Federal Criminal Law News

August 6, 2009

Federal Court of Appeals Limits Calculation of Criminal Insider-Trading Gain for Sentencing Purposes

Last Friday, the Tenth Circuit Court of Appeals decided U.S. v. Nacchio, a white collar criminal case involving insider trading by the former CEO of Quest Communications. The Court held that, in calculating Mr. Nacchio’s gain for purposes of sentencing, the district court must determine the proceeds related to his insider information, rather than simply calculating total net profit. The Eighth Circuit Court of Appeals held the opposite in U.S. v. Mooney in 2005. The Eleventh Circuit, which hears appeals in federal cases here in Atlanta, Georgia, has never addressed this issue.

Mr. Nacchio began earning stock options through his position as CEO of Quest in 1997. By early 2001, he held over 4.4 million vested options. Between April and May 2001, he sold more than 1.3 million of his shares. That July, the company announced to investors that its expected revenue for 2001 would be near the lower end of previously announced ranges. In August, Quest disclosed the magnitude of its prior use of nonrecurring sources of revenue, such that it was at substantial risk of not meeting its year-end guidance.

Alleging that Mr. Nacchio was aware of material, nonpublic information when he sold his shares of Quest stock, the federal government charged him with forty-two counts of insider trading in 2003. He was convicted on nineteen counts covering the trades he made in April in May. The district court sentenced him to 72 months imprisonment, 2 years of supervised release, a $19 million fine, and forfeiture of $52 million. The Tenth Circuit reversed the sentencing order and remanded to the district court for resentencing.

July 23, 2009

Prison Reimbursement in the Georgia and Federal Criminal Justice Systems

by Kish Law

Time Magazine reported yesterday that a New York legislator, James Tedisco, introduced a bill in that state that, if passed, would require wealthy inmates to pay for the cost of their prison stays. A similar bill failed to pass in Georgia this year and the federal criminal justice system already takes the costs of incarceration into account when determining fines at sentencing. Many states, including Florida and Alabama, have passed laws addressing inmate reimbursement of the costs of confinement.

The New York bill, nicknamed the “Madoff bill,” proposes a sliding scale based upon each inmate’s net worth. Those worth $200,000 and more will for their entire stay, estimated at around $90 per day. Those worth $40,000 or less will not have to pay. The proposed law would not affect homes, mortgage payments, and child support payments, although middle-class prisoners’ families would surely suffer.

Federal Prison Reimbursement

July 14, 2009

Eleventh Circuit Court of Appeals Raises Issue of Standing to Skirt the Rule of Specialty in Federal Criminal Extradition Case

by Kish Law

Last week, the Eleventh Circuit Court of Appeals, which sits here in Atlanta, Georgia, decided U.S. v. Valencia-Trujillo, a federal criminal case involving an extradition rule called the rule of specialty. The Court held that Mr. Valencia-Trujillo had not established that he had been extradited under Colombia’s treaty with the United States, rather than an extradition agreement between the countries, so he lacked standing to assert the rule of specialty. This decision makes little sense in the context of the rule.

The rule of specialty requires countries that request extradition of a person to prosecute that person only for the offenses for which the foreign country surrenders the person. In other words, if the United States asks Colombia to extradite someone for charges A, B, and C, once Columbia extradites that person, the United States can’t turn around and charge the person with X, Y, and Z. As the Court said in its opinion, “because the surrender of the defendant requires the cooperation of the surrendering state, preservation of the institution of extradition requires that the petitioning state live up to whatever promises it made in order to obtain extradition.” In other words, the rule of specialty ensures that other countries will trust the United States to adhere to the terms of extradition. Otherwise, they may not agree to send people back to the U.S. for trial.

The Court basically held that the United States need not honor promises that it makes in order to obtain extradition agreements. It came to that conclusion by relying on a prior case that viewed treaties as contracts between sovereign nations and the rule of specialty as a provision of the extradition contract. Because of that case, the Court said, “the rule of specialty is treaty-based.” The court then explained that while treaties become the law of this country, extradition agreements do not. The Court’s distinction between extradition pursuant to a treaty and extradition pursuant to an agreement flies in the face of the underlying purpose of the rule of specialty.

June 2, 2009

Black Requests Bail Pending a Decision on Federal Honest Services Fraud Case

by Kish Law

As we discussed in this post, the Supreme Court of the United States agreed to hear media mogul Conrad Black’s appeal regarding whether the honest services fraud statute applies in a purely private setting where the defendant’s conduct risks no foreseeable harm to the putative victims. We are very interested in the outcome of this case because it has the potential to change the law in the Eleventh Circuit (the court that hears federal criminal appeals from Georgia, Florida, and Alabama.) Unfortunately, we will have to wait a while. The appeal will not be heard until after the beginning of the Court’s new term this fall, likely as late as November or December.

As reported over at the SCOTUS Blog, Black has requested bail during the time his appeal is pending. He has served 15 months of a 78-month prison sentence and, if bail is denied, will have served about two years before the Justices decide his case. If his conviction is reversed, those are several months he cannot get back. His lawyers also argue that he should be released from prison in the meantime because his co-defendant, John Boultbee, has been released on a $500,000 bond and allowed to return to Canada to await the Supreme Court’s decision.

You can read Black’s application here.

June 1, 2009

Federal Drug Case Decided by Supreme Court in Favor of Criminal Defense, Rationality

by Kish Law

Last Tuesday, in Abuelhawa v. United States, the Supreme Court ruled that using a cell phone to make a misdemeanor purchase of drugs does not “facilitate” a felony drug distribution crime. The government charged Mr. Abuelhawa with six felony charges, one for each cell phone call, for facilitating the sale of drugs, although his two, first-time, small cocaine purchases qualified only as misdemeanors. Those charges resulted in a potential sentence of 24 years in federal prison, compared with a potential two-year sentence for two misdemeanors. Just for using a cell phone.

The government argued that Abuelhawa’s use of a phone to buy cocaine counted as “facilitation” because it made the drug dealer’s sale easier, hence violating a section of the Controlled Substances Act that makes it a felony “to use any communication facility in committing or in causing or facilitating” felony drug distribution. While at first glance, the common meaning of “facilitate” may give this impression, the result is absolutely absurd. And, as the Court points out, in any sale, the two parties have specific roles and “it would be odd to speak of one party as facilitating the conduct of the other.”

Justice Souter, in his opinion for the unanimous Court, was diplomatic in his criticism of the government’s inane argument. He called it “improbable” and “just too unlikely” because it “comes up short” and “does not follow.” The Court reasoned that the distinction Congress made in the Controlled Substances Act between distribution (a felony) and simple possession (a misdemeanor) makes it “impossible to believe that Congress intended ‘facilitating’ to cause that twelve-fold quantum leap in punishment for simple drug possessors.”

May 29, 2009

Federal Criminal “Honest Services” Fraud Law Applicable Here in Atlanta to be Reviewed by Supreme Court

by Kish Law

Eleventh Circuit case law, the controlling federal law here in Georgia, is at risk of changing next fall, when the Supreme Court will likely decide a criminal case and resolve a split among the circuit courts of appeals.

The mail fraud and wire fraud laws are the bread and butter for federal prosecutors bringing white collar cases. Each of these laws requires a scheme to defraud another person out of “money or property.” For many years, federal prosecutors successfully argued that the word “property” included the right to “honest services” from public employees (such as elected officials). In 1988, the Supreme Court ruled that the word “property” does not include “honest services,” but several months later Congress amended these statutes so as to include the concept of “honest services” within the universe of cases that can be prosecuted under the federal mail and wire fraud statutes. Specifically, Section 1346 of the Federal Criminal Code expands the definition of a “scheme or artifice to defraud” under the mail and wire fraud statutes to encompass schemes that “deprive another of the intangible right of honest services.”

Despite the background of this type of fraud, the concept of “honest services” has now been extended by federal prosecutors beyond situations where a public official may have engaged in fraud. Recently, federal prosecutors are bringing more and more cases against people who work for private companies, arguing that the employee breached his or her duty of rendering “honest services” to the employer.

May 28, 2009

Fraud Enforcement and Recovery Act of 2009 Expands Fraud and Money Laundering Statutes

by Kish Law

In a previous post we discussed the federal statutes on money laundering, why they can prove complicated for criminal defense lawyers in defending cases, and how much broader they are than most people think, affecting even white collar cases. Last week President Obama signed the Fraud Enforcement and Recovery Act of 2009 (FERA) into law, expanding the money laundering statutes (and many fraud statutes) even further.

In our post linked above, we mentioned that used car dealerships are “financial institutions” under the federal criminal code’s definition, even though most people would never consider them to qualify as such. FERA expands the definition even further, including even businesses that are not directly regulated or insured by the federal government.

FERA also expands the money laundering statutes by reacting to a significant Supreme Court case that was decided last year. In United States v. Santos, the Court held that the word “proceeds” in the money laundering statutes referred only to profits obtained from illegal activity, rather than all money brought in, or the “gross receipts.” FERA overrules that part of the Court’s decision by defining “proceeds” as “any property derived from or obtained or retained, directly or indirectly, through some form of unlawful activity, including the gross receipts of such activity.”

April 29, 2009

Federal Case May Impact Suppression of Evidence Resulting from Criminal Seizures of Computers in Georgia, Florida, and Alabama

by Kish Law

In a potentially huge decision for criminal law in Georgia, Florida, and Alabama, the Eleventh Circuit federal appeals court in Atlanta held that twenty-one days was an unreasonably long time for law enforcement to wait before obtaining a search warrant after seizing a man’s computer hard drive. Because the circumstances of this case, United States v. Mitchell, failed to justify the three-week delay, the trial court should have suppressed the evidence discovered on the hard drive.

The Fourth Amendment‘s protection against unreasonable seizures both guards us against unreasonable arrests and protects our possessory interests in personal property. Even with probable cause to seize property, the duration of the seizure pending the issuance of a search warrant must still be reasonable. Courts determine reasonableness by weighing the government interests against private interests. This rule ensures the prompt return of property, should a search reveal no incriminating evidence.

In Mitchell, the Court acknowledged the substantial possessory interest people have in their computers’ hard drives. Computers are heavily relied upon for both personal and business uses, storing information including financial information, passwords, photos, e-mails, and countless other items. The Court called the hard-drive “the digital equivalent of its owner’s home, capable of holding a universe of private information.”

April 28, 2009

Finally! Federal Supreme Court Limits Criminal Search Rule

by Kish Law

Here in Atlanta, we have been involved in many criminal cases in which police arrested people for traffic offenses, then searched their vehicles and found evidence of completely unrelated crimes. The search incident to arrest rule has been unfairly used by police as an investigatory tool since New York v. Belton extended the rule in Chimel v. California to automobiles in 1981. Last Tuesday, the United States Supreme Court, in Arizona v. Gant, limited this rule to constitutional bounds. Dividing down unusual lines, the Court formulated a new rule that is more in keeping with the original rationale for Chimel and Belton. The rule will apply in both federal and state cases.

Chimel was decided in 1969, holding that police may search the space within an arrestee’s immediate control, “from which he might gain possession of a weapon or destructible evidence.” Belton extended the rule to vehicle searches, but has unfortunately been widely understood to permit vehicle searches even where the arrestee could not gain access to a weapon or evidence. Police have been trained to secure arrestees, then routinely search everything within the passenger compartment of the car. Though these searches have no officer safety or preservation of evidence justification, the police have on occasion acted as if the Belton rule gave them the right to search wherever and whenever they wanted to do so.

In last week’s case, Mr. Gant happened to be at a house that police thought may contain drugs, based only on an anonymous tip. With no probable cause to search Gant or the house for drugs, the officers later arrested Gant after he drove into the driveway, on a warrant for driving with a suspended license. After Gant had been handcuffed and placed in the back of a patrol car, officers searched his vehicle and found a gun and a bag of cocaine. When asked under oath why they performed the search, one of the officers responded, “Because the law says we can do it.”

April 14, 2009

Divided Supreme Court Protects Federal Criminal Rule

by Kish Law

Last Monday, the United States Supreme Court issued its opinion in Corley v. United States. The issue in this case was whether a federal statute was intended to do away with the McNabb-Mallory exclusionary rule regarding criminal confessions or merely narrow it. In a 5 to 4 decision, the Court held that Congress meant to limit, not eliminate, this important protection against secret detention and government overreaching in federal criminal law.

The McNabb-Mallory exclusionary rule was established as a means of enforcing the presentment rule, which requires officers to bring prisoners before a judge as soon as reasonably possible to prevent secret detention and inform the suspect of his rights and the charges against him. The Court in Corley cited evidence that the pressure involved in police interrogation “can induce a frighteningly high percentage of people to confess to crimes they never committed.” The presentment rule protects innocent people from being pressured into false confessions. The McNabb-Mallory exclusionary rule enforces the presentment rule by prohibiting the government from using confessions that were obtained in violation of the presentment rule.

In 1968, Congress enacted 18 U.S.C. § 3501 in response to Miranda (which requires police to inform suspects of their rights) and Mallory (which held that a confession given seven hours after arrest was inadmissible for unnecessary delay in presentment). The first two sections were intended to eliminate Miranda altogether, but the Court rejected the attempt in 2000 in Dickerson v. United States. The Government argued that the statute was intended to eliminate Mallory, as well, but the Court held that the Congress meant only to limit its application. The third section of the statute provides that in any federal prosecution a confession made by a defendant, while under arrest, is not inadmissible solely because of delay in bringing such person before a magistrate judge if the confession was made within six hours of arrest. The six-hour time limit is extended where further delay is reasonable considering transportation and distance to the nearest magistrate.