Articles Posted in White Collar Crime

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A week or so ago over at Ellen Podgor’s White Collar Crime Prof Blog, guest blogger Jon May summarized the testimony of Deputy Attorney General James Cole concerning the Government’s position on the Fairness in Disclosure of Evidence Act 2012, an act which would require prosecutors in federal criminal cases to disclose exculpatory evidence in a timely fashion. Unfortunately, but not surprisingly, the Government is taking the position that Congress should not enact this important federal statute. Among other things, the Deputy Attorney General claims that requiring the Government to turn over this information would endanger the lives of Government witnesses.

As Jon May points out here, this argument relies on fear, not fact. It is, however, not the first time that the Government has used this argument. As I discussed in a previous post, in 1974, the Advisory Committee and the Supreme Court recommended amending the Federal Rules of Criminal Procedure to require the parties in federal criminal cases to exchange witness lists. This proposed amendment had a broad base of support, and ultimately both the Advisory Committee and the Supreme Court agreed that the change should be made. Before the Congressional Committee addressing the legislation, prosecutors argued (just like Deputuy Attorney General Cole) that pretrial disclosure of prosecution witnesses would result in harm to witnesses. Although the Committee recognized that there may be a risk in some cases, it ultimately concluded that “the risk is not as great as some fear that it is.”
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From our offices here in Atlanta, Georgia, we have been following recent developments in a number of federal criminal investigations and prosecutions concerning antitrust violations involving real estate foreclosure auctions. For instance, back in December, the Department of Justice indicted five individuals in federal court for alleged bid rigging and fraud at public real estate foreclosure auctions. In that matter, the indictment included charges against four real estate investors and an auctioneer.

According to the Department of Justice press release issued in connection with the indictment, the defendants and their co-conspirators agreed to suppress and restrain competition by rigging bids to obtain selected properties offered at public, real estate foreclosure auctions. In addition, the Government also alleged that after the conspirators’ designated bidder bought a property at a public auction, they would hold a second, private auction, at which each participating conspirator would bid the amount above the public auction price he or she was willing to pay. The conspirator who bid the highest amount at the end of the private auction won the property. The difference between the price at the public auction and that at the second auction was the group’s illicit profit, and it was divided among the conspirators in payoffs.

The federal indictment against these individuals includes antitrust charges under the Sherman Act, as well as a charge that the defendants conspired to commit mail fraud. Since the return of this indictment, one of the individuals has entered a guilty plea and the others appear to be headed for a trial in federal court sometime later this year. This, however, is not the only investigation or prosecution concerning alleged antitrust violations in connection with real estate foreclosure auctions. From what we have read, however, the investigations and prosecutions in other districts appear to involve similar allegations.

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Last week, the Eleventh Circuit Court of Appeals affirmed the convictions of Larry Langford, the former mayor of Birmingham, Alabama who was convicted last year on various federal white collar offenses, including mail and wire fraud, bribery, money laundering, and federal tax offenses.

To me, the most interesting aspect of the opinion is the way in which the Court of Appeals discussed the honest services portion of the federal mail and wire fraud charges. As we discussed in this previous post, last summer, the Supreme Court issued its opinion in United States v. Skilling, a case which, in essence, limited the honest services provision of the federal fraud statutes to bribery and kickback schemes.

Before Skilling was decided, many (if not all) federal circuits made a distinction between honest services prosecutions that involved public officials, as opposed to those working in the private sector. At the risk of simplifying the issue too much, it was far easier for the government to prove an honest services violation against a public official. Skilling itself, however, did not distinguish between public officials and private actors, leading some to believe that after Skilling, the prosecution of both public and private officials would be governed by the same standards.

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Earlier this year, the United States Attorney’s Office for the Northern District of Georgia announced that federal prosecutors and federal agents are ramping up criminal investigations and prosecutions of so-called “pill-mills” in metro Atlanta. The statement (which was reported in the Atlanta Journal Constitution) was made during a “summit” on prescription drug abuse held here in Atlanta back in March.

Since that “summit”, federal prosecutors in Atlanta have secured indictments against doctors and others, claiming that these individuals have violated federal controlled substance laws. Indeed, as recently as last month, federal prosecutors indicted doctors, managers, and owners of “Atlanta Medical Group”, charging these individuals with a number of federal offenses. According to the press release issued in connection with the federal indictment, these individuals operated a “pill-mill”, illegally distributing oxycodone in violation of federal law.

There is no doubt that prescription drug abuse is a serious problem that needs to be addressed. However, it is equally true that chronic pain is also a serious problem in the United States. Indeed, just last week, the New York Times published an article discussing a sweeping review on this issue that was recently released by the Institute of Medicine – the medical branch of the National Academy of Sciences. According to that review, it is “estimated that chronic pain afflicts 116 million Americans, far more than previously believed.” The article goes on to describe that “[t]he toll documented in the report is staggering[,]” leading the chief of pain management at the Stanford School of Medicine (Dr. Sean Mackey) to conclude that number of people suffering from chronic pain “is more than diabetes, heart disease and cancer combined.”

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Earlier today, the Eleventh Circuit reversed a federal conviction of a pain management doctor prosecuted in federal court. The case originated out of the Southern District of Georgia, and after a lengthy trial, the jury convicted the pain management doctor on 129 counts of unlawfully dispensing certain controlled substances by means of written prescriptions made “outside the usual course of professional practice and without legitimate medical purpose,” in violation of federal controlled substance laws.

On appeal, the doctor raised a number of issues, the most significant one being that the federal trial judge effectively denied him his right to testify by failing to notify him that he could testify in a narrative format. At trial, the doctor was not represented by a a lawyer. And when it came time to decide whether he wanted to testify on his own behalf, the trial judge failed to correct an obvious misunderstanding the doctor had concerning his right to testify.

More specifically, according to the trial transcript, the doctor incorrectly believed he could testify on direct examination only if was questioned by an attorney. Although the record established that the doctor was clearly ignorant of his ability to provide narrative testimony, the federal trial judge failed to correct this obvious misunderstanding. Rather, the trial judge merely informed the doctor that he had “an absolute right to testify.”

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In 2005, the United States Supreme issued its landmark decision in the federal criminal case of United States v. Booker. Among other things, the Court in Booker ruled that the federal sentencing Guidelines are no longer mandatory, but are instead advisory. Before Booker, it was undisputed that courts were required to apply the Guidelines that were in effect when the federal crime at issue was committed, if applying a later Guideline created Ex Post Facto concerns. In other words, if the Guideline in effect on the date of a sentencing established a harsher Guideline range, the sentencing court was required to apply the more lenient Guideline that was in effect when the crime was committed. An example that comes to mind arises in federal, white collar cases. For instance, under the Guideline that applied up until October 31, 2002, the base offense level in white collar cases was 6, rather than 7. For this reason, under the law as it existed before Booker, courts in white collar cases were required to use the Guideline with the base offense level of 6, as long as the crime was completed prior to the effective date of Guideline that changed the base offense from 6 to 7.

When Booker was decided, however, some people (mostly prosecutors) claimed that since the Guidelines were no longer mandatory, the Ex Post Facto principles discussed above no longer applied. According to these individuals, courts were now free to apply the Guideline in existence on the date of the sentencing, even when the Guideline in effect when the crime was committed provided for a more lenient sentencing range.

Recently, the Eleventh Circuit squarely addressed this issue for the first time, and in our view, reached the right result (for the most part). In Wetherwald, (a federal white collar case), the defendants were convicted of defrauding investors out of millions of dollars. On appeal, the defendants argued that the trial court erred by applying the federal sentencing Guidelines that were in effect on the day of sentencing, rather than the more lenient Guidelines that were in place when the crimes at issue were committed.

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In this post in August, we reported that the Eleventh Circuit had held that a trial court abused its discretion in failing to instruct the jury on good faith reliance. In that opinion, the Court vacated convictions on three counts, but affirmed a conspiracy conviction. Last week, in United States v. Kottwitz, the Court decided on rehearing that the “[d]efendants introduced enough circumstantial evidence to warrant an instruction that — at some pertinent point –[they] may have relied on the accountant’s advice” on the conspiracy count, as well.

Good faith defenses are often significant in white-collar criminal cases. As we have lamented, the government continues to prosecute people on the basis of business decisions that are not intended to break the law. It is imminently important for defense lawyers to convey to the jury that a person acting in good faith cannot be guilty.

To receive a jury instruction in the Eleventh Circuit, a defendant need only show “any foundation in the evidence.” The first Kottwitz opinion, which is still good law inasmuch as it is consistent with this most recent opinion, provides a detailed explanation of when the trial court must instruct the jury on good faith reliance.

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Last week, the Eleventh Circuit Court of Appeals issued its opinion in United States v. Kottwitz. This opinion is important because it explains in detail when a trial court must instruct the jury on good faith reliance on the advice of his advisor. The Court also addressed the sufficiency of the evidence on defendants’ Klein conspiracy and tax fraud and evasion charges.

In holding that the trial court had abused its discretion in refusing to give the good faith reliance instruction, the Court thoroughly reviewed the law regarding such instructions. The instruction is designed to refute the government’s proof of the defendant’s intent. “The defendant bears an ‘extremely low’ threshold to justify the good faith reliance instruction and does not need to prove good faith.”

White-collar criminal defense attorneys often deal with good faith reliance issues and should keep Kottwitz in mind when arguing for such an instruction. The “good faith” defense is often the single most important issue when prosecutors go after a person based on what he or she did in the business context. A person who acts in good faith cannot be guilty where he or she did not intend to break the law. The lawyers in this case struggled to get this concept across to the jury, but were thwarted in their efforts when the trial judge took a different view of the appropriate instruction for the jury.

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In this post last week, we announced the Supreme Court’s decision in Skilling v. U.S. The Court held that 18 U.S.C. § 1346, the honest services law that the government has been using to prosecute nearly everything as a federal crime, applies only to bribery and kickback schemes.

The honest services fraud statute simply defines “scheme or artifice to defraud” as used in the mail- and wire fraud statutes to “include a scheme or artifice to deprive another of the intangible right of honest services.” Congress enacted this statute quickly after the Supreme Court, in McNally, held that the fraud statutes were “limited in scope to the protection of property rights.” Congress intended to incorporate pre-McNally case law that had recognized fiduciary duties as intangible rights to honest services and a breach of those duties as fraud.

The majority’s rationale for limiting the honest services fraud statute to only bribes and kickbacks was that such cases constituted the “core” of pre-McNally honest services fraud cases and that statutes should be construed, where possible, rather than invalidated. Because, the Court said, circuit conflicts and disagreements regarding honest services fraud cases were primarily outside the bribery and kickback scheme cases, limiting the application of the statute to those cases would avoid vagueness troubles.

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Last week, the Department of Justice announced a new nationwide mortgage fraud initiative named “Operation Stolen Dreams.” Sally Quillian Yates, U.S. Attorney for the Northern District of Georgia here in Atlanta, issued an immediate press release to show local federal law enforcement’s commitment to investigating and prosecuting mortgage fraud.

So far, the U.S. Attorney’s Office in this district has brought the following types of criminal charges in mortgage fraud cases:

In relation to the collapse of banks:

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