33 Malcolm Gladwell, “Open Secrets: Enron, intelligence, and the perils of too much information,” The New Yorker, January 8, 2007,Available at http://www.newyorker.com/reporting/2007/01/08/070108fa_fact_gladwell.
34 Weil’s column ran in the Texas regional edition of The Wall Street Journal, in the “Heard in Texas” feature, on September 20, 2000.
Chapter Five:
1 Carrie Johnson, “Charge Against KPMG Dropped: Firm Cooperated Over Tax Shelters, Prosecutors Say,” washingtonpost.com, January 4, 2007.
2 Lynnley Browning, “Ernst & Young Won’t Face Criminal Charges,” The New York Times, May 31, 2007.
3 The nation’s top international accounting firms (the ones large enough to conduct audits of the largest corporations) were, not so many years ago, dubbed “the Big Eight” which, after various mergers, became in 2002 “the Big Five.” They were: Arthur Andersen; Deloitte & Touche; KPMG; Ernst & Young; and PricewaterhouseCoopers.
4 Robert A. Mintz, “Too Late for Arthur Andersen,” Legal Times, June 6, 2005. Mintz was at the time head of the securities litigation, government investigations, and white collar criminal defense practice group at Newark, New Jersey’s McCarter & English law firm.
5 Id. at p. 70.
6 This “usually indicates,” wrote The New York Times’s savvy Supreme Court analyst Linda Greenhouse, in reporting the unexpected grant of the petition, that “the government considers an appeal to be frivolous or inconsequential.” See Linda Greenhouse, “Supreme Court Will Review Conviction of Arthur Andersen,” The New York Times, January 8, 2005.
7 In this context, such a charge against earnings is a non-recurring charge-off made by the company that reduces its earnings for the reportable period, but does not indicate a recurring or regular pattern. In other words, the reader is supposed to assume that while some event caused this particular charge, it would not necessarily be a regular or recurring event. In contrast, normal expenses of doing business are expected to recur in each reporting period. Corporations are thought to have an incentive to classify charges as non-recurring, where possible, in order to make current financial results seem more positive, or at least indicative of a more positive future. Enron was thought to have classified many normal costs of doing business as one-time non-recurring charges, thereby overstating the company’s financial health.
8 Tony Mauro, “One little e-mail, one big legal issue,” The National Law Journal, April 25, 2005, p. 7.
9 It is the role of the jury to determine the facts. The judge instructs the jury as to the legal principles that govern the case. The jury, once instructed on the law, then proceeds to decide how the facts fit within the legal framework, and whether they require a verdict of guilty or not guilty.
10 Arthur Andersen LLP v. United States, 544 U.S. 696 at 706 (2005).
11 Jess Bravin, “Supreme Court Hints at Curbing Strategy on White-Collar Crime,” The Wall Street Journal, April 28, 2005.
12 Two KPMG leaders testified to Congress in 2003, defending the shelters by making four arguments, which can be viewed in detail at http://www.pbs.org/wgbh/pages/frontline/shows/tax/schemes/testimony.html. In his prepared statement, Jeffrey Eischeid offered a four-part defense of KPMG: that the firm no longer markets aggressive sheltering strategies such as FLIP, OPIS, BLIPS or SC2; that when it did offer such strategies, they were “consistent with the laws in place at the time;” that the strategies underwent “intensive and thorough” internal review, which often resulted in “vigorous, sometimes even heated, debate”; and that KPMG has changed over the past three years as “the regulatory environment and marketplace conditions have changed.” Eischeid also noted that no court had ruled against any of these four strategies. Under questioning from Sen. Carl Levin (D-Mich.), he insisted that the shelters were not marketed as tax reduction strategies, but rather as investment strategies with tax benefits.
13 Jacobellis v. Ohio, 378 U.S. 184 (1964).
14 Robert Weisberg & David Mills, “A Very Strange Indictment,” The Wall Street Journal, Review & Outlook, October 12, 2005. Weisberg is Edwin E. Huddleson, Jr. Professor of Law and director of the Criminal Justice Center at Stanford University. Mr. Mills is senior lecturer at Stanford Law School. Together, they have taught a course in white collar crime at Stanford Law School.
15 Editorial, “Congress and KPMG,” The Wall Street Journal, August 30, 2005.
16 Id.
17 Id.
18 In 2005, the Supreme Court declared that the sentencing guidelines, up to that point mandatory, were merely advisory, leaving to trial judges considerable discretion in imposing sentences on defendants. Subsequent appellate case law, however, made clear that the guidelines were to be given substantial deference by trial judges, although they were empowered to articulate specific reasons for departing from them in a particular case.
19 Memorandum to All Component Heads and United States Attorneys re: “Bringing Criminal Charges Against Corporations,” from Eric H. Holder, Jr., Deputy Attorney General, June 16, 1999. Available at http://www.usdoj.gov/criminal/fraud/docs/reports/1999/chargingcorps.html. Holder suggested that cooperation was partially defined by whether a company agreed to waive the legally protected attorney-client and work-product privileges. He further suggested that cooperation would be determined by “whether the corporation appears to be protecting its culpable employees and agents” by advancing or paying those individuals’ attorney fees.
20 “Principles of Federal Prosecution of Business Organizations,” Deputy Attorney General Larry D. Thompson to Heads of Department Components of U.S. Attorneys, January 20, 2003, Office of the Deputy Attorney General.
21 Former federal prosecutor and now scrappy defense lawyer N. Richard Janis has been relentless in exposing the unfairness of the Thompson Memorandum and its successors, and some progress has been made, but the DOJ’s approach remains essentially the same. See, for example, N. Richard Janis, “Taking the Stand: The McNulty Memorandum: Much Ado About Nothing,” Washington Lawyer, February 2007.
22 Lynnley Browning, “Document Could Alter KPMG Case,” The New York Times, Sept 15, 2006.
23 Subsequent litigation on these shelters did indeed go in favor of the government’s position.
24 Laurie P. Cohen, “Prosecutors’ Tough New Tactics Turn Firms Against Employees,” The Wall Street Journal, June 4, 2004.
25 Ms. Martin was quoted by Laurie Cohen in the WSJ as saying that Mr. Bennett was a “pleasure” to work with. This symbiotic and perhaps even pleasurable relationship appeared to continue in the KPMG case.
26 Jonathan Weil, “KPMG’s Settlement Provides for New Start,” The Wall Street Journal, August 29, 2005.
27 Floyd Norris, “KPMG, a Proud Old Lion, Brought to Heel,” The New York Times, August 30, 2005.
28 Deborah Solomon & Ann Marie Squeo, “Crackdown Puts Corporations, Executives in New Legal Peril,” The Wall Street Journal, June 20, 2005.
29 Jonathan Glater, “Indictment Broadens In Shelters At KPMG,” The New York Times, October 18, 2005.
30 Lynnley Browning & Colin Moynihan, “A Surprise In Tax Case On KPMG,” The New York Times, March 28, 2006.
31 Lynnley Browning, “Guilty Plea Made in Trial Over Shelters From KPMG,” The New York Times (New England Edition), December 22, 2006, at C3.
32 Paul Davies, “Defendant in KPMG Tax Case Pleads Guilty, Agrees to Cooperate,” The Wall Street Journal, September 11, 2007.
33 Memorandum to United States Attorneys re: “Principles of Federal Prosecution of Business Organizations,” from Larry D. Thompson, Deputy Attorney General, January 20, 2003.
34 In July 2007, Judge Kaplan dismissed the charges against 13 of the defendants, saying that the government’s deferred prosecution agreement with KPMG violated the individual defendants’ Sixth Amendment right to counsel and their right to due process. U.S. v. Jeffrey Stein, et al. (S.D.N.Y., July 16, 2007). Available at http://online.wsj.com/public/resources/documents/stein.pdf. This significant ruling was upheld in August 20
08 by the Court of Appeals for the Second Circuit. In December 2008, a jury found three of the remaining defendants guilty on multiple counts of tax evasion, while acquitting a former KPMG tax partner.
35 Deborah Solomon, “SEC Brings New Federal Oversight To Insurance Industry With Probes,” The Wall Street Journal, April 1, 2005.
36 See letter written by Greenberg’s lawyer, David Boies, to AIG’s law firm, dated March 28, 2005, reported in Insurance Journal, March 29, 2005, available at http://www.insurancejournal.com/news/national/2005/03/29/53099.html.
37 Ian McDonald, Theo Francis & Deborah Solomon, “AIG Admits ‘Improper’Accounting,” The Wall Street Journal, March 31, 2005.
38 “Ex-AIG chief assails move to restate results,” The Boston Globe, Associated Press, August 5, 2005.
39 Jenny Anderson, “Suit Against A.I.G. Figure May Expand,” The New York Times, November 26, 2005.
40 Id.
41 Id.
42 Jenny Anderson, “Indictments Raise Pressure In Insurer Case,” The New York Times, February 3, 2006.
43 Gretchen Morgenson, “A.I.G. Apologizes and Agrees to $1.64 Billion Settlement,” The New York Times, February 10, 2006.
44 “Hank Greenberg at War,” Business Week, March 27, 2006.
45 Id.
46 Email message to Harvey A. Silverglate from Professor Susan R. Estrich, July 18, 2007.
47 Roddy Boyd, “New battle for Hank Greenberg,” Fortune/CNN Money, May 21, 2008, available at http://money.cnn.com/2008/05/21/magazines/fortune/fortune500/Boyd_Greenberg.fortune/index.htm?postversion=2008052113.
Chapter Six:
1 John Christoffersen, Associated Press, “Arrest sparks worries over implications of corporate law,” The Houston Chronicle, March 4, 2007.
2 Sarah Johnson, “Sarbox May Extend to Child Pornography,” CFO. com, March 16, 2007.
3 United States v. Philip D. Russell, Docket No. 3:07CR31(AHN), U.S.D.C., Dist. of Connecticut, Ruling on Motions to Dismiss Indictment, filed August 22, 2007.
4 Sarah Johnson, “Sarbox May Extend to Child Pornography,” CFO. com, March 16, 2007.
5 Martin B. Cassidy, “Legal world focused on lawyer prosecution,” Greenwich Time, March 4, 2007.
6 Martin B. Cassidy, “Child porn case has attorneys worried,” The Stamford Advocate, March 4, 2007.
7 John Christoffersen, Associated Press, “Arrest sparks worries over implications of corporate law,” The Houston Chronicle, March 4, 2007.
8 Martin B. Cassidy, “Legal world focused on lawyer prosecution,” Greenwich Time, March 4, 2007.
9 “Government’s Omnibus Response to the Defendant’s Motions to Dismiss Counts One and Two of the Indictment,” filed in United States v. Philip D. Russell, Criminal Indictment No. 3:07CR31 (AHN), at page 14.
10 Government’s brief at 14, citing United States v. Iho, 465 F.Supp. 2d at 635-36.
11 Rogers v. State, 113 S.W. 3d 452, 458-59 (Tex.App. 2003), cited in Russell’s “Memorandum in Support of Motion to Dismiss Count Two” at page 9.
12 Glenn Puit, “Arrest Threat: Child Porn Copies Lead to Conflict,” The Las Vegas Review Journal, July 28, 2003, cited in Russell’s “Memorandum in Support of Motion to Dismiss Count Two” at page 9.
13 18 U.S.C. § 4.
14 Roberts v. United States, 445 U.S. 552, 558 n. 5 ([“The misprision statute] has been construed to require ‘both knowledge of a crime and some affirmative act of concealment.’”). See generally Gabriel Ciociola, “Misprision of Felony and its Progeny,” 41 Brandeis L.J. 697, 699 (2003).
15 This phenomenon is discussed further in Chapter Seven, concerning the press.
16 The obstruction statute under which Cintolo was indicted provided:Whoever…corruptly or by threats or force, or by any threatening letter or communication, influences, obstructs, or impedes, or endeavors to influence, obstruct, or impede, the due administration of justice, shall be fined not more than $5,000 or imprisoned not more than five years, or both. 18 U.S.C. § 1503.
17 EC-7-8, ABA Model Code of Professional Responsibility (1982).
18 Smith v. Anderson Tully, 608 F.Supp, 1143, 1146-47 (D. Miss. 1985).
19 “Cintolo’s only response to this grisly piece of news,” the Court of Appeals said, “was to mention calmly [to Angiulo] that he had instructed LaFreniere to talk with no one, and to refer all calls to him.” United States v. Cintolo, 818 F.2d 980 (1st Cir., 1987). Some criminal defense lawyers might have handled this delicate situation differently, but, all factors considered, the Massachusetts Association of Criminal Defense Lawyers and the National Network for the Right to Counsel were right on the mark in urging the Court of Appeals to take a realistic, functional view of Cintolo’s role, plight, and judgments.
20 United States v. Cintolo, 818 F.2d 980 (1st Cir., 1987).
21 The Court of Appeals, moreover, did not internalize its own reasoning from its conclusory review of the wiretap tapes. “This particular conversation,” wrote the court, “concluded with Angiulo instructing Cintolo to meet with LaFreniere again and ‘to evaluate [the situation] very carefully.’” In other words, it appeared that the Angiulos might be prepared to back off the plan to “hit” LaFreniere, having been tempered by Cintolo’s assurances that he was trying to keep his client calm. Any criminal lawyer would have understood how and why Cintolo handled this dangerous and delicate problem in the way he did, even if some would have taken a more prosecutor-friendly path and thereby exposed their client to mortal danger. But to the Court of Appeals, as to the Department of Justice, all of this signified a lawyer gone bad, notwithstanding the assurances from the amici, experienced defense lawyers, that Cintolo handled himself about as well as could be expected (or at least perfectly acceptably) under extraordinarily difficult circumstances. That the Court of Appeals continued, throughout its opinion, to refer to LaFreniere as Cintolo’s “client” (encasing the word “client” in quotation marks on each occasion) betrayed the court’s naïve, or perhaps cynical, view that Cintolo at no time acted with LaFreniere’s, rather than Angiulo’s, interests in mind.
22 United States v. Cintolo, 818 F.2d 980, 990 (1st Cir., 1987).
23 “Blue-ribbon task force finds President Bush’s signing statements undermine separation of powers,” ABA Press Release, July 24, 2008.
24 Telephone discussion and email exchanges between Michael Greco and the author at various times in 2007.
25 “DOJ Alleges American Bar Association Violates Antitrust Consent Decree,” Antitrust Lawyers Blog, June 23, 2006, available at http://www.antitrustlawyerblog.com/2006/06/doj_alleges_american_bar_assoc.html.
26 “Court order brings ABA consent decree to conclusion,” American Bar Association, available at http://www.abanet.org/media/youraba/200606/article02.html.
27 Department of Justice Press Release,“Justice Department and American Bar Association Resolve Charges that the ABA’s process for accrediting law schools was misused,” June 27, 1995, available at http://www.usdoj.gov/atr/public/press_releases/1995/0257.htm.
28 “Redacted” documents are documents where certain information is omitted. For example, some documents might be redacted by deleting the names of individuals, either to protect their privacy or to refrain from notifying them that they are under surveillance or investigation. Other documents might be redacted in order to protect the identity of informants or undercover operatives.
29 Memorandum “To: All ACLU, ACLU Foundation and ACLU Affiliate Staff” from Ann Beeson, dated August 26, 2005, “re: URGENT: Restrictions on Information Regarding ACLU v. Gonzales, Our Legal Challenge to the National Security Letter Issued to an Organization with Library Records.”
Chapter Seven:
1 Meghan Martin & Larry Larsen, “A Guide to Journalist Shield Laws,” Poynter Online, available at http://www.poynterextra.org/shieldlaw/states.htm (accessed June 5, 2008).
2 Portions of the discussion of the Jared Paul Stern case have appeared previously in Harvey A. Silverglate, “Sleazy? Yes. Criminal? Probably not,” Th
e Boston Phoenix, April 12, 2006.
3 Title 18 U.S.C. sec. 875(d) states in relevant part:Whoever, with intent to extort from any person, firm, association, or corporation, any money or other thing of value, transmits in interstate or foreign commerce any communication containing any threat to injure the property or reputation of the addressee or of another or the reputation of a deceased person or any threat to accuse the addressee or any other person of a crime, shall be fined under this title or imprisoned not more than two years, or both.
4 United States v. Jackson, 180 F.3d 55, 70 (1999).
5 Here’s the text of this bit of Silly Putty®, codified at 18 U.S.C. § 1343:Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both.
6 The courts have interpreted this “honest services” language broadly, typically holding that a violation occurs when an “employee of a private entity (or a person in a relationship that gives rise to a duty of loyalty comparable to that owed by employees to employers) purporting to act for and in the interests of his or her employer (or of the other person to whom the duty of loyalty is owed) secretly act[s] in his or her or the defendant’s own interests instead, accompanied by a material misrepresentation made or omission of information disclosed to the employer or other person.” United States v. Rybicki, 354 F.3d 124, 141-42 (2d Cir. 2003) (reaffirmed en banc) (cert. den. Oct. 4, 2004).
7 Adam Goldman, “No Charges for N.Y. Tabloid Scribe,” The Washington Post, January 24, 2007, available at http://www.washingtonpost.com/wp-dyn/content/article/2007/01/24/AR2007012400292.html.
Three Felonies a Day Page 40