Wednesday, July 30, 2008

A Big Week for Plea Bargains

It seems there have been a number of interesting plea bargains recently, and I've compiled a list below describing some of the big ones.

(1) The DOJ announced on Tuesday that two DOD contractors pleaded guilty to various conspiracy charges related to their business of providing fuel supply services.

Paul Wilkinson and Christopher Cartwright, who were scheduled to begin trial today, entered into plea agreements filed in the U.S. District Court in Baltimore.

Wilkinson pleaded guilty to conspiring to defraud the United States, to commit wire fraud, and to steal trade secrets by hiring another individual, Matthew Bittenbender, to steal those trade secrets from his employer, Avcard. Avcard is a division of Kropp Holdings Inc., a Hunt Valley, Md., company which provides fuel and fuel services to commercial and government aircraft. Wilkinson used the inside information to underbid Avcard at every location where the companies were bidding against each other, thereby subverting DOD's competitive bidding procedures.

Cartwright pleaded guilty to conspiring to commit wire fraud by defrauding Avcard of the honest services of its employee, Bittenbender. Bittenbender pleaded guilty in May 2008 for his role in the conspiracy. Avacard ultimately lost each of the contested bids.

(2) The DOJ announced Monday that an Army Lieutenant Colonel pleaded guilty to honest services wire fraud in connection with a scheme to defraud the Coalition Provisional Authority - South Central Region in Al-Hillah, Iraq.
[Debra] Harrison, 50, of Trenton, N.J., entered her guilty plea today before the Honorable Mary L. Cooper at the U.S. District Court for the District of New Jersey, Trenton Division. At the plea hearing, Harrison admitted that in August 2004 she received a Cadillac Escalade from Philip Bloom, a contractor at the CPA-SC. The Escalade was financed through a series of wire transfer payments, which form the basis of the wire fraud charge. Harrison also admitted that she took more than $300,000 from the CPA-SC while deployed there and that she used some of the stolen money to make improvements at her home. Harrison also admitted that in July 2004 she helped to move unregistered firearms from a hotel in North Carolina to the home of Robert Stein, a co-conspirator who worked with Harrison at the CPA-SC.
(3) The DOJ announced on Monday that the former highest-ranking executive in the U.S. for SAS Cargo Group A/S, a Scandinavian-based airline, has agreed to plead guilty for participating in a conspiracy to fix prices for air cargo rates.

According to the charges filed today in U.S. District Court for the District of Columbia, Timothy Pfeil, while in his capacity as SAS's area director of sales and marketing for North America, conspired with competitors to fix the rates charged to U.S. and international customers on air cargo shipments, in violation of the Sherman Act. In accordance with the plea agreement, which is subject to court approval, Pfeil has agreed to cooperate with the Department's ongoing investigation.

In July 2008, SAS pleaded guilty and was sentenced to pay a $52 million criminal fine for conspiring to fix prices on air cargo rates.

(4) The DOJ announced on Monday that a Milan, Italy-based marine hose manufacturer and the former president of its former U.S. subsidiary agreed to plead guilty for participating in a conspiracy to rig bids, fix prices, and allocate market shares of marine hose sold in the United States and elsewhere.
A one-count felony charge was filed today in U.S. District Court in West Palm Beach, Fla., against Manuli Rubber Industries SpA (Manuli) and Robert L. Furness, the former president of Manuli’s former Plantation, Fla.-based subsidiary. Under the terms of the plea agreements, which are subject to court approval, Manuli has agreed to pay a criminal fine of $2 million, and Furness has agreed to serve 14 months in prison and pay a $75,000 criminal fine. Both Manuli and Furness have also agreed to cooperate fully in the Department’s ongoing antitrust investigation. Manuli is the first corporation to be charged in the investigation.
It sounds as though the defendants here missed an opportunity to self-report to the DOJ Antitrust division. Under the DOJ Antitrust division corporate and individual leniency policies, it is possible to avoid prosecution if certain requirements are met. One of the major requirements is that the self-reporting must occur prior to the DOJ receiving information regarding the Antitrust violation from another source.

Amnesty Commissions as Plea Bargaining

Continuing our series regarding amnesty and truth commissions as a form of plea bargaining, the BBC had an interesting story regarding Bangladesh's new Truth and Accountability Commission.

A Truth and Accountability Commission has been set up in Bangladesh to tackle the country's endemic corruption. The interim government says it will offer partial amnesties in return for information about corrupt deals. Critics say the terms of reference are unclear and the commission will achieve little before December polls when the government is due to relinquish power.

Bangladesh remains one of the world's most corrupt countries, according to watchdog Transparency International. Last month, the group said corruption in the country had continued to thrive since the army-backed caretaker government took power last year pledging to tackle it.

Leniency Justice Habibur Rahman Khan has been appointed to chair the new three-member commission. Former Comptroller and Accountant General Asif Ali and Maj Gen Manzur Rashid Chowdhury are its other members. The three men will have 26
officials to help them at the commission's office in central Dhaka. A government spokesman said people who appeared before the commission and gave details of fraudulent deals would not be tried for their crimes and given a partial amnesty. However they would still be barred from contesting any elections for five years. The government says that anyone already convicted of corruption - serving a sentence of two years or less - will also be shown leniency by the commission if he or she confesses and returns any illegal earnings. But it says that anyone providing false or misleading information will face stiffer punishment. People convicted of arms, drugs, child trafficking and rape cases will not get any clemency.

Critics say that the commission is doomed to failure because it will not have time to hear testimonies from people who may want to appear before it. They also say that it should have started its work before the authorities began prosecuting scores of politicians and businessmen for corruption and sending them to prison. Many well-known Bangladeshis still face corruption charges, including two former prime ministers.

Monday, July 28, 2008

Former Lobbyist Pleads Guilty to Trying to Destroy Evidence

According to the DOJ, Cecelia Grimes, a former lobbyist and close friend of former U.S. representative Curt Weldon, pleaded guilty in U.S. District Court on Friday to charges related to the attempted destruction of evidence in a federal investigation.

According to press accounts, Grimes was visited by the FBI in 2006 regarding its investigation of Congressman Weldon. During that meeting, Grimes was presented with two grand jury subpoenas seeking records. Six days later, Grimes placed responsive documents in a trash bag and placed the bag in front of her house for garbage pickup. FBI agents then retrieved the garbage bag and located the documents, which were never produced to law enforcement authorities. Evidence presented at the plea hearing also showed that Grimes placed her blackberry devise in a trash can near a fast food restaurant to prevent the FBI from reviewing its contents. Grimes faces a maximum sentence of 20 years in prison and a fine of $250,000.

Obstruction of justice is a prevalent charge in white collar criminal cases and a favored statute for use in plea bargains. In an excellent article from 2004, two of my former colleagues, Gary Grindler and Jason Jones, took a look a the Sarbanes-Oxley obstruction provisions. Here is the introduction to their article, which was entitled "Please Step Away from the Shredder and the 'Delete' Key: Sections 802 and 1102 of the Sarbanes-Oxley Act." 41 Am. Crim. L. Rev. 67 (2004).

On September 25, 2003, FBI agents arrested Thomas Trauger, a former partner with accounting giant Ernst & Young ("E&Y"), charging him with obstruction of justice. The indictment, filed in United States District Court for the Northern District of California, alleges that Trauger intentionally altered and destroyed workpapers relating to E&Y's audit of NextCard, Inc. NextBank, a subsidiary of NextCard, was under examination by the Office of Comptroller of the Currency ("OCC"). The Trauger indictment specifically alleges violations of Title 18, including § 317, conspiracy; § 1517, obstructing the examination of a financial institution; and § 1519, falsification of records in a federal investigation.

Immediately following Trauger's arrest, Acting Deputy Attorney General Robert McCallum hailed it as a "bellwether day for the Corporate Fraud Task Force." McCallum emphasized that the arrest was one of the first prosecutions under the Sarbanes-Oxley Act of 2002 ("the Act"), which he described as "an important weapon in the fight against corporate fraud."

If your client's shredder is not yet collecting dust, it probably should be. Under the Act, destruction of documents could result in a twenty-year stint in federal prison, a term unattainable under the previous statutory scheme. Among the many changes implemented by the Act, which President Bush characterized as containing "the most far-reaching reforms of American business practices since the time of Franklin Delano Roosevelt," Whereas previous laws criminalized both the "corrupt persuasion" of others to destroy documents in connection with an "official proceeding," and the obstruction of pending judicial and federal agency proceedings, the new document destruction provisions of §§ 802 (codified at 18 U.S.C. §§ 1519 & 1520) and 1102 (amending 18 U.S.C. § 1512(b)) cast a wider net, reaching persons who shred documents even where a proceeding or investigation does not yet

Despite one senator's admonition that "any dummy that reads the bill knows what we meant. . . . and we couldn't have written it any clearer," rather than attempting to analyze this entire, sprawling piece of legislation, this Article focuses on the Act's impact on the crime of obstruction of justice. After a discussion of pre-Sarbanes-Oxley impediments to destroying documents and the consequences of improperly doing so, the Article discusses the importance and breadth of §§ 802 and 1102, and subsequent actions by the Securities and Exchange Commission ("SEC"), the Department of Justice ("DOJ"), and the United States Sentencing Commission ("Sentencing Commission"). The Article concludes with a brief discussion of some practical implications for corporate document retention policies.

Wednesday, July 23, 2008

The Role of Plea Bargaining in International Crimes Prosecutions

There has been much talk during the last week about the arrest of Radovan Karadzic in Serbia, the request by the ICC for an arrest warrant for Sudan's president, and the start of the first American war crimes trial since WWII. See here, here, here, and here. For the purposes of this blog, I thought we should ask the following - What role does plea bargaining play in international crimes prosecutions?

To that end, I found an interesting article by Nancy A. Combs, entitled "Procuring Guilty Pleas for International Crimes: The Limited Influence of Sentence Discounts," 59 Vand. L. Rev. 69 (2006). Here is the article's conclusion.

The relatively straightforward relationship between sentencing discounts and guilty pleas just described does not exist in the context of international crimes. Although some international defendants rely on sentence-based calculations when deciding whether or not to plead guilty, for a substantial proportion of international defendants currently in the dock, sentence inducements have only limited persuasive value. The reasons for their lack of influence vary with the circumstances. High-level ICTR defendants, for instance, are so convinced of their innocence, so ideologically committed to their characterization of the Rwandan conflict, and so concerned about their place in the history books that virtually no sentence inducement will persuade them to plead guilty to genocide. Low-level Special Panels defendants, by contrast, are so ignorant about their legal rights and so culturally disposed to admitting wrongdoing and seeking reconciliation that, absent the constraining hand of counsel, no sentence inducement is needed to persuade them to plead guilty. Prosecutors who seek to procure guilty pleas from current or future defendants brought before the Special Court for Sierra Leone, the Extraordinary Chambers in Cambodia, or the International Criminal Court will no doubt be confronted with a different array of factors that will impact the influence of sentencing discounts over those defendants.

This discussion elides the question of whether prosecutors should be seeking guilty pleas for international crimes. There is no question that plea bargaining constitutes one of the most disreputable features of the American criminal justice system. American charge bargaining frequently distorts the historical record of proceedings, and any sort of plea bargaining can encourage prosecutors and defense attorneys to misrepresent facts and to bring frivolous motions to obtain a better plea. Moreover, as a result of the way in which most appointed counsel are compensated in the United States, plea bargaining gives rise to conflicts of interest whereby defense counsel have strong incentives to pressure their clients to plead guilty, regardless of whether it is in their best interests to do so. Many of these abuses also have the potential to wreak havoc in the international context, and the hue and cry that greeted the sentences imposed in certain ICTY guilty-plea cases suggest a similar level of public dissatisfaction with plea bargaining in that realm.

The desirability of plea bargaining in the international realm is not a topic that can be addressed here. Whatever its desirability, what can be observed is that in a national criminal justice system, defendants who are not motivated by sentence discounts would spell the end of efforts to secure guilty pleas because sentence discounts are the only real inducement that national prosecutors have to offer. International prosecutors, however, have at their disposal additional incentives. For some international defendants, the location of detention can matter more than the length of detention. Likewise, where there is more than one criminal justice system available to prosecute the defendant, the question of which one takes the honors can be of key significance. Bargaining over these issues may be more easily conducted outside the public glare, thereby benefiting prosecutors accustomed to public rebuke for their lenient sentence recommendations in guilty-plea cases but creating an additional worry for those already uneasy about plea bargaining. Whether the offer of such inducements will or should be the next frontier in international plea bargaining cannot yet be known. What is currently clear, however, is that international prosecutors who wish to procure guilty pleas must be more flexible and more creative in their efforts if they are to counterbalance the many factors that can deter international defendants from pleading guilty.

Former Engineered Support Systems Inc. Chief Executive and Co-Founder Pleads Guilty to Backdating Charge

Former Engineered Support Systems Inc. Chief Executive and co-founder Michael Shanahan Sr. pleaded guilty today to one of twelve federal charges related to backdating company options. As part of the deal, he agreed to pay almost $7.9 million back to his former company.

One article regarding the plea deal includes an interesting discussion of backdating investigations generally.

In court filings, federal prosecutors in St. Louis called the Engineered Support case "one of the most egregious examples of backdating among all of the publicly traded companies in the United States. It strains mathematical formulas to calculate the likelihood of randomly selecting the lowest date within a quarter to issue stock options ... and to do it eight times in a row."

While hundreds of companies and executives have been investigated for backdating, only a handful of those probes have led to criminal charges. The Engineered Support case is the only one outside San Francisco or New York to see a federal prosecution.

Most of the cases ended with guilty pleas, hefty fines and, in some cases, prison time. The one executive who went to trial — Gregory Reyes, chief executive of San Jose, Calif.-based Brocade Inc. — was found guilty and sentenced to 21 months and a $15 million fine. But after a wave of cases filed last year, prosecutions have faded in recent months. Earlier this month, the SEC decided to drop a criminal investigation into Apple CEO Steve Jobs, perhaps the highest-profile target to date.

Monday, July 21, 2008

The Case for Plea Bargaining in South Africa and a Blast from the Past

The Times in South Africa had an interesting piece on Sunday regarding plea bargaining. The article was entitled "The Case for Plea Bargaining," and the author, the director of the Institute for Security Studies in Cape Town, described not only the forces influencing the plea bargaining debate in South Africa, but the way similar debates have evolved around the world.

In a study into the use of plea bargaining in South Africa, the South African Law Commission concluded that it “performs an important part in our criminal justice system”. . .

While the use of legitimate discretionary powers by prosecutors continues to provoke controversy here and abroad, their power to make such deals has been repeatedly upheld by courts.

The US Supreme Court has held that “if every criminal charge were subject to a full-scale trial, the states and federal government would need to multiply by many times the number of judges and court facilities”.

The overwhelming justification for the use of plea bargaining is that, in the face of overcrowded prisons and clogged court roles, it is an efficient instrument of criminal procedure that reduces enforcement costs and allows the prosecutor to concentrate on more meritorious cases.

Criminal justice systems operate under huge pressure to deliver results in the face of rising crime rates.

These pressures, and the rise of the mentality of winning the “war on crime” at all costs, have significantly influenced the shift away from due-process criminal justice models to ones that place overwhelming emphasis on crime control.

As a result, the power and prestige of prosecutors have expanded dramatically internationally, granting ever more discretion to that position.

This reminded me of a great article I stumbled across on the web. It is an article from Time magazine in 1978 entitled "Is Plea Bargaining a Cop-Out?" In it, some the great plea bargaining scholars debate the system. One of my favorite parts in the discussion regarding only 10% of defendants going to trial. That number would seem extremely high to us today.

Ideally anyone charged with a crime in the U.S. is entitled to his day in court. The litany of rights is familiar: the state must prove guilt beyond a reasonable doubt, the accused has the right to be tried by a jury of his peers, and an impartial judge must carefully weigh the facts before handing down a sentence.

The reality, as anyone involved with criminal justice can attest to, is far different. In the vast majority of cases, the accused has no trial. His "day" in court is the few minutes it takes him to plead guilty. "Here we have an elaborate jury trial system, and only 10% of the accused get to use it," says Colorado Law School Professor Albert H. Alschuler. "That's like solving America's transportation problems by giving 10% Cadillacs and making the rest go barefoot." For most defendants, justice is done by way of a deal: a guilty plea in exchange for the promise of reduced charges or a lighter sentence. Bargains are generally struck with the prosecutor; the judge usually rubber-stamps them.

Plea bargaining is as widely criticized as it is prevalent. Defendants claim they are railroaded into abandoning their right to a fair trial by zealous prosecutors who "overcharge" them and then agree to reduce the charge in exchange for a guilty plea. The public, on the other hand, complains that criminal defendants get off too lightly. In plea bargaining, armed robbery often becomes unarmed robbery (this is known as "swallowing the gun"), and burglaries by night miraculously become the lesser crime of burglary by day.

Many lawyers and prosecutors defend plea bargaining as "flexible," claiming that bargaining can shape the sentence to the individual defendant. What is more, says Maricopa County (Ariz.) Attorney Charles Hyder, it is "the greatest weapon a prosecutor has. The prosecutor is in the driver's seat. Usually the defendant is not aware of any weaknesses in a case."

The strongest argument for deal making, however, is sheer necessity. Approved of by Congress and the President's Commission on Law Enforcement and Administration of Justice, plea bargaining has been condoned by the U.S. Supreme Court as "essential." It is widely accepted that without deals between the prosecutor and the accused, time-consuming trials would cause many courts to choke on overcrowded dockets. Chief Justice Warren Burger has said that even a 10% reduction in plea bargaining would double the number of trials.

I thought these were interesting articles given my post on Saturday regarding the Plea Rocket Docket.

Saturday, July 19, 2008

Special "Plea Rocket Docket" Sends 88 Inmates Home to Ease Jail Overcrowding

Yesterday, a court in Brevard County, Florida held a special "plea rocket docket" session. The special plea bargaining event was designed to quickly move 88 non-violent misdemeanor offenders off the dockets and out of an overcrowded jail. The judge conducting the event specifically reminded the participants not to accept a plea agreement just to get out of jail, stating, "We want to go fast, but we don't want to slaughter anyone's due process." 

Court appearances at the county jail usually are somber sessions filled with bitter hand-wringing and looks filled with regret. Friday was a little different.

A specially scheduled "rocket docket" meant to expedite plea deals between nonviolent misdemeanor offenders and the state -- before regularly scheduled court dates -- resulted in 88 inmates going home, as well as a standing ovation when Circuit Judge George Maxwell was finished at 10:42 a.m. There were lots of smiles.

. . . Chief Judge Clayton Simmons appointed Maxwell to oversee Friday's proceedings. Simmons said he ordered the special plea docket "in an effort to comply with federal mandates and reduce the population of the Brevard County Jail Complex."

"The special docket has been very effective in expediting misdemeanor cases and freeing up bed space in the Seminole County Jail, and we would like to replicate that success in Brevard," Simmons wrote in a July 10 memo announcing the special docket. "Again, let me stress this docket is intended for low-risk, misdemeanor offenders, who do not pose an identifiable threat to public safety."

While the county jail has long had a history of being over capacity, Simmons said the timing had to do with a special meeting soon among Middle District of Florida court officials regarding jail overcrowding.

We are all familiar with the "rocket dockets" used in immigration and patent cases to move defendants or petitioners swiftly through the federal courts, but the Brevard event, which included all manner of criminal offense, appears to be somewhat unique. 

So is this a good idea, and should courts around the country utilize such swift justice to clear the dockets and the jail cells? I believe it depends on the reasons for the use of such a system and the safeguards employed to ensure justice is served. In the misdemeanor context, defendants who cannot afford bail often remain in jail awaiting trial longer than the length of a reasonable sentence should they be found guilty. It is hard to argue, therefore, that these defendants should not be given the chance to plead guilty and go home as fast as possible. In the Brevard cases, the article notes that certain defendants were in jail because they could not afford to pay a $100 fine for having an open container. 

The "plea rocket docket," however, creates yet another penalty for those who exercise their right to be proven guilty at trial - namely, they would remain in jail awaiting trial while those who pleaded guilty would be released. (See my earlier post regarding plea bargaining differentials here). And this negative aspect of the "plea rocket docket" brings up yet another problem, this type of system creates an immense incentive for defendants to plead guilty even if they are not guilty of the charged offense. It almost defies reason to believe that anyone would volunteer to remain in jail awaiting some future opportunity to present his or her case to a judge when freedom is a simple guilty plea away. (See my earlier post regarding defendants pleading guilty to crimes they did not commit here). 

Nevertheless, I think this is an innovative process that should be seriously considered where it can assist indigent defendants who remain behind bars awaiting the opportunity to come before a judge. The decision then belongs to the defendant, even if the factors weighed in the decision are wildly one sided. The defendants in the article certainly appeared happy with the results. 

See the Florida Today article here.

Interesting Article Regarding the Exclusionary Rule - We're All Alone

An interesting article in the New York Times today explores the fact that the United States is the only country to take the position that some police misconduct must automatically result in the suppression of physical evidence. The article includes great discussion of the history of the rule, the possibility that the U.S. Supreme Court is preparing to reconsider the rule, the exclusions that have been created to the rule over the years, and the approach to suppression of evidence where police misconduct is present in other countries.
The Supreme Court started requiring the exclusion of improperly obtained evidence in 1914 — but only in federal cases.

For many decades afterward, the Supreme Court refused to apply the principle to states, saying they could choose the appropriate remedy for police misconduct — including civil suits and criminal prosecutions — and were not required to suppress evidence. In a 1949 decision, the court justified that position in part with a rationale now disfavored in some circles: a survey
of foreign law.

“Of 10 jurisdictions within the United Kingdom and the British commonwealth of nations,” Justice Felix Frankfurter wrote for the majority, “none has held evidence obtained by illegal search and seizure inadmissible.” The right to be free of arbitrary police intrusion is fundamental, Justice Frankfurter wrote, but the legal remedy for the violation of that right can vary.

It was not until 1961 that the Warren Court, in one of its signature decisions, concluded in Mapp v. Ohio that only the mandatory suppression of evidence could adequately address wrongdoing by the police in all cases, state and federal.

Seven Cleveland police officers had broken into and searched Dollree Mapp’s home without producing a warrant, manhandling her and rummaging through her personal papers. Though the Ohio Supreme Court concluded that the search had been unlawful, it affirmed Ms. Mapp’s conviction on obscenity charges based on materials the police found in her home.
That was too much for a majority of the Supreme Court to stomach. “The state, by admitting evidence unlawfully seized, serves to encourage disobedience to the federal Constitution which it is bound to uphold,” Justice Tom C. Clark wrote for the court. Only the exclusion of evidence could do the job, he said; other remedies had proved “worthless and futile.”
Read the NYT Article here.

Judge in Health Care Fraud Case Rejects Guilty Plea

In a highly unusual move, a federal judge in Oakland, California has rejected a defendant's guilty plea because of doubts as to whether the individual actually committed all of the elements of the crime to which he agreed to plead. According to the transcript from the case, Judge Saundra Armstrong stated, "It is not my practice to accept guilty please from people who are not guilty."

The defendant, Chi Yang, agreed to plead guilty in connection with fraudulent sales made by his Dublin, California based biotech company. The guilty plea was to be to charges of false statements, not fraud, but the agreement would have resulted in prison time and hundreds of thousands of dollars in fines and restitution.

This case brings up the interesting question of whether a defendant should be permitted to plead guilty to a crime that he or she did not commit and that carries a lighter sentence, instead of going to trial on a charge to which her or she may be guilty and which carries a longer sentence. In a pure bargaining environment, this would be permitted because both the defendant and the government would receive a benefit from the bargain. The defendant would receive a lighter sentence, and the government would save the resources associated with a trial. But such agreements are not permitted in the federal criminal system. Prosecutors cannot offer, defendants cannot accept, and judges may not approve guilty please to conduct for which the defendants are not guilty. In reality, however, this likely happens almost every day. So the lingering questions becomes, should we legitimize this process? And, is there a difference between an individual and a corporation accepting such a deal?

See the full article here.

Joe Cool Killer to Plead Guilty

On September 23, 2007, an abandoned chartered fishing boat called the Joe Cool was discovered by the U.S. Coast Guard floating 60 miles south of Bimini. Several hours later Kirby Archer and Guillermo Zarbozo were discovered in the vessel's life raft some 10 miles away. Initially, Zarbozo told authorities the boat, which was headed from Miami to the Bahamas had been hijacked by pirates who fatally shot the Captain and his wife and threw the remaining two crew members overboard. Zarbozo claimed he and Archer had been spared. The bodies of the Captain, his wife, and the two crew members were never discovered.

Authorities were naturally suspicious of the story, and, after an investigation, concluded that Archer and Zarbozo killed the four in an attempt to take the boat to Cuba. Archer had once served at Guantanamo Bay, and Zabozo originated from Cuba. Each desired to return to the island.

According to one of the victim's relatives, Archer has agreed to accept a guilty plea to first-degree murder charges in return for the U.S. Attorney's Office agreeing to not seek the death penalty. Zarabozo continues to maintain his innocence, but one must imagine he will entertain a plea offer now that the only other person alive who knows what happened on the Joe Cool will testify against him at trial.

Friday, July 18, 2008

ICE Probe Leads to McDonald's Franchisee Guilty Plea

The Department of Justice announced this week that one current and one former top executive for a franchisee that owns 11 McDonald's restaurants in and around Reno, Nevada, and the corporation itself pleaded guilty in federal court to federal felony immigration charges for encouraging illegal aliens to reside in the U.S. The defendants in the case waived indictment and pleaded guilty to informations.

The DOJ press release notes that the government and the defendants agreed that the corporation will pay a $1 million fine and be placed on probation during the period the fine is outstanding. This agreement was accepted by the court. The individual defendants face sentencing at a later date.

According to the DOJ, ICE has made 937 criminal arrests in connection with worksite enforcement investigations in 2008. Of those, 99 involved owners, managers, supervisors or human resource employees who face charges ranging from harboring to knowingly hiring illegal aliens.

This case presents an interesting issue regarding sentencing in criminal cases involving corporate plea agreements. As noted in previous posts to this blog, corporations are often reluctant to accept a plea agreement without knowing the exact penalty to be imposed. Under the Federal Rules of Criminal Procedure, plea agreements can operate in one of two ways - non-binding or binding. In the first, which is the most common, the defendant pleads guilty and then awaits sentencing without knowing the exact sentence to be imposed. It it true that in such cases the government may recommend a particular sentence as part of the agreement, but the court retains the ultimate authority to decide what is just. In the second scenario, the plea agreement is offered under Federal Rule of Criminal Procedure 11c(1)(C) as a binding plea agreement. This means that if the court accepts the guilty plea it also accepts the stipulated sentence. Federal judges rarely agree to such a plea agreement because it prevents the administration of judicial discretion and all but removes the court from the entire criminal process. It is, however, an option and, it appears, this procedure may have been utilized in the McDonald's case above.

See the DOJ Press Release here.

Monday, July 14, 2008

Former HP'er Pleads Guilty to Trade Secrets Violations

Atul Malhotra, a former Hewlett Packard Company employee, pleaded guilty last Friday to stealing trade secrets regarding pricing from IBM, where he had worked as a director of sales and business development in output management services for IBM Global Services for ten years. According to the press release from the Department of Justice:
In May 2006, Malhotra became a vice president of imaging and printing services for HP. According to plea documents, shortly after starting in his new position at HP, Malhotra shared IBM trade secrets with his superiors. On July 25, 2006, Malhotra sent an e-mail to an HP senior vice president with the subject, "For Your Eyes Only," and attached the trade secrets information for which he is charged with sharing. Two days later, on July 27, 2006, he sent an e-mail to another HP senior vice president with the subject, "For Your Eyes Only - confidential," and attached the same trade secrets information. The court documents also reveal that in the e-mail message, Malhotra noted that knowledge of this information would help specific HP sales teams better understand their competitors' goals as the teams determined pricing for prospective deals.
The press release noted that both HP and IBM fully cooperated in the investigation, and, according to one report, HP terminated Malhotra after detecting his activity and turned over the relevant information to law enforcement.

Friday, July 11, 2008

Peteka Pleads Guilty in Morgan Stanley Case

Ronald Peteka pleaded guilty this week in the S.D.N.Y. in a case involving the theft of proprietary information regarding hedge funds from Morgan Stanley & Co. According to the press release from the S.D.N.Y. United States Attorney's Office, Peteka was employed by a Manhattan company in the business of negotiating on behalf of hedge funds the rates that hedge funds pay to Morgan Stanley and its competitors for prime brokerage services. At issue in the case was Peteka's receipt of confidential and proprietary documents from a Morgan Stanley employee that contained information regarding hedge fund clients and the formulas used to calculate certain prime brokerage services. According to prosecutors, Peteka and the Morgan Stanley employee planned to use the information to start a consulting business. Peteka pleaded guilty to one count of interstate transportation of stolen property and faces a total maximum sentence of 10 years in prison and a maximum fine of $250,000. The Morgan Stanley employee pleaded guilty to related charges in January 2007.

The requirement that Peteka plead to a statute containing a maximum sentence of 10 years, rather than one of the numerous statutes with a 5 year maximum, indicates that this plea agreement was late in the process and Peteka may have secured a better deal had he acted more quickly. Of particular note here is the fact that the co-defendant pleaded guilty eighteen months ago, indicating Peteka was somewhat of a hold-out.

See the press release from the United States Attorney's Office for the Southern District of New York here.

Thursday, July 10, 2008

How do you prepare to enter the courthouse?

The New York Times has a great article regarding how celebrities enter the Manhattan courthouse.

Entering and leaving the courthouse — whether it is 100 Centre Street, Manhattan’s main criminal court building, or across the street at 111 Centre, where Mr. Combs was tried — is often a carefully coordinated exercise involving lawyers, court officers and drivers. The officers escort high-profile people in and out of the buildings at the request of their lawyers, who typically arrange for someone to call a driver parked nearby to pick their clients up once their day in court is done.

If everything goes smoothly, the driver should pull up just in time to meet the famous passenger, almost always in a black S.U.V. with tinted windows because “it gives you the allure of being someone who needs a blacked-out, tinted S.U.V.,” said Joseph Tacopina, a lawyer who has defended a number of celebrities.
Sometimes, the choreography works. After testifying in May at the trial of a man accused of stalking her,
Uma Thurman rushed out a side exit, boyfriend in tow. Barricades set up by the court officers held back onlookers, providing Ms. Thurman with an unimpeded path to a black S.U.V.

In contrast, Jack Jordan, the man eventually convicted of stalking her, one day casually walked out after he had been sentenced and released, and asked a photographer for a ride.

Read the entire New York Times article here.

2008 Mid-Year FCPA Update from Gibson Dunn

Gibson Dunn has issued its 2008 Mid-Year Foreign Corrupt Practices Act Update, and it contains an interesting statistical analysis demonstrating that the "trend of continually increasing enforcement is here to stay for the near future."

In a nutshell, the FCPA's anti-bribery provisions target companies that offer money to officials of foreign governments to obtain business. The law also requires the keeping of "books-and-records" detailing companies' transactions and dispositions of assets. It is a fascinating piece of legislation that resulted from a sweeping SEC investigation of such practices in the 1970s and was intended to restore confidence in the integrity of American businesses.

The Gibson Dunn report contains case studies regarding several recent FCPA investigations and, besides increasing enforcement, another trend emerges. Every FCPA investigation of a corporation ended with either a guilty plea, a deferred prosecution agreement, or a non-prosecution agreement. It seems, therefore, at least from the perspective of a corporation, that FCPA cases are ripe for bargaining. What leads to such a trend? Without attempting an exhaustive analysis of this complex and intriguing area of law, I will offer three significant considerations.

(1) FCPA cases involve corporations, and corporations do not like trials. Corporations would much rather examine the case and decide between two alternatives: (a) If the evidence is weak, convince the government not to proceed; or (b) If the evidence is strong, reach a deal. The results of a guilty verdict can be devastating for a corporation and, where victory at trial is uncertain, a guilty plea to a charge that will not result in debarment or, even better, a deferred or non-prosecution agreement is much preferred.

(2) FCPA cases are typically very complex and involve numerous legal difficulties such as obtaining evidence and witnesses from overseas. As such, it is not only in the interests of the company to resolve the issue without trial but it is also in the interests of the government.

(3) Most corporations facing an FCPA investigation do not have a sweeping culture of illegal bribery. If a corporation did have such a sweeping culture, it is unlikely the government would accept a plea bargain that did not include significant penalties. More often, however, corporate management learns of the illegal bribery by an employee thousands of miles away only after receiving a subpoena from the government. In such cases, it is not in the interests of the government to punish the corporation so severely as to result in its dissolving. Rather, the government in such cases merely seeks to ensure that corporations feel sufficient enforcement pressure to implement policies to prevent unlawful conduct and remain vigilant and on the look-out for rogue employees engaging in FCPA prohibited activities.

Thursday, July 3, 2008

Former Refco CEO Sentenced After Plea Deal

Former Refco CEO Phillip Bennett was sentenced today to 16 years in prison for his involvement in a fraud the government alleges involved $2.4 billion. According to the Wall Street Journal Law Blog:
Refco IPO’d in August 2005. It filed for bankruptcy just weeks later — after disclosing that a $430 million debt owed to Refco by a firm controlled by Bennett had been concealed. The disclosure caused Refco’s stock value to plummet.

At today’s hearing, SDNY Judge Naomi Reice Buchwald said white-collar defendants like Bennett often “just don’t think they’ll get caught.” Buchwald continued: “You and others like you play a truly high-stakes poker game.”

Speaking of high-stakes poker games, did Bennett make the right decision regarding pleading guilty? With a $2.4 billion loss number for purposes of the U.S. Sentencing Guidelines, it is clear that he would have remained in jail the remainder of his life had he lost at trial. As such, and with the evidence appearing fairly strong, this may have been the best deal possible for this particular defendant. Perhaps the best answer, however, is that you can't win a poker-game that has $2.4 billion on the table at sentencing.

The Supreme Court on Victims' Rights and Plea Bargains

The SCOTUSblog has two interesting posts regarding the Supreme Court's refusal on Wednesday to enter a stay preventing a federal judge in Texas from considering a plea bargain relating to charges that stem from an oil refinery explosion in March 2005. The explosion killed fifteen workers and injured more than 170. Under the proposed deal, BP Products North American, Inc. would pay $50 million in fines and plead guilty to a violation of the Clean Air Act for failing to maintain equipment and for failing to warn workers of the potential for fire and explosion. The stay was requested by victims of the blast who allege the deal is too lenient and was constructed by prosecutors without any input from them.

While the stay has been denied, an appeal of a U.S. Court of Appeals for the Fifth Circuit opinion limiting the blast victims' rights to object to the plea deal under the Crime Victims' Rights Act is being prepared and might answer the ultimate question: What rights do victims have with regard to the preparation and negotiation of a plea agreement? Perhaps even more fundamental, however, should be the question: What moral obligations does the government have to seek input from a victim before deciding how to dispense with a case.

See the SCOTUSblog posts here:

Tuesday, July 1, 2008

Former Home Depot Employee Pleads Guilty to Vendor Kickback Scheme and Tax Evasion

The DOJ has announced that Anthony M. Tesvich of Atlanta, Georgia, has pleaded guilty to one count of conspiracy to commit wire fraud and three counts of tax evasion. The charges stemmed from a scheme to defraud Home Depot.

According to the United States Attorney for the Northern District of Georgia, David E. Nahmias, "This defendant has now admitted to taking millions of dollars in secret payoffs from Home Depot's vendors and not reporting or paying taxes on that corrupt income. Vendor kickbacks to corporate employees corrupt fair competition and the honest operations of American businesses. Those who pay, receive, or solicit such payoffs may face federal prosecution."

This is a particularly interesting case because we see here two of the most common charges from federal prosecutors in a financial crimes case. The first, conspiracy to commit wire fraud, is often utilized because wire fraud is one of the easiest federal criminal statutes to satisfy and the conspiracy tag allows for simple inclusion of all conduct relevant to the conspiracy for purposes of sentencing. The second, tax evasion, allows prosecutors to incorporate monies into the prosecution that might not easily be shown to be unlawful payments, but which are clearly income for purposes of the IRS reporting requirements. One need only look to the famous prosecutions of Al Capone or Atlanta Mayor Bill Campbell to see the usefulness of a tax charge.

See the DOJ Press Release here: