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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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    Fourth Circuit Affirms 105 Year Sentence for DOD Fraud

    On November 29, 2012, the U.S. Court of Appeals for the Fourth Circuit affirmed the conviction of Roger L. Day, Jr., who was sentenced to 105 years imprisonment for a multi-million dollar scheme to defraud the U.S. Department of Defense.  Following his jury trial in the Eastern District of Virginia, Day was convicted of orchestrating a scheme where he and co-conspirators created false companies to bid on parts-supply contracts for the Defense Logistics Agency, a subsidiary of DOD responsible for parts acquisition for the military.  Under the guise of the false companies, Day and his co-conspirators would then use software designed by Day to allow bidding en masse on low-dollar value DLA parts contracts. 

    After being awarded the contracts, the conspirators shipped inexpensive and non-conforming parts to DLA with the expectation that the government could not inspect each and every part.  Very often, DLA would not return non-conforming parts and would pay the full dollar value of the contract, although the company would be debarred from future DLA contracts.  However, the conspirators would discard the debarred company and create another false company to replace it.  The conspiracy spanned three years and involved 987 DLA contracts valued at $8.67 million. 

    On appeal, Day challenged his 105 year sentence which resulted from enhancements due to his attempt to bribe officials to escape from custody, a subsequent escape attempt, and an attempt to enlist Mexican cartel members to attack his prison van to permit him to escape.  Day also challenged as unreasonable the trial court’s decision to impose a $3 million fine, over $6 million in restitution, and forfeiture award of over $2 million, plus, in gold and vehicles.  The Fourth Circuit, however, found these arguments to be without merit and affirmed the judgment of the trial court.  The complete decision in United States v. Day, No. 11-5218 (4th Cir. Nov. 29, 2012) can be found here.


    Second Circuit Issues Long-Anticipated Decision in Caronia – Pharmaceutical Misbranding Conviction Reversed on First Amendment Grounds

    Drug manufacturers may not be prosecuted for promoting off-label uses of their products, the U.S. Court of Appeals for the Second Circuit ruled Monday.

    The court concluded that federal drug laws do not criminalize off-label promotion, so long as it is truthful and not misleading.  To rule otherwise, the court wrote, “would raise First Amendment concerns” because off-label use of prescription drugs generally is not illegal.

    The 2-to-1 decision in United States v. Caronia, No. 09-5006-cr, slip op. (2d Cir., December 3, 2012) has potentially wide-ranging ramifications for pharmaceutical regulation and free-speech law.

    In Caronia, a pharmaceutical sales representative promoted to doctors off-label uses for Xyrem, a powerful central-nervous-system depressant with an active ingredient that is classified as a date-rape drug.  The FDA had approved Xyrem for use by narcolepsy patients who suffer either from excessive daytime sleepiness or cataplexy, a condition involving sudden weakening or paralysis of muscles.  But Caronia touted the drug’s benefits for treating other disorders, including insomnia, fibromyalgia and Parkinson’s disease.   Based on this off-label promotion, Caronia was charged with and convicted of conspiring to introduce a misbranded drug into interstate commerce.

    On appeal, Caronia argued that the conviction violated his First Amendment right to free speech.  Avoiding the constitutional question, the Second Circuit instead ruled that the criminal ban on misbranding does not cover off-label promotion.  But the court made clear that an interpretation of the law that allowed prosecution for off-label promotion would “run afoul of the First Amendment.”  

    “[P]rohibiting off-label promotion by a pharmaceutical manufacturer while simultaneously allowing off-label use ‘paternalistically’ interferes with the ability of physicians and patients to receive potentially relevant treatment information,” the court wrote.

    Judge Debra Ann Livingston dissented, saying the majority’s opinion “calls into question the very foundations of our century-old system of drug regulation.”

    A link to the full decision can be found here.


    Three Not a Crowd: Seventh Circuit Lets Victims Intervene to Protect Restitution Award

    Crime victims awarded restitution in a criminal case may intervene in a subsequent appeal to defend their award, the Seventh Circuit has ruled.

    But victims cannot intervene in the district court, said the court, in a decision authored by Judge Richard Posner.  That could be a “recipe for chaos,” Judge Posner opined in United States v. Laraneta, ---F.3d---, 2012 WL 5897610 (7th Cir. Nov. 14, 2012), citing the potential for victims to participate in plea negotiations and trials.

    By contrast, Judge Posner wrote, intervention at the appellate stage imposes relatively few burdens and allows those with an economic interest in the outcome to defend their awards.

    “The government,” Judge Posner noted, “has no financial stake in restitution to victims of crime.”

    In Laraneta, the defendant pleaded guilty to seven counts of violating federal child-pornography laws and was sentenced to 30 years in prison.  He was also ordered to pay more than $4 million as restitution to two women of whom he possessed pornographic images taken when they were girls. 

    On appeal, the defendant challenged both the prison term and the restitution award.  The government defended only the prison term.  But the Seventh Circuit permitted the women to intervene, and the court allowed the intervention over the government’s objection.

    The court acknowledged that the Federal Rules of Criminal Procedure, unlike their civil analogs, contain no provision allowing for intervention.  So instead the court relied on its inherent power to let parties intervene on appeal, citing its own precedent, as well as case law from the Third and Fifth Circuits.  The court cast its decision as one of expedience, noting that crime victims already have a statutory right to seek mandamus when restitution is denied. 

    Posner brushed aside a recent case from the Eleventh Circuit, United States v. Alcatel-Lucent France, SA, 688 F.3d 1301, 1306 (11th Cir. 2012), which held that a crime victim cannot appeal from a denial of restitution.  (Three other circuits—the District of Columbia, First and Tenth—all have ruled similarly since 2008).  The issue in Laraneta—intervention at the appellate level—was not before the Eleventh Circuit, Posner wrote. 

    Ultimately, the Seventh Circuit found errors in the restitution award and remanded for further proceedings.  But Laraneta still adds one more complication for defendants who believe the restitution awards imposed against them are excessive or unlawful.


    Court Approves MoneyGram DPA

    On Wednesday, Judge Christopher Conner of the Middle District of Pennsylvania approved the deferred prosecution agreement between federal prosecutors and MoneyGram International, Inc., a global payment services company based out of Dallas, Texas.  As part of the seventeen page agreement, which was previously discussed in a November 9th White-Collared post, MoneyGram agreed to forfeit $100 million to be used towards establishing a victim compensation fund.  To-date, MoneyGram has paid $65 million, with the remaining $35 million due in early February.  MoneyGram also expressly acknowledged its responsibility for the acts of its officers, directors, and employees, and agreed to retain an independent corporate compliance officer for the five years in which the agreement is in effect. 

    The complete deferred prosecution agreement can be found here.


    “Pill Mill” Doctor Charged with Causing Death

    On November 29, 2012, a federal grand jury charged Dr. Norman Werther, 73, who operated a physical therapy and rehabilitation practice in Willow Grove, PA, with distributing a controlled substance resulting in death.  This is the first such case brought in U.S. District court for the Eastern District of Pennsylvania.  The death charge was contained in a third superseding indictment that also added 9 new defendants.  According to the superseding indictment, Werther conspired with 6 drug traffickers to illegally distribute millions of dollars in prescription drugs, including oxycodone.  The death charge relates to 180 oxycodone pills illegally dispensed by Werther to an individual who died from an overdose.  Werther faces a mandatory 20 years and maximum sentence of life in prison if convicted of all charges.


    BP Temporarily Suspended From Winning New Contracts With the Federal Government

    The Environmental Protection Agency (“EPA”) has temporarily suspended BP from winning new contracts with the federal government.  The decision comes less than two weeks after BP pled guilty to criminal charges and agreed to pay a record $4.5 billion in fines and other fees for the April 2010 drilling disaster in the Gulf of Mexico as discussed in a White-Collared post on November 17th. According to an EPA News Release, the suspension is the result of BP’s “lack of business integrity as demonstrated by the company’s conduct with regard to the Deepwater Horizon blowout, explosion, oil spill and response.” The Release stated that the suspension will remain in place until the company provides sufficient evidence that it meets “federal business standards.”

    In a statement released after the announcement, BP stressed that the suspension does not affect any existing contracts that the company has with the U.S. government.  The company further made clear that it expects the suspension to be lifted soon.  According to BP, it has been in regular communication with the EPA in an effort to establish its qualifications to conduct business with the government. The EPA has informed BP that “it is preparing a proposed administrative agreement that, if agreed upon, would effectively resolve and lift this temporary suspension.”


    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.


    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.


    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:

    The link to the entire release announcing Chairman Schapiro's resignation is here.


    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