Here is the Indictment in U.S. v. Paul J. Manafort JR. and Richard W. Gates III
Category: Fraud
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It's not every day that a federal district judge accuses the government of misleading the Court and demands corrective action. But it's happening in the Urbana Division of the Central District of Illinois. I posted here in March regarding the federal case against former Congressman Aaron Schock. Among other items of alleged government misconduct, the defense maintained that prosecutors improperly commented to grand jurors on Schock's failure to testify, in violation of his Fifth Amendment Privilege Against Self-Incrimination. The defense relied in part on an affidavit by a dismissed grand juror. After unequivocally denying the grand juror's allegation, the government clarified the record, more than six months later, admitting that government counsel "commented on or addressed Mr. Schock's testifying or decision not to testify before the grand jury" on eleven occasions. U.S. District Judge Colin Bruce was not amused, and ordered the government to review each of its previous filings "to ensure that no more false or misleading claims were made." Judge Bruce also gave the government 14 days to file a memo "detailing any further misrepresentations or misleading statements." Here is Judge Bruce's Order Requiring Government Memorandum re Misrepresentations. The government responded yesterday, denying that it had misrepresented anything to the Court, asking the Court to reconsider its finding regarding misrepresentation, and representing further that it had not intentionally made any materially misleading statements in its prior filings. Here is the Government's Compliance with the Court's October 3 Order and Motion to Reconsider. Schock, represented by George Terwillliger, Bob Bittman, Benjamin Hatch, Nicholas Lewis, and Christina Egan of McGuire Woods in DC and Chicago and by Jeffrey Lang of Lane & Waterman in Davenport, Iowa, wasted no time, not even a day, in firing back. Here is Schock's Motion to Strike or in the Alternative Leave to File a Response. Here as well is Schock's Proposed Response to Government's Compliance. In a future post, I will examine the nature of the government's comments to the grand jurors.
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Last week, I listened to a fascinating episode of the 1A podcast focussing on a new Audible series about Bernie Madoff called Ponzi Supernova. Here is the description of the 1A podcast episode:
Bernard Lawrence Madoff carried out what many consider to be the largest financial fraud in U.S. history: a massive Ponzi scheme which cost his client’s $64 billion.
He’s in jail, serving out his 150-year sentence. Steve Fishman’s new Audible series “Ponzi Supernova” features never-before-heard recordings of Madoff as well as dozens of new interviews with FBI agents, attorneys, traders and victims of Madoff’s devastating Ponzi scheme. The fraud, Fishman says, extended far beyond Madoff and his close associates, and he finds fault in a system that actively enabled him to scam his many victims.
I would highly recommend giving the podcast a listen as an introduction to the six-part Audible series. Having heard a few excerpts of Madoff in his own words during the podcast, I can't wait to hear the full series.
(LED)
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In an unanimous decision, the Supreme Court in Shaw v. United States rejected defendant's argument that section 1344(1) "does not apply to him because he intended to cheat only a bank depositor, not a bank." The Court found that the defendant's scheme to cheat another "was also a scheme to deprive the bank of certain property rights." That said, the Court noted that there is no need to show "that the defendant intend that the victim bank suffer" a financial harm. The Court summed up stating:
"The statute is clear enough that we need not rely on the rule of lenity. As we have said, a deposit account at a bank counts as bank property for purposes of subsection (1). The defendant, in circumstances such as those present here, need not know that the deposit account is, as a legal matter, characterized as bank property. Moreover, in those circumstances, the Government need not prove that the defendant intended that the bank ultimately suffer monetary loss. Finally, the statute as applied here requires a state of mind equivalent to knowledge, not purpose." (citations omitted)
But the Court does leave open one important question – the jury instruction. The defendant argued that the instruction allowed for a guilty finding for one who deceives the bank but not one who "deprive[s]" the bank of anything of value. The Court stated that it is necessary that the "scheme be one to deceive the bank and deprive it of something of value." Sending it back to the 9th Circuit, the Supreme Court instructs the lower court "to determine whether the question was fairly presented to that court and, if so, whether the instruction is lawful, and, if not, whether any error was harmless in this case."
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Salman is in. Newman is out. Justice Alito writes the opinion for an 8-0 Court. Here is the opinion in Salman v. United States.
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I’m attending the Fifth Annual ABA Criminal Justice Section London White Collar Crime Institute this week and the program will be touching on various important issues in the field. I thought I might share some of what was discussed with our readers.
In this first post, I’ll focus on what was discussed during the first morning session where we heard from Andrew Weissmann, Chief of the DOJ Criminal Division’s Fraud Section, and Mark Steward, Director of Enforcement and Market Oversight at the Financial Conduct Authority (“FCA”) in London. During the panel, Mr. Weissmann and Mr. Steward focused on four themes – cooperation, corporate compliance programs, individual accountability, and reliance on internal investigations.
Regarding the first issue, Mr. Steward noted that currently there is significant contact between the FCA and the DOJ. In particular, he noted that there is little preclusion today regarding regulators and prosecutors collaborating on investigations and how they might conclude. Mr. Weissmann agreed that there is significant cooperation today, not just between the U.S. and U.K., but also with many other countries around the globe. The challenge he noted is that moving forward global enforcement bodies need to be cognizant of what each other wants and ensure that the penalty at the end of the day is fair.
Regarding compliance programs, there was discussion of the DOJ compliance expert, Hui Chen. Mr. Weissmann noted that there are two key questions for Ms. Chen based on the Principles of Prosecution. He described those as (1) did the company have an adequate compliance program and (2) did the company adequately remediate the issue? The DOJ, he noted, looks at compliance programs through this lens. The take-away from the discussion was that the process of receiving credit for a compliance program is much more rigorous than in the past and is, at least in part, data driven. Mr. Steward stated that compliance programs are important because of the manner in which they speak to a company’s culture.
Regarding individual accountability, Mr. Weissmann stated that the Yates Memo has been somewhat misunderstood. To illustrate this point, he noted that the DOJ Fraud Section prosecuted 225 individuals and 11 corporations last year. So it has not been the case, he emphasized, that the DOJ has been focusing only on corporations. There was a focus on individuals before the Yates Memo, he said, and that focus remains after the Yates Memo. Mr. Weissmann also noted that it is important to recognize that the issue of individual responsibility is important when considering compliance programs and remediation. From his comments, it appears clear that corporations must consider not only how to sanction those responsible for the actions under investigation, but also those who were responsible for monitoring or supervising these individuals.
Regarding internal investigations, Mr. Weissmann stated that the DOJ finds it very helpful for a company to conduct an internal investigation. He encouraged cooperation and coordination during such inquiries. For example, he said that the DOJ is interested in learning who will be interviewed in an investigation because the government might like a particular issue asked during the interview or might like to interview the employee before investigating counsel. In general, Mr. Weissmann stated that the DOJ is looking for investigations that are “independent and candid.” Mr. Steward was more skeptical of the value of internal investigations because of what he described as an inherent conflict of interest. He stated that he must base a decision in a matter on evidence gathered and corroborated by his organization, not by a private law firm. Mr. Weissmann stated that internal investigations are particularly helpful in complex cases. For example, he stated that in large cases it could be difficult to determine who might actually have valuable information. Investigating counsel, he said, can help focus the DOJ on the right individuals so the government can use its resources in a targeted manner. As another example, Mr. Weissmann noted that many cases today have international components. In such matters, it can be difficult or time consuming to gather information from abroad through the MLAT process. Law firms, he noted, can be very helpful is assisting to get information and determine where further inquiry might be valuable.
(LED)
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Things are getting personal in U.S. v. Annappareddy. I posted here last week about this District of Maryland case in which the Government ultimately admitted to having presented false evidence to the trial jury, and grudgingly joined Defendant's new trial motion–granted the next day by Judge George Russell. Now the Government has admitted to "disposal" of certain documents while defendant's New Trial Motion was pending in March 2015. Annappareddy's current trial team was not notified of the disposal until August 19, 2016, and claims, in Defendant's Motion for Extension of Time to File Motions In Limine, that some of the destroyed documents were exculpatory in nature. No court order authorized the destruction at the time it was accomplished.
The DOD/OIG Evidence Review Disposal Sheet from March 11, 2015 states that AUSA Sandy Wilkinson determined that the items in question "were not used as exhibits in trial and would not be used in future proceedings against Annaparreddy." In other words, Wilkinson acted unilaterally, apparently consulting no one on the defense team before making her decision. The Government's response to the allegation is a footnote stating in part that "in early March 2015, after the trial, the government began to clean up papers and documents not used from the Washington Blvd collection and store the trial exhibits post- trial. The government began purging the contents of several unused boxes. These were items Defendant and his own attorneys had reviewed at length and were never marked as exhibits or used in any way by them at trial. Yet they couch their complaint again in the most accusatory of tones. "
Well, yes. Destruction of potential evidence prior to final judgment on appeal is quite rare, if not unheard of, in federal criminal practice. That an AUSA would do it on her own is remarkable. The Government's Response to Annappareddy's Motions to Limit Government Evidence complains further that Annappareddy's new lawyers don't play nice in the sandbox, unlike the original trial lawyers–you know, the ones who lost after the Government presented false testimony. That's right, Ms. Wilkinson. Lawyers tend to get angry when false testimony is put in front of the jury and potentially exculpatory evidence is destroyed.
The case is far more involved, and the issues more complex, than I can do justice to here. Annappareddy has moved to dismiss with prejudice and a hearing on that motion is set for September 1. Failing that, the defense wants to limit the Government's evidence at a new trial to the evidence presented at the first trial. One thing absent from the Government's papers that I have had an opportunity to review is any recognition of the emotional, financial, and strategic harm suffered by defendants when the Government screws up, forcing a new trial. It's as if Ms. Wilkinson wants a cookie and a pat on the back for deigning to agree that Reddy Annappareddy gets to go through the whole damn thing again.
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In June 2016, the U.S. District Court for the District of Maryland (Judge George Levi Russell III, presiding) granted Reddy Annappareddy a new trial on the grounds that the prosecutors presented false evidence to the jury at his first trial and that the outcome might have been different without the false evidence. This ruling is part of a remarkable turnaround for Mr. Annappareddy, whose case appeared to be over after the first trial ended in December 2014.
The case is captioned as United States v. Annappareddy, No.1:13-cr-00374 (D. Md.). The prosecutors’ main allegation during the first trial was that Mr. Annappareddy’s chain of pharmacies, known as Pharmacare, committed health care fraud by billing government insurance programs for prescriptions that were never picked up or delivered. The most significant evidence that the prosecutors offered in support of this allegation was a calculation of the purported “loss” from the alleged fraud. Mr. Annappareddy’s current counsel, Mark Schamel and Josh Greenberg of Womble Carlyle, began working on the case in the spring of 2015. In September 2015, they filed a Supplement to the one-and-a-half-page Motion for New Trial filed by Annappareddy's original trial counsel. The Supplement and a Reply in support of it argued, among other things, that the prosecutors presented materially false evidence to the jury on a number of important subjects in violation of the Due Process Clause.
After many months, during which the parties took depositions of trial counsel and Greenberg and Schamel filed extensive additional briefs raising troubling issues, the Court scheduled a hearing for June 3 on Annappareddy's Motion for New Trial. On the afternoon of June 2, the prosecutors filed a letter with the Court conceding that the "inventory analysis" it presented to the jury, in an effort to prove purportedly enormous losses caused by Annappareddy, was in "substantial error", rendering its own evidence "wrong", and violative of Due Process. The Government effectively joined Annappareddy's Motion for New Trial, which was granted the next day by Judge Russell during a status conference.
Judge Russell scheduled a second trial – to last eight weeks, three weeks longer than the first trial – to begin on September 19. Last month, the Court entered an Order denying the Government's motion to delay the second trial. The Order emphasizes that the Court granted a new trial because the prosecutors presented “significant material and false testimony” at the first trial and that the delay they sought “would be fundamentally unfair” to Mr. Annappareddy.
While government admissions of error are always welcome, one of the striking things about this case has been the prosecution's reluctance to admit that the evidence it presented to the jury was not just wrong or in error–it was false.
The defense recently filed a motion calling for dismissal with prejudice. Check this space for further details. The multiple briefs filed by Greenberg and Schamel since they entered their appearances represent outstanding work.
Here are some relevant documents pertaining to the case: a partial transcript from the U.S. v. Annappareddy 6-3-16 Status Conference; Judge Russell's 7-6-16 Order Denying Gov't's Motion for Modification of Trial Schedule; and the Government's Letter to Court Conceding that New Trial is Warranted.
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An interesting case is pending in the 11th Circuit that considers whether a breach of a real estate contract can be the basis for a wire fraud conviction. The case involves a failure to disclosure a sinkhole when selling a residence. There is a huge federalism question here that is magnified by the fact that Alabama "employ[s] the cannon of caveat emptor in real estate transactions." But the most interesting aspect of the case is the government's taking a civil action and using the wire fraud statute to prosecute the conduct. I'll withhold further comment until after I have seen the government's brief – but I have to wonder if this is the case that the late-Justice Scalia was waiting for to limit the reach of the mail/wire fraud statutes.
Appellant's Brief – Download Defendant-Appellant's Initial Brief
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McDonnell v. United States and Arthur Andersen v. United States are remarkably similar Supreme Court reversals. In both cases, aggressive federal prosecutors pushed obviously dubious jury instructions on all-too-willing federal district judges. In Arthur Andersen, Enron Task Force prosecutors convinced Judge Melinda Harmon to alter her initial jury charge, defining the term "corruptly." Judge Harmon's charge was right out of the form book, based on the approved Fifth Circuit Pattern Criminal Jury Instruction. The Government's definition allowed conviction if the jury found that Andersen knowingly impeded governmental fact-finding in advising Enron's employees to follow Enron's document retention policy. The 5th Circuit Pattern's requirement that the defendant must have acted "dishonestly" was deleted by Judge Harmon and the jury was allowed to convict based on impeding alone. Thus, at the government's insistence, knowingly impeding the fact-finding function replaced knowingly and dishonestly subverting or undermining the fact-finding function. This effectively gutted the scienter element in contravention of the standard Pattern definition. Local observers were not surprised by Judge Harman's ruling. Her responses to government requests are typically described as Pavlovian. Judge James Spencer, the trial judge in McDonnell, is also an old pro-government hand. Generally well regarded, he was a military judge and career federal prosecutor prior to ascending the judicial throne. In McDonnell, the government's proposed jury instructions regarding "official act" flew in the face of the Supreme Court's Sun Diamond dicta. They were ridiculously expansive, with the potential to criminalize vast swaths of American political behavior. In both cases, Andersen and McDonnell, the Supreme Court unanimously reversed. In both cases, careful attention to the law, even-handedness, and a willingness to stand up to the government would have saved taxpayer dollars and prevented human suffering. Careful attention to the law, even-handedness, and a backbone. That's what we expect from an independent federal judiciary.
MattBray.net 