A Nevada man now has a criminal record – simply because he placed a bet in a casino in Las Vegas and a casino employee didn’t ask him enough questions.
Robert Walker recently pleaded guilty in federal court to one misdemeanor count involving a record-keeping violation and was sentenced to one year of unsupervised probation. He was also ordered to pay a $250 fine and agreed to forfeit a $32,400 bet he made in March 2011.
Walker was a member of Acme Trading Group, a company whose members placed bets for several years at a number of casinos on Acme’s behalf. Acme is structured in a way that allows individuals to invest in the company, and bets are made on behalf of the company.
Messenger betting is a crime under Nevada law that occurs when wagers are placed at sports books by individuals on behalf of others. Thus far, Acme Trading Group has not been prosecuted for messenger betting, although Walker and others have clearly been subject to law enforcement scrutiny.
In November 2011, Walker was indicted on four felony counts under 31 U.S.C. 5313(a) for causing a domestic financial institution to fail to file an accurate currency transaction report. Walker faced a maximum of 20 years in prison and a $1 million fine if convicted of all charges.
The indictment alleged that on four occasions, Walker went to the Golden Nugget Casino Race & Sports Book and placed a bet of more than $10,000, and that when he was asked by the employee taking the bet if he was gambling on behalf of anyone else, he said that he was not.
Under federal law, all financial institutions, which include casinos, must file reports of any currency transactions over $10,000. The casino must also verify the name and the address of the individual placing the bet and the taxpayer identification information of the person on whose behalf the bet is being placed.
Walker’s attorneys contended in court filings that the burden is on the casinos, and not the individual bettor, to determine whether the individual is placing the bet on behalf of himself or a third party. Walker’s attorneys stated that Golden Nugget personnel never asked him if he was placing bets on behalf of someone else, and if they had asked him, he would have informed them that he was wagering on behalf of Acme. He had been instructed by his employer, he said, that if asked, he should reply to casino personnel that he was placing the bet on behalf of Acme.
Attorneys for Walker also stated in court papers that they hired an investigator who went to the Golden Nugget and engaged in at least seven transactions that required reporting under federal law. In none of those transactions did casino personnel ever ask the investigator if he was placing the wager for himself or on behalf of someone else.
This is a case that simply did not need to be prosecuted. Factually, there were very serious questions raised regarding the role that the casino played in trying to obtain the information necessary to file the reports and regarding the issue of who is responsible for making sure that information is reported.
Walker accepted a plea that would grant him a year of unsupervised probation; the indictment he was originally facing had a maximum sentence of 20 years in prison. Walker now has a criminal record as the result of very aggressive and unnecessary prosecution. Is this the type of case that the government’s limited prosecutorial resources should be focused on?
Lawyers for Stephen Jin-Woo Kim, a former federal contractor employee accused of unlawfully disclosing sensitive information, recently filed a motion in the U.S. District Court for the District of Columbia criticizing the government’s withholding of information in the case and asking the court to order the government to produce the documents. The government should not be permitted to withhold this type of valuable, discoverable information from the defense in this “leak” case.
Kim was indicted in August 2010 with unlawfully disclosing national defense information to a reporter for a national news organization and making false statements to the FBI. If convicted, Kim faces up to 10 years in prison for unlawful disclosure of national defense information and up to five years in prison for making false statements. Kim was an employee of a federal contractor who was on detail at the State Department at the time of the alleged disclosure of classified information in June 2009.
Prosecutors in the case have said that Kim’s trial is not likely to occur until 2013.
According to the indictment, in June 2009, Kim knowingly and willfully disclosed to a national news reporter “Top Secret-Sensitive Compartmented Information” that concerned the military capabilities of a foreign nation and intelligence that “could be used to the injury of the United States.” The indictment further alleges that, in September 2009, Kim made false statements to the FBI when he denied having any contact with the reporter since a meeting in March 2009. The government alleges that he has had repeated contact with the reporter in the months following the meeting.
The indictment was part of a series of investigations by the federal government into unauthorized information leaks to media outlets during the Obama administration. After the announcement of the indictment, lawyers for Kim criticized the government for criminalizing an occurrence “that happens hundreds of times a day in Washington.”
Discovery in the case began in October 2010 and is continuing. Recently, without prior notice to defense counsel, the government filed a motion seeking the court’s permission to withhold otherwise discoverable classified information from defense counsel. In its motion, the government sought an ex parte review, even though lawyers for Kim all had security clearances and classified discovery had been ongoing for close to two years subject to a protective order. Counsel for Kim noted that over the past 22 months, the Department of Justice has produced over 3,000 pages of classified material to Kim’s legal team.
The government should not be permitted to withhold discoverable information without making a strong showing that there is a need to do so. Here, the government has made no showing and has “not provided defense counsel with any information about the nature or subject” of the information withheld, defense counsel say. Especially given the protective order and the security clearances of Kim’s counsel, it seems inexcusable to allow the government to continue to withhold information without justification.
Federal Criminal Procedure
The U.S. Department of Justice’s recent boasts about rigorous enforcement of the securities laws ran into a significant obstacle this month when a federal judge in Washington, D.C., dismissed part of a $50 million securities fraud case and accused DOJ prosecutors of overreaching. In an increasingly global economy, the case is a good measure of the limits on the ability of the United States government to enforce U.S. law against foreign companies.
The case in question, United States v. Singhal et al., involves a company called Xinhua Finance Limited, which was organized under the laws of the Cayman Islands and is based in Shanghai, China, and its wholly owned affiliate, Xinhua Financial Network Limited. That affiliate provided information products about Chinese financial markets, including ratings, news and investor relations.
The indictment in the case charged three people, Shelly Singhal, Loretta Bush and Dennis Pelino, with participating in a scheme to defraud the U.S. Securities and Exchange Commission through a series of undisclosed and disguised related-party transactions and insider trading that generated proceeds exceeding $50 million. The indictment reads like a typical U.S. securities fraud case except for one thing: It does not expressly charge any violations of U.S. securities laws, including failure to report related-party transactions or insider trading. Rather, the indictment charges these individuals with mail fraud, in violation of 18 U.S.C. §§ 2 and 1341, and false statements, in violation of 18 U.S.C. §§ 2 and 1001 – a choice of charges that was undoubtedly driven by the foreign status of the company in question.
In considering motions to dismiss the false statement counts of the indictment, Chief Judge Royce Lamberth observed that the false statement statute encompasses two kinds of misconduct – affirmative misstatements and concealment.
After finding that the indictment only included allegations of concealment, Chief Judge Lamberth then noted that criminal liability for concealment under the false statement statute exists only if there is a duty to disclose. The court then noted the absence of any duty to disclose that applied to this foreign company under U.S. law. While SEC regulations require that foreign companies disclose to the SEC certain information required to be disclosed to foreign regulators, the Court noted the absence of any allegation in the indictment that foreign law imposed an obligation to disclose the particular information that formed the basis for the false statement charges in this indictment. Given the absence of a duty to disclose, the court dismissed the false statement counts of the indictment.
It is not clear from the court’s opinion whether the government may be able to resurrect the false statement charges by alleging more clearly the existence of a duty to disclose under foreign law that would trigger a concomitant duty for disclosure to U.S. authorities in this case. Certainly, the decision must be viewed as a caution for enforcement authorities about the boundaries of extraterritorial application of U.S. law. There is no question that U.S. enforcement can reach many foreign companies and transactions, but that power has its limits.
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.
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.”
On May 3, 2011, the U.S. Department of Justice filed a civil case against Deutsche Bank, Germany’s largest bank, asserting that Deutsche Bank was liable for more than $1 billion to the U.S. government for its statements and actions during the mortgage meltdown of the last few years.
This case is one of the few that has emerged from the mortgage crisis, and like many of the others, it’s a civil rather than a criminal case.
What’s particularly interesting is that the U.S. government is relying on the False Claims Act, a Civil War-era law that prohibits false claims against the government and that has been heavily relied on in contract disputes.
In this case, the government asserts that the Frankfurt-based bank wrote mortgages for borrowers with dubious histories, then falsely certified to the Federal Housing Administration, a unit of the Department of Housing and Development that the loans were sound.
The complaint grows out of the conduct of MortgageIT, a subsidiary that Deutsche Bank owned at the time.
“Contrary to the certifications appearing on each and every mortgage endorsed by MortgageIT, MortgageIT engaged in a nationwide pattern of failing to conduct due diligence in according with HUD rules and with sound and prudent underwriting principles,” the complaint says. “MortgageIT knew that its certifications of compliance with HUD rules were false.”
Under the False Claims Act, the U.S. government can seek triple damages and penalties of more than $1 billion.
Prosecutors say that while HUD rules required Deutsche Bank and MortgageIT to implement quality control programs to prevent defaults by their borrowers, they “ignored quality control” and gave mortgages to almost anyone who applied.
Is this an appropriate use of the False Claims Act? After all, MortgageIT, it seems, didn’t make knowingly false statements about its borrowers in seeking FHA insurance for the loans. It simply made assessments that the borrowers were in good financial shape. They turned out not to be, and the FHA had to pay insurance claims. Is that the material out of which a $1 billion civil case should be made?
When regulatory agencies ask major corporations to hand over documents to them as part of an ongoing investigation, there’s normally a pretty clear understanding of how things work: if the agency doesn’t receive the full set of documents it is asking for, it negotiates with the company, or ratchets up the urgency of the request, or goes to court to enforce a subpoena.
What it hardly ever does is ask the Justice Department to step in, years later, and seek an indictment of a high-ranking corporate in-house counsel for obstruction of a legal proceeding, making false statements, and concealment of documents.
But this may be changing. On November 9, 2010, the Justice Department announced the indictment of Lauren Stevens, a now-retired vice president and associate general counsel at GlaxoSmithKline, the British pharmaceutical giant, in connection with Stevens’ actions back in 2003 when the FDA was investigating GSK for allegedly promoting one of its drugs for unapproved uses.
The indictment says Stevens led a team of lawyers and paralegals responding to the FDA’s request for documents about GSK’s promotion of Wellbutrin, an anti-depressant, for weight loss and other uses that the FDA hadn’t approved. (Actually, the indictment doesn’t name the company or the drug, but many sources confirm their identity.)
Stevens, according to the indictment, knew that GSK had set up marketing programs to promote the use of the drug against obesity and that it had paid many physicians to make speeches about that use to other doctors. But Stevens told the FDA that GSK had done nothing of the sort. She wrote to the FDA, for example, that GSK “has not developed, devised, established, or maintained any program or activity to promote, either directly or indirectly, the use of [the drug] to achieve weight loss or treat obesity.”
And Stevens allegedly had seen slide presentations that physicians had put together about such unapproved uses, but she didn’t hand those over to the FDA. Any off-label uses, she said, were “isolated deficiencies” in GSK’s compliance program.
Interestingly, neither the company itself nor any of its other lawyers or officials were indicted. Could Stevens, as the head of a team of lawyers and paralegals that reported to top management, have acted on her own in withholding these documents and information? If GSK really planned to lie to the government, didn’t other people have to be part of the scheme as well? Shouldn’t they or the company itself have been indicted – if there really was such a conspiracy within the company?
Also, Stevens’ statements sound to us more like legal posturing on behalf of a client than like a criminal attempt to deceive the FDA and withhold information. It seems that she was telling the agency that GSK had no intent to promote the off-label uses, while knowing that individual doctors probably did so without the company’s permission.
If that’s the basis of the dispute – and both sides clearly think they have the better of it, with Stevens’ lawyers pledging that she will be exonerated – the criminal courts are the wrong place to work it out. The facts may eventually show that Stevens did in fact violate the federal criminal laws, of course. But ordinarily, this kind of discovery dispute is worked out behind the scenes, between the federal agency and the company, with harsh words perhaps but without a criminal case against an attorney. That seems the best place to handle it.
At the very least, lawyers who respond to federal agencies’ demands now had better look very carefully at what they say.