Massey Mine Defense Team Wins the Discovery Lottery–But Then Can’t Collect on It?

Win red diceA few weeks ago, I wrote about some important discovery motions in the Massey Mine trial unfolding in the Southern District of West Virginia.

The defense had a nice win recently on one of those motions.

But according to a recent filing in the case, the government has not complied with the court’s order granting the defense motion. So, here we go again.

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How to Pay for a White Collar Criminal Defense Lawyer – Part II

businessman hiding face behind sign dollar symbolIn Part I of this post, I discussed how the court-appointed lawyer process works and how to find a private lawyer to represent you in a white collar case.

Now we’ll get into the nuts and bolts of picking the right lawyer and how exactly to pay for her.

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Maybe We Should Use the Kitchen Sink Approach? Judge Rakoff Denies Rajat Gupta Habeas Petition

The common wisdom in appellate work is to avoid the “kitchen sink” approach. Narrow  your issues to the strong ones, so the court can focus on them and not be distracted by less persuasive ones.

The problem with that approach in a criminal case is that waiver is the dog that is always ready to bite you.

(Got all those analogies?)

Judge Jed Rakoff (featured in another post of mine here), denied former Goldman Sach’s director Rajat Gupta’s section 2255 petition. Mr. Gupta had argued that the Second Circuit’s decision in United States v. Newman required that his conviction be vacated and that he be released.

Judge Rakoff begged to differ.

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How to Pay for a White Collar Criminal Defense Lawyer – Part I

businessman hiding face behind sign dollar symbolThere’s no question that hiring a lawyer—any lawyer—is expensive. When you are being investigated by the government or have been indicted, you need a lawyer more than ever. The stakes are high. Losing the case isn’t like losing a civil lawsuit—a loss means time in prison, not paying some money.

I frequently get calls from people who need a lawyer in a white-collar case, but have no idea how much it will cost or how to pay for one. This two-part post is my attempt to answer some of those questions.

Part I of this post will describe the two basic options—asking the court to appoint a (free) lawyer for your case and hiring a private lawyer. Part II will talk about the nuts and bolts of selecting and paying for a private lawyer.

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When Your Engagement Letter’s Indemnification Clause Is a Lifesaver: The Penn State Sexual Abuse Scandal

penn stateAfter an internal investigation, the company being investigated must decide whether it wants the law firm (or investigative firm) to author a report of the investigation’s conclusions. The results of this decision may have unintended consequences for both the company and the law firm.

The latest developments in the Penn State child abuse scandal are a case in point. Louis Freeh helped the university produce an investigative report of the child abuse carried out by former assistant football coach Jerry Sandusky. In its report, Mr. Freeh’s law firm and investigative group named former university President Graham Spanier as one of Sandusky’s chief enablers.

Mr. Spanier has brought defamation and tortious interference charges against Louis Freeh, his law firm, his consulting group and the university in Pennsylvania state court.

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The Massey Mine Trial’s Discovery Battles Continue, and Why Rule 16 Still S&%ks

DisclosureI have previously posted about the upcoming trial of Donald Blankenship, the former CEO of Massey Energy Company. Mr. Blankenship was indicted on several charges, including conspiracy to violate federal mine safety standards, following a fatal explosion at one of the company’s mines. It has been a hard-fought battle, even before the parties make it to trial on July 13 (spoiler alert: trial may be delayed).

Two recent motions by the defense demanding additional discovery from the government offer some insight into the disputes between the parties. They both relate to Brady and they both highlight the problems with criminal discovery under Rule 16.

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D.C. Circuit Quotes Friends to Slap Down Government’s Criminal Forfeiture Shenanigans

friends-tv-showThe D.C. Circuit recently slapped down the government in a criminal forfeiture proceeding. In United States v. SunRise Academy, the D.C. Circuit reaffirmed the importance of allowing third parties a fair chance to challenge the government’s seizure of their assets in a criminal proceeding.

Former Attorney General Eric Holder announced just a few months ago that the Department of Justice would limit civil forfeitures to prevent the seizure of assets without proof of a link to serious wrongdoing.

It remains to be seen whether this new DOJ policy will actually limit civil asset forfeiture. Maybe it will become a trend.

But the federal government still uses criminal forfeiture aggressively. The SunRise opinion isn’t particularly groundbreaking, but it is gratifying to see a court prevent the government from using procedural tricks to avoid scrutiny of its forfeiture strategy.

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Identity Theft Statute Narrowed — A Little Bit


In recent years, the government has increasingly prosecuted individuals under the federal aggravated identity theft statute. This increase may be from the legitimate increase in identity theft but it may also result from the government’s realization that the statute’s mandatory minimum sentence makes it an attractive charging decision to force a plea bargain.

The statute covers a broad range of wrongful activities, from using someone’s stolen credit card to the unauthorized use of someone’s health information. The question in these cases is often whether the defendant “used” the information.

The recent decision in United States v. Medlock from the Sixth Circuit placed an important limitation on the government’s use of the statute by clarifying what constitutes the “use” of another individual’s identity.

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Ninth Circuit Eases Burden on Government to Win a Bank Fraud Conviction

business concept. money with handThe Ninth Circuit Court of Appeals just made it easier for the government to win a conviction in a bank fraud case. It recently ruled that the government need prove only that the defendant intended to deceive the bank, and not that he intended for the bank to bear the loss of the fraud.

Lawrence Shaw was charged with bank fraud after siphoning money out of a stranger’s bank account using a phony PayPal account. During his trial, Mr. Shaw asked for a jury instruction that a conviction under the federal bank fraud statute required two elements of intent: (1) intent to deceive the bank, and (2) intent that the bank would bear the loss from the fraudulent scheme. The district court instructed the jury only as to the first type of intent, and Mr. Shaw appealed. He lost in the Ninth Circuit as well.

What is Bank Fraud?

Bank fraud can cover a whole range of activity. We’ve recently seen former Speaker of the House Dennis Hastert face indictment for “structuring” withdrawals from his own bank account to avoid detection.

The bank fraud in this case isn’t structuring but rather your run-of-the-mill type of bank fraud. The statute is 18 U.S.C. § 1344. Here it is:

Whoever knowingly executes, or attempts to execute, a scheme or artifice—

(1) to defraud a financial institution; or

(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;

shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

Did you notice the penalty? 30 years.

The Target of the Fraudulent Scheme

The stranger who had his money stolen was a Taiwanese businessman named Stanley Hsu. While working in the United States, Mr. Hsu opened a bank account with Bank of America. After returning to Taiwan, Mr. Hsu arranged for one of his colleague’s daughters to receive his mail.

At that time, Mr. Shaw was living with the daughter and could check her mail. According to the government, at some point Mr. Shaw collected Mr. Hsu’s bank statements along with the daughter’s mail. Mr. Shaw then pulled Mr. Hsu’s account numbers and personal information from these statements.

The Scheme Using PayPal

Armed with this information, Mr. Shaw opened a new email address in Mr. Hsu’s name. Using the email address, he opened a PayPal account linked to Mr. Hsu’s Bank of America account. Once Mr. Shaw had Mr. Hsu’s Bank account linked to PayPal, he opened up two other bank accounts at Washington Mutual bank. These two accounts were in Mr. Shaw’s father’s name.

The government argued that Mr. Shaw then tied the PayPal account to the Washington Mutual accounts. PayPal tried to investigate this red flag. However, it sent the inquiry email to the email address for Mr. Hsu that was under Mr. Shaw’s control. Mr. Shaw responded by faxing a number of altered documents to PayPal, such as a falsified Bank of America statement. PayPal then gave the linkage a green light.

Makes you rethink using PayPal, doesn’t it? I hope that PayPal has now beefed up its investigation into similar red flags.

After linking these bank accounts, Mr. Shaw allegedly drained the money from Mr. Hsu’s account. Mr. Shaw would siphon the money from Bank of America, through PayPal, and into his father’s accounts. From there, he would write checks from his father to himself and deposit those checks into a final bank account that he also controlled.

Mr. Hsu’s Losses

It was a profitable (though fairly minor) scheme. The government stated that between June and October of 2007, Mr. Shaw drained $307,000 from Mr. Hsu’s account. The scheme finally came to an end when Mr. Hsu’s son discovered the missing money. He reported the fraud and closed the Bank of America account.

According to standard banking practice, Bank of America returned the more than $130,000 that had been stolen within 60 days of the reported fraud. PayPal indemnified Bank of America for that sum, but Mr. Hsu bore $170,000 in losses as a result of Mr. Shaw’s alleged scheme.

In the end, then, Bank of America lost nothing.

Mr. Shaw’s Trial

In 2012, Mr. Shaw stood trial. The government brought 17 counts of bank fraud against Mr. Shaw, claiming that his scheme violated 18 U.S.C. § 1344(1).

One of the issues at trial, as always, was jury instructions. Mr. Shaw asked the court to instruct the jury that a conviction under § 1344(1) requires two types of intent. The first was that a conviction requires proof that Mr. Shaw intended to defraud the bank. This is well-settled law and the judge instructed the jury as to this element.

The second type of intent was the sticking point. Mr. Shaw wanted the court to instruct the jury that to return a conviction they must also find that Mr. Shaw intended to expose the bank to monetary loss not just Mr. Hsu.

The district court refused to give this proposed instruction.

After the jury found him guilty of 14 counts of bank fraud, Mr. Shaw appealed. His last hope was not a bad one—the Ninth Circuit has issued some of the most liberal, defendant-friendly decisions in the last two decades.

The Ninth Circuit’s Opinion

Circuit courts are split on the issue of whether a conviction under 18 U.S.C. § 1344(1) requires proof of intent to expose a bank directly to risk of loss. For example, the First and Fifth Circuits have held that the intent that a bank bear the loss of the fraud is necessary for a conviction under § 1344(1). See, e.g., United States v. Brandon, 17 F.3d 409, 426 (1st Cir.); United States v. Barakett, 994 F.2d 1107, 1110-11 (5th Cir. 1993). Other courts have held that the government need not prove this type of intent.

In 2014, the Supreme Court interpreted § 1344(2). In Loughrin v. United States, 134 S. Ct. 2384 (2014), the Court held that § 1344(2) does not require Government to prove that a defendant charged with violating that provision intended to defraud a bank.

The Supreme Court, however, did not address the intent necessary to prove a violation of   § 1344(1) (which covers a scheme to “to defraud a financial institution” rather than obtaining assets owned by a bank through “false or fraudulent pretenses, representations, or promises.”).

The Ninth Circuit found that the Supreme Court’s reasoning supported its own pre-Loughrin precedent and held that intent that a bank bears the risk of loss is not required for a conviction under §1344(1). According to the court:

Loughrin confirms our conclusion that the difference between the two clauses is which entity the defendant intended to deceive, not which entity the defendant intended to bear the financial loss.

The Ninth Circuit held that a conviction under § 1344(1) hinges on not on the intended victim, but rather only on the entity the defendant intended to defraud. Fraud can be executed through a bank even if the bank was not the direct target of the fraudulent scheme. As a result, the fact that Mr. Shaw used the bank to defraud Mr. Hsu was sufficient to support his conviction under § 1344(1).

Supreme Court Review?

Given the circuit split on the issue, it is possible that this case (or a similar one) could reach the Supreme Court. Given the Supreme Court’s approach to criminal cases these days, Mr. Shaw doesn’t stand much of a chance. If you can’t convince the Ninth Circuit to reverse your conviction, then I wouldn’t hold out hope for the Supreme Court to fix things.

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Another Reason Why Corporate Executives Will Be Scapegoats in Internal Investigations

Cropped shot of two businessmen shaking hands while money passes hands under a table

Shell Oil and Shell International (collectively “Shell”) have been named in a defamation action by a former employee which relates to a criminal investigation. The employee claimed that Shell made defamatory statements in its report to the Department of Justice of an internal investigation about possible FCPA violations at the company. The case made its way to the Texas Supreme Court, and the company won.

The issue in Writt v. Shell Oil Company was whether Shell’s statements in the report are privileged. Privilege is an affirmative defense to a defamation claim and there are certain narrowly-defined absolute privileges (for example, statements made by a witness in court) and qualified/conditional privileges (for example, the fair reporting privilege for journalists).

The lower court had held that the statements were conditionally privileged. The Texas Supreme Court went one step further and held that the statements were absolutely privileged as a result of their intimate relationship to the ongoing DOJ investigation. In doing so, the court recognized the continued expansion of FCPA prosecutions and bolstered the incentive for large corporate defendants to cooperate with enforcement bodies by naming its executives as wrongdoers.

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