White Collar Crime

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This Michael Avenatti extortion case is fascinating to me. I am not really sure why, other than it seems so absurd.  You may recall Avenatti as the lawyer who represented Stormy Daniels in her lawsuits against President Trump. He is a big personality and known for being outlandish at times.  
 
According to federal prosecutors, Avenatti tried to extort Nike for millions of dollars because he claimed to have evidence that Nike employees were illegally paying people to help recruit college basketball players.  Apparently, Avenatti believed he would be able to get Nike to pay him millions of dollars in exchange for the evidence. Instead, he ended up with the FBI. 
 
The New York Time reports:
According to people with knowledge of the cases, once Nike heard Mr. Avenatti’s claims, it acted to inform federal officials of the allegation that the company’s employees were paying players. The nature of the discussion with Mr. Avenatti raised the possibility that extortion was taking place.
That is, as soon as Nike was on notice of a potential problem right to the authorities.  How very Allis-Chalmers of them.  I am a fan of that old business judgment rule case, which

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This from our friend Heather Johnson at Hofstra Law:

This May and June, Hofstra Law will offer a three-credit or five-credit study abroad program on International Financial Crimes and Global Data Regulation. Both programs will begin Sunday, May 19; the three-credit program will conclude on June 1, 2019 and the five-credit program will conclude on June 13, 2019. The courses will be taught by Hofstra University School of Law Professor Scott Colesanti and Professor Giovanni Comande from the Scuola Superiore Sant’Anna.

It will be held in Pisa, Italy, and is co-sponsored by the Scuola Superiore Sant’Anna. This year, we have added a dinner with the Dean of our Law School, Gail Prudenti and an excursion to Milan to visit the Borsa headquarters!

The deadline is Friday, March 29, 2019 — those interested should apply as soon as possible!

The course is open to law students around the country; students must have completed their full-time 1L course work by the start of this program. Attached to this e-mail you’ll find the up-to-date application, a poster about the program as well as the tentative schedule. Interested students should apply by AS SOON AS POSSIBLE.

Students joining us from other universities…

As I read recent news reports (starting a bit over a week ago and exemplified by stories here, here, here, and here–with the original story featured here) about Carl Icahn’s well-timed sale of Manitowoc Company, Inc. stock, I could not help but associate the Icahn/Manitowoc intrigue with the Stewart/ImClone affair from back in the early days of the new millennium–more than 15 years ago.  As many of you know, I spent a fair bit of time researching and writing on Martha Stewart’s legal troubles relating to her December 2001 sale of ImClone Systems, Inc. stock.  Eventually, I coauthored and edited a law teaching text focusing on some of the key issues.  A bit of my Martha Stewart work is featured in that book; much of the rest can be found on my SSRN author page.  For those who may not recall or know about the Stewart/ImClone matter, the SEC’s press release relating to its insider trading enforcement action against Stewart is here, and it supplies some relevant background.  (Btw, ImClone apparently is now a privately held subsidiary of Eli Lilly and Company organized as an LLC.)

In reading about Icahn’s Manitowoc stock sale…

The distinction between limited liability companies (LLCs) and corporations is one that remains important to me. Despite their similarities, they are distinct entities and should be treated as such.

When the indictment for Paul Manafort and Richard Gates was released yesterday, I decided to take a look, in part because I read that the charges included claims that the defendants “laundered money through scores of United States and foreign corporations, partnerships, and bank accounts.”  (Manafort Indictment ¶ 1.)

It did not take long for people to note an initial mistake in the indictment.  The indictment states that Yulia Tymoshenko was the president of the Ukraine prior to Viktor Yanukovych. (Id. ¶ 22.) But, Dan Abrams’ Law Newz notes, “Tymoshenko has never been the president of the Ukraine. She ran in the Ukrainian presidential election against Yanukoych in 2010 and came in second. Tymoshenko ran again in 2014 and came in second then, too.” Abrams continues: 

The Tymoshenko flub is a massive error of fact, but it doesn’t impinge much–if any–on the narrative contained in the indictment itself. The error doesn’t really bear upon the background facts related to Manafort’s and Gates’ alleged crimes. The error also doesn’t bear whatsoever

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Uber has a new CEO. Perhaps his first task should be to require one of his legal or compliance staff to attend the FCPA conference at Texas A & M in October given the new reports of an alleged DOJ investigation.. I might have some advice, but Uber needs to hear the lessons learned from Walmart, who will be sending its Chief Compliance Officer. Thanks to FCPA expert, Mike Koehler, aka the FCPA Professor, for inviting me. Mike has done some great blogging about the Walmart case (FYI- the company has reported spending $865 million on fees related to the FCPA and compliance-related costs). Details are below:

THE F​CPA TURNS 40:
AN ASSESSMENT OF FCPA ENFORCEMENT POLICIES AND PROCEDURES

FCPA ConferenceThursday, October 12, 2017
Texas A&M University School of Law
Fort Worth, Texas

This conference brings together Foreign Corrupt Practices Act enforcement officials, experienced FCPA practitioners, and leading FCPA academics and scholars to discuss the many legal and policy issues relevant to the current FCPA enforcement and compliance landscape.

Register here

AGENDA

[Click here to download agenda pdf]

Registration, 8:30 a.m.

Morning Session, 9:00 a.m. to Noon

FCPA Legal and Policy Issues

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I have been at the Southeastern Association of Law Schools (SEALS) conference all week.  As usual, there have been too many program offerings important to my scholarship and teaching.  I have participated in and attended so many things.  I am exhausted.

But I know that all of this activity also energizes me.  Once I am back at home tomorrow night and get a good night’s sleep, I will be ready to rock and roll into the new academic year (which starts for us at UT Law in a few weeks).  I use the SEALS conference as this bridge to the new year every summer.

One of my favorite discussion groups at the conference was the White Collar Crime discussion group that John Anderson and I organized.  A number of us focused on insider trading law this year.  John, for example, shared his preliminary draft of an insider trading statute.  I asked folks to ponder the result under U.S. insider trading law of a tipping case with the following general facts:

  • A person with a fiduciary duty of trust and confidence to a principal conveys material nonpublic information obtained through the fiduciary relationship to a third person;
  • The recipient of the

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A bit more than a year ago, I had the opportunity to participate in a conference on corporate criminal liability at the Stetson University College of Law.  The short papers from the conference were published in a subsequent issue of the Stetson Law Review.  This was the second time that Ellen Podgor, a friend and white collar crime scholar on the Stetson Law faculty, invited me to produce a short work on corporate criminal liability for publication in a dedicated edition of the Stetson Law Review.  (The first piece I published in the Stetson Law Review reflected on corporate personhood in the wake of the U.S. Supreme Court’s Citizen’s United opinion.  It has been downloaded and cited a surprising number of times.  So, I welcomed the opportunity to publish with the law review a second time.)

For the 2016 conference, I chose to focus on the reckless conduct of employees and its capacity to generate corporate criminal insider trading liability for the employer.  The abstract for the resulting paper, (Not) Holding Firms Criminally Responsible for the Reckless Insider Trading of their Employees (recently posted to SSRN), is as follows:

Criminal enforcement of the insider trading prohibitions under Section 10(b) and Rule 10b–5 is the root of corporate criminal liability for insider trading in the United States. In the wake of assertions that S.A.C. Capital Advisors, L.P. actively encouraged the unlawful use of material nonpublic information in the conduct of its business, the line between employer and employee criminal liability for insider trading becomes both tenuous and salient. An essential question emerges: when do we criminally prosecute the firm for the unlawful conduct of its employees?

The possibility that reckless employee conduct may result in the employer’s willful violation of Section 10(b) and Rule 10b–5 (and, therefore, criminal liability for that employer firm) motivates this article. The article first reviews the basis for criminal enforcement of the insider trading prohibitions established in Section 10(b) and Rule 10b–5 and describes the basis and rationale for corporate criminal liability (a liability that derives from the activities of agents undertaken in the course of the firm’s business). Then, it reflects on that basis and rationale by identifying the potential for corporate criminal liability for the reckless insider trading violations of employees under Section 10(b) and Rule 10b–5, arguing against that liability, and suggesting ways to eliminate it.

I was not the only conference participant concerned about the criminal liability of an employer for the insider trading conduct of an employee.  John Anderson, who co-led an insider trading discussion group with me at the 2017 Association of American Law Schools annual meeting back in January and also enjoys exploring criminal insider trading issues, contributed his research on the overcriminalization of insider trading at the conference.  His paper, When Does Corporate Criminal Liability for Insider Trading Make Sense?, identifies the same overall problem as my article does (employer criminal liability for insider trading based on employee conduct).  However, he views both the problem and the potential solutions more broadly.  

In a relatively brief opinion released this morning, the U.S. Supreme Court affirmed the Ninth Circuit’s judgment in Salman v. United States.  The decision of the Court was unanimous.  The big take-aways include:

  • doctrinally, the Court’s complete, unquestioning reliance on the language in Dirks v. Sec’s Exch. Comm’n, 463 U. S. 646 (1983), as to when the sharing of information through a tip is improper, and therefore a basis for insider trading liability (quoting from the text on page 662 of the Dirks opinion: “'[T]he test,’ we explained, ‘is whether the insider personally will benefit, directly or indirectly, from his disclosure.’”);
  • factually, the emphasis placed by the Court on the value proposition represented by the information-sharing between the close brothers, Maher and Michael–that information passed on with the knowledge that it will be traded on was effectively a substitute for a monetary gift (“In one of their tipper-tippee interactions, Michael asked Maher for a favor, declined Maher’s offer of money, and instead requested and received lucrative trading information.”), noting “[a]s Salman’s counsel acknowledged at oral argument, Maher would have breached his duty had he personally traded on the information here himself then given the proceeds as a gift to his

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I have been on hiatus for a few weeks, and had planned to post today about the compliance and corporate governance issues related to Wells Fargo. However, I have decided to delay posting on that topic in light of the unexpected election results and how it affects my research and work.

I am serving as a panelist and a moderator at the ABA’s annual Labor and Employment meeting tomorrow. Our topic is Advising Clients in Whistleblower Investigations. In our discussions and emails prior to the conference, we never raised the election in part because, based on the polls, no one expected Donald Trump to win. Now, of course, we have to address this unexpected development in light of the President-elect’s public statements that he plans to dismantle much of President Obama’s legacy, including a number of his executive orders.

President-elect Trump’s plan for his first 100 days includes, among other things: a hiring freeze on all federal employees to reduce federal workforce though attrition (exempting military, public safety, and public health); a requirement that for every new federal regulation, two existing regulations must be eliminated; renegotiation or withdrawal from NAFTA; withdrawal from the Trans-Pacific Partnership; canceling “every unconstitutional executive action…

So, I am very anti-fraud, and I think cheaters should not prosper.  But I also think courts should know what they are talking about, especially in criminal cases. The following is from a new Second Circuit case: 
Although we review claims of insufficiency de novo, United States v. Harvey, 746 F.3d 87, 89 (2d Cir. 2014), it is well recognized that “a defendant mounting such a challenge bears a heavy burden” because “in assessing whether the evidence was sufficient to sustain a conviction, we review the evidence in the light most favorable to the government, drawing all inferences in the government’s favor and deferring to the jury’s assessments of the witnesses’ credibility.”  . . . 
[W]e reject Jasmin’s challenge to her Hobbs Act conviction. The evidence presented at trial more than sufficiently describes the consideration received by Jasmin in exchange for her official actions as Mayor, including the $5,000 in cash from Stern, “advance” cash for their partnership, and shares in the limited liability corporation that would develop the community center.
United States v. Jasmin, No. 15-2546-CR, 2016 WL 4501977, at *2 (2d Cir. Aug. 29, 2016). 
 
I can’t actually figure out exactly what’s going on

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