Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

As reported by Law.com, the sentencing of celebrity attorney and Ponzi schemer Marc Dreier is scheduled for next Monday, July 13. Dreier was arrested last December for defrauding investors and clients of more than $740 million through a series of schemes. A full history of the Dreier saga is set forth here. He pled guilty on May 11 to one count of conspiracy to commit securities fraud and wire fraud, one count of money laundering, one count of securities fraud and five counts of wire fraud and has remained under house arrest in his luxury apartment in Manhattan.

Dreier's attorney, Gerald L. Shargel, filed a sentencing memorandum on Tuesday requesting a sentence for Dreier of between 10 years and 12 years and 7 months. Shargal asserted that Dreier has already started to be punished through his public disgrace, the loss of his law firm and possession, and "the shame and suffering that his actions have brought upon his family."

However, the prosecution, headed by Assistant U.S. Attorney Jonathan R. Streeter, has filed a sentencing memorandum aiming for a higher sentence for Dreier--145 years in prison, or, in the alternative, "a term of years that would both assure that Dreier will remain in prison for life and emphatically promote general deterrence."

The government's recommended sentence for Dreier is a mere 5 years less than the 150 year sentence imposed two weeks ago on the largest Ponzi scheme fraudster in history, Bernard Madoff (as massive as Dreier's crimes were, Madoff defrauded investors of exponentially more money). Dreier is currently 59. The proposed 145 years aside (and 145 years before his sentencing date--June 13, 1864--Ulysses S. Grant and Robert E. Lee had just concluded one of the bloodiest battles in American history at Cold Harbor, Virginia) any sentence imposed by the Court is all but guaranteed to ensure that Dreier spends the rest of his life behind bars. Although Drier's fraud, as massive as it is, is only a small fraction of the damage caused by Madoff, the record for a white collar criminal sentence is actually 845 years, imposed on Shalom Weiss in 2000 for a $450 million mortgage and insurance scheme against Florida pensioners (to be eligible for release today, even counting "good time," Weiss would have had to have started his sentence in 1290--the year Edward I of England passed the statute of Quia Emptores, which reformed the feudal land system). You can enjoy Money Central's list of the ten longest white-collar criminal sentences here.

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The prosecution in the case of wealthy international financier Sir Robert Allen Stanford wants Stanford behind bars even before he has his day in court, arguing that his contacts abroad create a great risk that he will flee the country. Stanford, through his attorney, Dick DeGuerin, has countered that he possesses ties to the U.S. and voluntarily surrendered to authorities following the issuance of the warrant for his arrest. The dispute over potential pretrial release/bail for Stanford in this case has been particularly heated, as shown by a chronology:

June 19: At Stanford's initial appearance, U.S. Magistrate Judge Hannah Lauck of the U.S. District Court for the Eastern District of Virginia determines that Stanford is a flight risk and orders him detained. Stanford is transported to Houston.

June 25: At Stanford's arraignment in the U.S. District Court for the Southern District of Texas, U.S. Magistrate Judge Frances H. Stacy sets Stanford's bond at $500,000 but stays bond pending the prosecution's appeal of the bond.

June 29: U.S. District Judge David Hittner holds hearing on the revocation of Magistrate Judge Stacy's release order. Judge Hittner reverses release order and orders Stanford detained.

July 7: Stanford files a 48-page Motion to Reconsider and/or Reopen Detention Order, with numerous exhibits. Mr. DeGuerian alleges in the Motion that the prosecution made numerous misrepresentations of material facts in arguing for the revocation of Stanford's bond. Stanford claims that the government made the following alleged intentional misrepresentations to the Court in order to cause Stanford's release to be revoked:

1. That Stanford's expired Antiguan diplomatic passport was allegedly "missing;"

2. That Stanford allegedly siphoned approximately $100 million from a bank account with Societe Generale Swiss in late 2008;

3. That Stanford's primary residence is allegedly not the U.S. and that he does not have strong ties to Texas;

4. That $1 billion is allegedly "missing" from Stanford's companies;

5. That Stanford has engaged in allegedly suspicious travel while he has been under investigation and that he allegedly has contacts outside the U.S. who would gladly help him flee; and

6. That Stanford allegedly bribed Antiguan officials.

The Stanford case is a good example of how allegations of prosecutorial misconduct and misrepresentations can play into the very inception of a case or into stricly procedural matters, without having to await formal challenges to charges on the merits. In any event, Stanford's attorneys have certainly presented a forceful argument for his release on bond, and we look forward to monitoring the Court's resolution of his Motion.

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Sir Robert Allen Stanford is scheduled to be arraigned today on conspiracy, mail and wire fraud, money laundering and obstruction charges in Houston in the U.S. District Court for the Southern District of Texas. Stanford is represented by attorneys Dick DeGuerin and Sean Ryan Buckley, of the Houston firm of DeGuerin and Dickson.

According to the docket for the case, the Government obtained its 21-count indictment, which can be viewed here, last Thursday and promptly moved to seal (i.e. prevent public access to) it, and then unsealed it on Friday shortly before Stanford’s arrest.

The Court will likely revisit the issue of whether Stanford is entitled to release before trial. On Friday, the Court ordered co-defendants Mark Kuhrt and Gilberto Lopez released on a $100,000 unsecured bond. However, given Stanford’s considerable wealth and ties abroad, any amount of bond imposed in his case will undoubtedly be far higher, if Stanford is granted pre-trial release at all, that is. The U.S. District Court for the Eastern District of Virginia determined that Stanford posed a high risk of flight, and denied bond.

The case will be tried before U.S. District Judge David Hitter, a brief description of whom can be found here.

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The writers of Federal Criminal Defense Blog have been busy writing on other matter and apologize for the brief hiatus. Much has happened in the sphere of white collar crime even during our short absence, most notably developments in the two largest Ponzi schemes in U.S. history, and we have some catching up to do.

We’ll start with the second largest—an indictment indictment against billionaire Texas financier Sir Robert Allen Stanford, 59, was unsealed in the U.S. District Court for the Eastern District of Virginia on Friday according to the Associated Press  and the BBC. The 50-page indictment alleges that Stanford and six other defendants with allegedly perpetrated a $7 billion Ponzi-style fraud. It charges Stanford and the other defendants with 21 counts, including 7 counts of wire fraud, 10 counts of mail fraud, conspiracy to obstruct an investigation for the Securities and Exchange Commission, obstruction of an investigation by the SEC and conspiracy to commit money laundering. Defendants Laura Pendergest-Holt, Gilberto Lopez and Mark Kuhrt are executives of Stanford Financial Group. Defendant Leroy King, a former bank regulator for the Caribbean island nation of Antigua and Barbuda, allegedly accepted more than $100,000 in bribes from the other defendants in order to allow the alleged scheme to continue.

The indictment alleges that the defendants sold certificates of deposit issued by Stanford International Bank, based in Antigua, to investors, promising large returns. The defendants allegedly made false claims to investors regarding the growth of Stanford Financial Group’s assets.

The scheme had approximately 30,000 investors. Stanford is alleged to have diverted more than $1.6 billion in investment funds in personal loans to himself. More than $1 billion in investment money is allegedly unaccounted for. Stanford is also charged in the indictment with allegedly conspiring to obstruct an SEC proceeding. Stanford Financial Group’s finance chief, James M. Davis, is cooperating with investigators. Davis has been charged with fraud and obstruction in a separate indictment.

Stanford was the owner of a newspaper, two restaurants, and a development company in Antigua, and was a cricket enthusiast and owner of the Stanford cricket grounds in Antigua. In 2008, Stanford staged a $20 million, winner-takes-all, match between a West Indian XI and England at the grounds. In 2006, Stanford became the first American to be knighted by Antigua and Barbuda.

Stanford is represented by attorney Dick DeGuerin, who has issued a statement to the press that Stanford is innocent of the charges. Stanford has made repeated statements as to his innocence and has alleged that no money was lost.

Stanford surrendered to the FBI on Thursday and had his initial appearance on Friday. U.S. Magistrate Judge Hannah Lauck determined that Stanford posed a flight risk and ordered him to remain in custody pending a future detention hearing in Houston. Several governments have frozen his assets. Stanford faces as much as 250 years in prison if convicted.

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By way of background, the Government originally charged Syed Haris Ahmed in a sealed indictment filed on March 23, 2006. The Government obtained a Superseding Indictment on July 19, 2006. It has charged Ahmed and his co-defendant, Ehsanul Islam Sadequee, with one count of conspiracy to provide material support to terrorists, in violation of Title 18 United States Code Sections 956 and 2332b; one count of providing and attempting to provide material support to terrorists, in violation of Title 18, Sections 956, 2332b and 2339A; one count of conspiracy to provide material support to a Designated Foreign Terrorist Organization, in violation of Title 18, Section 2339B; and one count of attempting to provide material support to a Designated Foreign Terrorist Organization, in violation of Title 18, Section 2339B.

The Government’s Superseding Indictment contains the following facts and allegations:

Ahmed was born in Pakistan in 1984 and became a naturalized U.S. citizen. Sadequee, who is allegedly nicknamed “Shifa,” was born in Virginia in 1986, and is of Bangladeshi descent.

In or around late 2004, Ahmed and Sadequee and another person engaged in alleged paramilitary training, including with paintball guns, in Northwest Georgia.

On or about February 26, 2005, Ahmed and Sadequee traveled to Toronto, Canada, by bus. While in Toronto, Ahmed and Sadequee allegedly met in person with “supporters of violent jihad” and “discussed strategic locations in the United States that were suitable for terrorist attack, including military bases and oil storage facilities and refineries.” Ahmed, Sadequee and the others allegedly also “explored how they might disrupt the world-wide Global Positioning System (GPS)” and “a plan for members of the group to travel to Pakistan to seek and receive paramilitary training that they would then use to engage in violent jihad.”

After returning to Atlanta, in or about March or April 2005, Ahmed and Sadequee further discussed these plans, and also the possibility of attacking Dobbins Air Reserve Base in Marietta, Georgia.

At or around this time, Sadequee was allegedly in communication with Younis Tsouli, an unindicted co-conspirator in the United Kingdom.

On or about April 10 and 11, 2005, Ahmed and Sadequee traveled to Washington, D.C., in Ahmed’s pickup truck. On April 11, Ahmed and Sadequee allegedly “made short digital video recordings… of symbolic and infrastructure targets of potential terrorist attacks in the Washington, D.C., area, including the United States Capitol; the headquarters building of the World Bank…; the Masonic Temple in Alexandria, Virginia; and a group of large fuel storage tanks near I-95 in northern Virginia.”

On returning to Atlanta, Ahmed allegedly gave the video clips to Sadequee so that he could send the clips to supporters of violent jihad abroad. Sadequee allegedly sent the video clips to Tsouli in the United Kingdom and Tsouli stored the clips on his computer along with other materials relating to violent jihad.

Between March and July 2005, Sadequee allegedly provided Ahmed with the contact information for Abu Umar, an unindicted co-conspirator, and told Ahmed that Abu Umar could assist Ahmed with obtaining paramilitary training in Pakistan. On or about July 17, 2005, Ahmed traveled from Atlanta to Pakistan for the alleged purpose of studying in a madrassa and then obtaining paramilitary training to engage in violent jihad in Kashmir or other locations, including the U.S. Ahmed is alleged to have intended to join Lashkar-e-Tayyiba (“Army of the Righteous”). Ahmed was allegedly unsuccessful in his attempts to enter a madrassa or to obtain paramilitary training, and returned to Atlanta.

On or about August 18, 2005, Sadequee traveled from Atlanta to Bangladesh to allegedly get married and to pursue violent jihad. Sadequee was stopped as he traveled through John F. Kennedy Airport in New York and was discovered to allegedly have two compact discs concealed in the lining of his suitcase which contained a Fairfax County, Virginia, Visitor’s Center map of the Washington area, including the sites of four potential terrorist targets which Sadequee and Ahmed had videotaped in April 2005. Sadequee was interviewed by federal agents and allegedly falsely stated that he had traveled to Toronto alone.

On or about August 19, 2005, Ahmed returned to Atlanta from Pakistan and was interviewed by federal agents at Hartsfield International Airport in Atlanta. Ahmed allegedly made false and misleading statements about his travel to Canada and Pakistan, allegedly stating that he had made the trips to visit friends and family and to attend a religious school.

In the Fall of 2005, Ahmed allegedly researched shaped explosive charges and methods to defeat surveillance by government authorities. He also allegedly cautioned an individual to avoid discussing certain topics over the telephone.

On or about November 27, 2005, Ahmed allegedly told a supporter of violent jihad of his intent to go abroad again to train for, and engage in, violent jihad, and told the individual to read the indictment against Jose Padilla. At or around this time, Ahmed allegedly reviewed a periodical for gun enthusiasts.

In early 2006, Ahmed allegedly engaged in efforts to detect and evade suspected government surveillance. In March of 2006, agents from the FBI Joint Terrorism Task Force engaged in a series of interviews with Ahmed, in which Ahmed allegedly attempted to conceal the true nature of his, Sadequee’s and their alleged co-conspirators’ discussions, activities and plans. After the interviews began, Ahmed communicated with Sadequee in Bangladesh and warned him about the FBI’s interest in their activities.

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The trial of Syed Haris Ahmed is Georgia’s most significant terrorism case and we will collect for readers daily information on the trial and additional information. Today’s information on the Ahmed/Sadequee Trial comes from the Atlanta Journal-Constitution, WSBTV and CNN.

Ahmed is 24, an Atlanta area native and a former student at Georgia Tech. Ahmed waived his right to jury trial, and his case is being tried before District Court Judge William S. Duffey in the U.S. District Court for the Northern District of Georgia without a jury. Jack Martin, of Martin Brothers, P.C., is representing Ahmed. Assistant U.S. Attorney Robert McBurney is representing the United States. Ahmed’s co-defendant, Ehsanul Islam Sadequee, will be tried in August. Stephanie Kearns of the Federal Defender Program is representing Sadequee.

On Monday, Mr. Martin gave his opening statements to the Court, describing Ahmed as a confused, frustrated and immature young man who “fell prey” to websites espousing extremist views. Mr. Martin characterized the alleged plans for terrorist acts as “passing random thoughts, momentary ideas, childish fantasies, unformed, inchoate notions.” Mr. Martin argued that Ahmed had the ability to commit the alleged acts but said “No.” He stated that Ahmed’s idea of paramilitary training was shooting paintball guns with a friend in the North Georgia woods.

Mr. McBurney argued that Ahmed “one step removed from the bomb throwers” and intended to wage violent jihad. Mr. McBurney argued that Ahmed was a would-be terrorist who went to Pakistan to join the Taliban. He said that the videos made by Ahmed while allegedly “casing” locations in Washington, D.C., including the Capitol and the Pentagon, were intended to prove to terrorists overseas that Ahmed had access to Washington’s “backyard” and could get in close to targets. McBurney said the government’s case is about supporting terrorism and not actually “pulling the trigger or dropping the bomb.”

FBI Special Agent Mark Richards testified for the government. During Agent Richard’s testimony, the government showed some of the videos. In one video of the World Bank Building, Ahmed bobbed up and down so much that Mr. Martin asked Special Agent Richards “If a terrorist was attacking on a pogo stick, this might be useful, right?” However, another video shows Ahmed and Sadequee driving past the Pentagon with Sadequee stating “This is where our brothers attacked.”

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            Supreme Court Justice David Hackett Souter has announced his intention to retire at the end of the Court’s term in June. In his 19 years on the Court, Justice Souter has been a key vote in many cases and has written over 150 majority, plurality, concurring and dissenting opinions, including in many criminal cases. In the area of criminal law, Justice Souter has issued numerous opinions fairly consistently advancing the rights of defendants at all stages of criminal proceedings. Federal Criminal Defense Blog salutes Justice Souter and his highly distinguished tenure on the Court by listing some of his significant opinions in the criminal arena, beginning today with majority and plurality opinions.

            Criminal defense attorneys everywhere will be familiar with Kyles v. Whitley, 514 U.S. 419 (1995) in which the Court, in an opinion delivered by Justice Souter, reversed the defendant’s conviction and held that a state prosecutor has a duty to learn of any favorable evidence known to the others acting on the government's behalf in the case, including the police, and has a duty to turn over all exculpatory evidence to the defense, pursuant to  Brady v. Maryland, 373 U.S. 83 (1963). And in Missouri v. Seibert, 542 U.S. 600 (2004), Justice Souter authored a majority opinion holding that warnings pursuant to Miranda v. Arizona, 384 U.S. 436 (1966) given to a defendant in the middle of an interrogation are ineffective and any statements given during the interrogation are inadmissible. And in Corley v. U.S., 129 S.Ct. 1558 (2009) discussed on this Blog, Justice Souter delivered the majority’s opinion that 18 U.S.C. § 3501 does not alter the rule that confessions made during periods of detention which violate the prompt presentment requirements of Federal Rule of Criminal Procedure 5(a) are inadmissible pursuant to the rule of McNabb v. United States, 318 U.S. 332 (1943) and Mallory v. United States, 354 U.S. 449 (1957).

            Justice Souter had Georgia on his mind early in his career on the Court when he delivered the unanimous opinion for the Court in Ford v. Georgia, 498 U.S. 411 (1991), in which the majority held that the Georgia Supreme Court erred in concluding that the petitioner’s claim pursuant to Batson v. Kentucky, 476 U.S. 79 (1986), which prohibits racially-based exercise of peremptory challenges by the prosecution, was untimely pursuant to State v. Sparks, 257 Ga. 97, 98, 355 S.E.2d 658, 659 (1987), in which the Georgia Supreme Court held that a Batson objection must be made within the period of the jurors’ selection and the administration of their oaths, because the Sparks rule was not “firmly established and regularly followed” at the time of the petitioner’s trial. In Wade v. U.S., 504 U.S. 181 (1992), Justice Souter, again writing for a unanimous Court, held that federal district courts have the authority to review the government’s refusal to file a substantial-assistance motion and to grant a remedy if they find that the refusal was based on an unconstitutional motive. Justice Souter authored the majority opinion in Old Chief v. U.S., 519 U.S. 172 (1997), in which the Court reversed the petitioner’s conviction for  possession of a firearm by anyone with a prior felony conviction in violation of 18 U.S.C. § 922(g)(1), holding that a district court abuses its discretion where it refuses a defendant’s offer to concede a prior judgment under Federal Rule of Evidence 403 and admits the full judgment over the defendant’s objection. In Shepard v. U.S., 544 U.S. 13 (2005) he wrote a majority opinion holding that in applying the Armed Career Criminal Act, 18 U.S.C.A. § 924(e), a sentencing courtcannot look to police reports or complaint applications to determine whether an earlier guilty plea necessarily admits, and supports a conviction for, generic burglary. Justice Souter wrote the majority’s holding in Watson v. U.S., 128 S.Ct. 579 (2007) that a person who trades drugs for a gun does not receive the gun in violation of 18 U.S.C. § 924(c)(1)(A), which provides for a mandatory minimum sentence where a defendant uses a firearm during a drug trafficking crime.

            Less pro-defense, Justice Souter authored the majority opinion in U.S. v. Wells, 519 U.S. 482 (1997) which held that material of falsehood was not an element of making false statements to a federally insured bank under 18 U.S.C. § 1014. And he rejected the petitioner’s arguments that 18 U.S.C. § 666(a)(2), which proscribes bribery of State and local officials of entities, was unconstitutional because of a lack of any jurisdictional requirement of a connection to federal money in Sabri v. U.S., 541 U.S. 600 (2004), holding that the statute was an instance of necessary and proper legislation.

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Yet another Ponzi scheme has surfaced in Georgia. As reported by the Macon telegraph his past Tuesday, U.S. marshals in Denver arrested Gary Hutcheson and Saundra McKinney Pyles of Macon. Hutcheson and Pyles had been indicted on April 22 in the U.S. District Court for the Middle District of Georgia on five counts of mail fraud and five counts of money laundering for running a fraudulent investment operation. The Indictment alleges that, beginning in 2006, Hutcheson operated a business named Georgia Ionics Fund LLC, which used two securities brokers, CyberTrade Inc. and Cobra Trading, to handle investments. Hutcheson is alleged to have advertised a hedge fund and claimed to have investment expertise and successes, which was false. Hutcheson attracted more than $2.1 million from investors, and invested only $780,000 of the money, the majority of which was lost. He kept approximately $1.3 million. Hutcheson further falsely represented to investors that the fund was completely successful. He and Pyles paid $457,000 of the funds to certain investors, falsely claiming that the funds constituted investment profits. Hutcheson and Pyles are awaiting extradition back to Georgia.

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A character in William Shakespeare’s Henry VI, Part II, famously exclaims ''The first thing we do, let’s kill allthe lawyers.'' Act 4, sc. 2. Well, April 26 is the anniversary of Shakespeare birth. And apparently judges and lawyers down the ages have had a far higher opinion of Shakespeare than he may have had of them, for Shakespeare, the most quoted source in the English language after the Bible, has had his works quoted in thousands of reported decisions. The Eleventh Circuit Court of Appeals has been no exception to this admiration, taking seeming great pleasure in working the occasional Shakespearean quotation into a decision. Some gems: “More important, when we do construe the various ADEA sections together, abrogation never becomes ‘as clear as is the summer’s sun.’” Kimel v. State Bd. of Regents, 139 F.3d 1426, 1431 (11th Cir. 1998) (quoting Henry V, act 1, sc. 2). “[W]here th’ offense is, let the great axe fall.” Floyd v. Waiters, 133 F.3d 786, 790 n.6 (11 Cir. 1998) (quoting Hamlet, act 4, sc. 5). “Indeed, this entire case turns on the issue of ripeness: ‘Ripeness is all.’ William Shakespeare, King Lear, Act V, Scene II, Line 9. We need not decide whether King Lear was referring to plantains or bananas.” Banana Services, Inc. v. M/V Fleetwave, 911 F.2d 519, 520 n.2 (11th Cir. 1990). “We have come, or gone, a long way from Shakespeare's ancient caution, ‘Neither a borrower, nor a lender be.’” Williams v. Public Finance Corp., 598 F.2d 349 (5th Cir. 1979).

A happy birthday from Federal Criminal Defense Blog to the Bard, who will undoubtedly continue to be quoted in legal opinions long, long after we here have shuffled off our mortal coils.

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               A lighthearted article in Legal Times by Michael D. Jones of Kirkland & Ellis, “When Faced With an Angry Jury, Laughter May Be the Best Defense,” acknowledges that this era of anger over Wall Street bailouts and rampant corporate greed or fraud is an especially bad one for counsel who defend corporations. The author offers a potential answer to juries’ outrage—laughter. The article notes the an anti-business coverage in the news media and a backlash by juries, citing a February verdict against Novartis in Alabama—a notorious pro-corporate state—for $78.4 million, including $50 million in punitive damages, for overcharging Medicare for prescription drugs. 

              The article cites a 2004 study which found that angry or irate jurors were the “least influenced” by the defense’s case, because such jurors tend to jump to conclusions and act on them. Such angry jurors are less likely to favor the less sympathetic party or the party with more nuanced arguments—which is frequently the corporate defendant. It continues to note that traditional assumptions regarding jurors may not apply in today’s anti-corporate climate, and that white-collar workers may be just as angry as blue-collar workers. In view of this reality, counsel with corporate clients must seek to diffuse or redirect this anger.

                The author concludes that attorneys defending corporations should consider using trial tactics which include humor and emotional redirection. The American Psychological Association says that humor is a mechanism to control anger. The author notes that it is difficult for people to be angry and to laugh at the same time. Also, self-deprecating references by counsel force jurors to acknowledge counsel as a human being and in turn can generate more goodwill for one’s client

                However, counsel considering injecting humor into a trial have to be careful that it does not backfire. Humor at the expense of a litigant or witness may cause the jury to sympathize with the opposing party. Timing is also critical, and joking during serious moments can have serious consequences.

                The article also advocates emotional redirection techniques, such as persuading a jury which is determined to help a victim that there is more than one victim in the case. It concludes that in this time of anti-corporate anger, attorneys need to develop trial strategies for dealing with anger—advice not to be taken lightly.

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An excellent article from Legal Times, “Dead Companies Can Tell Tales,” examines how the attorney-client privilege in a corporate context survives the bankruptcy or receivership of the corporation. The article concludes that prosecutors possess considerable freedom to seek privileged information.

The article references the “Filip Memorandum,” which was a revision by Deputy AG Mark Filip to the “McNulty Memorandum” of 2006, which provides guidance to DOJ prosecutors in investigating and charging corporations (which dates back to 1999, when it was originally authored by then-Deputy AG Eric Holder and was known as the “Holder Memorandum”). The Filip Memorandum was the result of concerns over prosecutors’ extracting attorney-client privilege waivers from corporations and preventing corporations from paying officers’ and employees’ legal fees under threat of indictment. The Filip Memorandum sets forth DOJ policy in determining whether to indict a business entity, and the memorandum’s policies and factors to be considered are set forth in the United States Attorney’s Manual (USAM). In regard to the attorney-client privilege, USAM 9-28.710 asserts that “waiving the attorney-client and work product protections has never been a prerequisite under the Department's prosecution guidelines for a corporation to be viewed as cooperative.” The policy nevertheless states that “Everyone agrees that a corporation may freely waive its own privileges if it chooses to do so; indeed, such waivers occur routinely when corporations are victimized by their employees or others, conduct an internal investigation, and then disclose the details of the investigation to law enforcement officials in an effort to seek prosecution of the offenders.”

Therefore, while it is no longer DOJ policy to request waivers of the attorney-client privilege, a corporation may still voluntarily do so. The risk of such a “voluntary” waiver of the privilege may be increased when a corporation is in bankruptcy, and an independent trustee or receiver, or the successor management, are dealing with a criminal investigation and requests by the government, as well as their own investigation of potential criminal activity by the debtor corporation. The article cites the Supreme Court’s decision in CFTC v. Weintraub, 471 U.S. 343 (1985), in which the Court held that the trustee of a corporation in bankruptcy has the power to waive the corporation's attorney-client privilege with respect to pre-bankruptcy communications, id. at 354.

Consequently, the article advises attorneys representing officers or employees of corporations in bankruptcy to advise their clients of the risk that any privilege of their pre-bankruptcy communications to corporate counsel could be waived by the trustee or receiver and the communications disclosed to the government. There is also some question as to whether a bankrupt corporation implicates the Filip Memorandum or USAM 9-28.710 at all, since they do not mention bankrupt or dissolved corporation. The policies would also be inapplicable where the government intends to prosecute individuals instead of the corporation. Beyond the constraints of the Filip Memorandum, prosecutors are free to seek waivers of the privilege. Furthermore, trustees or receivers possess a duty to maximize recovery for corporate shareholders, and not to former officers or employees, and may be readily persuaded to give such waivers.

The authors note that Weintraub waivers have been used by receivers to waive the attorney-client privilege to order outside counsel for a corporation to produce its pre-litigation file, CFTC v. Standard Forex (E.D.N.Y. 1995), and to waive attorney-client and work product protection over the objection of a former corporation officer facing criminal charges, United States v. Shapiro (S.D.N.Y. 2007). The issue has also arisen in at least one proceeding in this Circuit, In re Pearlman, 381 B.R. 903 (Bkrtcy.M.D.Fla. 2007). The debtor in Pearlman and various corporations controlled by him filed for bankruptcy, and the trustee obtained a discovery order from the bankruptcy court and served subpoenas on several outside attorneys and law firms to produce documents. Id. at 905. Pearlman was also indicted by a grand jury in the Southern District of Florida. Id. at 906. Counsel produced some documents in response to the subpoenas, but asserted that other documents were protected by the attorney-client privilege. Id. at 907. The court held that documents relating to some of the entities were not subject to production unless the privilege was waived by the trustee. Id. The court continued to hold “[t]he privilege passed to, is controlled by, and may be waived by the Trustee to the extent an attorney-client privilege exists with respect to any of the Pearlman Entities.” Id. at 909 (citing Weintraub, at 358). It concluded that the documents and information were subject to turnover provided that the trustee waived the entities’ privilege. Id.

However, in regard to documents and information relating to counsel’s representation of Pearlman, the court stated that:

The issue of whether a bankruptcy trustee controls the attorney-client privilege as to an individual debtor has been addressed by various federal courts. The majority of courts employ a balancing test whereby the specific facts of a case are evaluated and the benefits of granting access to the privilege are balanced against the risk of harm to the debtor. The Court adopts the balancing test.

Id. at 907. It continued to observe that:

The Supreme Court did not address in Weintraub whether a bankruptcy trustee controls the attorney-privilege as to an individual debtor. Weintraub, 471 U.S. at 356, 105 S.Ct. 1986 (“But our holding today has no bearing on the problem of individual bankruptcy, which we have no reason to address in this case.”)

Id. at 910. It concluded that:

The majority of courts employ a balancing test whereby the specific facts of a case are evaluated and balanced, including the risk of harm to the debtor versus the benefit to the estate. Foster v. Hill (In re Foster), 188 F.3d 1259, 1268-69 (10th Cir.1999); In re Courtney, 372 B.R. 519, 521 (Bankr.M.D.Fla.2007); In re Bame, 251 B.R. 367, 377 (Bankr.D.Minn. 2000); In re Bazemore, 216 B.R. 1020, 1024 (Bankr.S.D.Ga.1998). The Court, based upon the weight of the case law and the facts and circumstances of this case, adopts the balancing test.

Id. This balancing test balances the harm to the individual debtor and to the attorney-client privilege with the trustee's need for information in light of the particular circumstances. Foster, at 1268.

Pearlman’s balancing test only appears to apply to former officers or employees who are also debtors in a bankruptcy proceeding. Non-debtor former officers or employees must beware of the risk that Weintraub waivers may be sought by the government and granted by the trustee or receiver, and that privileged information may be disclosed. The authors advise practitioners to gain an understanding of the substance of prior privileged communications which may be disclosed. Second, they caution counsel to be alert to any potential Weintraub waiver sought by the prosecution or trustee so that the defense can attempt to intervene and oppose the waiver, likely arguing that their client’s interest in the privilege outweighs any need of the trustee or the government for the waiver, as indicated by Pearlman. Given that a trustee or receiver is typically held to have a great need for any documents or information in carrying out his or her duties, this will likely be a losing proposition, but one worth trying nevertheless.

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            Resuming Federal Criminal Defense Blog’s pledge to keep readers informed regarding substantial decisions in the Eleventh Circuit Court of Appeals (and the Court certainly keeps us busy), we take this opportunity to catch up. Following is a summary of substantial decisions from the end of March through April 8.

“Violent Felonies” Under the Armed Career Criminal Act, 18 U.S.C. § 924: In U.S. v. Townsley, No. 08-13517, 2009 WL 929986, (11th Cir., Apr. 08, 2009) (per curiam; unpublished), the Court reversed the defendant’s conviction, holding that the district court erred in counting the defendant’s three previous convictions for carrying a concealed firearm, in violation of Fla. Stat. § 790.01(2), as “violent felonies” pursuant to the Armed Career Criminal Act (“ACCA”), 18 U.S.C. § 924(e)(1), following its decision U.S. v. Archer, 531 F.3d 1347 (11th Cir. 2008), id. at *3.

Sentence Not “Too Lenient”: The Court affirmed the defendant’s sentence for pedophilia in the published opinion U.S. v. Irey, No. 08-10997, 2009 WL 806860, (11th Cir., Mar. 30, 2009), rejecting the government’s argument that the defendant’s sentence was “too lenient” and therefore unreasonable, id. at *4. Reaffirming earlier holdings that an appellate court must not substitute its judgment for that of the sentencing court, id. at *2 (citing U.S. v. Melvin, 187 F.3d 1316, 1323 (11th Cir.1999); Williams v. U.S., 503 U.S. 193, 204, 112 S.Ct. 1112 (1992)), the opinion, authored by Chief Circuit Judge Edmondson, contains potentially useful language for the practitioner regarding the gravity of punishment and a defendant’s characteristics:

       We appreciate that some people may feel that no sentence would be too harsh for this crime. But that is not the law. And courts never should see the imprisonment in this country of a person for 17-1/2 years as light punishment: although even longer terms of imprisonment can be lawfully imposed in cases, this many years is a substantial portion of a human life-and no serious person should regard it as a trifle.

      Furthermore, when the defendant is 50 at the time the sentence is imposed, the consequences must be seen as severe. Moreover, upon Defendant’s release from imprisonment, he will not be free in the way that most Americans are free. He will be subject to rigorous conditions of supervised release by federal authorities. Given the terms of his sentence, never will Defendant be a truly free man again.

Id. at *4.

Presentence Reports: The Court in U.S. v. Martinez, No. 08-14926, 2009 WL 839093 (11th Cir., Apr. 01, 2009) (per curiam; unpublished) observed that Federal Rule of Criminal Procedure 32(i)(1)(A) requires a district court to verify at sentencing “that the defendant and the defendant’s attorney have read and discussed the presentence report and any addendum to the report,” id. at *2 (quoting Fed.R.Crim.P. 32(i)(1)(A)), while Rule 32(i)(4)(A)(ii) requires the district court to “address the defendant personally… in order to permit the defendant to speak or present any information to mitigate the sentence,” id. (quoting Fed.R.Crim.P. 32(i)(4)(A)(ii)). The Court held that the drafters of Rule 32 “did not intend to impose a requirement that the district court personally address the defendant when inquiring whether he and his attorney have read and discussed the PSI.” Id. (citing U.S. v. Aleman, 832 F.2d 142, 144 (11th Cir. 1987)). The Court also rejected the defendant’s argument that the district court failed to properly address his statement at sentencing that he wished to “go to trial.” Id. at *4.

Government’s Breach of Plea Agreements: “‘Efforts by the Government to provide relevant factual information or to correct misstatements are not tantamount to taking a position on the sentence and will not violate [a] plea agreement.’” U.S. v. Matisas Mesa, No. 08-14134, 08-14130, 2009 WL 868012, *2 (11th Cir., Apr. 02, 2009) (quoting U.S. v. Block, 660 F.2d 1086, 1090-91 (5th Cir. Unit B Nov. 1981)). “‘A prosecutor has a duty to insure that the court has complete and accurate information concerning the defendant...’” Id. (quoting Block, at 1091). Thus, the government’s informing the sentencing court of the defendants’ inconsistent statements in Matisas Mesa, which resulted in the court’s denial of safety-valve treatment pursuant to U.S.S.G. § 5C1.2(a)(5), was held by the Court not to violate the defendants’ plea agreement in which the government agreed to recommend safety-valve treatment. Id.

Booker is a Two-Way Street: In U.S. v. Beasley, No. 08-14977, 2009 WL 905103 (11th Cir., 2009) (per curiam; unpublished), the Eleventh Circuit held that, even if the sentencing court did not use evidence of three uncharged bank robberies in which the defendant was implicated as “relevant conduct” to enhance his sentence pursuant to U.S.S.G. § 1B1.3, “§ 1B1.3 did not limit the court's discretion to consider the robberies under [18 U.S.C.] § 3661 and [18 U.S.C. §] 3553(a),” id. at *2, in departing upward from the Guidelines range, id. at *2.

Hearsay (Not): In U.S. v. Jiminez, No. 08-14192, 2009 WL 921437, (11th Cir., Apr. 07, 2009), the Eleventh Circuit affirmed the defendant’s conviction on various charges concerning manufacture and distribution of marijuana plants, holding in the process that the district court’s admission of testimony by a police detective regarding a statement by a non-testifying witness that the defendant was involved in a marijuana growing operation was not inadmissible hearsay, finding that the statement was not hearsay since it was not admitted to prove the truth of the matter asserted, but only the fact that it was made, pursuant to Federal Rule of Evidence 801(c), id. at *5.

 “National Standard of Care” and “Red Flags” in Prescription Prosecution: When a doctor is prosecuted under the Controlled Substances Act (“CSA”), 21 U.S.C. § 841 for prescribing drugs to patients, he or she must show that they acted in good faith and for a legitimate medical purpose. See U.S. v. Johnston, No. 08-14594, 2009 WL 806740, *4 (11th Cir., Mar. 30, 2009) (per curiam; unpublished) (citing U.S. v. Merrill, 513 F.3d 1293, 1301-02 (11th Cir. 2008)). In Johnston, the district court instructed the jury that it should apply a “national” standard of care in determining whether there was a legitimate medical purpose for the defendant physician’s prescriptions. Id.  The defendant argued on appeal that Florida’s standard of care should govern. Id. The Eleventh Circuit held that the defendant had invited the error by previously arguing that jury must find that she acted “outside the course/scope of professional practice, not in accordance with a standard of medical practice generally recognized and acted in the U.S.” id., in order to convict her, id. (Emphasis in original). The Court affirmed the defendant’s conviction, also holding that admission of testimony from witnesses for the government regarding “red flags” for detecting drug abuse in patients was not plain error and was admissible pursuant to Fed.R.Evid. (“Rule”) 702. Id. at *6.

Fear, Loathing and Interstate Extortion: A feud between German immigrants resulted in charges of conspiracy and extortion in violation of the Hobbs Act, 18 U.S.C. § 1951, and the Travel Act, 18 U.S.C. § 1952, in U.S. v. Bornscheuer, NO. 07-10009, 06-14607, 2009 WL 814587 (11th Cir., Mar. 31, 2009). The Eleventh Circuit affirmed the defendants’ convictions, simultaneously reaffirming its holding in U.S. v. Grassi, 783 F.2d 1572 (11th Cir. 1986) that a component of extortion for the purposes of the Hobbs Act is the victim’s fearful state of mind, and that “fear” is “‘a state of anxious concern, alarm or apprehension of harm and it includes fear of economic loss as well as fear of physical violence.’” Id. at *6 (quoting Grassi, at 1577).

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        The federal judiciary has seen a surge in proceedings for reduction of sentences pursuant to 18 U.S.C. § 3582(c)(2), primarily as a result of Amendment 706 to the Guidelines, which amended § 2D1.1 to provide a two-level reduction in the base offense level for crack cocaine offenses, and which the United States Sentencing Commission made retroactive. However, in a blow to defendants’ rights in such proceedings, the Eleventh Circuit in United States v. Webb, No. 00-00066-CR-1-1 (11th Cir. Apr. 13, 2009) has held that defendants possess no mandatory right to counsel in sentence reduction proceedings pursuant to § 3582(c)(2) under either the Fifth or Sixth Amendments. The Court’s holding comes in spite of its earlier holdings that § 3582(c)(2) motions are a continuation of a criminal case, and that motions for reduction of sentence pursuant to a retroactive amendment in the Sentencing Guidelines are clearly a challenge to the original sentence.

            Webb was convicted in 2000 of conspiracy to possess and attempt to possess more than fifty grams of cocaine base and large quantities of cocaine hydrochloride, id. at 2. Under the Sentencing Guidelines, Webb’s base offense level was 38 under U.S.S.G. § 2D1.1(c), however the district court found that he was also a career offender and that his total offense level was 42, but the court departed downward from the recommended range of 360 months to life and sentenced Webb to 264 months. Id. at 2-3.

            In 2008, Webb filed a pro se motion to reduce his sentence pursuant to § 3582(c)(2) pursuant to Amendment 706. Id. at 3. The court denied Webb’s motion, finding that even if Webb’s offense level was lowered from 42 to 40 pursuant to Amendment 70, his sentencing range would still be 360 months to life, and he was therefore not eligible for a § 3582(c)(2) reduction. Id. Webb did receive a reduction in his sentence pursuant to Federal Rule of Criminal Procedure 35(a), however. Id. Webb appealed. Id.

            The Eleventh Circuit cited its previous decision in United States v. Bravo, 203 F.3d 778 (11th Cir. 2000), in which it stated that, in determining whether to reduce a sentence pursuant to § 3582(c)(2), a district court must first recalculate the sentence based upon the amended Guidelines, leaving all other original sentencing determinations unchanged. Id. at 6 (citing Bravo, at 780; United States v. Moreno, 421 F.3d 1217, 1220 (11th Cir. 2005)). The court then may choose to impose the newly calculated sentence or to keep the original sentence, and should make its choice in light of the factors set forth in 18 U.S.C. § 3553(a). Id. The Court also noted that U.S.S.G. § 1B1.10(a) provides that a sentence may be reduced only where “‘the guideline range applicable to that defendant has subsequently been lowered as a result of an amendment…” Id. at 5-6 (emphasis added) (quoting U.S.S.G. § 1B1.10(a)).

Based upon these rules, the Court of Appeals found that the district court did not err in denying Webb’s § 3582(c)(2) motion since, although his offense level would have reduced his offense level from 42 to 40, this reduction would not have reduced Webb’s sentencing range, and the district court therefore had no authority to reduce his sentence or to consider the § 3553(a) factors.Id. The Court also held that Booker is “inapplicable” to § 3582(c)(2) motions for reduction of sentence because it is “‘a Supreme Court decision, not a retroactively applicable guideline amendment by the Sentencing Commission.’” Id. at 6-7 (quoting Moreno, at 1220–21).

More importantly, however, Webb also argued that the district court violated his Sixth Amendment right to counsel by refusing to appoint an attorney to represent him on his § 3582(c)(2) motion. Id. at 7. The Court noted that the issue of whether there was a mandatory right to counsel in § 3582(c)(2) reduction of sentence hearings was a matter of first impression for the Court. Id. at 8. Despite the fact that the Court acknowledged that it had found § 3582(c)(2) motions to be “‘a continuation of a criminal case’” rather than “‘a civil post-conviction action’” like a petition for habeas corpus, id. at 8-9 (citing United States v. Fair, 326 F.3d 1317, 1318 (11th Cir. 2003) (per curiam)), the Court followed the Fourth, Fifth, Seventh and Ninth Circuits’ view that a § 3582(c)(2) motion is merely a petition for a district court to exercise leniency to give a defendant the benefit of an Amendment to the Guidelines, rather than a challenge to the appropriateness of the original sentence, id. at 9 (quoting United States v. Whitebird, 55 F.3d 1007, 1011 (5th Cir. 1995)). “A defendant bringing such a motion thus would not be eligible for the Sixth Amendment rights that would normally attach in a sentencing or resentencing hearing.” Id. (citing Whitebird, 55 F.3d at 1011; United States v. Townsend, 98 F.3d 510, 512–13 (9th Cir. 1996)). The Court continued on to hold that the Due Process Clause of the Fifth Amendment likewise did not provide a mandatory right to counsel in sentence reduction hearings pursuant to since Federal Rule of Criminal Procedure 43(b)(4) provides that such a hearing may be held without the defendant himself being present. Id. at 10 (citing Fed.R.Crim.P. 43(b)(4)). Lastly, the Court held that 18 U.S.C. § 3006A(c), which provides for a right to counsel in criminal proceedings, “including ancillary matters appropriate to the proceedings,” id. at 10 (citing 18 U.S.C. § 3006A(c)), provided no right to counsel, since it found that the right to counsel conferred by the statute extended “to matters that are part of the original action, such as sentencing and resentencing, but not to challenges to a defendant’s sentence, as would be the case in a § 3582(c)(2) motion.” Id. at 11 (citing Whitebird, at 1010–11).

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An article on Easter Sunday in the Atlanta Journal Constitution states what most readers will probably guess—that the gloom of the economy and financial desperation are fueling an increase in cases of fraud. The article notes that Ponzi schemes, mortgage fraud and other frauds have increased nationwide as well as in Georgia. It relates some recent noteworthy frauds in the State:

• Georgia’s “Bernie Madoff,” Wendell Ray Spell, who bilked investors out of $60 million in a Ponzi scheme involving financing of construction equipment;
• CRE Capital, an Alpharetta firm which purported to pay investors 10 percent a month from trading U.S. and Japanese currencies, but which turned out to be a Ponzi scheme which defrauded at least 120 investors of more than $28 million. CRE’s President James G. Ossie was indicted in January in the Northern District of Georgia on 10 counts of wire fraud;
• Woodstock, Georgia, real estate agent Joseph S. Jetton was sentenced last year to 14 years in prison and ordered to pay $11.2 million in restitution for mortgage fraud; and
• Georgianne Carlisle, a former insurance company executive from Taylorsville, Georgia, pled guilty last week to embezzling $1.2 million in insurance premiums.

The article references FBI statistics, which relates that pending federal prosecutions for fraud more than doubled from 279 in 2003 to 529 in 2007, and that embezzlement arrests jumped by more than a third over the same period to more than 22,000. It quotes sources claiming that Atlanta is a hot spot for mortgage fraud. Katherine Addleman, Director of the Securities and Exchange Commission’s Atlanta regional office, is quoted as stating that the worsening economy actually serves to expose frauds, since the fraudulent schemes run out of money. The FBI’s most recent Preliminary Semiannual Uniform Crime Report for January to June 2008 showed the rate of larceny-theft down 1.2 percent nationwide, but with an increase of .5 percent in the Southeast. These numbers likely have increased and will undoubtedly increase further if financial desperation from the declining state of the economy grows.

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Panamanian strongman and dictator General Manuel Noriega was trained in the 1960s at the School of the Americas, while the School was at Fort Gulick in the Panama Canal Zone, as well as at Fort Bragg, North Carolina. Noriega is believed to have worked with the CIA from the late 1950s, being paid by the agency at times, and to have entered into a contractual relationship with the agency in 1967. Noriega joined the Panamanian National Guard and supported dictator General Omar Torrijos (father of the current, democratically-elected President of Panama, Martin Torrijos), under whom Noriega was alleged to have been involved in “disappearances” of political opponents. When Colonel Florencio Flores Aguilar, who became dictator of Panama at Torrijos’ death in a plane accident (which was later alleged to have been orchestrated by Noriega), was ousted in a coup by Colonel Ruben Dario Paredes in 1982, Noriega became Commander of the National Guard, renamed the Panamanian Defense Forces.

Noriega proceeded to consolidate almost absolute power in Panama, promoting himself to general in 1983, and became involved with the Medellin Drug Cartel based in Colombia. Noriega has claimed that in 1988, U.S. State Department officials met with him and offered him $2 million to go into exile in Spain. The U.S. government has maintained that Noriega was a double-agent, giving information not only to the U.S. but also to communist Cuba, as well as selling weapons to Sandinista-controlled Nicaragua in the 1970s, thus leading to his State Department nickname of “the Rent-a-Colonel.” Noriega permitted U.S. aid to Contra rebels in Nicaragua to pass through Panama. However, he refused demands by U.S. Marine Corps Lieutenant Colonel Oliver North for Noriega to provide military assistance to the Contras.

In 1989, Noriega was indicted on drug charges in the Southern District of Florida, and Panamanian President Arturo Delvalle issued a decree relieving Noriega of his duties. Noriega ignored the decree, and instead forced Delvalle to flee the country. The National Assembly declared Noriega “Chief Executive Officer” of Panama, although he had been de facto leader of the country for several years. Noriega is suspected to have been complicit in the murder of political opponent Hugo Spadfora by death squads. Noriega brutally suppressed protests against his rule through the use of army and paramilitary forces called “Dignity Battalions,” and rounded up, imprisoned and killed political opponents.

Noriega attempted to rig the May 1989 election for president in favor of his candidate Carlos Duque of the Partido Revolucionario Democrático by having fake tally sheets distributed to election precincts, however his opponents managed to release results showing Guillermo Endara of the Authentic Panameñista Party beating Duque by 3 to 1. Noriega proceeded to void the election claiming “foreign interference,” and was denounced by former U.S. President Jimmy Carter, who monitored the election as an observer. Noriega’s Dignity Battalions stopped Endara the day following the election and severely beat him.

The U.S. recognized Endara as President and imposed economic sanctions on Panama, while U.S. armed forces had freedom of movement throughout the country under the Panama Canal Treaty of 1980. On December 15, 1989, the National Assembly stated that a “state of war” existed between the U.S. and Panama, and on December 20, 1989, the U.S. military at the direction of President George H.W. Bush invaded Panama in Operation Just Cause. Navy SEALs destroyed Noriega’s plane in Operation Nifty Package, and Noriega hid himself in the Vatican’s embassy in Panama where, after being bombarded by hard rock music by U.S. forces for several days, Noriega surrendered on January 3, 1990.

Noriega was convicted on RICO, drug trafficking, racketeering and money laundering counts in the Southern District of Florida in April of 1992, and was sentenced to 40 years imprisonment. Commentators criticized the prosecution’s frequent reworking of its case, and its use of deals and payments to drug dealers in order to testify against Noriega. Noriega has been an inmate at in the Federal Correctional Institute in Miami, Florida. His sentence was reduced to 30 years in 1999, and was further reduced to 17 years for good behavior. Noriega’s sentence technically ended on September 9, 2007, although he remains incarcerate. Noriega has reportedly become a born-again Christian.

Yesterday, the Eleventh Circuit handed down the latest, and perhaps final, chapter in the Noriega saga, Noriega v. Pastrana, NO.08-11021 D.C. DOC, 2009 WL 929960, (11th Cir., Apr. 08, 2009). After his capture, Noriega had been designated as a prisoner of war under the Third Geneva Convention.  At the request of the French government, the United States filed a complaint on July 17, 2007, to extradite Noriega to France, and Noriega filed a petition for a writ of habeas corpus under 28 U.S.C. § 2255, alleging that extradition would violate his rights under the Third Geneva Convention. The district court held that Section 2255 only applied to challenges to a sentence, and also that the government had satisfied its obligations under the Third Geneva Convention, and denied the petition. Noriega filed two more habeas petitions, which were also denied by the court. An extradition hearing was held on August 28, 2007, and a Certificate of Extraditability was issued on August 29, 2007.

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