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Wednesday
Aug302017

Presidential Pardon Power in the Spotlight 

What Happened?
On August 25, President Trump pardoned former Maricopa County, Arizona Sheriff Joe Arpaio. Arpaio was convicted last month of criminal contempt for violating a federal judge’s order that he stop detaining people based solely on suspicion of their immigration status. Arpaio’s pardon—the first of Trump’s presidency—brings attention to the pardon procedure.

The Rundown
Article II, Section 2 of the Constitution gives the President the authority to “grant Reprieves and Pardons for Offenses against the United States.” The power only applies to federal crimes, as only governors can issue pardons for state offenses. The President has the sole, almost limitless power to determine who to pardon and why. The Constitution only excludes cases of impeachment from the President’s pardon authority. While there are rules governing petitions for executive clemency, they are only advisory. 

A presidential pardon will remove legal disabilities imposed because of a criminal conviction, but will not remove the conviction from the pardoned individual’s criminal record. Criminal convictions can only be removed from an individual’s criminal record through expungement, a judicial remedy granted by the court of conviction.

In most cases, the clemency process is lengthy and involves several levels of review within the Department of Justice before reaching the President. Typically, an individual seeking a pardon submits a detailed application form and character references to the Department of Justice’s Office of the Pardon Attorney (OPA). The applicant or any third party acting in support of the applicant may also submit any additional information he or she believes may have bearing on the application. The OPA reviews the applications and communicates with any agencies that may have been involved in the applicant’s case. After the application and all other relevant information has been reviewed, OPA submits a proposed recommendation to the Deputy Attorney General. In making its recommendation, the OPA considers the applicant’s post-conviction conduct, character and reputation; the seriousness and relative recentness of the offense; the applicant’s acceptance of responsibility, remorse, and atonement; and the applicant’s need for relief. The Deputy Attorney General makes a final recommendation on behalf of DOJ to the President. 

For the Record
President Trump did not consult with the Justice Department before announcing his decision to pardon Arpaio, though a DOJ spokesman acknowledged after the pardon was granted that “[t]he President exercised his lawful authority and we respect his decision.” 

The Take Home
For the typical applicant, the clemency process is long and the likelihood of success is unpredictable. The President is not bound by any rules regarding the applications he grants, or whether he even needs to consider applications at all.  

Friday
Aug112017

For Martin Shkreli, Conviction is Just the Prologue

What Happened?
A jury empaneled in the U.S. District Court for the Eastern District of New York convicted pharmaceutical executive Martin Shkreli on two counts of securities fraud and one count of conspiracy to commit securities fraud, but acquitted him on five other counts, including conspiracy to commit wire fraud charges that would arguably have increased his exposure under the advisory U.S. Sentencing Guidelines.  

The Rundown
Both the government and Shkreli claimed victory after the verdict, but the real winner will be determined at sentencing. Shkreli was convicted of counts related to making material misstatements to investors about his hedge fund and conspiring to control the stock price of his drug company, Retrophin, Inc. But he was acquitted of wire fraud counts based on allegations that he looted assets from Retrophin to pay off hedge fund victims. Shkreli will undoubtedly argue that the government cannot prove a significant, or indeed any, pecuniary loss tied to his offenses of conviction. The government, in turn, is likely to contend that the Court consider any loss to Retrophin as relevant conduct. Because loss amount largely drives the sentencing range for financial crimes under the U.S. Sentencing Guidelines, the outcome of this dispute will be critical to Shkreli’s sentence. If the Court finds that there was no or little loss, Shkreli could plausibly argue for sanctions short of imprisonment.

Importantly, though, Shkreli’s guidelines sentencing range will only be advisory – the Court may vary or depart from the range upward or downward. Under 18 U.S.C. § 3553(a), the Court must fashion an appropriate punishment based on its consideration of a number of factors, including Shkreli’s history and characteristics; the nature of the offense; the need for the sentence to provide just punishment, promote respect for the law, and to provide adequate deterrence (both to Shkreli and other would-be offenders) to criminal conduct. Shkreli has made numerous statements both during and after the trial – for example, referring to the prosecutors as “junior varsity” and the prosecution as a “witch hunt” – which may cause the Court to punish him more harshly than it otherwise would. On the other hand, Shkreli will have the opportunity to produce mitigating evidence that counsels in favor of a more lenient sentence.     

For the Record
“This was a witch hunt of epic proportions, and maybe they found one or two broomsticks, but at the end of the day, we’ve been acquitted of the most important charges in this case.”  -- Martin Shkreli

The Take-Home
The drama of the Shkreli case did not end with the jury verdict. Indeed, the real intrigue surrounds his sentencing.

What Happens Next?
Shkreli will be sentenced at a date to be determined by the Court.

Thursday
Aug032017

Senators Demand Answers From DOJ about the Controversial Use of Stingray Surveillance Technology

What Happened?
A group of bipartisan senators petitioned the Department of Justice to disclose details about law enforcement’s use of cell-site simulator devices known as Stingrays.

The Rundown
A group of senators, including three Democrats and one Republican, jointly submitted a letter to Attorney General Jeff Sessions requesting information about the effects of Stingray devices on the general public.  Stingray devices work by masquerading as the cell tower antennas of wireless companies and sending out signals that force all cell phones in the area to transmit their locations and identifying information to the device.  While cell site location information gathered by actual cell towers can typically give a general location of a cell phone, cell-site simulators like Stingrays can pinpoint a phone’s precise location as long as the phone is turned on.  This is true even when the target is not actively using the phone at the time.  Additionally, when law enforcement uses a cell-site simulator on a particular device it prevents communication between that target phone and the network’s cell tower.  This renders the phone unable to make or receive calls during the time that—unbeknownst the phone’s user—it is connected to the simulator.

Stingrays or similar devices have been used by state, local, and federal law enforcement around the country for more than 20 years, but according to critics, their use has been shrouded in secrecy.  This secrecy, the senators urge, raises concerns that judges who approve requests to deploy Stingray devices may not understand the full implications of their use.  For example, in addition to sending signals to the target device, a Stingray also sends signals into the homes of everyone in the surrounding area.  Critics are also troubled by the Stingray’s disruption to cell service.  According to the senators’ letter, Canadian law enforcement determined that Stingrays can block 911 calls and advised its officers to weigh the technology’s benefits against the potential harm to the general public in deciding whether to use the device. 

The Take-Home
The senators’ letter puts much-needed attention on Stingray devices and their effects on the rights of both criminal defendants and the general public.  Defense attorneys should be aware of the developments in this area and should determine at the outset of any criminal matter involving cell phones whether cell-site simulators were used to gather information about the defendant.  Attorneys should be prepared to challenge information gathered from the devices on Fourth Amendment grounds, particularly if it appears a Judge’s approval of their use was not fully informed.

What Happens Next?
The senators asked that DOJ respond to their letter by August 25.  They specifically asked the Attorney General to explain whether he disagrees with Canada’s finding that Stingray devices can block 911 calls, and to disclose whether the FBI has tested the cell-site simulators it uses to determine how much they interfere with nearby phones.

Monday
Jul312017

Contractor Sentenced to 18 Months in Prison for Role in Scheme to Defraud the NWCDC

What Happened?
This week, Kevin Gleaton, 53, was sentenced to 18 months in prison after conspiring to commit wire fraud to defraud the Newark Watershed Conservation and Development Corporation (“NWCDC”) and misusing Social Security numbers in connection with a personal bankruptcy proceeding.  

The Rundown
Gleaton’s sentencing comes after a long investigation into the use of taxpayer funds intended for conserving and managing the City of Newark’s water assets.  Since the 1970s, the City has delegated the responsibility of operating the City’s water assets to the NWCDC, a non-profit entity.  As a result, the NWCDC received taxpayer funds from the City to manage the City’s watershed, reservoirs, and water-treatment plant.  What seemed like a good idea, paved way for a fraudulent scheme that took taxpayer money away from the conservation of water and instead placed it into the pockets of the NWCDC officials.  Between May 2011 and September 2012, it is alleged that Gleaton conspired with Donald Bernard, Sr., the manager of special projects for the NWCDC, and Linda Watkins Brashear, the executive director of the NWCDC, to defraud the organization of more than $110,000.  The plot unfolded by issuing fraudulent invoices to two of Gleaton’s companies (Synergy Group, a printing services company, and Mindshare Media, a digital marketing company) for work that was never actually performed.  In total, approximately $110,000 was paid to Gleaton’s companies.  After receiving payment, Gleaton then gave $97,000 to Bernard, who shared a portion with Brashear.

Gleaton, Bernard, and Brashear all pleaded guilty to the charges alleged.  As a result of partaking in the fraudulent scheme, Gleaton was sentenced to 18 months in prison, three years of supervised release, and $111,600 in restitution.  He also pleaded guilty to the use of false Social Security numbers in relation to personal bankruptcy proceedings in 2012 and 2013.  As for the other players, both Bernard and Brashear pleaded guilty to using interstate facilities to promote and facilitate bribery by accepting $956,948 in kickbacks from several contractors over several years.  They also pleaded guilty to filing false tax returns.  Bernard was sentenced to 8 years in prison and Brashear’s sentencing hearing is scheduled for September 11, 2017.  

The Take-Home
The NWCDC was dissolved in 2013 and the City of regained control over water distribution ever since.  When Gleaton pleaded guilty to the charges in 2016, he became the sixth person to plead guilty in connection to NWDCD’s mismanagement of Newark’s water assets.  This case is an example of how a lack in oversight in federal agencies can lead to the misuse of taxpayer dollar for personal gains of agency officials.

Friday
Jul282017

Halliburton Settles FCPA Allegations for $29.2 Million

What Happened?
On July 27, 2017, the U.S. Securities and Exchange Commission charged Halliburton Company with violating the books and records, as well as the internal controls, provisions of the Foreign Corrupt Practices Act (“FCPA”).  The Commission alleged that, in order to obtain contracts in Angola resulting in profits of $14 million, Halliburton inappropriately directed subcontracts to a local Angolan company with ties to an official with the state-owned oil company.

The Rundown
Simply stated, the FCPA, enacted in 1977, prohibits American companies and its representatives from bribing foreign officials.  Criminal violations of this law are prosecuted by the U.S. Department of Justice.  Violations of the FCPA also carry with them potential civil penalties that are investigated and prosecuted by the Securities and Exchange Commission.   15 U.S.C. § 78m sets forth the “books and records” and “internal controls” provisions of the FCPA.  When a company makes inappropriate payments to foreign officials, the books and records of that company do not accurately reflect the financial status of the company and the transactions in which it engaged.  Hence, civil liability attaches.  Furthermore, companies issuing securities in the United States are required to enact internal controls to ensure compliance with legal mandates.  Inappropriate payments and/or bribes reflect a failure to implement effective internal controls.

In this case, the SEC alleges that Halliburton’s Vice President, Jeannot Lorenz, spearheaded efforts to direct projects to a local business with connections to an official at Sonangol, Angola’s state-owned oil company.  Instead of determining services that Halliburton needed to outsource and put those projects out for bid to local Angolan-owned businesses, Lorenz was alleged to have worked backwards.  Lorenz first identified the companies to be hired and backed into the tasks that were required.  No competitive bidding process was implemented.  In all, Halliburton is alleged to have directed $13 million worth of work to a business connected to an Angolan official.  In return, Halliburton profited by $14 million from the contracts it received. 

Without admitting or denying the allegations levied by the Commission, Halliburton has agreed to pay $14 million in disgorgement, $1.2 million in prejudgment interest, and $14 million in civil monetary penalties.  In addition, Lorenz has agreed to pay $75,000 in penalties for causing the company’s violations and circumventing the company’s internal controls.

The Take-Home
Violations of the FCPA have both civil and criminal ramifications.  When working abroad, companies must be ever vigilant of payments to local officials and/or individuals or entities related to them.  Transparency International, a global coalition against corruption, publishes an annual Corruption Perceptions Index of 176 countries.  Out of 176 countries, Angola was perceived last year to be more corrupt than 163 other countries.  Companies must be on high alert when working in companies perceived to be corrupt.  The government has Internet access just like everyone else and can easily target investigations in these locales.  Even if criminal charges are not pursued, civil allegations have teeth and can harm a company nearly as much as a criminal prosecution.   

What Happens Next?
As part of Halliburton’s settlement, the company must retain an independent compliance consultant for a period of 18 months to review and evaluate its anti-corruption policies and procedures.

Friday
Jul212017

Second Circuit Vacates Silver Conviction, Questions Whether All Official Acts Worth Punishing

What Happened? 
The U.S. Court of Appeals for the Second Circuit vacated the judgment of conviction against Sheldon Silver, the former Speaker of the New York State Assembly, who was found guilty of committing honest services fraud, Hobbs Act extortion, and money laundering following a jury trial. United States v. Silver, --- F.3d ----, 2017 WL 2978386 (2d Cir. Jul. 13, 2017).

The Rundown
Silver appealed from his judgment of conviction, arguing primarily that the District Court’s jury instructions were erroneous under the U.S. Supreme Court’s subsequent decision in McDonnell v. United States, 136 S. Ct. 2355 (2016). In McDonnell, the Supreme Court clarified that an “official act,” an element of honest fraud and extortion, is a “decision or action on a ‘question, matter, cause, suit, proceeding or controversy’” involving “a formal exercise of governmental power.” At Silver’s trial, the district court instructed the jury that an official act was “any action taken or to be taken under the color of official authority.” While that instruction was consistent with the law at the time it was given, the McDonnell Court’s definition of “official act” made it erroneous in retrospect. The error was not harmless, per the Court, because it was not clear that the jury would have found Silver guilty were it properly instructed.

But the Court went beyond applying McDonnell. It also suggested that a jury could reasonably consider some of Silver’s alleged misconduct to be too perfunctory to constitute the quo of a quid pro quo fraudulent scheme, even if it passed muster as an “official act.” On retrial, the jury must find not only that Silver was compensated for official acts, but also that those acts were significant enough to constitute fraud.

For the Record
Judge Cabranes, writing for the Court, on the nature of resolutions honoring constituents: “A rational jury could . . . conclude that, though certainly ‘official,’ the prolific and perfunctory nature of these resolutions make them de minimis quos unworthy of a quid.

The Take-Home
It is worth monitoring whether U.S. Attorney’s Offices within the Second Circuit alter their charging practices based on the Court’s suggestion that not all “official acts” are significant enough to warrant conviction. In any event, future defendants now have footing to argue for favorable jury instructions or vacating their convictions based on the Court’s observation.

What Happens Next?
Acting U.S. Attorney Joon H. Kim asserted that Silver will be retried. 

Tuesday
Jul182017

Department of Education Revisits Title IX Due Process for Respondents: What Does This Mean For Higher Education?

What Happened?

The Department of Education’s recent comments strongly suggest that it will be revisiting the 2011 Dear Colleague Letter, particularly whether the required process for investigating allegations of sexual assault are unfair to, and biased against, respondents (students defending themselves against allegations of sexual assault). On the heels of this announcement, Columbia University recently settled the twice-dismissed lawsuit by a male student accused, but exonerated, of allegations that he sexually assaulted a student. The plaintiff student alleged that Columbia engaged in gender-based discrimination after he was cleared of the allegations.

The Rundown

The 2011 Dear Colleague Letter was the high water mark for a process that was heavily weighted in favor of the complainant. Over the years, particularly as codified by the October 2014 regulations promulgated pursuant to the Violence Against Women Reauthorization Act (“VAWA”), the pendulum has been swinging back towards affording respondents defined due process rights, including mandated notice and advisor-of-choice provisions. However, colleges and universities still are afforded great discretion in how to proceed with the investigation and resolution of Title IX complaints. The Department of Education's recent comment is a potential further swing of the pendulum toward greater due process for respondents.

The Take-Home

What does this mean for institutions of higher education? Expect more specific requirements for due process for respondents - more specific notice, more input by respondent into the investigative process, and an assault on the “single investigator” model. Also expect a push to provide schools with the discretion to delay its Title IX process while a criminal investigation is ongoing - thereby removing the Hobson's Choice faced by respondents of defending against the school's disciplinary process and giving up the Fifth Amendment right to remain silent; or invoking that right and being unable to provide a statement in the investigative process or to testify at a disciplinary hearing.

Educational institutions are wise to build into their Title IX process greater due process to respondents than that required by current law, in support of both the institution’s culture and to minimize the likelihood of lawsuits surviving past the motion practice stage (if they are filed at all). Schools should anticipate a future mandate from the Department of Education that will require further modification of the existing Title IX policies and procedures.

Thursday
Jul132017

SEC Files Fraud Charges Against Founder of Bitcoin Store

What Happened?
At the end of June, the SEC filed fraud charges against Renwick Haddow, a U.K. Citizen and alleged founder of a Bitcoin platform and chain of shared office spaces, alleging his use of the United States as the base of operations to defraud investors out of $37.7 million.

The Rundown
The SEC filed its civil complaint in the Southern District of New York, alleging that Haddow – through the creation and use of sham companies – mislead investors into believing that the companies had ongoing operations and capable senior executives ready to take the helm.  The SEC contends that  the Bitcoin platform – named the Bitcoin Store – didn’t have any operations or gross sales.  The complaint also alleged that the supposed executives, in the SEC’s words, “do not appear to exist,” and approximately $5 million of the invested funds were not invested in operations as promised.  They were diverted to overseas banks in Mauritius and Morocco.  The complaint seeks several forms of relief including the return of the investors’ funds and injunctive relief barring Haddow from further violations of the Securities Exchange Act and related laws.

In addition to filing the complaint, the SEC obtained an order granting an emergency freezing of the assets of Haddow and his companies.  Haddow also faces criminal charges in the Southern District of New York related to the alleged fraud.

For the Record
“As alleged in our complaint, Haddow created two trendy companies and misled investors into believing that highly-qualified executives were leading them to quick profitability.  In reality, Haddow controlled the companies from behind the scenes and they were far from profitable,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.

The Take-Home
This case serves as another reminder of the SEC’s authority to protect the investing public through the use of civil actions seeking monetary penalties, injunctive relief, disgorgement of illegally-obtained funds, the freezing of assets through a number of statutes including the Securities Act of 1933 and Exchange Act of 1934.

Wednesday
Jul122017

Pennsylvania Senate Passes "Clean Slate" Bill

What Happened?
The Pennsylvania Senate passed the “Clean Slate” bill, which would automatically seal nonviolent misdemeanor convictions of individuals who have not been convicted of a crime in the last ten years.

The Rundown
Pennsylvanians with misdemeanor convictions must currently petition the court to seal old convictions, but the Commonwealth’s new Clean Slate law could seal their criminal records automatically.  Under the legislation, which was crafted in part to help individuals with minor convictions obtain employment, nonviolent misdemeanor convictions will be sealed automatically where the offender has been crime-free for ten years. 

The digitization of criminal records has made it easier for companies to conduct background checks on potential employees, increasing the likelihood that an applicant’s criminal record could impact their chances of getting the job.  While this technology may be a good thing in the case of violent crimes and felonies, the increased use of background checks that reveal even the most benign criminal offenses may also eliminate job opportunities for individuals with old and minor convictions who would otherwise be qualified contenders.  Though many misdemeanor convictions can be sealed under the current law, most eligible candidates do not petition the court to seal their records, leaving them accessible to the public’s—and potential employer’s—view.

The Clean Slate law will remedy this problem by taking advantage of Pennsylvania’s centralized electronic record system to identify eligible convictions and cross-reference them against court records in each of the Commonwealth’s judicial districts.  Convictions that meet the law’s criteria will automatically be sealed.  The law would also save taxpayer time and money, as court employees will no longer have to personally review records and respond to petitions on a case-by-case basis.   

For the Record 
The Clean Slate bill’s sponsors include both Republicans and Democrats, and it is supported by the Pennsylvania District Attorneys Association and the Pennsylvania State Police.  Republican Senator Scott Wagner, the prime co-sponsor of the legislation, wrote that while the bill may be perceived as “risky” by some people, if it becomes a law, “it has the potential to change the lives of hardworking people who are trying to provide for their families and create a better life for their children.”  

The Take Home
This legislation represents a desire to reform our criminal justice system so that nonviolent offenders who have overcome their criminal problems are not held back by their past mistakes.  By sealing eligible convictions automatically, Pennsylvania takes the burden off of individuals who may not have the time, money, or legal know-how to petition the court themselves.

What Happens Next
The bill was passed by the Pennsylvania Senate and sent to the House on June 29, 2017, where it is currently being considered by the Judiciary Committee. 

Friday
Jun302017

Philadelphia's District Attorney Pleads Guilty

What Happened?
In an unexpected turn of events, Philadelphia District Attorney, Rufus Seth Williams, entered a guilty plea on day 9 of his federal corruption trial. Judge Paul S. Diamond immediately convened a detention hearing and remanded Mr. Williams to the Federal Detention Center to await sentencing. As part of his plea, federal agents hand-delivered Mr. Williams’ resignation letter to Mayor Jim Kenney at 2:05 p.m., ending Williams’ promising prosecutorial career that started in 1992 fresh out of Georgetown Law.

The Rundown
R. Seth Williams’ guilty plea on June 29, 2017 was a surprise to local attorneys, the media, and even the staff of the District Attorney’s Office.  Acting District Attorney Kathleen Martin only learned of the plea by text from Mr. Williams a few hours prior to the plea. Mr. Williams took the oath of office as District Attorney on January 4, 2010. Seven years later, on March 21, 2017, a grand jury indicted Mr. Williams on 23 counts of bribery, extortion, and fraud. The government filed a superseding indictment adding six additional counts on May 9, 2017, and trial began on June 19, 2017.

Judge Paul Diamond, citing the public’s interest in a speedy trial, placed this matter on track for one of the shortest spans from indictment to trial that this District has ever seen. Perhaps by strategy in an attempt to call the government’s bluff, defense counsel did not seek any lengthy continuance of trial. Upon swearing of the jury to hear the case, Mr. Williams and his team were confronted with blistering testimony of unlawful activity. A local businessman, Mohammad N. Ali, testified to showering Williams with expensive gifts, including luxury travel.

On Thursday, June 29, 2017, at approximately 10:00 a.m., media began reporting that the Williams trial was behind schedule for the day. Mr. Williams was in a conference room off the courtroom, and his counsel and others close to him were shuttling back and forth into the room. Signed documents were exchanged among counsel. Shortly thereafter, a Twitter post revealed that Acting United States Attorney for the Eastern District of Pennsylvania, Louis D. Lappen, entered the courtroom. The signal of a guilty plea was clear.

In another stunning turn of events, the plea included only one of the 29 counts of the superseding indictment. Charges that could have led to Mr. Williams spending the rest of his life in a federal prison had been whittled down to a single count with a maximum sentence of 5 years’ incarceration. Mr. Williams, who told the judge that he only has between $100 and $200 in his bank account, also faces a fine of $250,000. The Philadelphia City Controller is already seeking to forfeit Mr. Williams’ pension, in part to repay attorneys’ fees fronted by the city prior to Mr. Williams’ indictment. 

The Take-Home

Who won the trial? Is there a winner here? Certainly Mr. Williams saw the writing on the wall and limited his exposure to what some might consider a light sentence of no more than 5 years for someone who, as Judge Diamond put it, “sold his office.” Perhaps the government thought it wise to secure the resignation and conviction of a corrupt politician regardless of the length of sentence.

In another interesting turn, Mr. Williams admitted to all of the factual allegations in the superseding indictment. Therefore, although he is facing sentencing on only one count of violating 18 U.S.C. 1952(a)(3), there are now 63 pages of relevant conduct in the superseding indictment that Judge Diamond may consider when imposing sentence. 

Although the Federal Sentencing Guidelines are not mandatory, Judge Diamond must consider them. There are many aspects of the offense that must be considered to derive the applicable offense level. There could be enhancements applied, and counsel will argue those to the judge once the presentence investigation is completed. The notice of forfeiture attached to the superseding indictment details $33,765.22 in bribes received and $31,112.70 of fraud proceeds, for a total of $64,878.22. Using this figure as the loss amount, Mr. Williams is facing at least a standard range sentence of 12 to 18 months, using the base offense level of 7 and adding 6 points for the loss amount. This does not take into account Mr. Williams’ role as District Attorney and other relevant factors that can increase the range. 

Given Judge Diamond’s comments during the detention hearing that Mr. Williams “sold his office” and that he “cannot be trusted,” it would come as a shock to the community if the sentence imposed was only a year or two of incarceration. The government agreed to withdraw 28 counts in negotiating this plea, but the judge can certainly use all of the facts connected to those 28 counts to sentence Mr. Williams to the maximum of 5 years’ incarceration.

What Happens Next?
Sentencing is scheduled for October 24, 2017 at 9:30 a.m. Stay tuned to www.white-collared.com for additional updates. U.S. v. Williams is docketed at 2:17-CR-00137 (E.D.Pa.).