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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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    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.


    No Third Trial for Former Bond Trader Litvak

    What Happened?
    After the U.S. Court of Appeals for the Second Circuit reversed former Jefferies Group bond trader Jesse Litvak’s securities fraud conviction for the second time, the government moved to dismiss the indictment against him, thus ending a five-year criminal case.

    The Rundown
    In 2014, Litvak was convicted in the U.S. District Court for the District of Connecticut on multiple counts of securities fraud and making false statements for defrauded a federal program designed to aid the mortgage-backed securities market after the financial crisis. He was sentenced to twenty-four months’ incarceration and a $1.75 million criminal fine, but the U.S. Court of Appeals for the Second Circuit reversed, holding that the district court had committed reversible error by excluding defense expert testimony.

    The government tried Litvak again, and in 2017, a jury convicted him on one count of securities fraud for lying to a portfolio manager for the price he paid for a mortgage-backed bond. The manager testified that he believed Litvak had been acting as his agent and owed him accurate information about the bond’s price.  He was again sentenced to twenty-four months’ incarceration. In May 2018, the U.S. Court of Appeals for the Second Circuit again reversed the conviction. It held that the manager’s testimony was erroneously admitted as his subjective belief as to an agency relationship was both irrelevant and misleading to the jury. The Court ordered Litvak, who had been incarcerated since September 2017, to be freed pending retrial.

    Earlier this month, the U.S. Court of Appeals for the Second Circuit denied the government’s motion for reconsideration. The government thus moved to dismiss the case against Litvak. 

    For the Record
    This case has again been remanded to the Court following an evidentiary ruling by the Second Circuit. Two juries have found the defendant Jesse C. Litvak guilty of securities fraud, the Court and the Second Circuit have twice found that there was sufficient evidence to support those convictions, and the Second Circuit has twice validated the Government’s prosecution theory and held that the defendant’s misrepresentations were not immaterial as a matter of law. Nonetheless, in light of the totality of the circumstances unique to this case, the Government has concluded that the interests of justice would not be served by a third trial.” – Government’s motion to dismiss

    The Take Away
    After two trials, five years of litigation, and months of incarceration as a result of two convictions, Jesse Litvak’s involvement with the federal criminal system has come to an end.  


    Proposed Email Privacy Act Gains Support

    What Happened?
    Technology companies publicly voiced their support for the Email Privacy Act, a new email privacy regulation passed by the House that would require a warrant to access all email content.

    The Rundown
    In May, the House of Representatives approved the Email Privacy Act as an amendment to the National Defense Authorization Act (NDAA). The 1986 Electronic Communications Privacy Act (ECPA) sets out the current state of the law, which does not require warrant protections to access email communications older than 180 days. Further, DOJ has interpreted the ECPA as not requiring warrants to access emails that have been opened. 

    The House version of the Email Privacy Act now seeks to codify the Sixth Circuit’s ruling in Warshak v. United States, 631 F.3d 266 (6th Cir. 2010), which held that the Fourth Amendment requires the government to obtain a probable-cause warrant before accessing email content. In that case, the government directed Warshak’s email provider to preserve copies of his future emails, which it later subpoenaed. The Email Privacy Act will also extend to protect texts, notes, photos, and other private information in the cloud. 

    More than 50 civil liberties organizations and technology companies filed a joint letter stating their support for the Email Privacy Act and urging that it be included in its current state in the final version of the NDAA. The letter noted that the version of the bill passed by the House already represents significant compromise, as it did not include a key provision that would have required the government to notify individual customers when it served a provider with a warrant for their information. Signatories to the letter included Amazon, Adobe, Facebook, Google, the ACLU, the U.S. Chamber of Commerce, and the American Library Association.

    The Take-Away
    The passage of the NDAA with the current version of the Email Privacy Act, while noteworthy, would likely not change current practices. As the letter notes, post-Warshak, “DOJ and FBI policies already require law enforcement officials seeking content to obtain a search warrant, and many providers will not provide their users’ content without one.” Rather the new Act would serve to ratify Warshak and update the current state of the law, which was enacted years before the public even had access to the internet. Warshak’s codification, however, could take on more significance in light of the current administration’s opportunity to fashion a more conservative Supreme Court. 


    Tailoring RFP For Preferred Contractors Leads To Guilty Verdicts Of A State University’s President And Construction Executives

    What Happened?
    On July 10, 2018 a federal jury in Manhattan convicted a State University of New York’s Polytechnic Institute (SUNY Poly) former president and three executives of two construction companies of wire fraud, conspiracy to commit wire fraud and making false statements to investigators for rigging the public competitive process. SUNY Poly is a system of public institutions of higher education which receives federal monies. It created a non-profit entity, Fort Schuyler Management Corporation, for the purpose of engaging contractors in building development projects. Because the non-profit entity was funded with federal monies it must adhere to a competitive process of bidding for construction projects.

    The Rundown
    According to the indictment, Dr. Kaloyeros, SUNY Poly’s president at the time, oversaw the steering of lucrative state contracts worth millions of dollars to two construction companies owned by his co-defendants. The government alleged, and the jury found convincing, that Dr. Kaloyeros used his official position to tailor Requests for Proposals (RFP) to fit the qualifications of the two construction companies. Furthermore, the construction companies worked with a lobbyist to obtain advanced copies of the RFPs and obtained secret information which gave them a distinct advantage over its competitors in bidding. The government successfully argued to the jury that the winners of the RFPs, Kaloyeros’ co-defendants, were selected before the issuance of the RFPs and that the appearance of a competitive bid was a sham. The government was able to prove that Dr. Kaloyeros used his official position and fraudulently represented to the Board of Directors of Fort Schuyler that the competitive process was fair, open and competitive when in fact, was not. Dr. Kaloyeros and the executives of the construction companies are facing a maximum of 45 years in prison.

    For The Record
    Contractors and vendors often develop relationships with government officials and employees when seeking government contracts. It is a common and well-established method for vendors and contractors to establish relationships with potential buyers to sell their wares or gain a contract. While this method of selling goods and services in the private sector is sound and lawful, public employees and officials must be careful. Municipalities and public entities have a duty to prevent waste and the fraudulent use of public funds, therefore, procurement of certain goods and services must be obtained through a fair, transparent and competitive bidding.

    The Take Away
    Public officials and employees must keep communication with potential vendors at arms-length and avoid inappropriate communications or the appearance of inappropriate communications. There should be clear and robust procurement and ethics policies, such as prohibiting all communication with potential vendors or bidders for a certain time during the issuance of an RFP until after the contract has been awarded. Key personnel and potential vendors must be trained on the policies and compliance plans should be adopted and monitored. Failure to establish, train and monitor good governance may lead to a civil lawsuit under the False Claims Act and/or criminal prosecution.


    New Initiatives Announced by DOJ in Opioid Response

    With the opioid crisis showing no signs of abating, Department of Justice officials are undoubtedly feeling pressure to take additional steps to address it.  The Trump Department of Justice has taken several steps over the past year including, in August 2017, the creation of the Opioid Fraud & Abuse Detection Unit to target opioid-related over-prescribing and healthcare fraud through the use of data analytics.  The Unit enlisted government attorneys and agents from the hardest-hit jurisdictions in the United States, including western Pennsylvania and southern West Virginia.

    More recently, in December 2017, DOJ created a director-level role at DOJ dedicated solely to opioid enforcement, titled Director of Opioid Enforcement and Prevention Efforts.  Long time DOJ prosecutor Mary Daly is in that position.

    Just last week, DOJ announced two new initiatives regarding opioid enforcement:

    • July 11, 2018: DOJ announced the finalization of regulatory steps designed to improve the DEA’s ability to reduce drug diversion through control of opioid production. Initially announced in April, the DEA will be empowered to limit the amount of opioids that manufacturers produce in a given year if the DEA believes that a particular opioid or a particular company’s opioids are being diverted for misuse. The regulation also requires DEA to share notices of proposed production limits to state attorneys general. In certain instances, it also allows for a hearing to resolve an issue of fact raised by a state in objection to production limits if related to a legitimate United States’ need.
    • July 12, 2018: DOJ announced Operation Synthetic Opioid Surge (“S.O.S.”), a new program to reduce the supply of synthetic opioids in jurisdictions hardest hit by the opioid crisis.  Through Operation S.O.S., DOJ will launch an enforcement “surge” in ten federal judicial districts with some of United States’ highest drug overdose death rates. The surge will involve a coordinated DEA Special Operations Division operation to insure that leads from street-level cases are used to identify large scale distributors.  Additionally, the Organized Crime Drug Enforcement Task Forces (“OCDETF”) Executive Office will provide additional Assistant U.S. Attorneys to each participating district to assist with these prosecutions.  The ten districts participating in Operation S.O.S. include the Western District of Pennsylvania, Northern and Southern Districts of West Virginia, and Northern and Southern Districts of Ohio.
    Obviously, the Department of Justice – and the Trump Administration as a whole – is identifying new strategies and initiatives to address the opioid crisis.  We undoubtedly haven’t seen the last initiative on this important topic.