White Collar investigations can last for years, often with continued pressure upon the person being investigated. So seeing a holiday plea is no surprise – after all it brings a finality. See DOJ Press Release,
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Category: Investigations
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Federal prosecutions of white collar crime have been the norm for many years. And the New York Attorney General's Office under Spitzer and now Cuomo made it a part of their workload (see here). But recently we see more and more states are making white collar investigations a priority. We have seen it in Florida (see here) and Ohio (see here). Indiana, now. appears to also be stepping up its white collar prosecutions. Jon Murray, Indystar.com reports on how the "4-person unit in state Securities Division has helped with 44 cases since '07." (see here) (w/ a hat tip to Ted Gest)
With a decreased media bringing to light public corruption and state white collar crimes, it is important that individual states step to the plate and provide increased prosecutions of state and local white collar crimes.
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The letter below was written in April 2009, but it surfaced for me this past week – – It's a letter from Hon. Emmet G. Sullivan to Hon. Richard C. Tillman, chair of the Judicial Conference Advisory Committee on the Rules of Criminal Procedure. It's a powerful letter that states:
"I write to urge the Advisory Committee on the Rules of Criminal Procedure (the "Rules Committee") to once again propose an amendment to Federal Rule of Criminal Procedure 16 requiring the disclosure of all exculpatory information to the defense."
Letter –Download Exhibit B – Judge Sullivan Letter
Although the Stevens case was dismissed by AG Holder, and one should applaud him for this move, discovery violations need to have a legal basis for rectifying the wrong (after all, we may not have AG Holder in perpetuity). As stated by Hon. Sullivan:
"A federal rule of criminal procedure requiring all exculpatory evidence to be produced to the defense would eliminate the need to rely on a 'prudent prosecutor' deciding to 'err on the side of transparency, …, and would go a long way towards furthering 'the search for the truth in criminal trials' and ensuring that 'justice shall be done.'" (citations omitted)
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The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) emphasizes transparency, but it did take me some time to find the website that told me what was going on in this office. It is easy if you put SIGTARP into Google, but not so easy – at least for me - if you try and find it within the Treasury Department website. For those who are looking, you'll find it here. The office issued its Quarterly Report here. It states in part:
SIGTARP’s Investigations Division has developed into a sophisticated whitecollar investigative agency. Through September 30, 2009, SIGTARP has opened 61 and has 54 ongoing criminal and civil investigations. These investigations include complex issues concerning suspected TARP fraud, accounting fraud, securities fraud, insider trading, bank fraud, mortgage fraud, mortgage servicer misconduct, fraudulent advance-fee schemes, public corruption, false statements, obstruction of justice, money laundering, and tax-related investigations. While the vast majority of SIGTARP’s investigative activity remains confidential, developments in several of SIGTARP’s investigations have become public over the past quarter . . .
I am not impressed with the statement that resulted in Huffington's Post headline that TARP Fraud Probes Have Tripled Since April, Says Watchdog. The numbers should be increasing enormously - after all this is a relatively new office. But it is good to see that this office is getting off the ground, being staffed, and now moving to stop fraud occurring in the use of TARP funds.
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Guest Blogger: Peter D. Hardy, Post & Schell, P.C. (Philadelphia, PA)
Moderator: Gerald B. Lefcourt
Panelists: Robert Cary, Hon. Nancy Gertner, Prof. Bruce Green, Paul Shechtman, Larry Thompson
Gerald Lefcourt noted that it has been over 46 years since the Brady decision was issued, yet we still have no firm definition of Brady that most federal prosecutors can follow. There are varying and conflicting practices amongst prosecutors in regards to definitions and the proper time frame for disclosures. Moreover, incidents of Brady violations or potential violations are not uncommon.
Robert Cary represented Senator Ted Stevens. The heart of the defense was a note that Senator Stevens had sent to Bill Allen, the key government witness and the builder making improvements on the Senator’s chalet, which stated in part that the Senator wanted to make sure that Allen got fully paid, and that “friendship is one thing, but compliance with these ethics rules is another[.]” The government responded to this note by eliciting testimony from Allen that the note was just the Senator trying to concoct a cover story. After the guilty verdict, the second FBI agent on the case filed a self-described whistleblower complaint regarding conduct by the prosecution team. The Court ordered the government to provide discovery regarding the complaint, and a new prosecution team was put in place. New discovery contradicted directly the government’s theory and evidence at trial that Allen regarded the note as a mere cover story. Carey described the Attorney General as a hero for moving to dismiss the case. All of this happened only after a long trial and post-trial process (as well as Senator Stevens losing his re-election bid). Judge Sullivan, who oversaw the case, is to be commended for being careful and not simply taking the government’s word.
So, what should be done? Judge Gertner explained that the solution needs to involve the rules (ethical, court, and criminal procedure). The case law has slid into an outcome-determinative approach, which makes it very hard for the prosecutor to predict. The materiality standard is colliding with the harmless error doctrine. Brady had more to do with a failure to turn over evidence impugning the system, rather than predictions regarding potential outcomes. The definition of Brady should be re-assessed, and there also should be deadlines set for when information should be turned over: for example, 28 days before.
Professor Green described how the ABA code of ethics set forth in the 1970s a discovery rule for prosecutors: you must turn over information that would tend to negate the guilt of the accused. Everyone had assumed that this rule overlapped with Brady. But, the rule is not co-extensive with Brady – for example, it does not have a materiality standard. Rather, it categorically requires the disclosure of favorable information, or information which might lead to favorable evidence. A materiality test is really directed at post-conviction review, and is not well suited to govern the conduct of prosecutors at the time they are making their discovery decisions. Defense attorneys also need to know about exculpatory information in order to assess a case and decide whether or not to proceed to trial.
Paul Shechtman described federal plea agreements in New York which require waivers by the defendant of either impeachment and/or all exculpatory information. These plea waivers apparently run afoul of the rules just described by Professor Green. Current cases strongly suggest that prosecutors need more education regarding their obligations under Brady, in order to be better able to appreciate the exculpatory value of evidence. We need to reassess Brady, which has been hijacked by the materiality doctrine. The burden now is on the defendant to show materiality. In Brady, Justice Marshall wrote in dissent that the test instead should be harmless error, in which the government has the burden to show that the conviction should not be reversed. The materiality requirement invites courts to preserve convictions, despite poor decisions and poor decision-making processes by prosecutors.
Larry Thompson described a case in Detroit in which the prosecutor made false statements to the Court, and actually was prosecuted himself. Judge Gertner noted that part of the problem here is lack of meaningful remedies. There is professional discipline, but discipline is unlikely.
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Guest Blogger: Ivan J. Dominguez, Assistant Director of Public Affairs & Communications, National Association of Criminal Defense Lawyers
Keynote Address: Lanny A. Breuer, Assistant Attorney General, Criminal Division, U.S. Department of Justice*
Assistant Attorney General of the Criminal Division Lanny A. Breuer traveled from Washington, D.C., to deliver a lunchtime address to NACDL’s 5th Annual White Collar Seminar at Fordham Law School in New York City.
Breuer, who was confirmed almost six months ago, repeatedly emphasized his admiration for the professionalism and commitment of career prosecutors. He shared his perspective that, as a general proposition, career law enforcement officials have an “abiding commitment to the highest standards of ethical conduct.” He also told of how he recently returned from Mexico City where he met with a U.S. resident legal adviser and said that it is his goal to meet all resident legal adviserss around the world.
The focus of his talk was an overview of some of the DOJ’s, and specifically the Criminal Division’s, law enforcement priorities, stating that “the risks we face from white collar criminals have never been greater.” This is so, he said, because of the ever-growing sophistication of white collar criminals combined with a financial intervention by the government “on a massive scale…unparalleled in our history.” “We’ve already seen egregious instances of fraud and abuse on the road to [economic] recovery,” he said.
Breuer specifically identified the “unprecedented amounts” that Congress has made available to facilitate recovery as giving rise to the government’s focus here. Indeed, he further explained that Congress has expressed its concern that government be vigilant as it guards against those who would take advantage of the $787 billion American Recovery and Reinvestment Act. In order to accomplish its goals in the face of these challenges, Breuer explained that his mantra is that the Department be “smart, nimble and focused” in fighting white collar crime. Specifically, throughout his speech he emphasized (i) the importance of interagency cooperation and collaboration and (ii) the value of using vast storehouses of data to drive the Department’s work.
Breuer also individually explored the following “white collar crime priorities”: health care fraud, financial fraud (including mortgage fraud) and public corruption.
On the topic of health care fraud, which he called “particularly severe,” Breuer said that much of the $800 billion dollars per annum that the government spends on Medicare and Medicaid is lost to “waste, fraud and abuse,” which he estimated at a minimum of 3% of those expenditures. In this context, interagency efforts are being pursued in what he characterized as an “innovative, data driven approach.” For example, pointing to multiple recent indictments in Detroit, Mich., he said that government investigation is driven by data such as information about which geographic areas have higher Medicare billing. He promised that such enforcement action will be spreading to new cities, explaining that government data shows that Medicare billings go down after the strike force goes into cities.
“Nowhere do you see [interagency] collaboration as much as in [financial fraud] arena,” Breuer said. In the area of mortgage fraud, he said that the Department is focused on those exploiting the most vulnerable homeowners among us.” He pointed to the National Mortgage Fraud team’s access to a “warehouse” of FBI data to aid in their work, explaining that the team at the FBI has developed sophisticated techniques with the data and that law enforcement is using this intelligence to combat mortgage fraud in “a very targeted” way.
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Guest Blogger: Linda Friedman Ramirez, P.A. (Tampa St. Petersburg, FL)
Panel Moderator: Abbe David Lowell
Panelists: Robert Trout, Karen Patton Seymour, Reid Weingarten, and Edward Genson
NACDL's 5th Annual White Collar Crime Conference kicked off today with the Pay to Play
panelists jumping into a thorough discussion of the key issues in the
defense of a public corruption case via a hypothetical created by panel
moderator Abbe Lowell.Quick Overview of the Hypothetical – Alice Adams, the Democrat Maryland
Speaker of the House, is also a civil attorney. Her firm Murphy andSchaeffer also has a lobbying practice. Her Chief of Staff Bruce Bannon is an attorney in private practice but has no office. Funhouse hires Murphy and Schaeffer
to promote gambling legislation in Maryland. Alice earns a percentage
of her law firms fees. She introduces and fast tracks legislation to
legalize gambling. In an ethics form regarding outside employment, she
discloses Murphy andSchaeffer but does not discuss specific clients. Funhouse CEO also hires Bannon
for personal estate planning work and essentially pays him $50,000 for
a will. There is a federal and state joint investigation and grand jury
subpoenas are issued for records investigating allegations of bribe,
theft of honest services, and wire fraud.The panel agreed that attorneys are needed for all individuals and
entities subpoenaed. The first question is whether joint defense
agreements are more problematic than helpful. There seemed to be a
consensus that there might be some benefits, particularly when working
with attorneys with whom there has been no prior experience or quirky
clients, but most panelists expressed reservations about their use.Next up – the panelists discussed the subpoena for records relating
to the legislative process and the Speech and Debate privilege. Who
asserts? The panel propounded on the importance of collaboration
between the attorney for Alice and the attorney for House. Also, how to
handle keeping back documents that may be privileged and the concept of
using a privilege log? TheDOJ’s view of the Speech and Debate clause is in a great deal of flux, and DOJ’s view has changed radically. Further, if it is a federal subpoena does this change anything? And how does the counsel for Funhouse
handle its own subpoena? The four panelists explored the issues
relevant to subpoenas for contribution records and the intersection
with the First Amendment.Another important issue for practitioners is how to respond to precharge
or pretrial publicity in high profile cases, including responding to
questions by investigative reporters. Clients often have a strong
desire to speak to the public. Different responses from the panelists:
give clients a limited script; have the attorney act as spokesperson —
though that raises the concern for attorneys of moving into the realm
of public relations; hiring surrogates.Also, what happens if a client wants to make his case to the
prosecutor? Is this a good strategy? Of course the most important
issues are whether the facts are sufficient for a prosecution pursuant
to 18 U.S.C. 1346? Is conflict of interest + non-disclosure enough
under this statute? This was the meat of the panel and the discussion
was exciting and demonstrated the knowledge of the panel. Also,
Moderator Abbe Lowell injected into the discussion 18 U.S.C. 666, which
is the jurisdictional statute for prosecution of offenses committed by
state public officials and the requirement of a connection with the
receipt of federal funds 18 U.S.C 666 (b).By the close of the panel it was clear that an hour and a half was not nearly enough time to explore this topic!
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The Ninth Circuit Court of Appeals issued a decision in United States v. Ruehle,a case that opens by saying "[w]e here explore the treacherous path which corporate counsel must tread under the attorney client privilege when conducting an internal investigation to advise a publicly traded company on its financial disclosure obligations." The lower court had suppressed "all statements from former CFO William J. Ruehle to attorneys from Irell & Manella LLP, Broadcom's outside counsel, regarding the stock option granting practices at Broadcom." In reversing this decision, the Ninth Circuit, rejected the lower court finding that Ruehle "had a reasonable belief that Irell and Manella were his lawyers prior to the June 1, 2006 interrogation by Irell, and that he never gave informed written consent, either to the dual representation by Irell or the disclosure of privileged information to third parties…" The Ninth Circuit found that the lower court had "applied a liberal view of the privilege that conflicts with the strict view applied under federal common law, which governs here." The Ninth Circuit stated that it "reject[s] the district court's contrary finding that an expectation of confidentiality was established because, upon review of the record, we are left with the 'definite and firm conviction that a mistake has been committed' and thus we determine that this factual finding was clearly erroneous." Some thoughts on this decision:
- Although at first glance it may seem like the Ninth Circuit is usurping a factual finding of the lower court, there is more to this picture - it is factual finding, yes, but one that had been determined by a different legal standard. What is interesting here is that the Ninth Circuit chose not to remand to the lower court when changing the operative standard for determining the issue. On the other hand, the court's decision implies that the evidence does not create a factual question.
- Every corporate officer needs to be aware that statements made during an internal investigation may end up in the government's lap. One can't always count on an attorney client privilege to protect these statements.
- Outside counsel's job in conducting internal corporate investigations may have just been made more difficult as one wonders if corporate officers will want to cooperate in corporate counsel's internal review.
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Noted here is a discussion of the recent death of an individual who was indicted and had plead guilty in a case related to former Governor Blagojevich. This fundraiser for Blogojevich was facing yet another trial and also the threat of a sooner incarceration (see TalkLeft here). Today Edvard Pettersson and Jeran Wittenstein of Bloomberg report on the death of Danny Pang, the indicted founder of Private Equity Management Group, Inc. See Danny Pang Autopsy Shows No Foul Play, Coroner Says
The death of an individual facing indictment, under the strain of an investigation, or being subjected to pressure by the government to cooperate, is nothing new. With increased possible penalties for white collar offenses one has to be concerned about seeing more of these incidents. Sadly, individuals facing these investigations and ramifications garner little if any support from the general public. But perhaps an investigation and compiling of these incidents is warranted.
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Addendum – Chicago Breaking News Center –Christopher Kelly may have taken rat poison
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The investigation into what happened that allowed a Bernie Madoff fraud to exist is now complete and the bottom line is that there was no corruption on the part of SEC personnel. But the sad fact is that the ball was dropped on more than one occasion. The Executive Summary of the report states:
"The OIG investigation did not find evidence that any SEC personnel who worked on an SEC exmination or investigation of Bernard L. Madoff Investment Securities, LLC (BMIS) had any financial or other inappropriate connection with Bernard Madoff or the Madoff family that influenced the conduct of their examination or investigatory work." ….
"The OIG investigation did find, however, that the SEC received more than ample information in the form of detailed and substantive complaints over the years to warrant a thorough and comprehensive examination and/or investigation of Bernard Madoff and BMIS for operating a Ponzi scheme, and that despite three examinations and two investigations being conducted, a thorough and competent investigation or examination was never performed."
Chair Mary L. Schapiro (to my chagrin, the SEC continues to list her as chairman) issued a press release that acknowledges "that the agency missed numerous opportunities to discover the fraud." It is impressive that the agency is recognizing the importance of transparency here, recognizing the importance of learning from past mistakes, and recognizing the importance of putting into place a set of controls that will keep this from happening again.
This is indeed a sad chapter, and one that hopefully will never be repeated. It probably serves little to assist those who were the victims of this fraud, but it does represent the importance of presenting to this country and the outside world that the US is going to crack down and regulate fraud with sufficient scrutiny.
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Addendum – Amir Efrati, WSJ Blog, A First Look at the Big Ol’ Madoff SEC Report
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