Crime in the Suites: An Analyis of Current Issues in White Collar Defense
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Sep 11
2015

DOJ uses White Collar Prosecution for Election-Season Rabble Rousing

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Beating their chests and breathing fire to rouse the polity, the Department of Justice recently came out with an announcement as earth shattering as the sun rising. The DOJ proclaimed it has adopted new policies to prioritize the prosecution of individuals for white-collar crime.

Deputy Attorney General, Sally Q. Yates, was quoted in the New York Times: “It’s only fair that the people who are responsible for committing those crimes be held accountable. The public needs to have confidence that there is one system of justice and it applies equally regardless of whether that crime occurs on a street corner or in a boardroom.”

What’s the hoped-for public response? Probably something like this: “And the crowd goes wild. Finally, after years of corporate executives sporting Teflon and sliding past investigators, the government is going to put its fist down and make the wrongly rich execs pay for their nefarious acts of fraud, insider trading, embezzling, racketeering, and tax evasion! “

But things look a little different in the actual world of white-collar criminal investigations and defense. In fact, prosecutors from the Southern District of New York and across the country are zealously prosecuting employees accused of white-collar offenses, and their companies are never shy about providing the backup data regulators request.. What’s more, convicted offenders are often subject to penalties far exceeding their crimes, as U.S. District Judge Jed Rakoff noted in the 2012 sentencing of Rajat Gupta.

The fact of the matter is that the DOJ doesn’t need to announce a new policy to go after individuals for white-collar crimes. The reality on the ground is we deal with employees being investigated and indicted all the time.

So why did Washington make the announcement? It sounds more like a PR stunt than anything else. Perhaps the Administration is gearing up for the next election cycle, which includes some obvious key elections. The DOJ wants to have a strong response to public outcries for accountability at the opportune time of impending regime change. In prior election cycles, administrations have taken some sort of hard stance on crime and punishment, whether it is increasing sentencing guidelines or messaging prosecutors about white-collar plea agreements.

From our viewpoint, it’s a little hard to take the DOJ’s new policy announcement at face value. We don’t see any recent motivation (outside PR). However, it’s also true that the wheels of Justice move slowly and this may just be a reflection from public dissatisfaction after the 2008 economic crisis, which saw corporations, but few Wall Street execs, held accountable. Regardless, we see the DOJ’s announcement much ado about nothing.

 

Jun 26
2014

Court: Police Need Warrant to Search Phone. But Guess What? They Get to Keep Your Phone While They Get One.

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Will cops still get access to cell phone data post arrest? You bet. Today’s Supreme Court decision just means they need to get permission from a judge before they start searching who you have been texting. And odds are very good, that permission will be granted.

In a unanimous decision authored by Chief Justice Roberts, the United States Supreme Court held that law enforcement officers may not conduct warrantlesssearches of cell phones that are seized incident to an arrest. But just because police cannot immediately search mobile phones, doesn’t mean they cannot immediately seize them in connection with an arrest. Indeed, the benefit of today’s decision by our country’s highest court may be limited to the two defendants who brought the case (and of course any similarly situated defendants).

The named defendant in Riley v California is David Riley. After Riley was stopped for a traffic violation, he was arrested and the police officer seized his cell phone incident to that arrest. When the officer accessed the data on the phone (without a search warrant), he noticed the repeated use of an identifier associated with the Bloods street gang. Later, a detective reviewed the cell phone records and noticed gang-related content, including a photo of Riley standing in front of a car that was used in a shooting weeks earlier. Riley was convicted of multiple crimes related to that shooting and received a sentence of 15 years to life.

The second case resolved today involved Brima Wurie, who had been arrested in connection with a drug sale. After Wurie’s arrest, police took him to the police station where officers confiscated his flip phone. A few minutes later, Wurie’s phone showed an incoming call from “my house.” The officers opened the phone, accessed the call log to determine the number of the incoming call, and then traced the number back to Wurie’s apartment, which they secured. After obtaining a search warrant, the officers searched the apartment and seized drugs, a gun, ammunition, and cash. At trial, Wurie was convicted on three drug-related counts and sentenced to more than twenty years in prison.

The key here to note is that in neither case did law enforcement obtain prior permission to search the cell phones belonging to Riley and Wurie. The narrow question presented to the Court therefore was whether it is permissible for law enforcement to search cell phone data incident to an arrest where no court has authorized such a search. In holding that such a search violates the Fourth Amendment of the US Constitution, the Court considered but rejected as not relevant prior cases where so-called “warrantless” searches passed constitutional muster. For example,

· In Chimel v. California, the Court recognized that the Fourth Amendment permits warrantless searches of the arrestee and areas within his immediate control if necessary to protect officer safety or to preserve evidence.

· In Arizona v. Gant, the Court held that officers may search a car incident to arrest if the arrestee is unsecured and within reaching distance of the passenger compartment or if the officer reasonably believes evidence of the crime of arrest may be found.

Because there were no such exigent circumstances present in Riley or Wurie’s arrest, the Court concluded that the need for cell phone data searches does not outweigh the corresponding intrusion on individual privacy, and thus a warrant was required. This of course is the right result. Digital cell phone data does not, by itself, of course, threaten officer safety. And a warrantless search of cell phone data is not necessary to preserve evidence. The Court recognized an individual’s privacy interest in digital cell phone data is considerable: cell phones have immense storage capacity, collect many types of records in one place, and often contain years’ worth of data.

In this regard, today’s decision is a victory for privacy rights. Law enforcement officers will not be permitted to conduct warrantless searches of cell phones for digital evidence. But if you are arrested, don’t assume law enforcement will let you keep your phone. Today’s decision may not allow for a warrantless search of your phone, but there is nothing prohibiting law enforcement from securing a phone post-arrest and seeking permission from a court to search it. And the chances that a court will grant such a request are close to 100%.

May 20
2014

Atlantic City Needed to Go Online Years Ago

Three more casinos are set to close in Atlantic City. Unions, politicians and lobbyists are pointing fingers. One thing is for certain, newly introduced online gaming legislation is not to blame. If experts had been paying attention to the trends, they would have introduced regulated online gaming into New Jersey years ago…

Want to know more?  Read the full post on Ifrah Law’s new iGaming Blog

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May 09
2014

Zealous Counsel or Unethical Social Media Maven – How Far Can a Lawyer Go?

Social media has opened a Pandora’s box of information about just about everyone today, including jurors, witnesses, opposing counsel, defendants and plaintiffs.  As lawyers we want to leave no stone unturned in pursuing a client’s interest, but just how far can we go without jeopardizing our case?  For instance, can counsel (or someone acting at counsel’s direction, such as a paralegal) review a publicly available Facebook page to learn about the background and likes of a potential witness or party?  (Most likely, yes).  May attorneys “friend” that witness to gain access to the witness’s full Facebook page?  (It depends).  Can an in-house lawyer advise an employee to remove posts from the employee’s Facebook page because the lawyer thinks the post could be damaging in an ongoing lawsuit? (Most likely, not).  Can a lawyer “friend” a potential juror? (No).  All counsel need to be cognizant of evolving trends in ethics rules on social media use and contacts.

The New York State Bar Association recently released extensive “Social Media Ethics Guidelines” to address lawyers’ utilization of social media, particularly as to interactions with clients, prospective clients, witnesses, and jurors.[i] The Guidelines are a non-binding advisory publication based on New York’s Rules of Professional Conduct (and precedent in other states) and issued by the Social Media Committee of the New York State Bar Association’s Commercial and Federal Litigation Section. While the Guidelines provide instruction to New York lawyers, they represent the most comprehensive statements on the ethical constraints on lawyers’ use of social media to gather information in litigation. Consequently, other states will likely use the Guidelines in crafting their own policies.

Several other states have either provided some limited guidance as to social media accounts and parties/witnesses/jurors, or are reviewing these issues.  This article provides a brief summary of recent developments, utilizing the New York Guidelines as a guide and an example of how other states may view similar situations.

Reviewing Public Posts

New York Guideline No. 3.A provides that a lawyer may review the “public portion” of a person’s social media profile or public posts, even if that person is represented by counsel.  Under the Guidelines, such access is permissible for obtaining information about the person, including impeachment material for use in litigation. “Public” means: “information available to anyone viewing a social media network without the need for permission from the person whose account is being viewed.” (Comment to New York Guideline No. 3.A). The Guideline cautions, however, that attorneys should be aware that some social media automatically notify a person when someone views that person’s account. 

Reviewing Restricted Posts – Unrepresented Parties

Going one step further, New York Guideline No. 3.B allows a lawyer to request permission to view the restricted portion of an unrepresented person’s social media account.  The lawyer must use his or her full name and an accurate profile.  Attorneys may not create fake or different profiles to mask their identities.  If the person asks for additional information in response to the request, the lawyer is required to accurately provide that information, or withdraw the request.  Earlier, the New York City Bar Association, in Formal Opinion 2010-2, ruled that an attorney or agent may ethically “friend” an unrepresented party without disclosing the true purposes, but may not use trickery.[ii]

Reviewing Restricted Posts – Represented Parties               

New York Guideline No. 3.C bars lawyers from contacting represented persons to seek to review the restricted portion of a person’s social media profile unless the person (presumably, through counsel) furnished an express authorization.  This includes persons represented individually or through corporate counsel.  Interestingly, the Guideline advises that lawyers should use caution before deciding to view “a potentially private or restricted social media account or profile of a represented person which a lawyer rightfully has a right to view, such as a professional group where both the lawyer and represented person are members or as a result of being a ‘friend’ of a ‘friend’ of such represented person.”[iii]

Instructing Others

Lawyers may not direct others, such as paralegals and office staff, to engage in conduct through social media in which the lawyer may not engage. (New York Guideline No. 3.D).  The comment to the Guideline makes clear that this prohibition includes a lawyer’s investigator, legal assistant, secretary, other agent, or even the lawyer’s client.

Using Information Provided by Clients

In situations where a client provides to his lawyer the contents of a restricted portion of a represented person’s social media profile, that the lawyer may review the information, provided certain criteria are met.  (Guideline No. 4.D). The lawyer may not have caused or assisted the client to: inappropriately obtain confidential information from the represented party; invited the represented person to take action without the advice of his or her lawyer; or otherwise overreach regarding the represented person.  “Overreaching” in this context means situations where the lawyer is “converting a communication initiated or conceived by the client into a vehicle for the lawyer to communicate directly with the nonclient.”  Lawyers should be very careful not to advise a client to “friend” a represented person to obtain private information.

Deletion of Social Media Information

The New York Guidelines also address whether a lawyer can advise a client to remove content on the client’s social media account (whether posted by the client or someone else).  A lawyer may advise a client as to what content may be taken down or removed, as long as there is no violation of law – whether statutory or common law – or of any rule or regulation relating to the preservation of information.  If the party or nonparty is subject to a duty to preserve, he or she may not delete information from a social media profile unless an appropriate record of the data is preserved.

Special Considerations Regarding Jurors         

The New York Guidelines allow lawyers to research and view a prospective or sitting juror’s public social media website, account, profile and posts.  However, Guideline No. 5.B cautions that lawyers should be careful to ensure that no communication with the juror takes place – including automatic notices sent by social media networks.  The Guidelines also preclude attorneys from making misrepresentations or engaging in deceit to be able to view a juror’s social media account, profile, or posts, or directing others to do so.  An earlier opinion of the New York City Bar, Formal Opinion 2012-2, concluded that attorneys may use social media websites for juror research as long as no communication occurs between the lawyer and the juror as a result of the research.  Attorneys may not research jurors if the result of the research is that the juror will receive a communication.  Further, neither the lawyer, nor anyone acting at her direction, may use deception to gain access or to obtain juror information.

In April, the American Bar Association (“ABA”) issued Formal Opinion 466, concluding that lawyers may look at information available to everyone on a potential or actual juror’s social media accounts or website.  In other words, observing postings on a public portion of a social media account does not constitute improper ex parte contact with a juror.[iv]  However, ABA Formal Opinion 466 states that lawyers may not send access requests to jurors.  Such a “communication” would constitute a prohibited ex parte contact.[v]  However, under the ABA’s opinion, a social media network’s automatic notification to an individual that an attorney has reviewed that person’s social media account is not violative of the prohibition on communicating with jurors (thus differing from the New York City Bar opinion 2012-2).  The ABA considers the notification to be made by the social media platform, not the attorney. Both the New York Guidelines and ABA Formal Opinion 466 advise lawyers to review the terms of use of social networks regarding automatic subscriber notifications.  Some social networks allow viewers to anonymize their viewing, for instance, which may be a useful course of action.

New York Principles Followed and Expanded in Other Jurisdictions

Other states take a similar approach to public information, generally permitting a lawyer to review the public information of a party, witness, or juror, and prohibiting a friend request or similar request to access non-public information of a juror.  As to witnesses, some Bar authorities (such as those in New Hampshire) specifically allow lawyers to request access to the non-public social media profiles of witnesses, provided the attorney does not use deception.  Virginia bar rules prevent lawyers from “pretextually ‘friending’ someone online to garner information useful to a client or harmful to the opposition,” as pretexing violates Virginia Rule 8.4(c) prohibition against “dishonesty, fraud, deceit or misrepresentation.”  In New Hampshire, a lawyer must also inform the witness of the lawyer’s involvement in the matter.  In Oregon, the State Bar Ethics Committee ruled that a lawyer may access an unrepresented individual’s publicly available social media information but “friending” a known represented party is impermissible absent express permission from party’s counsel.[vi]  The San Diego Bar opined that an attorney attempting to access the non-public Facebook pages of certain high-ranking employees of the opposing party without disclosing the motivation of the friend request violates California Rule of Professional Conduct 2-100 (prohibiting communication with a represented party unless the attorney has the consent of the other lawyer).  Interestingly, the opinion concluded “high-ranking employees” of a represented corporate adversary are considered “represented parties” for purposes of the rule.[vii]

As a general rule, deceptive practices used to gain access to private social media pages may result in proceedings by bar authorities or other adverse actions.  An Ohio prosecutor was fired after his office found out he had created a fake Facebook profile and “friended” a defendant’s alibi witnesses, seeking to influence them against the defendant.[viii]

On the subject of deleting social media pages, a Virginia court sanctioned a plaintiff and his attorney for deleting a Facebook profile and pages that contained photographs that could have negatively impacted a widowed husband’s claim for damages from the wrongful death of his wife in an automobile accident.[ix]  While counsel denied having instructed his client to delete the postings, testimony supported a claim that the attorney directed his paralegal to tell the Plaintiff to “clean up” his Facebook entries.  The court sanctioned the Plaintiff $180,000, and the Plaintiff’s counsel $542,000. Plaintiff’s counsel later agreed to a five year suspension.  The suspension order stated that the attorney violated ethics rules that govern candor toward the tribunal, fairness to opposing party and counsel, and misconduct.[x]

The New York Guidelines provide a useful reminder to practitioners that social media communications cross state lines and may implicate other states’ ethics rules. Counsel should consider Bar rules in states where counsel is admitted, as well as the jurisdiction of any pending case.  In the case of misconduct in a state where counsel is not admitted, it is certainly possible for that state to make a referral to a state where an attorney is barred.  While social media presents a trove of potentially useful information, all counsel need to be aware of, and abide by the ethical restrictions and to tread carefully, particularly as to non-public information.  Bar rules and opinions in this area continue to develop to keep pace with technology trends.  Counsel should continue to monitor further ABA and state bar rulings, particularly before conducting any research pertaining to non-public social media profiles and pages or seeking to communicate with parties, witnesses or jurors.

_____________________________

[i]              The Guidelines are available at: https://www.nysba.org/Sections/Commercial_Federal_Litigation/ Com_Fed_PDFs/Social_Media_Ethics_Guidelines.html.

 [ii]               See “Obtaining Evidence from Social Networking Websites,” Formal Opinion 2010-2, available at https://www.nycbar.org/pdf/report/uploads/20071997-FormalOpinion2010-2.pdf.

 [iii]              Comment to New York Guideline No. 3.C.

[iv]              Formal Opinion 466 is available at: https://www.americanbar.org/content/dam/aba/administrative/ professional_responsibility/formal_opinion_466_final_04_23_14.authcheckdam.pdf/  (“ABA Formal Opinion 466”).

[v]               ABA Formal Opinion 466 at 4.

 [vi]              Oregon State Bar Ethics Committee Op. 2013-189 (available at https://www.osbar.org/_docs/ethics/2013-189.pdf).               

 [vii]             See San Diego County Bar Association Legal Ethics Opinion 2011-2, available at https://www.sdcba.org/index.cfm?pg=LEC2011-2.

 [viii]             See Ifrah Law’s blog coverage at https://crimeinthesuites.com/prosecutor-fired-for-lying-on-facebook-to-wtinesses-in-murder-case/.     

 [ix]              Lester v. Allied Concrete Co., Case No. CL09-223 (Va. Cir. Ct. Sep. 1, 2011); Lester v. Allied Concrete Co., Case Nos. CL08-150, CL09-223 (Va. Cir. Ct. Oct. 21, 2011).

 [x]               SeeIn the Matter of Matthew B. Murray, available at http://www.vsb.org/docs/Murray-092513.pdf.

 

 

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Dec 24
2013

Ifrah Law’s Three iGaming Predictions for 2014

As long-time observers of and participants in the internet gaming industry, we at Ifrah Law looked forward to 2013 as a year full of promise for internet gaming, particularly in the United States.  In the end, industry progress in 2013 was mixed:

The year saw the enactment of online gaming in New Jersey and online poker in Nevada and Delaware, but also saw a district court judge and then a three-judge panel of the United States Court of Appeals for the Third Circuit block New Jersey from proceeding with sports betting.  During 2013, a number of the individual defendants charged in the Black Friday case in the Southern District of New York settled their cases, and the former customers of Full Tilt Poker saw the beginnings of the remission process that is promised to return to them some or all of the money they had on deposit with Full Tilt at the time of the April 2011 seizures.

After a year filled with so many changes, we naturally are looking forward to see what will happen in theinternet gaming industry in 2014.  Here are a few of our predictions:

Easy Money

This past year we witnessed the definitive shift away from an expectation that poker would be legalized through federal legislation, and toward state-by-state enactment of regulatory schemes for online poker.  The limitation of the state-by-state approach, of course, is that the legalization of poker in a state only permits individuals in that state to play against other individuals in that same state.  In a state like Nevada or Delaware with small populations (and small player pools), there will be significant pressure to increase player liquidity by executing agreements with other states that will permit individuals from all of those states to play against one another.  It is very likely that Delaware, New Jersey and Nevada will enter into a multistate poker agreements with each other in 2014, and that any other states that enter the market will be close behind.  To the extent that states other than New Jersey authorize online gaming other than poker, those agreements may also encompass other games such as slot machines.  The result will be more people at the tables, bigger prize pools, and more competitive games. This, in turn, is likely to increase the popularity of the games, meaning more money coming in for the states to share. And more money will likely to encourage states on the sidelines to enter the market to get a cut of the earnings.  These latecomers may actually rely on the established regulatory bodies – such as those in New Jersey and Nevada – rather than creating licensing and regulatory infrastructure in their own states.

50/50

It seems obvious to us that other states will want to tap into online poker or gaming as a source of revenue.  But it is less clear which states will make the move – particularly the states with massive markets like California.  With a population of some 38 million people, California has nearly five times the population of New Jersey and more than a dozen times the population of Nevada, making it potentially the most lucrative online market in the United States.  So will California join the fray in the coming year?  Odds are even; numerous bills have been discussed in the past, but the state will have to start accelerating its legislative agenda in order to get anything off the ground in 2014.  The prominence of tribal gaming in California poses special challenges, as the Native American tribes – who view gaming as their special prerogative –will undoubtedly demand a significant share of revenues.  The only certainty is that, if California does enact online gaming, the size of its population will permit it to dictate to other states the terms of interstate agreements for its players.

Hail Mary Pass

No list of predictions for the year would be complete without calling one longshot.  In 2012, New Jersey attempted to enact sports betting in its casinos, but progress was barred after a suit by the National Collegiate Athletic Association and professional sports leagues under the Professional and Amateur Sports Protection Act (PASPA).  The past year saw the district court issue its injunction in NCAA v. Christie, and a federal appellate court uphold that prohibition.  This year we will see whether the United States Supreme Court will take the case and, if so, how it will rule.  The case poses just the kind of issues that the Supreme Court often addresses, including the balance of power between the power of the federal government and the rights reserved to the state by the United States Constitution.  If the Supreme Court were to hear the case and rule in favor of New Jersey, intrastate sports betting would undoubtedly soon begin, and be followed soon thereafter by online sports betting.  But the numbers do not lie: The Supreme Court historically acceptsfewerthan one percent of thecases it is asked to hear.  In the end, we have to concede that a favorable ruling from the Supreme Court is a bit of a HailMary pass.  But like its football namesake, to watch it happen can be awfully exciting because of what is at stake.

Here at Ifrah Law we will be keeping a close watch on developments in 2014 so that our clients may benefit from all of the new opportunities that are sure to appear in the online gaming industry.

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Internet Law
Jul 22
2013

Conspirators Get Prison Time for Defrauding Small Business 8(a) Program

White-collar crime can involve any number of types of fraud against the government or private parties. One that isn’t usually thought about but can result in serious jail time involves conspiracies to obtain government contracts fraudulently by setting up bogus small and minority-owned businesses in order to qualify for government preferences.

In the past few months in the Eastern District of Virginia, several businesspeople have been sentenced to serve time in prison after pleading guilty to their roles in a scheme that improperly won them more than $31 million in government contracts that were intended for small, minority-owned businesses but were diverted fraudulently to other businesses that didn’t qualify.

In June, businessman Joseph Richards was sentenced to 27 months in federal prison after he pleaded guilty to his role in the scheme. He was the first major participant to be sentenced.

Richards and his co-conspirators were gaming the system and abusing the federal program that provides so-called 8(a) set-asides for minority businesses. As outlined in a statement of facts to which Richards stipulated, he and the co-conspirators set up “Company B,” a shell company owned by a woman named Dawn Hamilton, who is of Portuguese descent and thus eligible for the set-aside. However, Hamilton was only a figurehead owner, and “Company A,” run by Richards and other non-minority individuals, actually did the work on the government contracts. Earlier this month, Hamilton was sentenced to four years in federal prison.

For example, the memorandum states: “From 2009 until at least February 2012, when [Hamilton] began to work more frequently for Company B, Richards knew that [Hamilton] nevertheless reported to [co-conspirator Keith Hedman], who controlled Company B notwithstanding [Hamilton’s] “on-paper” Company B ownership. Richards also knew that [Hedman] kept a stamp of [Hamilton’s] signature in [Hedman’s] desk drawer and that [Hedman] repeatedly used the stamp to forge [Hamilton’s] name and signature on various documents, including checks and other documents submitted to the U.S. government.” Hedman, the ringleader of the scheme, was sentenced to six years in prison.

In order to make their scheme work, Richards and his co-conspirators repeatedly created fraudulent documents, including fraudulent leases and false responses to government inquiries about their 8(a) status.

These guilty pleas and sentences are indications that federal prosecutors are capable of going after government contract fraud in a concerted manner. The investigation that landed these guilty pleas, among others, was conducted by a large inter-agency team, including the offices of inspector general of the National Aeronautics and Space Administration, the Small Business Administration, the General Services Administration, the Department of Health and Human Services, and the Defense Criminal Investigative Service, with assistance from the Defense Contract Audit Agency.

The fact that the companies involved actually performed the work satisfactorily for various government agencies is, of course, no defense. It is a basic type of fraud to make false representations to obtain benefits – in this case government contracts – to which one is not entitled by law.

Of course, it’s pretty clear that for every one of these scams that are investigated by authorities and end in guilty pleas, there must be five or ten that are never found out. If the Small Business Administration and other agencies got wind of more of these conspiracies, they could do more to ensure that truly deserving companies received these set-aside contracts.

May 21
2013

What Happens When Big Data and Scientific Approach Meet Criminal Justice?

A Houston couple is giving an estimated $4 billion in the next few years to try to solve some of the nation’s social problems by the application of careful thought and statistical analysis – and the criminal justice system is one of their targets.

John and Laura Arnold have that much to give away because John, still only 39 years old, made a vast fortune as a hedge-fund trader.

As a current Wall Street Journal article entitled “The New Science of Giving” explains, the Arnolds’ approach is quite different from the plan that most mega-donors select. Rather than pick existing institutions like cancer centers, women’s shelters, or anti-hunger programs to give money to, the Arnolds want to fund new, alternative approaches to solving problems. Chief among those new approaches is the use of data analysis and science.

Among their targets is the nation’s criminal justice system, where the Arnolds want to understand not the broad constitutional principles but their application in the states on a daily basis and to try to figure out how the system can be improved. They have hired Anne Milgram, a former New Jersey attorney general, to spearhead this effort.

One aspect of the system that the Arnolds are interested in right now is how judges make their decisions to keep nonviolent pretrial defendants behind bars. There just isn’t enough science behind those decisions, the Arnolds believe, and they are spending millions of dollars to create a risk-assessment tool that judges can use to choose whether to lock people up pending trial or to return them to their families. The assessment tool benefited from data from 1.5 million cases – the sort of “big data” that has hardly ever been used in the criminal justice system to date.

We are quite interested in how this project works out and whether a data-driven approach turns out to help prosecutors and defendants. If some quantifiable benefit can be shown, it won’t be just nonviolent crime that will be affected. We’d then expect to see some application of these principles in white-collar crime sentencing and even in civil cases. It’s not clear where the dollars will come from, beyond the Arnolds’ massive infusion of cash, but there’s a significant chance that real change in the justice system may occur in the next decade or so.

posted in:
State Criminal
Apr 12
2013

Are Investors Lining Up Behind Another and Better Bitcoin?

We have written previously about Bitcoin, the new form of “peer-to-peer” currency whose proponents expect to be a game-changer in the world financial markets. It’s not clear yet what Bitcoin’s ultimate destination will be, as the currency has had a lot of scrutiny, and undergone a tremendous amount of volatility, lately.

In a recent 24-hour period, the value of a single Bitcoin on the largest Bitcoin exchange, Mt. Gox, was high as $266 and as low as $105. It’s hard to sustain a business model with that incredibly high volatility factor.

However, according to TechCrunch, angel investors and venture capitalists remain “hungry to invest in the ecosystem surrounding the decentralized digital currency.” In other words, investors want to create a different, and possibly superior, Bitcoin.

That currency is known as OpenCoin, which wants to create a decentralized global currency yet prefers to stay away from the moniker of “another Bitcoin.” The company behind OpenCoin has raised an undisclosed amount of venture-capital money to expand the open-source code behind Ripple, which is a virtual currency and payment system that aims to make it easy and affordable for anyone to trade any amount in any currency.

OpenCoin hopes to clear its transactions within minutes; to handle dollars, euros, and other currencies seamlessly; and to solve BitCoin’s security issues.

Some observers think OpenCoin has a greater chance of success than Bitcoin because it has been carefully conceived rather than just springing up from the minds of a few hackers, and because it doesn’t have a history of volatility and of facilitating illegal payments.

But it’s still a very long way before any of these artificial currencies catches on. We will be watching them carefully. We hope that financial regulators, both in the United States and world-wide, realize that these currencies can do a great deal of good, and that the Treasury Department doesn’t conclude that they are nothing more than vehicles for money laundering. Treasury’s recent announcement that dealers in Bitcoin-like currencies must obey money-laundering laws seems like an acceptably moderate approach.

Mar 19
2013

Treasury Department: Bitcoin Dealers Are Regulated Under Money-Laundering Laws

Timothy Lee at Forbes magazine has reported today that the Financial Crimes Enforcement Network (FinCEN), a branch of the Treasury Department, has issued new guidelines on the legal status of Bitcoin under U.S. money laundering laws. Essentially, Bitcoin dealers have now been placed under the nation’s anti-money laundering regulations and must comply with those rules.

Lee notes that Bitcoin exchanges, which exchange Bitcoins for conventional currencies, and most Bitcoin “miners,” which process Bitcoin transactions, must now register as Money Services Businesses (MSBs) under the Treasury regulations. Ordinary users of Bitcoins need not register.

Bitcoin is a peer-to-peer network that exchanges the virtual currency in a largely unregulated environment. Lately, Bitcoins have become acceptable for a number of types of transactions, and some see them as a currency of the future that transcends national borders.

Lee argues that the Treasury action is actually not a bad thing for Bitcoin’s future.

“FinCEN is clearly trying, in its somewhat bumbling way, to squeeze a square technological peg into its round regulatory hole. Reading between the lines, FinCEN is saying that if Bitcoin-based businesses fill out some paperwork and collect some information about their customers, then they’ll be left alone,” Lee writes.

Given the existence of U.S. anti-money-laundering statutes, Lee adds, “FinCEN’s guidance is probably the best Bitcoin fans could have hoped for: it sends a clear sign that America’s anti-money laundering regulators do not consider the currency a threat and isn’t going to try to force it to change or shut down.”

We tend to agree. There needs to be a balance between enforcing the money-laundering laws (which are designed as a tool against terrorism and other serious wrongdoing) and permitting the free exchange of commodities and currency. It appears that the Administration, so far, is striking the correct balance.

Mar 03
2013

New Zealand Court Hands U.S. a Victory in Kim Dotcom Piracy Case

A year ago, we wrote about the indictment in the Eastern District of Virginia of the executives and founders of Megaupload, one of the leading file-hosting sites on the Web. The charges were copyright infringement through the facilitation of piracy of copyrighted materials, money-laundering, and conspiracy. The site was shuttered after the indictment.

The case quickly got tied up in the U.S. Justice Department’s effort to extradite Kim Dotcom, Megaupload’s chief founder, from New Zealand, where he lives. After a series of setbacks, the DOJ just won a victory before a New Zealand appeals court. The extradition hearing is set for August 2013.

The issue before the appeals court was how much information the DOJ was required to turn over to Dotcom before the hearing. One of Megaupload’s defenses is that its activities were protected by the “safe harbor” provisions of the Digital Millennium Copyright Act, which protects Internet service providers from copyright liability for the activities of people who merely use their Web sites.

Dotcom wanted the DOJ to turn over, in advance of the hearing, information that it had about possible copyright infringement on the site – in other words, a good deal of the government’s evidence. Reversing a lower court, the New Zealand appeals court held that the DOJ need not turn over much of this material at this point.

“If a suspect was entitled to demand disclosure of all relevant documents on the basis that he or she wished to challenge not the reliability of the summarised evidence but rather the inferences that the requesting state seeks to draw from it,” the court wrote, then the extradition hearing process would not work properly. Rather, the suspect is entitled to a summary of the evidence but not to the government’s entire case at this juncture.

It thus appears that Dotcom will be able to get access to the DOJ’s entire case and to mount a full defense only if he is extradited to the United States and faces a criminal trial. But in order to hold such a trial, the DOJ will need to make a prima facie case at the extradition hearing, which Dotcom will be allowed to rebut, that Dotcom is guilty of the charged offenses. The appeals court said that this hearing will only involve a “limited weighing of evidence” and that the DOJ is entitled to some deference as to its reliability.

We have said before that this is a highly dubious prosecution. We are confident that despite this setback, Dotcom will get a full chance to present his case before an impartial tribunal.

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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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