How Much Cooperation Is Enough to Avoid Prison?

How much cooperation with the government does your client have to provide to avoid prison?

If portfolio manager Reema Shah is any example, the answer is…over a year.

On May 21, 2014, Ms. Shah pleaded guilty to conspiracy to commit securities fraud and insider trading. However, since 2009, Ms. Shah had been working as a government cooperator.

For about a year, she activley gathered information on co-workers and friends, and turned that information over to federal investigators as part of their investigation into SAC Capital Advisors LP and other targets.

In return, she was sentenced to probation.

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A Look-Back Review Gone Wrong – SEC Charges Wells Fargo Compliance Consultant with Altering Records Related to Insider Trading

The SEC has charged Judy Wolf, a former compliance consultant for Wells Fargo Advisors, with falsifying records that were submitted to the SEC during the investigation of a registered Wells Fargo representative. Ms. Wolf allegedly falsified her internal investigation logs so she would appear to have been a more competent and thorough compliance investigator.

As a result, Ms. Wolf is now the subject of her own SEC investigation for aiding and abetting Wells Fargo’s securities violations.

Because Wells Fargo was a registered broker-dealer and investment advisor, Section 15(g) of the Exchange Act and Section 204A of the Advisors Act require it to have written policies and procedures that are reasonably designed to prevent the misuse of material nonpublic information.

Ms. Wolf was part of Wells Fargo’s efforts to comply with Section 15(g) and Section 204A. According to the SEC, she may have been part of the problem rather than part of the solution.

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When an FBI Agent is the Bad Guy

On September 30, 2014, Robert Lustyik entered a guilty plea in connection with alleged grand jury tampering and obstruction of justice. Mr. Lustyik has been charged with interfering with the investigation of his alleged business partner, Michael Taylor.

In return for this help, Mr. Taylor promised Mr. Lustyik a large sum of money and a stream of lucrative future business contracts. Before completing the alleged scheme, however, Mr. Lustyik was arrested. Mr. Lustyik pleaded guilty to an 11-count indictment charging conspiracy, honest services wire fraud, obstruction of a grand jury proceeding, and obstruction of an agency proceeding.

Sounds pretty hum-drum until you hear what Mr. Lustyik does for a living.

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When Criminal Law and the First Amendment Meet: Can Internal Investigation Reports Be Defamation?

At the end of an internal investigation, outside counsel frequently prepares a written report. That written report may be for the Board of Directors only or it may be passed along to the Department of Justice.

In the report, the company has every incentive to name names. It will label the supposed employee-wrongder as “rogue” or an “outlier” to the normally-excellent compliance culture.

But what if the company gets it wrong when it reports to the government? Can the employee being blamed sue the company for defamation based on statements in the report? I’ve handled a few defamation cases myself, but it’s rare to see criminal law and defamation in the same case.

A recent Texas case is addressing this issue. Depending on how it turns out, companies may need to think a lot more carefully before blaming someone.

Robert Writt, a former project manager for Shell International E&P, Inc. has sued the Texas-based oil giant for defamation based on a report that Shell submitted to the Department of Justice concerning Mr. Writt’s alleged involvement in a number of Foreign Corrupt Practice Act (FCPA) violations.

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Betraying a Client’s Trust: Wilson Sonsini Employee and CEO of Investor Relations Firm Separately Accused of Insider Trading

The Department of Justice and the Securities and Exchange Commission are not specifically tasked with protecting client confidentiality of U.S. corporations. But the calculus changes when service providers use their client’s confidential information to profit from insider trading.

An information technology employee with Wilson Sonsini Goodrich & Rosati and the CEO of an investor relations firm were recently accused of doing just that. Stephen Gray and Dimitry Braverman face parallel criminal prosecutions and SEC lawsuits.

In short, they each had access to a wealth of confidential client information. The government alleges that each used this information to reap large profits from transactions in advance of merger and earnings announcements.

Mr. Gray has pleaded guilty to one count of securities fraud.

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Guns, Not Drugs—Two Recent Arms Export Control Act Prosecutions

If a lawyer at a cocktail party introduces himself to you as an “international trade lawyer,” would you think “oh, how boring”?

You shouldn’t.

There may be some less-than-exciting aspects of trade law (see, e.g., anti-dumping work) but this regulatory practice is increasingly attracting the interest of criminal authorities.

Practice tip: If you work in a big firm, make friends with the trade lawyers because some of their clients are going to need your white collar expertise.

Two recent prosecutions in New Jersey are good examples of these kinds of cases. Both involve the Arms Export Control Act, both are against contractors and both deal with supposedly fraudulent military contracts.

The government separately indicted Alper Calik and Hannah Robert for wire fraud and violations of the Arms Export Control Act.

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High Frequency Trading Can Be a High Risk Endeavor — Another Trade Secrets Prosecution

The latest entrant into the Cover-Up Is Worse Than the Crime Hall of Fame is Sahil “Sonny” Uppal, a 26 year old former employee of Citadel LLC. He pleaded guilty to one count of obstruction of justice for hiding his unauthorized sharing of proprietary information related to Citadel’s high-frequency trading practice.

Mr. Uppal worked at Citadel, a Chicago-based financial institution, as a quantitative analyst, writing code for Citadel’s equity trading platform. But Mr. Uppal apparently decided to do more than programming. Instead, he made unauthorized copies of Citadel’s confidential and proprietary information related to high frequency trading, and then covered it up.

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Five Early Musings on the McDonnell Guilty Verdict

Yesterday a jury in Richmond found former Governor Robert McDonnell and his wife guilty of public corruption. Here are the details of it.

I’m sure many others will offer in-depth analysis of the verdict in the coming days. Here are my initial thoughts about the verdict and the media coverage of the trial.

First, I was surprised by it. The evidence of a quid pro quo was nil, as best I can tell. The government certainly proved that the McDonnells accepted things of value, no question. But what did they give in return? Not much. The government did not appear to have any direct evidence that anyone agreed to provide official acts in return for those benefits.

I thought that perhaps the jury would split the baby and convict on one of the non-corruption charges. Or even acquit on everything. Boy, was I wrong.

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White-Collar Crime Resource Guide: What is a Grand Jury Target?

Some questions from clients or issues in white collar criminal defense cases come up over and over. I’ll periodically post Resource Guides to cover those questions and issues. Reminder: this is not legal advice.

There are three categories of individuals in a federal grand jury investigation: (1) target; (2) subject; or (3) witness. The prosecutor will decide whether you are a target, subject or witness.

When you hire a white-collar defense lawyer, you will hear a lot about whether you are a target, subject or witness. That’s because your status in the investigation informs many of the decisions your lawyer will help you make during the process, such as whether to talk voluntarily with the government.

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Written Juror Questionnaire Torpedoes Defendant’s Speedy Trial Act Motion

In complex white-collar trials, it’s not uncommon for the court to send written questionnaires to potential jurors ahead of the start of trial. The questionnaires are generally mailed to the potential jurors by the court a few weeks before trial. Having jurors complete the questionnaires allows both sides to review them thoroughly and prepare for voir dire. The court can also ask numerous questions to weed out jurors who should be excused for cause without having to take up hours of court time.

Both the prosecution and defense will suggest questions for the questionnaire. One great trial lawyer I worked with liked to request the question: “what bumper stickers are on your car?” When you think about it, it’s a deceptively simple question. You can learn a lot about someone from what she puts on her bumper for the world to see: she is a Democrat or Republican, she is a member of the NRA or the WWF, she has honor roll kids in school. (Or, perhaps, her kids can beat up other people’s honor roll kids.)

All in all, the questionnaires are a big help. But they can also set a trap for the unwary defense counsel thinking of making a Speedy Trial Act motion. A recent decision from the Eleventh Circuit in a securities fraud case demonstrates how.

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