Tuesday, December 23, 2008

Fiat Enters FCPA Deferred Prosecution Agreement

Fiat has agreed to pay a $7 million penalty for illegal kickbacks paid to officials of the former Iraqi government by three of its subsidiaries. According to the DOJ, the company will pay the fine as part of a deferred prosecution agreement with the government.

Criminal informations were filed today against three Fiat subsidiaries in U.S. District Court for the District of Columbia. Iveco S.p.A. (Iveco) and CNH Italia S.p.A. (CNH Italia) were each charged with one count of conspiracy to commit wire fraud and to violate the books and records provisions of the Foreign Corrupt Practices Act (FCPA). CNH France S.A. (CNH France) was charged with conspiracy to commit wire fraud.

Fiat has acknowledged responsibility for the actions of its three subsidiaries, Iveco, CNH Italia and CNH France, whose employees and agents made improper payments to the former Iraqi government in order to obtain contracts with Iraqi ministries to provide industrial pumps, gears and other equipment. The agreement requires the company and its subsidiaries to cooperate fully with the Justice Department’s ongoing Oil for Food investigation.

According to the agreement and the informations filed today, between 2000 and 2002, Iveco, CNH Italia and CNH France paid a total of approximately $4.4 million to the Iraqi government by inflating the price of contracts by 10 percent before submitting the contracts to the United Nations for approval, and concealed from the United Nations the fact that the price contained a kickback to the Iraqi government. Iveco and CNH Italia also inaccurately recorded the kickback payments as "commissions" and "service fees" for its agents in its books and records.

In recognition of Fiat’s thorough review of the illicit payments and its implementation of enhanced compliance policies and procedures, the Department has agreed to defer prosecution of criminal charges against Fiat and its three subsidiaries for a period of three years. If Fiat abides by the terms of the agreement, at the end of the three-year period the Department will dismiss the criminal informations against the subsidiaries.

The Oil for Food Program was established by the United Nations to enable Iraq to sell its oil for humanitarian purposes, in the context of an extensive international sanctions regime. The Oil for Food Program mandated that the proceeds of oil sales be deposited in a United Nations bank account and that those proceeds be used by the Iraqi government only to purchase humanitarian goods and services, such a food and medicine, approved by the United Nations. Beginning in 2000, the Iraqi government began requiring companies wishing to sell humanitarian goods to government ministries to pay a kickback, often mischaracterized as an "after sales services fee," to the government in order to be granted a contract. The amount of that fee was usually 10 percent of the contract price. Such payments were not permitted under the Oil for Food Program or other sanction regimes then in place.

In a related matter, Fiat reached a settlement today with the U.S. Securities and Exchange Commission (SEC) on a complaint and agreed to pay $3.6 million in civil penalties and $7,209,142 in disgorgement of profits, including pre-judgment interest, in connection with contracts for which its subsidiaries paid kickbacks to the Iraqi government.

The investigation of Iveco, CNH Italia and CNH France, and of
other humanitarian goods suppliers involved with the Oil for Food Program,
is being conducted by the Criminal Division’s Fraud Section and the FBI’s Washington Field Office. This case is being prosecuted by Fraud Section Trial Attorney Lori Weinstein.

To date, more than $24 million in penalties have been levied by the Department of Justice in cases involving the suppliers of humanitarian goods under the U.N. Oil for Food program.

The Department acknowledges and expresses its appreciation of
the significant assistance provided by the staff of SEC’s Enforcement Division in the ongoing Oil for Food investigation.

Saturday, December 13, 2008

Siemens AG to Plead Guilty

According to the Associated Press, Siemens AG will plead guilty to settle corruption charges brought by the United States Department of Justice. The charges relate to allegations of bribery and falsification of corporate books from 2001 to 2007. According to the report, Siemens AG will pay at least $448.5 million in fines.

The Justice Department has accused Siemens of making bribes and trying to falsify its corporate books from 2001 to 2007. It has also accused some of the conglomerate's subsidiaries of bribery, including paying kickbacks to the former Iraqi government to get some of the United Nations Oil-for Food contracts.

Siemens and its subsidiaries in Bangladesh, Venezuela and Argentina have agreed to plead guilty on Monday in U.S. District Court in Washington in front of Judge Richard J. Leon.

Siemens has agreed to pay $448.5 million in fines, with the three subsidiaries paying at least $500,000 each, according to court papers.

A spokeswoman for the U.S. division of Siemens had no immediate comment late Friday. The Justice Department also refused to comment.

Siemens, which makes everything from trains to light bulbs, was first rocked by claims of corruption in 2006. Evidence began to surface in 2007 and the company has since acknowledged dubious payments to secure business worth up to $1.7 billion around the world.

Tuesday, December 9, 2008

Several Guantanamo Detainees Charged in the 9/11 Attacks Seek to Plead Guilty

The New York Times is reporting that five Guantanamo detainees charged with coordinating the September 11 attacks told a military judge on Monday that they wish to confess in full and enter pleas of guilty.

The request, which was the result of hours of private meetings among the detainees, appeared intended to undercut the government’s plan for a high-profile trial while drawing international attention to what some of the five men have said was a desire for martyrdom.

But the military judge, Col. Stephen R. Henley of the Army, said a number of legal questions about how the commissions are to deal with capital cases had to be resolved before guilty pleas could be accepted.

The case is likely to remain in limbo for weeks or months, presenting the Obama administration with a new issue involving detainees at the naval base at Guantánamo Bay to resolve when it takes office next month.

At the start of what had been listed as routine proceedings Monday, Judge Henley said he had received a written statement from the five men dated Nov. 4 saying they planned to stop filing legal motions and “to announce our confessions to plea in
full.”

Speaking in what has become a familiar high-pitched tone in the cavernous courtroom here, the most prominent of the five, Khalid Shaikh Mohammed, said, “we don’t want to waste our time with motions.”

“All of you are paid by the U.S. government,” continued Mr. Mohammed, who has described himself as the mastermind of the 2001 attacks. “I’m not trusting any American.”

Mr. Mohammed and the others presented their decision almost as a dare to the American government. When Judge Henley raised questions about the procedure for imposing the death penalty after a guilty plea, some of the detainees immediately suggested they might change their minds if they could not be assured they would be executed.

The announcement Monday sent shockwaves through the biggest case in the war crimes system here — the case for which some government officials say the system was expressly devised. With the case suddenly at a critical juncture, President-elect Barack Obama may find it more complicated to carry out his pledge to close the detention camp here.

. . .

In Monday’s session, which was covered by an international press corps from the Arab world, Spain, Brazil, Japan and elsewhere, Judge Henley directed prosecutors to submit full legal arguments by Jan. 4 on the procedures in capital cases outlined by the Military Commissions Act, which governs proceedings here.

Among other fundamental issues, Judge Henley asked for analysis of whether the men could be sentenced to death if they pleaded guilty instead of being found guilty by a panel of military officers. Because this week’s proceedings were to consider legal motions to be decided by the judge, no panel was present.

Another potential hurdle to guilty pleas was a claim by lawyers for two of the detainees that they may not be mentally competent to represent themselves.

The judge ruled that those two detainees could not make decisions about their cases on Monday. The two are Mr. bin al-Shibh and Mustafa al-Hawsawi, charged as a Qaeda financial operative. In addition to Mr. Mohammed, the other detainees are Walid bin Attash, who is accused of selecting many of the hijackers, and Ammar
al-Baluchi, a nephew of Mr. Mohammed who is said to have been one of his key deputies in the Sept. 11 plot.

The judge said the competency issues might not be resolved for a substantial period. The three detainees who are representing themselves said they would wait to enter a plea, as Mr. Mohammed put it, “until a decision is made about our brothers.”

The judge ruled that he would permit the three men who represent themselves to withdraw motions filed on their behalf, which would set the stage for a guilty plea.

The Second O.J. Simpson Trial - Simpson Rejected an Earlier Plea Deal for Less Time

MSNBC is reporting that prosecutors offered O.J. Simpson a plea deal before he was convicted that would have resulted in less time behind bars than he now faces. Simpson was convicted and sentenced for kidnapping and assaulting two sports memorabilia dealers with a deadly weapon.

O.J. Simpson is headed to prison for at least nine years, but a prosecutor says the former football star could have spent less time behind bars if he had accepted a plea deal before he was convicted.

Clark County District Attorney David Roger said Simpson was offered a deal for less prison time than the nine-to 33-year prison terms the graying former football star was sentenced to on Friday for kidnapping and assaulting two sports memorabilia dealers with a deadly weapon.

"Mr. Simpson wanted something just short of a public apology," Roger said. "We didn't think that was appropriate."


For an interesting discussion of the varying reports in the media regarding how many years Simpson actually received during sentencing last week, see here.

U.S Senator Craig's Efforts to Withdraw Guilty Plea Rejected by Court

CNN is reporting that the Minnesota Court of Appeals today rejected the arguments of U.S. Senator Larry Craig, who sought to withdraw his guilty plea to a misdemeanor offense of disorderly conduct in connection with a sex-string operation at the Minneapolis airport.

The Minnesota Court of Appeals on Tuesday rejected U.S. Sen. Larry Craig's effort to withdraw his guilty plea to a misdemeanor offense of disorderly conduct in connection with a sex-sting operation.

"Because we see no abuse of discretion in the denial and conclude that the statute is not overbroad, we affirm" a lower court's decision, the three-judge panel wrote in a 10-page ruling.

In a written statement, Craig said he was "extremely disappointed" by the action and was considering an appeal.

"I disagree with their conclusion and remain steadfast in my belief that nothing criminal or improper occurred at the Minneapolis airport," Craig said.

The Idaho Republican was arrested in the Minneapolis-St. Paul airport in June 2007 after an undercover police officer accused him of soliciting sex by using hand signals and tapping his foot in a bathroom stall. Two months after his arrest, and without consulting a lawyer, Craig pleaded guilty to the charge without appearing in
court.

After the incident became public, he attempted to withdraw his plea, contending that his "wide stance" had been misinterpreted by the arresting officer and that he had pleaded guilty simply to get the matter over with.

. . .

And the judges denied Craig's assertion that he was entitled to withdraw his plea because he was the victim of entrapment.

They wrote that "failure to explore an entrapment defense has been found not to justify withdrawal of a guilty plea."

They cited a precedent ruling that said entrapment "exists only where the criminal intent originates in the enforcement officials of the government rather than in the mind of the accused."

Then, they added, "Here, the complaint clearly indicates that the criminal intent originated in the mind of appellant, not in the officer."

. . .

Craig initially said he would resign after the incident was reported in the news media, then decided to remain in the Senate and fight to have his guilty plea thrown out. But the three-term senator did not seek re-election this year and will retire when his term ends in January.

Wednesday, November 26, 2008

Michael Vick Enters Guilty Plea on State Charges

According to the AJC, Michael Vick, who is currently serving a 23 month federal prison sentence on felony charges related to dogfighting, pleaded guilty to related charges in Virginia state court on Tuesday. Vick is currently serving his federal sentence at Leavenworth prison and is scheduled for release on July 20, 2009.

Vick pleaded guilty to a state dogfighting charge Tuesday in a Virginia courtroom. Under a plea agreement, the Falcons quarterback received a three-year suspended prison term and a $2,500 fine on a charge of attending, sponsoring and participating in dog fights. A charge of cruelty to animals with prejudice was dismissed. He also received four years’ probation. The fine will be suspended if Vick pays court costs and keeps the terms of the probation. The charges against Vick carried a maximum sentence of 10 years.

After accepting the plea, Surry County Circuit Court Judge Samuel E. Campbell allowed Vick to speak. A stoic Vick, dressed in a gray suit, paused and then said: “I would like to apologize to the court, my family and to the kids that I let down as a role model. I’m very remorseful for my actions.”

Sunday, November 23, 2008

Conrad Black, Fallen Press Baron, Discusses the U.S. Justice System and Plea Bargains from Behind Bars

Conrad Black, who once presided over the world's third-largest newspaper empire, is currently serving a 78 month prison sentence in the United States after being convicted on three counts of fraud and one count of obstruction of justice related to improper diversion of company funds for personal benefit. Black recently discussed life behind bars and the U.S. criminal justice system in London's Sunday Times.

I write to you from a US federal prison. It is far from a country club or even a regimental health spa. I work quite hard but fulfillingly, teaching English and the history of the United States to some of my co-residents. There is practically unlimited access to e-mails and the media and plenty of time for visitors.

Many of the other co-residents are quite interesting and affable, often in a Damon Runyon way, and the regime is not uncivilised. In eight months here there has not been the slightest unpleasantness with anyone. It is a little like going back to boarding school, which I somewhat enjoyed nearly 50 years ago (before being expelled for insubordination) and is a sharp change of pace after 16 years as chairman of The Daily Telegraph. I can report that a change is not always as good as a rest.

However, apart from missing the constant companionship of my magnificent wife Barbara, who visits me once, twice or even three times each week and lives nearby in our Florida home with her splendid Hungarian dogs, I enjoy some aspects of my status as a victim of the American prosecutocracy.

My appeal continues. Given the putrefaction of the US justice system, it is an unsought but distinct honour to fight this out and already to have won 85% of the case and 99% of the financial case. The initial allegation against me of a “$500m corporate kleptocracy” has shrunk to a false finding against me - that even some of the jurors have already fled from in post-trial comments – of the underdocumented receipt of $2.9m. There is no evidence to support this charge. It has been a grim pleasure to expose the hypocrisy of the corporate governance establishment, who have bankrupted our Canadian company and reduced the share price of the American one from $21, when I left, to a miraculous two cents (yes, two cents). They have vaporised $2 billion of public shareholder value; fine titles in several countries have deteriorated; and for their infamies, the protectors of the public interest have cheerfully trousered more than $200m.

US federal prosecutors, almost all of whom would be disbarred for their antics if they were in Britain or Canada, win more than 90% of their cases thanks to the withering of the constitutional guarantees of due process – that is, the grand jury as an assurance against capricious prosecution, no seizure of property without just compensation, access to counsel, an impartial jury, speedy justice and reasonable bail.

We did not know the grand jury was sitting, have never seen the transcript of its proceedings and I was denied counsel of choice by the ex parte seizure, which the jury later judged to be improper, of the proceeds of the sale of an apartment in New York that I was going to use as the retainer for trial counsel.

The system is based on the plea bargain: the barefaced exchange of incriminating testimony for immunity or a reduced sentence. It is intimidation and suborned or extorted perjury, an outright rape of any plausible definition of justice.

The US is now a carceral state that imprisons eight to 12 times more people (2.5m) per capita than the UK, Canada, Australia, France, Germany or Japan. US justice has become a command economy based on the avarice of private prison companies, a gigantic prison service industry and politically influential correctional officers’ unions that agitate for an unlimited increase in the number of prosecutions and the length of sentences. The entire “war on drugs”, by contrast, is a classic illustration of supply-side economics: a trillion taxpayers’ dollars squandered and 1m small fry imprisoned at a cost of $50 billion a year; as supply of and demand for illegal drugs have increased, prices have fallen and product quality has improved.

I wish to advise Lord Hurd that when I return to the UK I would like to take up more energetically than I did initially his request for assistance in his custodial system reform activities.

Obviously, the bloom is off my long-notorious affection for America. But I note from recent comment in Britain and Europe that the habit of blaming anything that goes awry in the world on the US is alive and well. However, the United States has not disintegrated and American capitalism is not dead, nor even in failing health. The recent financial upheavals have exposed the folly of the US Congress and Federal Reserve and will aggravate a cyclical recession and take some time to shake out.

The United States has just retained the riveted interest of the whole world, most of which does not wish it well, in the billion-dollar vulgarity of its election process for an entire year. And it surely has earned the respect of the world in elevating a very capable leader as the first non-white man to head any western nation.

I would be distinctly consolable if the United States really was in decline and I have more legitimate grievances against that country than do The Guardian or the BBC, but it is still a country of incomparable vitality even as its moral, judicial soul atrophies and reeks.

Saturday, November 15, 2008

Korea Considering Adopting Plea Bargaining System

According to the Korea Times, South Korea is considering implementation of a plea bargaining system, and the lead prosecutor has stated that the system would initially be utilized for corruption cases. If these plans move forward, this will offer a unique opportunity to observe a criminal justice system's implementation of plea bargaining from the beginning.

The prosecution is seeking to adopt plea-bargaining for corruption cases.

Prosecutor General Lim Chae-jin stressed the importance of criminal law reform, including the introduction of a plea bargaining system, at the prosecution's 60th anniversary ceremony held in southern Seoul, Friday.

"It is time for Korea's judiciary to adopt plea-bargaining to a limited extent, such as in bribery cases, in order to effectively punish corruption, which is getting more complex,'' Lim said.

Plea-bargaining is an agreement whereby the prosecution offers a lighter punishment to a criminal suspect in exchange for admitting his or her guilt and cooperating with the investigation.Lim also said he will promote adopting systems allowing the prosecution to forcibly summon suspects and punish those who commit perjury.

"We need such systems to verify the truth and realize justice,'' the top prosecutor said.He also expressed regret over the prosecution's past misdeeds. "The prosecution has tried to keep political neutrality and independence, but there have been times when we neglected lawful and proper investigation procedures out of the excessive determination to present good results.''

Lim said prosecutors will make efforts to investigate in fair and appropriate ways, so that the they will not be criticized for coercive investigations.

Tuesday, November 4, 2008

Ex-UBS Executive Is Sentenced to Six and a Half Years in Prison After Guilty Plea

According to Reuters, a former UBS executive has received a sentence of six and a half years in prison for his role in an what has been termed the most pervasive insider trading ring since the 1980s. The defendant, Mitchel Guttenberg, pleaded guilty in February 2008.

Mitchel Guttenberg, a former institutional client manager in UBS' equity research department, admitted in a guilty plea in February to selling nonpublic information about the bank's stock recommendations.

In handing down the sentence, which includes three years of supervision after his release, Judge Deborah Batts of U.S. District Court in Manhattan said, "from the moment he joined the (UBS) investment review committee he planned to give that information to others to use illegally."

Batts did not fine Guttenberg, who expressed his remorse to his family, the court and his former employer. His lawyer Sean O'Shea described Guttenberg as "a broken man" whose wife had left him, and he was living in his sister's apartment.

Guttenberg was among 13 people, including former employees of Wall Street firms such as Bank of America Corp, Morgan Stanley and Bear Stearns Co Inc, who were criminally charged last year in an insider trading ring.

Guttenberg admitted in court that on numerous occasions between 2001 and 2006 he told two traders about upcoming analyst stock recommendations, including those for Caterpillar Inc and Goldman Sachs Group Inc shares.

The information about upcoming UBS analysts' upgrades and downgrades was used to execute hundreds of transactions, netting more than $17.5 million, prosecutors said.

In court on Monday, Assistant U.S. Attorney Andrew Fish told the judge that the securities industry is "full of people like Mr. Guttenberg. They have access to information they can use to make millions."

Guttenberg had pleaded guilty to two counts of conspiracy and four counts of securities fraud. He had faced 78 months to 97 months in prison under sentencing guidelines.

The judge ordered Guttenberg to begin his sentence in 60 days. She recommended that he serve his term in the minimum security prison at Fort Dix, New Jersey.

Monday, October 27, 2008

McCain Op-Ed Discusses DOJ and Enforcement Priorities

Senator John McCain wrote an opinion article at the request of the National Law Journal regarding legal issues facing the next president. Below is a portion of the article discussing the Department of Justice, the ongoing mortgage fraud investigations, and organized crime.

Much responsibility for the effective administration of justice is entrusted to the dedicated men and women who toil day in and day out at the Department of Justice. My first objective would be to ensure that the department is, and remains, above the political fray. The department must function with integrity and effectiveness above all else.

I would also bolster law enforcement programs that will aid our struggling economy and address the ongoing threat of terrorism and other public safety concerns.

Unfortunately, we have all recently observed what happens when banks, major financial institutions and other engines of commerce become subject to market manipulators. Those who make a mockery of rules designed to keep our markets transparent and efficient must be brought to justice.

It will be my aim to boost our financial system and keep our economy strong. Effective enforcement of our nation's securities and banking laws will help accomplish these goals.

In particular, the FBI's mortgage fraud task force is an important tool for keeping our markets clean. No matter who they are or where they hide, we must hold accountable those who would disregard the law, placing innocent citizens and investors in peril.

Preventing terrorist attacks would be a top priority of the McCain administration. As a number of observers have noted, our nation is safer than it was on Sept. 11, 2001, but not yet safe. Upon taking office, I would ensure we win the wars we are fighting in Iraq and Afghanistan. I will also review our counterterror operations to ensure their effectiveness.

As we use aggressively all lawful means to combat threats, we must also ensure that our counterterror programs enjoy bipartisan support and widespread public acceptance. The terrorists win if we fight them using tactics that undermine our strategic goals. As long as I am president, I will ensure that the world never again sees America as a country that tortures. We must always act within the bounds of the law. I will help forge a bipartisan consensus as to where those boundaries are.

Terrorists are not the only threat to public safety. Lax enforcement policies, judges who legislate from the bench and lack of support for law enforcement personnel all continue to force our innocent citizens behind the barred windows of their homes and allow criminals to roam free.

And now drugs are bringing waves of crime and organized gang activity to rural areas thought to be nearly immune from such problems. The federal government must both support state and local law enforcement and effectively enforce federal laws designed to root out violent crime, organized gangs and other interstate criminal activity.

Thursday, October 16, 2008

KPMG Case Heads to Trial

Another case we have followed closely is that of the government's prosecution of former KPMG executives and an ex-partner at Sidley Austin. The case, which was once billed as the biggest tax-fraud case in U.S. history, began with 19 defendants, but only four remain. Both the New York Times and the Wall Street Journal Law Blog have articles on the case this week.

From the NYT.

Jury selection began on Tuesday in a closely watched tax shelter case once billed as the largest ever, but government prosecutors face a difficult road after a string of defeats in a proceeding that has been scaled back.

The four defendants, including three executives who once worked for the accounting firm KPMG, are set to stand trial on fraud and conspiracy charges. They are accused of creating, selling and sometimes using abusive tax shelters that reduced clients’ tax bills by at least $2.5 billion from the late 1990s to recent years.

Opening arguments in the trial, before Judge Lewis A. Kaplan of Federal District Court in Manhattan, are scheduled to begin Wednesday.

The government wants to present a dozen wealthy taxpayers as witnesses for the prosecution, including Doug Lowry, a former tax executive at CKE Restaurants, which owns the Hardee’s chain, according to court filings, as well as at least two current or former employees of Deutsche Bank, which is under a separate criminal investigation into its work with
tax shelters.

The KPMG case is a shadow of its former self. In 2005, 19 defendants — 17 from KPMG — were indicted on multiple charges of conspiracy, tax evasion and fraud in connection with making and selling questionable shelters to wealthy investors. In 2006, Judge Kaplan threw out charges against 13 of the 19 defendants, saying that prosecutors had violated their constitutional rights by pressing KPMG to stop paying their legal fees. Two of the remaining defendants pleaded guilty.

The dismissal of charges followed an outcry from independent lawyers and prosecutors about the government’s tactics in the case. In August, the Justice Department formally softened the guidelines used in the proceeding, saying it would no longer press companies to share legal secrets with prosecutors or not pay the legal fees of employees accused of crimes.

The three remaining defendants who once worked at KPMG are Robert Pfaff, John Larson and David Greenberg. A fourth defendant, Raymond J. Ruble, was a tax lawyer at the law firm formerly known as Sidley Austin Brown & Wood, now Sidney Austin. The trial is expected to last up to four months...

The trial this week centers on tax shelters deemed abusive by the I.R.S. In recent weeks, defendants have intensified their effort to exclude a core piece of the government’s case: charts that are said to show billions of dollars in tax evasion by some 600 wealthy individuals who bought the shelters.

From the WSJ Law Blog.

The judge, Lewis Kaplan (pictured), found that prosecutors, during their investigation of the firm, violated those defendants’ rights by pressuring KPMG not to pay their legal fees in order to avoid a possible indictment of the firm itself. Earlier this year, the 2nd Circuit agreed, and the Justice Department has twice said it would soften its approach in pursuing corporate crime investigations.

New Twist In Broadcom Co-Founder's Plea Bargaining Matter

We've been following the events surrounding the plead agreement reached between the federal government and Broadcom Corp. co-founder Henry Samueli for quite a while now. (see here and here). Last month, the U.S. District Court Judge handling the case rejected the plea deal, which included five years of probation, a $250,000 fine, and $12 million in restitution to the U.S. Treasury. According to the District Court Judge, the proposed deal would "erode the public's trust in the fundamental fairness of our justice system" and would give the perception that "justice is for sale." The matter is on appeal to the 9th Circuit Court of Appeals.

Law.com has an update of events this week.

On Tuesday, Samueli and prosecutors declined to reject the plea deal, although both agreed to lift the binding provisions to allow the judge to consider a statutory maximum sentence of up to five years.

Thom Mrozek, a spokesman for the U.S. Attorney's Office for the Central District of California, clarified that Samueli opted to lift the binding sentencing provisions and prosecutors chose not to object to those changes. But he said prosecutors intend to seek the plea agreement's original probationary sentence when Samueli gets sentenced next year.

A Little Hollywood Drama in the Plea Bargaining World

Michael Edison, a con man who stole $2 million from the widow of Atherton Phleger, a founding partner of Brobeck, Phleger & Harrison, pleaded guilty to all charges this week in return for an agreement that the government will not seek prison time for his wife, an alleged accomplice in trying to obstruct justice by deceiving Edison's attorney. The full story of how Edison perpetrated his con is a story that involves a Hollywood star, private jets and yachts, and fake documents from Switzerland. For his part, Edison agreed to serve 63 months in prison and pay $2.5 million in restitution.

Law.com has an article regarding the events.

Michael Edison admitted targeting Jean Phleger, widow of Brobeck, Phleger & Harrison founder Atherton Phleger, in a financial swindle. Originally introduced to Phleger by her son-in-law, the actor Don Johnson, Edison agreed to refinance Phleger's house, pay down her old mortgage, and use $2 million in leftover cash to pay Phleger's bills.

But Edison instead used the money for a private jet, a boat docked in Malta, cars, and goods at Kmart, Foot Locker and other stores, according to court filings.

Describing his occupation in court Tuesday as "an entrepreneur, really, or a turn-around executive," Edison also admitted cheating another set of business partners out of $182,000.

Prosecutors indicted Edison last year for mail fraud. He landed in Santa Rita Jail in Dublin, unable to make bail.

Edison then set out to deceive prosecutors, sending a letter to his wife -- who was living in Switzerland -- with instructions to dummy up documents to make it seem that Phleger loaned Edison the money. Deborah Edison sent the false papers to Edison's attorney, Michael Thorman of Bonjour Thorman Baray & Billingsley, and let Thorman present them to Assistant U.S. Attorney Jeffrey Finnigan.

But jail officials had already intercepted Edison's instructions to his wife. Their maneuvers led to charges against her for obstruction of justice, Thorman getting bounced from the case, and additional counts tacked on to Edison's indictment.

Wednesday, October 15, 2008

Former Chief Executive of Enron Broadband Services Pleads Guilty

According to the Associated Press, the former chief executive of Enron Broadband Services, Joseph Hirko, pleaded guilty on Tuesday to one count of wire fraud. The agreement requires Hirko to serve up to 16 months in prison and pay up to $8.7 million in restitution to the government for victims of the Enron collapse. He will also cooperate with prosecutors in other pending broadband prosecutions. Sentencing will occur on March 3, 2009.

As noted in the AP article, Hirko entered into the plea agreement because he did not want to risk the consequences of losing at trial. As has been discussed here previously (see this post regarding my recent article of plea bargaining in financial crimes cases after Enron), many individuals prosecuted for financial crimes following Enron agreed to enter plea bargains due, at least in part, to the existence of significant "sentencing differentials" between the sentence offered by the government in negotiations and the potential sentence resulting from losing at trial. It appears that Hirko, who pleaded guilty to only one count of wire fraud but faced wire fraud, securities fraud and insider trading charges if he proceeded to trial, also falls into this category.

A portion of the AP story is below.

[Hirko] admitted to allowing press releases to be distributed in 2000 that said a groundbreaking operating system had been embedded in Enron's broadband network that would allow users to pay only for bandwidth they used instead of a flat monthly fee.

The operating system was still under development and the bandwidth-on-demand feature never materialized. Hirko admitted that he knew broadband operating system, or BOS, hadn't been embedded and couldn't provide bandwidth on demand.

Per Ramfjord, one of Hirko's lawyers, said in Tuesday's online edition of the Houston Chronicle that the plea allowed him to "reduce the risk of going to trial and puts him in a position to be able to return to an active life as soon as possible."

A trial of Hirko and four other EBS executives ended in September 2005 with jurors unable to reach verdicts on most charges. Hirko was acquitted in the 2005 trial on 14 of the 27 charges against him, two of them for insider trading and 12 for money laundering. He was charged in a new indictment with wire fraud, securities fraud and insider trading.

Hirko had been set to go to trial in December alongside Rex Shelby, a former top software executive.

"Today's plea closes another chapter in the Enron scandal," Acting Assistant Attorney General Matthew Friedrich said in a news release.

Enron, once the nation's seventh-largest company, entered bankruptcy proceedings in December 2001 after years of accounting tricks could no longer hide billions in debt or make failing ventures appear profitable.

The collapse wiped out thousands of jobs, more than $60 billion in market value and more than $2 billion in pension plans.

SEC Follows DOJ Regarding Requests for Waiver of Privilege

The National Law Journal is reporting that the SEC has released its "Red Book" publicly for the first time. The Red Book is similar to the Department of Justice's U.S. Attorney's Manual and provides guidance to the staff of the SEC Enforcement Division in the investigation of potential violations of the securities laws.

The manual addresses the privilege waiver issue as well as a number of areas that should aid practitioners, including the evaluation of possible investigations, issuing Wells letters, communicating with senior SEC officials, responding to document subpoenas, "witness assurance" letters and contacting current and former employees.

In the privilege section, the manual contains the following statement in bold face type: "The staff should not ask a party to waive the attorney-client or work product privileges and is directed not to do so."

It adds that all decisions about potential waivers are to be reviewed by the assistant supervising the matter and may involve more senior members of management.

"The Enforcement Division's central concern is whether the party has disclosed all relevant facts within the party's knowledge that are responsive to the staff's information requests, and not whether a party has elected to assert or waive a privilege," the manual states.

If a party seeks cooperation credit for timely disclosure of relevant facts, the manual adds, that party must disclose all such facts within the party's knowledge. "On request, and to the extent possible, the staff should continue to work with parties to explore alternative means of obtaining factual information when it appears that disclosure of responsive documents or other evidence may otherwise result in waiver of applicable privileges."

Stephanie Martz, director of the white-collar crime project of the National Association of Criminal Defense Lawyers (NACDL), said the manual language appears to be a "hybrid" of recent approaches by the Department of Justice. "I think on the positive side, it seems to recognize there is a problem," she said. "There is a line where staff is specifically instructed not to ask for waivers, but on the other hand, that's followed by the statement that says supervisors can approve it."

Although the manual claims the relevant inquiry is going to be whether relevant facts have been disclosed, Martz added, "It will be interesting to see how this works if you do have facts and its work product, and the government wants them."

Sunday, October 12, 2008

ABA Task Force's Draft Recommendations Regarding Upjohn Warnings

A Task Force of the ABA has been working on recommendations regarding a set of best practices for company counsel to follow when providing Upjohn Warnings to company employees during internal investigations. Below is the executive summary from the Task Force's latest draft.

This Report and Recommended Best Practices are the product of a Task Force established in early-2008 by the White Collar Crime Committee of the American Bar Association’s Criminal Justice Section. They are intended to address an increasingly-common question associated with the attorney-client privilege: What best practices should corporate counsel follow when interacting with corporate employees while conducting internal investigations on behalf of the corporate entity? In particular, what advice or warnings – commonly referred to as Upjohn warnings, or corporate Miranda warnings – should corporate counsel (attorneys for any legal entity that is distinct from its members) provide to corporate Constituents (employees, officers and directors) and how should counsel give those warnings?

Upjohn warnings are named after Upjohn v. United States, 449 U.S. 383 (1981), the case in which the Supreme Court made clear that the corporate attorney-client privilege applied to a much wider group of Constituents than the corporation’s “control group.” Once Upjohn confirmed that communications between corporate counsel and lower-level employees were potentially privileged, issues arose as to who held the privilege and who could waive the privilege.

Whether the corporation, the Constituent, or the corporation and the Constituent is the holder of the privilege has taken on special significance with the promulgation of federal corporate prosecution guidelines that have incentivized corporations under investigation to waive the privilege in order to gain cooperation credit. In the typical case, a corporation that receives allegations of wrongdoing will retain counsel to conduct an internal investigation to assess the allegations and provide legal advice. Corporate counsel will, in turn, interview the relevant corporate Constituents who possess knowledge about the allegations. Those interviews – involving only corporate counsel and the Constituent – are usually subject to a legitimate claim of attorney-client privilege.

But if the corporation later comes under investigation, especially federal investigation, it may seek to obtain cooperation credit – to mitigate criminal or civil regulatory exposure – by waiving the privilege and producing to the government the statements made by Constituents to corporate counsel during the internal investigation. Upjohn warnings have therefore emerged as the mechanism for making clear to Constituents that the corporation, and the corporation alone, is the holder of the privilege. In the absence of such warnings, Constituents may be able to assert that they, too, hold the privilege: that, as privilege holders, they elect not to waive the privilege, and that the corporation may not produce their statements to government investigators. By providing unambiguous warnings, corporate counsel may be able to limit later disputes over the extent and nature of the attorney-client relationship, and Constituents are better able to assess their own risks.


The draft also includes a recommended Upjohn warning.

I am a lawyer from Corporation A. I represent only Corporation A, and I do not represent you. I am conducting this interview to gather facts in order to provide legal advice for Corporation A. I am conducting this interview as part of an investigation to determine the facts and circumstances of X in order to advise Corporation A how best to proceed.

Your communications with me are protected by the attorney-client privilege. In order for the communication to be subject to the privilege, it must be kept in confidence. In other words, you may not disclose the substance of this interview to any third party, including other employees or anyone outside of the company.

But the attorney-client privilege belongs solely to Corporation A, not you. That means that Corporation A alone may elect to waive the attorney-client privilege and reveal our discussion to third parties. Corporation A alone may decide to waive the privilege and disclose this discussion to such third parties as federal or state agencies, at its sole discretion, and without notifying you.

Do you have any questions?

Are you willing to proceed?

Tuesday, October 7, 2008

DAG on the New Corporate Charging Guidelines

Last week, the Deputy Attorney General, Mark Filip, discussed the new DOJ corporate charging guidelines at the Third Annual National Institute on Securities Fraud Conference sponsored by the ABA Criminal Justice Section.

During the speech, the DAG outlined the major provisions of the corporate charging guidelines dealing with waiver of the attorney-client privilege and employee legal rights. During the question and answer portion of the event, Mr. Filip said that he did not believe that federal legislation was needed to protect the attorney-client privilege and employee rights now that the Department has refined its policies. He also said that the Department continues to support separate legislation (introduced in previous Congresses but not currently pending) that would allow companies to voluntarily produce privileged materials to the government without waiving the privilege as to third parties (the so-called "selective" or "limited" waiver proposals).

The audio of the speech is available on the ABA Criminal Justice Section's website here.

Guilty Pleas from the Subprime Mortgage Fallout Begin

Law.com is reporting that three people have pleaded guilty to a multi-million dollar subprime mortgage scheme in the Southern District of New York.

Galina Zhigun and her son, Garri Zhigun, operators of the Brooklyn-based mortgage brokerage AGA Capital NY Inc., and Maryann Furman, an AGA employee and the wife of Garri Zhigun, entered guilty pleas to fraud charges before Southern District of New York Magistrate Judge Gabriel Gorenstein.

Accused of using false documents and straw buyers to obtain loans fraudulently, the three were among 26 people indicted in the subprime scheme. Friday's pleas bring to 11 the number of those who have pleaded guilty in the case. The remaining 15 defendants are scheduled to go to trial in two waves, the first on Nov. 17 and the second on Jan. 19.

When he is sentenced on Jan. 5, Garri Zhigun is expected to receive up to nine years in prison. He has agreed to forfeit a total of $2.5 million. His co-defendants are expected to receive between up to four years and three months in prison and each forfeit $1 million.

All three also face a minimum of $1 million in fines.

Wednesday, October 1, 2008

From Special Attorney to Special Counsel: The History of "Special" Lawyers

Slate had an interesting article today that discusses the difference between special counsels, special attorneys, and special prosecutors. The piece stems from discussion of Connecticut federal prosecutor Nora Dannehy's appointment as a "special attorney," though many in the media are mistakenly using the title "special prosecutor." Here is an excerpt from the article discussing the history of the various titles.

The term "special prosecutor" first came into use in the United States during the Teapot Dome scandals of 1920s, when Calvin Coolidge appointed outside lawyers to look into the corrupt land-leasing practices of federal officials. Special prosecutors were given more official status in the aftermath of Watergate, when Richard Nixon finagled the firing of the one assigned to investigate him. The Ethics in Government Act of 1978 called for the position of "special prosecutor" to be separate from the executive and legislative branches and to be appointed by a three-member panel of judges from the U.S. Court of Appeals. The act also gave special prosecutors the power to issue subpoenas, start grand jury proceedings, hire a staff, use the resources of the Department of Justice and FBI, and get a security clearance if needed. (Later, the name "special prosecutor" would be officially changed to "independent counsel.")

The Supreme Court upheld the law governing special prosecutors in 1988, but Congress let it expire in 1999 in the wake of Kenneth Starr and the Clinton investigation. In its place, the Department of Justice created regulations allowing for the selection of a "special counsel" on those occasions when there's a conflict of interest within the department. (Patrick Fitzgerald, who led the Northern Illinois U.S. attorney's office, was appointed under those regulations to investigate the Valerie Plame affair.) Unlike the independent counsels that came before, a special counsel serves at the pleasure of the attorney general's office, so he doesn't enjoy the same strict separation from the executive branch.


As for prosecutor Nora Dannehy, she will be a "special attorney."
A "special prosecutor" is an outside lawyer brought in to investigate a government official accused of wrongdoing. He or she isn't directly accountable to the people or agency under investigation, avoiding the potential conflict of interest that a regular prosecutor would have. But Dannehy comes from within the Department of Justice and will report directly to the attorney general and his deputy: Technically, she's a "special attorney," rather than a special prosecutor. That means she was appointed under a section of the U.S. code that allows the government to assign department lawyers to cases outside their home district. Dannehy lives in Connecticut but will be acting under the power of the U.S. attorney for the District of Columbia.

Tuesday, September 30, 2008

When Not Guilty Can Mean More Prison Time

ABC News recently had an interesting article discussing one of the most widely debated aspects of the current U.S. federal sentencing regime - receiving an increased sentence for acquitted conduct. The story begins by discussing the story of Roger White.

When Roger White helped his brother and his brother's girlfriend rob a bank in Maysville, Ky., he led police on a high-speed, 17-mile chase down country roads before he finally crashed his car and was caught.

At his 2003 trial, White, the getaway driver, was convicted of aiding the bank robbery, but the jury acquitted him of several other charges involving the use of a gun during the robbery and escape.

Nevertheless, a judge found that there was sufficient evidence that shots were fired during the robbery and subsequent police chase to add nearly 14 years onto White's prison sentence, more than doubling it even though a jury found White not guilty of most of the gun charges.

White's case, now pending before the Sixth Circuit Court of Appeals, raises questions about whether defendants should be sentenced to longer prison terms based on evidence that a jury either never heard or has rejected.

Several federal judges have said the practice violates the constitutional right to a jury trial and a few have called on the Supreme Court to reconsider its 1997 decision, in U.S. v. Watts, upholding increased prison sentences based on so-called "acquitted conduct."


This is not an uncommon occurrence, and the ABC article goes on to discuss other similar examples and touches briefly on current cases moving through the appeals process and, perhaps, eventually to the U.S. Supreme Court.

For a more in depth analysis of the issue of sentencing for acquitted conduct, one might want to review the case of United States v. Ibanga, 454 F. Supp. 2d 532 (E.D. Va. 2006) (subsequently vacated and remanded by the 4th Circuit). The court in Ibanga declined to sentence the defendant to an additional ten years based on acquitted conduct under the theory that it would be "constitutionally questionable."

After an eleven-day trial, a jury acquitted defendant Michael Ibanga of all of the drug distribution charges against him and one of the two money laundering charges against him in the Indictment. The single count of which defendant Ibanga was convicted typically would result in a Guidelines custody range of 51 to 63 months. However, the United States demanded that the Court sentence defendant Ibanga based on the alleged drug dealing for which he was acquitted. This increased the Guidelines custody range to 151 to 188 months, a difference of about ten years.

Although the Sentencing Guidelines require that district courts include acquitted conduct under certain circumstances when calculating a custody range, U.S. Sentencing Guidelines Manual § 1B1.3, comment. (backg'd.) (Nov. 2005)…, the Court declined to sentence defendant Ibanga on this basis. Sentencing a defendant to an extra ten years in prison for a crime of which he was acquitted is constitutionally questionable and would not serve the statutory sentencing factors set forth in 18 U.S.C. § 3553(a). The Court therefore sentenced defendant Ibanga to 55 months in prison, a term of incarceration that would have fallen in the middle of the Guidelines range had the acquitted conduct not been included in the calculations. This opinion explains the Court's reasoning…

Punishing defendant Ibanga for his acquitted conduct would have contravened the statutory goal of furthering respect for the law and would have resulted in unjust punishment for the offense for which he was convicted (i.e., money laundering). 18. U.S.C. § 3553(a)(2)(A). From defendant Ibanga's perspective, a Guidelines sentence would certainly have resulted in confusion as to the law, and confusion breeds contempt. Defendant Ibanga is an immigrant to this country who has not had the benefit of extensive education, much less an intensive law school seminar on post-Booker sentencing practices. What could instill more confusion and disrespect than finding out that you will be sentenced to an extra ten years in prison for the alleged crimes of which you were acquitted? The law would have gone from something venerable and respected to a farce and a sham.

From the public's perspective, most people would be shocked to find out that even United States citizens can be (and routinely are) punished for crimes of which they were acquitted. See Coleman, 370 F. Supp. 2d at 671 n.14 ("A layperson would undoubtedly be revolted by the idea that, for example, a person's sentence for crimes of which he has been convicted may be multiplied fourfold by taking into account conduct of which he has been acquitted.") (internal quotations omitted)…


The court goes on to conduct a thorough analysis of the historical role of the jury and concludes, "It would only confirm the public's darkest suspicions to sentence a man to an extra ten years in prison for a crime that a jury found he did not commit."

Former British Airways Executive Pleads Guilty - Nine Companies and Two Other Individuals Have Already Pleaded Guilty

According to a DOJ Press release, a British citizen and former British Airways Executive has agreed to plead guilty, serve eight months in jail and pay a criminal fine for participating in a conspiracy to fix rates for international air cargo shipments.

According to the charges filed in U.S. District Court in the District of Columbia, Keith Packer, former Commercial General Manager for British Airways World Cargo, and his co-conspirators engaged in a conspiracy to fix the air cargo rates charged to customers for international air shipments, including to and from the U.S., in violation of the Sherman Act. Under the plea agreement, which is subject to court approval, Packer has agreed to serve eight months in jail, pay a $20,000 criminal fine and cooperate with the Department’s ongoing investigation.

Packer is the first foreign national and third individual charged as part of the Antitrust Division’s ongoing investigation into price fixing in the air transportation industry. Additionally, nine companies have been charged.

"The cost of shipping products in and out of the United States is a critical component of our economy and a price that every American business and consumer bears," said Scott D. Hammond, Deputy Assistant Attorney General in charge of the Antitrust Division’s Criminal Enforcement Program. "Those who conspire to cheat U.S. businesses and consumers by fixing shipping rates will be held accountable."


Numerous others, including nine companies, have been charged in the matter. All have pleaded guilty.

In August 2007, British Airways Plc pleaded guilty and was sentenced to pay a $300 million criminal fine for conspiring to fix cargo rates for international air shipments, including to and from the United States, and conspiring to fix passenger fuel surcharges for long-haul international air transportation, including between the United States and United Kingdom. The same day, Korean Air Lines pleaded guilty and was sentenced to pay a $300 million criminal fine for conspiring to fix cargo rates charged to customers in the United States and elsewhere for international air shipments and conspiring to fix wholesale and passenger fares for flights from the United States to Korea.

In January 2008, Qantas Airways Limited pleaded guilty and was sentenced to pay a $61 million criminal fine for its role in a conspiracy to fix cargo rates to customers in the United States and elsewhere for international air shipments.

In May 2008, Japan Airlines pleaded guilty and was sentenced to pay a $110 million criminal fine for conspiring to fix rates for international cargo shipments.

In July 2008, Bruce McCaffrey, Qantas’ former highest-ranking executive employed in the United States, pleaded guilty and was sentenced to serve six months in jail and pay a $20,000 criminal fine for fixing cargo rates to customers in the United States and elsewhere for international air shipments.

Also in July 2008, SAS Cargo Group A/S (SAS), Cathay Pacific Airways Limited (Cathay), Martinair Holland N.V. (Martinair), Société Air France (Air France) and Koninklijke Luchtvaart Maatschappij N.V. (KLM Royal Dutch Airlines) pleaded guilty to conspiring to fix prices on air cargo rates. SAS was sentenced to pay a $52 million criminal fine, Cathay was sentenced to pay a $60 million criminal fine, Martinair was sentenced to pay a $42 million criminal fine, and Air France-KLM, which now operates under common ownership by a single holding company, was sentenced to pay a $350 million criminal fine.

In August 2008, Timothy Pfeil, the former highest-ranking cargo executive in the U.S. for SAS, pleaded guilty to conspiring to fix the rates charged to U.S. and international customers on air cargo shipments.

Monday, September 29, 2008

Ex-CIA Official Pleads Guilty in Virginia

The Washington Post has a nice article detailing the events leading to today's guilty plea by former top CIA administrator Kyle "Dusty" Foggo.

The CIA's former top administrator pleaded guilty today to steering agency contracts to a defense contractor and concealing their relationship, making Kyle "Dusty" Foggo the highest-ranking member of a federal intelligence or law enforcement agency to be convicted of a crime, officials said.

Foggo admitted in U.S. District Court in Alexandria that he conspired to defraud the United States in his relationship with Brent R. Wilkes, a California businessman. Prosecutors say Wilkes subsidized meals and vacations for Foggo and his family, and that Foggo helped Wilkes get lucrative contracts, including one in which the CIA was bilked when it paid 60 percent more than it should have for water supplied by a Wilkes-affiliated company to CIA outposts in Afghanistan and Iraq.

Foggo, a longtime logistics officer, was the CIA's executive director from November 2004 until May 2006, holding the agency's third-ranking position and one in which he directed daily CIA operations. He was accused of using his seniority and influence at a prior CIA job in Europe to help Wilkes, a longtime friend. It's one of the first cases that has involved the CIA's clandestine operations in Europe and the Middle East.

Although Foggo, 53, pleaded guilty to one count of fraud conspiracy, prosecutors agreed to dismiss the 27 other counts against him and to recommend a sentence of no more than 37 months in prison. U.S. District Judge James C. Cacheris, after accepting Foggo's plea, took the unusual step of telling Foggo that his lawyers "have done a good job for you in this case." Under federal law, Foggo could receive a prison term as high as 20 years when he is sentenced Jan. 8.


The WSJ Law Blog mentioned the case and Foggo's defense attorney, Mark MacDougall from Akin Gump, in its Lawyer of the Day series. According to the WSJ, after accepting Foggo’s plea, Judge Cacheris reportedly told Foggo that his lawyers “have done a good job for you in this case.”

Wednesday, September 17, 2008

Don't Throw Away the Benefits of Your Bargain

The WSJ Law Blog is reporting that Bill Lerach, the plaintiffs lawyer who is serving a two-year prison sentence after pleading guilty to participating in a scheme to pay kickbacks to lead plaintiffs, was recently transferred from a prison camp to a medium security prison. The transfer stemmed from his having offered his San Diego Chargers season tickets to a guard at the camp outside Santa Barbara earlier this year. Lerach's new home will be in Phoenix and will likely include double fences with electronic detection systems and cell-type housing rather than dormitories.

No one is going to argue that a prison camp is nice, but it is certainly more comfortable and safer than a medium security facility. Further, the move takes Lerach further from his home and medium security facilities typically have more restrictive visitation policies. One must assume that his placement in a prison camp in California was one of the factors he considered when deciding whether to accept a plea deal. Offering tickets to a prison guard seems to be an obviously inappropriate act for a prisoner and a careless way of throwing away some of the benefits of his bargain.

Tuesday, September 16, 2008

Plea in Case of Largest Data Theft in History

On September 11, 2008, Damon Patrick Toey entered a plea of guilty to charges including wire fraud, credit card fraud, and aggravated identity theft stemming from the largest data theft in history. Toey and others stole information on tens of millions of customers from TJX Cos. and BJ's Wholesale Club. According to federal prosecutors, the group also breached the security of many other companies.  The Boston Globe had extensive coverage of the hearing.

At a hearing in federal District Court in Boston yesterday afternoon, Damon Patrick Toey, 23, of Miami, pleaded guilty to multiple charges, including wire fraud, credit card fraud, and aggravated identity theft. Prosecutors alleged he helped the accused ringleader, Albert Gonzalez, to break through the computer security of a number of retail stores in the Miami area.

Gonzalez himself appeared at a second hearing later in the day and pleaded not guilty to a set of similar charges.

Prosecutors said both men were key players in a loose-knit ring spanning countries from China to Ukraine that stole or trafficked in more than 40 million payment cards in all, causing more than $400 million in damages. The ring initially accessed customer data by using laptops to penetrate wireless networks of retail stores, from which they were able to access the companies' servers.

At the hearing for Toey yesterday, Assistant US Attorney Stephen Heymann elaborated on his role in the scheme. Toey first helped Gonzalez steal money from automated teller machines in the New York area in 2004, then became more involved in stealing and selling card data from vulnerable retail computer networks, according to Heymann and previous government filings. Last year he lived rent-free at Gonzalez' Miami condo, the government said.

When asked by Judge William G. Young why he was entering the plea, Toey said prosecutors "have enough, other than what I'm pleading guilty to," on him, "that would make it a lot worse, in my opinion."

It was the longest utterance of the day for Toey, who said he had an eighth-grade education. He entered his plea even though his defense attorney, Syrie Fried, and prosecutors hadn't agreed on just how much in losses his actions caused, which could affect his eventual sentence. Technically he could face more than 30 years in prison, judge Young said at one point.

Young released Toey on probation, at least temporarily, to a location in the Norfolk, Va., area, where Fried said he grew up and has family. Toey will be subject to electronic monitoring, face travel restrictions, and be barred from using computers.

And in a separate court filing yesterday, Heymann wrote the government has evidence that Toey and his coconspirators hacked into "numerous other businesses." The filing did not disclose the businesses, and Heymann did not release any more details in court. In all, more than 40 million credit and debit card numbers were stolen by the conspirators, Heymann wrote, potentially victimizing hundreds of banks that issued the cards.

For those interested in the notion of "aggravated identity theft," here is the statute - 18 USC 1028A.
(a) Offenses.—
(1) In general.— Whoever, during and in relation to any felony violation enumerated in subsection (c), knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 2 years.
(2) Terrorism offense.— Whoever, during and in relation to any felony violation enumerated in section 2332b (g)(5)(B), knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person or a false identification document shall, in addition to the punishment provided for such felony, be sentenced to a term of imprisonment of 5 years.
(b) Consecutive Sentence.— Notwithstanding any other provision of law—
(1) a court shall not place on probation any person convicted of a violation of this section;
(2) except as provided in paragraph (4), no term of imprisonment imposed on a person under this section shall run concurrently with any other term of imprisonment imposed on the person under any other provision of law, including any term of imprisonment imposed for the felony during which the means of identification was transferred, possessed, or used;
(3) in determining any term of imprisonment to be imposed for the felony during which the means of identification was transferred, possessed, or used, a court shall not in any way reduce the term to be imposed for such crime so as to compensate for, or otherwise take into account, any separate term of imprisonment imposed or to be imposed for a violation of this section; and
(4) a term of imprisonment imposed on a person for a violation of this section may, in the discretion of the court, run concurrently, in whole or in part, only with another term of imprisonment that is imposed by the court at the same time on that person for an additional violation of this section, provided that such discretion shall be exercised in accordance with any applicable guidelines and policy statements issued by the Sentencing Commission pursuant to section 994 of title 28.
(c) Definition.— For purposes of this section, the term “felony violation enumerated in subsection (c)” means any offense that is a felony violation of—
(1) section 641 (relating to theft of public money, property, or rewards [1]), section 656 (relating to theft, embezzlement, or misapplication by bank officer or employee), or section 664 (relating to theft from employee benefit plans);
(2) section 911 (relating to false personation of citizenship);
(3) section 922 (a)(6) (relating to false statements in connection with the acquisition of a firearm);
(4) any provision contained in this chapter (relating to fraud and false statements), other than this section or section 1028 (a)(7);
(5) any provision contained in chapter 63 (relating to mail, bank, and wire fraud);
(6) any provision contained in chapter 69 (relating to nationality and citizenship);
(7) any provision contained in chapter 75 (relating to passports and visas);
(8) section 523 of the Gramm-Leach-Bliley Act (15 U.S.C. 6823) (relating to obtaining customer information by false pretenses);
(9) section 243 or 266 of the Immigration and Nationality Act (8 U.S.C. 1253and 1306) (relating to willfully failing to leave the United States after deportation and creating a counterfeit alien registration card);
(10) any provision contained in chapter 8 of title II of the Immigration and Nationality Act (8 U.S.C. 1321 et seq.) (relating to various immigration offenses); or
(11) section 208, 811, 1107(b), 1128B(a), or 1632 of the Social Security Act (42 U.S.C. 40810111307 (b)1320a–7b (a), and 1383a) (relating to false statements relating to programs under the Act).

Detroit May Get a Trial After All

According to the NYTs, Christine Beatty, the former chief of staff to Detroit Mayor Kwame Kilpatrick, has rejected a plea deal and will go to trial on perjury and other felony charges.

The aide, Christine Beatty, whose racy text message exchanges with Mr. Kilpatrick began the scandal that led to his resignation, refused proposals from prosecutors that called for her to serve two to five months in prison and pay $125,000 in restitution to the city. Ms. Beatty’s lawyer, Mayer Morganroth, dismissed a five-month sentence as “unreasonable” and said she would rather fight the charges before a jury. A conviction on all charges could result in a sentence of 19 to 30 months.

For months, Ms. Beatty, who is charged with lying under oath when she swore that she had not had a sexual relationship with her married boss, had been widely expected to make a deal with prosecutors that would secure her freedom in exchange for testifying against Mr. Kilpatrick. But instead it appears that Mr. Kilpatrick, who will leave office on Thursday after he pleaded guilty to obstruction of justice and no contest to assault charges, will be called to testify against Ms. Beatty. He will serve
four months in jail.

Ms. Beatty resigned in January from her $142,000-a-year job as Mr. Kilpatrick’s top aide, two days after The Detroit Free Press published text messages from her city-owned pager that suggested she and the mayor were romantically involved. She and Mr. Kilpatrick were accused of firing two police officers to prevent exposure of their relationship.Last year, the city agreed to an $8.4 million settlement with those officers and a third officer who filed a related lawsuit. Members of the City Council say Mr. Kilpatrick duped them into settling the suit without revealing the existence of a side deal barring the officers’ lawyer from releasing the damaging text messages.


For previous posts on this case, see here and here.

Sunday, September 14, 2008

Real Estate Developer Closes Big Deal

The Wall Street Journal is reporting that Raffaello Follieri, the Italian real estate developer, has entered into a deal with prosecutors in New York in relation to his alleged involvement in a real estate investment scheme.

In the indictment, prosecutors accused Mr. Follieri, the chairman and chief executive of the Follieri Group, of getting millions of dollars from investors by claiming that his connections with the Vatican allowed him to buy church properties at below-market prices and redevelop them for “socially responsible” purposes. Mr. Follieri had no special rights in terms of buying properties but was simply competing against other bidders, the indictment said.

Instead, the government said, he used money he received from investors to finance a lavish lifestyle including a $37,000-a-month apartment, meals and clothing. The charges accused him of misusing more than $2 million.

According to the WSJ, the deal includes four to five years in prison. Interestingly, the deal included a count of money laundering, which, under the Federal Sentencing Guidelines, often leads to a higher sentence than fraud or conspiracy charges. 

Appearing in Federal District Court in Manhattan, the businessman, Raffaello Follieri, 30, pleaded guilty to 14 counts of wire fraud, money laundering and conspiracy. He had used his contacts to attract investors to real estate ventures.

He is scheduled to be sentenced on Oct. 3. Under the plea bargain, he has agreed not to appeal any sentence that is less than five years and three months.

The plea requires Mr. Follieri to give up $2.4 million, 12 watches and 9 pieces of jewelry. The watches included a Rolex, a Cartier, a Harrods and a Donald Trump. The jewelry included a gold-colored ring with light blue-green stone, a pair of silver earrings with silver clasps and blue and clear stones, a 16-inch five-strand necklace with pearl beads, and a 32-inch gold-colored chain with a red-brown stone and gold-colored tassel. Under the proposed deal, Follieri would plead guilty to fraud and money-laundering and face roughly four to five years in prison. 

Broadcom Co-Founder Plea Deal Rejected by Judge

We discussed a while ago the plea bargain entered into by Henry Samueli, co-founder of Broadcom. The deal would have allowed for probation for Samueli's alleged role in a stock-options backdating scandal. Last week, however, Judge Cormac J. Carney rejected the bargain, stating that the proposed punishment would not be sufficient.  He stated, "The court is not alone in concluding that a five-year probationary sentence does not capture the seriousness of Dr. Samueli's alleged misconduct."  The Wall Street Journal Law Blog had a nice discussion of what happens next. 

What are the options for prosecutors and Samueli in the wake of Carney’s ruling? They asked the judge for time to renegotiate their plea deal to address the court’s concerns, including the fact that Samueli didn’t agree to cooperate with prosecutors in cases against other former executives, such as former CFO, William J. Ruehle, or co-founder Henry T. Nicholas III, who were charged earlier this year with securities fraud. They pleaded not guilty.

Samueli could also withdraw from the agreement, in which case he could be criminally charged, or he could agree to stick with the current agreement and let the judge sentence him. The statutory maximum sentence for lying to the SEC is five years in prison.

New DOJ Guidelines for Corporate Prosecutions in Response to KPMG Case

The Wall Street Journal had a nice editorial a couple of weeks ago regarding the events leading to the removal of the 2006 "McNulty Memorandum" in favor of revised corporate guidelines that expressly bar prosecutors from forcing organizations and their employees to waive numerous fundamental rights, including the attorney-client privilege, work product doctrine, and the constitutional right to counsel. 

Congratulations to Lewis D. Kaplan, the federal judge whose withering critique of prosecutorial abuse in the KPMG tax-shelter case was vindicated yesterday by the Second Circuit Court of Appeals.

In fact, you can double that applause, because yesterday the Justice Department went further and once again rewrote its white-collar prosecution guidelines to accommodate Judge Kaplan's demolition. Whether Justice anticipated its legal defeat before the surrender is less important than the fact that it has now restored a measure of due process fairness to corporate defendants and their employees.

The new standards, released by Deputy Attorney General Mark Filip, are the latest repudiation of the "Thompson Memo" -- and go far enough to dump it entirely. Drafted amid the Enron political inferno of 2003, the Thompson Memo gave federal prosecutors in white-collar crime cases sweeping powers that often shaded into abuse: For example, prosecutors were told they could punish an entire company if it declined to waive attorney-client privilege or cut off payment of legal fees for employees under investigation.

The result is that businesses had an incentive to admit "guilt" and throw employees over the side even when they believed what they did was legal. The practice also bludgeoned middle-level employees into premature plea deals, lest they be bankrupted merely for trying to defend themselves. Judge Kaplan had dismissed tax-evasion charges against 13 KPMG defendants on grounds that prosecutors violated their Sixth Amendment right to counsel by pressuring KPMG to cut off legal assistance. Justice appealed and has now been routed. Under the new guidelines, credit for cooperation will depend on a firm's disclosure of the relevant facts, not any waiver of privilege or work-product protections.

Congress also deserves credit for promising legislation to curtail such abuses. Sponsored by Senator Arlen Specter, the draft law has the support of business groups, but also the American Bar Association, the ACLU and even liberal Democrat Pat Leahy. You've lost everyone when that's your opposition.

Justice's long delay in admitting error here doesn't speak well of prosecutorial discretion these days. There is legitimate doubt about the substance of the KPMG cases, given that the tax shelters involved had never been ruled illegal by a tax court before the indictments were brought. Prosecutors should have to win their cases in court, not by beating defendants into submission with an abuse of due process. Congress may still want to consider legislation, as a way to prevent such abuse after KPMG is forgotten.

ABA President H. Thomas Wells Jr. issued a statement applauding the removal of the "McNulty Memorandum," but noted that the ABA desires further reforms. 

While the new guidelines are a welcome improvement over the McNulty Memorandum, the rights of American employees and the businesses they work for are too important to be subject to constantly shifting administrative policies.  The Department’s new guidelines are its fifth such policy in ten years and can be changed again at any time.  Unlike legislation, guidelines can provide no certainty that critical attorney-client privilege, work product, and employee constitutional rights will be protected in the future.  These bedrock legal rights are sacrosanct and must not be dependent on the personal leanings of each new deputy attorney general.  As a result, legislation like S. 3217 and H.R. 3013, the “Attorney-Client Privilege Protection Act,” is urgently needed to permanently solve the problem of government-coerced waiver.

The new Justice Department policy also does nothing to change the similar policies adopted by the Securities and Exchange Commission, the Environmental Protection Agency and the Department of Housing and Urban Development, or the informal waiver practices of many other agencies.  Such policies, like the Justice Department’s previous policy, pressure organizations to waive their privileges and violate their employees’ Sixth Amendment right to counsel and Fifth Amendment right against self-incrimination to receive cooperation credit during investigations.

While the ABA supports and appreciates the Department’s new policy, that policy cannot, standing alone, reverse the widespread “culture of waiver” created by all these federal policies—a culture that is seriously undermining both the confidential attorney-client relationship and basic employee rights in the corporate community.  Comprehensive legislation is the only way to make the Department’s reforms permanent, give them the force of law, and apply them to all federal agencies.