Speedy Trial Act Strategy in White-Collar Cases (Part I)

Retro alarm clock on wooden table, vintage styleBeing under criminal investigation is a stunningly powerless situation. You can’t control when the government starts an investigation, how long it lasts or when it will end. The Speedy Trial Act presents one of the few times when a criminal defendant can dictate the pace of the case. Invoking it, however, is a massive strategic risk.

The Act itself isn’t particularly complicated, but there are a few traps for the unwary hidden in it. Plus, this is an Act that protects both the defendant and the government, so you can bet that there is case law where the courts favor the government’s side of the aisle.

This post is split into two parts. Part I will examine the basics of the statute, including how the standard 70-day limit may be extended. Part II will explore the strategic considerations of invoking the Act in a white-collar case.

Continue reading

Posted in Pre-Trial Motions Practice, Speedy Trial Act, Trial preparation | 1 Comment

Health Care Fraud 101

Stethoscope, handcuffs and money on grayOn July 13, 2017, the Department of Justice issued a press release touting “the largest ever health care fraud enforcement action by the Medicare Fraud Strike Force.”

Most likely, none of these case will be particularly complex. DOJ loves to coordinate a lot of arrests on one day so that it can issue these press releases to show that it is tough on crime.

Usually these take-downs charge only the classic “low lying fruit”–individuals and small companies engaged in the most obvious fraud.

Because DOJ focuses on the obvious wrongdoers, the stats are impressive on their face. DOJ charged 412 defendants, including 115 doctors, nurses and “other licensed medical professionals.” The supposed fraud schemes involved approximately $1.3 billion in false billings.

A few things are clear from this effort:

  1. DOJ remains focused on charging individuals
  2. The opioid crisis is resulting in a lot of criminal charges, as 120 defendants were charged for their role in prescribing and distributing these drugs.
  3. DOJ is working closely with state regulators–30 state Medicare Fraud Control Units participated in the arrests.

Continue reading

Posted in False Claims Act, Health care fraud, Kickbacks | Leave a comment

The Torment of Being Under Criminal Investigation

Alone on a jettyMany of my white-collar clients are startled to learn how long a government investigation and criminal trial take. They think it will last a year, maybe 14 months. Instead, it can take years.

Delay can work to my clients’ advantage, allowing us time to review documents, find witnesses, develop legal arguments and strategize a trial defense. But it can also work a peculiar form of quiet, long-running torment on my clients as they wait for justice.

A recent DOJ press release about the guilty plea of the CFO of a Texas medical device company has me thinking about this phenomenon. Michael Gluk pleaded guilty to one count of conspiracy to commit securities and wire fraud. His case began many years earlier.

In one of the first posts on this blog in July 2013, I wrote about the charges against a company called ArthroCare. Mr. Gluk and the former CEO Michael Baker had been charged with securities fraud for events that happened between 2005 and 2008.

Now, twelve years after the supposed fraud began and four years after the indictment, Mr. Gluk has put his case (mostly) to rest.

Continue reading

Posted in Health care fraud, Plea Agreement, Uncategorized | 2 Comments

SEC Charges Firm with Not Snitching Enough

Thomas KlebestreifenRegular readers of this blog know that I resent when the government forces private industry to do the government’s job. Internal investigations are a good example. Companies spend millions conducting them into possible wrongdoing—hoping for leniency—and then turn over the results to their regulators to await punishment.

Along the same lines are Suspicious Activity Reports or SARs. Banks must file these reports when they see certain red flags of suspicious financial transactions. As shown by a recent SEC complaint, simply alerting the government that there may be an issue is not enough; the company must describe for the government exactly why the transaction is suspicious.

Funny. I thought investigating suspicious transactions was the government’s job.

Continue reading

Posted in SEC Investigation, Securities fraud, Uncategorized | Leave a comment

Venue Isn’t Boring (I Promise) – The Jeffrey Sterling Case

Venue seems like one of those boring topics we learned in law school that doesn’t have much practical application. But in a recent case out of the Fourth Circuit, a defendant won the dismissal of a charge based on lack of venue.

Maybe you should have paid attention in Civ Pro that day.

This is the case about Jeffrey Sterling. You may have forgotten his name, but you may remember the story. Mr. Sterling is a former CIA agent who was accused of leaking classified information and documents to a New York Times reporter named James Risen.

Continue reading

Posted in Appeal, Classifiied information, Venue | Leave a comment

Is the Government Throwing in the Towel on Pre-Trial Seizure of Untainted Assets? A Win in the Fourth Circuit Suggests Yes

Defeated businessmanPerhaps the most troubling type of criminal forfeiture is the pretrial restraint of untainted assets. The Department of Justice will seize assets, before proving a single allegation of wrongdoing, even where those assets are not linked to the wrongdoing.

This is troubling because the government hasn’t proven that the defendant did anything wrong or that the assets being seized can be traced to the supposed crime.

That practice may have changed in the Fourth Circuit (the only circuit to allow pretrial seizure of untainted assets).

Continue reading

Posted in Appeal, Criminal Forfeiture, Health care fraud | Tagged | 1 Comment

Are You Criminally Liable if Your Business Partner Lies? Or, What the Heck is Misprision of a Felony?

Bottle and glass of milkHaving a business partner can be a wonderful advantage. But it can also be dangerous if your business partner turns out to be unethical. Karen Olson, a former Alaska executive director of the United States Department of Agriculture’s Farm Service Agency, found that out the hard way.

Her business partner concealed information from the federal government on certain USDA grant applications. Ms. Olson knew about it and didn’t tell anyone. She ended up with a felony conviction herself. The Ninth Circuit recently affirmed her conviction and published an opinion interpreting the misprision of a felony statute.

The Facts

The USDA awarded a grant to Robert Wells to open a milk processing facility. Under the grant, certain equipment for the facility had to be purchased with grant funds. Ms. Olson had an informal deal with Mr. Wells related to the facility. The deal entitled her to 50% of the profits from the facility.

Around the same time, a gentleman named Kyle Beus also received a grant from the USDA. The purpose of his grant was to develop an ice cream and cheese manufacturing facility. Mr. Wells, Mr. Beus and Ms. Olson decided to build their two projects at the same facility.

However, the Ninth Circuit opinion notes that “unbeknownst to Wells and Olson, Beus instructed his contractor, Nether Industries, to inflate the value of certain dairy processing equipment.” Mr. Beus ended up inflating the value of that equipment on his submission to the USDA grant program for reimbursement.

Here’s where the partnership first went sideways for Ms. Olson.

Mr. Beus couldn’t keep his mouth shut. About a year after he inflated the price on his USDA grant submission, Mr. Beus told Mr. Wells and Ms. Olson that he had leased some “technologically obsolete” equipment and submitted for reimbursement.

Leasing old equipment likely wouldn’t be a problem in the private sector. The USDA grant, however, required them to purchase new equipment. Mr. Beus leased old equipment.

Ms. Olson was not a fool. She told the USDA that they had leased equipment as part of their partnership. She did identify two specific pieces of equipment as leased, rather than purchased. Ms. Olson also filed a final report after the USDA released the grant funds. This final report falsely stated that the two pieces of equipment were purchased new.

Here’s where it all went sideways a second time.

Ms. Olson then learned that Mr. Beus had been submitting false invoices to Nether Industries (his contractor) and receiving kickbacks in return after he was reimbursed by the USDA. He also used grant funds to make a personal investment in another dairy-industry manufacturer. The Ninth Circuit opinion points to her notations in her day planner as evidence that she knew Mr. Beus’ actions were improper.

The Trial

Ms. Olson went to trial. She was convicted of misprision of a felony under 18 U.S.C. § 4, as well as false statements. The misprision conviction was based on her knowledge that Mr. Beus submitted false statements the USDA as part of his scheme to misappropriate grant funds.

She was ultimately sentenced to 30 days in prison and 3 years’ supervised release.

The Meaning of “Felony” and the Knowledge Requirement

On appeal, the Ninth Circuit addressed the proper construction of the misprision statute, 18 U.S.C. § 4.

This statute states:

Whoever, having knowledge of the actual commission of a felony cognizable by a court of the United States, conceals and does not as soon as possible make known the same to some judge or other person in civil or military authority under the United States, shall be fined under this title or imprisoned not more than three years, or both.

The first question was what the government had to show to prove that a defendant has “knowledge of the actual commission of a felony cognizable by a court of the United States.”

The parties apparently agreed that the government had to prove that Ms. Olson knew that Mr. Beus “engaged in conduct that satisfies the essential elements of the underlying felony.”

The parties disagreed about the second question—whether the government had to prove that Ms. Olson knew Mr. Beus’ conduct was a felony. Ms. Olson argued that the government had to prove that she knew his conduct was a felony.

I won’t bury the lede: Ms. Olson won the argument and lost the war. Her conviction was affirmed.

The court’s reasoning was fairly straightforward.

First, it noted that Ms. Olson’s proposed construction of the statute “is consistent with the general presumption that a mens rea requirement applies to each element of an offense.” The government had to prove that she knew that Mr. Beus’ conduct was a felony.

For you history buffs out there, the Ninth Circuit also considered the history of misprision and concluded that this history supported Ms. Olson’s interpretation. It explained that in the old days citizens were partly responsible for fighting crime, and they had a duty to report crime. It concluded that “Congress intended the misprision statute to apply solely to conduct the average person would understand as criminal and serious.”

The court of appeals then considered how the government could prove that certain conduct constitutes a felony. It’s not as though we expect the average citizen to understand what conduct is a felony and what conduct is a misdemeanor and what conduct is not a crime at all.

The Ninth Circuit concluded that the term felony was defined “as part of the federal criminal code is a crime punishable by death or a term of imprisonment exceeding one year.” It cited 18 U.S.C. § 3559(a) in support of this conclusion.

The Ninth Circuit then stated

We therefore hold the government must prove the defendant knew the underlying offense was punishable by death or more than one year in prison. The defendant need not know the precise term of imprisonment authorized by law, but at least you must know the potential punishment exceeds one year in prison.

In other words, the government must prove that the defendant knew about the other party’s conduct and that the other party’s conduct was punishable by a year in prison.

The Facts Applied to this Interpretation

In a normal case, it would likely be challenging for the government to prove that the defendant knew the conduct of the other person could be punishable by more than a year in prison. People don’t just walk around knowing the sentences for certain crimes.

This was a bit of a special case, and Ms. Olson was a bit of a special defendant.

The Ninth Circuit concluded that there was plenty of evidence to support the jury’s verdict that she was guilty of this offense.

First, the form that Miss Olson had filled out stated that anyone who made false statements to the USDA could be imprisoned up to five years. She had apparently seen similar warnings “many times” as part of her prior job with the USDA.

Second, the Ninth Circuit pointed to her past experience as executive director of the USDA Farm Service agency supports the jury’s verdict. This experience offered a level of “sophistication” in these matters that a typical defendant would not have.

Unfortunately, even though Ms. Olson won on the law, she lost on the facts.

Making Good Law

As part of the defense bar, we push for rulings that help our clients. Sometimes, our hard work doesn’t help our own clients but contributes generally to the defense bar’s efforts to resist government overreach. We try to “make good law.”

That’s what happened here.

Ms. Olson didn’t win. But the ruling her case makes it just a tick harder for the government to bring these types of cases in the future. I find the misprision statute troubling because it requires you to report on someone’s illegal conduct, even when there’s no independent requirement to do so. It would be all too easy to tack on a misprision charge in any case where there is more than one participant.

Using Misprision of a Felony in Plea Negotiations

That said, the misprision statute can be used to reduce a more serious charge (with a more serious penalty) to a lesser charge during plea negotiations. You may be able to convince a prosecutor in a wire fraud case to offer a plea to misprision of a felony, for example.

The guideline sentence for a misprision charge is in section 2X4.1. The base offense level is set at 9 levels lower than the underlying offense, though it cannot go below 4.  The sentencing calculation ends there, so there’s a good chance the final offense level is 4. In contrast, the base offense level for fraud, section 2B1.1, is either 6 or 7, and then you add levels for the loss amount. This is a big difference.

I don’t want the statute to disappear; I just want it to be a bit harder to include it in any multi-defendant case.

Posted in Appeal | Leave a comment

Ninth Circuit Sets Some Practical Limits on Obstruction of Justice and Witness Tampering Charges

There has been a lot of talk in the media recently about obstruction of justice.

Obstruction of justice is a fascinating topic, to be sure. But whether the President of the United States obstructed justice when he fired the Director of the FBI is not exactly the most common scenario for white-collar criminal defendants.

One of my favorite bloggers wrote a helpful piece about the obstruction of justice statutes and evaluated how difficult it is to win a conviction under them.

A recent case from the Ninth Circuit confirms that winning an obstruction of justice charge is not an easy task. In United States v. Liew, the court reversed the defendant’s convictions for conspiracy to obstruct justice and for witness tampering because the government had not proved sufficient facts showing the defendant committed these crimes.

The conduct in this case is far afield from President Trump’s alleged wrongdoing, but this opinion offers demonstrates how aggressive prosecutors can be in bringing these as well as how difficult it can be to win them.

Continue reading

Posted in Appeal, Obstruction, Trade Secrets, Witness tampering | Leave a comment

What is an FBI 302? The Problematic Nature of FBI Agents’ Interview Memos

Writing correspondenceFormer FBI Director James Comey apparently wrote a memo summarizing his meeting with President Trump. The memo purportedly recounts the president’s statement saying he “hoped” that Comey would drop the investigation into the ties between his campaign and the Russians.

There’s nothing surprising about an FBI agent formalizing notes of a conversation. It’s SOP. In any white-collar criminal investigation, FBI agents’ notes of conversations with witnesses are often key evidence of a possible crime.

Let’s take a closer look at how a witness interview gets memorialized into an interview memo or, in white-collar parlance, a “302.”

Continue reading

Posted in Criminal Investigation, DOJ policy and practice, FBI policy and practice | 1 Comment

Government’s “Big” Case Against Compliance Officer Ends Up Kind of Small

Failing gradeThe Treasury Department and former MoneyGram Chief Compliance Officer Thomas Haider have settled their civil claims. This was the first-ever case against a compliance officer for failing to implement an appropriate anti-money laundering (AML) program at a company.

For all the hoopla surrounding it, the case went out with a whimper.

As I talked about in an earlier post, MoneyGram entered into a deferred prosecution agreement a few years ago, agreeing to pay $100 million for its compliance failures. Mr. Haider, to his credit, chose to fight.

The government’s complaint against him sought a $1 million penalty and an injunction preventing him from working in a compliance function. In the end, Mr. Haider agreed only to pay $250,000 and was enjoined “from performing a compliance function for any ‘money transmitter’ (as that term is used in the Bank Secrecy Act and its implementing regulations)  . . . for a period of three years.”

Continue reading

Posted in civil case, Compliance | Leave a comment