Crime in the Suites: An Analyis of Current Issues in White Collar Defense
IfrahoniGaming
May 15
2017

DOJ’s New Charging and Sentencing Policy Will Disproportionately Impact Vulnerable Populations

On May 10, 2017, Attorney General Jeff Sessions issued a memorandum that expressly rescinds previous Department of Justice (DOJ) policy and directs federal prosecutors to “charge and pursue the most serious, readily provable offense” against federal defendants.

The likely result of this harsher approach to the enforcement of federal drug laws is a return to mass incarceration, with disparate impacts on communities of color and victims of the opioid epidemic.

In addition to this express directive to charge the most serious offense, the policy also requires prosecutors to disclose to sentencing judges “all facts that impact the sentencing guidelines or mandatory minimum sentences” in a given case. For drug-related crimes, such facts include drug quantity and prior convictions, both of which can trigger minimum sentences that judges must impose.

Sessions’ memorandum does allow for exceptions in limited cases. If prosecutors conclude that strict application of the charging policy is not warranted in a particular case, the prosecutor should consider whether an exception is justified. Any decision to depart from the policy must be approved at the highest levels of the Justice Department and documented in the defendant’s case file.

With respect to sentencing, prosecutors are expected to recommend a guidelines sentence in most cases. Prosecutors may recommend a guidelines departure or variance in certain cases, but the recommendation must be approved and documented in the case file.

During the last election cycle, then-Senator Jeff Sessions campaigned on behalf of the self-described “law and order” candidate, Donald Trump. Therefore, it should come as no surprise that, as Attorney General, Sessions implemented this harsher policy for the charging and sentencing of federal crimes, or that he repudiated the previous administration’s approach.

In expressly rescinding “any inconsistent previous policy” of the DOJ related to charging and sentencing, Sessions’ memo targets the policies of his predecessor, former-Attorney General Eric Holder, concerning mandatory minimum sentences and recidivist enhancements against non-violent drug offenders.

In contrast to Sessions’ approach, the Justice Department under the Obama Administration pursued a “Smart on Crime” initiative that sought to promote fairer enforcement of federal laws and, importantly, alleviate disparate impacts of the criminal justice system—particularly on vulnerable populations.

Federal prosecutors were directed to make charging decisions in drug cases based on case-specific factors, such as the defendant’s conduct and criminal history, circumstances related to the offense, the needs of the community, and federal resources and priorities. They were also directed to avoid charging decisions that would trigger mandatory minimum sentences in the cases of low-level, nonviolent drug offenders. Prosecutors had discretion at sentencing and discouraged recidivist enhancements for low-level, non-violent drug offenders.

The Obama Administration’s clemency initiative applied these same standards, and resulted in the granting of clemency to hundreds of federal inmates serving lengthy sentences for low-level drug crimes.

Holder wanted the Department to be smart on crime, Sessions wants it to be tough. Under the current new policy, federal prosecutors must take a harsher approach to enforcement of federal drug laws. The likely result will be a return to mass incarceration with high costs to the tax payer and disproportionate impacts on communities of color and victims of the opioid epidemic—populations that candidate Trump promised to help.

The Justice Department’s new charging and sentencing policy shifts leverage back to prosecutors. Defendants in drug cases are more likely to negotiate a plea deal than contest federal charges and risk being sentenced to a mandatory minimum. Defendants not subject to a mandatory minimum may be just as likely to contest their charges. If they do, their best hope for leniency will be the sentencing courts; prosecutors now have limited discretion to cut any slack.

Ifrah Law is a leading white-collar criminal defense firm that focuses on a variety of practice areas. View all.

Mar 02
2017

When A Threat Becomes A Crime

A Miami Beach man was recently accused of threatening President Trump on Twitter. He sent the threat directly to Secret Service, challenging them to stop his Inauguration Day surprise. They did, and Dominic Puopolo, who used the screen name of Lord Jesus Christ, is now in federal custody.

Sending a threat to the President, to an ex-wife, or to a judge is a federal felony, punishable by as much as 20 years in the federal penitentiary. But what constitutes a threat? What if the person sending a letter or email is merely angry and has no intention of carrying out the threat? What if the author is demonstrably suffering from mental problems? And are there times where the pre-trial process greatly exceeds the length and difficulty of the eventual trial of a threats case?

When it comes to threatening communication prosecutions, federal prosecutors are increasingly finding themselves stuck at the intersection of crazy and criminal. It is a juncture where seemingly serious threats might actually be meaningless rambling but where internet rants might actually reflect a true intent to harm or kill the stated victim. And in today’s bitter, divided, and tumultuous political climate, would anyone bet against threatening communications being sent to 1600 Pennsylvania Avenue? If so, please contact me, as I’ll definitely take the other side of that wager.

“The President must die. When I am released I will kill him.” U.S. v. Rendelman, 641 F.3d 36, 40 (4th Cir. 2011).

[If the President refuses to meet with me, he] “will get the worse Christmas present ever, “will suffer for 30 days,” and “will wish for death but death will not come for him.” U.S. v. Dillon, 738 F.3d, 284, 288 (D.C. Cir. 2013).

“Enough elementary schools in a ten-mile radius to initiate the most heinous school shooting ever imagined…And hell hath no fury like a crazy man in a Kindergarten class.” U.S. v. Elonis, 135 S. Ct. 2001, 2006 (2015).

The Easy Case

Certainly, a decent chunk of these prosecutions stem from imprisoned inmates taking the time to send a “I can’t wait to kill you” letter to their prosecutor (usually spelled “persecutor” in these letters) or to the judge who sentenced them to the “outrageous” sentence, often a term of imprisonment that lies perfectly within the sentencing guidelines. Further, these jail bards conveniently tend to include a return address, handwriting suitable for comparison, their name and even their inmate number, to so to avoid confusion. The sole issue in this type of case tends to be simply whether additional consecutive time will make any sort of difference to our “Cape Fear” penitentiary pal.

The Harder Case

Creatively worded threats, however, occasionally generate serious issues as to sufficiency. For example, in U.S. v. Zavrel, 384 F.3d 130 (3rd Cir. 2004), the defendant and her roommate mailed 17 envelopes containing corn starch to juveniles whom she blamed for her son’s juvenile prosecution for, wait for it, terroristic threats. The corn starch resembled anthrax, a deadly chemical that had in fact been mailed to several potential victims in late 2001. The issue decided by the Third Circuit was whether the simple mailing of corn starch established a “communication” for purposes of proving a threatening mailing under 18 U.S.C. Section 876.   It was.

The other common issue, which made its way all the way to the Supreme Court, is whether the sender of the threat has to in fact intend to harm the recipient (subjective standard) or whether the sender must simply intend to communicate threatening words which are reasonably understood by the recipient to constitute a threat (objective standard). In Elonis, (2015) Chief Justice Robert’s opinion adopted the latter standard, resolving a Circuit-split that had existed for some time. Still, the issue of whether the recipient reasonably views the letter or email as a threat remains a regular feature of these cases.

The Hardest Case

The hard case is when the defendant says horrible things that are directed toward some public, possibly political figure, but it’s not clear that he or she constitutes a “true threat” to the recipient.  And, the defendant already is serving a substantial prison sentence. These are the class of cases that the federal criminal justice system is least likely to deal with in a satisfactory way. There tends to be a perfect storm of factors coming together to complicate the superficially simple case: “important” victims, such as judges, the President, or prosecutors; a defendant with a serious, pre-existing mental health problem, and threatening language that is both graphic and somewhat implausible.

For example, one defendant claimed that he literally would crucify his intended victim, before signing off with “I am the Alpha and the Omega,” and some defendants openly discuss the jurisprudence of threatening communications while enlightening readers to the fact that a person “who placed a mortar launcher in the cornfield across from his wife’s residence would have a clear line of sight through the sun room…” Elonis, at 2005. And the man who threatened President Trump via Twitter casually mentioned that he is Jesus.

The typical court process for such a case is that the judge orders a mental health evaluation for competency, which results in the prisoner being shuttled to one of several federal facilities which include competency and criminal responsibility assessments. Not surprisingly, some of these defendants are kept months before they decide not to take the prescribed medications, often based upon the belief that the prison medical personnel are just part of a grand conspiracy that continues to manifest itself through each of the defendant’s cases. Not a lightly undertaken process, forcible medication of a defendant requires significant, and often lengthy, litigation as well. To the extent that the defendants fire their attorneys out of frustration, a fairly common development, the case slows to a snail’s pace.

The Future

And this becomes the most obvious challenge to the criminal justice system in this realm – the defendant, clearly suffering from some mental deficiency, is incarcerated pre-verdict for longer than his applicable sentencing guidelines and in some instances at, or approaching, the statutory maximum for his crime. Yet, he may in fact pose a danger to the recipient of his threat, so dismissing the charge is not a favored result either. In the current climate where the likelihood of these challenging cases is on the rise, the question is whether anyone or any institution will take the lead in balancing ideas of deterrence and punishment with the practical reality that many of these defendants fall outside the mainstream in terms of mental health as well as case resolution. Nobody wants to travel down the wrong road at this intersection, so bet on reaction, not pro-action.

Feb 01
2017

Will Clemency Continue?

There are many big policy changes happening in Washington these days and they receive appropriate press coverage. But, there are also many smaller changes that can have literally life changing effects on citizens, which are not generally reported in the media. One of those smaller changes is whether the Trump administration will revive a clemency program for federal inmates that effectively concluded with the end of the Obama administration.

In 2014, the Obama administration developed a clemency program to encourage non-violent drug inmates to apply for presidential clemency, provided they have served at least 10 years of their original sentence and met other guidelines. The Department of Justice program was aimed at inmates that were sentenced under the mandatory minimum sentencing for drug offenses that were established in the 1980’s, and, who would have received a lesser sentence if sentenced under the current sentencing guidelines. This clemency program was important because nearly half of all federal prisoners are serving time for drug-related offenses.

In order to implement this program, the Department of Justice program partnered with The Clemency Project 2014, a pro-bono effort by lawyers throughout the United States, to efficiently process clemency applications on behalf of inmates. The Clemency Project consisted of approximately four thousand lawyers from the National Association of Criminal Defense Lawyers, the American Bar Association, the American Civil Liberties Union, and many others. Ifrah Law also participated in Clemency Project 2014 and represented several defendants that were granted clemency.

This clemency program effectively concluded with the end of the Obama administration and it appears unlikely that President Trump- who campaigned on a “law and order” principle- would be inclined to revive it.

Further, although neither President Trump nor Sen. Jeff Sessions (the attorney-general nominee) have made direct statements with regard to continuing the clemency program, their past comments indicate that they do not support it. For instance, during the campaign, President Trump commented on the clemency program saying, “Some of these people are bad dudes…And these are people who are out, they’re walking the streets. Sleep tight, folks.”

Moreover, back in 2014, when the Obama administration first announced its intention to initiate the clemency program, then-Senator Sessions issued a statement condemning the use of presidential pardons to grant clemency as “an alarming abuse of the pardon power,” protesting that “While the pardon power has been interpreted broadly, the Framers never intended for it to be used in this manner.” Sen. Sessions’ statement also noted that, “In addition to these serious constitutional concerns, there are serious policy concerns”, and, “it sends the message that the United States government is not serious about combating drug crimes”.  So, assuming Sen. Sessions is confirmed as the next Attorney General, he does not seem predisposed to reviving the clemency program in any form.

Even so, and notwithstanding the prior negative comments by President Trump and Sen. Sessions, there is some hope of a bi-partisan push by Congress to amend the current federal sentencing structure and address a clemency program. The Congressional momentum comes from a joint interest by members focused on criminal justice reform and members interested in reducing the fiscal costs borne by the prison system. Federal prison costs account for nearly a third of the entire Department of Justice’s $27 billion annual budget; incarceration of one individual costs the Bureau of Prisons approx. $80/day (or $29,000/year), while probation supervision costs only $10/day (or $3,500/year).

This fiscal concern has paved common ground between criminal justice reform advocates and fiscal conservatives, which provides a glimmer of hope that a compromise can be reached to provide meaningful reform that reduces the federal inmate population in a responsible manner, without compromising our nation’s “law and order,” and possibly reviving the Clemency Program to do so.

Finally, in his recent interview with Fox News’ Sean Hannity, President Trump was asked about pardoning a Navy sailor imprisoned for taking photos inside a submarine. President Trump responded that he was “looking at it right now” and that “I think it’s very unfair in light of what’s happened with other people.” We think that same sentiment would apply to the Clemency Program, which was focused on inmates that received sentences that were “unfair in light of what’s happened with other people” and would urge the President to consider reviving the Clemency Program.

Ifrah Law is a leading white-collar criminal defense firm that focuses on a variety of practice areas. View all.

Jan 17
2017

Alexa: Play Confession

It sits in your house, passively recording everything you say.  It knows what you like.  It knows what you listen to.  It knows what you buy.  It knows who’s in the room with you.  And now, it might tell the police all about it.

“It” is the Amazon Echo, a revolution in the “internet of things.”  The Echo is a smart speaker that connects directly to Amazon’s cloud-based personal assistant service, Alexa.  It can play music; give you the traffic, weather, and news; handle your shopping; put things on your calendar; play games; and even respond appropriately to a wide array of cultural references, all in response to voice commands.  If you have the right add-ons, Alexa can even control your entire home, dimming your lights, adjusting the thermostat, and locking the doors.

It does this by passively listening for a given activation phrase—the default is “Alexa.”  Generally, Alexa does not record anything else (although it may store up to sixty seconds at a time in a buffer).  Once it hears its name, Alexa will begin recording and will send what follows to Amazon for processing—both to respond to a given request, and to store to improve responsiveness later.  On one hand, this means that Amazon is not actually recording everything you say, but only those specific commands directed to Alexa.  On the other hand, it means that Alexa is always listening.

This became relevant in a recent murder case in Bentonville Arkansas, in which police obtained a warrant for recordings from Amazon of commands given to the suspect’s Echo.  It is far from clear what police hope to gain from these recordings; they have a large amount of traditional evidence and, unless the murderer specifically asked Alexa for help, the recordings are unlikely to be incriminating.  Nevertheless, an attempt by police to seek recordings from a device that is virtually always listening to us in our homes is extremely disturbing.

These efforts are made even more concerning by recent court rulings on cell phone location data.  According to two federal appellate courts, because cell phones send this information to a third party (that is, to cell phone and app providers), it is not considered sufficiently private for protection from searches and seizures.  That means that police can access this data—which often allows an individual to be physically tracked from moment-to-moment—without even requesting a warrant.

If this principle is upheld by the Supreme Court (which, so far, has refused to consider the issue), it would mean that police could access daily recordings from the privacy of your own home on little more than a hunch and an informal request.  Though many may say they have nothing to hide, I doubt most of us would be comfortable knowing a police officer was looking over our shoulder twenty-four hours a day.

There is one barrier to that terrifying outcome, which is that Amazon has refused to comply with the Bentonville warrant and officers there have decided not to press the issue.  Like Apple, Amazon has taken it upon itself to protect its customers’ privacy.  But a private company cannot be expected to be the defender of its customers’ civil rights forever.

But until the law catches up to the state of technology, every one of our devices is capable of being turned into an informant against us.  And though Alexa can do a lot, it has yet to learn how to invoke its Fifth Amendment right to remain silent. Until it does, you might want to think twice before inviting Alexa–and potentially the police–into your home.

Dec 06
2016

‘Tis the Season of Giving: Supreme Court Expands Insider Trading Liability to Recipients of “Gift” Stock Tips

Just in time for the holiday season, the Supreme Court has ruled that gift-giving is truly its own reward.  But far from embodying the spirit of generosity that typically goes with that saying, the Court has ruled that the warm feeling one gets from giving to others can give rise to criminal insider trading liability. This ruling will extend insider trading liability for the recipients of tips, who were previously thought to be protected where they obtained information from an insider that was not the result of a quid pro quo exchange.

The case, Salman v. United States, dealt with a defendant who had received tips second-hand from a friend, Michael Kara, whose brother Maher was a trader at Citigroup.  Maher had initially turned to his brother for help understanding technical issues he encountered in his job but, eventually, began to share inside information with Maher with knowledge that Maher intended to trade on it.  Unknown to Maher, Michael shared some of these tips with his own friends, including Bassam Salman.  After making a significant amount of money trading on those tips, Salman was charged with insider trading and convicted following a jury trial.

Under a major 2014 ruling from a federal court in New York, Michael and Salman would have been protected from liability because they did not buy any stock tips from Maher or give him a share of their gains.  That 2014 case, United States v. Newman, emphasized the legal requirement that an insider receive a “personal benefit” from the recipient of a tip before the tippee could be charged with insider trading.  This requirement offered powerful protections for innocent parties who traded on tips they received without doing anything wrong.

But the Supreme Court ruled today that the personal gratification that a tipper enjoys when giving free information as a gift to a friend or relative is enough of a “personal benefit” to satisfy insider trading laws.  This all but does away with the personal benefit requirement, since it presumes that an insider benefits even when he receives nothing for information that he shares with another.

At one level, this may seem to make sense on the facts of Salman’s case.  One of the Court’s concerns was that a free stock tip may be no different from an insider trading on his own behalf and then giving the money away.  And that concern applied with particular force to Maher and Michael, since on one occasion Maher actually offered his brother money but was asked to give him inside information instead.

But the Court easily could have ruled narrowly on that basis; it did not.  Instead, by ruling that “the benefit one would obtain from simply making a gift of confidential information to a trading relative” is sufficient to satisfy insider trading laws, it has essentially removed one of the key limitations to the scope of insider trading laws, allowing for even an unthinking tip to a friend or relative to be the basis for criminal prosecution.  And although the Court left open the possibility that some gifts may not be meaningful enough to give rise to criminal liability, the breadth of today’s ruling suggests that exception is likely to be both small and difficult to prove.

That means that we should all be particularly careful as we get together with our families this December, particularly if a relative in the finance industry—or, indeed, in the corporate sector at all—offers up a stock tip at a family gathering.  Because the joy of giving can now lead to criminal exposure for the whole family.

Ifrah Law is a leading white-collar criminal defense firm that focuses on financial services.

Aug 12
2016

The E-Rate Honey Pot

When you grant access to a $ 4 billion fund and give fund participants relative autonomy in how they use those funds, ne’er-do-wells will sniff their way to the honey pot. Keeping them out can be a challenge. So goes the story of the federally administered Schools and Libraries Program, better known as E-Rate.

Established by the Telecommunications Act of 1996, E-Rate is a federal subsidy that helps schools and libraries–particularly those in disadvantaged areas–pay for telecommunications services (e.g., Internet access). The program runs a $3.9 billion fund today.

Schools and libraries that want to take advantage of E-Rate simply need to follow the program’s bid and approval process. Participants oversee the bidding process and choose their service provider. While participants are required to choose the most cost effective provider, there isn’t much of a check on whether they actually do: they need only self-certify that they chose the most cost effective bid.

E-Rate participant autonomy has been a problem as the program regularly faces allegations of fraud and abuse. These concerns prompted a GAO study and senate hearings in the early 2000s. Former Rep. Jim Greenwood (R-PA) told the New York Times, “You couldn’t invent a way to throw money down the drain that would work any better than this.” After the GAO reported its findings (2004), U.S. Rep. Joe Barton (R-TX), Chairman of the Committee on Energy and Commerce, said, “Unscrupulous vendors … fleeced the program while underserved communities and telephone customers pay the price.” Over the past decade, there have been a number of investigations and enforcement actions, resulting in civil as well as criminal penalties, including jail time for a few program profiteers.

Some noteworthy fleecing includes:

  • Puerto Rico wasted more than $100 million in program funds and its secretary of education was sentenced to three years in prison and fined $4 million.
  • In the Chicago Public School system, some $8.5 million in equipment was stockpiled (better yet, the CPS and E-Rate were essentially paying twice for equipment that was never installed!).
  • A company in the San Francisco Unified School District was required to pay $20.7 million in fines and restitution.

More recently, schools and libraries in the Chicago and New York City areas have been investigated for violating the competitive bidding process and taking E-Rate funds without actually providing E-Rate services. Those investigations are still underway, with dramatic raids last March.

Adding to the temptation for ne’er-do-wells are the millions of dollars left on the table in E-Rate funds each year. According to EducationDive, some $245 million in funds went unclaimed in 2014. It is almost hard to blame profiteers for seeking out what they perceive as free money, especially when they have so much control over the process.

There may be a lot of good intentions behind E-Rate. But in its current form and function, E-Rate is but one more example of a poorly administered federal funds that attract those able to game the system.

Jun 09
2016

Keep It Short and Prosper

What a difference two words can make. Just ask the Center for Competitive Politics (CCP) or Americans for Prosperity (AFP), two organizations that filed separate lawsuits against the same defendant, California Attorney General Kamala Harris, over the same issue: whether Harris’s office had the right to access the organizations’ donor information. (The cases are Center for Competitive Politics v. Harris and Americans for Prosperity v. Harris.)

The plaintiffs’ arguments in each case were basically the same: the state’s request to access donor information would violate the first and fourteenth amendments of the U.S. Constitution. But there the similarities stopped: the CCP never got to trial, whereas the AFP did—and won!  Was the CCP the victim of a miscarriage of justice? Nah. It all came down to two words: “as applied.”

You know the saying “go big or go home?” Well, unfortunately the CCP did both: it tried to get the court to rule that Harris’s probe of donor information would be unconstitutional for all organizations. The AFP took a different approach: it asked the court to call the probe unconstitutional “as applied” to the AFP alone.

Ding!

The AFP’s narrower approach enabled the court to provide relief without upsetting Harris’s authority and potentially affecting thousands of other organizations. Courts generally hesitate to invalidate a state’s actions when they can provide individual relief to the plaintiff instead. If the CCP had taken this course, it might have had a flying chance. But now it had the added burden of proving how the state’s actions would adversely affect all organizations subject to the same request.

Meanwhile, the AFP coasted without having to prove any such thing. All it had to show was how the state’s request had already affected the organization and could continue to do so. This was no fun task, though. Several individuals testified that they suffered reprisals, assaults, and even death threats due to their association with the AFP—a strongly conservative organization. Clearly, being publicly linked to the AFP could lead to serious fallout. For her part, Harris tried to argue that the state would keep donor information confidential, but the AFP was able to show how this had failed before, citing over one thousand instances of donor information being improperly disclosed on the AG’s own website!

The AFP showed that the risk of scaring, and therefore discouraging, would-be donors was real. The chilling effect on individuals’ freedom of association would be too steep a price to pay for a nominal benefit to the state.

It was a strong case—unlike the defendant’s. Harris claimed that accessing donor information was in the state’s best interest; reviewing the findings would help uncover potential irregularities tied to fraud, waste, or abuse. Maybe it would—but it doesn’t pass the “exacting scrutiny” test, which requires states to protect their interests by the least restrictive means in situations like this. More importantly, Harris could not produce any evidence or testimony to corroborate her argument that access to donor information was important to state law enforcement. Although several state-employed investigators and attorneys took the stand, none could claim that they needed, or even used, donor information to do their work—and if they did need it, they could generally get it elsewhere. This evidentiary failure undercut Harris’s arguments and called into question the state’s overall scheme.

In the end, it was not a tough decision: with so strong a case by the plaintiff, and so weak one by the state, the court sided plainly with the plaintiff. It could have gone a step further and declared the state’s actions broadly unconstitutional, but instead it judged the state’s actions to be improper as applied to the AFP alone. This was a good idea, because Harris will have a harder time challenging the decision on appeal.

So the AFP trial didn’t set a huge precedent for everyone—but that’s kind of the point. If you’re going to file suit, and there’s a path of least resistance, take it. Those sweeping courtroom victories you see in the movies are rare. In real life, justice takes baby steps.

Ifrah Law is a leading white-collar criminal defense firm that focuses on data privacy, and a variety of practice areas. View all.

Jun 08
2016

This Man Is Dodging Wall St.

Rather than confront accusations of baseless zeal and prosecutorial overreach, New York federal prosecutor Preet Bharara would rather spend his energy dodging accountability.

In 2010, Bharara launched a crusade against Wall Street, prosecuting several hedge funds he suspected of insider trading. Highly publicized raids followed. In the wake of the financial meltdown, Bharara was hailed as a hero. A Time cover story proclaimed, “This Man Is Busting Wall St.”

But many of those prosecutions went nowhere. A federal appellate court rejected the legal theory that the prosecutions were built on, and many cases were simply dropped. The SEC even agreed to return some of the money it had seized from several hedge funds.

This was cold comfort to people like David Ganek, the manager of Level Global—one of several hedge funds shut down by Bharara’s inquisition. Even while the case was pending, Bharara all but acknowledged that he meant to shutter Level Global, without regard for the presumption of innocence.

Sadly, even when defendants are harmed by prosecutorial overreach, broad immunity doctrines make it nearly impossible for the wrongly prosecuted to get justice.

But Ganek’s case involved more than just excessive zeal: the warrant used to raid Level Global depended on a false statement. A former employee of Level Global had told federal agents that Ganek did not know he was using information from corporate insiders, but the warrant application falsely said that Ganek did know. That gave Ganek a rare opportunity: federal agents can be shielded for overreaching, but there is no protection for lying.

Ganek sued officials from both the U.S. Attorney’s Office and the FBI (Ganek v. Leibowitz), claiming that the use of the false statement to prosecute him had violated his constitutional right against unreasonable searches and his due process rights. In March, a federal judge ruled that Ganek’s claim could go forward, rejecting claims of governmental immunity.

In most civil cases, overcoming this initial step is a big deal. It would allow Ganek to conduct discovery—that is, to investigate the facts behind his case by methods that can include obtaining documents from prosecutors and the FBI and depositions of federal officials under oath. This process can be extremely onerous—the cost of document production and the risks of laying bare a defendant’s inner workings to a hostile adversary have forced many defendants into settling dubious lawsuits. In addition to uncovering misrepresentations tied to his own case, Ganek also could investigate the conduct of federal officials more generally and, perhaps, even the supervisory practices of prosecutors and the FBI.

In a typical case, there would be no way to avoid this except by an expensive settlement—likely including a premium for avoiding discovery. But this is no typical case, and Preet Bharara is no typical litigant. Although most of us in Bharara’s position would have to wait until the end of a federal case before filing a single, final appeal, Bharara has relied on a narrow legal doctrine that allows him to appeal the court’s decision immediately, based on his claims of immunity. As a result, the court has delayed discovery and other proceedings indefinitely. Instead of accepting the need for transparency and letting Ganek be made whole for his wrongful prosecution, Bharara’s office will get a second bite at the apple by rearguing the issue of immunity in front of the U.S. Court of Appeals for the Second Circuit.

It is hard to imagine that Bharara will prevail on appeal—immunity does not cover outright lies by federal agents. Yet by belaboring a weak immunity argument, Bharara can postpone having to answer for the actions of his office for months, if not longer, while creating additional costs and burdens for Ganek.

This case goes beyond Ganek’s personal quest for justice. Civil suits like this are important for holding public officials accountable and can provide a window into how they operate. Bharara’s resistance sends a discomforting message: however merciless he may be towards his suspects, he should bear no consequences for his actions.

We’ll see if Ganek can prove him wrong.

Ifrah Law is a leading white-collar criminal defense firm that focuses on a variety of practice areas. View all.

May 19
2016

Data Breach Lawsuits: Challenges Persist After Spokeo v. Robins

Data breaches are as common as the common cold—unfortunately, just as incurable. Run a news search on “data breaches” and you’ll find that all kinds of institutions—major retailers, tech companies, universities, even government agencies—have been vulnerable at some point. Now run a search on “data breaches,” but include the word “lawsuit.” You’ll find that many of these cases are going to court, but ultimately getting dismissed. What’s going on?

First, you should look at some of these lawsuits more closely: are they filed against the alleged perpetrators of the data breach? Many of them aren’t; those perpetrators are usually hackers who live outside the country or are unable to pay a money judgment. (In legal parlance, that’s known as being judgment proof.) Faced by those limitations, individual victims of data breaches frequently settle for the next best thing: going after the institutions that endured the breach.

Often, this isn’t fair—the institutions are victims too. The point here is that although going after the institutions looks like an easy win from “deep pockets,” that seldom turns out to be the case.

Plaintiffs in data breach cases, which are usually class actions, need to demonstrate liability on the part of the institution. Much of the time, they rest their case on either negligence or breach of contract claims. Both legal theories require the plaintiff to show the same things: 1) that the defendant had a clear duty to protect the plaintiff’s data, 2) that the defendant breached that duty, and 3) that the plaintiff sustained injury as a result. (For breach of contract, plaintiffs must point to a concrete or sufficiently implicit contract that binds the institution to the stated responsibilities; often this is the institution’s privacy policy.) Plaintiffs typically argue that the institution had an obligation to take precautionary measures against data breaches but failed, and therefore caused injury to the plaintiffs.

It’s with the third and final point—demonstrating injury—that plaintiffs have the most trouble. Why? Because courts view injury in fiscal terms; you need to show that you actually lost something, not simply that you might. So even if you were the victim of a data breach, as long your data hasn’t yet been compromised, it doesn’t really count as injury.

There have been exceptions, when the court greenlit cases based mainly on speculative injury, but these usually ended in a settlement before a legal precedent could be set. (See cases against Home Depot, Target, Adobe, and Sony.) For the most part, the fiscal view of injury has prevailed—reinforced in 2013, when the Supreme Court, weighing in on Clapper vs Amnesty Int’l, determined that a plaintiff cannot proceed with a data breach lawsuit unless he or she can demonstrate actual injury or at least imminent threat of injury, each one measurable in economic loss. Otherwise, mere perception of injury is too tenuous to establish legal standing, which a case requires to go forward, and the lawsuit will probably get tossed.

The challenge of establishing legal standing recently made its way to the Supreme Court in Spokeo v. Robins. In that case, a plaintiff filed suit against the “people search engine” Spokeo for publishing false information about him. The issue before the Court was this central question of how much injury must be shown for a case to go forward. Prospective plaintiffs were optimistic that the high court would affirm a lower court’s decision that speculative injury was indeed enough. Alas, the Supreme Court sidestepped the issue and punted it back to the lower court for further review. The Court nonetheless reinforced the general tenets that, for a plaintiff to have standing to bring a case, he must allege an “injury in fact” that is both “concrete and particularized.” There is still room for the lower court to broaden the approach to what constitutes an injury, but the Supreme Court’s ruling keeps the status quo in place.

For now, individuals whose data has been compromised generally must be satisfied with what the institutions offer them after a breach occurs: free credit checks and/or access to credit monitors. Do checks and monitoring seem inadequate? Not if you think about what type of harm people face after a data breach. Individuals can detect and report problems in the event someone actually misuses their data. If they keep on top of it, their credit scores will not be impacted. Moreover, credit card companies and other financial institutions will bear the cost of any unapproved charges. In the event of further problems, plaintiffs can then take their injury to the legal system and have their day in court. But at this point, the courts are right to keep this type of class action litigation at bay.

Ifrah Law is a leading white-collar criminal defense firm that focuses on data privacy.

May 02
2016

Getting Started with E-Rate

Public schools and libraries in the U.S. can save a lot of money on Internet service by applying for the Schools and Libraries Program, a federal subsidy better known as E-Rate.

E-Rate funding, capped yearly at $3.9 billion, helps eligible institutions cover costs of Internet service. Participants can save anywhere from twenty to ninety percent of their Internet expenses—the precise amount being dictated by the economic standing of both the participating institution and the school district where it is located.

E-Rate and three other programs are part of the Universal Service Fund (USF), a system of subsidies born out of the Telecommunications Act of 1996 as a way to ensure affordable telecom rates across the country. Although the Federal Communications Commission (FCC) oversees the USF, the fund is managed by a nonprofit corporation called the Universal Service Administrative Company (USAC).

Detailed information on how to apply for E-Rate can be found in the Schools and Libraries Program overview. Basically it works as a bidding process. An applicant fills out FCC Form 470, requesting specific services, and submits it to the USAC. The USAC then issues an RFP for telecom providers who want to bid for the requested services. After 28 days, the applicant can study the bids. When it selects one, it requests E-Rate funding by filing FCC Form 471 within a deadline set by the FCC (for FY2016 it is May 26).

The discount rate is generally determined by the size of the population, in the applicant’s school district, that qualifies for the National School Lunch Program. The applicant must also file Form 486, listing services for which funds are requested and ensuring compliance with the Children’s Internet Protection Act.

There are limits to what E-Rate can cover. The applicant is solely responsible for end-user equipment, like hardware and software, and also for any non-discounted portions of Internet services.

While it is a great opportunity to save money, E-Rate isn’t a free-for-all. To discourage abuse and misuse of the program, the FCC requires applicants to comply with a series of rules, notably:

  1. Compliance with state and local law. It’s not enough to follow the FCC standards only.
  2. Applicants cannot seek discounts for services not requested. In other words, services listed on Form 471 must match (or not exceed) services requested on Form 470.
  3. Fair, competitive bidding. Applicants are responsible for ensuring an open, fair, and competitive bidding process to select the most cost-effective provider.
  4. Document retention. Applicants must save all competing bids for services to demonstrate they selected the most cost-effective bid, with price being the primary consideration. Records should be kept for at least ten years after the last date of service delivered.
  5. CIPA compliance. Applicants must confirm compliance with the Children’s Internet Protection Act, which requires schools and libraries that receive federal funding to employ Internet filters that protect children from harmful content.

 

In spite of these rules, the wealth of funds in the E-Rate program can attract abuse. In response, the FCC created the USF Strike Force in 2014 and tasked it with combatting waste, fraud, and abuse of the USF programs. Federal agents have shown that they are serious about investigating alleged abuses. One widely publicized case in Ramapo, NY, recently led to several raids. We will look at that case and others like it in upcoming posts.

Ifrah Law is a leading white-collar criminal defense firm that focuses on government contracting.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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