Entries categorized "White Collar Crime"

Campaign Contributions, Bribery, and the First Amendment

Peter Henning has a fascinating post entitled Prosecuting Campaign Contributions as Bribes.  The post was interesting to me because the federal bribery statute is a hobby horse of mine; and the difference between bribe and campaign contribution is knotty enough to keep me interested.

I've even been working on a paper where I make this claim: The federal bribery statute is unconstitutional under the First Amendment because it's unconstitutionally overbroadbreath, namely, it criminalizes garden-variety campaign contributions. 

You can read the draft here.  This is a very rough draft (it's almost more of an outline than a draft article) that I haven't been able to get to for a bit.  Fortunately (or not!), I'm busy enough making money that I don't have much time to non-blog-related scholarship.  Anyhow, if you have any substantive comments (saying, point-x is weak is not helpful, since, like I said, it's a draft, so there are a lot of weak points), I'd love to hear them.

Download federal_bribery_statute_campaign_contributions_and_the_first_amendment.pdf

RICO and the Revenue Rule

Yesterday the Second Circuit handed down an extremely interesting decision, European Community v. RJR Nabisco (via AL&P), which touches the intersection of RICO and the revenue rule.

Under the revenue rule, American courts are barred from enforcing the tax laws of foreign nations.  Thus, foreign nations may not sue in federal court seeking recovery of unpaid taxes.  Last year, in European Community v. RJR Nabisco, several countries brought a RICO suit against RJR Nabisco.  Since the PATRIOT Act made smuggling a predicate action actionable under RICO, several foreign countries sought money damages for lost tax revenue and law enforcement costs. 

The Second Circuit dismissed the suit under the revenue ruling, holding that allowing "recovery of unpaid taxes would constitute 'direct enforcement' of a foreign sovereign’s tax laws, and recovery of law enforcement costs would constitute 'indirect enforcement.'"  Then came Pasquantino v. United States

In Pasquantino, a 5-4 Supreme Court incorrectly held that an American citizen could be convicted under the federal wire fraud statue for failing to pay Canadian taxes.  The losers in European Community petitioned for cert., and the Supreme Court remanded.  Surprisingly, the Second Circuit affirmed.  After considering the policies behind the revenue ruling, the panel seems to rely primarily on one factor, writing that "the involvement of the United States government was a key factor in determining the outcome of Pasquantino."

Thus, the Second Circuit's rule is that the revenue rule will bar civil but (perhaps) not criminal actions under RICO.  And presumably under the Second Circuit's holding, a violation of the mail or wire fraud statute could not serve as predicate acts in a civil RICO suit.  I'm not sure the civil-criminal distinction makes sense, and it seems to go against precedent.  I do not, however, think the Supreme Court will, if the plaintiffs petition, grant certiorari.

Gotta Keep 'Em Separated

From Law.com comes this article on the latest drama in the Ken Lay saga.

Enron founder Kenneth Lay doesn't want to go to trial alongside his one-time protege, former CEO Jeffrey Skilling. The feeling is mutual. Both argue in court filings -- Skilling in papers filed Friday, Lay earlier this month -- that the allegations against them thinly overlap if at all, so they should be tried separately.

The government wants to try them and the third co-defendant in their pending indictment, former Enron chief accounting officer Richard Causey, together in March next year. Lay wants a trial as soon as possible, and Skilling and Causey want another year and a half to prepare.

Lay's legal team asked that he be tried alone, and said he would forego his right to face a jury and leave his fate in a judge's hands if that would get a speedy trial. 

U.S. District Judge Sim Lake said he would rule on all the separate trial requests by early October.

It would seem more than a little unfair - and indeed, constitutionally suspect - for Judge Sim to deny severance on the usual grounds of judicial economy when Lay is asserting that severance is required in order for him to obtain his constitutional right to a speedy trial.

White Collar Crime in the News

An article on Tyco's ex-General Counsel's acquittal is available here.  This, like many other white collar criminal prosecutions, turned on the defendant's credibility.  The article states:
"The centerpiece of their case was Belnick himself, who took the stand for several days of testimony."

"On direct examination by Weingarten, he presented himself as an honest lawyer and outsider at Tyco who failed to establish a rapport with Kozlowski and encountered active hostility from other Tyco executives and members of the board of directors.   On the stand, Belnick explained how he slowly instituted policies and procedures at the company. He also described how he hired and worked with lawyers at Washington, D.C.'s Wilmer, Cutler & Pickering to resolve the SEC investigation. He said Kozlowski had promised him the $17 million bonus on the investigation's successful conclusion."

"Throughout his time on the stand, Belnick had acknowledged that his compensation was high but he said Tyco was known for rewarding performance. He said he relied on Kozlowski's word that the CEO had the ability to set the general counsel's compensation. Noting that he was a litigator rather than a securities lawyer, he said he willingly deferred to Swartz on issues like whether he needed to disclose his loans or bonuses on the company's proxy statements."

In other news...ABC has the inside scoop on Martha Stewart's appeal, led by former acting Solicitor General Walter Dellinger.  The article notes several alleged points of error, including: 
"[1]The perjury by Juror Number 4 (Chapell Hartridge), who failed to disclose a 1997 arrest for domestic assault and an attempted robbery conviction for his son, and the decision to not prosecute."

"[2]The perjury by Larry Stewart, the Secret Service national ink expert, and the defense assertion that he is a member of the prosecution and that at least five other persons in the Secret Service knew of the perjury. Additionally, the defense asserts that it would have been reasonable for the government to have known of the risk of prejudicial testimony well before the end of trial, if not before the testimony was given."

"[3]In the government opening argument the assertion of an "insider tip" came up 17 times, yet the judge had ruled that the defense could not address the issue of insider trading before the jury. Dellinger is expected to state that when the prosecution talked about secret tips, they were using code for insider trading which the jury would understand."

"[4]That testimony by Stewart's best friend Mariana Pasternak that asserted Stewart knew when to sell her stock was allowed to stand, with no instruction to the jury, despite the fact that later Pasternak said she might have "imagined" the critical conversation."

"[5]That Martha Stewart's constitutional right to confront witnesses against her was violated when the prosecution introduced statements her co-defendant Peter Baconovic made to investigators, in which he said that he had never had a conversation with Martha's business adviser in which they agreed to sell her shares of ImClone if the price fell below $60."

"[6]That the judge did not order a hearing to determine if the prosecution was aware of Larry Stewart's perjured testimony."

"[7]That the inclusion of the securities fraud charge unfairly prejudiced the jury."

Each point other than Nos. 3 and 5 seem to me to be clearly harmless error.  Point 3 is another example of prosecutorial misconduct - but it's of the kind that courts ignore each day.  Point 5 has potential in light of Crawford v. Washington (holding that Confrontation Clause prohibits out-of-court statements offered against a defendant unless the defendant first has the right to cross-examine the declarant).  I do not know what role Baconovic's statements played in her conviction, though as first pass the statements seem crucial to Stewart's conviction.  Martha Stewart was convicted of lying to investigators when she told them that she had a stop-loss order in place.  Apparently Baconovic said no such order was in place.  Thus, Baconovic's statement would seem pretty damn crucial to a conviction by providing direct evidence that no such order was in place, and therefore Marth was lying when she told investigators otherwise.  Also, note that Martha Stewart was convicted on March 5, 2004 (and presumably the statements were entered against her well before that).  Crawford was rendered on March 8th.  To win on this point her defense team will have to prevail on the argument that Crawford applies retroactively.   I look forward to reading the briefs. 
The Stewarts case is a lesson in the preciousness of liberty.  Martha will face, at most, 16 months in a relatively decent federal prison.  She has spent millions on her legal defense: she will spend millions more.  Good luck, St. Martha.


The Prejudice of Wealth

Barry Tarlow's latest RICO Report (my favorite segment of The Champion) is publicly available.  He highlights the problem wealth creates in a criminal trial.

Post-trial interviews of juries and focus group studies consistently remind us of information we already knew: jurors are appalled, and frequently alienated, by evidence of a defendant’s indulgent lifestyle or conspicuous consumption. After serving on the jury that convicted Martha Stewart of lying to investigators about arrangements with her stock broker, Chappell Hartridge no doubt had evidence of Stewart’s six homes and substantial wealth in mind when he declared his jury’s verdict was “a victory for the little guy who loses money in the markets because of these types of transactions.” Constance L. Hays, Martha Stewart Seeks New Trial, Saying Juror Lied, N.Y. Times, Apr. 1, 2004.

Although I agree with Mr. Tarlow that wealth should not prejudice a jury, I take great solace in knowing that the wealthy at least have the resources to retain lawyers of his caliber.  I imagine having someone like Barry Tarlow or John Keker representing me at trial - prejudice against my wealth notwithstanding - would be superior to being stuck with a randomly-assigned PD.  [Note: No nasty emails from PD's, please.  I carefully crafted my post to say randomly-assigned.  If you can't catch that distinction, then you are most likely a pretty terrible lawyer.]