White Collar Crime Prof Blog

Upcoming Conferences

ABA - Foreign Evidence: Collecting It and Protecting It - Washington, D.C. - Sept. 17, 2009 - Download Foreign Evidence Invitation

ABA - Second Annual Sentencing Advocacy, Practice and Reform Institute With Special Focus on Reentry - Washington, D.C. - November 6, 2009 - here

NACDL - Defending White Collar Crimes - October 1-2, NY - here

American Conference Institute, Foreign Corrupt Practices Act (FCPA) - November 17-18, 2009 - Washington, D.C. here ($200 discount to blog readers when they reference discount code "White Collar Crime."

American Conference Institute, Financial Institution Fraud Enforcement & Financial Recovery - November 16-17, 2009 - Washington, D.C. here [$400 discount off the standard price (for a price of $1795 - no expiration) when they reference discount code "White Collar Fraud"]

ABA - 4th Annual National Institute on Securities Fraud - October 15-16, Washington, D.C. - Download CEN9SFR FINAL BROCHURE 929032_R5

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2008 Florida Report Shows White Collar Prosecutions

The Annual Report of Statewide Prosecutor William N. Shepard, from the Office of the Attorney General in Florida, presents prosecutions of some white collar crimes.  With respect to white collar crime, the Report states that "Fighting fraud is an integral part of the Statewide Prosecution mission and mandate. We target three specific areas: (1) mortgage fraud, (2) health care fraud, and (3) securities fraud."  The Report details some of the prosecutions in these three areas, as well as in non-white collar areas.

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The Ring Case - A Lot of Turbulence on this Flight

The case against Kevin Ring, a former associate of Jack Abramoff, is a case well worth watching. Ring faces "a ten count indictment for [allegedly] paying illegal gratuities in violation of" section 201, honest services fraud under wire fraud and the honest services provision (sections 1343 and 1346), conspiracy, and obstruction under section 1512.  Back in June, the district court denied a motion to dismiss when Ring had argued the lack of an "official act" element of the crime, that "the honest services wire fraud charges are invalid as a matter of law because the statute cannot be used to prosecute a private lobbyist who did not prevent a federal lawmaker's breach of congressional ethics rules," that the conspiracy count premised on other charges should therefore fall, and that there was a lack of nexus for the obstruction charges. Although the court did not dismiss the case on pre-trial, these arguments sent the message that this case was going to present some tough legal issues for the government.

But it sounds like the legal issues are not the only problems facing the government. See Joe Palazzolo, Main Justice, Case Against Ex-Abramoff Associate Hits Curves

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Beam on HealthSouth

Video Highlights of Aaron Beam, co-founder of HealthSouth, speaking at the Association of Certified Fraud Examiners here. As noted on the webpage written by Dick Carozza (editor of Fraud Magazine), "Beam pleaded guilty to bank fraud."  He served "three months in federal prison in return for his testimony against former HealthSouth Chief Executive Officer Richard Scrushy."

(esp) (w/ a hat tip to Gary Zuene)

In the News & Around the Blogosphere

David Glovin, Bloomberg, Fundraiser Nemazee Defrauded Other Banks, U.S. Says

David Glovin, Bloomberg, Monster’s James Treacy Gets Two-Year Sentence in Options Case

Amanda Bronstad, NLJ, law.com, 9th Circuit Invites Additional Briefing on Former Broadcom Exec's Privilege Claim

Snitching Blog, New ABA opinion on prosecutorial duty to disclose information

DOJ Press Release,Former Inspectors of New York Defense Contractor Plead Guilty to Accepting Bribes on Department of Defense Contracts

DOJ Press Release, Oklahoma Man Pleads Guilty to Conspiring to Solicit Kickbacks in Connection with Government Contract in Afghanistan

A  New FCPA blog - by Mike Koehler here

According to  Reuters here - White Collar Attorney Jan L. Handzlik joins the law firm of Greenberg Traurig 

Kate Moser, The Recorder, Law.com, Wilson Sonsini Staffer Charged in $1 Million Office-Supply Scam

Todd Foster, Bottom Line Blog, SEC Ramping Up Efforts

DOJ Press Release, Former Pacific Consolidated Industries LP Executive Pleads Guilty in Connection with Bribes Paid to U.K. Ministry of Defense Official

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Monday Morning Quarterbacking with the Madoff Report

As noted here, the SEC's release of the executive summary of the Madoff Report (Investigation of Failure of the SEC to Uncover Bernard Madoff's Ponzi Scheme) demonstrated that there was no finding of corrupt conduct.  But the bottom line was that the ball was dropped on more than one occasion.  It is, of course, easy to look back and examine the mistakes made.  The 477 page Report, now released, allows that to be done. But as people ponder the sad findings in this report, the more important report and findings that need to now be made - is what to do about all of this to make certain it won't happen again. Clearly the new SEC chair has put into place some measures to allow for better regulations and control.  But is this enough? Some thoughts -

• If this had been a company that had missed the red flags, the DOJ would be making them pay a lot of money, institute a more effective corporate compliance program, and probably have monitors in place to make certain that wrongdoing would not occur again. 
• Is Madoff no different from the rogue employee who operates improperly and hurts innocent victims (in this case the victims are those who invested, those who benefitted from entities that had invested, and the general public).
• Will there ever be sufficient controls in place without thorough outside monitoring?  In the case of corporations, the DOJ typically wants more than a company compliance program and looks for outside monitors to make certain there are no future violations.  Should the SEC be held to a lesser standard? No -  I am not suggesting that we employ John Ashcroft for this one.
• An Inspector General Report after-the-fact is wonderful, but where was the oversight when this fraud was occurring.
• It is easy to put blame on individuals who may have missed items, but we need to also consider their workload and whether it was reasonable for them to discover this fraud and whether more resources and systems are needed to assure they can properly perform their jobs.
• Clearly it is easy to Monday morning quarterback, especially on a Sunday over Labor Day - but this amount of fraud needs more thought and consideration.

The 477 pages tells us what happened.  Now we need to examine the controls in place to assure it will never happen again.

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New Books & Articles

Miriam Weisman,Crime, Incorporated: Legal and Financial Implications of Corporate Misconduct

Dan Hurson, The New SEC Whistleblower Proposal: Make It Fair, Make it Pay, and They Will Come - Download THE NEW SEC WHISTLEBLOWER PROPOSAL

Houston Business & Tax Law Journal here with articles by Geraldine Szott Moohr, Introduction: Tax Evasion as White Collar Crime; John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough?; Robert Edwin Davis & Danny S. Ashby, Federal Criminal Tax Enforcement in 2009: The Role of Criminal Tax Enforcement in the Federal 'Voluntary' Self-Assessment and Payment Tax System; John A. Townsend, Tax Obstruction Crimes: Is Making the IRS's Job Harder Enough? Online Appendix; Stuart P. Green, What is Wrong With Tax Evasion?

Stuart Michelson, Jud Stryker, Betty Thorne, Stetson University, The Sarbanes-Oxley Act of 2002: What Impact Has It Had on Small Business Firms, forthcoming Managerial Accounting Jrl. - Download MAJ 287_final 110609

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What is a Superseding Indictment?

The Ninth Circuit Court of Appeals issued a decision in U.S. v. Hickey, a case "from a massive fraud scheme that resulted in protracted civil and criminal proceedings spanning more than ten years." The court stated that the accused and his business partner "induced over 700 individuals to invest approximately $20 million in two real estate development funds."  The "investors were duped by false representations regarding land title, guarantees, and securization of the funds." The court stated that "[a]s the investment scam progressed, it devolved into a Ponzi scheme."  Several grounds were raised on appeal including jurisdiction, statute of limitations, evidentiary errors and sentencing.  The court affirmed the decision of the lower court rejecting these issues.

There were two superseding indictments in this case, and a concurring opinion takes issue with the court's definition of the word "superseding" and offers an interesting approach.  Circuit Judge Reinhardt states in part:

Here, I see no reason, rational or otherwise, to treat the word "superseding" as meaning "not replacing," as we have done before and as we do again here. An abundance of judicial creativity has been devoted to tasks like interpreting "another" to mean "the same"; "slight" to mean "substantial"; and "superseding" to mean "not superseding." I propose redirecting that creativity to better uses, such as finding terms that actually mean what they appear to mean. We could start by using "second indictment" or "first additional indictment" to describe an indictment that follows the original indictment, but does not "supersede" it. Were we to do so, we might earn more public trust and respect than we are accorded now. Any additional amount, no matter how slight, i.e. substantial, would be most welcome.

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Madoff Report - No Corruption, Just Incompetence

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

Commentary on Pfizer Settlement - "Educating Compliance"

Associate AG Perrelli states at the Pfizer Settlement Press Conference:

"today’s settlement reflects the Department of Justice working hard to protect American taxpayer dollars. This case is a great example of the Department’s commitment to fiscal accountability, combating fraud, and returning much-needed dollars back to the U.S. Treasury and state treasuries."

It is good to know that in these days of fiscal downturn, money is being obtained from a company that engaged in conduct disapproved by DOJ. (see here for background)  But wouldn't it have been better if the wrongdoing had not occurred in the first place.  I have to wonder what the government is doing pro-actively as opposed to re-actively to assure corporate compliance. Perhaps more dollars need to to be spent on "Educating Compliance"  My forthcoming article, "Educating Compliance" to be published in Georgetown's American Criminal Law Review can be found here.

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Pfizer Settlement

Associate AG Tom Perrelli called it "the largest health care fraud settlement ever in the history of the Department of Justice." (see here)  Pfizer, Inc. agreed to pay $2.3 billion to settle a case "arising out of civil and criminal allegations relating to Pfizer’s allegedly illegal promotion of certain drugs, most notably Bextra." 

Its subsidiary, "Pharmacia & Upjohn Company [ ] agreed to plead guilty to a felony violation of the Food, Drug and Cosmetic Act for misbranding Bextra with the intent to defraud or mislead." (See DOJ Press Release) "Pharmacia & Upjohn will also forfeit $105 million, for a total criminal resolution of $1.3 billion."  "In addition, Pfizer has agreed to pay $1 billion to resolve allegations under the civil False Claims Act that the company illegally promoted four drugs . . . ." The DOJ Press Release notes that "[a]s part of the settlement, Pfizer also has agreed to enter into an expansive corporate integrity agreement with the Office of Inspector General of the Department of Health and Human Services. That agreement provides for procedures and reviews to be put in place to avoid and promptly detect conduct similar to that which gave rise to this matter."  On the Pfizer website one finds the press release of the company. It states in part:

"... A portion of the civil payments will be distributed to 49 states and the District of Columbia pursuant to agreements with each state’s Medicaid division.

"The terms of the DOJ settlement require Pfizer to pay approximately $503 million to resolve civil allegations concerning past promotional practices related to Bextra. In addition, the company will make payments to resolve other civil allegations involving past promotional practices as follows: approximately $301 million for Geodon, approximately $98 million for Zyvox, and approximately $50 million for Lyrica. The settlement also includes a civil payment of approximately $48 million to resolve allegations relating to certain payments to healthcare professionals involving nine other Pfizer medicines."

See also Devlin Barrett (AP), law.com, Pfizer to Pay Record $2.3 Billion Penalty Over Off-Label Promotions

9th Circuits Stays Mandate on Honest Services Case Pending Supremes Ruling

The Supreme Court accepted for certiorari the case of U.S. v. Weyhrauch (see here), a case involving honest services mail fraud.  The court earlier had accepted for cert another mail fraud case with a different issue (Conrad Black's case here).  The Ninth Circuit, in anticipation of the Weyhrauch case, stayed the issuance of a mandate in U.S. v Inzuna.  The Ninth Circuit, however, did go ahead and affirm the district court's judgments against two former members of the San Diego City Council.  The court adopts what it terms "the majority rule" -- "that private gain is not an element of honest services fraud." In so doing it rejects strong precedent coming from the Seventh Circuit.  The Ninth Circuit also rejected a requirement to "prove an independent violation of state law to sustain an honest services fraud conviction."  There are other issues in the case, such as those related to the Hobbs Act and arguments premised on objections to closing arguments.  The key in this case will be how the Supreme Court decides the Weyhrauch case.

U.S. v. Inzuna - Download Honest Services Fraud - US v Inzunza - 9th Cir 9-1-09

See also Kevin Cole, "Strippergate" Appeal, CrimProf Blog here

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Supreme Court Review

Published with permission - Hugh Kaplan's BNA's Criminal Reporter 2008-09 Term in Review - Download SCOTUS2008-09

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Search Warrants, Steroids, & Baseball

The Ninth Circuit Court of Appeals decision in United States v. Comprehensive Drug Testing, Inc. & Major League Baseball Players Association v. United States looked at "the procedures and safeguards that federal courts must observe in issuing and administrating search warrants and subpoenas for electronically stored information."

It all started in 2002 when the "federal government commenced an investigation into the Bay Area Lab Cooperative (BALCO), which [was] suspected of providing steroids to professional baseball players." It is always interesting to see how an investigation can lead to people well beyond the initial scope of inquiry.  Oftentimes the government obtains incriminating evidence against some that is used to move an investigation far from its initial roots.  Those that are trapped by the government may provide pleas with coooperation -- as one way to lower a sentence may be to implicate others. 

In this case baseball players had been tested under terms that "the results would remain anonymous and confidential."  Ten players turned up as testing positive and the government secured a grand jury subpoena in the Northern District of California "seeking all 'drug testing records and specimens'" pertaining to the baseball player's testing. The subpoena was quashed and the government went in with a search warrant for the "records of the ten players as to whom the government had probable cause." Nothing like the government not getting their way and circumventing the order by using a search. But the government did not stop there, as they went to the District of Nevada and also obtained a warrant - a place where the drug tests had been performed. 

In total it ended up being three judicial opinions with the judges "express[ing] grave dissatisfaction with the government's handling the investigation, some going so far as to accuse the government of manipulation and misrepresentation." The government appealed and the en banc court eventually ended up with the case.  A summary of the court's ruling can be found here.

Clearly there are grave concerns here with respect to the government's conduct. But the decision, with its majority opinion authored by Judge Alex Kosinski, also explores how to handle searches of electronically stored files.  On one hand you have a government wanting to obtain information for an investigation and on another hand you have Fourth Amendment's rights to privacy. The court sets forth a framework for how these searches should occur including requiring that "magistrates should insist that the government waive reliance upon the plain view doctrine in digital evidence cases." The decision calls for "[s]egregation and redaction" to be "either done by specialized personnel or an independent third party."  And it goes on from there. The bottom line is that the court is trying to bring us into a new and modern age that understands and considers how best to handle computerized material.

Whether this framework is the best one, remains to be seen.  But it certainly is good to see that a court is recognizing the need to re-examine the plain view doctrine in this computer and information age.

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Reactions to UBS Settlement and Possible Future Prosecutions

Some folks are voicing an opinion on the UBS settlement and what may result from it.  Check out the following:

• Reuters, Reactions to UBS tax deal
• Tax.com, Law Professors Express Concern over UBS Settlement 
• TaxProfBlog, Tax Profs Criticize UBS Settlement 

Three American U. Law Profs (Nancy S. Abramowitz, Andrew Pike, and Robin Westbrook) state in the second paragraph of their letter:

We have also watched with interest the IRS' efforts to promote voluntary disclosure by US taxpayers prior to IRS' commencement of examination. With the lure of amnesty in the form of no criminal action and reduced civil penalties, the IRS hopes taxpayers will come forward "voluntarily." This general concept is equally laudable. However, the IRS' promise to keep open the September 23 amnesty deadline for taxpayers who come forward even after they receive notice from UBS that their names are about to be revealed is the point at which we depart company with IRS policy.

They state later in their letter:

Our law school operates a low income taxpayer clinic. In the last few years, we have seen an increase in the assertion of penalties against the poorest, least sophisticated taxpayers with virtually negligible room for negotiation by the IRS. It would seem that a blanket program of offering reduced penalties and no criminal action to wealthy, sophisticated tax dodgers who come forward on the eve of their names being turned over to the IRS and with prior knowledge of the forthcoming disclosure, is suggestive of something less than even handed tax administration.

For background on the UBS Settlement see here, here, and here.

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Ohio State AG Takes on Mortgage Fraud

A press release of Ohio Attorney General Richard Cordray "announced details of an 18-month investigation that led to indictments against 41 people and four companies."  The release states that "[t]he defendants are alleged to have engaged in real estate transactions to purchase 453 homes with fraudulent loans totaling $44 million."  Although the FBI, US Attorney's Office and Postal Inspector were involved in this investigation, it is interesting to see that the mortgage fraud indictments are being brought at the state level. The press release notes that:

"With funding from the Ohio Attorney General's Office and the Ohio Organized Crime Investigations Commission, the Cuyahoga County Mortgage Fraud Task Force was formed in December 2007. To date, 289 defendants have been indicted for approximately $111 million in fraudulent loans for 812 houses. Of the 812 houses, 616 fell into foreclosure."

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Indicting the Gatekeepers - Post UBS

DOJ Press Release,Swiss Banking Executive and Swiss Lawyer Charged with Conspiring to Defraud the United States -Defendants Aided Wealthy Americans Conceal Assets in Secret Swiss Bank Accounts

"According to the indictment, [these individuals] helped wealthy American clients conceal their assets by establishing sham and nominee offshore entities to hide their U.S. clients' assets and income while allowing these clients to still control the assets and make investment decisions."

Other interesting posts on UBS-

Sharona Coutts, ProPublica, UBS and the Taxpayers’ Hidden Billions

WebCPA Staff, Former UBS Banker Sentenced to 40 Months

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Epson Imaging Devices Pleads and Pays

A DOJ Press Release reports that "Epson Imaging Devices Corporation (Epson) agreed to plead guilty and pay a $26 million criminal fine for its role in a conspiracy to fix prices in the sale of Thin Film Transistor-Liquid Crystal Display panels (TFT-LCD) sold to Motorola Inc."  It also states that "[a]ccording to a one-count felony charge filed today in U.S. District Court in San Francisco, Epson, a subsidiary of Seiko Epson Corporation, participated in a conspiracy to fix the prices of TFT-LCD panels sold to Motorola for use in Razr mobile phones from the fall of 2005 to the middle of 2006. According to the plea agreement, which is subject to court approval, Epson has agreed to cooperate with the Department’s ongoing antitrust investigation."  It is a common practice for companies to plead guilty and cooperate in the investigation of individuals.  Many a plea or deferred prosecution agreement with a cooperation clause has led to later indictments of individuals within or associated with the company.

The Epson Imaging company website acknowledges this agreement (see here) and states that "[t]he United States Department of Justice has been investigating the pricing practices of the world’s major TFT-LCD manufacturers since December 2006, and Epson Imaging has fully cooperated in this investigation. After careful consideration of the law, the facts and other factors, Epson Imaging has decided that the best course of action was to conclude the agreement with the United States Department of Justice."  The company also states that "In consideration of the inconvenience caused to its customers, Epson Imaging’s directors will voluntarily adjust their remuneration."

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In the News & Around the Blogosphere

Laura Diamond & Bill Rankin, Lawsuit charges university with fraud

Sidhartha Banerjee, CP, Financial fraud victims band together in new national organization (Canada)

 

Mike Scarcella, National LJ, law.com, AG Holder Names Prosecutor for Review of CIA Interrogation Practice

Vesselin Mitev, NYLJ, Law.com, Securities Fraud Does Not Qualify as Continuing Offense, Judge Finds

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Upcoming Conferences

5th Annual Defending White Collar Crimes - Sponsored by NACDL - October 1-2, 2009, New York City, Conference Information, Keynote Address Hon. Lanny A. Breuer, Assist AG, Criminal Division, U.S. Dept. of Justice -  here

Fourth Annual Securities Fraud National Institute, October 15-16, 2009, Washington, D.C., -here

20th Annual Economic Crime Conference - Sponsored by the Economic Crime Institute of Utica College - Extraordinary Circumstances: Combating Fraud and Corruption in Hard Times (including Keynote Speakers - Cynthia Cooper (CEO The CooperGroup LLC & author of Extraordinary Circumstances)) & Martin T. Biegelman (Director, Financial Integrity Unit, Microsoft Corporation).  October 20-22, 2009, Potomac, Maryland. For details see here.

Second Annual Sentencing  Advocacy, Practice & Reform Institute - With Special Focus on Reentry, November 6, 2009, Washington, D.C. here

Financial Institution Fraud Enforcement & Financial Recovery - Sponsored by ACI - November 16-17, 2009 - New York City, Conference Information here.

22nd National Conference on Foreign Corrupt Practices Act - Sponsored by ACI - November 17-18, 2009 -  Washington, DC, Conference Information - here;  Agenda here (says the luncheon address will be given by Hon. Lanny A. Breuer, Assist AG, Criminal Division, U.S. Dept. of Justice).  Brochure here - Download 810L10_INH (I've been informed by the marketing executive of the conference that white collar crime prof blog readers who reference the code "White Collar Crime" will receive a $200 discount).

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