moneyThis blog’s masthead (Does Crime Pay?) has perhaps never asked so apt a question as it does of the latest clash between reality television stars and…actual reality.  On Tuesday, March 30, 2021, the U.S. Attorney for the Southern District of New York, in coordination with Homeland Security Investigations and the New York Police Department, announced the unsealing of a Superseding Indictment that charged Jennifer Shah and Stuart Smith with conspiracy to commit wire fraud and conspiracy to commit money laundering.  The charges stem from an alleged telemarketing scheme.

Casual observers of the pop culture landscape may not have noticed this announcement that came the same day Shah and Smith were arrested near Salt Lake City, Utah, but this move by state and federal law enforcement agencies sent shockwaves through a large but very specific group: fans of the exceedingly popular reality television franchise Real Housewives.  Jen Shah is none other than a central figure on the franchise’s latest city spotlight, Real Housewives of Salt Lake City, the first season of which aired from November 2020 through February 2021.  For the first time, fans were introduced to Shah, her “first assistant” Smith, and her outlandishly lavish (even by Real Housewives standards) lifestyle.

So, does crime pay?  Maybe – in increased reality television stardom.  The unsealed indictment, which came down as the series was already filming Season 2, alleges a wide-ranging telemarketing scheme through which Shah and Smith are alleged to have defrauded hundreds of victims between 2012 and March 2021.  Shah and Smith are alleged to have carried out the scheme, which targeted Americans over the age of 55, with the help of several participants whose fraudulent activities Shah and Smith controlled.

From the outside, Shah, whose pre-television background is in marketing and advertising algorithms, ran companies that offered online services purporting to make the management of victims’ businesses more efficient, such as website design and tax preparation services.  On the inside, however, Shah was allegedly orchestrating a network of telemarketing sales floors by trafficking in lists of marketing “leads” – the victims who had sought her online business services.  Shah and Smith allegedly generated and sold lists of the “leads” they identified to telemarketing sales floors across the country and received as profit a share of the fraudulent revenue they knew the operators of those sales floors would make.

The various phases of the alleged scheme were designed to extract money from the victims at every turn.  Once alleged victims purchased online business services from Shah or another participant in the scheme, their names were put on lists and sold to sales floors peddling fraudulent services or products. For example, the victims’ names were sold to a sales floor that would sell the victims “coaching” on how to use the services they thought they had purchased from Shah.  Shah also allegedly used “fulfillment” firms, operated by other participants, in the scheme.  These firms would provide documents and records to the victims purporting to demonstrate the validity of the purchased services.  Shah and Smith are alleged to have controlled each aspect, including determining which products or services the downstream sales floors could sell and setting how much they could charge.

Shah and Smith are alleged to have taken great strides to conceal their scheme, including incorporating their business entities under third parties’ names, using encrypted messaging applications to communicate with their alleged co-conspirators, sending shares of their fraudulent proceeds to offshore bank accounts, and making cash withdrawals designed to avoid currency transaction reporting requirements.  Shah is alleged to have amassed more than $5 million in criminal proceeds over the past several years.

The alleged scheme culminated in one count each for Shah and Smith of conspiracy to commit wire fraud in connection with telemarketing, which carries a maximum sentence of 30 years, and conspiracy to commit money laundering, which carries a maximum sentence of 20 years.  At her arraignment on April 2 (pushed from its original date of March 31 when too many public observers crashed the virtual feed), Shah pled not guilty and was released on a $1 million personal recognizance bond.

It would seem that Shah’s alleged crimes did, indeed, pay her enough to land a spot on one of the most coveted reality television platforms, known for its opulence and drama.  It certainly looks like Season 2 will have no shortage of either.

courthouseOn Monday, April 12, 2021, the Ninth Circuit Court of Appeals released its opinion in United States v. Ghanem, Case No. 19-50278. Ghanem, an international arms dealer, was convicted in the Central District of California for violation of a statute prohibiting dealing in surface-to-air missiles.

However, this was not the offense for which Ghanem was originally arrested. Instead, he was arrested by Greek authorities for related arms sales he made to undercover U.S. agents in Greece. After his extradition from Greece, Ghanem was brought to the United States.  The flight from Greece connected through JFK airport in New York and travelled on to the Central District of California. After he was physically present in California, the Government added the surface-to-air missile charge.

When an offense is committed outside the territory of the United States, 18 U.S.C. § 3238 provides that venue is proper in the district in which the defendant is arrested or first brought.  Despite that Ghanem was “first brought” to New York, where the plane transporting him landed, Ghanem failed to make a pre-trial objection to venue in the Central District of California.  Instead, Ghanem waited until negotiating the jury instructions to raise the venue issue. The district court judge overruled Ghanem’s objection because, in part, he waived the argument, and he was convicted.

Ghanem filed an appeal. In an admittedly unusual decision, the Ninth Circuit held that Ghanem did waive his objection to venue as a defense, but, despite his waiver, he was permitted to object to the venue jury instruction.  Because the district court gave an incorrect jury instruction for venue, the Ninth Circuit ruled, Ghanem’s conviction was vacated and he was remanded for trial.

The decision tests the tried and true doctrine of waiver – that failure to raise a procedural, pretrial issue waives the issue – and favors late objections to issues which should be resolved well in advance of trial. It is a backwards result, and its consequences could waste countless resources in this and subsequent cases.

The Investigation and Trial: Untimely Venue Arguments

The facts of this case are important and worthy of analysis.

Defendant Rami Ghanem is an international arms dealer. While living in Egypt, Ghanem operated a below-board military supply and logistics company, defrauded local officials, and illegally transported armaments across borders. Eventually, Ghanem’s activities attracted the attention of the United States Homeland Security Investigations team (“HSI”).  In August of 2015, undercover HSI agents contacted Ghanem and placed an order for various weapons, ammunition, and night vision devices, which were all sourced from within the Central District of California. On December 8, 2015, HSI agents led Ghanem to a warehouse in Greece to inspect the armament shipments where Greek authorities awaited him. He was arrested when he arrived at the warehouse.  Later the same month, the United States indicted Ghanem in the Central District of California. The indictment alleged Ghanem violated the Arms Export Control Act and smuggling and money laundering laws.

The United States subsequently extradited Ghanem from Greece to answer to the indictment. On April 25, 2016, United States Marshals met Ghanem at an airport in Greece and escorted him on a flight to JFK airport in New York. After a layover, the Marshals flew Ghanem to the Central District of California. Ghanem was detained there until trial.

On March 24, 2017, the government obtained a superseding indictment, adding three new counts for further violations of the Arms Export Control act and, most importantly to this case, violation of 18 U.S.C. 2332(g), which generally prohibits illicit dealings in surface-to-air missiles. During the pretrial process, Ghanem pled guilty to all counts except for the 2332(g) charge. Ghanem never moved to transfer venue or to dismiss for improper venue before trial.

Trial proceeded on Ghanem’s alleged violation of 18 U.S.C. 2332(g). The defense moved for a dismissal pursuant to Criminal Rule 29 at the close of the Government’s case in chief and argued for the first time that venue was improper. The Government responded that Ghanem waived the argument by failing to raise it before trial. The court denied the motion. As trial proceeded, the parties conferred on jury instructions. Ghanem objected to the proposed jury instruction concerning proof of venue, but the district court judge overruled his objection and instructed the jury that Ghanem’s foreign arrest was irrelevant.

The jury returned a guilty verdict. Ghanem moved for a new trial or to dismiss the indictment for, among other arguments, improper venue. The district court denied the motions and held that the venue argument was waived as untimely. Ghanem was sentenced to 360 months in prison.

The Appeal: Waiver Applies Only Until Negotiating Jury Instructions

Ghanem appealed the judgment, arguing that venue was improper. It was undisputed that Ghanem’s conduct fell within a special venue statute for foreign offenses. Proper venue for crimes committed outside of the United States lies within the district in which “the offender . . . is arrested or is first brought.” Ghanem argued he was “first brought” to the Eastern District of New York during his layover to California. The Government argued Ghanem waived an improper venue argument and the Ninth Circuit Court of Appeals agreed. The Ninth Circuit held that the venue issue was “apparent from the face of the indictment,” but Ghanem failed to raise the issue before trial.

But Ghanem’s appeal does not end there. Ghanem further argued that the jury instruction misstated the law with respect to his venue defense because it stated that his foreign arrest was irrelevant. The Government again argued the Ghanem waived venue and also posited substantive arguments. Ultimately, the Ninth Circuit sided with Ghanem. It held that a defendant, regardless of waiver of a procedural issue, is entitled to jury instructions which state the law correctly. The Ninth Circuit vacated Ghanem’s conviction and remanded him for trial.

Recognizing the “peculiarity of this result,” the Ninth Circuit offered additional “remarks.” Ghanem’s conviction was vacated – wiped clean as if it never occurred – but not dismissed, and he was remanded for trial. The Ninth Circuit explained its reasoning: “Mr. Ghanem waived his venue challenge because it was untimely, so he could not ask the district court to take the venue issue from the jury and determine it as a matter of law [under Criminal Rule 29]. But, . . . our precedent entitles a defendant, even one who has waived venue by untimeliness, to a correct jury instruction on the question.” Therefore, Ghanem must stand trial again for the same offense, but, this time, he will receive a proper jury instruction.

In sum, the Ninth Circuit held that, yes, Ghanem waived the venue challenge by his failure to raise the issue before trial, but, in the same breath, it held that the issue was not really waived, because he could raise the same issue during the jury instruction phase.

The Problem: Wacky Waiver Arguments Open New Doors

While venue is a constitutional consideration to ensure that a defendant is tried in a proper forum, it is ultimately procedural. Venue is not a substantive element of an offense that Ghanem or any other defendant is alleged to have committed. In fact, defendants, subjectively recognizing that the case is set in an improper forum, may waive venue if they prefer that improper forum.

After this decision, however, defendants in the Ninth Circuit may recognize an improper venue, strategically fail to raise the defense, and then demand a jury instruction that could result in an acquittal based on a non-substantive issue. That is not how venue was meant to work. Venue should be assessed before trial so that the defendant can move to transfer venue if appropriate. After that period for objection lapses, the venue question should be closed.

Under the Ninth Circuit’s holding, the district court should have given a “correct” jury instruction on venue (not the Government’s), and Ghanem – who a jury has decided is guilty beyond a reasonable doubt of the surface-to-air missile defense – would have been acquitted. In fact, the case likely deserved to be dismissed at the Rule 29 stage based on the Ninth Circuit’s analysis. Ghanem benefitted from a windfall in this case and his conviction was vacated, but the Ninth Circuit would have granted him an even larger windfall at trial—the ability to argue a waived defense to the jury and acquire an acquittal.

COVID-19Ohioans disenchanted with the past two years of public corruption cases (see our previous post on that subject here) may no longer have to tolerate the seemingly endless number of Ohio politicians being indicted for bribery. That’s because apparently now they’re being indicted for fraud.

Cincinnati activist and perennial political candidate Kelli Prather was indicted earlier this month on a number of federal charges stemming from allegations that she improperly filed six applications for loans from the Small Business Administration Paycheck Protection Program (PPP). Readers of Does Crime Pay? know that we have followed “COVID-19 Fraud” very closely since our inception last year. Unhappily for Prather, the facts outlined in the indictment against her provide us with the perfect opportunity to revisit the current state of play with government enforcement against COVID-19 Fraud.

The Prather Case

The following facts are taken from the affidavit in support of the criminal complaint filed against Prather and are merely unproven allegations. According to the affidavit, Prather applied for six different PPP loans from June 23, 2020 to August 4, 2020. Prather opened six business bank accounts immediately after filing those applications. While the bank did grant one of the six loan applications, it then discovered a number of other errors with Prather’s application that apparently raised the bank’s (and, eventually, the government’s) suspicions.

First, the bank flagged that Prather had used an inaccurate PIN number on her application. Then, the bank identified that the information input on the forms was for 2020, as opposed to 2019. Next, the bank identified that there were five other pending PPP applications submitted by Prather. The five other applications were for five different businesses, which claimed to employee 22 people in total.

When the FBI conducted its review of Prather’s loan applications, special agents identified several facts suggesting fraud:

  • Although Prather claimed large average monthly payrolls for some of her businesses in 2020, her 2019 filings indicated much smaller total annual income;
  • Prather’s applications listed residential addresses for multiple of her businesses;
  • None of the businesses maintained any web presence, marketing material, advertising, or other records tending to indicate that they could generate the revenues or support the number of employees claimed;
  • Prather’s bank transactions indicated money was either being pocketed by Prather or was funding personal expenses such as salon and restaurant purchases;
  • When interviewed, several individuals listed as “partners” on one of Prather’s applications indicated that while they had discussed a possible business, no business was ever consummated. Prather had provided their social security numbers as part of the application;
  • When interviewed, a former business and romantic partner indicated that he never knew Prather to have an operational, functional, or profitable business located at the address Prather listed for one of the businesses;
  • When interviewed, Prather admitted spending some funds on personal expenses.

Although Prather’s applications requested over $600,000 in PPP loans, she ultimately only collected $19,800. Regardless, Prather has been charged with bank fraud, aggravated identity theft, making false statements, making false statements in connection to credit or loan applications, and false representation of a social security number.

Government Enforcement Against COVID-19 Fraud

Prather’s case highlights precisely what not to do when it comes to PPP applications. As we noted in August and November of last year, the DOJ has demonstrated a commitment to prosecuting COVID-19 Fraud and there is no end in sight. In August we warned entities making applications must take great care to avoid making a false certification in any of the following categories:

  • Whether the individual or entity is a convicted felon;
  • Whether the entity has already received a PPP loan;
  • Reporting fictitious or inflated numbers of employees;
  • Using a fictitious business name to acquire PPP loans;
  • Using fraudulent or forged documents in connection with acquiring a PPP loan;
  • Creating a business after February of 2020 to acquire a PPP loan;
  • Purchasing unauthorized goods or services with PPP loan funds;
  • Funneling PPP loans to other organizations or entities; and
  • Perpetuating pre-existing fraud schemes.

In November, we argued that—similar to the allegations against Prather—“the vast majority of PPP fraud cases brought so far” involved misrepresentations like fabricating the business’s number of employees, or using the funds for personal purposes. Now, after over a year of enforcement actions, DOJ and U.S. Attorneys’ Offices around the country appear to have begun prosecuting smaller-scale offenders. For example, in a statement made to the media Acting U.S. Attorney Vipal J. Patel noted that Prather’s indictment, which came alongside three similar but separate indictments of others, is the fourth round of charges for similar fraud cases in the Southern District of Ohio. Similarly, a DOJ press release last month identified at least 120 defendants charged with PPP fraud, ranging from “individual business owners who have inflated their payroll expenses” to “organized criminal networks submitting identical loan applications and supporting documents under the names of different companies.”

Though we hope that COVID-19 is nearly behind us, it’s safe to say that we are not yet through with prosecutions and other enforcement against COVID-19 Fraud.

courthouse and moneyOn March 5, 2021, the U.S. Securities and Exchange Commission filed a civil enforcement action in the United States District Court for the Southern District of New York against AT&T, Inc. and three executives alleging a series of Regulation FD violations dating back to 2016.  We previously wrote about Regulation FD in connection with an SEC investigation of Eastman Kodak, Co.’s announcement that it would receive a $765 million loan from the U.S. International Development Finance Corp. to develop and manufacture generic drug ingredients. AT&T now faces allegations that it intentionally shared material non-public information with analysts in order to alter their earnings’ estimates.

Regulation FD is now a seldom-used enforcement tool but was once an SEC favorite in enforcement actions through the early 2000s. The rule prohibits issuers, or persons acting on their behalf, from disclosing material non-public information to certain third parties without disclosing that same information to the general public. The rule was adopted in response to SEC findings that issuers used selective disclosure of material non-public information to reveal earnings and other financial data that would hopefully impact analysts’ and other sell-side firms’ expectations, resulting in those recipients profiting by front-running corporate earnings announcements. The rule was designed to prevent this kind of selective disclosure, which the SEC found was often provided to larger institutional shareholders, and level the playing field between individual and institutional investors.[1]

According to the SEC’s complaint, AT&T suffered an unanticipated decline in its first quarter 2016 smartphone sales. In an effort to avoid missing analysts’ consensus revenue estimate, the SEC alleged that AT&T investor relations executives had a series of one-on-one phone calls with equity analysts from at least 20 different sell-side firms during which they disclosed the lackluster sales figures. According to the SEC, these calls were designed to alter analysts’ expectations such that AT&T would avoid missing the consensus estimate for a third consecutive quarter. The SEC alleges that the disclosures were material and not shared with the general public.

The filing of a civil enforcement action against a blue-chip issuer like AT&T is striking. Since 2010, the SEC has brought very few enforcement actions against issuers for Regulation FD violations and even fewer have been pursued in federal court. The most recent enforcement action before AT&T was a 2019 administrative proceeding against TherapeuticsMD, Inc. There, TherapeuticsMD agreed to pay a modest fine without admitting or denying the SEC’s findings.

Whether the enforcement action against AT&T, or the investigation of Kodak, is a signal that the SEC will be dusting off Regulation FD and taking a more active approach in the future remains to be seen. It was absent from the Division of Examinations’ 2021 Examination Priorities report,[2] but one can assume that Regulation FD compliance remains an important consideration for the SEC.

Issuers and investment professionals alike should take heed and re-visit their compliance programs and ensure they address Regulation FD. For issuers, this means implementing internal information controls to ensure that material non-public information is identified and appropriately disclosed to the general public consistent with the timing requirements of Regulation FD – either simultaneously for intentional selective disclosures or “promptly” if the selective disclosure was unintentional. The SEC’s complaint against AT&T alleges an intentional selective disclosure without any simultaneous public disclosure.

Issuers should also maintain external information controls. This is generally achieved by marking draft press releases or earnings announcements with “embargo” language that indicates it must not be shared or disseminated and anyone possessing it must not trade in the issuer’s securities. Issuers may also enter into non-disclosure agreements or agreements not to trade with investment professionals that generally preclude the investment professional from disclosing information or trading based on information it receives prior to the issuer’s public announcement. These types of agreements are vital to avoiding a Regulation FD violation, as the rule includes a safe harbor for issuers that obtain express agreements that selectively disclosed information will not be further disclosed or used to trade.

Investment professionals, including analysts, broker-dealers, and investment advisors, should be mindful of the information they receive from issuers, how they receive it, and what they do with it. If material non-public information is conveyed, it may expose the recipient to insider trading liability if they buy or sell securities or disclose the information to another party that buys or sells securities. Therefore, investment professionals should be trained to identify whether any information received is material non-public information and should take steps to independently assess any information received from issuers. Investment firm compliance officers should also maintain records of any restrictions on the disclosure or use of non-public information provided by issuers.

[1] Final Rule: Selective Disclosure and Insider Trading, Exchange Act Rel. No. 43154, 65 Fed. Reg. 51, 721 (Aug. 15, 2000) (https://www.sec.gov/rules/final/33-7881.htm).

[2] Securities and Exchange Commission – Division of Examinations, “2021 Examination Priorities” (Mar. 3, 2021) (https://www.sec.gov/files/2021-exam-priorities.pdf).

columnsCan you be prosecuted twice for the same crime?  The question seems simple and, given the plain language of the Fifth Amendment (no person shall “be subject for the same offence to be twice put in jeopardy of life or limb”), seems like the answer should be a simple “no.”   Indeed, recent news that charges brought by the New York County District Attorney against Paul Manafort, the former chairman of the Trump presidential campaign, were dismissed on double jeopardy grounds appears to buttress that simple answer.  The real answer, however, is far more complex.

The prohibition on double jeopardy is a cornerstone of the American criminal justice system, memorialized in the Bill of Rights and dating back even earlier to the common law.  According to the U.S. Supreme Court, “[t]he underlying idea, one that is deeply ingrained in at least the Anglo-American system of jurisprudence, is that the State with all its resources and power should not be allowed to make repeated attempts to convict an individual for an alleged offense, thereby subjecting him to embarrassment, expense and ordeal and compelling him to live in a continuing state of anxiety and insecurity, as well as enhancing the possibility that even though innocent he may be found guilty.”[1]

Although the rule is well-established, its application often raises complex questions about constitutional law and federalism.  One such complexity arises when a person is charged separately by state and federal prosecutors for the same criminal conduct.  The Fifth Amendment prohibits successive prosecutions for the same “offence,” but not necessarily for the same conduct.  An “offence” is defined by a law, and a law is defined by a sovereign.  If there are two sovereigns, there are two laws, and therefore two “offences.”  In other words, “a crime under one sovereign’s laws is not ‘the same offence’ as a crime under the laws of another sovereign.”  This is the “dual sovereignty” doctrine, which, as the U.S. Supreme Court reaffirmed most recently in Gamble v. United States (2019), allows “a State to prosecute a defendant under state law even if the Federal Government has prosecuted him for the same conduct under a federal statute.”

Given the continued vitality of the dual sovereignty doctrine reflected in Gamble, why were the charges against Paul Manafort in New York dismissed on double jeopardy grounds?  The answer lies in the structure of our federal system.  While the Fifth Amendment does not prohibit a state from prosecuting a person who already was convicted under federal law, it also does not require states to permit such prosecutions.  A state may provide greater protection than the federal Constitution; thus, a state can bar double jeopardy in cases where the Constitution would not.  New York is one state that affords broader double jeopardy protections than the Fifth Amendment guarantees.  As the trial court wrote at the outset of its double jeopardy analysis in the Manafort case, “this is not a case in which defendant’s constitutional rights are at issue.”

Under the relevant New York statute, “[a] person may not be twice prosecuted for the same offense,” which includes separate prosecutions “for the same act or criminal transaction.”  N.Y. C.P.L. § 40.20.  In other words, the New York statute prohibits successive prosecution for the same conduct, which is broader than the term “offence” in the Fifth Amendment, as interpreted by the U.S. Supreme Court.  Prosecutors in the Manafort case conceded that the federal charges against him were based on “the same act or criminal transaction” as the state charges, but they argued that a statutory exception applied because “[e]ach of the offenses as defined contains an element which is not an element of the other, and the statutory provisions defining such offenses are designed to prevent very different kinds of harm or evil.”  N.Y. C.P.L. § 40.20(2)(b).  Mr. Manafort had been prosecuted for federal bank fraud, and New York prosecutors pursued charges for residential mortgage fraud.  The New York trial court held that “the harm or evil the federal bank fraud and the state residential mortgage fraud statutes were aimed at combating are the same” (preventing fraud and promoting economic stability), or at least “not of a very different kind.”  Thus, the trial court dismissed the indictment.  The Appellate Division, First Department, affirmed the trial court’s order, observing that it was “undisputed that the federal charges of which defendant has already been convicted involve the same fraud, against the same victims, as is charged in his New York indictment.”  The New York Court of Appeals declined to hear the Manhattan DA’s appeal earlier this month.

Mr. Manafort is fortunate that the charges were brought against him in New York.  If he had been indicted in a different state without a double jeopardy prohibition as broad as New York’s, the Fifth Amendment would not have protected him.  So, in this instance, the answer to the simple question asked at the outset was far from simple, but it was still “no.”

Post-script:  In October 2019, New York Governor Andrew Cuomo signed a bill into law amending the double jeopardy statute to close what he called an “egregious loophole” by providing that “a separate or subsequent prosecution of an offense is not barred” if that person was granted a presidential pardon and had been employed on the president’s staff or campaign, related to the president, or the president was aided by the pardon or obtained a benefit from the conduct underlying the pardoned offense.  See N.Y. C.P.L. § 40.51.  This amendment was aimed at President Trump and his associates and family members, but it was passed too late to apply in Mr. Manafort’s case.

[1] Green v. United States, 355 U.S. 184 (1957).

GeorgiaWhile many of us were focused on the second impeachment of former President Trump, news broke that the Fulton County District Attorney has initiated a criminal investigation into the multiple contacts by Trump and others in the aftermath of the Georgia Presidential election.  This post is an update to our previous analysis of Donald Trump’s potential post-Presidential criminal consequences in Georgia.

On Wednesday, February 10, the New York Times reported that Fulton County District Attorney Fani Willis sent a letter to multiple Georgia state officials notifying them that Willis had “opened an investigation into attempts to influence the administration of the 2020 Georgia General Election”:

“This investigation includes, but is not limited to, potential violations of Georgia law prohibiting the solicitation of election fraud, the making of false statements to state and local governmental bodies, conspiracy, racketeering, violation of oath of office and any involvement in violence or threats related to the election’s administration.”

An anonymous Georgia official told the New York Times that the inquiry will encompass multiple contacts with the state, including Mr. Trump’s calls to Governor Kemp and Secretary of State Raffensperger, as well as “the events surrounding the abrupt resignation” of Byung J. Pak.

On Friday, February 12, the Washington Post reported that the investigation will also “scrutinize” Senator Lindsey Graham’s November 13 phone call to Raffensperger.

According to Willis’s letter, the District Attorney’s office anticipates that it will “begin requesting grand jury subpoenas as necessary” in March.

Recent Developments and Emerging Risks2020 was a unique year in the world of white-collar criminal investigations and prosecutions. In this two-session presentation, Thompson Hine’s compliance and white-collar team will review the enforcement risks created by the global pandemic and discuss what we expect to happen as the new administration begins to implement its enforcement priorities. We will also identify current compliance challenges and provide practical solutions for businesses that are in the process of adjusting to the enforcement realities of 2021.

Visit our events page to register.

columnsEarlier this year, various news outlets reported that then-President-Elect Joe Biden intended to nominate D.C. Circuit Chief Judge Merrick Garland as Attorney General. Judge Garland obviously authored numerous opinions during his years on the D.C. Circuit, but before Judge Garland was Judge Garland, he held various capacities in public and private practice including, notably, serving as a United States Attorney in Washington, D.C. During Judge Garland’s tenure at the Department of Justice (“DOJ”), he gathered experience in investigations and prosecutions of criminal matters. Studying the cases he handled as a prosecutor and reviewed as a Circuit Judge provides guidance on how he will direct the DOJ and which investigations he will prioritize in the years he will serve.

Judge Garland’s Experiences

Long-Term Investigations

When acting as a U.S. Attorney, Garland led the investigation of corrections officers in D.C.-area jails. The investigation culminated in indictments in United States v. Richardson et al., Crim. Nos. 92-117 through 92-126 (D.D.C. 1992). While the docket in each case is sealed, Judge Garland’s Senate Confirmation Questionnaire, a form he completed in preparation for his hearing on his nomination to the Supreme Court, discloses some public information about the investigation.

The investigation was detailed; it involved the use of undercover agents, wiretaps, confidential informants, and audiotaped and photographed sting operations. The confidential informants even included incarcerated individuals. Code-named “Operation Inside Track,” the investigation lasted from 1991 to 1992. By the end of the investigation, Judge Garland acquired enough evidence to indict ten corrections officers and one civilian for smuggling narcotics into D.C. jails. It appears most of the defendants agreed the evidence was sufficient to convict them. All but one pled guilty based on the evidence collected by Judge Garland’s investigation.

Judge Garland’s involvement in Richardson highlights his experience with long-term investigations, as he successfully managed a multi-year investigation involving undercover operatives and even incarcerated confidential informants. This case highlights Judge Garland’s ability to shepherd complex criminal investigations towards trial while collecting significant evidence.

White-Collar Crime

Judge Garland also took cases to trial and defended them on appeal as a U.S. Attorney. For example, Judge Garland prosecuted and convicted John C. Kelley, and successfully argued the ensuing appeal in U.S. v. Kelley, 36 F.3d 1118 (D.C. Cir. 1994).

From January 1987 through August 1990, Kelley served as the Deputy Director of Information Resources Management, and others, for the United States Agency for International Development, or “AID,” all the while leveraging his public office for personal benefit. In August of 1992, Kelley was convicted on six counts including bribery, conspiracy to commit bribery, and conspiracy to obstruct justice through witness tampering and making false statements in connection with his job duties. Judge Garland tried the case, and the jury convicted Kelley.

Kelley appealed to the D.C. Circuit in 1994. Among procedural challenges, Kelley attacked the District Court’s repeated denials of his motions for acquittal, priming the D.C. Circuit to assess the legal sufficiency of the evidence against him. The D.C. Circuit held the record that Judge Garland developed made “abundantly clear” that Kelley “suborned others to obstruct justice,” that Kelley attempted to silence witnesses under Grand Jury subpoenas, and that the sentencing guidelines supported the District Court’s sentence of 43-month imprisonment and three years’ supervised release. Kelley’s convictions were completely affirmed.

Kelley shows Judge Garland’s experience with a subset of white-collar crime involving ethics and public corruption offenses. That experience could be significant as the DOJ considers which offenses to prioritize and could signal an increase in ethics and public corruption offenses. Additionally, Kelley demonstrates Judge Garland’s experience as an accomplished trial and appellate attorney – skills any high-ranking DOJ official should possess.

Conspiracies and Objective Analysis

Judge Garland was famously nominated but not confirmed to the Supreme Court of the United States in 2016. As part of that confirmation process, Judge Garland disclosed a “Top Ten” list of his self-described most “significant” written decisions. Only one of those decisions analyzed criminal law: U.S. v. Gaskins, 690 F.3d 569 (D.C. Cir. 2012).

Gaskins is a narcotics trafficking case which also provides in-depth analysis of the law of conspiracy liability, a frequent subject of indictments in all areas of criminal law. Gaskins was indicted with 20 other defendants for operating a narcotics trafficking and distribution conspiracy spanning from Virginia, through Washington, D.C., and into Maryland. The Government’s theory was that Gaskins was one of the conspiracy’s “business managers.” The Government charged him with conspiracy to distribute and to possess with the intent to distribute certain narcotics, conspiracy to participate in a racketeer influenced corrupt organization, and four counts of using a communication facility to facilitate a drug offense. The Government’s evidence was substantial. It included wiretaps, testimony from cooperating conspirators, visual and video surveillance, and seized evidence resulting from search warrant execution. The jury convicted Gaskins of conspiracy to distribute narcotics, and he was sentenced to 262 months (22 years) in prison.

The D.C. Circuit reversed with Judge Garland writing for the unanimous panel. Judge Garland’s decision begins with foundational principles of conspiracy law: that, to convict a defendant, the Government must prove that the defendant entered into the conspiracy knowingly and that the defendant acted with the specific intent to further the conspiracy’s objectives. Judge Garland observed there was “no affirmative evidence that Gaskins” committed either element of the offense. Judge Garland observed “none [of the conspirators] testified about any connection between Gaskins and a narcotics conspiracy,” “none of th[e] [seized] evidence connected Gaskins to the conspiracy,” and “[n]o [wiretapped] call in which Gaskins participated mentioned drugs or drug transactions at all, in code or otherwise . . . .” Instead, Gaskins’ evidence suggested he worked as a “gofer,” running errands for a licensed private investigator, and his activities were related to that business endeavor, not an illegal objective. Judge Garland held no reasonable juror could convict Gaskins and reversed the conviction.

Gaskins demonstrates Judge Garland’s objective analysis. As a former member of the DOJ, one might expect Judge Garland to give deference to the DOJ’s prosecution of the narcotics conspiracy. That deference was absent from the Gaskins decision. Thus, the Gaskins decision shows us that Judge Garland can call on his objective analytical skills to overcome any perceived subjective biases he may possess.

Predicting Effects on DOJ Tactics and Analyses

Judge Garland’s experiences indicate how the DOJ could spend its investigatory and adversarial resources. President Biden has signaled a “hands off” approach to overseeing the DOJ. Therefore, Judge Garland will have a heavy hand in directing the DOJ’s tactics and analyses.

Starting with investigations, expect Judge Garland to use his experience overseeing long-term investigations, potentially involving undercover work, to investigate and collect evidence of complex crimes. Between Judge Garland’s work on the Kelley and Richardson matters, Judge Garland has significant experience overseeing detailed investigations of complex, and even multi-state conspiracies. We have already seen how the DOJ is currently using long-term undercover operations in the Southern District of Ohio to collect evidence of alleged white-collar offenses. There is no reason to believe Judge Garland will shy away from using these tried-and-true methods of investigation to collect potentially significant evidence against subjects of each investigation. Expect the DOJ to recruit confidential informants and cooperating coconspirators to team up with undercover agents to carry out detailed, potentially multi-year investigations.

The DOJ will continue to prosecute complex and multi-state conspiracies. The Richardson investigation and Kelley decisions show Judge Garland’s experience developing a theory against and prosecuting complex conspiracies. From the other side of the bench, Judge Garland analyzed the Government’s burden to prove the existence of a conspiracy and a citizen’s participation in the conspiracy in Gaskins. Therefore, between the cases highlighted here, Judge Garland has significant experience in conspiracy prosecutions. Expect the DOJ to continue to prosecute these types of cases.

Finally, Judge Garland’s measured analysis could “depoliticize” the DOJ, like President Biden has requested. Gaskins showcases this ability. Notably, the Gaskins case has been cited as an outlier among Judge Garland’s criminal appellate jurisprudence because Judge Garland usually sides with the Government on these types of appeals. However, the Gaskins case demonstrates Judge Garland is unafraid to tell the Government they got a case wrong, or, at least, did not have enough evidence to convict a citizen. That requires a conviction to justice. Additionally, Judge Garland has a reputation as a centrist jurist who rarely dissents and who comes to reasoned conclusions. Expect Judge Garland to implement processes to ensure he succeeds in Biden’s depoliticization of the DOJ.

Predicting Effects on DOJ Areas of Focus

The COVID-19 pandemic and legislation enacted as a result will undoubtedly remain a priority for the DOJ. It is imperative that companies who have taken federal funds take care to keep detailed records of their lawful use of those funds. Corporations and individuals in the healthcare industry should keep scrupulous records evidencing lawful activities. If suspected of a crime, Judge Garland’s DOJ will not be afraid to implement undercover and sting operations to discover evidence of illegal conduct. A subject could be investigated without ever knowing it.

Judge Garland also has experience with ethics-type violations for public employees like in the Kelley case. That experience coupled with President Biden’s heightened ethics pledge suggests it could become an area of focus for the DOJ. Therefore, federal employees should conduct themselves carefully to ensure they are complying with all public ethics laws, rules, and guidelines to avoid investigation.

Finally, Judge Garland has experience prosecuting and reviewing drug offenses as well in the Gaskins case as well as others noted in his Senate Confirmation Questionnaire. Expect the DOJ to maintain its priority to investigate and prosecute these types of offenses and conspiracies.

Admittedly, these predications are just that – predictions. But before Judge Garland accepts any appointment to the Office of the Attorney General, his previous decisions and cases hint at his policies and what we can expect out of the DOJ. We think Judge Garland’s deep investigatory experience with the DOJ will empower the DOJ to undertake these investigations, much like it already has in some Districts, to uncover healthcare, COVID-19, and ethics-related fraud cases in addition to large scale conspiracies and drug offenses.

 

Department of JusticeThe U.S. Department of Justice (DOJ) announced its first civil settlement under the False Claims Act (FCA) against a Paycheck Protection Program (“PPP”)  borrower. This likely marks the beginning of a new trend of civil enforcement cases under the FCA, separate from criminal cases, against PPP recipients. (See prior post here discussing recent criminal prosecutions.) DOJ’s use of the FCA also aligns with an acceleration in these types of cases toward the end of 2020, following a previous lull.

The settlement involved straightforward allegations of fraud by an Internet retail company, SlideBelts, Inc., and its president and CEO, Brigham Taylor. According to the facts in the settlement agreement, Taylor submitted back-to-back applications to several lenders for PPP loans in April 2020 for SlideBelts while the company was in bankruptcy. In the applications, Taylor, on behalf of SlideBelts, answered “no” to the question regarding the company’s solvency. The first lender rejected SlideBelt’s application because it was aware that SlideBelts was in bankruptcy; however, SlideBelts obtained a $350,000 PPP loan from a different lender, by Taylor again falsely certifying that the company was not in bankruptcy proceedings.

At the end of April, SlideBelts filed a motion in the bankruptcy court seeking retroactive approval of the loan but did not inform the court that he failed to disclose SlideBelts’s bankruptcy in the loan applications. The Small Business Administration (SBA), the government agency overseeing the PPP loan program, along with Taylor’s lender, opposed the motion and sought return of the loan funds. Rather than return the loan, SlideBelts asked the court to dismiss the case, stating he intended to refile an application for the PPP loan. The court dismissed the case at the end of June; SlideBelts, however, did not return the funds until over a week later. On January 12, 2021, DOJ announced the settlement with both SlideBelts and Taylor of potential civil claims against them under the FCA and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (FIRREA).

As part of the settlement, DOJ required SlideBelts and Taylor to pay $100,000, with $17,500 coming from Taylor as restitution. On the one hand, this figure is substantial, representing nearly one-third of the amount of the fraudulently obtained loan. On the other, DOJ contended in the settlement agreement that defendants were liable for damages and penalties in the amount of nearly $4.2 million for violations of the FCA and FIRREA. Notably, however, the DOJ obtained this settlement without the filing of a complaint or instituting any formal proceedings. The settlement agreement also makes clear that DOJ’s claims were based at least in part on the interim rules issued by the SBA and April 2020 about PPP loan eligibility – the agreement referenced the provision of a rule that made clear that bankruptcy precludes eligibility for PPP loans.

Several other aspects of the settlement agreement and the case overall are also noteworthy. As noted above, this is the first civil FCA case involving a PPP loan recipient and shows that DOJ will in fact rely on the FCA to pursue PPP fraud, though this case is different from a typical false claim case. The majority of FCA cases are brought by a private qui tam relator – often a whistleblower alleging fraud – with the filing of a sealed complaint. Here, in contrast, the DOJ conducted an investigation with the Office of the Inspector General (OIG) for the SBA. It is unclear from the DOJ press release what spurred the investigation in the first instance, but it may well be that the DOJ and SBA OIG are actively investigating PPP loan recipients.

The SlideBelts settlement shows that, as predicted, DOJ will rely on the civil FCA provisions to pursue PPP fraud in addition to criminal charges. It also shows that, perhaps even more than expected, the DOJ and the SBA OIG will be proactive and aggressive in pursuing FCA claims.

GeorgiaAmid the seemingly endless stream of news that underlies America’s currently tumultuous political climate, you would be forgiven for missing (or simply forgetting) the fact that President Trump may have a serious Georgia problem.  No, we are not merely referring to the results of the recent Presidential and Senate runoff elections, which demonstrated a momentous political shift in favor of the Democratic Party in the historically conservative state.  President Trump’s most pressing Georgia problem is instead that he and his aides potentially face post-Presidential criminal consequences for their attempts to influence the state’s administration of the Presidential election.

A steady drip of news stories has illuminated that President Trump and others made multiple potentially improper contacts with Georgia election officials in the aftermath of the November 3 election.  Before analyzing their potential criminal exposure, let’s review the timeline as established by public reporting:

The Chronology

The first indications of potential outside influence on the Georgia Presidential election results came in mid-November 2020, when reports began circulating that Senator Lindsey Graham of South Carolina, “one of Mr. Trump’s closest allies on Capitol Hill,” had reached out to Georgia Secretary of State Brad Raffensperger and suggested that Raffensperger disqualify certain absentee ballots.

Then, on December 5, news broke that President Trump had called Georgia Governor Brian Kemp to “urge him to persuade the state legislature to overturn President-elect Joe Biden’s victory in the state and… to order an audit of absentee ballot signatures.”  Kemp had indicated publicly, before and after the call, that he lacked the power to order such a move but did request that Secretary of State Raffensperger conduct an audit.

In fact, Raffensperger did launch an audit of certain absentee ballots in Cobb County which, on December 29, resulted in a determination that there was no fraud.  We now know, however, that President Trump and others made several additional contacts with Georgia officials while that audit and other election-related investigations were pending.

On December 22, the President’s Chief of Staff, Mark Meadows, made a “surprise visit” to Cobb County to observe the audit and to “ask questions about the process.”  Meadows was not allowed to enter the room where the audit was being performed.

The next day, December 23, President Trump called Georgia’s election investigations chief, reportedly asking that individual – who remains undisclosed – to “find the fraud” and indicating that they would be “a national hero” if they did so.

Next, on January 3, President Trump called Secretary of State Raffensperger directly to ask that he “find” the 11,780 votes that would be necessary to surpass Joe Biden’s electoral lead.  The Washington Post subsequently published the recording and a transcript of the call in which “[President] Trump alternatively berated Raffensperger, tried to flatter him, begged him to act and threatened him with vague criminal consequences… at one point warning that Raffensperger was taking a ‘big risk.’”   President Trump also implored: “Fellas, I need 11,000 votes. Give me a break.”  Trump requested that Raffensperger’s General Counsel sit down with one of Trump’s attorneys to go over Trump’s allegations, and the General Counsel agreed.  President Trump also appeared critical of U.S. Attorney for the Northern District of Georgia Byung J. Pak, referring to “your never-Trumper U.S. attorney there.”

U.S. Attorney Pak resigned abruptly on January 4, 2021, the day after the call between Trump and Raffensperger was reported.  Recent reporting from the Wall Street Journal alleges that a senior Justice Department official, at the behest of the White House, had called Pak and pressured him to resign because “he wasn’t doing enough to investigate the president’s unproven claims of election fraud.”

The Applicable Legal Framework

The ever-growing list of contacts with Georgia by President Trump and those loyal to him has sparked a now-familiar debate: will President Trump face any criminal consequences for his actions?  There are at least three federal statutes and several state statutes which could be applicable to the reported conduct.

First, the Hatch Act – 5 U.S.C. §§ 7323 et seq. – prohibits government employees from using “official authority” to affect a federal election.  While the Hatch Act specifically exempts the President and Vice President from the civil provisions of the Act, the criminal provisions remain applicable to President Trump.  Specifically, 18 U.S.C. § 595 provides for up to one year imprisonment for anyone who “uses his official authority for the purpose of interfering with, or affecting, the nomination or the election of any candidate for the office of President, Vice President, Presidential elector, Member of the Senate, Member of the House of Representatives, Delegate from the District of Columbia, or Resident Commissioner.”

Second, 52 U.S.C. § 20511(2) prohibits any person from “knowingly and willfully” depriving, defrauding, or attempting to deprive or defraud the residents of a State of a fair and impartially conducted election process.”  According to the Department of Justice, this statute is notable because “[u]nlike other ballot fraud laws… the focus of this provision is not on any single type of fraud, but rather on the result of the false information: that is, whether the ballot generated through false information was defective and void under state law.”  Some commentators have noted, however, that prosecuting President Trump under this statute could be difficult, notwithstanding the recording and transcript of his January 3 call with Raffensperger, because it would require that the President knew he was urging Raffensperger to fraudulently change the vote.

Third, 18 U.S.C. § 241 makes it illegal to participate in a conspiracy against people exercising their civil rights.  As a conspiracy claim, this charge would require “two or more persons” to “conspire to injure, oppress, threaten, or intimidate” any person in the free exercise or enjoyment of their civil rights. Although more substantial evidence obviously would be needed to prosecute under this statute, federal prosecutors might begin an investigation because a conspiracy to dilute ballots lawfully submitted by Georgia voters might be inferred from the chronology of Senator Graham’s call to Raffensperger, Chief of Staff Meadows’ surprise visit to Cobb County, and the senior DOJ official’s call to U.S. Attorney Pak.

Finally, Georgia state law – GA Code § 21-2-604 – provides for three years-imprisonment when a person causes someone else to take part in election fraud by soliciting, requesting, or commanding another person to engage in such conduct.  Prosecutors might argue that President Trump solicited or attempted to coerce Raffensperger or other election officials to violate potentially several Georgia election statutes,[1] thereby violating § 21-2-604.  Fulton County District Attorney Fani Willis has already indicated that her office will investigate the issue.  There are also several general criminal statutes in Georgia, such as criminal attempt,[2] criminal solicitation,[3] conspiracy to commit a crime,[4] which could conceivably be in play if supported by evidence gathered in District Attorney Willis’ investigation.

Conclusion

Predicting potential criminal consequences for President Trump has become a favored pastime for many over the past four years.  The authors of this blog post do not wish to add to this now-time-honored tradition by speculating about the relative strength or likelihood of any such charges.  Suffice it to say that, at this point, Georgia may now have a lead over New York and Washington, D.C., in the presidential prosecution sweepstakes.

[1] For example, GA Code § 2-562 establishes that it is a felony to insert any fraudulent entry on or in, or to alter or intentionally destroy a ballot in connection with an election.  Similarly, GA Code § 2-499 requires the Georgia Secretary of State to file an official tabulation of votes and to submit an official certification of all votes cast to the Governor.

[2] GA Code § 16-4-1 (“A person commits the offense of criminal attempt when, with intent to commit a specific crime, he performs any act which constitutes a substantial step toward the commission of that crime.”)

[3] GA Code § 16-4-7 (“A person commits the offense of criminal solicitation when, with intent that another person engage in conduct constituting a felony, he solicits, requests, commands, importunes, or otherwise attempts to cause the other person to engage in such conduct.”)

[4] GA Code § 16-4-8 (“A person commits the offense of conspiracy to commit a crime when he together with one or more persons conspires to commit any crime and any one or more of such persons does any overt act to effect the object of the conspiracy.”)