White Collar Crime Prof Blog

Detroit Mayor Pleads - Commentary

The media is reporting that Detroit Mayor Kwame Kilpatrick will plead guilty (see below). Looking at the plea reported by the press, one can understand why he would plead guilty.  The risk of trial can be enormous, both in possible punishment, cost of legal counsel fees, and personal family and psychological costs.  This plea offers finality to the situation - something that will probably help the mayor and those around him move on with their lives.  It removes the uncertainly that has probably been hanging over his head for some time now. For the government, the resolution allows them to move onto the next case and report a statistic of conviction.

Some will likely claim the sentence is too light, and others will argue that the conviction he now bears is too heavy. But even when the judicial system offers some precision, such as the cases operating under the federal sentencing guidelines, many are unhappy.

Here, this state case provides a resolution that demonstrates that a state can investigate and prosecute state officials. The federal government should take note of this, as they are often quick to step in and prosecute state corruption. 

The case also demonstrates the importance of the press and investigative reporting.  Without the press, one has to wonder the extent to which this case would have happened. With a diminishing press nationwide, it raises concerns about the future of the ability of the people to have a watchdog on certain government conduct.

Cory Williams & Ed White, Atlanta Jrl Constitution, Detroit mayor agrees to plead guilty, resign

M. L. Elrick, Jim Schaefer, Joe Swickward, Ben Schmitt, Detroit Free Press, Mayor: 'I Lied Under Oath' - He'll resign, serve 120 days in jail, pay $ 1 M restitution

(esp)

Addendum - Susan Saulny, New York Times, Detroit Mayor Pleads Guilty, Agrees to Resign

Response to Frank Bowman

Guest Blogger - Stephanie Martz - Senior Director, White Collar Crime Policy, National Association of Criminal Defense Lawyers (NACDL)

Professor Frank Bowman’s piece in The Legal Times ("Somebody Has to Cry Foul," August 18, 2008) is geared towards a singular thesis – that "the decline of civil regulation makes open-ended criminal statutes necessary." As a philosophical matter, I do not think that open-ended criminal statutes are ever a good idea. They fail to put American citizens on notice that certain behaviors – especially in the white collar area – are in fact against the law. We are supposed to be particularly concerned about this in the criminal, as opposed to civil or regulatory, context because of all of the consequences that are uniquely attendant to criminal prosecution, such as the deprivation of liberty and the lifelong deprivation of civil rights, the social stigma associated with conviction and incarceration, and the singular moral force and deterrent effect of the criminal law. This is why we have the "rule of lenity," in which ambiguous criminal statutes are supposed to be strictly construed by courts. As Justice Scalia wrote just this term in United States v. Santos:

Under a long line of cases, the tie must go to the defendant. The rule of lenity requires ambiguous criminal statutes to be interpreted in favor of the defendants subjected to them. This venerable rule not only vindicates the fundamental principle that no citizen should be held accountable for a violation of a statute whose commands are uncertain, or subjected to punishment that is not clearly prescribed.

How does this principle comport with Professor Bowman’s praise for "flexible" and "open-ended" criminal laws? It doesn’t, I’d venture. Let’s take honest services mail fraud as a prime example of a flexible and open-ended criminal law. This law prohibits schemes or artifices to defraud another of your "honest services" – basically, it criminalizes deceit. As numerous courts and commentators have observed, this could conceivably turn taking home a couple of reems of paper from your office into a federal felony. The statute has no built-in limits on how it can be used, and courts have struggled to come up with a coherent set of them. At base, it’s unconstitutional for Congress to permit "a standardless sweep [that] allows policemen, prosecutors, and juries to pursue their personal predlictions" (Smith v. Goguen, 415 U.S. 566, 574 (1974). Professor Bowman seems comfortable with the standardless sweep, as long as it’s in the name of filling in for absentee civil regulators.

Indeed, Professor Bowman seems willing to elide the fundamental point about the due process and notice requirements of criminal law for a hodgepodge of pragmatic reasons, which can all be filed under the rubric of ‘our last worst hope.’ (My words, not his.) "Ideally," he writes, "most of this sort of [mis]behavior would be deterred or dealt with by public and private civil regulatory mechanisms, but those mechanisms have conspicuously atrophied over the past several decades." He argues that "textual flexibility" and "broad prosecutorial discretion" are necessary because civil regulatory bodies "cannot keep pace with the rapid evolution of modern business and finance." Professor Bowman makes no case, however, for why prosecutors are any better at sussing out complicated and often highly technical misconduct than the expert regulators. In fact, criminal prosecutors are far less likely to know the industry, the accounting rules, the compensation regimes, and all of the other details that make climbing the learning curve very difficult to do in each new case. He not-so-subtly accuses civil regulatory officials of capture—calling federal prosecutors "visitors from the normal world who apply ordinary understandings of right and wrong to what they find." But he declines to acknowledge that the flipside of capture is expertise, ability, and the institutional knowledge and perspective that help to ensure against overly aggressive (or overly lenient) enforcement decisions. The "commonsense judgments of prosecutors" that Professor Bowman extols are not, put simply, universally experienced by potential criminal defendants.

In order for us to engage in a more intelligent discussion of the pragmatic aspects of civil versus criminal enforcement of business crimes, it would be helpful if we were working with a complete and illustrative universe of enforcement statistics. While Professor Bowman refers to the frequently cited fact that white collar enforcement is slightly down these days, the Federal Justice Statistics Resource Center’s information shows that the number of federal mail, wire, securities, and related crimes that have been charged each year has remained fairly steady in the last ten years. (See this blog’s "White Collar Crime Prosecutions - A Long Way to Go to Hit the Levels of 5 Years Ago, May 14, 2008, referring to TRAC statistics on white collar crime enforcement.)

On a concluding note,I do think that his thesis should serve as a cautionary tale to those who would rail against the civil regulatory state: In the absence of civil enforcement, criminal enforcement will undoubtedly, unequivocally step into the breach. It’s a zero-sum game for American business.

(sm)

Reply Brief Filed in Ionia Case

The briefs are now all filed in the case of United States v. Ionia Management, the most recent being the Appellant's Reply Brief (see below). The briefs are:

Defendant-Appellant's Brief - here

Government-Appellee Brief - here

Amicus Brief - here

Defendant-Appellant's Reply Brief -

Download ionia_reply_final_82908.pdf

Although there are many worthwhile issues in this case, one particular focus is on whether there was sufficient evidence "to establish vicarious criminal liability for a corporate defendant under respondeat superior" and whether there was error in the "trial court's instructions on corporate liability." This case forcefully takes on corporate criminal liability both from a policy perspective and in its application.  This is clearly a case that needs to be closely followed.

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Upcoming Sentencing of Goyal, former CFO of McAfee

Prabhat Goyal, former CFO of McAfee, will be sentenced in early October. Convicted in May 2007 for securities fraud and for making false statements to auditors, Goyal was found to have failed to recognize revenue generated by sales to a distributor using sell-in accounting.

Like the recent trials of the Rigases and Bernie Ebbers, the government failed to call an expert to testify on the alleged improper accounting. Although the trial court did not discard the verdict, the judge did acknowledge that at least one civil court had found that the SEC failed to meet its burden in a civil case when an expert was not used to provide an understanding of the alleged improprieties.

Although the defense argues differences with the Rigases and Ebbers cases, the fact that the same issue mentioned in their case is again being mentioned gives pause.  CFOs rely on accountants and auditors for guidance. When there is a showing that no material information was being withheld, one has to wonder if a higher standard, or at least the civil standard ought to be considered.

One also has to wonder if the Supreme Court will eventually consider whether it is proper for the government to not present experts of a GAAP violation, and proceed without this substantiation and deliberation.  For the time being,it looks like another appellate court will get to examine this issue.

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What Others Are Saying About the Stein (KPMG Related) Decision

The decision is here.

Commentary can be found here.

What others are saying:

Anthony Lin, New York Law Journal, 2nd Circuit Affirms Dismissal of Criminal Charges Against KPMG Staffers

Dan Slater, WSJ Blog, 2nd Circuit Upholds Judge Kaplan’s Dismissal of KPMG Indictments

New York Times (AP), Court Upholds Dismissal of Tax Case Against 13

Doug Berman, Sentencing Law & Policy, here

Christine Hurt, Conglomerate, here

Martha Graybow, Reuters, Court upholds dismissal of charges in KPMG case

Richard Janus, CATO, Deputizing Company Counsel as Agents of the Federal Government

Second Circuit Blog, Gimme Shelter

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In the News & Blogosphere

Martha Neil, ABA Law Journal News Now, Suspended Texas PI Lawyer Gets 35 Years in Client Theft Case

DOJ Press Release, Five Individuals Arrested, Two Contracting Companies Charged in Bribery Conspiracy Related to Department of Defense Contracts in Afghanistan

DOJ Press Release, Convicted Medicare Fraud Defendant Pleads Guilty to Laundering More Than $3 Million in Fraudulent Proceeds

Joe, Swickard, Detroit Free Press, Even plea could damage ability to practice law (discussing case involving the Mayor of Detroit)

David Josar, Detroit News, Mayor Rejects Plea Deal: Reported proposal called for Kilpatrick to plead to one felony, serve four to six months in jail

Ricardo Carvajal & J.P. Ellison, FDA Law Blog, “Male Enhancement” Dietary Supplement Distributor Gets Sentencing Enhancement -- 25 Years for Fraud

(esp)

Upcoming Conferences

The American Bar Association/American Bankers Association - Money Laundering Enforcement Conference - October 19-21, 2008 D. C. here

ABA - National Institute on Criminal Enforcement of Intellectual Property Rights - Septebmer 26, 2008, San Francisco here

ABA - The Foreign Corrupt Practices Act: Current SEC and DOJ Enforcement Initiatives - September 11, 2008 - Teleconference and Live Audio Webcast here

ABA - National Institute on Securities Fraud - October 2-3, 2008, Arlington, Virginia here

Pellicano and Christensen Convicted

A press release of the U.S. Attorney's Office for the Central District of California reports that "[f]ormer private investigator Anthony Pellicano and prominent entertainment attorney Terry Christensen were found guilty today of federal conspiracy and wiretapping charges in connection with their illegal wiretapping of the ex-wife of Christensen’s longtime client, billionaire Kirk Kerkorian, during a 2002 child support dispute."  The jury trial lasted 6 weeks.  Pellicano had previously been convicted of other charges, including RICO, in May.  The government had tapes in this case, something that can be very difficult for the defense to overcome.   

Dan Slater, Wall Street Jrl Blog, Terry Christensen, Pellicano Convicted on Wiretapping Charges

Above the Law - Lawyer of the Day - Terry Christensen

LATimes, Private eye Anthony Pellicano, attorney Christensen convicted of wiretap plot

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Is DOJ Ready to Make the US Attorney's Manual Law?

According to an article, White-Collar Cringe, by Karen Donovan at Conde Nast Portfolio.com, in speaking about the new DOJ guidelines on the prosecution of corporations (here) "Deputy Attorney General Mark R. Filip said the new rules, which will be placed into the United States Attorneys' manual, rather than just a memo, have the force of 'binding law' and 'binding fact.'" 

One has to wonder if Deputy AG Filip's words are an attempt to keep Congress from acting on the Attorney-Client Privilege Protection Act.  More importantly can these words be reconciled with the opening passages of the U.S. Attorney's Manual which states - 

1-1.100

Purpose 

The United States Attorneys' Manual is a looseleaf text designed as a quick and ready reference for United States Attorneys, Assistant United States Attorneys, and Department attorneys responsible for the prosecution of violations of federal law. It contains general policies and some procedures relevant to the work of the United States Attorneys' offices and to their relations with the legal divisions, investigative agencies, and other components within the Department of Justice. It is also available on line at http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/

The Manual provides only internal Department of Justice guidance. It is not intended to, does not, and may not be relied upon to create any rights, substantive or procedural, enforceable at law by any party in any matter civil or criminal. Nor are any limitations hereby placed on otherwise lawful litigative prerogatives of the Department of Justice.

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DOJ Offers New Guidelines on Attorney-Client Privilege Issue

On the same day as the Second Circuit issued the Stein (KPMG related) decision (see here), the DOJ issued new guidelines pertaining to principles of federal prosecution of business organizations.  The government uses new language with regard to the attorney-client privilege.  The guidelines provide that "[e]ligibility for cooperation credit is not predicated upon the waiver of attorney-client privilege or work product protection." Although it is wonderful to see the DOJ finally issuing a statement that will provide guidance to new lawyers in their office to reinforce the importance of the attorney-client privilege, this is not enough.

Guidelines are nothing more than guidelines that serve as internal guidance in the office.  Guidelines are not always adhered to, and non-compliance is often left to the department to enforce. (see here) What this new language by DOJ does show is that they support the importance of making sure that the attorney-client privilege remains strong.  Legislation, as is proposed, will make this happen.

The Guidelines - Download DOJPrinciples1.pdf

DOJ Press Release - here

Statement by NACDL here.

(esp)(w/ a hat tip to Jack King)

   

Commentary on Stein (KPMG)

Chief Judge Jacobs of the Second Circuit authored the 68 page opinion that affirms Judge Kaplan's prior ruling (see here and here) in the KPMG related matter.  The lower court had dismissed the defendants' indictments.  In affirming the lower court opinion, the Second Circuit states -

"We hold that KPMG’s adoption and enforcement of a policy under which it conditioned, capped and ultimately ceased advancing legal fees to defendants followed as a direct consequence of the government’s overwhelming influence, and that KPMG’s conduct therefore amounted to state action. We further hold that the government thus unjustifiably interfered with defendants’ relationship with counsel and their ability to mount a defense, in violation of the Sixth Amendment, and that the government did not cure the violation. Because no other remedy will return defendants to the status quo ante, we affirm the dismissal of the indictment as to all thirteen defendants." (footnotes omitted)

The Second Circuit stated that the Sixth Amendment right to counsel held that the amendment "protects against unjustified governmental interference with the right to defend oneself using whatever assets one has or might reasonably and lawfully obtain."  The court noted that-

"Defendants were indicted based on a fairly novel theory of criminal liability; they faced substantial penalties; the relevant facts are scattered throughout over 22 million documents regarding the doings of scores of people,; the subject matter is "extremely complex,"; technical expertise is needed to figure out and explain what happened; and trial was expected to last between six and eight months, As Judge Kaplan found, these defendants "have been forced to limit their defenses . . . for economic reasons and . . . they would not have been so constrained if KPMG paid their expenses." We therefore hold that these defendants were also deprived of their right to counsel under the Sixth Amendment. (citations and footnote omitted)

The best line from the case - "But if it is in the government’s interest that every defendant receive the best possible representation, it cannot also be in the government’s interest to leave defendants naked to their enemies."

The government did not lose this case, as some might say.  In fact, they won.  When justice is done for all, as is reflected in this opinion -- the prosecution, defense, and society wins. 

(esp)

Second Circuit Affirms in Stein (KPMG) Case

Opinion - Download 07-3042-cr_opn.pdf

Commentary to follow

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