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Pietragallo's White Collar Criminal Defense Group

In today's environment, the government has never more aggressively regulated, investigated, pursued and prosecuted white collar crime. If you or your company becomes embroiled in any type of federal or state government investigation, you need experienced trial lawyers who have gone toe-to-toe with prosecutors and government agents.

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    French National Bank Pays Huge Fine

    What Happened?
    On November 19, 2018, Société Générale, multinational investment bank and financial services company located in Paris, entered into a Deferred Prosecution Agreement (DPA) with the United States Attorney’s Office for the Southern District of New York (SDNY) and the Manhattan District Attorney’s Office (DA) and agreed to pay $1.34 billion for illegally sending payments through the United States financial system in violation of U.S. federal laws and New York state laws, making this the second largest fine to ever be imposed on a financial institution for economic sanctions violations.

    The Rundown
    Federal law prohibits U.S. financial institutions from performing transactions for certain persons, entities, and countries that are specified by the government in order to prevent terrorists, money launderers, and other criminals from gaining access to the U.S. banking system. Similarly, New York contains an additional state law that makes it unlawful to make or cause to make a false entry in business records when made with the intent to defraud. Under the same state law it is also illegal to prevent the making or cause the omission of a true entry in business records when made with the intent to defraud.

    From 2004 to 2010, Société Générale engaged in more than 9,000 transactions valued at $13 billion that violated laws regarding illegal and non-transparent transactions involving parties in countries subject to embargos or sanctions including Cuba, Iran, Libya, and Sudan. Société Générale wrote inaccurate interbank messages that accompanied each transaction in order to conceal its true illicit purpose and deceive the receiving bank into completing the transaction. These fabricated interbank messages caused the illegal transactions to be processed when they should have been rejected, blocked, or stopped for investigation. Some of these transactions stemmed from Société Générale’s 21 U.S. dollar credit facilities. 

    Under the DPA, Société Générale agreed to pay $717.2 million to the SDNY, $162.8 million to the DA, $325 million to the New York State Department of Financial Services, $81.3 million to the Board of Governors of the Federal Reserve System, and $53.9 million to U.S. Department of Treasury's Office of Foreign Assets Control.

    For the Record
    "Other banks should take heed: Enforcement of U.S. sanctions laws is, and will continue to be, a top priority of this office and our partner agencies," Manhattan U.S. Attorney Geoffrey S. Berman remarked in a statement on Monday.

    The Take Away
    While $1.34 billion is the second largest fine on a financial institution for economic sanctions violations to date, there were a significant number of mitigating factors the SDNY and DA considered when determining this amount. First, Société Générale ceased its illicit behavior before the SDNY’s and DA’s investigation commenced. Société Générale also substantially cooperated and contributed to the investigation, and accepted responsibility for its illegal conduct. Further, Société Générale voluntarily improved its sanctions compliance program. It increased the amount of employees working on sanctions compliance, boosted its compliance technology, tripled its compliance budget, reorganized its sanctions policies, and instituted biannual trainings for sanctions compliance.


    SEC Pushes To Cap Whistleblower Rewards

    What Happened?
    Gerald Hodgkins, former Associate Director for the Securities and Exchange Commission’s (SEC) Enforcement Division, gave an interview with the Corporate Crime Reporter in which he concurrently explained and expressed his support for the SEC's proposal to limit the rewards whistleblowers receive.

    The Rundown
    In 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act that supplied protections and financial incentives to whistleblowers who provide information that the SEC utilizes in furtherance of an enforcement action. Under this Act, whistleblowers are entitled to receive an award from ten to thirty percent of the government’s recovery if the action has a judgment of over $1 million. From the first SEC whistleblower award in 2012 to September 2018 the SEC has awarded 59 whistleblowers more than $326 million. The program seems to be gaining momentum with a documented increase each year since 2015.

    The SEC is attempting to impose a cap on whistleblower awards when the government recovers over $100 million, potentially entitling the whistleblower to an award over $30 million. Hodgkins argues that capping an award at $30 million wouldn’t decrease the amount of whistleblowers that come forward, and that anything over $30 million is simply a windfall. Hodgkins further claims that whistleblowers don’t base their decision to report SEC violations upon a specific number they must recover since whistleblower rewards are set by the SEC only after they receive the whistleblower report.

    After the SEC receives the whistleblower report, the Whistleblower Office recommends a reward for the whistleblower of ten to thirty percent of the government’s recovery. The Claims Review Staff then evaluates the Whistleblower Office’s recommendation and determines if it is accepted, rejected, or needs to be changed. The SEC bases their reward upon the significance of the information to the SEC, assistance and participation of the whistleblower, culpability of the whistleblower, any unreasonable reporting delay of the whistleblower, and any interference with internal compliance or reporting system of the whistleblower.

    The National Whistleblower Center (NWC) opposes this cap out of the fear that it will deter insiders at large financial institutions from coming forward. NWC believes that people who already make a lot of money need the incentive of a large financial reward to draw them in. The SEC received over 3,000 comment letters, and the vast majority agreed with the NWC and opposed the cap. The Securities Industry and Financial Markets Association (SIFMA) agrees with Hodgkins’ above stated assertions and supports the SEC’s proposal as well.

    The Take Away
    Officially, the “SEC is seeking discretion to take into account the size of the award when the award is particularly large and particularly low.” However, the main purpose of the SEC’s proposal will be to cap whistleblower rewards at $30 million. With the number of whistleblower tips increasing each year it will be interesting to see if a cap on rewards will hinder this progress. According to Hodgkins’, the SEC has to read all 3,000 comments and will likely amend its proposal to address some of the public’s concerns over the next several months.

    John Schwab to Speak on Trends in Health Care Enforcement

    On November 9, 2018, John Schwab, co-chair of Pietragallo's government enforcement group, will present to physicians and medical providers at The Pennsylvania Pain Society: 2018 Annual Meeting & Scientific Sessions in Bedford, PA. The presentation, “Overcoming the Fear of Prescribing: Defending Your Patient and Practice,” will discuss current trends in health care investigations and prosecutions. The presentation will also focus on government initiatives directly affecting prescribers of opioids and drug addiction medicine. More information on The Pennsylvania Pain Society conference can be found here.
    The November 9 presentation is the most recent of Mr. Schwab’s presentations regarding health care fraud allegations, which include the following:
    • “Government Investigations & Prosecutions – Focus: Opioid and Drug Addiction Treatment,” Pietragallo Law Firm (Monroeville, PA), June 12, 2018
    • “Opioid Enforcement in 2018: DOJ, HHS, DEA, FBI – Who Does What?,” The New York State Pain Society: 2018 Annual Meeting & Scientific Sessions (West Harrison, New York), April 28, 2018
    • “Health Care Compliance: Government Enforcement & Opioids,” Health Law Section, Allegheny County Bar Association (Pittsburgh, Pennsylvania), February 9, 2018
    • “DOJ and DEA Opioid Enforcement in 2018,” The Pennsylvania Pain Society: Annual Meeting and Scientific Sessions (Hershey, Pennsylvania), December 10, 2017
    • "Investigations & Compliance: What's New in Government Enforcement and Internal Investigations,” Pietragallo Law Firm (Pittsburgh, Pennsylvania), October 25, 2017
    • “Health Care Fraud Enforcement in the Trump Administration,” Association of Certified Fraud Examiners, Pittsburgh Chapter (Pittsburgh, Pennsylvania), October 11, 2017
    More information on the Pietragallo firm’s expertise in Physician and Prescriber Defense can be found here.

    New York DAs Sue to Block Oversight Law

    What Happened?
    On Wednesday, October 17, 2018, New York State’s district attorneys sued Governor Andrew Cuomo to invalidate as unconstitutional a law that would establish a new oversight body charged with curbing prosecutorial misconduct.

    The Rundown
    The suit, filed by the District Attorneys Association and the DAs from Albany and Queens Counties, challenges Article 15-A of Bill S2412D, which was signed into law in August and is scheduled to go into effect in January. The article would establish the Commission on Prosecutorial Conduct, an 11-member body charged with investigating and punishing misconduct. The commission, the first of its kind in the country, would be comprised of prosecutors, defense attorneys, and judges. The legislature would appoint six members; the governor would appoint two, and the chief judge of the Court of Appeals would appoint three. The body would have jurisdiction over all prosecutors and broad power to punish them, with sanctions up to and including removal. All determinations resulting in punishment would be reviewable by the Court of Appeals.

    The plaintiffs claim that the law runs afoul of the New York Constitution in a variety of ways.  First, it allows the legislature to intrude on the independence of elected executive branch officials, thus violating the separation of powers principle. Moreover, according to the plaintiffs, it is impermissibly vague regarding when the commission can investigate and upends the equal protection rights of prosecutors. Finally, it expands the powers of the Court of Appeals, in contravention of the constitutional provision that limits the duties of judges to those “reasonably incidental to the fulfillment of judicial duties.”

    For the Record
    Governor Cuomo, a staunch advocate for the bill, has called the bill necessary to ensure that prosecutors are meting out justice even-handedly. "When any prosecutor consciously disregards that fundamental duty, communities suffer and lose faith in the system, and they must have a forum to be heard and seek justice,” he said after the bill was signed.

    The Take Away
    Much rides on this litigation for New York, where the bill passed with strong bipartisan support, as well as advocacy groups like the Innocence Project and the Legal Aid Society, who hope that Article 15-A of Bill S2412D will serve as a model for other states.


    September Has Been a Transitional Month for FCPA Prosecutions in Latin America

    What Happened?
    During the month of September alone, the Department of Justice (DOJ) announced charges, accepted guilty pleas, and attained settlements for extensive bribery, money laundering, and embezzlement schemes occurring at three state-owned and state-controlled energy companies located in Latin America in violation of the Foreign Corrupt Practices Act (FCPA).

    For the Record
    On September 27th, 2018, the DOJ announced that Petróleo Brasileiro S.A. – Petrobras (Petrobras), Brazil’s state-owned and controlled energy company, agreed to pay $853.2 million for its participation in bribery and embezzlement schemes. Petrobras Executive Board members received illegal payments to conceal and pay bribes from contractors to various Brazilian politicians and political parties. Contractors paid these bribes to receive certain contracts and even halt parliamentary investigation into Petrobras’ fraudulent handling of contracts. Petrobras also admitted that it failed to keep records that accurately reflected the company’s assets in order to conceal the bribery and embezzlement scheme whilst the company’s American Depository Shares were traded on the New York Stock Exchange, in violation of the FCPA.

    On September 13th, 2018, Juan Carlos Castillo Rincon, a former manager of a U.S. based logistics and freight forwarding company, pleaded guilty for his participation in an international money laundering and bribery scheme at Petroleos de Venezuela S.A. (PDVSA), Venezuela’s state-owned and controlled energy company. Castillo bribed PDVSA official, Jose Orlando Camacho, to acquire PDVSA contracts, contract extensions, and receive favorable contract terms. Camacho admitted to giving Castillo favorable treatment and money laundering the bribery payments with Castillo.  So far, the DOJ has charged 18 individuals and secured 14 guilty pleas in connection with FCPA violations at PDVSA.

    On September 11th, 2018, Jose Larrea, a U.S. based financial advisor, pleaded guilty for his role in a transnational money laundering and bribery scheme at Empresa Pública de Hidrocarburos del Ecuador (PetroEcuador), Ecuador’s state-owned and controlled energy company. Larrea conspired with Frank Roberto Chatburn Ripalda, a dual U.S. and Ecuadorian citizen, to wire transfer over $1 million from his own U.S. based bank account to several other accounts in an effort to conceal unlawful payments from an oil services contractor to PetroEcuador officials in order to retain existing contracts and win new business with PetroEcuador. Thus far, Larrea, Chatburn, and two former PetroEcuador officials have pleaded guilty to FCPA violations for their involvement in the money laundering and bribery scheme at PetroEcuador.

    The Take Away
    During the month of September alone, three Latin American state-owned and state-controlled energy companies have been involved in widespread bribery, money laundering, and embezzlement schemes. The government’s continued prosecution of individuals and costly monetary settlements for companies should act as a wakeup call for companies operating in Latin America. As the DOJ continues to investigate FCPA violations taking place at Petrobras, PDVSA, and PetroEcuador it is likely more prosecutions will ensue.


    Western Pennsylvania counties to receive additional funding to combat drug trafficking through HIDTA program

    What Happened?
    Last Monday, the U.S. Attorney for the Western District of Pennsylvania, Scott W. Brady, announced that three Western Pennsylvania counties will be receiving federal funding relating to combatting drug trafficking and reducing the supply of illegal drugs. The three counties, Allegheny, Beaver and Washington, have been designated by the White House’s Office of National Drug Control Policy as High Intensity Drug Trafficking Areas (“HIDTA”). This designation means that the counties will receive additional resources to coordinate federal, state and local governments in the fight against drug trafficking and abuse.

    This was a landmark event as Western Pennsylvania was the only metropolitan area in the United States without HIDTA designated areas. The counties’ designation followed petitions by the District Attorneys for Allegheny, Beaver and Washington counties to the White House. The petitions focused on the high level of overdoses in Western Pennsylvania as well as the transit corridors that provide ready access to large metropolitan areas like Chicago, Detroit, Philadelphia and Newark.

    For the Record
    U.S. Attorney Scott W. Brady:  "We are pleased to receive this surge in funding from the White House. The HIDTA designation for Western Pennsylvania is long overdue. We are at a critical point in the opioid crisis and the President has made clear that failure is not an option. The HIDTA program will expand our law enforcement efforts by providing critical funding to local, state and federal agencies. Through a centralized command structure, we will be able to share information and intelligence so those individuals who are polluting our communities with drugs will be held accountable."

    The Take Away
    This area will undoubtedly see increased drug prosecutions – both for street drugs and prescription drugs – due to DOJ’s use of initiatives like the HIDTA program.


    The French Connection

    What Happened?
    France and the United States worked together, for the first time, in a foreign bribery case in order to expand the reach of violations of the Foreign Corrupt Practices Act.

    The Rundown
    On June 4, 2018, the Department of Justice announced that Société Générale S.A., the Paris based global financial services institution, agreed to pay a hefty $585 million to resolve criminal charges with the United States and France for its participation in bribery schemes with Libyan state owned financial institutions. From 2004 to 2009, Société Générale paid $90 million in bribes to a Libyan intermediary who, in turn, paid high ranking Libyan officials a percentage from this bribe in order to secure investments from Libyan state institutions. Société Générale derived state contracts worth $3.66 billion and profits of $523 million from the Libyan bribery scheme. 

    Through America and France’s combined investigative effort to prosecute all those involved in the aforementioned scheme, the DOJ announced a $64.2 million settlement from Legg Mason Inc., the Maryland based investment management firm, on the same day. From 2004 to 2010, Permal Group Ltd., Legg Mason’s subsidiary, managed the funds the Libyan state institutions invested in Société Générale as a result of the bribery scheme. Through Permal, Legg Mason managed seven of these investments and earned $31.6 million.

    In continuation of the giant crackdown on FCPA violators, the Securities and Exchange Commission announced that Sanofi, the Paris based pharmaceutical company, agreed to pay more than $25 million to resolve charges that its subsidiaries in Kazakhstan and the Middle East participated in bribery schemes in order to secure business on September 4, 2018. In Kazakhstan, officials were paid bribes to guarantee that Sanofi was awarded bids at public institutions. In the Middle East, pay-to-prescribe schemes were aimed at healthcare providers to increase Sanofi prescriptions.

    For the Record
    “For years, Société Générale undermined the integrity of global markets and foreign institutions by issuing false financial data and by fraudulently securing contracts through bribery,” said Acting Assistant Attorney General Cronan. “Today’s resolution – which marks the first coordinated resolution with France in a foreign bribery case – sends a strong message that transnational corruption and manipulation of our markets will be met with a global and coordinated law enforcement response.”

    The Take Away
    2018 continues to be a year of enforcement of robust and international the FCPA. While time will tell if this momentum continues, the DOJ’s multimillion dollar settlements against Société Générale, Legg Mason Inc., and Sanofi seem to signify that it will.

    Shkreli Co-Conspirator Gets 18 Months’ Imprisonment

    What Happened?
    On August 17, 2018, former Katten Muchin Rosenman LLP attorney, Evan Greebel, was sentenced to 18 months’ imprisonment for his role in aiding former pharmaceutical executive, Martin Shkreli, in defrauding Retrophin, Inc.  Greebel was found guilty by jury for conspiring to commit wire fraud and securities fraud.

    The Rundown
    Greebel faced an advisory range under the U.S. Sentencing Guidelines of 108 to 135 months’ imprisonment.  He asked for a probationary sentence, based in large part on his history and characteristics, including his commitment to community services and improving the lives of those less fortunate than him, and the argument that he had been unduly influenced by Shkreli. The defense also focused on the collateral effects that the conviction would have on Greebel, who likely will never practice law again, and his wife and young children.  Greebel submitted nearly 300 pages of character letters to show the strong community support that he enjoyed.

    The government conceded that a guidelines sentence was unwarranted in this case, but it would not agree to probation.  Instead, it asked the Court to sentence Greebel to at least 60 months’ imprisonment, given the nature and seriousness of the offense.  In its sentencing memorandum, the government characterized Greebel’s request for probation as an attempt to “carve out special treatment for white-collar criminals.”   

    Judge Masumoto credited the arguments of both parties but ultimately decided that incarceration was necessary to effectuate the purposes of sentencing set forth in 18 U.S.C. § 3553(a).  She sentenced him to 18 months’ imprisonment and ordered him to pay more than $10.4 million in restitution and forfeit $116,462.

    For the Record
    “He was not feckless, he was not naive, he’s not inexperienced,” Judge Matsumoto said. “He was not led astray by a young, brash CEO. Mr. Greebel made a conscious decision to join in the conspiracies.”

    The Take Away
    Despite the government’s and the Court’s stated desire to ensure that white-collar defendants are not treated differently than other defendants, Greebel received a downward variance of nearly 85% from the bottom of his guideline range.


    A Billion Dollar Venezuelan Bribery and Money Laundering Scheme Unfolds

    What Happened?
    The Department of Justice recently announced charges against 17 individuals for their alleged participation in bribery and money laundering schemes which took place at Petroleos de Venezuela S.A., Venezuela’s state owned and controlled oil company. The government found their actions to be clear violations of the Foreign Corrupt Practices Act. This type of activity has undoubtedly contributed to the turmoil Venezuela is currently embroiled in at this time.

    The Rundown
    Venezuela is in a state of crisis; its citizens are left in a state of chaos. Tens of thousands of Venezuelans are fleeing to Ecuador, Brazil, and Argentina in order to survive. How is it that one of the world’s largest exporters of oil and the country with the world’s largest oil reserves is in such a state of despair? Internal corruption at Petroleos de Venezuela S.A. (PDVSA) and massive violations of The Foreign Corrupt Practices Act (FCPA) are partially to blame according to the United States Department of Justice. 

    The Foreign Corrupt Practices Act (FCPA) prohibits all United States persons and entities from making payments, bribes, to foreign government officials to assist in obtaining or retaining business. 15 U.S.C. §§ 78dd-1, et seq. Thus far, 12 individuals have pleaded guilty for their involvement in bribery, money laundering, and embezzlement schemes with officials from PDVSA, PDVSA subsidiaries, and other Venezuelan government agencies in violation of the FCPA.

    On July 31, 2018, Jose Manuel Gonzalez Testino, a dual U.S. Venezuelan citizen, was arrested while waiting for his plane at Miami International Airport. Gonzalez was charged with bribing a PDVSA official with $629,000 to gain contract priority, payment priority, and payment in U.S. dollars rather than in Venezuelan bolivars. One week earlier on July 24 and 25, 2018, Matthias Krull, a German national and Panamanian resident, and Gustavo Adolfo Hernandez Fieri, a Columbian national and naturalized U.S. citizen, were arrested and charged with conspiracy to commit money laundering for their participation in a scheme that laundered $1.2 billion of embezzled funds from PDVSA using money derived from Florida real estate and false investment schemes.

    On July 16, 2018, Luis Carlos De Leon-Perez, a dual U.S. Venezuelan citizen, pleaded guilty for conspiracy to violate the FCPA and conspiracy to commit money laundering for facilitating bribes of PDVSA officials. De Leon solicited bribes from U.S. and foreign based vendors, and directed said bribes towards PDVSA officials for contracts and payment priority. According to the government, he then conspired to launder the proceeds of the bribery scheme. 

    The Take Away
    The FCPA is in place to ensure that government officials act in the best interest of their country. PDVSA is Venezuela’s primary source of income. The Trump Department of Justice appears to have no hesitation in making these cases. The misconduct of PDVSA officials and their participation in bribery and embezzlement schemes have played a role in Venezuela’s economic collapse.


    Former Representative Chaka Fattah’s Bribery Conviction Overturned by Third Circuit

    What Happened
    The Third Circuit overturned former Pennsylvania representative Chaka Fattah’s bribery conviction. 

    The Rundown
    Fattah was convicted in June 2016 of multiple charges based on his involvement in various schemes to raise money for his unsuccessful 2006 campaign for Philadelphia Mayor and subsequent activities designed to conceal the repayment of unlawful funds and to remedy his personal and political financial problems. The jury convicted Fattah along with multiple associates, including Herbert Vederman, a successful businessman who had served prominent roles in the administrations of Ed Rendell when he was Mayor or Philadelphia and Governor of Pennsylvania. 

    Just six days after the jury returned its verdicts, the Supreme Court issued its opinion in McDonnell v. United States, which limited the definition of “official acts” used in the honest services fraud and bribery statutes under which the jury convicted Fattah and Vederman.  Fattah’s bribery convictions were based on three “official acts” taken on Vederman’s behalf in exchange for things of value: setting up a meeting between Vederman and U.S. Trade Representative Ron Kirk; attempting to secure Vederman an ambassadorship; and hiring Vederman’s girlfriend Alexandra Zionts. 

    A three-judge panel of the Third Circuit Court of Appeals found that McDonnell’s interpretation of the meaning of “official acts” rendered the instructions Fattah’s jury received erroneous, and reversed and remanded his bribery convictions.  In reaching this decision, the panel first reiterated McDonnell’s multistep definition of an “official act:” 

    • Step 1(A) requires the government to identify a question, matter, cause, suit proceeding or controversy (the “Question”) that is a formal exercise of governmental power that is similar in nature to a lawsuit before a court, a determination before an agency, or a hearing before a committee.  Typical meetings, calls, or events arranged by the public official do not qualify as the required formal exercise of government power.
    • Step 1(B) then requires the government to show that the qualifying Question is one that may at any time be pending or may be brought before a public official.  This element requires that the item be one that can be put on an agenda, tracked for progress, or checked off as complete. 
    • Step 2 requires the government to prove that the public official made a decision or took an action with respect to the Question.  Setting up a meeting or phone call, showing general support, or hosting an event cannot prove this element unless the public official intends to exert pressure on another public official or provides advice, knowing or intending the advice to form the basis for an official act. 

    Applying these requirements to Fattah’s conduct, the Third Circuit concluded that Fattah’s arranging of the meeting between Vederman and Kirk clearly did not qualify as an official act under McDonnell.  

    Whether Fattah’s efforts to secure Vederman an ambassadorship, which included three emails, two letters, and one phone call, constituted an “official act” in light of McDonnell was a closer call.  The Third Circuit concluded that the formal appointment of a particular person to a specific position would qualify as a matter that may be pending under Step 1 of the McDonnell analysis.  With respect to Step 2, because the trial court did not instruct the jury that they could only consider Fattah’s efforts “official acts” if they were impermissible attempts to pressure or advise another official, it could not assume that the jury’s verdict was proper.

    The Third Circuit found that though Fattah’s decision to hire Zionts was clearly an official act because it was pending before Fattah himself and was a focused and concrete action within Fattah’s specific duties of his official position, remand of the bribery counts was still necessary because the court could not rule out that the jury erroneously convicted Fattah and Vederman based on other actions that were not official acts under McDonnell.

    What Happens Next?
    The Third Circuit’s decision upheld Fattah’s racketeering conspiracy, fraud, and money laundering convictions and reinstated two convictions for bank fraud and making false statements to financial institutions that the District Court had overturned under Rule 29.  Thus though the decision today is somewhat of a win for Fattah, he still faces a significant criminal sentence.  Moreover, the Third Circuit rejected the argument that there was insufficient evidence to support a bribery conviction at all, and noted that a properly instructed jury on remand could find more than a single official act.