Off Battery Park, April 29, 2008.
“I'll take Manhattan, the Bronx and Staten Island too . . . ”
“Manhattan,” Rodgers and Hart; Blossom Dearie rendition. CR

Come on down!

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

Trinity Church, April 29, 2008.
After the storm ― bowed but not broken. ER

Sketching their flock.

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

U.S. Custom House, One Bowling Green, April 25, 2008.
Daniel Chester French, who did the statute of Abraham Lincoln at the Lincoln Memorial, created four ornate allegorical sculptures
symbolizing America, Europe, Asia, and Africa. This is America. CR

Big Brother is watching.

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

Wall and Broad, April 25, 2008.
Street protest, Wall Street style. ER

I, the jury.

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.
New York City's largest parking offender, UPS added $18.7 million
to the city's coffers for parking fines in fiscal year 2006.
Donald Trump paid less than $8 million for 40 Wall Street in 1995. ER

I’ve got a secret.

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

111 Broadway, April 22, 2008.
Monsters of the Street.
Our “dragon sentry” protects the building. CR

The rogue state.

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

South Street pier, April 22, 2008.
A Manhattan bird turns its back on
the gothic majesty of the Brooklyn Bridge. ER

I walked with a zombie.

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

Wednesday 13, “I Walked with a Zombie”

23 Wall Street, April 18, 2008.
Formerly the J. P. Morgan building, and site of the 1920
Wall Street Bombing, it is now being developed
by Philippe Starck as a condominium. ER

Melting slush?

Despite speculation that New York City Council President Christine Quinn was about to be indicted by the U.S. Attorney in connection with so-called slush-fund accounts, the April 16 indictment named two staffers to Councilman Kendall Stewart, Asquith Reid and Joycinth “Sue” Anderson, who were charged with conspiracy to commit mail fraud, money laundering, and witness tampering in connection with the embezzlement of $145,000 from a not-for-profit children’s program that is alleged to have served primarily as “a conduit to provide cash and other personal benefits” to Reid and “his criminal associates.”

The indictment does, however, provide insight into the ongoing federal investigation regarding allegations that the City Council was involved in creating accounts for improper and fraudulent purposes. The indictment states that since 2003, not only has each City Council member controlled discretionary funds for designation to nonprofit organizations, but millions of dollars of additional funds were placed in the names of fictitious nonprofits under what the indictment terms “holding codes.”

The indictment goes on to allege a fairly detailed process under which a nonprofit group makes an application for funds, complete with rigorous review and the ultimate grant of funds. Indeed, the indictment concedes that a portion of the money that has been termed “slush” was used for legitimate purposes. On the other hand, Reid and Anderson are alleged to have wired money to Jamaica for the benefit of family and friends.

U.S. v. Reid and Anderson demonstrates the depth and focus of the current investigation that besieges the City Council and Speaker Quinn. While hotwiring money back home (if it is proven beyond a reasonable doubt) would certainly be problematical, the process itself of getting money to nonprofits is not alleged in the indictment to be fraudulent. Given that the prosecution concedes that even in the Reid case money was used legitimately, all Council members and their staffs may have perfectly valid explanations and defenses to claims of fraud, kickback, and slush.

At least one local paper has taken Quinn to task for considering having the City pay for attorneys to represent individual Council members being questioned in the investigation. To the contrary; what Quinn is doing is laudable and praiseworthy. It is critical that individuals – here probably entirely innocent individuals – be separately represented by experienced and capable lawyers. CR

Battery Park, April 18, 2008.
A clear case of identity theft. CR

Going once, going twice.

In an investigation that could lead to criminal charges, New York State Attorney General Andrew Cuomo has issued subpoenas to 18 banks – including Citigroup, Merrill Lynch, Morgan Stanley, and JPMorgan Chase – that underwrote and brokered investments in the now-collapsed auction-rate securities market. The AG is seeking information dating back to 2003 on the extent to which the banks artifically supported the market and how they disclosed the risks of auction failures to investors.

Auction-rate securities are long-term bonds that were often marketed as short-term investments because buyers could sell them at periodic auctions. For two decades, securities dealers had routinely bought unwanted bonds at auction to prevent failure. The $330-billion market collapsed in February, when dealers suddenly stopped bidding in an effort to conserve capital in light of the subprime mortgage crisis.

The investigation was reportedly instigated when more than fifty lenders had to stop making federally guaranteed student loans. Now nine other state attorneys general have formed a task force to investigate whether brokers misrepresented ARSs as an alternative to money-market investments when they sold them to individuals.

The subpoenas were issued under New York’s Martin Act, a sweeping and broad statutory scheme dating to 1921 that criminalizes misrepresentation in connection with the purchase and sale of securities. The Act has been used regularly by both the New York County DA’s office and former AG Elliot Spitzer to police securities trading on Wall Street. Now it is being used yet again, and institutions and individuals face tremendous potential criminal liability. Intense and powerful market forces provide explanation, mitigation, and defenses for those ensnared in the AG’s latest effort to blame someone – anyone – for the sorry state of our economy. CR

Charging Bull, Bowling Green, April 17, 2008.
7,000 pounds of bronze wishful thinking
stands in the oldest extant public park in New York City. KM

Chutes and ladders redux.

Warren Buffet’s Berkshire Hathaway announced Monday that Joseph Brandon had resigned as CEO of its General Re Corp. unit.

Federal prosecutors had been pressuring Berkshire to replace Brandon following the fraud convictions of four former Gen Re officers less than two months ago. Neither prosecutors nor the SEC ever charged Brandon with any wrongdoing. He cooperated with the government investigation, never asked for immunity, and in every way acted like a good corporate citizen. As recently as February, in a letter to shareholders, Buffet had praised Brandon as having helped to restore the “luster of the company.”

As I told Securities Law 360, this inappropriate and meddlesome effort at managing the human relations departments of American companies breaks new and dangerous ground for prosecutors. Berkshire Hathaway rightfully wanted to put the government’s criminal investigation behind it, and prosecutors wanted Brandon gone, despite his cooperation. By all accounts he did nothing wrong; otherwise, prosecutors surely would have charged him. The leverage the government exercises when it threatens to continue an investigation if personnel changes are not made is very powerful. Here, it appears that a hardworking, highly regarded corporate executive was thrown down the chute in service of an improper effort at let’s-climb-up-the-corporate-ladder. CR

Fraunces Tavern, 54 Pearl Street, April 16, 2008.
Serving happy customers since 1762. CR

Don't try this at the office.

As the office administrator of our firm, I’m in the process of creating an employee handbook. One very useful source of advice on everything pertaining to managing a law firm is the Association of Legal Administrators, of which I am a proud member. An article in the current issue of the association’s journal titled “Rules of the Road: Establishing Law Firm Policies and Procedures,” advises that you avoid “binding obligations in the form of well-intentioned statements that . . . can spark lawsuits when poor performers are terminated,” and instead “address areas that reflect the culture and policies of the workplace.”

One example of what can go wrong when an employee handbook does not reflect a firm’s culture is a recent lawsuit filed against a Utah-based motivational coaching firm that is accused of using waterboarding as a “motivational exercise.” The plaintiff claims that co-workers held him down as a manager slowly poured a gallon of water over his mouth and nose, telling workers that he wanted them to work as hard at selling as the waterboarded employee had worked at breathing.

You may want to avoid waterboarding as a technique for employee motivation. However, during his Senate confirmation hearing, even Attorney General Michael Mukasey was less than clear about whether the practice was torture. “If it amounts to torture, then it is not constitutional,” he testified.

Hopefully, your firm culture does not include torture, or even humiliation (the motivational coaching firm manager was also accused of punishing employees by drawing mustaches on them with permanent marker). But taking the time to spell out specifics regarding what is expected of employees should help to avoid pesky lawsuits. KM

Federal Hall, Wall Street, April 15, 2008. ER
“2 prtkt n srv.”

Forecast – Slushy?

New York City Council President (and presumptive 2009 mayoral candidate) Christine Quinn has retained criminal defense attorney Lee Richards III to represent her in connection with the Council’s budget scandal. The U.S. Attorney for the Southern District of New York claims that the Council set up phony groups to hold and hide money – more than $17 million over the past six years – in so-called slush fund accounts that were later used to cover shortfalls in the city budget.

In an article in Sunday’s New York Post, which broke the story on April 3, a “law enforcement source familiar with the probe” is quoted as saying: “If you pick up a phone and tell someone to do something illegal, that’s wire fraud. If you send a check, that’s mail fraud.”

Not quite. There’s more to making a wire and mail fraud case than a phone call and a check. There must be proof beyond a reasonable doubt that a misrepresentation was made to a person or entity and that an overall scheme to defraud existed. If the purpose of the accounts was to take care of periodic shortfalls in the budget, there was no such scheme. Moreover, it sounds as though everyone on the Council knew about the practice and thought it was perfectly legal. So no one was fooled, and there was no misrepresentation. In fact, there’s an uproar from other Council members that Quinn wants to change things. Quinn may even have sought the advice of counsel before setting up the accounts. This would constitute a complete defense to mail and wire fraud charges, as long as she relied on her lawyer’s advice in good faith.

In any event, Quinn has chosen well by hiring Lee Richards. He is a former federal prosecutor with a reputation for knowing how to negotiate a good result rather than going to war in a courtroom. He will certainly insist that prosecutors produce proper evidence of fraud rather than the kind of flimsy purported elements of offenses that are being leaked to the press. CR

Stone Street, April 14, 2008.
Summer, anyone? CR

If I had a hammer . . .

U.S.-style plea-bargaining powers have long been on British financial regulators’ wish list. Now it looks as if their wish might come true.

The Wall Street Journal, citing a “person familiar with the matter,” reported 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.

The British move to strengthen its market regulator’s plea-bargaining powers has taken on added significance in light of the FSA’s current investigation into allegations that traders planted false rumors about banks in trouble, and then profited from the fallout. “The new powers proposed by the government are essential to our toolkit for tackling market abuse,” an FSA spokesperson said.

It’s not clear whether the FSA is proposing a “first-in-the-door-receives-flat-out-amnesty” program like the one offered by the DOJ’s Antitrust Division, or one in which whistleblowers will be considered on a case-by-case basis, with some being offered immunity and some being required to enter guilty pleas. The former would certainly be a hammer in the British regulators’ toolkit, but it also holds the possibility of allowing opportunists to wipe their slate clean and tell phony tales about others. Our heavy reliance on informant testimony should serve as a cautionary tale to our counterparts in the U.K. as they shop for new tools. CP

Trinity Church, April 11, 2008.
For every thing there is a season. ER

What’s my task?

Attorney General Mukasey’s resistance to forming a task force to investigate the nation’s mortgage crisis is now being met with hostility even from within his own party. In a speech on the economy yesterday, presumptive Republican presidential nominee John McCain called for the DOJ to create a task force to investigate mortgage crimes.

Mukasey had expressed his reluctance to creating such a task force at a meeting with reporters on March 21, claiming it was premature. “In order to have a task force you need to identify the task,” he stated. “That is what we are doing now.”

There are currently numerous local FBI investigations into mortgage fraud, and local U.S. Attorneys have issued subpoenas to a number of investment banks regarding the packaging of loan bundles to sell to the investing public. However, while the DOJ is “figuring out whether there is a larger criminal story to be told here,” as Mukasey put it, there is no central coordination of efforts to probe what some are calling the worst national economic crisis since the Great Depression.

I appeared before Mukasey many times when he was a District Court judge here in Manhattan, and tried a complex white-collar fraud case to a jury in his courtroom. He is a smart, thoughtful, independent thinker, a no-nonsense, cut-to-the-chase kind of guy. You don’t have to be a rocket scientist to figure out what the task is here. Simply investigate the deal flow, just as you would with any systemic problem.

Central coordination by a DOJ task force would give focus to the numerous local investigations and serve to reassure the public that a dire problem is being addressed. The time for “figuring out” is over. It’s time to act now. CR

Broadway and Wall Street, April 10, 2008.
Three generations of architecture. CR

Eye of newt, anyone?

Late last week, the New York State Attorney General’s office launched a 12-hour raid on State Police headquarters in Albany as part of its ongoing investigation into former governor Spitzer’s alleged use of the state police to spy on Senate Majority Leader Joseph Bruno, the New York Post reported.

Even more troubling, the Post reports, the AG also sent the State Police a letter informing them that Glenn Valle, its longtime chief counsel, could not represent troopers implicated by the investigation.

Typically, prosecutors take this position when an attorney is either personally involved in the activities under investigation or has a conflict of interest. All we know is that during contentious hearings held last year before the state Senate Investigations Committee, Valle defended State Police for following Spitzer’s directives. Now state Republican lawmakers are calling for his resignation.

The problem is, there’s no referee. There’s no judge to ask for a decision. Where does the AG get off with unilaterally disqualifying an attorney? In any contested case in which a prosecutor wants to disqualify an attorney, there is a hearing with evidence and proof. The U.S. Attorney or DA does not write to the client and say, “Hey, buddy, gotta get a new lawyer.” They go to a judge and follow proper procedure.

Responding to the Post’s previous story about Governor Paterson’s request for the investigation, State Attorney General Cuomo issued a statement in which he pointed out that “combining politics and police work is a toxic brew.” By disqualifying an attorney without a hearing, the AG is only throwing more poisoned entrails into the cauldron. Let’s hope that the addition of local white-collar stalwarts Robert Fiske and Michael Armstrong as advisers in this inquiry, announced today, improves the AG's judgment.

Ground Zero, April 9, 2008. ER

Desperately seeking a DPA.

A front-page article by Eric Lichtblau in today’s New York Times examines how, in a “major shift in policy,” federal authorities are increasingly allowing companies to enter into deferred prosecution agreements rather than face criminal indictment.

Under a DPA, the company hires outside counsel and conducts a thorough internal investigation, then agrees to clean up its act and often consents to oversight by an independent monitor. The company avoids the stigma and cost of defending itself in a criminal prosecution. It also avoids any formal admission of guilt.

Once rare in resolving corporate criminal liablity, DPAs have become “a favorite tool of the Bush administration,” Lichtblau says. Proponents of DPAs say they can prevent the kind of havoc that followed the collapse of accounting giant Arthur Anderson in 2002, which led to the loss of 28,000 jobs. Former attorney general John Ashcroft is one such fan of DPAs, calling the indictment of a company “a corporate death sentence.” Paul McNulty, the former deputy attorney general who penned the federal guidelines for corporate criminal prosecution, has defended the agreements as “pretty burdensome.”

Burdensome is facing the rest of your natural life in prison, not paying for a monitor. In effect, the DOJ is outsourcing the criminal investigation of corporations to large firms and consulting shops. And engagements for internal investigations and monitorships are incredibly lucrative. It’s hardly surprising that Ashcroft defends DPAs – his consulting firm was paid more than $52 million as an outside monitor for a medical supply company hoping to avoid criminal prosecution.

While it has always been rare for a company to go to trial in front of a jury, now companies are not even being charged. At the same time, individual corporate officers and employees are being thrown under the bus and sacrificed to criminal prosecution at the urging of companies seeking DPAs. I don’t have a real issue with companies receiving DPAs. However, while the DOJ goes easy companies, they have thrown the book at individuals and this is deeply unfair. CR

Trinity Church, April 8, 2008.
Spring at last. ER

Ladders and chutes.

Following the conviction earlier this year of four General Re executives on criminal fraud charges, federal prosecutors are trying to pressure Berkshire Hathaway into removing the current CEO, Joseph P. Brandon – despite the fact that neither the SEC nor any prosecutor has charged him with wrongdoing. After the trial, prosecutors said they would “work up the ladder” in an effort to clean up Dodge. But not only has Brandon cooperated with the investigation and prosecution of Gen Re executives, he has sought no immunity agreement for himself.

This is just flat-out the wrong thing for prosecutors to be doing. It should not be their business to hire and fire. However, in today’s post-Enron atmosphere, you see it all the time. Government prosecutors, regulators, and attorneys who represent the company or the company’s audit committee insist on a purge in order to trumpet a cleanup and remediation. In the case of Gen Re, not only did the guy they want to fire unselfishly cooperate with the effort to make things right, but by all accounts he was doing an excellent job as CEO. Just because you work your way up a ladder doesn’t mean you have to put a good guy on the outbound chute. CR

56 Pine Street, April 7, 2008.
Monsters of the Street.
A terra cotta chimera guards a narrow canyon. CR

And for my next trick, a disappearing conspiracy.

Judge Learned Hand called conspiracy “the darling of the modern prosecutor’s nursery.” All it generally takes to prove conspiracy is an agreement between two or more people to commit an illegal act. Sometimes the law requires that one party to the conspiracy perform an “overt act” in furtherance of the conspiracy. Whether the planned crime is actually committed or not is not an element of proving conspiracy.

An important article by Michael Brick in yesterday’s New York Times describes how the Kings County D.A.’s office has aggressively used conspiracy charges as a tactic to clean up the drug trade in tough Brooklyn neighborhoods like East New York. Since 2002, hundreds of alleged dealers, as well as workers such as lookouts and even addicts, have been indicted on conspiracy charges and held on bails of up to $1 million. Some face sentences of life in prison.

But what about convictions? As Brick reports, out of more than 500 arrests, not a single defendant has been convicted of first-degree conspiracy. Instead, there have been dismissals, acquittals, and pleas to lesser charges. Judges criticized the prosecution’s tactics; defense lawyers have protested that prosecutors are using the conspiracy charges as a pretext for withholding evidence; and juries have rejected the conspiracy charges. Stunningly, the article states that “prosecutors have argued that their evidence involves secret negotiations and must be withheld.”

In my experience, prosecutors simply do not withhold this sort of evidence if they really have it. Drug conspiracy charges are, in my opinion, among the most difficult to defend against. Usually prosecutors have informants, turncoat defendants, undercover agents, wiretaps, surveillance photos, piles of guns and knives, mountains of powder, scales, seized cars, and even trophy photos taken by the targets themselves. I have yet to meet a prosecutor who is shy about sharing solid evidence against my client. Prosecutors in Brooklyn may be concerned about their choice of using conspiracy indictments in their effort to clean up the drug trade. However, it sounds to me like these prosecutors are making excuses for flat-out badly investigated cases. You don’t get wholesale dismissals and acquittals – in essence, a disappearing conspiracy – from thin air. You get them when there is something seriously wrong with the evidence. CR

Wall Street Ferry Terminal, South and Governeur streets,
April 4, 2008. CR

“I need a big weekend. Kick up the dust.
Yeah a big weekend. If you don't run, you rust.”

— Tom Petty and the Heartbreakers

What were they thinkin’?

Shortly after 9/11, the DOJ concluded that constitutional protections against unreasonable searches and seizures did not apply to domestic military operations. As reported in yesterday's Wall Street Journal, this “radical interpretation” of the Fourth Amendment was tucked into a footnote in some newly declassified documents released Monday by the ACLU.

As a former military prosecutor who advised military investigators and soldiers on issues relating to the Fourth Amendment, I have to ask myself, what were they thinkin’? First, you have to wonder what domestic operations the military was conducting. This is significant, since the Possee Comitatus Act (codified at 18 U.S.C. § 1385) expressly prohibits the use of the military “to execute the laws.” There is nothing wrong with amending the Act to allow the military to assist local law enforcement officials within the United States (see Hamdi v. Rumsfeld). Congress did just that in 1981 by creating a “drug exception” allowing the military to lend a hand in the war on drugs. But any tweaking of the law is up to Congress, not the Executive. Second, if the DOJ concedes that the Fourth Amendment applies on a dusty military post in West Texas, why shouldn’t it apply during domestic military operations on Main Street USA?

Maybe we all need to heed the words of Justice O’Connor in Hamdi: “It is during our most challenging and uncertain moments that our Nation’s commitment to due process is most surely tested; and it is those times that we must preserve our commitment at home to the principles for which we fight abroad.” CP

One Liberty Plaza, 165 Broadway, April 3, 2008.

Gone away is NASD (National Association of Securities Dealers).

Here to stay is FINRA (Financial Industry Regulatory Authority). CR

Public corruption? Sheeee...!!!

The federal corruption trial of former Newark, New Jersey, mayor Sharpe James and his alleged paramour, Tamika Riley, now in its sixth week, is winding down. In its opening statement, the prosecution claimed that the case was about “fraud, favoritism and concealment.” The defense countered that James was “resurrecting the South Ward from scratch” and “did not take a dime.”

The prosecution finished up its case last week. The defense has called witnesses to bolster their claim that Mr. James did not pressure the City Council for favors on behalf of Ms. Riley to dishonestly enable her to purchase valuable city property. In an 89-page indictment, James, who served as Newark’s mayor for over twenty years, is charged with using city coffers as his personal piggy bank to finance lavish vacations he took with various female companions, and with arranging sweetheart land deals with Reilly. While the prosecution has been focused on a dry, detailed accounting of James’s travel and entertainment expenses, the defense has painted the picture of a beloved, hardworking public servant and native son of Newark. When he elected yesterday not to testify in his own defense, Mr. James said, "I put my faith in the court, your honor."

I’m struck by the life-imitates-art-imitates-life aspect of the Sharpe James trial. In the recently concluded HBO series “The Wire,” the fictional state senator R. Clayton “Clay” Davis, played to virtuoso perfection by Isiah Whitlock Jr., is on trial for public corruption in Baltimore. The beloved man of the people is acquitted despite substantial evidence he laundered money. Could Mayor James follow in Senator Clay’s fictional footsteps? Check out the media coverage of both politicos below. CR

Sharpe James

Clay Davis

Notes on a scandal.

The case of former Enron president Jeffrey Skilling – now serving 25 years for securities fraud, insider trading, and making false statements to auditors – will be argued on appeal before the Fifth Circuit in New Orleans today. Skilling’s conviction after trial stands as the only courtroom victory won by the DOJ’s Enron Task Force.

Skilling has two very compelling issues to present in the hopes of winning a new trial. First, Skilling’s lawyers argue that the government’s failure to turn over the raw notes taken by prosecutors of interviews with one of their key witnesses, former Enron CFO Andrew Fastow, deprived Skilling of a fair trial. The government claims that turning over summaries of the interviews was sufficient. However, not only did the defense specifically request the raw notes, but it is normal in many jurisdictions for prosecutors to turn over such notes. I, for one, believe the law requires it. The Skilling brief claims that by failing to turn over the notes, “the Task Force suppressed vital exculpatory evidence.” If the court rules it was error for the government to fail to provide the notes and they contained exculpatory material, Skilling could get a new trial. Second, Skilling’s lawyers argue that convictions on some of the counts in the indictment should be reversed on the grounds that fraud charges improperly alleged Skilling deprived Enron of the right to the “honest services” of its employees. The convictions in the so-called Enron Barge case were reversed on this basis. In that case the Court ruled that the defendants did not deprive Enron of honest services because employees were acting in the interests of the company.

As a working criminal defense attorney, I can tell you that cross-examination in a criminal trial is extremely challenging. Unlike in civil trials, there are no depositions to give you the opportunity for a “dry run.” Previous statements by a witness in the form of reports or notes are often turned over to defense counsel only shortly before a witness testifies. Most often, the first time you see a witness is when he begins his direct proof. That’s why it infuriates me when I see a government prosecutor, already with the deck stacked in his favor, withhold material that has been specifically requested by the defense and that might have allowed for an effective confrontation. It is my sincere hope that the Fifth Circuit uses this opportunity to send a message to prosecutors that this sort of abuse of the Sixth Amendment’s guarantee of effective confrontation will not be tolerated. I told Associated Press reporter Juan Lozano just that when he called to get my take on this.

For incisive, in-depth coverage of this issue, I highly recommend the blogs of Ellen Podgor and Tom Kirkendall. CR

Trinity Church graveyard, April 1, 2008.

John Watts, the largest effigy in the churchyard next door.

Towering above Alexander Hamilton and Robert Fulton,

the last Royal Recorder of the City of New York presides. CR

“According to your billing records, you're 193 years old.”

On Friday, Samuel A. Fishman, a former partner at Latham & Watkins, pleaded guilty to federal fraud charges brought against him by the U.S. Attorney’s Office for the Southern District of New York. He entered his plea on a one-count information (a charge brought without putting evidence before a grand jury) and admitted he improperly and unlawfully charged clients and the law firm hundreds of thousands of dollars in personal and nonexistent expenses between 1993 and 2005. Fishman was a billing partner on some of the firm’s heavy-hitter institutional clients in the banking, utilities, telecommunications, and entertainment industries. At issue were meals, parking fees, photocopying, express mail, and inflated personal expenses and hotel bills. He is being represented by Jack Litman, a lion of the New York criminal defense bar. Sentencing is scheduled for June.

In her coverage of the case on the White Collar Crime Prof Blog, law professor Ellen Podgor poses the following important question: “Clearly overbilling and fraudulent billing by an attorney is unethical conduct and clearly it should be something subject to disciplinary action. But should the federal government be needing to intervene with criminal actions under the mail fraud statute?”

My answer is no. Federal prosecutors should not be wasting precious enforcement resources prosecuting lawyers for overbilling expenses. Clients and law firms can be reimbursed, such matters can be referred to the state bar disciplinary committee, and lawyers who indulge in such behavior can be terminated, ultimately ruining their careers. There is enough deterrent value in this approach. Citing case law, Podgor also rightly questions the legal basis on which a prosecutor may exercise discretion to criminalize a fee overcharge. Truly, we do not need the specter of a DOJ Law Firm Fraudulent Billing Task Force to send a message to attorneys and law firms that you cannot overbill your clients. CR