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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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    Wednesday
    Nov282012

    Pietragallo's Joseph Mancano Presents at the Pennsylvania Institute of Certified Public Accountants (PICPA) Forensic and Litigation Services Conference

    On November 28, 2012, Joseph D. Mancano, Chair of the firm's White Collar Criminal Defense Practice Group, was a co-presenter with Louis Lappen, Assistant United States Attorney, E.D.P.A., at the Pennsylvania Institute of Certified Public Accountants (PICPA) Forensic and Litigation Services Conference.  The presentation was entitled “Opening Statements From Prosecutor and Defense – USA v. Joseph Connors”.  The presentation was part of a case study involving the federal government’s prosecution of Joseph Connors, who was charged with engineering a $35 million dollar bank fraud.  Connors who was the CFO of Kleinert’s , Inc., a manufacturer of children’s apparel, was charged with artificially inflating the fiscal condition of Kleinert’s on financial disclosure reports the company was required to submit to its lenders under various revolving credit facilities.  The government charged that Connors had created a rosy picture of his company’s fiscal condition in order to continue to obtain funds from the company’s banks.  Mr. Mancano presented the defense perspective of the case.

    Tuesday
    Nov272012

    Two More Stanford Executives Convicted in Fraud Scheme

    On November 19, 2012, two former accountants of R. Allen Stanford were convicted of federal charges in relation to a $7 billion Ponzi scheme.  The defendants, Gilbert T. Lopez and Mark J. Kuhrt, both testified in their own defense at trial claiming that they were tricked by Stanford and the chief financial officer into creating false financial statements that investors relied upon when evaluating the company.  The convictions followed a five-week jury trial in the U.S. District Court of the Southern District of Texas.  R. Allen Stanford was convicted in March 2012 of stealing over $2 billion of investor deposits to finance his lavish lifestyle.  Lopez and Kuhrt will be sentenced on February 14, 2013 by U.S. District Court Judge David Hittner.

    Monday
    Nov262012

    SEC Chair Schapiro to Step down

    In a written release by the SEC this morning, Chairman Mary Schapiro announced her resignation, indicating she will depart the Commission on December 14, 2012. 

    Chairman Schapiro was appointed by President Obama at the beginning of his first term, taking over the reigns of the Commission at a low point in its history.  Prior to Schapiro's appointment, the SEC had sustained significant criticism for being impotent both in the run-up to and during the financial crisis of 2008.  It's most publicly embarrassing legacy was the failure to discover Bernard Madoff's multi-billion dollar Ponzi scheme, despite receiving specific tips regarding the scheme for several years prior to Madoff  turning himself in at the end of 2008.

    Chairman Schapiro led the Commission through a period of significant change, including a marked increase in enforcement actions, investment in the upgrading of the SEC's market intelligence capabilities, and implementation of rules for the SEC Whistleblower Program as mandated by Dodd-Frank.  According to the release announcing Schapiro's resignation, "In each of the past two years, the agency has brought more enforcement actions than ever before, including 735 enforcement actions in fiscal year 2011 and 734 actions in FY 2012."

    According to several news outlets, the favorite to replace Chairman Schapiro is Mary J. Miller, currently serving as an under secretary in the Treasury Department.  Miller was reported to have played a significant role in support of Secretary Geithner in the debt ceiling debates in 2011.

    A dark-horse candidate is Neil Barofsky, the former special inspector general for the Troubled Assets Relief Program (TARP), and a former federal prosecutor.  He ruffled some feathers with his outspoken criticism of Secretary Geithner and others regarding how TARP was executed.   He detailed many of these concerns in his book, Bailout:  An inside Account of How Washington Abandoned Mainstreet While Rescuing Wall Street.  It is not believed that anyone within the administration has floated Barofsky's name as a candidate, though a strong argument in his favor was made by Professor Simon Johnson in the Economix Blog of the New York Times, on November 22.  Here is a link to his post: http://economix.blogs.nytimes.com/2012/11/22/mary-miller-vs-neil-barofsky-for-the-s-e-c/.

    The link to the entire release announcing Chairman Schapiro's resignation is here.  http://www.sec.gov/news/press/2012/2012-240.htm

    Monday
    Nov262012

    Forensic Analysis of Computers is Key: Another Lesson Learned from the Casey Anthony Prosecution

    On Sunday, November 25, 2012, more than 16 months after Casey Anthony was acquitted of murdering her two year old daughter, Caylee, the Orange County Sheriff’s Department has acknowledged a glaring error in the investigation.  Investigators admit that they missed an Internet search performed on the Anthony family computer on the day Caylee was last seen alive: June 16, 2008.  Who performed the search is unclear, but the content is startling.  Someone used the computer’s Mozilla Firefox web browser to search for “fool-proof suffcation [sic].”  Investigators only analyzed the computer’s Microsoft Internet Explorer application for online searches prior to trial and overlooked the Mozilla application, which was often used by Casey Anthony.

    Prosecutor Jeff Ashton told Orlando television station WKMG that, “it's just a shame we didn't have it. This certainly would have put the accidental death claim in serious question."  The defense team knew about the search prior to trial, and attorney Jose Baez theorized that George Anthony, Casey’s father, conducted the Internet search in a suicidal state following Caylee’s accidental death.

    The Orange County Sheriff’s Department has allegedly corrected their procedures and now works with the FBI and/or the Florida Department of Law Enforcement on forensic analysis of computers.  In the technologically driven world in which we live, and in the growing world of E-discovery in which we practice, the importance of a full and complete forensic analysis of electronic information is essential.  Although this can be a very expensive process for the defense, it is of paramount importance in representing a client’s interests.

    For more information on the Casey Anthony case, visit the Associated Press or http://latino.foxnews.com/latino/news/2012/11/26/casey-anthony-case-detectives-overlook-crucial-google-search-evidence/

    Tuesday
    Nov202012

    Revisions to Federal Sentencing Guidelines for Securities Fraud and Insider Trading Cases

    The U.S. Sentencing Commission recently announced revisions to portions of the federal sentencing guidelines manual related to securities fraud, mortgage fraud, and insider trading cases.  These amendments, which became effective on November 1, 2012, were made in response to two directives to the U.S. Sentencing Commission from within the Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub. L. 111-203.

    Section 2B1.1, titled “Theft, Property Destruction, and Fraud”, was revised to create special rules for determining loss in two scenarios: (1) securities fraud cases involving fraudulent inflation or deflation of the value of a publicly trade security, and (2) mortgage fraud cases in which the underlying collateral has not been disposed of at the time of sentencing.  The Sentencing Commission also revised Section 2B1.4, titled “Insider Trading”, to provide a minimum offense level of 14 where the underlying offense involved an organized scheme to engage in insider trading.     

    The U.S. Sentencing Commission published a comprehensive summary which outlines the above changes and other changes effective on November 1, 2012.

    Saturday
    Nov172012

    BP Agrees to Plead Guilty and Record Criminal Fine, 3 Individuals Face Indictment in Deepwater Horizon Case

    Oil giant BP has accepted criminal responsibility for the largest offshore oil spill in the nation’s history. On November 15, 2012, BP agreed to plead guilty to 14 criminal charges and to pay a record $4.5 billion in fines and other payments. The settlement comes over two years after the Deepwater Horizon rig explosion, which killed 11 workers and caused a massive oil spill.

    The 14-count Information, filed by the Department of Justice in the U.S. District Court in the Eastern District of Louisiana, charges BP with 11 counts of felony manslaughter related to the workers’ deaths, one count of felony obstruction for misleading Congress about the rate at which oil was spilling from the well, and violations of the Clean Water and Migratory Bird Treaty Acts.  BP agreed to plead guilty to all 14 charges. BP Chief Executive Bob Dudley said in a statement: “We apologize for our role in the accident. As today’s resolution with the U.S. government further reflects, we have accepted responsibility for our actions.”

    As part of its guilty plea, BP agreed to pay $4 billion in criminal fines and penalties including a $1.26 billion criminal fine, the largest single criminal penalty in U.S. history, $2.39 billion to the National Fish and Wildlife Foundation for cleanup initiatives, and $350 million to the National Academy of Sciences.   BP also reached a $525 million agreement with the Securities and Exchange Commission to settle civil charges that it misled investors about the flow rate of oil from the well.

    In addition to resolving the charges against BP, the government indicted three individual BP employees.  The two Well Site Leaders stationed on the Deepwater Horizon were charged with 23 criminal counts including manslaughter. Additionally, BP’s former vice president of exploration for the Gulf of Mexico was charged with obstruction of Congress and making false statements to Congress regarding the rate at which oil was spilling from the well.

    According to Attorney General Eric H. Holder Jr., the settlement is “unprecedented, both with regard to the amounts of money, the fact that a company has been criminally charged and that individuals have been criminally charged as well.”

    The settlement comes on the heels of a massive, and on-going, clean-up effort by BP. To date, BP has paid $14 billion for direct cleanup efforts, $1 billion for early restoration projects, and more than $9 billion on civil payouts to individuals, businesses and government bodies. Another $7.8 billion settlement to resolve private plaintiffs’ claims for economic loss and property damage is pending approval. 

    Despite the settlement and indictments, Holder insisted that the criminal investigation “remains ongoing – and we’ll continue to follow all credible leads and pursue any charges that are warranted.”  Moreover, the settlement does not resolve civil litigation brought by the federal government and U.S. coastal states under the Clean Water Act.  If found to have behaved in a “grossly negligent” manner, BP could be held liable for as much as $21 billion under the Clean Water Act.  A federal civil trial is scheduled to being in February 2013.

    The complete Information can be found here.

    The complete Guilty Plea can be found here.

    Friday
    Nov162012

    SEC and DOJ Issue Long Anticipated FCPA Guidance

    On November 14, 2012, the DOJ and SEC announced the release of a 120 page guide on the FCPA - A Resource Guide to the U.S. Foreign Corrupt Practices Act. The FCPA Guide contains a detailed analysis of the U.S. Foreign Corrupt Practices Act (FCPA), as well as an examination of the DOJ and SEC approach to the enforcement of the FCPA.  The Guide is offered as a tool to be used to provide both large and small businesses with information on a variety of topics, including who and what is covered by the FCPA, the definition of a “foreign official”, what constitutes proper and improper gifts, and the hallmarks of an effective FCPA compliance program.

    The Guide employs hypothetical scenarios as well as historical examples in instances where DOJ and SEC declined to pursue enforcement actions.  In discussing the “business purpose” test used by the government in FCPA enforcement, the guide lists “Examples of Actions Taken to Obtain or Retain Business,” including the following:

    • Winning a contract
    • Influencing the procurement process
    • Circumventing the rules for importation of products
    • Gaining access to non-public bid tender information
    • Evading taxes or penalties
    • Influencing the adjudication of lawsuits or enforcement actions
    • Obtaining exceptions to regulations
    • Avoiding contract termination

    The Guide also discusses the government’s working definitions for the often controversial terms “corruptly”  and “anything of value,” as those terms fall within the enforcement framework.  In referring to the FCPA’s requirement that actions such as offers, promises or payments much be made “corruptly,” the guide restates the principle that the actions must be intended to induce the recipient to misuse his official position.  It further explains:

    Where corrupt intent is present, the FCPA prohibits paying, offering, or promising to pay money or anything of value (or authorizing the payment or offer).  By focus­ing on intent, the FCPA does not require that a corrupt act succeed in its purpose.  Nor must the foreign official actually solicit, accept, or receive the corrupt payment for the bribe payor to be liable.  For example, in one case, a specialty chemical company promised Iraqi government officials approximately $850,000 in bribes for an upcoming contract. Although the company did not, in the end, make the payment (the scheme was thwarted by the U.S. govern­ment’s investigation), the company still violated the FCPA and was held accountable.

    Also, as long as the offer, promise, authorization, or payment is made corruptly, the actor need not know the identity of the recipient; the attempt is sufficient. Thus, an executive who authorizes others to pay “whoever you need to” in a foreign government to obtain a contract has violated the FCPA—even if no bribe is ultimately offered or paid.

    The Guide outlines the government’s broad working definition of “anything of value,” explaining that:

    Bribes can come in many shapes and sizes—a broad range of unfair benefits—and so the statute prohibits the corrupt “offer, payment, promise to pay, or authorization of the payment of any money, or offer, gift, promise to give, or authorization of the giving of anything of value to” a foreign official.  An improper benefit can take many forms. While cases often involve payments of cash (sometimes in the guise of “consulting fees” or “commissions” given through intermediaries), others have involved travel expenses and expensive gifts. Like the domestic bribery statute, the FCPA does not contain a minimum threshold amount for corrupt gifts or payments. Indeed, what might be considered a modest payment in the United States could be a larger and much more significant amount in a foreign country.

    The past two years have witnessed significant developments in FCPA enforcement.  DOJ set records in 2010 and 2011 for the number of cases resolved, and for the length of prison sentences achieved in criminal prosecutions under the Act. In 2011, however, there was a rise in the number of FCPA matters taken to trial, a trend that is expected to continue.   It is estimated that 87 companies are currently under investigation for FCPA violations.  While the largest settlements to date have been with foreign companies, most of the companies currently under investigation are believed to be American companies, including Eli Lilly, Medtronic, Pfizer,  Alcoa, Goldman Sachs and Wal-Mart.

    Three FCPA cases that went to trial in 2011 and 2012 gained headlines for the acquittals or dismissal of charges that ended each of the cases.  In United States v. Goncalves, No. 09-335 (D. D.C.) (SHOT Show/African Sting), DOJ filed a series of indictments in the U.S. District Court for the District of Columbia.  The “SHOT Show” moniker was derived from the fact that 21 of the 22 defendants were arrested at SHOT Show law enforcement industry convention in Las Vegas.  The defendants were charged with engaging in a scheme to pay bribes to the Minister of Defense for the African nation of Gabon.  In fact, the scheme was part of an undercover operation, with no involvement from any official from Gabon or any other nation.  As part of the sting, the defendants allegedly agreed to pay a 20% “commission” to a sales agent that the defendants believed represented the Minister of Defense for Gabon in order to win a portion of the $15 million contract to outfit the country’s presidential guard. 

    At the time it announced the indictments in the SHOT Show case, DOJ stated that “this ongoing investigation is the first large scale use of undercover law enforcement techniques to uncover FCPA violations” and the “largest action ever undertaken by the Justice Department against individuals for FCPA violations.”  After two trials resulted in acquittals for three defendants, hung juries as to seven others and no convictions, the United States gave up on the case.  On February 21, 2012, the government filed a motion to dismiss, with prejudice, the indictments of all remaining defendants (including those not yet brought to trial and those who had been granted a mistrial).

    In U.S. v. Aguilar, No. 10-1031 (C.D. Cal.) (Lindsey Manufacturing), Lindsey Manufacturing and several individuals including Lindsey’s CEO, Keith Lindsey, and CFO, Steven Lee, were indicted for violations of the FCPA in the U.S. District Court for the Central District of California.  The charges were based on allegations regarding “commission payments” to be used to pay bribes to Mexican officials in exchange for contracts with a state-owned utility Comisión Federal de Electricidad (CFE).  On May 10, 2011, after a 5 week trial, Lindsey Manufacturing, Lindsey and Lee were convicted of one count of conspiring to violate the FCPA and 5 counts of FCPA violations.  In December of 2011, the trial judge presiding over the trial, granted a motion to dismiss, vacating the convictions of Lindsey Manufacturing Co., Lindsey and Lee.

    The court found that there was prosecutorial misconduct throughout the course of the prosecution, including falsehoods made in search and seizure warrant affidavits, unauthorized and warrantless searches, false or misleading testimony by government witnesses in the grand jury, failure to produce questioned grand jury testimony and misconduct in the delivery of closing argument. 

    In  U.S. v. O’Shea, No. 09-629 (S.D. Tex.), the government indicted John O’Shea, manager of ABB Network Management, a subsidiary of ABB, Inc., accusing him of authorizing bribes of $1.9 million to CFE employees (the same Mexican government entity as in Lindsey Manufacturing) in exchange for contracts.   O’Shea was also accused of hiring Fernando Maya Basurto, a Mexican citizen, who allegedly acted as a middleman in the scheme and who had already entered a plea of pleaded guilty to conspiracy to violate the FCPA, money laundering, and falsifying records in a federal investigation.   On January 16, 2012, however, at the close of the government’s case-in-chief, the trial court granted O’Shea’s motion to dismiss 12 FCPA counts and one conspiracy count, finding that Basurto’s testimony failed to tie O’Shea to the alleged bribery.

    Like other significant enforcement guidance documents, including DOJ’s Principles of Federal Prosecution of Business Organizations, the new FCPA Guide offers additional insight to the thinking on the enforcement side of the fence, while at the same time leaving most of the critical determinations to the prosecutorial discretion of the government on a case-by-case basis.  The Guide should be used by corporations to the greatest extent possible in designing and revamping corporate compliance programs.  The substance of the Guide can also be used when companies find themselves under investigation in FCPA matters.  Specifically, whether negotiating or making requests for deferred prosecution on behalf of individuals or corporations, it is critical to integrate the guide and its specific examples into  the treatment of the facts in your particular case.  Again, while this guidance opens the door a bit on the government’s thought process, it does not specifically dictate charging decisions. 

    The Guide is available here:  http://www.sec.gov/spotlight/fcpa/fcpa-resource-guide.pdf

    James W. Kraus and John A. Schwab Contributed content to this Post

    Thursday
    Nov152012

    NACDL Conference: Panel Discussion on Public Corruption Cases Led by John Edwards' Counsel, Abbe David Lowell

    The National Association of Criminal Defense Attorneys' conference "Defending the White Collar Case: In & Out of Court" is moving forward at Fordham Law School in New York, New York.  The latest program, “Political Indictments: Criminalizing Violations of the Public Trust,” was moderated by Abbe David Lowell and featured Lisa A. Mathewson, Amit P. Mehta, and Barry J. Pollack as panelists in a lively discussion of the defense of bribery and gratuity allegations.  The discussion included the various federal bribery statutes, role and timing of joint defense agreements and use of 18 U.S.C. §666 as a vehicle for honest services fraud prosecutions.  The highlight of the program was the factors weighed by Abbe David Lowell in deciding whether a client would testify at trial.

    Thursday
    Nov152012

    NACDL Conference: Joe Mancano of Pietragallo and Kathleen McDermott of Morgan Lewis Present on Healthcare Fraud

    The National Association of Criminal Defense Attorneys' conference "Defending the White Collar Case: In & Out of Court" continues at Fordham Law School in New York, New York.   Next up are Joseph D. Mancano of Pietragallo Gordon Alfano Bosick & Raspanti, LLP and Kathleen McDermott of Morgan, Lewis & Bockius LLP and their presentation, "Under the Microscope: Developments in FDA and Healthcare Fraud Enforcement."  The presentation includes a discussion of the increase of healthcare prosecutions by the Medicare Fraud Strike Force, use of Civil Investigative Demands under the federal False Claims Act and healthcare fraud being prosecuted as wire or mail fraud.

    Thursday
    Nov152012

    NACDL Conference: Panel Discusses Representation of VIP Clients

    The National Association of Criminal Defense Attorneys' seminar "Defending the White Collar Case: In & Out of Court" is being held today and tomorrow at Fordham Law School in New York, New York.  The first panel is discussing representing high-profile and celebrity clients. The panelists include Blair Berk, Rusty Hardin, Elliot Peters, and Gerald Lefcourt and was moderated by Judy Smith. Perhaps the best advice came from Blair Berk who encouraged counsel to resist the urge to walk up to the bank of microphones and answer the press' questions.