Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Archive for the ‘Federal Sentencing’ Category
May 20
2013

Appeals Court Strikes Fraud Sentence for Lack of Proof by Government

The U.S. Court of Appeals for the 11th Circuit recently ruled on an issue lying at the intersection of fraud conspiracies and the U.S. Sentencing Guidelines: the government’s separate burden of proof against each co-defendant when multiple plea bargains are entered. Specifically, the 11th Circuit was addressing whether the government presented sufficient evidence to show, in a credit card fraud case, that the defendant’s criminal activity affected at least 250 victims. Finding that the government had come dramatically short of meeting its evidentiary burden, the appeals court opened its opinion with a flare of witty admonition: “Sometimes a number is just a number, but when the number at issue triggers an enhancement under the Sentencing Guidelines, that number matters.”

The facts of this case are as interesting as the court’s tone. The defendant was Gary Washington, who pleaded guilty to four offenses related to his role in a credit card fraud conspiracy that affected more than 6,000 individual cardholders. At first blush, it stands to reason that his sentence was calculated using a level-6 enhancement, which is reserved for crimes affecting 250 or more victims. However, there was a critical issue that the government and the district court failed to appreciate: Washington didn’t enter the conspiracy until four months after its inception, so the full victim count couldn’t be summarily applied to him.

Remarkably, before the sentencing hearing, Washington conceded that “in all probability there were more than 250 victims.” However, his sticking point was that he wanted the government to submit “hard evidence” supporting a level-6 enhancement in place of its “verbal assurances.” The government essentially ignored his requests and proceeded to the hearing without submitting additional evidence. Washington objected again at the sentencing hearing, but the district court overruled his objection and applied the level-6 enhancement, noting that the figure had been applied to the other defendants’ sentences.

On appeal, the 11th Circuit found the government’s representations insufficient and stated that “evidence presented at the trial or sentencing hearing of another may not – without more – be used to fashion a defendant’s sentence if the defendant objects.” The appeals court pointed out that it was especially inappropriate to use the other co-defendants’ sentences as a guide, because Washington joined the conspiracy well after it began. Following this reasoning, the appeals court set aside Washington’s sentence and remanded the case to the lower court for resentencing. The 11th Circuit declined the government’s request to present additional evidence on remand, because nothing had prevented it from presenting sufficient evidence at the original sentencing hearing.

This case is another example of federal prosecutors and trial courts losing sight of our system’s fundamental canon: a defendant is innocent until proven guilty. In some instances, the procedural safeguards that protect this system may seem inefficient and unnecessary. However, the alternative would beckon trial courts down the slippery slope of replacing actual evidence with assumptions. Fortunately, the appeals courts are present as a way of reining them in.

May 09
2013

More Enron Fallout: Skilling and DOJ Enter Agreement to Reduce Sentence

Former Enron executive Jeffrey Skilling reportedly has negotiated a deal with federal prosecutors that is likely to result in a significant reduction of the prison sentence he will serve for his role in the collapse of Enron. Under the new agreement, Skilling faces between 14 and 17.5 years in prison — a 27 to 42 percent reduction relative to his previous sentence of 24 years. Apparently, Skilling’s aggressive defense wore prosecutors down in such a way that they are now willing to give up almost half of Skilling’s prison sentence to resolve the case once and for all.

In May 2006, Skilling was convicted on one count of conspiracy, 12 counts of securities fraud, five counts of making false statements to auditors, and one count of insider trading. As a result, he was sentenced to roughly 24 years in prison and ordered to pay $45 million in restitution.

Skilling appealed the convictions and sentence with some success. First, the U.S. Court of Appeals for the 5th Circuit vacated his sentence on the grounds that the U.S. Sentencing Guidelines had been misapplied. Then, the U.S. Supreme Court held that the trial record did not support his conviction for conspiracy to commit “honest services” wire fraud. On remand, the 5th Circuit found the “honest services” error to be harmless and upheld the conviction so all that remained was for Skilling to be resentenced.

Skilling’s attorneys were preparing to request a second trial based on newly discovered evidence, but the prosecutors evidently decided that the fight was not worth it. According to prosecutors, the government has invested extraordinary resources in bringing Skilling to justice, and a second round would impose even greater costs, delay resolution, and delay restitution payments to Skilling’s victims.

The parties’ agreement will facilitate closure by stipulating that a sentence in the range of 14 to 17.5 years is reasonable. Both parties have agreed not to contest a sentence within that range and have reserved their right to contest a sentence outside that range.

U.S. District Judge Sim Lake, the sentencing judge, is likely to agree with the parties, as a sentence outside the agreed-upon range would burden the parties with costs they would rather avoid.

Skilling is scheduled to be resentenced in the Southern District of Texas on June 21.

May 07
2013

Appeals Court Set to Consider Key Sentencing Issue on Profits Derived From Fraud

The U.S. Court of Appeals for the 3rd Circuit is currently considering a sentencing issue of great significance in cases in which a number of individuals work together to bring about a financial fraud. The question posed is the extent to which a defendant can and/or should be punished based on the profits made through the fraud when the defendant did not receive as much money from the fraud as his co-conspirators.

In Kluger v. United States, the appeals court must determine whether former attorney Matthew Kluger’s sentence was unduly harsh. Kluger was one of three men who pleaded guilty to insider trading last year in federal district court in Newark, New Jersey. In his plea, Kluger, who is 51, admitted that he stole data on about 30 transactions during 17 years at law firms that included Skadden, Arps, Slate, Meagher & Flom and Wilson Sonsini Goodrich & Rosati. The companies involved include Sun Microsystems, 3Com Corp., and Acxiom Corp. Kluger gave that information to his co-defendant, Kenneth Robinson, who in turn gave them to trader Garrett Bauer, who traded on the information and then sold at a great profit when the deals went public. Following the scheme, Bauer then distributed the money to his partners. Over the last four years of this arrangement, according to prosecutors, Bauer made about $32 million in illicit profits, while Robinson made more than $875,000. Kluger claims to have made more than $500,000.

The sentences that were meted out to Kluger and Bauer did not track this huge disparity in the benefit that each received from their illegal activities. Bauer was sentenced to nine years imprisonment. Kluger received a sentence of 12 years – the longest prison sentence ever given for insider trading, eclipsing the 11-year sentence received by Galleon Group co-founder Raj Rajaratnam. In sentencing Kluger, Judge Katherine Hayden said that she wanted to send a strong message about the “radiating effect of the loss of confidence in the market” caused by insider trading. Judge Hayden also emphasized Kluger’s abuse of trust given his position as a lawyer. Robinson, who cooperated with authorities and secretly recorded the other men for the FBI, received a sentence of only 27 months.

The notion that a defendant may be sentenced based on the aggregated gains of his co-conspirators is nothing new. Section 1B.1.3(1)(a)(1)(B) of the U.S. Sentencing Guidelines expressly provides that, “in the case of a jointly undertaken criminal activity,” relevant conduct (which sets the amount to be used to calculate upward adjustments in the loss table of Section 2B1.1) includes “all reasonably foreseeable acts and omissions of others in furtherance of the jointly undertaken criminal activity . . .” But the acceptance of this approach may be strained by cases of insider trading and other white-collar crimes that increasingly involve astronomical amounts of money, and therefore expose all participants to draconian criminal sentences.

In appealing Kluger’s sentence, his attorneys stressed that the district court appeared not to have considered the disparity in the amount of money that Kluger actually received as a result of the insider trading compared with at least one of his co-conspirators. This argument echoes some of the reasoning of Judge Jed Rakoff in his sentencing of Rajat Gupta, who likewise received far less benefit from insider trading than his co-conspirator, Rajaratnam. The issue raises an interesting question: Should a defendant’s sentence be commensurate only with his or her own personal gain? Or is the measure of the proper severity of a sentence the total gain obtained by all of the participants – an approach that appears to be more in step with the concept of “relevant conduct” that plays an important role in calculating advisory ranges under the Sentencing Guidelines?

The Third Circuit’s determination on this issue may signal the direction that the courts take on this issue, or may be just the first ruling in what becomes a split among the circuits. The resolution of this issue will be particularly important in cases in which Section 2B1.1 (the loss value table) plays a critical role in determining Guidelines sentences.

Apr 29
2013

DOJ Notice Hints at a Sentencing Deal With Former Enron Exec Jeffrey Skilling

Justice may or may not be blind; but she can buckle under pressure. It may take years, millions of dollars and armies of attorneys, but if you have the resources to test her mettle, you too may tip the balance in your favor.

Almost seven years after his conviction on fraud and other charges, former Enron executive Jeffrey Skilling may finally be succeeding in his effort to cut down his prison sentence that was originally set at more than 24 years. His investment in his battle is nothing short of impressive. He apparently spent some $70 million on his defense in the underlying trial that ended in 2006 … and that doesn’t include the subsequent seven years of activity, which involves more than 1300 docket entries as of March 2013.

Skilling’s persistence may be paying off. The Department of Justice recently issued a notice on a proposed sentencing agreement with Skilling. (The notice provided that victims have until April 17, 2013, to express their views on the prospective agreement. No further timetables have been officially set.)

It may seem surprising that the Justice Department would consider entering a sentencing agreement with someone who has already been convicted and sentenced and is serving time. But this is a product of Skilling’s aggressive efforts since his conviction, which have resulted in several appearances before the U.S. Court of Appeals for the Fifth Circuit and in one successful trip to the U.S. Supreme Court.

In 2009, the Fifth Circuit vacated Skilling’s sentence – which is where the recently announced sentencing agreement comes into play. In 2010, the Supreme Court ruled that one of the legal theories behind Skilling’s conviction (the honest-services fraud theory) was unconstitutionally vague and remanded the case to the Fifth Circuit to decide whether any of the charges should be invalidated.

After more yo-yoing between courts (the Fifth Circuit upheld the conviction in 2011, the Supreme Court declined to hear a second subsequent appeal in 2012, and Skilling renewed his request for a new trial based on new evidence after the failed Supreme Court appeal), the Justice Department may be raising a white flag of sorts and opting to settle upon a sentence that is mutually acceptable to Skilling and prosecutors. The DOJ may be unwilling to spend more public resources on a man who won’t go away until he gets his way.

It is hard to say what the sentencing agreement will provide. We previously opined that in resentencing, the judge could sentence Skilling to somewhere between 15 and 30 years under the sentencing guidelines. Obviously a more stringent sentence than the previous 24-year sentence is not going to be the result of the prospective agreement between Skilling and the DOJ. Regardless of the terms, the agreement will need to be approved by the sentencing judge. And he will invariably have to balance, along with the scales of justice, the public outcry if the sentence is too light and the costs of continuing to do battle with Skilling.

Jan 14
2013

What Lessons Can Be Learned From Tragic Death of An Internet Activist?

There can be no dispute that the death of Aaron Swartz – the Internet activist who took his own life on Friday, January 11 – is tragic. There can also be no dispute that the grief and anger his family feel is very real. The question is what the appropriate focus for that anger should be in order to give meaning to Swartz’s life – and death.

Swartz, who had blogged about his own battles with depression, was a leading activist involved with the movement to make information freely available on the internet, and is credited with helping to lead the protests that ultimately defeated the Stop Online Piracy Act (SOPA) – a statute that would have significantly broadened law enforcement powers in policing internet content that may violate U.S. copyright laws.  Swartz’s suicide came as he faced federal charges of wire fraud and computer fraud arising from his alleged efforts to make freely available an enormous archive of research articles and similar documents offered by JSTOR, an online academic database, through computers at the Massachusetts Institute of Technology. The allegations in the indictment he faced were a tribute to Swartz’s computer acumen, describing the technological means that Swartz had used to access and download approximately 2 million documents from the JSTOR subscription archive by unauthorized access to the computers at MIT.

Swartz’s family has released a statement in which they blame his death on the decision by federal prosecutors in the District of Massachusetts to pursue “an exceptionally harsh array of charges, carrying potentially over 30 years in prison, to punish an alleged crime that had no victims.” Contrary to the family’s assertion that the prosecution caused Swartz to take his own life, we suggest that the appropriate focus here is not on prosecutorial overreaching, but rather on Congress’s decision to criminalize certain conduct and to set sentencing guidelines that would likely have led to imprisonment if Swartz were convicted.

It is true that the maximum statutory sentence of imprisonment for the wire fraud charge in the indictment against Swartz is 30 years. But there is no question that the likely sentence that Swartz would have faced if convicted of wire fraud and/or the other charges in the indictment would have been far less than that. The advisory range under the U.S. Sentencing Guidelines would have depended on the loss (or intended loss) suffered, among other things, but Swartz likely faced (based on back of the envelope calculations) a sentence of no more than two to four years in prison – a fact that he almost certainly knew from the lawyer who represented him. While four years in federal prison is significant, it is much less than the 30-year sentence mentioned by the family.

It is also not entirely clear that the prosecutors’ decision to pursue charges against Swartz was unreasonable. This is not just a case alleging the distribution of materials protected by copyright law – an issue on which there is fair debate as to whether conduct should be criminalized. Rather, in this case, Swartz was accused of having accessed the MIT computer systems and the JSTOR subscription (for which MIT paid approximately $50,000) through illicit means. There were also allegations that Swartz’s computer intrusions crashed some computers and caused some legitimate subscribers to the JSTOR service to lose access for a period of time. Thus, assuming the truth of the allegations in the indictment, the alleged crime here was not entirely victimless. Moreover, everyone agrees that illegally accessing a computer system is not conduct that should be condoned. For these reasons, Swartz’s family’s attacks on the prosecutors as overreaching – while understandable given their grief and anger – may actually be misplaced.

On the other hand, there is a fair question whether the conduct with which Swartz was charged is really the kind of conduct for which we need to send a person with no other criminal record to prison for a period of years. That, however, is not an issue of decision-making by the prosecutor’s office. Rather, that is a question for Congress, both in terms of establishing criminal liability and in terms of setting astronomical maximum statutory sentences (which increased the base offense level for this crime). And it is a question for the U.S. Sentencing Commission, which has raised Guidelines levels over the years. It is also a question for Congress in terms of setting Guidelines scoring that increasingly fails to reflect any expertise of the Sentencing Commission, but rather reflects only a congressional mandate to support increasingly harsh advisory sentences under the Guidelines for white-collar offenses.

Prosecutors may have been justified in seeking charges against Swartz for his conduct. But if his family, friends and supporters wish Swartz’s death to have as much meaning as his life, they should focus instead on the decisions that created the harsh potential penalties that Swartz faced.

Jan 11
2013

Online Pharma Exec Gets 4 Years in Prison for Selling Foreign Drugs in U.S.

Andrew Strempler, a Canadian citizen who helped to pioneer the cross-border online pharmacy industry, was sentenced on January 9, 2013, to four years in prison in connection with allegations that his former company sold fake and misbranded drugs to U.S. citizens.

The sentence follows Strempler’s guilty plea in October in federal court in Miami to a charge of conspiracy to commit mail fraud. Strempler also agreed to forfeit $300,000 and pay a $25,000 fine. A hearing will be held to determine if Strempler will also need to pay restitution.

Strempler operated companies that sold foreign pharmaceuticals to consumers in the United States, where drug costs are significantly higher than in other countries. The drugs were obtained in markets with lower prices on drugs, but the U.S. government has long taken the stance that selling these drugs is illegal because the sources of the drugs could not be assured.

Under the plea agreement, the guidelines range for Strempler’s sentence would be 46 to 57 months, on a charge that carries no mandatory minimum sentence. The government recommended a sentence of 57 months. Prosecutors had originally sought up to 20 years in prison and the forfeiture of $95 million.

Counsel for Strempler asked the court for a downward variance and a sentence of 24 months. Strempler’s attorneys argued that since he is a Canadian citizen, any sentence imposed on him would be more difficult and onerous than an identical sentence imposed on an American citizen. They contended that he would likely not be assigned to a minimum security prison, even though he would likely otherwise qualify based on the nature of the offense and his lack of criminal history. Additionally, as a Canadian citizen Strempler would not be allowed to participate in an early release to a community corrections facility. After he serves his sentence he will be sent to immigration custody, where he will likely be held until his removal from the country.

Strempler’s attorneys also noted that the pre-sentence investigation report states that “there is no evidence that any victim sustained an actual loss or physical injury as a result of this offense.” Additionally, the forfeiture judgment of $300,000 to the government that Strempler agreed to pay prior to sentencing was nearly doubled the agreed-to loss amount.

According to court papers, Strempler believed that the drugs his company was selling were “safe and effective,” and his attorneys noted that he purchased the same drugs for his family and had sample drugs tested by a lab in Canada. His attorneys argued that he did not act with malice and had no actual belief that the drugs were fake and ineffective. He believed that the drugs were safe because they were purchased in accordance with the regulations of foreign countries.

The court essentially rejected the arguments by Strempler for a more lenient sentence and went along with the government’s request for a lengthy sentence. It appears to us that Strempler received a long sentence for a first-time nonviolent offender who did not act with malice. It seems that this is more of a regulatory violation parading in the clothing of a criminal case.

By asking for such a significant sentence, the government may have been trying to serve notice that this type of case will not be taken lightly. Given the stance taken by the prosecution in this case, it will be interesting to see if this leads to further prosecutions for related offenses.

Dec 05
2012

D.C. Circuit: Restitution Order Must Involve Victim’s Loss, Not Defendant’s Gain

On November 9, 2012, in a unanimous opinion in United States v. Fair, the U.S. Court of Appeals for the D.C. Circuit found that the district court had abused its discretion in ordering restitution in the amount of $743,000 in a criminal copyright infringement case. The appeals court vacated the lower court’s restitution order, finding that the order was based on “a clear legal and factual error.”

The appeals court emphasized that a restitution order may not be based solely on the ill-gotten gain of the defendant but must be directly related to the victim’s actual loss, which is not always the same thing.

In this case, Gregory Fair had offered customers an appealing but illegal way to acquire up-to-date Adobe software at less than half the retail price. Fair’s company sold outdated Adobe software (Photoshop and PageMaker) on eBay and included numerical codes that the buyers could use to purchase an update of the same software directly from Adobe. This scheme lasted from February 2001 until September 2007, when Fair was shut down by the United States Postal Inspection Service.

In 2009 Fair pleaded guilty to charges in exchange for a reduced sentence. Although Fair admitted to receiving roughly $1.4 million in revenue from the sale of pirated software on eBay, his plea agreement was based on an infringement category of greater than $400,000 but less than $1 million. Based on the Sentencing Guidelines for that category, Fair was sentenced to 41 months in prison followed by three years of supervised release. At sentencing, the prosecution also insisted that the court order the maximum restitution. The district judge ordered restitution of $743,000 to Adobe, based on prosecutors’ calculations of Fair’s ill-gotten gains.

At first blush that makes sense, right? Not so quick; there is a fatal flaw. Under federal law, restitution is not based on what the defendant gained; it’s based on what the victim actually lost. In many cases those are the same, but here it certainly was not.

At sentencing, Fair’s attorney raised this point in several different ways, emphasizing that the prosecution had completely failed to prove any actual harm to Adobe. This was a critical issue in this case, because Fair was actually directing each of his buyers to make a legitimate $200 purchase from Adobe. Fair’s attorney argued, correctly, that the burden was on the prosecution to show actual, provable loss (i.e., that purchasers of Fair’s outdated material, which Adobe no longer offered for sale, would have actually purchased the full-price, up-to-date merchandise from Adobe AND that the aggregate sales that Fair directed to Adobe were less than the sales that he supposedly thwarted).

The trial judge ignored Fair’s arguments, referred to the prosecution’s unsubstantiated calculation as “hard proof,” and fallaciously based the restitution order on his belief that it was “undisputed that Fair’s revenue from the sale of pirated products was at least $767,000.”

In so doing, the trial judge overstated the weight of the prosecution’s evidence and misinterpreted the law regarding restitution. As the appeals court explained, the purpose of the Mandatory Victim Restitution Act (MVRA) is “to compensate victims for the loss caused by the defendant’s criminal conduct.” Thus the trial court’s restitution order must be “limited to the actual, provable loss suffered by the victim” at the hands of the defendant. The appeals ruling made it clear that the prosecution must “articulate specific factual findings underlying its restitution order,” and it “may not substitute the defendant’s ill-gotten gains for the victim’s actual, provable loss.”

Prosecutors and judges must not lose sight of the fact that victims are free to seek full restitution in separate civil lawsuits. In fact, civil restitution suits actually allow for the disgorgement of all of the defendant’s profits, including those in excess of the victim’s loss. The Fair case is a perfect example of federal prosecutors and criminal trial courts losing sight of their role in the justice system. Fortunately, the appeals court stepped up to rein them in. In the words of D.C. Circuit Judge Judith Rogers, “the abuse-of-discretion standard may be generous, but it is not one that will countenance the clear legal and factual error present here.”

Oct 29
2012

Judge Rakoff and the Emperor’s New Clothes

On October 24, 2012, U.S. District Judge Jed Rakoff sentenced Rajat Gupta to 24 months after he was found guilty by a jury of one count of conspiracy and three counts of substantive securities fraud, in connection with providing material non-public information to convicted inside trader Raj Rajratnam. This two-year prison sentence was substantially below the applicable advisory range under the United States Sentencing Guidelines and, in the week since that ruling, much has been said about whether or not this sentence was appropriate.

But the most remarkable part of Judge Rakoff’s sentencing ruling was his unflinching analysis of the way in which the application of the Sentencing Guidelines to white collar fraud cases does not reflect empirical analysis about those offenses or those who commit them – an argument that defense counsel have been making for some time with mixed success.

Judge Rakoff began his analysis with an eloquent and incisive observation about his role as a sentencing judge and the inadequacy of the sentencing guidelines as a comprehensive tool to determine a defendant’s sentence:

Imposing a sentence on a fellow human being is a formidable responsibility. It requires a court to consider, with great care and sensitivity, a large complex of facts and factors. The notion that this complicated analysis, and moral responsibility, can be reduced to the mechanical adding-up of a small set of numbers artificially assigned to a few arbitrarily-selected variables wars with common sense. Whereas apples and oranges may have but a few salient qualities, human beings in their interactions with society are too complicated to be treated like commodities, and the attempt to do so can only lead to bizarre results.

Judge Rakoff noted that the Sentencing Guidelines were “originally designed to moderate unwarranted disparities in federal sentencing” on the theory that the Guidelines “would cause federal judges to impose for any given crime a sentence approximately equal to what empirical data showed was the average sentence previously imposed by federal judges for that crime.” Of course, as the Supreme Court has already observed, the Guidelines deviated from this goal almost from the start.

For example, based on “limited and faulty data,” the Sentencing Commission determined that an ounce of crack cocaine should be treated as the equivalent of 100 ounces of powder cocaine for sentencing purpose, even though the two substances were chemically almost identical and, as later studies showed, very similar in their effects. The result of this empirically unsupportable conclusion was an indefensible racial disparity in narcotics sentencing. Kimbrough v. United States, 552 U.S. 85, 96-98 (2007). Judge Rakoff noted that, even when the Sentencing Commission changed the ratio from 100-to-1 to 18-to-1 in 2010, that ratio was likewise not based on empirical evidence but was merely “plucked from thin air.”

Judge Rakoff went on to observe that the Guidelines applicable to white collar fraud likewise “appear to be more the product of speculation, whim, or abstract number-crunching than of any rigorous methodology,” and that this “maximize[es] the risk of injustice.” Noting the huge increases in the recommended Guidelines for fraud cases, Judge Rakoff noted that the resulting advisory ranges “are no longer tied to the mean of what federal judges had previously imposed for such crimes.” Rather, these sentences “instead reflect an ever more draconian approach to white collar crime, unsupported by any empirical data.”

In short, congressional mandates to get tougher on fraud have resulted in a singular focus on one factor – the amount of loss – that “effectively ignored the statutory requirement that federal sentencing take many factors into account, see 18 U.S.C. § 3553(a), and by contrast, effectively guaranteed that many such sentences would be irrational on their face.” The result, Judge Rakoff observed, was “to create, in the name of promoting uniformity, a sentencing disparity of the most unreasonable kind.”

Regardless of whether or not one agrees with the sentence ordered in the Gupta case, Judge Rakoff’s analysis of the way in which the Sentencing Guidelines fail to promote justice in white collar cases is sure to have significant weight in other cases going forward. As structured, federal sentencing begins with a calculation of the advisory Guidelines range, and then defendants seek a variance from that range under Section 3553(a) – a process that creates a de facto presumption that a defendant will be sentenced within the Guidelines range. A recognition that the Guidelines ranges applicable to fraud crimes are not fair is a good first step towards reforming sentencing in such cases in the interest of true justice.

Sep 05
2012

Judge Was Right to Reject Plea Deal That Included Appellate Waiver

Earlier this summer, a U.S. district judge in Denver rejected a plea bargain in a child pornography case because the defendant had agreed to waive his right to appeal. The decision sheds new light on the extent of prosecutorial power in the practice of negotiating plea agreements and the need for checks and balances to maintain a level of consistency in sentencing.

The concept of appellate waiver is simple. At the sentencing phase, the defendant gives up his right to appeal, simply because the prosecutors ask him to do so.

Timothy Vanderweff, the defendant in the Denver case, entered into such an agreement with the prosecutors. Facing up to 20 years in prison for the most serious of three charges against him, Vanderweff agreed to plead guilty to one of those charges and face no more than 10 years in prison. While agreeing in the deal not to ask for a sentence of less than five years, Vanderweff also agreed to waive his right to appeal, so long as the judge didn’t sentence him to more than the negotiated range.

It was this final detail of the plea agreement that gave Senior U.S. District Judge John Kane pause. Rejecting the plea deal — a rare occurrence in itself — Judge Kane noted that such waivers can do serious damage to the justice system.

Specifically, Judge Kane wrote: “Indiscriminate acceptance of appellate waivers undermines the ability of appellate courts to ensure the constitutional validity of convictions and to maintain consistency and reasonableness in sentencing decisions.”

Undeterred by the fact that other courts, including the 10th Circuit that includes his district court, have found appellate waivers acceptable, Judge Kane further noted: “[S]acrificing constitutional rights at the altar of efficiency is of dubious legality.”

Although Judge Kane viewed appellate waivers dimly, a 2005 study in the Duke Law Journal found that they are common across the country, occurring in as many as 90 percent of plea deals in some jurisdictions. The frequency of appellate waivers, however, is more likely a reflection of the degree of power that prosecutors wield in plea bargains than anything else. By almost any measure, prosecutors are the most powerful officials in the criminal justice system. They decide whether to institute criminal charges, what those charges should be, and whether to offer the defendant the option of pleading guilty to those charges, and they exercise virtually limitless discretion in reaching those decisions.

While charging is a quintessential prosecutorial or executive decision, that power should not encroach upon traditional judicial powers. Appellate waivers undermine the role of appellate courts to review sentences for fairness and consistency, which is especially important given the lack of transparency in closed-door plea negotiations in general. With such waivers, it is almost impossible to challenge differential treatment in the types of deals that similarly-situated defendants receive.

Moreover, certain rights should be beyond bargaining. A defendant cannot bargain away his right to counsel or his right to a jury trial, so too he should not be able to bargain away his right to appeal. Such waivers may result in judicial efficiency in the short term, but they perpetuate an unequal and unbalanced playing field in the long run.

If more judges emulate Judge Kane and reject prosecutors’ unfair tactics, prosecutors may get the hint and stop using tactics such as this one.

Jul 31
2012

Department of Justice Enters Historic Agreement with PokerStars, Full Tilt Poker

Full Tilt Poker, PokerStars, and the U.S. Department of Justice announced today that PokerStars will acquire Full Tilt Poker’s assets in a transaction that ends the DOJ’s civil forfeiture case against Full Tilt.  Both Full Tilt and PokerStars ran online poker sites in the U.S., and in 2011 the DOJ charged both of them with violating U.S. anti-gambling laws.

Jeff Ifrah, founding partner of Ifrah Law, was instrumental in negotiating this unusual three-way transaction. The following is a set of questions and answers with Mr. Ifrah about the path-breaking deal:

Question: Would you describe this as a unique case?

Answer:  As attorney for Full Tilt, I found this to be the case of a lifetime.  I don’t know if John Grisham could have thought this one up. The problem was very complicated and required an understanding of the industry, the players and the U.S. government to help Full Tilt realize the best possible outcome under the circumstances.  My firm and Full Tilt had the interests of the players and the future of online poker at heart — we knew that getting the players paid had to be a part of this transaction.  A lot of people pulled together to make this a win-win for the players, Full Tilt, and PokerStars, and it was very exciting and gratifying to be involved in.

Question: What is this transaction all about?

Answer:  In this transaction, Full Tilt has agreed to forfeit all of its assets to the United States in exchange for a full release from the government’s case against it. As the next step in the transaction, PokerStars will pay the U.S. government $547 million over three years.  Part of this payment will be used by the U.S. government to repay former U.S. Full Tilt Poker players

Question:  When the U.S. government stepped in and froze the assets of online poker operators on April 15, 2011, many people who were playing poker on the sites lost access to their funds. Will the people who played poker on Full Tilt be paid back as a result of this transaction?

Answer: April 15, 2011 has come to be known as “Black Friday” by online poker players because so many of them lost access to their funds. An integral part of today’s transaction is that Full Tilt’s new owner, PokerStars, will provide enough funds for U.S. players to be repaid in full.   However, the funds will be administered and distributed by the Justice Department’s Asset Forfeiture Section in Washington, D.C.   It is our hope and belief that Justice will reimburse all players 100% of their funds in the near future.

Question:  In addition to the settlement of the government’s case and the repayment of the players, what does this transaction mean for the online poker industry?

Answer:  As a major player in the industry, Full Tilt has a great deal of useful software, know-how, and a strong client base.  However, many believed that the pending Justice Department case against Full Tilt would taint the assets and make them and the Full Tilt name essentially unusable. Now that the government has taken the assets and sold them to PokerStars, the Full Tilt name will get a new start – to the benefit of all poker players.

Question: Does this mean that PokerStars will now be free to market online poker to U.S. residents?

Answer:  Not precisely at this point.  In this transaction, neither PokerStars nor the U.S. government is expressing any view on the legality of online poker in the United States. However, as various U.S. states, especially Nevada and New Jersey, move closer to legalization of online poker within their borders, I am hopeful that PokerStars will be able to provide legal online gaming services using the Full Tilt assets that it acquired, among others.

Question: Does this clear up all legal charges pending against the CEO’s of Poker Stars and Full Tilt?

Answer: No, the charges against the heads of both companies will stand, but this deal removes all taint against the assets of Full Tilt.

 

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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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