Friday, November 27, 2015

Extortion, Government Style.

If you  want to know why companies settle with the government, even when they aren't guilty of anything, look no further than Ally Financial LLC's $98 million "no admit or deny" settlement with the Consumer Financial Protection Bureau (CFPB) over alleged racial bias in auto lending. As Wednesday's Wall Street Journal reports here, the CFPB chose questionable statistical methods, had questionable legal authority, and used the threat of unfavorable action by the Federal Reserve and the FDIC in a wholly separate matter, to coerce a settlement. Ally was eager to receive approval from the Fed and FDIC to convert to holding company status, in order to avoid having to shed some of its business units. The Fed was only too happy to oblige CFPB in its bullying tactics. As an internal CFPB memo makes clear, a Fed finding of improper discrimination would "most likely result in the denial of holding company status," but the Fed "also indicated that if Ally takes prompt and corrective action, it would consider such a factor in its determination."   The House Financial Services Committee Report, Unsafe at any Bureaucracy, carefully documents CFPB's sordid tactics . Incredibly, CFPB referred the matter to DOJ. This kind of stuff happens, and dictates business litigation strategy with the government, quite often. So, when people complain that the failure to prosecute corporate insiders is inevitably suspicious in light of large civil settlements, I always want to know the industry, the company and other important details.



November 27, 2015 in Civil Enforcement, Congress, Current Affairs, Government Reports, Investigations, News | Permalink | Comments (0)

Wednesday, November 25, 2015

ABA CJS Global White Collar Crime Institute - Keynote Remarks by DAAG Suh

Last week, the American Bar Association Criminal Justice Section held the inaugural Global White Collar Crime Institute in Shanghai, China.  The event was a tremendous success with participants from around the globe coming together to hear from prosecutors and judges, defense counsel and accountants, in-house counsel and academics.  On the first day, we were honored to be joined by Deputy Assistant Attorney General Sung-Hee Suh.  DAAG Suh delivered the keynote luncheon address and touched on many important and timely issues related to white collar crime.  Below, I'll specifically mention just two of the areas discussed.   

First, DAAG Suh discussed the Yates memo and provided additional information about the government's current perspective on corporate cooperation.  DAAG Suh said:

In her memo, Deputy Attorney General Yates announced a policy change designed to further enhance the likelihood that individuals who are responsible for corporate crime will be held accountable. The existing policy stated that, in deciding whether to give a company credit for cooperation, a criminal prosecutor “may” consider a number of factors – including the company’s willingness to give information about individuals. The new policy means that the “may” has now become a “must.” In other words, in deciding whether to give a company credit for cooperation, a prosecutor now “must” consider the company’s willingness to give information about individuals. And a company that does not provide this information will not be eligible for any cooperation credit. Previously, companies could receive varying degrees of credit for varying degrees of cooperation. Now, a company will receive no credit for cooperation unless, at minimum, it does what it can to identify individuals involved in the conduct, whatever their level of seniority or importance within the company. 

(emphasis in original).

Second, DAAG Suh discussed the Department of Justice's recent hiring of a new compliance counsel to assist them in analyzing and evaluating corporate compliance programs.  DAAG Suh said:

Self-disclosure, cooperation and remediation are all steps that a company can take after the fact, but the Justice Department is just as committed to preventing corporate wrongdoing from occurring in the first place. To that end, the Department has long placed great emphasis on the importance of an effective corporate compliance program. In the U.S., there is no affirmative defense based on the company’s corporate compliance program, but the Filip Factors have long provided that in conducting an investigation of a corporation, determining whether to bring charges, or in negotiating plea or other agreements, prosecutors should consider, among other factors, “the existence and effectiveness of the corporation’s preexisting compliance program.”

Fundamentally we ask, is the corporation’s compliance program well designed? Is the program being applied earnestly and in good faith? And does the corporation’s compliance program generally work? This is common sense in broad strokes. But prosecutors are no experts in the nuances of corporate compliance programs. Indeed, over the past twenty years in particular, the role of compliance has been evolving, becoming more sophisticated, more industry-specific and more metrics-oriented. Many companies have rightly tailored compliance programs to make sense for their business lines, their risk factors, their geographic regions and the nature of their work force, to name a few. But many have not.

The Fraud Section has therefore retained an experienced compliance counsel. She started only two weeks ago, so it’s still too early to talk about specifics. But I can tell you generally that we wanted to get the benefit of someone with proven compliance expertise, so as to probe compliance programs in terms of both industry best practices and real-world efficacy. This compliance counsel will help us assess a company’s claims about its program, in particular, whether the compliance program is thoughtfully designed and sufficiently resourced to address the company’s compliance risks, or is – at bottom – largely window dressing.

No compliance program is foolproof. We understand that. We also appreciate that the challenges of implementing an effective compliance program are compounded by the everincreasing cross-border nature of business and of criminal activity. Many companies’ businesses are all over the world. They are creating products and delivering services not only here in China but overseas and are operating across many different legal regimes and cultures. We also recognize that a smaller company doesn’t have the same compliance resources as a Fortune-50 company. Finally, we know that a compliance program can seem like “state of the art” at a company’s U.S. headquarters, but may not be all that effective in the field, especially in far-flung reaches of the globe. 

The Fraud Section’s compliance counsel – who, notably, has worked as a compliance officer here in China, as well as in the U.S. and the U.K. – has the concrete experience and expertise to examine a compliance program on both a more global and a more granular level. More so than ever, it is critical that companies have vigorous compliance programs to deter and detect misconduct. Our compliance counsel will give our prosecutors more tools to intelligently assess them. 

DAAG Suh's entire comments at the inaugural Global White Collar Crime Institute are available here.  

I was also pleased to announce in my closing remarks to the Institute in Shanghai that the second Global White Collar Crime Institute will take place in South America in the spring of 2017.  I hope to see you there. 


November 25, 2015 in Conferences, International, Prosecutors | Permalink | Comments (0)

Tuesday, November 24, 2015

Yates Memo Hot Topic

Sally Yates' new DOJ Memo has been a hot topic. (see here, here, here).  Check out Sara Kropf's terrific entry here reporting and questioning the Yates Memo influence in a recent indictment of a corporate employee. 

But one wonders if this DOJ claim that they have changed their policy is anything new. Has DOJ forgotten Enron and Jeff Skilling, who remains incarcerated?

My take continues to be that all the Yates really does is make it official that companies have to throw individuals under the bus  (see here). And knocking NPAs and DPAs is not the answer.  Yes, the terms within these documents are often offensive. (see here)  But getting compliance from companies and changing corporate culture is an important goal and one needs to remain focused on how best to achieve this goal.  Working with companies, as opposed to against companies, is the best way to foster compliance.  Likewise, pitting individuals within a company against the entity and the entity's counsel is not the answer.


November 24, 2015 in Deferred Prosecution Agreements, Investigations, News, Prosecutions, Prosecutors | Permalink | Comments (0)

Tuesday, November 10, 2015

Fantasy Sports

Looks like the NY Attorney General has decided to take a lead in stopping some fantasy sports companies. (see Walt Bogdanich, Joe Drape, and Jacqueline Williams, Attorney General Tells DraftKings and FanDuel to Stop Taking Entries in New York.)  Some are wondering if other states will get on the bandwagon.  But others of us are wondering what role the federal government may decide to take, or not take here.  I'm not betting on this one.


November 10, 2015 in News | Permalink | Comments (0)

Monday, November 2, 2015

A Reply to Steven H. Levin's Responsive Blog on Hassert

   Last Friday attorney Steven H. Levin posted a guest blog disagreeing with my view in a blog earlier that day that Dennis Hastert should not have been prosecuted.  Hastert was charged with, and pleaded guilty to,  structuring withdrawals from financial institutions of his own apparently legitimately derived funds, purportedly to conceal payoffs to an alleged extortionist whom he had purportedly sexually victimized over 30 years ago.  Hastert, Mr. Levin said, "had to be prosecuted" because his prosecution had "potential deterrent effect" on "would-be structurers" and "would-be extortionists."

  Even if the Hastert prosecution were to  have a deterrent effect on such "would-be" criminals, I still believe, for the reasons I expressed, that this case was an appropriate one for the exercise of prosecutorial discretion.  I do recognize that deterrence is a commonly recognized goal of prosecution and sentencing, and accept that prosecutions do have a deterrent effect on some "would-be" white-collar criminals (but far less an effect on those who might commit crimes involving violence and narcotics).  Nonetheless,  I question whether this prosecution will cause a positive deterrent effect on those who are considering the commission of either structuring or extortion.

   I do accept that the publicity attendant to the prosecution will to an extent increase public awareness of the existence of a crime called structuring whose broad expanse covers acts committed by otherwise law-abiding citizens to maintain their privacy and avoid disclosure of things they prefer be confidential, and therefore may have some deterrent effect on those persons.  However, deterring people from committing essentially harmless acts even though criminalized by an overbroad statute does not appear to me to be much of a societal benefit.  And, to the extent that the attendant publicity will educate money launderers of criminal proceeds and deter them from violating the structuring statute, of which sophisticated criminals are overwhelmingly aware in any case, the positive effect is also questionable since its potential effects will be further concealment and consequent limitations on governmental discovery of criminality.

   Additionally, I doubt that many would-be extortionists would be deterred from acts of extortion by this prosecution, in which, it so far appears, the purported extortion victim has been prosecuted and the purported extortion perpetrator remains free and also has probably received millions of dollars in payments (and also perhaps achieved some measure of retribution by the exposure, so far limited, of Hassert's alleged misdeeds) .  To the extent it has any effect on rational would-be extortionists who weigh the benefit/risk ratio, this prosecution encourages rather than deters them.

November 2, 2015 in Celebrities, Legal Ethics, Money Laundering, Prosecutions, Prosecutors, Sentencing | Permalink | Comments (0)

Friday, October 30, 2015

Why Hastert Had To Be Prosecuted

Guest Blogger - Steven H. Levin

White-collar laws are written broadly in order to permit federal prosecutors to combat the increasingly creative, technologically complex efforts of enterprising criminals.  Most, but certainly not all, prosecutors make rational decisions based upon the best possible expenditure of resources, the assessment of the jury appeal of a particular case, and the desire to maintain a good reputation with the bench, if not the bar.  In bringing a case, prosecutors also must consider the deterrent effect of a particular prosecution.

In the case involving Dennis Hastert, it has been reported that he was paying “hush money” to cover up alleged misconduct that occurred several decades ago.  Mr. Hastert’s structuring fell squarely within the broadly worded federal statute.   In his piece (“Should Hastert Have Been Prosecuted?”) Lawrence Goldman is correct to question the purpose such a prosecution serves.  The answer is found in the concept of deterrence.  Mr. Hastert’s prosecution has potential deterrent effect, both in terms of deterring those engaged in structuring (to cover up crimes) and those engaged in blackmail (threatening to expose crimes).

Once the investigation became known, the public learned that Mr. Hastert had been accused of taking money out of a bank account in order to pay an extortionist.  Both would-be structurers and would-be extortionists were put on notice by the federal government: blackmailing may not be successful in the future, because the victim of the extortion may be better off going to law enforcement rather than a bank.  Further, it might deter an individual from engaging in the initial misconduct in the first place, knowing that such actions may ultimately see the light of day, even decades later.

Still, as Mr. Goldman writes, Mr. Hastert is, at least in part, a victim.  And the decision to prosecute is different than a demand for jail time, which, under the plea agreement, is what prosecutors may seek.  Mr. Hastert’s conduct does not warrant jail time, as the collateral consequences of the prosecution itself are significant enough to deter at least some future would-be extortionists from engaging in blackmail and their victims from submitting to it.  This fact is all-too-often overlooked by prosecutors.


October 30, 2015 in Fraud, Money Laundering, News, Prosecutions, Prosecutors, Sentencing | Permalink | Comments (1)

Thursday, October 29, 2015

Should Hastert Have Been Prosecuted?

   Former Speaker of the House Dennis Hastert yesterday pleaded guilty to money laundering in a Chicago federal court.  Hastert admitted that he structured banking transactions by taking out amounts under $10,000 to avoid reporting requirements in order to conceal the reason he was using the money, which according to the plea agreement was "to compensate and keep confidential his prior misconduct."  Although the facts were not revealed in court (but may later be in sentencing  proceedings), sources reported that he was paying "hush money" to a former student he allegedly molested over 30 years ago when he taught high school and coached wrestling. 

   It thus appears that Hastert was an extortion victim, coerced into paying a former student millions of dollars to avoid public disclosure of his misdeeds and the destruction of his reputation.   (I assume that the applicable Illinois statute of limitations had passed.) 

   I question whether Hastert should have been prosecuted.  The money laundering statutes, although clearly an intrusion into privacy, serve a generally laudable purpose in making it difficult for criminals to accumulate and spend ill-gotten gains.  Here, however,  Hastert (although he may have done serious wrongs many years ago) was not a criminal, but a victim.

   Congress has given the government broad power to prosecute violators of the money laundering laws well beyond those who derive funds from crime.    I do not know what drove the decision to prosecute Hastert.  Perhaps it was outrage over his long-ago sexual misconduct;  perhaps it was to put forth a case which would derive considerable publicity, something to which prosecutors are not averse;  perhaps it was just a rigid application of the law.   Although Hastert's banking conduct does clearly fall within the statutory bounds,  and there may be arguably legitimate reason to prosecute him, on balance I believe prosecutorial discretion should have been exercised and a case not brought.  I wonder whether it would have been brought against an ordinary Joe Smith.

October 29, 2015 in Celebrities, Legal Ethics, Money Laundering, Prosecutions, Prosecutors | Permalink | Comments (0)

Wednesday, October 28, 2015

The Growing Role of Technology and Big Data in White Collar Cases

Three recent articles confirm the growing significance of technology and big data to both the general practice of law and the field of white collar crime in particular.

The first article, appearing in Enterprise Tech, is entitled Big Data Plays Arresting Role in White Collar Crime.  The piece discusses the manner in which analytical tools and big data are making it easier for law enforcement to discover and understand fiscal anomalies.

The second article, appearing earlier this year in Forbes, reiterates the role of big data in white collar investigations.  In the article, entitled Analysis of Big Data Leads to Big Arrests in Medicare Part D Fraud, Walt Pavlo explores the important role of technology in the arrest of 243 people in an alleged $712 million scheme.

The final article, appearing in the ABA Journal, is entitled What the Jobs Are: New Tech and Client Needs Create a New Field of Legal Operations.  This article is not about white collar crime.  However, it does offer a detailed discussion of the use of technology and data to increase the efficiency of law firm management and the provision of legal services.  When read in combination, the three pieces provide a fascinating glimpse into the future of legal practice and the important role technology and big data are already playing in a changing landscape. 


October 28, 2015 in Investigations, News, Science, Web/Tech | Permalink | Comments (0)

Tuesday, October 20, 2015

Dewey & LeBoeuf Trial Ends in Hung Jury

   The five-month criminal trial of three leaders of the defunct law firm of Dewey & LeBoeuf ended in a deadlocked jury on most major charges (and many acquittals of falsifying business records charges).  Most jurors were reportedly in favor of total acquittals of Steven H. Davis, the law firm's chairman, and Steven DeCarmine, its executive director.  The jurors were reportedly evenly split on Joel Sanders, its chief financial officer.  Cyrus Vance, the New York County District Attorney whose office prosecuted the case, gave an equivocal statement as to whether his office will prosecute a new trial. (My guess is that it will.)  The defense lawyers said they would renew their motions for dismissal.

   The non-verdict against Davis and DeCarmine (whose lead lawyers respectively are my friends Elkan Abramowitz and Austin Campriello, both excellent and highly-experienced white-collar criminal lawyers who actually try cases) did not surprise me at all.  There was no direct evidence that either defendant had directed or was aware of the accounting manipulations about which seven cooperating accomplice witnesses who had pleaded guilty testified.  The non-verdict against Sanders, however, did to an extent surprise me since there was some, although not very much, direct evidence against him.

    The prosecution case was based on what it demonstrated were accounting adjustments made to make the firm's finances look rosier than they were to lending banks and potential investors. The non-verdict against Sanders at least leads me to believe that some jurors did not find these adjustments to be criminal.  (I cannot help but wonder what those witnesses who pled guilty and their lawyers are thinking now.).  End-of-year accounting adjustments by businesses to make them appear more attractive to investors and lenders are not uncommon, particularly among struggling entities.  Prosecutors, however, almost invariably view them as criminal.  Jurors apparently are not all of the same mindset.

   I am hesitant to critique the decisions or tactics of trial lawyers in a case with which I am not intimately familiar since there are wise decisions that may not appear so to those unaware of certain facts or circumstances.  I was, however, somewhat surprised by the District Attorney's failure to call an accounting expert to clarify the case for the jury and to explain how the accounting adjustments created a distorted picture of the firm's finances.  Of course, I do not know that such an expert was available (but it is a rare case in which an "expert" cannot be found to say almost anything).

  What the case does demonstrate, I believe, is that it is not so easy to convict the heads of businesses or financial institutions as some journalists and some politicians of both stripes seem to think.  Often, these business leaders are so insulated that there is only a single person who discusses the alleged criminal actvity with them.  (Here, presumably that person,  if there were any, would have been Sanders).  And often, those leaders are just so involved in other things that they are not aware of any criminality in their institution, however widespread it might be.

   Vance has recently brought two major cases in which he accused leaders of institutions with criminal responsibilty for apparently criminal acts done by their employees. The first, barely reported until recently (except in the Chinese language press), the prosecution of a Chinatown-based bank (Abacus Federal Savings Bank) and its chief officers (Yiu Wah Wong and Raymond Tam) resulted in an acquittal several months ago (also after a number of employees had pleaded guilty and testified against their bosses).  The other is the Dewey & LeBoeuf case.

   Whether cases like Abacus or Dewey should be brought against institutional leaders where there is considerable seeming illegality by employees but only tenuous connections to its leaders is a question worthy of serious consideration.  Vance's once-removed predecessor, Manhattan District Attorney Frank Hogan, under whom I served almost 50 years ago, believed a prosecution should be brought only when the prosecutor was convinced both that the defendant is guilty and will be found guilty after trial, a belief apparently consistent with that of the Department of Justice in business organization leader situations.  Vance apparently believes otherwise.  He appears to believe  a prosecutor should not necessarily decline to prosecute a case in which he is convinced of the defendant's guilt but is not convinced he can secure a conviction.  That is not to say that such consideration was made in this case.

October 20, 2015 | Permalink | Comments (0)

Wednesday, October 7, 2015

Making the Yates Memo Work: Two Reform Proposals

The Yates Memo is all the rage. DOJ is saber-rattling at various CLE events and bloggers are holding forth on what it actually means. But wanting isn't getting. The question remaining is how to make sure that the company coughs up, or an investigation reveals, wrongdoing that occurred at the highest levels.

Here are two modest reform proposals I offer free of charge to the DOJ and FBI, based on my own experience defending individuals and. far less often, companies under investigation.

1. Modify Standard DOJ Proffer Letters. Mid-level corporate employees often possess very damaging information about those higher up the food chain. But these same mid-level employees can themselves be the subjects or targets of DOJ. At some point the employees are given the opportunity to proffer in front of the lead prosecutor. But the standard DOJ Proffer Agreement is riddled with loopholes. Assume that the proffer session does not result in a plea or immunity agreement and the employee is indicted. The primary loophole allows the government to use the proffered statement against the client at trial if the statement is in any way inconsistent with the defense presented. That's not much protection, which is why most seasoned white collar attorneys will not let a client with exposure proffer in front of DOJ. Thus, DOJ loses valuable information. DOJ should offer true non-Kastigar immunity for the information revealed in its proffer sessions. Nothing is lost by doing this, but much can be gained.

2. Demand Independent Internal Investigations. The first question every prosecutor should ask the corporation's outside attorney who is conducting an internal investigation or tendering an internal investigation report to DOJ is, "What is your reporting chain?" If outside counsel is not reporting to the Audit Committee or some other independent entity within the corporation there is absolutely no assurance that culpable upper management will be identified. Management can edit the final report and its conclusions to protect top executives and throw lower level employees to the DOJ wolves. Meanwhile, employees are less likely to truthfully cooperate with the internal investigation if they think the boss is reviewing interview reports every night after drinks. I am astounded at how often internal investigations are reported right up the chain of command at small and large publicly traded companies. DOJ prosecutors can make it clear that the procedural independence of the internal investigation will affect how the company is treated.


October 7, 2015 in Fraud, Government Reports, Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Monday, September 28, 2015

Food for Thought re Last Week’s Peanut Sentencing in Georgia

Just over a year ago, Stewart Parnell, the former CEO of Peanut Corporation of America (PCA), was convicted by a jury in the Middle District of Georgia of charges related to a deadly nationwide salmonella outbreak.  The matter came to the government’s attention in late 2008 when people began falling ill across the country.  The illnesses were eventually linked back to PCA’s peanut processing plant in Georgia.  As investigators continued to examine the salmonella outbreak, they discovered that the case involved potential criminal misconduct by Parnell and others who allegedly knew about the contamination, attempted to cover it up, and continued to ship contaminated and potentially contaminated product.  In one now infamous email from 2007, after being informed that batch test results were not back from the lab, Parnell wrote, “Just ship it.”  The outbreak killed nine people and injured thousands more.  Eventually, Parnell and others were charged in a 76-count indictment that alleged mail and wire fraud, introducing adulterated and misbranded food into interstate commerce, conspiracy, and obstruction of justice.  A jury found Parnell guilty of 67 of the 68 charges against him on September 19, 2014. 

On Monday of last week, U.S. District Court Judge W. Louis Sands sentenced Parnell to 28 years in federal prison.  One interesting aspect of the sentencing is that because authorities charged this case as a “white collar” matter involving fraud, rather than a homicide case, the most significant factor driving the guideline sentencing range was not the deaths of nine people, but the loss of over $100 million by the various food companies that were forced to recall their products because of Parnell’s actions.

According to last week’s DOJ press release:

Judge Sands took into account the fraud loss of PCA’s corporate victims when imposing today’s sentence.  The court found that Stewart Parnell and Mary Wilkerson should be held accountable for more than $100 million but less than $200 million in losses, and Michael Parnell should be held accountable for more than $20 million but less than $50 million in losses.  The court also found the government established evidence that Stewart Parnell and Mary Wilkerson should be accountable for harming more than 250 victims, and Michael Parnell should be accountable under federal sentencing guidelines for harming more than 50 victims.  The court additionally found that the Parnells should have known that their actions presented a reckless risk of death or serious bodily injury.

Looking at the applicable 2009 Federal Sentencing Guidelines (the Guidelines in place at the time of the offense conduct), one finds the following point allocations:

  • Base Offense – 7 points
  • Loss of more than $100 million – 26 points
  • 250 or more victims – 6 points
  • Risk of death – 2 points
  • TOTAL: 41 points

While there were likely other applicable sentencing points, such as obstruction of justice and role in the offense, the above point allocations alone result in 41 total points.  This translates into a guideline sentencing range of 324-405 months (27.00 – 33.75 years) for a defendant with no criminal history.  Steward received 336 months (28 years).

To highlight the importance of the loss amount in the Guideline’s calculation, note that if this case had involved nine deaths, but no financial loss to food companies, the sentencing range under section 2B1.1 of the Federal Sentencing Guidelines would have dropped to 18-24 months in the above calculation.  Obviously, this would have been a grossly unreasonable sentence given the devastating harm caused by Parnell.

I don’t know why this case was charged as a fraud and not a homicide.  Perhaps it was to send a clearer message about national food safety by bringing federal charges, including charges directly related to the introduction of adulterated and misbranded food into interstate commerce.  One additional item to note, however, as we think about the way this case proceeded, is that federal white collar sentences in high loss cases can often dwarf sentences for other crimes, including homicide.  Consider that involuntary manslaughter in Georgia carries a maximum sentence of ten years in prison.  Georgia also has automatic parole eligibility for most inmates.  By comparison, Parnell received 28 years in prison using federal fraud statutes and their applicable sentencing guidelines.  Further, there is no parole in the federal system.    

Federal fraud offenses are often attractive to prosecutors because they are broad enough to apply in all manner of situations and carry potentially significant sentences.  It should be no surprise, therefore, that we continue to see these statutes used in many cases that do not fit neatly into our traditional definitions of “white collar crime.”  For a further discussion of the way “white collar offenses” are used in a vast array of cases, many of which do not involve traditional white collar criminal activity, see “White Collar Crime”: Still Hazy After All These Years, 50 Georgia Law Review Issue 3 (Lead Article) (forthcoming).


September 28, 2015 in Food and Drink, Fraud, Prosecutions, Sentencing | Permalink | Comments (0)

Tuesday, September 22, 2015

Just Who is Under that DOJ Bus?

You are the CEO, General Counsel, or Audit Committee of a big publicly traded company. Some whistleblower dimes the company out to the SEC and DOJ. It seems very likely that a crime has been committed. Class action lawsuits, qui tam complaints, and DOJ and SEC investigations are a foregone conclusion. What are you gonna do? Tell the SEC and DOJ to f... off? No, you are going to commence your own internal investigation and promise to cooperate with the government by sharing your Investigative Report's essential findings. And if the internal investigation reveals that some of your employees acted illegally, you will promise to serve them up to the DOJ. This is the reality in today's business and legal environment. A corporate entity owes no particular duty to an employee who commits fraud. Professor Podgor's complaint here and here that both the old (Filip) and new (Yates) DOJ policies encourage companies to throw their employees under the bus is certainly true. But to the companies involved it makes a lot of sense. Tell the DOJ that it's on its own and what will happen? You will still get hit with costly and onerous document requests and a federal criminal investigation that you cannot control. The publicity is awful and when it all hits the fan you can't even say that you are cooperating with DOJ. You've got a real mess and a pissed off prosecutor. To some extent, becoming a government quasi-agent is inevitable in this scenario.

The more interesting question to me is: "Who gets thrown under the bus?" Former SEC Enforcement Chief Robert Khuzami complained years ago that too many outside counsel with longstanding ties to a given corporation's leadership are willing to sacrifice mid-level employees to the government sledgehammer, letting the big boys go scot-free. That was true then. It's true now. Until the DOJ shows a willingness and ability to seriously investigate and prosecute a company's top leadership, when it is clearly called for, no memos, speeches, or other fanfare will mean diddly squat.

Yes, the occasional CEO finds himself/herself in the crosshairs and the occasional internal investigation results in a CEO resignation. But in the vast majority of cases it is middle management that gets slow roasted by both the company and an all-too-willing DOJ. Trust me. It happens. If the policies announced in the Yates Memo have any chance of changing this dynamic, so much the better.

Meanwhile, are there any concrete things the Department can do to change the situation? More on that in a future post.


September 22, 2015 | Permalink | Comments (0)

Sunday, September 20, 2015

No "Fowl" Play: Fifth Circuit Overturns Migratory Bird Treaty Act Convictions

Guest Blogger - Erin Okuno Foreman Biodiversity Fellow, Institute of Biodiversity Law and Policy, Stetson University College of Law

Recently, the U.S. Court of Appeals for the Fifth Circuit overturned convictions under the Migratory Bird Treaty Act ("MBTA") and the Clean Air Act ("CAA") in the case of United States of America v. CITGO Petroleum Corp., Case No. 14-40128 (5th Cir. Sept. 9, 2015). The U.S. District Court for the Southern District of Texas had previously found CITGO Petroleum Corp. and CITGO Refining and Chemicals Company, L.P. ("CITGO") guilty of three counts of violating the MBTA for "taking" migratory birds because birds (including pelicans, ducks, and cormorants) had died in uncovered equalization tanks at CITGO’s petroleum refinery. A jury had also found CITGO guilty on two CAA counts. The district court issued a $15,000 fine for each violation of the MBTA and a $2 million fine for the CAA violations. CITGO appealed, and the Fifth Circuit reversed the MBTA and CAA convictions.

In reversing the MBTA convictions, the Fifth Circuit focused largely on the definition of "take" under the MBTA and concluded that "the MBTA’s ban on ‘takings’ only prohibits intentional acts (not omissions) that directly (not indirectly or accidentally) kill migratory birds." As noted by the court, under the MBTA, it is "‘unlawful at any time, by any means or in any manner, to pursue, hunt, take, capture, kill, attempt to take, capture, or kill . . . any migratory bird,’ in violation of regulations and permits." The Fifth Circuit reasoned that while Congress had expanded the definition of "take" in both the Endangered Species Act ("ESA") and the Marine Mammal Protection Act ("MMPA"), it had not done so in the MBTA. A "take" under the ESA and the MMPA includes terms ("harm" and "harass") that encompass negligent acts or omissions, but these terms are not included in the MBTA’s "take" definition. Instead, the Fifth Circuit determined that the MBTA applies a more limited common law definition of "take."

Those who violate the MBTA are subject to strict liability, but a circuit (and district) split exists about the scope of liability under the act. The Fifth Circuit joined the Eighth and Ninth Circuits by focusing on the meaning of "take" and concluding that "a ‘taking’ is limited to deliberate acts done directly and intentionally to migratory birds." The court chose not to follow the Second and Tenth Circuits’ broader interpretations, which did not focus on the meaning of "take": the Fifth Circuit disagreed "that because misdemeanor MBTA violations are strict liability crimes, a 'take' includes acts (or omissions) that indirectly or accidently kill migratory birds." It was the Fifth Circuit’s position that the Second and Tenth Circuits had confused mens rea and actus reus. As the court explained, a strict liability crime does not require mens rea, but an actus reus is still required to hold a defendant criminally liable.

The district court had also distinguished this case from other MBTA oil field cases because CITGO’s underlying conduct violated the CAA and state law. The Fifth Circuit rejected this argument, explaining that the MBTA provides no basis for such an argument, but even if it did, the Fifth Circuit held that CITGO had not committed a CAA violation (and CITGO was not charged or convicted of any state law crimes). The court concluded its MBTA discussion by suggesting that a broader interpretation of the statute would lead to absurd results, such that people who own windows, power lines, cars, and domestic cats could be potentially liable for misdemeanors under the MBTA. Interpreting the statute more narrowly and relying on a limited common law meaning of "take," the Fifth Circuit reversed CITGO’s MBTA convictions.

A few thoughts:

  • The Fifth Circuit’s decision about the scope of criminal liability under the MBTA further contributes to the split on this issue. The Fifth Circuit may have interpreted the MBTA narrowly, but other circuits have been, and may be, willing to interpret the statute more broadly, which could have serious implications for companies operating in those circuits. The statute’s effectiveness in preserving migratory birds could also vary circuit to circuit.
  •  What effect might the Fifth Circuit’s interpretation of "take" under the MBTA have on other courts’ interpretations of the term under the ESA and the MMPA? Although the Fifth Circuit distinguished the use of the term in the MBTA from the ESA and the MMPA, it is conceivable (although probably unlikely) that another court could find the Fifth Circuit’s reasoning persuasive and interpret the term under the ESA and MMPA a bit more narrowly. Conversely, a court could also use the Fifth Circuit’s distinction to bolster an even broader interpretation of the term under the ESA and MMPA.
  •  Will the Fifth Circuit’s reasoning about strict liability and the mens rea/actus reus distinction have any implications for other environmental statutes that contain strict liability provisions, such as the Clean Water Act?


September 20, 2015 in Environment, Judicial Opinions | Permalink | Comments (0)

Friday, September 18, 2015

GM Deferred Prosecution Agreement and the "New" DOJ Corporate Prosecution Policy

Just days ago, DOJ came down with a new corporate directive (discussed here) describing a shift in investigation policy.  The new focus would be on the prosecution of individuals within the entity.  It states:

"2. Both criminal and civil corporate investigations should focus on individuals from the inception of the investigation.

Both criminal and civil attorneys should focus on individual wrongdoing from the very beginning of any investigation of corporate misconduct. By focusing on building cases against individual wrongdoers from the inception of an investigation, we accomplish multiple goals. . . . "

So much for this new policy, as the GM Deferred Prosecution Agreement comes before any individual prosecutions. (see Corporate Crime Reporter here).  It has the company paying $900 million, accepting responsibility, agreeing to cooperate, and providing information to the government.  

Both the old DOJ approach and this new one, that seems to exist only on paper and not in practice, have problems.  Both have the company serving as "agents" of the government.  Both have the company doing the investigative work for the DOJ.  Both have the company "throwing employees under the bus." And both show a disrespect for individual attorney-client relations.  

Corporate and individual criminal actions are a problem that needs to be corrected.  But as previously said, pitting the entity against its constituents will not correct misconduct.  And telling the public that you intend to take a different approach and just days after you do the opposite fosters a lack of trust. It also demonstrates the importance of Congressional action as opposed to reliance on DOJ internal guidelines.


September 18, 2015 in Deferred Prosecution Agreements, Investigations, Prosecutions, Prosecutors | Permalink | Comments (0)

Tuesday, September 15, 2015

Upcoming Event -Overcriminalization

Striking the Right Balance: Criminal v. Civil Law Sanctions 

National Association of Criminal Defense Lawyers (NACDL), Foundation of Criminal Justice (FCJ), Constitution Project (TCP)

Moderator Professor Lucian Dervan (Southern Illinois School of Law)

Panelists - Adeel Bashir (Office of the Federal Defender, Middle District of Florida), John Lauro (Lauro Law Firm), & Marjorie Peerce (Ballard Spahr)

Wednesday, September 16, 2015 from 12:00 PM to 1:15 PM (EDT)  For more information see here.


September 15, 2015 in Conferences | Permalink | Comments (0)

In the News & Around the Blogosphere

Sue Reisinger, Corporate Counsel, AG Lynch Sounds Warning Bell, Says FIFA Probes Expand


September 15, 2015 in Prosecutions, Prosecutors, Sports | Permalink | Comments (0)

Monday, September 14, 2015

Sentencing the Wolf of Wall Street

I have just released a new article discussing the sentencing of Jordan Belfort, better known as the "Wolf of Wall Street."  I use this case as a mechanism for considering how white collar sentencing has evolved from the 1980s until today.  In particular, the article examines the growth in uncertainty and inconsistency in sentences received by major white collar offenders over this period of time and considers some of the reasons for this trend.  The article also examines the impact of recent amendments adopted by the U.S. Sentencing Commission on white collar sentences.

Lucian E. Dervan, Sentencing the Wolf of Wall Street: From Leniency to Uncertainty, 61 Wayne Law Review -- (2015).


This Symposium Article, based on a presentation given by Professor Dervan at the 2014 Wayne Law Review Symposium entitled "Sentencing White Collar Defendants: How Much is Enough," examines the Jordan Belfort (“Wolf of Wall Street”) prosecution as a vehicle for analyzing sentencing in major white-collar criminal cases from the 1980s until today. In Part II, the Article examines the Belfort case and his relatively lenient prison sentence for engaging in a major fraud. This section goes on to examine additional cases from the 1980s, 1990s, and 2000s to consider the results of reforms aimed at “getting tough” on white-collar offenders. In concluding this initial examination, the Article discusses three observed trends. First, today, as might be expected, it appears there are much longer sentences for major white-collar offenders as compared to the 1980s and 1990s. Second, today, there also appears to be greater uncertainty and inconsistency regarding the sentences received by major white-collar offenders when compared with sentences from the 1980s and 1990s. Third, there appear to have been much smaller sentencing increases for less significant and more common white-collar offenders over this same period of time. In Part III, the Article examines some of the possible reasons for these observed trends, including amendments to the Federal Sentencing Guidelines, increased statutory maximums, and judicial discretion. In concluding, the Article offers some observations regarding what the perceived uncertainty and inconsistency in sentencing major white-collar offenders today might indicate about white-collar sentencing more broadly. In considering this issue, the Article also briefly examines recent amendments adopted by the U.S. Sentencing Commission and proposed reforms to white-collar sentencing offered by the American Bar Association.


September 14, 2015 in Film, Fraud, Insider Trading, Prosecutions, Scholarship, Securities, Sentencing | Permalink | Comments (0)

Wednesday, September 9, 2015

It's Official - Throw the Employees Under the Bus

The new DOJ Policy (see here for the NYTimes story that includes DOJ Policy) makes the current practice of corporations "throwing employees under the bus," official. It states, "[t]o be eligible of any cooperation credit, corporations must provide to the Department all relevant facts about the individuals involved in corporate misconduct."  Corporations have received deferred and non-prosecution agreements (DPAs and NPAs) that often provide for the corporation cooperating with the government in the investigation of alleged criminally culpable individuals.  Now it is clear that to obtain "any" cooperation credit it will be necessary to provide the evidence against these individuals. 

Three concerns here: 

1) what is meant by providing "all relevant facts"?  Does this mean only information that is relevant to the government's case against the individuals?  Will the government also be asking for Brady material that might be exculpatory for the individuals? Does this mean that the corporation now is officially a member of the government team?  

2) what does this mean for the corporate culture?  The concept of the individuals in the company working together, asking for legal advice from corporate counsel, and working to resolve problems in an open environment may now be officially over.  This policy pits the corporation against the individual.  Is this a wise approach to correcting business misconduct?

3) does this make it more important that there be fairness in internal investigations?  See here for a discussion of the importance of fairness in internal investigations.

Interestingly, the new policy calls for starting with the individual and also calls for sharing information between civil and criminal attorneys. It also requires "a clear plan to resolve related individual cases before the statute of limitations expires and declinations as to individuals in such cases must be memorialized." This is a clear message that individual prosecutions are now a priority.

The message to white collar criminal defense attorneys - corporate prosecutions may no longer be the focus.  Get ready for more prosecutions against individuals.


September 9, 2015 in Deferred Prosecution Agreements, News, Privileges, Prosecutions, Prosecutors | Permalink | Comments (0)

White Collar Crime as DOJ Priority

Check out the NY Times article, Matt Apuzzo & Ben Protess, New Justice Dept. Rules Aimed at Prosecuting Corporate Executives .


September 9, 2015 | Permalink | Comments (0)

Monday, September 7, 2015

Registration Open for Global White Collar Crime Institute

Registration is now open for the Inaugural ABA Criminal Justice Section Global White Collar Crime Institute, which will take place November 19-20, 2015 at the Ritz-Carlton Shanghai Pudong in Shanghai, China.  The event is done in collaboration with the KoGuan Law School of the Shanghai Jiao Tong University.  I am honored to serve as the Institute Chair and hope to see many of our blog readers at the event.

This conference will be an incredible opportunity to interact with prosecutors, judges, defense counsel, accountants, in-house counsel, and academics from the U.S., China, and other parts of the world as they convene to discuss the complexities of international white collar crime.  

More from the registration website:

The goal of the conference is to bring the energy and excitement of our previous international white collar crime conferences to Asia and create unique opportunities for our participants to network and explore the legal complexities of white collar crime in the growing Chinese legal market. Conference topics will include: 

  • General Counsels’ Roundtable
  • Enforcers' Roundtable
  • How to Conduct an International Internal Investigation
  • Recent Developments in Global Antitrust Cartel Enforcement and Anticipated Implications for China and Asia
  • Comparative Legal Systems & Special Enforcement Issues in China, the US & Beyond
  • Year in Review: Lessons Learned from Recent White Collar Crimes Prosecutions in China & the US
  • Trends Regarding Anti-Corruption Enforcement in China & the US
  • Cyber Crime & Virtual Currencies
  • Social Responsibility of Corporations


Sung-Hee Suh, U.S. Deputy Assistant Attorney General  

Suh was appointed in Sept. 2014 as the U.S. Department of Justice's Deputy Assistant Attorney General overseeing the Criminal Division's Fraud, Appellate and Capital Case Sections.  She re-joined the Department after 15 years in private practice at Schulte Roth & Zabel LLP in New York, where she was a partner in the Litigation group and focused on representing institutions and individuals in financial fraud, securities regulatory, Foreign Corrupt Practices Act, anti-money laundering and sanctions matters.  

The complete program is also now available on the ABA CJS registration website. 


September 7, 2015 in Conferences, International | Permalink | Comments (0)