Appeals Ruling Stresses Value of SEC Voluntary Settlements

Judge Jed Rakoff’s November 2011 ruling rejecting Citigroup’s settlement with the Securities and Exchange Commission sent tremors through the securities compliance world by challenging the seemingly well-accepted practice of permitting corporations to settle civil claims with the agency without admitting wrongdoing. But in its order granting a stay of the Citigroup proceedings pending appeal, the U.S. Court of Appeals for the Second Circuit has raised significant questions about Judge Rakoff’s previous ruling.

As we reported earlier, in November 2011, Judge Rakoff rejected the SEC’s proposed $285 million settlement with Citigroup on the ground that it was not fair, adequate, reasonable or in the public interest – primarily because it followed the common practice of permitting Citigroup to settle the case without admitting the allegations against it. The SEC appealed the ruling and sought a writ of mandamus, seeking to set aside the order altogether. Citigroup joined in the SEC’s motion.

On March 15, 2012, the Second Circuit granted the stay. In doing so, the court focused on three factors. First, the court faulted Judge Rakoff for failing to give sufficient weight to the SEC, as an executive administrative agency, to make discretionary decisions of governmental policy in the public interest. Second, in addressing Judge Rakoff’s stated concern that the settlement was not fair to Citigroup (because it imposed substantial relief without any proof of the underlying allegations), the court noted that it was unnecessary for the courts to protect a private, sophisticated, well-counseled litigant like Citibank from entering into a voluntary settlement in which it gives up things of value without admitting liability. Finally, the court noted that a rule that would not permit settlements without proof (or admission) of liability would be tantamount to a rule barring parties from compromising, and observed that there was no precedent to support the existence of such a rule.

The appellate court noted that both parties were united in seeking the stay and in opposing the district court’s order, with the result that the panel did not have the benefit of adversarial briefing. For that reason, the Court stated that it would appoint counsel to argue in support of the district court’s position.

Given the enormous resources that would be expended if the SEC’s case against Citigroup were to go forward without the settlement, and given that Judge Rakoff’s ruling would invalidate a common practice in securities regulatory litigation, it is not surprising that the Second Circuit was willing to stay the trial court proceedings until it has a full opportunity to consider this case. The unsettled status of the issues presented in the Citigroup appeal will obviously pose significant challenges to parties seeking to settle SEC litigation in the near term. How the Second Circuit resolves the matter could have a significant effect on the SEC’s enforcement practice during a period in which it claims to be ramping up its efforts in this arena

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Nevada Case Points to Perils of Assertion of 5th Amendment in Civil Cases

One of the hardest decisions on which a lawyer may be called upon to advise a client in civil litigation is the decision whether to assert the Fifth Amendment privilege. On the one hand, the overlap between pending civil and criminal matters may make it dangerous for the client to make statements that could incriminate him or her in the criminal case. On the other hand, while the assertion of a Fifth Amendment right in a criminal case may not be used against a defendant, the assertion of that right in civil litigation may permissibly lead to an adverse inference against the client in that lawsuit. There are a variety of strategies for dealing with this tension, including seeking a stay of the civil proceeding or a more limited protective order in the civil litigation.

While there are many approaches to dealing with these issues, a recent case in Nevada reinforced the lesson that blanket assertion of the Fifth Amendment may actually harm the client’s interest more than helping it. In Francis v. Wynn Las Vegas, LLC, 262 P.3d 705 (Nev. 2011), the Nevada Supreme Court upheld the lower court’s grant of summary judgment against a defendant on all claims and counterclaims based on the defendant’s overbroad assertion of the Fifth Amendment during his deposition.

In that case, the defendant owed a debt to the plaintiff, a Las Vegas casino, based on his marker. At the time of his deposition, the defendant was a party in the civil litigation and was also being prosecuted by local law enforcement. During the deposition, defendant asserted his Fifth Amendment privilege in response to nearly every question, including whether he was married, whether he lived alone, whether his father was still living and the names of his father and mother. 262 P.3d at 709. After Wynn Las Vegas filed a summary judgment motion, Francis sought to reopen discovery and “gave vague indications that Francis would like to withdraw his privilege. 262 P.3d at 710. The district court denied the request and castigated Francis for his blanket assertion of the privilege:

[Y]ou can’t use the 5th Amendment as a sword and a shield. You can’t sit in a deposition and – what’s your father’s name? Right to remain silent. Do you have a cell phone? Right to remain silent. That’s the most ridiculous exercise of the 5th Amendment I think I’ve ever seen.

Id. The court also refused to permit Francis to withdraw his assertion of the privilege.

On appeal, the state supreme court upheld the district court’s rulings and rejected Francis’ assertions that the court had penalized his exercise of the privilege by not permitting him to withdraw his assertion of the privilege and that the court should have accommodated his privilege by granting his request to reopen discovery. While the Court recognized the importance of protecting the valid assertion of a Fifth Amendment privilege, the Court found that Francis’ overbroad assertion of the privilege was unjustifiable and noted that Francis had not sought any other relief from the district court to protect his privilege (such as requesting that his deposition be sealed). After balancing the prejudice to the plaintiff, the Court found that the district court did not abuse its discretion in the way in which it had balanced the competing interests of the parties.

In Francis, the defendant’s inability to explain why he had conducted no discovery during the discovery period may have doomed him on summary judgment, regardless of his abusive exercise of the privilege against self-incrimination. But the lesson of this case is still one that sounds obvious when you say it out loud: A party in a civil proceeding should only assert the Fifth Amendment privilege when there is a basis to do so, and only as to those questions or other requests which genuinely pose a risk of self-incrimination (as understood in Fifth Amendment jurisprudence).

And while there may be strategic reasons to seek broad protection under the Fifth Amendment, counsel should be prepared to seek alternative means to protect a client’s interest before discovery is completed and before dispositive motions are filed so that the balance of interests will not weigh against the client’s interests in the litigation. Those who instead use a broad-brush approach to the assertion of the privilege will find themselves doing their clients a significant disservice.

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D.C. Appeals Court Rejects Challenge to Admission of Handwriting Evidence

If there was ever an open question as to whether forensic handwriting identification is admissible under D.C.’s common law of evidence, the D.C. Court of Appeals has finally put that question to rest. On February 9, 2012, the Court of Appeals held that handwriting comparison and identification, as practiced by FBI examiners, passes the Frye test for admissibility.

The issue arose after Robert Pettus’ jury trial in D.C. Superior Court. Pettus was convicted of sexual assault and first-degree felony murder in 2008 and sentenced to 60 years in prison. The conviction rested in part on multiple forms of forensic evidence, including DNA, fiber, fingerprint and handwriting identification evidence. With regard to the handwriting analysis, FBI document examiner Hector Maldonado testified that Pettus authored a handwritten note left at the crime scene. The note on the victim’s body read, “You s[h]ould[’]n[t] have cheated on me.” After comparing the note with 235 pages of writing taken from Pettus’ jail cell, Maldonado concluded that Pettus wrote the note. According to Maldonado, the writings exhibited “an overwhelming amount of handwriting combinations . . . in agreement with each other” and no significant differences.

Months after Pettus was sentenced, the National Academy of Sciences (NAS) issued a report that critiqued forensic science, including handwriting analysis, and made recommendations for ensuring greater quality and consistency in the field. The report seemed to give Pettus’ case new life.

On appeal, the defense argued that Maldonado’s opinion evidence was inadmissible under D.C. law because the scientific community does not accept conclusive identification based on handwriting analysis. The 2009 NAS report concluded, “With the exception of nuclear DNA analysis, . . . no forensic method [of ‘matching’] has been rigorously shown to have the capacity to consistently, and with a high degree of certainty, demonstrate a connection between evidence and a specific individual or source.”

The Court of Appeals was not persuaded. D.C. law requires only general acceptance of the method, not of the conclusions drawn from it, and general acceptance does not mean unanimous approval. Handwriting analysis has been generally accepted under D.C. law for nearly a century. As such, it is presumptively reliable and, thus, generally admissible. To prove that Maldonado’s handwriting analysis was inadmissible, the defense had to show that there was significant opposition to the technique within the scientific community. The defense failed to meet its burden on appeal, just as it had during the initial pretrial admissibility hearing below.

The Court of Appeals reviewed the evidence proffered at the pretrial hearing and concluded that the prosecution’s evidence for admissibility outweighed the defendant’s evidence for exclusion. The prosecution presented testimony and published studies by three forensic experts. The first witness, an FBI supervisory document analyst, testified that there are well-established regional and national professional organizations for forensic document examiners. She also testified about the methods, professional standards, publications, and university programs in the field.

The prosecution also proffered studies by two university professors that showed empirical evidence of reliability. Multiple studies published by Drexel University professor Moshe Kam showed significantly lower error rates among professional document examiners as compared to trainees and laypersons. SUNY professor Sargur N. Srihari published multiple studies showing that computers can match handwriting samples to their authors with 96 to 98 percent accuracy. Srihari testified further that he could validate handwriting individuality with 95 percent confidence.

By contrast, the defense proffered one non-expert, an evidence professor from Seton Hall University Law School. Professor Mark Denbeaux had co-authored a 1989 law review article urging courts to prohibit the use of handwriting analysis. But his article relied in part on disavowed test data. At the pretrial hearing, Denbeaux contended that Srihari’s 95 percent confidence level did not support a general acceptance of positive identification based on handwriting analysis. In fact, Denbeaux pointed out, Srihari testified to a 5 percent error rate that neither he nor his computer could explain.

The Court of Appeals held that, taken as a whole, the prosecution’s evidence proved that forensic handwriting identification is sufficiently established to have gained general acceptance under Frye. And while the 2009 NAS report was hardly an unqualified endorsement of handwriting analysis, it also did not provide evidence that the science community opposes it as a whole. If a particular examiner’s conclusions are shaky, the answer is not exclusion. Such evidence is best attacked through “vigorous cross-examination, presentation of contrary evidence, and careful instruction of the burden of proof,” the court said.

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DOJ Goes After Smaller Fraudsters, Lets Big Fish Escape

Successful criminal prosecutions of mortgage fraud seem to have one thing in common: a fraud figure well below $10 million. One of the recent cases that generated a fair amount of press involved the convictions of co-conspirators in a mortgage scheme carried out by an ex-NFL player. That scheme, which took place during the housing boom in the early 2000’s, resulted in 10 convictions. Former Dallas Cowboy linebacker Eugene Lockhart is facing jail time of up to 10 years. The nine other individuals are looking at sentences of roughly two to five years.

The mortgage scheme – which led to convictions for wire fraud, conspiracy to commit wire fraud, and making false statements to a federal agency – seems pretty typical of the conduct that prosecutors have been going after: the use of “straw borrowers” to apply for loans on home purchases; falsification of data on loan applications to ensure that straw borrowers would qualify for home loans; and creation of artificially high appraisal values for the homes to be purchased by the straw borrowers. In the case of Lockhart and his cohorts, the Justice Department alleges that the scheme resulted in an actual loss to lenders of roughly $3 million.

While $3 million is not a trivial sum, it is a very tiny portion of the housing industry. Even the total amount in all similar prosecutions nationwide is quite small. Recent headline prosecutions involving similar schemes include a Florida case valued at $8 million in loan proceeds, an Alabama case valued at $2 million, and a New York case valued at $82 million in loan proceeds. At least the latter is a more aggressive number (as apparently was one of the defendants in the New York case, who moonlighted as a dominatrix in a Manhattan club).

The government has been touting these prosecutions as a part of a major crackdown on the mortgage business. The DOJ press statements note that “[m]ortgage fraud is a major focus of President Barack Obama’s Financial Fraud Enforcement Task Force.” But these are comparatively minor matters if one looks to the real causes of the housing crash that led to the 2008 financial crisis. Bank of America, Goldman Sachs, JPMorgan Chase, and Wells Fargo, who were all in the business of packaging and selling subprime mortgages, have been more or less covered with Teflon.

The lack of criminal prosecutions against the big banks in the subprime crisis has been written about many times. But that doesn’t mean it’s not worth repeating. Something seems just wrong about the DOJ’s focus on the smaller fraudsters and its soft approach to the bigger players.

Hopefully, the SEC’s recent decision to send Wellsnotices to Goldman Sachs, JPMorgan Chase, and Wells Fargo indicating possible enforcement proceedings, means that at least these banks could face some civil liability for their role in the housing crash. And Bank of America recently settled a False Claims Act case with the Feds for $1 billion. But approaching the banks with civil actions, and skirting individual culpability, sends the message that once you reach a certain level of success, you are above the law.

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Justice Would Be Served by an ‘Open File’ Policy for Prosecutors

A couple of years ago, the U.S. Department of Justice made an effort to systematize and improve its discovery obligations under Brady v. Maryland, the 1963 Supreme Court case that requires prosecutors to disclose information in their files that would tend to exculpate criminal defendants. A U.S. attorney, speaking at a conference of defense lawyers, commented at the time that the department takes its Brady obligations seriously.

We replied then that in our view, the new Brady guidelines merely perpetuated the status quo rather than promising real change or a system in which prosecutors make significant disclosures to defendants before trial of the contents of their files.

“Whether criminal defendants will obtain discovery of all materials to which they are entitled will still be largely dependent on the judgments of the individual prosecutors,” we wrote. “Perhaps the answer is that the government should simply err in the direction of providing open discovery of its files to defendants.”

Just the other day, The New York Times editorialized in favor of such “open-file” policies, in which prosecutors turn over to defense lawyers all information favorable to the defense, regardless of whether that information would directly affect the outcome of the case.

In the same vein that we wrote in 2010, the Times said that the Justice Department “continues to take half-measures in response to its own failures to meet disclosure requirements.”

The department, while it adheres to the letter of the Brady case, says its policy is to turn over only those documents that are both exculpatory and material to the result of the case. The Times points out that this is inadequate. Since 96 percent of criminal cases end in a plea bargain, the rule “puts defendants at a disadvantage in negotiation: without access to information in the government’s files, they don’t know the evidence they face and can’t assess their odds at trial.”

We agree. An open-file policy makes sense for prosecutors at both the federal and state levels. Exceptions would need to be made to prevent, for example, the identity of a confidential informant or similar information. But we believe that a broad disclosure rule would help bring into reality a portion of the Justice Department’s mission statement – “to ensure fair and impartial administration of justice for all Americans.”

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Dismissal of FCPA Cases Represents Cautionary Tale for DOJ

A dramatic, headline-grabbing white-collar crime sting in January 2010 involved the arrest of 22 executives and employees of companies in the military and law enforcement products industry – and ultimately led only to a series of acquittals and mistrials, causing many to wonder whether the case should have been brought at all. After two trials for a total of 10 defendants that failed to result in any convictions, the U.S. Department of Justice dropped its case against all remaining defendants last month.

The Foreign Corrupt Practices Act prohibits people in the United States from bribing foreign officials for the purposes of obtaining or retaining business. The DOJ press release announcing the sting said that it was the single largest investigation and prosecution against individuals in the 32-year history of the DOJ’s enforcement of the FCPA. The defendants were charged with violating the Act for allegedly agreeing to pay kickbacks to a Gabon minister of defense in exchange for contracts to supply the country’s presidential guard. The deal, however, was a ruse, with FBI agents posing as Gabonese defense officials.

When the DOJ announced the arrests, Assistant Attorney General Lanny A. Breuer promoted these undercover actions as “a turning point,” saying that the indictments “reflect the Department’s commitment to aggressively investigate and prosecute those who try to advance their businesses through foreign bribery.”

While three defendants pleaded guilty immediately, the remaining 19 were to be tried in four separate trials in federal court in Washington, D.C. In the end, the DOJ’s aggressive tactics did not impress the judge or jury.

In the first trial in the summer of 2011, four defendants received a mistrial due to a hung jury. In the second trial of six defendants, defense lawyers argued that the DOJ and the FBI led their clients to believe what they were doing was lawful and disregarded their own DOJ guidance on sting operations. U.S. District Judge Richard Leon dismissed conspiracy charges against the defendants, which ended the case for one defendant, who was only charged with conspiracy.

For the remaining defendants, only the substantive FCPA violation charges were left for the jury’s consideration. In January 2012, jurors acquitted two defendants before becoming deadlocked on the remaining three, resulting in another mistrial. Recognizing that further prosecution would likely be futile, on February 21, 2012, the DOJ requested that the court dismiss the pending charges against all remaining defendants, and stated that it would not seek to retry the defendants who received mistrials.

In dismissing the case, Judge Leon voiced concern regarding the government’s “very aggressive conspiracy theory.” While the judge ultimately applauded the DOJ for “the wisdom, the courage, the conviction to face up to the limitations of this case,” we do not believe that the DOJ should be praised for dropping the remaining cases only after unsuccessfully trying two cases using evidence derived from dubious investigative techniques. We hope that the DOJ will see this entire costly venture as a cautionary tale and will proceed in future cases with justice, rather than headlines, in mind.

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D.C. Circuit Tackles Ex-Prosecutor’s Allegations of Privacy Violations

After a nearly decade-long legal battle, the Department of Justice (DOJ) is seeking to dismiss once and for all the privacy suit of Richard Convertino, a former federal prosecutor in Detroit who alleges that the DOJ illegally gave the press details of an internal investigation into his alleged misconduct.

In February 2004, Convertino filed a complaint in the U.S. District Court for the District of Columbia, alleging that DOJ officials provided information to a newspaper reporter about the internal ethics investigation. Convertino accused the DOJ of giving David Ashenfelter, a reporter for the Detroit Free Press, confidential information relating to Convertino’s alleged mishandling of a terror-related case.

In that underlying case, the convictions of the alleged terrorists were overturned amidst allegations that Convertino unlawfully withheld evidence from defense lawyers when he prosecuted the case. The ensuing internal DOJ inquiry into Convertino’s conduct was meant to be confidential, but was leaked to the press through unknown, anonymous sources at the DOJ. Ultimately, the allegations of prosecutorial misconduct against Convertino were not substantiated.

Convertino spent nearly eight years attempting to ascertain Ashenfelter’s anonymous sources, but the reporter consistently refused to name them and invoked his Fifth Amendment right to remain silent. The district court finally dismissed Convertino’s privacy case last year, saying “there is simply no reason to believe that yet another delay in this case will result in discovery of that information.” Convertino appealed to the U.S. Court of Appeals for the D.C. Circuit. Earlier this month, the DOJ asked the court of appeals to uphold the dismissal.

In this situation, Convertino’s right to pursue privacy violations by the DOJ sits squarely in opposition to Ashenfelter’s right to plead the Fifth Amendment. Although the DOJ’s Office of Inspector General performed an inquiry, it was unable to determine which DOJ employee was the source of the leak. As a result of his inability to confront the source, Convertino’s reputation and career will forever be tarnished by anonymous accusations of wrongdoing.

It is ironic that the department whose duty is to enforce the law and bring about justice has failed to do justice to Convertino. One of its employees disclosed confidential agency information to the press and will apparently go scot free. Unless the D.C. Circuit reverses the district court’s decision, the federal government will not be held accountable for violating Convertino’s privacy. The Court of Appeals should reverse and allow Convertino to continue his efforts to discover who leaked the information, and how the DOJ allowed it to happen.

The D.C. Circuit is scheduled to hear the Convertino case on March 12.

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Better Anti-Piracy Bill Introduced in Wake of SOPA, PIPA

We previously wrote about the broad protests over two bills in Congress targeting online copyright infringement – the House’s Stop Online Privacy Act (SOPA) and the Senate’s Protect Intellectual Property Act (PIPA). We were pleased that the protests and other activities were effective in ending efforts to pass those versions of the legislation.

The protests were led by Internet businesses that argued that the bills would lead to censorship of the Internet and to the cutting off of useful, legal online content. Under these bills, websites such as Facebook and YouTube could have been found liable if they hosted infringing content. As a result of the massive protests, Congressional leaders were forced to table PIPA and SOPA for the time being.

Many critics of SOPA have instead announced their support for legislation sponsored by Sen. Ron Wyden (D-Ore.) and Rep. Darrell Issa (R-Calif.) as a means of preventing online piracy without threatening free speech. The Online Protection and Enforcement of Digital Trade Act (OPEN Act) would allow people or groups that own content on the Internet to ask the International Trade Commission (ITC) to investigate whether a foreign website is dedicated to piracy. The ITC would be given power to collect fees from complainants and to hire additional personnel for investigations. The website owner would be allowed to offer evidence to rebut the claim. If the ITC ruled in favor of the content owner, it could then direct payment firms and advertising networks to stop doing business with the site and require search engines to delete links.

SOPA and PIPA had contained language that would allow for the Department of Justice to “disappear” a website, meaning that it would require Internet service providers to disable the resolution of the site’s name by the Domain Name Service to an IP address. This would effectively eliminate the web site from the Internet. The OPEN Act would not give DOJ this power.

The OPEN Act would be able to deal with a primary concern of copyright holders — that the process would not be able to catch up with the speed that pirates are stealing intellectual property. Under the OPEN Act, copyright holders could request temporary restraining orders to protect their intellectual property in the short term, a provision that would be particularly important for websites seeking to protect live broadcasts over the Internet, such as sporting events.

NetCoalition, a technology industry group that counts Google, Yahoo!, Amazon, eBay, PayPal, Expedia, Bloomberg LP, and Wikipedia among its members, has said that it supports the OPEN Act.

The Senate version of the OPEN Act has been referred to the Finance Committee, and the House bill has been referred to the Judiciary Committee.

It is good news for Internet entrepreneurs, and for free speech, that SOPA and PIPA were defeated. In addition to the chilling effect on the Internet that would have occurred under either SOPA or PIPA, it makes no sense to use scarce criminal resources to prosecute piracy cases. The OPEN Act would represent a much better approach to combating online piracy.

The dispute resolution process under the OPEN Act would provide both parties with the opportunity to present their positions before an experienced tribunal that could resolve the issues on the facts before them.

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Does 5th Amendment Protect Computer Files From Decryption?

A U.S. District Court in Colorado recently considered whether the constitutional privilege against self-incrimination extends to the compelled production of decrypted computer files. It is beyond dispute that the government may not force a suspect to provide an encryption password if the password would provide a necessary link in the chain of evidence leading to the suspect’s indictment. A much more difficult question is whether the government may force a suspect to use the password to produce decrypted computer files that contain incriminating evidence.

In United States v. Fricosu, Judge Robert Blackburn held that the government can indeed force a suspect to use an encryption password if the testimony implicit in the use (i.e., the act of producing decrypted files) is already known to the government and/or the implicit testimony will not incriminate the suspect. The court ordered the defendant to produce decrypted files from her laptop because the government already knew (based on uncompelled testimony) that the files were on a computer that belonged to her and for which she had the password. Judge Blackburn’s decision is the most recent in a growing body of case law that attempts to thread the needle as to when the Fifth Amendment protects against the court-ordered production of computer data.

In 2010, FBI agents investigating a mortgage-fraud scheme executed a search warrant at the home of Ramona Fricosu. The agents seized six computers, one of which was a laptop that apparently belonged to Fricosu. When the agents turned it on, they were able to view the disk encryption screen, which identified the computer by Fricosu’s first name. But without Fricosu’s password, the agents could not access the encrypted files.

The next day, Fricosu’s ex-husband called her from the correctional center. FBI agents recorded the conversation. Several times during the call, Fricosu and her ex-husband referred to the laptop as hers. Fricosu also mentioned that the laptop contained encrypted documents related to the mortgage-fraud scheme. Based on that conversation, the government applied for a warrant to search Fricosu’s laptop, and the court issued a writ requiring Fricosu to produce a decrypted version of her computer files.

The Fifth Amendment guarantees that “[n]o person . . . shall be compelled in any criminal case to be a witness against himself.” Generally, a person may invoke the privilege based on a showing that the government seeks to compel that person to give testimony that would incriminate him or her. If any of these three criteria are not met (compulsion, testimony, and incrimination), Fifth Amendment protections will not obtain.

The Fricosu court distinguished between statements that are not compelled and those that are. For example, statements in files created voluntarily before the investigation was underway were statements the court had not compelled. Thus, they were not protected. By contrast, implicit statements Fricosu would necessarily make by producing the files — statements regarding the existence, location and authenticity of the computer files, for example — were statements that would be compelled and, therefore, subject to constitutional protections.

Courts recognize a Fifth Amendment exception for implicit statements regarding the existence, location and authenticity of computer files. When the government can demonstrate that it already knows the existence and location of items to be produced, this exception precludes an individual from avoiding production based on the Fifth Amendment. In Fricosu, the taped conversation between Fricosu and her ex-husband included their voluntary statements about the existence, location and authenticity of mortgage-fraud documents on the laptop. Court-ordered production of the computer files would compel Fricosu to affirm statements made during the call, but the affirmation would not tell the government anything it did not already know.

Second, the court distinguished between non-testimonial and testimonial evidence. The Fifth Amendment does not protect against the production of non-testimonial evidence. Thus, a person may be required to provide blood samples or handwriting exemplars, appear in a line-up, or speak aloud for voice identification. However, the Fifth Amendment does protect against the production of evidence that discloses the contents of a defendant’s mind, including his or her beliefs and knowledge. Moreover, the amendment protects against any production that would compel a defendant to restate, repeat or affirm the truth of statements contained in documents sought. That is why, for example, a court may not require a criminal defendant to provide an encryption password. The act of producing the password requires the defendant to affirm that the password is correct. Thus, the act of production is deemed to be testimonial and subject to constitutional protections.

The Fricosu court avoided Fifth Amendment issues by ordering the defendant to produce decrypted versions of her laptop files instead of the encryption password. The production of decrypted files was not testimonial because it did not convey any information in the defendant’s mind that the government did not already have, nor did the act of production require the defendant to restate, repeat or affirm statements contained in her files. The Supreme Court has explained that a testimonial act is akin to revealing a combination or password to a wall safe because the combination or password is in the suspect’s mind. A non-testimonial act is like surrendering the key to a strongbox. The act of surrendering gives no indication of the person’s thoughts or knowledge.

Finally, the privilege against self-incrimination applies only if the compelled testimony incriminates the defendant. Testimony is deemed to be incriminating if it would furnish the government with a necessary link in the chain of evidence leading to the suspect’s indictment. The government can (and very often does) preclude a showing of incrimination by offering use and derivative use immunity. This ensures that that the government will not use compelled testimony to further its investigation against the source of the testimony.

In Fricosu, the government sought to avoid any possible Fifth Amendment issues with the writ application by offering Fricosu use immunity. As the court noted, this offer protected Fricosu against self-incrimination by guaranteeing that it would not use her act of producing decrypted computer files against her, whether directly or indirectly.

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Repeal May Not Be End of Story for Online Gaming in D.C.

On February 7, 2012, the D.C. Council voted 10-2 to repeal the city’s iGaming program, which would have made the District of Columbia the first U.S. jurisdiction to permit the playing of online poker for money.

In April 2011, the District had become the first U.S. jurisdiction to enact a law that permitted online poker wagering.  The amendment was part of a larger budget bill passed by the D.C. Council in December 2010 and was enacted after passing through Congress unblocked.

The process by which the bill was approved drew fire from many critics, who said that many council members didn’t know that they were voting to approve online poker when they voted for the budget bill, nor were most city residents informed about the bill.

Those procedural concerns played a major role in the repeal. On February 1, 2012, however, the Council’s Committee on Finance and Revenue voted 3-2 to repeal the bill, sending it to the full council for a repeal vote. Council Chairman Kwame Brown asked that the repeal bill be placed on the legislative agenda for a quick vote, which occurred on February 7. Mayor Vincent Gray had formerly indicated that he thought the iGaming program had been given a proper vetting before passage but changed his mind in favor of repeal this week.

The law would have allowed anyone over the age of 19 who registers on the site and is physically located in the District to play from a verified IP address. Players would not have been allowed to wager more than $250 a week.

One major hurdle the law faced was the belief of some lawmakers that intrastate online gaming was forbidden under the federal Wire Act. D.C. Attorney General Irvin Nathan testified in a hearing last June that in his opinion the iGaming law would be legal under federal law if the District stuck to its plan of implementation.  In December, the Department of Justice issued an opinion stating that intrastate online gaming was in fact legal under federal law.

Economic projections from the city’s finance officials projected that iGaming would have brought in about $13.1 million in revenue through September 2015. The District is required by Congress to balance its spending three years into the future, and that $13.1 million has already been used in the city’s future financial planning. Now city lawmakers will have to find $13.1 million in new revenue or spending cuts to account for the lost revenue from iGaming.

Previously, Council Member Michael Brown, who spearheaded efforts to bring iGaming to D.C., said that if the iGaming bill was repealed that he would reintroduce a stand-alone bill to revive the program. A spokesman for Mayor Gray said that he is “not necessarily opposed” to the Council taking up new legislation authorizing Internet gambling. Other council members have indicated that they are open to further exploring online gaming if it is introduced in a standalone bill.

It is unfortunate that the bill to allow the District to become the first U.S. jurisdiction to legalize online gaming was repealed before any games were even played. We hope that the bill is reintroduced with a more transparent process. Given the potential to generate revenue for the city and the support that existed among many city residents, this is an issue that the Council should continue to explore.

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