Posted on April 3, 2009 by Anthony Lake

Georgia's "Bernie Madoff"--Wendell Ray Spell--Pleads Guilty to $60 Million Fraud

While the Bernard Madoff scandal has seized national headlines, the guilty plea of Georgia’s own, homegrown Bernie Madoff, Wendell Ray Spell, of Gainesville, has passed relatively quietly. As announced by the U.S. Attorney’s Office for the Northern District of Georgia, Spell pled guilty last week in the Northern District of Georgia to a criminal information containing one count of mail fraud. Spell bought and sold construction equipment, doing business under the names of North Georgia Equipment Sales, LLC and Cornerstone International Investments, LLC. Spell’s business faltered, and in order to keep it afloat, Spell obtained funds from investors to allegedly purchase additional equipment by falsely informing investors that he could re-sell the equipment for a substantial profit. Spell would promise investors that he would split the profits from the re-sale of the equipment with them 50/50, or that he would pay them 36% interest annually. Spell deceived investors into believing that he had purchased equipment by preparing counterfeit bills of sale and other documents, in an extensive Ponzi-style fraud.

In this manner, Spell obtained more than $60 million from more than 50 investors in Gainesville and elsewhere. Spell used the investment proceeds to pay “phantom” profits to investors, to pay his personal expenses and to purchase real and personal property for himself and his family.

Spell’s sentencing date has not yet been set, but he faces as much as 20 years incarceration and a fine of up to $250,000.

As reported by the Gainesville Times, Spell was released on a $25,000 unsecured bond pending sentencing. The government has filed forfeiture claims on 10 pieces of heavy equipment owned by Spell. At least 18 “investors” in the Gainesville area have filed suit against Spell.

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Posted on March 31, 2009 by Anthony Lake

Summary of Eleventh Circuit Criminal Opinions, Week of March 17, 2009

Our apologies for playing catch-up, but our summary of the primary, meaningful criminal opinions by the Eleventh Circuit will continue this week. Following is a summary of the decisions for the week of March 17, 2009.

In Salazar v. U.S., No. 07-13715, 2009 WL 684772 (11th Cir., Mar. 17, 2009), the Eleventh Circuit reversed the district court’s denial of the defendant’s motion pursuant to 28 U.S.C. § 2255 to vacate his sentence for possessing with the intent to distribute crack cocaine based upon ineffective assistance of counsel, where defendant’s counsel failed to call as witnesses at trial two persons who could have corroborated that the defendant denied possessing any cocaine at the time of his arrest, id. at *2.

The Court affirmed the district court’s denial of a reduction under the safety-valve provision pursuant to U.S.S.G. § 5C1.2 for a defendant convicted of conspiracy to manufacture and possess with intent to distribute marijuana plants in U.S. v. Cruz, No. 08-11625, 2009 WL 684789 (11th Cir., Mar. 17, 2009), observing that the defendant’s refusal to testify at sentencing left the district court with little ability to access his credibility and the defendant had failed to carry his burden, id. at *2.

In U.S. v. Valdex, No. 07-14721, 2009 WL 684751 (11th Cir., Mar. 17, 2009), the Court held that the defendant in a prosecution for health care fraud “invited” any error in calculating the amount of loss under U.S.S.G. § 2B1.1 by urging the trial court to adopt the amount of loss contained in the presentence report, id. at 1. It also held that the trial court did not clearly err in applying a sophisticated means enhancement under U.S.S.G. § 2B1.1(b)(9)(C) where the defendant “recruited beneficiaries and sought out doctors so as to aid in hiding the illegality of his Medicare claims, and converted [a corporation] into a pharmacy through which he continued to defraud Medicare…” Id. The Court also held that the defendant’s sentence was within the Sentencing Guidelines range and therefore substantively reasonable, pursuant to U.S. v. Talley, 431 F.3d 784, 788 (11th Cir. 2005), and that “relevant uncharged or acquitted conduct may be taken into account in sentencing, as long as such conduct is proven by a preponderance of the evidence and the court clearly applied the Guidelines as advisory.” Id. (citing U.S. v. Faust, 456 F.3d 1342, 1347-48 (11th Cir. 2006)).

The Court affirmed the defendant’s above-Guidelines sentence for travel with intent to engage in a sexual act with a juvenile in U.S. v. Smith, No. 08-11665, 2009 WL 693342 (11th Cir., March 18, 2009), noting that the district court could upwardly depart in sentencing the defendant based upon violations of the defendant’s supervised release, pursuant to U.S.S.G. § 7B1.4, comment. (n.3), id. at *2.

            In U.S. v. Whitehead, No. 08-13201, 2009 WL 691184 (11th Cir., Mar. 18, 2009), the Court affirmed the denial of the motion for a sentencing reduction, brought pursuant to 18 U.S.C. § 3582(c)(2) of the defendant, who was convicted of various drug and crack cocaine offenses, holding that the Sentencing Commission’s Amendment 706 to U.S.S.G. § 2D1.1(c) in November 2007, which provided a two-level reduction in base offense levels for certain crack-cocaine offenses, did not affect the guideline ranges of defendants who were sentenced as career offenders under U.S.S.G. § 4B1.1, id. at *3 (citing U.S. v. Moore, 541 F.3d 1323, 1330 (11th Cir. 2008)). The Court also held that the defendant was ineligible for the reduction despite the fact that he had been granted a downward departure pursuant to U.S.S.G. § 4A1.3, observing that “[t]he critical fact… is that the district court used the offense level from the career offender guideline to calculate [the defendant’s] applicable guideline range,” rather than § 2D1.1. Id. at *4.

The Court affirmed the district court’s denial of a motion for reduction pursuant to § 3582(c)(2) by a defendant convicted of  conspiracy to possess with the intent to distribute cocaine and cocaine base in U.S. v. Val Saint, No. 08-12726, 2009 WL 693341 (11th Cir., Mar. 18, 2009), noting that Amendment 711 reversed Amendment 706 on the issue of converting base offense level into a base offense level for marijuana, holding that the defendant’s base offense level would have remained the same, id. at *2.

In U.S. v. Traywick, NO. 08-14092, 2009 WL 693339 (11th Cir. Mar. 18, 2009), the Court affirmed the defendant’s sentence for crack cocaine offenses pursuant to its holding in U.S. v. Melvin, No. 08-13497, 2009 WL 236053 (11th Cir. Feb. 3, 2009) that, regardless of U.S. v. Booker, 543 U.S. 220 (2005), U.S.S.G. § 1B1.10(b)(2)(A) and policy statements prevent a court from reducing a defendant’s term of imprisonment under § 3582(c)(2) to a term that is less than the minimum of the amended guidelines range determined under U.S.S.G. § 1B1.10(b)(1), id. at *2 (citing Melvin, at *5, *7, *9-*10). The Court also held that § 3582 does not include a notice or hearing provision. Id. The Court further held that the Supreme Court’s holding in Kimbrough v. U.S., 128 S.Ct. 558 (2007) that courts can deviate from the 100-to-1 equivalency ratio of cocaine base to powder cocaine in U.S.S.G. § 1B1.13 and Amendment 503 did not amount to an amendment of the Guidelines and was therefore inapplicable to a § 3582(c)(2) motion. Id.

The Court also followed its holding in Melvin in U.S. v. St. George, No. 08-12226, 2009 WL 707858 (11th Cir., Mar. 19, 2009), and further reemphasized that, in re-sentencing a defendant under § 3582(c)(2), a district court must leave intact all guideline application decisions made during the initial sentencing, does not have authority to revisit factual matters such as drug quantity, and cannot apply Booker, id. at *2 (citing U.S. v. Bravo, 203 F.3d 778, 780 (11th Cir. 2000); U.S. v. Cothran, 106 F.3d 1560, 1562 (11th Cir. 1997)). And in U.S. v. Roberts,
NO. 08-13753, 2009 WL 714329 (11th Cir., Mar. 19, 2009) it again affirmed that Booker does not apply to resentencings under § 3582(c)(2) pursuant to § 1B1.10(b)(1), id. at *1.

The denial of the defendant’s proposed minor role reduction under U.S.S.G. § 3B1.2 was affirmed in U.S. v. Bataz Martinez, No. 04-15405, 2009 WL 707772 (11th Cir., Mar. 19, 2009), a drug prosecution, “because [the defendant] failed to demonstrate that he was less culpable than most of the other participants in the offense,” id. at *2. The defendant’s sentence was also affirmed under Booker based upon the defendant’s failure to point to any evidence of a reasonable probability that he would have received a lesser sentence had he been sentenced under advisory guidelines. Id. at *3.

In U.S. v. Massengill, No. 08-15207, 2009 WL 714259 (11th Cir., March 19, 2009), the Court denied the defendant’s attorney’s motion to withdraw pursuant to Anders v. California, 386 U.S. 738 (1967) and remanded to the district court to amend its written judgment were the judgment failed to include any reasons for the court’s upward departure from the guidelines range, agreeing with the Second Circuit in U.S. v. Hall, 499 F.3d 152 (2d Cir. 2007) that the “better course” where a court omits the reasons for a departure in a written order is to affirm the substance of the judgment and remand to the district court for the sole purpose of amending the written judgment to comply with 18 U.S.C. § 3553(c)(2), which requires a written statement of reasons for the sentence in the written order of judgment, id. at *4 (citing Hall, at 153).

 In U.S. v. Villegas-Tello, No. 08-13325, 2009 WL 714214 (11th Cir., Mar. 19, 2009), the Court held that Immigration and Customs Enforcement agents possessed probable cause to arrest the defendant for marijuana offenses based upon the totality of the circumstances, and that follow-up questions by arresting officials for the sake of clarification do not violate Miranda v. Arizona, 384 U.S. 436 (1966), id. at *4 (citing U.S. v. Rhodes, 779 F.2d 1019, 1032 (4th Cir. 1985); U.S. v. Gonzales, 121 F.3d 928, 939 (5th Cir. 1997); Andersen v. Thieret, 903 F.2d 526, 532 (7th Cir.1990); Butzin v. Wood, 886 F.2d 1016, 1017-18 (8th Cir. 1989)). The Court also affirmed the denial of one of the defendants’ motion in limine pursuant to Bruton v. United States, 391 U.S. 123 (1968), holding that an alleged statement by a co-defendant was not incriminating on its face to the defendant; that sufficient evidence supported the defendants’ convictions; and that because one of the defendants performed the same or similar role within the conspiracy as his codefendants, he was not less culpable than most other participants in his relative conduct, he was not entitled to a minor role reduction under § 3B1.2. Id. at *5, *6, *7 (citing U.S. v. DeVaron, 175 F.3d 930, 937 (11th Cir. 1999)).

The Court affirmed the denial of the defendant’s motion to vacate his convictions for conspiracy to commit bank fraud and money laundering pursuant to 28 U.S.C. § 2255 in Baughman v. U.S., No. 08-14279, 2009 WL 714212 (11th Cir., Mar. 19, 2009), concluding that record supported the finding of the district court that the defendant never instructed his attorney to file a notice of appeal, and consulted with him on his right to appeal, id. at *3, *4.

In U.S. v. Bohning, NO. 07-15549, 2009 WL 724036, (11th Cir., Mar. 20, 2009), a prosecution of the defendant for various sex offenses involving minors, the Court held that the defendant’s Sixth Amendment right to counsel and Fifth Amendment due process rights were not violated by the government placing a lis pendens on his home, which the defendant would have sold to pay legal fees, discussing its prior decision in United States v. Register, 182 F.3d 820 (11th Cir. 1999), id. at *1, *2 (citing Register, at 834). The Court also held that the district court’s denial of the defendant’s motion to withdraw his guilty plea was not unreasonable. Id. at *3 (citing United States v. Brehm, 442 F.3d 1291, 1298 (11th Cir. 2006))

 
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Posted on March 26, 2009 by Anthony Lake

Courts Face Growing Challenges Over Jurors' Increasing Use of Internet, Computers, Cellphones, Etc.

 

            In this age of universal access to information through computers, cellphones and other devices, there is one group the courts are increasingly opposed to having access—the jury. A March 18 article in the New York Times relates how jurors in a large criminal case in South Florida were discovered to have done research on the case on the internet, in violation of the court’s instructions. The court ordered a mistrial. The article also mentions an Arkansas civil case in which a juror was found to have sent updates regarding the case using the internet social networking service Twitter, and the trial of former Pennsylvania state senator Vincent J. Fumo, in which the defense demanded a mistrial based on a juror’s posting updates on the trial on Facebook, another social networking site.

            As Justice Oliver Wendell Holmes observed over a century ago, “[t]he theory of our [legal] system is that the conclusions to be reached in a case will be induced only by evidence and argument in open court, and not by any outside influence, whether of private talk or public print.”Patterson v. Colorado, 205 U.S. 454, 462 (1907). Accordingly, courts have held that “[w]hen jurors consider extrinsic evidence… a new trial [is required] if the evidence poses a reasonable possibility of prejudice to the defendant.” U.S. v. Rowe, 906 F.2d 654, 656 (11th Cir. 1990) (emphasis in original) (citing United States v. Perkins, 748 F.2d 1519, 1533 (11th Cir.1984); United States v. Howard, 506 F.2d 865 (5th Cir.1975)). The extraordinary technological advances of the past 30 years means that today, most jurors possess the means to access to virtually any information and any person at their fingertips, which creates an exceedingly difficult challenge for courts in screening jurors from outside information and improper communication during trial or deliberations.

The problem posed by jurors’ use of new computer and internet technology to gather information or communicate during trial has been on the horizon for some time. In People v. Wadle, 77 P.3d 764 (Colo.App. 2003), a prosecution for child abuse resulting in death, the defendant testified that she was taking the anti-depressant drug Paxil at the time of the child’s death, id. at 769. During the jury’s deliberations, one of the jurors downloaded a description of Paxil from the internet and shared it with the other members of the jury, in direct violation of the trial court’s earlier denial of the jury’s request for such information, and the jury subsequently convicted the defendant. Id. at 770. The defendant moved for a mistrial, which was denied by the court. Id. The Colorado Court of Appeals reversed and remanded, holding “we discern a reasonable possibility that the introduction of extraneous information about Paxil… may well have influenced the verdict.” Id. at 771 (citing Wiser v. People, 732 P.2d 1139, 1143 (Colo.1987)). The Court of Appeals foresaw the problem posed by juror access to the internet, stating:

We… recognize the problems created by the widespread use and availability of the Internet. Although the Internet has made information more accessible for the average person, the information obtained thereby may be misleading, taken out of context, outdated, or simply inaccurate. Nor is this the first time a juror has looked to the Internet for information during deliberations. [Cit.] In view of the problems and dangers associated with the unsupervised use of the Internet, trial courts should emphasize that jurors should not consult the Internet, or any other extraneous materials, at any time during the trial, including during deliberations.

Id. (internal citation omitted) (citing People v. Kriho, 996 P.2d 158 (Colo.App.1999)).

During the jury deliberations in the defendant’s trial for possession with intent to distribute cocaine in U.S. v. Wheaton, 426 F.Supp.2d 666 (N.D.Ohio 2006), one of the jurors disclosed that he had used his personal computer to play audio of an exhibit admitted in the case and to research locations and distances between cities relevant to the case, id. at 668. The defendant filed a motion for new trial based upon juror misconduct, however, the district court denied the motion, holding that “Defendant failed to show bias or prejudice resulted from the extraneous information; thus, the interest of justice does not warrant a new trial.” Id. at 672.

In Commonwealth v. Guisti, 449 Mass. 1018, 867 N.E.2d 740 (2007), a trial of the defendant for aggravated rape and other crimes, it was discovered that a juror posted two messages regarding the case on an Internet mail service and received two responses from attorneys in other states, and the defendant moved for new trial, which was denied by the trial court, id. at 1018, 19. The Massachusetts Supreme Court affirmed, concluding that “the trial judge's conclusion that the jury were not exposed to extraneous influences was amply supported by the evidence and her findings.” Id. at 1019-1020.

The Court of Appeals and other courts in this Circuit have also had to deal with the growing problem of juror use of technology. In U.S. v. Siegelman, 467 F.Supp.2d 1253 (M.D.Ala. 2006), the prosecution of former Alabama Governor Don Siegelman and former HealthSouth CEO Richard Scrushy, the district court denied the defendants’ motion for new trial based upon, inter alia, emails sent by jurors to one another, holding that the e-mails were wholly unrelated to any evidence of jury exposure to extraneous information or outside influence, id. at 1279. The Eleventh Circuit affirmed the trial court’s findings on appeal. See U.S. v. Siegelman, No. 07-13163, 2009 WL 564659, *25 (11th Cir. Mar. 6, 2009).

It will be interesting to see how various courts deal with the problem of limiting juror access to information or communication available through technology in the future, and perhaps even more interesting to see how they deal with instances of the intrusion of technology into the jury’s function at trial. The only certain thing is that these problems will only continue to grow—and must be faced.

 

Gillen Withers & Lake LLC is a law firm with extensive experience in federal corporate and white collar criminal defense and appellate work, as well as complex civil and class action litigation, headed by eminent former federal prosecutors, with an outstanding track record and reputation throughout Georgia and nationwide. The attorneys of Gillen Withers & Lake LLC go to battle for their clients and vigorously represent them at all stages of proceeding. Contact Thomas Withers in Savannah at (912) 447-8400 or twithers@gwllawfirm.com or Craig Gillen in Atlanta at (404) 842-9700 or cgillen@gwllawfirm.com.

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Posted on March 24, 2009 by Anthony Lake

Prosecutor Gets "Dressing Down" from Judge Posner and Seventh Circuit

The defendant in U.S. v. Farinella, NO. 08-1839, 08-1860, 2009 WL 615408 (7th Cir., Mar. 12, 2009) purchased 1.6 million bottles of “Henri’s Salad Dressing” in 2003, id. at *1. The label on each bottle of dressing stated that the dressing was “best when purchased by” and then gave a date from January to June 2003. Id. With enough dressing to flavor a salad the size of Rhode Island, the defendant proceeded to change the dates on the bottles to May to July of 2004, and then resold the bottles to dollar stores, where they were sold to the public. Id.

The Department of Justice viewed the defendant’s change as fraudulent and misleading, and charged the defendant with wire fraud and introducing a misbranded food into interstate commerce with intent to defraud or mislead, and the defendant was convicted and sentenced to five year’s probation. Id. However, eminent Seventh Circuit Judge and legal commentator Richard Posner disagreed.

Judge Posner stated that the government’s characterization of the “best when purchased by” date as an “expiration date” was itself false and misleading, observing that “[s]alad dressing, however, or at least the type of salad dressing represented by Henri’s, is what is called ‘shelf stable’; it has no expiration date.” Id. The Court observed that neither the FDA nor the Federal Trade Commission had published any regulations defining or prohibiting the change of a “best when purchased by” date. Id. at *2. Judge Posner noted that there was no evidence that selling salad dressing after the “best when purchased by” date endangered human health, that any of the 1.6 million bottles had deteriorated, or that any purchaser of the dressing had ever complained about the taste—indeed the Henri’s evidenced no deterioration in flavor by the time of the defendant’s trial, some 4 years after the last “best when purchased by” date. Id. The Court also observed that the government had presented no evidence regarding either the industry’s or consumers’ understanding of the meaning of the “best when purchased by” date. Id. Judge Posner viewed the government’s persistent and self-serving equation of “best when purchased by” with “expires on” as disingenuous to say the least.

         Judge Posner next took the government to task for presenting an FDA expert at trial who testified that he had found no evidence in FDA databases that the defendant had inquired with the FDA regarding the relabeling of the salad dressing—thereby implying that changing the “best when purchased by” date on the label somehow required FDA approval or permission when there was no evidence that it did. Id. at *3. The Court cited the rule that “‘The idea of secret laws is repugnant. People cannot comply with laws the existence of which is concealed.’” Id. (quoting Torres v. INS, 144 F.3d 472, 474 (7th Cir.1998); citing George Campbell Painting Corp. v. Chao, 463 F.Supp.2d 184, 190-91 (D.Conn.2006); Oppenheimer Mendez v. Acevedo, 388 F.Supp. 326, 335 (D.Puerto Rico 1974)).

         The Court concluded that:

[T]o prove a person guilty of having made a fraudulent representation, a jury must be given evidence about the meaning (unless obvious) of the representation claimed to be fraudulent, and that was not done here. We remind that one possible meaning of “best when purchased by” is that it is a guarantee by the seller that if purchased by then (and, presumably, eaten within a reasonable time afterward) it will taste as good as when it was first sold; if this is the meaning that consumers attach to the phrase, there was no misrepresentation.

Id. at *4. It held that because the government had presented insufficient evidence that the defendant had engaged in misbranding, he was entitled to be acquitted. Id.

         Most significantly, the Court called out the prosecutor by name in its opinion, relating that the prosecutor, during rebuttal closing argument, had made statements to the jury to the effect that the defendant was “trying to buy his way out” by hiring a “high-paid lawyer” and that you “can’t buy justice.” Id. at *5. The Court also cited the prosecutor’s implying to the jury that changing the “best when purchased by” date prevented the manufacturer from tracing the product to prevent it from causing illness; her urging the jury that if the defendant’s actions were proper, that they should start “growing their own food;” her references to “truckfulls of nasty, expired salad dressing;” and numerous other references, despite the fact that there was no evidence of any health or safety issues with the dressing, or any problems with its taste or freshness. Id. The Court took a dim view of these repeated instances of misconduct and invited the district court to explore the issue of the proper sanction for such misconduct, concluding:

We are not permitted to reverse a judgment on the basis of a lawyer's misconduct that would not have caused a reasonable jury to acquit, United States v. Hasting, 461 U.S. 499, 505-06, 103 S.Ct. 1974, 76 L.Ed.2d 96 (1983); United States. v. Boyd, 55 F.3d 239, 241-42 (7th Cir. 1995), but in this case, had the government presented enough evidence to sustain a conviction, we would have reversed the judgment and ordered a new trial on the basis of the prosecutor's misconduct. That sanction is not available only because the government presented so little evidence that the defendant is entitled to an acquittal. That does not detract from the gravity of the prosecutor's misconduct and the need for an appropriate sanction. The government's appellate lawyer told us that the prosecutor's superior would give her a talking-to. We are not impressed by the suggestion.

Id. at *6.

Gillen Withers & Lake LLC is a law firm with extensive experience in federal corporate and white collar criminal defense and appellate work, as well as complex civil and class action litigation, headed by eminent former federal prosecutors, with an outstanding track record and reputation throughout Georgia and nationwide. The attorneys of Gillen Withers & Lake LLC go to battle for their clients and vigorously represent them at all stages of proceeding. Contact Thomas Withers in Savannah at (912) 447-8400 or twithers@gwllawfirm.com or Craig Gillen in Atlanta at (404) 842-9700 or cgillen@gwllawfirm.com.

 

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Posted on March 23, 2009 by Thomas Withers

Caught on Tape: Prosecution Secretly Records Defense Counsel, Raising Questions About Prevalence of Governmental Misconduct and Remedies

A highly disturbing instance of governmental misconduct has come to light in the Southern District of Florida in the form of a gross and unwarranted invasion of the defense camp and the attorney-client relationship by the government. The case of United States v. Shaygan, Case No. 08-20112-CR, was a prosecution of a physician on 141 counts of allegedly unlawful dispensing of controlled substances in violation of 21 U.S.C. § 841(b)(1)(C). Dr. Shaygan received excellent representation by the law firms of David Oscar Markus and Mark David Seitles, P.A., and on March 12, 2009, the jury acquitted Dr. Shaygan on all counts at the conclusion of trial.

            However, as revealed by a motion to dismiss the indictment for governmental misconduct or for evidentiary hearing filed by the defense on March 1, relations between the prosecution and the defense became strained when counsel for Dr. Shaygan stated that the defense intended to file a motion to suppress a post-arrest interview of Dr. Shaygan by a DEA agent based upon Dr. Shaygan’s statement that he had invoked his Sixth Amendment right to counsel during the interview. The Assistant United States Attorney informed defense counsel before several witnesses that filing such a motion to suppress would result in a “seismic shift in the prosecution.”

            Irrespective of these rumblings by the prosecution, the defense filed a motion to suppress. Overtly, the government retaliated by obtaining a superseding indictment adding more than 100 additional counts. In addition, without informing the Department of Justice, the court or the defense, the prosecution also approached two fact witnesses and directed them to tape record their communications with defense counsel. The witnesses’ recordings of defense counsel without counsel’s knowledge were revealed to the defense only when one of the witnesses testified that he possessed a recording of a conversation with counsel during trial. Despite this disclosure, the defense’s motion alleges that it was not until one week later when a member of the prosecution team told a member of the defense team that he had been recorded by the witness without his knowledge.

After being informed of this fact, the district court ordered the government to prepare sworn affidavits regarding what had occurred. The prosecution submitted affidavits admitting that the U.S. Attorney’s Office had authorized the DEA to tape record communications between witnesses and the “defense team” without court authorization. A DEA agent subsequently instructed two government witnesses “to record any future conversations with members of the defense team,” and at least three records were made of conversations with defense attorneys or investigators.

The defense filed a motion to dismiss the indictment, asserting the government’s failure to disclose evidence that the witnesses were cooperating government informants or to produce the recordings pursuant to Brady and Giglio, and that the government’s surreptitious recording of defense counsel constituted “egregious and serious” government misconduct, noting that “[s]ince privacy is vital to effective representation and to the development of the attorney-client relationship itself, the government is forbidden from eavesdropping or planting agents to hear or disrupt counsels of the defense.” (Citing U.S. v. Henry, 447 U.S. 264 (1980)). The defense has also moved for sanctions against the government. The motion cites the Eleventh Circuit’s decision in U.S. v. Terzado-Madruga, 879 F.2d 1099, 1110 (11th Cir. 1990), in which the Court found a Sixth Amendment violation when the government sent an undercover informant to tape record conversations with the defendant.

In U.S. v. Russell, the United States Supreme Court acknowledged that conduct by law enforcement may be “so outrageous that due process principles would absolutely bar the government  from invoking the judicial processes to obtain a conviction.” U.S. v. Russell, 411 U.S. 423, 431-32 (1973). U.S. v. Lard, 734 F.2d 1290, 1297 (8th Cir. 1984) (reversing the defendant's conviction for transferring an unregistered firearm where uncover Bureau of Alcohol Tobacco and Firearms agents went to the defendant’s home and asked him if he had any firearms to sell, and then requested that the defendant manufacture a pipe bomb); U.S. v. Gardner, 658 F.Supp. 1573, 1580 (W.D.Pa. 1987) (granting the defendant's motion to dismiss indictment for unlawful distribution of a controlled substance for alleged violation of his due process rights based on outrageous government conduct where an informant for the United States Postal Inspectors kept badgering the defendant to provide him with cocaine, and the defendant finally obtained some cocaine for the informant as a go-between).

The deceptive actions admitted by the government in the Shaygan matter certainly appear to satisfy the definition of outrageous governmental misconduct if anything may be held to do so, and the commentators herein sincerely hope the defense is successful in its motion. Such deceptive, unethical and illegal conduct, and the fact that the prosecution concealed the conduct from Dr. Shaygan’s counsel, raise grave questions regarding how many criminal proceedings the government uses such improper tactics in without ever being discovered and forced to reveal them. The conduct also illustrates a need for courts to reconsider the standard for and frequency of dismissal of the indictment as a sanction for particulary egregious governmental misconduct pursuant to Russell.
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Posted on March 19, 2009 by Anthony Lake

Potential Large Rewards for Tax Whistleblowers

False claims actions, or “qui tam” actions, are well known actions by a “whistleblower,” or relator, who has discovered fraud against the Government, pursuant to the False Claims Act (FCA), 31 U.S.C. § 3729. If the Government decides to intervene in their case, the whistleblower can share in any recovery by the Government.

In addition to the FCA, other government agencies have their own incentives for whistleblowers. The most notable example is the Department of Treasury and Internal Revenue Service, which have long had a whistleblower program in place. However, on December 20, 2006, President George W. Bush signed the Tax Relief and Health Care Act of 2006 into law, which dramatically increased incentives under the IRS’s whistleblower program. Section 406 of the Act, codified at Section 7623 of Title 26 of the United States Code/ Section 7623 of the Internal Revenue Code, entitled “Expenses of detection of underpayments and fraud, etc.” provides in part that:

1.  The Secretary of Treasury is authorized, in cases where such expenses are not otherwise provided for by law, to make awards for (1) the detection of underpayments of taxes, or (2) the detection and bringing to trial and punishment persons guilty of violating, or conspiring to violate, the internal revenue laws. 26 U.S.C. § 7623(a).

2.  If the Secretary proceeds with any administrative or judicial action based upon information brought to the Secretary’s attention by an individual, the individual shall receive as an award at least 15 percent but not more than 30 percent of the collected proceeds (including penalties, interest, additions to tax, and additional amounts resulting from the action), or from any settlement in response to such action, subject to the exception in 26 U.S.C. § 7623(b)(2)(A), discussed below. The amount of the award shall be determined by the Whistleblower Office and shall depend on “upon the extent to which the individual substantially contributed to such action.” 26 U.S.C. § 7623(b). NOTE: All of Section 7623’s award provisions apply only if there is an action against a taxpayer (1) whose gross income exceeds $200,000 for any taxable year subject to the action, and (2) the tax, penalties, interest, additions to tax, and additional amounts in dispute exceed $2,000,000. 26 U.S.C. § 7623(b)(5). NOTE: No awards can be made under Section 7623 unless the information submitted to the Secretary is submitted under penalty of perjury. 26 U.S.C. § 7623(c).

Gillen Withers & Lake LLC, is headed by civil and criminal defense attorneys who are among the most distinguished in the Southeast, with a national reputation and excellent track record, who vigorously represent and make every effort on behalf of their clients. Contact us today by calling or e-mailing Craig Gillen in Atlanta at (404) 842-9700 or cgillen@gwllawfirm.com or Thomas Withers in Savannah at (912) 447-8400 or twithers@gwllawfirm.com.

3.  If the Whistleblower Office determines that the administrative or judicial action was “principally” based on disclosures other than those provided by the individual, including from a judicial or administrative hearing, from a governmental report, hearing, audit, or investigation or from the news media, the Whistleblower Office may still award the informant an award of not more than 10 percent of the collected proceeds from such action or any settlement resulting from such action, “taking into account the significance of the informant's information and the role of such individual and any legal representative of such individual in contributing to such action.” 26 U.S.C. § 7623(b)(2)(A). However, this provision does not apply where the information resulting in the initiation of the action was originally provided by the informant. 26 U.S.C. § 7623(b)(2)(B).

4. Naturally, if the Whistleblower Office determines that the informant was responsible for actions which led to the underpayment of tax, or if the informant is convicted for crimes relating to the underpayment of tax, the Whistleblower Office may reduce or deny any award. 26 U.S.C. § 7623(b)(3).

5.  An informant may appeal any determination relating to an award to the U.S. Tax Court within 30 days of the determination. 26 U.S.C. § 7623(b)(4).

 

The IRS has also issued Section 301.7623-1 of Title 26 of the Code of Federal Regulations, entitled “Rewards for information relating to violations of internal revenue laws,” expands upon Section 7623 and provides that an award includes amounts collected prior to the time that the informant provided the information if the information leads to the denial of a claim for refund that otherwise would have been paid. 26 C.F.R. § 301.7623-1(a). Individuals who are federal employees at the time they provide information are not eligible to file a claim for a reward. 26 C.F.R. § 301.7623-1(b). However, claims for reward may be filed on behalf of deceased persons by an executor, administrator, or other legal representative, along with certified copies of documents showing authority of the representative to file the claim. 26 C.F.R. § 301.7623-1(b)(3). Payment of a reward will only be made after all taxes, penalties or fines have been collected, unless the informant waives any claim for reward with respect to an uncollected portion of the taxes, penalties, or fines involved. 26 C.F.R. § 301.7623-1(c).

 

      Most importantly, Section 301.7623-1 provides additional restrictions for making an award and the amount of the award:

 

All relevant factors, including the value of the information furnished in relation to the facts developed by the investigation of the violation, will be taken into account by a district or service center director in determining whether a reward will be paid, and, if so, the amount of the reward. The amount of a reward will represent what the district or service center director deems to be adequate compensation in the particular case, generally not to exceed fifteen percent of the amounts (other than interest) collected by reason of the information.

26 C.F.R. § 301.7623-1(c). Information under Section 7623 may be submitted in person to the office of a district director, preferably to a representative of the Criminal Investigation Division, or may be submitted in writing to the Commissioner of Internal Revenue, Attention: Assistant Commissioner (Criminal Investigation), 1111 Constitution Avenue, NW., Washington, DC 20224, to any district director, Attention: Chief, Criminal Investigation Division, or to any service center director. 26 C.F.R. § 301.7623-1(d). An informant intending to file a claim for reward under Section 7623, as soon as practicable after the submission of the information, should notify the individual to whom he or she submitted his or her information, and the informant must file a formal claim on Form 211, Application for Reward for Original Information, signed by the informant in the informant's true name.

            Persons who are not current federal employees and who possess information concerning nonpayment or underpayment of large amounts of taxes or violations of internal revenue laws by other taxpayers should submit this information to the Department of Treasury and IRS according to the procedure set out in Section 301.7623-1 and should consider submitting a claim under these procedures. The submission of information and filing and enforcement of a claim under Section 7623 may be a detailed and complex process, and persons are advised to consult with an attorney.

Gillen Withers & Lake LLC, is headed by civil and criminal defense attorneys who are among the most distinguished in the Southeast, with a national reputation and excellent track record, who vigorously represent and make every effort on behalf of their clients. Contact us today by calling or e-mailing Craig Gillen in Atlanta at (404) 842-9700 or cgillen@gwllawfirm.com or Thomas Withers in Savannah at (912) 447-8400 or twithers@gwllawfirm.com.

 
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Posted on March 18, 2009 by Anthony Lake

Eleventh Circuit Reverses Former Alabama Gov. Seigelman's Convictions for Honest Services Fraud, Otherwise Affirms Siegelman's/Scrushy's Convictions in Bribery/HealthSouth Case

Former Alabama Governor Don Siegelman and former HealthSouth CEO Richard Scrushy were convicted of federal funds bribery, honest services conspiracy, honest services mail fraud, racketeering conspiracy, racketeering, honest services wire fraud, obstruction of justice and extortion in the U.S. District Court for the Middle District of Alabama back in 2006. Siegelman has alleged that his prosecution was spurred by the Republican party, especially former White House advisor Karl Rove. Siegelman and Scrushy appealed their convictions.

On March 6, a three judge panel of the Eleventh Circuit issued a per curiamopinion, U.S. v. Siegelman, NO. 07-13163, 2009 WL 564659 (11th Cir., Mar. 06, 2009) (per curiam). The Court began its opinion by acknowledging that the case was an “extraordinary” one, involving corruption at the highest levels of theAlabama government, and straining the resources of both the Alabama and federal governments. Id. at *1. It recited the facts as follows: Siegelman was elected Governor in 1998 and, after his election, established the Alabama Education Lottery Foundation (“Foudation”) to raise money for a ballot initiative to establish a state lottery. Id. at *2. Scrushy had served on the Alabama Certificate of Need (CON) Board, a healthcare regulatory body, by appointment under three previous Governors, but had supported Siegelman’s opponent in the 1998 election. Id. After the election, Nick Bailey, one of Siegelman’s associates, met with Eric Hanson, a lobbyist for HealthSouth, and told Hanson that Scrushy needed to contribute at least $500,000 to the Foundation to “make it right.” Id. Bailey and Mike Martin, former Chief Financial Officer of HealthSouth, testified at trial that Scrushy communicated that he was interested in making the contribution in exchange for the position on the CON Board. Id. at *2, *3. Martin testified that Scrushy instructed him to have HealthSouth’s investment banker, Bill McGahan of UBS, make the contribution, but McGahan balked at doing so, and instead had Integrated Health Services (“IHS”) of Maryland write a $250,000 donation to the Foundation in July of 1999, which Scrushy personally delivered to Siegelman. Id. at *3, *4. Siegelman subsequently contacted the designee Chariman of the CON Board and informed her that Siegelman wanted Scrushy to be Vice-Chair of the CON Board, and the CON Board selected Scrushy for the position. Id. at *4. In March of 2000, Scrushy gave Siegelman another check from HealthSouth for $250,000. Id.

The Court first considered Siegelman’s and Scrushy’s argument that the trial court’s instructions to the jury on bribery, pursuant to 18 U.S.C. § 666, erroneously failed to require the jury to find a quid pro quo, and that the defendants “expressly” agreed to a quid pro quo, in order to convict them.Id. at *6, *7. The Court recognized that the Supreme Court’s decision in McCormick v. United States, 500 U.S. 257 (1991) required more to convict a defendant of bribery than mere proof of a campaign donation followed by an act favorable for the donor. Id. at *7. It noted the Supreme Court’s holding that payments are only criminal if they “‘are made in return for an explicit promise or undertaking by the official to perform or not to perform an official act…’” Id. (emphasis in original) (quoting McCormick, at 273). However, the Court held that an “explicit” promise does not mean an “express” promise, and cited the Supreme Court’s subsequent decision in Evans v. United States, 504 U.S. 255 (1992), which held that the “‘Government need only show that a public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts.’”Id. at *8 (quoting Evans, at 258). “[T]here is no requirement that this agreement be memorialized in a writing, or even, as defendants suggest, be overheard by a third party. Since the agreement is for some specific action or inaction, the agreement must be explicit, but there is no requirement that it be express.” Id. (emphasis in original). On the contrary, an “explicit” agreement may be implied from words and actions. Id. (citing Evans, at 274). The Court also rejected Siegelman’s and Scrushy’s arguments that the evidence was insufficient to support their bribery, conspiracy and honest services mail fraud convictions, noting that Bailey had testified at trial that Siegelman had told him that Scrushy wanted “the CON Board” in exchange for the donation, and that Bailey and Martin had given other testimony which indicated that Scrushy bribed Siegelman, holding that the jury could have inferred that Scrushy and Siegelman agreed to a corrupt quid pro quo from the surrounding circumstances. Id. at *10, *11.

 

 

However, the Court held that the Government failed to prove that Siegelman was guilty of two counts of honest services mail fraud. Id. at *13. The counts alleged that, after Scrushy’s appointment to the CON Board, Scrushy resigned and Siegelman appointed HealthSouth Vice-President Thom Carman to the Board. Id. at *11. Carman paid another Board member, Tim Adams, to prepare an application for a PET scanner, which was later approved by the Board. Id. While the Court noted the rules that if one participant of a fraudulent scheme uses the mails, then all participants are liable for that use of the mails, and that the acts of one partner in furtherance of a criminal enterprise are the acts of the other partner also, it observed that only one witness who testified regarding Scrushy’s bribery of Siegelman had any knowledge of Scrushy’s later self-dealing on the CON Board, and that there was not evidence that Siegelman and Scrushy entered into any agreement regarding self-dealing on the Board, or that Siegelman attempted to influence any decision of the Board. Id. at *12, *13 (citing United States v. Ward,486 F.3d 1212 (11th Cir. 2007); Belt v. United States, 73 F.2d 888, 889 (5th Cir. 1934)). The Court reversed Siegelman’s convictions on these counts. Id. at *29.

The Court also held that the defendants had waived their argument that their bribery convictions were barred by the statute of limitations by not raising the argument either before or during trial, stating that“[a]llowing a defendant to raise a limitations defense for the first time in a post-verdict Rule 29 motion ‘is inconsistent with the characterization of the statute of limitations as an affirmative defense and would unfairly sandbag the government.’” Id. at *15 (quoting United States v. Thurston, 358 F.3d 51, 63 (1st Cir.2004), vacated on other grounds, 543 U.S. 1097 (2005)). It found that there was sufficient evidence that Siegelman commited obstruction of justice in covering up a $9,200 “pay to play” payment to Lanny Young, a business associate of Siegelman’s, from federal investigators, by making it appear that Bailey had borrowed the money from Young to purchase a motorcycle from Siegelman. Id. at *15-*18. The Court rejected the defendant’s argument that the trial court erred in admitting an out-of-court statement by Hanson to Martin, holding that the statement furthered the conspiracy and was therefore admissible under Federal Rule of Evidence 801(d)(2)(E). Id. at *18, *19. Moreover, the Court rejected Siegelman’s and Scrushy’s numerous claims of juror misconduct, including juror exposure to extraneous information, which consisted of a copy of the Second Superseding Indictment obtained from the district court’s website and information from the court’s website concerning the foreperson's obligation to preside over the jury’s deliberations, and selected media coverage. Id. at *19-*22. It also dismissed as meritless Scrushy’s argument that he was entitled to a new trial based upon the fact that the trial judge possessed an ownership interest in two aviation companies doing business with the Government and failed to recuse himself. Id. at *26. The Court also held that the defendants’ arguments that the jury wheels from which the jury was selected violated the Juror Selection and Service Act of 1968, 28 U.S.C. §§ 1861 et seq. Id.

Furthermore, the Court rejected the defendants’ allegations of juror misconduct and improper deliberations based on purported electronic mails exchanged by the jurors during trial and deliberations, concluding that there were concerns regarding the authenticity of the purported e-mails, the strength of the government’s case against the defendants, the length of the jury’s deliberations, the trial court’s instructions to the jury, and the fact that the jury acquitted Siegelman of many of the charges against him supported  a conclusion that the jury carefully weighed the evidence and reached a reasoned verdict free of undue influence. Id.at *24-*25.

Finally, the Court held that the district court did not abuse its discretion in upwardly departing in sentencing Siegelman under Comment 5 to U.S.S.G. § 2C1.1, which permits an upward departure where the court finds that there was pervasive corruption of a governmental function resulting in a loss of public confidence in state or local government. Id. at *28. The Court cited the government’s argument that Siegelman had “for over six years abused the Executive Branch of the state of Alabama.” Id.

 

 
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