Tuesday, October 6, 2009

Fascinating 60 Minutes and Vanity Fair Interview with Marc Dreier

60 Minutes ran a fascinating interview with Marc Dreier this week, which included significant discussion of the forces that led Dreier to commit fraud and the chain of events that led to the unraveling of his scheme.

The 60 Minutes interview was done in conjunction with Vanity Fair, which published an article regarding the interview with Dreier in this week's issue.

The sun-drenched apartment, perched high in a Midtown Manhattan building looking down on the famed restaurant Le Cirque, is as luxurious as one would expect for space that cost $10.4 million. Lined with floor-to-ceiling glass, the living room features low divans wrapped in rich golden fabric. On the vast outdoor deck, as big as many apartments, the views stretch north and east, all the way across Long Island Sound toward Connecticut.

Yet even a casual visitor would notice that something is amiss. Dozens of bare hooks line the white walls; all the paintings are gone. Boxes of paperwork litter the floors. In the kitchen, the knives are missing. Bags of trash overflow. The dining-room table is strewn with containers of half-eaten Chinese food. In an adjacent nook, an older man slumps on a sofa watching CNN on a wall-mounted flat-screen television. Unpaid bills are piling up. As nice as this apartment once was, it now feels like a $10 million dorm room.

That’s because it’s a jail. Sort of. On the orders of a federal judge, its owner is living here under house arrest. That man watching CNN? He’s a retired F.B.I. agent, one of several who rotate through all week long. One morning I arrive after 11. The owner, the man the security guards are watching, is just getting out of bed.

His name is Marc Dreier, he is 59 years old, and his life is over. A smallish, tightly wound man with red, stubbled cheeks and a silvery pompadour, Dreier was once a hotshot New York litigator with multi-millionaire clients. Then he stole $380 million from a bunch of hedge funds, got caught, and was arrested in Toronto under bizarre circumstances, having attempted to impersonate a Canadian pension-fund lawyer as part of a scheme to sell bogus securities to the big American hedge fund Fortress Investment Group. Now, as he wanders into the living room rubbing sleep from his eyes, Dreier is waiting for the judge to tell him just how many years he will spend in prison.

As he takes a seat across from me, he is wearing a loose-fitting black sweater and black jeans. And then, in the lifeless monotone of a death-row inmate, Marc Dreier begins to tell his story.

The Wall Street Journal Law Blog also has discussion of the interview.

Friday, October 2, 2009

5th Circuit Allows Waiver of Ban on Evidence from Plea Negotiations

The 5th Circuit has ruled that public policy considerations do not justify barring a prosecutor from eliciting a defendant's waiver of the ban on the admission of statements made during plea bargaining negotiations. The Court found permitting this waiver was a natural extension of the 1995 Supreme Court decision in United States v. Mezzanatto, 513 U.S. 196 (1995), enforcing a waiver with respect to impeachment evidence.

United States v. Sylvester, 5th Cir., September 18, 2009:

Now presented with a case-in-chief waiver, however, we can find no convincing reason for not extending Mezzanatto’s rationale to this case. Justice Thomas, writing for the Mezzanatto majority, set forth a framework for analyzing plea-statement waiver. He first discerned a “background presumption that legal rights generally, and evidentiary provisions specifically, are subject to waiver by voluntary agreement of the parties.” Thus, without affirmative indication that Congress intended to proscribe waiver of statutory protections, including evidentiary rules, voluntary agreements to waive these protections are presumptively enforceable. As for Rules 410 and 11(e)(6), Justice Thomas found no indication of congressional disfavor toward waiver, either in the rules’ text or in their attendant Advisory Committee’s Notes. Against this backdrop, Justice Thomas then explained that courts should examine the public policy justifications, if any, for departing from the norm. In Mezzanatto, he looked to three potential rationales for overriding the presumption of waivability. He rejected each.

Perhaps chief among these concerns is the integrity of the judicial system. Yes, “[t]here may be some evidentiary provisions that are so fundamental to the reliability of the fact-finding process that they may never be waived,” but, as Justice Thomas reasoned, “enforcement of agreements like respondent’s plainly will not have that effect.” This is because “admission of plea statements for impeachment purposes enhances the truth-seeking function of trials and will result in more accurate verdicts.” When the prosecution seeks to enforce a waiver allowing it to use plea statements for impeachment, the defendant “[u]nder any view of the evidence . . . has made a false statement, either to the prosecutor during the plea discussion or to the jury at trial.” “[M]aking the jury aware of the inconsistency will tend to increase the reliability of the verdict without risking institutional harm to the federal

Nor is waiver at odds with Rule 410's goal of encouraging voluntary settlement, an argument that had persuaded the court of appeals. Mezzanatto cautions that focusing solely on the defendant’s incentives to plead guilty, as the court of appeals did, “completely ignored the other essential party to the transaction: the prosecutor.” Even if waiver discourages some defendants from negotiating, “it is also true that prosecutors may be unwilling to proceed without it.” Instead of precluding negotiation over an issue “[a] sounder way to encourage settlement is to permit the interested parties to enter into knowing and voluntary negotiations without any arbitrary limits to their bargaining chips.”

And, while defendants do face considerable pressure to plead guilty and to abandon many rights, Justice Thomas rejected the notion that waiver agreements invite prosecutorial overreaching and abuse. He explained that our criminal justice system presents many such loaded decisions for defendants–indeed the plea bargaining process necessarily exerts such pressure–and, absent specific evidence that the agreement was entered into unknowing or involuntarily, courts cannot infer abuse of prosecutorial bargaining power.

8th Circuit Decision - Failure to Inform Defendant of Maximum Sentence Spoiled Plea

The 8th Circuit Court of Appeals has ruled that a district court's failure to inform a defendant of the maximum sentence he faced when pleading guilty is not harmless error, even where the defendant was apprised of the lighter sentence the court ultimately imposed. According to the Court, harmlessness in this context turns on whether the defendant would have pleaded guilty had he been completely informed, not whether he actually received a sentence within the range of which he was informed.

United States v. Gray, 8th Cir., September 21, 2009:
The government’s argument fails, however, because the test for harmless error is whether the defendant's knowledge and comprehension of the omitted information would likely have affected his willingness to plead guilty. Gillen, 449 F.3d at 903. Thus, the question is not whether Gray was sentenced within the range of which the court did make him aware; rather, the question is, had Gray known of the full range to which he could be sentenced, would he have pled guilty in the first place. When a district judge simply understates a maximum penalty by a relatively small amount and a defendant is sentenced within that range, it is possible, maybe even probable, the slight understatement of the maximum sentence did not affect the defendant’s decision to plead guilty. In this case, however, the "judge did not understate the maximum penalty; rather, []he omitted mention of any maximum penalty." UnitedStates v. Jaramillo-Suarez, 857 F.2d 1368, 1372 (9th Cir. 1988) (holding the district court's failure to inform the defendant he could face a maximum of twenty years in prison was not harmless error, even though he was sentenced to the mandatory minimum, of which he was made aware). A complete failure to inform Gray of the maximum sentence is far different from the type of trivial understatement of a maximum sentence identified as harmless in the advisory committee’s notes to Rule 11. Given the complete failure to inform Gray he could be sentenced up to life in prison should he be found to be an armed career criminal, as well as Gray’s vociferous complaints upon learning the same, we cannot say with certainty that had Gray known of the accurate range of imprisonment he faced by pleading guilty, he would have pled guilty anyway.

Fugitive Attorney Pleads Guilty

An attorney who was the final defendant is a $194 million hedge fund fraud has pleaded guilty in connection with a scheme that defrauded some 250 investors.

According to the Department of Justice:

In December 2006, defendants Won Lee, John Kim, and his brother, Yung Bae Kim were charged in a thirty-five count Indictment for their participation in a massive investment fraud in the operation of various hedge funds under the umbrella of the KL Group, LLC, initially in California and later in Palm Beach County. According to the Indictment, documents filed with the court, and statements made during the plea hearings, the defendants used quarterly mailings and website postings to misrepresent to investors that the KL Financial Group was a hugely successful family of hedge funds. In fact, however, the KL funds lost millions of dollars, and, in Ponzi scheme fashion, used new investors’ monies to make payments owed to previous investors. From 2000 through 2005, KL received approximately $194 million in investor funds.

Also charged in the Indictment were three hedge fund advisor companies that were owned and controlled by the individual defendants: KL Group, LLC, KL Triangulum Management, LLC, and Shoreland Trading, LLC. The companies pled guilty in July 2007 to participating in the investment fraud conspiracy. They were sentenced and were ordered to pay restitution in the amount of $78,525,567.34. As well, defendants John Kim and Yung Kim pled guilty to their involvement in the fraud, and were sentenced on July 17, 2008 to 220 months in prison and 75 months in prison, respectively.

Defendant Won Lee remained a fugitive from December 2007 until early 2009. In 2009, federal authorities located Won Lee in South Korea. He was extradited to South Florida in April 2009 to face the federal charges pending against him. In pleading guilty today, Won Lee signed a detailed factual proffer, which was filed with the court, in which he admitted lying to investors to induce them to invest in the hedge funds and to keep their monies invested or to reinvest in different hedge funds. The misrepresentations included false statements about the soundness and performance of particular funds. For example, victims were told that the funds were profitable, when in fact, none were. Lee also admitted his complicity in creating counterfeit clearing firm statements that were used to perpetrate and conceal the

In addition, Lee admitted lying to a clearing house about the origin of monies used to buy and sell stocks cleared through Penson, a Texas-based clearing firm. Lee also admitted to creating fictitious stock trading sheets, which were used to show a one-day profit of $22 million in a stock known as RIMM, the company that manufactures the popular “Blackberry” device. The RIMM trade, however, never took place, and the fictitious stock trading sheets were used to fool investors concerning the profitable trades being conducted by the KL hedge funds.