Articles Posted in Fraud

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I posted the other day about a federal fraud case here in the gorgeous Spring weather in Atlanta, Georgia.  In that post I mentioned some of the ways to avoid a prison sentence for people facing federal fraud charges arising out of “white collar” or what we sometimes call “economic crimes.”  I got a different client out of a federal prison in a fraud case recently, but this was done using a completely different strategy and method.  This second matter involved one of those situations in which the client’s cooperation against others was the most valuable asset available to the federal criminal defense lawyer.

My client in this second matter is an extremely bright guy who made some mistakes and got involved in a fraud scheme. I could tell shortly after he and others were indicted together that the prosecutor suspected but did not yet realize that my client was actually the brains behind the operation.  We decide to take the chance of going through the “proffer” exercise.  I have written before on this, but it is worth describing once again.

When a federal prosecutor believes that a suspect or Defendant has valuable information that might assist in the prosecution of other people, the prosecutor will sometimes ask the defense lawyer to bring the client in for a “proffer.”  The Government asks for these to see if the accused person has important and useful information, and also to assess whether my client might make a good witness if he or she decides to cooperate against others.

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As many know, I am a criminal defense lawyer in Atlanta Georgia who handles federal criminal cases here and all over the United States (I’m currently working on federal cases in Vermont, Pennsylvania, Maryland, North Carolina, Florida, the Middle and Southern Districts of Georgia, and out in Texas and Arkansas).  Many of my clients are accused of what are sometimes called “white collar” or “economic” crimes.  No matter what name we give such cases, they are almost always charged under one of the federal laws that outlaw fraudulent conduct.

Many people contact us because they are fearful that they might go to a federal prison for one of these fraud-type cases.  A case I recently finished included some of the arguments that help such clients avoid a jail sentence in a federal fraud prosecution.

My client was married to one of the other people charged in a large federal fraud prosecution.  Her spouse was a former law enforcement official who convinced his wife and others to get involved in a certain business proposition.  As you likely guessed already, that business proposition was based on false and untrue (meaning fraudulent) statements in loan applications sent to various banks.

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Here in Atlanta and other federal cases that I handle throughout Georgia, Florida, Alabama and other states, lawyers often chuckle (and once in a while enjoy a full belly laugh) at some defenses I come up with once in a while.  Here are a couple.  Now, remember, these are reserved for certain fact patterns, and these defenses are not going to work in every case.  Still, it is worth remembering that these are “real” defenses, and work every once in a while.

One of my favorites is a defense that I affectionately call “the wrong courthouse.” Some cases are  bought in federal court, even though there is a very slim or tenuous connection to the federal government.  The Feds usually try to get past this thin connection by using the “Commerce Clause“, found at Article I, section8 clause 3 of the Constitution of the United States. Continue reading

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I came across this story about two Defendants in New York who were appealing to the Second Circuit Court of Appeals their convictions for “insider trading”, which as we all know is a rarely prosecuted federal crime arising out of a securities investigation that usually starts with the SEC. These Defendants also argued on appeal that their sentences were too long. Both issues, the insider trading question and sentencing arguments, are matters we have come across frequently, and we will be following the case closely.

The basic idea of an “insider trading” case is that someone learns about “material non-public information”, such as the fact that one company might be in the process of buying another company. When companies prepare to engage in such moves, they need to hire bankers, lawyers, accountants, printers and lots of folks who work on the deal. It is illegal for anyone who learns such “material non-public” information to give a “tip” to anyone, and for the recipient of the tip (the “tippee”) to make trades (such as buying the stock of the company that is about to be purchased.)
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Here in Atlanta we have a good relationship with the federal prosecutors, and can generally work out some good arrangements when we represent a client who is served with a federal grand jury subpoena. As we explain elsewhere, it is always a good idea to have a lawyer help one through this dangerous process. Yesterday the Eleventh Circuit issued an opinion that demonstrates the dangers of going through this process without at least first consulting with an experienced federal criminal defense lawyer. The case is US v. Merrill.

Mr. Merrill was involved in a company that sold munitions to the Army. The munitions would then be shipped to Afghanistan. There is a federal statute and regulation saying that companies cannot provide any such munitions if the material was manufactured by a company in Communist China. Merrill and others had “old” munitions that had been made by a Chinese Communist manufacturer years before the prohibition went into effect. When they tested the waters, they discovered that the US government would still not allow the use of this “old” Communist material, so they did what any self-respecting international arms dealer would do: they removed all signs of its origin and shipped the stuff to Afghanistan.
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The Eleventh Circuit issued an opinion today on a fraud case out of Florida involving issues related to restitution. The appellate court reversed the restitution order, ruling that the government had not adequately proved the amount of restitution, nor had the district judge calculated restitution based on specific factual findings. The case is United States v. Singletary.

Like many of the federal fraud cases we handle, Singletary involved questions of how much “loss” was involved, along with how much “restitution” could be ordered. Many lawyers forget that these are two very distinct issues. “Loss” is a calculation under the United States Sentencing Guidelines, and this figure is one of the major factors that drives the calculation of the prison sentence in a fraud case. The Guidelines tell a judge to calculate “loss” as the “greater of actual or intended loss”. Additionally, the Guidelines also instruct that loss can be “estimated” when the proof is difficult to establish.

Restitution is quite different than “loss.” Restitution is based on the loss the victim actually suffered. In other words, “loss” can be much higher than restitution when the defendant tried to get money but was unsuccessful.

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The United States Court of Appeals for the Eleventh Circuit, which sits several blocks from our offices here in Atlanta, reversed some of the convictions in a federal fraud prosecution that were brought against a defendant in Alabama. The reversal of some of the charges was because the indictment failed to allege the necessary facts for one type of federal fraud. This issue about what is needed in federal fraud indictments arises in many such cases we handle. It is refreshing to see the court make prosecutors indict such cases correctly, or else face the consequences.

The case is United States v. Suzanne Schmitz, and it was published on March 4, 2011. We have gotten a little behind in our blogging here, and over the next couple of weeks we will try to catch up by posting some entries from earlier this year.

In the Schmitz case, the defendant was charged with two varieties of fraud, mail fraud and fraud involving a program that received federal funds. The mail fraud charges were OK, appropriately setting out facts to support what we call the “scheme to defraud.” However, the counts alleging that Ms. Schmitz defrauded a program that got some money from federal funds fared less well. These charges merely alleged that she worked for the program, that she got her salary each year by engaging in fraud, and that such conduct violated the specific law in question.

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This past Friday the Eleventh Circuit Court of Appeals issued its opinion in U.S. v. Ghertler, a federal criminal case. The Court held that Ghertler, who had impersonated corporate officials to obtain urgent cash transfers from large corporations, did not abuse a position of trust in perpetrating his frauds because he had no relationship of trust to abuse. For that reason, the abuse of trust sentencing enhancement at U.S.S.G. § 3B1.3 should not have applied.

In 2006 and 2007, Mr. Ghertler researched the names of corporate officers, then called the company and identified himself as an officer, usually the general counsel. He claimed that some urgent matter, such as settlement of a lawsuit, required an immediate cash transfer and provided instructions for distribution of the funds. He pleaded guilty to eight counts of wire fraud in 2008, admitting to defrauding the seven companies named in the indictment. He was sentenced to concurrent 185-month sentences.

One of Ghertler’s arguments on appeal was that the District Court should not have applied U.S.S.G. § 3B1.3, a two-level sentencing enhancement for abuse of a position of trust. The District Court recognized that Ghertler did not actually hold a position of trust, but based its decision on Application Note 3, which provides for application of the enhancement where “the defendant provides sufficient indicia to the victim that the defendant legitimately holds a position of private or public trust when, in fact, the defendant does not.”

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The Health Care bill that passed last night provides for additional funding to the Health Care Fraud and Abuse Control Program (HCFAC). This program was established as a part of the Heath Insurance Portability and Accountability Act (HIPAA) in 1996 “to combat fraud committed against all health plans, both public and private.” The HCFAC program coordinates federal, state, and local law enforcement actions with respect to health care fraud and abuse.

Section 1304 of the bill passed last night provides additional funding to the tune of $250 million between 2011 and 2016 to the HCFAC program. The HCFAC Account is funded by the Federal Hospital Insurance Trust Fund pursuant to 42 U.S.C. § 1395i(k). It covers the costs of:

(i) prosecuting health care matters (through criminal, civil, and administrative proceedings);

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Prosecutions against executives accused of fraud in connection with backdating stock options have been plagued by prosecutorial misconduct. In August, the Ninth Circuit reversed the conviction of Gregory Reyes, former CEO of Brocade Communication Systems, due to prosecutorial misconduct. Last week, Judge Carney of the Central District of California dismissed charges against former Broadcom executives with prejudice, entering a judgment of acquittal for one.

Stock-option backdating is a practice in which an employer grants stock options to an employee, retroactively dated to increase its value. Backdating itself is not illegal, but it must be properly disclosed in financial records and filings with the SEC. This article, published at the beginning of the backdating scandal in 2006, explains the history and controversy of backdating options. The SEC began charging corporations and executives in enforcement actions relating to backdating in significant numbers in 2006, and criminal charges have resulted in a few cases. The SEC has continued to bring enforcement actions against corporations and executives for secret backdating of options.

US v. Reyes was the first, and most high-profile, of the criminal cases. Reyes’ defense was that, although he had signed off on backdated options, he had relied on Brocade’s finance department to properly account for the backdated options in the corporate books and was not responsible for false records. The government put up a witness from the finance department who testified that she and other employees in the department did not know about the backdating. However, higher-up finance department employees had told the FBI that they did know about the backdating, but those witnesses did not testify because they were subject to possible criminal prosecution and had been targets of SEC civil suits. In the prosecutor’s closing argument, he told the jury that “finance did not know anything” in direct contravention of the statements given to the FBI. The Ninth Circuit stressed the special duty of federal prosecutors not to impede the truth and remanded the case for a new trial, which is scheduled for February.

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