White Collar Crime Prof Blog

Zach Scruggs, Meet Frank Costello

Mob boss Frank Costello, one--time head of the Luciano crime family, faced charges in the 1950s for tax evasion, the favored means to attack the Mafia before the advent of RICO -- think Al Capone.  Costello's case went to the Supreme Court on the question of whether a defendant can challenge a grand jury indictment on the ground that there was insufficient admissible evidence on which to charge a crime.  Costello came to mind when I read Zach Scruggs' latest challenge to the attempted bribery charges against him and his father, Dickie Scruggs.  In a motion filed on March 3 (available below), Zach seeks dismissal for prosecutorial misconduct because two government witnesses, an FBI agent and the alleged offeror of the bribe, Tim Balducci, gave testimony to the grand jury that he claims was "patently false and misleading in material respects and undoubtedly led to the erroneous indictment of Defendant Zach Scruggs."

While not quite the same claim as Costello, Scruggs is asking for dismissal because the evidence to charge him with a crime was insufficient.  Calling it a motion to dismiss for "prosecutorial misconduct" is a way to avoid the Supreme Court's decision in Costello v. United States, 350 U.S. 359 (1956), which held that "[a]n indictment returned by a legally constituted and unbiased grand jury, like an information drawn by the prosecutor, if valid on its face, is enough to call for trial of the charge on the merits."  The Court rejected Costello's claim that the grand jury did not have enough evidence to charge him because only summary witnesses testified, and further denied his request to use its supervisory power to require prosecutors to present admissible evidence to the grand jury.  The Court stated, "Petitioner urges that this Court should exercise its power to supervise the administration of justice in federal courts and establish a rule permitting defendants to challenge indictments on the ground that they are not supported by adequate or competent evidence. No persuasive reasons are advanced for establishing such a rule."  It seems that Zach's motion is exactly that, asking the district court to review the evidence and find it so flawed that he would not have been indicted.  Costello rejected the use of supervisory power to fashion a rule to challenge indictments, and the Court has been rather hostile to dismissal based on generalized claims of misconduct (see United States v. Williams, 504 U.S. 36 (1992)).

Defendants who want to challenge an indictment because they don't believe there is sufficient evidence to even charge them with a crime have only one option: go to trial and win the case.  That's not the most inviting way to challenge an indictment, but Costello makes it clear that a head-on challenge to an indictment is not going to succeed.  (ph)

Download us_v_scruggs_zach_scruggs_motion_to_dismiss_indictment_march_3_2008.pdf

Hollywood Private Eye Trial Begins

The trial of the private investigator to the stars got under way in Los Angeles, and the witness list includes more than a few Hollywood names who will be witnesses or at least referenced during the testimony.  Pellicano and four co-defendants, including a former LAPD officer and a telephone company official, will be tried for their roles in secretly taping litigants in divorce and other cases.  Among the likely witnesses are actors Sylvester Stallone and Keith Carradine along with superagent Michael Ovitz.  Among those who have entered guilty pleas related to Pellicano's actions are a director of one of the Die Hard movies and Carradine's ex-wife.  This is not the end of Pellicano's troubles as he's slated to go on trial for additional charges that also include a well-known Los Angeles entertainment attorney. A Los Angeles Times story (here) gives a preview of the case. (ph)

How Not to Ask Questions

Perjury is definitely in the news these days, with the FBI investigating Roger Clemens for his statements before a Congressional committee and Detroit Mayor Kwame Kilpatrick's testimony in a whistleblower lawsuit denying a relationship with an aide under review by the local prosecutors office.  One of the highest profile perjury cases involves home run king (and apparently unwanted free agent) Barry Bonds, whose charges was dismissed by U.S. District Judge Susan Illston because of flaws in the indictment.  Judge Illston ordered the release of the transcript of Bonds' grand jury testimony in 2003 (available below) that now reveals the entirety of the nearly three-hour examination by two Assistant U.S. Attorneys. 

While the indictment presents Bonds in a bad light by isolating specific instances of allegedly false answers, skimming through the full transcript shows just how disorganized the prosecutors seemed to be, and how at least one of them couldn't ask a simple question.  Whether it was nervousness or perhaps being intimidated by Bonds, the questions come across almost like a stream of consciousness approach to the examination.  Here's just one example of the kind of questions Bonds faced: "Let me ask the same question about Greg at this point, we'll go into this in a bit more detail, but did you ever get anything else from Greg besides advice or tips on your weight lifting and also the vitamins and the proteins that you already referenced?" (Pg. 23)  Huh?  Understanding that a transcript does not necessarily convey the full flavor of the actual interchanges, in reading through the questioning I'm struck by how convoluted the questions are, punctuated throughout with "I mean," "you know," and similar distracting phrases.

What makes perjury so difficult to prove is that the allegedly false answer is not necessarily the most important thing.  As the Supreme Court noted in Bronston v. United States, 409 U.S. 352 (1973), "Precise questioning is imperative as a predicate for the offense of perjury."  Among the questions recited in the original indictment was this model of obfuscatory inquiry: "So, I guess I got to ask the question again, I mean, did you take steroids?  And specifically this test the [sic] is in November 2000.  So I'm going to ask you in the weeks and months leading up to November 2000  were you taking steroids . . . or anything like that?" 

Prosecutors will no doubt come back with a new indictment of Bonds in the next couple weeks, one which is honed down and focused on just single questions and answers to avoid the duplicity problem that led to the dismissal.  But they can only work with the transcript they have, and finding a clear question -- and answer -- may be quite a challenge.  The questioning of Bonds was not a model of how to set a perjury trap, if that was the goal in having him testify. (ph)

Download us_v_bonds_grand_jury_transcript_bonds.pdf

Cert Denied for John and Timothy Rigas

In a mere line, the U.S. Supreme Court rejected the appeal of John and Timothy Rigas - denying certiorari for the two (see here).  This is not surprising as the U.S. Supreme Court takes so few cases. The Petition, filed on behalf of Timothy and John Rigas former CFO and CEO of Adelphia, challenged their convictions.. The elder Rigas, now 82 years old, is serving a 15-year sentence, and Timothy is serving 20 years. 

(esp)

White Collar Crime in the International News

Macau Daily Times - Bill Will Hinder White-Collar Crime Fight: Lawmakers

New Zealand Herald - White Collar Crime Booming

This is Your Money.co.uk - New War on White Collar Finance Fraudsters

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Olis Loses A Round, But the Game Isn't Over

In a 21 page opinion, the district court denied Olis' pending motions - but the government now has to respond to the 2255 motion.

• The court was not persuaded that Olis had a substantial constitutional claim with a "high probability of success" or that '"extraordinary or exceptional circumstances exist which make the grant of bail necessary to make the habeas remedy effective."  Thus, his release on bail was denied.
• The court also denied his motion for discovery.
• Finally the court denied the filing of an amicus brief by Professor Robert Weisberg. The court states that "because the court is not persuaded that the amici curiae brief that Weisberg seeks to file would be useful or otherwise necessary to the administration of justice, the motion for leave to file amici curiae brief will be denied."

The court sets the timetable for the filing of the government's answer to the 2255 motion and for Olis' response to the government answer.  This round clearly goes to the government.

Opinion - Download march32008.pdf

(esp)

Can Information From Hacking Be The Basis Of A Securities Violation?

The second circuit has a fascinating securities case that has old laws meeting new technology. And the question will be whether the text of the statute ought to be stretched beyond its language to reach new forms of criminality -although in this particular case the criminality is merely alleged. (See Floyd Norris NYTimes story here)  Or is the legislature the more appropriate place to reform the law?

Basically, a Ukrainian trader allegedly hacked into a financial database and finding a forthcoming negative report, it is argued that he traded on the inside information.  The problem is that no fiduciary relationship exists to find that this conduct constitutes a section 10(b) violation. The district court judge in the Southern District of New York found no violation and the case proceeded to the Second Circuit with the government arguing otherwise.  Hon. Naomi Reice Buchwald, writing the thoughtful district court opinion, states in part:

"...the barrier to issuing a preliminary injunction at this stage in the proceedings is that the alleged 'hacking and trading' -- while illegal under any number of federal and/or state criminal statutes -- does not amount to a violation of section 10(b) of the Exchange Act under existing case law.   For as the SEC even acknowledges, in the 74 years since Congress passed the Exchange Act, no federal court has ever held that that the theft of material non-public information by a corporate outsider and subsequent trading on that information violates section 10(b)."

In the meantime, the SEC is trying to have the Second Circuit continue to freeze the trading account proceeds while the appeal is pending.  Representing the accused here is Charles A. Ross. The decision and arguments can be found accompanying the NYTimes story here.

(esp)

Supremes Reverse Ninth Circuit Tax Case

The U.S. Supreme Court, with Justice Souter writing the unanimous opinion in Boulware v. United States, resolved the question of "whether a distributee accused of criminal tax evasion may claim return-of-capital treatment without producing evidence that either he or the corporation intended a capital return when the distribution occurred."  The Court held that:

"Sections 301 and 316(a) govern the tax consequences of constructive distributions made by a corporation to a shareholder with respect to its stock.  A defendant in a criminal tax case does not need to show a contemporaneous intent to treat diversions as returns of capital before relying on those sections to demonstrate no taxes are owed."

See also Paul Caron's Tax Prof Blog here.

(esp)

What Conrad Black Says As He Enters Prison

Conrad Black reported to the Coleman, Florida prison today after being denied bail pending appeal. (see here).  But he did manage to express his side of the case prior to reporting to the prison facility.  In what is titled an Opinion piece in the New York Sun,  Conrad Black presents an in-depth account of the wrongfulness of his conviction. The piece is titled, My Faith in American Justice.  And it is a powerful piece that reaffirms his faith in our judicial system despite what he has suffered.  One paragraph was perhaps the most troubling, and it related to his inability to hire a particular legal counsel to represent him.  It states:

"When we pointed out its deficiencies in our legal motion, the prosecutors laid the charges in this case, stayed other proceedings, and froze almost $10 million owed to me. The action achieved its objective: Brendan V. Sullivan of Williams & Connolly, one of America's most respected trial lawyers, who was my chief counsel, was unable to take this case, because I was unable to provide him, for a time, after the New York seizure, with the retainer he required. In the climate created by these charges and press accounts of them, I was unable to raise any substantial amount of cash for a retainer, which prominent lawyers require, without some time-consuming liquidation of assets."

The government interference with choice of defense counsel (as noted above), with payment to secure proper representation (e.g. Stein Case), and intimidation of those who do defend individuals such as drug traffickers (Kuehne case), is becoming a trend that merits increased judicial oversight.  The right to counsel is crucial and needs to be protected to have a system that affords due process to those charged with crimes.

(esp)

   

Defense Wins Bankruptcy Fraud Case

A lawyer who was charged with 11 counts of bankruptcy fraud had the last two remaining counts dismissed this past week by a District Court Judge in D.C.  Initially 5 counts were dismissed pre-trial. The jury heard the remaining 6 counts against the attorney who is licensed to practice in DC and California, and acquitted the lawyer on 4 counts.  This left 2 counts, counts that were hung when the jury failed to reach a verdict.  The court, in a 15 page opinion, dismissed these remaining two counts finding that the only evidence presented at trial "can hardly be the basis for a criminal conviction."

The remaining two counts had charged a violation under 18 U.S.C. s 152 for allegedly making false material statements.   The statements related to whether a contingency fee needed to be reported on a bankruptcy schedule.

The attorneys representing the accused included John Rogovin (Wilmer Hale) and Jonathan Jeffress (FPD).

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Deferred Prosecution Talk in the News

FoxNews - Ashcroft to Testify on Monitors

Houston Chronicle (Mary Flood) - Justice's Deals Draw Scrutiny -Research by Houston Lawyers Takes Issue With Corporate Penalties

Northrup Talks Blog - Bristol-Myers Squibb – A Cautionary Tale for In-House Lawyers

The Record- NewJersey.com - Editorial: Christie's Cross

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Mukasey Refuses to Proceed Against Bolten & Miers

Professor Peter Henning here, had raised the issue of whether AG Mukasay would issue a contempt citation against Bolten and Miers. And we now know the answer. Dan Eggen of the Washington Post writes, Mukasay Refuses to Prosecute Bush Aides. It seems that Attorney General Mukasey is taking the position that Bolten and Miers refusal to comply with a congressional subpeona does not constitute a crime.

Check our Scotus Blog - Congress's Contempt Power: Law, History, Practice and Procedure

Talkleft in July wrote here

This places the ball back in the Congressional hands - and the issue will be whether they force the issue with Mukasey or move onto the courts for a remedy.

(esp)

Plea in Writer's Guild Conspiracy Case

A press release of the U.S. Attorneys' Office of the Central District of California tells that "[a] former assistant administrator of a Writers Guild fund and another woman were charged" "with conspiring to embezzle $17,228.61 by creating a bogus beneficiary of a union fund that paid union members for their works that were sold, distributed and aired abroad."  The charges were by a one count information and were followed with a plea agreement.

(esp)

Scruggs Finally Gets a "W"

To say things have been going downhill for famed torts lawyer Dickie Scruggs over the past few months is quite an understatement.  His legal entanglements began with a criminal contempt charge in the Northern District of Alabama for his handling of documents subject to a judicial order, and then got a whole lot worse with his indictment in the Northern District of Mississippi, along with his son, for an alleged attempted bribe of a state court judge.  Two co-defendants have pleaded guilty and agreed to cooperate, and tapes of various conversations have been released that do not put Scruggs in a very flattering light.  Virtually all of his pre-trial motions have been denied, and the government will introduce evidence of a second alleged influencing of a state court judge.  Finally, though, a ray of sunshine, if you will: Senior U.S. District Judge Roger Vinson dismissed the criminal contempt charge (see opinion below).

The criminal contempt charge arose out of litigation involving State Farm, the object of Scruggs' Hurricane Katrina law suits, that was before U.S. District Judge William Acker, who has been after Scruggs for giving documents sealed in that litigation to Mississippi Attorney General Jim Hood to conduct a criminal investigation of State Farm.  Judge Vinson certainly didn't give Scruggs a free pass in dismissing the charge, noting that "there is a cloud of impropriety surrounding what Scruggs did and the nature of his eleventh hour agreement with Hood. It is certainly understandable that Judge Acker would attempt to hold him accountable. Perhaps there are ethical issues that should be examined. But, the question is not whether Scruggs acted ethically; the question is whether he can be held criminally responsible in a contempt proceeding."  Getting mad is one thing, but getting even through a criminal contempt doesn't cut it when the person is not a party to the underlying lawsuit nor counsel in the litigation.  Judge Vinson determined that "[f]or jurisdictional purposes, the undisputed facts are that Scruggs was not a party, nor was he an attorney-of-record or at any time make an appearance in the Renfroe case , , , it is axiomatic that courts only have power and jurisdiction to enjoin parties before the court."  Federal judges may well view their power as reaching the blue sky or the ends of the earth, but it doesn't always work that way.

While this is certainly good news for Scruggs, it probably only eliminates a case that was not much more than a distraction compared to the attempted bribery trial.  The criminal contempt statute, 18 U.S.C. Sec 402, limits the prison term for out-of-court violations to no more than six months, along with a $1,000 fine, which does not compare to the longer sentence Scruggs could receive in the Mississippi case.  Al Davis is famed for intoning "Just win, baby!" but this one is only the JV game -- or the undercard for fans of the sweet science.  The WSJ Law Blog has the background here. (ph)

Download us_v_scruggs_contempt_dismissal_feb_29_2008.pdf

Conrad Black Off to Prison

Conrad Black was ordered to prison and denied bail pending appeal.  After receiving a sentence of 6 1/2 years, and being given 12 weeks before having to report to prison (see here), Conrad Black will now enter a prison facility in Florida. The appellate court denied the newspaper leader bail pending appeal, although the Chicago Tribune notes here that the court acknowledged that a substantial question was raised. Conrad Black's two co-defendants were granted bail pending appeal.

To obtain bail pending appeal, the accused needs to show that he or she is not a flight risk and not a community danger.  It is also required that the defendant show that the case raises a "substantial question." The substantial question test is somewhat amorphous and courts are left to provide order in using this standard.   And although the court did not rule in favor of Conrad Black, they allowed him some time prior to ordering him to report to prison.

Conrad Black will be reporting to Coleman - here.

(esp)   

This is News?

FBI Probing Whether Clemens Lied to Congress (AP) -- What a shocker!

House Ethics Committee Launches Investigation Into Conduct of Rep. Renzi (AP) -- The 35-count indictment came out almost a week ago, so this surely ranks as a "rapid response."

Pelosi Calls For Grand Jury Investigation Of Bolten, Miers (The Politico) -- Talk about falling on deaf ears, and this one took two weeks to formulate.

(ph)

Two More Plead Guilty to Insider Trading

Two more defendants, one an officer at UBS, pleaded guilty to insider trading.  According to a press release (here) issued by the USAO for the Southern District of New York:

Between December 2001 and August 2006, GUTTENBERG repeatedly sold to TAVDY and another individual material,nonpublic information regarding upcoming upgrades and downgrades in UBS analysts’ securities recommendations. Investors, including institutional investors and professional money managers, regularly relied on UBS analysts’ ratings of public companies’ securities.  As a result, changes in UBS analysts’ recommendations regarding a particular company’s securities were material to investors and often had a direct effect on the trading price of that company’s stock.

The two defendants were among thirteen charged with insider trading that included employees from Bank of America, Morgan Stanley, and Bear Stearns in addition to UBS.  Only one defendant is still awaiting trial as all the others have now entered guilty pleas. (ph)

Springing the Perjury Trap on Roger Clemens

House Oversight and Government Reform Committee Chairman Henry Waxman and ranking member Representative Tom Davis sent a letter to Attorney General Mukasey asking for an investigation of possible perjury by Roger Clemens about his use of steroids and HGH -- and his attendance at a party in 1998 at Jose Canseco's house.  The letter (available below) does not come out and explicitly accuse Clemens of being a liar while under oath during his February 5 deposition or February 13 Congressional testimony, but it does say that "Congress cannot perform its oversight function if witnesses who appear before its committees do not provide truthful testimony. Perjury and false statements before Congress are crimes that undermine the integrity of congressional inquiries. For these reasons, we take evidence that a witness may have intentionally misled the Committee extremely seriously."  Of course, Representative Waxman said after the hearing that he regretted even holding it, and nothing of any legislative importance occurred during the session, but thos minor annoyences won't stand in the way of a criminal referral.

What started out as a perjury trap has now been sprung on Clemens, with the FBI sure to begin an investigation because Congress wants one.  It was clear that either Clemens or his former trainer, Brian McNamee, was lying because they told diametrically opposed stories.  But the question now is whether a federal prosecutor could prove Clemens committed perjury, a much more difficult task than just saying "I don't think he's telling the truth."  The Committee also released a memorandum (available below) from the staff that outlines the various contradictions in Clemens' testimony, based largely on the testimony of McNamee and former teammate Andy Pettitte, who discussed two conversations with Clemens about using HGH.  The memo contains no new surprises, and sets forth the inconsistencies in Clemens' testimony in great detail. 

The problem is that the standard used by the Committee staff is not what a prosecutor must use to decide whether to pursue a case.  The analysis points out places where what Clemens said was "implausible" or that certain facts "bolster" McNamee's statements.  But a perjury prosecution that will ride on the credibility of McNamee will involve much more than just whether there is a rational basis to believe him rather than Clemens.  A criminal prosecution will involve asking a jury to believe that McNamee is truthful, not just plausible.

McNamee admitted during the Committee hearing that he has made a number of inconsistent, or even false statements, in addition to not disclosing the syringes and gauze pads he claims were used to inject Clemens until well after his interview for the Mitchell Report.  Pettitte is a more credible witness, but he only remembers two conversations, one of which took place nearly ten years ago.  Will Pettitte bring down his old friend, or will he waffle just enough that his testimony might not be sufficiently credible to a jury?

Perjury is among the most difficult crimes to prove because the government must establish that the defendant told an outright lie, and not just that the person dissembled or made statements that seem implausible.  The standard for sending a referral to the Department of Justice is quite low, basically something doesn't look right, and an investigation can be initiated just to placate Congress.  Even sending out grand jury subpoenas and calling witnesses to testify does not require anything more than a suspicion that wrongdoing occurred, which is certainly the case with the Clemens-McNamee smackdown.  But the leap to proving perjury is significant, and as I've said before, if McNamee is the linchpin of the case then it will be a very difficult one to win.  (ph)

Download oversight_government_reform_committee_letter_clemens_feb_27_2008.pdf

Download oversight_government_reform_committee_memo_clemens_feb_26_2008.pdf