Tagged: White Collar

Be Very Afraid: “New Era” of White-Collar Prosecution at the DOJ

Lanny Breuer, the DOJ’s Assistant Attorney General for the Criminal Division, gave a speech today announcing a “new era of heightened white-collar crime enforcement — an era marked by increased resources, increased information-sharing, increased cooperation and coordination, and tough penalties for corporations and individuals alike.”

You can read his prepared remarks here. We did, and we find them very troubling.

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“The techniques that have been used historically to go after organized crime or blue-collar crime need to be used at times in white-collar crime, because the American people expect no less.” That’s a quote from Breuer’s speech today.

That ought to scare you. It scares us. We’re going to have mob agents looking at Wall Street with the wrong filter. Bring a shopping bag to a friend’s house? It’s a cash delivery! Share gossip and rumors heard on the street? It’s insider trading!

And how many federal prosecutors really understand the day-to-day nuts and bolts of the financial world? Sure, they’re mostly bright and well-educated, but how many know the lingo? How many know what actually goes on at those long tables, with everyone on the phone and banging away on their keyboards? Considering where federal prosecutors come from, we’re willing to bet it’s not a big number at all.

So agents are going to be interpreting things wrong. And prosecutors are going to be interpreting things wrong. And now they’re just going to be doing it more.

How is that not scary?

Stop the Music – 3rd Circuit Slams DOJ’s “Musical Chairs” in Securities Fraud Prosecution

SEC Rule 10b-5 is one of the main securities fraud laws. It says you can’t mislead people in connection with the purchase or sale of a security. You can’t make an untrue statement of a material fact. And you can’t fail to state a fact, when without that fact the statements you just made would be misleading.

That seems simple enough. But federal prosecutors in New Jersey seem to be having a hard time figuring out what that means.

In June 2005, the feds in New Jersey indicted Frederick Schiff, the CFO of Bristol-Myers Squibb, for failing to disclose material facts to investors. Allegedly, Bristol-Myers (a drug company) was paying wholesalers to order more drugs than they really needed, so Bristol-Myers could report higher sales numbers and inflate its stock value. Schiff allegedly didn’t tell investors about it during conference calls and in SEC filings. (See the indictment here and the DOJ’s press release here.) That indictment got thrown out for a grand jury leak, so they got a second one in May 2006, and finally a third one in April 2007 that dropped allegations of accounting violations.

With respect to the omissions, the government kept changing its tune. First, they said the company had a duty to correct misleading statements of others, based on a “general fiduciary duty.” The district court helpfully pointed out that there is no such duty in the law. So then the feds said there was a statutory duty under SEC regs S-K, which might actually have worked, but then they changed their mind and put on the record that they weren’t pursuing that theory. There was a “theory of duty based on falsity of reported sales and earnings,” which the District Court said wouldn’t fly. Then they tried to say the stuff left out of filings is a material omission that is misleading if you include the earlier analyst calls in the context (calling it “all of a piece”). The district court ruled that, no, there is no affirmative duty under either the “falsity” or the “all of a piece” theory. “It defies logic,” the court ruled, “to charge as a crime that an utterance in an analyst call must have other words written in a later SEC filing in order to make the utterance in the prior phone call ‘not misleading.’” Thanks for playing. The feds appealed.

In a unanimous decision today (opinion here), the Third Circuit slammed the DOJ for constantly changing its theory of the case, for playing “musical chairs” with its theory of how Schiff’s conduct counted as an unlawful omission under Rule 10b-5.

More importantly, the Circuit said the DOJ’s ultimate theory of liability here — that Schiff had a “general fiduciary” duty as a “high corporate executive” to disclose the inventory issue — was simply overbroad. “This argument reaches too far.”

This is a big setback for the feds, who now are left with a much narrower …

White Collar Crime Going Prime Time

What with white-collar crime being such big news these days, it was only a matter of time: The Hollywood Reporter reports that the USA Network is about to pick up a new series, “White Collar.” Now that USA’s popular detective series “Monk” is ending, the cable network is looking for...

Memo to White-Collar Witnesses: Get Your Own Lawyer!

A “Martha Stewart moment” is that unhappy moment during a white-collar investigation when one’s client misleads the investigators. A client who may have escaped prosecution entirely has now practically ensured that she will be prosecuted. If his client must speak with investigators, a good attorney tries to prepare her well,...

Gang Crime Rising, So More… White-Collar Prosecutions?

Gang crime is on the rise, the FBI reports. The politicians and prosecutors, however, are focusing on white-collar crime these days. Here’s a look at why this is happening. Gang crime seems to have increased, ironically, as a result of improved anti-gang law enforcement in the big cities. According to...