February 7, 2013

It's Hard To Lie (Though Not For The Reason You Think); or You Haven't Made A False Statement If The Statement You Made Isn't False

Daniel Castro was a high-ranking person in the Philadelphia Police Department. And the Third Circuit's opinion in his case - United States v. Castro - may just be the most awesome published opinion I've seen in months.

Mr. Castro was charged with three separate extortion conspiracies and also with making a false statement to federal agents - a violation of 18 U.S.C. § 1001.

The jury hung on the extortion charges. They convicted on the false statement charge.

He pled to one extortion conspiracy to avoid retrial and the plea agreement had an appeal waiver.

Yet, despite that, the Third Circuit reversed his false statement conviction because the government hadn't proven it. The Third Circuit held that he was so clearly not guilty of making a false statement that it would be a manifest injustice to not reverse on those grounds - so the appeal waiver didn't bar their consideration of the issue.

1095398_right_or_wrong.jpgThe (Not) False Statement

Mr. Castro had a friend, Rony Moshe. Mr. Castro lost some money in a bad investment. He thought of his losses as a debt owed to him by the person he invested with - a man named Encarnacion. Mr. Moshe proposed that he could refer some tough debt collectors to help Mr. Castro collect this "debt" from Mr. Encarnacion. Mr. Moshe really went out of his way to try to work with Mr. Castro.

As you may have already suspected, Mr. Moshe was also an FBI informant.

After a lot of back and forth and a lot of regrettable statements on wires, Mr. Moshe gave Mr. Castro some money that he told Mr. Castro came from Encarnacion. In fact, it came from the FBI.

The FBI interviewed Mr. Castro. The asked him if he ever got money from Mr. Encarnacion.

Mr. Castro said that he did not. Though of course he thought that he did. Though he didn't - the money came from the FBI.

His statement that he didn't get any money from Encarnacion was the basis of his false statement conviction.

Failing to Fib

On appeal, Mr. Castro argued that this wasn't a false statement. In fact, it was a true statement - he did not, in fact, get any money from Encarnacion.

Mr. Castro didn't know that the statement was true - he intended to lie. But, despite his best efforts, he failed to fib.

The Third Circuit set out the standard for a false statement prosecution:

To establish a violation of §1001, the government [is] required to prove each of the following five elements: (1) that [the accused] made a statement or representation; (2) that the statement or representation was false; (3) that the false statement was made knowingly and willfully; (4) that the statement or representation was material; and (5) that the statement or representation was made in a matter within the jurisdiction of the federal government.

The second element is plain as day. And Mr. Castro's statement wasn't false. So, the Third Circuit reversed his conviction for making a false statement.

The Government's (Rejected) Arguments

The government was unhappy with this result - Mr. Castro thought he was committing a crime, even if he actually wasn't. The Third Circuit empathized, but disagreed:

In the broadest sense, it is surely so that Castro was morally wrong even if not legally guilty, but our legal system does not convict people of being bad. If they are to be convicted, it is for specific crimes, and the government here undertook the burden of proving that Castro had committed each element of the specific crime set forth in § 1001. It failed to do that.

The government was really unhappy with this result. They argued that there's a "sting operation exception" to the requirement that a person make a false statement for there to be a successful false statement prosecution. Undercover operations do odd things to the truth. Many is the time I've sat with someone after they've been arrested in a sting and the predominant emotion is betrayal. Folks just can't get over being lied to by someone who turned out to be a federal agent.

The Third Circuit didn't much care for the "sting operation exception"

The ready and dispositive response to that argument is that, even if a "sting exception" to the strictures of § 1001 is a good idea, it is simply not in the statute. Congress knows how to pass laws that penalize statements made to law enforcement officers by a defendant who incorrectly believes the statements to be false. Compare 18 U.S.C. § 1956(a)(1) ("knowing" laundering of funds "which in fact involves the proceeds" of a crime), with id. §1956(a)(3) (intentional laundering of funds "represented to be" proceeds of a crime). But it did not do so when it enacted § 1001, and we are not free to amend the law.

In a desperate move, the government then argued that the money really came "from" Encarnacion, even though they came from the FBI.

The Third Circuit's response - "It is not clear how the quotation marks around the word "from" in that sentence help the argument."

Ouch.

As a result, Mr. Castro's false statement conviction was reversed.

So many ways to be wrong, but morally and in terms of what happened. Yet they add up to make something so right.

February 6, 2013

If A Person Ought To Have A Franks Hearing, Then They Ought To Have A Franks Hearing; Pre Franks Is Not Franks Enough

In a criminal case, most lawyers need to figure out what motions to file. A big part of this is to sit down with the government's evidence and try to figure out what parts of the government's case came from something that violated the constitution.

It's frustrating when some part of the evidence came from a search warrant - challenges to search warrants are tricky, because a judge already signed off on the warrant. It's not to say it can't be done, it's just different than challenging, say, if the FBI ran into a client's office and took a bunch of stuff without a warrant.

Sometimes you can challenge a warrant if the affidavit in support of the warrant clearly didn't establish probable cause to think there was going to be evidence where the cops searched.

The trouble with that is that normally the district court judge won't let you examine any witnesses to rule on the issue - if part of the point of filing pretrial motions is to learn more about the government's case and learn more about what their witnesses are going to be like, then this kind of a challenge to a warrant doesn't get you what you want.

file000265247244.jpgAnother thing you can do, though, is challenge the warrant because the cops lied or left something out of the application for the warrant that was really important. This is called a Franks challenge.

As the Seventh Circuit explained in United States v. McMurtrey,

In Franks v. Delaware, 438 U.S. 154 (1978), the Supreme Court held that when a defendant makes a substantial preliminary showing that the police procured a warrant to search his property with deliberate or reckless misrepresentations in the warrant affidavit, and where such statements were necessary to the finding of probable cause, the Fourth Amendment entitles the defendant to an evidentiary hearing to show the warrant was invalid.

So, when is it that a person bringing a Franks challenge has made that preliminary showing? That's the subject of United States v. McMurtrey.

But first, the Seventh Circuit explains what the district court's options are when a Franks challenge to a warrant has been made:

A district court that is in doubt about whether to hold a Franks hearing has discretion to hold a so-called "pre-Franks" hearing to give the defendant an opportunity to supplement or elaborate on the original motion. Though permissible, this procedural improvisation is not without risk, as the sparse case law indicates. In such a pre-Franks hearing, the natural temptation for the court will be to invite and consider a response from the government. However, the court should not give the government an opportunity to present its evidence on the validity of the warrant without converting the hearing into a full evidentiary Franks hearing, including full cross-examination of government witnesses. We emphasize that the option to hold such a limited pre- Franks hearing belongs to the district court, not the defendant. If the defendant's initial Franks motion does not make the required "substantial preliminary showing," the court need not hold a pre-Franks hearing to provide the defendant a further opportunity to do so.

I've never seen a district court order a pre-Franks hearing. Now I kind of want to see one - it looks cool. The government doesn't get to talk, but the defense lawyer does. Awesome. It's like the inverse of a grand jury proceeding.

In Mr. McMurtrey's case, there were two affidavits in support of the warrant. They contradicted each other. So one had to be wrong.

At least one.

So, Mr. McMurtrey made a sufficient showing to get a Franks hearing.

That's not quite what the district court wanted to do though.

As the Seventh Circuit explained it

Rather than hold a full Franks hearing, however, the district court held a truncated pre-Franks hearing. The district court permitted the government to offer additional evidence to explain the discrepancies in the affidavits. That evidence should have required a full Franks hearing, yet the defendant was not permitted full cross-examination on the government's new evidence. The court then relied on the untested government evidence to find that the defendant had failed to make a showing sufficient to obtain a full Franks hearing.

Indeed, the defense lawyer started to cross the cop on his affidavit but was shut down on the grounds that the district court wasn't having a Franks hearing.

Because the court didn't give Mr. McMurtrey his full hearing, the case was remanded and his conviction was vacated.

February 4, 2013

Short Wins - The Seventh Circuit Goes Strong, But the Ninth Circuit Goes Interesting; Resentencing, Discovery Violations, And Money Laundering

It's a good week in the circuits for folks accused of federal crimes.

The Seventh Circuit has been active (though sadly without Judge Posner). United States v. Diaz-Rios looks interesting - it's a remand for resentencing in a mitigation role case. Personally, I think the mitigating role reduction is too rarely applied (though I would say that). I'm always happy to see pro-defendant law made on that guideline.

Perhaps most interesting, though, is United States v. Doe - a Ninth Circuit discovery violation case. Looks like all of DOJ's Brady training may not have eliminated the whole problem. Shocking.

Speaking of things that are only shocking ironically, the New York Times had a nice piece on police lying. Though, realistically, if our country is going to put more people in prison than Stalin had in his gulags, a little bit of government lying is going to be hard to avoid.

Also well worth a look is United States v. Demmitt - a reversal for money laundering where the government failed to show that the folks accused of the crime intended to conceal where the money came from.

To the Victories:

1155650_berlin_siegessule.jpg1. United States v. Diaz-Rios, Seventh Circuit: Appellant pled guilty to trafficking a large amount of cocaine. At sentencing, both appellant and the government agreed that a two-level mitigating-role reduction under Sentencing Guideline § 3B1.2 was warranted. Because the reasons the district court gave for refusing this reduction did not show that the court evaluated all of the relevant factors under this Guideline, remand was required for the district court to explain its basis for rejecting the reduction.

2. United States v. Vidal, Seventh Circuit: Appellant pled guilty to offenses arising out of his participation in a scheme to rob a stash house. At sentencing, he argued that he should be sentenced to the mandatory minimum because of his psychological problems. Because the district court's reasons for rejecting appellant's argument that his psychiatric issues warranted a below-guidelines sentence were not clear from the record, his sentence was vacated and the case remanded for resentencing.

3. United States v. Doe, Ninth Circuit: Appellant was convicted of various drug felonies. Because the district court erred in denying two of appellant's discovery requests as overbroad, his conviction was vacated and the case remanded for a hearing to determine (1) whether the requested documents contain or would have led to information that may have altered the verdict and (2) whether the government discharged its obligation to provide the defense with material exculpatory evidence. The court also made several procedural errors at sentencing: (1) failing to accurately state the Guidelines range; (2) failing to give the parties a chance to recommend a sentence; and (3) failing to address all but one of appellant's objections to the Presentence Report and his arguments for further Guideline reductions. For these reasons, if appellant's conviction is reinstated, resentencing is required.

4. United States v. Cervantes, et al., Fifth Circuit: Appellants Mark Milan, Cristobal Cervantes, and Luis Alvarez were convicted of offenses arising out of their scheme to conduct an armed home invasion to steal a large quantity of drugs. In sentencing Mr. Cervantes and Mr. Alvarez, the district court applied a two-level enhancement under Guideline § 2D1.1(b)(1) because the drug conspiracy involved firearms. This was error because Mr. Cervantes and Mr. Alvarez were also separately sentenced for possession of a firearm in furtherance of a drug trafficking crime. Consequently, the case was remanded for resentencing.

5. United States v. Block, et al., et al., Seventh Circuit: Eight appellants pled guilty to offenses arising out of their involvement in a large heroin distribution conspiracy. One of the appellants, Samuel Peeples, received a two-level enhancement under Guideline § 2D1.1(b)(1) for possession of firearms by his co-conspirators. Because this enhancement was not supported by the record, Mr. Peeples' sentence was vacated and the case remanded for resentencing.

6. United States v. Demmitt, Fifth Circuit: Appellant was convicted of money laundering and other offenses. The government failed to present evidence that that the wire transfer at issue was designed to conceal or disguise the nature, location, source, ownership, or control of the fraudulently obtained money. Because no rational trier of fact could have found that the evidence established all of the elements of money laundering beyond a reasonable doubt, appellant's conviction was vacated.

January 31, 2013

To Prove Mail Fraud, The Government Has To Show You Used The Mail

Our brave new world of internet technology is encouraging innovation of all kinds. Innovation of new ways to interact with each other, new ways to learn, new ways to work, new ways to embezzle and create records of one's embezzlement, and new ways for the government to try to prosecute.

In United States v. Phillips, the Ninth Circuit - in an opinion written by S.D.N.Y. SuperJudge Rakoff sitting by designation - brushed back a prosecution for embezzlement from a tech company.

1369865_mailbox.jpgThe government, you see, prosecuted a former CEO of a tech company for mail fraud.

No one uses the mail any more.

False Invoices and Bad Emails

Mark Phillips was the co-founder and CEO of MOD Systems Inc. MOD was a high-tech start-up that was trying to develop and monetize a platform to sell and distribute content to consumers.

Mr. Phillips had a girlfriend - Jan Wallace. Like many men with a girlfriend, he liked to email her. She liked to email him back. It was good.

Unfortunately, Mr. Phillips was also involving her in a scheme to get money out of his company and onto his wrist.

Feel Good Watches

Ms. Wallace introduced Mr. Phillips to Feel Good Watches. Mr. Phillips decided to buy two watches from Feel Good. I'd like to think it was one for him and one for her; it's the romantic in me.

The watches cost $30,000 each - they were Breguet watches. At that price, one can imagine that they would make you feel very good indeed.

Feel Good mailed the first watch to Mr. Phillips. Mr. Phillips then emailed Ms. Wallace and said,

I received the watch, it's beautiful . . . If possible could I pay you for this so I can pay out of a company for consulting work.

Mr. Phillips then created a number of fake invoices for a company called Wallace Black LLC. He had MOD pay Wallace Black LLC through his attorney. The money that went to Wallace Black LLC was deposited into an account controlled by Ms. Wallace.

All of these communications and transfers - it appears - went through email or wires.

Ms. Wallace did not provide accounting services to MOD. It isn't clear whether she provided them to Feel Good Watches.

The fake invoices created a complicated paper trail. Following it was made easier for the government by Mr. Phillips emails with Ms. Wallace.

There was also a regrettable transfer of funds from the company to make a down payment on a mortgage for Mr. Phillip's condo.

The Charges and Trial

Mr. Phillips was charged with wire fraud, mail fraud, and money laundering. He was convicted at trial and sentenced to 48 months in prison.

Where's the Mail?

On appeal, Mr. Phillips argued that he hadn't committed mail fraud, since he hadn't used the mail.

The government's position was that Mr. Phillips used the mails when one of the watches - the first one - was mailed to him.

Mr. Phillips, on the other hand, countered that the watch wasn't a part of the conspiracy, rather, it was simply something that was just that he used the money he received from MOD to buy a watch.

The question is whether the mails were used in furtherance of the scheme to defraud. So, was the watch sent to further the scheme?

The Ninth Circuit said no.

The Supreme Court has previously ruled, in United States v. Maze, that where a man used a stolen bank card to pay for motels, and the motels mailed invoices for the stuff he charged, the mailing of the invoices wasn't enough to make things into mail fraud.

Because the bank card scheme's success didn't depend on the mailings, the Court said there was no mail fraud there.

Here, for Mr. Phillips, because the watch being mailed wasn't necessary to the scheme to defraud Mr. Phillips' company, he wasn't guilty of mail fraud.

As the Ninth Circuit put it,

Here, as in Maze, the success of Phillips's fraudulent scheme did not depend in any way on the use of the mails. The fact that Phillips purchased a watch with $30,000 of fraudulently obtained MOD funds, instead of using the funds for his personal benefit in some other fashion, did not in any way affect the scheme "to defraud MOD and to obtain money from MOD," as charged in Count 5. The fact that payment eventually was made to a watch dealer and that watch dealer mailed a watch in return was not a part of the scheme to defraud MOD and to obtain money from MOD - it was simply the byproduct of that scheme. Put another way, as a result of Phillips's successful execution of his scheme to defraud, he had sufficient funds to pay for the watch.

The mail fraud conviction was, therefore, reversed.

January 29, 2013

When FBI Agents (Allegedly) Talk In The Hallway; or Why Even A Lawyer Should Not Talk To the FBI If There's A Real Estate Fraud Investigation Afoot

Marc Engelmann was accused of conspiracy to commit bank and wire fraud, as well as bank and wire fraud. He was convicted at trial after some very shady stuff might have happened between two FBI agents. The Eighth Circuit (yes, the Eighth Circuit!) remanded in United States v. Engelmann.

Dual Price Real Estate Deals

Mr. Engelmann was a real estate attorney. He represented a seller in nine different deals that the government thought broke the law.

In each deal, the buyers and the sellers entered into "dual price" purchasing agreements. Basically, that means they agreed that they would tell the lenders that they were buying the property at a higher price than the actually were, so that the lender would lend more money.

No one would be surprised to learn that the mortgages ultimately went into default and the properties were sold at foreclosure.

645099_the_secret.jpgMr. Engelmann's Trial

At trial for his role in defrauding these lenders, Mr. Engelmann's defense was that he thought the lenders knew about the dual price agreements. If the lenders knew, then there's no harm to them. (though it's not totally clear what the point of a dual price agreement would be, but ok)

At trial, the district court entered a sequestration order - anyone who would be a witness had to leave the courtroom so that the witnesses couldn't tailor their testimony to what they'd already heard.

Two FBI Agents testified at trial. They both said that Mr. Engelmann told them that he knew that the lenders were unaware of the dual pricing agreements. Mr. Engelmann testified that he told the agents, instead, that if the lenders didn't know of the agreements, then it would be fraud.

The prosecutor argued in closing that the Agent's testimony about what Mr. Engelmann told them was

"the most important evidence that has been presented" and "the most powerful evidence about the defendant's guilt in this case." The prosecutor argued Agent [One]'s testimony regarding the statement was especially credible since Agent [One] was not in the courtroom while Agent [Two] testified and thus "didn't have the benefit of hearing Special Agent [Two]'s testimony" before giving his own.

The jury convicted Mr. Engelmann.

A Phone Call To Chambers

After the jury verdict, a man called the district court judge's chambers. The man's name was McNamara. Here's how the district court summarized the call:

[McNamara] informed the Court that he had attended the Engelmann trial and wanted to advise the Court of what he perceived as an "injustice" that had occurred during trial. Mr. McNamara reported that, during a court recess after [Agent 2] had testified, Mr. McNamara observed [Agent 2] talking to [Agent 1], who had not been in the courtroom during [Agent 2's] testimony. According to Mr. McNamara, the two agents were discussing [Agent 1's] testimony regarding the procedure and techniques the agents had used during the case investigation. Mr. McNamara also reported that he saw [Agent 2] look at the notes he had referred to during his testimony. Mr. McNamara said he felt this observation was significant because [Agent 1] later gave testimony consistent with [Agent 1's] testimony regarding the agents' procedure and techniques in their investigation and as to what [Engelmann] had told them during the interview. Mr. McNamara further expressed that it was his recollection that the Government argued in closing that [Agent 2] and [Agent 1] had testified independently and that they had never spoken to one another about their testimonies.

So, basically, McNamara alleged that the two agents colluded on what they'd say in the middle of trial. And the prosecutor hit that colluded testimony hard in closing argument.

And, because any trial lawyer will wonder about this - The first agent to testify was the case agent (who is allowed to sit in during the trial) the second agent to testify was not the case agent.

The District Court Springs Into Inaction

The district court wrote to both of the parties and told them about this.

Mr. Engelmann moved for a new trial and asked for an evidentiary hearing.

The district court said no. No hearing, no new trial. The district court said there wasn't much reason to believe McNamara and also that the agents colluding on their testimony in the hallway didn't violate the sequestration order.

And, the district court added, if it did violate the sequestration order, well, it didn't really matter, because McNamara only said they talked about their "procedure and techniques" in the investigation.

The Eighth Circuit Disagreed

The Eighth Circuit remanded and directed that the district court hold a hearing to develop the testimony about what happened. There are two conclusions that are interesting.

First, the court of appeals held that

Since sequestration orders are meant "to prevent witnesses from tailoring their testimony to that of prior witnesses," it would be illogical to hold that [one] Agent, excluded from the courtroom pursuant to a sequestration order, could wait outside the courtroom doors and then discuss with [the other] Agent the testimony which [the other] Agent had just given.

Second, and sort of deliciously for those defense-minded folk among us, the Eighth Circuit addressed whether the error was harmless.

The court of appeals said that because the prosecutor said this was "the most powerful evidence of the defendant's guilt in the case," this was a serious enough issue that a hearing on the sequestration violation was warranted.

January 28, 2013

Short Wins - If The Circuits Are Only Going To Give One Victory To A Defendant In A Week, This Is A Pretty Good One

Perhaps our nation's circuit court judges took it easy last week because of the inauguration, or Martin Luther King Jr. Day, but there's only one case where a defendant won in a published opinion in a federal appellate court.

That said, it's a great win -- sufficiency of the evidence reversal from the Eleventh Circuit.

In other news, vaguely related to this blog, I was quoted in the Baltimore Sun, talking about the prospects for Supreme Court review of a Fourth Circuit case involving a federal habeas challenge to a state conviction.

Here's my quote:

Speaking of the possibility of an appeal by Merzbacher, Matthew G. Kaiser, an appeals specialist in Washington, D.C., said the Supreme Court has shown some interest in cases like Merzbacher's, in which attorneys have been accused of failing to discuss plea negotiations with their clients.

Still, Kaiser said, Merzbacher should not hold out too much hope because the court only takes a fraction of the cases it is asked to review. "It's perhaps moved from really massively unlikely to nearly massively unlikely," he said.

The article is available at this link.

To the victory!

1155650_berlin_siegessule.jpg1. United States v. Jimenez, Eleventh Circuit: Appellant was convicted of intentionally misapplying $5,000 or more from an organization receiving more than $10,000 in federal funds in one year. Because there was insufficient evidence to support a finding that appellant intentionally misapplied funds, his conviction was reversed and the case remanded with instructions for the district court to enter a judgment of acquittal.

January 25, 2013

Health Care Fraud Restitution Amounts Can't Be Set On Just An Insurance Company Saying It Would Like A Lot Of Money

Two doctors, married to each other, were accused of health care fraud. They pled guilty and fought at sentencing about the amount of the restitution that they would have to pay back to the insurance companies for what they did. And, in United States v. Sharma, the Fifth Circuit held that a district court can't just make up a restitution number.

Dr. Arun Sharma and Dr. Kiran Sharma ran two pain management clinics in Texas.

1028452_syringes_and_vial.jpgAt these clinics, the Doctors Sharma would give pain injections to patients. The health care fraud involved "paravertebral facet-point injections."

I have no idea what those are, but they sound really unpleasant. Happily for the Sharma's patients, many of the injections which were billed never happened. Though, that the injections never happened was not so happy for the insurers or, ultimately, the Sharmas.

Instead, two things would happen. First, sometimes a cheaper faster (and, I imagine, easier for the patient) "tigger point injection" would be given. The doctor would then "upcode" the injection as a paravertebral facet-point injection, since that injection pays more.

If you've ever done a health care fraud case, you know that upcoding is a huge deal.

Then, second, sometimes the doctors would simply create phantom bills for injections that never happened.

The Sharmas were indicted for 64 counts of conspiracy, health care fraud, mail fraud, money laundering, and unlawful distribution of controlled substances. They ultimately pled guilty to one count of conspiracy and one count of health-care fraud.

The big issue at sentencing was restitution. In their plea agreements, the Sharmas agreed that the district court would determine the restitution amount and that they would do what they can to pay it.

Though, in an atypically compassionate move, the government agreed to place $1,500,000 of the money that the Sharmas had received in an educational trust for their son.

Before sentencing, a probation officer prepared a Presentence Report. The PSR determined that the loss amount was $43,318,170.93 and that the Sharmas should pay restitution in that amount. It was not a coincidence that the $43 million amount was submitted by the insurance companies.

The Sharmas hired a forensic accountant and submitted an alternative restitution figure. The accountant backed out losses that the insurance company said were the result of procedures other than injections - like the allergy treatments that Kiran Sharma provided which were undisputedly legitimate.

The accountant also said that the losses on the upcoded procedures was done incorrectly - the loss should be the difference between the procedure that was done and the procedure that was billed for. It should not be just the cost of the procedure that was billed for.

The account calculated the loss at $21,028,963.61. Which is still not chump change, but it's a lot lower than the $43 million.

The district court rejected the accountants work, accepted the insurance companies' number, and ordered restitution of $43 million.

The Fifth Circuit reversed. Noting that "excessive restitution awards cannot be excused by harmless error; every dollar must be supported by record evidence," the court of appeals said that "[b]y . . . directly incorporating the amounts from the victim impact statements into the PSRs as actual losses, the Probation Office went astray."

The Fifth Circuit picked out three examples of victim impact statements that were pretty egregious:

One insurer, Tricare, claimed as loss all of its payments to the Sharmas dating back to 1997. Inasmuch as the charged conspiracy did not begin until 1998, however, the 1997 payments plainly do not constitute actual losses under the MVRA.18 A second insurer, Texas Amerigroup, reported that it paid the Sharmas $650,775.01 for injections, out of a total of $929,884.55 paid to them for all treatments. Yet the Probation Office listed the larger figure, the one for total payments, as actual loss instead of listing only the lesser amount that the insurer paid for injections. This too overstates the insurer's loss by including payments not caused by the specific convictions.19 A third insurer, Principal Life Insurance, attached a spreadsheet of all of its payments to the Sharmas, but expressly stated that it was "not sure which claims relate to the guilty plea." The Probation Office nevertheless reported all of those payments as actual loss.

The case was sent back for the district court to recalculate the amount of restitution that the Sharmas owe.

January 17, 2013

The Fourth Circuit Holds That Corporations Aren't People For The Purposes Of The Identity Theft Statute, Or Take That Citizens United

Tamatha Hilton was the bookkeeper for a company called Woodsmith's. Woodsmith's made furniture. Ms. Hilton made bad decisions.

Specifically, for a few years, she took checks written by Woodsmith's customers and gave them to her husband, Jimmy Hilton. Mr. Hilton did not work at Woodsmith's.

Mr. Hilton gave the checks to his ex-wife, Jacqueline Hilton. Ms. Hilton opened a bank account at Suntrust in her name, saying that she was the owner of a company called Woodsmiths Furniture Company.

She was not.

She was, however, the owner of a pre-printed stamp from an office supply store that said checks made out to Woodsmiths should be deposited into her Suntrust Account.

You can probably guess how that was used.

1390098_garden_chairs_2.jpgOver two years Woodsmiths lost around $650,000 to Ms. Hilton's Suntrust Account.

The three were charged with identity theft, mail fraud, mail theft, money laundering, conspiracy, passing forged securities, and making a false statement to a financial institution.

At trial, Ms. Hilton was acquitted of making a false statement to a financial institution. Everyone else was convicted of everything else.

In their appeal to the Fourth Circuit, resolved in United States v. Hilton, Mr. and Ms. Hilton challenged their convictions for identity theft, on very clever grounds:

Jimmy and Jacqueline appeal their convictions for identity theft and aggravated identity theft, in violation of 18 U.S.C. §§ 1028(a)(7) and 1028A (the identity theft statutes). They argue that the conduct charged, namely, the use of the stamp bearing Woodsmiths' name in endorsing the stolen checks, did not constitute a violation of the identity theft statutes, because the language of those statutes does not encompass the act of stealing the identity of a corporation.

Ultimately, the Fourth Circuit agreed.

Noting that,

In light of the serious consequences flowing from a criminal conviction, the rule of strict construction rests on the principle that "no [person] shall be held criminally responsible for conduct which he could not reasonably understand to be pro- scribed." Accordingly, although "[t]he simple existence of some statutory ambiguity is not sufficient" to trigger automatic resolution of the ambiguity in favor of a defendant, "we will construe [a] criminal statute strictly and avoid interpretations not clearly warranted by the text." (internal citations omitted)

The statute, 18 U.S.C. § 1028(a)(7) makes it illegal to transfer, possess, or use "a means of identification of another person with the intent to commit, or to aid or abet, or in connection with, any unlawful activity that constitutes a violation of [f]ederal law, or that constitutes a felony under any applicable [s]tate or local law." The vicious § 1028A - which imposes a two-year consecutive mandatory minimum if someone commits and identity theft crime in connection with another felony - uses the same language.

In the definition section for both statute defines "means of identification" as "any name or number that may be used, alone or in conjunction with any other information, to identify a specific individual."

Under the Dictionary Act - the Act that defines terms used in federal statutes if there isn't another definition that's more closely tailored - "person" includes corporations. "Individual" though, might not.

Because that's an ambiguous question, the Fourth Circuit held that the identity theft statute does not apply to corporations.

we are left with a "grievous ambiguity or uncertainty in the statute[s]," and we decline to speculate regarding Congress' intent. Instead, faced with the choice of two plausibly valid interpretations, "we yield to the rule of lenity." (internal citations omitted)

Though the convictions for mail fraud, mail theft, money laundering, conspiracy, and passing forged securities still stood. The folks who were convicted were remanded for resentencing.

January 15, 2013

Short Wins - Day After The Inauguration Edition

It's hard not to want to celebrate the orderly processes of government on the day after a Presidential Inauguration.

Though, for those of us who represent people accused of crimes, the "orderly processes of government" may feel a bit different. It's good that we don't have lynch mobs or posses with pitchforks chasing people who we think have violated the norms of our society.

But, as our President reminded us yesterday, our journey is not complete. Of course, most folks agree with the President that our journey is not complete until women earn equal pay, same sex couples can marry, voting rights are meaningful, and immigrants are welcomed.

It would also be nice to think that our journey's completion requires maybe not putting more people in prison than any other country in the world.

I suppose that doesn't make for as fun a speech though.

You come here not for complaints about state power, but to be reminded of the virtues of laws, courts, and processes, even for those who are on the outs with our United States government. Regardless of the flaws with our current system, we still have better appellate processes than a group of vigilantes.

It's a good week in the federal circuits for wins in fraud cases. If you only read this week's "Short Wins" you might think that the sentencing guideline for fraud - 2B1.1 - is complicated or difficult to apply. Indeed, the bulk of this week's cases are victories in sentencing appeals.

To the victories!

1155650_berlin_siegessule.jpg1. United States v. Catchings, Sixth Circuit: Appellant pled guilty to identity theft. When the district court calculated the amount of loss under Sentencing Guideline § 2B1.1(b)(1), it erroneously included losses stemming from credit cards that were not obtained or used in violation of criminal law. Consequently, the court incorrectly calculated appellant's guidelines range. Remand for resentencing was required.

2. United States v. Grant, Eighth Circuit: Appellant was convicted of conspiracy to distribute at least 30 but less than 50 grams of crack cocaine and sentenced to 170 months in prison. His sentence was reduced to 130 months as a result of the 2008 amendments to the crack cocaine sentencing guidelines. Appellant sought another reduction under the Fair Sentencing Act, and his sentence was reduced to 123 months. Because the district court abused its discretion when it failed to articulate its rationale for sentencing appellant at the middle of the guidelines range, remand for resentencing was required.

3. United States v. Diallo, Third Circuit: Appellant pled guilty to possession of 15 or more counterfeit credit cards with intent to defraud. At sentencing, though the actual loss was $160,000, the district court assessed a 16-level enhancement under Guideline § 2B1.1 because he could have charged $1.6 million on the credit cards at issue. Because the district court did not properly analyze whether appellant intended to cause the full potential loss, and because this error was not harmless, remand for resentencing was appropriate.

4. United States v. Hall, Eleventh Circuit: At appellant's sentencing for a variety of fraud crimes, she was assessed a four-level enhancement under Guideline § 2B1.1(b)(2)(B) because the district court incorrectly found that the offenses involved more than 50 but less than 250 victims. Because it was unclear from the record whether the court would have imposed the same sentence absent any error, the sentence was vacated and the case remanded for resentencing.

5. United States v. Resendiz-Moreno, Fifth Circuit: After appellant plead guilty to illegal reentry, the district court calculated his offense level, applying a 16-level enhancement under Guideline § 2L1.2(b)(1)(A)(ii) based on the court's determination that appellant's prior conviction for first-degree cruelty to children constituted a crime of violence. Because the statute under which appellant was convicted did not require a showing of physical force, the offense did not constitute a crime of violence. Therefore, appellant's sentence was vacated and the case remanded for resentencing.

6. United States v. Roussel, Fifth Circuit: Appellant was convicted of wire fraud and conspiracy involving a scheme to defraud a utilities provider. At sentencing, the court erred in applying a two-level enhancement under Guideline § 2C1.1(b)(1) because it incorrectly found that more than one bribe occurred. The court also erred in calculating the fraudulent contract's expected benefit to appellant, as it's calculation was purely speculative. As a result, the court started at an incorrect guidelines range. Because it is unclear whether the court would have imposed the same sentence had it started with the correct range, the errors were not harmless, and remand for resentencing was required.

7. United States v. Zepeda, Ninth Circuit: Appellant was convicted of nine offenses arising out of his role in injuring people inside a home located on the Ak-Chin Reservation of Arizona. In counts 2 through 9, appellant was convicted under The Major Crimes Act, which governs certain crimes committed by Indians in Indian country. Because the government failed to prove beyond a reasonable doubt that appellant was an Indian under the Major Crimes Act, his convictions on these counts were vacated.

January 13, 2013

Short Wins - A Franks Hearing in the Seventh Circuit!

Who doesn't love a good Franks hearing? Apparently the district court judge in the Seventh Circuit case of United States v. McMurtrey.

It's a relatively quiet week in the federal circuit's for defense victories. A Fourth Amendment win in the Tenth Circuit, a few sentencing remands, and, most exciting (for me) a Franks hearing remand in the Seventh.

To the victories!

1155650_berlin_siegessule.jpg1. United States v. Castro, Third Circuit: Appellant was convicted of offenses arising out of three separate schemes to extort money through violence. Because the record did not contain evidence that he knowingly made a false statement to the FBI, his conviction of this offense was reversed. Given the reversal of his conviction on this count, remand was required for resentencing on appellant's conviction for conspiracy to commit extortion to calculate the correct guidelines range.

2. United States v. De La Cruz, Tenth Circuit: The district court erred in denying appellant's motion to suppress his ID card, which was obtained during an investigative seizure, because (1) the agents did not have reasonable suspicion to continue to detain appellant to obtain his identification and (2) the court erroneously concluded that appellant's identification was not suppressible, even if there was an unlawful seizure. For these reasons, the district court's decision was reversed and the case remanded.

3. United States v. Fraga, Fifth Circuit: Appellant was sentenced to 27 months in prison and a lifetime of supervised release after pleading guilty to failing to register as a sex offender. Because the district court did not give reasons for its imposition of a lifetime term of supervised release, this portion of the sentence was vacated and the case remanded.

4. United States v. McIntosh, Eleventh Circuit: Appellant was sentenced to 120 months in prison after pleading guilty to possession of five grams of crack with intent to distribute and carrying a firearm during a drug trafficking offense. After appellant committed these offenses, but before he was sentenced, the Fair Sentencing Act was enacted. The Act, among other things, raised the threshold possession amount that triggered the mandatory minimum sentence - 120 months - applied in appellant's case. Because appellant was sentenced after the Act's effective date, he was entitled to have the benefit of the Act's higher threshold for the mandatory minimum sentence. Consequently, his sentence was vacated and the case remanded for resentencing.

5. United States v. McMurtrey, Seventh Circuit: Because appellant demonstrated that the affidavits on which the search warrant for appellant's home was based were contradictory, remand was required for a full hearing pursuant to Franks v. Delaware.

January 13, 2013

The First Circuit On Police Providing Information To Drug Dealers - You're Only In A Federal Drug Conspiracy If You Know It's A Federal Drug Conspiracy

It seems that Rolando Ramos was a marijuana dealer. I say that because the police had him on a wire doing drug deals, found marijuana in his house when the executed a search warrant, and because he pled guilty to being involved in a conspiracy to distribute marijuana.

Mr. Ramos worked at a auto repair shop - which he dealt marijuana out of. One guy who worked at the repair shop had a brother in law who was a cop. The cop's name is Carlos Burgos.

Mr. Burgos was convicted of being a part of Mr. Ramos's drug distribution conspiracy. But the First Circuit, in United States v. Burgos, overturned that conviction because there wasn't enough evidence.

1066058_patrol_hat_too.jpgFamily Ties

Mr. Burgos worked as a uniformed officer in Worchester, Massachusetts. His beat included a high-crime area known as "Main South." In Main South was a car repair shop - G & V General Auto Repair. Mr. Burgos's brother-in-law worked at G & V.

Mr. Burgos's brother in law gave him discounts on car repairs. Mr. Burgos took advantage of those discounts.

Also working at G & V was Mr. Ramos. Mr. Ramos wasn't really a mechanic, he was more of a gopher - running money to the bank and picking up parts.

Also, Mr. Ramos was dealing drugs. Though more on that later.

As time went on, Mr. Burgos got to be friendly with many of the other mechanics at G & V. Eventually, his brother in law moved on to greener pastures, though the mechanics at G & V kept giving Mr. Burgos discounts.

Savvy shopper that he is, Mr. Burgos kept using G & V for his automotive needs.

Mr. Ramos And Mr. Burgos

Mr. Ramos never talked to Mr. Burgos about his drug dealing. When he pled guilty, he flipped, and testified at Mr. Burgos's trial. Mr. Ramos described Mr. Burgos as being a personal friend. The First Circuit seemed skeptical.

Ramos met some members of Mr. Burgos's family, but never went into his house; the only time that Ramos went to Mr. Burgos's house was to tow a car. Mr. Burgos never went to Ramos's house. On one occasion, Ramos helped Mr. Burgos's sister and her infant son by towing her car and repairing a flat tire, which he did without charging her.

Though the court of appeals also noted that Mr. Ramos did sell Mr. Burgos some automotive equipment and, at one point, a used laptop for slightly less than market price. And they exchanged a phone call on Christmas Day once.

But one would hope that each man had closer friends.

Mr. Ramos Needs Information

Eventually, Mr. Ramos became convinced that the police were watching him at the store. This was because police were watching him at the store.

Mr. Ramos asked Mr. Burgos for information about whether he was under surveillance. Mr. Burgos found out that the Vice Squad was, indeed, watching the auto shop.

In the worst evidence for Mr. Burgos, they spoke on a recorded call and Mr. Burgos told Mr. Ramos that he should "take it easy for now" because the police were on to something at the auto shop.

Mr. Burgos Goes To Trial

Mr. Burgos was indicted for being a part of Mr. Ramos's drug conspiracy.

The government looked at this evidence and tried to convince a jury that Mr. Burgos was a dirty cop helping a drug dealer. In fact, they did convince a jury that Mr. Burgos was dirty cop helping a drug conspiracy. The government did not, however, convince the First Circuit.

The First Circuit Addresses Whether This Cop Has This Specific Dirt

The First Circuit first laid out the standard for whether a sufficiency of the evidence challenge would succeed:

Mr. Burgos was convicted of conspiracy to distribute and to possess with intent to distribute marijuana. To affirm his conviction, we must determine whether a reasonable jury could conclude that the Government proved beyond a reasonable doubt each element of the crime: (1) "a conspiracy existed," (2) Mr. Burgos "had knowledge of the conspiracy" and (3) Mr. Burgos "knowingly and voluntarily participated in the conspiracy."

The First Circuit rejected the government's argument that it made a sufficient showing on the second requirement - that Mr. Burgos knew of the conspiracy.

The government argued that Mr. Burgos knew that there was a drug conspiracy, because he likely knew that the vice squad was investigating. The First Circuit stopped the government short on this claim:

a reasonable jury could conclude, beyond a reasonable doubt, that Mr. Burgos knew that Main South was an area of high crime, and specifically high drug crime, that the Vice Squad investigated crimes involving drugs, prostitution and gaming, and that the Vice Squad was surveilling G & V. From this, a jury certainly could infer that Mr. Burgos was aware that the Vice Squad was investigating G & V for possible criminal activity that fell within its purview--drug crimes, prostitution or gaming. None of the evidence, however, establishes, beyond a reasonable doubt, that the Vice Squad was investigating a drug crime, as opposed to prostitution or gaming.

Since there wasn't any reason to think - based just on the fact that the vice squad was looking into the shop - that Mr. Burgos knew this was for drugs, he couldn't have been convicted for being a part of a drug conspiracy.

The government argued, then, that Mr. Burgos should have known that something was afoot - he was a trained police officer after all. The First Circuit thought Mr. Burgos probably should have known something was up, but not what it was:

The combination of both the Gang Unit and the Vice Squad surveilling G & V, Ramos's ability to secure items at well-below retail cost for resale to Mr. Burgos, and Ramos's inquiries, on two occasions, concerning surveillance, were warning signs that something illegal was afoot at G & V. There simply is no evidence, however, that Mr. Burgos knew, or was aware of a high probability, that the illegal actions involved drugs.

The case was vacated and remanded. Mr. Burgos goes home (I'm betting he won't be going back to his old job though).

January 5, 2013

Short Wins - Restrictions on Prison Communications, Career Offender Remands, Competency Hearings, and Mail Fraud

Happy New Year!

In our first "Short Wins" of the new year, the Eighth Circuit reverses a district court's order restricting a person in BOP custody from communicating with folks on the outside, the Ninth Circuit reverses on a career offender determination, and the Sixth Circuit reversed when a district court didn't give a person counsel in a competency hearing.

My personal favorite, though, is the Ninth Circuit's remand in a mail fraud case that, the court of appeals determined did not involve the mails.

Sometimes it's the little things.

To the victories!

1155650_berlin_siegessule.jpg1. United States v. Allmon, Eighth Circuit: After appellant was convicted of offenses arising out of his involvement in a drug trafficking operation and a conspiracy to kill a witness, the district court granted the government's motion to restrict appellant from communicating with 29 people. Years later, the court on its own motion ordered more stringent restrictions on appellant's communications after it learned that appellant circumvented the initial restrictions. Because the Director of the Bureau of Prisons did not make a motion to further restrict appellant's communications, this was error. As a result, the order requiring more stringent restrictions was vacated.

2. United States v. Lee, Ninth Circuit: Appellant was convicted of distributing crack cocaine and was sentenced as a career offender under Sentencing Guideline section 4B1.1 based on two prior convictions that the district court identified as controlled substance offenses. Because the government failed to meet its burden of showing that one of the two convictions qualifies as a predicate offense, the case was remanded for the district court to consider appellant's career offender status.

3. United States v. Phillips, Ninth Circuit: Appellant was convicted of mail fraud, among other offenses, arising out of his scheme to defraud his company. Because appellant's fraudulent scheme did not depend in any way on the use of the mails, his conviction for mail fraud was reversed.

4. United States v. Pileggi, Fourth Circuit: Appellant was convicted of various offenses as a result of his involvement in a fraudulent sweepstakes scheme. He was sentenced to 50 years in prison and ordered to pay more than $ 4 million in restitution. Appellant appealed his sentence, but not the restitution amount. On remand for resentencing, the court increased the restitution amount to more than $ 20 million. Because the appellate court's mandate did not give the district court the authority to change the restitution amount, the second restitution order was vacated and the case remanded for the district court to reinstate the first order.

5. United States v. Ross, Sixth Circuit: Appellants Bryan Ross and Robert Burston were convicted of offenses arising out of their involvement in a counterfeit check scheme. With respect to Mr. Ross, the district court erred when, upon granting a competency hearing, it failed to reappoint full-time counsel to represent Mr. Ross until the issue of competency was resolved. Mr. Ross' case was remanded for an evidentiary hearing to determine whether he was unconstitutionally deprived of counsel at the competency hearing. If the district court determines that Mr. Ross was deprived of counsel, his conviction and sentence will be vacated.

6. United States v. Watson, Fourth Circuit: Appellant was convicted of being a felon in possession of a firearm and ammunition. The district court denied appellant's motion to suppress a statement he made after being detained by police for three hours without probable cause. This was error because (1) appellant's three-hour detention was an unlawful custodial arrest in violation of his Fourth Amendment rights, (2) the taint of this unlawful arrest was not purged by the two Miranda warnings provided during his detention or by any intervening circumstance, and (3) the erroneous admission of appellant's statement was not harmless. As a result, appellant's convictions were vacated and the case remanded to the district court.

7. United States v. Xu, Ninth Circuit: Four Chinese nationals appealed their convictions arising out of their scheme to steal funds from the Bank of China and retain the proceeds by illegal transfers of funds and by immigration fraud. Because the district court erred in applying Sentencing Guideline section 2S1.1(a)(1) instead of section 2S1.1(a)(2), which resulted in a higher base offense level, the case was remanded for resentencing.

January 2, 2013

Telling People They Can Use A Drug In A Way Different Than How The FDA Says They Can Use A Drug Is Not A Crime, Says the Second Circuit

Alfred Caronia was a sales rep for a pharmaceutical company. And, despite what you might think by reading some of the literature, being a pharmaceutical sales rep is not a crime. It's even more emphatically not a crime after the Second Circuit's opinion in United States v. Caronia.

1213599_pills.jpgPart of Mr. Caronia's job was to encourage folks to buy Xyrem.

According to the Second Circuit,

Xyrem's active ingredient is gamma-hydroxybutryate ("GHB"). GHB has been federally classified as the "date rape drug" for its use in the commission of sexual assaults.

Despite Xyrem's dark side, it was approved by the FDA for two uses for folks with narcolepsy.

Mr. Caronia's company thought that perhaps doctors should be prescribing it for an even greater assortment of problems.

Mr. Caronia's job, in part, was to find doctors who would talk to other doctors about the benefits of Xyrem's FDA-approved uses. The doctors did not provide this service for free.

One of the doctors who worked with Mr. Caronia was Dr. Peter Gleason.

And, by way of background - it's ok for a doctor to prescribe a drug for a use that isn't on the label. The FDA doesn't want to get between a doctor's relationship with her patient, even on off-label uses of prescription drugs.

At the same time, it's a crime to "misbrand" a regulated drug. A drug is misbranded if:

its label is false or misleading; the label fails to display required information prominently; its container is misleading; or it is dangerous to health when used in the dosage, manner, frequency, or duration prescribed, recommended, or suggested on the label.

The Wire

The federal government started investigating Dr. Gleason for promoting an off-label use of Xyrem.

The feds wired up a cooperator. The cooperator was another doctor, who called Mr. Caronia and asked about an off-label use of Xyrem.

Mr. Caronia, as only a man paid on commission can, talked up the benefits of the drug for many kinds of maladies - insomnia, Fibromyalgia, restless leg, Parkinsons, chronic fatigue, chronic pain, and MS.

He also said it will make you lose weight without dieting or exercise. [that was a joke]

These statements - and other related ones - got Mr. Caronia indicted for conspiracy to commit misbranding.

Indicted For Aggressive Sales

Mr. Caronia said that he was being indicted for commercial speech. There's a line of cases from the Supreme Court that say that even commercial speech is protected by the First Amendment.

The district court agreed. As the Second Circuit said,

The court observed that "the criminal information . . . allege[d] Caronia's promotion of off-label uses of an FDA-approved drug," and concluded that Caronia stood charged with a crime the actus reus of which was First Amendment speech.

But, the district court concluded that the prohibition on commercial speech is reasonably tailored to the objectives of the Food Drug and Cosmetic Act. So it's ok to charge people criminally for this First Amendment activity.

Mr. Caronia went to trial and was convicted.

The Second Circuit

One big question running through the appeal is whether Mr. Caronia was charged with a crime based on his speech - as the district court determined - or whether he was charged with misbranding and his speech was used as evidence of his other acts that were criminal.

The Second Circuit went through the trial testimony and found that the government's theory here was that Mr. Caronia violated the law by his speech.

So, the government is prosecuting Mr. Caronia's speech. Is that ok?

That's really two questions - first, is Mr. Caronia's conduct covered by the statute and, second, if his conduct is covered by the statute, does it violate the First Amendment.

The Second Circuit let that second question answer the first:

under the principle of constitutional avoidance, . . . we construe the FDCA as not criminalizing the simple promotion of a drug's off-label use because such a construction would raise First Amendment concerns. Because we conclude from the record in this case that the government prosecuted Caronia for mere off-label promotion and the district court instructed the jury that it could convict on that theory, we vacate the judgment of conviction.

So, according to the Second Circuit, promoting the off-label use of a drug is not a crime under the statute. If it were, the courts would have to think about whether such a statute is constitutional.

December 26, 2012

The Second Circuit Reverses A Conviction For Tax Evasion Based On Insufficient Evidence

Five partners at Ernst & Young - Robert Coplan, Martin Nissenbaum, Richard Shapiro, and Brian Vaughn, and Charles Bolton - were charged with a number of tax crimes in federal court in New York, specifically tax evasion, conspiracy to defraud the United States, and lying to the IRS. The Second Circuit said that the government didn't prove that two of the men were guilty and send the case back.

Ernst & Young had developed a number of tax shelters. Tax shelters - to be clear - are not themselves necessarily legal or illegal. As the jury was instructed, "it depends on the facts."

1102930_piggy_bank_1.jpgThere were five tax shelters at issue. The Second Circuit, in United States v. Coplan, described the tax shelter that was the basis of the tax evasion count this way:

The Add-On shelter was a tax strategy marketed as a means to defer indefinitely income tax liability on capital gains, including the capital gains generated in the second year of [another tax shelter involved in the case, which converted ordinary income to capital gains, which are generally taxed at a lower rate for folks who are using tax shelters .] Add-On involved the purchase of offsetting digital option pairs, followed by a series of transactions designed to generate a tax loss. The offsetting options were structured so that there was a "one-pip" gap between their strike prices, so that, in a theoretical "home run" scenario, a taxpayer could make a multimillion dollar profit. [H]owever, there was no reasonable possibility of earning a profit from Add-On apart from the "home run" scenario, since the Add-On fee structure required payments to [Ernst & Young] and the entity acting as general partner that exceeded the potential payoff.

Four of the men - Mr. Coplan, Mr. Nissenbaum, Mr. Shapiro, and Mr. Vaughn - were charged with, and went to trial on, three charges - conspiracy to defraud the United States, tax evasion, and obstructing the IRS. Mr. Vaughn and Mr. Coplan were also charged with making false statements to the IRS. Mr. Bolton pled guilty.

The government's theory, basically, was this:

At trial, the Government sought to demonstrate that the defendants conspired to conceal the true nature of the five tax shelters by creating a variety of "cover stories" regarding the purported business purpose of the shelters, when in fact the shelters were motivated solely by a desire to avoid taxes. In essence, the Government sought to demonstrate that the defendants hid the truth from the IRS by withholding information and making affirmative misstatements.

After the trial, the jury returned a guilty verdict on all counts.

Bolton, who had entered a plea, was sentenced to 15 months in prison. The folks who went to trial were sentenced to between 20 months to three years.

The Second Circuit reversed the conspiracy charges against Shapiro and Nissenbaum because there was insufficient evidence to support them.

That's a tough standard, to win a sufficiency challenge you've got to show that at least one juror could have reasonably found the person charged guilty. Worse, in a conspiracy case with multiple objects of the conspiracy - as in this case - to win you've got to show that the person wasn't engaged in any object of the conspiracy. Yet that's what the Second Circuit found happened.

The opinion is 95 pages and summarizes a decent bit of the evidence from a multi-week trial. In essence, there wasn't enough evidence that Mr. Shapiro was familiar enough with the details of the tax shelter that the government alleged caused tax evasion.

Here's the important bit from the opinion that will matter to folks not involved in this case (though, by all means, if you have a tax evasion case involving what happened at a company, read the entire opinion). Basically, the government's case was too thin as to Shapiro (internal citations omitted):

Having reviewed the record and the arguments of counsel, we conclude that the evidence against Shapiro is insufficient to support his conviction on Count One. In reaching this conclusion, we are mindful that the absence of direct evidence is not dispositive, since "the government is entitled to prove its case solely through circumstantial evidence." Nevertheless, "[i]f the evidence viewed in the light most favorable to the prosecution gives equal or nearly equal circumstantial support to a theory of guilt and a theory of innocence, then a reasonable jury must necessarily entertain a reasonable doubt." In this case, an essential element of the conspiracy charged in Count One required proof beyond a reasonable doubt that Shapiro joined the alleged conspiracy with the "specific intent" to violate the law. The evidence with respect to Shapiro's intent, viewed in the light most favorable to the Government, remains, at best, in equipoise. Because "[i]t would not satisfy the [Constitution] to have a jury determine that the defendant is probably guilty," we conclude that Shapiro's conviction on Count One must be reversed.

It's nice to see a rejection of the idea that someone is "probably" guilty in a Second Circuit opinion.

The court of appeals reached a similar conclusion for Mr. Nissenbaum.

Because the conspiracy conviction fell, the Second Circuit held that the substantive charges of tax evasion also had to be vacated for Mr. Shapiro and Mr. Nissenbaum. Mr. Nissenbaum's conviction for making a false statement to the IRS was also vacated for insufficient evidence.

The district court also imposed a fine on Mr. Bolton in excess of the statutory maximum. That was reversed so it could be reduced to the statutory maximum.

December 24, 2012

Short Wins - Mayan Apocalypse Edition; The World Didn't End, But There Are New Cases On Restitution, Health Care Fraud, Federal Stalking, and Sequestration of Witnesses

One would have thought that, with the end of the world predicted for Friday of last week, our nation's appellate courts would have spent their last week on Earth with family or friends, rather than cranking out wins for folks charged with federal crimes.

Perhaps circuit court judges have access to better science than those who thought that the movie 2012 was a documentary set in the future. Our federal courts of appeal cranked out a whopping 6 victories for people accused of crimes in federal court last week. Perhaps they were simply trying to clear their docket up for more relaxed figgy pudding on Tuesday.

There are some good cases here involving a wide range of federal criminal topics - restitution, gun sentencing, trial sequestration, stalking using a telecommunications device, and civil rights violations. It's a nice stocking stuffer of law for this slow week.

To the victories!

1155650_berlin_siegessule.jpg1. United States v. McRae et al, Fifth Circuit: Former police officers David Warren, Gregory McRae, and Travis McCabe were convicted in the same trial of offenses arising out of the death of Henry Glover, a private citizen, in the aftermath of Hurricane Katrina. Because Mr. Warren demonstrated that he suffered specific and compelling prejudice based on the district court's refusal to sever his trial from his co-defendants, the court abused its discretion in denying Mr. Warren's motions to sever. Consequently, Mr. Warren's convictions and sentences were vacated and the case remanded for a new trial. As to Mr. McRae, the evidence was insufficient to support his conviction for denying Mr. Glover's descendants and survivors the right of access to the courts. As a result, that conviction was vacated and the case remanded for resentencing. As to Mr. McCabe, the district court did not abuse its discretion in granting him a new trial because of newly discovered evidence.

2. United States v. Cochrane, Sixth Circuit: Appellant was convicted of being a felon in possession of a firearm. He was sentenced to 41 months in prison for the firearms conviction and to a consecutive one-year term for violating the conditions of his supervised release. The district court's failure to explain why it imposed consecutive sentences was an abuse of discretion. As a result, appellant's supervised release violation sentence was vacated and the case remanded for resentencing.

3. United States v. Engelmann, Eighth Circuit: Appellant was convicted of several bank and wire fraud offenses. He filed a motion for a new trial and evidentiary hearing based on, among other things, an alleged conversation between two government witnesses during the trial that apparently violated the sequestration order. The district court abused its discretion in denying appellant's request for an evidentiary hearing. Without the hearing, the court lacked a principled way to determine whether the alleged conversation violated the sequestration order or whether any violation prejudiced appellant. Consequently, remand was required to further develop those issues.

4. United States v. Sharma, Fifth Circuit: Two doctors pled guilty to defrauding health care insurers. As part of their sentences, the district court ordered them to pay over $43 million in restitution to 32 victims and 30 private insurers. Because the amount awarded exceeded the insurers' actual losses by millions of dollars, the district court abused its discretion in adopting the unsupported loss figures. The restitution order was vacated and the case remanded for recalculation of the award.

5. United States v. Tucker, Third Circuit: Appellant pled guilty to possession of a firearm by a convicted felon. At sentencing, the government argued that appellant should be subject to a 15-year mandatory minimum sentence based on three prior convictions for "serious drug offenses." Because one of the prior convictions did not qualify as a serious drug offense, appellant's sentence was vacated and the case remanded for resentencing.

6. United States v. Grimes, Eighth Circuit: Appellant was convicted of 19 counts based on stalking and using the mail and telephone to make threatening and harassing communications. Counts 12-17 were multiplicitous because they arose out of a single course of conduct. Counts 13-17, as well as the special assessments applicable to these counts, were vacated.