Prosecutors in the U.S. Attorney’s Office for the Southern District of New York would have been remiss had they not opened a criminal investigation into possible secruties fraud in mortgage trading at Goldman Sachs, two of their former colleagues said today.
Word of the SDNY criminal probe leaked out on Thursday, nearly two weeks after the Securities and Exchange Commission filed a suit against the firm alleging the company defrauded customers who bought investments tied to risky mortgages.
The fact that criminal charges have not already been filed by SDNY’s Securities and Commodities Task Force is a clear sign that there was no smoking gun in the case, one former prosecutor said.
“If there was a real immediate threat, SDNY prosecutors would have issued a criminal charges the same day the SEC filed its civil securities fraud case against Goldman,” said a longtime former SDNY prosecutor. “My guess is there was tenion between the SEC and the DOJ and the SEC said, ‘F–k it, let’s go ahead.’”
The FBI opened its own probe of the Goldman transactions weeks ago, according to law enforcement sources cited in a Washington Post story today. A separate investigation is being conducted by SDNY’s 20-lawyer securities task force headed by Assistant U.S. Attorney Christopher Garcia and his deputy, Marc Berger. Janice Oh, deputy public information officer for the SDNY, declined to comment on which line attorneys had been assigned to the probe.
The SDNY’s Goldman probe is playing out no differently than any other similar securities case, two former prosecutors said. Criminal Division Chief Richard Zabel or task force chief Garcia assigned the probe to a relatively unburdened line lawyer who in turn issued one or more subpoenas.
“They would be remiss not to cut a subpoena,” the former prosecutor said. “The press is overreacting to all this. Everyone needs to take a step back.”
Another former SDNY prosecutor, who headed a task force in the office, agreed.
“You can’t read much into anything so far,” said the former task force chief who spoke on condition of anonymity. “In a case with this kind of profile, there’s likely to be an inquiry of a criminal nature. A responsible prosecutor is going to kick the tires. We have yet to see if there will be any significance attached to it.”
Among the SDNY prosecutors best-suited to handle the Goldman probe, one former prosecutor said, are Assistant U.S. Attorneys Maria Douvas and Nick Goldin. Other candidates include special counsel Bonnie Jonas or Assistant U.S. Attorneys Julian Moore and William Stellmach. Other task force prosecutors including Jonathan Streeter, Marc Litt and Lisa Baroni are busy working on the Galleon and Madoff cases.
SEC Enforcement Chief Robert Khuzami, himself a former SDNY prosecutor, most likely referred the SEC suit to Garcia before filing it on April 16, according to former SDNY prosecutor Douglas Jensen of Park & Jensen LLP in New York.
“The way it usually works is the SEC makes a phone call to the task force chief — in this case Chris Garcia — and says, ‘We’ve got a probe on x, are you interested?”’ said Jensen, whose tenure as a SDNY prosecutor overlapped Khuzami’s. “It’s not a formal process where members of the task force meet with higher-ups.”
Goldman spokesman Lucas Van Praag told Bloomberg Friday that the firm was “not surprised by the report of an inquiry,” and plans to “cooperate fully with any request for information.”
Dan Gelber (gov)
A former federal prosecutor is looking to become the state’s top lawyer.
Dan Gelber filed paperwork with the Florida state board of election to seek the Democratic nomination for Attorney General. The current state Attorney General Bill McCollum (R) is a candidate for governor in the November elections.
Gelber currently is a member of the state Senate. Gelber was one of the nation’s youngest federal prosecutors when he joined the U.S. Attorney’s office in the Southern District of Florida at the age of 25. During his nearly 10 years in the office, he prosecuted cases on public corruption, civil rights and narcotics. Gelber has been endorsed by former Attorney General Janet Reno.
Gelber was initially planning on running for U.S. Senate but opted instead for the state attorney general race. The other Democrat in the race is state Sen. Dave Aronberg.
On the other side of the political aisle, four Republicans are seeking their party’s nomination for the attorney general’s race. The candidates include ex-state health care secretary Holly Benson; Hillsborough County assistant state attorney Pam Bondi; Lt. Gov. Jeff Kottkamp; and attorney Jim Lewis.
The Justice Department is dispatching two of its top lawyers to New Orleans to meet with FBI agents and U.S. Attorney offices about the recent British Petroleum oil spill.
In a release issued Friday, Attorney General Eric Holder said that Ignacia Moreno, Assistant Attorney General for the Environment and Natural Resources Division, and Tony West, the Assistant Attorney General for the Civil Division, will lead a team of DOJ lawyers.
On April 20, a British Petroleum oil rig exploded, killing 11 workers and spilling thousands of gallons of crude oil into the Gulf of Mexico. The oil spill is expected to reach the coast of New Orleans today.
“The British Petroleum oil spill has already cost lives and created a major environmental incident,” Holder said. “The Justice Department stands ready to make available every resource at our disposal to vigorously enforce the laws that protect the people who work and reside near the Gulf, the wildlife, the environment and the American taxpayers.”
Read the full news release here.
After a nearly 40-year career as a federal employee, Shirley Lloyd, the Director of Administration for the Civil Division, retired on Friday.
Lloyd spent about half of her government career in the Department of Justice, including stints at the Civil Rights Division and the former Immigration and Naturalization Service — which moved to the Department of Homeland Security in 2003. She has served as Director of Administration for the Civil Division for 10 years. In that role, she was responsible for overseeing the human resources of the Civil Division.
The Deputy Director of Administration, Roger Tweed, will serve as acting Director of Administration until his retirement on July 30.
Please send news of moves, promotions and honors to personnelchanges@mainjustice.com.
From left to right: Australia Attorney General Robert McClelland; United Kingdom Attorney General Baroness Patricia Scotland; U.S. Attorney General Eric Holder; Canada Minister of Justice and Attorney General Rob Nicholson; and New Zealand Attorney General Christopher Finlayson (photo by Ryan J. Reilly / Main Justice).
Attorney General Eric Holder met Friday morning with the Attorneys General from the Australia, Canada, New Zealand and the United Kingdom, a group known as “The Quintet.”
The Justice Department said the officials planned to discuss counterterrorism cooperation, international organized crime, youth violence and internet-based crime.
Australia Attorney General Robert McClelland, Canada Minister of Justice and Attorney General Rob Nicholson, New Zealand Attorney General Christopher Finlayson and United Kingdom Attorney General Baroness Patricia Scotland all met in the 7th floor conference room at the Justice Department’s headquarters.
McClelland, Scotland and Holder (photo by Ryan J. Reilly / Main Justice)
Holder and Nicholson (photo by Ryan J. Reilly / Main Justice).
Posted in News | Comments Off
A Justice Department advisory committee is reviewing an FBI policy that encourages agents to document interviews with criminal suspects the old-fashioned way: with a paper and pencil.
The practice has been a point of contention within the Justice Department, particularly as more state and local law enforcement agencies use video and audio equipment to record custodial interviews.
With few exceptions, agents’ handwritten notes, summarized in typewritten documents called 302s, are the only records available to prosecutors and defense lawyers. The policy forbids agents from electronically recording confessions or interviews without authorization by their Special Agent in Charge.
(iStock)
A subcommittee of the Attorney General’s Advisory Committee of U.S. Attorneys recently began examining recording practices nationwide, Justice Department and FBI officials said. The advisory committee is an influential policymaking body whose recommendation bear the weight of the U.S. Attorney community.
In the past, the bureau and other federal law enforcement agencies have strongly argued against proposals that would require agents to electronically record interviews, on the grounds that they could hinder rapport-building, discourage suspects from speaking candidly and expose juries to unsettling interrogation techniques.
“In fast-moving situations and when the two parties are not comfortable with electronic recording, it can be counterproductive,” said FBI spokesman Bill Carter. While he declined to discuss specific cases, Carter said there were many circumstances in which electronically recording an interview is “prudent” and that the policy allowed for flexibility.
Carter declined to say whether the FBI would oppose changes to the policy while the matter is under review. Justice Department spokeswoman Melissa Schwartz declined to comment.
Proponents say video or audio recordings would reduce legal challenges, make agents sharper in their questioning and allow prosecutors to make better-informed decisions. While the department has never laid bare arguments in favor of amending the current policy, there is a strong sentiment among federal prosecutors that suspect interviews should be electronically recorded more often, if not regularly.
When a U.S. Attorney in the Bush administration ordered electronic recording in his district, a group of criminal division chiefs from federal prosecutors’ offices around the country expressed unanimous support.
Paul Charlton (Gallagher & Kennedy)
The U.S. Attorney, Paul Charlton of Arizona, was among those fired during the controversial purge in 2006. One of the stated reasons for his dismissal: He had shown poor judgment by implementing the policy before seeking permission from Justice Department headquarters in Washington.
Charlton had refused to withdraw the order, threatening to resign instead. He ultimately agreed to suspend the order after the department promised to expedite his request to pilot the policy in his district. The pilot program was not approved, and Charlton’s successor never pursued the matter.
Charlton, now a partner at Gallagher & Kennedy PA in Phoenix, said he was pleased the department was re-examining the issue.
“Any changes that are made in that regard will be long overdue,” he said. “The FBI has never provided a legitimate law enforcement reason for discouraging the taping of confessions.”
One law enforcement official described the committee’s effort as trying to better understand the FBI’s resistance, when 18 states have laws mandating electronic recording in most cases. Additionally, more than 600 police and sheriff departments around the country use video or audio equipment to document custodial interviews, according to a 2008 study by Jenner & Block LLP partner Thomas Sullivan, a former U.S. Attorney in Chicago who has written extensively on the subject.
The debate over electronic recording is particularly heated in American Indian communities, where federal prosecutors and agents investigate local crimes. Charlton said conflicting state and federal policies created a disparity in justice.
For example, he said, a suspect in Phoenix who confessed in a child sex abuse case would have their confession taped and wielded against them in court, but on a Navajo reservation, the confession would be reflected in a 302, rendering it more susceptible to legal challenge.
Federal prosecutors asked a judge Thursday to sentence a former meatpacking plant executive to 25 years in prison for his conviction on federal bank fraud charges, the Associated Press reported.
The Northern District of Iowa prosecutors had initially sought a life sentence for Sholom Rubashkin, the former chief executive of Agriprocessors, a kosher meatpacking plant in Postville, Iowa. But that request came under fire from dozens of former Justice Department officials, who argued the life sentence was too severe.
Rubashkin was convicted in November of 86 counts of bank fraud. The charges stem in part from a high profile raid in May 2008, where federal agents arrested hundreds of workers at the Agriprocessors plant on federal immigration charges. In connection with that raid, about 300 workers were convicted of identity theft and several managers were convicted of felony charges for harboring illegal immigrants.
In pre-sentencing court documents, prosecutors indicated they would seek a life sentence for Rubashkin. But in court Thursday, the second part of a two-day sentencing hearing, prosecutors modified that request, asking U.S. District Judge Linda R. Reade for the 25-year sentence.
Rubashkin’s defense lawyers have asked for a lighter sentence of 6 years.
Reade is expected to hand down a sentence next month.
Read the AP’s full report here.
On March 23, 2010, President Obama signed into law the healthcare overhaul bill, known as the Patient Protection and Affordable Care Act (“PPACA”). The PPACA will result in an expansion of government-funded healthcare. An additional focus of the PPACA is on rooting out and deterring billing fraud by healthcare providers. Even prior to the expansions contemplated by the PPACA, estimates for the amount of fraud on the Medicare system have been as high as $80 billion per year (although it is also widely recognized that no good measure exists, and that these estimates cannot be specifically documented). One aspect of the anti-fraud provisions of the PPACA is an amendment to the False Claims Act that limits the scope of the so-called “public disclosure bar.”
The “public disclosure bar” is a defense that can be raised by a defendant in a False Claims Act qui tam lawsuit. A qui tam lawsuit is one brought by a member of the public, but in the name of the government. Qui tam lawsuits under the False Claims Act are typically brought by company insiders or others with unique access to information that is not already known to the government. The person who brings the lawsuit is known, in False Claims Act jargon, as a “relator.” A successful relator receives, as his or her reward for bringing the case, a share of the money recovered for the government. That share is typically between 15% and 30%.
However, the False Claims Act’s public disclosure bar prevents would-be qui tam relators from profiting off of disclosures of fraud that have already been exposed, and that have reached the public domain. Thus, courts have traditionally had the power, under the public disclosure bar, to dismiss qui tam cases based upon fraud that has already been publicly disclosed. What counts as “public disclosure,” however, has been a hotly-contested issue.
The PPACA changed the public disclosure bar in many respects to the benefit of both qui tam relators and the government. The public disclosure bar previously barred courts from considering qui tam lawsuits that were “based on” allegations of fraud already publicly disclosed through a variety of avenues—including state, federal and administrative proceedings, hearings, audits, or investigations. In this fashion, the old public disclosure bar problematically discouraged insiders or other persons who may have had similar, but substantively different knowledge of fraudulent allegations from exposing the new important information to the government. The new public disclosure bar only bars actions and claims if they disclose information that is “substantially the same” as the previously disclosed allegations or transactions, thus providing incentives for persons who have different allegations to come forward and expose the fraud.
Perhaps most importantly, unlike the old bar, the new public disclosure bar does not consider information disclosed in state and private proceedings to be “publicly disclosed.” Now, under the PPACA amendments to the False Claims Act, information is considered publicly disclosed only if it is disseminated in federal proceedings, reports, hearings, audits, or investigations. And with respect to federal criminal, civil or administrative trials and hearings, the government must actually be a party to the proceedings where the information is disclosed. (As with the previous version of the statute, any information disclosed through news media is still considered “publicly disclosed.” Thus, actions based on information that is substantially the same as news media reports will continue to be barred.)
The PPACA also broadens what was previously the single exception to the public disclosure bar, called the “original source” exception. Under the previous version of the False Claims Act, an action based upon information that was “publicly disclosed” was not barred if the person had “direct and independent” knowledge of the information underlying the allegations. Now, the original source exception covers two types of whistleblowers. First, a person who disclosed the information to the government before it was publicly disclosed can still proceed with a lawsuit based under the False Claims Act. Second, a person who has knowledge that is “independent of and materially adds to” the publicly disclosed allegations or transactions, and who has provided the information to the government before filing a lawsuit under the False Claims Act, is excepted. While the exact meaning of these terms will likely be the subject of interpretation by the courts, it is clear that they are intended to broaden the “original source” exception.
Finally, the amendments to the False Claims Act included in the PPACA for the first time give the government considerable discretion in deciding whether a case otherwise barred by the publicly disclosure may still go forward. Under the previous version of the law, the bar was considered “jurisdictional,” which meant that a court was required to dismiss a qui tam case if it fell within the public disclosure bar. Under the new version, the government may oppose dismissal of the case, even if it falls within the public disclosure bar, and thus permit the qui tam lawsuit to go forward. This gives the government the ability to assess the circumstances, including how the dismissal of the qui tam relator’s case will affect the government’s ability to fully prosecute the case.
The re-worked public disclosure bar should have the effect of encouraging the disclosure of actual fraud, while still limiting rewards to persons who are the first to make the government privy to the specific allegations. This is a positive development in False Claims Act law, and will help protect the public fisc from fraud on the Medicare system that, by all accounts, costs taxpayers billions of dollars each year.
A U.S. District Court judge has handed down “the longest-ever prison sentence” for a Foreign Corrupt Practices Act (FCPA) violation, according to the U.S. Department of Justice.
Judge Henry Hudson of the Eastern District of Virginia on April 19 sentenced Charles Jumet to 87 months in prison for conspiring to violate the FCPA and for making false statements to federal agents.
Jumet, a vice president of Ports Engineering Consultants Corporation, pleaded guilty to paying more than $200,000 in bribes to high-ranking Panamanian government officials between 1997 and 2003 in exchange for maritime contracts, including maintenance of lighthouses and buoys along Panama’s waterways.
PECC’s president, John Warwick, also has pleaded guilty to the same conduct and is scheduled to be sentenced on May 14, 2010.
Besides being sentenced to more than seven years in prison, Jumet was sentenced to three years of supervised release and ordered to pay a $15,000 fine.
“Today’s sentence — the longest ever imposed for violating the FCPA — is an important milestone in our effort to deter foreign bribery,” Assistant Attorney General Lanny Breuer said. “As this case confirms, foreign corruption carries with it very significant penalties, which can include substantial prison time for individuals who violate the law.”
Neil MacBride, U.S. attorney for the Eastern District of Virginia, added: “Bribery isn’t just a cost of doing business overseas. Today’s sentence makes clear that this is a serious crime that the U.S. government is intent on enforcing.”
Targeting Individuals
These two statements succinctly illustrate the DOJ’s commitment to prosecute individuals who violate the FCPA. The sentence is just another example of the DOJ’s continuing efforts to enforce the FCPA against individuals. DOJ’s focus on individuals is growing and can be seen through, among other actions, the January 2010 FBI sting operation that resulted in indictments against 22 individuals in the arms industry; the conviction of Hollywood producers Gerald and Patricia Green, who await sentencing after being convicted for bribing Thai tourism officials; and the conviction and sentencing of former U.S. Rep. William Jefferson to 13 years in prison. In 2009 alone, there were three FCPA trials against four individuals — that equals the total number of trials in the prior seven years.
Assistant Attorney General Breuer has made no secret that the “prosecution of individuals is a cornerstone of [the DOJ’s FCPA] enforcement strategy.” “Put simply,” Breuer said in a November speech, “the prospect of significant prison sentences for individuals should make clear to every corporate executive, every board member, and every sales agent that we will seek to hold you personally accountable for FCPA violations.”
Background on FCPA Enforcement
The FCPA poses a hazard not just for corporate reputations and coffers but also for the individual executive. It is the principal weapon of the U.S. government to combat corruption in international business dealings, and the U.S. government is aggressively pursuing FCPA cases. In the last year, there have been billions of dollars of fines, sting operations and the pursuit of individuals around the world.
Hefty penalties are the order of the day: In the past year, companies have settled with regulators to the tune of billions of dollars in penalties, fines and disgorgement:
- Halliburton/KBR paid $600 million.
- Siemens paid $1.6 billion.
- BAE paid $450 million.
- It is reported that Daimler will pay an estimated $200 million.
Not factored into those numbers is the cost of the investigations. Technip recently reported a charge of approximately $500 million related to government investigations into its involvement in the TSKJ joint venture in Nigeria (the Halliburton/KBR settlement). By contrast, investment in a comprehensive compliance program and FCPA due diligence on agents and consultants is an inexpensive way to protect the bottom line.
Sting operations: In a very aggressive move, DOJ, working with UK authorities in a sting operation, caught everyone by surprise. Using tactics usually reserved for crime syndicates, DOJ and UK police arrested 22 individuals who allegedly attempted to make improper payments to FBI agents posing as representatives of procurement officers for a top minister of an African country. The improper payments were intended to obtain the award of contracts to sell military and law enforcement supplies. In an unusual twist, no actual foreign officials were involved.
Intergovernmental cooperation: On February 5, 2010, BAE settled with both DOJ and the UK’s Serious Fraud Office. Besides pleading guilty to one count of conspiracy to making false statements to the U.S. government, BAE pled guilty to a charge that it failed “to keep reasonably accurate accounting records in relation to its activities in Tanzania.” BAE’s settlement included a payment of $400 million to the U.S. government and £30 million to the Crown Court (with a designated use to benefit the people of Tanzania). (The Siemens settlement of $1.6 billion included payment of approximately $560 million to the Munich Public Prosecutor’s Office for corporate failure to supervise officers and employees.)
The February 11, 2009 Halliburton/KBR settlement only resolved issues with U.S. regulators, and investigations by French, British and Nigerian authorities remain unresolved.
According to public reports, the U.S. Securities and Exchange Commission made more than 750 requests for assistance to foreign regulators in fiscal 2009, an increase of almost 200 requests over the prior year. Geographic and economic boundaries have all but dissolved, making it more difficult to hide corrupt payments in offshore entities and far-flung subsidiaries.
Increased scrutiny of agents and consultants: Companies subject to the FCPA need to ensure that they form business relationships with responsible and qualified agents and consultants. Regulators are pursuing the middlemen and agents (as in the Siemens and Halliburton investigations) used to conceal corrupt payments to government officials. DOJ has provided companies with a list of “red flags” that, if present, should trigger heightened scrutiny. Red flags include unusual payment patterns, high commissions, a refusal by the agent or consultant to provide FCPA certifications, a lack of qualifications or expertise to perform the services being offered, and a referral to the agent or consultant by an official of a potential governmental customer.
Fiona Philip is a Partner in the Securities Litigation, Government Enforcement and White Collar Criminal Defense practice group at Howrey LLP.
Michael McCrum (Thompson & Knight LLP)
The nomination of Michael McCrum, a San Antonio-based lawyer at Thompson & Knight LLP, to be the next U.S. Attorney for the Western District of Texas is “forthcoming,” a Senate staffer told The Texas Tribune.
Republican Texas Sens. John Cornyn and Kay Bailey Hutchison in November 2009 recommended McCrum and Robert Pitman, a Western District of Texas U.S. magistrate judge who is gay, for the job. Main Justice reported that McCrum has the inside track on the job in part because he was recommended by both the Republican senators and Texas’s House Democrats, making him a consensus choice.
Nominations in Texas have been delayed because of disagreements between the state’s two Republican senators and the House Democrats recommending candidates to the White House. So far, President Barack Obama has nominated only one U.S. Attorney to take one of the four open positions in Texas — John Stevens for the Eastern District of Texas. Earlier this month Stevens withdrew his name from consideration citing the best interests of his family.
Names have been forward to the White House for the other districts.
Cornyn and Hutchison recommended Sarah Saldana, an Assistant U.S. Attorney who heads the fraud and public corruption division in Dallas, for the Northern District and Kenneth Magidson, an Assistant U.S. Attorney in Houston and head of the organized crime drug enforcement task force for the Southwest region, for the Southern District.
See our previous coverage of the Texas U.S. Attorney nomination process here, here and here.
Posted in News | 1 Comment »
