Online Poker Finds New Supporter on the Hill

Legalization of online poker has found a new and unlikely supporter on Capitol Hill. Rep. Joe Barton (R-Tex.), an outspoken conservative, has announced that he will support legalization and is planning some parliamentary maneuvers to try to get it to the House floor eventually.

It turns out that in addition to being a conservative, Rep. Barton is also an avid poker player, and his interest in the game is one factor that impelled him to back legalization, according to the Las Vegas Sun.

On the other side of the aisle, Sen. Harry Reid (D-Nev.) has long supported legalization, but the new partnership with Rep. Barton, who is the chairman emeritus of the Energy and Commerce Committee, will strengthen the chances for a bill to pass.

Some legislators in both houses are continuing their efforts to pass a major revision to the 2006 Unlawful Internet Gambling Enforcement Act, which has been interpreted to prohibit online poker as a practical matter. The fact that Rep. Barton is chairman emeritus of a committee with jurisdiction over the bill may prove critical. Rep. Barton told The Hill that he had spoken with House Energy and Commerce Committee Chairman Rep. Fred Upton (R-Mich.), about moving a bill through the committee.

Last year, Rep. Barney Frank was able to guide a bill to legalize online poker through the House Financial Services Committee, but now in a Republican-controlled House the Financial Services Committee is chaired by Rep. Spencer Bachus (R-Ala.). Rep. Bachus, an opponent of online poker, would be able to block any potential bill from getting out of committee. The other House committee chairmen with jurisdiction over a bill to legalize online poker, including Rep. Lamar Smith (R-Tex.) of the Judiciary Committee and Rep. Dave Camp (R-Mich.) of the Ways and Means Committee, are also not supporters of legalization.

Barton said he plans to introduce his bill, which he describes as still a work in progress, at some point this summer to the Energy and Commerce Committee.

This new support on Capitol Hill is a positive sign in the movement to legalize online poker. We wrote previously about how the events of “Black Friday” were chilling the legislative momentum in state legislatures that seemed to be waiting for federal action However, with significant support on the federal front, there is reason to be optimistic that legislative action will occur to allow for the legalization of online poker at the federal level, which would allow state legislatures to push their own bills in support of online poker.

Disqualification of AUSA in Scruggs Case Is Message to Prosecutors

The botched prosecution of Senator Ted Stevens was a wake-up call of sorts for the U.S. Department of Justice that there would be severe consequences for prosecutors who did not comply with obligations under Brady and related cases. The Department took another hit recently when a federal judge removed an Assistant United States Attorney from the case against the son of disgraced anti-tobacco attorney Richard Scruggs based on a finding that the prosecutor inexcusably withheld information when negotiating the son’s 2008 guilty plea in a judicial bribery scandal.

Zach Scruggs pleaded guilty in March 2008 to failing to report his father’s alleged scheme to pay a Mississippi state judge in a fight over distribution of $26 million in attorneys’ fees from Hurricane Katrina insurance litigation. Scruggs says that he pleaded guilty because prosecutors told him that one of their witnesses was going to implicate him in the scheme.

According to an opinion issued by U.S. District Judge Neal B. Biggers, however, the witness’s testimony would implicate the father in the scheme, but not the son. After serving 14 months in prison, Zach Scruggs moved to vacate his conviction, claiming that he only recently learned of the government’s misrepresentation on which he relied.
Notably, Assistant U.S. Attorney Robert Norman – who has been involved in the case since its inception – will not be involved in litigation over that motion. In a written ruling, Judge Biggers found that the prosecutors’ “failure to correct [Norman’s] misrepresentation was probably a matter of neglect rather than intentional wrongdoing” but “that neglect [was] inexcusable under the law and the facts of this case.”

Noting the “unusually low burden of proof in attorney disqualification cases” and the government’s lack of an explanation for the failure adequately to correct the record, Judge Biggers was “compelled to find that the neglect reaches the level of ‘impropriety’ within the meaning of that term as contemplated by the Fifth Circuit.” Despite the objections of the U.S. Attorney’s Office that disqualification of Norman would place an unnecessary hardship on the government, Judge Biggers ruled that his conduct was enough to disqualify him.

This case offers some support for the views of those who believe that prosecutors often mislead defendants about the nature and strength of their evidence, particularly in the context of plea negotiations. It may also give some greater impetus to efforts to establish, either by legislation or rule, a requirement that prosecutors disclose Brady and similar information before a defendant enters a guilty plea.

Of course, an equally important question is whether the removal of the prosecutor is an adequate remedy for the government’s “impropriety” that may have cost Zach Scruggs 14 months in prison that he did not deserve. The court recently denied Scruggs’ motion for summary judgment on his request to vacate his conviction, on this and other grounds, based on unresolved questions about whether and when Scruggs and his attorney may have learned prior to the guilty plea that the witness in question would not have implicated him in the bribery scheme.

Perjury, Obstruction, and Barry Bonds’ Conviction

Last month, an article in the National Law Journal asked a question that has been on the minds of many: “Did Barry Bonds really obstruct justice?”

In April a jury convicted baseball legend Barry Bonds on one count of obstruction of justice based on the testimony he provided before a federal grand jury investigating the use of illegal steroids in professional sports. The jury, however, could not reach a unanimous verdict on three other counts of perjury alleging that Bonds made false statements when testifying before the grand jury.

The inconsistency of the jury’s verdicts is somewhat astounding given that obstruction of justice means providing intentionally evasive, false, or misleading testimony. As the National Law Journal reported, it is not unusual for a defendant to be charged with both perjury and obstruction of justice in the same indictment. However, the real question here is: If the jury could not find unanimously that Bonds had made false statements to the grand jury, how did it convict him on an obstruction count that requires it to find, among other things, that Bonds knowingly made false statements?

Bonds’ obstruction of justice conviction was predicated on a non-responsive answer that he provided during his grand jury testimony, referred to as “Statement C.” Statement C was provided in response to the following question posed by the prosecutor:

Q: Did Greg ever give you anything that required a syringe to inject yourself with?

Bonds answered as follows:

A: I’ve only had one doctor touch me. And that’s my only personal doctor. Greg, like I said, we don’t get into each others’ personal lives. We’re friends, but I don’t—we don’t sit around and talk baseball, because he knows I don’t want—don’t come to my house talking baseball. If you want to come to my house and talk about fishing, some other stuff, we’ll be good friends, you come around talking about baseball, you go on. I don’t talk about his business. You know what I mean?

After all the hype about Bonds lying to the grand jury about his alleged steroid use, his conviction was ultimately based on a statement that had nothing to do with steroid use at all. Simply put, Bonds is now a convicted felon all because he said that he was a celebrity child who did not like to get involved in anyone else’s business. How exactly could the above statements be said to have impeded the grand jury investigation?

Five minutes after asking Bonds the above question, the prosecutor had the following exchange with Bonds:

Q: So no one else other than perhaps the team doctor and your personal physician ever injected anything in to you or taken anything out.
A: Well, there’s other doctors from surgeries. I can answer that question, if you’re getting technical like that. Sure, there are other people that have stuck needles in me and have drawn out – - I’ve had a bunch of surgeries, yes.
Q: So – -
A: So sorry.

Thus, even though Bonds answered “no” to the original question a mere five minutes later, the jury, after being deadlocked on whether Bonds had lied, was convinced he had been evasive in his testimony. Apparently, the jury seemed to forget that the government had to prove that Bonds’ statement was material because it had a natural tendency to influence the decision of the grand jury. Given that Bonds fully answered the prosecutor’s original question, how could the jury find his statement to have hindered the grand jury investigation, especially if the jury could not agree that the very same statement was false?

The verdict in this case is particularly troubling not only because it sets a bad precedent for the grand jury system, but also because it allows prosecutors who may have otherwise followed up with an evasive witness to allow a question to remain unanswered solely to pin the witness with an obstruction of justice charge. Normally, if a witness gives a prosecutor an evasive answer, the prosecutor would get the witness to a point whether he either answers the question or commits perjury. Now after the Bonds conviction, prosecutors have another choice: allow a question to remain unanswered so if the prosecutor cannot get the witness to perjure himself, he at least can stick the witness with an obstruction of justice charge.

For Bonds, the obstruction of justice charge may mean up to 10 years in prison under the federal statute, but Federal Sentencing Guidelines call for 15-21 months. Bonds’ attorneys are seeking to have the jury’s decision thrown out. The post-trial conference was originally scheduled for May 20, 2011, but it has now been delayed until June 17, 2011, giving Bonds’ attorneys more time to refine their arguments.

Judge’s Ruling in Stevens Case Affirms Role of Lawyers as Advocates

In November, we reported on the unusual indictment in the District of Maryland of Lauren Stevens, then an in-house attorney at GlaxoSmithKline, on charges of obstruction of justice, falsifying and concealing documents, and making false statements in a civil discovery context. Stevens’ indictment arose from her alleged failure to disclose documents to the Food and Drug Administration concerning, among other things, GSK’s alleged off-label promotions of its antidepressant drug Wellbutrin for weight loss.

The government seemed to be using this unusual indictment as an opportunity to test the limits of lawyers’ zealous representation of their clients. In his opening statement, U.S. Department of Justice attorney described Stevens as a “lawyer who went too far” by “put[ting] loyalty to her company above fidelity to the truth and to the law.”

However, that effort was dealt a decisive blow by U.S. District Judge Roger Titus’ surprising May 10 opinion granting Stevens’ motion for judgment under Rule 29 of the Federal Rules of Criminal Procedure. The judge took the case away from the jury, finding that there was insufficient evidence to sustain a guilty verdict on the facts that the government had presented.

Judge Titus wrote that the evidence “can only support one conclusion” – that Stevens relied on the advice of in-house and outside counsel in her discovery responses to the FDA.

“Every decision that she made and every letter she wrote was done by a consensus. Now, even if some of these statements were not literally true, it is clear that they were made in good faith, which would negate the requisite element required for all six of the crimes charged in this case,” the judge wrote.

Even the statements by Stevens that the government alleged were false, the judge concluded, could not be considered false, beyond a reasonable doubt, when considered in context.

Judge Titus went on to discuss the role of lawyers in the adversarial system: “There is an enormous potential for abuse in allowing prosecution of an attorney for the giving of legal advice. I conclude that the defendant in this case should never have been prosecuted and she should be permitted to resume her career. The institutional problem that causes me a great concern is that while lawyers should not get a free pass, the Court should be vigilant to permit the practice of law to be carried on, to be engaged in, and to allow lawyers to do their job of zealously representing the interests of their client. Anything that interferes with that is something that the court system should not countenance.”

Black Friday Chills Legislative Momentum in Nevada and Elsewhere

Just a couple of months ago, there was considerable optimism after the introduction of an interactive-gaming bill in the Nevada legislature that that state could be the first to legalize online poker.

However, in the wake of last month’s “Black Friday” indictments, it now appears that the optimism was premature. The state legislature is clearly waiting for the issue of online gaming to be resolved at the federal level before it takes steps to legalize online poker within its borders.

Recent amendments to the draft Nevada bill send a clear signal that even the proponents of online gaming in that state are waiting for federal action.

The current draft provides that any license issued by the Nevada Gaming Commission to operate interactive gaming will not become effective until (1) federal legislation is passed that authorizes the specific type of interactive gaming for which the license was issued, or (2) the Department of Justice provides written notification to the Nevada Gaming Commission that the specific type of interactive gaming covered by the license is permissible under federal law.

In view of the ongoing prosecution of major participants in the online poker industry after last month’s “Black Friday,” it is highly unlikely that that the Department of Justice will provide any form of written notification that online poker is permissible under federal law. Likewise, federal legislation to authorize interactive gaming is not currently on the front burner. Nevada state legislators know this, and they amended the bill to let the feds go first.

We expect that other states like California and Florida that have moved forward with online gaming bills will also slow down and await federal action. The consequences of “Black Friday” are being felt all over the nation.

Federal Indictment in Maryland Reflects Continuing Crackdown on Gaming

The U.S. Department of Justice is continuing its crackdown on the online gaming industry.

On May 23, 2011, the U.S. attorney for the District of Maryland unsealed an indictment that charged several poker and gambling sites with illegal gambling and money laundering.

Those indicted were ThrillX Systems, Ltd., d/b/a BetEd; Darren Wright; and David Parchomchuk, both of British Columbia, Canada, as well as K23 Group Financial Services, d/b/a BMX Entertainment; and Ann Marie Puig of San Jose, Costa Rica.

Just as the U.S. attorney in Manhattan did on “Black Friday,” April 15, 2011, the Maryland U.S. attorney announced the seizure of several websites on the grounds that they were used to facilitate illegal activity. In this case, 11 bank accounts around the world were seized.

In this case, unlike “Black Friday,” Immigration and Customs Enforcement (ICE) agents set up a fake payment processor in order to work with the sites that were under suspicion and to gather evidence against them. Then, at the appropriate time, the government revealed that the company was not a real one.

It’s clear now that the U.S. attorney for the Southern District of New York is not the only prosecutor who is interested in the gaming industry.

While the facts and the exact nature of the charges are not clear yet to us at this point, we will be looking at these indictments in the next couple of days to see what the government has in mind.

Ifrah Law’s Blog Wrap-Up, May 1-13

This is the fifth of a regular series of posts that summarize and wrap up our latest thoughts that have appeared recently on Ifrah Law’s blogs.

1. Bank Hit With FCA Complaint Over Mortgage Lending

The Justice Department uses a Civil-War era statute in a very unusual context – to try to recover more than $1 billion in a civil case from Deutsche Bank for statements it made to a federal agency about the quality of mortgages that it wrote.

Read the full post here on the Crime in the Suites blog.

2. What’s Next for Online Poker Players?

In the wake of the April 15 indictments in the online poker industry, we discuss the options available to people who still want to play poker but don’t have access to the websites they normally use.

Read the full post here on the Crime in the Suites blog.

3. Barney Frank’s Advice to Poker Players After ‘Black Friday’

The influential congressman gives a legal and political interpretation of the poker indictments and urges players to exert pressure on members of Congress.

Read the full post here on the Crime in the Suites blog.

4. Since When Did the FTC Start Regulating Cyber Security?

In a consent order with Twitter, the FTC resolves claims that the site deceived consumers regarding privacy protection. But is the agency trying to use the order as a wedge to regulate the entire online industry, arguably without a legal basis?

Read the full post here on the FTC Beat blog.

5. Supreme Court May Examine GPS Surveillance Issue

Do prosecutors need a warrant from a judge before they place a GPS device on a suspect’s vehicle? Federal appeals courts disagree on this issue, and the government has asked the Supreme Court to review it.

Read the full post here on the Crime in the Suites blog.

Sellers Beware: Regulatory Action May Lead to Criminal Charges

Having the Federal Trade Commission – or any other government agency – initiate an action against you or your company may seem like very bad news. But it can get much worse. Sometimes, what starts as a civil action by a government regulator can culminate in jail time. This is the hard lesson learned by Donald Barrett, founder and president of iTV Direct, an infomercial company.

Barrett and iTV Direct came under fire by both the Food and Drug Administration and the FTC in 2004 for marketing a purported health product, Supreme Greens. Barrett’s company had marketed the product with some pretty bold claims, such as that the product could prevent major health problems including cancer, Parkinson’s disease and heart disease. The FDA initially issued a warning letter to the company for marketing a non-licensed drug with false and misleading claims. The FDA letter was quickly followed by an FTC lawsuit for deceptive advertising, among other charges.

Not only were the assets of the defendants (Barrett, his company and additional related parties) frozen, but they were also ordered to pay a staggering $48.2 million in consumer refunds. And that wasn’t the end of it. As Barrett and other defendants lost a lengthy battle through the appeals process, the Department of Justice came in with criminal charges against Barrett for subscribing to a false tax return and misbranding. Barrett pled guilty earlier this month to those charges and is awaiting sentencing in July. He may face up to three years imprisonment.

Barrett’s experience demonstrates a difficult reality for individuals and companies that have evoked the interest of a government agency: a government investigation into one matter may lead to more and increased government involvement. Once an agency starts looking into a subject’s affairs, the proverbial can of worms is opened. There will almost invariably be some problems, some irregularities, identified. The investigated party may find themselves suddenly facing a panoply of issues across government agencies. With Barrett, what began as a matter with the FDA, then the FTC, opened him to issues with the IRS and the DOJ.

What is a company or individual to do in order to minimize exposure once a government agency initiates an action? Proceed with caution …and review the steps we suggest taking.

Supreme Court May Examine GPS Surveillance Issue

Last October, we reported on a unanimous ruling by the U.S. Court of Appeals for the D.C. Circuit, holding that prosecutors must obtain a warrant before attaching a GPS device to a criminal suspect’s car.

The court found in that case that the act of attaching such a device to a suspect’s vehicle is a “search” that requires a warrant from a judge under the Fourth Amendment.

At the time, we predicted that the case might go to the U.S. Supreme Court, and now it has, at least for consideration. Last month the U.S. Department of Justice asked the high court to review the October 2010 D.C. Circuit ruling. The petition for certiorari, filed by Acting Solicitor General Neal Katyal, cites a conflict between the D.C. Circuit, on the one hand, and the 7th, 8th, and 9th Circuits, on the other hand.

The Justice Department wrote in its petition that the D.C. Circuit ruling “conflicts with this Court’s longstanding precedent that a person traveling on public thoroughfares has no reasonable expectation of privacy in his movements from one place to another, even if ‘scientific enhancements’ allow police to observe this public information more efficiently.” The department also noted in the petition that the question is “critically important to law enforcement efforts throughout the United States.”

The fact that the solicitor general has weighed in on this case, and the fact that there are significant splits between the circuits, make it reasonably likely that this important issue will in fact be resolved by the U.S. Supreme Court. We’ll continue watching it.

Barney Frank’s Advice to Poker Players After ‘Black Friday’

In the wake of the catastrophic consequences of last month’s “Black Friday” for online poker players in the United States, many players are wondering about their next step. Pocketfives.com recently interviewed Congressman Barney Frank and although he agreed that is “difficult to figure out what to do,” he still had some concrete advice for the online poker player universe.

Frank felt that the events of Black Friday would actually benefit the efforts to legalize online poker because they show that the Unlawful Internet Gambling Enforcement Act (UIGEA) is “actively enforced,” thus debunking the contention of some opponents of legal gambling that the UIGEA is a toothless law. Further, the extensive investigation before Black Friday shows that the enforcement of UIGEA regulations is “tying up law enforcement resources,” particularly in the Southern District of New York, where one would hope there would be more focus on traditional white-collar crime.

Frank also lamented the substantial burdens placed on banks to regulate their customers under UIGEA and the high cost of that regulation. He also expressed surprise that many of his congressional colleagues who so enthusiastically wish to limit government involvement in the economy are so willing to limit people’s online freedom by effectively prohibiting them from playing online poker. Frank was also concerned that the United States was committing a WTO violation by prohibiting online gaming, particularly because the United States “allows gambling in some ways but not others” since you can “bet on horse races . . . go to Nevada, go to New Jersey” but cannot gamble in your own home through foreign companies.

Frank therefore advised that online poker players who are rightfully outraged about their inability to play the game should “write to your Senators and Representatives” to express their views on legalizing online gaming by repealing UIGEA and should also mention that it is a strong factor in deciding their votes in the next election. He stressed that people underestimate the power of voters writing to their congressional representatives and how much the letters can influence the representatives’ voting decisions. He said that the battle to legalize online gaming can still be won, but it requires everyone to take the time to write to their congressional representatives and if they do, then “we’ll win it.”