Posts Tagged ‘criminal investigations’

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

Wednesday, March 4th, 2009

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

During the recent SEC investigation of a possible $8 billion fraud at Stanford International Bank, they interviewed Stanford Financial Group’s chief investment executive, Laura Pendergest-Holt (pictured). She was accompanied to the interview by Proskauer Rose partner Thomas Sjoblom, a very good and experienced attorney.

Last Thursday, the investigation went criminal, as Pendergest-Holt was charged with a federal crime. She’s alleged to have had a Martha Stewart moment, lying to the SEC about her knowledge of Stanford’s investments, and about not meeting with other Stanford people to prepare for her meeting with the SEC.

How could that happen, when she had such a good lawyer?

The answer appears to be (first pointed out by Zach Lowe) that Sjoblom wasn’t actually her lawyer. He represented Stanford, not its executive.

This is something that comes up all the time in the white collar world. When a corporation is under investigation, it hires lawyers to protect its interests. The interests of its executives and employees are not always the same — in fact they are rarely the same — and so to avoid potential conflicts of interest they usually get separate counsel.

If the same law firm represented a corporation and its CIO, somewhere down the line the CIO might decide that it’s in her interest to testify against the company. That would cause a conflict of interest, so the company will usually insist that she get her own lawyer.

If the corporation’s attorneys speak with the CIO, they must make it very clear that they only represent the company, and do not represent the individual. In this case, Sjoblom made it very clear at least twice during the SEC meetings that he was Stanford’s lawyer and not Pendergest-Holt’s. It is not yet known whether he made this clear to Pendergest-Holt (he did not return Lowe’s calls seeking comment, but commenting is probably improper anyway), though it is hard to imagine that he did not do so.

Sjoblom had a bit of a dilemma in that situation, regardless. As Stanford’s lawyer, he probably needed to get information from Pendergest-Holt. And he probably needed to cooperate fully with the investigators. He would have had to make it perfectly clear to her that, as he did not represent her, anything she said to him would not be privileged. (Well, Stanford could assert a privilege perhaps, but Pendergest-Holt could not.)

If Pendergest-Holt reasonably believed that Sjoblom represented her, and then Sjoblom shared her information with Stanford or the SEC, then Sjoblom could well be liable in a civil suit. Again, there is no reason to believe that such is actually the case, and this is only mentioned to stress the challenges presented to the corporation’s attorney in a situation like this.

How does the company’s lawyer get information out of its CIO, then? If the lawyer tells the CIO he doesn’t represent her, and nothing she says is going to be confidential, and in fact he’s obligated to share her information, then she’s not going to want to talk. The solution is simple and cold: the lawyer must inform the CIO that if she doesn’t talk she will be fired.

Given all the warnings that must have been given, alerting her that Sjoblom did not represent her, it is strange to see that she didn’t get her own counsel. Nevertheless, Pendergest-Holt somehow appeared before the SEC without being represented by her own lawyer. She didn’t have someone watching out for her own interests, and now she’s been arrested and charged with a federal crime as a result.

She has lawyers now, of course. She is represented by the firm of Parsons Behle & Latimer in the civil SEC matter, and by Houston’s Dan Cogdell in the criminal matter. Still, we have to wonder why she waited until it was too late before she got her own counsel.

Memo to executives and employees: Get your own lawyers!

NYPD and DOJ Wiretap Fight: Each Accuses the Other of Endangering the Public

Friday, November 21st, 2008

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Over the summer, New York City’s police force demanded that the FBI and the Justice Department make it easier to get wiretaps on suspected terrorists. The feds refused, and the dispute has escalated ever since. The New York Times reports that correspondence has flown between the U.S. Attorney General and the Police Commissioner themselves, as “each accuses the other of mishandling terrorism cases and embracing an approach that made the public more vulnerable.”

Wiretaps are considered one of the most invasive state actions, and so any request for electronic eavesdropping is going to be put under enormous scrutiny before it is ever presented to a judge. Every “i” must be dotted, every “t” must be crossed, and no detail is too small to be overlooked. The slightest inadvertent error can result in a wire being deemed improper, resulting in the exclusion of all the evidence gathered as a result. No law enforcement agency wants to spend vast amounts of time and money on a wire investigation, only to have the evidence thrown out.

So prosecutors carefully prepare wire applications, dissect them, and then send them up the chain of command for approvals. In the DOJ, these internal approvals can take an extraordinarily long time. New York City prosecutors, with bureaus specializing in such applications, can turn around a wire application much faster. Although both tend to err significantly on the side of caution, to minimize the chance of error being found down the road, the feds are much more cautious than the city prosecutors, and will reject wiretap applications that would have passed muster in the DA’s office.

Also, federal wiretaps tend to be short and sweet, not often extending beyond the initial 30-day period normally authorized. Renewal of the authority requires another application, and there just isn’t time to jump through all the hoops while the evidence is still coming in. City-initiated wiretaps, on the other hand, can sometimes extend for 18 months or longer, as they lead to more phone lines and additional evidence.

So there is already a cultural divide between federal and city law enforcement when it comes to wiretaps. The feds are traditionally much more cautious and unlikely to request a wiretap,* while NYC law enforcement, though still very cautious, is not nearly so shy.

Now enter the FISA Court.

The Foreign Intelligence Surveillance Court is set up to review applications for warrants to eavesdrop on suspected spies or terrorists. The court must find probable cause that the target of the surveillance is a foreign agent or terrorist, that the wiretap is going to turn up evidence of such activities, and there is no reasonable less-invasive way to get the evidence.

Only the FBI and the DOJ have access to the FISA Court, however. So if the NYPD wants to get a warrant, it needs to submit it to federal scrutiny. That subjects their applications to much lengthier review, as a result, and also makes them more likely to be rejected and not presented to the court in the first place.

The NYPD now believes that its efforts are being thwarted, and accuses the feds of improperly blocking its wire applications.

So on October 27, police commissioner Ray Kelly accused the feds of putting the public at risk by being too nit-picky. He wrote that the feds were “constraining” critical terrorism investigations, and “doing less than is lawfully entitled to protect New York City,” so that “the city is less safe as a result.”

Four days later, attorney general Mike Mukasey wrote back saying that the city’s approach would be counterproductive, because they’d seek warrants that might exceed what the law allows, so that the evidence gathered could be thrown out, thereby making the citizens less safe.

Mukasey seems to see the FISA Court as little more than a rubber stamp. Presumably, if the court was doing its job, a warrant application that didn’t satisfy the law would be rejected by the court itself. But the DOJ appears not to trust the court to do its job, and so would act as a stand-in for the court.

Although the NYPD didn’t make that point, it did respond by putting the blame squarely on the DOJ for taking too long to review applications, and for applying “a self-imposed standard of probable cause which is higher than that required by Supreme Court precedent.”

As a former prosecutor who did quite a lot of wiretaps involving both city and federal authorities, your humble blogger will be very interested to see how this pans out. In the meantime, it looks like the fight is only getting started. Stay tuned.

* This perplexes the New York Times, which has long accused the Bush administration of trying to improperly extend its wiretapping authority and other national security powers. Many insiders, however, blame the administration for trying too hard to appease its opposition by limiting governmental powers and announcing that to the world, thereby only creating opposition where none previously existed. So while the criticism from the left about wiretapping and other legalities may have been undeserved, the administration has no-one to blame but itself.

Wave of White-Collar Investigations is Coming

Wednesday, November 12th, 2008

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“The nation’s top white-collar criminal defense practices are receiving a steady flow of inquiries from clients embroiled in the ongoing credit crisis,” reports the National Law Journal. This is consistent with reports we have heard within the white-collar defense community.

With the economy continuing to take hits from the financial sector, there seems to be a growing demand for blame. Billions of dollars in pensions and retirement funds have disappeared, the money supply is crippled by banks refusing to extend credit, and jobs and tax revenue are at stake.

As the public and its elected officials call for punishment, state and federal prosecutors are launching investigations to see whether anyone broke the law. Anyone involved with complex debt instruments, which appear to have been responsible for much of the vanished wealth, ought not to be surprised to find themselves part of a criminal or regulatory investigation.

As we previously reported, Lehman Brothers executives are already being looked at. And of course the Eastern District of New York has already indicted two managers of the Bear Stearns subprime mortgage hedge funds. But that, our sources tell us, is only the tip of the iceberg.

Credit-default swaps, which enabled much of the subprime hedge fund investments, are now the focus of a joint investigation being brought by the New York Attorney General and the Southern District of New York.

The SEC has also begun taking action in investigations that had appeared to be dormant. Of particular interest to the SEC would be whether executives made misleading statements to investors or analysts about the financial health of their funds or institutions.

“Attorneys report hearing from clients,” reports the NLJ, “who are either already in receipt of subpoenas from federal and state investigators, or who are worried about what the mail will bring. Every lawyer interviewed agreed that their clients — including those confident they kept within the law — would be wise to anticipate that the government will cast a very wide net.”