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
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
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
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
Netherlands monument, Battery Park, June 11, 2008.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
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
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.
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
The Bowling Green entrance to Battery Park, May 29, 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
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
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.
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
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.
Opening statements begin today in the trial of R&B star R. Kelly at the storied Cook County Criminal Courts Building in Chicago. Kelly was indicted on child pornography charges in 2002 in connection with a home movie he allegedly made a decade ago, in which he ostensibly had sex with a girl who some have claimed may have been as young as 13.
There is, however, a major wrinkle in the prosecutor’s case – the supposed victim insists it is not she in the video. Prosecutors say they will introduce testimony from witnesses contradicting the woman’s assertions, and also plan to call a woman who will testify that she and Kelly had sex when she was underage.
Leonard L. Cavise, a professor at DePaul University’s law school, posits in an article in the New York Times that if the purported victim is at all credible, and the prosecution can’t show she’s been bought off, her testimony can’t fail to cause reasonable doubt. Meanwhile, he continues, Chicago has been made a laughingstock. “It’s as if they said, ‘Let’s spend millions of dollars and six years, shut down an important courtroom, cause a media circus and end up either convicting him of nothing at all or on some charge that has nothing to do with what you really should get him on if he’s guilty: sex with children.”
Indeed, the proceedings are surrounded by much hoopla, with press coverage from all over the world. The Chicago Tribune, which has promised its readers “gavel to gavel” coverage, reports that press from CNN, People Magazine, Agence France-Presse, and the Steve Dahl show will all cozy up together on a courtroom bench to take in the proceedings.
Presiding over the trial is Judge Vincent Gaughan, a tough, no-nonsense jurist who is doing everything he can to ensure that what takes place inside his courtroom will be measured and controlled. While it’s a given that having a fair and impartial judge in any criminal trial is essential, in a high-profile case the need for firm but sensitive control is paramount. The glare of media coverage can subvert the best intentions of even the most experienced judge.
Judge Gaughan seems to have a unique approach. Predictably, he has entered a gag order barring lawyers and court personnel connected with the case from speaking with reporters. Less predictably, he jailed a woman who was in court on her own probation violation after she snapped photos of R. Kelly with her cell phone, and ordered the phone destroyed. And last week during jury selection, he complained about reporters sticking their chewing gum under the courtroom benches, threatening to order DNA testing on the wads of Wrigley’s and bring the culprits to justice.
Joking or not, everyone is on notice to tread – and chew – carefully in Judge Gaughan’s courtroom. CR
Broadway and Fulton Street, May 15, 2008. What lies beneath.New York Attorney General Cuomo has secretly convened a grand jury to investigate allegations of involvement by the New York State police in politically motivated plots to discredit state legislators and other politicians, according to an exclusive story in today’s New York Post. The Post says an unnamed source close to the New York Power Authority identified this secret grand jury as the source of the subpoena served on the Authority’s now-suspended inspector general, Daniel Wiese, a former colonel in the State Police. The article states that in late March, Governor Patterson sent Cuomo a letter authorizing him to conduct the inquiry under New York State Executive Law § 63.3, which allows an attorney general to investigate indictable offenses at the request of the governor.
The subpoena for Wiese’s electronic communications resulted in the revelation that these records had mysteriously gone missing. Then last week, the former State Police security chief for governors Spitzer and Pataki, Gary Berwick, committed suicide. The Post story says the grand jury has issued a subpoena for Berwick’s suicide note.
Cuomo has assembled an impressive team of lawyers and investigators to conduct the inquiry into the so-called Troopergate scandal, headed by former federal prosecutor Sharon McCarthy. The former Deputy Chief of the Criminal Division in the U.S. Attorney’s office in Manhattan, McCarthy gave up a lucrative partnership at Kostelanetz & Fink, a Manhattan law firm specializing in white collar and tax offenses, to take the position.
Since we’re right across the street from the New York AG’s office, I sometimes run into Sharon at Starbucks. Though she is always rushing off to work, she is invariably pleasant. But potential targets of her investigation should not be lulled into complacency by her pleasant demeanor. She is a skilled and tenacious prosecutor, and for her to leave her partnership to head this investigation, she must believe there is some meat on the bones of these allegations. CR
The Fourth Amendment to the U.S. Constitution was incorporated into the Bill of Rights in response to the British Writs of Assistance – search warrants that allowed the British authorities to enter any colonist’s home at any time and for any reason. Resistance to the Writs played a significant role in the lead-up to the American Revolution. When asked to defend the Writs, Boston attorney James Otis, who considered himself a loyal British subject, promptly quit his post as Advocate General of the Admiralty Court and defended a group of colonial merchants who were challenging the legality of the Writs. John Adams later wrote in his autobiography of Otis’s oration against the writs: “Then and there, the child independence was born.”
The Fourth Amendment was established to protect citizens against these kinds of general searches. It required that police officers conduct searches only when they had “probable cause, supported by oath or affirmation.” Probable cause means that the officers have reason to believe that a person has committed a crime. Supported by oath or affirmation means that the officers swear under penalty of perjury to the truth of the information upon which their belief was based.
Over the last 40 years, the threshold of what constitutes probable cause has been lowered through a series of Supreme Court decisions. In Terry v. Ohio (1968), the Court held that a police offer can stop and frisk a suspect if the officer has a “reasonable suspicion” that the suspect is armed. This standard was later extended to traffic stops. In Illinois v. Gates (1983), the Court held that a “substantial chance” or “fair probability” of criminal activity was enough to establish probable cause.
But even this eroded Fourth Amendment is apparently not enough for some NYPD police officers. In an article in today’s New York Times, Benjamin Weiser writes that judges’ rulings in suppression hearings – in which defendants can argue that evidence was seized illegally and should therefore be suppressed at trial – show that over the past six years, there have been 20 cases in which judges have found police officers’ testimony to be less than truthful. The language judges have used in their decisions includes “patently incredible,” “riddled with exaggerations,” and “unworthy of belief.”
Moreover, judges rarely ask prosecutors to look into whether the officers had broken the law with their false testimony, and prosecutors rarely notify police authorities. So officers generally face no consequences for their “testilying,” as they themselves refer to the practice.
In a rare instance in which a police officer was convicted of perjury for lying to a grand jury about an arrest he had made for illegal gun possession, he was sentenced to five years’ probation. Prosecutors and investigators looking into police corruption at the time called it an example of what they feared is the most widespread form of police misconduct facing the criminal justice system. “Testilying,” they said, was “rarely prosecuted, often condoned by superiors and an intrinsic part of the police culture. The year was 1993.
As Weiser points out in his article, though the number of cases is small, suppressions are so rare in federal court that one former federal judge has questioned whether these cases indicate that giving false testimony may be a common police tactic. As this judge pointed out, “We don’t have statistics for all the people who are hassled, no gun is found, and they never get into the system.”
I myself cannot remember the last time a judge, federal or state, suppressed a gun in a case in which I was involved. While 20 such rulings in the last six years may not sound like a lot, it represents a sea change.
We are all grateful for lower crime rates, but this worthy goal cannot be pursued by trampling on the Constitution and subverting the individual rights and freedoms on which this country was founded. It is heartening to see federal district judges doing the right thing and ruling against the “testiliars,” though given the long history of the practice, it may be too much to hope that police officers will now get the message and stop. CR
One Broadway, May 8, 2008.
Originally the Wickquasgeck Trail, a Native American path running the length of Manhattan, Broadway begins right here. CR
New York State Attorney General Andrew Cuomo is investigating the possibility that hundreds of lawyers across New York State have been granted what he alleges are illegal pension benefits from school districts and other governmental entities that improperly enrolled non-employees in public pension funds. On Thursday, Cuomo announced settlements with Hodgson Russ of Buffalo and attorney Maureen Harris of Girvin & Ferlazzo of Albany. He said that a criminal and civil investigation into the Girvin firm was continuing.
The situation became public in February, when Newsday published an article stating that a private attorney, Lawrence Reich, was listed as a full-time employee of five school districts even as he was listed as a partner at the law firm Ingerman Smith and the districts were paying his law firm for his services. That arrangement allowed Reich to qualify for a public pension of over $60,000 and health benefits for life. The arrangement had come to light when attorney Janet Wilson, who had become embroiled in a lawsuit against one of the school district when it had declined to renew her contract, told another partner at Reich’s firm that she planned to notify the state employee retirement system about Reich’s arrangement.
According to a deputy attorney general, Harris was one of at least twelve Girvin attorneys who were on the public payroll between 1991 and 2008. The firm was given the discretion to determine how many and which lawyers would be placed on the public payroll and set the salary that each lawyer would receive, regardless of whether that lawyer was doing any work for the school district. Harris’s attorney said she regarded the pension benefit as “pursuant to a longstanding relationship” her firm had with the district.
This investigation is an example of how something that is accepted as perfectly fine on one day becomes flavor-of-the-month fraud the next day because a prosecutor decides so. It is particularly important that anyone defending such an investigation learn all there is to know about when someone can be considered a public employee. Even if the lawyers were wrong about an interpretation of when that status can be confirmed, it may constitute a complete defense if they believed in good faith they were entitled to the benefits. CR
New York City detectives have a long and storied sartorial tradition. Whether chasing a suspect across the rooftop of a Hell’s Kitchen walkup, or standing in front of a bank of microphones to announce that they have cracked a gruesome homicide case, detectives tend to be a tailored lot and to eschew “business casual.”
There was a wonderful article and accompanying video in the Sunday New York Times about this little-examined aspect of life as a detective in New York City. The article describes how the detectives trade tips, share books like Alan Flusser’s “Dressing the Man: Mastering the Art of Permanent Fashion,” and patronize Stewart Altschuler, known as the “Suit Man,” who addresses the detectives’ unique styling challenges. “For their own safety, a lot of our suits are side-vented and big-shouldered,” he says, “in case they have to move around on the ground.” The suits are specially cut to allow room around the waist so that guns, cell phones, radios, and handcuffs don’t show.
NYPD detectives have to deal with the public when they testify at trials, interview witnesses, and notify family members of tragedies. One retired detective commander called his suits “my psychological armor.” Somewhat incongruously, detectives also wear suits when they chase suspects and wrestle them to the ground and handcuff them. “I try to wear my less expensive suits if I am going out to track a bad guy,” another detective said.
One of the things I love about being a criminal defense lawyer is the style. Even when I was a Bronx Legal Aid attorney, I shopped the Barney’s warehouse sale and scoured the racks at Syms for the stray Armani. Now that I’ve reached a certain stage in my professional life, I’m a Paul Stuart guy.
I remember a talk given by Gerry Shargel, one of New York’s best criminal trial lawyers, in which he described entering a courtroom for the first time. He looked at the prosecution table and saw earnest, hardworking young lawyers wearing drab, ill-fitting suits. He looked at the defense table and saw elegance and style. He knew immediately which table he belonged at. I’m with Gerry, and I like that it’s a trait I share with the detectives of the NYPD. CR
The Wall Street Journal reported today that Ben Campbell, the United States Attorney for the Eastern District of New York in Brooklyn, has formed a task force of federal, state, and local agencies to deepen and extend the criminal division’s ongoing probe into various players in the subprime mortgage meltdown. Campbell told the Journal that the “jury is still out” on whether the sudden decline in the value of securities backed by bundles of subprime mortgage instruments is the result of criminal activity or just market forces, but the scope of this invigorated inquiry is broad. They will be looking at whether the crimes of mortgage fraud, securities fraud, insider trading, accounting fraud, and making false statements have been committed. Mortgage banks, brokers, lenders, investment banks, and hedge funds will be under the prosecutor’s microscope.
The newly formed task force had its first meeting on Friday and includes officials and agents from the FBI's financial-institutions fraud unit known as C3; the U.S. Postal Inspection Service, which investigates mail fraud; financial-crimes investigators from the U.S. Secret Service; and investigators and representatives of the New York State Banking Department, the New York City Department of Investigation, and the Federal Deposit Insurance Corportaion, a federal banking regulator.
It remains to be seen whether this inquiry – along with the many investigations being pursued by other local prosecutors and a potential central Justice Department task force –will yield numerous individual criminal prosecutions. But this ramped-up effort is certainly part of an unmistakable trend that potential targets must recognize. Individual mortgage brokers, bankers, closing attorneys, investment bankers, ratings agency executives, and anyone else involved in the subprime deal flow should take note. The inquiry is bound to intensify in the coming months. Given the losses suffered in the subprime debacle, the potential for significant criminal exposure to serious jail time is high. However, there are market-based explanations for much of what has occurred, and complex accounting and disclosure requirements may provide proof that there was a general lack of intent to defraud on the part of individuals involved.
In the comments to the Journal’s law blog post on the new task force, a reader asks, “Who will defend these companies? Most big law firms are conflicted.” Whether or that is the case, small, savvy firms like ours specialize in the representation of individuals. As the Journal blog post points out, the subprime mess has been called “the latest Full Employment Act for Lawyers.” Now we smaller firms may be seeing the “trickle-down” effect of what is becoming an increasingly larger supply side of companies and individuals in trouble. CR
Deborah Jeane Palfrey, the operator of an alleged prostitution service in Washington, D.C., was found dead yesterday, an apparent suicide by hanging. Having been convicted after trial in federal court on charges of racketeering, money laundering, and mail fraud, she was facing a likely sentence of four to six years. Her elderly widowed mother found the body in a storage shed behind her mobile home in Florida.
Members of Washington’s political elite were rumored to have been Palfrey’s clients. Senator David Vitter, a Republican from Louisiana, admitted to utilizing the services provided by Ms. Palfrey’s business. Vitter, who is married and has four children, apologized and said he had committed a “very serious sin.” But neither he, nor any of Palfrey’s other customers, was prosecuted for violating laws against patronizing a prostitute.
Palfrey had been jailed for 18 months in the early 1990s and vowed in a TV interview that she would never go back to prison. She had also spoken about Brandy Britton, one of Palfrey’s former escorts, who hanged herself in June 2007, shortly before her scheduled trial for prostitution. Britton had been a professor at the University of Maryland.
The Palfrey case is only the most recent example of how devastating the antiquated and puritanical laws about sex workers in this country can be to those who work in this business. There is no easy solution to this problem. Efforts at legalization in the Netherlands have apparently led to an increase in human trafficking in underage girls. Other countries, such as Germany, regulate sex work and permit it in specified areas. Here in the U.S., COYOTE (Call Off Your Old Tired Ethics), an organization that acts as a support network for sex workers, is in favor of the decriminalization – as opposed to legalization – of commercial sex among consenting adults.
The cost of criminal enforcement of the laws against commercial sex work is significant. High-profile arrests recently ended the political career of New York Governor Elliot Spitzer, though he has yet to face prosecution for criminal laws he may have violated. An unregulated sex industry provides a fertile ground for other criminal conduct. But lengthy federal sentences for madams and arrests of sex workers and their clients will not solve the problem, and the problem is surely not going away. Only efforts at decriminalization and regulation will help to lead the way toward a safer and less degrading sex industry, and avoid the waste of public dollars spent on futile enforcement efforts. CR
City Hall Park, May 1, 2008.In my April 14 entry, titled “If I had a hammer . . . ,” I wrote that the U.K.’s treasury chief hopes to pass legislation this year allowing the Financial Services Authority to grant whistleblowers who report market manipulation immunity from prosecution. I opined that the FSA should proceed cautiously, since the legislation could prompt individuals who have engaged in wrongdoing to concoct stories about innocent colleagues in order to save their own skins. Now the FSA reports that more than a quarter of the takeovers in the U.K. last year were preceded by suspicious trading, including possible insider trades.
The British financial regulator, facing criticism that it is not as aggressive as our SEC in pursuing market abuse, will apparently increase its oversight of trades consummated prior to the announcement of takeovers. The FSA has announced that it will begin to criminally prosecute more individuals and request imprisonment as punishment. To that end, it has augmented the number of criminal lawyers on its staff by 150 percent. It also intends to utilize all the tools in its investigative arsenal, including “calling suspects and their families and friends after it becomes aware of an abnormal movement in a stock and ‘before recollections have dimmed.’” Finally, the FSA says it will push individuals to report suspicious trades – among rivals and even within their own firm.
In a world that has become increasingly flat, the FSA appears ready to bring down the hammer to combat insider trading. It remains to be seen whether it will emulate our DOJ, which has demonstrated that it is not shy about prosecuting insider trading whose effects span multiple time zones. Most recently, Hafiz Muhammad Zubair Naseem, a Pakistani national who worked for Credit Suisse in Manhattan, was convicted in federal court in Manhattan for tipping a Pakistani banker that TXU, the Texas energy giant, would be taken private. Any white-collar defense lawyer actively practicing against the backdrop of today’s global securities markets may do well to heed the historic midnight cry of Paul Revere: “The British are coming! The British are coming!” CP
In the wake of perceptions that Florida has become a hotbed of real estate scams, the state Senate yesterday passed the second bill in two years that boosts jail terms for those convicted of real-property-related rackets. Any mortgage fraud on home loans amounting to more than $100,000 will now be prosecuted as a second- degree felony, which carries a potential jail term of up to 15 years. Just last week, one Richard Crowder was convicted of a $37 million mortgage-fraud scheme involving 17 luxury condos in South Beach, Miami. He was sentenced to nine years in prison.
This is yet another example of the politically driven process by which criminal penalties are being increased in order to allow elected officials to appeal to voters. Longer sentences for those convicted of mortgage fraud will not address the widespread economic problems that Florida – and many other states – face in the wake of the subprime mortgage meltdown. And longer sentences cost states much more money in the long run. Election-driven prosecutors refuse to negotiate the fraud-case flavor of the month, thereby costing taxpayers money in unnecessary trials. This chronic pattern of predicament solving by mandating longer criminal sentences has never worked in the past and will continue to cause many more problems than it is worth in the future. CR
On Friday, the Sean Bell trial ended when the judge announced his verdict acquitting all three police officers of all charges. You won’t see any photographs or videos of that dramatic moment, though, because there is still no First Amendment right to photograph or televise court proceedings – despite the impassioned arguments of journalists over the years.
Indeed, very little has changed on this front since 1965, when the U.S. Supreme Court decided in Estes v. Texas that defendant (and friend of Lyndon) Billy Sol Estes had been denied a fair trial owing to the disruption caused by live television coverage of the trial. While the Court recognized that advances in technology might make television coverage less disruptive in the future, its held that its judgment in this case had to “take the facts as they are presented today.” The Court revisited the issue in 1981 in Chandler v. Florida, when it held that Florida could allow electronic coverage of criminal trials even if the defendant objected. Following Chandler, most states allowed cameras in at least some of their courts.
So while the federal judiciary continues to prohibit all electronic coverage, there is a patchwork of regulations covering the state courts. In New York, it is allowed in appellate courts subject to the individual court’s approval. At the trial level it was allowed, subject to certain restrictions, from 1987 to 1997, when the legislature permitted a ban on Section 52 of the Civil Rights Law to expire. Several trial judges ruled that Section 52 was unconstitutional and permitted electronic coverage in their courtrooms. But in 2005, the New York State Court of Appeals ended the debate when it affirmed a lower court’s ruling against Court TV’s challenge to the law.
Cameras in the court continues to be a hot topic among defense lawyers. No matter which side you come down on, however, there is no doubt that the courtroom sketch artists are a part of the rich tapestry of this city’s dramatic trial culture which would be lost if the electronic journalists were to prevail. Surely the most colorful of these artists is the mother-daughter team of Andrea and Shirley Shepard, who work together and sign their sketches “Shepard.” Today’s New York Times City Room blog carried a wonderful interview and video of the pair discussing their coverage of the Sean Bell trial, and how they worked furiously to capture Detective Michael Oliver at the moment of his acquittal.
You know you’ve made the big time when the Shepards show up at your client’s arraignment or trial. Check out their work here. Now who’s that distinguished looking white-haired guy standing on the right? CR
There is a story in today’s New York Times about how criminal defense lawyers involved in terrorism cases are concerned that the government is secretly monitoring their communications with their clients. Philip Shenon describes an Oregon attorney who flies to the Middle East every few weeks to speak to his client. He says this is the only way he can communicate with his client, because he is afraid that his email and telephone conversations are being monitored by the government under the powers it granted itself after 9/11 to conduct secret, warrantless eavesdropping, even of privileged attorney-client communications. Evidence of such surveillance ended up in the hands of defense lawyers in 2004 when the government mistakenly gave them a log stamped “Top Secret” that contained entries of interceptions under the National Security Agency’s warrantless wiretapping program. The government demanded that the lawyers return the log to the FBI and threatened them with prosecution if the contents of the book were released.
The Bush administration is pressing Congress to permanently ease restrictions on secret domestic wiretapping. Justice Department officials, speaking on the condition of anonymity, claimed that there was no effort to undermine the attorney-client privilege. “If a terrorist suspect living in a foreign country is calling into the United States and all of his calls are being monitored, the calls to his lawyers here might be intercepted, as well,” one of the officials said. “It’s not as if we’re targeting the lawyer for surveillance. It’s not like we’re eager to violate lawyer-client privilege. The lawyer is just one of the people whose calls from the suspect are being swept up.”
This is yet another outrageous example of a difficult situation justifying the erosion of basic, bedrock legal principles. Wiretaps were being conducted long before September 11, but when the wire tappers heard that a lawyer and a client were speaking, they stopped listening in and wrote in their log that they had done so. I am not so naive as to believe that an agent on a tap monitor never listened in on what a lawyer and client were saying. But for the government to allow lawyers and clients to be monitored while they discuss their cases, and to use the fruits of that spying in their investigation, is the single most dangerous entry in the long list of this government’s attempts to deprive us of the rights we hold so dear. CR
This morning, New York State Supreme Court Justice Arthur Cooperman acquitted three detectives of all charges in the 50-shot killing of unarmed groom-to-be Sean Bell in the early hours of his wedding day. The verdict was delivered to a packed courtroom, with a huge crowd gathered outside the courthouse. After the verdict, some crowd members wept and some were enraged, shouting “Murderers!” A phalanx of police ringed the courthouse on Queens Boulevard, prepared for any violence, though there were only some minor scuffles. Justice Cooperman ruled that the prosecution had not proven guilt beyond a reasonable doubt. Commenting on the prosecution’s witnesses, he said, “At times, the testimony of those witnesses just didn’t make sense.”
Unlike in federal court, where both the prosecution and the defense must agree for a trial to be conducted without a jury, in state court in New York if criminal defendants wish to proceed with a judge trial, they do not need the consent of the prosecution. Nevertheless, it is rare for defense lawyers to elect this option. Where there is a complex legal issue bearing upon guilt or innocence, it may make sense to waive a jury. In other cases, a defense lawyer may hope that a judge will reduce a charge to a lesser offense by rendering a verdict that is not an outright acquittal but allows for a shorter prison sentence. This is sometimes a viable strategy in murder cases where the hope is for a manslaughter verdict.
The one consistent exception to the general rule against waiving a jury is cases in which criminal defendants are police officers. Almost without fail, in state court trials in New York City involving alleged serious police misconduct, the defense elects to waive a jury and proceed before a judge. Perhaps defense lawyers believe that judges are more informed regarding issues that confront police officers, and thus can be fairer than a jury. Maybe the defense strategy is that in such emotional cases, judges are cooler, calmer, and more collected in their deliberations. Clearly, the defense lawyers made the right call in this case. However, in trials where the police are accused of hurting or killing members of a minority community an unmistakable impression is that those very communities cannot be trusted to be fair and impartial and to serve as judges of the facts. Jury waiver will continue to be the chosen and appropriate strategy and distrust one of the unavoidable public reactions in these sorts of cases as long as “I, the Jury” continues to be the law in this state. CR
Wall Street, April 24, 2008.The SEC has refused a congressional request to disclose why it dropped its investigation into Bear Stearns’s valuation of bundles of subprime mortgage securities called collateralized debt obligations, according to a story in yesterday’s Wall Street Journal. In an April 2 letter to SEC Inspector General David Kotz, Iowa Republican Senator Charles Grassley requested “a thorough investigation into the facts and circumstances surrounding the agency’s decision not to pursue enforcement action” against the defunct Wall Street firm. SEC Chairman Christopher Cox responded on April 16 that “the Commission does not disclose the existence or nonexistence of an investigation or information generated in any investigation unless made a matter of public record in proceedings brought before the Commission or the courts.” The war over access to this information is expected to continue.
Most of the time I fight with the SEC. But here I agree with Chairman Cox’s position. The U.S. Attorney’s Office for the Eastern District of New York is investigating the very same issues that the Senate Finance Committee is seeking to have disclosed by the SEC. It’s no secret that the SEC and federal prosecutors work very closely together on many investigations. Rule 6 of the Federal Rules of Criminal Procedure prohibits unauthorized “leaking” of secret grand jury proceedings. If there is any overlap of confidential facts developed by both the SEC and the U.S. Attorney about the Bear Stearns investigation, there could virtually be a Rule 6 violation if the information is released to the Senate. Individuals and companies under investigation are entitled to protection until and unless allegations are made public by way of a formal accusation. CR
In his latest installment in his ongoing series of articles under the rubric “American Exception,” examining commonplace aspects of the American judicial system that are virtually unknown in the rest of the world, New York Times legal correspondent Adam Liptak reports the disturbing statistic that the U.S., with a prison population of 2.3 million, now “leads the world in producing prisoners.” China, with a population four times ours, is a distant second, with 1.6 million people behind bars.
Shockingly, we now lock up one in every 100 adults. When it comes to incarceration rates, the U.S. ranks first, at 751 prisoners per 100,000 in population. In comparison, England’s rate is 151 per 100,000; Japan’s, 63. The median for all nations is around 125 – about one-sixth the U.S. rate. As Liptak points out, the rise in the U.S. incarceration rate is recent. Between 1925 and 1975, the rate was around 110 per 100,000. It spiked as a result of the movement to get tough on crime in the late seventies.
Liptak also cites compelling evidence that the lengths of prison terms in the U.S. are far longer than anywhere in the world, especially for nonviolent offenses, including white-collar and drug. Vivien Stern, a research fellow at the International Centre for Prison Studies in London, writes that the United States has become “a rogue state, a country that has made a decision not to follow what is a normal Western approach.”
I began my career as a criminal defense lawyer around the same time this country began its “get tough on crime” campaign. It is clear to me that the pendulum has swung much too far in the direction of draconian retribution. Liptak proposes several possible causes for this alarming situation, among them the politicized nature of the criminal justice system. In my experience, each election cycle brings a new clarion call for longer, harsher, and more punitive sentences. The election of prosecutors and judges, and even the politicized process of appointing federal judges, feeds this out-of-control wildfire.
Even in the aftermath of case law changes to the federal sentencing system, with federal judges being provided the opportunity to exercise more lenity, they are still largely following the sentencing guidelines. The result can be drastic sentences, such as the one handed down recently to Bayou hedge fund executive Samuel Israel, who pleaded guilty and cooperated with the government. His pleas for mercy were ignored by the judge, who sentenced him to 20 years in prison. Until legislators, judges, and prosecutors recognize the futility of our obsession with protracted imprisonment for individuals whose lives can be salvaged, we will continue to be a “rogue state” when it comes to making the punishment fit the crime. CR
In what the DOJ is calling “the first prosecution of its kind in the nation,” 26-year-old John Schiefer of Los Angeles pleaded guilty last Wednesday to using a “botnet” of hundreds of thousands of “zombie” computers to commit massive identity theft. At the April 16 plea hearing, the former computer security consultant, who went by the handle “Acidstorm,” admitted to gaining access to the computers and remotely controlling them through the Internet. Schiefer admitted to illegal wiretapping by installing code known as malware on the zombie computers, which allowed him to steal usernames, passwords, and PayPal account information. He also hacked into the PStore, a supposedly secure data repository for computers running Microsoft operating systems. And he admitted to defrauding a Dutch advertising company by promising to install the company’s programs only on computers whose owners had given consent, and then installing the programs on his botnet of zombie computers.
Los Angeles FBI Assistant Director Salvador Hernandez claims that the case should serve as a warning to would-be “cyber culprits” that the long arm of the law may be “only a few mouse clicks away.” As for Schiefer, he is reported to face up to 60 years in federal prison and $1.75 million in fines.
I have represented a number of young computer hackers, including an individual charged in the first, pre-World Wide Web prosecution of a computer crime under the illegal wiretapping theory used in the Schiefer case. I am always struck by how ambitious, smart, and creative these hackers are. While it is flat-out wrong to steal someone’s identity, I have found that with these types of cases in particular, an understanding sentencing approach can allow for true rehabilitation. I have thankfully been able to obtain very advantageous sentences for these clients. Indeed, all of the hackers I have represented have gone on to lead productive – and law-abiding – lives. Some hackers even get jobs as FBI consultants! CR
