Here is Judge Emmet Sullivan's Memorandum Opinion ordering unredacted release of Hank Schuelke's Report on prosecutorial misconduct in the Ted Stevens prosecution. Any comments or objections to the report by the attorneys involved are due by March 8 and will be published along with the Report.
Category: Prosecutions
-
Last week, after President Obama announced a purportedly new initiative, see here and here, to combat fraud, government law enforcement officials, criticized for their lack of activity, promised action in the very near future. It is not clear whether the indictment returned Wednesday in the Southern District of New York for crimes committed four years ago is the action referred to. It certainly is not an earth-shattering case.
On Wednesday, three former Credit Suisse traders were indicted for inflating the worth of collateralized debt obligations (CDOs) to avoid recognition of market losses and thereby increase their bonuses. See here.
The CDOs consisted of pooled, presumably at least in part subprime, mortgages that were sold to investors in packages by presumably reputable institutions with high ratings provided by presumably reputable credit agencies. The presence of large amounts of overvalued CDOs in firm inventories is considered by some a major cause of the financial crisis.
Unlike securities such as listed stocks, there was no liquid market for these mortgage securities and therefore no easily ascertainable market value. Some financial firms were hesitant to mark down these failing obligations because it would considerably decrease reported earnings. Here, it is alleged — and two of the three indicted have pleaded guilty — that the traders knowingly concealed the loss in value and secured a bogus evaluation from a friendly small investment bank in order to support the inflated value of the securities. The overvaluation — or failure to recognize the loss — resulted in increased compensation for the traders, whose year-end bonuses were based considerably on the profits of their groups.
This case is interesting for several reasons. It is one of the relatively few brought so far that concern alleged criminal wrongdoing after the financial crisis arose. Most previous criminal prosecutions involving failed mortgages have focused on the origination of mortgages and comparatively small-time people such as aggressive mortgage brokers, perjurious buyers and conniving lawyers, and not their securitization.
It is also one of the few instances in which employees of a major financial institution have been prosecuted criminally in a case related to the financial crisis. Nonetheless, it would be a stretch to say that this overvaluation, discovered and corrected by Credit Suisse in days, had a major impact.
This is one of the rare criminal accusations, to my knowledge, involving mismarking or deliberately overvaluing illiquid assets in order to inflate profits. These valuations have a major effect on the profit and loss statements of financial institutions, including hedge funds, and the consequent bonuses or incentive compensation of traders and managers. False marking, often using evaluations by supposed experts or comparable institutions of the worth of securities with no easily-defined market value, is an area which deserves more governmental scrutiny and probably more governmental legal action.
Of course, care must be taken to distinguish deliberate falsity from good faith but erroneous evaluation in this uncertain area.
(goldman)
-
Previously discussed here, was the cert petition filled in James A. Brown v. United States (11-783),a case that raises interesting questions regarding Brady. As noted, Brown, is a former Merrill Lynch executive who "was convicted of perjury and obstruction of justice for his testimony before the Enron grand jury about a transaction between Merrill and Enron in late 1999." An amicus brief has been filed in this case that includes several different defense groups and several leading law professors. They weigh in on the important question raised in this brief – the appropriate standard of review for Brady cases. Should it be "clear error" or should it be de novo.
The case also examines "materiality," a term that has creates some confusion. What must a prosecutor provide to the defense counsel. And isn't it odd that the adversary in the process is making the determination for what the defense is entitled to receive. The case looks at summaries being provided to defense counsel. Bottom line – summaries are not the same as the real thing.
Brief –Download NYCDL Amicus Brief – As-Filed
(esp)
-
President Obama's State of the Union Address spoke to many important issues. One was financial crime. He said "[w]e will also establish a Financial Crimes Unit of highly trained investigators to crack down on large-scale fraud and protect people's investments." (see full text Wash Po here). He later states, "[s]o pass legislation that makes the penalties for fraud count."
Some may recall that back in 2009 President Obama created the Financial Fraud Enforcement Task Force that had as its purpose "to hold accountable those who helped bring about the last financial crisis as well as those who would attempt to take advantage of the efforts at economic recovery." (see here) I am a bit uncertain how this existing body will or will not interact with the new Financial Crimes Unit, but the concept of further enforcement in this area sounds impressive. Perhaps more funding will be supplied to the SEC through this initiative so that they can properly regulate improprieties and avoid Ponzi schemes of the past. Perhaps more FBI investigators will be hired to work on building these cases. I applaud the President for this one – especially if he goes in this direction.
On the other hand, we really do not need new legislation to make "the penalties of fraud count." The legislation is there, and if one looks at the website of the Financial Fraud Enforcement Task Force, there have been a significant amount of prosecutions with existing statutes. (see here). The statutes are there -it is the money that is needed to make these difficult and often complex cases. Please don't add more to the already approximately 4,500 federal statutes out there.
So more regulatory oversight, more prosecutors and SEC folks working on financial matters will help. But the legislation and penalties are already there. I look forward to seeing this Financial Crime Unit up and running and cracking down on improprieties in our financial world.
(esp)
-
Attorney Jack Fernandez (Zuckerman Spaeder LLP) has an interesting Essay for the the ABA's White Collar Book entitled, An Essay Concerning the Indictment of Lawyers for Their Legal Advice. It is here – Download 3533275_1 DOCX (3) (3)
(esp)
-
Professors Brandon Garrett and Jon Ashley have an incredible new website that is a library of 1495 federal corporate plea agreements in which an organization was convicted. They intend to update this collection of agreements. The site has the agreements by date, U.S. Attorney Office district and name. The site also provides links to other helpful data concerning corporate convictions. This is an amazing website that provides a wealth of information.
(esp)
-
The Second Circuit Court of Appeals vacated the judgment and remanded a white collar case (United States v. Collins) saying that "the trial court committed prejudicial error when it failed to disclose the contents of a jury note and engaged in an ex parte colloquy with a juror accused of attempting to barter his vote." The three "c"s – judges with last names starting with the letter "C"- Calabresi, Chin and Carney - issued this opinion in a 14-count case involving conspiracy, securities fraud, wire fraud, and bank fraud. The foreman had sent a note to the court "asserting that one juror had attempted to barter his vote and was refusing to deliberate." "The court did not share the contents of the note with the parties or seek counsel's input before it conducted an ex parte interview with the accused juror." The Second Circuit held that the defendant was deprived "of his right to be present at every stage of the trial" and that this "deprivation was not harmless."
See also Chicago Tribune (AP), Winnetka lawyer wins new trial on NYC appeal
Mark Hamblett, NYLJ, Circuit Upsets Fraud Conviction of Ex-Mayer Brown Partner
(esp)(w/ a hat tip to Linda Friedman Ramirez)
-
A 5th Circuit panel (including Chief Judge Edith Jones!) unanimously reversed two Section 1956 money laundering convictions based on insufficient evidence. The case is U.S. v. Harris (5th Cir. 2012) (Section 1956 money laundering evidence insufficient). The reasoning? The government conflated the underlying crime with the separate crime of money laundering. The proven transactions were not proceeds of specified unlawful activity. The evidence only showed "payment of the purchase price for drugs. Money does not become proceeds of illegal activity until the unlawful activity is complete. The crime of money laundering is targeted at the activities that generally follow the unlawful activity in time."
-
Hat tip to Scott Greenfield of Simple Justice for his outstanding post on Judge James B. Zagel's unfortunate public criticisms of one of Rod Blagojevich's criminal defense attorneys, Lauren Kaeseberg. Kaeseberg had the temerity to file a post-judgment Emergency Motion For Evidentiary Hearing Regarding Potential Juror Misconduct, based on news reports that the Blagojevich jury foreperson was publicly displaying her juror questionnaire, arguably in violation of a prior court order. Zagel denied the motion from the bench, calling it "harebrained," according to the Chicago Sun-Times' Abdon Pallasch. The Lake County News-Sun, picked up the "harebrained" comment and placed it in the headline of its story about the ruling. Above the Law piled on with a frivolous post, and Kaeseberg has apparently been taking additional criticism on her web site. You can read the Emergency Motion above for yourself and draw your own conclusions. On its face, I see absolutely nothing wrong with it.
Judge Zagel also hit Kaeseberg, sworn in as an attorney in 2008, with the following zingers:
"The motion was prepared without any adequate thought." It looks thoughtful enough to me. Sometimes criminal defense attorneys, particularly in the post-sentencing, pre-notice of appeal context, have to move swiftly in order to obtain a fact-finding hearing, make a record, and/or preserve error.
"[The filing was] beyond my imagination." That's not exactly the legal standard.
"You should seek outside counsel…and send a letter of apology to the juror." Why? The Emergency Motion was temperate in its discussion of the foreperson, who "has made many public appearances since the verdict…touting her decision and role in the Blagojevich jury."
"By the absence of precedent, I assume you couldn't find precedent." As Greenfield correctly points out, lawyers don't always have on-all-fours (or, as they say in Chicago, "white horse") precedent at hand. The dedicated, imaginative lawyer works with principles and analogous cases and tries to make new precedent. It's called lawyering.
Pallach also reports Judge Zagel saying that he "could hold Kaeseberg in contempt of court but was cutting her slack because she was a fairly new lawyer." On its face, the motion does not seem to be improper at all, much less contemptuous. Perhaps there is some backstory here that we are not aware of. The press seldom reports everything. But this is a serious public allegation for a federal judge to throw at a young lawyer, particularly given the unexceptionable nature of the Emergency Motion.
Ms. Kaeseberg defended her motion in the press. She stands by it. She is proud of it. Good for her. She has guts. She should wear Judge Zagel's criticisms as a badge of honor.
MattBray.net 