The Department of Justice announced the indictment of five more defendants for fraud involving the Coalition Provisional Authority-Southern Command in Iraq.  Three were senior Army officers, Colonel Curtis G. Whiteford and Lt. Colonels Debra M. Harrison and Michael B. Wheeler, and two are civilians, Michael Morris and William Driver; Harrison and Driver are married.  A press release (here) discusses the charges in the 25-count federal indictment filed in New Jersey:

Whiteford, once the second-most senior official at CPA-SC, was charged with one count of conspiracy, one count of bribery, and 11 counts of honest services wire fraud. Harrison, at one time the acting Comptroller at CPA-SC who oversaw the expenditure of CPA-SC funds for reconstruction projects, was charged with one count of conspiracy, one count of bribery, 11 counts of honest services wire fraud, four counts of interstate transport of stolen property, one count of bulk cash smuggling, four counts of money laundering, and one count of preparing a false tax form. Wheeler, an advisor for CPA projects for the reconstruction of Iraq, was charged with one count of conspiracy, one count of bribery, 11 counts of honest services wire fraud, one count of interstate transport of stolen property, and one count of bulk cash smuggling.

Three others involved in the case have already entered guilty pleas, with Robert Stein, the former comptroller for the CPA-SC, sentenced to nine years in prison. According to the indictment, Harrison and Driver "allegedly received a Cadillac Escalade as a bribe and used tens of thousands of dollars for improvements to their home in Trenton. Whiteford allegedly received at least $10,000 in cash, a $3,200 watch, a job offer from [a coconspirator], and other valuables." (ph) 

In a criminal prosecution, it’s important for the government to think through the theory of its case at the start and not shift things around once the evidence is in.  That is certainly not what happened in United States v. Milwitt, a bankruptcy fraud case in which prosecutors did not prove the theory charged in the indictment, leading to a reversal of the conviction by the Ninth Circuit.  John Milwitt engaged in a rather simple scheme by buying an ad in the local San Francisco Yellow Pages advertising himself as a landlord-tenant attorney when in fact he had never gone to law school.  He attracted several clients who were having problems with their landlords.  He had them withhold their rent payments and secretly filed bankruptcy petitions on their behalf, listing the cases as pro se filings.  As these things are wont to do, the scheme unraveled and he was charged with fraud, in this case bankruptcy fraud in violation of 18 U.S.C. Sec. 157.  That provision, enacted in 1994, makes it a crime to engage in a scheme or artifice to defraud by filing a bankruptcy petition, a different offense than than the older bankruptcy crime statute, 18 U.S.C. Sec.152, which reaches misstatements to the bankruptcy court.  The government’s indictment alleged that Milwitt defrauded the landlords of their legal right to the rents, but at trial the evidence was that the tenant-clients were the victims of the scheme because the landlords lost nothing that they were otherwise entitled to receive.

The Ninth Circuit reversed the conviction (here), noting that Sec. 157 is similar to the mail and wire fraud statutes.  According to the opinion, "The specific intent to deceive or defraud element of the mail and wire fraud crimes requires the prosecution to prove that the defendant intended to defraud an identifiable individual."  The court found that the variance between the indictment’s allegations that the landlords were the victims and the proof that the tenant-clients were the victims meant the government had not introduced sufficient evidence for the conviction, resulting in a reversal with no retrial of the charge.  The Ninth Circuit held:

[W]hen the government rested its case, it had presented no proof that there was a scheme to defraud the landlords, much less that the bankruptcy petitions had been filed as a means of executing or concealing the scheme. Rather, the evidence showed that the tenants were likely justified in not paying the landlords; that the fraudulent scheme was one by Milwitt to deprive the tenants of money by fraudulently representing to them that he was representing their interests against the landlord; and that the purpose of the bankruptcy filing was to conceal the fraud from the tenants.

While the government likely could have convicted Milwitt under Sec. 152 for making false statements to the bankruptcy court, and perhaps even the mail and wire fraud statutes if it identified the tenant-clients as the victims, in this case its use of the bankruptcy statute may have made the case more complicated than it should have been.  Milwitt is a good lesson in the need to prove the crime that is charged. (ph)

When the Tenth Circuit recently reversed the convictions of former Westar CEO David Wittig for securities fraud and false statements, it appeared that he would have clear sailing out of the FCI in which he has spent the past year.  Wittig was first sent to jail for a bank fraud conviction not directly related to Westar in early 2006, for which he received a five-year prison sentence. On a second appeal of that sentence, the Tenth Circuit held that the district court improperly calculated the amount of loss, finding that the proper sentencing range was 0-6 months; the court rejected the government’s argument that the sentence would have been the same, stating that a "dramatic variance" ten times greater than the Guidelines sentence required a remand for resentencing (see opinion here).  Wittig has served more than the presumptive Guidelines sentence, and requested immediate release.  With the reversal of the Westar fraud convictions, Wittig appears to have a good argument that he should be released, but U.S. District Judge Julie Robinson has ordered resentencing on the bank fraud charge in early February, so Wittig gets to wait in prison longer before learning when he will be released.  A report (here) states that federal prosecutors have asked Judge Robinson to resentence Wittig to a five-year term, despite the Tenth Circuit’s Guidelines analysis.  Prosecutors have not announced whether they will retry Wittig on the Westar charges that were only reversed but not barred by double jeopardy.

As is so often the case in these kinds of white collar prosecutions, there is a raft of civil litigation between the former executive and the company.  A Wall Street Journal story (here) states that Westar has already paid $8.4 million of Wittig’s attorney’s fees, and he is claiming another $12 million.  Most companies have generous reimbursement policies, and the reversal of the conviction may well entitle Wittig to payment of a significant portion of the claimed fees.  In addition, Wittig has a $52 million claim under a severance agreement with the company, and the Tenth Circuit’s decision on the Westar fraud charges likely strengthens his case.  With that much money at stake, look for the fight to continue. (ph)