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Seven Investment Professionals Charged for Insider Trading
The United States Attorney for the Southern District of New York and the New York Office of the Federal Bureau of Investigation (FBI) announced that seven individuals who work in the investment industry have been charged with profiting from the illegal trades of two publicly traded technology companies; Dell, Inc. (Dell) and NVIDIA. The individuals exchange of insider information resulted in $61.8 million in illegal profits for three hedge funds and saved an investment firm $78,000 in losses.
Jesse Tortura, Sandeep Goyal, and Spyridan Adondakis pleaded guilty for their roles in the insider trading scheme. They each face a maximum sentence of twenty-five years in federal prison. The remaining four individuals charged include: Tom Newman, a former portfolio manager at a Connecticut-based hedge fund; Anthony Chiasson, a former portfolio manager and founder of a Manhattan hedge fund; Jon Horvath, a research analyst for a Connecticut-based hedge fund; and Danny Kuo, a research analyst and fund manager at an investment firm with offices in Nevada and California. Newman, Chiasson, Horvath, and Kuo are each charged with one count of conspiracy to commit securities fraud and one count of securities fraud. The conspiracy charge carries a maximum potential penalty of five years in prison and a fine of $250,000 or twice the gross gain or loss from the offense. The securities fraud charge carries a maximum potential penalty of twenty years in prison and a maximum fine of $5 million.
The arrests are part of the FBI’s “Operation Perfect Hedge,” which was formulated to dismantle rampant insider trading. Thus far, the operation has resulted in the arrest of more than sixty individuals.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Former Los Angeles County Sheriff Agrees to Plead Guilty to Federal Corruption Charge
The Department of Justice’s Civil Rights Division and the U.S. Attorney for the Central District of California charged former Los Angeles County Deputy Sheriff, Gilbert Michael, with one count of bribery of a public official. Specifically, Michael was charged with agreeing to accept $20,000 in bribes in exchange for smuggling contraband into the Men’s Central Jail in downtown Los Angeles.
While at the Los Angeles Sheriff’s Department (LASD), Michael was responsible for the care, custody, and security of inmates housed at the Men’s Central Jail. Michael resigned from his position at LASD in September 2011.
The DOJ press release provides that a plea agreement was reached January 13, 2012, wherein Michael agreed to plead guilty to the charge and cooperate in the ongoing investigation. In the plea agreement, Michael admitted to agreeing to smuggle contraband, including a cell phone, cigarettes, and a note, to an inmate in exchange for $20,000.
The maximum federal prison sentence for bribery of a public official is ten years. Michael is expected to make his initial court appearance today, January 17, 2012, in U.S. District Court in Los Angeles.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Blagojevich’s Sentence Sets a Precedent
Judge James Zagel sentenced Rod Blagojevich on Wednesday in the Northern District of Illinois on 18 counts of corruption, including his June convictions on charges that he tried to sell or trade an appointment to President Barack Obama’s U.S. Senate seat for campaign cash or a top job. The impeached governor must report to prison on February 16.
Prosecutors in the case were seeking 15 to 20 years for Blagojevich, while defense counsel was arguing for only 4 to 5 years. Judge Zagel was clearly upset with Blagovich when he pronounced his sentence, stating “When it is the governor who goes bad, the fabric of Illinois is torn, disfigured and not easily repaired.”
In federal court, judges typically follow the Federal Sentencing Guidelines to determine how much time a defendant will serve. The Supreme Court has ruled that the Guidelines are not mandatory, but most federal judges determine their sentence based on how the convicted counts fit into the Guideline range. Unfortunately for Blagojevich, not only was he convicted on 18 counts, but he was also a public official at the time which fares a higher sentence.
Blagojevich’s first trial took place in the summer of 2010 and he was convicted of making false statements to FBI agents when he told them in an interview on March 16, 2005, that he did not track, or want to know, who contributed to him or how much money they contributed to him, but the jury was deadlocked on all remaining counts.
The government went after Blagojevich again in the spring of 2011, and this time he was convicted on 17 additional counts, including 10 counts of wire fraud, two counts of attempted extortion, two counts of conspiracy to commit extortion, one count of soliciting bribes, and two counts of conspiracy to solicit and accept bribes.
Federal prosecutors and the judge have made a spectacle of this case, as Blagojevich’s lengthy sentence is surely meant to heed a warning to others not to engage in public corruption practices. Unfortunately, the ones suffering the most in this case are Blagojevich’s young daughters, who will be adults when he is released in 14 years.
Blagojevich is the fourth Illinois governor to be sentenced to prison. The previous governor, George H. Ryan, is still serving time for his corruption sentence and is set to be released in 2013.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Two U.S. Army Corps of Engineers Employees and Two Others Indicted in $20 Million Bribery and Kickback Scheme
The FBI has reported that four Virginia men, including two longtime employees of the U.S. Army Corps of Engineers, were arrested October 4, 2011 on charges stemming from an indictment that accuses them of taking part in a conspiracy involving more than $20 million in bribes and kickback payments and the planned steering of a $780 million government contract to a favored contractor.
The defendants include Kerry F. Khan, 53, of Alexandria, Va.; his son, Lee A. Khan, 30, of Fairfax, Va.; Michael A. Alexander, 55, of Woodbridge, Va.; and Harold F. Babb, 60, of Sterling, Va. Kerry Khan and Alexander are employed by the U.S. Army Corps of Engineers, and Babb is director of contracts for a company that did business with the government.
All four men were taken into custody on charges contained in an indictment that was returned by a grand jury, under seal, on Sept. 16, 2011, in the U.S. District Court for the District of Columbia. The arrests took place as authorities executed search warrants at seven locations in Virginia and one in the District of Columbia. The indictment was unsealed the day of the arrests.
According to the indictment, Kerry Khan and Alexander helped funnel more than $45 million in payments to a favored company through a federal government contract they oversaw, with plans to steer hundreds of millions more to the business. Approximately $20 million in fraudulent expenses were built into the invoices, and proceeds went to all four defendants.
All four defendants were indicted on one count of conspiracy to commit bribery and wire fraud and aiding and abetting and causing an illlegal act to be done, as well as one count of conspiracy to commit money laundering. Kerry Khan and Alexander also were indicted on one count of receipt of a bribe by a public official, and Babb was indicted on one count of unlawful kickbacks.
If convicted of the charges, Kerry Khan and Alexander face a maximum of 40 years in prison. Babb faces up to 35 years, and Lee Khan faces a sentence of up to 25 years.
The United States has obtained warrants to seize funds in 29 bank accounts and to seize three luxury vehicles and seven high-end watches. In addition, the indictment includes a forfeiture allegation against 16 real properties financed in whole or in part with proceeds of the crimes. The United States has begun the process of securing forfeiture of those 16 properties, which include 14 properties in Virginia, one in West Virginia, and one in Florida.
The indictment also provides the defendants notice that, if convicted, the United States will seek forfeiture of all proceeds of the charged offenses.
The case is being prosecuted by the Fraud and Public Corruption and the Asset Forfeiture and Money Laundering Sections of the U.S. Attorney’s Office for the District of Columbia. Their coordinated efforts with the FBI, the Office of the Inspector General for the Small Business Administration, the Department of Defense Criminal Investigative Service, Army Criminal Investigation Command and the IRS led to the indictment and arrests.
Given the global economic climate, the federal government’s burgeoning debt crisis, and the increased public scrutiny of government expenses law enforcement has stepped up enforcement of contract procurement fraud, abuse, and waste. The government will prosecute these offenses rigorously and knowledgeable defense counsel should be sought immediately by those targeted by a federal investigation.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Suspicious Activity Report (SAR) Leads to Recovery of Funds Derived from Foreign Corruption
As was reported in our last blog post about Suspicious Activity Reports (SARs), such reports are critically important to the U.S. government’s efforts to detect complex criminal activity. FinCEN, the U.S. Department of the Treasury’s office responsible for analyzing such filings, has been more active than ever in detecting criminal activity. Since SARs are filed by a financial institution without the target’s knowledge they give the government a head start in their investigations. The information contained in the reports is analyzed by teams of government analysts who develop trends and establish findings that assists the government’s subsequent investigation.
One area of criminal activity SAR analysts focus on is foreign corruption. Analysts will search SARs for key terms such as “politically exposed person” or “PEP,” “foreign corruption,” and “senior foreign political figures.” In 2010 analysts documented 1,294 SARs related to the terms mentioned above. Most of the reports are filed by depository institutions like banks, but other institutions like securities dealers and money services businesses also filed “foreign corruption” related SARs. Most of the reports involved amounts or aggregate amounts between $100,000 and $50,000,000 and identified the activity as BSA/Structuring/Money Laundering.
One such SAR exposed a foreign corruption scheme to Federal officials. The government ultimately seized and forfeited criminal proceeds valued at more than $100 million from the findings of that initial SAR and its subsequent investigation. The investigation revealed that several subjects conducted a complex series of transactions, over a period of several years, using the proceeds of foreign corruption.
The investigation centered on the circumstances surrounding a foreign civil case in which the judge found for the plaintiff and ordered the defendant to pay the plaintiff (and heirs) the U.S. equivalent of half a billion dollars. Soon after the judgment in the civil case, law enforcement commenced an investigation into the possibility that the decision in the civil case was the result of a bribe, worth tens of millions of dollars, paid to the judge through a group of attorneys. This investigation led to the arrest of several individuals involved in the civil case, including the plaintiff’s heirs, the judge, and the attorneys. The judge and attorneys were convicted of bribery.
After the bribery scandal broke, a financial adviser (and co-conspirator) helped the plaintiff and his heirs set up corporate and trust structures to conceal and launder large portions of the public corruption proceeds. A significant portion of the corruption proceeds were then moved through these entities to or through bank and investment accounts located in the United States.
U.S. authorities became involved when members of the plaintiff’s family attempted to open accounts in the United States. Through the use of Bank Secrecy Act (BSA) data, especially SARs, and investigative information provided by foreign authorities, investigators identified approximately 2 dozen accounts in the United States that contained the proceeds of the fraud and bribery schemes.
All of the plaintiff’s family and heirs involved the scheme were arrested, pleaded guilty, and were sentenced to prison. The financial advisor was arrested and has yet to be tried.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Why is News Corp. Lawyering Up for a Potential FCPA Investigation?
The scandal involving News Corp. rocked both the U.K. and U.S. news media and political scenes. Commonly referred to as “Hackgate,” allegations against News Corp. range from hacking into private voicemails of victims of murder and terrorist attacks to bribing high level officials from police and government agencies. What has also become apparent is that News Corp. is anticipating an even further fall out from this scandal. Reports are in that News Corp. has hired some very expensive attorneys with expertise in Foreign Corrupt Practices Act (FCPA) investigations and litigation.
Although some may argue that the FCPA’s anti-bribery provisions only forbids an American corporation from making payments to a foreign official in order to help the company obtain or retain government contracts, nothing in the FCPA actually limits the statute’s reach in such a way. And although it is true that the statute is not a general foreign bribery statute, the statute is aimed at the problem of American companies buying business overseas.
So why is News Corp. so worried about an FCPA violation? News Corp. was allegedly bribing the police with the motivation that its tabloid magazine would have an inside scoop on lucrative newstories in order to sell more papers. Thus it seems, News Corp.’s conduct satisfies the literal requirements of the FCPA.
The FCPA is generally divided into two broad categories of offenses, the anti-bribery provisions and the accounting provisions. Although News Corp.’s conduct seems to implicate both provisions of the FCPA, this post will only discuss the anti-bribery provisions.
First, News Corp. is a person subject to U.S. jurisdiction because it is an entity traded and listed in the U.S. Under the FCPA domestic concerns and U.S. parent corporations may be held liable for the acts of foreign subsidiaries where they authorized, directed, or controlled the activity in questions. So it does not really matter that News Corp.’s U.K. subsidiary, New of the World, was the actual entity making the bribes so long as News Corp. authorized, directed, or controlled the activity in question. Determining whether News Corp. authorized, directed, or controlled the activity in question will likely be subject to heavy opposition by News Corp. throughout the course of the investigation.
The payments made must also have a corrupt intent, and the payment must be intended to induce the recipient to misuse his or her official position to direct business wrongfully to the payer or to any other person. The Justice Department have broadly construed the FCPA to prohibit any corrupt payment intended to influence any act or decision of a foreign official. Should the allegations against News Corp. prove true, payments paid to police officials to hack into private voicemails would surely satisfy the corrupt intent because they were paid with the intent to influence the officer to give News Corp. access to potentially lucrative voicemails of newsworthy individuals. It isn’t likely that these payments will be excepted from the FCPA as “facilitating payments for routine governmental action.” Such routine payments tend to be limiting for things such as permits, licensing, phone, mail pick-up etc.
The FCPA also requires payment. Technically, payment includes actually paying but it also includes offering or promising to pay money or anything of value. Should the allegations against News Corp. prove true, satisfying the payment requirement will not challenge the Department of Justice.
It must also be proven that the recipient of a payment be a “foreign official.” The FCPA defines foreign official as any officer or employee of a foreign government, a public international organization, or any agency therof. The allegations against News Corp. involve bribing British police officers for access to private voicemail accounts of newsworthy individuals. Police officials of a foreign government clearly qualify as foreign government officials.
As a person subject to U.S. jurisdiction, News Corp. cannot make corrupt payments to foreign police officers inducing them to hack into the voicemails of newsworthy individuals with the intent of selling more papers without violating the FCPA. Thus it seems that News Corp.’s conduct meets the technical requirements of the FCPA statute. They are lawyering up accordingly.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Goldman Sachs’ dealings with Libya under scrutiny for potential FCPA violations
The Securities and Exchange Commission (SEC) is looking into Goldman Sachs’ relationships with the Libyan Investment Authority. Back in 2007, Libyan leader Moammar Gadhafi attracted banks and securities firms when he launched the $40 billion fund.
SEC officials are looking into, among other things, a $50 million fee Goldman agreed to pay the Libyan Investment Fund as part of a plan to help the fund recoup losses.
Although the fee was never paid, the money was to be passed on to Palladyne International Asset Management BV, an entity run by the son-in-law of the head of Libya’s state-owned oil company. Negotiations stalled before the violence in Libya broke out and payment never actually took place.
While no formal investigation has been launched, the SEC has made inquiries. It would not be surprising to see this develop into a formal investigation. Given the federal government’s new found appreciation for enforcing the Foreign Corrupt Practices Act of 1977 (FCPA), it seems likely that the SEC will attempt to determine whether the $50 million fee Goldman agreed to pay can be construed as a bribe made to a foreign government official or employee of a state-owned company.
The FCPA, as amended, 15 U.S.C. 78dd-1, et seq., makes it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. The FCPA accomplishes this in two distinct ways:
(1) Prohibiting the payment of anything of value to officials of foreign governments (the “anti-bribery” provision); and
(2) Requiring accurate accounts and effective internal accounting controls (the “books and records” provisions).
Given the fact that the $50 million payment was not made, there will likely not be a “books and records” violation. However, the FCPA does make it unlawful to “promise to pay . . . or . . . promise to give . . . anything of value.” Stated plainly, a promised or attempted bribery of foreign government officials is unlawful under the “anti-bribery” provision of the FCPA. All Goldman can do at the moment is comply with the inquiries and its own document retention policies and hope that the government does not pursue a full investigation. Once a full investigation begins, Goldman will have to be careful not to get caught up in any of the “cover up” crimes like obstruction of justice and false statements. Additionally, federal prosecutors have not been shy about utilizing their full arsenal of tools to obtain convictions from entities it thinks have done something wrong. For example, federal prosecutors today coordinate their investigations with a very diverse group of regulatory and enforcement agencies.
This is why every U.S. person engaged in international trade must remain vigilant on many legal fronts. It is not uncommon to have multiple U.S. regulatory and statutory regimes simultaneously in play at any given moment. For example, any investigation into Goldman for their activities with Libya will not only implicate the SEC, but also the Department of Justice, the Department of Treasury Office of Foreign Assets Control, and possibly the Department of Commerce. The tools available to the government to coerce convictions are plentiful.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
U.S. Postal Service Supervisors in Michigan Charged with Bribery, Face up to 20 Years
An indictment issued Wednesday by a federal grand jury alleged five U.S.P.S. supervisors with being paid to illegally steer more than $13 million in repair work on U.S.P.S. vehicles to an unnamed contractor. The arrangement is alleged to have been ongoing over a seven-year period. The supervisors were all charged with bribery and/or conspiracy to commit bribery. The indictment also seeks forfeiture of the alleged illegal payments.
The U.S.P.S. supervisors allegedly accepted thousands of dollars worth of drinks and lap dances at a local strip club, weekly visits with prostitutes, erectile dysfunction drugs, thousands in cash, and tens of thousands of dollars worth of gifts including cars, loans, patios, event tickets, and golf outings. These bribes were paid with the understanding that the supervisors would refer the repairs of any U.S.P.S. vehicle to the unnamed contractor.
It is irrelevant whether or not the U.S.P.S. was harmed in the arrangement. So it doesn’t matter that the indictment does not allege any fraudulentr or criminal behavior on the part of the contractor. In fact, it seems as if though the repair and maintenace jobs were fairly priced and adequately performed. Nevertheless, the supervisors face serious amounts of time in a federal prison if the allegations are proven beyond a reasonable doubt.
The federal bribery statute, 18 U.S.C. 201(b)(2)(A), criminalizes conduct where a public official, directly or indirectly, corruptly accepts or agrees to accept anything of value in return for being influenced in the performanec of an official act. In this situations the supervisors accepted gifts and cash to refer vehicle repairs to the contractor’s auto shop. The official act influenced was the supervisors’ authority over vehicle maintenance decisions. No other harm is required. Government officials need to act carefully or else risk being swept up by yet another broadly conceived federal criminal statute.
The supervisors implicated in the indictment were identified as Denny Robinson, Bruce Plumb, Gregory Gorski, Jeffery Adams, and Mancer Holmes.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Congress to Introduce Bill Restoring Honest Services Fraud
U.S. Congressman Mike Quigley and U.S. Senator Mark Kirk have launched a bipartisan, bicameral effort to fight corruption and unethical conduct by public servants. Part of their effort includes introducing The Public Officials Accountability Act to restore the honest services fraud statute to some of its former self before the Skilling and Conrad Black cases last year.
The prosecution of schemes and artifices that deprived someone of his intangible right to honest services used to include two theories:
1) cases of kickback and bribery; and
2) cases of undisclosed conflicts of interest resulting in personal financial gain.
The Supreme Court reasoned that honest services fraud was too vague and swept too broadly. Instead of invalidating the whole law, the Court limited its scope. After Skilling and Black were decided, the second theory of cases was narrowed to only include instances in which the undisclosed conflict was the actual payment of a kickback or bribe paid by a third party. The Court effectively negated the second theory of honest services fraud by rolling it into the first. However, the new bill from Quigley and Kirk, which has not yet been formally introduced in Congress, would target public officials with “undisclosed conflicts of interest resulting in personal financial gain” in addition to bribes and kickbacks. The former jurisprudence of honest services fraud targeted officials in both the public and private settings.
Randall Eliason, the former chief of the public corruption section of the U.S. Attorney’s Office for the District of Columbia, says the proposed bill would close a small but important legal loophole. Eliason stated that “a state legislator could be steering massive public contracts to a company he secretly owned, and not disclosing it to anyone, and that would no longer be honest services fraud — but if he was taking bribes to steer them to a company owned by someone else, it would.”
That form of self dealing is currently outside the definition of honest services fraud because of the Court’s decisions last year. The proposed bill by Quigley and Kirk would criminalize that kind of self dealing by adding a disclosure requirement for public officials. The bill will also stipulate that the officials in question must be seeking financial gain. These two steps will likely solve the prior issues of vagueness by introducing more definable elements to the second theory of honest services fraud. Not only does a conflict have to exist, the official must be seeking to financially gain from the conflict at the expense of the public’s right to honest services.
However, the greatest tool for prosecutors probably lies with the disclosure requirement. Prosecutors will be able to fashion more convincing arguments against public officials because they will now have an affirmative obligation to disclose such conflicts. An official who either discloses or fails to disclose opens himself up to the scrutiny of federal prosecutors. Accordingly honest services fraud may soon be restored as a favorite tool of federal prosecutors against state and local officials.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
Witness in Corruption Case Faces Up to 3 Years in Prison for Cover Up Crime
Tabitha Goodner has become the ninth defendant in the $12 million bid-rigging case against contractor Bobby Ferguson, a close friend of Detroit’s ex-Mayor Kwame Kilpatrick. Back in July of 2009, Ms. Goodner allegedly gave misleading and incomplete statements to federal investigators despite knowing that the targets of the investigation had committed mail fraud and conspiracy to commit mail fraud. Accordingly, her federal indictment charged her with misprision of felony. Misprision is when a person has knowledge of the actual commission of a felony but does not make such knowledge known to the authorities. The charge carries penalties that include fines and up to three years in prison.
Ms. Goodner’s indictment comes seven months after Ferguson and several other were indicted in a bid-rigging case in which they allegedly falsified documents, illegally laundered proceeds, and dumped demolition debris in connection with a federally funded public housing development. Ferguson’s indictment charged him with following crimes: fraud, monely laundering, obstruction of justice, and conspiracy to defraud.
According to the court record Ms. Goodner participated in the bid-rigging by preparing a false independent auditor’s report by fraudulently altering information on the document at Ferguson’s command. Between the court record and Ms. Goodner’s position as a manager of Ferguson’s company, probable cause apparently existed to indict her for the statements she made during the investigation in 2009.
It isn’t uncommon for witnesses in a white collar criminal case to become targets and be charged with “cover up” crimes like misprision of felony, obstruction of justice or false statements. Inherent to many white collar crimes is a plan to cover up such crimes. This can include lying to investigators, providing false affidavits, or misleading investigators. Individuals often start off as mere witnesses in an investigation only to end up being targets of an indictment for a cover-up crime.
Ms. Goodner merely provided what was alleged to be “misleading and incomplete” statements to investigators and is now facing up to three years in prison for those statements. It is therefore imperative that witnesses, and targets alike, understand the various cover-up crimes whenever they participate as a witness in a federal investigation.
The author of this blog is Erich Ferrari, an attorney specializing in Federal Criminal Defense matters. If you have any questions please contact him at 202-280-6370 or ferrari@ferrari-legal.com.
