H. Zwicker, James W. Evans, Diana T. Huang, and Sophie F. Wang, Choate, Hall & Stewart LLP, Boston, MA


 

January 4, 2011

SEC Files Fraud Charges Against Mortgage Executives


On December 16, 2011, the Securities and Exchange Commission (SEC) filed civil fraud actions against the CEOs and four other top executives of Fannie Mae and Freddie Mac, alleging that the executives misled investors about the entities’ exposure to subprime mortgages. The SEC alleges that the defendants publicly stated that the company had little exposure to subprime loans, despite internal communications warning against making such statements. Similarly, the SEC’s complaint against Fannie Mae defendants, including CEO Daniel H. Mudd, alleges that the company under-reported the company’s exposure to subprime mortgages. The defendants stated in press releases that they intend to challenge the allegations.


The SEC’s suit follows a three-year investigation into the financial and mortgage crises. The agency has previously been criticized for its perceived failure to pursue charges against mortgage-industry executives for their involvement in the crisis. Notably, on the same day it filed the suits against the executives, the SEC announced that it had entered into non-prosecution agreements with the entities themselves.


Joseph H. Zwicker, James W. Evans, Diana T. Huang, and Sophie F. Wang, Choate, Hall & Stewart LLP, Boston, MA


 

January 4, 2011

Blagojevich Sentenced to 14 Years


On December 7, 2011, Former Illinois governor Rod Blagojevich was sentenced to 14 years in prison following his conviction on 18 public-corruption counts including wire fraud, attempted extortion, conspiracy to commit extortion, soliciting bribes, and conspiracy to solicit and accept bribes. The government alleged that Blagojevich engaged in a pattern of corruption, including attempting to personally gain from his role in selecting the replacement  for President Barack Obama’s former seat in the U.S. Senate. Jurors deadlocked in the first trial.


Blagojevich insisted on his innocence in trial testimony and in extensive media appearances. At sentencing, however, the former governor expressed remorse and apologized to his family and the residents of Illinois. Judge James B. Zagel said that he considered Blagojevich’s acceptance of responsibility in determining the appropriate sentence, which was shorter than the 15–20 sentence that the government sought.


Joseph H. Zwicker, James W. Evans, Diana T. Huang, and Sophie F. Wang, Choate, Hall & Stewart LLP, Boston, MA


 

November 22, 2011

J&J Subsidiary Pleads Guilty to Misbranding Heart Drug


Scios, Inc., a subsidiary of Johnson & Johnson, pleaded guilty to a misdemeanor violation of the Food, Drug, and Cosmetic Act for introducing into interstate commerce its heart-failure drug, Natrecor, for a use that was not approved by the Food and Drug Administration (FDA). The district court ordered Scios to pay an $85 million criminal fine in accordance with Scios’s plea agreement.


In addition to this criminal matter, the United States has sued Scios and Johnson & Johnson under the False Claims Act in an ongoing related civil case in the Northern District of California (U.S. ex rel. Storm v. Scios Inc. and Johnson & Johnson, No. C 05-3004 CRB). The government alleges that Scios’s promotion of Natrecor for uses not approved by the FDA caused false claims to be submitted to Medicare and other federal healthcare programs.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

November 22, 2011

Detroit-Area Clinic Owner Sentenced in Medicare Fraud Scheme


Martin Tasis was convicted at trial of one count of conspiracy to commit healthcare fraud, one count of conspiracy to pay healthcare kickbacks, three counts of healthcare fraud, one count of conspiracy to commit money laundering, and one count of money laundering. He was sentenced to 10 years in prison for his leading role in a $9.1 million Detroit-area Medicare fraud scheme. He was also sentenced to three years of supervised release and ordered to pay $6 million in restitution, jointly and severally with his co-conspirators.


Martin Tasis and his brother Joaquin owned a Detroit-area clinic called Dearborn Medical Rehabilitation Center (DMRC). The Tasis brothers recruited Medicare beneficiaries through the payment of cash kickbacks. DMRC billed Medicare for approximately $9.1 million in claims that were never provided and/or not medically necessary. Medicare paid approximately $6 million of those claims. The Tasis brothers recruited family friend Leoncio Alayon to help them launder the proceeds through a shell company in Florida. Joaquin Tasis and Alayon were also convicted in this matter.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

November 22, 2011

Owner of Houston Healthcare Company Sentenced to 33 Months


Bassey Monday Idiong, owner and operator of B.I. Medical Supply, LLC, a Houston durable-medical-equipment company, was sentenced to 33 months in prison for his role in a Medicare fraud scheme after pleading guilty to one count of conspiracy to commit healthcare fraud and five counts of healthcare fraud. He was also sentenced to two years of supervised release and ordered to pay $527,023 in restitution.


Idiong paid patient recruiters kickbacks for the names of Medicare beneficiaries. B.I. Medical billed Medicare for orthotics and braces (called an “arthritis kit”) at approximately $4,000 per kit, submitting approximately $846,000 in fraudulent claims in total. B.I. Medical then supplied different, less expensive products to patients. B.I. Medical also billed Medicare for an arthritis kit that included two knee braces for a beneficiary who only had one leg.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

November 22, 2011

FDA Chemist Pleads Guilty to Using Insider Information


Cheng Yi Liang, a Food and Drug Administration (FDA) chemist, pleaded guilty to one count of securities fraud and one count of making false statements, related to an insider-trading scheme running nearly five years.


Liang worked in the FDA’s Office of New Drug Quality Assessment. In that position, Liang had access to the FDA’s password-protected, internal drug-application-tracking system, which contained material, non-public information regarding pharmaceutical companies that had submitted experimental drugs for review. Liang used this information to trade in the securities of pharmaceutical companies, using accounts belonging to his relatives and acquaintances. Liang’s trades resulted in total profits and avoided losses of more than $3.7 million. During his time at the FDA, Liang filed confidential financial-disclosure forms in which he failed to disclose the use of these accounts or the income that they generated.


Liang’s sentencing is scheduled for January 9, 2012. Liang could face up to 20 years in prison and a fine of several million dollars. As part of his plea agreement, Liang agreed to forfeit $3,776,152, including a home and condominium in Maryland, along with funds held in 10 bank or investment accounts. The Securities and Exchange Commission is currently pursuing civil charges against Liang and several accounts he controlled.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

November 22, 2011

SEC Files Insider Trading Charges Against Rajat Gupta


The Securities and Exchange Commission (SEC) has charged former McKinsey & Co. global head Rajat K. Gupta with insider trading for providing tips to convicted Galleon Group founder Raj Rajaratnam while serving on the boards of Goldman Sachs and Proctor & Gamble (P&G). The SEC also filed new insider trading charges against Rajaratnam.


Gupta allegedly provided insider information to Rajaratnam regarding the quarterly earnings of Goldman Sachs and P&G, Goldman’s then future public equity offering, and an upcoming $5 billion investment in Goldman Sachs by Berkshire Hathaway. Rajaratnam allegedly used this information to generate profits or avoid losses of more than $23 million.


The SEC’s complaint charges Gupta and Rajaratnam with violating section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and section 17(a) of the Securities Act of 1933. The complaint seeks a final judgment permanently enjoining the defendants from future violations of these provisions, ordering them to disgorge on a joint-and-several basis their illicit gains, prejudgment interest, and financial penalties. The complaint also seeks permanently to prohibit Gupta from acting as an officer or director of any publicly registered company and from associating with any broker, dealer, or investment adviser.


The SEC has now charged 29 defendants in its actions related to its broad-reaching Galleon investigation. The defendants have worked for more than 15 companies, and the alleged insider trading has generated more than $90 million in total profits.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

November 22, 2011

Raj Rajaratnam Sentenced to 11 Years for Insider Trading


Former Galleon Group founder Raj Rajaratnam has been sentenced to 11 years’ imprisonment for insider trading, the longest sentence ever given for such offense. (Notably, this nevertheless fell short of the 19–24 years that the government sought.)


Rajaratnam was arrested in October 2009 on allegations that he made more than $50 million in ill-gotten profits by acting on insider tips. He was convicted in May 2011 on 14 counts of conspiracy and securities fraud following a two-month trial. Rajaratnam was also ordered to pay a $10 million fine.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

November 14, 2011

Citigroup to Pay $285 Million to Settle SEC Charges


On October 19, 2011, the Securities and Exchange Commission (SEC) charged Citigroup’s principal U.S. broker-dealer subsidiary with misleading investors about a $1 billion collateralized debt obligation (CDO) tied to the U.S. housing market. The CDO defaulted within months, resulting in a loss to investors while Citigroup made $160 million in fees and trading profits. Citigroup agreed to settle the SEC’s charges by paying $285 million, which will be returned to investors.


The SEC alleges that Citigroup Global Markets structured the CDO, exerting significant influence over the selection of included assets. Citigroup then took a proprietary short position against these assets. Investors were not told of Citigroup’s influence over asset selection or the short position. The SEC has also charged Brian Stoker, the Citigroup employee most responsible for structuring the transaction.


The SEC brought separate charges against Credit Suisse’s asset management unit, which served as the collateral manager for the transaction, as well as Samir H. Bhatt, Credit Suisse’s portfolio manager most responsible for the transaction. The SEC alleged that Credit Suisse violated its fiduciary duty when it failed to disclose that it allowed Citigroup to influence the portfolio selection.


The approximately 15 investors in the transaction lost nearly their entire investments while Citigroup received fees of approximately $34 million for structuring and marketing the transaction, and it realized net profits of at least $126 million from the short position.


The SEC alleged Citigroup and Stoker each violated sections 17(a)(2) and (3) of the Securities Act of 1933. Citigroup has elected to settle the charges without admitting or denying the allegations. Subject to court approval, Citigroup will pay $160 million in disgorgement plus $30 million in prejudgment interest, and a $95 million penalty. The $285 million will be returned to investors via a Fair Fund distribution. Citigroup will also be required to improve the process by which it reviews and approves offerings of certain mortgage-related securities. Litigation against Stoker continues.


The SEC alleged that Credit Suisse violated section 206(2) of the Investment Advisers Act of 1940 and section 17(a)(2) of the Securities Act. Bhatt is alleged to have violated section 17(a)(2) of the Securities Act and caused the violations of section 206(2) of the Advisers Act by Credit Suisse.


Without admitting or denying the allegations, Credit Suisse and Bhatt each consented to the issuance of an order directing it to cease and desist from committing or causing any violations, or future violations, of section 206(2) of the Advisers Act and section 17(a)(2) of the Securities Act. Credit Suisse will disgorge the $1 million in fees it received from the transaction, $250,000 in prejudgment interest, and a penalty fee of $1.25 million. Bhatt was also suspended from any association with any investment adviser for six months.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

November 14, 2011

Executives in Haitian Telco Bribery Scheme Sentenced to 15 Years


On October 25, 2011, the former president of Terra Telecommunications Corp., Joel Esquenazi, was sentenced to 15 years in prison for his role in a scheme to pay bribes to Haitian government officials at Telecommunications D’Haiti S.A.M. (Haiti Teleco), a state-owned telecommunications company, the longest sentence ever imposed in a case involving the Foreign Corrupt Practices Act (FCPA). The former executive vice president of Terra, Carlos Rodriguez, was also sentenced to 84 months in prison for his role in the scheme. In August 2011, Esquenazi and Rodriguez were convicted at trial of one count of conspiracy to violate the FCPA and wire-fraud statutes, seven counts of substantive FCPA violations, one count of money laundering conspiracy, and 12 substantive counts of money laundering. The men were also ordered to forfeit $3.09 million.


Haiti Teleco was the sole provider of land-line telephone service in Haiti. Terra had a series of contracts with Teleco that allowed its customers to make calls to Haiti. Esquenazi and Rodriguez used shell companies and false records of “consulting services” to conceal over $890,000 in bribe payments to foreign government officials for over three years. Terra hoped to obtain various business advantages, including the issuance of preferred telecommunications rates, reductions in the number of minutes for which payment was owed, and the continuance of Terra’s telecommunications connection with Haiti.


Four other individuals were previously convicted and sentenced for their roles in this scheme, including Antonio Perez, former controller at Terra; Juan Diaz, president of J.D. Locator Services; Jean Fourcand, president and director of Fourcand Enterprises, Inc.; and Robert Antoine, former director of international affairs for Haiti Teleco.


In a superseding indictment, Washington Vasconez Cruz, Amadeus Richers, Cinergy Telecommunications Inc., Patrick Joseph, Jean Rene Duperval, and Marguerite Grandison are charged in a related scheme, but no trial date is set, and the government’s investigation is ongoing.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

November 14, 2011

Sentencing Commission Issues Report on Mandatory Minimums


On October 31, 2011, the U.S. Sentencing Commission submitted to Congress a report assessing the impact of statutory mandatory minimum penalties on federal sentencing. Judge Patti B. Saris, chair of the commission, said, “the Commission unanimously believes that certain mandatory minimum penalties apply too broadly, are excessively severe, and are applied inconsistently across the country. The commission continues to believe that a strong and effective guideline system best serves the purposes of sentencing established by the Sentencing Reform Act of 1984.”


The commission recommended that Congress reassess certain statutory recidivist provisions with respect to drug offenses and asked it to consider possibly tailoring the “safety valve” relief mechanism to other low-level, non-violent offenders. The commission further recommended Congress examine and reevaluate the “stacking” of mandatory minimum penalties for certain firearm offenses, especially where there is no physical harm or threat of physical harm. The commission also recommended that Congress request prison overcrowding impact analyses from the commission as early as possible when considering enacting or amending federal criminal penalties.


The commission reviewed a pool of over 73,000 cases from fiscal year 2010 and data sets from other fiscal years. Among its key findings, the commission noted that more than 27 percent of offenders included in the pool were convicted of an offense carrying a mandatory minimum sentence. Of those, more than 75 percent were convicted of a drug trafficking offense. Of all offenders convicted of an offense carrying a mandatory minimum penalty, 46.7 percent did not receive such a penalty because they assisted the government, qualified for “safety valve” relief, or both, often resulting in a significant reduction in sentence. Additionally, the commission noted that as of September 30, 2010, just over 39 percent of offenders in the custody of the Federal Bureau of Prisons were subject to mandatory minimum penalties at sentencing. While this represented an increase in the number of offenders, the percentage has remained steady for 20 years.


Wick Sollers and Eric Christensen, King & Spalding, Washington, D.C.


 

October 25, 2011

NYC Dept. of Housing Preservation and Development Official Indicted


On October 6, 2011, following a multi-agency investigation involving the Department of Justice, Department of the Interior, Internal Revenue Service, Department of Housing and Urban Development, and the Department of Labor, the U.S. Attorney’s Office for the Eastern District of New York arrested and charged an assistant commissioner for the New York City Department of Housing Preservation and Development (HPD) and six real-estate developers in connection with allegations of corruption dating back to 2002. The indictment alleges that the assistant commissioner, Wendell Walters, accepted more than $600,000 in bribes from contractors and real-estate developers in exchange for awarding lucrative city contracts for the development and construction of affordable housing throughout New York City. Walters and the developers, two of whom are attorneys, allegedly devised schemes to solicit and conceal the kickbacks, and at times resorted to violent threats to collect the money. HPD is the largest municipal developer of affordable housing in the United States.


Jerome Roth and Kyle Mach, Munger, Tolles & Olson, San Francicsco, CA


 

September 14, 2011

Ex-Galleon Trader Sentenced to 66 Months for Insider Trading


Former Galleon Group LLC hedge fund trader Craig Drimal pled guilty in April 2011 to six counts of conspiracy and securities fraud resulting from a scheme whereby Galleon traded insider information that Drimal had obtained from lawyers working on transactions involving 3Com, Corp. and Axcan Pharma, Inc. On August 31, 2011, Judge Richard Sullivan of the U.S. District Court for the Southern District of New York sentenced Drimal to a 66-month term of imprisonment. Drimal made personal profits of nearly $6.5 million from trades in 3Com and Axcan based on the inside information, and he also provided material nonpublic information to Galleon trader Michael Cardillo, whom prosecutors allege earned $731,505 as a result of the scheme. According to prosecutors, when Securities and Exchange Commission personnel originally interviewed Drimal in July 2008, he lied to them about why he bought Axcan stock.


Jim Wyrsch, Chris Mirakian, and Jon Bailey of Wyrsch, Hobbs & Mirakian, P.C., Kansas City, MO


 

September 14, 2011

Baseball Great Roger Clemens to Be Retried after Mistrial


A federal judge has ruled that Roger Clemens will face a new trial on charges that he lied to Congress about using performance-enhancing drugs, after determining that a second trial would not violate Clemens’s constitutional rights. Two days into the first trial, Judge Reggie Walton of the U.S. District Court for the District of Columbia declared a mistrial after prosecutors showed jurors evidence that he had already ruled to be inadmissible. Although Judge Walton chastised prosecutors for their apparent blatant disregard of his ruling, he ultimately determined that he could not bar prosecutors from moving forward with a second trial. Clemens’s attorney argued that the prosecutors’ error was in fact a tactic used to get a new trial, because the first trial was going so badly for the government. Federal prosecutor Steven Durham took the blame for the prosecution’s showing of the inadmissible evidence and acknowledged his wrongdoing, pleading with the judge not to hold the government responsible for his error. While Judge Walton condemned the prosecution and its actions, he held that precedential case law ultimately required that he grant another trial.


Jim Wyrsch, Chris Mirakian, and Jon Bailey of Wyrsch, Hobbs & Mirakian, P.C., Kansas City, MO


 

September 14, 2011

Barry Bonds's Conviction Upheld


On August 26, a federal district court judge in San Francisco upheld the conviction of former baseball star Barry Bonds for obstruction of justice relating to his role in the BALCO scandal. The court will sentence Bonds on December 16, 2011. He faces a maximum sentence of 10 years in prison, though the Sentencing Guidelines recommend a sentence between one and two years.


Following the ruling, prosecutors dismissed without prejudice the remaining counts against Bonds—three charges of making false statements on which the jury had deadlocked during the trial.


Jim Wyrsch, Chris Mirakian, and Jon Bailey of Wyrsch, Hobbs & Mirakian, P.C., Kansas City, MO


 

September 14, 2011

Validity of Police Lineups Questioned


Following a recent decision by the New Jersey Supreme Court to overhaul the state’s rules regarding treatment of evidence obtained from police lineups (see New Jersey v. Henderson, --- A.3d ----, 2011 WL 3715028 (N.J. 2011)), the New York Times published an article questioning whether police lineups and eyewitness identifications are reliable. The article queries whether current law enforcement procedures pertaining to suspect identification throughout the nation properly safeguard a defendant against the threat of an inaccurate identification.


In its decision in Henderson, the New Jersey Supreme Court cited decades of research demonstrating that traditional eyewitness identification procedures are flawed and can send innocent people to prison. In reaching its decision, the court relied on a detailed, 88-page report by a special master that outlined deficiencies in witness identifications and provided empirical statistical analysis emphasizing these deficiencies. This report may lend support to defense attorneys in making future arguments regarding the admissibility of police lineup identifications.


Jim Wyrsch, Chris Mirakian, and Jon Bailey of Wyrsch, Hobbs & Mirakian, P.C., Kansas City, MO


 

July 22, 2011

Sentencing Commission Votes in Favor of Retroactivity


On June 30, 2011, the U.S. Sentencing Commission voted unanimously to give retroactive effect to the proposed amendment to the federal sentencing guidelines implementing the Fair Sentencing Act of 2010. The act reduced the 100-to-1 disparity between sentencing for offenders convicted of crack-cocaine offenses and those convicted of powder-cocaine offenses. The commission’s decision regarding retroactivity follows a public-comment period and a full-day hearing, at which 20 experts and advocates testified. The commission received over 43,500 written public comments on the proposed amendment, the majority of which favored retroactivity. The amendment, including retroactivity, will take effect November 1, 2011, unless Congress intervenes.


The commission estimates that its decision will make nearly 12,000 offenders eligible to seek a sentence reduction. The average sentence reduction likely will be approximately 37 months, although average sentences after reduction will remain around 10 years. The Bureau of Prisons estimates that retroactivity could result in more than $200 million in savings for the Bureau within the first five years after the amendment takes effect.


Travis McDonough and Eileen Rumfelt, Miller & Martin PLLC


 

July 22, 2011

New Profile of Typical Corporate Fraudster Released


On June 14, 2011, KPMG released a global survey regarding the current state of corporate fraud. Based on nearly 350 fraud investigations it conducted, KPMG’s report defines the “typical corporate fraudster” as a 36- to 45-year-old male. The typical fraudster commits fraud against his own company after having been employed for five or more years and after having achieved a senior-management position. He is most often employed in finance. Personal greed is the primary motivator for the fraudster’s actions, with pressure to meet profit and budget targets cited as the second most common reason. Notably, according to the report, board-level perpetrators are on the rise, up to 18 percent from 11 percent in 2007.


The report highlights a disturbing trend, which its authors postulate is a direct result of the economic downturn. Nearly 75 percent of perpetrators were able to commit corporate fraud because of weaknesses in their organization’s internal compliance programs. This number is significantly higher than the 49 percent tallied in a similar survey conducted in 2007. The authors of the report reason that employee layoffs and overall corporate focus on “emergency” issues have resulted in inadequate oversight of compliance programs. They note the rise in the number of “red flags” that go ignored, which they find to have increased from 76 percent in 2007 to 94 percent in 2011. The average time from fraud inception to detection is nearly three and a half years. Also indicative of the lack of corporate focus is the fact that external exposure of the fraud (by, for example, anonymous or customer complaints) has grown, while exposure by internal whistleblowers has declined. According to the report, the average total losses in the United States were $1.2 million per fraud, a figure exceeded only in Asia and the Middle East.


Travis McDonough and Eileen Rumfelt, Miller & Martin PLLC


 

July 22, 2011

AG Recommends Full Investigation of Deaths of Two Overseas Detainees


On June 30, 2011, Attorney General Eric Holder announced that a more than three-year probe related to the interrogation of post-September 11 detainees abroad would result in a full criminal investigation of the deaths in custody of two detainees. Other than these two announced criminal investigations, the preliminary investigation appears to have reached its end.


The probe began in January 2, 2008, when then-Attorney General Michael Mukasey appointed Assistant U.S. Attorney John Durham to conduct a criminal investigation into the destruction of certain interrogation videotapes by the Central Intelligence Agency (CIA). In August 2009, after reviewing reports submitted by the Office of Professional Responsibility and the 2004 CIA Inspector General Report, Attorney General Holder expanded Mr. Durham’s mandate to include a review of the interrogation tactics used on more than 100 detainees held at overseas locations. At the time, Attorney General Holder emphasized that he would not prosecute anyone acting in good faith and within the scope of the Office of Legal Counsel’s legal guidance. In November 2010, the Department of Justice announced that it would not bring charges related to the destruction of videotapes, Mr. Durham’s original mandate.


The June 30 announcement represents the conclusion of Mr. Durham’s investigation. As Attorney General Holder stated in making the announcement:


The men and women in our intelligence community perform an incredibly important service to our nation, and they often do so under dangerous and difficult circumstances. They deserve our respect and gratitude for the work they do. However, I concluded based on the information available to me then, and continue to believe now, that the Department needed to thoroughly examine the detainee treatment issue. I am confident that Durham’s thorough review has satisfied that need.

Travis McDonough and Eileen Rumfelt, Miller & Martin PLLC


 

June 20, 2011

UCB Settles Off-Label Promotion Allegations to Tune of $34 Million


In a victory for the Department of Justice in its crusade against the illegal marketing of pharmaceuticals, the U.S. subsidiary of Belgian drug company UCB SA has agreed to pay $34 million to settle civil and criminal claims that it marketed an epilepsy drug for uses other than those expressly approved by the Food and Drug Administration (FDA). According to the government, which intervened in two qui tam actions brought against UCB under the False Claims Act, UCB promoted its epilepsy drug Keppra as a preventative for migraine headaches, despite having no research or FDA backing supporting such use. In addition to the $34 million payment, which includes a criminal fine of more than $7 million, and a separate civil settlement of nearly $26 million that relates to the filing of false claims with Medicare and Medicaid ($2.8 million of which will be paid to the relators in the qui tam suits), UCB also agreed to plead guilty to a misdemeanor offense. Further, UCB has committed to adhere to certain corporate practices pursuant to a corporate integrity agreement with the Office of Inspector General of the U.S. Department of Health and Human Services. The duration of that agreement is five years.


 

June 20, 2011

Indictments Mount in Petro Oil Scheme Investigation


A federal grand jury in Missouri recently indicted eight individuals for their alleged roles in a securities-fraud scheme involving Petro America Corp., a Kansas City-based oil company. The new defendants join four previous defendants, bringing the total number of indictments in the case to 12. All dozen of the defendants are charged in a 20-count superseding indictment that includes charges of criminal conspiracy, money laundering, and securities and wire fraud. The defendants are alleged to have caused more than $7.2 million in losses dating back to 2008. Among other things, the defendants are accused of falsely inflating Petro America’s assets; promoting the company to investors using false information, and in spite of cease-and-desist orders from Missouri and Kansas; and structuring transactions to avoid the state-issued orders. The government alleges that the defendants specifically targeted churchgoers, supplying church ministers with shares of Petro so that the ministers could sell the shares secretly while paying kickbacks to the defendants.


 

June 20, 2011

Former Mass. House Speaker Convicted of Public-Corruption Offenses


On June 15, 2011, following a six-week trial, former Massachusetts House Speaker Salvatore DiMasi was found guilty of conspiracy, extortion, and mail and wire-fraud offenses relating to his conduct as speaker, a position he held from 2004 until 2009. DiMasi was alleged to have accepted kickbacks in exchange for steering state software contracts. The case against DiMasi tested the application of honest-services fraud as limited by the U.S. Supreme Court almost exactly one year ago, in the landmark decision Skilling v. United States. The jurors focused on the honest-services-fraud issue during their deliberations, at one point asking the judge to repeat his instructions on those counts. DiMasi’s legal team already has indicated that it will appeal the jury’s unanimous verdict on the grounds that the government did not prove an intended bribe, as required under Skilling


Notably, DiMasi is the third consecutive Massachusetts House speaker to be convicted of a felony. He faces up to five years in prison on the conspiracy charge, and up to twenty years each on the six other counts of which he was convicted.


 

May 18, 2011

BAE Agrees to Largest-Ever Settlement with State Department


On May 16, 2011, British contracting company BAE Systems PLC agreed to pay $79 million to the U.S. Department of State to settle allegations that it committed more than 2,500 violations of U.S. export laws over a years-long period beginning in 2003. BAE has pledged to pay the fine over three years, and may be eligible for a reduction of up to $10 million based on its implementation of enhanced export-control compliance measures.

The government alleged that BAE violated the Arms Export Control Act and the International Traffic in Arms Regulations in its business dealings in the Czech Republic, Hungary, Saudi Arabia, and other countries. The government alleged that BAE engaged in the unauthorized brokerage of defense articles by, among other things, employing agents who were not properly registered as brokers, failing to maintain adequate records, and failing to report payments of fees and commissions. According to the State Department, the case and the settlement do not implicate BAE’s U.S. subsidiary, BAE Systems Inc.


In February 2010, BAE pled guilty to criminal charges relating to the same conduct. In connection with that plea, BAE paid more than $400 million to the Department of Justice, and more than $47 million to the Serious Fraud Office of the U.K. government.


 

May 18, 2011

Galleon Group Founder Found Guilty on 14 Insider-Trading Counts


On May 11, 2011, following a widely watched trial and extensive deliberation, a jury in the Southern District of New York found billion-dollar hedge-fund founder Raj Rajarartnam guilty of all 14 insider-trading and conspiracy charges against him. Rajaratnam, alleged to have made more than $50 million in profits on trades based on insider information, faces up to 25 years in prison. The insider-trading case against Rajaratnam was the largest in the Department of Justice’s history, and the verdict against Rajaratnam is the capstone of the government’s investigation of the hedge fund, Galleon Group, which has netted more than 20 guilty pleas and more than two dozen arrests.


During its deliberation, the jury appeared to focus on the government’s wiretap evidence against Rajaratnam, which notably included calls with traders and executives who had already separately pled guilty to related charges, some of whom testified against Rajaratnam at trial. During the trial, the government presented more than 60 taped conversations to the jury. This effort represented the government’s most extensive collection and use of wiretaps in an insider-trading case to date, and could signify a sea change in the prosecution of future insider-trading cases. From a defense perspective, the verdict also could deflate the “mosaic” defense, which Rajaratnam’s lawyers employed in arguing that Rajaratnam made trades based on a conglomerate of many pieces of publicly available information, not on singular insider tips. The mosaic theory, which has not been the subject of much review by appellate courts, is expected to be one piece of Rajaratnam’s appeal.


 

May 18, 2011

Federal Judge Again Tosses Case Against Former GlaxoSmithKline Lawyer


On May 10, 2011, in a ruling emphasizing the sanctity of the attorney-client privilege, U.S. District Judge Roger Titus of the District of Maryland dismissed the government’s case against former GlaxoSmithKline (GSK) in-house lawyer Lauren Stevens. The government had charged Stevens with six counts of making false statements, obstructing justice, and falsifying and concealing documents, in connection with GSK’s response to an inquiry by the U.S. Food and Drug Administration regarding the marketing of the drug Wellbutrin. Notably, the case was the government’s second effort to prosecute Stevens; the court previously dismissed the original indictment in March 2011, after concluding that the government had misinformed the grand jury about the relevance of Stevens’s possible advice-of-counsel defense.


In dismissing the charges against Stevens for a second time, Judge Titus noted that the government never should have brought the case, and criticized a decision by a magistrate judge in the District of Massachusetts that permitted the government to use documents protected by the attorney-client privilege because they purportedly met the “crime fraud” exception to the privilege. Judge Titus, first noting that the government never should have had access to the documents, rejected the applicability of the exception, noting that Stevens had engaged in a good faith and proper effort to advise her client. Acknowledging that lawyers “should not get a free pass,” Judge Titus cautioned that misapplication of the crime-fraud exception would chill lawyers’ zealous representation of their clients, and noted that “[a]nything that interferes with that is something that the court system should not countenance.”


 

April 15, 2011

Barry Bonds Convicted in Connection with BALCO Investigation


Following a trial on perjury and obstruction-of-justice charges relating to his conduct during the government’s investigation of steroid use and the Bay Area Laboratory Cooperative (BALCO), a jury found Major League Baseball player Barry Bonds guilty of one count obstruction of justice on April 13, 2011. The court declared a mistrial on the remaining three perjury counts, as the jurors were unable to reach a verdict on those counts. The charges stemmed from Bonds’s 2003 grand-jury testimony in the BALCO investigation, during which he denied using steroids and stated that his trainer, also a target of the government’s investigation, never injected him with a needle. Though it was Bonds’s conduct during the investigation, not the alleged underlying use of steroids, that was at issue in this trial, prosecutors claimed that their criminal investigation had uncovered tests demonstrating the use of anabolic steroids and other performance-enhancing substances by Bonds and other athletes.


The government will decide whether to retry Bonds on the perjury counts, and the court will set a sentencing date for the obstruction count at a hearing scheduled for May 20, 2011. United States v. Bonds, No. 07-00732, April 13, 2011 (N.D. Cal.).


Danielle Pelot and Ronaldo Rauseo-Ricupero, Nixon Peabody LLP, Boston, MA


 

April 15, 2011

Court Dismisses Privacy Act Suit Involving Unidentified DOJ Source


A federal judge recently granted the Department of Justice’s motion for summary judgment in dismissing a long-pending case against the department brought by former federal terrorism prosecutor Richard Convertino. Convertino had alleged that an anonymous source from the Department of Justice leaked harmful information to a Detroit Free Press reporter regarding Convertino’s referral to the department’s Office of Professional Responsibility, which related to Convertino’s alleged misconduct during the prosecution of suspected terrorists following the September 11, 2001, attacks. Convertino claimed that the source violated the Privacy Act, “knew the leak would destroy his [Convertino’s] reputation,” and “was fueled by a desire to get back at him [Convertino] for criticizing the Department and for testifying before a congressional committee.” The court found that Convertino had failed to satisfy the Privacy Act’s intentionality and willfulness requirements, in large part because Convertino could not identify the source and thus could not prove that the source was acting within the scope of his or her employment at the time of the leak. Convertino v. United States Department of Justice, No. 04-cv-236, March 24, 2011 (D.D.C.).


Danielle Pelot and Ronaldo Rauseo-Ricupero, Nixon Peabody LLP, Boston, MA


 

April 15, 2011

Former Federal Judge Sentenced for Entanglement with FBI Informant


Former U.S. District Judge Jack Camp Jr. was sentenced to 30 days in prison for giving an exotic dancer money to buy illicit drugs. In October 2010, Camp pled guilty to providing the dancer, an FBI informant, with money and his government-issued laptop in furtherance of her effort to buy illegal drugs. The government also charged Camp with federal firearm violations, relating to two weapons he had stowed in his car. In conjunction with the plea, Camp agreed to resign from the bench and to forfeit his law license. United States v. Camp, No. 10-mj-01415, March 14, 2011 (N.D. Ga.).


Danielle Pelot and Ronaldo Rauseo-Ricupero, Nixon Peabody LLP, Boston, MA


 

April 15, 2011

Former Bush Administration Lawyer Sentenced to Jail on Misdemeanor Charge


On March 30, 2011, nearly a year after his guilty plea to the misdemeanor charge of contempt of Congress, Scott Bloch, the controversial former head of the U.S. Office of Special Counsel, was sentenced to one month in prison, one year of supervised release, and 200 hours of community service. In April 2010, Bloch pled guilty to contempt of Congress for withholding information from the House Committee on Oversight and Government Reform, which was investigating his decision to have information on several government computers erased. Bloch’s lawyers have asserted that, in pleading guilty to contempt of Congress, Bloch understood and had reason to understand that he could receive a probation-only sentence. Magistrate Judge Deborah Robinson ruled, however, that the charge was not probation-eligible. The court has stayed Bloch’s sentence of imprisonment pending appeal. United States v. Bloch, No. 10-mj-00215, March 30, 2011 (D.D.C.).


Danielle Pelot and Ronaldo Rauseo-Ricupero, Nixon Peabody LLP, Boston, MA


 

April 15, 2011

Indictment Against Former GSK Counsel Dismissed Without Prejudice


Following the prosecutors’ erroneous instruction to the grand jury regarding the advice of counsel defense, the court dismissed without prejudice the indictment against Lauren Stevens, a former associate general counsel of GlaxoSmithKline (GSK). Stevens was indicted for alleged violations of 18 U.S.C. § 1512 (obstruction), § 1519 (falsification and concealment of documents), and § 1001 (false statements) for her involvement in GSK’s responses to a Food and Drug Administration inquiry regarding alleged off-label marketing of the GSK drug Wellbutrin SR. During grand-jury proceedings, a juror asked prosecutors, “Does it matter that maybe she was—that Lauren Stevens was getting direction from somebody else about how to handle this? Does it matter or is it not relevant?” The Court found that prosecutors’ responses to the juror’s question clearly indicated that the advice-of-counsel defense was not relevant at the charging stage. In moving to preclude Stevens from asserting good-faith reliance on advice of counsel as a defense, the government argued that 18 U.S.C. §1519 is a general-intent crime, and that the advice-of-counsel defense applies only to specific-intent crimes. Judge Titus of the District Court for the District of Maryland disagreed, ruling that good-faith reliance on the advice of counsel negates the wrongful intent required to commit the crimes with which the government had charged Stevens. Because the prosecutors had indicated otherwise to the grand jurors, the Court dismissed the indictment without prejudice. The Court’s order, however, permits prosecutors to seek a new indictment from a properly instructed grand jury. On assumption that the government will secure a new indictment, the Court has already set a new trial date of April 26, 2011. United States v. Stevens, No. 10-cr-0694, March 23, 2011 (D. Md.).


Danielle Pelot and Ronaldo Rauseo-Ricupero, Nixon Peabody LLP, Boston, MA


 

March 29, 2011

Prosecution of GlaxoSmithKline Lawyer up in the Air


On March 23, 2011, U.S. District Court Judge Roger Titus dismissed without prejudice the indictment against Laura Stevens, former associate general counsel of GlaxoSmithKline. Stevens is accused of attempting to obstruct an FDA investigation into Glaxo’s alleged off-label marketing of its drug Wellbutrin SR, but Judge Titus found that prosecutors misinformed grand jurors about Stevens’s primary defense—the advice-of-counsel defense.


Stevens headed the legal team charged with responding to the FDA’s inquiries, which included two other in-house counsel and three outside counsel. According to the now-dismissed indictment, Stevens withheld and concealed documents and information about Glaxo’s promotional activities and falsified and altered documents to impede the investigation. No one else was charged in the case.


In his memorandum order, Judge Titus first denied the government’s motion to preclude Stevens from asserting the advice-of-counsel defense, concluding that good-faith reliance on the advice of counsel negates the criminal intent required for the charges against Stevens. Then, Judge Titus found that the prosecutors had given erroneous and prejudicial legal advice to the grand jury about the advice-of-counsel defense. Specifically, in response to a juror’s question, “Does it matter that maybe she was—that Lauren Stevens was getting direction from somebody else about how to handle this?” prosecutors told the grand jurors that the advice-of-counsel defense was not relevant to their probable-cause determination. This information was incorrect, according to Judge Titus, because good-faith reliance on the advice of counsel is not an affirmative defense, but instead negates the essential element of mens rea.


Judge Titus’s order dismissing the indictment without prejudice allows the government to seek a new indictment from a properly instructed grand jury. It has been reported that prosecutors have not yet decided whether to seek a new indictment, appeal Judge Titus’s order, or drop the charges against Stevens.


 

March 29, 2011

New Information about Federal Abuse-of-Power Probe in Arizona


Since January 2010, a federal grand jury has been investigating allegations that Sheriff Joe Arpaio of Maricopa County, Arizona, the self-proclaimed “toughest sheriff in America,” and other officials in that county committed criminal violations by abusing their power in a variety of ways. Few details about the scope of the grand jury inquiry have made their way into the public domain, but new information suggests that one reason for the length of the investigation is its breadth. Local news sources are reporting that the Arizona Attorney General’s Office has now handed over four investigations to federal officials because those investigations overlap with the ongoing grand-jury probe. The four transferred investigations reportedly involve campaign-finance issues, questions about improper criminal charges against a county official, spending of jail funds, and a land deal for a sheriff’s substation. Information obtained by media sources through Arizona’s liberal public-records laws also shows that high-ranking officials in the sheriff’s office may have attempted to cover up and obstruct investigations into their alleged wrongdoing.


 

March 9, 2011

SEC Exercises Expanded Forum-Selection Powers under Dodd-Frank


As the New York Times and other news outlets recently reported, the Securities and Exchange Commission (SEC) has taken advantage of a provision of the Dodd-Frank legislation that permits it to bring cases in front of administrative-law judges, in its case against Rajat Gupta, a former head of McKinsey, whom the SEC alleges to have tipped insider information to former Galleon Group cofounder Raj Rajaratnam. Under the expanded administrative powers bestowed upon the SEC by Dodd-Frank, the SEC is no longer obligated to bring such civil charges in federal court, and can also seek monetary penalties (as opposed to mere disgorgement of illicit profits). As articles have noted, this raises concerns about the lesser evidentiary standard in administrative proceedings, and also may signal the commission’s plans to use administrative proceedings for future cases.


For more information, please see the following articles in the New York Times and Business Week.

 

March 7, 2011

Mine-Disaster Official Charged with Obstructing Federal Investigation


Federal prosecutors in the Southern District of West Virginia have charged a security official working for a subsidiary of Massey Energy Co., the owner of the site of a fatal mine explosion in April 2010, with lying to federal investigators and ordering the destruction of security-related documents in an effort to conceal illegal practices at the mine.


The charges against the security chief, Hughie Stover, are connected to a joint investigation by the FBI and the Mine Safety and Health Administration (MSHA) regarding whether security officials gave advance notification of MSHA inspections to mine personnel, in violation of the Federal Mine Safety and Health Act. The two-count indictment against Stover charges that he made false statements to an FBI special agent and a special investigator from MSHA regarding the mine’s policies concerning advance notice, and that he directed a person to dispose of thousands of pages of company documents relevant to the investigation by placing the documents in a trash compactor. Stover is alleged to have committed these acts in January 2011.


Stover’s arraignment is scheduled for March 15, 2011.


 

March 7, 2011

Casino Company Investigated Regarding Potential FCPA Violations


Worldwide casino operator Las Vegas Sands Corp. recently disclosed in an annual SEC filing that it is currently under investigation by the Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) for potential violations of the Foreign Corrupt Practices Act (FCPA). In the Form 10-K, filed March 1, Sands stated that it believes that the investigations and the corresponding subpoena Sands received from the SEC in early February were prompted by allegations in a wrongful-termination suit filed last fall by the ex-CEO of Sands’ China operation, Steve Jacobs. In that suit, Jacobs alleges that Sands sought leverage with which to improperly influence high-ranking Chinese officials, and affiliated with groups tied to Chinese organized crime. Sands has denied Jacobs’s allegations and has pledged to cooperate with the government’s investigations.


In its filing, Sands further revealed that it has already paid a $1.6 million penalty to the State Administration of Foreign Exchange in China, following an investigation by that agency regarding payments made to counterparties and other vendors in China by Sands’ wholly foreign-owned enterprises. That penalty, which relates to Sands’ operations in China and Macau, may concern the same conduct that is at issue in the SEC and DOJ investigations.


 

February 3, 2011

Government Obtains Additional Guilty Pleas in Galleon Group Cases


Over the course of two weeks in January, several individuals associated with the ongoing Galleon Group insider-trading case pled guilty to fraud and conspiracy charges in advance of the upcoming trial of Galleon founder Raj Rajaratnam. To date, more than 20 individuals have faced charges in connection with the government’s wide-reaching investigation of the former hedge fund. Additionally, the Securities and Exchange Commission has filed civil suits against Galleon and many of the defendants for similar conduct.


On January 14, 2011, Arthur Cutillo, a former associate at Ropes & Gray LLP, pled guilty to one count of conspiracy and one count of securities fraud. The maximum term of imprisonment on the two counts is 25 years. Cutillo’s plea agreement, however, stipulates a sentence of 30–37 months based on a calculated Guidelines offense level of 19.


On January 19, 2011, Danielle Chiesi, a former hedge-fund consultant who was accused of trading on and providing inside information to Rajaratnam, pled guilty to three counts of conspiracy to commit securities fraud. Chiesi faces up to 15 years in prison, but under her plea agreement prosecutors will recommend a sentence of 37–46 months.


On January 26, 2011, two former Galleon traders, Adam Smith and Michael Cardillo, pled guilty to one count each of conspiracy and securities fraud. Both defendants face a sentence of up to 25 years, and their plea agreements do not contain a sentencing recommendation.


Rajaratnam’s trial is currently scheduled to begin on February 28, 2011.


Jason M. Silverman, McKenna Long & Aldridge, Washington, D.C.


 

February 3, 2011

Sentencing in FCPA Case Involving State-Owned Haitian Telecommunications Company


On January 21, 2011, the former controller of a Florida-based telecommunications firm was sentenced to 24 months in prison for his involvement in a conspiracy to bribe representatives of Haiti’s state-owned national telecommunications company, Telecommunications d’Haiti (Haiti Teleco). The sentencing is the latest in a series of cases arising from bribery of representatives of Haiti Teleco in an effort to obtain favorable business treatment.


Antonio Perez had pled guilty in May 2009 to conspiracy to violate the Foreign Corrupt Practices Act and money-laundering laws. Perez admitted personal involvement over the course of three months (from November 2001 through January 2002) in assisting with the processing of bribes to an employee of Haiti Teleco. He also admitted having personally assisted in making two bribe payments totaling $36,375, which amount he was ordered to forfeit.


Jason M. Silverman, McKenna Long & Aldridge, Washington, D.C.


 

February 3, 2011

United Kingdom Delays Implementation of Bribery Law


On January 31, 2011, the United Kingdom’s justice secretary, Ken Clarke, confirmed that implementation of the United Kingdom’s recently adopted Bribery Act would be delayed. The law was passed on April 8, 2010, and had been scheduled to take effect in April 2011. The delay comes amidst criticism from the business community that the law lacks sufficient clarity, which critics contend will harm British competitiveness abroad.


The Organisation for Economic Co-Operation and Development (OECD), which promotes and coordinates international anti-corruption efforts, criticized the delay and threatened to place the U.K. on an OECD export blacklist if implementation is delayed further.


Jason M. Silverman, McKenna Long & Aldridge, Washington, D.C.


 

January 18, 2011

SEC Enters First Non-Prosecution Agreement under New Cooperation Regime


On December 20, 2010, the Securities and Exchange Commission (SEC) announced that it has entered into a non-prosecution agreement with Carter’s, Inc., an Atlanta-based clothing marketer. This is the first non-prosecution agreement the SEC has entered since promulgating its new cooperation initiative in January 2010. Before the initiative, the Division of Enforcement did not authorize the use of non-prosecution agreements. The Carter’s agreement, which is unremarkable but for its place in history, was executed in connection with the SEC’s investigation of financial fraud by Joseph Elles, executive vice president of Carter’s. The SEC alleges that Elles’s misconduct caused an understatement of Carter’s expenses and an overstatement of its net income. Under the terms of the agreement, Carter’s will not be charged with violations of the securities laws in connection with Elles’s alleged misconduct.


In announcing the agreement, the SEC noted that it reflects the isolated nature of the unlawful conduct, as well as prompt and complete self-reporting by Carter’s, its exemplary and extensive cooperation in the investigation (including undertaking a thorough and comprehensive internal investigation), and its extensive and substantial remedial actions. Carter’s also agreed to cooperate fully and truthfully in any further SEC investigation, including the enforcement action against Elles.


Michael Scheininger and Brad Samuels, McKenna Long & Aldridge, Washington, D.C.


 

January 18, 2011

Record-Setting Madoff Settlement in the S.D.N.Y.


On December 17, 2010, the trustee for Bernard L. Madoff Investment Securities (BLMIS) and the U.S. Attorney’s Office in Manhattan announced a $7.2 billion settlement with the estate of Jeffry Picower, an investor in BLMIS who held an account in his own name and who controlled a number of other accounts held by various entities. On January 13, 2011, the U.S. Bankruptcy Court for the Southern District of New York approved the settlement over the objections of certain investors who argued that their claims had not been recognized by the trustee. Under the terms of the settlement, which was signed by Picower’s widow, the Picower estate will return $5 billion to the trustee to resolve all claims against it. Combined with the $2.2 billion Picower already forfeited to the U.S. government, the $7.2 billion payment represents 100 percent of the proceeds Picower withdrew during his 33 relationship with BLMIS. The settlement represents the largest civil forfeiture payment in U.S. history, and brings the total amount recovered from the Madoff fraud to date to approximately $10 billion.


Michael Scheininger and Brad Samuels, McKenna Long & Aldridge, Washington, D.C.


 

January 18, 2011

Government Announces Results of "Operation Broken Trust"


On December 6, 2010, the FBI Financial Fraud Enforcement Task Force announced the conclusion of “Operation Broken Trust,” which was hailed by the FBI as the largest investment-fraud sweep ever conducted in the United States. Operation Broken Trust included both criminal and civil enforcement actions that occurred from August 16 through December 1, 2010. The operation focused on scams directly targeting individual investors, rather than long-term complex corporate-fraud matters. In total, the operation netted enforcement actions against 343 criminal defendants and 189 civil defendants, for fraud schemes involving more than 120,000 victims throughout the country. The operation’s criminal cases involved more than $8.3 billion in estimated losses, and the civil cases involved estimated losses of more than $2.1 billion.


Michael Scheininger and Brad Samuels, McKenna Long & Aldridge, Washington, D.C.


 

December 8, 2010

Singapore Airlines to Pay $48 Million Fine; Government's Broad Price-Fixing Investigation Continues


The cargo unit of Singapore Airlines Ltd. has agreed to plead guilty and to pay a $48 million criminal fine for its role in a conspiracy to fix prices in the air-transportation industry. The Department of Justice (DOJ) alleged that Singapore Airlines Cargo engaged in a conspiracy to fix prices from 2002 until at least February 2006.


Prosecutors said the Singapore Airlines unit and other air-cargo shippers held meetings and conversations in which they agreed on shipping rates, in violation of federal antitrust law. Singapore Airlines is the twentieth airline charged in connection with the government’s investigation into price fixing in the air transportation industry, which so far has generated $1.7 billion in criminal fines. In addition to the airlines themselves, individual executives remain under investigation by the government, with charges currently pending against more than a dozen executives of various airlines.


On December 6, upon a motion to intervene brought by the DOJ, a magistrate judge in the Eastern District of New York issued a discovery stay in multi-district class-action litigation relating to the same price-fixing conduct, after concluding that the government’s criminal investigation could be adversely affected by certain discovery in the civil litigation. Under the order, such discovery will be stayed until March 2011.


Michael Duffy, Bradley Arant Boult Cummings LLP, Birmingham, AL


 

December 8, 2010

Former Comverse CEO Agrees to $53 Million Settlement of Options-Backdating Charges


Comverse Technology, Inc. cofounder Jacob “Kobi” Alexander has agreed to pay $53.6 million to settle Securities and Exchange Commission (SEC) charges relating to the backdating of stock options.


In 2006, the SEC charged Alexander and two other former Comverse executives with engaging in a fraudulent scheme to grant undisclosed, “in-the-money” options to themselves and to others by backdating stock-option grants to coincide with historically low closing prices of Comverse common stock.


Alexander previously fled to Namibia, which does not have an extradition treaty with the U.S., to avoid criminal prosecution for the stock-option backdating. The civil settlement with the SEC does not affect Alexander’s fugitive status.


The proposed settlement marks one of the largest disgorgement and penalty amounts imposed against an individual in a stock-options-backdating case.


Michael Duffy, Bradley Arant Boult Cummings LLP, Birmingham, AL


 

December 8, 2010

DOJ Recovers $3 Billion in False Claims Act Lawsuits in 2010 Fiscal Year


The Department of Justice (DOJ) announced this month that it recovered $3 billion in cases involving fraud against the government, including $2.5 billion in healthcare-fraud recoveries.


The recoveries were primarily the result of False Claims Act (FCA) lawsuits. Whistleblowers who brought claims under this act were awarded $385 million during the 2010 fiscal year. These statistics are said to underscore the significant focus of regulators in investigating and prosecuting healthcare-fraud allegations, and are likely to further encourage whistleblowers to bring claims under the FCA.


Michael Duffy, Bradley Arant Boult Cummings LLP, Birmingham, AL


 

November 16, 2010

California Company and Executives Indicted for Alleged Participation in Mexican Utility Bribery Scheme


On October 21, 2010, Lindsey Manufacturing Co. and two of its executives, Keith E. Lindsey and Steve K. Lee, were indicted for their alleged roles in a conspiracy to pay bribes to Mexican government officials at the Comision Federal de Electricidad (CFE), a state-owned utility company. The company and its executives were charged with conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and other FCPA violations in an eight-count superseding indictment. The superseding indictment alleges that Lindsey and Lee wired money to middlemen, knowing that the payments were based on fraudulent invoices, and knowing that the money would be used to pay bribes to Mexican officials in exchange for CFE awarding contracts to Lindsey Manufacturing Co.


Wick Sollers and Eric Christensen, King & Spalding, Washington D.C.


 

November 16, 2010

GlaxoSmithKline to Plead Guilty, Pay $750 Million to Resolve Liability for Manufacturing Deficiencies


On October 26, 2010, SB Pharmco Puerto Rico Inc., a subsidiary of GlaxoSmithKline, PLC (GSK), agreed to plead guilty to charges relating to the manufacture and distribution of certain adulterated drugs made at GSK’s now-closed manufacturing facility in Cidra, Puerto Rico. Among the allegations were charges that SB Pharmco’s manufacturing operations failed to ensure that some finished products were free of contamination; that the manufacturing process employed caused two-layer tablets to split, such that the tablets did not have any therapeutic effect; and that other tablets did not always contain the FDA-approved mix of active ingredients.


SB Pharmco agreed to plead guilty to a criminal felony for releasing adulterated drugs into interstate commerce, in violation of the Food, Drug, and Cosmetic Act. Under the plea agreement, the company will pay a criminal fine of $150 million, which includes forfeiting assets of $10 million. Under the civil settlement, GSK has agreed to pay an additional $600 million to the federal government and the states to resolve claims that it caused false claims for certain quantities of adulterated drugs to be submitted to government health-care programs.


Wick Sollers and Eric Christensen, King & Spalding, Washington D.C.


 

November 16, 2010

Rocky Mountain Instrument to Pay $1 Million to Resolve False Claims Act Allegations


On October 29, 2010, Rocky Mountain Instrument Co. (RMI) announced that it has reached a settlement to resolve claims that it violated the False Claims Act. Specifically, RMI is alleged to have submitted claims for payment to various Defense Department prime contractors. The contractors, in turn, allegedly claimed reimbursement from the government for equipment manufactured overseas using sensitive technical data that was exported by RMI in violation of the Arms Export Control Act and International Traffic in Arms Regulations. RMI has agreed to pay the United States $1 million as part of its bankruptcy reorganization.


Wick Sollers and Eric Christensen, King & Spalding, Washington D.C.


 

November 16, 2010

Two Florida-Based Fund Managers Charged with Facilitating Ponzi Scheme


On October 14, 2010, the Securities and Exchange Commission (SEC) charged two Florida-based hedge-fund managers, Bruce F. Prevost and David W. Harrold, and their firms, Palm Beach Capital Management LP and Palm Beach Capital Management LLC, with fraudulently funneling more than a billion dollars of investor money into a Ponzi scheme operated by Minnesota businessman Thomas Petters.


The SEC alleged that Prevost and Harrold falsely assured investors that their money would be safeguarded by a phony process of asset protection that facilitated Petters’s scheme. Petters’s “purchase order inventory financing” business involved no actual inventory. Instead, money only ever came directly from Petters, who sold promissory notes to feeder funds like those run by Prevost and Harrold. The SEC further alleges that Prevost, Harrold, and their firms received new notes in exchange for mature notes, instead of receiving cash payments.


The complaint, filed in the U.S. District Court for the District of Minnesota, alleges that Prevost, Harrold, and their two firms invested more than $1 billion in hedge-fund assets with Petters while accepting $58 million in fees. The SEC’s complaint charges Prevost, Harrold, and their firms with violations of section 17(a) of the Securities Act of 1933, section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and sections 206(1), 206(2) and 206(4) of the Investment Advisers Act of 1940 and Rule 206-4(8) thereunder. The SEC is seeking a court order of permanent injunction against Prevost, Harrold, and their firms, as well as an order of disgorgement, including prejudgment interest and financial penalties.


Wick Sollers and Eric Christensen, King & Spalding, Washington D.C.


 

November 16, 2010

Former Countrywide CEO to Pay $22.5 Million Penalty


On October 15, 2010, the SEC announced that it had reached a settlement with former Countrywide Financial CEO Angelo Mozilo, and that the settlement had been approved by the District Court for the Central District of California.


Under the terms of the settlement, Mozilo will pay a $22.5 million penalty to settle SEC charges that he and two other former executives misled investors by assuring them that Countrywide was primarily a prime-quality mortgage lender, even though executives knew that Countrywide was writing increasingly risky loans. The SEC also alleged that Mozilo engaged in insider trading of Countrywide securities.


Mozilo’s penalty is the largest ever paid by a senior executive of a public company. Mozilo also agreed to $45 million in disgorgement of ill-gotten gains to settle the disclosure violation and insider-trading charges. The settlement permanently bars Mozilo from ever again serving as an officer or director of a publicly traded company.


In related actions, former Countrywide COO David Sambol agreed to pay $5 million in disgorgement, a $520,000 penalty, and a three-year officer and director bar. Former CFO Eric Sieracki agreed to pay a $130,000 penalty and to submit to a one-year bar from practicing before the commission.


Wick Sollers and Eric Christensen, King & Spalding, Washington D.C.


 

Warrantless GPS Tracking Violates Fourth Amendment, D.C. Circuit Rules


The D.C. Circuit recently reversed the conviction of a defendant on whose automobile the government had installed a tracking device without a warrant to do so. United States v. Maynard, ___ F.3d ___, No. 08-3034 (D.C. Cir. Aug. 6, 2010). The defendant, Antoine Jones, was a suspected cocaine dealer. The police had at one time sought and obtained a warrant to install a global positioning device (GPS) on Jones’s car, but the warrant expired before they installed the device. The lower court admitted evidence obtained from the GPS during trial, and Jones was convicted of conspiracy to distribute and possess cocaine following an initial mistrial on the count.


On appeal, the government conceded that the police did not have a valid warrant, but argued that no warrant had been necessary. The government relied on the Supreme Court’s holding in United States v. Knotts, 460 U.S. 276 (1983), in arguing that the surveillance did not violate the Fourth Amendment because Jones had no reasonable expectation of privacy while traveling in an automobile on public roads. The D.C. Circuit distinguished Knotts, however, by noting that the surveillance in that case was discrete— i.e., limited to one trip between Minnesota and Wisconsin. The police department’s surveillance of Jones, by contrast, was continuous, lasting around the clock for nearly a month. The court held that Knotts did not control, and that the police department’s activity constituted a search because it violated Jones’s reasonable expectation of privacy. A reasonable person, the court held, does not expect that every movement he or she makes in his car over the course of a month will be tracked and recorded; rather, he or she reasonably expects these movements to be “disconnected and anonymous.” In reaching this holding, the court discussed but dismissed decisions in the Seventh and Ninth Circuits, which have held that prolonged GPS tracking is not a search.


 

The Supreme Court Strikes Down Chicago's Handgun Ban


With its decision in McDonald v. City of Chicago, No. 08-1521, March 2, 2010, the Supreme Court has struck down [PDF] Chicago’s laws banning private citizens from owning handguns, holding that the Second Amendment right to bear arms for the purpose of self-defense, recognized two years ago in District of Columbia v. Heller, is incorporated into the Fourteenth Amendment. A four-member plurality of the Court concluded, in an opinion by Justice Alito, that the due process clause of the Fourteenth Amendment incorporates the right. Justice Thomas opined that the privileges-and-immunities clause incorporates the Second Amendment right to bear arms.


 

Berghuis v. Thompkins: Miranda Warnings Revisited


In a 5–4 decision [PDF] in Berghuis v. Thompkins, No. 08-1470, June 1, 2010, authored by Justice Kennedy, the Supreme Court held that a suspect who wants to invoke his or her Fifth Amendment right to remain silent must do so unambiguously and that merely remaining silent is insufficient to invoke the right. Instead, to invoke the right, the suspect must make a “simple, unambiguous statement” that “he want[s] to remain silent or that he [does] not want to talk with the police.” Conversely, a suspect waives the right if he or she was given and understands the Miranda warnings and later makes a voluntary statement, regardless of how much time passes between the warnings and the statement. Because the defendant in this case did not unambiguously invoke the right to remain silent and then waived the right by speaking voluntarily after remaining largely silent during almost three hours of questioning, admission of his statement into evidence did not violate the Fifth Amendment. Justice Sotomayor wrote the dissent. She concluded that the government had not met its “heavy burden” of establishing waiver of the right to remain silent, pointing to the Court’s precedents, which suggest that silence in response to questioning is insufficient alone to find waiver, particularly when a statement is made only after a lengthy interrogation. She also disagreed with the Court’s holding that “a suspect must clearly invoke his right to silence by speaking.” This rule, she said, “invites police to question a suspect at length—notwithstanding his persistent refusal to answer questions—in the hope of eventually obtaining a single inculpatory response which will suffice to prove waiver of rights.” 


 

Supreme Court Rules in Honest Services Cases


With today’s opinions in Skilling v. United States, Black v. United States, and Weyhrauch v. United States, the U.S. Supreme Court has waded into the murky waters of the honest-services statute, 18 U.S.C. § 1346. Using Skilling as its primary vehicle, and issuing three opinions in Skilling alone, the Court surveyed the honest-services landscape from the pre-McNally era through the present, ultimately holding that section 1346 criminalizes only schemes to defraud that involve bribes or kickbacks. In limiting the construction of section 1346, the Court expressly rejected the government’s argument that the statute applies to nondisclosure cases (i.e., undisclosed self-dealing by public officials or private employees)—a holding that will surely have implications for prior convictions predicated on that theory of honest services.


Though it recognized merit in Skilling’s argument that section 1346 is unconstitutionally vague, the majority of the Court declined to find the statute void for vagueness, in favor of limiting it to what it called “the bribe-and-kickback core” of pre-McNally case law. Justice Scalia disagreed with the majority’s decision to limit the statute instead of invalidating it, calling this limitation “a dish the Court has cooked up all on its own.”


Notably, though the Court held that Skilling did not violate section 1346, it did not vacate his conspiracy conviction, instead remanding it for a determination of whether the error necessitates reversal.

In Black, the Court held that, in light of Skilling, the instruction regarding honest-services fraud given to the jury in Black was erroneous. The Court remanded the case for a determination of whether that error was harmless.


Finally, in a one-paragraph per curiam opinion, the Court also remanded Weyhrauch forconsideration in light of Skilling. 


We invite you to view the Court’s opinions at the following links:


Skilling
Black
Weyhrauch


 

Prosecutorial Misconduct Leads to Dismissal of Broadcom Criminal Charges


A recent ruling in United States v. Ruehle from District Court Judge Cormac Carney strongly condemned gross prosecutorial misconduct and acquitted Broadcom’s founder and an ex-CFO of criminal charges. The ABA’s Litigation News summarized this ruling and presented analysis regarding its likely impact, including commentary from our cochair Stacey Gottlieb and the chair of our Ethics and Professionalism Subcommittee, Professor Bennett Gershman.



 

DOJ Issues New Guidance on Criminal Discovery Practices


Early this year, Department of Justice Deputy Attorney General David Ogden issued three memoranda containing new guidance from the DOJ concerning criminal-discovery practices. DAG Ogden indicated that prosecutors should look to these memoranda “to help assure that they meet discovery obligations in future cases.”


The full text of these memoranda can be found at:
Issuance of Guidance and Summary of Actions Taken in Response to the Report of the Department of Justice Criminal Discovery and Case Management Working Group 

Requirement for Office Discovery Policies in Criminal Matters 

Guidance for Prosecutors Regarding Criminal Discovery 


 

U.S. v. Stein: Victory for Corporate Defendants


The Justice Department has declined to petition the U.S. Supreme Court to review the Second Circuit’s ruling in U.S. v. Stein. This lets stand the appellate court’s decision that the Justice Department had violated the defendants’ Sixth Amendment rights by pressuring their employer, KPMG, under the so-called Thompson Memorandum to restrict corporate advancement of defense attorneys’ fees.


Stein involved the prosecution of a number of KPMG executives and was once billed by the Justice Department as the largest tax fraud prosecution in history. The U.S. District Court for the Southern District of New York originally dismissed the indictments of 13 former KPMG executives, finding in a case of first impression that prosecutors had engaged in egregious violations of the defendants’ constitutional right to counsel. Specifically, under the threat of imminent indictment, KPMG had agreed to cooperate with the government in exchange for leniency. As part of that promise, the company undertook a number of actions at the behest of prosecutors, including refusing to pay the legal costs of its partners and employees unless they agreed to waive their rights against self-incrimination and submit to voluntary interviews with the government. The district court found that, by pressuring KPMG to withhold advancement of attorney fees, the Justice Department had unlawfully interfered with the defendants’ legitimate right to counsel.


The Second Circuit affirmed the district court’s decision, holding: “In a nutshell, the Sixth 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 of appeals also noted pointedly that “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 deadline for the Justice Department to file a petition for writ of certiorari to the Supreme Court passed in late November with no action taken.


A much more limited version of the case is still underway before Judge Kaplan. At this time, only three former KPMG executives, who were not adversely affected by the government’s misconduct, and one ex-partner at Sidley Austin, are facing charges based on the allegedly fraudulent tax shelters. In the meantime, the Justice Department has replaced the Thompson Memorandum with new guidance, known as the Filip Memorandum, expressly noting that a company’s decision whether to indemnify or advance attorney fees to its officers or employees shall generally not be a relevant factor in deciding whether to credit a company for its cooperation.


 

DOJ Revises Policies for Prosecuting Business Organizations


On August 28, 2008, Deputy Attorney General Mark Filip announced the U.S. Department of Justice's revised policy for investigating and charging corporation, which are known as “Principles of Federal Prosecution of Business Organizations.” Unlike previous articulations of the Department’s policy (i.e.., the Thompson and McNulty Memorandums), the new principles are incorporated into the U.S. Attorneys’ Manual.


The revisions come after many organizations (including the ABA) have sharply criticized the government for pressuring corporations (under the Justice Department’s predecessor policies) to waive the attorney-client privilege and work product doctrine to gain credit for “cooperation.” The Justice Department undertook these revisions as Congress scrutinized this practice. Indeed, the United States House of Representatives passed legislation in 2007 to protect these bedrock privileges, and a similar bill remains under consideration by the Judiciary Committee of the United States Senate.


Among the significant changes effected by the Department’s new policy is that it is the disclosure of relevant facts—not the waiver of privileges—that is appropriate for consideration in determining a corporation’s cooperation. Under the revised charging principles, federal prosecutors may not request privileged information except in two specific circumstances (invocation of advice of counsel defense or communications in furtherance of crime or fraud). Federal prosecutors also may not consider a corporation’s advancement of attorneys’ fees to its employees or whether the corporation has entered into a joint defense agreement in evaluating "cooperation." Consideration of whether employees are disciplined or terminated is permitted only for the purpose of evaluating the corporation’s remedial measures or its compliance program.


 

SEC Issues Enforcement Manual


On October 6, 2008, the United States Securities and Exchange Commission ("SEC") issued its first "Enforcement Manual," providing insights into the SEC’s enforcement policies and processes. Of particular interest is the section on Privileges (Section 4, pp. 92-108), and specifically, Section 4.3 (p. 98) on Waiver of Privilege. The SEC Enforcement Manual sets forth the policy view that cooperation need not include voluntary waiver of privileged information as long as all relevant information is disclosed. It further states that the staff is directed not to ask a party to waive privileged information, but does not indicate precisely where the authority is to make the determination whether or not to seek a waiver. "The staff must respect legitimate assertions of the attorney-client privilege and attorney work product protection, unless a party voluntarily chooses to waive privilege.


As a matter of public policy, the SEC wants to encourage individuals, corporate officers and employees to consult counsel about potential violations of the securities laws. A key objective in staff’s investigations is to obtain relevant information, and parties are, in fact required to provide relevant information in response to SEC subpoenas. Both entities and individuals, however, may provide significant cooperation in investigations by voluntarily disclosing relevant information. That voluntary disclosure of information need not include a waiver of privilege to be an effective form of cooperation, as long as all relevant facts are disclosed." Id. "The staff should not ask a party to waive the attorney-client or work product privileged and is directed not to do so. All decisions regarding a potential waiver of privilege are to be reviewed with the Assistant supervising the matter and that review may involve more senior members of management as deemed necessary." Id. at p. 99.



 

Federal Rule of Criminal Procedure 32(h): R.I.P.


Near the end of its last term, the Supreme Court issued a little-noticed opinion on sentencing issues. Irizarry v. United States addresses whether a district judge need follow Federal Rule of Criminal Procedure 32(h) – a rule promulgated before the Court declared in United States v. Booker that the Federal Sentencing Guidelines were advisory.



 

Justice Revising Principles of Prosecution of Business Organizations


On July 9, 2008, as the U.S. Senate Judiciary Committee was conducting an oversight hearing on the Justice Department, Attorney General Mukasey announced that the Department of Justice is in the process of revising the Department’s Principles of Federal Prosecution of Business Organizations, also known as the "McNulty Memorandum." By letter of the same date, July 9, 2008, Deputy Attorney General Mark Filip wrote to Hon. Patrick Leahy (Chair) and Hon. Arlen Specter (Ranking Minority Member) of the Senate Judiciary Committee announcing certain changes that the Department of Justice intends to make to the Principles governing federal prosecution of corporations. The changes include:


  • Cooperation will not require waiver of attorney-client privileged or work product information.
  • Advancement of attorneys’ fees to employees will not be taken into account in evaluating cooperation.
  • Entering into a joint defense agreement will not be considered in evaluating cooperation.
  • Federal Prosecutors will not consider whether the corporation has sanctioned employees in evaluating cooperation.

The Filip letter came after the Department of Justice requested an opportunity to address the Senate Judiciary Committee’s concerns about the McNulty Memorandum and before the Committee marked up the Attorney Client Privilege Protection Act of 2008, of which Senator Specter was the primary sponsor. The Department’s comments were due on July 7th. When Senator Specter asked the Attorney General about this issue at the hearing on July 9th, the Attorney General announced that revisions were being considered. The letter from Deputy Attorney General Filip was sent that day.


The following day, July 10, 2008, Senator Specter sent a letter in response. In this letter, Senator Specter makes clear that his recommendation to Chairman Leahy is that the Committee not delay consideration of the legislation. Senator Specter also asks Mr. Filip for a more explicit statement on the "Filip memorandum" and requests that the Committee be informed of specific cases pending under the McNulty memorandum.



 

Supreme Court Offers New Guidance on Money Laundering Statute


On June 2, 2008, the Supreme Court decided Cuellar v. United States, narrowing the reach of the federal money laundering statute, 18 U.S.C. § 1956. At issue was the meaning of the statute’s prohibition against transporting money from the United States to another country "knowing that the [funds] involved in the transportation . . . represent the proceeds of some form of unlawful activity and knowing that such transportation . . . is designed in whole or in part . . . to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity." Petitioner was convicted under this provision of the money laundering statute after being stopped in Texas driving toward the Mexican border; police discovered $81,000 in cash in his car’s secret floorboard compartment. The Fifth Circuit, sitting en banc, affirmed the petitioner’s conviction, holding that his actions in concealing the cash fell within the statute’s ambit.



 

Procurement and Grant Fraud: White Paper


JULY 9, 2007—The National Procurement Fraud Task Force Legislation Committee released a “white paper” including several legislative proposals seeking to improve the Government’s detection, prevention and prosecution of procurement and grant fraud. The Department of Justice established the task force in 2006 as a partnership among Federal agencies responsible for investigating and prosecuting criminal violations concerning contracting and grant activities.


The task released the “white paper” to detail three areas of reform it believes are necessary to remedy vulnerabilities: ”1) improved ethics and internal controls among contractors and grantees; 2) improvements in the government’s ability to prevent and detect procurement and grant fraud; and 3) upgraded prosecution and adjudication resources.”



 

United States of America v. Jeffrey Stein, et al.


U.S District Judge Lewis A. Kaplan dismissed charges against 13 former KPMG employees in what the government had described as the largest criminal tax case in U.S. history. Judge Kaplan found that he had no choice but to dismiss after finding last year that the government violated the former executives’ constitutional rights by pressuring KPMG to cut off the defendants’ legal fees.


 

Panetti v. Quarterman


On June 28, 2007, the United States Supreme Court blocked the execution of Texas death-row inmate Scott Panetti because lower courts failed to consider whether his mental illness prevented him from understanding the reason for his execution. The Court reached this conclusion despite the fact that evidence concerning Panetti’s schizophrenia did not arise until his execution date was set.



 

Rita v. United States


In United States v. Booker, the Supreme Court declared the United States Sentencing Guidelines to be advisory, rather than binding, and concluded that appellate courts must review sentences for “reasonableness.” Resolving a disagreement between the Circuit Courts, the Court recently held in Rita v. United States that appellate courts may find sentences imposed within the Guidelines to be presumptively “reasonable.”