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Category: White Collar Crime

Pay the Piper: Restitution Payment to Victims Does Not Offset Mandatory Forfeiture to Government

In United States v. Bodouva, 16-3937 (March 22, 2017) (Katzmann, C.J., Pooler and Lynch, J.), the Court held in a per curiam order that a defendant convicted of embezzlement must forfeit the full amount of her illicit gains to the government even after paying restitution to victims.  The ostensibly “duplicative” financial penalty entered against the defendant was not only permissible, but in fact required by statute.  The district court thus appropriately ruled at sentencing that it lacked discretion to modify the forfeiture amount.  With this decision, the Second Circuit joined several other circuits in holding that restitution and forfeiture serve distinct purposes and, absent clear statutory authority to the contrary, may not offset each other.

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Court Affirms Conviction In Case Involving $126 Million Loan For Shopping Mall Transaction, Rejecting Argument That Sentence Should Be Lowered Because Of The Financial Crisis

In a summary order on March 8, 2017, the Second Circuit (Katzmann, C.J. and Pooler and Lynch, J.) affirmed the conviction and sentence for wire fraud in United States v. Frenkel. The case attracted some public attention because Frenkel’s co-conspirator, Mark Stern, was a cooperating witness in a number of public corruption cases brought by the U.S. Attorney for the Southern District of New York. The underlying facts involved Frenkel’s fraudulent inducement of Citigroup to lend $126 million to finance the purchase of shopping malls. Although the decision has no precedential value, it presented four interesting issues.

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The Second Circuit Limits the Application of Two Guidelines Enhancements

In United States v. Huggins,15-1676, the Second Circuit (Winter, Cabranes, and Restani, sitting by designation) limited the scope of two Guidelines enhancements often applicable to white-collar crimes:  (1) U.S.S.G. §2B1.1(b)(16)(A), which provides for a two-level enhancement when the conduct derived more than $1 million from financial institutions; and (2) U.S.S.G. §3B1.3, which permits a two-level increase when a defendant has abused a position of public or private trust.  Huggins marks the first time the Court has given thorough consideration to the first enhancement and further clarified how courts should apply the second. 

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Second Circuit Clarifies Scope Of Proffer Agreement Waivers

Securing a cooperation agreement after proffering to the government can lead to enormous benefits for those who successfully navigate the process. However, the negative consequences of a failed proffer are profound. Assessing the risks of whether to proffer and enter into a proffer agreement is an important part of federal criminal practice. In an important recent decision, in United States v. James J. Rosemond, 15-0940-cr (Nov. 1, 2016) the U.S. Court of Appeals for the Second Circuit elaborated in detail on exactly when certain defense tactics will (and will not) open the door to the introduction of the otherwise-protected proffer statements. The Court held that the district court in Rosemond applied the waiver provision in defendant’s proffer agreement too broadly, thereby incorrectly precluding defense counsel from making sufficiency arguments. 

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Gimme Shelter, But One With Economic Substance

The line that separates lawful tax shelters from unlawful ones is notoriously hazy, particularly at the margins.  There is little question, however, that a transaction that serves no meaningful business purpose other than to reduce one’s tax liability will be treated as an illegitimate tax shelter.

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Second Circuit Affirms Bribery Conviction of Former Mayor of Spring Valley, New York

In United States v. Noramie Jasmin, 15-2546-cr, a Second Circuit panel (Walker, J., Cabranes, J. and Lohier, J.), affirmed by summary order the bribery conviction of Noramie Jasmin, a former mayor and trustee of the Village of Spring Valley, New York, a town in Rockland County, New York.  Jasmin was convicted of participating in a scheme to obtain financial benefits for herself in exchange for exercising her official powers to facilitate the construction of a community center.  Jasmin appealed from a conviction of one count of mail fraud in violation of 18 U.S.C. §§ 1341 & 1346, and one count of Hobbs Act extortion in violation of 18 U.S.C. § 1951, and her sentence of four years imprisonment. 

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Second Circuit Clarifies Venue Requirements for Securities Fraud

On August 15, 2016, the Second Circuit issued a rare opinion on the subject of the sufficiency of evidence to establish venue in United States v. Lange, No. 14-2442-cr (Jacobs, Chin, Droney).  In this securities fraud and conspiracy case, the Court found there was sufficient evidence that the defendants committed a crime in the Eastern District of New York (“EDNY”) when they were aware of “cold call” lists including EDNY residents and where emails soliciting investment were sent to a Postal Inspector in Brooklyn.  This connection was sufficient even though the participants in the scheme operated out of Washington State and had little contact with EDNY. 

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“Intent to Harm” Not Required for Criminal Conviction Pursuant to Investment Advisers Act of 1940

In United States v. Tagliaferri, 15-536 (May 4, 2016) (Leval, Pooler, Wesley), the Court issued a per curiam order affirming Defendant’s conviction for violations of the Investment Advisors Act of 1940, 15 U.S.C. § 80b-6 (the “1940 Act”), entered by the United States District Court for the Southern District of New York (Abrams, J.).  In the underlying appeal, the Defendant raised several challenges to his conviction by a jury for violations of the 1940 Act, as well as securities fraud, wire fraud, and violations of the Travel Act.

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Second Circuit Clarifies Physician Corporation Ownership Standard for Medical No-Fault Insurance Fraud Cases

In United States v. Tatyana Gabinskaya, 15-776-cr, the Court (Sack, J., Lynch, J. and Murtha, D.J., sitting by designation) affirmed the judgment entered by the United States District Court for the Southern District of New York (Oetken, D.J.), against defendant-appellant Tatyana Gabinskaya for conspiracy to commit health care fraud and mail fraud.  Gabinskaya, a licensed physician, was convicted of falsely holding herself out as the owner of a medical services professional corporation (“PC”) that provided medical treatment to car accident victims and submitted reimbursement claims to insurance companies.  The Government alleged that she did so in order for the true owners to defraud insurance companies by claiming to comply with the requirement under New York law that PCs be owned by licensed physicians. In affirming the judgment below, the Second Circuit clarified that whether an individual is an “owner” of a medical services PC in the context of the New York no-fault insurance law is defined by the economic realities of that individual’s participation in and control over the enterprise, and the possibility of their financial loss or gain, and not merely by whether the individual is the owner on paper.  This is not surprising—the law rarely accords true owner status to straw owners—and the Court found little reason to respect the corporate formalities in this context.

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Determining whether a “custodial interrogation” exists requires a heavily fact-specific analysis

How does the Government successfully “toe the line” when it comes to custodial interrogations for suppression purposes?  In United States v. Faux, 15-1282-cr, the Court (Jacobs, J., Hall, J., Restani, J., sitting by designation) answered this question after undertaking a fact-intensive inquiry and determining that the weight of the evidence balanced against suppression.  Faux underscores that there is no bright-line rule for determining whether an individual is in custody (and therefore entitled to Miranda warnings); rather, the court must engage in a fact-specific analysis that carefully weighs mitigating and aggravating factors.

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Defining the Terms: What Constitutes a “Federally Insured Financial Institution” Under 18 U.S.C. § 1344 or a “Bank” Under 18 U.S.C. § 1014?

In United States v. Bouchard, 14-4156, the Court (Parker, J., Lynch, J., and Lohier, J.) reversed the conviction of defendant Michael Bouchard after finding that the Government’s evidence only showed that Bouchard had made false statements in order to defraud BNC Mortgage (“BNC”), a mortgage lender that did not fall within the Title 18 definition of a “federally insured financial institution” or “bank” as would be required by statute for a conviction. 

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Second Circuit Demonstrates the Difficulties in Withdrawing a Guilty Plea and Challenging a Below-Guidelines Sentence

In United States v. Rivernider, 13-4865, the Court (Livingston, J., Lynch, J. and Rakoff, D.J., sitting by designation) affirmed the judgment entered by the United States District Court for the District of Connecticut (Chatigny, J.) against two defendants, Robert Rivernider and Robert Ponte.  The defendants pled guilty and were sentenced for multiple counts of wire fraud, conspiracy to commit wire fraud, and tax evasion stemming from a Ponzi scheme and real estate scheme the two ran together.

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Second Circuit Reaffirms The Right of A Corporation To Impose Consequences On Employees Who Do Not Cooperate With Internal Investigations

In Gilman v. Marsh & McLennan Cos., No. 15-0603-cv (Kearse, Winter, Jacobs), the Second Circuit held that a corporation can fire an employee for cause if the employee refuses to participate in an internal investigation of the company’s possible criminal wrongdoing.  Masquerading as an employment dispute, the decision could have important consequences for how a corporation and its employees handle internal investigations when there is the potential for criminal prosecution.

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Court of Appeals Affirms Conviction of Former Connecticut Governor Based On Expansive Interpretation of Sarbanes-Oxley

In United States v. Rowland, No. 15-985, the Second Circuit (Winter, Chin, Carney) rejected challenges by former governor of Connecticut John Rowland to both his conviction and sentence on seven counts of violating campaign finance laws and falsifying records.  In so doing, the panel issued an important decision regarding the interpretation of 18 U.S.C. § 1519, a provision of the Sarbanes-Oxley Act, which prohibits the falsification of documents for the purpose of misleading government investigators.  The Rowland decision tacks in a different direction from the Supreme Court’s recent decision in Yates v. United States, 135 S. Ct. 1074 (2015), in which the Court narrowed the reach of this statute by adopting an interpretation rooted in the statute’s purpose.  Rowland, by contrast, seems to take a broader approach. 

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When Should A Case Be Remanded To A Different Judge For Resentencing?

In a nonprecedential summary order in United States v. Mangone, No. 15-4057, the Second Circuit (Hall, Lynch, Chin) vacated the eighteen-month prison sentence of Westchester attorney Anthony Mangone and remanded Mangone’s case to the U.S. District Court for the Southern District of New York (McMahon, J.) for resentencing.  Mangone had pleaded guilty to conspiracy, bribery, extortion, and tax evasion relating to a highly publicized real estate and political corruption scandal in Yonkers.  The Second Circuit vacated Mangone’s sentence on the ground that the district court committed clear procedural error, having calculated the applicable U.S. Sentencing Guidelines range at 37–46 months’ imprisonment, while the correct range was only 30–37 months.  Although the district court imposed a prison term below the lower of those two ranges, the Second Circuit concluded that resentencing was nonetheless required as “an incorrect calculation of the applicable Guidelines range will taint not only a Guidelines sentence … but also a non-Guidelines sentence, which may have been explicitly selected with what was thought to be the applicable Guidelines range as a frame of reference.”  The remand for resentencing was not controversial—in fact, the government had agreed that the district court committed reversible error and had consented to a remand.

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En Banc Ruling Avoids Complicated Fourth Amendment Question

In United States v. Stavros Ganias, 12-240, the Second Circuit, in a rare en banc ruling jointly written by Judges Livingston and Lynch, sidestepped a complicated Fourth Amendment issue related to the government’s retention of files from a hard drive outside the scope of a warrant, and instead affirmed the defendant’s conviction on the ground that, regardless of whether there was a Fourth Amendment violation, the government reasonably relied in good faith on a later warrant to search those files.  The en banc holding reversed the decision of a divided Second Circuit panel that came down nearly a year ago, which reversed the district court’s denial of the motion to suppress and vacated the judgment of conviction.  All of the judges on the Court, except for Judge Chin, either joined in the opinion or concurred in the result.  The novel and important question raised in this appeal—whether the government can retain electronic files collected pursuant to a search warrant and later search those files for a separate purpose, pursuant to a second search warrant—will need to be addressed in another case or by Congress. 

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Release of Right to Bring Qui Tam Action Not Enforceable If Government Had No Other Way To Learn About the Violation

In USA ex rel. v. Exelis, Inc. (14-4155), the Second Circuit (Kearse, Pooler, Droney) held that the right to bring a qui tam suit on behalf of the federal government can be contractually released, but that such a release is unenforceable as against public policy where the government did not have knowledge of the allegations of fraud before the release was signed.  The decision complicates somewhat the process of negotiating binding releases with employees at companies that are engaged in government contracting work.  That said, such releases still have value to employers and will often be enforceable because in many cases the government will have knowledge of the fraud allegations before the release is signed.

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Second Circuit Reaffirms That Sentencing of Coconspirator Must Focus on Individual Culpability

In United States v. Bladimir Rigo, 15-1914, the Second Circuit remanded for resentencing by summary order, finding that the District Court plainly erred when it sentenced the defendant based on the criminal activity of coconspirators without first making certain particularized “relevant conduct” findings about that activity.  On June 2, 2015, the U.S. District Court for the Southern District of New York (Sweet, J.) sentenced Bladimir Rigo for his involvement in a conspiracy to commit healthcare fraud and unlawfully distribute prescription pills.  The District Court applied a $2.9 million loss calculation to its determination of Rigo’s sentence, some portion of which may have been based on the acts of Rigo’s coconspirators.  The District Court concluded that because Rigo “pled guilty to participating in a conspiracy, he is equally liable for the acts of his coconspirators, including others who may have written [the records found in Rigo’s home], and the plans and intentions of the conspiracy, whether consummated or not.”  United States v. Rigo, 86 F. Supp. 3d 235, 242 (S.D.N.Y. 2015). 

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A Summons to Collect a Tax Penalty Is Proper When the IRS’s Criminal Referral Has Been Terminated

In Haber v. United States of America, No. 15-2078, the Court (Calabresi, J., Lynch, J., and Lohier, J.) considered and rejected petitioner James Haber’s challenges to an administrative summons issued by the IRS.  Among his other challenges, Haber contended that the summons was improper because a criminal referral to the DOJ was still in effect.  The Court rejected this argument and Haber’s suggestion that the Government must use precise language to terminate a criminal referral.  Instead, the Court took a common-sense view of the evidence and concluded that the DOJ had indeed terminated its investigation of the IRS’s criminal referral, and so the administrative summons was properly issued.  DOJ need not use any particular words to declare the termination of the investigation; it need only be clear from the record that the investigation has ended.

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The Meaning of the Guidelines’ “Otherwise Extensive” Criminal Activity

In United States v. Kent, 14-2082, 14-2874, the Court (Livingston, J., Hall, J., and Hellerstein, J. sitting by designation), the Court vacated the sentence imposed by the United States District Court for the Southern District of New York (Forrest, J.) and held that the record was insufficient to impose Guidelines Section 3B1.1(a)’s leadership enhancement.  Section 3B1.1 provides for a four-level increase in offense level if the defendant “was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive.”  In Kent, the Court restated that the “otherwise extensive” prong of this enhancement is not meant to be a qualitative assessment of whether the crime was serious, but rather involves a quantitative question about the number of criminally responsible and unknowing participants in the offense.  Because the district court did not conduct the required analysis, the Court of Appeals reversed and remanded the case.

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The Second Circuit Affirms the Convictions of the “Madoff Five” in a 29-page Summary Order

In United States v. Bonventre, 14-4714-cr (April. 20, 2016) (JMW, RR, CFD), the Court affirmed by summary order the convictions of five former employees of Bernard L. Madoff Investment Securities (the “Appellants”) convicted in the Southern District of New York (Swain, J.)  for multiple counts of conspiratorial and substantive securities fraud, bank fraud, and records falsification; making false SEC and IRS filings; obstructing enforcement of tax laws; and tax evasion. 

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