White Collar Crime

Subscribe to White Collar Crime via RSS
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

…

The concept of private prisons has always seemed off to me.  Prisons have a role in society, but the idea of running such institutions for profit, it seems to me, aligns incentives in an improper way. The U.S. Justice Department apparently agrees and said yesterday that it plans to end the use of private prisons.  The announcement sent stocks tumbling for two private prison companies, Corrections Corp. of America (CCA) and GEO.  Both dropped as much as 40% and remain down more than 30% from where they were before the announcement.   

Obviously, this can’t make shareholders happy, but I figured this had to be a known risk. I was right — CCA’s 10-K makes clear that such government decisions related to future contracts could lead to a reduction in their profitability.  So, the disclosure seems proper from a securities regulation perspective. Still, reading the disclosure raises some serious questions for me about the proper role of government.  I frankly find this kind of outsourcing chilling.  For example, CCA states: 

Our results of operations are dependent on revenues generated by our jails, prisons, and detention facilities, which are subject to the following risks associated with the corrections and detention industry.

We are subject to fluctuations in occupancy

…

The Federal Reserve Board announced its enforcement actions against Goldman Sachs from 2012-2014 events where a Goldman Sachs banker, a former NY Fed employee, received confidential documents from a NY Fed employee.  The individuals involved plead guilty to the resulting charges and Goldman Sachs paid fines in New York.  The Federal Reserve Board took separate actions this week based upon evidence that the banker “repeatedly obtained, used and disseminated [confidential supervisory information or CSI] … including CSI concerning financial institutions’ confidential CAMELS ratings, non-public enforcement actions, and confidential documents prepared by banking regulators.”  Even though Goldman Sachs terminated the banker involved and reported the matter to authorities, apparently the misconduct was sustained over a long-enough period of time and used to “solicit business” in a way that compelled Federal Reserve Board Action.

The Fed’s release and copies of the orders are available here.  The sanctions against Goldman Sachs include the monetary fine as well a requirement to ‘Within 90 days of this Order, …submit to the Board of Governors an acceptable written plan, and timeline for implementation, to enhance the effectiveness of the internal controls and compliance functions regarding the identification, monitoring, and control of confidential supervisory information.”

Financial press coverage…

Two weeks ago, I blogged about the potential unintended consequences of (1) Dodd-Frank whistleblower awards to compliance officers and in-house counsel and (2) the Department of Justice’s Yates Memo, which requires companies to turn over individuals (even before they have determined they are legally culpable) in order to get any cooperation credit from the government.

Today at the International Legal Ethics Conference, I spoke about the intersection of state ethics laws, common law fiduciary duties, SOX §307 and §806, and the potential erosion of the attorney-client relationship. I posed the following questions regarding lawyer/whistleblowers and the Yates Memo at the end of my talk:

  • How will this affect Upjohn warnings? (These are the corporate Miranda warnings and were hard enough for me to administer without me having to tell the employee that I might have to turn them over to the government after our conversation)
  • Will corporate employees ask for their own counsel during investigations or plead the 5th since they now run a real risk of being criminally and civilly prosecuted by DOJ?
  • Will companies have to pay for separate counsel for certain employees and must that payment be disclosed to DOJ?
  • Will companies turn people

…

This post concerns the rights and responsibilities of whistleblowers. I sit on the Department of Labor Whistleblower Protection Advisory Committee. These views are solely my own.

Within a week of my last day as a Deputy General Counsel and Chief Compliance Officer for a Fortune 500 company and shortly before starting my VAP in academia, I testified before the House Financial Services Committee on the potential unintended consequences of the proposed Dodd-Frank whistleblower law on compliance programs. I blogged here about my testimony and the rule, which allows whistleblowers who provide original information to the SEC related to securities fraud or violations of the Foreign Corrupt Practices Act to receive 10 to 30 percent of the amount of the recovery in any action in which the Commission levies sanctions in excess of $1 million dollars. During my testimony in 2011, I explained to some skeptical members of Congress that:

…the legislation as written has a loophole that could allow legal, compliance, audit, and other fiduciaries to collect the bounty although they are already professionally obligated to address these issues. While the whistleblower community believes that these fiduciaries are in the best position to report to the SEC on wrongdoing…

This year, my research and writing season has started off with a bang.  While grading papers and exams earlier this month, I finished writing one symposium piece and first-round-edited another.  Today, I will put the final touches on PowerPoint slides for a presentation I give the second week in June (submission is required today for those) and start working on slides for the presentation I will give Friday.

All of this sets into motion a summer concert conference, Barbri, and symposium tour that (somewhere along the line) got a bit complicated.  Here are the cities and dates:

New Orleans, LA – June 2-5
Atlanta, GA – June 10-11
Nashville, TN – June 17
Chicago, IL – June 23-24
Seattle, WA – June 27

I know some of my co-bloggers are joining me along the way.  I look forward to seeing them.  Each week, I will keep you posted on current events as best I can while managing the research and writing and presentation preparations.  The topics of my summer research and teaching run the gamut from insider trading (through by-law drafting, agency, unincorporated business associations, personal property, and benefit corporations) to crowdfunding.  A nice round lot.

This coming week, I will be at the Law and Society Association annual conference.  My presentation at this conference relates to an early-stage project on U.S. insider trading cases.  The title and abstract for the project and the currently envisioned initial paper (which I would, of course, already change in a number of ways) are as follows:

Thought Josephine Sandler Nelson’s recent Oxford Business Law Blog post on Volkswagen might be of interest to our readers. It is reposted here with permission.

——————-

Fumigating the Criminal Bug: The Insulation of Volkswagen’s Middle Management

New headlines each day reveal wide-spread misconduct and large-scale cheating at top international companies: Volkswagen’s emissions-defeat devices installed on over eleven million cars trace back to a manager’s PowerPoint from as early as 2006. Mitsubishi admits that it has been cheating on emissions standards for the eK and Dayz model cars for the past 25 years—even after a similar scandal almost wiped out the company 15 years ago. Takata’s $70 million fine for covering up its exploding air bags in Honda, Ford, and other car brands could soon jump to $200 million if a current Department of Justice probe discovers additional infractions. The government has ordered Takata’s recall of the air bags to more than double: one out of every five cars on American roads may be affected. Now Daimler is conducting an internal investigation into potential irregularities in its exhaust compliance.

A recent case study of the 2015-16 Volkswagen (‘VW’) scandal pioneers a new way to look at these scandals…

A recent Illinois case uniquely applied the alter ego doctrine in the context of a criminal case.  See People v. Abrams, 47 N.E.3d 295, ¶¶ 57-61, 399 Ill. Dec. 790 (2015) ( slip op. PDF here ).  In my view, not quite right, either.

In the case, the defendant (Abrams) stole $1.87 million from the victim (Lev), which led to a restitution order for that amount and a twelve-year prison sentence for Abrams.  The conviction was for a Class 1 felony, for the the theft of property exceeding $500,000.  Id.¶ 23 (citing 720 Ill. Comp. Stat. Ann. 5/16-1(a(2) (West 2012)).  The statute provides, “Theft of property exceeding $500,000 and not exceeding $1,000,000 in value is a Class 1 non-probationable felony.” 720 Ill. Comp. Stat. Ann. 5/16-1(b)(6.2). 

On appeal, the defendant argued the indictment was wrong in that it stated the money was stolen from Lev, when most of the money actually belonged to Lev’s company, The Fred Lev Company (presumably a corporation, but that is not stated expressly).   Abrams claimed: 

the State did not prove he obtained “unauthorized control” of more than $500,000 of Lev’s property. Abrams recognizes the evidence presented at trial established that over $1.8 million was taken. Abrams contests the finding that

…

The BLPB editors have been nice enough to let me pen a quick post concerning an idea I floated way back in May. In my role as that month’s guest blogger, I offered my thoughts on how rationalizing—that very powerful, and very human, psychological process that allows us to view ourselves positively (say, as an upstanding citizen, family man, etc.), while taking actions inconsistent with that view according to society’s standards (say, by passing a stock tip to a friend, misrepresenting a company’s financials, etc.)—helps explain corporate wrongdoing. I also offered a thesis for how overcriminalization, particularly in the white collar area, might be fostering rationalizations, and thus undermining crime control efforts. In a bit of a cliffhanger (not quite Game of Thrones quality, but a cliffhanger nonetheless), I promised a final post discussing how these ideas impact corporate compliance. Well, almost a year later, I’ve finally finished an article on the topic. Let me know what you think (and also if John Snow is really dead.)

Todd Haugh, The Criminalization of Compliance, 92 Notre Dame L. Rev. (forthcoming 2016).

Corporate compliance is becoming increasingly “criminalized.” What began as a means of industry self-regulation has morphed into a multi-billion dollar effort …

I have long followed the trials and tribulations of Chesapeake Energy and founder Aubrey McClendon, and I had been planning to write about yesterday’s indictment of McClendon for bid rigging in a couple weeks, after I gathered more information.  About an hour ago, though, reports broke that former Chesapeake CEO Aubrey McClendon died today.  According to CNBC:

Aubrey McClendon, a founder and former chief executive of Chesapeake Energy, died in a single-car crash Wednesday at age 56, a day after he was charged with conspiring to rig bids for oil and natural gas leases.

McClendon crashed into an embankment while traveling at a “high rate of speed” in Oklahoma City just after 9 a.m. Wednesday morning, said Capt. Paco Balderrama of the Oklahoma City Police Department. Flames engulfed McClendon’s vehicle “immediately,” and it was burnt so badly that police could not tell if he was wearing a seatbelt, he said.

Before going any further, my thoughts go out to his friends and family.  Regardless of how anything else comes together, their loss is real, and I feel badly for them.  

In years past, I have questioned how Chesapeake conducted some of their business, including their use of entities and

…