Prosecutors Take Fair Approach to Sentencing in Fraud Case Against Executive (No, This Is Not Clickbait.)

Chief executive officerAs I’ve written about many times before, the loss amount drives many white-collar criminal sentences. The government’s view of loss amount plays a significant role in the court’s ultimate determination of that factor. the government often takes a very aggressive view when it comes to loss amount, such as in government contracting cases.

So, I was intrigued when I recently read about a case in Philadelphia where the government asked for less than the highest possible sentence for a white-collar defendant.

The Facts

The defendant in the case is Brian Hartline. He is the former CEO of Nova Bank. He was accused of having conspired to deceive regulators into giving his bank money under the Troubled Asset Relief Program, otherwise known as TARP. The total possible loss was $13.5 million, because that was the amount that Mr. Hartline and his compatriots tried to get through the TARP program.

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Everything’s Bigger in Texas, But this Sentence Is Absurd

Compare Apples to Oranges HeavyNearly all of my clients face federal white-collar criminal charges. Many of them seem to believe that federal criminal charges are more serious than state criminal charges, or that the penalties will be steeper.

A recent case from Texas shows that’s definitely not the case.

The Texas Case

According to a Law360 article, a Texas state court judge sentenced Susan Gay Pruitt to 22 years in prison. Her crime? Selling investments in fake oil and gas projects.

You may be thinking that she defrauded investors of millions and millions of dollars to deserve such penalty. But that’s not the case. In fact, according to the article, she defrauded investors of only $225,000.

You may be thinking that she challenged the government at every step and made them take her to trial in a lengthy proceeding. That’s not true either. She pleaded guilty.

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Tax Fraud Cases May Be Easier to Defend But Don’t Count Your Chickens

Tax Fraud or Slave to TaxesFor most crimes, the government must prove that the defendant acted intentionally. This seems like it should be a fairly high bar particularly in white-collar criminal cases but it’s not.

For most crimes, the government need only prove that the conduct was not accidental or that the defendant intended to engage in the conduct. This is called “general intent.”

Tax fraud is another matter. In a tax fraud case the government must prove a higher level of intent called “specific intent.” Specific intent means that the defendant not only intended to engage in the conduct but also that he intended a specific result (e.g., to defraud someone). To denote specific intent, criminal statutes often use the word “willful.”

To prove criminal tax evasion, the government must prove (1) a tax deficiency, (2) an affirmative act constituting evasion or attempted evasion of taxes, and (3) willfulness. Under section 7201, willfulness is the “voluntary, intentional violation of a known legal duty.”  Cheek v. United States, 498 U. S. 192, 201 (1991).

In other words, the government must prove not only that the defendant acted intentionally and not accidentally, but also that the defendant knew that he was breaking the law.

Many defendants in criminal cases–particularly white-collar criminal cases–try to argue that they didn’t realize what they were doing was illegal. In most criminal cases, that defense holds no water because they are simply general intent crimes. But that defense could work in a tax evasion case.

So does this mean the defendant often wins in tax evasion cases? Nope.

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A Podcast About Representing Executives in Internal Investigations Featuring . . . Me

Sometimes I’m asked whether this blog has led to clients. That’s a hard question to answer. The simple answer is probably no. I don’t write this blog for SEO purposes, and I don’t write it for the person-on-the-street. Most of my readers are lawyers, and white-collar defense lawyers to boot. Nobody has ever called me to say, I read your blog, I want to hire you.

But, writing this blog has all sorts of other benefits. It helps me keep up with current cases, and it forces me to learn things all the time. I use it to keep in touch with clients through my monthly newsletter, too.

Most important, though, being a blogger has introduced me to other bloggers in this realm. We read comment on each others’ posts, meet at conferences and enjoy common ground in the grind (and joy) of blogging.

Recently, I was lucky to talk with Tom Fox, who has a great blog, focused on FCPA matters. It is called, aptly enough, the FCPA Compliance Report. Tom asked me if I’d like to be on his podcast about issues arising in representing individuals in internal investigations. I was happy to volunteer.

Here’s a link to the final podcast, for your listening pleasure.

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Protecting the Unindicted Co-Conspirator – Bridgegate, Continued

gridlockIn North Jersey Media Group, Inc. v. United States, the Third Circuit addressed another interesting legal issue that arose within the Bridgegate scandal in New Jersey. You can read more about that case here.

The media’s right to access information about this ongoing trial conflicted with the right of an unindicted co-conspirator to remain unknown. The unindicted co-conspirator won. He remains John Doe.

It turns out that whether a document is a court filing or a discovery letter makes a very big difference.

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Control—Having It and Losing It

Air traffic controllerI work with a lot of corporate executives who are being investigated by the government.

They are folks who are used to being in control.

They lead divisions or units or entire companies. They lead a government agency. They handle problems inside the organization and manage multi-million dollar budgets and hundreds of employees. They manage crises on a daily basis. People scuttle around following their orders.

These executives are successful and organized and ambitious. They are in control of their careers and their lives.

But when the government comes calling, all of this control dissolves. And that is a very, very painful process for many of my clients.

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Prosecutorial Misconduct in the Grand Jury But No Dismissal of Charges, Says Ninth Circuit

Under-the-table transactions...Prosecutors who engage in misconduct are rarely subjected to ethics charges. In a recent case out of the Ninth Circuit, the prosecutor engaged in wrongdoing, the court suggests that he should be referred to the bar, yet there is no indication in the opinion that the judges themselves do so. Why not?

In United States v. Harmon, decided August 18, 2016, by the Ninth Circuit, the defendant was a lawyer. Her client ran a business that sold stolen computer equipment. During the representation, she apparently helped him obtain money that should have been maintained in frozen bank accounts.

According to the Ninth Circuit’s opinion, her client delivered two checks to Ms. Harmon for $127,550. She deposited them into her client trust account. She then wrote several checks back to her client and his wife that totaled about $100,000. She wrote those checks within six months of receiving two checks from her client.

Not smart, right?

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Posted in Appeal, Money Laundering, Prosecutorial misconduct, Uncategorized | 6 Comments

Only in Texas: Civil Securities Fraud Claims Dismissed but Criminal Charges Head to Trial

Chief executive officer

Warren “Ken” Paxton, Jr. is the attorney general of Texas. He’s had some ups and downs this week, to be sure.

On Friday, October 7, 2016, the Eastern District of Texas dismissed all of the securities charges filed by the SEC against him.

On Wednesday, October 12, the Texas Court of Criminal Appeals refused to hear a last-ditch appeal by him to dismiss criminal charges for the same conduct.

It doesn’t take a legal genius to spot this anomaly. Criminal charges are tougher to prove; civil claims are easier. So why were the civil claims dismissed but the criminal charges still standing?

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The Coolest Investigation – Is a Failed Kickstarter Campaign a Crime?

coolest-sizedAbout two years ago, I saw a video on Facebook about a Kickstarter campaign for the Coolest cooler. I thought it was a joke. It was a cooler with a blender and a Bluetooth speaker, plus giant wheels, built in bottle opener and USB charger.

My older son plays travel baseball, and we spent a ridiculous amount of time watching games. Music and blended drinks seemed to be a way to pass the time. So we ponied up our 185 bucks and watched to see what would happen.

The Coolest Kickstarter campaign raised a record-breaking $13 million but hit a lot of snags in production, including factory strikes overseas and shipping problems.

After much complaining, we finally received our Coolest a few months ago. It weighs about 100 lbs. but it’s pretty cool.

About 40% of the Coolest backers were not so lucky, and apparently some of them called the Department of Justice to lodge a complaint.

The question: if a Kickstarter campaign fails and you don’t get the product (or a refund), is that fraud?

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The SEC’s Right to a Jury Trial

We usually think about the right to a jury as one for a defendant facing charges. But it’s worth remembering that agencies are people too. Well, at least when it comes to the right to a jury trial in a civil case.

In a recent Ninth Circuit opinion, the court reversed the judgment in favor of the defendants because the district court refused to allow a trial by jury when the SEC requested it.

In U.S. Securities & Exchange Commission v. Jensen, the SEC went after former CEO Peter Jensen and former CFO Thomas Tekulve of the “now-defunct” Basin Water, Inc.

The SEC filed suit against Defendants in 2011 alleging that they had participated in a scheme to defraud Basin investors by reporting millions of dollars in revenue that were never realized.

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