Recently in the White Collar category:
The NYSACDL has published the second edition of its excellent revitalized Atticus. It's well worth checking out - Donna Newman gives a fascinating fly-on-the-wall account of the Russian spy case, and Donald Thompson has a moving essay on a wrongful conviction. I have also contributed a piece highlighting some recent Second Circuit cases, including three cases not previously mentioned in this blog: United States v. Julius (suppression); United States v. Sabhnani (liability for omissions, and also interesting on the issue of venue transfer and psychological evaluations of government witnesses); and United States v. Oluwanisola (proffer statements).
As this blog has often pointed out (see here and here), the investigation and prosecution of lawyers for their lawyering is different. Because these cases carry the potential to chill creative and zealous advocacy, they merit special precautions and scrutiny. In fact, the ABA includes several recommendations in its "Standards on Prosecutorial Investigations" on how defense counsel should be prosecuted, including noting that "the prosecutor’s office should protect against the use of false allegations as a means of harassment or abuse that may impact the independence of the defense counsel or the Constitutionally protected right to counsel." (Click here for the complete set of standards.). That's not to say that lawyers should get a free pass with the claim that their conduct was mere advocacy (see here for Professor Gillers' tough comments on lawyers who hide behind their advocate status), but the line between ethical advocacy and criminal conduct can be a fine one and in the eye of the beholder.
This fascinating issue will be the subject of a roundtable discussion at the Association of the Bar of the City of New York tomorrow evening from 6:30 to 8:30 p.m. Conceived and organized by this blog author, on behalf of the Criminal Law and Professional Responsibility Committees, it features Gerald Shargel, Daniel Alonso, Barry Bohrer, AUSA Jon Kolodner and Professor Ellen Yaroshefsky. It will be moderated by the Hon. Carol Bagley Amon of the Eastern District of New York. For good measure, the program is free and offers two CLE credits in ethics. There is still time to register (see here), but space is filling up fast!
Update [May 12, 2010]: The New York Law Journal has this report on the debate.
This fascinating issue will be the subject of a roundtable discussion at the Association of the Bar of the City of New York tomorrow evening from 6:30 to 8:30 p.m. Conceived and organized by this blog author, on behalf of the Criminal Law and Professional Responsibility Committees, it features Gerald Shargel, Daniel Alonso, Barry Bohrer, AUSA Jon Kolodner and Professor Ellen Yaroshefsky. It will be moderated by the Hon. Carol Bagley Amon of the Eastern District of New York. For good measure, the program is free and offers two CLE credits in ethics. There is still time to register (see here), but space is filling up fast!
Update [May 12, 2010]: The New York Law Journal has this report on the debate.
Throwing out the convictions of Robert Simels’ associate for witness tampering among other charges, EDNY Judge Gleeson found in United States v. Irving, 2010 WL 430952 (E.D.N.Y. February 8, 2010), that there was insufficient evidence to support the “sizable inferential leap[s]” necessary to find the associate knew of Simels’ “hair-raisingly criminal” plans. The case, previously discussed here and here, is notable because of what it says (and doesn’t say) about “mere association” in a criminal case, and for its discussion of the standards applicable to sufficiency challenges.
Mere Association Not Enough
Irving may have been Simels’ law associate, but that fact does not dilute or alter the well-established principle that “mere association with those implicated in an unlawful undertaking is not enough to prove knowing involvement.” Notably (and rightly) absent from the decision is any suggestion that Irving, by virtue of her training, status and professional responsibilities as a lawyer, should be held to a different standard of criminal liability:
Government’s Case Less than the Sum of its Parts
In a lesson on effective summation, the decision deconstructs the government’s case against Irving in painstaking detail, showing how she was simply not present for any of the crucial meetings in which Simels was charged with plotting to intimidate witnesses, and how her various emails and memoranda did not establish, as the government claimed, that she knew of any plan to “neutralize” witnesses by illegal means. The court goes on:
Competing Inferences of Guilt and Innocence
How should a court assess a sufficiency challenge where the evidence gives equal circumstantial support to a theory of guilt and a theory of innocence? Not clear under Second Circuit law, Judge Gleeson points out, noting decisions that give opposing answers. So he applies the more stringent formulation, “which requires deference to the jury’s verdict even where a verdict of not guilty would have been equally supported by the evidence at trial.” But even under this standard, he notes that
Comment
This was a case where Judge Gleeson had a “very real concern that an innocent person may have been convicted’ – a concern, I would argue, that is heightened in cases involving prosecutions of lawyers for acts of advocacy, because jurors may not fully appreciate the dictates and ethics of zealous advocacy. Processes at the core of advocacy – withholding judgment, demanding the development of additional facts, and embracing the concept that memory and personal narratives can be fluid – are often viewed by non-lawyers as manipulative and relativistic. For example, as Judge Gleeson points out (but a non-lawyer may not immediately grasp): “There is nothing remotely criminal about a defense attorney telling a defense investigator that a particular witness could offer damaging testimony against the defendant at trial. And Irving’s act of giving [a witness’s] address to a person acting as an investigator for the defense is innocuous.” Luckily for Irving, her trial judge knows the difference between lawyering on the edge of ethics and lawyering that spills over into criminal conduct.
Lawyers: Javier Solano, Lawrence Berg, Law Offices of Javier A. Solano, PLLC (Defendant); AUSAs Daniel Brownell, Steven D'Alessandro, Morris Fodeman.
Mere Association Not Enough
Irving may have been Simels’ law associate, but that fact does not dilute or alter the well-established principle that “mere association with those implicated in an unlawful undertaking is not enough to prove knowing involvement.” Notably (and rightly) absent from the decision is any suggestion that Irving, by virtue of her training, status and professional responsibilities as a lawyer, should be held to a different standard of criminal liability:
Specifically, Irving’s association with Simels and her presence in his law offices were insufficient to establish that she aided and abetted his crimes, even if her actions assisted him and indeed even if she were aware that he was committing a crime. As I instructed the jury at trial, the government was required to prove beyond a reasonable doubt that Irving herself acted with the specific intent to influence or prevent the testimony of the witnesses through intimidation, threats or corrupt persuasion.
Government’s Case Less than the Sum of its Parts
In a lesson on effective summation, the decision deconstructs the government’s case against Irving in painstaking detail, showing how she was simply not present for any of the crucial meetings in which Simels was charged with plotting to intimidate witnesses, and how her various emails and memoranda did not establish, as the government claimed, that she knew of any plan to “neutralize” witnesses by illegal means. The court goes on:
It often happens that the whole of the government’s case is greater than the sum of its parts . . . However, that is not the case here. Indeed, when the evidence against Irving is viewed from a broader perspective, it is arguably less than the sum of its parts, for the theory that Simels implicated Irving in his crimes made no sense. Simels had been a criminal defense attorney for more than 30 years. Irving was a young, inexperienced attorney. When she began working for him in December 2006, Simels had already begun defending Khan. Simels had numerous reasons to involve Irving in his many legitimate lawyering functions but none to involve her in his illegal activity.
Competing Inferences of Guilt and Innocence
How should a court assess a sufficiency challenge where the evidence gives equal circumstantial support to a theory of guilt and a theory of innocence? Not clear under Second Circuit law, Judge Gleeson points out, noting decisions that give opposing answers. So he applies the more stringent formulation, “which requires deference to the jury’s verdict even where a verdict of not guilty would have been equally supported by the evidence at trial.” But even under this standard, he notes that
[T]he Second Circuit has emphasized that where a fact to be proved is also an element of the offense, “it is not enough that the inferences in the government’s favor are permissible.” The court “must also be satisfied that the inferences are sufficiently supported to permit a rational juror to find that the element, like all elements, is established beyond a reasonable doubt.”
Comment
This was a case where Judge Gleeson had a “very real concern that an innocent person may have been convicted’ – a concern, I would argue, that is heightened in cases involving prosecutions of lawyers for acts of advocacy, because jurors may not fully appreciate the dictates and ethics of zealous advocacy. Processes at the core of advocacy – withholding judgment, demanding the development of additional facts, and embracing the concept that memory and personal narratives can be fluid – are often viewed by non-lawyers as manipulative and relativistic. For example, as Judge Gleeson points out (but a non-lawyer may not immediately grasp): “There is nothing remotely criminal about a defense attorney telling a defense investigator that a particular witness could offer damaging testimony against the defendant at trial. And Irving’s act of giving [a witness’s] address to a person acting as an investigator for the defense is innocuous.” Luckily for Irving, her trial judge knows the difference between lawyering on the edge of ethics and lawyering that spills over into criminal conduct.
Lawyers: Javier Solano, Lawrence Berg, Law Offices of Javier A. Solano, PLLC (Defendant); AUSAs Daniel Brownell, Steven D'Alessandro, Morris Fodeman.
Guest contributor Marshall Mintz writes:
Fraud based on the “deprivation of honest services” is a controversial charge likely to elicit some notable rulings from the Supreme Court this term, as noted here. In particular, the cases of Jeffrey Skilling and Conrad Black may produce decisions that reign in the reach of honest services fraud in the context of private businesses, two varieties of which have been identified by the Second Circuit in United States v. Rybicki: cases involving bribes or kickbacks, and cases involving self-dealing. Bribery/kickback cases need no introduction. Self-dealing cases, on the other hand, usually involve the defendant causing his employer to do business with a corporation or enterprise in which the defendant has a secret, undisclosed interest. In Rybicki, the Second Circuit adds that "[i]n the self-dealing context, though not in the bribery context, the defendant's behavior must [.] cause, or at least be capable of causing, some detriment – perhaps some economic or pecuniary detriment – to the employer.”
This distinction is at issue in United States v. Demizo, 2009 WL 2163099 (EDNY July 20, 2009), where the defendant was convicted after trial of securities fraud and making false statements. Because EDNY Judge Gleeson concluded, however, that there was no factual predicate to treat the case as a self-dealing one, he declined to defendant’s requested jury charge on the issue of detriment. The case also includes an interesting discussion on the issue of permitting the defendant to introduce at trial a statement the government made in a brief under the "admission of a party opponent” rule.
Refusal to Charge:
Relying on the Second Circuit’s decision in United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003), the court rejected the argument that the jury should have been instructed that the fraud involved self-dealing as opposed to kickbacks, and the government was therefore required to prove a possible detriment to the employers.
Assuming the validity of the legal argument, the court deemed any such instruction inappropriate because the defense “failed to identify any evidence in the record that could permit the jury to find that this was a self-dealing case.” As the Second Circuit has suggested, self-dealing involves a situation where the defendant causes the employer to do business with a corporation or other enterprise in which the defendant has a “secret interest.” That term has not been defined, but the relevant cases all involve defendants who had undisclosed ownership interests in those entities and Demizio “did not argue that the record showed he had such a cognizable interest in the firms to which he steered his employer’s business.”
The court also rejected the defense’s argument that the case involved self-dealing because the government alleged a conflict of interest because, “every fraud case, including the kickback scheme at issue in Rybicki, involve a conflict of interest in that every individual has a personal interest in pocketing a kickback while every employer has an interest in hiring people who eschew such conduct.”
Refusal to Admit a Statement from a Government Brief
The defense also argued that it should have been permitted to introduce into evidence a government pre-trial brief submitted in opposition to a request for a bill of particulars, reasoning that statements made by an attorney concerning a matter within his employment may be admissible against the represented party.
The court explained that while the Second Circuit has previously considered the admissibility of statements made in a bill of particulars and opening statements made by defense counsel at a previous trial and found that, while not inadmissible per se, policy concerns weigh against allowing such statements to be admitted as admissions by a party-opponent. Against that backdrop, Judge Gleeson reasoned that because the brief was a legal memoranda and not a formal pleading, it was merely an assertion about the charges in the indictment – which is a charge of the grand jury – and could not properly be deemed a statement by the government .
Finally, rejecting the claim that the brief was evidence that the government had changed its theory during the trial, the court found the assertion irrelevant “to any factual issue submitted to the jury” and, in any event, the probative value was substantially outweighed by the risk of confusion.
Attorneys: David Spears, Charlita Mays (Spears & Imes LLP) (defendant); AUSA’s Winston Chan, Kelly T. Currie, Winston Paes
Fraud based on the “deprivation of honest services” is a controversial charge likely to elicit some notable rulings from the Supreme Court this term, as noted here. In particular, the cases of Jeffrey Skilling and Conrad Black may produce decisions that reign in the reach of honest services fraud in the context of private businesses, two varieties of which have been identified by the Second Circuit in United States v. Rybicki: cases involving bribes or kickbacks, and cases involving self-dealing. Bribery/kickback cases need no introduction. Self-dealing cases, on the other hand, usually involve the defendant causing his employer to do business with a corporation or enterprise in which the defendant has a secret, undisclosed interest. In Rybicki, the Second Circuit adds that "[i]n the self-dealing context, though not in the bribery context, the defendant's behavior must [.] cause, or at least be capable of causing, some detriment – perhaps some economic or pecuniary detriment – to the employer.”
This distinction is at issue in United States v. Demizo, 2009 WL 2163099 (EDNY July 20, 2009), where the defendant was convicted after trial of securities fraud and making false statements. Because EDNY Judge Gleeson concluded, however, that there was no factual predicate to treat the case as a self-dealing one, he declined to defendant’s requested jury charge on the issue of detriment. The case also includes an interesting discussion on the issue of permitting the defendant to introduce at trial a statement the government made in a brief under the "admission of a party opponent” rule.
Refusal to Charge:
Relying on the Second Circuit’s decision in United States v. Rybicki, 354 F.3d 124 (2d Cir. 2003), the court rejected the argument that the jury should have been instructed that the fraud involved self-dealing as opposed to kickbacks, and the government was therefore required to prove a possible detriment to the employers.
Assuming the validity of the legal argument, the court deemed any such instruction inappropriate because the defense “failed to identify any evidence in the record that could permit the jury to find that this was a self-dealing case.” As the Second Circuit has suggested, self-dealing involves a situation where the defendant causes the employer to do business with a corporation or other enterprise in which the defendant has a “secret interest.” That term has not been defined, but the relevant cases all involve defendants who had undisclosed ownership interests in those entities and Demizio “did not argue that the record showed he had such a cognizable interest in the firms to which he steered his employer’s business.”
The court also rejected the defense’s argument that the case involved self-dealing because the government alleged a conflict of interest because, “every fraud case, including the kickback scheme at issue in Rybicki, involve a conflict of interest in that every individual has a personal interest in pocketing a kickback while every employer has an interest in hiring people who eschew such conduct.”
Refusal to Admit a Statement from a Government Brief
The defense also argued that it should have been permitted to introduce into evidence a government pre-trial brief submitted in opposition to a request for a bill of particulars, reasoning that statements made by an attorney concerning a matter within his employment may be admissible against the represented party.
The court explained that while the Second Circuit has previously considered the admissibility of statements made in a bill of particulars and opening statements made by defense counsel at a previous trial and found that, while not inadmissible per se, policy concerns weigh against allowing such statements to be admitted as admissions by a party-opponent. Against that backdrop, Judge Gleeson reasoned that because the brief was a legal memoranda and not a formal pleading, it was merely an assertion about the charges in the indictment – which is a charge of the grand jury – and could not properly be deemed a statement by the government .
Finally, rejecting the claim that the brief was evidence that the government had changed its theory during the trial, the court found the assertion irrelevant “to any factual issue submitted to the jury” and, in any event, the probative value was substantially outweighed by the risk of confusion.
Attorneys: David Spears, Charlita Mays (Spears & Imes LLP) (defendant); AUSA’s Winston Chan, Kelly T. Currie, Winston Paes
Guest contributor Justin Sher writes:
In two recent cases involving former public officials – Joseph Bruno, the former majority leader of the New York State Senate, and Bernard Kerik, the former police commissioner of New York City – federal courts in New York declined to narrow the scope of the “honest services” theory of fraud. In United States v. Bruno, the court reaffirmed the principle that a state official may commit the federal crime of honest services fraud even if his conduct is legal under state law. In United States v. Kerik, the court ventured further by holding that a public official could commit the crime of honest services fraud by engaging in influence peddling even when the influence is directed at areas that are beyond the scope of the official’s authority. Both decisions highlight the difficulty many courts have had applying this vague and controversial statute, which Justice Scalia has described as “nothing more than an invitation for federal courts to develop a common-law crime of unethical conduct.” They also raise some of the same issues that are likely to be addressed by the Supreme Court this term in Weyhrauch v. United States.
Background on Honest Services Fraud
The honest services theory of fraud is codified in 18 U.S.C. § 1346. It provides that the federal statutes prohibiting mail and wire fraud extend to schemes that “deprive another of the intangible right of honest services.” Congress enacted section 1346 in 1988 in response to McNally v. United States, in which the Supreme Court ruled that the scope of the mail and wire fraud statutes was limited to the deprivation of tangible property rights. Since Congress’s abrogation of McNally through the adoption of section 1346, courts have struggled to define the honest services theory of fraud so that it applies to cases of clear corruption, such as those involving bribery and kickbacks, without applying to every instance of unethical or dishonest conduct.
United States v. Bruno
Facts
Joseph Bruno, the former Majority Leader of the New York State Senate, was charged with honest services fraud for failing to disclose conflicts of interest. The indictment alleged that Mr. Bruno had accepted employment that impaired his independent judgment, used his official position to secure unwarranted privileges and accepted unauthorized gifts. Mr. Bruno sought to dismiss the indictment on the grounds that the honest services statute is unconstitutionally vague both on its face and as applied. Mr. Bruno also argued that the charges violated principles of federalism because they served as a mechanism through which the federal government could regulate the ethical conduct of state officials. As part of his federalism argument, Mr. Bruno maintained that, as in other circuits, the government should be required to allege and prove an underlying state violation in order to charge a state official with honest services fraud. Finally, Mr. Bruno sought a stay pending the Supreme Court’s decision in Weyhrauch, where the Court is expected to address this very issue.
Holding
In a decision dated August 21, 2009, the court rejected all of Mr. Bruno’s arguments. United States v. Bruno, 2009 WL 2601249, No. 09 Cr. 29 (N.D.N.Y. Aug. 21, 2009). The court reaffirmed the pre-McNally rule announced in United States v. Margiotta, 688 F.2d 125 (2d Cir. 1982), that the government was not required to demonstrate a violation of a New York statute or a duty imposed by New York law in order to convict a state official of honest services fraud. The Court also held that the statute was neither unconstitutionally vague on its face nor as applied. Finally, noting that the law on these issues was “clear” in the Second Circuit and declining to speculate as to what the Supreme Court might do, the court refused to issue a stay.
Mr. Bruno’s trial is currently underway in the Northern District of New York.
United States v. Kerik
Facts
Bernard Kerik was charged with committing honest services fraud while he held the positions of Commissioner of the New York City Department of Corrections from 1998 through 2000 and New York City Police Commissioner from 2000 through 2002. The omnibus indictment also included charges, which are not relevant here, of tax fraud, mortgage fraud and making false statements to the federal government in connection with his nomination for the position of Secretary of the Department of Homeland Security.
The government alleged that Mr. Kerik used his influence as Commissioner of Corrections and subsequently as Police Commissioner, to “vouch” for XYZ Company, a construction company with ties to organized crime, in order to influence regulators and other public officials who were considering whether XYZ should be permitted to do certain municipal-regulated business in New York City. In return, Mr. Kerik received approximately $255,000 in renovations to his apartment in Riverdale.
Mr. Kerik moved to dismiss the honest services fraud on the ground that the alleged conduct – influence peddling where the public official was acting outside the context of his official duties – does not constitute honest services fraud. Mr. Kerik’s attorneys attempted to draw a “sharp distinction between the use, or even misuse, of the influence of office in activities falling outside a defendant’s official duties – which cannot support a prosecution for federal honest services fraud – and corruption in connection with the performance of a defendant’s official duties – which can.”
Holding
In a decision in May 2009, Judge Stephen Robinson acknowledged that the honest services fraud crime is “nebulous” and that the court was not the first to struggle with its scope. United States v. Kerik, 615 F. Supp. 2d 256, 263 (S.D.N.Y. 2009). In fact, the court admitted that it “desire[d] to cabin the breadth of section 1346.” Id. at 265. Nonetheless, the court determined that the indictment alleged that Kerik had used his office to vouch for XYZ Company and would not have been able to do so but for his official status. Quoting United States v. Bloom, a Seventh Circuit case, the court explained that, “misuse of office (more broadly, misuse of position) for private gain is the line that separates run of the mill violations of state-law fiduciary duty . . . from federal crime.” Although the case “teeter[ed] on the boundaries of 18 U.S.C. § 1346,” the Court concluded that the indictment charged a colorable allegation of honest services fraud.
On November 5, 2009, Bernie Kerik pled guilty to eight felonies, including charges of tax fraud relating to his acceptance of $255,000 of renovations from XYZ Company. As part of the plea agreement, the government dropped the charges that were based on honest services fraud. Thus, while Kerik’s plea led to his release for the holidays, his case will not lead to any further clarification of the honest services fraud theory.
Conclusion
In both Bruno and Kerik, the courts declined to limit the reach of the honest services theory of fraud. As the law currently stands in the Second Circuit, a state official may be convicted of depriving citizens of their intangible right of honest services even if the official is not acting within the scope of his or her duties and even if his or conduct is perfectly legal under state law. It remains to be seen whether the Supreme Court will come out differently in Weyhrauch.
In two recent cases involving former public officials – Joseph Bruno, the former majority leader of the New York State Senate, and Bernard Kerik, the former police commissioner of New York City – federal courts in New York declined to narrow the scope of the “honest services” theory of fraud. In United States v. Bruno, the court reaffirmed the principle that a state official may commit the federal crime of honest services fraud even if his conduct is legal under state law. In United States v. Kerik, the court ventured further by holding that a public official could commit the crime of honest services fraud by engaging in influence peddling even when the influence is directed at areas that are beyond the scope of the official’s authority. Both decisions highlight the difficulty many courts have had applying this vague and controversial statute, which Justice Scalia has described as “nothing more than an invitation for federal courts to develop a common-law crime of unethical conduct.” They also raise some of the same issues that are likely to be addressed by the Supreme Court this term in Weyhrauch v. United States.
Background on Honest Services Fraud
The honest services theory of fraud is codified in 18 U.S.C. § 1346. It provides that the federal statutes prohibiting mail and wire fraud extend to schemes that “deprive another of the intangible right of honest services.” Congress enacted section 1346 in 1988 in response to McNally v. United States, in which the Supreme Court ruled that the scope of the mail and wire fraud statutes was limited to the deprivation of tangible property rights. Since Congress’s abrogation of McNally through the adoption of section 1346, courts have struggled to define the honest services theory of fraud so that it applies to cases of clear corruption, such as those involving bribery and kickbacks, without applying to every instance of unethical or dishonest conduct.
United States v. Bruno
Facts
Joseph Bruno, the former Majority Leader of the New York State Senate, was charged with honest services fraud for failing to disclose conflicts of interest. The indictment alleged that Mr. Bruno had accepted employment that impaired his independent judgment, used his official position to secure unwarranted privileges and accepted unauthorized gifts. Mr. Bruno sought to dismiss the indictment on the grounds that the honest services statute is unconstitutionally vague both on its face and as applied. Mr. Bruno also argued that the charges violated principles of federalism because they served as a mechanism through which the federal government could regulate the ethical conduct of state officials. As part of his federalism argument, Mr. Bruno maintained that, as in other circuits, the government should be required to allege and prove an underlying state violation in order to charge a state official with honest services fraud. Finally, Mr. Bruno sought a stay pending the Supreme Court’s decision in Weyhrauch, where the Court is expected to address this very issue.
Holding
In a decision dated August 21, 2009, the court rejected all of Mr. Bruno’s arguments. United States v. Bruno, 2009 WL 2601249, No. 09 Cr. 29 (N.D.N.Y. Aug. 21, 2009). The court reaffirmed the pre-McNally rule announced in United States v. Margiotta, 688 F.2d 125 (2d Cir. 1982), that the government was not required to demonstrate a violation of a New York statute or a duty imposed by New York law in order to convict a state official of honest services fraud. The Court also held that the statute was neither unconstitutionally vague on its face nor as applied. Finally, noting that the law on these issues was “clear” in the Second Circuit and declining to speculate as to what the Supreme Court might do, the court refused to issue a stay.
Mr. Bruno’s trial is currently underway in the Northern District of New York.
United States v. Kerik
Facts
Bernard Kerik was charged with committing honest services fraud while he held the positions of Commissioner of the New York City Department of Corrections from 1998 through 2000 and New York City Police Commissioner from 2000 through 2002. The omnibus indictment also included charges, which are not relevant here, of tax fraud, mortgage fraud and making false statements to the federal government in connection with his nomination for the position of Secretary of the Department of Homeland Security.
The government alleged that Mr. Kerik used his influence as Commissioner of Corrections and subsequently as Police Commissioner, to “vouch” for XYZ Company, a construction company with ties to organized crime, in order to influence regulators and other public officials who were considering whether XYZ should be permitted to do certain municipal-regulated business in New York City. In return, Mr. Kerik received approximately $255,000 in renovations to his apartment in Riverdale.
Mr. Kerik moved to dismiss the honest services fraud on the ground that the alleged conduct – influence peddling where the public official was acting outside the context of his official duties – does not constitute honest services fraud. Mr. Kerik’s attorneys attempted to draw a “sharp distinction between the use, or even misuse, of the influence of office in activities falling outside a defendant’s official duties – which cannot support a prosecution for federal honest services fraud – and corruption in connection with the performance of a defendant’s official duties – which can.”
Holding
In a decision in May 2009, Judge Stephen Robinson acknowledged that the honest services fraud crime is “nebulous” and that the court was not the first to struggle with its scope. United States v. Kerik, 615 F. Supp. 2d 256, 263 (S.D.N.Y. 2009). In fact, the court admitted that it “desire[d] to cabin the breadth of section 1346.” Id. at 265. Nonetheless, the court determined that the indictment alleged that Kerik had used his office to vouch for XYZ Company and would not have been able to do so but for his official status. Quoting United States v. Bloom, a Seventh Circuit case, the court explained that, “misuse of office (more broadly, misuse of position) for private gain is the line that separates run of the mill violations of state-law fiduciary duty . . . from federal crime.” Although the case “teeter[ed] on the boundaries of 18 U.S.C. § 1346,” the Court concluded that the indictment charged a colorable allegation of honest services fraud.
On November 5, 2009, Bernie Kerik pled guilty to eight felonies, including charges of tax fraud relating to his acceptance of $255,000 of renovations from XYZ Company. As part of the plea agreement, the government dropped the charges that were based on honest services fraud. Thus, while Kerik’s plea led to his release for the holidays, his case will not lead to any further clarification of the honest services fraud theory.
Conclusion
In both Bruno and Kerik, the courts declined to limit the reach of the honest services theory of fraud. As the law currently stands in the Second Circuit, a state official may be convicted of depriving citizens of their intangible right of honest services even if the official is not acting within the scope of his or her duties and even if his or conduct is perfectly legal under state law. It remains to be seen whether the Supreme Court will come out differently in Weyhrauch.
A review of 2008 sentencing statistics reveals some fascinating facts: courts in the Eastern and Southern districts of New York impose non-government-sponsored below-Guidelines sentences in about a third of the cases (30% in the Eastern; 33% in the Southern) – well more than twice the equivalent departure rate nationally (13%) – but they incarcerate at a rate equal to their national counterparts. In fact, 87% of all federal offenders sentenced last year in New York’s busiest two districts were sent to prison.
In other words, as I noted on this blog two years ago, New York judges are flexing their post-Booker departure muscle to tinker with the machinery of incarceration-nation, but they are not dismantling it. Not surprisingly then, as Jay Hurst found out for us under FOIA, most of the federal prisons where New York’s sentenced offenders are serving their time, are seriously overcrowded. (e.g. Otisville FCI – Gen Pop is 57% overcapacity; Fort Dix FCI is 24% overcapacity; Lewisburg USP is 50% overcapacity; Schuykill FCI is 50% overcapacity).
But like the old joke about God sending several worldly rescue missions to the drowning man who later claimed God had abandoned him, appellate courts keep sending reminders to district judges that they do not need action from Congress or the Sentencing Commission before they can impose non-custodial sentences in most cases.
United States v. Rigas
The latest lifebelt is United States v. Rigas, 2009 WL 3166066 (2d Cir. October 5, 2009), in which the Court rejected defense arguments that the 17 and 12-year sentences imposed on Aldephia’s former executives for fraud were substantively unreasonable. (His lawyers pointed out that these sentences were only marginally shorter than some convicted terrorists.) Acknowledging that its previous definitions of “substantive unreasonableness” have given credence to an echo chamber, the Court held in Rigas that the concept is the same idea as that captured in the “manifestly unjust” standard or the “shock-the-conscience” standard – standards that “provide a backstop for those few cases that, although procedurally correct, would nonetheless damage the administration of justice because the sentence imposed was shockingly high, shockingly low, or otherwise unsupportable as a matter of law.” In other words, appellate review of the reasonableness of a sentence “necessarily places great trust in sentencing courts” and will “provide relief only in the proverbial ‘rare case.’” Or, I know it when I see it.
Comment
In case after case, the Supreme Court and the Second Circuit could not be clearer in their insistence on the centrality of the district judge’s sentencing discretion. Rigas is yet another shot of courage to judges who are dismayed by the appalling federal incarceration rate in this country. It also underlines the importance of defense counsel ensuring a procedurally sound hook for the judge’s hat at sentencing. And a reminder not to hold out too much hope if your appeal is based on the substantive unreasonableness of the sentence.
Lawyers: Stephen McAllister (Thompson Ramsdell & Qualseth); Lawrence, KS, Neal Katyal (Morgan Legal Consulting) Lawrence G. McMichael, (Dilworth Paxson, LLP) (defendants); AUSAs William Johnson, Katherine Polk Failla; Douglas Berman, Stephanos Bibas, Marc Miller, Michael O’Hear, Mark Osler, Sandra Guerra Thompson (Amicus Curiae)
In other words, as I noted on this blog two years ago, New York judges are flexing their post-Booker departure muscle to tinker with the machinery of incarceration-nation, but they are not dismantling it. Not surprisingly then, as Jay Hurst found out for us under FOIA, most of the federal prisons where New York’s sentenced offenders are serving their time, are seriously overcrowded. (e.g. Otisville FCI – Gen Pop is 57% overcapacity; Fort Dix FCI is 24% overcapacity; Lewisburg USP is 50% overcapacity; Schuykill FCI is 50% overcapacity).
But like the old joke about God sending several worldly rescue missions to the drowning man who later claimed God had abandoned him, appellate courts keep sending reminders to district judges that they do not need action from Congress or the Sentencing Commission before they can impose non-custodial sentences in most cases.
United States v. Rigas
The latest lifebelt is United States v. Rigas, 2009 WL 3166066 (2d Cir. October 5, 2009), in which the Court rejected defense arguments that the 17 and 12-year sentences imposed on Aldephia’s former executives for fraud were substantively unreasonable. (His lawyers pointed out that these sentences were only marginally shorter than some convicted terrorists.) Acknowledging that its previous definitions of “substantive unreasonableness” have given credence to an echo chamber, the Court held in Rigas that the concept is the same idea as that captured in the “manifestly unjust” standard or the “shock-the-conscience” standard – standards that “provide a backstop for those few cases that, although procedurally correct, would nonetheless damage the administration of justice because the sentence imposed was shockingly high, shockingly low, or otherwise unsupportable as a matter of law.” In other words, appellate review of the reasonableness of a sentence “necessarily places great trust in sentencing courts” and will “provide relief only in the proverbial ‘rare case.’” Or, I know it when I see it.
Comment
In case after case, the Supreme Court and the Second Circuit could not be clearer in their insistence on the centrality of the district judge’s sentencing discretion. Rigas is yet another shot of courage to judges who are dismayed by the appalling federal incarceration rate in this country. It also underlines the importance of defense counsel ensuring a procedurally sound hook for the judge’s hat at sentencing. And a reminder not to hold out too much hope if your appeal is based on the substantive unreasonableness of the sentence.
Lawyers: Stephen McAllister (Thompson Ramsdell & Qualseth); Lawrence, KS, Neal Katyal (Morgan Legal Consulting) Lawrence G. McMichael, (Dilworth Paxson, LLP) (defendants); AUSAs William Johnson, Katherine Polk Failla; Douglas Berman, Stephanos Bibas, Marc Miller, Michael O’Hear, Mark Osler, Sandra Guerra Thompson (Amicus Curiae)
Loss calculations in white collar cases are the critical driver of the (often huge) sentences in those cases. In United States v. Byors, 2009 WL 3461584 (2d Cir. October 29, 2009), the Second Circuit interpreted a Guidelines comment addressing permissible offsets when calculating the losses of a fraud scheme. The defendant argued that offsets should include expenditures he made to “capitalize” his business, which were “services rendered” to the victim-investors. Pointing out that the plain language of the Guidelines permits offsets only for value conferred on the victim in the form of money, property or services, the Court concluded that:
The case also held, as a matter of first impression in this Circuit, that obstructive conduct relating to an underlying fraud offense may be the basis of a guideline enhancement for money laundering.
Lawyers: Bradley Stetler (Stetler, Allen & Kampmann) (Defendant Byors); AUSAs Gregory Waples, Thomas Anderson, Paul Van de Graaf
Byors’s expenditures, legitimate or not, conferred nothing of value and no benefit on his victims, who were his investors and creditors. He rendered no “services” to them and failed to deliver any return on their “investment.” Accordingly, the District Court did not err in failing to treat defendant’s capitalization of his business as “services rendered” to his victims.
The case also held, as a matter of first impression in this Circuit, that obstructive conduct relating to an underlying fraud offense may be the basis of a guideline enhancement for money laundering.
Lawyers: Bradley Stetler (Stetler, Allen & Kampmann) (Defendant Byors); AUSAs Gregory Waples, Thomas Anderson, Paul Van de Graaf
See Archives for all posts since September 2007.
