Wednesday, December 30, 2009
So I'm going to try a little blogging again. I'm still going to try to focus on the bottom line issue in any criminal case and that is - what's a client's exposure to jail. But I'll also try and make this blog more about the day-to-day practice of criminal law. I run a small firm dedicated to quality representation of individuals charged with serious, complex criminal cases in state and federal court. I'm running this firm in the midst of the worst economic times in a generation. It's not an easy task. I know there are lots of other lawyers out there in the same boat.
In addition, I know there are people out there, regular everyday people, who get investigated and even charged with crimes they didn't have anything to do with. I had the great good fortune to meet a guy who had been caught up in the federal criminal justice system out in Los Angeles. Our return flight from L.A. was delayed and he and I chatted about what an unbelievable nightmare it is to get charged with a federal crime. It was really good for me to listen to him rank on the prosecutor, the judge, the system and his lawyer. Sometimes, in the press of running a business, you can lose sight of what a dreadful, terrifying ordeal it is to face any kind of criminal charge.
My new friend sent me "Three Felonies A Day - How the Feds Target The Innocent" by renowned criminal defense attorney Harvey Silverglate. I promise, after I finish studying for the Florida Bar, I'm gonna read it. He also sent along a nice note complimenting my listening skills and what he viewed as compassion. But it was really his insights that made my day.
Tuesday, July 29, 2008
Back in April I wrote about the New York State Attorney General's investigation into the collapse of the auction rate securities market. Last week the Wall Street Journal reported that the New York AG filed a law suit against UBS, the global financial services conglomerate, alleging a significant consumer and securities fraud. The law suit claims that UBS brokers used fraudulent sales tactics to convince retail customers to purchase the securities despite knowledge that the market itself was near failure. Auction rate securities are a type of debt or bond instrument issued typically by groups such as municipalities or student loan providers in which the interest rate is reset at an auction held periodically by Wall Street firms. The auction process gives what otherwise would be long term "buy and hold" investments the tradable features of shorter term securities.
The law suit further alleges that UBS executives who feared a market breakdown dumped their own auction rate securities for a handsome profit and left their retail clients holding the bag to the tune of $37 billion dollars of withering investments. Karina Byrne, a UBS spokeswoman, said, "UBS does not believe that there was illegal conduct by any employee." After an internal investigation into personal sales of auction-rate securities she stated, "we have found cases of poor judgment by certain individuals and are evaluating appropriate disciplinary measures for these individuals." Citigroup, Wachovia, Merrill Lynch, and Credit Suisse all face similar probes.
Once again, regulators and prosecutors investigate a collapse of a financial market and lay blame at Wall Street's door despite powerful market forces at work beyond anyone's prediction or control. Many of the auction rate securities at issue were backed by sub-prime mortgage debt. The sub-prime market itself disintegrated in a swift and completely unforeseeable manner. This is not an example of greed and high pressure sales tactics but rather the collateral consequences of widespread financial turmoil. Moreover, despite the fact that UBS is attempting to assist clients who hold the beleaguered securities, it is sued for its trouble. I predict that once again we will see individuals at these companies scapegoated for ecomonic problems over which they had no control. CR
Thursday, July 10, 2008
The guidelines and principles under which the Department of Justice investigates and prosecutes corporations, their officers and employees may finally change for the better. This week a contentious Senate hearing was held in which members of the Judiciary Committee grilled Attorney General Michael Mukasey on why he had not re-evaluated the controversial aspects of DOJ’s approach to criminal probes of companies. Those notorious issues include company waiver of the attorney-client privilege.
Immediately following the hearing, on the heels of hints by Mukasey that the tenets of prosecution would change, Deputy Attorney General Mark Filip sent ranking committee members, Senators Patrick Leahy and Arlen Spector, a letter regarding proposed transformations. The letter states that DOJ will no longer evaluate a company’s cooperation based upon its willingness to waive the attorney client privilege, its decision to advance legal fees to employees, its entry into joint defense agreements or whether it disciplines allegedly culpable employees. Whether or not a company is viewed as “cooperative” in a criminal investigation can mean the difference between the life support of a deferred prosecution or the corporate death penalty of indictment. However, over eighteen months ago Senator Spector sponsored legislation, the Attorney Client Privilege Protection Act of 2007, to accomplish these exact policy amendments. In addition, three weeks ago, thirty three former United States Attorneys urged Senator Leahy to hold a vote on the Spector legislation.
It’s about time. DOJ’s heavy handed approach which penalized companies for not waiving privilege, paying officer and employee legal fees and signing joint defense agreements has seriously undermined the integrity of the criminal justice process in white collar cases. The revisions promised by Deputy AG Filip, if drafted clearly and forcefully, should stop the blatant erosion of bedrock constitutional standards. The collateral consequences of the Bush Administration’s get-tough-on-corporate-crime policies have been extreme. Corporate officers and employees should be able to consult with company attorneys, exercise indemnification provisions for the payment of their own counsel and participate in joint defense arrangements without the fear of utter ruin. Big brother should not have such a powerful stick as to be able to force privileged secrets to be revealed and prevent people from having funds to hire lawyers. While DOJ’s belated change demonstrates a desire to beat the Senate to the punch, I hope the altered course will be clear and true. CR
Wednesday, July 2, 2008
Sam Israel III, the fugitive hedge fund manager who tried to fake his own suicide, surrendered to the police in Massachusetts today. Mr. Israel disappeared just before he was to begin serving the extraordinarily severe 20 year sentence imposed upon him by United States District Judge Colleen McMahon after his plea of guilty to securities fraud charges. On June 9, just before he was to report to federal prison, his SUV was found abandoned on a bridge in Westchester County with the words “suicide is painless” scratched into the dust on the windshield. Authorities were reported to have ruled suicide out and have been hunting for him ever since. Israel’s longtime girlfriend Debra Ryan was charged with aiding and abetting his flight.
Israel’s lawyers have their work cut out for them. In my judgment he will be charged with bail jumping under the federal failure to appear statute. Sentencing guidelines which judges must consult to impose any sentence call for an additional three to four years in jail. It is highly likely this potential hit will be imposed consecutively to his twenty year sentence. Moreover, internal regulations maintained by the Federal Bureau of Prisons will call for increased security for Mr. Israel because he tried to flee. This will directly affect the quality of his life while serving his sentence. The best chance he has is to claim some kind of deep documentable psychological problem which caused his flight. His lawyers, Larry Bader and Barry Bohrer at Morvillo Abramowitz are tremendously talented. If anyone can avoid the further fricassee of poor Mr. Israel, they can. CR
Wednesday, June 25, 2008
A defense attorney in a Florida obscenity trial is going to try to persuade a judge that trends reflected in local Google search data are relevant to prove a community’s standards and values as a defense to criminal charges. Lawrence Waters represents Clinton Raymond McCowan, an alleged pornographic website operator. Waters plans to show a jury that Pensacola residents are more likely to search for terms like “orgy” than for “apple pie”. Therefore, he will argue, that Mr. McCowan’s website is not obscene because it does not offend local standards of decency. The prosecutor may object to the admissibility of the Google data on relevance grounds and may argue that search data does not necessarily reflect the values of a community. The persistent and creative Mr. Waters has nevertheless served Google with a subpoena for specific search data on sexual topics web surfed by local users. The trial is scheduled for early July.
Although former United States Supreme Court Justice Potter Stewart’s famous statement that he knows obscenity when he sees it is not the law of the land, a community’s standard of decency is an illusive concept. Miller v. California requires that a prosecutor must prove beyond a reasonable doubt that the material in question offends the local standards of the community. Kathleen A. Bergin, an Associate Professor at South Texas College of Law, has covered this case in her First Amendment Law Prof Blog. She says she’s “not sure which is more concerning – the pervasiveness of web pornography or being reminded of Google’s ability to track my personal habits”.
I have to say that as a resident of Sodom by the Sea, I am much more concerned about the big brother implications of Google’s ability to slice and dice my personal habits than I am about the proliferation of porn on the internet. You mean to tell me that the internet wasn’t invented as the premier vehicle for the delivery of pornography into American homes?
As a lawyer, I am impressed with the imaginative theory of defense posited by Mr. Waters in this Florida smut case. Certainly a jury can best be entrusted to decide whether evidence of Google search trends reflects community attitudes. Whether they know obscenity when they see it or Google it should be for twelve citizens to determine. This potential evidence seems relevant to me. CR
Friday, June 20, 2008
This monumental flagstaff was given to the City by the Netherlands in 1926 to mark the tercentary of what they then claimed was their purchase of Manhattan. Now they're not so sure.
See "The Purchase of Manhattan: Myth or Swindle?" on the website of the National Library of the Netherlands. ER
Former Bear Stearns hedge fund managers Ralph Cioffi and Martin Tannin were arrested yesterday at their homes in New Jersey and Manhattan, and charged by the U.S. Attorney’s office in Brooklyn with securities fraud in connection with the allegation that they lied to investors about the health and safety of their funds. The indictment alleges that even though they knew the market for securitized interests in subprime mortgages was in dire trouble, Cioffi and Tannin told investors that the funds were in good shape, excellent buying opportunities existed, and they themselves invested their own money in the funds and added to their positions. Meanwhile, the charges cite emails between the two saying the subprime market was “toast” and the funds were in deep trouble. Ostensibly, the managers failed to disclose to remaining investors that others had withdrawn significant amounts from the funds. Lawyers for both men have denounced the prosecution’s case. One of Cioffi’s lawyers, Edward Little, stated: “Because his funds were the first to lose might make him an easy target, but doesn’t mean he did anything wrong.”
The issue in this case will be the extent to which it is proper for an investment adviser to characterize risk in a positive way and encourage investment while still maintaining personal doubts about the viability of a particular market. This is not a case of premeditated fraud in which phony companies were set up and flat-out lies were told to investors. To what extent can an adviser remain upbeat in the face of a declining financial situation in the hope that things will come around or a downturn will present a real buying opportunity? The massive extent of the subprime failure was beyond anyone’s crystal ball capabilities to predict. Now, in order to give the appearance of punishing those responsible, federal prosecutors are bent on dissecting every move these beleaguered advisers made. As I told the Newark Star Ledger, this effort to clean up Dodge is misguided. CR
Monday, June 16, 2008
Kate Kelly reports in today’s Wall Street Journal that indictments appear to be near in the year-long investigation of former Bear Stearns hedge fund managers Ralph Cioffi and Matthew Tannin. It was the collapse of their funds in July 2007 that marked the beginning of the current credit crisis.
The probe by the Brooklyn U.S. Attorney’s office focuses on the management of two high-profile bond portfolios. The issue is whether Cioffi and Tannin misled investors in these portfolios by misrepresenting the status and safety of the investments, which were tied to the mortgage and credit markets. Around the same time that Cioffi told investors he was “cautiously optimistic” about the safety of the instruments, he was moving $2 million of his own money out of one of the troubled funds. Then these markets plummeted, igniting broad problems within the economy.
This case is being closely watched on Wall Street. If these indictments are obtained, they would represent the first charges against executives in connection with the subprime mortgage market meltdown. This might signal a willingness on the part of prosecutors to aggressively pursue more cases against individual executives in connection with the broad failures in mortgage-related securities.
A few months ago, Cioffi was said to be planning an aggressive defense. One potential avenue will certainly be the unexpected and massive nature of the subprime credit failure. How could anyone have predicted its breadth and power? Moreover, simply because a manager decides to move his own money, this does not make him a liar. Why can’t he be both “guardedly optimistic” as a matter of professional opinion and extraordinarily cautious with his own dough?
For more on the potential for individual prosecutions in the wake of the subprime mortgage crisis and the available defenses, there is an article in this month’s Corporate Counselor newsletter with my byline on it. I don’t claim to have a crystal ball, and I promise not to say I told you so if there is an indictment. CR
Thursday, June 12, 2008
On Monday, Sam Israel was supposed to directly surrender to federal prison in Ayer, Massachusetts, to begin a 20-year sentence for securities fraud in connection with his tenure as the manager of the Bayou Group hedge fund. Instead, today he is missing. His GMC Envoy was found abandoned near the Bear Mountain Bridge, which spans a remote and wild portion of the Hudson River. Someone scratched the message “Suicide Is Painless,” the theme song from the TV show M*A*S*H, into the layer of dust on the SUV. While the bridge is quite isolated and imposing, a law-enforcement source stated, “We’re not searching the river because it is widely presumed he didn’t jump.” Ross Intelisano, a lawyer for victims of Israel’s investment fraud, said, “Unless they find a body, I think he’s on the lam.”
Back in April, I wrote about our country’s “rogue state” status, in which draconian sentences are imposed even in nonviolent cases. I cited Israel’s 20-year sentence as an extreme example of punishment run amok. Despite the fact that Israel cooperated with government prosecutors and then pled guilty, he received an extraordinarily tough sentence from Judge Colleen McMahon. While the Department of Justice claims that the suicide rate for inmates now is much lower than it was 20 years ago, I can tell you from experience that people who face even a small amount of time behind bars often become unbearably anxious. If the authorities do discover Sam Israel’s body, those who are calling the disappearance his “greatest con” should be truly ashamed. On the other hand, if the Feds find him on a beach in Tahiti drinking a Mai Tai, it's going to be harder for all of us defense attorneys to get judges to allow our clients to surrender directly to prison instead of being thrown in the can at sentence.
Wednesday, June 11, 2008
New York Post reported that six people, three from Alabama and two from Connecticut, were arrested at New York City’s Puerto Rican Day Parade for selling so-called “marijuana lollipops.” The report states that the alleged sales staff, working from a green van decorated with pictures of scantily clad women, told undercover cops that the pops and Gummi bear candies they were hawking contained marijuana. However, most manufacturers of pot flavored candy clearly state that while the flavoring ingredient, hemp oil, makes “pot suckers” with names like Purple Haze and Kronic Kandy taste like the real thing, there is no drug in the confection.
The tale will be told in the lab report. In every drug case, the prosecution must submit a lab report to the court where the case is filed which demonstrates that the substance being peddled is indeed a controlled substance. The candies will be subjected to a compound analysis which may or may not show that the active chemical ingredients in marijuana were present. Various officials such as Connecticut Attorney General Richard Blumenthal and Pennsylvania state representative Thomas Corrigan have actively sought to outlaw all marijuana flavored candies such as the venerable “Stoner Pop.” Corrigan states, “It is really frightening to develop a taste for marijuana in children through lollipops." Here in the new millennium “reefer madness” has now extended to candies which contain hemp oil. However, no matter how hysterical politicians get, you still need a positive lab report to prosecute a marijuana case in court. CR
Thursday, June 5, 2008
On Wednesday, Antoin “Tony” Rezko was convicted in Chicago of 16 of the 24 counts he was charged with, including wire fraud and money laundering. Rezco was a prominent fundraiser for Illinois senator Barack Obama and governor Rod Blagojevich. Obama, whose relationship with Rezko dates back to 1990, was also involved in a personal real estate deal with Rezko in 2005, when Rezko was already under federal investigation. Obama has characterized his involvement in this deal as “boneheaded.” Republicans wasted no time in exploiting the news of the conviction by sending an email questioning Obama’s judgment to reporters.
Rezco’s sentencing is scheduled for September 3. However, rather than asking the trial judge for a continuation of his release on bail pending sentence, he immediately surrendered and entered federal custody while he is awaiting sentence. His attorney stated that Rezco wanted to begin his sentence without delay. Even though Rezco was found not guilty of eight counts, including extortion, under federal sentencing law the judge may increase a sentence by considering acquitted conduct. Thus Rezco is facing many, many years in prison. Meanwhile, the government’s star witness against Rezko, self-admitted political fixer Stuart Levine, is likely to receive only a little over five years under the terms of his plea agreement, rather than the possible life sentence he was facing before he decided to cooperate with the government. This is not unusual. Prosecutors turn witnesses in all kinds of cases, and they get sweet deals for spilling the beans.
There is now speculation that with the heat turned up to a boil on Rezko, he’ll also strike a deal and squeal, engulfing Senator Obama in the kind of controversy that could jeopardize his run for the White House. This is highly unlikely. First, why would Rezko launch himself into the big house if he thought he could serve up Barak Obama on a silver platter? He’d have his lawyer get him bail, set up a meeting with the prosecutors, and start snitching. Second, the prospect of getting a cooperation deal after you’ve made the government convict you is far more difficult than auditioning for Team America prior to seating a jury of twelve to decide your fate.
Pat Fitzgerald, the U.S. Attorney in Chicago, is no shrinking violet. He’s a former Manhattan federal prosecutor whom I’ve squared off against. He zealously prosecuted and convicted Scooter Libby and would not hesitate to go after Obama if the goods were there. I don’t think Rezko has anything other than superficially embarrassing things on Obama; otherwise, he’d have played those cards already. Moreover, why volunteer to be a caged stool pigeon when you could be free and give Chicago yet another marquee trial? The bonehead is not Obama but Rezko, for risking trial without a real safety net. CR
Thursday, May 29, 2008
The self-described “legal tabloid” blog Above the Law has been busy lately keeping up with its Nationwide Layoff Watch. Among large firms that have fired attorneys in recent months are Cadwalader Wickersham & Taft and Clifford Chance. On Tuesday, ATL revealed that Sonnenschein Nath & Rosenthal had laid off 124 employees, including 37 lawyers. The firm had nearly 700 lawyers before the cuts.
Sonnenschein Chairman Elliot Portnoy told the ATL that the cuts were the result of changes in the needs of clients owing to the “economic downturn,” and were not “performance based.” But in today’s Wall Street Journal, Portnoy is quoted as saying that some “unproductive” litigators were also let go. “We have to take the steps necessary to make sure we are competitive for talent and achieve the profitability our lawyers expect,” he said. In terms of profitability, “A small group of firms are positioning themselves to pull away from the pack. We intend to be in that small group.” The Journal article also notes that industry analysts predict many law firms will have a difficult time achieving even slight revenue growth this year, much less the double-digit increases that were previously common.
Law firms are businesses, and the bottom line matters. In this respect we’re all in the same boat, whether we’re a global behemoth or a boutique. Where we differ, though, is how we reach that bottom line. Most large firms operate exclusively on the basis of the billable hour. This business model encourages maximizing hours worked by younger associates who bill at lower hourly rates but put in enormous numbers of hours. A study done in 2005 found that nearly a quarter of New York law firms required its lawyers to bill a minimum of 2,000 hours per year, and the percentages were even higher in other cities. The result is a profitable revenue stream to the firm, but a significant expense to the client. And, as in-house counsel consultant Rees Morrison points out in his blog entry about the study, bill padding in these circumstances is virtually inevitable.
When partners either can’t keep a cadre of associates busy or aren’t amassing their own billable hours they become “unproductive” and are pushed out. Worse, this business model is extraordinarily dehumanizing and cynical, in my view. That’s why we rarely practice it at our firm. We regularly offer reasonable fixed or flat-fee arrangements that are affordable for the client and fairly compensate us for our efforts.
There has been a lot of discussion in the legal blogosphere about alternatives to the billable hour, especially among corporate counsel faced with pressure to contain and predict legal costs. In his Legal Marketing Blog, Tom Kane described a panel at the Legal Marketing Association’s annual meeting in March led by the chairperson and general counsel of the Association of Corporate Counsel. One of corporate counsels’ complaints was the perceived unwillingness of law firms to discuss alternative fee arrangements. Kane notes that there’s a lot of work out there for medium-sized and smaller law firms because of their lower fee structure and flexibility in pricing. To paraphrase the Chairman of Sonnenschein, we intend to be in that small group. CR
Tuesday, May 27, 2008
There was a great article in Sunday’s New York Times about how the drop in the crime rate in New York City has affected writers of crime fiction. Crime in all categories is down to record low levels. In 2007 there were only 494 homicides in the city – the fewest on record since reliable statistics became available in 1963. New York City, once the murder capital of the world, is now the third-safest large city in the U.S., after Honolulu and San Antonio.
Some crime writers maintain that the real crime rate has little to do with popular perception, and that the image of New York in the bad old days will never fade. Others have adapted by focusing on terrorism or trying to infuse financial crimes with suspense. But Donald Bain, author of the “Murder, She Wrote” book series, is nostalgic for the grittier days, when the wise guys connected to Vincent “Chin” Gigante would interrupt their sidewalk card game to escort his daughter safely home from the subway. Times have changed, indeed.
When I began my career in 1981 as a young Legal Aid lawyer trying cases in the South Bronx, the crime rate was truly astronomical. Lawlessness was epidemic and affected many facets of daily life in the city. On the other hand, I got lots of experience as a criminal trial lawyer. An often overlooked collateral consequence of the laudably low crime rate today is that young lawyers, be they prosecutors or public defenders, just don’t get to have the same number of courtroom face-offs.
A strong, experienced defense bar helps to preserve our constitutional rights. Seasoned defense lawyers can breathe precious life into the Sixth Amendment’s guarantee of the right to counsel because we are practiced veterans. Novelists can invent crimes, but lawyers can’t invent cross-examination skills. It takes practice, and lots of it.
Friday, May 23, 2008
Yesterday in Chicago, 15 people, including 7 city employees, were charged in a federal indictment alleging corruption and bribery in the city’s Building and Zoning departments. The indictment says the employees took bribes to help building developers avoid seeking variances, receive certificates of occupancy, and pass inspections. Many of these bribes were paid by an “expediter” who became a cooperating witness.
These indictments are the latest in that city’s attempt to rout out corruption in the buildings industry. Last fall, inspectors pleaded guilty to accepting bribes for lifting stop-work orders on buildings that had multiple code violations. In announcing the new indictments, U.S. Attorney Patrick Fitzgerald admitted that the earlier prosecution “did not make enough of an impact.” On learning of the latest indictments, the chairman of the Chicago City Council’s Buildings Committee stated: “I thought we had cleaned this all up. . . . I thought we got rid of these bums.”
When I first went into private practice in the early 1990’s, I represented a New York City buildings inspector in a federal racketeering case who was charged with taking bribes to approve certificates of occupancy for real estate developers. The proof presented at trial was a window into the inner workings of a city governance system so byzantine that the job of “expediter” was created. An expediter is someone who learns what line to stand on in order to get permits approved. In Chicago, federal prosecutors are alleging that an expediter also learns who to bribe in order to get this done.
In New York, the City Council passed a law requiring expediters to register with the Buildings Department. Bureaucratic chaos ensued, with expediters being sent from borough to borough and facing escalating demands for documentation. One expediter said, “My first reaction to all this was, ‘That’s not fair,’ and then I thought, ‘That’s the point.’” He was convinced that the department’s real aim was to eliminate expediters. A deputy commissioner said the department was streamlining the process of filing permit applications so that builders wouldn’t have to hire someone else to help them through the process. “There shouldn’t be a need for expediters,” he said. The year was 1991.
It seems to be a fact of life that wherever there is construction, prosecutors chase city officials who have a bit of power to wield at a point in an approval process, and every few years they indict a few of them to send a message. It’s nice to know there are certain things you can depend on. CR
Wednesday, May 21, 2008
Maurice “Hank” Greenberg, former CEO of American International Group, may face civil charges from the SEC for what it alleges is his role in attempting to enhance his company’s financials through collusive transactions with General Re Corp. Today’s Wall Street Journal reports that on Friday, the SEC served Greenberg with a so-called Wells notice, which alerts its recipient that the Commission is considering requesting permission from its commissioners to bring a federal enforcement action against him. The previous day, the federal district judge who had presided over the criminal trial of five former Gen Re and AIG executives wrote in his ruling denying the defendants a new trial that there was “an adequate basis for a rational jury to conclude” that the conspiracy of which the defendants were convicted began with a phone call from Greenberg.
Veteran criminal defense attorney Robert Morvillo, who represents Greenberg, continues to assert his client’s innocence. The Journal article quotes from a statement Morvillo released yesterday: “We remain confident of our position on the merits, and we believe that none of the remaining issues are material to AIG’s financial statements. When the commission has had the opportunity to consider all the facts, we believe that they will agree.” When the phone call came to light during the criminal trial in November, Morvillo agreed that his client had initiated the transaction in question with a phone call to one of the defendants, but insisted that Greenberg “believed he was initiating a totally legitimate transaction.”
The recipient of a Wells notice has the right to respond and try to convince the Commission not to proceed with lawsuit. Bob Morvillo has done a brilliant job for Greenberg over the past few years fending off all sorts of investigations and rumored charges. There is no doubt he will continue to wage an aggressive battle against the current threats from the SEC. I know from my own experience with the Commission that their bark is often all they’ve got, and when push comes to shove they shy away from going to war in the courtroom – especially when they face an opponent as skilled and forceful as Morvillo.