White Collar Crime Prof Blog

Representing Iraq Contractors Looks Like the Next Source of Lawyer Full Employment

As the investigations of corporate options backdating wind down, the next source of cases for the white collar crime departments at major firms is appearing on the horizon: investigations of companies that received contracts as part of the Iraq rebuilding effort.  As discussed in an earlier post (here), the Department of Defense Inspector General will be heading to Iraq with a team to look into the award of billions of dollars worth of contracts, and Capitol Hill will be conducting hearings on the contracts.  According to a story in The National Law Journal (here), "The war in Iraq has an army of high-profile attorneys working to steer defense contractors through a minefield of lawsuits and federal investigations involving war profiteering and fraud."  Here is the primary selling point to firms facing increased scrutiny: "The first step in surviving a government inquiry: Get the right lawyer."  Well, of course that's what you have to do, silly, and don't ask how much it will cost, because you can't really know and probably won't want to think about it as the bills for a cadre of lawyers for the company and individual officers come rolling in. (ph)

Couple Plead Guilty to Insider Trading Charges

A former vice president at Morgan Stanley and her husband, a former analyst at a hedge fund, pleaded guilty to conspiracy and insider trading charges.  The defendants had been charged earlier this year with making over $600,000 on trading in three companies based on tips from the wife to the husband, who bought the securities through an account in the name of her mother.  The defendants agreed not to appeal a sentence between 30 and 36 months, which means they will each be serving a substantial term of imprisonment.  A story on CNN.com (here) discusses the guilty pleas. (ph)

Saks Settles SEC Accounting Investigation

High end retailer Saks Inc. settled an SEC accounting reporting and books-and-records complaint (here) by agreeing to a permanent injunction, but it will not have to pay a civil penalty for the accounting irregularities.  The problems occurred from the mid-1990s until 2003 at its Saks Fifth Avenue division, and involved improper accounting for vendor allowances and deferrals of product markdowns to pump up income.  According to the SEC Litigation release (here):

One of the practices involved the intentional understatement, by the SFAE [Saks Fifth Avenue Enterprises] buyers to vendors, of the sales performance of the vendors' merchandise. Based on that misinformation, SFAE collected from the vendors millions of dollars in "vendor allowance" payments to which the Company was not entitled. Over a dozen SFAE employees participated in the vendor allowance over-collection practice, which continued for at least eight years, from 1996 until 2003.

The second deceptive practice involved the improper deferral (or "rolling") of permanent markdowns from one period to another at SFAE. Permanent markdowns were the means by which Saks recognized that inventory on the sales floor could not sell at the existing retail price, i.e., was impaired. The effect of a permanent markdown on Saks' financial statements was to reduce the value of all inventory subject to the markdown on Saks' balance sheet and also to increase its expense for cost of goods sold, thus reducing the net income reflected on the Company's income statement. Thus the improper rolling of markdowns resulted in Saks' overstatement of its inventory and net income in some reporting periods from which permanent markdowns were deferred.

The decision not to impose a monetary penalty against Saks is part of a continuing trend in which companies are allowed to settle SEC actions involving accounting with no additional financial consequences to the company when the harm from the misconduct has already hit investors with a decline in the stock price. (ph)

50 Months for Tax Evasion

A former Wall Street investment banker received a 50-month prison term after his conviction on tax evasion charges related to the use of tax shelters back in the 1970s and 1980s.  The tax evasion occurred from 1977-1985, and the case involved the defendant's continuing efforts to avoid paying taxes after a determination of the amount owed.  In addition, among other charges was a claim that the defendant did not pay the required "nanny tax" for a live-in household employee, the reporting problem that tripped up President Clinton's first nominee for Attorney General back in 1993 -- remember those quaint old days when that was the biggest issue facing the Department of Justice?  A press release on the sentencing issued by the U.S. Attorney's Office for the Southern District of New York is available below. (ph)

Download josephberg_sentencing_press_release_usao_sdny_sept_5_2007.pdf

SEC Insider Trading Investigation Goes International

The SEC's insider trading investigation of questionable options purchases in Placer Dome in October 2005 has taken an international turn as the Commission is seeking authority to interview witnesses in Canada, the U.K., and the Isle of Man.  On October 31, 2005, Barrick Gold Corp. made a hostile offer for Placer Dome, and as happens in so many deals, there was questionable trading in Placer Dome before the announcement.  Both companies are headquartered in Canada, and the SEC recently made a filing in federal court in New York seeking judicial authorization to require witnesses outside the United States to testify in its investigation.  The SEC filed an "unknown traders" suit on November 3, 2005, to freeze the $3 million proceeds of the Placer Dome options trading (see SEC Litigation Release here), and has identified the primary investor in Toronto.  The SEC is now trying to trace who might have been the source of the information. 

While the federal court has subpoena authority to compel witnesses to appear in the U.S., the Commission has to resort to the foreign courts and foreign securities regulators to obtain evidence abroad.  In its filing, the Commission cited an e-mail sent on October 23, 2005, by the Toronto investor who purchased the Placer Dome call options that states, "I hear from the Swiss lads that G is running at PDG. Act accordingly."  "G" is the ticker symbol for Barrick Bold, and "PDG" the symbol for Placer Dome.  There's more than a little smoke coming from that e-mail, which likely means a criminal investigation for insider trading.  A Globe and Mail story (here) discusses the SEC filing. (ph -- with thanks to YH)

Doolittle Staffers Subpoenaed

Two staffers for Rep. John Doolittle (R. California) have been subpoenaed to testify before a grand jury.  According to the press (Fox here) the investigation stems from lobbyist Abramoff's investigation and later conviction. In April, Rep. Doolittle's home in Virgina was searched.   (See Washington Post here and blog here).

(esp)

Former Broward County, Florida Sheriff to Plead Guilty

The Miami Herald reports that former Broward County, Florida, Sheriff Ken Jenne, will plead guilty today to charges of conspiracy to commit mail fraud and tax evasion.

(esp)

Oscar Wyatt Trial to Begin Today

Oscar Wyatt's trial starts today.  The indictment against the 83 year old businessman comes out of an investigation of the U.N. oil-for-food program. Wyatt faces charges claiming that he paid kickbacks to individuals in "Saddam Hussein's regime to win contracts under the United Nations' oil-for-food program."   (See Houston Chronicle here and here)  For background on this case and other matters related to the oil-for-food program see here, here, and here. Tom Kirkendall at Houston Clearthinkers has a copy of the Indictment here and some background here.

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Government Corruption in Iraq

NPR's All Things Considered had a program on government corruption in Iraq. The focus of this program is a draft report obtained by NPR in which U.S. investigators discuss the effect of corruption on government resources in Iraq.

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ABA/ABA Money Laundering Conference

The American Bar Association and the American Banker's Association have a upcoming Money Laundering Enforcement conference.  The keynote speech will be given by Robert Mueller, the Director of the FBI. For details see here.

(esp)

11th Circuit Checks Government Power in a 5K1.1 Decision

The 11th Circuit came down with a case that has an interesting 5K1.1 issue. Although the case itself is not a white collar case, the holding clearly could apply in this context.  The 11th Circuit reversed and remanded a case (U.S. v. Dorsey) where the accused argued that he was denied the government's filing of a 5K1.1 motion when he decided to proceed to trial. The court stated:

"We have not previously considered whether the government’s refusal to file a § 5K1.1 motion because the defendant exercised his right to a jury trial constitutes an unconstitutional motive. We now hold that it does, but we are unable to determine whether that is what took place in this case because of insufficient fact-finding at the district court."

The court also stated:

"Accordingly, we agree with our sister circuits and hold that refusing to file a section 5K1.1 motion in retribution for exercising the Sixth Amendment right to a trial by jury is an unconstitutional motive under Wade."

The court remanded the case for fact finding to determine whether there was an improper deprivation of the filing of a 5K1.1 motion. The opinion can be found here.  Attorney Mark P. Rankin's (Carlton Fields) Brief can be found at 2006 WL 4471028.

(esp)

ABA Webcast on the McNulty Memo

"Corporate Representation after DOJ's McNulty Memo: The Implications of DOJ Policy for White Collar Defenders, Internal Investigators, Civil Litigators and Everyday Business Advisors."

The program will bring together experts to explain the McNulty Memo, its background and meaning for practitioners in white-collar prosecutions, internal investigations, civil litigation, and everyday corporate practice. Our faculty will offer insight into how DOJ is actually implementing the McNulty Memo, its significance for other government agencies, how lawyers are practicing in light of it, and how critics are taking steps to achieve further restraints.


For more details see here.

(esp)

Conviction in Health Fraud Case Involving Compounded Aerosols

A DOJ Press Release reports that following a seven day trial in Miami, Florida, "[t]he owner and operator of a Florida durable medical equipment company and an assisted living facility has been convicted by a federal jury."  She was convicted of "conspiracy to defraud the U.S. government, to submit false claims to Medicare, and to receive kickbacks; conspiracy to commit health care fraud; and three counts of receiving kickbacks in exchange for referring patients to a co-conspirator pharmacy."  Sentencing is set for November 9th.

The case involved “compounded” aerosols. The press release notes that "[c]ompounding is the process of a pharmacist making medication as opposed to a pharmaceutical manufacturer."  The press release states that:

"In 2006, the Medicare program paid for over $155 million worth of aerosol medications in Miami-Dade County alone. These drugs amassed the single most common item billed to Medicare Part B and accounted for over 32 percent of all claims filed with the Durable Medical Equipment Regional Carrier (DMERC) in Miami-Dade County. From 2005 to 2006, claims for aerosol medications rose approximately 115 percent. According to Medicare data, Miami-Dade County alone accounted for more paid DME claims than every state in the country except California, Texas, New York, Michigan, and Ohio.

"Centers for Medicare and Medicaid Services recently announced that it will no longer pay for compounded aerosol, as it has concluded that such drugs are medically unnecessary."

(esp)

Tony Snow Resigns

What do Alberto Gonzales, Karl Rove, and Tony Snow have in common?  The answer is that all three are leaving their administrative positions. (See Washington Post) And as a side note, all three have at some point had their names mentioned on this blog. 

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Scarce Resources for Prosecution

The Wall St.Jr. reports on the financial problems faced by US Attorney offices as a result of scarce resources.  In discussing some of the staffing problems the article points out that more than 100 individuals in these offices have gone to Iraq to help out the government there. The article also reports on white collar crime statistics but one has to wonder how they defined this term and what was included.  Was it a DOJ definition that includes government corruption, environmental offenses, and OSHA related crimes?  Or was it limited to fraud? (see here)

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Details on the Randy "Duke" Cunningham Case

The San Diego Union Tribune has an article that includes links to the government's attempt to keep sealed hearings related to former Rep. Randy "Duke" Cunningham and "New York financier Thomas Kontogiannis." The hearings detail what Kontogiannis said was his motivation for his dealings with Cunningham.  The press has been successful in having released approximately 85% of the transcripts.

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Quattrone Case Dismissed

Paul Davies reminds us on the WSJ blog that the Quattrone deferred prosecution ended and the government dismissed the charges against Quattrone.  For background see here.

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Gonzales Under Scrutiny

According to an article by Dan Eggen and Paul Kane of the Washington Post, Inspector General Glenn Fine is investigating Alberto Gonzales as to whether he "gave false or misleading testimony to Congress, including whether he lied under oath about warrantless surveillance and the firings of nine U.S. attorneys." Although it is important to see if wrongdoing occurred here, it is unfortunate that this investigation has been slow. 

(esp)   

Work Product Privilege Upheld in Textron Case

The United States District Court for Rhode Island issued a Memorandum Order finding that "requested documents [were] protected by the work product privilege."  The court denied the government's petition for enforcement of an IRS summons served on Textron Inc. and its subsidiaries "in connection with the IRS's examination of Textron's tax liability for tax years 1998-2001.  Textron had "refused to provide the requested documents on the grounds that (1) the summons was not issued for a legitimate purpose and (2) the tax accrual workpapers are privileged."  The court rejected Textron's arguments of attorney-client privilege and tax practitioner privilege. Judge Torres, however, did accept the work product privilege as a legitimate argument since the IRS "failed to carry the burden of demonstrating a 'substantial need' for ordinary work product, let alone the heightened burden applicable to Textron's tax accrual workpapers, which constitute opinion work product."

(esp) (w/ a hat tip to Stephanie Martz)

Mistrial Leads to Double Jeopardy For Two

Three individuals related to Symbol Technologies, Inc. stood trial for a variety of white collar charges.  The jury heard from 40 witnesses, and had deliberated for three days when the court declared a mistrial.   The Second Circuit held that "where the record does not indicate that there was genuine deadlock, and the court has not provided an explanation for its conclusion or pointed to factors that might not be adequately reflected on a cold record, we are unable to satisfy ourselves that the trial judge exercised 'sound discretion' in declaring a mistrial."  The court further held that double jeopardy barred the retrial of two of the individuals who had been tried. (see also law.com here)

(esp)(w/ a hat tip to Joan Hemingway)