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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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    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.

    Wednesday
    Nov142012

    FBI Agent and Business Associates Charged with Conspiracy, Fraud and Obstruction of Justice

    On October 18, 2012, a recently-retired FBI Special Agent, Robert G. Lustyik, Jr., and two associates, Michael O. Taylor and Johannes W. Thaler, were indicted on federal criminal charges alleging conspiracy, wire fraud, and obstruction of justice.  The indictment alleges that, beginning in 2011, the three defendants began a business relationship involving contracts for security services, electric power, and energy development in various locations throughout the Middle East and Africa. 

    However, in October 2010, a federal grand jury in Utah began investigating Taylor and his private security company, American International Security Corporation (“AISC”), related to a U.S. Department of Defense contract to provide training in Afghanistan to Afghan Special Forces for which AISC received $54 million.  The indictment alleges that Taylor and Thaler enlisted Lustyik to use his influence to impede the investigation of Taylor and AISC in exchange for cash payments of $200,000 and a share of future lucrative contracts.  The indictment also alleges that the three defendants communicated via e-mail “dead drops” to discuss the status of the federal investigation and Special Agent Lustyik’s progress in diverting investigative attention from Taylor and AISC.

    The complete indictment can be found here

    Wednesday
    Nov142012

    Pietragallo’s Raspanti and Kraus Discuss Proffers at 2012 PACDL White Collar Practice Conference

    Marc S. Raspanti and James W. Kraus presented at the PACDL’s 2012 White Collar Practice Seminar on November 9, 2012 at the Ritz Carlton Hotel in Philadelphia, PA.

    Mr. Kraus moderated the program while Mr. Raspanti participated on the panel, “Reflecting on Whitewater: Lessons in the Art of Negotiating Proffer Agreements through the Prism of a Presidential Crisis.”  The panel discussion explored the inner workings of one of the most extensive and notorious investigations in American history, including a review of the key characters, the competing legal, ethical and political interests, and the manner in which it all played out on the public stage. 

    Ken Gormley, Dean and Professor of Law at Duquesne University School of Law also participated on the panel.  His discussion of the historical events provided a foundation for discussion regarding a host of considerations in negotiating proffer and plea agreements, as reflected not only in the drama that surrounded the President and First Lady, but many of the other players, including their friends and business associates.  Dean Gormley chronicled these events in his critically acclaimed work The Death of American Virtue: Clinton vs. Starr.


    Tuesday
    Nov132012

    D.C. Circuit Rejects Restitution Order Under MVRA in Sentencing for Copyright Infringement

    On November 9, 2012, The U.S. Court of Appeals for the District of Columbia Circuit vacated a restitution order by the U.S. District Court for the District of Columbia in a copyright infringement case, finding that the government failed to offer evidence of the victim’s (Adobe Systems, Inc.) actual loss, instead offering evidence only of defendant’s gain.  U.S. v. Fair, No. 1:09-cr-00089-1, slip. op. (D.C. Cir., November 9, 2012). 

    Gregory Fair entered a plea of guilty to copyright infringement, 17 U.S. § 506(a), 18 U.S.C. § 2319, and mail fraud, 18 U.S.C. § 1341, acknowledging a criminal scheme that involved high-volume sales of pirated Adobe Systems’ software on eBay.  He admitted that he received approximately $1.4 million from his sales of pirated software on eBay.  The plea agreement stated, for purposes of calculating the offense levels, that “the infringement amount” was greater than $400,000, but less than $1 million.  As part of his agreement to plead guilty, Mr. Fair acknowledged that the Mandatory Victims Restitution Act (MVRA), 18 U.S.C. §3663(A), mandated restitution.  The agreement, however,  did not specify an agreed-to amount.

    At sentencing, the government provided a spreadsheet that showed over 7,000 sales with total sales revenue of $767,465.99, which the government advanced as “a reasonable calculation of the restitution.”  Slip. op. 3.  Fair argued that restitution under the MVRA must take the form of “actual loss” to the victim, which cannot be equated to intended loss or gain by the defendant.  He further argued that the government had offered no proof of any actual loss by [the victim], Adobe Systems.  Id.  The district court sentenced Fair to 41 months imprisonment, three years supervised release and ordered him to pay Adobe Systems restitution of $743,098.99, an amount representing the total sales listed on the spreadsheet ($767,465.99), less the forfeited funds turned over to Adobe Systems by the Postal Inspection Service ($24,367.00).

    Mr. Fair challenged the restitution order on appeal, arguing that the government had failed to prove any actual loss to Adobe Systems, Inc.  In laying the groundwork for its decision, the D.C. Circuit indicated that circuit courts of appeals are in general agreement that the defendant’s gain is not an appropriate measure of the victim’s actual loss in MVRA calculation, citing U.S. v. Zangari, 677 F.3d 86, 92-93 (2nd Cir. 2006); U.S. v. Arlege, 553 F.3d 881, 889 (5th Cir. 2008); U.S. v. Chalupnik, 514 F.3d 748, 754 (8th Cir. 2008); United States v. Galloway, 509 F.3d 1246, 1253 (10th Cir. 2007); U.S. v. Kuo, 620 F.3d 1158, 1164-65 (9th Cir. 2010); U.S. v. Harvey, 532 F.3d 326, 341 (4th Cir. 2008); and U.S. v. Badaracco, 954 F.2d 928, 942-43 (3rd Cir. 1992).

    The Court then joined those Circuit Courts of Appeals in holding that in ordering restitution pursuant to the MVRA, the district court may not substitute a defendant’s ill-gotten gains for the victim’s actual, provable loss.  It added that victims of crime may achieve disgorgement of profits and ill-gotten gains through other statutory and civil recovery mechanisms.  Slip. op. 9.

    The Court found that in cases involving copyright infringement and fraudulent sales, the victim’s actual loss typically equates to the profit the victim lost on the sales that were diverted from the victim as a result of the defendant’s infringing sales.  Slip op. 10.  It added that the actual loss to the displaced (authentic) seller is the profit loss from the displaced sales – not the retail value of the goods that would have been sold.  It found that, in ordering Fair to pay restitution to Adobe Systems equivalent to his sales revenue, the district court abused its discretion because the government failed to present evidence from which the district court could either determine Adobe Systems’ actual loss or find that Fair’s gain was a reasonable measure of that loss.  In making its decision, the Court found that the government had blurred the line between the “infringement amount” calculated under the sentencing guidelines §2B5.3 in criminal copyright cases, which is derived by multiplying the retail value of the infringed or infringing items by the quantity of infringing items, and the restitution amount calculated under the MVRA, which must reflect the actual provable loss to the victim.

    In vacating the restitution order of the district court, the Court also rejected the government’s alternative argument that the matter be remanded to the District court so that it could present additional evidence regarding the loss to Adobe Systems, Inc.

    Monday
    Nov122012

    Middle District of Pennsylvania Includes Additional Government Disclosure Requirements in New Rule for Pre-Sentence Procedure

    The U.S. District Court for the Middle District of Pennsylvania has given notice that it has adopted a new local Rule of Criminal Procedure 32.1, effective December 1, 2012.  The new rule covers presentence procedure from the verdict or plea of guilty through the hearing on sentencing.

    The Rule specifically provides in 32.1(d) that the “government shall provide to the defendant’s counsel a copy of any documentary information provided to the probation officer to be considered in preparation of the presentence report at the same time it is provided to the probation officer.”  The Rule further provides that the defendant or defendant’s counsel may submit documentary information of their own to probation and counsel for the government.  This provision is notable for its codification of affirmative documentary disclosure requirements by the government in the pre-sentencing phase. 

    The U.S. District Court for the Western District of Pennsylvania has also recently proposed amendments to rules regarding sentencing, including changes to timing for sentencing proceedings, and procedures for administrative resolution of disputes regarding facts or factors material to sentencing contained in the presentence investigation report.  The proposed changes by the Western District do not include any requirements that the government provide defendant’s counsel a copy of any documentary evidence provided to or considered by the probation officer in the preparation of presentence report.  The Western District has solicited comments upon the proposed rule changes.  Anyone interested in providing comments to the changes to the Western District must do so by November 23, 2012 by either email (rvb@pawd.uscourt.gov) or by mail to Clerk of Court.