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Friday
Sep142012

Former Stanford Financial Group CIO Sentenced for Obstruction of Justice

On September 13, 2012, Laura Pendergest-Holt, the former Chief Investment Officer of Houston-based Stanford Financial Group, was sentenced in U.S. District Court for the Southern District of Texas to 36 months in prison for her role in obstructing the SEC’s investigation of the Stanford International Bank (SIB), the Antiguan off-shore bank owned by convicted financier Robert Allen Stanford.  U.S. v. Pendergest-Holt, No. H-09-342 (S.D. Tx.)  Earlier this year, Mr. Stanford was sentenced to 110 years in prison after his conviction on charges of financial fraud relating to his orchestration of a $7 billion ponzi scheme.

The obstruction of justice charge was based on testimony that Pendergest-Holt provided to the SEC in its inquiry regarding SIB’s investment portfolio.  Pendergest-Holt acknowledged that her eventual appearance and sworn testimony before the SEC was a stall tactic designed to frustrate the SEC’s efforts to obtain important information about SIB’s investment portfolio.

Thursday
Sep062012

New York Times Reports Largest FCPA Settlements have been with Foreign Firms

​The New York Times reports that the more than $3 billion in settlements that the Department of Justice has achieved with companies under the Foreign Corrupt Practices Act (FCPA) since the passage of the act in 1977 have been primarily with foreign companies.  The best-known case is that of Siemens, the German global engineering company that paid $800 million to the U.S. and another $800 million to Germany to settle charges that 8 former executives paid $100 million in bribes to Argentine officials to secure a $1 billion contract for Siemens.

Of the top ten settlements, only one company, KBR, the former Kellogg, Brown and Root, a subsidiary of Halliburton, is an American company.  However, The Times also reports that of the 78 companies now under investigation for suspected violations of the FCPA, most are American, including Alcoa, Goldman Sachs, Pfizer and Wal-Mart.

For more information, please see:​
http://www.nytimes.com/2012/09/04/business/global/bribery-settlements-under-us-law-are-mostly-with-foreign-countries.html?emc=eta1

Thursday
Sep062012

Fourth Circuit Refuses To Apply Computer Fraud And Abuse Act To Employee's Theft Of Trade Secrets

Recently, in WEC Carolina Energy Solutions LLC, v. Willie Miller, et al., the U.S. Court of Appeals for the Fourth Circuit held that an employee's misappropriation of his employer's trade secrets is not a violation of the federal Computer Fraud and Abuse Act ("CFAA").  By adopting a narrow interpretation of the CFAA, the Court contributed to a deepening split among the federal appellate courts regarding the proper construction of the Act. 

The CFAA was passed by Congress in 1986 to address computer crime.  Today, it remains principally a criminal statute designed to combat computer hacking, although it does allow injured private parties to sue for compensatory damages and injunctive relief. 

The WEC case involved a civil action brought by WEC against its former employee and Project Director, Mike Miller.  When Miller worked at WEC, he was authorized to access confidential and trade secret documents stored on the company's computer servers, including WEC's price terms and technical capabilities.  According to WEC's corporate policies, however, Miller was prohibited from downloading that confidential information to his personal computer or otherwise using the information without authorization.

WEC alleged that, before resigning from WEC, Miller downloaded confidential documents to a personal computer.  WEC further claimed that Miller later used that confidential information when making a presentation to a potential WEC customer on behalf of a competitor.  After that customer awarded two projects to the competitor, WEC filed suit against Miller, asserting violations of several state statutes as well as the CFAA. 

After the trial court dismissed WEC's CFAA claim, WEC appealed to the Fourth Circuit, which affirmed.  The Fourth Circuit first noted that while the CFAA permits a private party to bring a claim for violations of the Act, it is "primarily a criminal statute designed to combat hacking."  The Court further observed that because the CFAA has both civil and criminal application, its interpretation of the statutory language would apply uniformly in both contexts.  Therefore, the Court stated that it would apply the "rule of lenity" applicable to criminal statutes and strictly construe the CFAA's provisions. 

The issue before the Fourth Circuit in WEC was the scope of the terms "without authorization" and "exceeds authorized access."  The Court had to determine "whether these terms extend to violations of policies regarding the use of a computer or information on a computer to which a defendant otherwise has access."  The Court opted for a narrow reading of these terms, and limited their application "to situations where an individual accesses a computer or information on a computer without permission."  The Fourth Circuit reasoned that its construction 1) was consistent with the Act's primary objective, which is to combat hacking - and not to rein in rogue employees - and 2) was appropriate under the rule of lenity as applied to the construction of criminal statutes.  Accordingly, the Court held that the CFAA does not "provide a remedy for misappropriation of trade secrets or violation of a use policy where authorization has not been rescinded," and dismissed WEC's suit. 

​In adopting a narrow interpretation of the CFAA, the Fourth Circuit followed in the footsteps of the Ninth Circuit Court of Appeals, but broke from the broader interpretation embraced by the Fifth, Seventh, and Eleventh Circuits, which have held that the CFAA covers employee violations of corporate computer use restrictions.  The WEC decision deepens the Circuit split, and increases the need for a clear answer from the Supreme Court concerning the breadth of conduct subject to criminal prosecution under the CFAA.

Wednesday
Sep052012

Jury Convicts Three Former UBS Executives for Municipal Bond Big Rigging

​On August 31, 2012, a jury convicted three former financial services executives for wire fraud and conspiracy to commit wire fraud in relation to bidding for contracts for the investment of municipal bond proceeds and other municipal finance contracts. According to the Department of Justice, Peter Ghavami, Gary Heinz and Michael Welty participated in separate fraud conspiracies and schemes with various financial institutions and with a broker, at various time periods from as early as March 2001 until at least November of 2006.

The financial institutions offered a type of contract to state, county and local governments and agencies, and not-for-profit entities, throughout the United States, known as “investment agreements.” Public entities typically hire a broker to assist them in investing their money and to conduct a competitive bidding process to determine a winning provider. According to DOJ, the public entities were seeking to invest money from a variety of sources, primarily the proceeds of municipal bonds that they had issued to raise money for, among other things, public projects.

The jury found that Ghavami, Heinz and Welty, with their provider and broker co-conspirators, corrupted the bidding process in order to increase the number and profitability of the agreements awarded to UBS. At other times, while acting as brokers, Ghavami, Heinz and Welty and their co-conspirators, arranged for UBS to receive kick-backs in exchange for manipulating the bidding process and steering investment agreements to certain providers. The result was to deprive the municipalities of competitive interest rates for the investment of tax-exempt bond proceeds that were to be used by municipalities to refinance outstanding debt and for various public works projects.

The government presented evidence at trial that these actions cost municipalities around the country and the U.S. Treasury millions of dollars. Among the issuers and not-for-profit entities whose agreements or contracts were subject to the defendants’ schemes were the Commonwealth of Massachusetts, the New Mexico Educational Assistance Foundation, the Tobacco Settlement Financing Corporation of Rhode Island and the RWJ Healthcare Corp. at Hamilton.

The DOJ announced that a total of 20 individuals have been charged as a result of the Department’s ongoing municipal bonds investigation. Of those 20, a total of 19 individuals have been convicted or pleaded guilty, and one awaits trial. In addition, one company has pleaded guilty.

Tuesday
Sep042012

Second Circuit Reverses District Court's Dismissal of SEC Claim Against Former Terex Corporation CFO

On August 8, 2012, a panel of the U.S. Court of Appeals for the Second Circuit reversed the District Court’s dismissal of an SEC claim against former Terex CFO, Joseph Apuzzo, wherein the SEC had alleged that Mr. Apuzzo aided and abetted securities law violations to his role in a fraudulent accounting scheme.

Apuzzo’s employer, Terex Corporation, manufactures equipment for use in the construction, infrastructure and service to mining industries. United Rentals, Inc. is one of the largest equipment rental companies in the world. Michael J. Nolan was United Rentals’ Chief Financial Officer from 1997 until December of 2002. According to the SEC, United Rentals and Nolan, with Apuzzo’s assistance, carried out two fraudulent “sale – lease back”transactions. These transactions were designed to allow United Rentals to recognize revenue prematurely and to inflate the profit generated from United Rentals’ sales. Here’s how it worked:

  • URI would sell used equipment to General Electric Credit Corporation, and leased the equipment back for a short period.
  • In order to obtain General Electric Credit’s participation, United Rentals convinced Terex to agree with General Electric Credit to resell the equipment for General Electric Credit at the end of the lease periods.
  • Terex and United Rentals also agreed that Terex would provide a “residual value guaranty” (“RVG”) to General Electric Credit, which provided that after resale, General Electric Credit would receive no less than 96% of the purchase price that General Electric Credit had paid to United Rentals for the used equipment.
  • However, to secure Terex’s participation, United Rentals secretly agreed to indemnify Terex for any losses incurred from the RVG that it had provided to General Electric Credit
  • URI also agreed to make substantial purchases of new equipment from Terex to improve Terex year-end sales.

URI sought to immediately recognize the revenue generated by the sale of equipment to General Electric Credit. However, under Generally Accepted Accounting Principles (GAAP) it could only do so if it met certain criteria, including (1) that the “risks and rewards of ownership” had been fully transferred to General Electric Credit and (2) that the sale price was “fixed and determinable,” or, in other words, that there were no unsettled commitments related to the sale. The problem was that United Rentals had secretly agreed to indemnify Terex for any losses that Terex would incur, and that in doing so, it had not fully transferred the risks and rewards of ownership and there were unsettled commitments associated with the sale. Therefore, recording it as revenue was not permitted under GAAP, and Apuzzo knew that if the full extent of three party transactions was transparent, United Rentals would not be able to claim the increased revenue. Apuzzo, therefore, executed various agreements that disguised United Rentals’continuing risks and financial obligations, and he also approved inflated invoices from Terex that were designed to conceal United Rentals Indemnification Payments to Terex.

The SEC asserted that in order for a defendant (Apuzzo) to be liable as an aider and abettor in a civil enforcement action, the SEC must prove, “(1) the existence of a securities law violation by the primary (as opposed to the aiding and abetting) party; (2) ‘knowledge’ of this violation on the part of the aider and abettor; and (3) ‘substantial assistance’ by the aider and abettor in achievement of the primary violation,” citing SEC v. Debella, 587 F.3d 553, 566 (2nd Cir. 2009) (quoting Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57, 62 (2nd Cir. 1985)).

Although the District Court found that the complaint filed by the SEC plausibly alleged that Apuzzo had actual knowledge of the primary violation, it concluded that the complaint did not adequately allege“substantial assistance,” and dismissed the SEC’s complaint. Specifically, the District Court held that the “substantial assistance” component required that the aider and abettor proximally cause the harm on which the primary violation was predicated, and that the Complaint did not plausibly allege such proximate causation. The Second Circuit, however, reversed holding that to satisfy the “substantial assistance” component of aiding and abetting, the SEC must show that the defendant “in some sort associate[d] himself with the venture, and that he participate[d] in it as in something that he wish[ed] to bring about [and] that he [sought] by his action to make it succeed,” citing United States v. Peoni, 100 F.2d 401, 402 (2nd Cir. 1938). The Court rejected Apuzzo’s argument that substantial assistance should be defined as proximate cause, noting that such an argument ignored the difference between an SEC enforcement action and a private suit for damages.

The Court further indicated that “proximate cause” is the language of private tort actions, but that in an enforcement action, civil or criminal, there is no requirement that the government prove injury, because the purpose of such actions is deterrence, not compensation. The Court went on to affirmatively clarify that, in enforcement actions brought under 15 U.S.C. §78(t)(e), the SEC is not required to plead or prove that an aider and abettor proximally caused the primary securities law violation.

Applying this test, the Second Circuit found that the complaint by the SEC plausibly alleged that Apuzzo provided substantial assistance to the primary violator in carrying out the fraud and, therefore, the judgment of the district court was reversed. The Court explained that Apuzzo associated himself with the venture, participated in it as something that he wished to bring about, and sought by his action to make it succeed. It noted specifically that Apuzzo agreed to participate in the transactions; negotiated the details of those transactions, through which he extracted certain agreements from United Rentals in exchange for Terex’s participation; approved and signed separate agreements with General Electric Credit and United Rentals, which he knew were designed to hide United Rentals’ continuing risks and financial obligations relating to the sale-lease back transactions in furtherance of the fraud; and approved or knew about the issuance of Terex’s inflated invoices, which he knew were designed to further the fraud.

Tuesday
Sep042012

SEC Makes First Whistleblower Award Since Passage of Dodd-Frank 

On August 21, 2012, the Securities and Exchange Commission (SEC) announced that an individual who had provided documents and other significant information in the investigation of a multi-million dollar securities fraud scheme had been awarded nearly $50,000. This is the first pay-out from a new SEC program designed to reward people who provide evidence of securities fraud. The award represents 30% of the dollar amount collected in an SEC enforcement action against the perpetrators of the scheme. This (30%) is the maximum percentage pay-out allowed by the Whistleblower Law.

The Whistleblower’s assistance led to a court ordering more than $1 million in sanctions, of which approximately $150,000 has been collected thus far. It is still possible that additional sanctions will be issued. Any such increase, will increase payments to the Whistleblower.

Robert Khuzami, director of the SEC’s Division of Enforcement, stated, “this Whistleblower provided the exact kind of information and cooperation we were hoping the Whistleblower program would attract.” He indicated further that, “had this Whistleblower not helped to uncover the full dimensions of the scheme, it is very likely that many more investors would have been victimized.”

The SEC did not approve a claim from a second individual seeking an award in this matter, because of the information provided that did not lead to or significantly contribute to the SEC’s enforcement action, as required for an award.

The SEC indicates that the quality of tips that has been receiving is on the increase. It indicates that it has received about 8 tips per day since establishment of the program in August of 2011.

Monday
Sep032012

Michigan Man Becomes 9th Individual to Plead Guilty in $13.8 Million Healthcare Fraud Scheme 

On August 28, 2012, the DOJ announced that Jawad Ahmad, a Detroit area resident entered a plea of guilty for his role in managing a $13.8 million psychotherapy fraud scheme. He is scheduled to be sentenced on November 28, 2012, and faces a maximum potential penalty of 10 years in prison and a $250,000 fine.

According to the government, the fraud scheme began in July of 2008 when Ahmad and two other co-conspirators acquired control over a home health care company known as Physicians’ Choice Home Healthcare LLC (Physicians’ Choice). Ahmad managed the operations of Physicians’ Choice from January 2009 to March of 2010, and in doing so managed numerous aspects of fraud at Physicians’ Choice, including the delivery of payment of kickbacks to beneficiary recruiters. The beneficiary recruiters would obtain Medicare beneficiaries’ information needed to bill Medicare for home health services that, in fact, were never rendered.

Ahmad also provided information to employees of Physicians’Choice to check the billing eligibility of the Medicare beneficiaries before Physicians’ Choice began billing them. Physicians’ Choice co-opted the Medicare beneficiaries by providing kickbacks in exchange for pre-signed forms and visit sheets that were later falsified to indicate that they received home health services that they never received. Ahmad would deliver the pre-signed beneficiary paper work to various medical professionals to create and/or sign fictitious patient files to document purported home health services that were never rendered.

From May of 2010 through September of 2011, Ahmad also managed Phoenix Visiting Physicians, PLLC. DOJ claimed that his co-conspirator, Dr. Dwight Smith, signed home health care referrals for beneficiaries he had not seen or treated. In addition, Phoenix employed individuals who held themselves out to be “doctors,” but who were not licensed in the State of Michigan to perform any medical services. The unlicensed “doctors” met and purported to examine non-home bound Medicare beneficiaries for home health care services.

Ahmad also acknowledged that his co-conspirators acquired beneficial ownership and control of three other home health care companies, each of which billed Medicare and operated in a manner the same as or similar to Physicians’ Choice. Medicare also paid these companies more than $5 million for fraudulent health care claims submitted based on Dr. Smith’s fraudulent referrals.

It is estimated that the four home health care companies at the center of the indictment received approximately $13.8 million from Medicare in the course of the conspiracy.

Saturday
Sep012012

Company that Compensated Victims of Employee's Bid Rigging Scheme has no Standing to Appeal Criminal Restitution Order

On August 28, 2012, a panel of the Third Circuit Court of Appeals dismissed the appeal by Sevenson Environmental Services regarding the sentencing of its former employee, Norman Stoerr. United States v. Stoerr, No. 11-2787 (3rd Cir. August 28, 2012). The Court ruled that Sevenson, as a non-party, lacked standing to appeal Stoerr’s sentence.

On July 23, 2008, Stoerr entered a plea of guilty to bid rigging (15 U.S.C. §1); conspiracy to provide kick-backs and to defraud the United States (18 U.S.C. §371); and assisting in the preparation of false tax returns (26 U.S.C. §7206(2)). The convictions stemmed from kick-backs that Stoerr solicited and accepted from subcontractors in connection with projects managed by Sevenson, his employer.

Sevenson is an environment services company that had contracts with the United States to serve as a contractor at the Federal Creosote Superfund Site in Manville, New Jersey, and also had a contract with Tierra Solutions, Inc. to service the general contractor at the Diamond Alkali Superfund Site in Newark, New Jersey. The Environmental Protection Agency (EPA) paid Sevenson for its services at Federal Creosote, and Tierra was responsible for paying Sevenson for its services at Diamond Alkali. Sevenson hired contractors at both sites, and would ultimately seek reimbursement from the payer (EPA or Tierra) for the subcontractor charges.

Stoerr, as part of his employment with Sevenson was responsible for soliciting vendors at Diamond Alkali and soliciting bids for subcontracts at Federal Creosote. In that capacity, he solicited and accepted kickbacks valued at $77,132 from several subcontracting companies in exchange for favorable treatment in awarding subcontracts for Federal Creosote and Diamond Alkali projects. Stoerr and his project manager, Gordon McDonald, passed the cost of the kickbacks onto Tierra and to the EPA by including the amounts of the kickbacks in the subcontractor’s invoice that they had submitted for reimbursement. The District Court determined that Tierra’s losses as a result of the scheme totaled $257,129.22.

Once Sevenson learned of the kick-back scheme, it paid Tierra separate payments of $202,759.04 and $38,158.11, respectively, to compensate Tierra for its losses relating to the scheme. It also commenced a civil action against Stoerr in state court to recover its losses, but also sought restitution in connection with Stoerr’s sentencing under the Mandatory Victim’s Restitution Act (“MVRA”), 18 U.S.C. §3663(A) et seq. The MVRA provides that, “[i]n each order of restitution, the Court shall order restitution to each victim in the full amount of each victim’s losses as determined by the Court and without consideration of the economic circumstances of the defendant.” 18 U.S.C. §3664(f)(1)(A). The MVRA also provides that if, “[i]f a victim has received compensation from insurance or any other source with respect to a loss, the Court shall order the restitution be paid to the person who provided or is obligated to provide the compensation.” §3664(j)(1). Sevenson claimed that it was entitled to restitution because it reimbursed Tierra for its losses.

At Stoerr’s sentencing, the district Court declined to grant restitution to Sevenson, determining that Tierra, rather than Sevenson was Stoerr’s victim. The district Court also noted that Sevenson had the opportunity to pursue a civil remedy against Stoerr. While the district Court initially ordered Stoerr to pay $250 per month in restitution, it later ordered Stoerr’s obligations to pay Tierra (which were initially $232,192.22) reduced to $29,370.18 based on the fact that Sevenson had paid Tierra $202,759.04 toward Stoerr’s restitution.

The government moved to dismiss Sevenson’s appeal, arguing that Sevenson, as a non-party, was unable to appeal Stoerr’s sentence. The panel of the Third Circuit considered the motion and the appeal on the merits simultaneously.

The Court noted that in order to have standing, “an appellant, must be aggrieved by the order of the district Court from which it seeks to appeal,” citing Ipsco Steel (Ala.), Inc., v. Blaine Constr. Corp., 371 F.3d 150, 154 (3rd Cir. 2004). Acknowledging that it was not a party to Stoerr’s criminal proceeding, Sevenson argued entitlement to restitution, not as a victim, but as one who has reimbursed losses incurred by a victim of its former employee. The Court addressed this argument by first noting that crime victims are not even considered to be parties to criminal proceedings, citing U.S. v. Aguirre-Gonzalez, 597 F.3d 46, 53 (1st Cir. 2010). It went on to conclude that if victims are non-parties to such proceedings, then Sevenson, who is a degree removed from the victim’s status was likewise a non-party.

The Court also rejected Sevenson’s argument that the MVRA scheme contains an implicit right of appeal by non-parties. The Court indicated that while it appreciated that conferring non-party payers with appellate rights may encourage third-parties to compensate victims voluntarily, it could not conclude that the MVRA includes a right of appeal by non-parties. It noted first that the MVRA gives no indication that it disturbs the default rule that only the government and the defendant can appeal a defendant’s sentence. The Court further expressed hesitance to find an implied right of appeal by non-party payers under the MVRA, because Congress explicitly granted victims the right to petition the Court of Appeals for a Writ of Mandamus under the Federal Crime Victims’ Rights Act, 18 U.S.C. §3771 (“CVRA”), but did not grant such explicit rights in the MVRA.

Wednesday
Aug082012

Mortgage Fraud Still a Priority for U.S. Department of Justice 

The United States Department of Justice ("DOJ") continues its efforts to prosecute cases of mortgage fraud and related crimes in the wake of the residential mortgage backed securities ("RMBS") crisis that erupted in 2008. Recent examples of these efforts include cases where DOJ has either charged or obtained guilty pleas from one individual involved in a scheme to rig bids in public real estate transactions and three individuals involved in separate multi-million dollar mortgage fraud schemes.

On July 23, 2012, David R. Bradley agreed to plead guilty to conspiracy and assist DOJ in its ongoing investigation of a real estate bid rigging scheme. According to court documents, Bradley conspired with others not to bid against one another at public real estate foreclosure auctions in Alabama. After a public auction, the conspirators would then hold a second secret auction to bid on the property above the public auction price.

Bradford J. Rieger, a Connecticut attorney, pled guilty on July 12, 2012, to one count of conspiracy to commit wire fraud and bank fraud. Rieger, along with others, conspired to defraud mortgage lenders and financial institutions by obtaining millions of dollars in fraudulent mortgages for the purpose of purchasing dozens of multi-family properties in New Haven, Connecticut. Based on falsified HUD-1 forms, the mortgage lenders would issue mortgages based on an inflated sale price. In total, more than $10 million in fraudulent mortgages on more than forty properties were obtained through the conspiracy.

On July 17, 2012, Mitchell Cohen and Erin Davis, the owner and sales manager of the Buy-A-Home Real Estate Brokerage firm, were indicted in the United States District Court for the Southern District of New York for participating in a $7.5 million mortgage fraud scheme involving FHA loans. According to the U.S. Attorney for the Southern District of New York, Preet Bharara, "As the indictment alleges, Mitchell Cohen and Erin Davis were engaged in 360 degrees of fraud - they lied to and exploited borrowers to induce them to buy homes beyond their means, they lied to banks about the borrowers' financial condition, and they lied to HUD so the loans would be FHA-insured. While Mr. Cohen and Ms. Davis enriched themselves, everyone else lost out as the homeowners went into foreclosure, the banks were stuck with bad loans, and HUD had to pay out insurance, as detailed in the indictment."

In January 2012, DOJ announced the creation of the RMBS Working Group, a task force devoted to cracking down on fraud or other misconduct by market participants in the creation, packaging, and sale of mortgage-backed securities. On May 24, 2012, DOJ launched the RMBS Working Group website (www.stopfraud.gov/rmbs.html), which will allow anyone with knowledge of RMBS-related fraud to report such misconduct directly to DOJ or the Securities and Exchange Commission ("SEC").

The increase in resources within the RMBS Working Group comes in the wake of sharp criticism from Iowa Senator Chuck Grassley, regarding DOJ's efforts in prosecuting mortgage fraud cases. At a hearing of the Judiciary Committee on March 9, 2012, Senator Grassley stated that, "the [DOJ's] message is that crime does pay," referring to DOJ's failure to bring criminal charges against the former Countrywide CEO accused of lying about the risks of Countrywide's loans.

In light of Senator Grassley's criticisms and the increase in resources dedicated to the RMBS Working Group, expect mortgage fraud prosecutions to continue to be a priority for DOJ.

Friday
Jul132012

Supreme Court Extends Apprendi Rule to Criminal Fines: Requires Proof Beyond a Reasonable Doubt 

On June 21, 2012, the U.S. Supreme Court issued an opinion in Southern Union Company v. United States, holding that the Apprendi rule applies to the imposition of criminal fines. The Apprendi rule holds that "[o]ther than the fact of the prior conviction, any fact that increases the penalty for a crime beyond the prescribed statutory maximum must be submitted to a jury, and proved beyond a reasonable doubt." Apprendi v. New Jersey, 530 U.S. 466, 490 (2000).

In Southern Union, the Defendant, a natural gas distributor, stored liquid mercury at one of its facilities without a proper permit. The Defendant faced criminal charges after the facility was broken into and mercury was spread around the complex. In 2007, a grand jury indicted the Defendant on multiple counts, including a count which alleged that the company stored liquid mercury without a permit in violation of the Research Conservation and Recovery Act of 1976 ("RCRA"), "from on or about September 19, 2002 until on or about October 19, 2004." Following a trial, the jury convicted the Defendant on this count. The verdict form stated that the Defendant was guilty of unlawfully storing liquid mercury for an approximate time period, using the language "on or about," however, the jury was not asked to determine the precise duration of the violation. The trial court concluded that the jury had found a 762 day violation of the RCRA, which was punishable by inter alia "a Court fine of not more than $50,000 for each day of the violation." 42 U.S.C. §6928(d). The trial court thus determined that the maximum potential fine, which the Defendant faced, was $38.1 million. However, the Court imposed a fine of $6 million and a community service obligation of $12 million. The Defendant challenged, under Apprendi, the trial court's finding with respect to the maximum fine.

On appeal, the Supreme Court sided with the Defendant and applied the Apprendi rule to the imposition of criminal fines. The Court held that the jury must find, beyond a reasonable doubt, all facts which determine a fine's maximum amount. In reaching this conclusion, the Court decided not to treat criminal fines differently than other punishment, such as incarceration. The Court stated that criminal fines, like other forms of punishment, are penalties inflicted for the commission of an offense. Substantial, and not petty, fines may engender a significant infringement of freedom, and most importantly trigger a Sixth Amendment right to a jury trial. Moreover, the amount of a fine (similar to a maximum term of imprisonment) is often calculated by reference to a particular set of facts. In Southern Union, for example, the duration of the statutory violation was a fact upon which the maximum fine was determined. The Court thus determined that the Apprendi rule should apply to criminal fines.

While the vast majority of federal convictions result from guilty pleas and juries have few opportunities to address all facts that would determine a fine's maximum amount, we believe that Southern Union may impact the Government's practice with regard to indictments. It appears that any facts that tend to increase the amount of a fine must now be alleged in the indictment. Because the Government's knowledge of facts related to sentencing may be incomplete at the indictment stage, Southern Union may result in the Government foregoing greater fines.