Crime & Federalism

Debate Over the Patriot Act

Professor Orin Kerr, a self-styled Patriot Act myth-debunker, is having a discussion with Alex Tabarrok about the Patriot Act.  Criticising the pretense for enacting the Patriot Act, Tabarrok writes:

The point is that laws passed for one purpose are often used for other purposes not originally intended (RICO, anyone?). . . . In this case, the Patriot Act and the general increased willingness to defer to law enforcement have not to my knowledge led to many arrests of terrorists but have been used for all manner of other purposes.

Kerr says that "this response sets up a bit of a straw man: the idea that the Patriot Act was designed solely to arrest terrorists, with the apparent implication being that any use of the Patriot Act in criminal cases is somehow illegitimate or abusive." (emphasis added).

It's no straw man.  Tabarrok's point was that the Patriot Act was adopted on false pretenses.  Namely, we were told that to fight terror, law enforcement needed the Patriot Act.  If you don't believe me, then look to the law's official title: Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism.

It's certainly legitimate for law enforcement to use all tools available when fighting crime.  But general crime-fighting was not at issue during the debates.  Instead, law enforcement said that the Patriot Act's tools were needed to fight terror.  When those tools are used to spy on war protestors, we have a right to be suspicion of the Patriot Act's supporters.  It is a classic game of bait and switch. 

What would have happened if a Senator or Representative had said, "Let's go with a modified bill that would allow law enforcement to use these provisions only when investigating certain terrorist cases"?  Law enforcement (and probably Kerr?) would have said: Those liberals won't give us the tools we need to fight terror!  They support terrorism!  So to say that the Patriot Act was merely adopted as a generally applicable amendment to the United States Code is laughable at best and disingenous at worst.

Kerr then writes: "As I have written elsewhere, many of the provisions enacted into law in the Patriot Act were proposals relating to criminal law that had been considered and debated in Congress since the Clinton Administration."

Right.  Debated and lost.  That is the difference.  Law enforcement used terrorism as an excuse to obtain their Chritmas list.  Law enforcement would have screamed bloody murder had the scope of the Patriot Act been narrowed.

Kerr further writes: "Many of the criminal law provisions are dual-use: they can be used in terrorism investigations, but can also be used in routine criminal investigations."

But I'm back to the same point, namely that law enforcement officials wanted the Patriot Act long before a terrorist attack.  Did they use 9/11 to get their wish list?  If so, then what does that say about them?  What kind of person sells life insurance at a funeral?  What kind of lawyer has a client sign a retainer agreement when the client is still injured and not fully conscious?  Just because something is legal doesn't make is moral.

Finally, Kerr writes: "Because there are lots more criminals than terrorists, and criminal cases tend to be much more public than terrorism investigations, it shouldn't be suprising that we hear more about the Patriot Act in criminal cases than in terrorism cases."

I don't think the issue is whether the Patriot Act is bad qua bad.  If we had more virtuous people at DOJ, I would support the Patriot Act.  Most of its provisions  make good sense.  Why should an AUSA be forced to apply for duplicative warrants.  Before the Patriot Act, cops who had probable cause to believe I was using my email to commit crimes had to apply for a warrant to search both my email account and my email account's server.  That's a really stupid requirement.  If there is probable cause to believe my email is an instrumentality of crime, then the Constitution isn't offended when you use one - rather than two - search warrants to obtain access to it.   It's like saying you need two warrants to search a dresser in my house when you have PC that my dresser contains narcotics.  One warrant is good enough.

And law enforcement is its own worst enemy when it comes to the Patriot Act.  For example, law enforcement personnel were dispatched to snoop at a student meeting of the National Lawyers Guild.  Another law enforcement officer - incognito - attended a law school seminar entitled Islam and the Law: The Question of Sexism? 

Now, we all know that the NLG is a radical left wing group - but nothing more.  It does not even resemble a terrorist organization.  It's a bunch of weirdos who believe that migrant workers deserve rights and that our two party system provides identical presidential candidates.  ;^>  That it would be infiltrated makes me wonder if state and federal law enforcement are more concerned with stiffling dissent than with fighting terror.  After all, when was the last time the police showed up at a National Right to Life organizational meeting?  Well, the groups employ similar tactics - loud, obnoxious protests.  (That's not to attack their ideology.  I just don't like protests).  But a far right group is not investigated where as a far left group is.  The good news is that no subpoena would be issued for a bloke's library account merely because he was seen holding a copy of Das Kapital.  But a lot of people think this DOJ would like to investigate him.  A lot of people see the Patriot Act as being one slip down the slippery slope.

Also, the scope of the Patriot Act gives more cause for concern given the extent of our federal criminal code.  Even the friggin Heritage Foundation (a right wing group if there is any) is disgusted by the length of the federal criminal code.  They started a site, Overcriminalized.com, to examine the injustices our federal code causes.  Do you know who Brian McNab is? 

David McNab is in prison for 8 years.  His crime?  He imported lobster tails using plastic bags.  Some importation regulations mandated that he use paper bags instead.  McNab did not know this was a crime: It violated an act of Congress whereby the violation of foreign law is made a violation of federal law.  It didn't matter, though, because it was a strict liability crime.  In any event, it was only a misdemeanor.  No cause for concern, right?

However, AUSA's used this misdemeanor offense as a basis to charge him with smuggling and money laundering - two major federal crimes, replete with civil forfeiture provisions.  They said that since he brought the lobsters in opaque bags (rather than paper bags you can't see through), he was smuggling.  They also said that since he used money to buy the lobster tails and pay for fuel and maintanence for his boat, that he was laundering money.  (Most people don't know this, but the money laundering statute is really a money spending statute.  If you spend $10,000 or more money gained from illegal activites, you are guilty of money "laundering.")  Anyhow, Honduas said that they didn't have any suchs regulations regarding lobster tails.  Didn't matter.  DOJ attorneys still fought successfully to have him sent to prison, where he will set for the next 9 years.

I am not afraid of the Patriot Act just as I am not afraid of guns.  But I am afraid of lunatics with guns.  And I am afraid of our current DOJ with the Patriot Act.

So as to the Patriot Act, two sober truths emerge.  Supporters of the Patriot Act used a traumatic event to obtain a wish list otherwise unavailable.  Second, if prosecutors and police would act more responsibly, the Patriot Act would give us nothing to be afraid of.

Those Technicalities

I often hear people (including most lawyers, who really should know better), that they are tired of people getting off on technicalities.  A technicality has specific context.  If a police-baton inspired confession is suppressed, the defendant walked on a technicality.  If a jury does not find the defendant guilty beyond a reasonable doubt, he walked on a technicality.  But shouldn't this term cover prosecutorial acts as well?

If an eighteen year old male who had sex with a 17 year and 9 month old female, was charged with statutory rape (in a state where the age of consent was 18), would we say he was charged under a mere technicality?  If I committed some strict liability offense about which no reasonable person would know, who would say I was charged under a technicality?  No one.  Everyone would say, "You broke the law.  Now go to prison where they serve chunky peanut butter."

How come only criminal defendants take advantage of technicalities?  When prosecutors overcharge an indictment, or send people to prison for 10 years for importing lobster tails in plastic rather than paper bags, it's somehow consistent with wholesome morals and an effective criminal justice system.  Why are constitutional rights technicalities where as criminal laws are the law?

A lot of people are saying that Martha Stewart committed insider trading and she wasn't charged because of some technicality.  (It's kinda like the boogie man.  Even saying the word sends chills down our spines).  However, I must ask: If the AUSA could not - with its immense resources - prove insider training, then how can we (epistomologically speaking) know she committed insider trading?  The fact is, if the AUSA could have proved it, he would have charged it.  He couldn't prove it.  We can't know it - unless someone has some evidence he's holding onto. In which case the AUSA might bring another case against the holder of said evidence.

Yet very well-educated and intelligent people bemoan technicalities when they help a defendant.  I can't understand why we don't say that people charged under one of the 3,000 or so federal crimes are being prosecuted under technicalities?  Why the inconsistency?

I have obtained such joy from Rush Limbaugh's legal problems.  He hated criminal defense lawyers.  But when his toe was in hot water, he retained the best.  He thought all criminal laws were scume.  Well, Rush, how's it feel to be charged under a technicality?  After all, using pain-killers is not a crime against nature.  If we were organizing a civilized society from scratch, I imagine that prohibing the self-administration of drugs to ease our pain wouldn't be on the to-do list.  Indeed, Rush was very successful while using the drugs.  But the state says that we are not intelligent enough to self-administer drugs.  It's a foolish regulation.  It's a technicality.  But it has teeth - violate this stupid law at the peril of prison.

I suggest that everyone who loves the police and prosecution make a moral commitment to never retain a criminal defense lawyer.  You can email it to me.  If you are ever in trouble, just tell the police and prosecutor what happened.  They'll do justice by you.  Right?  After all, since technicalities are so evil, you yourself would never want to use one, right?

Or do you only care about your own rights?  If that is the case, what kind of person are you?

Shut Up

Public Defender Dude is back to blogging.  He blogs about Martha Stewart's case here, showing how a PD could have kept Martha off the hook:

Lastly, anyone who wants to go and criticise public defenders remember this, her high priced lawyers let her speak with the investigators, and it was these lies that resulted in her conviction. Not because she lied to them and it made her look dishonest over a larger issue, but the lies were the crime. I know of very few public defenders who would let their clients speak to the government when there is a chance of being filed on. To put it in the context we can relate to more, if the police want to come and talk to you about your claiming too high a deduction for donating your car on your taxes (you claimed retail and only should've, in light of your car's condition, claimed high wholesale, or $500 more), would you go and try and talk your way out of this one knowing that talking your way out could get you in prison for a few years?  Any lawyer who let you talk is crazy.

I don't think I've ever seen a case where a client benefited from talking to the police.  What people don't realize is that the police very frequently lie.  Even telling them the truth when you are innocent (especially when you are innocent) can hurt you.  Almost always, when the cop takes the stand, he will put words in your mouth.  Your options are then limited.  First, you could forfeit your right to remain silent.  Well, once you take the stand you open yourself up to impeachment and the brutality of a cross-examination.  Besides, do you think a jury will really believe you over a police officer?  You could also remain quiet.  This will allow the jury to wonder why you won't defend yourself given that the police said you admitted to the facts underlying the crime. 

Keep your mouth shut.  The police do not "just want to talk" or to "just let you give your side of the story."  They want to put you into prison.  Do you understand?

Sure, I realize that you are afraid that the cop will think you are guilty if you don't talk.  He'll think you are a punk.  Well, in prison they use the word punk as well.  It is someone who gets regularly gang r****d.  Which is worse? 

Talking to the police puts you one step closer to being the second type of punk.  It doesn't help if you are innocent either.  If the state's attorney/district attorney needs to close a case, he will.  After all, whether or not the SA can become a judge hinges on his making people feel that he is tough on crime - closing cases accomplishes this.  Victims of crime want closure.  They want a conviction.  They will convice themselves that you are the person who made them feel the way the do.  There are a lot of complex rationalizations people in law enforcement use when convicting innocent people.  The cop figures you're guilty of something, even if it's not this crime.  After all, why would the victim have fingered you?  The SA/DA is often more concerned with getting a promotion - which only happens to those who win trials - than with justice.  You don't believe me?

Ask around.  I do not know any criminal defense lawyer who has not seen an innocent client convicted.  Think they'll lie to you?  Read Justice Kennedy's concurrence in Dretke v. Haley, where he castigates Texas prosecutors because "[t]hey wish to send Haley back to prison for a crime they agree he did not commit."

Do you want to go to prison?  No?  Keep your mouth shut.  And then hire a criminal defense lawyer.

Criminal History Quiz

Unfortunately I only answered Questions 9 & 10 of this quiz correctly. Perhaps you can do better.  (Hat tip: MAGISlaw.com)

1. Name the subject of a biography written by Clifford Irving, for which Irving was convicted of fraud.
2. Name Attorney General John Mitchell's co-defendant in S.D.N.Y prosecution.
3. Name the former federal prosecutor who wrote "The Friends of Eddie Coyle."
4. Name the Judge who presided over the main Watergate trial.
5. Name the United States Senator from N.J. who was convicted during the Abscam investigation.
6. Name the New York City Water Commissioner who was convicted in S.D.N.Y. Lindsay administration prosecution.
7. Name the lead federal prosecutor in the Rosenberg atomic secrets spy case.
8. Name the former federal prosecutor married to the author of "Compromising Positions."
9. Name the lead defense attorney for Governor John Connally in the trial stemming from the Watergate investigation.
10. Name the lead defense attorney who won a reversal by the Supreme Court in the Sam Shepard case.

Click here for the answers.

Charges 2 & 3: Wire Fraud

Today is Day 3 of Ken Lay Week.  Day 1 - The Indictment - is here.  Day 2 - The Conspiracy - is here.
 
Charges 2 & 3 (Counts 12 & 13; pp. 45-46) against Ken Lay allege violations of the wire fraud statute, 18 U.S.C. 1343, which is set forth in the foonote below. (1).  The wire fraud statute can be easily summarized.  "Title 18, United States Code, Section 1343, makes it a crime for anyone to use interstate wire communications facilities in carrying out a scheme to defraud."  Pattern Jury Instruction No. 2.60.  See also No. 2.59, Wire Fraud, ("Because the language of the mail fraud and wire fraud statutes are so similar, cases construing one are applicable to the other.")  There are four main elements to the crime of wire fraud. 

First: That the defendant knowingly created a scheme to defraud; Second: That the defendant acted with an specific intent to defraud; Third: That the defendant used [or caused someone to use] interstate wire communications facilities for the purpose of carrying out the scheme; and Fourth: That the scheme to defraud employed false material representations. Fifth Circuit Pattern Jury Instruction 2.60.

The scheme to defraud.

When one thinks of a "scheme to defraud," he imagines an email from a Nigerian prince who has a once-in-a-lifetime opportunity for you.  The Nigerian sent the email to cheat you out of your money.  However, the wire fraud statute's scope is much broader.

The scheme to defraud can consist of denying your employer the right to your honest services.  In the Fifth Circuit "'honest services' are services owed to an employer under state law[ ]."  United States v. Caldwell, 302 F.3d 399 (5th Cir. 2002).  See also, United States v. Gray, 96 F.3d 769, 775 (5th Cir. 1996) ("[A] deprivation of an employee's faithful and honest services if a violation of the employee's duty to disclose material information is involved.")  Under Texas law (and probably the law of all 50 states), a company's Chief Executive Officer owes fiduciary duties to his employer-company. 

The government alleges that Ken Lay breached his fiduciary duty to the company's shareholders, the investing public, and the SEC when he gave two talks (subsequently distributed interstate).  In the first talk - September 26, 2001 - Lay held an on-line forum with Enron employees.  In this forum Lay told Enron employees that Enron was looking strong and was on pace to meet its fourth quarter goals.  Lay also told employees that he would continue to purchase Enron stock.  However, the government says that Lay knew the company was about to amend its filings with the SEC to show a 1.2 billion dollar loss.  In other words, Lay lied to his employees.  He breached his duty and thus is guilty of wire fraud.

The basis for the second count occured on October 23, 2001, when Lay talked again to his employees.  In this talk he praised the liquidity of Enron.  However, he failed to disclose that in order to maintain Enron's liquidity, the company had to drain its line of credit and put down its real and personal property as collateral to obtain a loan.  In other words, Lay did not fully disclose Enron's financial condition. 

I think this element of both counts is subject to several good attacks.  One avenue would be for Lay to assert the business judgment rule. 

The business judgment rule generally applies in the civil context.  Often a disgruntled shareholder will bring a derivative lawsuit - sue the company on behalf of the company - challenging some action of the board of directors.  Many courts do not want to interfere with the internal dealings of a corporation.  Courts also recognize the complexity of business decisions.  And so, they dismiss the case on the grounds that the decision of the board of directors fell soundly with the BOD's business judgment.  Ken Lay could very well argue that his decision to selectively disclose facts to Enron's employees rested within his business judgment.

After all, there are a lot of legitimate reasons for not telling your employees that your company is going belly up.  Perhaps Lay thought blue skys were ahead.  Perhaps he thought that fully disclosing Enron's financial condition would only cause more trouble: the stock would plummet and people would quit.  He had a judment call to make.  He might say, "In hindsight, it was the wrong decision.  But I made the best decision I could.  I did the best I could."  In other words, if he really made the best judgment call possible in his mind, then he provided his full "honest and good" services.  The wire fraud does not demand competency: it only demands effort.

Granted, that argument might not persuade the judge to dismiss the two counts of wire fraud as a matter of law.  But it damn well might persuade the jury (or enough jurors to hang on those two counts) that it should not engage in Courtroom-CEO'ing. 

Specific intent.

There are two types of intent crimes: general intent and specific intent.  One commits a specific intent crime when he does some act solely for the purpose of causing a specific harm.  For example, if I intentionally stuck out my foot and accidentally tripped you, I would not be liable for the specific intent crime of tripping.  But if I stuck my foot out solely to trip you, I would be guilty of tripping.  To convict Lay, the government must prove that when he gave those two talks, he did so in order to defraud investors: in other words, that he cheated them out of his full and honest services.  This element is subject to attack on the same theory discussed above.

Interstate nexus.

The third element is easily met since the talks Lay gave were distributed to employees throughout the country.  The government can easily prove this element.

The wire communications.  The wire communications were the videos produced on September 26, 2001 and October 23, 2001.  Again, no problems of proof presented for this element.     As you can see, Charges 2 & 3 depend soley on whether the government can prove that Lay knew of Enron's financial condition.  This may be very difficult since Lay's defense is that he did not know Enron was in dire straights.  Lay can also assert that when he gave those press conferences, he disclosed everything he thought appropriate and that as a CEO, we should give him some deference.  Besides, trying and failing is different from cheating.

In press conferences, Lay has come off as being very charming.  The government will have a very difficult time convicting on these counts.  I predict an acquittal on these two charges.      (1).  Title 18 section 1343 reads: "Fraud by wire, radio, or television" "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 five years, or both. If the violation affects a financial institution, such person shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both."

Charge 1: Conspiracy

[In case you hadn't heard, today is Day 2 of Ken Lay Week.  You should read The Indictment if you have not done so.]
 
Charge1 (which happens to be Count 1 of the Indictment) alleges that Lay, Skilling, and Causey conspired to commit securities and wire fraud in violation of 18 U.S.C. 371.  [You seasoned defense lawyers might find this a bit hum-drum.]
 
Conspiracy is perhaps the easiest crime to understand.  Criminal liability attaches under the conspiracy statute if two or more people agree to commit a crime and one person takes an act in furtherance of the agreement.  18 U.S.C. 371 ("If any two or more persons conspire [to commit a federal crime], and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.")  The conspiracy statute, in other words, punishes the agreement to commit a future crime.  Pattern Jury Instruction 2.20 ("A 'conspiracy' is an agreement between two or more persons to join together to accomplish some unlawful purpose. It is a kind of 'partnership in crime' in which each member becomes the agent of every other member.")
 
A conspiracy count is considered typical in any federal prosecution.  "Conspiracy has been called the darling of prosecutors."  McCart v. State, 765 So.2d 21, 34 (Ala. Crim. App. 1999).  See also Interview with Robert F. Clark, ("Conspiracy is ... the darling of the prosecutor. You don't have to catch people. You can sit in your office and say, 'We have a conspiracy.'")  Generous liability rules are one reason prosecutors love conspiracy.
 
Under Pinkerton v. United States, 328 U.S. 640 (1946), a conspirator is liable for the reasonably forseeable acts of his co-conspirators done in furtherance of the conspiracy.  The Fifth Circuit Pattern Jury Instruction 2.22 (2001) phrases the Pinkerton rule as follows: "A conspirator is responsible for offenses committed by other conspirators if the conspirator was a member of the conspiracy when the offense was committed and if the offense was committed in furtherance of, or as a foreseeable consequence of, the conspiracy."  This rule applies even if the co-conspirator may not have assented to the comission of some crime.  Consent to each act done by a co-conspirator is not required: the touchstone is whether the acts were forseeable.  Thus, the District Court intructs the jury:  

Therefore, if you have first found the defendant guilty of the conspiracy charged in Count___ and if you find beyond a reasonable doubt that during the time the defendant was a member of that conspiracy, other conspirators committed the offenses in Count[s] ___ in furtherance of or as a foreseeable consequence of that conspiracy, then you may find the defendant guilty of Count[s] ___, even though the defendant may not have participated in any of the acts which constitute the offense[s] described in Count[s] ___.

Id.

Do note there is an exception to the Pinkerton rule.  Lay is not liable for Skilling's and Causey's acts if Lay affirmately pleads that he withdrew from the conspiracy.  United States v. Schorovsky, 202 F.3d 727, 729 (5th Cir. 2000) ("[W]e believe it is logical to infer that the conduct of conspirators after a defendant withdraws from the conspiracy likewise is excluded from the defendant's relevant conduct for sentencing purposes.")  See Jury Instruction No. 2.23.  ("[T]he defendant must demonstrate some type of affirmative action which disavowed or defeated the purpose of the conspiracy.  This would include, for example, voluntarily going to the police or other law enforcement officials and telling them about the plan[].")  Of course, since Lay has not admitted the existence of a conspiracy, by definition there would have been nothing for him to withdraw from. 
 
Thus, Lay's being charged with conspiracy is unremarkable, though something about Count 1 is quite remarkable. 
 
What is Not Charged. 
You can see that the Indictment charges, in total, 18 counts of securities fraud and 6 counts of wire fraud.  However, Lay is only charged with 4 counts and 2 counts, respectively.  This could become very significant.   
 
If Lay agreed with Skilling and Causey to commit wire and securities fraud, then Lay is liable for Skilling's and Causey's wire and securites fraud.  That Lay is not charged with more counts may be an indication that the prosecution can not prove that Lay, Skilling, and Causey agreed to commit any crime.  [Counter: the prosecution is merely waiting to see what evidence develops at trial.]
 
If there was a conspiracy to commit wire fraud, and indeed Skilling and Causey committed wire fraud, then why isn't Lay charged with more counts of wire fraud?  Indeed, this is more interesting since on page 39 of the Indictment, prosecutors allege that Lay's committed the following overt acts in furthernace of the conspiracy:

[1]  [He] "spoke to a representative of a national credit reporting agency," para. 88p; [2]  [He] "conducted a quarterly conference call," para. 88r; [3]  [He] made another "conference call," para. 88s. 

These three acts serve as the basis for three counts of securities fraud against Lay.  However, Skilling is not charged for any of these three acts, and Causey is only charged in connection with two of these acts.  
 
Also note that the prosecution hasn't charged Skilling and Causey with the wire fraud Lay allegedly committed.(1).   So, why is it that Lay's wire fraud counts are inapposite Skilling's and Causey's?  Could it be that no agreement between Lay, Skilling, and Causey can be proven?  Perhaps Lay's knowledge of Skilling's and Causey's actions can not be proven.  If so, then Charge 1 is out the door.  Also, if the prosecution can not establish a broad conspiracy between Lay, Skilling, and Causey, it may have a harder time proving that Lay knew about the company's financial situation since it was Skilling and Causey who filed the 10-K and 10-Q forms with the SEC.  Form 10-K and 10-Q, required by the SEC, are where a company lays out its financial condition.  If Lay was not privy to the information in these documents, then he has a strong claim that he really did not know that Enron was in poor financial condition.  As such, he was not acting in a conspiracy with Skilling and Causey when he told analysts that Enron was doing well.

(1).  Tomorrow I discuss the wire fraud statute as it relates to Ken Lay's prosecution.

Ken Lay Week

As you all know, there is a sword of Damocles hanging over Ken Lay's head.  Well, maybe 11 swords.  Although no evidence has been presented, although no witnesses have been cross-examined, Ken Lay has been convicted.  That upsets me.  And so...
 
Welcome to a new feature.  This week will be Ken Lay week.  It will be Ken Lay every day.  Why?

Well, I became very interested in this case after watching the prosecution's and defense's press conferences.  It was almost unprecedented for a criminal defendant to discuss the case against him on live television.  That took guts.  His lawyer, a home-spun Texan who embodies the ideal of the Southern Gentleman, was ready to fight.  Forget delays, we are ready for trial.  Forget discovery, we do not care what documents the prosecution has.  We have some documents, too.  And guess what?  You won't see them until trial.  
 
When I heard Ramsey speak, my heart rate increased.  Here is a lawyer to admire.  Here is a lawyer with guts.  
  
Then there was the government's lawyer.  The assistant united states attorney (AUSA) seemed smug and self-assured.  He seemed more concerned with sucking in the limelight than with justice.  I do not believe that the prosecutorial sword should be used to collect trophies.  Martha's head was enough. 
 
I predicted - without having seen the Indictment -  that Lay would walk.  He oozes credibility, as does his attorney.  I also didn't think a Texas jury would be keen on the DOJ folks from D.C. waltzing into their Texas courtroom spouting off fancy language.  I said that if Lay is convicted at all, it will be on something insignificant (compared to the awful things the media has already tried and convicted him of).  Yet this was a foolish prediction given that the legal counts against Lay were unknown to me.  Not one to play the fool, I sought to learn more.
 
Unfortunately, I learned that the press accounts are garbage.  The "legal commentary" has mostly consisted of pop culture slogans and references to acts not charged in the Indictment.  "He ruined the company and must pay," for example.  Well, unless there is a federal crime for "ruining a company," and unless this crime is charged, such lines do not belong in any discussion of the Ken Lay case.  We will have none of that here.  My discussion will be based exclusively on the law and facts of the case.  I hope you enjoy this feature.  Please scroll down for the first entry - The Indictment.  On Tuesday you can read Conspiracy.  On Wednesay, Wire Fraud.  Thursay will bring Securities Fraud.  Finally, on Friday, we will discuss the Bank Fraud (the so-called Reg. U crimes). 
 
I hope you will enjoy this feature.

The Indictment

I plowed through this 65-page monster so you do not have to.  Most of the Indictment deals with Ken Lay's alleged co-conspirators, Richard A. Causey and Jeffrey K. Skilling.  This post will only focus the counts alleged against Ken Lay.  Unfortunately, I can't create a table using my current Blogger features, though the charges against him are organized.
 
The Key to the text is as follows.  First, I replaced "Charge" for "Count" because we are only worried about the case against Ken Lay here.  The "p." or "pp." symbol refers to the page number of the Indictment.  The "Count" notation in parenthesis refers to the Count charged in the Indictment.  (The Indictment charges 53 counts.  We only care about Lay's 11.)   When I say, Ken Lay did such-and-such, I refer to the government's allegations.  The text flows more smoothly when I do not constantly say "allege," "theorize," "contend," etc.  If anyone finds this confusing, please let me know.
 
Charge 1 - Conspiracy to Commit Securities and Wire Fraud (p. 36-39; Count 1). 
Lay agreed with Skilling and Causey to lie (or not tell the whole truth) to the Securities and Exchange Commission (SEC) and the investing public.  The three of them also agreed to use the mail, phone, fax, or video to lie to others outside of Texas.  They told these lies in order to steal.
 
Charges 2 & 3 - Wire Fraud: False and Misleading Statements in Employee Meetings (pp.45-46; Counts 12 & 13).
Ken Lay lied to his shareholders when he said on two videos (that were later broadcast outside of Texas) that Enron was fiscally sound.  His lied to steal in two ways.  First, by not telling the truth, he deprived shareholders, the investing public, and the SEC of his "good and honest" services.  As the Chief Executive Officer of Enron, he owed the shareholder a fiduciary duty.  He breached his fiduciary duty by not fully disclosing the state of affairs at Enron.  Second, Lay lied in order to induce members of the investing public to give money to Enron, i.e., purchase stock.
NOTE:  There are a lot of holes in these and the other charges.  I will deal with these holes and provide substantive legal analysis later on.  Remember, it's Ken Lay week.

Charges 4-7 - Securities Fraud (pp. 48-49; 27-30).
Ken Lay lied (or failed to tell the whole truth) to members of the investing public or the SEC about Enron's financial condition.  
 
Charge 8 - Bank Fraud (p. 53-57; Count 38).
Ken Lay lied in a loan application about what he was going to do with the money he borrowed from Bank of America.  Hence he obtained loans from Bank of American fraudently.  Regulation U prohibits a person from using loan money to purchase or carry margin stock.  Yet Ken Lay used money he borrowed from Bank of America to purchase or carry margin stock.
 
Charges 9-11 - False Statements to Bank (pp. 57-58; Counts 39-41). 
Ken Lay lied on bank forms.  Somewhere on the forms (in very large print I'm sure) it said, "You can't use this money we are lending you to buy or carry margin stock."  Yet Lay used the loan money to borrow margin stock.  See Charge 8, above.

Some initial thoughts...
The prosecution's case against Ken Lay has more holes than the moon has cheese.  A specially created task force, after 28 months of investigation, could only come up with 11 charges against Lay.  And as you can see, almost 30% of the case against him has absolutely nothing to do with the collapse of Enron.  I wonder if you read the fine print before signing a loan application.  
 
Students of the world take note!  If you use your student loan money to take a someone out on a date, you may have comitted a federal crime.  How is that for overcriminalization?

White Collar Crime in the News

An article on Tyco's ex-General Counsel's acquittal is available here.  This, like many other white collar criminal prosecutions, turned on the defendant's credibility.  The article states:
"The centerpiece of their case was Belnick himself, who took the stand for several days of testimony."

"On direct examination by Weingarten, he presented himself as an honest lawyer and outsider at Tyco who failed to establish a rapport with Kozlowski and encountered active hostility from other Tyco executives and members of the board of directors.   On the stand, Belnick explained how he slowly instituted policies and procedures at the company. He also described how he hired and worked with lawyers at Washington, D.C.'s Wilmer, Cutler & Pickering to resolve the SEC investigation. He said Kozlowski had promised him the $17 million bonus on the investigation's successful conclusion."

"Throughout his time on the stand, Belnick had acknowledged that his compensation was high but he said Tyco was known for rewarding performance. He said he relied on Kozlowski's word that the CEO had the ability to set the general counsel's compensation. Noting that he was a litigator rather than a securities lawyer, he said he willingly deferred to Swartz on issues like whether he needed to disclose his loans or bonuses on the company's proxy statements."

In other news...ABC has the inside scoop on Martha Stewart's appeal, led by former acting Solicitor General Walter Dellinger.  The article notes several alleged points of error, including: 
 
"[1]The perjury by Juror Number 4 (Chapell Hartridge), who failed to disclose a 1997 arrest for domestic assault and an attempted robbery conviction for his son, and the decision to not prosecute."

"[2]The perjury by Larry Stewart, the Secret Service national ink expert, and the defense assertion that he is a member of the prosecution and that at least five other persons in the Secret Service knew of the perjury. Additionally, the defense asserts that it would have been reasonable for the government to have known of the risk of prejudicial testimony well before the end of trial, if not before the testimony was given."

"[3]In the government opening argument the assertion of an "insider tip" came up 17 times, yet the judge had ruled that the defense could not address the issue of insider trading before the jury. Dellinger is expected to state that when the prosecution talked about secret tips, they were using code for insider trading which the jury would understand."

"[4]That testimony by Stewart's best friend Mariana Pasternak that asserted Stewart knew when to sell her stock was allowed to stand, with no instruction to the jury, despite the fact that later Pasternak said she might have "imagined" the critical conversation."

"[5]That Martha Stewart's constitutional right to confront witnesses against her was violated when the prosecution introduced statements her co-defendant Peter Baconovic made to investigators, in which he said that he had never had a conversation with Martha's business adviser in which they agreed to sell her shares of ImClone if the price fell below $60."

"[6]That the judge did not order a hearing to determine if the prosecution was aware of Larry Stewart's perjured testimony."

"[7]That the inclusion of the securities fraud charge unfairly prejudiced the jury."

Each point other than Nos. 3 and 5 seem to me to be clearly harmless error.  Point 3 is another example of prosecutorial misconduct - but it's of the kind that courts ignore each day.  Point 5 has potential in light of Crawford v. Washington (holding that Confrontation Clause prohibits out-of-court statements offered against a defendant unless the defendant first has the right to cross-examine the declarant).  I do not know what role Baconovic's statements played in her conviction, though as first pass the statements seem crucial to Stewart's conviction.  Martha Stewart was convicted of lying to investigators when she told them that she had a stop-loss order in place.  Apparently Baconovic said no such order was in place.  Thus, Baconovic's statement would seem pretty damn crucial to a conviction by providing direct evidence that no such order was in place, and therefore Marth was lying when she told investigators otherwise.  Also, note that Martha Stewart was convicted on March 5, 2004 (and presumably the statements were entered against her well before that).  Crawford was rendered on March 8th.  To win on this point her defense team will have to prevail on the argument that Crawford applies retroactively.   I look forward to reading the briefs. 
 
The Stewarts case is a lesson in the preciousness of liberty.  Martha will face, at most, 16 months in a relatively decent federal prison.  She has spent millions on her legal defense: she will spend millions more.  Good luck, St. Martha.

 

I'll String You a Song...

A fierce debate dealing with the continuing viability of the rule of law wages.  If you thought the terrorist trifecta was important, well, you ain't seen nothing yet.  Let me provide a summary.

The Uncivil Litigator took umbrage at a partner's suggestion that he provide pinpoint citations in an appellate brief. 

In response, The Curmudgeonly Clerk wrote that "[t]here is a special ring of Hell reserved for attorneys who submit motions to the courts sans the appropriate pin citation."  Shots were fired.  I wrote: "When I read a brief citing a legal proposition that does not include a pinpoint citation and the actual language from the opinion, I assume the party is lying. [ ] Generally people who make these broad statments didn't read the case."  (Comment 1, 6:12 p.m.)

UCL, seeking to avoid that special ring in Hell decided to "sit in silence no longer."  He cited specific examples from the Hamdi case in support of his proposition that "it is perfectly acceptable to cite to a case without using a pin cite on every single occasion."  He also defended his practice on the ground that pin cites are impractical when one is using string citations.  (Comment 2, 8:30 p.m.) ("[I]f I choose to cite 4 cases in support of the same general proposition, following 1 cite which I analyze in detail in a given motion, do I have the time to make sure each one is pin-cited? No.").  Gasp!  UCL uses string cites? 

But I offered a solution.  If UCL would quit using string cites, then the issue of using pin cites becomes moot.  (Comment 6, 9:27 p.m.) ("[I]f we ixnay the string cites, then pin cites within the string cites are no longer an issue. Sans string sites!")

UCL "couldn't disagree [ ] more" with my comment.  (Comment 7, 11:03 a.m.)

Well, what do y'all think?  Are string cites a waste of time, or a necessary way to butress your legal position?  Should a party stringing citations provide a pin cite at each leg of the centipede?  Please take your comments over to the origional discussion.