Archive for October, 2008

Milberg Partners Sentenced for Class-Action Kickbacks

Tuesday, October 28th, 2008

Attorneys Sentenced

Milberg LLP partners David Bershad and Steven Schulman were sentenced in federal court yesterday afternoon, each receiving 6 months in prison. Along with two other partners, they had been convicted for offenses arising our of the payment of kickbacks to lead plaintiffs in securities and shareholder class actions, which netted the firm more than a quarter of a Billion dollars in attorney fees.

These 6-month sentences were far less than what the other two partners were given earlier this year: William Lerach got 24 months, and Melvyn Weiss got 30.

At Bershad’s sentencing hearing, U.S. District Judge John Walter intitially indicated that he thought Bershad ought to get the same sentence as Lerach, as they had pled to the same conduct. Bershad’s lawyers sought probation, and the prosecution asked for 3 months in prison plus 3 months of community confinement. Apparently swayed by Bershad’s statement of remorse, letters of support, and the fact that Bershad’s plea was the first domino that led to the other pleas, the judge came down to the six-month jail term.

At Schulman’s sentencing hearing, the prosecution asked for a year in prison, as Schulman had taken longer to plea than Bershad, and so had provided less assistance. Schulman’s lawyer argued that the sentence should be no longer than Bershad’s, and that the delay in pleading guilty was due to attempts to work out a plea that would let Schulman keep his law license — notwithstanding the fact that there was no way he could conceivably keep that license given what had happened. Judge Walter wasn’t impressed with those arguments, but ultimately gave him the same 6-month sentence, taking into consideration the letters in support and the fact that Schulman had three young children who would be affected by a longer sentence.

Bershad had pled to conspiracy to obstruct justice, and to making false statements under oath. Schulman had pled to a racketeering charge. In addition to jail terms, each was sentenced to pay a $250,000 fine, on top of forfeitures of $7.75 million and $1.85 million, respectively.

Milberg LLP was formerly known as Milberg Weiss LLC, and as Milberg Weiss Bershad & Schulman LLP. At one time, it accounted for half of all securities class action settlements. The firm engaged in “strike suits,” wherein a corporation whose share price had fallen would be sued in a shareholder class action, with an individual shareholder identified as the class representative. The suits were brought for the purpose of settlement for nuisance value. Individual shareholders did not approach the firm, but rather the firm monitored the stock market and manufactured its own cases. To get individuals to to take the role of lead plaintiff, the firm would share its fees with them. The firm also paid kickbacks to stockbrokers who referred clients. At least one expert witness, specializing in estimating damages, was paid on a contingency-fee basis. Bershad and Schulman were indicted, along with the firm, in 2006 on various counts, including racketeering, mail fraud and bribery.

Child Porn Sentencing At Issue

Thursday, October 23rd, 2008


The Wall Street Journal today reports on a developing issue in sentencing law: are child porn consumers being sentenced disproportionately high?

Justice Department data, referred to somewhat inaptly by the Journal, lumps viewers of child porn with those who distribute it. In the group of those convicted of possessing, receiving or distributing child porn, the average sentence now is 80 months in prison. In 1997, the average sentence was about 25 months.

The rise in sentences has been matched by a huge increase in the number of child porn and other child-exploitation cases. Internet crime itself has vastly grown as the Internet has become more ubiquitous worldwide, and so has awareness of the crimes being committed. Child porn itself has only been a crime since 1990.

Some see an unfair disparity in the U.S. Sentencing Guidelines recommended sentences for those who view child porn and online predators who seek to engage in sex with children encountered in chat rooms. Of course, these are commonly the same people. But those who have not engaged in predatory behavior routinely receive enhanced sentences because of the sheer quantity of child porn materials they possess — it is commonplace for defendants to have huge collections of images and videos depicting sex acts being performed on children.

Sharing and receiving child porn is easier to catch, of course, than predatory behavior. Predators are typically caught after they try to go after a victim who turns out to have been an undercover agent. Not every chat room has an undercover, and not every predator picks out the undercover in the room. Subpoenas and data analysis, however, can lead to web sites and fserve locations where vast collections of child porn are stored and distributed. Monitoring the traffic of those sites can provide the IP addresses of those who downloaded or uploaded files. That leads to search warrants on homes, offices and computers, turning up the usually sizeable collections ultimately charged.

Not all images are going to be slam-dunk child porn. The prosecution must prove that an image really is pornographic, that it is a real photo or video and not simply PhotoShopped, and that it really depicts a child as opposed to someone who merely looks young. So prosecutors tend to bring cases against offenders with large quantities of photos, to make it easier to cull out a number of clear examples of child porn. Those with fewer photos, who thus don’t merit a sentence enhancement, are less likely to be charged in the first place, as prosecutors focus their resources on the strongest cases.

So it is unclear that there is an unfair disparity in sentencing. Mere possession may only have a base sentence of 5 years, as opposed to 10 years for the predator. But those most likely to be caught, and those most likely to be prosecuted, are the ones who are beyond the pale and for whom the Guidelines require enhanced sentences.

Readers are invited to comment.

Will SCOTUS Reopen Question of Discriminatory Application of the Death Penalty?

Tuesday, October 21st, 2008

racial disparity

Richard Dieter, executive director of the Death Penalty Information Center, has suggested to the Washington Post that the Supreme Court may be getting ready to review “whether the death penalty is applied in a discriminatory discriminatory way, an issue the Court has not taken up for two decades.”

Dieter drew this conclusion from the Supreme Court’s denial of cert. yesterday in the capital punishment case Walker v. Georgia. As we pointed out recently, the Supreme Court has taken to using denials of cert. for raising questions on capital punishment.

The issue here is how thorough a court’s proportionality review must be, to ensure that a death sentence is not based on arbitrariness or discrimination. Justices Stevens and Thomas concurred with the denial of cert., but gave strongly opposed written opinions.

Stevens, the more liberal of the two, stated that Walker’s case was “troubling,” because it involved a black killer and a white victim. Numerous studies over the years have shown that black defendants are much more likely than whites to be charged with capital crimes, regardless of the race of the victim, but that capital crimes are also much more likely to be charged when the victim is white, regardless of the race of the killer.

Stevens felt that the Georgia Supreme Court wholly ignored its job, and only performed a perfunctory review of proportionality. It merely cited 21 similar death sentences and said that was good enough. The court didn’t describe or compare the facts of those cases, which differed in heinousness.

Thomas, on the other hand, said that Stevens was “simply wrong.” “There is nothing constitutionally defective about the Georgia Supreme Court’s determination. Proportionality review is not constitutionally required in any form.” Georgia has chosen to do some kind of proportionality review, and that’s fine, but the Supreme Court has never required that it do so. If Georgia wants to administer its own additional rule in its own way, that’s up to Georgia.

Thomas, the more conservative of the two, pointed out that the Court already looked at all of the arguments Stevens raised, and rejected them in McCleskey v. Kemp, 481 U.S. 279 (1987).

The fact that these arguments are being raised in written cert. opinions, however, is certainly giving some folks reason to believe that the Court may be interested in looking at them again, should the right case come its way.

Thought Police?

Monday, October 20th, 2008

brain scan

Guilt or innocence, one might say, is all in the mind. After all, there are very few crimes that can be committed without the requisite mens rea, or mental state. If we’re going to punish someone, their acts cannot have been mere accident. We want to know that they had some knowledge that their actions could cause harm, and we want that awareness to be sufficiently high as to require punishment.

The standard criminal levels of mens rea are “negligence” (you ought to have known bad things could happen), “recklessness” (you had good reason to believe that bad things would probably happen), “knowledge” (bad things were probably going to happen), and “intent” or “purpose” (you wanted bad things to happen). If your foot kicks someone in the ribs while you’re falling downstairs, you’re not a criminal. But if you kick someone in the ribs because you don’t like them, then society probably wants to punish you.

We cannot know what anyone was thinking when they did something, however. So we rely on jurors to use their common sense to figure out what an accused must have been thinking at the time.

In recent years, however, there have been enormous advances in neuroscience. Brain scans, the software that processes the data, and good science have approached levels that would have been considered science fiction as recently as the Clinton years. Experts in the field can see not only how the brain is put together, but also what an individual brain is doing in real time. Experimental data show which parts of the brain are active when people are thinking certain things, with good detail.

Functional magnetic resonance imaging (fMRI), in particular, can act as a super lie-detector. Instead of measuring someone’s perspiration and heart rate while they answer questions during a polygraph exam, fMRI looks at actual real-time brain activity in areas having to do with logic, making decisions, perhaps even lying. Experimental data of large groups is pretty good at identifying what parts of the brain are associated with different kinds of thinking.

Every brain is slightly different, of course. Brain surgeons have to learn the individual brain they’re operating on before they start cutting. So general group data don’t translate to an individual person 100%. So any lie-detector use for fMRI would have to require some baseline analysis before proceeding to the important questions.

The issue is whether it will be admissible in court. Polygraph tests generally aren’t admissible, because they’re more an art than a science. But fMRI is all science. In addition, brain scans are already widely admissible for the purpose of reducing a sentence because the defendant had damage to his brain. As forensic neuroscience expert Daniell Martell told the New York Times in 2007, brain scans are now de rigeur in capital cases. In Roper v. Simmons, the Supreme Court, ruling that adolescents cannot be executed, allowed brain scan evidence for the purpose of showing adolescent brains really are different.

Outside the United States, brain scans have already begun to be used by the prosecution to show guilt. In India, a woman was recently convicted of murdering her ex-boyfriend with the admission of brainwave-based lie detection. There was other evidence of guilt as well, including the fact that she admitted buying the poison that killed him. But the brainwave analysis was admitted.

There are deeper policy issues here. Is reading someone’s brain activity more like taking a blood sample, or more like taking a statement? The Miranda rule is there, at heart, because we do not want the government to override people’s free will, and force them to incriminate themselves out of their own mouths against their will. That’s why the fruits of a custodial interrogation are presumed inadmissible, unless the defendant first knowingly waives his rights against self-incrimination. And because the DNA in your blood isn’t something you make of your own free will, by taking a blood sample against your will the government has not forced you to incriminate yourself against your will.

So is a brain scan more like a blood sample? Is it simply taking evidence of what is there, without you consciously providing testimony against yourself? Or will it require the knowing waiver of your Fifth and Sixth Amendment rights before it can be applied?

We’re interested in your thoughts. Feel free to comment.

Gitmo Prosecutors Trying to Re-Sentence Hamdan

Friday, October 17th, 2008


In August, Osama bin Laden’s driver Salim Hamdan was sentenced by a military commission at Guantanamo Bay to 66 months, with credit for time served.

It is now reported that, on September 24, the military prosecutors moved for reconsideration of that sentence. Their basis for reconsideration is that the military commission that sentenced Hamdan lacked the power to give credit for time served.

“The length of the sentence is a matter of indifference to us,” said head prosecutor Col. Lawrence Morris. So far as the government is concerned, Hamdan can get out in December as scheduled or whenever. But though the sentence itself is unimportant, the procedural method is a big deal to the prosecution.

It would appear that this is so because perhaps 80 of the Guantanamo detainees are looking at military commissions, rather than courts-martial. A court-martial could impose a time-served sentence. The government is fearful that the Hamdan case sets a precedent so that these 80 commission-sentenced detainees could also receive time served.

If the government wins its argument, Hamdan could be resentenced to a short term allowing him to get out in December, or he could be compelled to serve a further 62 months.

Needless to say, this is a compelling issue with high stakes for the government, the defendant, and a lot of detainees. It will be very interesting to see how this plays out.

Kozlowski Loses Appeal

Thursday, October 16th, 2008


This morning, the New York State Court of Appeals rejected the appeal of former Tyco executives Dennis Kozlowski and Mark Swartz.

The court held that testimony of an attorney who had investigated the case was not unduly prejudicial, nor was the prosecutor’s comments about that testimony on summation. With respect to subpoenaed Tyco director statements, although the defendants did properly lay the groundwork for the subpoena, and although the statements were not privileged, the judge still acted within his discretion in quashing the subpoena.

The former CEO and CFO were convicted in 2005 of nearly two dozen counts of first degree grand larceny, falsifying business records, conspiracy and securities fraud. The convictions stemmed from the improper use of Tyco funds for their own personal use.

They used a company loan program called KELP (“Key Employee Loan Program”) to buy $12.75 million worth of paintings by famous artists, millions of dollars of jewelry, and an $8.3 million stake in a sports partnership. Another loan program intended for normal relocation costs was used to buy a $7.2 million home on Park Avenue. Millions of dollars of elaborate personal expenses were covered by these “loans.” By the summer of 1999, the two executives owed more than $70 million to Tyco.

To pay that back, they gave themselves huge “loan forgiveness” bonuses, without using Tyco’s procedures for determining the amounts of such bonuses. Despite the great size of these bonuses, the entire debt was not eliminated. They then ordered more than $25 million in cash payments to themselves, plus over $12 million in stock. Tyco’s compensation committee did not receive necessary documentation, and every committee member who testified denied approving the bonuses.

After conviction, Koslowski and Swartz argued that they were entitled to a new trial. A lawyer who had taken part in the civil investigation testified that he’d had conversations with Swartz, who essentially admitted that what was done was improper. The lawyer also testified as to his own recommendations and advice to the Board during his investigation. In summation, the prosecution commented on the lawyer’s testimony, to the effect that the Board only found out about the embezzlement after the lawyers did their investigation. The defendants claimed that the lawyer’s testimony was essentially opinion, telling the jury how to decide the case, and the People’s summation bolstered that effect, creating impermissible prejudice.

The Court of Appeals disagreed, and found that “the testimony and summation complained of merely set forth facts enabling the jury to draw an inference of defendants’ guilt.” The lawyer did not present an opinion on guilt, but merely reported facts from first-hand knowledge. Facts that hurt the defendant are of course prejudicial, but prejudice is not necessarily improper. Prejudicial testimony here would only improper if the witness gave a personal opinion as to guilt.

The government’s comments, likewise, were not impermissible expressions of the prosecutor’s personal belief or opinion as to guilt, but rather “quite properly concentrated, in argument, on proved facts and circumstances and the inferences to be drawn therefrom.”

There was a second claim that a subpoena issued by the defendants had been impermissibly quashed. The court held that the defendants actually had met their burden to identify specific items and show that they were reasonably likely to contradict the People’s evidence. However, the documents sought were still privileged, and thus were not subject to production.

The privilege was not absolute, however. The materials were statements by director-witnesses, which the court held to be trial preparation materials. As such, they were not subject to the attorney-client privilege (as Tyco had argued). Nor were they subject to the absolute work-product privilege (as the government here argued). Instead, disclosure is entirely up to the trial court’s discretion.

The discretionary determination rests, oddly enough, on civil procedure: CPLR 3101(d)(2). That rule required the defendants to show that they could not get the underlying facts another way, without undue hardship. The defendants didn’t do so here, and so the judge properly exercised his discretion.

Clearly, a lot of creative thought went into the litigation and appeal of this case on both sides. There are still five years or so to go in the defendants’ sentence, so one might expect further creativity down the road.

Fractal Weirdness: Pa. Supremes Mis-read Probable Cause, SCOTUS Denies Cert.

Wednesday, October 15th, 2008


The Supreme Court has denied cert. to a Pennsylvania high court ruling that severely limits what counts as probable cause in that state.

The dissent of Chief Justice Roberts succinctly, and creatively, sets forth the relevant facts:

North Philly, May 4, 2001. Officer Sean Devlin, Narcotics Strike Force, was working the morning shift. Undercover surveillance. The neighborhood? Tough as a threedollar steak. Devlin knew. Five years on the beat, nine months with the Strike Force. He’d made fifteen, twenty drug busts in the neighborhood.

Devlin spotted him: a lone man on the corner. Another approached. Quick exchange of words. Cash handed over; small objects handed back. Each man then quickly on his own way. Devlin knew the guy wasn’t buying bus tokens. He radioed a description and Officer Stein picked up thebuyer. Sure enough: three bags of crack in the guy’s pocket. Head downtown and book him. Just another day at the office.

Pennsylvania v. Dunlap, No. 07-1486 (Oct. 14, 2008)(Roberts, C.J., dissenting).

The Pennsylvania Supreme Court held that Devlin lacked probable cause, because what he saw was a single transaction, he didn’t actually see the drugs, there was no tip from an informant, and the defendant did not try to flee. Therefore, there might have been an innocent explanation. Because there might have been an innocent explanation, there was no probable cause.

This is one for our Fractal Weirdness files. The defendant’s transaction may have several explanations, but the most likely one under the circumstances is that it was a drug sale. As Roberts said in his dissent yesterday, “that is by far the most reasonable conclusion, even though our cases only require it to be a reasonable conclusion.” (Italics in original.) Yet the Pennsylvania court has ruled, essentially, that it must be the only possible conclusion.

One might expect a spike in successful Fourth Amendment challenges in Pennsylvania now, and a decrease in street-level drug arrests, as the common sense of ordinary law enforcement is trumped by mere speculation into whether an observed transaction might possibly have been innocent. Officers are going to be compelled to ask themselves “but what if?” when seeing an act that screams probable cause to trained eyes. And if they can conceive of an innocent explanation, they’re going to be less likely to make an arrest.

This rule may even cause officers to decide not to arrest people when even this rule would have permitted it. The rule thereby defeats the purpose of the general Exclusionary Rule, by causing law enforcement to shy away from arrests and searches that the law actually allows.

The purpose of the Exclusionary Rule is to prevent the government from using evidence it should not have had, without preventing it from gathering all the evidence it is allowed to. That is why we do not penalize individual officers when they conduct an improper search — if there was a threat of personal penalty, then far from crossing the line most officers wouldn’t go anywhere near it, and evidence that they would have been perfectly entitled to gather would be lost. Society doesn’t want law enforcement to shy away from evidence it ought to have. Likewise, that is why the Exclusionary Rule does not exclude all evidence in a case, but only the evidence that is solely attributable to crossing the line. Society wants law enforcement to be able to go right up to the line, and even dance on the line.

This holding, however, is an incentive to law enforcement to shy away from the line. There is no guidance for what sort of speculation falls within the realm of possibility. There is a huge gray area of speculative plausibility that officers must now consider. The new law compels law enforcement to err on the side of not making an arrest based on speculative possibilities, even if far less likely than trained common-sense conclusions, and perhaps even less likely than what the court would have considered plausible. Arrests and seizures that would have been appropriate are going to be avoided, lower courts may over-apply this new rule, and Pennsylvania will then suffer less law enforcement than its judges probably intended to allow.

Opening Statements in KPMG Trial Today

Wednesday, October 15th, 2008

KPMG logo

The long-delayed trial of KPMG executives charged with selling fraudulent tax shelters has at last begun, three years after the indictment. Jury selection began yesterday in federal court in Manhattan, and opening arguments are scheduled for today. The trial is expected to continue into early 2009.

Out of 19 original individuals in the indictment, four now remain: Robert Pfaff, John Larson and David Greenberg from KPMG, along with former Sidley partner Raymond Ruble. (Full disclosure: the author is a former Special Associate of Sidley Austin.) Judge Kaplan dismissed indictments against 13 of the individuals last year, finding that the prosecution violated their rights by threatening to indict KPMG itself if it paid their legal fees. The 2d Circuit upheld that decision, which has caused the Justice Department to issue two significant memos ostensibly ending that practice. Two other defendants have pled guilty: David Rivkin in 2006, and David Makov of Presidio Advisory Services, whose plea inculpated Ruble, in 2007.

The defendants are accused of putting together tax shelters designed to create fake capital losses, reducing clients’ taxes by more than two and a half Billion dollars. The scheme is alleged to have been concealed from the IRS by opinion letters from KPMG or a law firm, making false representations about the underlying transactions.

The defense team has been trying to exclude summary charts, based on IRS data, from the government’s case in chief. The defense claims that the underlying IRS data was not made available, and so the charts summarizing that data should not be admitted. The court has not yet ruled on this. The IRS is subject to confidentiality rules that prohibit the disclosure of such data, unless the individual taxpayer is under formal IRS scrutiny. The New York Times reports that “many taxpayers sought to strike deals with the IRS to prevent formal scrutiny by the agency.”

SCOTUS Clarifies Cruel & Unusual Execution, Without Saying a Word

Tuesday, October 14th, 2008

Lethal injection chamber

Richard Cooey was executed by lethal injection this morning, after the Supreme Court denied without comment his final appeal.

He had claimed that lethal injection could cause a painful death. The Court declined to address the issue, and simply denied a stay of execution.

Yesterday, the Supreme Court rejected without comment Cooey’s original request for a stay. Cooey had argued that his obesity would make it difficult for prison officials to find a vein, thus rendering his execution cruel and unusual.

The Court decided not to use this case to clarify the law on what medical standards satisfy Eighth Amendment concerns. The Court similarly left the issue alone four years ago in a written opinion.

That earlier case, Nelson v. Campbell, 541 U.S. 637 (2004), was a 42 U.S.C. § 1983 action on the grounds that cutting into an inmate’s flesh to locate a vein was cruel and unusual. Contrary to what the news media have reported, the Court did not rule one way or the other on that assertion. Instead, it ruled that the District Court needed to hold a hearing on whether such a procedure was necessary; and if so, then it would have to address the question of whether the procedure was a constitutional method. The Court specifically declined to address the constitutionality of the specific procedure, because it did not have to reach that issue.

Because the Court has continued to leave open the question of what standard should apply to method-of-execution claims, the door is open to further case-by-case review. Until a clear rule is determined by the Court, one might expect a series of similar appeals, as inmates with varying individual circumstances seek to challenge methods of execution.

Judging from the holding in Nelson, the rejection of Cooey’s claims, and a 1994 lower court case staying the hanging of a severely obese man, it appears likely that the significant factor in any future decision will be whether any wounding of the body is necessary for the execution to be carried out. Hanging an extraordinarily fat person could result in unnecessary decapitation, and so is improper. Puncturing the body to inject lethal chemicals with painkillers is necessary and limited, and is proper. Making an incision to locate a vein may or may not be necessary, and a hearing would be required to determine if it is constitutional.

So we might expect any future written decision on the constitutionality of particular execution methods to focus — at least in part — on the whether any wounding of the body is necessary and limited.

Shameless Self-Promotion

Monday, October 13th, 2008


Your humble author has a new title in print. Strategies for Defending Internet Pornography Cases: Leading Lawyers on Analyzing Electronic Documents, Utilizing Expert Witnesses and Explaining Technological Evidence can be purchased for the modest sum of $90.00 at

This title is sure to be snapped up by insomniacs everywhere, so get your copy while you can. Here is the publisher’s description:

Strategies for Defending Internet Pornography Cases is an authoritative, insider’s perspective on mounting a defense against charges of possession of Internet pornography. Featuring defense attorneys from across the country, these experts guide the reader through the key considerations necessary when investigating accusations of Internet crimes and examine the complex technology issues at work. Discussing the challenges of defending these technology-driven cases, the authors explain the concepts of shareware, unintentional downloading, digitally altered images, and temporary Internet file folders as they relate to false claims of Internet pornography possession and offer advice on selecting an appropriate defense strategy. From overcoming the public perception of pornography through your defense to utilizing computer and psychological experts, these top lawyers walk the reader through the steps of a case from initially meeting with a client and developing a trusting relationship to reviewing settlement and appeal options. The different niches represented and the breadth of perspectives presented enable readers to get inside some of the great legal minds of today, as these experienced lawyers offer up their thoughts around the keys to navigating this sensitive area of law made more complex in the digital age.

Fractal Weirdness

Monday, October 13th, 2008

Fractal Weirdness

“Later, he was to decide that Andrew’s life had been fractally weird. That is, you could take any small piece of it and examine it in detail and it, in and of itself, would turn out to be just as complicated and weird as the whole thing in its entirety.”

– Cryptonomicon, Neal Stephenson

We’ve long been convinced that the law, like Andrew Loeb’s life, is fractally weird. Looked at from a distance, it is elegant and beautiful — the sum of a society’s rules, the thrust vectors of a culture, a work of art consolidating how people really are with how they would like to be, or any other metaphor you care to mix.

But looked at up close, the law can be — and often is — bizarre. We have the occasional rule that seems to have no underlying policy to explain it. We have statutes and regulations that must have seemed like a good idea at the time, but who knows what it was. And we have countless absurd practices, often with no better reason than “that’s how we’ve always done it.”

Like that “ss.” found at the beginning of so many affidavits. It was probably a meaningful symbol in the dim and distant past. People would see it and go “ah yes, the ss., excellent.” But now means absolutely nothing and serves no purpose. Ask three lawyers what it means, and you’ll get five answers, ranging from the obviously wrong “signed and sealed” or “the seal goes here” (not things you’d put at the top of the page) to the obscure “it’s latin for ‘more specifically’ as in ‘State of New York, more specifically County of New York.'” If you know what it really means, feel free to post a comment.

This is a long way of inaugurating the category of Fractal Weirdness in this blog. From time to time, we’ll post tidbits that show just how bizarre the criminal law can be. If you have a suggestion, let us know!

Three US Attorneys Investigating Lehman

Wednesday, October 8th, 2008

Lehman Logo

Lehman Bros. is now under investigation by three separate U.S. Attorney offices. Each of the investigations boil down to a question of whether Lehman publicly claimed its finances were fine, while privately admitting that it was in deep kimchee.

This is a typical focus of securities investigations, and the investigations are likely to hinge on statements in internal emails and files, and whether those statements conflict with powerpoints, public statements, conference calls and individual phone calls with outsiders.

The SDNY is focusing on whether Lehman inflated its asset values deceptively. The investigation has zeroed in on what investors were told about the value of its commercial real estate holdings. There have been allegations that investors were told these holdings were worth $32.6 billion, when in fact they were only worth about $21 billion, a difference of 35%.

The SDNY is also investigating whether Lehman acted improperly by moving $8 billion from its London unit to New York right before it filed for bankruptcy.

The EDNY is running a carbon-copy of its Bear Stearns investigation, focusing on whether Lehman executives gave investors and analysts optimistic reports to investors and analysts during conference calls, while privately believing that the firm’s condition was worse. The allegations are that analysts were told that no new capital needed to be raised, after Lehman had determined that it needed to raise between $3 and 5 billion in new capital, as new collateral for its clearing bank following a steep decline in Lehman’s share value. The Wall Street Journal reports that the executives had decided before the call not to raise new capital, but instead to sell assets to generate the cash. [Full disclosure: the author represents an individual in the Bear Stearns matter.]

The District of New Jersey is looking into whether Lehman gave misleading information to the New Jersey pension fund during a $6 billion stock offering earlier this year. New Jersey has lost about 65% of its investment in that offering.

2d Circuit Limits Expert Testimony by Officers

Monday, October 6th, 2008


United States v. Mejia, et al., No. 05-2856-cr (2nd Cir., Oct. 6, 2008)

In a decision that was more than a year in the making, the Second Circuit today limited the use of expert testimony by police officers. The court ruled that law enforcement experts should not be used to introduce direct evidence in the case, but rather should be limited to helping the jury understand the direct evidence. Also, the expert cannot be used for the purpose of introducing hearsay statements.

Two MS-13 members were tried for gang-related shootings. The prosecution sought to prove a critical element — acts and threats of murder, as an element of racketeering — almost entirely through expert testimony of a police officer. Apart from the expert’s testimony, there was no other evidence of murder, and only indirect evidence of threats.

There was no problem with permitting a law-enforcement officer to testify as an expert. The problem was that his testimony went beyond the permissible scope of expert testimony, and that hearsay he offered violated the Confrontation Clause.

Instead of providing background information and explanations that would help the jury understand the direct evidence, the expert gave factual direct testimony as a “case agent” summarizing the ongoing investigation of which this case was a part. The witness was offered solely as an expert, but then gave factual testimony of facts in this case. When case agents testify as experts, their credibility is given an unfair boost with the jury.

Summarizing the ongoing investigation essentially turned the trial into a grand jury proceeding, by letting the witness introduce evidence of other witnesses not part of the record. Letting the expert-only witness testify about this case gave him unmerited extra credibility. The testimony thus exceeded the bounds of expert testimony, in violation of Fed. R. Evid. 702.

The testimony also violated the Confrontation Clause by its reliance and repetition of out-of-court statements made by others during interrogations. Custodial statements are testimonial. Summarizing the hearsay from other people’s investigations that were not part of the record, and presenting it in the guise of an expert opinion, does not make the hearsay statements any less inadmissible. This violates the rule of Crawford and Fed. R. Evid. 703.

The error was not harmless, and so all of the convictions were vacated, and the case remanded for new trial.

Because this decision is based largely on Crawford, it will probably have an impact on State prosecutions as well. For example, it is common in New York drug trials for the arresting officer or undercover to testify in part as eyewitnesses and in part as experts explaining what their testimony means to the jury. State courts might start limiting such testimony with decisions like this one.

Welcome to the Criminal Lawyer

Monday, October 6th, 2008

Supreme Court of the United States

Hello, and welcome to The Criminal Lawyer.

Our mission is to give you thoughtful observations on the jurisprudence of crime. We will cover notable cases and events, offer analysis of deeper trends, and even throw in some juicy gossip from time to time.

We’ll link to compelling articles by lawyers and scholars around the Web, provide our own insights, and look to you for contributions. Your comments are eagerly invited.