General Outline of Corporate and White Collar Crime Topics Fall 2005 Chapter 1: Corporate Criminal Liability

A. Corps have the capacity to commit criminal acts. 1. New York Central & Hudson River RR (p.1) – RR and two employees

were each held liable for bribing sugar refiners, an anti-competitive practice in violation of the Elkins Act. RR held liable b/c the crime was committed for the sake of the RR’s economic gain, the bribes were paid for with the RR’s funds, and the RR benefited by gaining a temporary competitive edge.

a. RULE: Corporation can be held liable for acts of its agents. Agents acts (knowledge and purposes) may be attributed to the corporation.

2. Corporate Crime Under Attack (excerpt) a. corporations held liable b/c structure is so complex, it is hard to

pinpoint individuals responsible for specific decisions b. corporate liability provides incentive for top officers to supervise

lower/middle mgmt. more closely. c. As long as punishment >benefits, firm will better deter

misconduct than law enforcement d. competition will cause firm to absorb costs; shareholders can file

derivative suit if value goes down. 3. Federal Prosecution of Corporations (excerpt)

a. benefits of indicting a corporation: i. corps. Likely to take immediate remedial steps, enable

deterrence b. charge of corporation does not mean no charge against individual

officers. – also a strong deterrent c. prosecutor has wide latitude in making charge d. need to consider purposes of law: deterrence, punishment,

protection e. corporations should generally not agree to accept corporate guilty

plea in exchange for non-prosecution f. to facilitate information flow in plea agreements, corporation

may waive atty client and work product privileges; make employees available for briefing, and do whatever else is necessary to ensure full scope of wrongdoing is disclosed.

4. United States v. C.R. Bard, Inc. (1994) p. 10

a. A corp was held liable for its violations of FDA regulations, which led to serious injuries and deaths in use of its catheters. Misconduct pervasive and motivated by greed; the executives approved it.

b. Ct. held that the plea agreement at issue was reasonable b/c it had certain features: allowed criminal prosecution of individual employees; imposed severe fines; imposed compliance program involving more intense FDA oversight.

c. Notes: - consider motive: greed. This is important under federal prosecution guidelines.

i. In evaluating the plea agmnt: - look at effect on corporation • Fines (financial impact on corporation) did not just take away

profit made from criminal behavior, but punished them further by taking all revenue

• Individuals – court felt that it was significant that the individual execs would also be prosecuted.

• Change to corporate culture (problem was well known, but no whistle blowers)

B. Respondeat Superior Rule 1. imposes corporate criminal liability for acts performed by officers or agents in

course of their employment, w/o regard to their status 2. limitation: agent must be acting w/in scope of his/her authority and on behalf

of corporation 3. Commonwealth v. Beneficial Finance Co. (p18)

a. Facts: mid-level mgrs in corporate financial institutions bribing officials to keep interest rates at highest poss. level for small loans. Court Instructions to Jury: under respondeat superior theory, acts of agents can be imputed to the corporation, if agents were acting w/in the scope of their employment.

b. Holding: even though these officials were not authorized to do the specific crime, since it was w/in the scope of their employment b/c they have the authority to deal w/ rate-setting agencies, the corporation was liable

c. Defendant’s Argument: (MPC theory) These actions would need to be authorized/ratified by a high level official in order to be shown to embody the ‘act’ of the corporation

d. Court’s Argument: MPC standard (∆’s arg.) has evidentiary problems. How would there be a paper trail proving that high level officials actually approved those types of activities?

i. “expenditure of corporate funds is uniquely a corporate act.” 4. People v. Lessoff & Berger (1994) p 24.

a. law partnership was held liable for fraud, even though only one partner was involved in commission of crime. “Harsh, but rational.” Other partners who were clueless about misconduct suffered.

b. Rule: The other partners also stood to gain from the fraud, and they should have had incentives to do a better job of policing.

5. U.S. v. Hilton Hotels Corp (1973) p. 26 a. Facts: purchasing agent for Hilton went against company policy by

participating in boycott, requiring company’s suppliers to pay 1% fee

Comment [LW1]: Insert. 2005 Supplement: pp. 3-9 Enron’s Legacy (excerpt)

Comment [L.R.2]: Corporate liability should not be a proxy for individual liability

Comment [L.R.3]: Much harder to prove. The prosecution is going to prefer this approach.

for consortium. He admitted that he had actual knowledge of the corporate policy, but he violated it b/c he was mad at the supplier.

b. Corp held liable for the acts of its rogue employee, even though corp had explicit policy that it wouldn’t engage in illegal boycotts and the employee acknowledged receiving specific instructions to that effect.

c. Notes:- though the employee disobeyed its employer, there was still a benefit achieved by employer by the employee’s actions (increase in convention business brought by consortium) Actual benefit rcd even though motivation for crime was personal.

i. b/c agent was given sole authority to make these contracts and supplier decisions, and b/c his threat was so closely related to his responsibility as the purchasing agent, it could be seen as ‘acting w/in the scope of his employment.’

ii. Regularity of conduct may suggest agent has ‘apparent authority’

iii. corporation has tools for educating supply base on policies, and for trying to increase employee compliance w/ its policies.

6. U.S. v. Bank of New England, N.A. (1987) p. 31 (collective knowledge used to satisfy mens rea requirement; flagrant indifference = willfulness)

a. Bank held liable for violating the Currency Transaction Reporting Act; customer withdrew more than $10K in cash by presenting multiple checks simultaneously to single bank teller. Other employees gossiped about it, yet no one reported or even inquired about reporting. Bank didn’t even make effort to report after it rc’d a federal grand jury subpoena (the transactions were still reportable).

b. Ct. held that the Bank’s flagrant indifference to its reporting obligations could serve as a proxy for willfulness. AND compartmentalizing of knowledge no defense. Corporation has collective knowledge of employees.

c. Note: could also prove willfulness and knowledge of one or more employees acted with those components

II. Chapter 2: Personal Liability in an Organizational Setting A. Direct Participants

1. United States v. Wise (1962) p. 50 a. Corporate officer is still individually subject to prosecution when he

knowingly perpetrates crime on behalf of a corporation, or within his corporate capacity. Both corp. and individual can be prosecuted.

2. Handout #1 Problem 2-1 Accomplice Liability a. Treasurers commit act, but lack mental state (no intent)

i. is there an opportunity to charge willful blindness? If they were aware that there was a high probability of this criminal activity, and that possibly they consciously avoided it.

ii. And Negligence? This would be failure to perceive that which they ought to have seen. But this does not translate into knowingly submitting false statements. Therefore, treasurers did not violate 18 U.S.C. § 1001.

b. Cole does not engage in the act, but has the fraudulent intent. i. Who is liable? ii. Cole is liable, under 18 U.S.C. §2 (b), b/c he willfully

causes the treasurers to engage in an act that, if he did it personally, would have constituted a crime.

iii. His intent (he’d be an aider and abettor)+ his causing act to be committed (by innocent agent) = violation of statute. (he willfully caused an innocent agent to engage in wrongdoing.)

c. What Mental State is required in 18 U.S.C. §2 (a)? i. - (b) requires ‘willful’ causation of a violation against U.S. (in

this case, 18 U.S.C. §1001). 3. Dotterweich (p.61) – President/general manager (Dotterweich) of Buffalo

Pharmacal was held personally liable for FDA violations for shipping adulterated and misbranded drugs in interstate commerce. If someone must be responsible for the purity of drugs and the accuracy of representations, then, between public (consumers) and the mfr and the shipper, last two are in the best position to minimize the risk of harm. Dotterweich held responsible b/c he was supervisor, even though he didn’t know about or personally participate in the wrongdoing. Note that these violations were only misdemeanors.

4. Park (1975) p. 65 a. Facts: CEO had been advised by FDA of unsanitary conditions.

Made some improvements, but subsequent inspections found further rodent infestations. Park said he had delegated that responsibility and relied upon subordinates. Said he shouldn’t be held responsible.

b. Theory of liability in case: i. He had knowledge of what was going on ii. Had clear responsibility in bylaws (duties included

sanitation) c. Rules of case:

i. Even if initially you are entitled to rely on a system of delegation, once you are aware of urgent need to repair problems, can’t sit back and wait for system to correct itself.

ii. Source of Park’s duty was partly his position of responsibility in corporation. Food and Drug act imposes a legal duty – can’t put contaminated food in stream of commerce

d. Is the duty /theory of liability an act or omission? Omission. He had a legal duty to prevent or seek out and correct violations of the act, and he failed to do so.- his omission (failure) CAUSED the violation.

e. Did he have the culpable mental state here? - no, but blameworthiness comes from the causal connection. - court doesn’t really use negligence. Looks like a strict liability statute.

5. Problems 2-1 - 2-3 6. United States v. Jorgensen (handout)

a. Facts: family ran meat packing company who advertised and initially produced hormone-free, “heart-healthy” beef (specific

Comment [L.R.4]: They are not aider and abettors b/c they did not share the culpable mental state

claims made re: feeding, cholesterol monitoring, fat content, etc). Then they started buying meat that didn’t meet those standards, but mixed it in w/o changing advertising/packaging.

b. Court Rule: that instruction isn’t even needed. As corporate officers, they are in a ‘responsible relationship’ to activity w/in company that violates the laws, and therefore can be held ‘criminally responsible, even though the officer did not personally engage in that activity.’ (p. 5)

c. Compare this case to Park: - Park’s liability was based on an omission; here, each person had active role in committing act. They were aiders or abetters by telling people what to do. Responsible Corporate Officer Doctrine really isn’t needed in this case, to establish their liability.

d. Comparing FDA statute (Park) and FDA label statute (Jorg): Park: more strict liability. Jorg: intent to defraud. Higher level of culpability (evidence – hiding beef that they didn’t produce during tours; employees told not to tell anyone about blending of meat)

III. MAIL AND WIRE FRAUD ---- these statutes are applied in many cases, b/c concept of fraud is elastic. “fraud” is never defined.

A. Intent to Defraud 1. U.S. v. Hawkey p126

a. Facts: Sheriff contracted w/ promotion company to advertise and sell tickets for charitable concerts. Sheriff then used funds for personal and business needs, replacing depleted funds from personal and business funds later.

b. ∆’s claim: not fraud b/c people who bought tickets got a good concert. They got value for their cash expenditures. Never represented that “all” of the funds would go to charity. Some funds DID go to charity.

c. Problem: his intent was to mislead the public i. (intent to defraud, in this context, would mean to act knowingly,

w/ intent to deceive someone w/ purpose of causing financial loss or obtain personal, undeserved gain…)

ii. breach of fiduciary duty can constitute fraud (if you do some of what they want, and then some of what you want – you’re still breaching fiduciary duty)

2. look at hypo on p 129 and prob. 4.1 3. Lustiger v. United States (1968) p. 131 (literally true statements as fraud)

a. Facts: misrepresented distance to lake, availability of water, etc in brochures for land in AZ. Statements were not literally false. Some were actually literally true.

b. Notes: important that statements and pictures taken into consideration in aggregate.

c. Rules:

i. - “if scheme is devised with the intent to defraud, and the mails are used in executing the scheme, the fact that there is no misrepresentation of a single existing fact is immaterial. It is only necessary to prove that it is a scheme reasonably calculated to deceive…” p134

ii. - purpose of making the statements in the manner in which they were made, and the purpose in displaying the pictures they way they were displayed – was to deceive.

iii. Note: - Hawkey case: half truths Were statements literally false? He said money was for charitable purpose, and a little did go that way, but a lot went to his own pocket. Half truths: went to heart of bargain; were meant to deceive.

d. Problem 4.2: - ∆ arg. that municipalities got what they bargained for doesn’t hold water. Municipalities bargained for dumping at a certain distance. They were operating under a half-truth. Fraudulent intent proven by their billing practices: if they really didn’t think their practice mattered, why would they falsify their billing records.

4. United States v. George p135 a. Facts: Greensphan (accurate cabinet supplier) paid kickbacks to

George, who then laundered some back to Yonan (at zenith) George kept cut of cash. George got paid off of invoices that were completely bogus. No competition for the contract Greensphan had won from Zenith. There was no competitive bidding. The price was under the 10% profit max. cap allowed by Zenith. Yonan’s boss knew of price – was satisfied. Also satisfied w/ quality.

b. Yonan deprived Zenith of (1) his honest and loyal services, (2) a $300,000 discount, and (3) the opportunity to bargain with a fact most relevant before it. Intangible rights theory: intangible rights that you’re entitled to – (1) and (3) – are protected interests under the mail fraud statute.

5. Carpenter v. United States (1987) p. 147 a. Facts: journal article author leaked information to brokerage before

publishing. b. Court found fraud by focusing on deprivation of WSJ’s intangible

property right. Deprived of confidentiality and exclusive use of the information. - b/c of McNally decision, court could not rely solely on deprivation of employee’s honest services.

c. other property argument is that the employee’s actions harmed its reputation, undermining confidence in integrity of the reporting. From here, have to point to effects – harm sales

6. Cleveland v. United States p 151 a. Issue: unissued licenses in hands of state regulators property under

fraud statute? b. Court’s holding: nope. Licensing is regulatory – power to control;

not revenue-raising in nature. Further, here, the state actually did receive its revenues.

Comment [L.R.5]: May or may not amount to fraud, depending on whether they relate to the heart of the matter.

c. Rationale: statute not revenue producing in nature – even revenue produced secondarily; court didn’t want to expand fed jurisdiction (federalism); Rule of Levity: if ambiguity in a criminal statute, should be resolved through a narrower rather than broader reading.

7. Pasquantino v. U.S. (handout p 7) a. Facts: Facts: dudes smuggled alcohol into Canada, not declaring it or

paying taxes at border b. Holding: depriving Canadian government of duties owed on alcohol

constituted wire fraud (if scheme was developed and communicated on U.S. phone)?

c. Notes: how does that compare to Cleveland? Here, whole point of scheme was to deprive Canada of its economic interest. In Cleveland, scheme did not deprive LA of economic interest.

8. Attempt: a. - no general attempt provision in fed. criminal law b. - Sarbannes Oxley added attempt statute to mail and wire fraud

statute. Scheme to defraud, even if unsuccessful, can be prosecuted. c. - but even w/o SOX, can prosecute scheme w/o success

9. 18 U.S.C. § 1346 – Definition of Scheme or Artifice to Defraud – includes a scheme to deprive another of intangible right to honest services.

10. U. S. v. Czubinski (1997) p 160 a. An IRS employee who exceeded his authority and conducted

unauthorized searches in taxpayer info database was not held liable for wire fraud b/c no proof that he intended to deprive the IRS of its property, or the IRS and the public of their intangible right to his honest services.

b. Regarding the honest services charge, he didn’t derive any tangible benefit, and he didn’t seriously breach any fiduciary duty.

11. U.S. v. Devegter (2000) p. 169 (honest services fraud in private sector extends to violation of fiduciary duty and reasonably foreseeable economic harm)

a. Facts: – Two employees of investment banks deprived Fulton County of honest commercial services by providing corrupted financial advice regarding underwriting proposals, causing potential economic harm to the County.

b. Holding: fraud found b/c They both had fiduciary relationships w/ the County b/c the County relinquished de facto control of the underwriter selection decision to one of them, and other was vested w/ a position of authority, trust, and de facto control in recommending underwriter

12. Schmuck v. U.S. (1989) p. 175 a. Facts: Schmuck was convicted of mail fraud for selling used-cars

with rolled-back odometers to dealers, who in turn resold them to retail purchasers. The dealers mailed title-registration applications to the state, and the state mailed them back to the customers.

b. Note: mailing element is essential for jurisdiction, but not for proving (or being part of) scheme. Nothing fraudulent need be contained in the actual mail

c. Note use of mails in various cases in 091205 notes 13. U.S. v. Sampson – p 181.

a. Facts: ∆s represented to loan applicants that they would help businesses get loans or be sold – got advance fee on services w/ application. Later mailed acceptance/confirmation.

b. Holding: Acceptance letters mailed after ∆s had already obtained money from victims held to be “for purpose of executing” ∆s scheme b/c lulled them into believing loans would be performed at some point (bought time)

14. Note on Proof of Mailing a. Govt can use circumstantial evidence to prove that mails were used

to further fraud scheme: i. Routine office procedures (std to mail letter) ii. conduct consistent w/ response to material allegedly mailed

b. b/c gist of mail fraud offense is use of mails in furtherance of a fraudulent scheme, rather than commission of the fraud itself, each mailing in furtherance of the scheme constitutes a separate offense.”

c. Wire fraud: has to be interstate use. Don’t have to have knowledge, but have to show that communication was somehow wired out of state at some point. Mail fraud: does not have to be interstate. Just use federal mails for fraudulent purposes.

B. Mail and Wire Fraud Affecting a Financial Institution

1. U.S. v. Bouyea (1998) p. 184

a. ∆ was convicted of bank fraud and wire fraud for causing a subsidiary of a bank to lend him money on the basis of forged and falsified documents. The subsidiary wasn’t a financial institution, but the bank was. Ct. looked at the relationship bet. bank and subsidiary and held the bank was affected b/c it had to loan the $150K to the subsidiary so that the subsidiary, in turn, could make the loan to ∆.

b. Note: if mail/wire fraud affects financial institution, max penalty = 30 years; fine up to $1M

C. Statutes Prohibiting Specific Frauds 1. BANK FRAUD

a. 18 U.S.C. §1344 – patterned after mail/wire fraud statutes i. ∆ must knowingly execute or attempt to execute scheme to

defraud a financial institution and ii. knowingly executing or attempting scheme to obtain $,

assets, or other property owned by financial institution through false or fraudulent pretenses

United States v. Doke (1999)

b. Facts: Doke was developer; Bass, his atty; handled several real estate transactions. Took out loan on Doke’s behalf for a purchase. Later, Doke defaulted on payments to Bass, bank took land, and went out of business.

c. Holding: Court held that it was bank fraud. d. Note: even though ∆’s might have had intent to repay loan, The ∆s

caused bank to violate civil banking regulations, which was enough to constitute fraud; the bank was entitled to make its decision regarding loan with all material facts on the table. Intent to defraud = Intent to deceive bank re nature of actual loan arrangement.

U.S. v. Reaume (p12 of supplement) e. Facts: - NSF checks written to merchants; goods returned for cash.

Bank stopped paying them, but could have risked exposure if they had not stopped.

f. Court Cited i. Hoglund: lawyer who signed clients signature and deposited

settlement funds. This was bank fraud b/c i. Put bank at risk of loss

ii. Intended to do exactly that. ii. Everett: acct. defrauded clients. Was fraud b/c

i. There was intent to defraud SOME party (could be 3rd party)

ii. As a result of scheme, caused bank to transfer funds.

Boujea Doke Reaume Middleton Czubinski Bank fraud Conspiracy Bank fraud Computer fraud Computer

fraud Wire fraud (fin. Inst)

Bank fraud Wire fraud Wire fraud

False statement

2. Computer Fraud a. U.S. v Middleton (2000) 9th cir. P192

i. Facts: disgruntled employee; left, and remotely went in and deleted acctg files, payment system and other databases. charged w/ computer fraud under 18 U.S.C. §1030

ii. ∆ argues: Statute says, ‘1 or more individuals’ and that does not apply to corporations.

iii. Court Answers: Amendments opened to any computer involved in interstate commerce (all hooked up to internet – so almost all are involved). Congress was obviously trying to broaden reach of statute through this move – certainly wouldn’t make sense that congress then wanted to eliminate protection for corporations.

Comment [L.R.6]: This arrangement is not per se illegal, but borrower is required to tell bank of arrangement.

Comment [L.R.7]: In this case, depositing of the forged check puts bank at risk of loss – converting would make bank liable to owner of check.

Comment [L.R.8]: Is a corporation an individual? S. Ct. had previously said corporation is a person.

iv. ∆ argues: damages shouldn’t include expenses related to making system better. Trial judge refused to give an instruction to that effect.

v. Court: loss does not have to be expenditure for outside source to repair damage. If it’s more efficient to do it in-house, that’s okay. Reasonable rates, methodology. New software ok.

b. Czubinski (p.200) – not liable for computer fraud under § 1030(a)(4) b/c prosecution couldn’t prove that he intended to defraud or that he obtained something of value when he performed unauthorized searches in the IRS database. “unless” clause in § 1030(a)(4) is meant to distinguish computer fraud from computer trespass. However, was unauthorized access b/c exceeded his permitted use.

c. Supplement 141-151

IV. SECURITIES FRAUD – p225 supplement 17. C.F.R. §240.10b-5 A. Willfulness

1. U.S. v. Weiner p. 204 a. Facts: Independent public accountants were held liable for securities

fraud for falsifying financial information re: their client corp over several years, presumably to present image of healthy, growing corp.

b. Holding: sheer magnitude of the adjustments the corp had to make, plus the length of time over which the three ∆s were involved as auditors, plus the fact that they didn’t follow basic stds for auditing, meant (a) ∆s were totally inept, or (b) they were aware of the false inflation of the corp.’s accounts. Even if they didn’t initially know, their consistent failure to apply GAAS and GAAP after they knew some kind of a major fraud was afoot could allow jury to infer their knowing and willful participation in the fraud. Similar to the Enron and WorldCom cases.

c. Good faith would have been defense. Jury had to find bad faith. B. No Knowledge Proviso (INSERT HERE) C. Insider Trading (governed by 17 C.F.R. § 240.10b-5)

1. general notes: a. prosecuted under general antifraud provision §10b of securities

exchange act and SEC rule 10b-5 b. §10b: prohibits use of manipulative or deceptive device in

connection w/ purchase or sale of securities per SEC rule c. SEC Rule 10b-5:

i. Cannot employ device, scheme or artifice to defraud ii. To make any untrue statement of mat’l fact or omit such

fact necessary to make the statement not misleading or iii. Engage in a transaction, practice or course of business that

would operate as fraud or deceit 2. Evolving Doctrinal Rules

a. Chiarella v. United States (1980) (Classical Theory)

i. Facts: printer found out about acquisition and made $30k on trades before/after sale. Charged for willfully failing to inform sellers of target company securities that he knew of the forthcoming takeover bid that would increase share price.

ii. Rule: Duty to shareholders necessary to have insider trading; w/o duty, no violation. Must ID relationship between ∆ and sellers that give rise to duty.

b. U. S. v. O’Hagan (1997) p233 (Misappropriation Theory) (also expanding classical theory to attys and consultants outside co.)

i. Facts: atty learned of law firm’s clients’ plan to acquire company, and used info to trade shares for gain of $4.3 M

ii. Rule: person commits fraud in connection with a securities transaction, thereby violating rules, when he misappropriates confidential info for securities trading purposes, in breach of a duty owed to the source of the info.

iii. Use of principals info to purchase or sell securities breaches duty of loyalty and defrauds principal of exclusive use of that info

iv. Comparing Classical theory and misappropriation theory: classical theory targets insider’s breach of duty to shareholders w/ whom he/she acts. Misappropriation theory: designed to protect markets against outsiders’ to a corporation who have access to confidential info, but who owe no fiduciary or other duty to share

c. Dirks v. SEC (1983) p 239 (Tipper/Tippee theory) i. Facts: Dirk, an officer of a broker-dealer firm who provided

investment analysis of insurance co. securities to investors, rcd info from a former officer of Equity Funding re: fraudulent corporate practices. The former officer asked D to investigate the fraud and disclose it. D did investigate, and passed info to a WSJ reporter and to his clients, some of whom sold their Equity Funding holdings valued at $16M.

ii. Holding: S.Ct. found that disclosure was not improper b/c Dirk did not breach fiduciary duty.

iii. Rationale/Rules: The tippers were motivated by a desire to expose the fraud, not personal gain. A tippee is only liable if (1) tipper had duty (& economic motive for disclosing) (2) tipper has breached a duty, and (3) tippee knows or should have known that the tipper passed the info on to him improperly.

iv. For Dirk to have duty, have to find that Secrest, and Dirk’s duty was derivative of that. b/c Mr. Secrest was a whistleblower, his disclosure was NOT a breach of duty.

v. Note: Suppose Secrest had had 10,000 shares of stock that he thought he could somehow benefit from selling immediately after the disclosure, it would be a different story. He’d have an economic motive. Comment [LW9]: Must be economic

motive

d. Problem 5.1 p. 245 - b/c driver had economic motive of $20, and should have known that someone offering money for advance copy would use it improperly. Breach.

e. United States v. Chestman p 245 (tipper/tippee) i. Facts: The stockbroker (Chestman) of a couple (Susan and

Keith Loeb) that was related to the founder of a publicly-traded supermarket chain (Waldbaum) made trades for his own account and for his clients’ discretionary accounts on the basis of info he received improperly from son-inlaw (Keith).

ii. Rules: i. fiduciary duty cannot be imposed unilaterally by

entrusting a person w/ confidential information (telling them a secret and telling them not to tell)

iii. marriage does not, w/o more, create a fiduciary relationship

iv. under misappropriation theory, there either has to be a fiduciary relationship, or a ‘similar relationship of trust and confidence’

v. Notes: remember that even if there was a duty on the tipper’s part, there not only has to be a breach, but tippee needs to have knowledge of all this. There also has to be an economic motive on the part of tipper. Here, waldbaum didn’t necessarily have an economic motive for disc. Can’t even begin to trace the tipper/tippee line if there’s no straight breach of fiduciary duty.

vi. Notes: if child had told shrink, shrink would have duty b/c of relationship. If child had info, and traded for self – breach duty b/c of employment.

vii. in response to this case, SEC developed Rule 10b5-2 to directly address when nonbusiness relationships may give rise to a duty of trust and confidence for purposes of misappropriation theory of insider trading. P253.

i. - under 10b5-2, rebuttable presumption thatthe fiduciary relationship exists b/c of blood ties.

ii. - family would need to show that there was no mutual expectation of duty amongst them

iii. - 10b5-2(b)(2) basically codifies Reed Case p 253. iv. - case law remains in place, but SEC addresses very

specific problem. Does not overrule, just clarifies f. revisiting Chiarella:

i. would not be guilty under tipper/tippee, b/c there was no tipper ii. would be guilty under misappropriation theory: As an

employee, he had duty (to employer and employer’s clients) not to disclose, and he did not abstain from using the information he acquired.

g. U.S. v. Teicher, p 254 (no trading while in knowing possession of inside info)

Comment [L.R.10]: Two-way street . shouldn’t be able to impose a duty on someone to whom you’re voluntarily sharing information.

Comment [L.R.11]: There was no past pattern of this type of trust/relationship

Comment [L.R.12]: Re-read and take notes

Comment [L.R.13]: Corporate policy against disclosing confidential info helpful, but not essential, in establishing fiduciary relationship

i. Facts: investors got some inside info about law firm’s clients, and made trades for money.

ii. ∆s argued that they had decided to make the trades before they received the non-public info. Court should have required a causal connection between the rcpt of the info and the trades.

iii. Court’s Analysis/Rationale: 1st - Rule 10(b)5 requires only a deceptive practice be conducted ‘in connection w/ purchase or sale of a security.’ 2nd – if you know something, you are required to either disclose it or abstain from trading. (see p257) 3rd – simplicity. Too hard to prove that once someone had the knowledge, they didn’t use it. iv. Rule 10(b)5-1 - rebuttable presumption. If you trade while

in knowing possession of non-public information, it’s a violation. Defense:show that you set up the trade before you got the info. show by producing a written plan, formula, etc.

h. Handout # 2: p. 1. Problem 5-2 (insert analysis) 3. New securities fraud statute from Sarbanes-Oxley, 18 U.S.C. § 1348:

a. Require fiduciary duty? No; mail fraud statute doesn’t. b. Fraud – modeled here after mail fraud statute, and therefore much

broader than securities laws. Will look in mail and wire fraud statute precedents than Title 15.

c. No rqmt to use mail/wire in furtherance of scheme no jurisdictional requirements

d. also says in “connection with ANY security” rather than “in connection w/ purchase or sale” of a security. Gives latitude to prosecutors to structure theory of a case that goes beyond what we’ve been covering with Title 15.

V. FALSE STATEMENTS

A. False statements generally, 18 U.S.C. § 1001: Whoever (1) knowingly and willfully (2) makes false or fraudulent statements (3) that are material (4) in any matter within the jurisdiction of a federal department or agency, except in judicial proceedings, is guilty of violating the statute 1. no oath requirement – unsworn falsifications relating to any matter w/in

jurisdiction of federal dept or agency 2. prosecutions under §1001 typically involve using false info:

a. to obtain a monetary or proprietary benefit b. to obtain a privilege from the govt c. to resist monetary claims by the govt d. to frustrate lawful regulation

B. Jurisdiction 1. United States v. Rodgers (1984) p. 292

a. Facts: charged w/ making false statements to FBI – told FBI that his wife had been kidnapped and that wife was involved in plot to kill President

Comment [LW14]: Pgs 27-30 supplement

b. Notes: i. Jurisdiction est. by the FBI’s authority to investigate. Source of

authority, federal statute. ii. In this case, ∆ made voluntary statements, and ∴

application of statute is not problematic. iii. The statute applies only to those who lie “knowingly and

willfully” to the govt., so it shouldn’t deter citizens who in good faith want to report suspected crimes.

2. United States v. Wright (1993) p. 296 a. Facts: water reports submitted to state agency, which was regulated

by EPA (governed by EPA standards). Reports contained false representations of sampling – were sent to county and state officials, but never physically sent to EPA.

b. Holding: Court found that this was w/in jurisdiction of EPA, and therefore the federal govt, b/c EPA administered the testing program.

c. Rules/Notes: i. Is theory of the case that b/c the EPA could have looked into the

report, that’s enough to establish jurisdiction? ii. Somewhat. EPA delegated program to state, but part of

state’s ability to get EPA support stemmed from running the program in accordance w/ EPA requirements. EPA did audits and other regular activity that court saw as evidence of jurisdiction.

iii. Point is that EPA had power and authority to act. Even if it never did act, its power and authority gave it jurisdiction.

3. United States v. Steiner Plastics Mfg. Co. (1956) p299 a. Facts: subcontractor to Grumman, who made plexiglass cockpit

canopies, falsified approval of reworked canopies in order to deliver them to Grumman for payment.

b. Rule: Same effect as in Wright case – just b/c it wasn’t submitted directly to the govt, doesn’t mean that the intent isn’t to deceive, ultimately, agency who has authority.

c. Notes: Court held that their falsification was intended to mislead the U.S. Navy. Judge wouldn’t admit evidence re. whether canopies were actually ok.

C. Department or Agency 1. In general: 1996 amendment ensured that executive, legislative and judicial

branches are included in §1001. Excepted statements made during judicial proceeding.

2. U.S v. McNeil (9th cir. 2004) (p. 31 supplement) a. Facts: ∆ had concealed some assets from attorney (and therefore

judge) on application for public defender after he was indicted. Was convicted of making a false statement to a federal agency.

b. Holding: court reversed his conviction finding that: i. He was a party to a judicial proceeding ii. His statements were made to a judge or magistrate

Comment [L.R.15]: Does it matter if EPA ever actually exercises its authority?

iii. His statements were made ‘in that proceeding.’ c. Rule: proceeding begins at indictment. d. Note: Prior to amend, courts distinguished between housekeeping

functions and advocacy functions (probably to protect attorneys in making case for clients). This probably would = housekeeping function under old rules, but that distinction is gone.

3. U.S. v. Pickett (DC Cir. 2004)– supplement page 36 a. Facts: Capitol Building security police officer left note at guard

station w/ some white powder, basically playing off of recent anthrax investigations. Was supposed to be a joke on the officers there.

b. Holding: while a false statement made to legislative branch in course of investigation would qualify under statute, this statement was not made specifically as a part of an investigation – rather, this event TRIGGERED an investigation.

c. Notes: - theory of case was that he made a false statement w/ in the jurisdiction of legislative branch and therefore he could be charged under this. - this differs from Rodgers b/c Rodgers triggered an investigation in the executive branch. Subsection two requires that for legislative jurisdiction, needs to impact an on-going investigation

4. U.S. v. Shah (1995) p 307 a. Facts: Shah submitted bid to a government buyer that contained

promise that he would not disclose his bid or discuss terms with any competitors. Afterward, he contacted a competitor in an effort to do just that. He was caught.

b. Holding: Theory of court is that by making a promise he never intended to keep, he made a false statement.

c. Notes: - it’s not the breaking of the promise that constitutes the crime (this would make every breach of contract a federal crime); it’s the making of the promise with the intent to break it. Has to be false at the time statement was made. - gov’t can prove his intent b/c he called the other guy soliciting the collusion before he even mailed the bid w/ it’s promises - allegation bolstered by further communication (faxes) and request for confidentiality. Also jurisdictional basis for wire fraud here too.

5. Hypothetical question 2 – p312: if he said, “I can’t promise, but I predict we’ll deliver early” even though he knows there is no way he can deliver early – has he made a false statement? Probably. If he knows to a moral certainty that he cannot deliver early, his statement that he might, could or probably will deliver early is false.

- why is this not puffing? This is evaluated under the category of whether the statement is material. Not material puffing.

6. Problem 6-1, in handout 2: - enough for it to influence the course of the investigation. Even if they know the lies are suspicious – as long as the content of the statement has the capacity to

Comment [L.R.16]: Note that he mailed it. Could implicate mail fraud.

Comment [LNW17]: - false statement doesn’t have to have an actual impact on federal investigation, if it had intent and tendency to impact – that’s enough.

influence FBI investigation, that can be enough to satisfy the materiality requirement. Doesn’t have to be a good lie, or skillfully told, etc.

D. Exculpatory No’s 1. Brogan v. U.S. (1998) p. 313

a. Facts: FBI showed up at ∆’s house unannounced and asked him if he had received illegal funds. He said “no” and was prosecuted for false statement.

b. Holding/Rules: “no” in answer to a question is a statement, and it’s material b/c it has the ability to impact the investigation

c. Notes: if FBI has so much evidence that they know immediately that he’s lying, how can his statement be material? Point is whether the statement COULD, in the ABSTRACT, impede the investigation - Why does court reject argument that being questioned by FBI is uncomfortably close to infringing upon his 5th amendment rights? - court says he should just know to remain silent. 5th amendment only applies when you’re in custody. Here, he was free to tell the investigators to leave, or to refuse to answer their questions.

E. Culpable Mental State 1. U.S. v. Yermian (1984) p320

a. Facts: lied on security clearance questionnaire b/c he had lied to get employment, and wanted to maintain consistent story.

b. Issue: whether the govt must prove that the false statement was made w/ actual knowledge of federal agency jurisdiction (not just that he knowingly made a false statement)

c. Holding: “knowingly and willfully” modify the false statement portion of the statute; do not modify the jurisdiction element.

d. Notes: court instructed jury that they could find him guilty if it was shown that he knew, or should have known, that the document was going to govt. Govt never objected to jury instructions (could have required ACTUAL knowledge).

2. U.S. v. Green (1985) p324 a. Fact: Con-chem lied about tests of coatings/falsified safety test

report for a nuclear power plant; the safety tests were required by the Nuclear Regulatory Commission.

b. Issue: same as above. c. Holding: using legislative history and Yermian, court concludes

similarly - no mental state (actual or constructive knowledge) is required w.r.t. federal involvement in order to establish a violation of § 1001.

d. Notes: - lying is not innocent behavior - and in answer to the fact that you might not know that it could be a crime ‘innocence of the law is no excuse’ - note also that if you approach an undercover fed agent for drugs, he doesn’t need to be in the midst of an investigation. Statute is different between executive, legislative and judicial branches’ jurisdiction.

3. Hypo p 327: even if lie becomes a matter of federal interest, AT THE TIME IT WAS MADE it had to be w/ in federal jurisdiction. Thus, that it subsequently became matter of interest does not somehow retroactively apply the statute to that lie.

F. Multiple Punishment 1. General: under Blockburger, offenses are not the same for double jeopardy

purposes if each requires proof of an element that the other does not. If each offense requires proof of a fact that is not rqd by other, Blockburger permits imposition of multiple punishments, even though evidence rqd to est. each of the crimes may substantially overlap.

2. United States v. Ramos (1984) p. 327 a. Facts: Ramos tried to get passport w/ false information. convicted

of 2 different offenses: false statement to fed; and false statement w/ intent to secure passport.

b. Issue: is this double jeopardy? c. Holding: Blockburger test: one act can be basis for two

convictions if requirements (elements) of crimes are different. Here, both statutes required false statement, but they require different elements of materiality of the false statement (§1001 requires mat’l falsehood; §1542 does not); they also have different intent rqmts (§1542 intent/purpose to secure passport; §1001 – no purpose to secure any benefit from the government required).

d. KB: one act can satisfy convictions under two statutes as long as each statute requires proof of a fact that the other does not.

G. Related Theories of Liability 1. Procurement Fraud: 18 U.S.C. § 1031(a)-(c). supplement p. 151 The

Major Fraud Act of 1988 prohibits (1) knowing (2) execution or attempted execution of scheme (3) to defraud the U.S. or to obtain money or property (4) where the value of the prime contract, subcontract, or any constituent part is worth at least $1mm.

2. United States v. Brooks (1997) p 330 a. Facts: B&D, subcontractor for company supplying navy,

committed fraud on contracts worth $51k and $1.4k. Primary gov’t contracts for ships were worth $5M and $9M.

b. Holding: as long as the prime contract w/ the U.S. is greater than or equal to $1M, the statute has jurisdiction over any subcontracts beneath that contract.

c. Why: i. Small parts/ $$ contract can still have huge impact on large

contract, safety, etc. ii. Congress is really concerned about stealing from the

government. Regardless of value of individual fraud, procurement fraud is wasteful to govt, etc.

d. Note: Perpetrator of fraud does not need to know that their product is involved in either a gov’t contract, or a govt contract worth over

$1M. Those two details establish jurisdiction. Jurisdictional knowledge not required.

3. U.S. v. Sain (1998) p. 335 a. Facts: water treatment plant submitted inflated claims for

reimbursement of costs on contract (in response to higher purity standard). CEO was charged w/46 counts of fraud.

b. Holding: separate executions of fraud over a longer period of time can each be punished as separate fraudulent schemes.

c. Notes: there wasn’t a set amount as the goal for the fraud. The goal was to keep perpetuating the acts as long as possible. Court notes these as a series of frauds. Several frauds, w/ intention to keep committing more frauds, until stopped.

4. False Claims – 18 U.S.C. §287 – punishes knowingly making false, fictitious or fraudulent claims against govt for $ or property. Unlike Major Fraud Act, requires that claim for $ or property be physically presented to govt.

a. United States v. Maher (1978) p. 337 i. ∆ falsified hourly billings so that gov’t would be paying the

“correct” amount. No fraudulent intent. However, he still lost case and was convicted for making false claim under 18 U.S.C. §287.

ii. Notes: Does this mean it’s a strict liability offense? - well, in this case there are a lot of signs that he knew what he was doing was wrong. (tracing employees’ signatures, destroying original timesheets) - whether or not statute requires intent to defraud, it seems clear that he had that intent to falsify. - so what is the intent requirement? Knowledge of the falsity of the claim; even if there is no fraudulent intent; even if you sincerely believe that you won’t be causing harm – knowing that your claims are false, fictitious or fraudulent is enough.

5. When use §287 over §1001, 1031, et? a. §287 requires:

i. - present the fraud to the gov’t ii. - what must be presented to gov’t is a claim for $ or

property iii. - knowingly committing iv. - not just gov’t procurement; - could be tax, welfare, etc.

b. §1031 i. - requires knowingly executing scheme

ii. - Requires intent to defraud, obtain $ or property iii. - does not require that anything is presented to gov’t

c. §1001 i. - doesn’t require fraud at all. Only requires knowingly

making false statement that’s in a jurisdiction of the federal government.

d. *prosecutor does not have to pick statute that seems to fit fact pattern best. Prosecutor can pick whichever one he wants.

6. 18 USC §1350 (c) – Certification of Corporate Financial Reports a. Requires CEO’s and CFO’s to certify in writing that the financial

statements of the company comply w/ SEC reporting requirements, and that their fairly represent the company’s financial condition in all matl respects.

b. §1350(c)(1) – crime to certify a financial report knowing that it dos not comply w/ statutory / SEC rqmts

c. §1350(c)(2) – more serious crime to willfully certify a financial report while knowing it does not comply w/ statutory rqmts.

d. Note – difference between §1350 and §1001; what does 1350 accomplish that §1001 does not?

VI. PERJURY AND FALSE DECLARATIONS - SUP. P 167

A. Perjury generally, 18 U.S.C. § 1621: Whoever (1) having taken an oath (2) willfully (3) states or subscribes any matter which he doesn’t believe to be true, and which is (4) material, is guilty of perjury.

B. False declarations before grand jury or court, 18 U.S.C. § 1623: Whoever (1) having taken an oath (2) in any proceeding before or ancillary to any federal ct. or grand jury (3) knowingly (4) makes any false declaration or uses any written material that includes false information, (5) where the falsehood is material, is guilty of making false declarations before a grand jury or court. 1. Bronston v. United States (1973) p. 344

a. Facts: movie production owner was questioned on witness stand of bankruptcy court. Gave literally truthful answers, but they did not specifically answer the questions asked by the lawyer, and were therefore misleading.

b. Holding: if witness evades, it is lawyer’s responsibility to recognize the evasion and ask more pointed questions to get the exact answer needed. Witness’ conviction reversed.

c. Notes: i. - why would congress prosecute someone for perjury when a

single follow-up question by lawyer could resolve problem? ii. - even if witness is vague with intent to deceive or mislead,

that’s not purpose of statute. It’s possible that witness could be nervous under oath and accidentally not answer well.

iii. Review problem. 7.1 2. United States v. Walser (1993) p. 351

a. Facts: ∆ sent a back-dated and false document (the SCI-013 form) to Morrow, a claims specialist for the Fed Crop Insurance Corp, to cover up her prior submission of fraudulent crop insurance claims. At ∆’s trial for fraud, ∆ subpoenaed Morrow, who testified for ∆ on the basis of this document. ∆ was acquitted, and it wasn’t until after trial that govt. discovered that the document was back-dated and false.

b. Holding: ∆ subsequently was held liable under § 1623 and § 2(b) (as well as § 1001) for intentionally causing an innocent party, Morrow, to commit perjury unwittingly.

c. Rationale: “By falsifying and back-dating the SCI-013, then introducing it at trial through innocent testimony of Morrow, ∆ knowingly caused a fraudulent document to be entered into evidence during a court proceeding. … Section 2 unites Morrow’s capacity to commit perjury with ∆’s intent that perjury be committed.”

d. Note: ∆ was never under oath. Not problem. C. Two Witness Rule – prohibits basing perjury conviction solely upon an oath

against an oath. 1. United States v. Davis p357

a. Facts:Davis gave different testimony to FBI agent and grand jury. Under oath, told grand jury that he had no knowledge of burglary, and that Gustason had never told him anything. FBI agent’s written statement, which Davis supposedly signed, said he knew all about it, and he knew where the safe was. FBI agent testified at perjury trial.

b. Holding: testimony of FBI agent, plus SIGNED statement made by Davis (transcribed by agent) is enough evidence to est. ∆’s guilt.

- signed statement amounted to a written admission by Davis. His signature indicated he had adopted statement as his own. If he hadn’t signed it, court would need further corroborating evidence to est. guilt. c. Notes: 2 witness rule: requirest hat falsity of ∆’s statements must be

proved by testimony of 2 witnesses or the testimony of one witness, plus corroborating evidence.

2. False Declarations statute abandons the 2-witness rule. a. If govt can prove that ∆ made 2 inconsistent declarations, one which

was necessarily false, need not prove which statement was false. That’s enough.

D. The Recantation Defense - crime of perjury complete when witness makes false statement under oath. If witness later corrects or retracts lie, it’s no defense. 1. United States v. Fornaro (1990) p. 363.

a. Case about witness lying re: the wherabouts of other person. Supports recantation rule.

E. Immunized Testimony – Title 18 U.S.C. § 6002 provides that a witness who pleads the 5th may be compelled to testify; “but no testimony or other info … may be used against the witness in any criminal case, except a prosecution for perjury, giving a false statement, or otherwise failing to comply with the order.” 1. United States v. Apfelbaum (1980) p. 373

a. ∆ was called to testify before a grand jury w.r.t. a robbery at a car dealership. He pled the 5th and was granted immunity but compelled to testify. In his testimony, he made two series of false statements. The S. Ct. held that he was liable for perjury for the false statements; the immunity extended to offenses related to the robbery, but not to offenses related to the testimony itself.

b. Handout 2A: Sherman (and any materials that follow)

Comment [LNW18]: She had intent, no capacity. He had capacity, no intent. Direct causal relationship est. by her subpoena of him to testify

2. U.S. v. Stewart (2004) supplement p. 44 a. Facts: Stewart sold stock day before IMclone tanked. Her broker

lied, said he talked to her 12/20 to set sale price, and again 12/27 to confirm sale. She also lied, affirming those conversations, denying knowledge of assistants’ messages. Both charged w/ false statements. Broker also got perjury & false documents charge. Later, gov’t filed suit against own witness who had pergured regarding ink tests on Peter’s documents. Martha and P moved for new trial.

b. Rule: new trial warranted only if testimony was material and the court believes that, “but not for the perjured testimony, the defendant would most likely not have been convicted.”

i. Reversal also basically automatic if gov’t knew of false testimony

ii. 2nd cir has since held that even if govt knew of perjury, if independent evidence supports conviction, subsequent discovery does not warrant new trial.

c. Holding: b/c agreement for sale at $60 was only one of many lies for which ∆s were convicted, perjury wouldn’t have made difference. No new trial.

VII. OBSTRUCTION OF JUSTICE (ch. 8) A. Overview

1. purpose: protect participants in judicial/administrative proceedings and preserve integrity of judicial/administrative decision-making process

2. statutes: a. §1503 – applies to participants in civil and criminal judicial

proceedings b. §1505 – participants in administrative agency and congressional

proceedings c. §1510 – applies to participants in fed. Criminal investigations d. §1512 (created by victim/witness protection Act) – offense of

tampering w/ witnesses, victims and informants e. §1513 – offense of retaliating against witnesses, victims, informants

B. Pending Judicial Proceedings: 1. U.S. v. Simmons (1979) p388

a. Facts: Simmons was writ server, turned in to FBI for changing scofflaw notices; destroyed documents and told his employees to lie to investigators after he was served w/ subpoena.

- was charged w/ obstruction of justice. Conduct at issue was destruction of documents and instructing employees to lie. b. ∆ argued that the judicial proceeding was not actually in process;

that he had only received a subpoena of the u.s. attorney – grand jury proceeding had not yet begun.

c. Court held: the reality of grand jury proceedings is that investigations are conducted by u.s. atty, since subpoena was issued in furtherance of actual grand jury investigation, it’s okay.

Comment [LNW19]: Purpose is to protect procedure

d. Rule: - if there’s a sitting grand jury, and a bonafied reason to issue the subpoena, and the subpoena is then issued, that’s enough to constitute the judicial investigation/proceeding

e. - even after jury makes decision, there’s a chance for appeal. Still have pending judicial proceeding…

2. U.S. v. Lundwall (1998) p394 a. Facts: ∆’s destroyed documents that were requested as part of

discovery of a civil class action law suit. ∆’s claimed that the statute only applied to criminal proceedings, not civil.

b. Court holding: omnibus clause of §1503 is broad enough to cover any act committed corruptly in an endeavor to obstruct justice…no basis for applying it more narrowly.

c. Rules: i. Even though documents had not been subpoened, they’d been

requested at deposition – part of procedure. Enough. ii. If they hadn’t been requested, but ∆’s predicted that they

would be eventually, and thus destroyed them – that’d also satisfy the statute.

d. Why do prosecutors rarely go after perpetrators in civil suits? - discovery disputes are common. Don’t want to get involved. - criminal cases are most likely to come to the u.s. atty’s attention.

C. Endeavoring to Influence or Impede – use of word “endeavors” avoids technicalities of law of attempt. Punishes ANY effort to do what statute forbids, provided conduct has at least a reasonable tendency to corrupt a legal proceeding 1. United States v. Collis (1997) p. 400

a. ∆ submitted a forged letter pretending to be from his employer to a district ct. in support of leniency at a supervised release violation hearing. After he was sentenced, the judge learned that the letter was a fabrication.

b. Holding: ∆ was held liable under § 1503 for obstructing justice, even though judge wasn’t actually swayed by the letter.

c. Rule: “The govt. needn’t show that the false statements actually obstructed justice.… ∆’s letter need only have ‘the natural and probable effect of impeding justice’ to constitute a violation of § 1503.”

2. United States v. Griffin (1979) p405 a. Facts: Griffin had talked w/ Ebeling about debt collection, and

names of individuals like Dominick and Angelo – later denied knowing anyone talked about, knowing Ebeling, etc during Grand Jury testimony.

b. Court’s Comments: i. - for perjury to be obstruction of justice, has to “close off

avenues of discovery.” ii. - false testimony can amount to contemptuous conduct if

added to the element of perjury there is the ‘further element of obstruction to the court in the performance of its duty.’

c. Notes: i. - if witness says simply, “I don’t know” rather than saying an

evasive half-truth, it blocks the lawyer from asking further, clarifying questions that might help reveal the truth.

ii. - witness’ intent in perjuring may factor into determination of whether action was obstruction of justice. Intent has to be to an endeavor to obstruct justice – have to deny something material to the proceeding.

d. Rule of the Case: i. 1. Not all perjuries are obstructions of justice. ii. 2. Perjury does = obstruction when subject lied about is

material (relevant to any subsidiary issue or capable to supplying a link to main issue under consideration)

iii. 3. Perjury does = obstruction when it cut offs inquiry, when false or uncooperative answer is same as refusing to testify. (it’s like concealing evidence – saying, “I don’t know; I don’t recall…can’t cross-examine like if the witness just said “no” and could be proved wrong by other evidence.)

3. United States. v. Cintolo (1987) p 416 a. Facts: lawyer told client to refuse to testify under immunity of 5th

amendment, while also acting as counsel to person who would have been implicated by that testimony.

b. Issue: whether improper motive of attorney, in giving client guidance to take 5th, which was contempt, comprises obstruction of justice?

c. ∆ argument: atty’s have to be able to zealously represent client and as long as there is a facially plausible reason for my advice, I should be shielded from any further inquiry.

d. Holding: Although D’s acts in fostering the intimidation of LaF were not in themselves overtly unlawful, D’s acts w/ his corrupt intent were actionable under § 1503. This went beyond zealous representation b/c D lacked good faith and an honest belief that LaF had any residual right, after rcvg immunity, to maintain his silence

e. Rule: Court is allowed to look at reasons behind lawyer’s advisements of clients.

f. But even if his motive had been pure, and he had been acting solely in interest of LaFreniere, his conduct still would have been improper, b/c he counseled his client to commit a crime!

g. Consider difference between knowingly and corruptly. (atty could advise client to plead 5th, KNOWINGLY attempting to keep info about client from being discovered – but with good intention of protecting client.) Corruptly, means ‘with an improper purpose.’

4. United States v. Aguilar (1995) p 411 a. Facts: judge indicted on obstruction of justice b/c he told a suspect

about a wire-tapping of the suspect by FBI; and b/c he also agreed to talk to another judge on behalf of other suspect involved in

Comment [L.R.20]: Need both

embezzlement ring. Judge was asked questions by FBI agent investigating case, and he lied about his participation in the case and his knowledge of the wiretap.

b. Court Rule: in order to convict judge, have to show that he had knowledge that the natural and probable effect of his lie was to impact grand jury proceeding, and that he had the intent to obstruct it.

c. Holding: b/c it was not clear that judge had knowledge that his lies would impact a judicial proceeding, it was not proven that he had committed the crime of obstruction. “Corruptly” requires knowledge of proceeding.

5. Problem 8-2 p423 - witness refuses to testify, b/c she’s afraid of mob. She’s not acting corruptly – instead of obstruction of justice, charge for contempt. - reasoning for charging her for contempt: have to be able to pursue justice. As policy, fear is not an excuse for failing to testify. - what if she rcd anonymous call, “you testify – you’re dead.”

a. Court says there might be limited situations where they’ll provide exceptions (need specific, substantial, authenticated belief of danger) – but even then, you could still be guilty of contempt

6. Lawyer Liability (423) Section 1515(c) presents ‘safe harbor’ for lawyers who are providing lawful, bona fide legal representation in connection w/ or anticipation of an official proceeding. - does this give lawyers greater protection?

a. Still has qualification ‘bona fide legal service.’ Likely that Cintolo case, if brought AFTER 1515(c) was passed, wouldn’t have made any difference. His weren’t bona fide legal services.

b. Is it element of the crime, or an affirmative defense? Kloess case says it’s an element of the crime. Indictment needs to say that lawyer wasn’t giving bona fide legal services, and prosecution then has to present that as part of its case.

D. Victim and Witness Protection Act (deleted statutory references to witnesses in 1503 and 1505…incorporated protections into 1512.) 1. Non-Coercive Witness Tampering

a. - §1503 U.S. v. Lester i. Facts: ∆ charged w/ tampering w/ witness (b/c he paid to have

witness stay in hotel so he could not testify) just whisked out of town and prevented from testifying.

ii. ∆ :§1503 does not cover conduct b/c §1512 had been enacted to cover ‘tampering w/ witness or informant’ situations, and congress had taken out direct reference to witnesses in §1503. §1512 lists methods of witness tampering, but does not cover ‘non-coercive’ witness tampering. “Corruptly persuading” in 1512 did not cover this situation b/c there’s no evidence that there was any physical threat to witness.

Comment [L.R.21]: in order to prove this, govt had to show that he anticipated this particular proceeding, and that he knew the FBI agent would be called to testify. need that causal effect shown.

iii. Holding: “efforts to secrete Brigham, manifestly done w/ the purpose of preventing his testimony, constitute a corrupt endeavor to obstruct justice in violation of §1503.”

iv. RULE: “ congress enacted section 1512 to prohibit specific conduct comprising various forms of coercion of witnesses, leaving the omnibus provision of section 1503 to handle more imaginative forms of criminal behavior, including forms of witness tampering, that defy enumeration.”

b. U.S. v. Anderson (2005) i. Facts: AA told employees to work over-time to handle

document shredding; AA’s shredders at Enron were so overwhelmed, trucked documents to Anderson to do more shredding. AA knew about SEC investigation of Enron. Blatantly said ‘we can do this as long as no subpoena is issued.’ Deleted thousands of emails. Jury was instructed that they did not need to find consciousness of wrongdoing. Statute has multi- part mental state: ‘knowingly intimidates, threatens, etc.’ or ‘corruptly persuades, etc.’ w/ intent to affect.

ii. Holding: Court says knowingly, in this context, has to mean consciousness of wrongdoing.

iii. Notes: in ordinary context, “knowingly” needs awareness of conduct, but not necessarily that conduct was wrong.

- typically, corruptly would describe knowing wrongness of conduct. context and motive determine whether action is corrupt iv. court not really saying anything about merits of case, or

whether gov’t was overreaching. Just focuses on jury instructions, and concludes that they were insufficient. Concludes that there needs to be nexus between conduct and proceedings that was at least foreseen.

2. U.S. v. Gabriel (1997) MISLEADING CONDUCT a. Facts: corp. officer of a jet engine repair station (“CRT”), was being

investigated by a grand jury for involvement in a fraudulent scheme. He falsely stated in a fax to a Qantas rep., Mealing, that he had previously disclosed to Qantas that a low-pressure turbine (LPT) case was only partially serviceable when it wasn’t serviceable at all. He was charged w/ attempted witness tampering under § 1512(b)(1) on the theory that he intended to mislead Mealing to believe the lie and repeat it to the grand jury.

b. Holding: (1) The “likely to affect” (pending proceeding) requirement that the S. Ct. in Aguilar incorporated into § 1503 shouldn’t be incorporated into § 1512. Rather, the govt. has to prove only that D misled or corruptly persuaded Mealing w/ intent to interfere w/ Mealing’s potential testimony before the grand jury. The fact that Mealing was in Australia and beyond the grand jury’s subpoena power didn’t rule out the possibility of his testifying.

3. U.S. v. Wilson (HARASSMENT) (1987) p. 445

Comment [L.R.22]: So what does it mean to knowingly corruptly do something? Is it possible to corruptly persuade w/o knowing it was wrong?

a. Facts: Outside the courtroom in the middle of a trial, one govt. witness, ∆, sneered at three other govt. witnesses, “Your asses belong to Joe” and “you are a bunch of jokes and should be in jail, too,”

b. Holding: (1) Both a single act and repeated attacks can constitute harassment. (2) There was substantial evidence of D’s intent. D knew the witnesses were in the hallway for the purpose of testifying. He didn’t know that two of them had already testified. His tone of voice, face, could reas. be interpreted as harassing. Plus, his intent could be inferred from the way the other witnesses reacted to his remarks.

E. COERCIVE WITNESS TAMPERING 1. United States v. Willard (2000) p.448

a. Facts: Facts: mother threatened dire spiritual consequences and charging for perjury, if daughter testified against father for sexual molestation.

b. Holding: mother convicted of witness-intimidation. c. Rule: not necessary to show that ∆ actually obstructed justice or

prevented witness testimony – focus is on ∆’s endeavor. d. Notes: Why was Wilson (muttered threats in court) harassment,

while Willard was intimidation? - Willard, threat is very specific, explicit - Wilson – general threats - mother not privileged to influence daughter against daughter’s well-being (bad motive); analogous to lawyer privilege…can influence if to the client/daughter’s benefit. Not for benefit of 3rd party and detriment of that party.

2. SEC v. LAY: (Corporate vs. Personal Records) a. Facts: Lay produced documents for Πs in class action and

bankruptcy cases, but wouldn’t give them to SEC. Why? Probably b/c he saw some advantage to himself. Waived 5th amend privilege there - But made them sign a confidentiality agreement in both of those cases, that bankruptcy and class action. Π’s couldn’t tell SEC what was turned over.

b. SEC asserts that since he produced some records, he effectively waived 5th amendment privileges for everything else. He can’t state terms for his 5th amendment usage.

c. Rule: no 5th amend. privilege for corporation. If individual, as custodian, has records – must give them up. Can’t retain them for 5th amendment reasons.

3. 5th Amendment Privilege - General Notes a. Witness can lawfully avoid giving damaging testimony against self

by invoking 5th. If gov’t considers testimony crucial, it can obtain grant of immunity requiring witness to testify, but forbidding gov’t from using testimony against the witness in criminal prosecution.

b. Custodian required to produce corporate records, but does not need to testify where they were. Braswell: gov’t may not use the

individual’s acdt of production in prosecution against him, but could use corporation’s act of production against individual.

c. U.S. v. Doe: Sole proprietor can refuse to produce proprietorship’s records on 5th amendment grounds.

VIII. BRIBERY A. Bribery of Public Officials: 18 U.S.C. §201

1. In General: a. Bribery: Whoever (1) corruptly offers or gives (2) anything of value

(3) to a public official (4) w/ intent to influence is guilty of bribery under (b)(1).

Any public official who (1) corruptly seeks or receives (2) anything of value (3) in return for being influenced (or apparently being influenced) in connection w/ any official act is guilty of the crime of bribery under (b)(2). Gratuity: Whoever (1) offers or gives (2) anything of value (3) to a public official (4) for or because of any official act performed or to be performed is guilty of gratuity under (c)(1)(A). Any public official who (1) seeks or receives (2) anything of value (3) for or because of any official act performed or to be performed is guilty of the crime of gratuity under (c)(1)(B). b. Punishment: Bribery carries a more serious punishment than gratuity, which is essentially a lesser included offense.

2. Official Act - any decision or action on any “question, cause, etc” which may at any time be pending, or which may be brought before any public official in his official capacity…”

a. United States v. Parker (1998) p. 463 i. Facts: Parker falsely approved applications for SSI benefits

and then asked for payments for her actions. She did not have authority to approve applications or make decisions on benefits – was clerk for judge who did.

Bribery statute forbids public official from soliciting or accepting anything of value for an official act performed… ii. ∆s argument: not an official act b/c she didn’t have

authority to make determination about who could get benefits iii. Court’s Response: Was an official act. Her position

enabled her to do it, w/or w/o authority. She had access to letters, insignia, computers, etc. Had access also b/c of business that was pending before her office

b. United States v. Arroyo (1979) p466 i. Facts: A Small Business Administration loan officer deceived

a loan applicant into thinking that his application had not been approved and demanded bribes in return for loan approval.

ii. Holding/RULE: The ct. held him liable under § 201(b) for soliciting a bribe; In order for crime of bribery to be committed, it is not necessary that official actually have power to perform act that he promises in return for $; what is necessary is that

official solict or receive the $ on the representation that the $ is for the purpose of influencing his performance of something.

iii. Rationale: if in the mind of the bribe payer, his payments are going to get him influence – even if person soliciting bribe cannot influence, or does not have authority to influence, if ∆ succeeds in convincing Π, it satisfies “solicitation” of bribery.

3. Motive and Intent a. U.S. v. Sun-diamond Growers of CA (p469)

i. Facts: A trade association gave gifts to former Secretary of Agriculture Michael Espy while it had an interest in matters before Espy. The S. Ct. held that gratuity requires proof of a nexus bet. the gifts and a specific official act, which is defined in § 201(a)(3).

ii. Rule: Have to look at the nature and value of the gift and the circumstances in which it was given in order to distinguish bet. benign gifts and unlawful gratuities. Gifts to promote a good working relationship are benign.

iii. What’s the difference between bribery and gratuity? - to distinguish, you have to say, “what was the intent of the actor.” In this case, was there any evidence that SDG gave Espy the gifts with the intent to influence his actions? - could characterize as difference between intent to influence vs. intent to reward - outlaw gratuity out of ‘slippery slope’ concerns

b. U.S. v. Anderson (1975) p.475 i. Facts: Anderson, registered lobbyist for Spiegel, Inc. met w/ Senator Brewster, member of Committee on P.O. and Civil Service, in order to voice Spiegel’s opposition to higher postal rates, and at end of meeting, gave $5,000. Later gave additional amount of thousands of dollars during meeting where pending bill over postal rate increases was discussed. ii. Rules: - though lobbyists influence senators legally, cannot give value to influence, legally. - that lobbyists be registered is not only legal restriction of their activity. Lobbyists must obey other laws. Lobbyists not exempt from bribery statute. May not give anything of value w/ intent to exert an influence. - payment and receipt of a bribe are not interdependent offenses. Donor’s intent may differ from donee. Donor could be convicted of bribe, but recipient might have had no intention of altering official activities, so acceptance of money could just be gratuity

4. Thing of Value - anything of value can satisfy statute a. U.S. v. Williams (1983)

i. Facts: undercover agents acted as Arab sheiks, and offered stock in their made-up corporations as bribe. While the stock had no real value, ∆ thought that the stock had significant value. ii. Holding/rule: as long as recipient of bribe believes that the thing being offered as bribe has value, that’s enough to meet statutory requirements. Doesn’t need to have actual value.

b. Problem 9.5 (supplement) – Focus on “thing of value” What does section 201 mean when it says it is unlawful to give something of value directly or indirectly? Is mere promise to give something of value to intermediary enough, even if $$ only gets to intermediary to facilitate purchase of machine?

• This isn’t enough to say that there’s a thing of value that has been given to gov’t official. Nothing has been conferred on the official at this point.

• If promise was made directly to inspector, that might be enough. • Could probably convict under the conspiracy statute §371.

4. Public Officials a. Dixson v. United States (1984) p486 (appointed official)

i. Facts: appointed administrators of housing project funds (including funds from HUD). Grantee is city; UNI is subgrantee – a private corp. that administers funds. ∆s - coordinator and executive director. ∆s interfaced w/ applicants and contractors. Solicited bribes from contractors (10% kick-backs).

ii. ∆ argument: we’re not public officials; employees of private organization. We’re not in privity w/ HUD.

iii. Court’s Holding: - §201 has been accurately characterized as a comprehensive statute applicable to all persons performing activities for or on behalf of the United States. - no direct contractual bond w/ fed required iv. Analysis: - disbursement of federal funds - federal function - occupied position of public trust - administered a social service program established by U.S. Congress – this is a quintessential federal/public official function despite fact that it was outsourced/delegated to private entity. Note discretion exercised. - salaries paid through administrative portion of grant v. Dissent: ct. didn’t define when people are far enough from

fed function to not be held liable. b. U.S. v. Brewster (1972) p 492 (elected official)

i. Facts: Brewster prosecuted for accepting bribe; tried to use speech and debate clause to prohibit use of any statements he said on senate floor from being used to convict him.

ii. Holding: member of congress can be prosecuted under criminal statute provided the govt’s case does not rely on

legislative acts or motivation for legislative acts. Govt did not need to show that he fulfilled the illegal bargain – he accepted the bribe, and it doesn’t matter whether he performed the illegal promise on floor.

iii. Rationale: - inquiry is into the intent in taking the money; not the motive for acting on legislature’s floor. Point in time that we’re looking at is the intent at the time of acceptance of bribe. Notes: concern about independence of legislature if there had been house rules that effectively disciplined members, court probably wouldn’t have stretched as far to include this conduct

c. U.S. v. Ware (1998) p.501 i. ∆, in a drug case, argued that by offering leniency to

codefendants and cooperating witnesses in exchange for their testimony against him, prosecution had violated § 201(c)’s prohibition against offering anything of value to a witness for or because of the witness’s testimony. \

ii. The S. Ct. held that the word “whoever” in the statute and in this context doesn’t include the U.S. govt

iii. Rationale: 2 situations when statute shouldn’t apply to gov’t:

i. When govt has established interest ii. Obvious absurdity to apply

iv. Prosecutors are required to disclose plea agreements to defense, so defense has an oppty. to ferret out false testimony that an interested witness might give b/c of a govt. promise.

B. Federal Program Bribery: 18 U.S.C. §666: 1. Whoever (1) being an agent of a fed., state, or local agency or organization (2)

that benefits in excess of $10,000 under a federal program (3) embezzles, etc., or corruptly solicits bribes (4) in connection w/ any business, transaction, or series of transactions of such entity involving anything of value of $5,000 or more is guilty under the statute.

2. Whoever (1) corruptly offers or gives (2) anything of value of $5,000 or more (3) to any agent of a fed., state, or local agency or organization (4) that benefits in excess of $10,000 under a federal program (5) w/ intent to influence is guilty under the statute.

3. Salinas v. U.S. (1997) p. 507 a. Facts: sheriff and deputy at county prison facility, which was

housing federal prisoners for federal stipend of > than $10k per year, accepted gifts and cash in exchange for allowing prisoner to have “contact” visits.

i. Jail receives per diem expenses for the federal prisoners. ii. Federal grant used to remodel jail

b. Holding: even though the federal funds given to the jail were not directly affected by the bribery conduct, b/c the bribe was related to the housing of the prisoner in facilities paid for, in significant part, by

federal funds, that relationship was close enough to satisfy the connection required by §666. p511

c. Notes: - 666 was passed after Dixson (which was questioning how far §201 (bribery of public officials) could reach) Congress defined reach. - $ rqmts of 666: agent must rcv something of value of at least $5k; agent must work for agency rcving at least $10k from feds per year.

In class applications of various statutes. - could ∆s in Dixson (HUD appointees took bribes from contractors) have been prosecuted under 666 had it been in place?

i. ∆s were acting as agents, rcvd bribes over $5k; and agency rcvd enough annually – seems that 666 would apply.

- could §201 apply to the people in Salinas? ii. Test in Dixson – whether person occupies position of

public trust, w/ official responsibilities/administering federal policy. Applying that to Salinas sheriff wasn’t really implementing federal policy. Was acting as agent (paid to watch prisoner) – but no policy

4. United States v. deLaurentis (2000) p. 512 a. Facts: supervisor of police accepted bribes, and interceded in town

policy issuing license to bar – which was so bad it required an additional police officer body for patrol. Extra police officer added to force was his brother.

b. Rule: Although it is not necessary to show that the bribery activities of the ∆ actually impacted the federal funds themselves, or had a direct bearing on the expenditure of those funds, it must appear that there is some connection between the bribery activities and a federal interest.

c. Court finds: that connection in this case was significant enough. Federal interest here was improving local policing, and one way to do that would be to hire extra policeman, but extra policeman is spending time on bar that, but for bribe, would not be open.

5. Sabri v. United States (2004) p 96 of supplement a. Facts: developer bribed member of board to help threaten land

owners to work with him and to assist him get around zoning issues for development of his hotel/retail structure.

b. ∆ argues: §666 is unconstitutional on face for failure to require proof of connection between federal funds and the alleged bribe

c. Rules/Rationale of Court: i. Corruption does not have to be that limited to affect the federal

interest; money is fungible, bribed officials are untrustworthy stewards of federal funds… money can be drained off “here” because a federal grant is pouring in “there.”

ii. b/c some of the money developer was getting as grants was going back to official as bribe – that’s close enough

iii. congress has authority under spending clause to ensure that it’s moneys are used appropriately.

Salient differences between §201 and §666: 201 666 Federal official agent – state or local govt - includes elected/employed - Dixson – expands “official” To include those who have pos. Nexus between bribe and fed of public trust, and, who in that interest position, are basically implement- ting federal policy/program Monetary threshold

6. U.S. v. Copeland (1998) p. 515 a. Facts: Lockheed Martin was contractor for federal gov’t – worth

millions of dollars; purchasing agent to find off-site space for lease and repair inappropriately directed business to his friend and accepted kickbacks on the deal.

b. Holding: The ct. vacated ∆’s conviction under § 666, holding that Lockheed wasn’t an organization that received benefits pursuant to a fed. program, as required by § 666(b). Only those contractual relationships that constitute some form of fed. assistance (the inferred meaning of “benefits,” i.e., entailing fed. policy interests) are covered under the statute – not purely commercial contractual relationships like Lockheed’s.

IX. RICO - 18 U.S.C.§ 1961 Substantive Prohibition (spelled out by this statute specifically) + Racketeering Activities (predicate crimes) (more than 70 fed. predicate crimes – listed in other statutes) = compound complex statute

A. The Enterprise: 1. three discrete types of conduct: (1) investing in an enterprise, (2) acquiring an

interest in or maintaining control over an enterprise and (3) participating in the conduct of an enterprise

2. United States v. Turkette (1981) p. 528 a. Facts: gang illegally trafficked narcotics and other drugs/guns, etc…

other crimes through use of the criminal enterprise b. ∆s argument: “enterprise” under RICO referred to only lawful

enterprises – legitimate – and was trying to protect them from infiltration by organized crime. Since our enterprise is not legal/legitimate, is not covered.

Comment [LNW23]: Federal and State crimes

c. RULE: enterprise is an entity for present purposes a group of persons associated together for a common purpose of engaging in a course of conduct.

- association in fact: includes legal entities, but does not exclude illegal ones. (would include our WCC class – together for common purpose – learning)

3. National Organization for Women v. Scheidler (1994) p 533 (interstate commerce /economic motive)

a. Issue: whether the racketeering enterprise or the predicate acts of racketeering required under the act need to be motivated by an economic purpose?

b. Holding: - no c. Rationale: even if enterprise doesn’t have specific economic

motive, was promoting conspiracy to shut down abortion clinics that were definitely involved in IC – therefore its conspiracy affected I.C.

B. Interstate Commerce Requirement - enterprise must be engaged in, or its activities must effect – I.C.

C. Pattern of Racketeering Activity 1. not isolated criminal acts; multiple criminal offenses that form a ‘pattern’ of

racketeering activity 2. requires “at least 2 acts of racketeering activity, one of which occurred after

the effective date of this [Act] and the last of which occurred within 10 years after the commission of a prior act of racketeering activity.

3. H.J.Inc. v. Northwestern Bell Telephone (1989) p. 540 a. Facts: Customers of Northwestern Bell Telephone (NBT) sued the

company, the Minnesota Public Utilities Commission (MPUC), and others with regards to bribes paid to MPUC officials for approval of higher NBT rates.

b. Pattern of racketeering activity requires at least 2 acts, committed w/in 10 years of one another- this is the bare minimum requirement for threshold for pattern, but doesn’t really define pattern.

c. Holding determined through Legislative history: have to prove that racketeering predicate acts are related, and that there amounts to, or threatens to be continued criminal activity.

d. criminal acts are related if they have same or similar: i. Participants ii. Victims iii. Methods iv. Purposes v. Other similar characteristics

e. Notes: i. Close ended period has to be substantial period of time; more

than several months. ii. Open-ended period example – extortionist who says

they’ll continue to require payments every month in order to keep business open, etc. threat of continuity is infinite.

iii. if you did just a few bad acts w/in a small period of time (w/ no threat of infinite continuity) it wouldn’t qualify under RICO, according to majority.

D. State Predicate Crimes (under (1)(a) – federal crimes listed (1)(b)) 1. U.S. v. Garner – 1987 p 558

a. Facts: prosecutions theory is that underlying “activity” (of bribes by private sewer contractors to sewer inspectors of the City of Chicago) is violation of state code – bribery statute and IL official misconduct statute.

b. Defendants argue: “official misconduct” isn’t listed in 1961(1)(a) c. Court’s argument: official misconduct fits in ‘generic’ idea of

bribery listed by congress in statute. court looks at section 201, federal crime of gratuity is included in RICO crimes (1961(1)(b), and is described as “relating to bribery”, so if congress intended to have everything under section 201 included in section (b), must have wanted everything included in section (a)

d. Note: congress could not have used every specific state name for every crime in section (a). opted for generic recommendation; courts have said anything that looks like a “bribery-like” crime will be incorporated under the “bribery” umbrella in section (a)

2. Problem 10-2 a. if charged under state law and acquitted, can defendant still be

charged under RICO w/ that state crime as the predicate? b. - yep. dual sovereignty. not double jeopardy. both feds and state

have sovereign interest in executing its own policy. acquittal on one level doesn’t preclude charge in other.

c. re: SOL as bar…focus is on conduct, not defendant. “any act or threat” if feds can show that crime potentially committed was predicate, etc SOL doesn’t affect that crime or action.

E. Relationship Between Person and Enterprise 1. Reves v. Ernst & Young (1993) p565

a. Facts: auditors valued company, didn’t advise officers – made difference in whether co. was bankrupt or not. Question is whether they “conducted” activity in sense indicated by section (c) of 1962 or “participated in the conduct”

b. Holding: law firm not liable i. court majority decides that “conduct” requires a level of control

or direction/mgmt of enterprise both in verb and noun use in (c).

ii. even though they made a major decision, they weren’t mging the day to day affairs of the company. so court looks more at operational mgmt.

c. Notes: conduct manage or direct; some sort of leadership role or

i. participate in conduct of: take part in (mgmt or direction) enterprise’s affairs

ii. can participate directly or indirectly ***ultimately requires judgment on what it means to conduct or manage the affairs of certain business (ongoing operations?)

iii. “associated with” an enterprise allows for outsiders to satisfy statute; lower level operatives may even satisfy statute. determine on case by case basis whether defendant satisfies test

“indirect” ability to participate also bolsters inclusion of outsiders

2. Problem 10.3 a. to the extent the defense lawyer is determining state’s atty actions,

either though he’s an outsider, could still be ‘conducting.’ reves court doesn’t make it clear whether it REQUIRES repeated instances of direction, but where there’s only an isolated incident, greater argument that it’s not participating in conducting

b. if prosecutor frames case that defense atty and prosecutor constitute enterprise, while both were also ∆s, would there be any problems? person has to be distinct from the enterprise. To overcome, could add paralegals, other prosecutors, secretaries, etc. to “enterprise.”

c. RICO is only criminal statute known to Brickey that has liberal construction clause; most criminal statutes construed narrowly.

3. McCullough v. Suter (p571) a. The 7th Cir. held that a sole proprietor (convicted of fraud) could be

held liable under § 1962(c), so long as the proprietor has people working for him and isn’t a “one man band.” The enterprise must be either formally (as when there’s incorporation) or practically (as when there are other people besides the proprietor working in the organization) separable from the individual participating in it. A majority of circuits that have ruled on this point have held that the person and the enterprise must be separate and distinct. § 1962(c), §§ 1962(a) and (b) don’t specify a relationship bet. the person and the enterprise as essential predicates for liability.

F. Conspiracy to Violate RICO 1. Salinas v. United States p 575 (S.Ct. 1997)

a. D (the prison guard) challenged his § 1962(d) conviction, arguing that he couldn’t be held liable for conspiracy unless he himself committed or agreed to commit the two predicate acts requisite for a substantive RICO offense under §1962(c). The S. Ct. rejected his argument, holding that under §§ 1962(d) and (c) a conspirator need only adopt the goal of furthering or facilitating an endeavor which, if completed, would satisfy all of the elements of § 1962(c). No overt act required.

G. FORFEITURE 1. United States v. Simmons (8th Cir. 1998)

a. Facts: Fisher and Simmons involved in conspiracy to arrange bribery/fraudulent lobbying services. Fisher not convicted specifically on all accounts which forfeiture allegations were made.

b. Issue: while ∆ must be convicted before forfeiture, does he/she need to be convicted on all specific accounts w/in RICO enterprise to have all proceeds from that enterprise forfeited?

c. Holding: doesn’t matter that ∆ wasn’t convicted on all accounts that give rise to liability under forfeiture provision. Joint and several liability under RICO.

d. Notes: i. thus, if ∆ is only involved in small portion of total value of

enterprise, he can be held liable for entire value of RICO enterprise. Why? Holding otherwise would allow ∆s to shift value from various acts around – evade gov’t proof of their liability. Gov’t shouldn’t have to prove proceeds generated by each part of scheme.

ii. Proceeds should be determined as “gross receipts” from illegal activity. Why? Organization might not keep books; too difficult to figure out profits, overhead, etc. of illegal organization.

2. United States v. Rubin p584 a. Facts/charge: govt seeks to have union official’s positions forfeited

in perpetuity, as part of his asset forfeiture under RICO charge. b. Analysis:

i. are various offices “interests, securities claims or property/contractual right” under statute?

i. b/c of his position, he has power & influence. Forfeiture statute would eliminate power base

ii. these offices fall under statute as contract rights ii. to what extent is that contract right forfeitable?

i. Only positions currently held ii. Right to run for and hold office is not something he

acquired uniquely; same right is possessed by all members.

iii. Why? i. Separates person who runs enterprise from

enterprise ii. Lose incumbent benefits

iii. Labor laws will cover employability standards; if they don’t specify prohibition in perpetuity, should RICO be read more broadly? No.

3. Caplin & Drysdale v. U.S. (1989) p600 a. Facts: Reckmeyer charged w/ running huge drug importation & disti

scheme. Indictment sought forfeiture; gov’t got restraining order on assets. Reckmeyer paid law firm $25k for preindictment legal svc after indictment was handed down; pleaded guilty and order forfeited assets. Law firm then entered petition for a claim on assets for their services.

b. Holding: if ∆ hires atty w/ knowledge of forfeiture order on his assets, that atty has no claim to any of the forfeited assets later.

c. Rationale: i. 6th amendment doesn’t guarantee ∆ right to be represented by

atty of HIS choosing ii. ∆ cannot spend others’ money for atty. (through relation-

back provision, congress gets all right and title. property rights vest upon date of commission of act (relate back to point in time when conduct occurred.))

d. Class notes: in order to get pre-trial restraint, gov’t would need to show probable cause that assets were acquired through unlawful activity

4. United States v. Moffit, Zwerling & Kemler (1996) handout a. Facts: law firm accepted ∆ as client to defend against drug

trafficking and money laundering; asked him for $100k up front he paid in cash, they told him they couldn’t accepted “funny money” but didn’t ask further; agreed not to give him receipt; and didn’t ID him on an IRS form where they reported the income.

b. Holding: while govt didn’t gain title until the forfeiture order was actually entered, the date of its title dated back in time to the criminal activity giving rise to the forfeiture. Thus, the payments to the firm belonged to govt.

i. firm knew assets were subject to forfeiture. ii. firm seems to have duty to investigate source of RICO

client’s assets once aware of charges c. class notes: what would cause a lawyer to have to ask about source

of money i. suspicious circumstances ii. client not wanting receipt b/c of FBI iii. prosecution had already seized most of assets were looking

for more to take. Implication is that they’re not legitimate. iv. client told them that he was involved in drug investigation

d. law firm will have duty to prove that it established assets were legitimate

e. gov’t needs only to show: i. probable cause that assets were bad ii. asset seizure relates back to crime iii. law firm would have to show that it was a bona fide

purchaser for value reasonably w/o cause to know iv. only other option would be to show that at the time of

commission of the crime, the assets were owned by the firm f. other problem for gov’t in this case, at time of restraining order, most

of assets had been dissipated. Only $3,000 left. So court states that prosecution could bring action for conversion against law firm wrongful spending of gov’t assets by firm.

Comment [LW24]: Would only be those specific amounts of assets that gov’t had prove n dirty in pretrial

Comment [LW25]: State court remedy

g. Law firms have duty to get to know client; more likely to have reason to know of illegitimate source, circumstances, etc. harder for law firms to establish that they’re innocent purchasers of value.

H. Injury to Business or Property 1. Sedima, S.P.R.I. v. IMREX Co. (1985) p. 614

a. Sedima and Imrex, two corps., entered into a joint venture to provide electronic components to another firm. Sedima then sued Imrex under § 1964(c) for allegedly cheating it out of a portion of the proceeds, which they were to split.

b. The S. Ct. held: i. (1) P need not allege that D has already been criminally

convicted of predicate offenses or of a RICO violation. “[R]acketeering activity consists not of acts for which the D has been convicted, but of acts for which he could be.”

ii. (2) To prove that the D has committed a predicate act/RICO violation, P has to meet a preponderance standard, not a beyond reas. doubt standard.

iii. (3) P need not show a racketeering injury distinct from that caused by the predicate acts themselves. If the statute’s reach is too broad, Congress needs to amend, not the cts.

2. Libertad v. Welch (1995) p. 619 a. Facts: pro-life demonstrators physically damaged property of

abortion clinics b. Holding: ∏s needed to show actual business or property damage;

there were 3 groups of ∏s: i. Rights groups: would have had to show special expenditures /

out of pocket expenses directly related to protests (escort service). Didn’t.

ii. Women seeking health services: didn’t show injury to business or property

iii. THUS – focus has to be on clinics. c. Notes: ** check out FN 38 includes actual physical harm to

individual women as eligible. Majority of courts might not agree w/ this.

I. Causation: Commercial cleaning svcs v. colin svc systems: (handout) 1. must be direct injury:

a. proximate cause b. but for cause

2. not derivative 3rd party injury. X. CURRENCY REPORTING CRIMES AND MONEY LAUNDERING

A. Currency Reporting Crimes – Bank Secrecy Act and Internal Revenue Code §6050I…require reporting of transactions involving large amts of currency, regardless of whether they are related to criminal conduct

B. The Bank Secrecy Act 1. Track importing/exporting of monetary instruments > $10,000. Crime if (1)

person knowingly transported $ instruments exceeding $10k and (2) that

failure to report was willful – connotes intentional violation of legal duty. Assets are subject to seizure and forfeiture.

2. Domestic currency transactions > $10k also monitored. – deposit, withdrawal, currency exchange or other transfer at financial institution

3. United States v. Beidler (1997) p 722. a. Facts: Beidler, real estate broker, deposited investment of $100k in

over 30 transactions, in many different bank branch offices, and then wrote checks for development from his own accounts. Each transaction was less than $10k to avoid reporting requirement.

b. Question: were his actions enough to support an inference that he knew his activities were unlawful.

c. Holding/ Rule: i. have to look at circumstances to establish a ∆’s state of mind ii. the more experienced you are w/ these types of transactions

from a professional level, more reasonable it is to infer that you’re likely to have knowledge of requirements concerning these types of transactions

iii. if professional should know that there’s a high probability that reporting rqmts exist – failure to find out could be willful blindness, which can be seen as a proxy for positive knowledge.

iv. However, if he is just negligent as to determining requirements, that is not a proxy for positive knowledge.

v. Here (31 USC§ 5324) knowledge requirement goes only to recognition that you’re dealing with a structured transaction, and structured transactions are reportable.

4. U.S. v. St. Michael’s Credit Union (“pattern of illegal activity” = higher penalties)

a. Facts: employee of credit union systematically failed to report transactions that should have been reported on CTR’s. Transactions were unrelated – in that they were different types of transactions, from different customers.

b. Rule/Holding: i. chronic failure to file can elevate crime from misdemeanor to

felony. ii. Also, see 31 USC § 5322 – person willfully violating this

subchapter, while violating another law (even if it’s just a one time violation) can be increased to higher level.

c. Notes: pattern in these statutes different from pattern in RICO statutes

C. Section 5060I – Internal Revenue Code -subject is anyone who is in a trade or business (not just banking, etc). must report transactions > $10k – Form 8300. 1. U.S. v. Goldberger & Dubin, P.C. (1991) p736

a. Facts: lawyers failed to report ID of people who paid them cash fees in excess of $10,000. (form 8300 filed, but didn’t include names)

b. ∆s arguments:

i. - this will force clients to go to bad lawyers b/c they wouldn’t want to go to upstanding lawyers who abided by the rules. Wouldn’t get lawyer they want; violate 6th amendment right.

ii. - ALSO this would violate the attorney client privilege c. Court’s response: 6th amendment doesn’t care if you get lawyer of

choice or not. - atty client privilege doesn’t apply here; only protects necessary disclosure to assist in representation. Privilege doesn’t extend to identity of client or to fee arrangements.

d. Note: Court also says (p 739) that it doesn’t care about state ethical rules in federal case. To the extent there is a conflict of the two privilege rules, the federal trumps the state.

2. Lefcourt v. United States (1997) p. 742 a. Facts: Atty turned in form 8300 w/o ID of client; slapped w/ $25k

fine. Paid fine, but tried to get it reimbursed. b. Notes: fine is charged under statute that penalizes “intentional

disregard” of requirements c. Holding: “Intentional disregard” in the penalty provision means

conduct that’s willful, a term which in this context requires only that a party act voluntarily in withholding requested info, rather than accidentally or unconsciously. The lawyers were held liable for the heightened penalty; good-faith defense was irrelevant under this std.

D. Designated Reporting Transactions (p747) 1. 3 categories of goods: consumer durables, collectibles (artwork, gems), travel

or entertainment 2. for those categories, transactions where >$10k is rc’d, must be reported 3. for these purposes, cashier’s checks, bank drafts, traveler’s checks, money

orders, etc can all be added up to meet total value of $10k E. MONEY LAUNDERING

1. Money Laundering Control Act of ’86 (18 USC §1956, 1957) a. 1956: PROHIBITS CONDUCTING FINANCIAL TRANSACTION

WHEN ACT KNOWS THE TRANSACTION INVOLVES PROCEEDS OF UNLAWFUL ACTIVITY

b. INTENT RQMT OF 1956 – i. Intent to promote ‘carrying on of specified unlawful activity’ or ii. Commit tax evasion or fraud, or know that the financial

transaction is designed: i. To conceal or disguise nature of specified unlawful

activity or ii. To avoid federal /state currency reporting rqmts.

c. United States v. Tencer (1997) p. 749 d. Facts: chiropractors filed false insurance claims and got big

payoffs. One ∆ spread money - transferred money to distant banks; sent $ to address where he didn’t live; tried to transfer $1M to himself at an airport.

e. Issue/question: what does gov’t have to show differently under §1956, from other statutes?

Comment [LNW26]: §1956: -financial transaction -illegal proceeds -knowledge (of illegal proceeds) -intent (to promote or to conceal) – Tencer

i. Intent to conceal (doesn’t matter if used own name) f. If you have a RICO case that brings in money, and money is put

back into enterprise or transacted to conceal illegal activity – that’s all you need.

2. U.S. v. Campbell p. 752 a. Facts: real estate agent assisted buyer in purchasing house by

putting $60k (in paper bags) under table, and then taking loans for less. Guy drove expensive car, but couldn’t get loan. Though he supposedly had a big business, missed work often. Flashed a brief case full of cash. House title had to go in parents’ names. Tipped real estate broker.

b. Holding: court held that Campbell’s knowledge of the nature of the transaction provided sufficient basis from which jury could infer her knowledge of transaction’s purpose and if that’s the case, that she also knew of the illegal source of his $$.

c. Rules: money laundering conviction requires proof of ∆’s knowledge of 2 facts:

i. that funds involved were proceeds of illegal activity ii. that the transaction was designed to conceal the nature of

the proceeds d. Notes: By closing eyes to facts she thought were probably true, that

was enough to show willful blindness. she didn’t have an intent requirement. As long as she knows that HIS intent was to conceal the proceeds, that’s enough.

3. §1957 charge – monetary transaction (vs. financial transaction in §1956) a. has transactional requirement: must exceed $10k b. has to be transaction where proceeds have been obtained through

specified illegal activity c. concept of “obtained” means that ∆ either has possession of

proceeds, or that proceeds are at his disposal. 4. U.S. v. Johnson (1992) p 759

a. Facts: Johnson enticed people to invest in fraudulent currency scheme. Took initial deposits, returned portion as “profits” which enticed them to invest even more. Charged under 1956 (a)(1)(a) – ‘intent to promote the carrying on of illegal activity’ and charged under 1957

b. Holding: According to court – if the purpose of paying off mortgage and buying expensive car was to enable him to keep drawing in more victims – that’s enough to show intent to promote under 1956.

c. For 1957 charge: where victims are wiring funds into his bank

account, he has not “obtained” them…doesn’t have possession or have them at his disposal until the funds are credited to his account. Really aren’t the proceeds of illegal activity until crime is committed. Underlying crime here is wire fraud. So even though funds wired are

related to the wire fraud, they’re not the proceeds of the activity until he has control of them. Count under §1957 is thrown out.

d. Notes: i. count where ∆ wires money back to victim’s account okay. He

had control at that point. Where account is predominately filled with illegal proceeds, any amount transferred out > $10k, will probably trigger statute.

ii. In response to ∆’s argument that the funds transferred out might not be the same fraudulently obtained one – court says as long as funds were commingled – not a problem. b/c dirty money went into account, can assume that it came out.

iii. Rutgard case is distinguishable b/c there were lots of legitimate funds in the account, and relatively small amount of illegitimate funds in account – commingling here was not enough to satisfy statute. Where account is predominately filled with illegal proceeds, any amount transferred out > $10k, will probably trigger statute.

5. United States v. Kennedy a. - possession rqmt of §1957 not required for §1956. just need

completion of predicate crime. b. - crime was completed here (though not in Johnson) b/c here there

were fraudulent mailings sent to lure investors in. Once those brochures were mailed, the crime was completed. Any checks rcd in response to mailing were “proceeds” from the illegal activity.

c. - two differences between this and Johnson: 1) 1957 vs. 1956 charge; 2) possession of proceeds vs. proceeds involved in completing illegal activity.

d. D engaged in a Ponzi scheme to defraud precious metals investors Congress intended the money laundering statutes to punish new conduct that occurs after the completion of certain criminal activity, rather than simply to create an additional punishment for that criminal activity.