Megan Childs
White Collar Crime Final Exam (Eliason)
GENERAL THEMES & TAKEAWAYS
Major theme of prosecutorial discretion. Even if you can charge a crime (legally sufficient basis), do you
want to? Is it smart? EXAM – always address, should they bring this charge?
- Take into consideration plea bargaining, immunity, and parallel proceedings. Part of this might involve
finding a person in the fact pattern who might be good to approach for a possible plea/immunization in
exchange for information.
- Don’t forget about the investigative part – how you would investigate, including grand jury
considerations.
- Less important to state how many counts, more about analyzing the crime.
- For some analyses, there may be numerous options (i.e., mailings/wires you could use) – look at all the
options and determine which is best. Some may be clearly more in furtherance of the scheme.
“Taking property at the point of a pen, rather than the point of a gun.”
Standard = BEYOND A REASONABLE DOUBT.
Always consider: gray areas of WCC. Drawing lines between criminal behavior and something else. Should
you bring a charge, and is the conduct criminal? Should this be a crime? As a prosecutor, not determining how
to make it a crime or to fit the elements.
- Most dangerous words for a prosecutor are: he must have known. Not about looking back in hindsight
– have to prove criminal intent at the time, not about how it turned out in the end.
- Cannot tell a jury – oh he must have known!
Recognize that there are always reasonable arguments on both sides. Civil, reasoned arguments.
FACTS MATTER. Not an abstract set of principles, it’s about human stories. I.e., Mr. Schmuck, a car dealer
in Wisconsin who’s now in every WCC textbook.
INTRODUCTION TO WHITE COLLAR CRIME
WCC is a fact-intensive discipline. Be mindful of the grey areas. Focus on the elements of the offense.
- Components of the crime – all elements must be alleged in the indictment and proven beyond a
reasonable doubt to sustain a conviction.
Defining White Collar Crime
WCC originated with Edwin Sutherland, defining the term white collar crime as “wrongdoing committed by a
person of respectability and high social status in the course of his occupation.” Sociologist, not a lawyer.
- Acknowledged that high-ranking citizens still commit crimes; not only the poor, low-income.
- Today, definition focuses on the offense rather than the offender. Category of offenses that share
characteristics, regardless of who commits them.
DOJ definition: “non-violent, illegal activities which principally use deceit, deception, concealment, fraud, or
misrepresentation to obtain money, property, or some other advantage or to conceal some other wrongdoing
(i.e., perjury, obstruction).”
- No firm, legal definition. Many refer to it by what it isn’t. The scope of the term remains uncertain, because
there’s no list of included/excluded offenses.
- Key distinction – in “street crimes,” we generally know a crime has been committed, the issue becomes
what happened and who did it. In White Collar, it’s usually flipped – we know generally what happened
and who did it, but the issue is their intent and whether there was a crime at all.
These “crimes” are brought by the government, in the name of the people. Higher burden, requires BARD.
More culpable mental state, and results in moral condemnation from the community. Easier for a
defendant/corporation to spin a civil investigation, than a criminal indictment.
1
Megan Childs
In enacting federal statutes relating to WCC, necessary that Congress remain within the bounds of the
Constitution.
- Example: Congress’ postal power is best evidenced by the mail fraud statute (18 U.S.C. § 1341).
- The most widely used jurisdictional base for criminalizing federal offenses is the commerce power. The
Constitution gives Congress the power “to regulate Commerce with Foreign Nations, and among the
several States.” “Congress may regulate the use of the channels of interstate commerce,” “regulate and
protect the instrumentalities of interstate commerce, or persons or things in interstate commerce, even
though the threat may come only from intrastate activities,” and “regulate those activities having a
substantial relation to interstate commerce, i.e. those activities that substantially affect interstate
commerce.” U.S. v. Lopez, 514 U.S. 549 (1995).
o Example: wire fraud requires interstate commerce.
o Example: racketeering prosecution requires an “enterprise which is engaged in, or the activities
of which affect, interstate or foreign commerce.” (18 U.S.C. § 1962).
White Collar [v. Non-White-Collar]
- Non-violent. Involves deception/deceit. Frequently for monetary gain.
- Planning/deliberation. (Not crimes of passion).
- Usually not professional criminals. Abuse of power/trust (sometimes).
- Complexity, scope, and magnitude of the case.
- Nature of the investigation – grand jury.
- Role of the defense counsel.
- Organizational presence.
- Parallel proceedings.
- Multiple actors.
- Centrality of mens rea.
- Breadth of statutes and prosecutorial discretion.
- In WCC, know who did everything; in street crime, you have a suspect.
State & Federal Prosecution
- The same WCC offenses often can be prosecuted by both the federal and state systems.
- Example: RICO statute uses nine state crimes as predicates for a racketeering charge. 18 U.S.C. § 1961.
- Federal system offers a neutral forum, where a state system may ignore because of political reasons.
Global Tech Appliances (2011) – SCOTUS. General defense of willful blindness requires:
(1) The defendant must subjectively believe that there is a high probability that a fact exists;
(2) The defendant must take deliberate actions to avoid learning of that fact.
Many WCC statutes include attempts to commit the offense within the statutory terms.
- Conspiracy is discussed as both a separate federal offense premised on a conspiracy to defraud the U.S.
(18 U.S.C. § 371) and as it relates to other statutes as a conspiracy to commit any offense against the U.S.
An inchoate crime is a crime of preparing for or seeking to commit another crime (an incomplete crime).
CORPORATE CRIMINAL LIABILITY
The modern doctrine of corporate criminal liability states that a corporation is liable for the actions of its
agents whenever such agents act within the scope of their employment and, at least in part, to benefit the corp.
Conceptually = when can you charge a company for an individual’s actions? A corporation (necessarily) can’t
have the requisite mens rea, and no actus reus because it lacks physical attributes.
- Answer to whether you can charge a company is almost always yes. Very broad standard. The better
question is whether you want to. Trend away from actually indicting corporations, toward nonprosecution agreements for a company to avoid criminal charges.
o Support for this – why should the entire company lose their jobs because of 6 people’s conduct?
2
Megan Childs
PROS of Charging Corporations
- Good option when can’t identify a particular individual responsible.
- Deterrent effect for those in power.
- Punish the entity that is benefitting. The responsible party may have been pressured by higher ups.
- Provides for public accountability.
- Corporations are made up of people, so why not impose criminal responsibility as well.
- Possibility of criminal liability will encourage a company to monitor its people and hire ethical workers.
- Companies can often “buy their way out” anyway – becomes about the cost of doing business.
CONS of Charging Corporations // Criticisms of Respondeat Superior
- The innocent suffer as well – shareholders, individual employees, consumers. Biggest criticism.
- Confuses civil & criminal liability – concern about criminal code today. Might be better to handle as civil.
- No moral intent – an entity doesn’t have moral culpability.
- No motive to comply – corporate liability might just roll the dice instead of spending money to comply.
- No deterrent effect in punishing a corporation.
- Do not need criminal remedies.
- Imputes intent of one person to the entire company.
- Fails to distinguish between corporations that actively encourage criminal activity and those that make a
good faith effort to comply.
Respondeat Superior Standard = common law doctrine; standard in federal court
NY Central & Hudson River Railroad Co. (1909) – SCOTUS
- Takeaway: A corporation is liable for the criminal acts of its agents acting within the actual or
apparent scope of their authority and with the intent, at least in part, to benefit the corporation.
- Brief Facts: Railroad was subject to rules for common carriers and not allowed to discriminate in shipping
rates. NY Central and one of its employees were convicted for paying rebates to certain companies who
shipped their products using NY Central, thereby lowering their shipping rate in violation of the Act.
Essentially giving those companies a kickback. The corporation argued that punishing a corporation
would in effect be punishing innocent stockholders.
- Held that the modern trend is toward holding the corporation responsible. There is no valid rationale in
law, and every reason in public policy, why the corporation which acts through its employee agents and
which profits by the transaction, should not be held punishable by fine because of the knowledge and
intent of its agents to whom the corporation has entrusted authority. Justice requires it.
- Note that this was an action for tort, which is about who should bear the cost. Criminal law is about who
should bear the blame.
- Note that although NY Central provides a firm basis in the law for finding a corporation guilty of an
offense with an intent element, there has been significant criticism of corporate criminal liability.
TWO-PART TEST:
(1) “Within the Scope of (Actual or Apparent) Authority”
- Purpose = to ensure employee is acting on company business, so it’s fair to hold company accountable.
o Not within authority to break the law, but within the scope of their job duties.
- Specific authorization/approval not required.
- Knowledge or acquiescence of a high-ranking official/superior is not required.
(2) “To Benefit the Corporation” (very broad!)
- Purpose = to limit corporate liability to those acts done on the company’s behalf.
- Corporation need not have actually received a benefit; and may even have been harmed.
- Sun-Diamond: the benefit to the corp. need not be the employee’s only, or even primary, motivation.
United States v. Automated Medical Laboratories, Inc. (1985) – Fourth Cir.
3
Megan Childs
-
-
Takeaway: the agents involved acted, at least in part, with the intent of benefiting their company by their
unlawful acts. A jury could have reasonably concluded that, so the conviction is affirmed.
Prosecuted for falsifying records to the FDA about how they were running their clinics. Company made
argument that different standard of liability should apply, that prosecution must prove misconduct was
authorized by the Board or Senior management. This arg. is rejected. Also argued that his intent was selfmotivated. Rejected arg. because doesn’t need to be sole intent. People act for many different reasons.
Very low penalty, so why appeal? Moral factor; government contracts consideration (debarment).
United States v. Sun-Diamond Growers of California (1999) – SCOTUS
- Takeaway: Benefitting the company doesn’t have to be only financial OR the only reason.
- Bribing Espy and keeping him happy could be very important/beneficial/lucrative down the road. SunDiamond was still benefitting because Douglas was keeping Espy happy.
- Allegation that Sun-Diamond gave illegal gratuities to former Agriculture Secretary Michael Espy while
he was considering two matters in which Sun-Diamond had a vested interest. Sun-Diamond claims to be
the victims in the bribery.
- [We will revisit this case in the Bribery unit].
Corporate Compliance Efforts
United States v. Hilton Hotels Corp. (1972) – Ninth Cir.
- Takeaway: Corporate compliance is generally irrelevant to criminal liability. A corporation may be held
liable even if an employee violated express instructions or company policy.
- Facts: illegal agreement among companies and businesses to form an association, whereby to finance the
association, association members were asked to make predetermined monetary contributions. Illegal
agreement to only do business with suppliers who contribute money to tourism fund. To aid the
collections, Hilton agreed to give preferential treatment to suppliers who paid their contributions and
“boycotted” those suppliers who did not. Hilton was charged with violating the Sherman Act which
prohibits actions in restraint of trade. Hilton had a corporate policy not to participate in this type of
agreement, but manager did it anyway, allegedly because he was “upset with a particular supplier.” Hilton
said – what are we supposed to do? We had the policy, why even bother trying to comply? Can’t control.
- Policy considerations: can’t allow for a policy to be a sufficient defense because that allows for winks
under the table. But Hilton makes a strong argument – what’s the point? Might as well just factor this into
the cost of business. Nothing you can do.
- Compliance is not a legal defense, but it’s a discretionary defense. Prosecutors can consider that there
is a policy in place; legitimate training is conducted; compliance programs, etc. – company trying to do
the right thing.
o Influential in determining whether to charge, and/or at sentencing.
Other Possible Approaches
- Model Penal Code – better approach? NOT the law in federal court or in most states, but consider:
o “A corporation is liable for ‘regulatory offenses’ or when the criminal offense was authorized,
requested, committed, or recklessly tolerated by the Board of Dir. or high managerial officials.”
- Consider the company’s history of violations;
- Consider pervasiveness of wrongdoing at the company;
- Consider level of employee who committed the crime;
- Consider corporate compliance efforts;
- Consider corporate “personality” or culture.
*All of these are relevant to the prosecutor’s charging decision, but not to the ultimate Q of criminal liability.
Deferred Prosecution Agreement (DPA) or Non-Prosecution Agreement (NPA)
- Favored approach with DOJ – very common. Corporate prosecutions are rare.
- Company must agree to substantial reforms, penalties, and cooperation with the government.
- Charges will be dropped if company complies for the requisite period of time.
4
Megan Childs
-
Deferred = government actually files criminal charges in court, and as part of the agreement, company
admits guilt/doesn’t have a defense. If the deal falls through, they’re already admitted. Prosecution is
deferred for the period of the agreement.
Non-Prosecution = no charges filed in court. Judge not involved. Private settlement between DOJ and co.
CRIMINAL INVESTIGATIONS: FEDERAL GRAND JURY
White Collar is primarily an investigative practice.
Role played by grand jury is very different from a typical lower level crime.
- Investigation (may take 1-3+ years) leads up to a charge (when a public charging document is released).
- If you’re defense counsel, you want to prevent the indictment from happening at all. Role is to avoid the
indictment – work out a pre-indictment disposition, maybe a guilty plea with cooperation.
- Once charged, high likelihood of being convicted. The question = convicted of what?
- If you get a grand jury subpoena, have to come in and testify under oath, subject to perjury.
o SCOTUS standard for a subpoena = “to quash a subpoena, the moving party must demonstrate
that compliance would be unreasonable or oppressive.” Only when there is no reasonable
possibility that the disclosure sought by a subpoena will be relevant to the grand jury
investigation should a subpoena be quashed. R. Enterprises v. United States (1991).
o The moving party must show that the document subpoenaed is relevant, admissible, and
adequately specified.
- Takes a long time because collecting information about who did what, when, etc. by witnesses who would
otherwise be unwilling to cooperate. Cumbersome.
- Plenty of investigations are opened up in the grand jury that don’t result in indictments. Defense counsel’s
role plays a part – opportunity there for defense.
The Federal Grand Jury
In a grand jury, the agents and jurors are sworn to secrecy (everyone except the witnesses). Different than the
trial process, which is presumptively public.
- One of the most powerful institutions in the federal government – no one has the power to ignore its
demands (even the sitting President of the U.S. (Nixon)).
- Grand jury is an accusatory body, not an adjudicatory body.
Cases are decided at the grand jury stage (not won or lost – according to Eliason). Plenty don’t get indicted.
Most powerful and important tool for a WC prosecutor.
- Governed by FRCP 6. Usually 20-23 members. Need 16 for a quorum. Vote of 12 needed to indict.
- Made up of regular citizens who sit away on the second floor of the courthouse (for secrecy reasons). Get
called to grand jury duty (just like regular jury duty). Lasts 18 months, sometimes extended for 6 more.
- In DC, meets two days/week. In smaller jurisdictions, maybe a few days/month.
- Grand jury will hear multiple cases during its tenure. Every case has to be indicted by a grand jury, unless
the defendant waives that right.
- Case begins – prosecutor makes a (semi) abbreviated opening statement, describing the case, issues,
potential charges, etc. Then the case gets numbered and entered into grand jury’s records.
- When GJ wants to indict, standard = probable cause. Is there enough to bring D into court to answer the
charges? Grand jury’s role to make the charging decision. Not determining guilt/innocence.
- Supreme Court has repeatedly held Rules of Evidence do not apply – no judge to rule on them anyway.
o Balancing act, because if there’s disregard to hearsay, etc., then GJ may see reliability concerns.
o Judge will ultimately have to rule on evidence, otherwise case will be thrown out at later stage.
o If prosecutor is personally aware the evidence was obtained as a result of Constitutional
violation, should not present it to GJ.
o If witnesses are coming out and telling their attorneys something happened improperly, their
attorneys can ask the judge to review in camera.
o If witness shares information that isn’t admissible, prosecutor should instruct GJ not to consider.
o GJ can ask questions, they are the investigative body. Prosecutor is their legal advisor.
o A witness has a right to step out of the room and consult attorney.
- The prosecutor determines, at least initially, which documents and witnesses to subpoena.
5
Megan Childs
“The Grand Jury is a sword and a shield.” Sword = executive branch charging process. Shield = prevents
prosecutors from running off and filing unjustified charges without presenting a basis for those charges.
Role of the prosecutor – largely unsupervised, in the sense that no judge is presiding, no defense counsel
present, no defendant, etc. Just the grand jury collecting testimony. Great potential for abuse.
- “A prosecutor can get a grand jury to indict a ham sandwich.” Easy to manipulate, withhold info., etc.
Grand Jury Secrecy (Rule 6(e)(2)) – if someone’s being investigated and prosecutors decide not to bring that
case, then that person’s identity and information is maintained and the public never knows.
- Rule 6(e)(2) provides: “(A) No obligation of secrecy may be imposed on any person except in accordance
with Rule 6(e)(2)(B). (B) Unless these rules provide otherwise, the following persons must not disclose a
matter occurring before the grand jury: (i) a grand juror; (ii) an interpreter; (iii) a court reporter; (iv) an
operator of a recording device; (v) a person who transcribes recorded testimony; (vi) an attorney for the
government; or (vii) a person whom disclosure is made under Rule 6(e)(3)(A)(ii) or (iii).”
- Investigative advantages of GJ secrecy:
o (1) keeping the target of the GJ “in the dark” as to the existence of the investigation until an
indictment is issued;
o (2) avoiding public disclosure of investigations that do not result in indictments and thereby
protecting the innocent accused who is exonerated from disclosure of the fact that he has been
under investigation; and
o (3) encouraging “free and untrammeled disclosures” by potential witnesses who fear retaliation
by the target or others.
Challenges to subpoenas typically are presented through a motion to quash filed by the subpoenas party in the
federal district court.
Types of Witnesses Before the GJ
(1) TARGET: GJ has substantial evidence linking you to a crime and considers you a likely defendant.
Generally invited to testify, but not subpoenaed. Usually a bad idea to do so voluntarily.
(2) SUBJECT: your conduct is within the scope of the GJ’s investigation.
(3) WITNESS: you possess information relevant to the investigation.
Example: hit-and-run. Driver is target. Front seat passenger is likely a subject. Civilian observer is a witness.
CRIMINAL INVESTIGATIONS: SEARCH WARRANTS
Exculpatory Evidence = evidence favorable to the defense.
United States v. Williams (1992) – SCOTUS
- Takeaway: federal courts cannot dismiss a valid indictment where the gov. fails to include exculpatory
evidence. It is the role of a GJ to assess whether there is sufficient evidence to bring criminal charges. If
the grand jury had to compel the prosecution to present exculpatory evidence, it would no longer be an
accusatory body, but rather an adjudicatory body. Williams can bring this in at trial.
- At trial court, Williams motioned to quash based on the government’s failure to present exculpatory
evidence to the GJ.
- Dissent: bringing this in at a trial isn’t a satisfactory remedy because by the time you get to trial, there’s
already significant harm to your reputation, as well as substantial costs.
*Note that prosecutor still has an obligation to serve justice. Prosecutor still has to prove the case at trial,
where the exculpatory evidence will come in. That’s a clearer issue. Williams’ issue is when there’s a dispute
over whether the evidence is exculpatory. Eliason: every reason to put it in, and no real reason not to.
Search Warrants – increasingly popular in WCC, issued only on a showing of probable cause.
- PROS: search warrant is an obvious advantage where there’s concern someone may not comply with a
subpoena or destroy/tamper evidence.
- CONS: a subpoena is much more practical in the sense that you likely don’t know where the documents
are. Harder to get a search warrant and seize documents. Easier to just subpoena and have them provide.
6
Megan Childs
o
o
o
At this stage, might not know enough to even have this as an option. Need to know enough to
establish probable cause and have it signed off by a judge.
Not only need to know where they are, but need to have the resources to go in and get them.
A subpoena is considered to be more polite.
MAIL AND WIRE FRAUD
18 U.S.C. § 1341 (MAIL);
18 U.S.C. § 1343 (WIRE)
NATURE OF FRAUD
OBJECT OF
FRAUD (what the fraud is
trying to obtain)
Lies
$$/Property (Madoff, Lustiger)
Honest Services
Silence with Duty
Carpenter
McNally, Skilling
A large % of WCC indictments include mail and wire fraud as at least some of the charges. Wire Fraud leading
charge today because everything has moved to electronic.
- (1) SIMPLICITY: very straightforward conceptually. Involves someone devising a scheme to “rip
someone off” and in the course of doing so – mailed a letter, sent an email, made a phone call, etc. All
that’s required is a scheme to defraud and the use of mail/wires in the scheme.
- (2) ADAPTABILITY: very broad statute, can be applied to a large range of schemes – elder fraud,
telemarketing fraud, securities fraud, CC fraud, identity theft, etc. Almost anything. Because of the
breadth of mail/wire fraud, virtually any run of the mill state fraud case can be brought into federal court.
- (3) FAMILIARITY: prosecutors are familiar. It’s easy to explain to a jury. “Go-to” statute.
Elements of the Offense:
(1) D DEVISED OR PARTICIPATED IN A SCHEME OR ARTIFICE TO DEFRAUD; AND
(2) IN ADVANCING OR CARRYING OUT SCHEME (OR ATTEMPTING TO DO SO), D USED OR
CAUSED THE USE OF THE MAILS OR AN INTERSTATE WIRE TRANSMISSION.
*Note – no harm requirement. Doesn’t have to succeed or result in injury. Not a defense.
As defense counsel, want to raise a reasonable doubt as to one of the elements in order to be acquitted.
Does it raise to the level of federal fraud?
- Consider: Felicity Huffman paying $15k to alter her daughter’s ACT exam. Is it a federal fraud to lie on
your college application about your ACT score? Should it be? Where to draw the line?
o Sleazy and corrupt – but was it fraud?
- What about lying on your application and falsely claiming to be the President of a debate club?
- A big factor driving the sentencing is the amount of loss. More loss, higher sentence.
- The judge ruled that the universities really didn’t suffer any loss here. That’s one reason her sentence was
so lenient. They were deceived, but not defrauded.
- Huffman plead guilty, but some of the other Varsity Blues cases will go to trial, and Eliason thinks some
of these parents will win because there was no intent to defraud. Not intending to cause injury.
- What about injury to the student who didn’t get in? That’s the social consideration, but not the fraud in
the terms of the criminal law. Can’t prove that other student necessarily would’ve gotten in, even if we
could identify who that person would be. Can’t prove Huffman intended to injure that student.
- The sports cases are harder for the parents to defend than the ACT cheating. If all you did was to pay
someone to cheat on the ACT, to turn it into a criminal fraud seems extreme. Would’ve been a different
case if the schools had provided scholarship or aid to these students. Because then harmed.
Mail v. Wire Fraud – Only Distinction
- MAILING REQUIREMENT
o Mail fraud requires the use of mail in furtherance of the scheme. Historically, primary method
7
Megan Childs
Does not have to be interstate. Applies to U.S.P.S., as well as private interstate carriers (UPS).
§ Amended, because people were using FedEx to avoid liability.
§ Usually need a federal jurisdictional hook to be brought in federal court. Otherwise
presumed to be left to the states under the Commerce Clause.
§ Article I gives Congress expressly the right to establish a post office. Don’t need to have
interstate commerce effect because of the explicit right to establish post office and all
things controlled with that.
• “The Congress shall have power to… establish post offices and post roads.”
“WIRE” TRANSMISSION REQUIREMENT
o Wire fraud requires the use of an interstate wire or radio transmission in furtherance of the
scheme. Much more prevalent today. Less common to use snail mail.
o Applies to phone calls, faxes, radio transmissions, cell phones, internet transmissions, etc.
o Must cross state lines. Jurisdictional req., so D need not know it’s crossing state lines.
o As prosecutor, need to be able to prove if challenged. I.e., can bring in an expert to testify about
where the cell towers were pinged. Rare this would be challenged today because by definition,
almost anything over the internet is inter-state because there are servers all over the world.
o
-
Causation Requirement
- D doesn’t need to personally make the mailing or transmission. The use of an agent may suffice.
- The Supreme Court set forth the test to decide whether D had caused the mails to be used in Pereira v.
United States (1954). “Where one does an act with knowledge that use of the mails will follow in the
ordinary course of business, or where such use can reasonably be foreseen, even though not actually
intended, then he ‘causes’ the mails to be used.”
“In Furtherance” Requirement
- The mailing or wire transmission doesn’t need to be an essential part of the scheme. Must be related to or
incidental to an essential part of the scheme. The Schmuck doctrine.
o Likewise, it is irrelevant if it’s later shown that the mailings were counterproductive to the
scheme. Unlike in Kann, Parr, and Maze, the Court found that the evidence supported a rational
finding that the mailing was part of the execution as conceived by the D at the time. The title
application was essential to the successful passage of title to the customers and thus to the
continuity of the scheme. A failure in the passage of title would have jeopardized the D’s “trust
and goodwill with the retail dealers upon whose unwitting cooperation” the scheme depended.
Schmuck v. United States (1989) – SCOTUS
- Takeaway: The mailing or wire transmission must be part of the execution of the scheme as conceived by
the perpetrator at the time. Schmuck. The mailing/transmission itself need not be fraudulent. Can be an
innocent mailing. As long as it furthers the fraud.
- Takeaway 2.0: in these cases, there will be more than enough evidence than you need. Pick mailings that
are easy to prove. Be smart in your selection.
- Facts: Schmuck and an accomplice engaged in an old-fashioned scheme of rolling back odometers on
cars, so they looked like they only have 30,000 miles on them instead of the actual 60,000. Then resell
them for much more than they’re worth. Schmuck sells the cars to a dealer in exchange for $$. Then the
dealer sells the car to a consumer, and as a result of that latter transaction, mails the title application to the
consumer.
- Schmuck’s defense was that the mailing wasn’t in furtherance of his crime because the car was already
sold. The fraud was already committed and transaction was done.
- Schmuck loses because court reasoned that the mailing is critical to the fraud. He has an interest in the
ability of transferring the title so that he’ll get more business. Continuing relationship.
o Majority really relies on this. If he sold one batch of 50 cars to dealer and that’s it, likely a
different outcome.
o How you charge the case matters. Here, claim that the consumers are the victims of the fraud.
§ Here, these mailings were a silly, tangential issue. If this had been going for years, there
must have been some more legitimate mailings between the parties.
8
Megan Childs
-
Dissent: the mailing has to further the fraud and here it does not. He got the money and he’s gone. The
law doesn’t create a general prohibition against fraud and then find a mailing to pin it on. It’s mail fraud,
not mail + fraud.
o Consider: what if the DMV was across the street, so they hand-delivered the titles? Same exact
scheme, but no case. Should federal jurisdiction really hinge on something like that?
Compare with… Kann, Parr, & Maze, where Ds committed the fraud and then after the fact, hotel manager
had to mail the credit card slip to the banks. Held that the mailings did not further the fraud because the
scheme had already reached fruition.
- As a result of Maze, mailings that aid in the detection of the fraud or are counterproductive to the scheme
to defraud are considered as not within the legal limits of being “in furtherance” of the scheme to defraud.
- In Parr v. U.S. (1960), the Supreme Court rejected the use of mail fraud as not being in furtherance of the
scheme to defraud because the mailings were an imperative duty to the state. (Also alleged that the
mailings were after the scheme to defraud reached fruition).
- Kann v. U.S. (1944) showed the Supreme Court’s initial adoption of an after-the-fact mailing not being in
furtherance of the scheme to defraud. Kann was the president of a corporation that manufactured
munitions, and was indicted with fellow workers for allegedly divesting company funds on government
contracts for their personal benefit. The mailings that formed the basis of the charges were checks cashed
by Ds that were presented to the drawee banks for purposes of collection. The nexus between the mailing
and the scheme to defraud was lacking in that the scheme was completed at the time of the mailing.
- In all three cases, the scheme had reached fruition and thus the mailings were immaterial to Ds
continuation of the scheme to defraud.
Generally/historically, mailings which (1) conflicted with the scheme, (2) were an imperative command of
duty imposed by the state, (3) occurred prior to commencement of the scheme, or (4) occurred after fruition of
the scheme, were found not to be in furtherance of the scheme to defraud.
Consider: what about the electricity bills in Schmuck? Would that count “in furtherance”?
- No. We have to draw the line somewhere. Even though dealership has to pay electricity to keep their shop
open, the mailing of the electric bill each month can’t be reasonably believe to “further the fraud.” Has to
be a more direct link to the fraud.
Bob Menendez. FL doctor giving Senator Menendez all kinds of gifts and free travel on his private jet in
exchange for his help with disputes the doctor had with the federal government. Part of the charges were wire
fraud and a bribery theory of the use of the private jet in exchange for congressional favors.
- In charging the case, prosecutors chose to use the air traffic control transmissions from the pilots to the NJ
airport air traffic control as the wires. This was a little bit out there, but ruled in government’s favor.
- A little bizarre. Why not use emails, etc.? Such a remote wire – the air traffic control.
U.S. v. Samson (1962) – SCOTUS. Lulling ledgers rule.
- Takeaway: the timing can be important, but not always dispositive. A recognized exception to after-thefact mailings being considered “in furtherance” of the scheme is where the mailings serve to “lull” the
victims into the Ds scheme.
- Facts: the fraud scheme was complete and defendants had investors’ money. Investors wrote to the
defendants and asked how the portfolio was doing (post-fraud). D wrote back that everything was fine.
The mailings still furthered the fraud because lulling victims into a false sense of security, which
prevented them from going to the authorities, helped Ds avoid getting caught.
- Just because it happened after the scheme, doesn’t make it dispositive.
Attempts to Defraud – also covered in the Mail and Wire Fraud statutes. 18 U.S.C. § 1349.
The Scheme (or Artifice) to Defraud
Not defined in the statute itself. Developed through case law. Still argued about today.
9
Megan Childs
-
-
Generally, a plan or strategy to obtain something of value from another through the use of deceit,
trickery, or other dishonest methods. The government must show that some harm or injury was
done to the victim, and some gain to the defendant. Very vague. Need not show actual injury, because
attempts to defraud are also covered.
Violates “the sense of moral uprightness, of fundamental honesty, fair play and right dealing in the
general and business life of members of society.” SCOTUS. Ambiguous.
Today, schemes to defraud are premised on “money or property” or “the right to honest services.”
Implicit within the scheme to defraud element is that D have a fraudulent intent.
Intent to defraud requires some sort of injury to the victim. Regent Office Supply. An intent to deceive
does not always coincide with an intent to defraud.
- Although actual defrauding is not required for conviction, the government does have to show that “some
actual harm or injury was contemplated by the schemer.” Regent.
- ASK: What is the harm/injury? Brief psychological injury likely isn’t enough.
“Classic” Fraud = the Ponzi scheme
- Telling investors you’re generating a certain amount of investment returns, creating phony documents to
show them, and then receiving more $$ as a result. People don’t take their investment out because they
think they’re making a great return.
- Prime example = Bernie Madoff. Single biggest fraud in U.S. history. Tens of billions of $$. Clear cut.
- More challenging when there’s less clear cut fraud involved.
MATERIALITY – concept of scheme to defraud requires that deceptions be “material.” Neder.
- “Material” = reasonable person would consider the issue important in determining how to act in the
transaction in question, OR that the market of the representation has reason to know that the recipient
would regard the matter as important, even if a reasonable person would not (because of some particular
characteristic).
- In Neder v. U.S. (1999), the Court remanded a case to determine whether it was harmless error for the trial
court to fail to instruct the jury on materiality as an element of the fraud statute. In finding materiality an
element of these federal fraud statutes, the Court noted that “the common law could not have conceived of
‘fraud’ without proof of materiality.”
- Not really a reasonable standard person in fraud, because the law protects the vulnerable and naïve. Not a
defense to say, “no one would fall for that!” Because it’s targeted at those vulnerable people.
- This is often – materiality essentially means lying about something that matters. Most of the time, lying
about something that matters (by nature of the crime). But still something the government has to prove.
- Generally speaking – criminal law doesn’t concern itself with trivialities. Meaningless lies won’t meet the
materiality test.
United States v. Regent Office Supply Co. (1970) – Second Circuit
- Takeaway: no scheme to defraud where consumers receive exactly what they wanted and paid for at the
price they expected to pay. Did not lie about the products themselves. Sleazy tactics, aggressive
salesmanship, puffing… but not fraud.
o Drawing a line between being deceived and being defrauded.
- Regent sells office supplies. Salespeople were telling lies to the customers to get their foot in the door,
i.e., “someone died and we are reselling their products.” Used these lies to get past the secretary or
whoever answered the phone. The supplies themselves were in perfectly good condition and priced
appropriately. The price and quality of the merchandise to be sold was being honestly portrayed to the
customers. Not lying about the quality or the cost. Court held that it wasn’t fraud because although it was
morally repugnant, didn’t intend to defraud.
o False representations which are “not directed to the quality, adequacy or price of goods to be
sold, or otherwise to the nature of the bargain,” do not form a scheme to defraud.
10
Megan Childs
o
How to draw the line? Key here is that the customers got exactly what they wanted/paid for.
Intent to deceive is different from an intent to defraud.
Example: Eliason goes into Best Buy in a Bernie Sanders sweatshirt and looking at an 80” TV. Salesman says
– “that’s the exact TV Bernie has!” Lie. If Eliason buys it though, he’s getting exactly what he thought he was
getting for the price it was worth. But there’s an intangible psychological aspect that influences his decision.
Example: selling candy at a table in the law school and claim that the proceeds will go to the victims of
Hurricane Dorian. Candy is perfectly legitimate, and sells for the same price at CVS. Find out later, they’re
keeping the profits. If you pay with your credit card, is that wire fraud?
- This feels different because the customer isn’t really getting what they wanted, which was for the $$ to be
donated. There’s more harm to the victim. Arguments both ways.
- On one hand, the bargain isn’t just buying candy, it’s buying candy in order to make a charitable
donation. Described this way – seems fraudulent. Q is whether we cross the line from deception to fraud.
- On the other hand, seems analogous to Regent because the candy is perfect good, as is the price.
Example: same facts as above, but instead of “donating to a third party charity,” instead the money is going to
Eliason who claims to be a war veteran raising money for himself.
- If the customer comes in and says – we really just want the candy. The charity is a nice touch, but I just
want the candy. That might change the case as a prosecutor. Considering the expectation of the buyer.
- Ultimately, these are gray areas and reasonable minds may differ.
U.S. v. Takhalov (2016) – 11th Cir.
- Facts: Nightclub owners employed women to go out into the neighborhoods surrounding the nightclubs
and get them to meet men and bring them into the nightclub with them. Women didn’t tell the men the
club was paying them to do this. They were charged with mail fraud for inducing the men to go into the
club under false pretenses.
- Holding Analogous to Regent Office Supply. The men got exactly what they were expected and what they
paid for. They were induced to enter the transaction under false pretenses, but once they entered, got what
they wanted. Deception, but not fraud.
Lustiger v. U.S. (1967) – Ninth Cir.
- Takeaway: distinguishable from Regent because here, the misrepresentations went to the heart of the
bargain. In Regent, only preliminary matters. What the customer expected is not what they got here.
- Facts: Lustiger sent out brochures describing his property in Arizona in order to induce people to buy the
lies. He lied about the state and quality of the land, distance to specific landmarks, wells, utilities, etc. The
statements he made were actually true – “5 miles to the Lake.” But there weren’t actually roads that
enabled you to access it. He claimed Regent – this is how sales operates!
o Very deceptive – was living in CA on the beach. Would have someone drive back to Arizona
each week to postmark the letters so it looked like they were being mailed from AZ. No
innocent explanation for that.
- This was 1968, so the world was a lot less mobile. Can’t just hop on a plane and go examine the land
yourself. Tricky to find a comparable scenario today – maybe selling oil-futures in the Middle East.
The Property Requirement
Honest services case = D is charged with defrauding a victim not of money or property, but of honest services.
- Doctrine has been to applied to both public officials and private individuals. Particularly in the
employer/employee relationship.
- Public corruption theory whereby people are deprived of their intangible rights (including honest
services). Theory that public officials have a duty of honest services to the public. Where they behave in a
corrupt way, they defraud the public of its right to those honest services.
- Originally evolved because federal bribery statute only applies to federal public officials. So here, honest
services would cover a corrupt state government, where the federal bribery statute wouldn’t.
11
Megan Childs
When there’s a duty in the relationship, silence can amount to fraud.
- Fraud can be affirmative lies or deceptions, or it can be a failure to disclose in a situation where there’s a
duty to disclose. Duty arises from a special relationship or trust and confidence, i.e. employer-employee.
Derived from the language of the statute itself, prohibiting a “scheme… to defraud… OR to deprive someone
of money or property. Argument was that “OR” implies including one or the other.
McNally v. United States (1987) – SCOTUS. HONEST SERVIVCES
- Takeaway: Supreme Court rejected the honest services theory as too vague and amorphous. Landmark
WCC case that is NO LONGER GOOD LAW (partially). Largely in text for historical reason
o Held that mail and wire fraud apply only to schemes to obtain money and property. If
Congress intends otherwise, must “speak more clearly.”
o Definition of “fraud” post-McNally = deprivation of money or property.
§ The fraud statute does not create a right to honest/good government for all state and
local governments on penalty of criminal conviction.
- Facts: Kentucky officials making money off their public position. Made agreements with insurance
company to steer all their insurance business there, and then the company would split any commissions
they received > $50k and direct to the insurance companies they designated. Essentially created an
insurance company that didn’t existed – only created to receive these fake commissions. Government
charges this as depriving the people of Kentucky of the honest services of their public officials. Mail hook
= mailing the commission check. SCOTUS rejected honest services theory.
- McNally abruptly halted the use of an intangible rights theory. SCOTUS reversed mail fraud convictions
of 3 defendants who were convicted for participating in a scheme to defraud the citizens and government
of Kentucky of their intangible right to have the Commonwealth’s affairs conducted honestly. While the
mail fraud statute protects property rights, it does not encompass the intangible right of the citizenry to
good government.
THE “MCNALLY” FIX – 18 U.S.C. § 1346 (1988)
- “For the purposes of [mail and wire fraud and other statutes], the term ‘scheme or artifice to defraud’
includes a scheme or artifice to deprive another of the intangible right of honest services.”
- Congress speaks more clearly, but not much. Likes honest services, and wants it to be included. Doesn’t
specify what they mean by honest services fraud.
- After § 1346, Courts adopted a wide variety of rules to limit the scope of the doctrine. Resulted in chaos.
Honest Services is back in, but there’s no clear definition.
Consider: Bridge Gate (GW Bridge scandal). What was the fraud? Who was deprived of money/property?
- 3 lanes of the bridge are reserved for local traffic; the other 0 are for traffic flowing from i-95. The Mayor
of Fort Lee refused to endorse Chris Christie’s reelection campaign, and in order to punish him, Christie
shut down two of the GW Bridge local lanes. On the first day of school in September, there was complete
grid-lock and busses/ambulances couldn’t get through. Christie wasn’t prosecuted, but suffered
reputational/political damage.
- Argument for mail/wire fraud would have been that the scheme deprived Port Authority of the right to
control those bridge lanes and toll booths.
o In light of Carpenter below – is that a property interest? It’s a revenue generator, but doesn’t
seem to have the traditional qualities of a property, i.e. transferability.
McNally court initially threw out honest services fraud theory. Limited to the protection of property or money
rights. Intangible rights theories that were floating around are not properly part of the scheme to defraud. Too
amorphous and doesn’t give people proper notice.
- Court says: we don’t think that fraud means a right to good and honest government. Limited to money
and property, unless and until Congress speaks more clearly about it.
12
Megan Childs
Court then makes it clear that “property” may include intangible property, such as confidential business
information. Carpenter.
Carpenter v. United States (1987) – SCOTUS – INTANGIBLE PROPERTY case
- Takeaway: the distinction isn’t drawn between tangible and intangible, but rather between property and
something fuzzier, like honest services.
- Facts: “Heard on the Street” column in the WSJ. Still exists today. Very influential with ability to move
the market. If the column says IBM is garbage, you expect the stock to tank. So if you know in advance
what the column says, there’s an opportunity to make $$ off the expectation of its effect on the market. Ds
charged with mail and wire fraud – defense that they didn’t receive any tangible money or property.
Intangible rights can’t be the basis of a fraud case according to McNally. D says: this is analogous to
McNally and we shouldn’t be convicted either.
o Here, information is intangible, but it’s still property according to the court. Business
information is still property; it’s a bundle of rights the WSJ has exclusive control over.
o Bundle of rights belonging to the WSJ – right to exclusively use that information. Another
example of this would be intellectual property. Valuable and exclusive, but intangible.
- WAS the WSJ actually injured here? The content of the column wasn’t altered, so the integrity of the
column was preserved. They took advantage of the knowledge that was coming. No reputational harm
because no one knows. Harm = deprived of confidential business information. Loss of exclusive control of
the property interest.
o Cannot point to the $$ harm that the Court in Regent was at least implying might be required.
- Note that the mailing here = mailing newspapers to the subscribers. This works as a furtherance of the
scheme because if the subscribers don’t get the paper, they can’t respond to the column in the market, and
the market won’t move. Then the schemers don’t make any money. Essential to the scheme.
o Basically: just have to know the mailing will occur, and it’s “in furtherance of the scheme.”
HYPO: Eliason has a student working as an RA. Student puts Eliason’s private notes on a private shared
website to share with all the students.
- Comparing/Contrasting
o This seems analogous to Carpenter, in the sense that it’s IP and work product at issue.
o This isn’t the same scale as Carpenter. Part of what was emphasized in Carpenter is that WSJ
is sold by the copy. Here, if Eliason had been compiling his notes to create a book that would
be sold on Amazon, that would make it a bit more similar to the scale.
o Economic harm may be more tangible in hypo, because the injury is more readily identifiable.
With the WSJ, people buy the paper for reasons other than this particular column. The
scheme didn’t hurt their subscription rates, etc. This may matter more for damages.
o WSJ has more societal implications. Effecting the securities market (direct fed. interest)
o If Eliason’s notes have already been presented to the class, information is already public.
o The students aren’t the future purchasers of the textbook because they already took the class.
That distinguishes this. If the case were brought, Eliason would say: there was fraud here –
the RA made money off Eliason’s private information. That’s deprivation. It doesn’t matter
what the collateral consequences are; his property is being taken. That’s the argument.
- Practically speaking, wouldn’t choose to bring this case because the $$ involves isn’t significant enough.
Note that if an employee calls in sick, and is lying, instead goes to a ball game. That’s technically wire fraud
because the employee is defrauding the employer of his salary and using his phone to do it. Shows how easy it
is to meet the elements of the offense, but practically speaking, those cases aren’t clogging the courts.
The object of the fraud must be property in the hands of the victim at the time of the fraud;
government regulatory interests are not property. Cleveland. The Court held that Louisiana’s video poker
licenses in the hands of the licensor were not property for purposes of the mail fraud statute.
Cleveland v. United States (2000) – SCOTUS
13
Megan Childs
-
-
Takeaway: the property has to be in the hands of the victim – not something that will be property later on
Facts: True owner of the business has a shady tax record and financial problems, so he lies on
applications to the state of Louisiana to conceal that he’s the true owner of the business. If he tells the
truth, he won’t be able to get the licenses, and the licenses generate the revenue. After this, the company
did everything they were supposed to do, so not clear that Louisiana lost money/was harmed.
o Not a deprivation of money, but a deprivation of property interest in the unissued licenses.
o LA was deprived of its right to control the process of licensing when Ds lied on application.
Holdings:
o (1) If non-issued licenses in the hands of the state are property for mail/wire fraud, it’s a
slippery slope. Any kind of permit that a local or state government hands out will be
“property,” i.e. a driver’s license. Unlimited expansion of federal government.
§ Same concern as McNally – don’t want to involve the federal government with vague
standards like “honest services.”
§ An unissued license is not something the government actually has in its property.
o (2) Louisiana state should prosecute the lying on the application, because it violates Louisiana
law. Don’t need mail fraud (federal statute), because it’s already criminalized by the state.
Consider that taxi medallions in NYC are property in the hands of the people who have the power to use them
(the drivers). But, not property in the hands of the government body that issued them.
Zubinsky case (First Circuit)
- Zubinsky had access to tax information, which he used to advise clients. On the side, he was also
snooping into other’s tax returns improperly (celebrities, ex-girlfriends, etc.)
- First Circuit struck down government’s theory of honest services fraud. His behavior was deplorable for a
public servant, but the honest services doctrine can’t be a catch-all good government statute. Zubinsky
was fired for violating the workplace rules. It can’t be that every violation of workplace internal rules is a
federal felony because of dishonesty.
- Honest Services suggests the work they’re expected to do is being influenced, such that their service are
not what are expected. Instead, altered in some way for an outside person.
- With this case, the court had to reign in the Honest Services doctrine. Was far too wide-sweeping.
Question becomes: what is the scope of honest services fraud?
In Skilling (2010), the Supreme Court limited theory to cases involving bribes or kickbacks, in either the public
or private sectors.
Skilling v. United States (2010) – SCOTUS
- Takeaway: the Court did not invalidate § 1346, but limited it to cases involving bribes and kickbacks.
The Court stated that the “vast majority” of the honest-services cases “involved offenders who, in
violation of a fiduciary duty, participated in bribery or kickback schemes.”
- Facts: Skilling was CEO of Enron. Charged for depriving Enron of its right to honest services as
executive (with two others). He engaged in schemes to lie about the internal finances of the co. in order to
prop up its stock, lied to investors, profited from stock-options, etc. Defrauded all their investors + Enron.
- Skilling argued; honest services fraud requires that the employee benefit at the expense of the employer! I
just wanted to keep the company afloat. Also claimed statute was void for vagueness.
- Scalia’s Vigorous Dissent: if Congress intended for briberies and kick-backs to be included in the statute,
they would have included that. This decision is judicial activism.
After Skilling, we’re left with an odd outcome where a kick-back scheme is honest services fraud. I.e., where a
corrupt politician gives a contract to a company with an agreement that the politician will get a monetary kickback. But, in a situation where the politician makes a deal with a company that he secretly owns or has a stake
in, does not disclose the conflict of interest, and then makes a profit, is not honest services fraud. Even though
the harm to the public is the same.
14
Megan Childs
What kind of duty qualifies for “honest services” after Skilling?
- The classic example = politicians. Public corruption. Duty of honest services to the public.
- Private sector cases are trickier. Most common = employer/employee.
o I.e., a corporate officer’s duty to his shareholders.
o I.e., employees have an obligation to act in the employer’s best interest.
o Honest services is still a gray area though. I.e., in an employment negotiation, no duty to
disclose that you’d take less $$ than the company is offering you.
United States v. Milovanovic (2012) – Ninth Cir.
- Takeaway: need to have a fiduciary duty, but doesn’t need to be a formal, legally cognizable fiduciary
duty. Can be a trust relationship. Fiduciary duty isn’t always super clearly defined – can be a jury Q.
o Not a black and white rule – depends on the duty.
- Facts: Milovanic was a private third party employee involved in translating. He was an independent
contractor, not an employee.
o Here, the FD is satisfied because the nature of the work was important. There was a danger to
the public, so he was acting in the nature of the state, and giving out improper licenses that
could injure people on the roads. Even if in general, the State doesn’t have a right to ensure a
certain degree or trust in a contract – in this case, the nature of the work is such that
Milovanovic knew he was being relied on, because the others can’t speak the language.
Special degree of the State needing to rely on the trustworthiness of the contractor.
Sarbanes-Oxley Act of 2002: relatively new statute passed in the wake of Enron and other corporate scandals.
Added a number of new WC statutes (including obstruction of justice statutes).
- 18 U.S.C. § 1349: attempts and conspiracies to commit mail and wire fraud are now subject to the same
punishment as mail and wire fraud.
o Doesn’t define a new offense. Rather, it adds a penalty provision.
o Increased statutory maximum penalties for mail and wire fraud from 5 to 20 years.
CONSPIRACY
18 U.S.C. § 371.
Very broad and extremely likely, basically any time there’s more than one actor.
Conspiracy is its own, separate crime. § 371 is a catch-all conspiracy statute. Straightforward.
18 U.S.C. § 371 criminalizes conspiracies to commit any offense against the U.S., as well as conspiracies to
defraud the U.S. or its agencies.
ELEMENTS – must prove each beyond a reasonable doubt
- (1) Two or more persons form an agreement:
o (a) To commit an offense against the United States; OR
o (b) To defraud the United States;
- (2) Defendant knowingly and voluntarily joins the conspiracy with the intent to further the criminal
objective; and
- (3) At least one overt act in furtherance of the conspiracy is committed by one member of the
conspiracy. [See “overt act” requirement explained below].
CONSIDER:
- That both prongs (1)(a) and (1)(b) may be charged in the same indictment, and even in the same count.
- That conspiracy to commit an offense against the U.S. doesn’t mean the U.S. is the victim. Any federal
crime will satisfy this element.
- That a conspiracy may have multiple objects, and all may be alleged in the same count. There may be
several crimes the conspirators agreed to commit.
15
Megan Childs
-
That a conspiracy to defraud the U.S. includes not only money and property, but also impairing,
obstructing, or impeding a lawful government function by deceit, craft, or trickery. Monetary loss is not
required.
Advantages of Charging Conspiracy (from Prosecutor’s perspective):
- (1) Straightforward and easy to understand. No complex statutory terms.
- (2) Easy to lay out the entire criminal scheme.
o By its nature, is a natural vehicle for telling the story of what happened in the case. I.e., have
to identify who the parties are, what they did/agreed to do, why they agreed to it, overt acts…
o May follow up conspiracy charges with the substantive charges of what the conspiracy was
(i.e., mail or wire fraud). Count One will be the conspiracy charge that lays out what
happened. Then, the subsequent charges can be much less detailed because count one already
outlined.
- (3) Hearsay advantage – Fed. R. Evid. § 801(d)(2)(E).
o Hearsay generally isn’t admissible, but statements made in furtherance of a conspiracy are.
- (4) Statute of limitations advantages.
o Statute of limitations is 5 years for most crimes. For conspiracy, the statute of limitations
doesn’t start to run until the final overt act in the conspiracy. Thus, if you have a 15-year
conspiracy and they’re finally caught, a lot of the individual crimes will be too old to
prosecute. Can’t prosecute the individual offenses anymore, but evidence of those crimes can
come in as evidence of the ongoing conspiracy.
- (5) Venue advantages.
o The government may bring a conspiracy case in any district where the agreement was entered
into or where any co-conspirator committed any act in furtherance of the conspiracy.
- (6) Allows joinder of many defendants and charges in single indictment.
- (7) Success or completion of the criminal scheme is not required.
o Conspiracy is frequently how crimes are charged that weren’t expressly completed, because
there’s no general attempt statute in federal criminal law.
Policy Rationales for Conspiracy
- Deterrence; moral culpability (the intent was there); dangerousness of numerous players involved (group
think, mutual reinforcement, more resources).
Conspiracy is a big area for prosecutorial discretion. Was there actually a harm? Or a significant potential
harm? If a few guys in a bar come up with an agreement to rob a liquor store, but never actually come close to
following through – do you want to bring that case? Where is the harm?
Sample Charging Language for Conspiracy: “Between, on, or about August 2, 1992 and on or about April 3,
1992, defendants… did combine, conspire, confederate, and agree with each other… to… (1) defraud the
United States by… and… to commit offenses against the United States, that is, (a) to violate Executive Order
12722…and (b) in a matter within… all in violation of 18 U.S.C. § 371.”
United States v. Arch Trading Co. (1993) – Fourth Circuit
- Facts: Iraq invades Kuwait and President Bush issues an executive order that no one can do business with
Iraq. Before the Executive Order, Arch Trading was doing business with an Iraqi company. They had a
contract that they finished out, in violation of the E.O. – falsified records, etc.
o The conspiracy charge in the case is based on the offense against the United States to violate
the Executive Order. But, it’s not a crime to violate an Executive Order. Instead, they should
have been charged with conspiracy to defraud the United States (under prong (b)).
- Held: this particular Executive Order actually was backed by a congressional statute that authorizes the
President to issue orders like this, and prosecute them as a crime. So it is a crime/offense under prong (a).
THE AGREEMENT REQUIREMENT
16
Megan Childs
-
-
-
The agreement is the heart of the conspiracy – a “partnership in crime.”
Often, agreement must be proven by circumstantial evidence (unless it’s admitted to).
Agreement to the conspiracy requiring knowledge of the conspiracy’s existence, as well as knowledge of
the objective of the conspiracy. It does not require knowledge of all the details of the conspiracy.
o Knowledge of the agreement’s illegal purpose may be shown by willful blindness (conscious
avoidance).
The D must also intend to participate in the conspiracy. The degree or mens rea required for the
conspiracy is dependent on the level of intent required for the underlying specific offense.
The agreement does not have to be written, oral, or explicit. It can be inferred from the facts and
circumstances of the case. If the minds of the parties meet and an understanding is reached to achieve a
common purpose, there is an agreement.
The agreement must be to achieve an unlawful objective, either to (a) To commit an offense against the
United States, OR (b) to defraud the United States.
o The offense and defraud clauses of this statute offer alternative methods of charging.
o OFFENSE: the conspiracy has as its object the violation of other civil and criminal statutes.
For example, a conspiracy to commit mail fraud (18 U.S.C. § 1341) and conspiracy to
obstruct justice (18 U.S.C. § 1503) would be violations of 18 U.S.C. § 371.
o DEFRAUD: A conspiracy to defraud the U.S. requires a showing that the accused either
cheated the government out of property or money, or interfered with or obstructed a lawful
government function by deceit, craft, trickery, or dishonest means.
It’s necessary to have one overall agreement between the parties, but it is not necessary to have every
participant of the conspiracy know the other individuals involved or know the specific details of every
aspect of the conspiracy.
THE PLURALITY REQUIREMENT
- A conspiracy requires an agreement between two or more human minds (pooling their resources).
- A defendant cannot conspire solely with his own corporation (Stevens) or solely with a federal undercover
agent. In U.S. v. Stevens (1990), he was the only real person involved. The government charged him and
his companies with conspiracy to defraud the Pentagon. The Court threw out the conviction – can’t be
involved in conspiring with your own corporation. Need two or more human brains.
o D was the sole stockholder of the corporation and acted as its sole agent. Where the
conspiracy involves only one human actor, the crime of conspiracy is improper.
- The plurality requirement does not necessitate that the government charge all members of the conspiracy.
Defining the Scope of the Conspiracy
(1) Wheel Analogy – one person at the center of the conspiracy, with multiple “spokes.” To be a single
conspiracy, the “spokes” must be aware of each other and do something to further a common criminal goal.
- Example: Rick Singer and the Varsity Blues scandal. He’s at the center hub, and all the parents are an
individual spoke. There, parents are already claiming the government can’t prosecute them all together
because that’s too prejudicial (Kotteakos).
(2) Chain Analogy – each conspirator is a link in the chain, dependent on the other links for the conspiracy’s
overall success.
*Note that prosecutor doesn’t necessarily need to describe every conspiracy in the “wheel” or “chain”
language. Sometimes it’s just a clump.
Kotteakos v. United States (1946) – Supreme Court
- Takeaway: what we have here is a bunch of individual conspiracies that should have been charged as
such, instead of one massive one. Court holds here that it was actually prejudicial (harmed defendants).
o Court rejects the connection as sufficient for a single conspiracy.
- Facts: 30+ defendants engaged in loan fraud with numerous others. Brown is the central character (the
hub of the wheel) and everyone else worked with him directly (the spokes), but not with each other. Issue
is whether all the separate defendants should be held liable for each other’s actions. Single v. multiple
conspiracies. The individual conspirators were not interested in anything but their own loan.
17
Megan Childs
o
o
Wheel analogy – Brown is the hub of the wheel and the spokes are the individuals who
engaged in the fraud with him, but there’s no secondary ring connecting all the spokes.
§ We have to at least know the defendants are all involved in something larger and
contributing to the same, larger conspiracy. Here it’s a bunch of individual
conspiracies.
The conspiracies were separate and disconnected with no one overriding plan.
THE OVERT ACT REQUIREMENT
- (1) The overt act need not be illegal itself.
- (2) The overt act need not have been committed by this particular defendant.
- (3) All of the overt acts alleged in the indictment need not be proven – only need to prove one.
- (4) Overt act must be in furtherance of the conspiracy and must take place during the life of the
conspiracy.
- (5) Overt acts can be the key to venue and statute of limitations issues.
*Note that in any case that you’d even consider prosecuting, going to have so many overt acts that the only
challenge is picking which one to put in the indictment.
*If you just have a pure agreement/discussion and nothing is ever actually done – not going to prosecute.
*Example = Martha Stewart. Overt act was meeting her broker for breakfast where they came up with the
story (cover up) about what happened. Act itself not illegal (breakfast), but counts for overt act.
The Pinkerton Rule
Pinkerton v. United States (1946) – SCOTUS
- Takeaway: In Pinkerton, the Supreme Court held that a conspirator can be liable for the substantive
offenses of a co-conspirator that are in furtherance of the conspiracy. Each member of a conspiracy is
liable for substantive crimes committed by co-conspirators where the crimes were committed during the
course of and in furtherance of the conspiracy, were within the scope of the conspiracy, and were
reasonably foreseeable. Even if they didn’t actually participate in those crimes.
o Pinkerton requires that to find a conspirator liable for the substantive offense of a coconspirator, the substantive offense (1) be within the scope and in furtherance of the
conspiracy; (2) be committed by one or more members of the conspiracy; and (3) the
individual accused of the substantive offense must be a member of the conspiracy at the time
the specific offense was committed.
- Rationale = where you’ve encourage each other, you can be responsible for the underlying crimes even if
you didn’t take part. If in furtherance of the conspiracy, then a D can be charged with the crime AND the
conspiracy, even if it was only carried out by co-conspirators.
- In some instances, Pinkerton is applied when the substantive crime is a primary goal of the alleged
conspiracy. Other cases employ the Pinkerton Rule where the substantive crime “facilitates the
achievement of one of the primary goals” of the conspiracy.
United States v. Jimenez-Recio (2003) – Supreme Court
- Takeaway: impossibility is not a defense to conspiracy. Even though the “object of the conspiracy” may
be “impossible to achieve,” as when the government intercedes and defeats the conspiracy object, a
conspiracy can still exist as “conspiracy law does not contain” an “automatic termination rule.”
- Facts: Jimenez-Recio arrested by DEA in the midst of a drug shipment. Defendants agree to cooperate
and implicate others by calling them to pick up the drugs. Claim that they can’t be charged with
conspiracy, because by the time they were arrested, the conspiracy had already been intercepted by the
DEA. The defendants were cooperating, even if the other guys they didn’t know that.
o Supreme Court rejected D’s argument – contrary to basic conspiracy law. Impossibility
doesn’t matter. Whether you succeed in fact or whether you even could succeed is irrelevant.
Note on Impossibility: the dangers of a conspiracy still exist even if, unknown to the conspirators, it will be
impossible for them to achieve their criminal goals. The agreement is a “distinct evil” which may exist and be
punished, whether or not the substantive crime occurs.
18
Megan Childs
AFFIRMATIVE DEFENSE: WITHDRAWAL
- A D may withdraw from a conspiracy by committing affirmative acts inconsistent with the conspiracy’s
goals. Not enough to passively stop participating. The defense has the burden of proof.
o Don’t have to go to the police, but that’s a common way to withdraw.
o Withdrawal can be shown through action communication to co-conspirators that disavows or
defeats the purpose of the conspiracy. “A D who withdraws outside the relevant statute-oflimitations period has a complete defense to prosecution.” Smith v. U.S. (2013) – SCOTUS.
- A conspirator is not liable for the subsequent substantive crimes of the co-conspirators that are committed
after his withdrawal – but remains liable for conspiracy. Also begins the statute of limitations as it
pertains to you.
- Statute of limitations starts to run upon withdrawal for the withdrawing co-conspirator.
PUBLIC CORRUPTION: BRIBERY & GRATITUITIES
18 U.S.C. § 201.
Criminalizes conduct of those who improperly seek preferential treatment from government officials and also
those who improperly use their public office for their personal gain. § 201 criminalizes the conduct of the
person giving the bribe as well as the person who receives it.
Notes on public corruption as a particularly interesting/challenging crime:
- (1) Public corruption is a particularly egregious crime.
- (2) Challenging, because the defendants often have a lot of resources and are sophisticated. Make good
witnesses and are good at public speaking.
- (3) There are no direct victims. I.e., bribing a congressman – no one else around knows what’s happening.
The victim is the public as a whole, and they don’t even know what happened. Strategy is essentially to
piece together what happened with circumstantial evidence until there’s cooperation.
- (4) Campaigns are privately financed. Especially in politics, there’s sketchy financing going on. Have to
determine where the line of corruption is – line between “politics as usual”/not criminal vs. what crosses
the line into criminal conduct is a classic gray area in WC. Disagreement on where the line may fall.
“A BRIBE SAYS ‘PLEASE,’ WHILE A GRATUITY SAYS ‘THANK YOU.’”
BRIBERY – 18 U.S.C. § 201(b)
1. A “public official;”
2. Corruptly [aka for a bad purpose];
3. Demands, seeks, receives, accepts, or agrees to receive and accept, something of value;
4. In exchange for being influenced in the performance of an official act, or for being induced to do or
omit to do an act in violation of his/her official duty, or for being influenced to commit a fraud against
the U.S.
[also applies to the person who gives the bribe – this is a two-sided transaction where both parties are equally
culpable.]
[Timing is important, but not dispositive. If they take the thing of value, but their behavior isn’t changed, that
may end up being a jury question.]
[Key = corrupt intent to influence. Corrupt intent = “acting with the intent to influence, or to be influenced in,
the performance of official acts.” Sometimes referred to as “quid pro quo.”]
Note: not all public officials get contributions/fundraise. For example, executive branch employees, local
officials (i.e. police), etc. don’t have a legitimate reason to be raising money. So when they’re taking money
from the public, they have more explaining to do. They can’t use campaign funding as a defense.
- Establish early on: is this an official who has a right to be taking money from the public at all?
Penalty: maximum penalty of 15-years imprisonment, a fine, + disqualification from public office.
19
Megan Childs
Note: the most difficult aspect form the government’s perspective is proving the influence element. A lot of
weak bribery cases end up getting plead out. Even if there’s a thing of value and the official is doing
something, can you show the corrupt intent/influence?
PUBLIC OFFICIAL
Note: Applies only to public officials! Not to private commercial bribery.
- “Public official” includes not only federal employees, but also state employees or private individuals who
are administering federal programs or funds, or who occupy a position of public trust with federal
responsibilities.
- The statute defines “public official” as the term “public official” means Member of Congress, Delegate,
or Resident Commissioner, either before or after such official has qualified, or an officer or employee or
person acting for or on behalf of the United States, or any department, agency, or branch of Government
thereof, including the District of Columbia, in any official function, under or by authority of any
such department, agency, or branch of Government, or a juror.
- Example: federal prison guards. Working for the state in a state institution, but if guarding federal
prisoners, they can be federal officials under § 201.
- TEST:
o (1) Are they federal? If not à
o (2) Are they in a particular role where there’s a position of federal responsibility/trust that
should hold them accountable?
QUID PRO QUO
The key to a bribery charge = influencing the official’s behavior based on what you’re giving them. In response
for what you give them, they’re no longer acting for the public benefit, but rather for a private reason.
- Can have a benign quid pro quo in theory, but the corrupt intent is what makes this distinguishable.
- Often circumstantial. Rare to have an explicit quid pro quo agreement on the record. Consider the
relationship and the power dynamic (i.e. United States/Ukraine investigation with Trump).
- “The official and the payor need not state the quid pro quo in express terms, for otherwise the law’s effect
could be frustrated by knowing winks and nods. The inducement from the official is criminal if it is
express or if it is implied from his words and actions, so long as he intends it to be so and the payor so
interprets it.” Justice Kennedy concurrence in Evans (1992).
- A party can also have multiple motives, as long as the thing of value is used to influence the official act –
that’s what matters. Agreement that this thing of value will influence the ultimate decision.
“THING OF VALUE”
- Very broad – includes almost anything of subjective value to the recipient.
- Actual commercial value is not necessary. It is the “value which the defendant subjectively attaches to the
items received,” which controls. U.S. v. Gorman (1986) [did not read this case].
- Subjective. Eliason (tech startup worker) gives a congressman $50k in shares of a subsidiary company in
exchange for his vote on a particular issue. Turns out it’s actually just a shell company and the stocks are
worthless. The congressman thinks they’re worth $50k and votes the way Eliason wants him to. When
charged with bribery, he can’t claim there wasn’t a “thing of value.” It’s about the subjective valuation.
o Doesn’t matter if it actually has value.
“OFFICIAL ACTS”
- The bribe or gratuity must be connected to an “official act” as defined in the statute. § 201 isn’t a general
ban on public officials receiving outside income or cashing in on government connections.
- The statute defines “official act” as “any decision or action on any question, matter, cause, suit,
proceeding or controversy, which may at any time by pending, or which may by law be brought before an
public official, in such official’s official capacity, or in such official’s place of trust or profit.”
- The term is generally interpreted more broadly to apply to the types of things that generally come before a
public official in the ordinary course of his work.
20
Megan Childs
-
Bribery does not require that the public official actually have the power to perform the act for which the
money was received. The crux of the offense is that money is solicited or received on the representation
that it is for the purpose of influencing an official act.
Defining an “official act” – prior cases
o (1) U.S. v. Muntain (D.C. Cir. 1979): department of labor official who worked on workplace
safety issues (unrelated to insurance). He knew a lot of people in labor unions, and an
insurance company asked him for introductions to those workers so they can sell them
insurance, in exchange for $$. He agreed to introduce them, and was charged with gratuities.
He was charged and convicted for “his involvement in a private scheme to sell group
insurance to labor unions as a negotiated benefit in union contracts.” The conviction was
thrown out for lack of an “official act.” His job had nothing to do with insurance! This was
not a matter that would be brought before Muntain in his capacity as the Secretary of Labor
Relations. He was merely profiting off his connections. Although reprehensible, not sufficient
to meet the element of influencing an official act.
§ Muntain’s scheme didn’t involve “any question, matter, cause, suit, proceeding, or
controversy which by law might have been brought before [him] in his official
capacity.”
o (2) Valdes v. U.S. (D.C. Cir. 2006): off-duty police officer asked Valdes (a detective) to look
up a license plate for him for $$$. Valdez agreed to do it and used the police department
resources to look up the tags. He was convicted under § 201, but was overturned for a lack of
“official act” because it didn’t have anything to do with this official work.
§ “The government failed to show that the payments received by Valdes were for any
‘decision or action on any question, matter, cause, suit, proceeding or controversy,
which may at any time be pending or which may by law be brought before any public
official,’ as required by 18 U.S.C. § 201.” The mere release of information did not
qualify as an official act.
Dixson v. United States (1984) – SCOTUS
- Takeaway: the determination for a “public official” is “whether the person occupies a position of public
trust with official federal responsibilities.”
- Facts: petitioners charged with bribery for their acceptance of ($42k worth of) kickbacks from contractors
seeking work on a project arising as part of an urban renewal program. The City of Peoria, the recipient of
two federal block grants from the Department of Housing and Urban Development, designated a social
service organization as subgrantee in charge of administering the funds. Petitioners served in a
supervisory capacity with this agency with certain fiscal and contracting authority. The Court found that
officers of a private, nonprofit corporation administering and expending federal community development
block grants were ‘public officials’ for purposes of the federal bribery statute. However, the Court
clarified that the “mere presence of some federal assistance” or being an employee of a local organization
responsible for administering a federal grant does not make one a “public official.” Instead, one “must
possess some degree of official responsibility for carrying out a federal program or policy.”
- Facts: City of Peoria received two federal block grants from Dept. of Housing and Urban Development.
Both grants were funded through the government. The Secretary of HUD authorized to dispense federal
block grants to state and local governments and nonprofit community organizations for urban renewal
programs such as the rehabilitation of residential structures. The City subsequently designated a
community-based social-service organization to be the City’s subgrantee in charge of administering the
federal funds. The service organization then hired Dixson to serve as the Executive Director, and was
responsible for the general supervision of the service org,’s programs, including fiscal control and
execution of contracts. Dixson then used his position to extract $42k in kick-backs from contractors
seeking to work with the org. Here, petitioners were held to be public officials.
- Court was much more willing to take an expansive view of the statute to be in line with Congress’
purpose to apply it to anyone arguably serving in this role. Dissenters are concerned about the breadth.
- *Eliason doubts Dixson would result the same way with today’s Court.
21
Megan Childs
Note: Eliason says, you don’t have to know you’re a public official. Not a defense to claim you’re taking
bribes, but didn’t realize it’s federal money. KNOWLEDGE isn’t an element.
CORRUPT INTENT
- The bribe must be offered with a corrupt intent to influence any official act. It is immaterial to some
courts whether the act could or would ever be performed.
Consider: Eliason is employed by GW, and GW gets federal funding/grants. If one of us were to bribe Eliason
for a better grade, that would not meet the Dixson standard. Not enough to be employed by an entity receiving
federal money.
- Might be a different outcome if bribing someone in the financial aid office or something administering
federal aid. Those employees may be subject to these statutes.
Consider: Justice Thomas, who is both a Supreme Court Justice and a professor at GW. This is more
complicated. Have to ask – was he acting in his capacity as Justice or professor? Was it a federal act?
GRATUITIES – 18 U.S.C. § 201(c)
1. A “public official;”
2. Knowingly and willfully;
3. Demands, seeks, receives, accepts, or agrees to receive and accept, something of value;
4. For or because of any official act performed or to be performed.
[also applies to the person who gives the gratuity]
Distinguishing from bribery: gratuities lack the verbs that exist in bribery (i.e. induce). With gratuity, not
necessarily changing the person’s behavior. Can just be a thank you after the fact. Gratuity doesn’t require
proof of QPQ. Unlike bribery, it “may constitute merely a reward for some future act that the public official
will take (and may have already determined to take), or for a past act that he has already taken.” Sun-Diamond
Growers (1999).
- Gratuity can be after-the-fact payment; no need to prove the official was influenced or induced to do
anything. A tip for services rendered. A gift given for an official act without a requirement that it be
influenced in any way.
- Bribery requires corrupt intent, while gratuities do not.
- A bribe may be received personally or on behalf of “any other person or entity;” a gratuity must be
received “personally.”
- In distinguishing the bribery offense from gratuity, Fourth Circuit in U.S. v. Muldoon (1991) stated that
“bribery requires proof that the payor acted corruptly with the intent of influencing any official act,
influencing a public official to defraud the government, or to do or omit an act in violation of his official
duties. In contrast, the court found that proof of a gratuity “need not show that the payor intended to exact
action by the recipient, although it must show that the payor gave the gratuity because of the act.”
Note: both bribery and gratuities apply to agreements. Inchoate – doesn’t have to actually be completed. The
crime is in the agreement or the effort to carry out the scheme. No requirement that it actually succeed; no
requirement to show damages.
Penalty: gratuities provision provides for maximum imprisonment of two years.
“In order to establish a violation of 18 U.S.C. § 201(c)(1)(A), the Government must prove a link between a
thing of value conferred upon a public official and a specific “official act” for or because of which it was
given.” Sun-Diamond Growers of CA (1999).
McDonnell v. United States (2016) – SCOTUS, unanimous
- Takeaways: The Court adopts a more bounded interpretation of “official act.” Under this interpretation,
setting up a meeting, calling another public official, or hosting an event does not, standing alone, qualify
22
Megan Childs
as an “official act.” The case came down to corrupt intent – (A) were you being influenced; (B) even if
you were, did the things McDonnell do qualify as official acts under the statute? Not official acts.
o (1) A “question, matter, cause, suit, proceeding, or controversy” must be relatively
circumscribed and involve a formal exercise of government power.
o (2) Then, once you have a “question, matter, etc.,” need a “decision or action” “on” that
matter involve taking some steps to influence or resolve it, or pressuring others to do so.
- Facts: McDonnell and his wife are charged with conspiracy, and bribery under § 201. Over two years,
Williams (a businessman) gave the couple about $175k in secret gifts, including a Rolex, a caterer for his
daughter’s wedding, shopping sprees, etc. The biggest item was $120k in undocumented, no-interest, nopaperwork loans. In exchange for the gifts, Williams wants his product studied at Virginia public
universities to help him secure FDA approval. McDonnell sets up some meetings, make some calls, sends
some emails, etc. to put in a good word, but half-hearted. His employees kind of blow it off. He hosts an
event at the governor’s mansion to promote the product and tries to get people interested. Ultimately,
Williams never gets much out of it.
o His wife was charged “on behalf” of a public official (her husband). She was not a public
official herself.
o Simply arranging a meeting or making a call is not sufficient; though may serve as evidence
of a corrupt agreement.
o McDonnell argues that what he did doesn’t qualify under the § 201(a)(3) definition of “an
official act.” He claims he was merely doing favors for a constituent, and those actions didn’t
qualify as “questions, matters, causes, suits, etc.”
o Note that these payments were not campaign contributions! Campaign contributions are legal,
documented payments, not at risk of prosecution. No one would consider payment a caterer
for his daughter’s a legitimate political donation. Clear intent based on the gifts being hidden
that they were illegitimate.
o Eliason finds it clear that the only reason McDonnell did what he did was in exchange for the
gifts – seems like a clear quid pro quo. McDonnell is selling access, which is very valuable.
- The Court is concerned here that there would be a chilling effect to find that any arrangement or meeting
between a constituent and a politician counts as an “official act.” If the statute is interpreted too broadly,
prosecutors will have the power to target political opponents.
- Held: this is swampy behavior, but not criminal.
*Very controversial decision.
*Note that he was actually charged with honest services fraud and the Hobbs Act because he wasn’t a federal
official. State and local corruption usually needs to find a different theory because not dealing with a federal
official. But those statutes don’t define bribery, so the prosecutors agreed to look to the § 201 definition.
Turned out not to be a good idea because of the narrow scope of § 201.
- The definition under § 201 now applies to Hobbs Act, Honest Services Fraud, and § 201.
The result of McDonnell is as follows: Eliason as governor can set up a system that tells anyone in the outside
world – if you want to meet with someone in my cabinet to make a pitch for your contract or government
program, etc. – I’ll set up the meeting and the price is $10k and goes straight into my pocket. We won’t tell
anyone about it. If you don’t pay, no meeting.
- Under §201 after McDonnell, setting up the meeting isn’t an “official act.” Even though this is corrupt.
After McDonnell – restrictive view of what constitutes an “official act.” Must identify a discrete, identifiable
matter, cause, suit, etc. that is pending or could be pending before the official. AND THEN some identifiable
action, decision, etc. acting on it.
United States v. Sun-Diamond Growers of California (1999) – SCOTUS
- Takeaway: both bribery and gratuities require a link to a specific official act.
- Facts: Espy (Sec. of Ag.) was charged with gratuities for accepting $7900 worth of luggage, U.S. Open
tickets, etc. “Status gratuities” – public official who’s being given gifts over time, and from time to time,
he’s doing something that benefits me. Couldn’t identify any one gift that resulted in their doing any one
23
Megan Childs
-
-
thing. An ongoing relationship where from time to time there are gifts and from time to time, they do
something that benefits you. Giving gifts basically to generate good will.
Scalia opinion that looks at the text of the statute. Narrow reading of § 201. Held that if it is read more
broadly, every single voluntary gift will be considered a gratuity, and that can’t be what Congress
intended. Raises broader issue – when the President accepts the sports team at the White House, is that an
official act? That would be an absurd result. Congress can act to remedy this if they choose.
Note that a lot of intangibles existed in this case – i.e., Sun-Diamond paid for Espy’s girlfriend to
accompany him on a trip to Greece for a convention. He said – that’s not a thing of value to me! But her
companionship was held to be a thing of value. That’s a side issue though.
1990s D.C. Prison Guards
- D.C. jail guards in the 1990s bringing drugs into the prisons for inmates. FBI/police started an
investigation and used cooperatives to have inmates approach guards to buy drugs, and if the guard
seemed receptive, the inmate would give the guard a telephone number that reached an undercover officer
on the outside. They would set up a fake drug deal with UV markings on the bags so they could be
identified later as being the same drugs that were planted. In the first phase, 11 guards were arrested and
all pleaded guilty, except one who was tried and convicted.
- In the second phase, one of the guards was found to not be delivering the drugs to the inmates, but rather
using the drugs himself. He was charged with bribery and intent to distribute. He didn’t plead guilty
because he wasn’t delivering the drugs. His defense was that he didn’t follow through in delivering the
drugs, so he can’t be charged with bribery. This doesn’t work, because it doesn’t matter whether he
follows through The crime is the deal. If he’s not able to complete the act or changes his mind – doesn’t
matter. On the tape he agrees to take the money in exchange for bringing in drugs. Holding out his public
office/position for the sale.
- How can these guards be charged under § 201 if they aren’t federal officials? § 201 specifically includes a
provision for D.C. officials. U.S.A.O. in D.C. can use § 201 to prosecute local city councilmembers, etc.
PUBLIC CORRUPTION: FEDERAL PROGRAM BRIBERY & HOBBS ACT
18 U.S.C. § 666 & 18 U.S.C. § 1951 (the Hobbs Act).
18 U.S.C. § 666
- (1) D solicited or received a thing of value;
- (2) D was agent of organization or agency that received > $10k/year in federal benefits;
- (3) Bribe was in connection with business valued at > (or equal to) $5000.
- (4) D acted corruptly.
[also applies to the person who pays the bribe].
Note: no “official act” language. § 666 is therefore another good vehicle for targeting state/local corruption.
- The Second Circuit recently held that the “official act” requirement in McDonald doesn’t apply to § 666.
United States v. Ng Lap Seng (2019).
- Note that there need not be any direct link between the federal funds and the bribe. Sabri.
- For most state and local offenses, § 201 isn’t an option because § 201 requires a public official (if not a
federal employee, then have to meet the Dixson standard).
- § 666 is broader – it applies to all private individuals. Consideration in deciding what charge to bring.
o Extends federal criminality to agents of state and local organizations that receive ten thousand
dollars or more in federal funds. Congress stated that the purpose of the act was “to augment
the ability of the United States to vindicate significant acts of theft, fraud, and bribery
involving Federal monies which are disbursed to private organizations or state and local
governments pursuant to a Federal program.” Under § 666, it is not necessary for the gov. to
prove the bribe in question had any particular influence on federal funds. Salinas.
24
Megan Childs
Very broad statute. As long as the organization is getting federal funds, Congress has the power to protect
that. Much broader than § 201: not limited to public officials (applies to private sector bribery), as long as the
organization gets federal funds.
Sabri v. United States (2004) – SCOTUS
- Takeaway: there does not have to be a direct link between the bribe and the federal funds. The money is
fungible, and might free up funds in another place. No way to know what specific money was used where.
o The Court found the statute constitutional even though the funds might not be traceable to the
specific federal program. It was enough that the statute was conditioned “on a threshold
amount of federal funds defining the federal interest.”
- Facts: Sabri (a real estate developer) bribed a Minneapolis city official on three occasions to obtain
permission to circumvent local licensing and zoning laws. The city official headed a Minneapolis public
community development organization, which received $23 million annually in federal funds. There was
no link between the bribe he was giving and the federal funds – completely distinct. He argued there was
no jurisdictional hook. Supreme Court holds for the government.
THE HOBBS ACT – 18 U.S.C. § 1951
- Applies to robbery, extortion by force, violence, or fear, and extortion “under color of official right.”
o “Under color of official right” theory is a leading public corruption charge, particularly for
state and local corruption.
o Interpreted by SCOTUS broadly, through McCormick has scaled it back.
- “Extortion” is defined within the statute as “the obtaining of property from another, with his consent,
induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.”
- *Note that often the line between Bribery under § 201 and the Hobbs Act is not always discernible and a
prosecutor often has a choice in deciding what statute to use in prosecuting specific conduct.
Extortion Under Color of Official Right – elements (must be proven BARD and alleged in the indictment)
- (1) A public official obtained property of another;
- (2) With consent;
- (3) Under color of official right; [this is usually the key issue];
- (4) Causing an effect on interstate commerce.
Penalty: maximum term of imprisonment of not more than 20 years and a fine.
Extortion under color of official right is an alternative basis upon which a prosecutor can claim extortion. It
includes the misuse of one’s office to induce payments not due the person or his office. The official need not
control the function in question if the extorted party possesses a reasonable belief in the official’s powers.
There is no need for an affirmative act of inducement. Evans. Merely accepting a bribe to misuse one’s office
is sufficient.
*Note that no “shakedown,” threat, or explicit demand by the official is required.
*“…The Government need only show that a public official has obtained a payment to which he was not
entitled, knowing that the payment was made in return for official acts.” Evans v. United States.
TERMS
- “Public official” is not defined (like in § 201). Applies to federal, state, and local officials.
- Applies to “property,” not the broader “thing of value” in § 201. In § 201, can be the quid in the QPQ that
serves as an intangible benefit (i.e., the girlfriend attending conference in Sun-Diamond case).
- “Obtained” is at issue in National Organization for Women v. Scheidler (1994) – SCOTUS.
- Extortion means “given with consent” meaning you know you’re handing over the money, but that
consent is induced either by some kind of threat or force of violence, or under color of official right.
- “Thing of value” in § 201 is broader than “property that has to be obtained” in the Hobbs Act.
25
Megan Childs
-
Interstate commerce requirement usually not much of a hurdle. The effect can be minimal. But, still have
to prove it. Have to show federal jurisdiction. The commerce in question doesn’t have to be legal.
National Organization for Women v. Scheidler (1994) – SCOTUS
- Takeaway: petitioners did not “obtain” or “attempt to obtain” property from respondents, so there is no
basis upon which to find that they committed extortion under the Hobbs Act.
- Facts: claim by the NOW that a coalition of antiabortion groups were members of a nationwide
conspiracy to “shut down” abortion clinics through a pattern of racketeering activity that included acts of
extortion in violation of the Hobbs Act. Held: no extortion under the Hobbs Act, and because all of the
predicate acts supporting the finding of RICO must be reversed, the RICO judgment also reversed.
- “Whatever the outer boundaries [of extortion liability under the Hobbs Act] may be, the effort to
characterize petitioners’ actions here as an “obtaining of property from” respondents is well beyond them.
Such a result would be an unwarranted expansion of the meaning of that phrase.”
- Obtaining property requires “not only the deprivation but also the acquisition of property.” That is, it
requires that the victim ‘part with’ his property, and that the extortionist “gain possession of it.” The
property extorted must therefore be transferable – capable of passing from one person to another. U.S. v.
Sekhar (2013).
McCormick v. United States (1991) – SCOTUS
- Takeaway: McCormick’s conviction was overturned because SCOTUS found that a QPQ is necessary
for a conviction that is predicated upon receiving a campaign contribution. However, not all campaign
contributions would be outside the scope of the Hobbs Act – political contributions are vulnerable if
induced by the use of force, violence, or fear. The receipt of such contributions is also “vulnerable under
the Act as having been taken under color of official right, but only if the payments are made in return for
an explicit promise or undertaking by the official to perform or not to perform an unofficial act.”
- The Supreme Court reversed petitioner’s conviction, finding that a QPQ is necessary for a conviction that
is predicated upon receiving a campaign contribution. The Court stated that “to hold that legislators
commit the federal crime of extortion when they act for the benefit of constituents or support legislation
furthering the interests of some of their constituents, shortly before or after campaign contributions are
solicited and received from those beneficiaries, is an unrealistic assessment of what Congress could have
meant by making it a crime to obtain property from another, with his consent, under color of official right.
- McCormick’s requirement for a QPQ applies in all Hobbs Act cases.
- Facts: McCormick was a member of the WV House of Delegates who sponsored and spoke on behalf of
legislation that would exempt foreign medical school graduates with significant work experience from
having to take the state licensing examination. He allegedly received cash payments from the doctors both
before and after the passage of the legislation. Evidence presented at trial was that he failed to list the
funds received as campaign contributions and likewise failed to report it on his income tax return.
Prosecutors generally look for indicia of corruption as signs that something improper is occurring. Indicates a
difference between politics as usual and corruption. If by check (paper trial) and properly reported, etc. – then
there’s no secrecy. But where there are secret gifts (i.e. private jet trips, etc.) that aren’t properly reported…
Evans v. United States (1992) – SCOTUS
- Takeaway: An “affirmative act of inducement by a public official, such as a demand,” is not required for
extortion “under color of official right.” The Government need only show that a public official has
obtained a payment to which he was not entitled, knowing that the payment was made in return for
official acts. Thus, passive acceptance of a benefit by a public official can meet the extortion element of
the Hobbs Act when “the official knows that he is being offered the payment in exchange for a specific
requested exercise of his official power.”
o “Because the offense is completed at the time when the public official receives a payment in
return his agreement to perform specific official acts, fulfillment of the QPQ is not an element
of the offense.”
26
Megan Childs
-
-
-
Facts: Evans was a member of the Board of Commissions of DeKalb County, GA. He was approached by
an undercover FBI agent who sought his assistance on a rezoning. The agent paid Evans $8,000, of which
Evans reported $1,000 as a campaign contribution, but failed to include the cash payment in the sum of
$7,000 on his state campaign financing disclosure form or his federal income tax return. He was charged
under the Hobbs Act.
Note that Evans was a local Georgia official, so § 201 isn’t an option.
What does induce mean?
o (1) based on fear or force/violence;
o (2) color of official right only requires D to obtain property with the other’s consent.
o Even if inducement does apply – it doesn’t mean the party that was bribed has to initiate it.
The coercive element is provided by the fact of being a public official.
o Held that induced only applies to the use of fear or force/violence.
Justice Thomas’ dissent: bribery and extortion are separate crimes. Cannot eliminate the distinction. In
bribery, both sides of the transaction are equally responsible/culpable (true in § 201, § 666, honest
services fraud, etc.) In extortion, the payor is the victim. The public official is extorting money from
someone who has no choice. The payor is the star witness; not someone being prosecuted. BUT, Evans
eliminates this distinction. Now, we have a lop-sided bribery statute, but no punishment for the payer.
o “By stretching the bounds of extortion to make it encompass bribery, the Court today blurs
the traditional distinction between the crimes.”
o Eliason thinks this is a very compelling argument. Thinks dissent is correct. Doesn’t make
sense to conflate the two crimes!
Bribery v. Extortion
- After Evans, not much difference between bribery and extortion under color of official right.
- Both require a quid pro quo. Much depends on the status of the person who pays: guilty if it’s a bribe,
victim if it’s extortion.
Ocasio v. United States (2016) – SCOTUS
- Takeaway: public officials and those paying bribes may be charged with conspiracy to violate the Hobbs
Act. Effectively, this means that those paying the bribes can be charged with conspiring to extort money
from themselves. Awkward result – can extort money from yourself.
o Doesn’t square with our notions of extortion. Suggests Evans is probably wrong.
- Facts: Whenever a car accident occurred and police came to the scene, the police would refer the driver to
the auto-body shop for repairs and then the officer would get a kickback for the referral. Eventually,
charged with conspiracy.
- D argues that the Hobbs Act requires receipt of property from another, because it wouldn’t make sense if
conspirators inside are exchanging money amongst themselves. Court firmly rejects this – it’s not the way
conspiracy law works. You can participate in the conspiracy, even if you don’t commit the underlying
crime. The officers are the only ones that have to get $$ from another, and they are. From garage owners.
United States v. Ambramoff
- (1) Bribing members of Congress and those Congressman’s staff with gifts, campaign contributions, golf
trips, etc. in exchange for lobbying favors/connections. Abramoff had a restaurant where congressmen
could eat and drink for free. One of the things of value he routinely handed out.
- (2) Theft and kickbacks. Lobbying efforts with Tribes to get casino licenses.
- This was pre-Skilling, so every defendant was charged with honest services fraud. None charged with
bribery, even though that’s what it was. Each D plead guilty.
SECURITIES FRAUD – INSIDER TRADING
No statute directly prohibits insider trading. We have the Securities Exchange Act that prohibits “manipulative
or deceptive” practices, etc., and rule 10b-5 of the SEC. Cases may be civil or criminal.
- Note that securities fraud is frequently charged as mail or wire fraud.
27
Megan Childs
-
Not universally agreed that insider trading is harmful. Vigorous debate among academics about whether it
should be prohibited, let alone criminal. May not cause a harm to the market that should be criminalized.
Criminal Provisions
- 15 U.S.C. § 78j prohibits “manipulative or deceptive” practices in connection with the purchase or sale of
a security, in violation of the SEC rules.
- SEC Rule 10b-5 prohibits any scheme or artifice to defraud or fraudulent act or course of conduct, in
connection with purchase or sale of a security.
- Penalties = 20 years and $5 million fine for individuals; $25 million fine for organizations (increased by
the Sarbanes-Oxley Act)
o Civil penalties also = losing your license, being barred from serving on a corporate board, etc.
o Criminal sanctions are reserved for the most egregious cases where the government can show
intent, in addition to the conduct.
Willfulness – distinguishes criminal from civil securities law violations. Willfulness required for a criminal
prosecution under the Securities Exchange Act. This mens rea precludes prosecutions when the accused acted
through mistake, excusable neglect, or inadvertence. Acts that are deliberate and intentional have been found
sufficient to meet the willfulness requirement.
- Does not require proof D knew actions were against the law.
- Courts differ on the exact definition. Generally, means acting intentionally and deliberately, not
accidentally or inadvertently. Basically, knowing you’re doing something bad/wrong.
- One who acts with willful blindness can also be found culpable.
“Insider Trading” = an individual’s purchase or sale of securities on the basis of material, non-public
information, in breach of the individual’s fiduciary duty or a similar duty of trust and confidence.
- Arises when an insider, with material non-public information, trades in securities without first disclosing
the material inside information to the public.
- Key is the violation of the duty. To whom is the duty owed? Duty gives rise to an obligation.
- Note that not every instance of market unfairness is wrongful. If Eliason does a ton of research and puts in
the time/resources to learn about a company and has knowledge others don’t, he can use that knowledge
in the market – that’s how it’s supposed to work. Not improper. Legitimate information gathering.
o Liability doesn’t arise merely from the possession of material, non-public information.
There is an “expectation of the securities marketplace that all investors trading on impersonal exchanges have
relatively equal access to material information.” SEC v. Texas Gulf Sulphur Co. (1968).
Classic I.T. case: Eliason is a corporate insider. The stock is selling at $7/share. Eliason knows about a great
new product, and the expectation is that it will result in the price of stock increasing dramatically. Eliason buys
a ton of shares based on his knowledge, and the public/shareholders don’t know yet. Acting in violation of the
duty owed to the public/shareholders. When the stock goes up, Eliason makes a ton of $$$.
- Has he really harmed the shareholders? Some argue this just causes the price of a security to adjust to its
appropriate level.
- The theory seems to be based on market fairness, rather than an individualized direct harm. Not about a
specific person, but harm to the overall market.
- The insider is profiting from information other people don’t have access to.
Two Kinds of Information
- (1) True “Inside” Information: information about the company’s business or internal operations
(upcoming new product, earnings, dividends, financial information, etc.) Dirks.
- (2) “Market” Information: information that will affect the market for the securities (company will be the
subject of a tender offer or a favorable review in financial press, etc.) Chirarella, Carpenter, O’Hagan.
Chiarella v. United States (1978) – Second Cir.
28
Megan Childs
-
-
-
Takeaway: the Court reversed a criminal conviction that was predicated on a violation of Rule 10b-5.
o An allegation of securities fraud based upon nondisclosure of information will not succeed
unless there is a duty to speak.
Facts: Chiarella was an employee for a printing company that handled documents regarding corporate
takeovers. The MNPI was redacted until the final draft of the documents. Chiarella was able to discover
the companies involved in a particular transaction, traded on that information, and made $30,000. He was
charged in violation of § 10(b) of the Sec. Exchange Act. Conviction overturned by SCOTUS.
o Knowledge element – he had to decipher the information through the redacted documents.
Circumventing the procedures. Printing company (employer) also had policies about
maintaining confidentiality. There were literally signs on the wall. He knew it was secret.
Often hear the phrase “disclose or abstain” in insider trading. Meaning – to avoid insider training, a
corporate executive can either abstain from trading on that material, non-public information (MNPI), or
disclose it to the world so that everyone has access to it. This was rejected in Chiarella (can’t be that
there’s a duty to everyone), but SEC puts forward in Dirks.
The government/dissents have a more general market fairness idea. He obtained the information
improperly, it’s not public, and he shouldn’t be able to rely on it to participate in the market.
o The majority takes issue with this because without a duty, it’s limitless. Don’t want to create a
rule where you can’t trade on non-public information that not everyone has. That
disincentivizes people from the behavior we want to encourage – information acquiring.
Two Theories of Insider Trading
- (1) “Classical”/Traditional Theory
o A corporate “insider” (officer, director, controlling shareholder) uses material, non-public
information to trade in the corporation’s stock, in violation of fiduciary duty to the
shareholders with whom the insider transacts.
§ True insiders = corporate executives and employees buying stock in their own
company.
o Note that some individuals who are normally “outsiders” (attorneys, auditors, etc.) may
become “insiders” with respect to a particular transaction or item of information, if they are
expected to keep the information confidential (Dirks FN 14).
§ I.e., if you’re working on a deal, even if you’re not a company employee (i.e.
auditor). Access to the information, even temporarily.
- (2) Misappropriation Theory
o An individual misappropriates confidential information for securities trading purposes, in
breach of a duty owed to the source of the information (not to the stockholders with whom he
is transacting). O’Hagan (1997).
o Involves “persons who are not corporate insiders, but to whom material non-public
information has been entrusted in confidence and who breach a fiduciary duty to the source of
the information to gain personal profit in the securities market.” O’Hagan (1997).
o Chiarella dissent raises misappropriation theory. CJ Burger expressed the view “that a person
who has misappropriated nonpublic information has an absolute duty to disclose that
information or to refrain from trading.”
§ Majority: this wasn’t raised for the jury, so we don’t have occasion to address it now.
o Carpenter – we talked about in terms of mail and wire fraud, but was also an insider trading
case in the Second Circuit. Supreme Court split on the misappropriation theory 4-4, so it
wasn’t affirmed or overturned. Affirmed, but without precedential value. Then finally
addressed in O’Hagan.
o Misappropriation theory expands on the duties that qualify for securities fraud. Moving away
from classical theory that we need a direct connection to the shareholders. Now, broader.
In addition to considering whether one is a corporate insider or one who misappropriates information under a
fiduciary obligation, insider trading law has also been applied to instances where one of these parties
29
Megan Childs
“discloses the information to an outsider (tippee) who then trades on the basis of the information before it is
publicly disclosed.” U.S. v. Newman (2014).
United States v. O’Hagan (misappropriation theory)
- Takeaway: An individual misappropriates confidential information for securities trading purposes, in
breach of a duty owed to the source of the information (not to the stockholders with whom he is
transacting).
o There is a duty of trust to the acquirer and his law firm. The misappropriation theory gives us
is an extension of what duties will qualify to make it insider trading. We know we need the
duty to make the silence a fraud. We need trading based on MNPI in breach of a duty. But
now, instead of a duty to the shareholders (classical theory), the duty can be to anybody to
whom you owe a duty of trust and confidence. O’Hagan had a duty to his law firm and their
clients. He used the information to benefit himself, and that’s a breach.
- Facts: O’Hagan is a partner at a firm that is hired by Grand Met to work on a takeover bid, in which GM
will acquire Pillsbury. O’Hagan then buys stock in Pillsbury. Similar to Chiarella, and the classical theory
doesn’t work for the same reason it didn’t then – O’Hagan didn’t have a duty to the Pillsbury shareholders
- Justice Thomas’ Dissent: criticism of the theory. Not enough that we find fraud somewhere, there has to
be a connection. (Similar to critique in Schmuck about how it’s not mail and fraud, it’s mail fraud).
Dissent argues the fraud isn’t in connection with the purchase/sale of a security. There’s a fraud and a
purchase, but not necessarily linked. Eliason finds this compelling.
Misappropriation Theory is also used in Carpenter for Tipper/Tippee Liability
- One who receives a “tip” concerning inside information is liable for insider trading if the tipper was in
violation of a fiduciary duty when disclosing the information, and the tippee knew or had reason to know
of that violation.
- Insider violates fiduciary duties by “tipping” if the insider will benefit personally, either directly or
indirectly, from the disclosure. Dirks.
Dirks v. SEC (1983) – SCOTUS
- Takeaway: Dirks had no duty to abstain from using the info. The Court imposes a two-part standard:
o (1) One who receives a “tip” concerning inside information is liable for insider trading if the
tipper was in violation of a fiduciary duty when disclosing the information, and the tippee
knew or had reason to know of that violation.
o (2) Insider violates fiduciary duties by “tipping” if the insider will benefit personally, either
directly or indirectly, from the disclosure.
- Justice Powell (majority) writes, “the tippers received no monetary or personal benefit for revealing [the]
secrets, nor was their purpose to make a gift of valuable information to Dirks.” Since the motivation was
the exposure of the fraud, the Court found no breach of duty to shareholders by the insider. Absent a
breach of duty by the insider, there was no derivative breach by Dirks.
- Facts: Secrist, a former officer of Equity Funding, tells Dirks (D) that EF’s assets were exaggerated due to
fraudulent corporate practices. Secrist told Dirks to verify the fraud and publicly disclose it. Dirks
invested EF and discussed findings with various investors, including some who had stop in EF and sold it
after that conversation. EF’s stock fell abruptly and the SEC opened an investigation. SEC found that
Dirks aided and abetted insider trading in violation of SEC Rule 10b-5. Here, SCOTUS reverses.
- Idea is basically that he’s not trading himself, but rather aiding and abetting his clients’ trading by sharing
insider information. He’s getting tips from insiders. Legal issue = when does the tippee inherit the duty
from the tipper that allows us to prosecute him on insider trader.
o SEC puts forward argument that was rejected in Chiarella about “abstain or disclose.” Court
already rejected the idea that there’s a duty to everyone, but there has to be some kind of
standard. Can’t be that Eliason can’t trade on MNPI, but he can tell his wife and she can. That
would eliminate the purpose of the statute.
30
Megan Childs
Court says the tipper’s motive here wasn’t improper and that’s relevant in determining
whether he inherits the duty. But, it’s clear Secris wasn’t acting innocently either. He could
have reported it to the SEC. The shareholders without information still end up harmed.
Dissent: This is not the proper way to go about it. Instead, should require him to go to government
regulators or the board and report it. Better to take steps that impact all shareholders, whatever the impact.
o
-
Pre-Salman = circuit split.
- Second Circuit (most important Circuit for insider trading) held that informal tips were sufficient to meet
the standard, i.e. career advice or going to the same church. Restrictive standard. Determining whether
tipper benefits personally was whether the exchange is “consequential and represents pecuniary gain.”
Salman v. United States (2016) – SCOTUS
- Takeaway: the “benefit to the insider” may include intangible benefits that come from making a gift to
friends/family.
- Facts: tipper disclosed to his brother, who disclosed to another friend (Salman) about insiders in Citi Bank
who knew about an upcoming M&A deal. Salman then trades on it.
- Held: the benefit to the insider can be intangible. It’s enough to be giving information to a friend or
family member – enough to get the feel-good benefit of telling your brother, knowing he may trade on it
(emphasized in Dirks). Rejects Newman standard from Second Circuit.
- The government thus must prove:
o (1) Tipper violated a duty – for personal benefit, rather than for a proper corporate reason.
This may be tangible under Salman.
o (2) Tippee knew or had reason to know.
- The focus is on the reason/purpose for the tip. Was it a corporate purpose? Personal?
Other SEC Rules
- Rule 10b5-1: defines trading “on the basis of” material non-public information.
o Creates a presumption that if you have the information and you trade, you traded on the basis
of that information. You can rebut it by showing you had a pre-existing plan before you got
the information or you had an order to sell, etc. But until then, presumption.
- Rule 10b5-2: defines relationships that will give rise to a duty of trust and confidence for purposes of
misappropriation theory. Hinges on the nature of the relationship and whether there is a history between
the parties.
18 U.S.C. § 1348 – new statute passed as part of Sarbanes-Oxley in 2002 (major reform in wake of Enron)
- Prohibits knowingly executing, or attempting to execute, a scheme or artifice –
o (i) To defraud any person in connection with any security regulated by the SEC; or
o (ii) To obtain, by means of false or fraudulent pretenses, representations, or promises, any
money or property in connection with the purchase or sale of any security.
- Unclear this statute really added much. Securities Fraud is/was already being prosecuted primarily as mail
and wire fraud. Unclear what § 1348 would cover that isn’t already reached. Not particularly important.
- Penalty = 25+ years in prison.
COVER-UP CRIMES: PERJURY, FALSE STATEMENTS, & OBSTRUCTION OF JUSTICE;
Cover-up crimes = crimes committed to conceal wrong-doing and avoid getting caught.
- Particularly important because one of the challenges is proving corrupt intent.
- A critical piece of evidence can be where someone lies. Compelling circumstantial evidence that they
knew their action was wrong.
- Usually not a standalone charge (sometimes), but usually serves as evidence of corrupt intent.
- Cover-up crimes (false statements, perjury) can demonstrate circumstantial evidence for other stand-alone
crimes (but note that perjury can still be its own stand-alone crime).
o Ex: might charge as mail/wire fraud, but false statements might be one of the leading charges.
31
Megan Childs
PERJURY
18 U.S.C. § 1621 & § 1623 – two statutes, both referred to as “perjury” interchangeably. Very similar.
- Official names: § 1621 = “perjury” and § 1623 = “false declarations.”
ELEMENTS:
- (1) Testimony given (or, for § 1623, records or documents used) while D was under oath;
- (2) Testimony (or record or document) was actually false at the time;
- (3) D knew at the time that it was false;
- (4) False information was material.
*Elements aren’t complicated, but very difficult to prove.
*Have to prove that while under oath, D intentionally lied about something important.
18 U.S.C. § 1621 – PERJURY ONLY
- Old, common law statute. Broader catch-all, traditional statute.
- (1) Applies to testimony not just before a U.S. court or grand jury, but in any proceeding where an oath is
authorized by law, i.e., by an administrative agency or Congress.
- (2) Recantation is not a defense. If you lie under oath about something material and later have a change of
heart and “take it back,” that’s legally not a defense. BUT, may make a diff. for prosecutorial discretion.
- (3) Two-witness rule applies: perjury can’t be a he said/she said. It can’t be one witness testifying against
another. To prove perjury, must have one witness + some other corroborating information.
18 U.S.C. § 1623 – FALSE DECLARATIONS ONLY
- Much more recent (1970s). Perjury was perceived to be a widespread problem, so the purpose was to try
and make perjury prosecution a little easier, in part. Congress trying to loosen some of the requirements.
- (1) Applies only to proceedings before or ancillary to a U.S. (federal) court or grand jury.
o If testifying before Congress or an agency, § 1623 isn’t an option. Much narrower.
- (2) Applies to documents and records, as well as oral testimony.
- (3) Proof may be made by two inconsistent statements -- § 1623(c).
o Traditionally, classic perjury requires testifying under oath in one proceeding and then
another for the same issue, but you must make conflicting statements and cannot prove which
is true. To charge with perjury, you have to find the false one and prove it BARD.
o With two conflicting statements, didn’t know which is true BARD, and can’t charge.
o This two inconsistent statement rule allows that prosecution for perjury – two irreconcilable
inconsistent statements.
- (4) Limited recantation defense provided by statute -- § 1623(d).
- (5) No two-witness rule -- § 1623(e).
o Any kind of proof BARD is satisfactory. Don’t have to meet old common law requirement.
Distinguishing Perjury from False Declarations: while perjury applies to false statements before any
“competent tribunal, officer, or person,” false declarations is limited to statements “before or ancillary to any
court or grand jury of the United States.” Unlike perjury, the false declarations statute does not require two
witnesses. Also, the false declarations statute permits the use of inconsistent statements to prove falsity,
without specification as to which statement is false. Finally, the false declarations statute provides for a
recantation defense in certain circumstances.
- When § 1621 and § 1623 both apply to the applicable criminal conduct, prosecutors have discretion to
choose which offense to proceed under.
- Arguments that the government has deprived a D of the recantation defense by proceeding with a perjury
charge (instead of false declarations) has failed to merit reversals.
Two Witness Rule:
- Under common law, perjury (§ 1621) could not be proven solely by testimony of one witness. (He
said/she said). Policy rationale = it prevents a perjury conviction resting solely on one person’s oath
against another.
32
Megan Childs
-
-
Rule requires either two or more witnesses, or one witness plus sufficient corroborative evidence
inconsistent with innocence. Generally, the corroborating evidence does not have to be sufficient for a
conviction, but it must be trustworthy.
o The rule requires “that the falsity of the D’s statements must be proved by the testimony of
two witnesses or the testimony of one witness, plus corroborating evidence.” Davis (1977).
§ 1623 abolishes the two-witness rule for prosecutions under that section (false declarations). § 1623(e).
Recantation Defense:
- Applies only to § 1623. NO DEFENSE to § 1621.
- Recantation is a defense under the statute if at the time D recants, the false testimony has not
substantially affected the proceeding OR it has not become manifest that falsity will be expressed.
o Can’t be that Congress intended to give a witness a free bite at trying to commit perjury, see
if it works or not, and then recanting and they’ll have a defense.
o Congress created this defense in an effort to “encourage truthful testimony by witnesses
appearing before courts and grand juries.” U.S. v. Moore (1979).
o Policy argument on the other side = if you read it “and,” it encourages the witness to dig in.
Once witness start lying, they don’t have an incentive to change their truth because it’s not a
defense at the point. If we read it as “or,” then witness doesn’t have to dig in their heels and
keep on lying. They can come clean and tell the truth. And telling the truth is what we prefer.
- Most lower courts read “or” to mean “and.” Recantation defense is hard to meet.
- In U.S. v. Moore (D.C. Cir. 1979), defendant was not entitled to a recantation defense when the
government was already aware that Moore had lied to the grand jury.
COMMON DEFENSES TO PERJURY:
- (1) Literal truth.
- (2) Question was ambiguous.
- (3) No criminal intent.
- (4) Recantation (for § 1623 only).
- (5) Two-witness rule (for § 1621 only).
Perjury is considered very difficult to prove because of the malleability of the human language. The most
common issue in perjury cases is ambiguity/uncertainty. D claims he actually told the truth or they
misunderstood the question, etc. If reasonable doubt – can’t convict D of perjury.
Note that immunization of a witness does not preclude a perjury or false declarations charge against that
witness.
Distinguishing perjury from false statements: perjury statement has to be made under oath.
1. OATH REQUIREMENT: to be perjury, testimony must be under oath or sworn under penalty of perjury.
- Both perjury and false declarations require proof that the D’s statement was under oath.
- Must look to other statutes for unsworn statements to federal agents, unsworn testimony before Congress
and other false statements that aren’t made under oath.
- If not sworn in, it’s still a crime, but a different crime. Need to be sworn in for perjury.
- Ambiguity: case with tobacco owners who were asked if they believe nicotine to be addictive. Two issues:
o (1) “I believe…” is not a lie because they said “I believe.”
o (2) What does addictive mean? Basis for this in the scientific literature because social
scientists defined addiction as intoxication. Definition changed over time to focus on
physiological dependency.
- The indictment does not have to name the person who administered the oath, but it must be proven under
a § 1621 prosecution.
33
Megan Childs
o
“Generally, it is considered immaterial whether the person administering the oath is an office
de jure or de facto, if his act takes place in the presence of the Court or one authorized to
administer the oath, and with its apparent sanction.” U.S. v. Allen (1975).
2. FALSITY REQUIREMENT: testimony must be actually false at the time it’s given.
- Both perjury and false declarations require a false statement.
- No room for ambiguity. Even if it’s misleading, it’s not perjury if it’s literally true.
o Likewise, ambiguous questions that call for varying interpretations cannot be used as the
basis for obtaining a perjury or false declarations conviction. Falsity cannot exist when the
question itself is fundamentally ambiguous.
- It is a defense if the accused believed the declaration to be true at the time it was made.
- If answers are evasive or misleading, the burden is on the questioner/attorney. Bronston.
Bronston v. United States (1973) – SCOTUS
- Takeaway: literally true statements cannot be the basis of a perjury conviction.
- Facts: D questioned under oath about his company in bankruptcy. The company is closely held, so he
basically is the company.
o “Do you have any bank accounts in Swiss bank?” // “No.” // “Have you ever?” // “The
Company had an account there for about six months, in Zurich.”
o The statement was literally true. It was all true statements, but he concealed that he was
running the bank accounts and that he also had personal bank accounts in Switzerland for 5
years. At the time of the proceedings, he didn’t. So the truthful answer to “have you ever,” is
yes. He didn’t lie, but concealed.
- Government argues: perjury can be based on negative implication – he intentionally withheld information
and concealed what he was doing. This theory is upheld at lower levels and goes up to SCOTUS.
o Supreme Court reverses: the key is to put the burden on the questioner to not allow this
situation to occur. It’s the lawyer’s job to probe.
§ Even though the witness may be deliberately avoiding the question, “it is the
lawyer’s responsibility to recognize the evasion and to bring the witness back to the
mark, to flush out the whole truth with the tools of adversary examination.”
o Rationale: (1) Text of the statute – has to be not true; not misleading or non-responsive, but
not true. Here, they were literally true.
§ (2) Concern about the chilling effect on witnesses. Makes more sense to put the
burden on the trained attorney, rather than a nervous witness. Maybe witnesses are
confused or nervous – they try to do their best.
• This is one of the reasons that perjury cases are relatively rare. It’s easy to
look at a transcript and think of the follow up questions that the questioner
should/could have asked. Have to prove BARD that witness is lying.
• Key part of our adversary system – a good lawyer will adjust on the fly.
o The ambiguity argument is about: who is “YOU?” “You” seemed to imply the company. (At
least that’s the argument for the defense.
- Held: Branson was deliberatively evasive, but not guilty of perjury.
Bill Clinton: “what is the meaning of ‘is?’”
- Clinton’s lawyer had an affidavit from Monica Lewinsky that denied any sexual relationship with the
President. No sexual relationship of any kind and Bill Clinton agreed to this.
- At Grand Jury, prosecutor says, this was a complete lie though because you had a relationship, and
Clinton reply – “it depends on what ‘is’ is?” Meaning:
o If “is” means is there now or has there ever been, then that’s different from “is” at the time
the question was asked (presently). “Is” as a present statement v. it’s been over for a year.
o He was impeached for this! Not a criminal proceeding, but a political one. If you were a
prosecutor, probably wouldn’t bring this case because the follow up questions weren’t asked
– “was there ever?” Then if he lies, you’ve got him.
34
Megan Childs
-
§ “Is there a relationship?” Not presently – that’s true. But clearly very evasive.
§ Very slimy; politically it was horrible. But criminally – it was airtight.
§ For criminal perjury, the standards are really high.
Similar with “I did not have sexual relations with that woman.” That wasn’t a statement made under oath,
but if it were – his defense would be that in Arkansas where he grew up, sexual relations means
intercourse. Claims ambiguity.
3. INTENT/KNOWLEDGE REQUIREMENT. D must know at the time of the testimony that it’s false.
- Mistakes, carelessness, and failures to recall are not perjury.
- Both perjury and false declarations require that D believed when delivering the testimony that it was
untrue. Circumstantial evidence is often presented to satisfy this element.
4. MATERIALITY REQUIREMENT. Testimony is material if it has the natural tendency to influence, or is
capable of influencing, a decision of this tribunal. Not all lying under oath is perjury – must be material.
- Both perjury and false declarations require materiality. The element is met with minimal evidence.
- Doesn’t come up often because you wouldn’t think about bringing a case unless D lied about a matter.
- The statement does not have to actually influence the tribunal or impede the investigation. It suffices
when it is capable of this result.
- Does not need to relate to a main issue in the case; may relate to subsidiary matters.
Example: narcotics detective in D.C. Every drug trial has a narcotics expert to testify.
- Expert turned out to have lied about his education. His resume didn’t match his educational experience.
Dozens of transcripts where at the beginning of the expert testimony was reciting education and years of
experience, and threw in “I got a PhD at Howard University,” and it was such an expected formality.
Everyone knew him as a famous expert.
- When the fraud was discovered, the Ds in those cases were entitled to new cases. Found perjury in 14
different cases. The only potential defense was materiality, because his experience based on his
experience as a narcotics detective made him an expert. Ultimately, that argument loses.
Competent Tribunals
- § 1621 applies to any proceeding where an oath is authorized by law. § 1621 requires that the statement
be made before “a competent tribunal, officer, or person, in any case in which a law of the United States
authorizes an oath to be administered.”
o Courts have found district court judges, deputy clerks, Senate subcommittees, an internal
revenue agent, and public notaries as competent tribunals, officers, or persons authorized to
administer an oath.
o Even a court proceeding that is later found to be premised upon a defective indictment can
serve as a competent tribunal for purposes of § 1621. All that is required is court power to
proceed to a determination on the merits.
- § 1623 applies to testimony before or ancillary to any courts or grand jury. § 1623 requires that the
statement be “in any proceeding before or ancillary to any court or grand jury of the United States.”
o “Ancillary proceeding” requires some degree of formality, as in a deposition. Dunn.
Dunn v. United States (1979) – SCOTUS
- Takeaway: the Supreme Court found that a sworn statement taken at an interview in a private attorney’s
office did not constitute a proceeding ancillary to a court or grand jury. The interview in the case “lacked
the degree of formality required by § 1623.”
- Facts: Under § 1623, issue is whether the sworn statement signed by a notary in a lawyer’s office that
Dunn gave is a “proceeding ancillary to the court.” He’s charged under § 1623 for inconsistent
statements. He testifies at a grand jury that the other guy was involved in drug dealing inside prison.
Later, he goes to the lawyer for the drug dealer’s office and gives a sworn statement recanting his earlier
GJ testimony. In court proceedings later, he says the same thing and recants again.
o Inconsistent statements – they can’t both be true.
35
Megan Childs
Issue = is the statement in the lawyer’s office an “ancillary proceeding.” Court holds
that it’s not – it has to be a formal deposition or at least more formal under § 1623.
§ Based on the plain meaning of the text and the legislative history. Rule of lenity.
§ Some degree of formality required. This makes sense because there’s a degree of
formality in a deposition, that an office statement doesn’t – a court reporter and
procedural safeguards.
Lesson from Dunn: they charged it wrong. It’s not a problem if they use the GJ statement and the Court
Proceeding statement. But, they erred in charging the GJ and the lawyer’s office statement.
o
-
Martha Stewart. Stockbroker convicted of perjury in an SEC deposition. His testimony was that he didn’t
recall calling Martha at all the day of the trading. Stewart’s assistant spoke to him on the phone – so there’s
inconsistent testimony between Martha and the broker.
FALSE STATEMENTS
18 U.S.C. § 1001 prohibits making false statements.
- “False statements” applies both to covering up another crime, and lying to an investigator or lying on
government paperwork.
- Used a lot by prosecutors. Has to be use cautiously because of the public reaction to it. A lot of people
don’t think these are crimes, and that you should be able to lie to the government if you want.
- § 1001 is often used in situation where people are trying to cover up an investigation by lying or
misleading investigators. Applies to an interview in a room without oath or Miranda rights, etc.
The simplicity of proof and substantial penalty it provides has been it a beneficial charge for the government.
ELEMENTS
- (1) A false statement, writing, or concealment;
- (2) False statement or information concealed was material;
- (3) In a matter within the jurisdiction of the federal executive, legislative, or judicial branches;
- (4) Defendant acted knowingly and willfully.
*Similar to perjury – lying about something material, and you know you’re doing it.
Note what is NOT required:
- No requirement that the statement by under oath.
- No requirement that the government relied upon the statement in any way;
- No requirement that the government suffered damage, financial, or otherwise.
- False statements may relate to past, present, or future activity.
- The statement may be voluntary or made pursuant to a requirement of law.
*Important—no harm to the FBI necessarily. Just has to be material – having the potential to influence the
decision-making. Don’t have to send them off on a wild goose chase or cause them to spend thousands of
dollars investigating. Maybe they already know and there’s no harm.
Three Prongs of § 1001: broken out below – three types of conduct.
- (a)(1) Concealing material facts by trick, scheme, or device;
- (a)(2) Making material false statements;
- (a)(3) Making or using materially false writing or document.
Penalty: not more than five years imprisonment and a fine.
§ 1001(a)(1): CONCEALING MATERIAL FACTS BY TRICK, SCHEME, OR DEVICE
- Only applies if there was a duty to disclose the concealed information.
o I.e., can’t charge with “trick, scheme, or device” where the FBI comes knocking on D door
and D pretends he wasn’t home, because there was no duty to disclose.
o Reminiscent of honest services fraud and insider trading, where silence can be a fraud.
36
Megan Childs
o
§ Silence is fraud where there is a duty to disclose.
Concealing material facts from the government is only a crime if there is a duty to disclose in
the first place. No general obligation to tell the government everything you know.
United States v. Safavian (2008) – D.D.C.
- Takeaway: duty to disclose requires notice.
- Facts: Concealment theory is that he went to his ethics officer (proper), but only told him part of the
story. Did not tell enough. What he concealed was important in terms of his relationship to Abramoff.
- D.C. Circuit holds the duty to disclose requires notice about what has to be disclosed. The duty can come
from specific laws and regulations, or from a form you’re filling out, but have to be able to point to the
requirement to report by the government. Specific requirements to disclose specific information, which
was lacking here. The standards of conduct here aren’t specific – basically, be a good person.
o D’s conviction was reversed where the Court held that government officials who sought
advice from a voluntary ethics system could not be prosecuted under the concealment
provisions of § 1001 for omitting information when seeking the advice of the ethics
committee. A voluntary system, even when “replicated throughout the government,” did not
create a legal duty to disclose information, and without the legal duty to disclose there was no
basis for a concealment offense under § 1001(a)(1).
- It’s voluntary to go to the ethics committee – not a requirement. Safavian didn’t have to. Once he did
though, nothing specified what exactly he had to tell them or required him to divulge all the facts.
- Concealment of a material fact can provide a basis for the crime of false statements, but there has to be a
legal duty to disclose the information. Safavian (2008).
Securities Fraud Case in D.C.
- Adult child would be linked on bank account with parent who is receiving social security checks. Aiding
parent. Situation arose where the parent had died, but social security was never notified. Social security
checks continued being deposited, and the adult-child never reported it.
o Most egregious example was a lawyer in D.C. whose mother died and the checks continued
being deposited for 8 years. Well over $100k. He spent it continuously.
- One issue was concealment, because under the Social Security regulations – nothing says you have a
duty to report when your parents dies. He didn’t do anything affirmatively, he just sat back and let the
money come in.
- Eliason: there really should be something done that includes a notice about whether or not the person is
still alive annually. Then, if the person dies and the child forges the signature and sends it back – that’s a
clear lie. But the way it is now, that’s not a false statement because there’s no affirmative action.
- This is also relevant to situations where someone leaves an answer blank on a form for the government.
o I.e.: “have you ever been convicted of a felony?” And you leave it blank because you don’t
want to disclose it, but you don’t want to lie. So you didn’t lie, but you didn’t answer.
§ 1001(a)(2) & (3): MAKING FALSE STATEMENTS OR WRITING
- Must prove actual falsity – no room for ambiguity, misinterpretation, or literal truth.
- Does not matter whether the statements are required or voluntary. No “duty to disclose” requirement.
- Falsity can be achieved through either the making of a false statement or by the concealment of a material
fact. Where the alleged conduct is premised upon the making of a false statement, it is incumbent upon
the government to prove actual falsity. U.S. v. Hixon (1993).
o Literally true statements, as well as statements that are merely misleading, have been found
insufficient. Although the issue of falsity is a question of fact for a jury to decide, a statement
that is subject to more than one interpretation places a burden on the government to refuse the
meaning attributed by the D.
PRONG 3: MATERIALITY
- Statement is material if it has “a natural tendency to influence, or is capable of influencing, the decision
of the decision-making body to which it was addressed.” Kungys v. U.S. (1988).
37
Megan Childs
- No requirement that the statement actually influenced the agency;
- No requirement that the statement was relied upon, believed, or even looked at;
- No requirement that the agency was damaged or harmed;
- Doesn’t matter if statements were required or voluntary.
*Helps explain why false claims are important. The best witness is one at a tribunal to whom the statements are
directed. Explain to the jury why the statements matter (or potentially matter).
PRONG 3: “WITHIN THE JURISDICTION”
- Phrase is not defined in the statute, but construed very broadly. Rodgers.
- Covers “all matters confided to the authority of an agency or department.”
- Statement need not be made directly to the federal agency, so long as it concerns matters within the
federal agency’s jurisdiction.
United States v. Rodgers (1984) – SCOTUS
- Takeaway: Supreme Court held that “jurisdiction,” although undefined in the statute, does not suggest
support for a narrow construction. § 1001 “expressly embraces false statements made ‘in any matter
within the jurisdiction of any department or agency of the U.S.”
o Thus, a man who lied to the F.B.I. by telling them his wife had been kidnapped and lied to
the Secret Service in telling them his wife was involved in a plot to kill the President, was not
entitled to a dismissal of a false statement charge as not within the bounds of the term,
“jurisdiction,” as used in § 1001. Since the F.B.I. is authorized to investigate crimes,
including kidnaping, and the Secret Service is charged with protecting the President,
statements to these agencies were within their statutory bases.
o The Court noted that reading § 1001 broadly furthered “the valid legislative interest in
protecting the integrity of [such] official inquiries.”
“Executive, Legislative, or Judicial Branch” [PRONG 3]
- Before 1996, statute referred only to a “department or agency of the United States.”
- Amended in 1996 following SCOTUS decision in Hubbard v. United States (the “Hubbard fix.”)
o Congress reacted to Hubbard by passing the False Statements Accountability Act of 1996,
which modifies the statute to explicitly provide “the jurisdiction of the executive, legislative,
or judicial branch” of the U.S. government. It specifically excludes statements,
representations, writings, or documents submitted by a party or counsel in the judicial
proceeding (i.e., a court is not an “agency or department” for purposes of § 1001).
- Note exceptions in the statute for certain statements made to legislative and judicial branches.
Exculpatory No Doctrine
- Judicially-created rule said that a simply denial of guilt was not a false statement under § 1001.
- Rejected by the Supreme Court in Brogan – Court says if there is a problem, it’s up to Congress to fix it.
o In Brogan v. U.S. (1998), the Supreme Court held that the “plain language of § 1001 admits
of no exception for an ‘exculpatory no.’” There is no Fifth Amendment “privilege to lie.”
o DOJ policy is generally not to charge pure “exculpatory no” cases.
*Note that a judge always has discretion to give a lesser sentence.
*The statute “does not apply to a party to a judicial proceeding, or that party’s counsel, for statements” to a
judge or magistrate in the proceeding. § 1001(b). Thus, a courtroom plea of “not guilty” by an individual who
was clearly guilty of the crime would not be subject to prosecution for making a false statement.
PRONG 4: “KNOWING AND WILLFUL”
- KNOWING: Government must prove that D knew the statement was false. May also have to prove that D
acted with intent to deceive. Pretty sweeping application on the face of the statute.
o The level of knowledge required of the D can be met by evidence of a reckless disregard of
the truth or by a conscious avoidance in learning the truth. Actual knowledge of the
statement’s falsity if not required. The government may use circumstantial evidence.
38
Megan Childs
Where the indictment is premised upon concealment, the government must substantiate that D
knew of the duty to disclose and intentionally failed to comply with that duty.
Proof of WILLFULNESS also required. Willfulness is met with proof that a D intended to deceive.
DO NOT need to prove D knew the statement was “within the jurisdiction” of the federal gov. Yermian.
o In Yermian, D admitted to the falsity of his statements, but contended he didn’t have actual
knowledge that the statements would be given to a federal agency. Not required – merely a
jurisdictional requirement.
Similar to perjury – must know you’re lying.
o During Obama Administration, DOJ did this by requiring that to show willfulness, must show
D knew it was unlawful to lie. Eliason doesn’t know if Trump is proceeding with this. Policy
decision. Heightened intent requirement.
o
-
-
Sarbanes-Oxley Act of 2002 added new statute – 18 U.S.C. § 1350, providing criminal penalties for corporate
officers who make false statements when complying with the new requirement that they certify their
company’s financial reports.
OBSTRUCTION OF JUSTICE
18 U.S.C. §§ 1503, 1505
18 U.S.C. §§ 1512, 1519, 1520
Obstruction of Justice is an attempt after the fact to prevent someone from finding out what you did, and try to
cover it up. Sometimes the underlying conduct is criminal or there’s another reason you don’t want it found
out. The underlying conduct doesn’t have to be criminal – might be politically embarrassing, reputationally
damaging, etc. There are a lot of reasons to obstruct justice other than committing an underlying crime.
- Jumble of statutes with a lot of overlap. Bit of a mess. Same conduct can apply to more than one statute.
- Prosecutors bringing cases now often bring under § 1512. Hard to think of a reason you’d use §
1503 or § 1505 anymore because § 1512(c) covers all the bases and avoids some of the issues that
arise under § 1503 and § 1505 (i.e., whether the proceeding was actually pending yet).
The type of proceeding may affect what statute you use. Between § 1503 and § 1505, basically all hearings are
included.
Obstruction of Justice – 18 U.S.C. § 1503 – federal, judicial, and grand jury proceedings
- § 1503 is the grandfather statute – old, bed rock statute. Lengthy, rambling statute that discusses
interfering with judicial officers and then the omnibus clause.
- Mostly commonly charged is the “omnibus clause” – applies to anyone who corruptly influences,
obstructs, or impedes the due administration of justice, or endeavors to do so.
- § 1503 applies only to federal, judicial, and grand jury proceedings.
Obstruction of Justice – 18 U.S.C. § 1505 – Congressional and federal agency proceedings
- § 1505 is basically the same statute with the same omnibus clause, but applies to Congressional and
federal agency proceedings.
ELEMENTS – §§ 1503 & 1505 OBSTRUCTION [older statutes]
- (1) There is a pending proceeding;
- (2) D knew about the proceeding;
- (3) D corruptly influenced, obstructed, or impeded the proceeding’s due administration of justice,
or endeavored to do so.
Common sense: need to know there’s a proceeding going on, and there has to in fact be a proceeding going on.
Newer statutes change this a bit.
NEXUS REQUIREMENT [PRONG 3]
39
Megan Childs
-
-
To constitute obstruction, D must know that the endeavor to obstruct will have the “natural and probable
effect” of interfering with due administration of justice (Aguilar).
o Note that an “endeavor” is enough; D need not be successful.
Under § 1512, even if not pending yet, have to have something in mind you think is going to happen and
you’re obstructing – otherwise no corrupt intent.
One of the more commonly cited examples of possible obstruction with Trump = he admits to firing Comey
because of the Russia investigation. Eliason thinks this is a weak allegation because if you fire the FBI
director, the ongoing investigations are going to continue. Not obstructing/interfering much.
United States v. Aguilar (1995) – SCOTUS
- Takeaway: Court announces new standard for the nexus requirement: the allegedly corrupt act must be
done with intent to influence a proceeding, and the endeavor must have the “natural and probable effect”
of interfering with the administration of justice.
o “The act must have a relationship in time, causation, or logic with the judicial proceedings.”
- Facts: federal judge (Aguilar) reveals to the target of an investigation (Chapman) that his phones are
being tapped by the FBI. Two friends of a D go to the federal judge asking him to “put in a good word”
with his colleague, another judge. Concurrently, Chapman is being investigated for other offenses and the
FBI is wire-tapping his phone and surveilling him. The federal judge is given a head’s up by the Chief
Judge, because in the course of the investigation, they find that the federal judge had met with him (aka,
might not want to associate with him). Aguilar then tells Tam about the investigation. Aguilar denies any
involve and denies disclosing the wire-tap to Tam. He is charged with and convicted of Obstruction of
Justice under § 1505 (not a court or jury proceeding so wouldn’t qualify under § 1503).
o (1) The obstructive act is lying to the FBI agents when they came to interview him during a
pending grand jury investigation.
o (2) Evidence that Aguilar knew.
o (3) Nexus requirement is missing. Lacking based on the new standard the Court identifies,
because when he uttered the false statements to the FBI agents, he didn’t necessarily know it
would be used in the GJ to influence the investigation.
- Scalia’s dissent is persuasive. The nexus requirement is invented. The intent to influence the investigation
should be enough, and if someone intends to obstruct justice, even if they don’t end up achieving that end,
they still have the intent. That should be enough – even if they didn’t actually do it, but endeavored to OJ.
o The majority is concerned with the “nexus” requirement – seems to be part of corrupt intent.
Clinton Impeachment Investigations
- One of the articles of impeachment was that he obstructed justice by lying to his staff about his
relationship with Monica Lewinsky. The theory was that he knew his staff were going to get subpoenaed,
so he lied to them so that they would repeat the false testimony on the stand.
- Sounds like Aguilar Court would say there’s no nexus here. But, this was an impeachment hearing, not a
criminal trial.
PENDING PROCEEDING [PRONG 1]
- (1) § 1503 and § 1505 require that a proceeding be pending and that D know that it’s pending.
- (2) §§ 1512, 1519, and 1520 DO NOT require that a proceeding be pending (see § 1512(f)(1)), but some
proceeding must be contemplated or foreseen by the D. (Some “nexus” still required).
Leads to other questions: when does a grand jury proceeding begin? When subpoenaed? After it’s been opened
up in the GJ room? Clear that it’s not a pending proceeding if all your appeals have been exhausted.
- Consider: can throw your laptop in the river, and that’s totally legal (besides environmental
considerations). But, that innocent act becomes obstruction of justice when you know the grand jury is
pending and you’re trying to get rid of the laptop for that reason. Knowing it might be implicated.
Courts vary on the level of activity required by the grand jury to meet this element.
40
Megan Childs
CORRUPT INTENT [PRONG 3]
- (1) §§ 1503, 1505, and 1512 require corrupt intent.
- (2) D must wrongfully or dishonestly intend to obstruct the proceeding by his/her conduct.
Obstruction of Justice – 18 U.S.C. § 1512
- § 1512 was traditionally a witness tampering statute that applied to corrupt attempts to influence others.
- Arthur Andersen was charged under old § 1512 with corruptly persuading its employees to withhold
documents from an official proceeding.
Arthur Andersen v. United States (2005) – SCOTUS
- Takeaways:
o (1) CORRUPT INTENT – you can’t remove the wrongfulness aspect of a corrupt intent…
Supreme Court held the jury instructions were improper in that they “failed to convey the
requisite consciousness of wrongdoing.” “Limiting criminality to persuaders conscious of
their wrongdoing sensibly allows § 1512(b) to reach only those with the level of culpability…
we usually require in order to impose criminal liability.” (citing Aguilar). Here, the outer
limits of the element need not be explored because the jury instructions at issue simply failed
to convey the requisite consciousness of wrongdoing. The instructions diluted “corruptly” so
that it covered innocent conduct.
o (2) NEXUS REQUIREMENT – proceeding doesn’t have to be pending, but there has to be
a nexus. Problem was that jury hadn’t been told they had to find the nexus.
- Facts: Enron was a huge energy company and Andersen served as Enron’s accountant. The President of
Enron resigned, and a new leader takes over, realizing there had been huge accounting irregularities
internally that would cause the company to collapse. When the SEC opened an informal investigation of
Enron, Andersen began telling its employees as well as Enron employees to strictly adhere to the
company’s document retention policy, meaning that if any Enron-related documents were eligible to be
destroyed under the policy, they should be so destroyed immediately. “substantial destruction of paper
and electronic documents” that were then not available to the government in Enron’s subsequent
litigation. Andersen was charged with obstruction of justice under 18 U.S.C. § 1512(b) in that it
knowingly and corruptly persuaded others to withhold documents from an official proceeding.
o Brought in industrial-sized shredding machines. Feeding millions of pages.
o Focusing on corrupt/criminal intent – focus on the documents’ labels (i.e. a document labeled,
‘SMOKING GUN’).
o Could not charge under § 1505 because of the pending proceeding requirement.
o Here, Court says under § 1512, you do need to have a proceeding IN MIND. Otherwise,
there’s no corrupt intent.
*Although SCOTUS reversed the conviction, the company went out of business and did not revive when the
conviction was reversed.
“The action taken by the accused must be with an intent to influence some ancillary proceeding, such as an
investigation independent of the court’s or grand jury authority.” Aguilar.
Sarbanes-Oxley Act of 2002 – ADDITIONS to Obstruction
- 18 U.S.C. § 1512(c) – applies to document destruction and other obstruction of “official proceedings”
- 18 U.S.C. § 1519 – document destruction or alteration in federal agency investigations and bankruptcy.
- 18 U.S.C. § 1520 – destruction of corporate audit records.
THE NEW OMNIBUS CLAUSE?
- § 1512(c) applies to anyone who “corruptly” obstructs, influences, or impedes any official proceeding or
attempts to do so.”
- “Official proceeding” is defined broadly to include proceedings before all three branches of government
(18 U.S.C. § 1515(a)(1)(A)).
41
Megan Childs
-
o Official proceeding DOES NOT need to be pending. § 1512(f)(1).
Penalty is 20 years, compared to 10 for § 1503.
Obstruction of Justice – 18 U.S.C. § 1519
- Applies to the destruction or alteration of any “record, document, or intangible object” with intent to
obstruct a federal investigation that is pending or contemplated.
o ANY investigation – much broader than “proceedings.”
- No requirement of corrupt intent, so likely no nexus requirement.
- “Tangible object” limited to those objects designed to record and preserve information. Yates.
- Penalty of up to 20 years.
Yates v. United States (2015) – SCOTUS
- Takeaway: The term “tangible object” in § 1519 of the Sarbanes-Oxley Act refers to an object used to
record or preserve information, and does not include fish.
- Facts: Yates was a commercial fisherman who caught undersized red grouper in federal waters in
violation of federal conservation regulations. To prevent federal authorities from confirming he had
caught the fish, he ordered a crew member to toss the fish back into the water. He was charged with
obstruction of justice in violation of § 1519 under the Sarbanes-Oxley Act for destroying a tangible object
with intent to obstruct a federal investigation. He argues that a fish is not a tangible object, and he wins.
o Statutory interpretation: if a list is provided and concludes with a general term, you interpret
the general term to be in line with the other items in that list. I.e., “this applies to rogs, reels,
nets, tackle, and other equipment,” we interpret “equipment to mean “other fishing gear.” Not
to mean a bulldozer, even though a bulldozer is equipment.
o Purpose: made to regulate financial fraud. Post-Enron. Congress is trying to address big
corporate, financial fraud, not fishing regulations/captains throwing fish overboard.
o Title: “destruction, alteration, or falsification of records in Fed. investigations & bankruptcy.”
o Legislative history of § 1512(c)(1): makes reference to other objects. We assume that
Congress doesn’t do things that are meaningless or redundant. No need to pass § 1512(c) if §
1519 was already broad enough to encompass everything in it.
- Kagan’s Dissent: “tangible object” is broad, but clear. Not for the Court to make this determination –
Congress can be more specific if it chooses.
§ 1520 = maximum penalty of 10 years, for “destruction of corporate audit records.”
COVER-UP CRIMES: MARTHA STEWART & SCOOTER LIBBY
KEY = can be charged with cover-up, even if the underlying conduct ends up not being charged.
- Neither Stewart (insider trading) nor Libby (leaking confidential information) ended up being charged
with the underlying crime. “Sometimes the cover-up is worse than the crime.”
Roger Stone. Charged with lying about WikiLeaks efforts and Hillary Clinton’s email leaks during presidential
election, including communications with Trump campaign. Even if the underlying conduct isn’t criminal,
covering it up is. Charged with obstruction of justice for lying to Congress.
Martha Stewart.
- Facts: 2001. Stewart’s stockbroker, Bacanovic, is also a broker for the head of another company. All of
them are friends socially. Stewart is one of Bacanovic’s biggest clients. The other company he represents,
ImClone has a cancer drug awaiting FDA approval. If approved, it will be a huge boom for the company –
either way, expected to affect the stock price. Around the holidays, Bacanovic is on vacation when his
young assistant gets a call from the CEO of ImClone ordering Bacanovic to sell all his shares in the
company. Dumps every share he owns. Bacanovic tells his assistant to complete the order, and calls
Stewart (she also owns a lot of ImClone stock). Allegedly, assistant asks – can we do this? And
Bacanovic says – “Of course! That’s the point.” Tipping Stewart off. Obvious why the CEO is selling his
stock. He called in a panic. Stewart is on a flight on her private jet while this is occurring, but Bacanovic
42
Megan Childs
-
-
-
gets ahold of her when she lands and she tells him to sell all her shares. Saves her $40,000. The following
day, the FDA announces it will not approve the drug. SEC opens investigation into the suspicious trading.
The cover-up allegation is that she and Bacanovic got together to cover their tracks, so that when the
SEC and FBI investigate her, everyone’s on the same page and their stories match up. Their story is that
they had a pre-existing agreement to sell if the stock ever dropped below a certain price. This unravels.
o However, loop in the story because if you had an order to sell at a certain price, there’s no
reason Bacanovic would have had to get her on the phone.
Charges:
o Count 1 = conspiracy to make false statements, perjury, and obstruction of justice.
§ OVERT ACT = Martha and Bacanovic meet for breakfast.
o Count 2 = False Statements. Bacanovic lied to SEC in first interview.
o Count 3 = False Statements. Stewart charged with lying to the SEC and FBI. Some area to
work with here because it was an oral false statement so the recollection by the FBI agent and
his notes, etc. are subject to cross-examination. For example, tone and inflection matter.
o Count 4 = false statement by Stewart.
o Count 5 = making and using false documents by Bacanovic. [Found not guilty].
o Count 6 = perjury. Bacanovic lied in a court-ordered transcript, so can see the differences
between the accounts verbatim.
o Count 7 = obstruction of justice by Bacanovic.
o Count 8 = obstruction of justice by Stewart.
o Count 9 = securities fraud by Stewart. [Gets thrown out].
At trial: evidence presented that Bacanovic doctored his worksheets to add “sell at X price.” Ink expert
testifies to the ink being different than the rest of the worksheet. BUT, this doesn’t tell us why or when, so
it’s weak. Found not guilty on this count.
Incriminating fact that Stewart had been a stock-broker previously, so she knows how securities laws
work. She’s also the CEO of a Fortune 500 company. Hard to plead ignorance. Why would she lie about
this? Because she feared damage to her company and reputation. She had a motive to cover it up.
Not guilty on count 5, and count 9 gets thrown out. Guilty verdict returned by jury on all other counts.
Both Bacanovic and Stewart got the minimum penalty: 5 months in jail and 5-months home detention.
Practically: Stewart couldn’t decline to interview with the FBI/SEC because if she declined, she would be
subpoenaed and then has to testify in GJ without her attorney present. And doesn’t want to plead the fifth
because that makes her look guilty. Wants to appear cooperative.
Scooter Libby. Implicating Valerie Plame and Joe Wilson.
- Facts: started with George Bush’s state of the union address, building support for invading Iraq. An agent
suggests/leaks that the government was essentially leading the U.S. to support a war under false pretenses.
Leaked by CIA agent’s husband (Wilson). Scooter Libby is VP Cheney’s Chief of Staff and is trying to
figure out who the source of this story is. Ultimately, Plame’s identity is revealed by the White House,
ruining her career. White House decides the best way to attack the story is to undermine Wilson’s story,
and start spinning the story to reporters. In the course of that conduct, they leak her identity.
o She had previously been covert, working on weapons of mass destruction. This scandal
ultimately led to her resignation. Under some circumstances, revealing the identity of a secret
agent can be a crime.
- Libby gets charged with lying to the FBI. Two main categories of lies he gets charged with – (1) when he
talked to Tim Russert of NBC News, Russert is the one who told him the CIA agent’s identity. (2) When
he talked to Matt Cooper of TIME magazine, he told Cooper that he had heard gossip, but didn’t know for
sure that it was Wilson and Plame. Claimed to be passing along gossip he heard from other reporters.
o He claims he was merely repeating “gossip,” and wasn’t trying to discredit Wilson or Plame.
But that wasn’t supported by the facts.
o It looked like senior people in the White House were involved in leaking her name, but Libby
ended up taking the fall. He got convicted at trial.
- Structure of the Charging Document:
43
Megan Childs
(1) Count 1 – § 1503. Tells the whole story. Lays out the lies, evidence, work he did to
investigate, his knowledge, etc. Overall pattern of conduct was obstruction of justice. Then
two counts of false statements for lying to the FBI, and two counts of perjury for lying to GJ.
§ Under § 1503, both this case and Stewart were before § 1512 was amended/popular.
o (2) Count 2 – false statements to the FBI and the DOJ.
o (3) Count 3 – false statements about conversation with Cooper.
o (4) Counts 4 & 5 – perjury under 18 U.S.C. § 1623.
Big piece of the case was that reporters receiving the intel from the White House didn’t want to reveal
their sources. Judith Miller went to jail for contempt, and her source was Scooter Libby. After she served
3 months in jail for contempt, Libby contacted her and said she could testify.
o Contempt’s purpose is to compel you to comply. “You hold the keys to your own jail cell.”
Ultimately, Libby gets convicted and Bush commuted his sentence, so he never went to prison.
Conviction on his record, but never served time and was reinstated to the bar as a lawyer.
o
-
-
President Trump pardoned Scooter Libby last year, and has contemplated pardoning Martha Stewart.
RACKETEER INFLUENCED AND CORRUPT ORGANIZATIONS ACT (“RICO”)
18 U.S.C. §§ 1961-1964
Note: Eliason hates RICO and never charged it.
Has four different sections, but § 1962(c) is the broadest and most often used.
REASONS TO HATE RICO
- (1) Too complicated. Often don’t need it.
- (2) Hard to explain to a jury.
- (3) Gets abused, especially in civil litigation because plaintiffs get treble damages + attorneys’ fees (in
civil RICO). Real effort by lower courts to reign the statute in.
- (4) “RICO is the crime of being a criminal.” It doesn’t really create an offense, just packing up other
things that are already crimes and giving a more severe penalty.
- (5) Heavy-handed. Going after official who served as pub. official for 30 yrs, now calling him racketeer.
- (6) Need approval from the Main Justice. Limiting factor, otherwise will be brought in 80% of cases.
Example of RICO: Ohio congressman famous for wearing a loud tie when he gave a speech and concluding it
with very colorful language. He had a road contractor pave the road to his house in exchange for a federal
contract. Straightforward bribery/corruption charge, but was charged under RICO and convicted.
ELEMENTS of § 1962(c)
- (1) D was “associated with” or “employed by;”
- (2) An “enterprise” affecting interstate commerce;
- (3) D engaged or participated in the conduct of the enterprise’s affairs;
- (4) Through a “pattern of racketeering activity.” (“PORA”).
*Common to every RICO case = must find an enterprise AND a pattern of racketeering activity.
- Big issue is defining these terms.
§ 1961 provides defines over 30 federal offenses that can serve as predicate acts for a RICO charge. Common
predicate acts in WCC = mail/wire fraud, securities fraud, obstruction of justice, bribery, extortion, and money
laundering.
OTHER RICO SECTIONS:
- § 1962(a): prohibits use of funds obtained through a PORA to acquire an interest in, or to establish or
operate, any enterprise.
o TWO-STEP process: (1) engaging in process of racketeering activity and getting money from
it, then (2) using that money to invest in or acquire an enterprise.
44
Megan Childs
-
-
§ 1962(b): prohibits using a PORA to acquire or maintain an interest in or control of any enterprise.
o ONE-STEP process: (1) using PORA itself. Using the criminal activity directly – most
commonly through extortion or bribery.
§ [Distinct from (a) which is about engaging in the criminal activity and using the $$$]
§ 1962(c): prohibits conducting or participating in the conduct, through a pattern of racketeering activity,
of such affairs of an enterprise affecting interstate commerce;
§ 1962(d): prohibits conspiracies to violate sections (a), (b), or (c).
o Conspiracy provision. We looked at § 371 as catch-all conspiracy statute, but many statutes
have their own conspiracy provisions as well.
o Could charge § 371 for conspiracy against the U.S. to violate RICO, but that carries a 5-year
felony, while § 1962(d) is a 20-year felony.
Penalty: a maximum term of imprisonment of up to 20 years, which may be increased to life where the
violation is based upon racketeering activity that has a maximum penalty of life imprisonment. § 1963.
Start every RICO case with “WHAT IS MY ENTERPRISE?” [Eliason].
ENTERPRISE [PRONG 2]
- Defined under § 1961(4): “enterprise includes any [a] individual, partnership, corporation, association, or
other legal entity, and [b] any union or group of individuals associated in fact although not a legal entity.”
o TWO categories – [a] and [b].
o Almost like a victim – enterprise is what’s being infiltrated.
- Example: if the enterprise involved in a case is a corporation, that’s an enterprise by definition. No legal
analysis. Enterprise issue only becomes a question when it’s the “association-in-fact” enterprise (more
ambiguous). Most fact patterns will have multiple possible enterprises. Potentially more than one
enterprise – different corporations, or might have actors involved and decide the individual Ds acting
together are an “association-in-fact” enterprise.
- There may be numerous enterprises. Choose the one that best fits your needs.
LEGAL ENTITIES V. ASSOCIATION-IN-FACT
- A legal entity is, by definition, an enterprise. § 1961(4).
- If “enterprise” is a legal entity (i.e. a corporation), you don’t need to get into the “association-in-fact”
analysis discussed in Turkette and Boyle.
United States v. Turkette (1981) – SCOTUS
- Takeaway: “enterprise” includes both legitimate and illegitimate enterprises.
- Facts: Turkette is charged with RICO in count 9 of a 9-count indictment. Wide-ranging pattern of
criminal activity, including insurance fraud, arson, bribing police officers, etc. His basic argument is that
he has a group of criminals that commit crimes together. Not a formal business enterprise, and shouldn’t
qualify as an “enterprise” under the statute. Not what RICO had in mind. SCOTUS rejects this – no
reason to limit the scope to legitimate enterprises only.
- The purpose of RICO was to combat organized crime that infiltrated legitimate businesses, but that does
not preclude RICO charges where the enterprise is illegal. Courts reads it broadly. To hold otherwise
would omit whole areas of organized criminal activity from the reach of the statute.
Two distinct elements the government has to prove – not redundant. One focuses on the group/people and the
second focuses on what they do.
Enterprise may have economic or non-economic purpose. RICO does not require that the enterprise or
predicate acts have an economic motive. Scheidler.
“ASSOCIATION IN FACT” ENTERPRISE (most controversy)
- In addition to presenting the entity as a legal entity, prosecutors can also charge it as a “group of
individuals associated-in-fact although not a legal entity. § 1961(4). To be an association-in-fact requires
45
Megan Childs
-
a common purpose and functioning as a continuing unit. Further, an association-in-fact enterprise must
have at least three structural features: a purpose, relationships among those associated with the enterprise,
and longevity sufficient to permit those associates to pursue the enterprise’s purpose. Boyle (2009).
Language that comes out of Turkette. A group of persons associated together for a common purpose
of engaging in a course of conduct.
Group of people who associate together to engage in conduct. Must have a common purpose,
relationship among the members, and sufficient longevity to achieve the enterprise’s purpose.
After Turkette, there’s a lingering issue that results in a circuit split in the lower courts about whether a group
of persons associated together is alone enough, or if it requires something more. Some courts said: Turkette is
clear that you don’t need anything more than the criminal group itself. Others said: it clearly doesn’t have to be
a legal organization, but there has to be some structure/purpose beyond what’s inherent in the fact they
committed these crimes – otherwise, RICO is just a conspiracy statute.
Boyle v. United States (2009) – SCOTUS
- Takeaway: held that an association-in-fact enterprise must have at least three structural features: (1) a
purpose, (2) relationships among those associated with the enterprise [and a common interest], and (3)
longevity sufficient to permit these associates to pursue the enterprise’s purpose. That said, a jury
instruction does not have to include this precise language.
o Court rejected argument that there must be an ascertainable structure beyond that inherent in
the PORA.
o Basically, there has to be enough to show that people got together and committed the crimes.
All the statute requires is that they’re associated long enough and have a sufficient
relationship to go out and commit the acts. Congress can act if it chooses.
- Facts: group of bank robbers who would steal night deposit boxes right out of the wall. Charged with
RICO. Boyle’s lawyer argued that even after Turkette, there has to be some structure to the association-infact. Doesn’t have to be legitimate, but given the purpose of RICO – there can still be a requirement that
there’s a structure that’s ascertainable in the organization over and above saying we got together and
committed the crime – i.e., regular meetings, specific roles, rules, rituals, etc.
- Justice Stevens’ Dissent: concern that if you can use the same evidence to show pattern of racketeering as
showing “enterprise,” it would make the definition of enterprise meaningless. Sounds like conspiracy.
The Enterprise as a D
- Under § 1962(c), the enterprise cannot be a D “person,” because it cannot be “employed by or associated
with” itself. Cedric Kushner.
o You can’t be associated with yourself. Based on the plain language, need distinction there –
but this isn’t true of (a) or (b) below.
o The enterprise must be separate and distinct from the person-defendant. RICO separateness
can be shown when D is a president and sole shareholder of a closely held corporation.
o In Cedric Kushner, the Court found that “separateness” is met for purposes of RICO when
there is an individual and a corporation, even if the corporation has only one shareholder and
is a closely held corporation as the “corporate owner/employee, a natural person, is distinct
from the corporation itself, a legally different entity with differing rights and responsibilities
due to its different legal status.”
- Under § 1962(a) and § 1962(b), the enterprise may also be a D.
Cedric Kushner Promotions v. King (2001) – SCOTUS
- Takeaway: a person is distinct from a corporation, even if it is closely held. Very formal legal distinction.
Here, Don King was sufficiently distinct from him as an individual, even though it was a closely held
company.
Conduct of the Enterprise’s Affairs
- § 1962(c) requires that the D conduct or participate in the conduct of the enterprise’s affairs. Reves.
46
Megan Childs
-
“Conduct” requires some element of direction. To participate in the conduct of the affairs, one must have
some part in directing those affairs. Reves.
o Unclear to what extent this applies to lower-level employees or outsiders.
The Reves standard: D played some role in conducting or guiding the enterprise’s affairs. Not a low-level
person with no discretion or authority or an observer, etc. Not an outside auditor (at least in Reves).
o The Court held that § 1962(c) required that one participate in the operation or management of
the enterprise. The “operation or management” test is not limited to upper management.
o Very fact-specific inquiry – facts are critical. Depends on the nature of the role.
Reves v. Ernst & Young (1990) – SCOTUS
- Takeaway: Court reads “conduct” as a verb, not a noun. Thus, E&Y has to have some directing in the
enterprises’ affairs and here, they did not. Very fact-specific inquiry. There can certainly be cases where
an auditor or outside-counsel is very involved in these decisions. Maybe they sit on the board.
o Typically, as here, outside auditors provide advice, but don’t make decisions having to do
with it. Outside counsel gives information to management for management to act on, but not
making the ultimate decision. Not conducting the enterprise’s affairs themselves.
o However, even if you’re a mid-level or lower-level employee, if you have discretion in how
to execute, you’re guiding the ship to some degree. Even if you’re receiving orders as well.
- Facts: E&Y was acting as auditors for co-op company and failed to disclose financial condition of the
company. After co-op filed for bankruptcy, the trustee sued E&Y alleging they participated in an
enterprise of disguising the company’s financials through racketeering. At issue in the case is the meaning
of the word “conduct” in prong 3. Plaintiffs sought to have a broader definition to include E&Y as an
auditor.
AFFECTING INTERSTATE COMMERCE [PRONG 2]
- The enterprise’s activities may either be “engaged in” or “substantially affect” interstate commerce.
RACKETEERING ACTIVITY [PRONG 4]
- Defined at § 1961(1). Includes 9 categories of state offenses and dozens of federal crimes.
- White Collar RICO predicates include mail and wire fraud, Hobbs Act, bribery, obstruction of justice, and
money laundering. D need not be charged with or convicted of the predicate acts.
- RICO is a glorified conspiracy statute. Don’t have to charge the underlying, predicate acts. Have to prove
them, but don’t have to charge them. Relatively easy to turn a mail and wire fraud case into RICO if
there’s enough conduct just because of the breadth of the statute. Congress’ purpose was to make it broad.
- Strategically, can bundle state law offenses w/ RICO to get into fed. court and deploy federal resources.
PATTERN OF RACKETEERING ACTIVITY [PRONG 4]
- § 1961(5): “‘pattern of racketeering activity’ requires at least two acts of racketeering activity, one of
which occurred after the effective date of this chapter and the last of which occurred within ten years
(excluding any period of imprisonment) after the commission of a prior act of racketeering activity.”
- Pattern need not involve multiple schemes, but there must be “continuity plus relationship” in the acts of
racketeering activity. Northwestern Bell.
- 9 state + 30 federal offenses are listed in § 1961 as “racketeering activity.” The 9 state offenses are
murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in
narcotics or other dangerous drugs. It’s not required the accused actually be charged with the state offense
o § 201’s bribery and gratuities offenses are both included as possible predicate acts. Also: mail
fraud, wire fraud, certain drug offenses, and obstruction of justice. Very expansive.
o The statute requires both the requisite number of acts and a pattern. Just because there are
two predicate acts, doesn’t automatically make RICO available.
H.J., Inc. v. Northwestern Bell Telephone Co. (1989) – Supreme Court
- Takeaway: Pattern need not involve multiple schemes, but there must be “continuity plus relationship” in
the acts of racketeering activity. There has to be a relationship between the acts and a continuity
47
Megan Childs
-
-
requirement. CONTINUITY + RELATIONSHIP. “Continuity” means “criminal activity extending over
some period of time.,” but unclear what that means. Vague standard. Congress not concerned with “shortterm” activity.
o Suppleent: Continuity is achieved by proving related acts extending over a substantial period
of time or by acts that demonstrate a threat of continued racketeering activity. Predicate acts
over a few weeks or months that do not entail a threat of future criminal conduct do not meet
the continuity requirement. Where the acts are over a short period of time, but demonstrate a
“specific threat of repetition extending indefinitely into the future” or are part of an “ongoing
entity’s regular way of doing business,” they can satisfy continuity.
Facts: civil case brought by customers against NWBTC for bribing the MPUC, so the company could
charge higher rates. Prosecutors asserted every possible theory:
o § 1962(a): the enterprise = Northwestern Bell. Theory is that the company derived income
from racketeering activity because they were able to charge more, and then used that $$ in the
business. So Northwestern Bell is both the enterprise for § 1962(a) , and the D in the case.
o § 1962(b): MPUC is the enterprise. By bribing MPUC, acquiring an interest in the enterprise
because they’re responding to your bribes.
o § 1962(c): analogous to the (b) allegation. Participating in enterprise’s affairs.
o § 1962(d): conspiracy provision.
Justice Scalia’s Concurrence: this standard is too vague. It doesn’t give direction to the lower courts.
o Scalia questions, how can you have open-ended continuity? Once you have an indictment,
presumably the conduct has stopped. Open-ended means it would have continued into the
future if not for the interception. The acts by their nature suggest they were going to keep
going. Conversely, closed = ended, for the requisite period of time. Unclear that time is.
§1962(d) – RICO CONSPIRACY
- Makes it a crime to conspire to violate sections (a), (b), or (c). No one co-conspirator has to do all the
acts. The crime is the agreement to participate.
- Unlike § 371 (general conspiracy), a RICO conspiracy is not focused upon the agreement to commit a
specific offense or defraud the government, but rather on the conspiracy to violate a substantive RICO
provision. For example, a conspiracy to violate § 1962(c) would have as the object of the offense an
agreement to conduct or participate in the affairs of an enterprise through a pattern of racketeering. It
would not have as the object of the offense, an agreement to commit the individual predicate acts required
for a pattern of racketeering. A RICO conspiracy may exist even if a conspirator does not agree to commit
or facilitate each and every part of the substantive offense. Salinas.
o An over act is not necessary for a RICO conspiracy.
- No requirement that each conspirator personally agree to commit at least two predicate acts. Salinas.
FORFEITURE (of property)
- One of the great advantages of the RICO statute for the prosecution.
- § 1963(a) provides that the D shall forfeit to the U.S. any interest in the RICO enterprise and any property
constituting or derived from proceeds of the racketeering activity.
- Both tangible and intangible property can be forfeited.
In addition to criminal RICO actions, the RICO Act provides a statutory basis for both the government and
civil litigants proceeding with a civil cause of action. 18 U.S.C. § 1964. Remedies = damages. Treble damages
if plaintiff can show injury and that D’s actions in violation of the statute were the proximate cause of that
injury. The government can also request equitable relief.
MONEY LAUNDERING
18 U.S.C. §§ 1956 & 1957
- 18 U.S.C. § 1956: prohibits financial transactions or international transportation of funds with a specific
unlawful intent or knowledge concerning the nature or purpose of the act. Broader and much more
common. Government must prove intent/knowledge in connection with the financial transaction.
48
Megan Childs
Concentrate on financial transactions involving proceeds of unlawful activity.
Criminalizes transactions involving proceeds of unlawful activity “knowing that the
transaction is designed in whole or in part… to avoid a transaction reporting requirement
under State or Federal law.”
18 U.S.C. § 1957: requires only a knowing monetary transaction with illicit funds, no further specific
intent or knowledge. Less common and less stringent.
o Pertains to those who knowingly engage or attempt to engage in monetary transactions
involving “criminally derived property that is of a value greater than $10k and is derived from
specified activity.”
o
o
-
*Relatively simple to prove, and severe penalty.
DEFINITION OF MONEY LAUNDERING: “the concealment of the existence, nature, or illegal source of
illicit funds in such a manner that the funds will appear legitimate if discovered.” Classic ML concept.
- The crimes that fall within the money laundering statutes cover much more than this. Schemes to promote
criminal activity, and schemes to put your money in the banking system.
Another long, complicated statutory scheme. Not intuitive. Unlike RICO, Eliason doesn’t hate money
laundering. Premised on criminals basically taking their dirty money and trying to “clean it up” in a legitimate
business so that when the $$ comes to light, no one asks questions.
- Often, drug-related activity is prosecuted through the use of these money laundering offenses.
PURPOSES – (1) attack the funding of criminal operations; (2) attack criminal activity from the other side.
- In addition to attacking the underlying illegal activity (i.e., wire fraud, drug operation, etc.), you can also
make it impossible for Ds to enjoy the proceeds of the operation.
Many cases can be charged under either § 1956(a)(1) or § 1956(a)(2).
18 U.S.C. § 1956(a)(1) – ELEMENTS
- (1) D conducts or attempts to conduct a “financial transaction;”
- (2) knowing that the property involved represents the proceeds of some form of unlawful activity;
- (3) the financial transaction does in fact involve the proceeds of a “specific unlawful activity”
(SUA);
- (4) D acts with one of four specific intents or types of knowledge.
FINANCIAL TRANSACTION [PRONG 1]
- Defined under § 1956(c)(4): “the term ‘financial transaction’ means (A) a transaction which in any way or
degree affects interstate or foreign commerce (i) involving the movement of funds by wire or other means
or (ii) involving one or more monetary instruments, or (iii) involving the transfer of title to any real
property, vehicle, vessel, or aircraft, or (B) a transaction involving the use of a financial institution which
is engaged in, or the activities of which affect, interstate or foreign commerce in any way or degree;”
- Very broad definition. Includes virtually any kind of transaction or transfer involving money, financial
instruments, or certain types of property. If Eliason sells his car to me for cash, that’s a financial
transaction. It’s an exchange for transfer. Carrying money across state lines is not a transaction.
- “Financial transaction” doesn’t have to involve a bank or financial institution, though it frequently does.
- Each financial transaction is a separate money laundering count.
KNOWLEDGE REQUIREMENT [PRONG 2]
- Defined under § 1956(c)(1): “the term ‘knowing that the property involved in a financial transaction
represents the proceeds of some form of unlawful activity’ means that the person knew the property
involved in the transaction represented proceeds from some form, though not necessarily which form, of
activity that constitutes a felony under State, Federal, or foreign law.”
49
Megan Childs
-
Must show that at the time of the transaction, D knew the property was proceeds of “some form of
unlawful activity.” Have to prove D knew it was dirty money (came from criminal activity).
Unlike “specified unlawful activity,” there isn’t a specific list of offenses that qualify. Any felony under
state, federal, or foreign law will suffice. Don’t have to show D knew what kind of criminal source.
Can prove knowledge with willful blindness. Important where D claims to not know they’re dealing with
dirty money – circumstantial evidence can demonstrate that there was willful blindness.
SPECIFIED UNLAWFUL ACTIVITY [PRONG 3]
- Defined § 1956(c)(7): laundry list! The financial transaction must in fact involve the proceeds of an SUA.
o I.e., crimes of violence (murder, kidnapping), attempts or schemes to defraud, bribery, theft,
smuggling, human trafficking, Controlled Substances, robbery, extortion, child pornography,
financing terrorism, etc. LONG list.
- SUAs include many common WC offenses – bribery, mail/wire fraud, obstruction of justice, Hobbs Act.
SPECIFIC INTENT/KNOWLEDGE [PRONG 4]
- (1) Intent to promote an SUA: (a)(1)(A)(i) (“plowback money laundering” or “promotion money
laundering.”) Using the criminal proceeds to further some other specified unlawful activity.
- (2) Intent to evade income taxes: (a)(1)(A)(ii).
- (3) Knowing that the transaction is designed to conceal or disguise the nature, location, source,
ownership, or control of the proceeds of the SUA: (a)(1)(B)(i) (“concealment money laundering.”)
Cleaning up the money so it doesn’t look criminal anymore.
- (4) Knowing that the transaction is designed to avoid a CTR filing requirement: (a)(1)(B)(ii). CTR is
a “currency transaction report.” I.e., if Eliason wants to deposit $100,000, but knows that will require a
CTR so he has 11 of us deposit $9,000 each to avoid the CTR requirement. Used to be called “smurfing.”
*We focused on (1) and (3) – the most common.
“PROCEEDS” – appears in prongs (2) and (3).
- (2) D must know, at the time of the transaction, that the property involved is “proceeds” of “some form of
unlawful activity.”
- (3) The property must, in fact, be “proceeds” of a “specified unlawful activity” (SUA).
- Statute was amended in 2009 to define “proceeds:” “any property derived from or obtained or
retained, directly or indirectly, through some form of unlawful activity, including the gross receipts
of such activity.” § 1956(c)(9).
- Money laundering IS NOT a separate way of charging the same, underlying crime. It’s a SEPARATE
OFFENSE. It’s something you do with the proceeds after they’ve bene generated by the initial crime.
o “Downstream” transaction – what you do with what you gain from the underlying SUA.
o DO NOT MERGE THE TWO. Can’t charge the SUA as the laundering event itself.
o “Proceeds” means you have the $$ in your hands and can go do something with it.
- Generally, “proceeds” are funds that have been generated by an already completed unlawful activity.
o Example: if SUA = wire fraud. Prosecution cannot charge the money that caused the wire
fraud as the same laundering event. Can charge the USA, and then separately, money
laundering once that money is used after the wire fraud crime. Once D has the money in his
bank account and goes out to spend it (for example), that’s a separate laundering event.
Varsity Blues Cases: a lot of the parents were charged with money laundering, because they paid bribes to
Singer and he set up a foundation. Disguising what the money was actually for. Eliason says: this isn’t
proceeds yet. This is part of the bribe, it’s not money laundering.
- Not every transaction designed to hide something is automatically money laundering.
- Looks and feels like ML, but these aren’t proceeds. It’s “clean money” from the parents’ bank accounts.
- Even if the intent is there; not the proceeds within the meaning of the statute.
- Once Singer does something with the money (i.e., bribes a coach), that’s a laundering event.
o The best laundering case is where the coach then goes and does something with that bribe $$.
50
Megan Childs
“Money laundering must be a crime distinct from the crime by which the money was obtained. The money
laundering statute is not simply the addition of a further penalty to a criminal deed; it is a prohibition of
processing the fruits of a crime or of a completed phrase of an ongoing offense.” U.S. v. Abuhouran (1998).
United States v. Santos (2007) – SCOTUS
- Takeaway: “proceeds” should be read to mean “profits” or “net income,” and not “gross income” or
“receipts.” Court applied rule of lenity. Can’t be that everything that comes in is included because running
an illegal lottery is only a 5-year crime, while money laundering is a 20-year crime. That can’t be what
Congress intended. Narrowing the scope! Court used the rule of lenity in deciding favorably to the Ds.
- Facts: Santos had used income from the illegal lottery operation to pay both the winners and the couriers
and collectors who worked for the gambling operation. The money laundering charges were based on 18
U.S.C. 1956(a)(1), which criminalizes the use of the "proceeds" of an illegal activity to promote or
conceal that activity. However, federal courts disagreed on the meaning of "proceeds."
o Government charged as ML because they were paying out from the lottery to cover the SUA.
- Justice Alito’s Dissent: the term “proceeds” in state and federal money laundering statutes consistently
refers to gross receipts. If limited to “profits,” dirty money may be used to support a luxurious lifestyle
and to grow an illegal enterprise whenever the enterprise possesses large amounts of illegally obtained
cash. Illegal enterprises may acquire such cash while engaging in unlawful activity that is unprofitable.
Congress then amended to clarify that “proceeds” = gross receipts, not just profits.
United States v. Corchado-Peralta (2003) – First Cir.
- Takeaway: this was money spending, but not money laundering. Fails on prong 4.
- Facts: D (wife) is convicted of money laundering for spending money earned from her husband’s drug
smuggling enterprise. She bought cars, services, real estate, etc. with the money he earned. She was
writing and depositing the checks. Husband testified that she didn’t know anything about his drug dealing
activities. The financial transactions are (1) expenditures and (2) deposits. Each is a separate count of
money laundering. The SUA = drug crimes.
- Issue in the case relates to D (wife)’s knowledge.
o ELEMENT (2) – knowledge that the money was direct money.
§ D’s husband testified that she didn’t know about his drug smuggling enterprise.
§ Substantial evidence that she did know, though. She’s a sophisticated/educated party.
She also knew what was going out far exceeded what was coming in. Willful
blindness doctrine – jury can find knowledge in circumstances like this where
evidence that would put a reasonable person on notice to question what’s going on.
• If she didn’t know the details, it’s because she didn’t want to know. The
Court says – this is a close call. The evidence isn’t overwhelming, but a jury
could find knowledge based on constructive knowledge element.
• Keep in mind that the jury is looking at the evidence in real time; whereas
Court of Appeals is looking at a cold transcript.
o ELEMENT (4) – knowledge about the purpose of the transaction.
§ She was spending the money, but no evidence she was concealing or disguising.
§ Gov. argued she concealed/disguised the money by spending it. But then, any
purchase conceals dirty money. Would be a different case if she buried the money,
put it in a bank account under a different name, a foreign account, shell company’s
bank account, etc.
§ Court keys in on the fact that there is no evidence of specific intent – the purpose or
design, not just an effect. Evidence isn’t sufficient because she’s just spending
§ As a prosecutor, look for convoluted behaviors – i.e., why would sometime title a car
in their dog’s name instead of their own? That looks very shady on its face. Compare
with someone openly buying something – where anyone can look up the car title or
house title or name on the bank account. Able to trace it back – not shady.
51
Megan Childs
United States v. Brown (1999) – Fifth Circuit [promotion money laundering theory under (a)(1)(A)(i)]
- Takeaway: not promoting the fraud. Insufficient evidence that the charged expenditures were financial
transactions conducted with the intent to promote the carrying on of specified unlawful activity. §
1956(a)(1)(A)(i) is not satisfied by a showing that a financial transaction involving the proceeds of
specific unlawful activity merely promoted the carrying on of unlawful activity; the provision has a
specific intent element – the government must show that the “dirty money” transaction was conducted
“with the intent to promote the carrying on of specified unlawful activity.”
- Facts: Graves & Brown ran a fraudulent car dealership. They overcharged on title fees, advancing fees to
get around credit card requirements, and artificially inflated car prices, etc.
o The Credit Union gets defrauded because they think the buyer is putting down 25%, when in
fact the money is coming from the car dealership. Wouldn’t have agreed to that if they knew.
- Money laundering allegations regarding the proceeds of the fraud.
o ELEMENT 3: the various frauds are the SUA – straightforward.
o ELEMENT 1: financial transactions = a lot of routine business expenses, operating dealership
- Gov. argues that this is promotion money laundering because the whole dealership is a fraud.
o Court rejects this argument because he wasn’t specifically suing the checks to promote the
fraud – just the business generally.
o Similar to Corchada-Peralta in the sense that the expenditures aren’t targeted at furthering
the crime itself. Key word in (a)(1)(A)(i) = to promote.
o Could have narrowed the expenditures to something more specific like buying a postage
stamp to mail in the phony title application. Directly linked.
United States v. Jackson (1991) – Seventh Circuit
- Takeaway: for purposes of § 1956, comingling is not a defense.
- Facts: preacher running a drug operation. Numerous financial transactions at issue:
o (1) Cell phone and beepers. Under § 1956(a)(1)(A), beepers may qualify as promotion, but
there’s no evidence here that the cell phones were used that way.
o (2) Cashing checks for spending money;
o (3) Checks to the landlord to pay his rent. Not promotion for his own personal rent, but would
have been if he were paying the landlord to pay the rent for the drug house.
o (4) Buying cars – found not guilty of this so not included in the case.
- #1-3 – charged on PROMOTION AND CONCEALMENT. Promotion only works for the beepers.
o Concealment: putting the money from the operation into the church bank account so that it
looks legitimate when you spend it. Anything out of the church bank account is concealing.
- Comingling question: D argues that the government needs to be able to identify which money went to
which activities, and when they’re all comingled in one account, can’t do that specifically. The bank
account has clean money and dirty money. The government can’t prove BARD that a certain check is the
proceeds of the criminal activity. Court says: mixing it up is part of the laundering! That can’t be a
defense that makes it impossible for the government to charge you.
o Statutory language – it just needs to involve the proceeds of the SUA. If the money is in the
account, any transaction that comes into the account involves those proceeds. When dirty
money goes into the account, the account is tainted.
18 U.S.C. § 1956(a)(2) – ELEMENTS (short hand: international money laundering)
- (1) D transported, transmitted, or transferred, or attempted to transport, transmit, or transfer, “a
monetary instrument or funds;”
- (2) Across the U.S. border; EITHER
- (3) With intent to promote the carrying on of an SUA; OR
- (4) With the knowledge that the funds are proceeds of some form of unlawful activity, and that the
movement of the funds is designed in whole or in part to conceal the nature, location, source, or
ownership of the funds, or to avoid a CTR requirement.
*Focusing on the transportation of funds across the U.S. borders.
52
Megan Childs
*Less concern with where the money came from; doesn’t have to be the proceeds of an SUA. Doesn’t have to
be dirty money like in § 1956(a)(1).
*Instead of a financial transaction in § 1956(a)((1), it’s about transportation in (a)(2).
§ 1956(a)(1) v. § 1956(a)(2)
- (a)(1) focus is on the “financial transaction;” whereas (a)(2) focus is on the act of international
transportation or transfer;
- (a)(1) applies to any “financial transaction;” whereas (a)(2) applies only to international movement of
monetary instruments or funds.
- (a)(1) always requires the D know the property involved is proceeds or some form of unlawful activity
(SUA); “promotion” laundering under (a)(2)(A) does not.
- (a)(1) requires proof that the property involved was in fact proceeds of an SUA; (a)(2) does not.
18 U.S.C. § 1956(a)(3) – applies to laundering funds from undercover operations.
- Provides that the property involved need only be “represented” to be proceeds of an SUA or to promote
an SUA. Representation comes from law enforcement officer or someone working with law enforcement.
Other § 1956 Provisions
- § 1956(b) – civil penalty to the U.S.
- § 1956(h) – conspiracy penalty provision. Like RICO, money laundering has its own conspiracy
provision.
FORFEITURE: money laundering provides a basis for forfeiture. 18 U.S.C. § 982(a)(1).
18 U.S.C. § 1957 – ELEMENTS
- (1) D engages or attempts to engage in a “monetary transaction;”
- (2) Knowing that the transaction is in “criminally derived property;”
- (3) The transaction is in excess of $10,000; AND
- (4) The property is in fact derived from a “specified unlawful activity.” (SUA).
*Less common than § 1956. Companion money laundering statute.
United States v. Campbell (1992) – Fourth Circuit
- Takeaway: realtor’s motive doesn’t matter – knowledge is what matters. She has to know it’s (1) derived
from illegal activities and (2) that it’s the drug dealer’s purpose to conceal. Here, evidence supports that.
- Facts: real estate agent sells a house to a drug deal under shady circumstances (lowered price with an all
cash agreement, done under the table, etc.) D charged under both § 1956(a)(1)(B)(i) and § 1957. Specific
knowledge under § 1956(a)(1)(B)(i): knowing that the transaction is designed to conceal or disguise the
nature, location, source, ownership, or control of the proceeds of the SUA. Elements one by one:
o (1) What is the financial transaction? Buying the house.
o (3) Involving proceeds of an SUA? Yes, drug money.
o All comes down to knowledge under (2) and (4). (2) – does she know the proceeds came from
dirty money, and (4) – that it was designed to conceal?
§ Court says: these two elements collapse into one. If the jury found that she knew it
was dirty money, then the nature of the transaction alone is enough to demonstrate
that it was designed to conceal. This is a perfect laundering event for him because he
had $60k in drug money lying around, and he used it to buy the house – so now he
has a perfectly clean house, and got rid of the money/the dirty trail. No record of it.
§ Also here, her commission went up so she got the same commission as if the price
had been the market value – despite being lowered to $60k. Shady.
- Generally, when is a realtor responsible for selling a house to a drug dealer?
o Need evidence that the transaction is designed to conceal.
53
Megan Childs
Here, she took steps to conceal. Not enough to just sell a house to a drug dealer at market
value, if all the paperwork is legit and the title is entered in their name, etc. Even if the
transaction is all cash. Legitimate. That would be money spending, not money laundering.
o Laundering requires concealment (or promotion, etc.) making it more difficult to
trace/covering your tracks.
Another willful blindness case – she should have been tipped off by his lifestyle, etc. She told the listing
broker that the money “may have been drug money.” The circumstantial evidence taken together.
o He also told her he couldn’t get a loan from the bank – very suspicious.
o A reasonable jury could find that there was willful blindness. Trial judge shouldn’t be making
those credibility determinations and weighing the evidence.
o
-
Prosecutors want to bring these cases to make it more difficult to enjoy the proceeds of criminal acts. Not just
the people who do it themselves, but also the people who knowingly help them (bankers, real estate agents,
etc.). Also want to deter that behavior.
§ 1956 v. § 1957
- § 1957 applies only to “monetary transactions,” narrower than “financial transactions” for § 1956(a)(1).
- § 1957 has $10,000 minimum requirement. No minimum requirement for § 1956.
- No specific intent or additional knowledge required for § 1957.
- Commingling rules not as favorable for § 1957.
- Penalties -- § 1956 max. 20 years; § 1957 max. 10 years.
Commingling Funds Under § 1957
United States v. Rutgard (1997) – Ninth Circuit
- Takeaway: under specific language of § 1957, government has to establish precise 1:1 tracing.
- Facts: Ophthalmologist convicted of Medicare fraud. Legal issue is that the fraudulent funds are
commingled with his clean money. Court held that it couldn’t be showed, as required under § 1957, that
the specific funds were used.
o Under § 1956, anything that comes out of the commingled account qualifies. Jackson.
o Here, under § 1957, element 2 requires “knowing that the transaction is in criminally derived
property.” § 1956 suggests a different result because it includes an “involve” element.
o Under § 1957, the government has to be able to trace it.
- Specifically, $15 million was deposited into the account and $46k could be confirmed as dirty. After the
transaction, there’s still > $46k left in the account, which may have been all the dirty money. So the
government could prove there was $46k dirty money in the account, but not that the money involved in
the transaction was itself the dirty money.
How can government prove the use of dirty money from a commingled account under § 1957?
- (1) Can link a particular deposit to a particular act.
- (2) If the amount deposited exceeds the total of the dirty money, then you know it’s dirty. I.e., if < $46k
had remained in the account in Rutgard. If the account is cleaned out – the dirty money was involved.
CURRENCY TRANSACTION REPORTS (CTRs)
- Must be filed for all cash transactions in excess of $10k.
- Form 4789: for financial institutions.
- Form 8300: for any “trade or business.”
- Willful failure to file the reports is a felony.
- 31 U.S.C. § 5324: makes it a crime to structure transactions so as to avoid CTRs being filed –
“structuring” or “smurfing.” 5-year felony.
PLEA BARGAINING, IMMUNITY, & COOPERATION AGREEMENTS
Prosecutorial discretion of deciding who and when to charge, and when to give immunity.
54
Megan Childs
-
Guest Lecturer Michael Levy points out that prosecutorial discretion is problematic in the context of
white collar crimes because it gives prosecutors in the executive branch a fundamentally legislative
function: deciding what conduct constitutes a crime.
D.C. has to give approval, regardless of where you are. Then you file with the judge in your district
(formality). Executive discretion from D.C. about immunity, not the local judge.
- Have to seek approval identifying your case, the witness’ role, why you need the testimony, what you
expect them to say, why immunity is in the public interest, etc.
IMMUNITY: giving someone a complete pass. Important decision that must be made carefully.
- Counters directive as a prosecutor because there is an opportunity to prosecute, but instead, give them a
pass in exchange for their cooperation/information. Otherwise, they have a Fifth Amendment right that
allows them to not testify.
- If a witness pleads the Fifth and refuses to testify, prosecutor must get an order from the court compelling
them to testify. Once witness is served with the order, no longer a Fifth Amendment right. Have to testify,
and if not, will be held in contempt of court (you hold the keys to your own jail cell).
I. FORMAL, COURT-ORDERED IMMUNITY
(1) Direct Use and Derivative Use Immunity [statutory]
- If a person testifies, that testimony can’t be used against them directly or derivatively. Can’t use anything
they said directly, or anything that it ultimately led you to.
o Derivatively = cannot take something they say and use it to follow up with new leads, seek
new information, etc. All of that will be excluded as impermissible derivative use.
o Directly = can’t use anything they said directly; doesn’t hurt them in terms of criminal
exposure.
- If you have an independent source of the information, though, can still charge them in theory. This almost
never happens (policy reasons).
(2) Transactional Immunity [not statutory; granted through a prosecutorial agreement]
Much broader. Almost never granted. Don’t focus too much on this because it’s extremely rare.
- Transactional immunity = if you testify, can’t be charged for anything criminal related to this transaction,
no matter where the evidence comes from. Still open to collateral consequences (i.e., civil suits) because
it’s only immunity against criminal charges.
- Example: Monica Lewinsky received this for testifying against Bill Clinton.
Kastigar v. United States (1972) – SCOTUS – leading case on immunity.
- Takeaway: The government may compel testimony from a witness who has invoked the Fifth
Amendment right to silence by giving that witness immunity from use of both the compelled testimony
and any evidence derived from that testimony in a subsequent criminal proceeding.
- Facts: Ds subpoenaed to testify before grand jury and plead the Fifth. Refuse to testify even after court
order, claiming that the grant of immunity under those statutes wasn’t sufficient – not co-extensive with
the Fifth Amendment. Claim that the Fifth Amendment is an absolute right to not have to testify – cannot
compel us to be a witness against ourselves. SCOTUS rejects this.
o All the Constitution requires is derivative immunity. Requires that you be in the same
position, had you never testified at all. Nothing will be used to prosecute you.
- Dissent: if you’re given a grant of immunity, not really in the same position that you would have been in
because they’re going to put you on the stand potentially make you admit to all the bad stuff you did.
Consequences for your reputation, career, family, liability for civil suits, etc. Fifth should prevent this.
o Court’s response is that the 5A is concerned with prosecution, not privacy and everything else
Kastigar Hearings: if you’re prosecuting someone and they’re claiming to use their Kastigar right not to
testify, the government must establish all their evidence has an independent source at an evidentiary hearing.
Not using the testimony of the person or a derivative use. Preponderance of the evidence.
55
Megan Childs
Oliver North case. American political commentator. Prosecutors wanted to get to the bottom of what
happened, so they immunize him and make him testify. Hearings were broadcast on every major network –
very big deal. North testifies under immunity and admits to numerous crimes. After he testifies, government is
still interested in prosecuting him for certain crimes. He gets indicted, prosecuted, and convicted in D.C.
- North raises a Kastigar challenge to the D.C. Circuit, claiming that the government relied on his
immunized testimony in violation of Kastigar.
- Every person involved in investigating the issue was required not to watch the news or read the
newspaper; no access to any information relating to North.
- D.C. Circuit held that the government would have to show that every witness who testified had a
completely independent basis for everything they said and that they weren’t influenced in any way by
what North had said in his testimony. Virtually impossible. If they were influenced by that in any way,
Kastigar violation. Some of North’s allies deliberately implicated themselves by watching his testimony
so that they couldn’t testify. Purposeful.
The best way to avoid a Kastigar challenge is to get approval from the U.S. Attorney or whoever your boss is
to get the immunity. Then take all the evidence you have against a D and build the case, then the day before the
testimony, lock it all away somewhere. Then when you get the immunized testimony. When you want to
prosecute the agent, have the locked file with all the information that can be used to prosecute by someone else
Good policy reason for why this isn’t a frequent occurrence: would entirely undercut the purpose to prosecute
a witness after giving them immunity. Would undercut the entire process/system. We want to encourage those
with information to provide what they know. Want them to feel comfortable as long as they tell the truth.
As a defense attorney the best result is that your client doesn’t get charged. The second best result is immunity.
- An immunized witness isn’t as attractive to a jury as someone who plead guilty. Guilty pleas imply “yes,
I’ve done something bad, but I’ve accepted responsibility and now I’m here to tell the truth and do what’s
right.” Immunized witness will be subject to much more vigorous cross-examination.
II. “POCKET” OR “LETTER” IMMUNITY
- Letter agreement from the prosecutor giving you immunity. Can have benefits in terms of speed and
efficiency.
On the prosecutor’s side – deciding who to grant immunity to. Have to be very cautious – don’t want to
immunize the big fish and then realize you gave the wrong person immunity.
PLEA BARGAINING (more common than immunity)
- In a plea bargaining agreement, the client agrees to something in exchange for other charges being
dropped or for a lesser sentence.
- Client might agree to cooperate as part of the plea deal or they may just plea.
- Generally speaking, plea deals will be for a subset of charges. Giving a break for pleading guilty.
- As a D, always have the option to “plead straight up.” You have the right to plead to your indictment and
not have to go to trial. This almost never happens.
- In federal court, plea bargaining agreements are almost always in writing, and quite detailed. Signed by
the prosecutor, defendant, and defense attorney.
Evidentiary Proceeding: judge talks to client to ensure they understand the terms of the deal. Pleading
knowingly and voluntarily. Rule 11 Proffer Letter Agreement: prosecution tells judge that if the case had gone
to trial, the government would have shown and recites the facts. Have to include all the elements.
- If proffer is acceptable to the judge, he will accept the plea and send the case down for sentencing.
PARALLEL PROCEEDINGS
56
Megan Childs
Parallel Proceedings = where civil or administrative proceedings and criminal proceedings are likely to
overlap. I.e., WC offenses frequently also constitute common law torts and violations of statutes creating
private causes of action. Similarly, administrative agency proceedings (both investigations and enforcement
actions) may overlap in subject matter with criminal proceedings. Parallel proceedings require the participants
in those proceedings to give consideration to the bearing of one proceeding upon the other.
Where a dual target must respond first in a civil suit or an administrative proceeding, the dual target must
consider whether that response will be available to the prosecutor in the parallel criminal proceeding, and if so,
what benefits that may give the prosecutor, i.e.:
- (1) incriminating evidence or leads to incriminating evidence;
- (2) recorded statements that can be used to impeach the target and the target’s witnesses should they vary
from those statements in their testimony in the criminal case; and
- (3) notice of the target’s likely defense well in advance and in far greater depth than the notice that could
be obtained through criminal discovery.
- If these benefits are likely, the dual target may:
o (1) Seek a stay. Seek to delay being required to respond until after the criminal proceeding
reaches a conclusion. Go to the civil judge to ask for a stay on the civil proceeding and
discovery while the criminal proceeding is pending. Strongest argument for this is that if the
criminal case gets resolved, then the civil case will likely go away. Also, fairness concerns –
unfair to force client to respond to interrogatories that may negatively impact criminal proc.
Court will weigh all these considerations and make a determination. No right to it; just a
judge balancing the interests of both parties + interest of the court to keep the docket
moving/judicial efficiency + the public interest in getting this resolved (i.e. victims who need
compensation).
o (2) Answer the Interrogatories. Pro = helpful for civil case because you’re complying with
the discovery orders and won’t be sanctioned. Con = it’s an admission. Anything can be used
against him by the government in the grand jury criminal investigation. May give up a lead
that the government didn’t have before.
o (3) Take the Fifth. Consider exercising the privilege against self-incrimination to limit the
content of their response. This solves the concerns about making admissions and giving up
information, but gives rise to issues in the civil case because likely can be used against you.
o (4) Answer, but then seek a protective order under Rule 26(c) of the Fed. Rules of Civil
Procedure. Ask the judge to put answers under seal so that the gov., investigators, grand jury,
etc. cannot access it. Only the litigants have access. Risky because a protective order can
always be lifted. Most courts hold that a GJ subpoena trumps court’s protective order.
Not a per se due process problem for the government to go after your client both civilly and criminally. Due
Process issue arises though if you can establish that the government is acting in bad faith or are pursuing civil
proceedings just to get discovery for the criminal case. Establishing improper motive.
- The Court has held that there is no constitutional mandate that dual targets be relieved of the situation to
respond to both civil action and criminal proceeding by the issuance of a stay of the discovery in the civil
proceeding. Kordel (1970). However, the Court held that certain circumstances might produce a due
process violation either in denying a stay or in allowing the government to use the fruits of its civil
discovery in a criminal case.
Primary concern is keeping your client out of prison.
Consider that someone in the investigation may be immunized (Oliver North), which may have implications
for or mess up your investigation. Doesn’t happen often, but it’s possible.
Keep in mind the Rule 6(e) obligations to protect grand jury materials. Can take in information other agencies,
plaintiffs, etc., but can’t let the information flow the other way.
57