Posts Tagged ‘doj’

Yet More Prosecutorial Misconduct by the Feds

Tuesday, August 18th, 2009

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We’ve asked it before, but what the heck is going on with some of these federal prosecutors nowadays? There was the whole Ted Stevens fiasco over the winter, when the feds actively withheld exculpatory evidence and witnesses in their rush to convict the former Senator. Then the 7th Circuit directed an acquittal after the feds blatantly misrepresented the facts in a food labeling case. The W.R. Grace case was screwed by federal prosecutors who withheld exculpatory evidence and gave the judge reason to say he has “no faith in anything the Government says” any more.

And now we get yet another case of the feds blatantly misrepresenting the facts. This time, the 9th Circuit reversed and ordered a new trial, though it’s doubtful that there will be another one.

The case is U.S. v. Reyes, decided this morning. This was one of those options backdating cases that were all over the news for a while back in ’06 and ’07. (“Backdating” is when a company retroactively picks an effective date for stock options, so as to maximize the potential value of those options. It’s a crime when the extra value isn’t accounted for as an expense, because then the books give investors a false image of the company’s finances.)

Gregory Reyes was the CEO of Brocade Communication Systems. In August 2006, Reyes was charged with securities fraud and related crimes for backdating options without properly accounting for them. At trial, his defense was that he had no intent to deceive. He just signed off on the options in good-faith reliance on his company’s Finance Department.

High-ranking Finance Department employees had given statements to the FBI, describing how they knew all about the backdating scheme. But they didn’t testify at trial. Instead, the prosecution called a Finance Department employee who said she didn’t know about the backdating.

The prosecutor was well aware of the fact that others in the department knew all about it. But during closing arguments, he told the jury that the Finance Department employees “don’t have any idea” that backdating was going on.

After several days of jury deliberations, Reyes was convicted. He was sentenced to 21 months in prison with $15 million in fines. That was stayed pending appeal.

This morning, in an opinion byJudge Schroeder, the 9th Circuit held that this was prosecutorial misconduct, and reversed the conviction, ordering a new trial. Reyes argued that he didn’t know the Financial Department wasn’t accounting properly for the backdating, and the feds argued that the Financial Department didn’t know about the backdating. So that was a key question for the jury to decide. And the feds had lied to the jury.

And this wasn’t just a simple little throwaway line, either. The prosecutor did not even limit his argument to the testimony of the witness he’d cherry-picked to give the false impression that nobody in the Finance Department knew about it (which might actually have been permissible). No, the prosecutor:

asserted as fact a proposition that he knew was contradicted by evidence not presented to the jury. In direct contravention of the statements given to the FBI by Finance Department executives that they did know about the backdating, the prosecutor asserted to the jury in closing that the entire Finance Department did not know about the backdating, and further that the government’s theory of the case was that “finance did not know anything.”

“Our theory is that those people didn’t know anything. . . . [The cherry-picked witness] says finance didn’t know. Did you need everybody in the Finance Department to come and tell you that they didn’t know?”

The government even displayed for the jury a diagram explaining the prosecutor’s position that the Finance Department did not know of the backdating. The prosecutor asked the jury to assume other employees of the Finance Department would testify that they did not know about Reyes’ backdating procedure, when the prosecutor knew they did.

Federal prosecutors have “a special duty not to impede the truth.” As the 9th Circuit pointed out today, there is good reason to hold prosecutors to a higher standard: Their words carry the weight and imprimatur of the government itself, which can be very persuasive to a jury.

The 9th Circuit didn’t go so far as to direct an acquittal or dismiss the indictment, because the defense had also played it pretty aggressively. Instead, they ordered a new trial. It is anyone’s guess whether the feds will be up to the task of trying the case all over again, years after the fact. But we’ll go out on a limb and predict that this case will never see a jury again.

For crying out loud, feds! And for shame.

Antitrust Division Indicts Japanese National in Yet Another LCD Monitor Case

Thursday, April 2nd, 2009

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The DOJ got an indictment this week against a Hitachi executive, in the government’s ongoing prosecution of alleged price-fixing in the LCD monitor industry.

We first blogged on this back on November 13th, when Sharp, LG Display and Chunghwa all pled guilty to price fixing, agreeing to pay $585 million in fines. Since then, Chungwha executives also pled guilty during February.

After the Chungwha executive pleas, Hitachi itself agreed in March to plead guilty and pay $31 million in fines.

Breaking from the pattern, however, rather than a Hitachi executive subsequently pleading guilty, the feds went ahead and indicted him.

According to a DOJ press release, Tuesday’s indictment charges a Japanese national, Sakae Someya, who was an executive at Hitachi Displays Ltd. Mr. Someya is accused of taking part in a larger global conspiracy to fix the prices of LCD panels sold to Dell.

Mr. Someya is accused of agreeing to charge set prices for the screens, sharing sales information to ensure everyone was complying with the agreed prices, and trying to keep the arrangement secret. These are Sherman Act charges, with a max of 10 years in prison plus a max fine of the greater of $1 million, double the gain, or double the loss to victims.

We wonder how much of the allegedly criminal conduct is simply normal business practice in Japanese culture. After all, the keiretsu distribution system used by Japanese industry looks very much like price fixing to Western eyes.

It certainly looks to us as though the DOJ’s Antitrust Division is busting through decades of resistance to offshore enforcement of U.S. antitrust rules. Whether it is proper to impose U.S. laws on a very foreign culture… that’s another question entirely. What do you think?

DOJ Tries To Sweep Its Ted Stevens Fiasco Under the Rug

Thursday, April 2nd, 2009

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We try not to report here on matters that everyone else in the world is already talking about. That’s why we’ve said nowt on Bernie Madoff and other headline-grabbing stories. For the same reason, we decided yesterday not to mention the DOJ’s request to dismiss the charges in its prosecution of former Alaska Sen. Ted Stevens — everyone else was already reporting it. And we’ve already discussed the DOJ’s misconduct at length here and here.

But we wanted to point out a big point that the media seem to be missing. Most reports see this as a vindication of former Sen. Stevens, and a sign that prosecutorial misconduct will not be tolerated by the DOJ. In fact, however, the DOJ’s action means anything but that.

Stevens was convicted last October after a jury trial in D.C., during which the government withheld important Brady material — the judge said the prosecutors did so intentionally, and an FBI agent later confirmed that it was intentional. In addition, the prosecutors had a witness who, when they found out his testimony could clear Stevens of any guilt, they sent home to Alaska to conceal him from the defense. There were also inappropriate dealings between FBI agents and the government’s star witness, including an apparent sexual relationship.

The prosecutors continued to screw up, failing to turn over documents to the defense as ordered by the judge after all this came out. Understandably, the prosecutors were held in contempt, and taken off the case.

The case had gone from a trumpeted victory for the DOJ, to a squalid embarrassment.

So now, yesterday, the DOJ filed a motion to have all the charges against Sen. Stevens dismissed. They’re holding it out as a heroic act, that they’re doing the just and proper thing, that AG Holder is sending a message to prosecutors at the DOJ that further misconduct will not be tolerated.

We call shenanigans.

This dismissal of the charges is nothing more than an attempt to sweep the whole nefarious affair under the rug. The case goes away, so the problem goes away. There will be no further need for the scrupulous investigation of what went wrong at Justice. There will be no need to hold costly and embarrassing internal reviews. There will be no need for further media scrutiny.

The DOJ should not be permitted to escape whipping, by its own unilateral decision to drop a case. That’s not good enough.

This prosecution of this case was bizarre from the get-go. It was rushed to indictment hastily, mere days before the primaries in an important election (in violation of DOJ rules prohibiting indictments that could affect the outcome of an election, by the way). The prosecutors intentionally withheld evidence that seems to show the Senator didn’t commit the crime he was accused of. They violated court orders. They tried to hide a key witness from the defense. And ironically, these were prosecutors in the Public Integrity unit, of all things.

Now they want to make it all go away. Here’s hoping that Congress, the courts and the media see through this little ploy, and keep on investigating just what the heck is going on in the DOJ these days.

Doctors: Got “Incentives?” Better Get a Lawyer.

Friday, March 20th, 2009

 

We’ve written about an upcoming wave of white-collar prosecutions, especially against Wall Street types. But wait, there’s more: the feds are now about to start prosecuting doctors.

The Department of Justice and the Inspector General of the Department of Health and Human Services are about to start prosecuting physicians who receive inappropriate incentives from manufacturers and sellers of pharmaceuticals and medical devices. Doctors who have accepted such incentives face criminal prosecution, as well as civil fines and being barred from participation in Medicare and Medicaid programs. Doctors who have received significant incentives from medical marketers might want to seriously consider consulting a good white-collar defense attorney.

Of course, incentives are a commonplace in medical marketing. And of course the purpose is to somehow influence which drug a doctor intends to prescribe, or what equipment a doctor uses. A wide range of incentives are offered, not just the free pens, prescription pads and trinkets routinely handed out. Expensive equipment can be provided for free or at a deep discount, in return for minimal obligations such as a product recommendation or letting one’s office be used (albeit rarely) as a training facility. In extreme cases, sellers actually pick up the tab for travel to seminars or other expenses, pay “advances on royalties” for helping develop products, or simply pay cash kickbacks.

In the past, it has usually been the manufacturers who got prosecuted for making kickbacks or bribes, often paying millions in fines and undertaking the supervision of monitors. What’s new now is the federal focus on the doctors themselves, on the receiving end.

Many doctors may not think they’re doing anything wrong by accepting incentives from sales folk. After all, it’s the norm. And so what if a doctor got a free trip to the conference, if he continues to make his prescription decisions independently and based on the actual needs of the individual patient?

The government sees this as criminal partly because such payments are opaque. A patient might not be so trusting of a prescription for FancyPharm if he knew his doctor was getting comped by that company. A patient might not have the same confidence in her eye surgeon if she knew that he didn’t actually select and purchase his laser equipment himself, but instead got it for nothing.

Another reason is the perception that medicines and procedures would be improperly prescribed, because the incentives had an undue influence on the doctor’s decisions. Unnecessary expense and harm could result.

The main tool that prosecutors have here is the federal Anti-Kickback Statute (formally known as “the Medicate and Medicaid Patient Protection Act of 1987,” 42 U.S.C § 1320a-7b). It basically provides up to 5 years imprisonment and $25,000 in fines.

The feds are most likely to go after those who allowed marketers to pay for their consulting fees, travel to seminars or other expenses, or who accepted advances or payments, or who accepted large rebates or extreme discounts without proportionate consideration, or otherwise received remuneration that could have influenced their decision making.

Lewis Morris, chief counsel for the Inspector General, told the New York Times last week that “what we need to do is make examples of a couple of doctors, so that their colleagues see that this isn’t worth it.”

When law enforcement says they are going to make examples of people, one might think that this means they will carefully pick and choose their cases, cherry-picking only the most obviously criminal acts with the strongest evidence. However, in real life, that’s not always the case.

Especially in cases like these, where the evidence tends to be more circumstantial (absent clearly incriminating admissions, recordings or emails), and where the conduct is very often in the gray area of culpability, prosecutors may not have many rock-crusher cases in the first place. And they certainly won’t have enough cases at first to do much cherry-picking in any event.

No, they have announced their desire to make examples of people, and we predict they will go after whatever crosses their desk.

Cases are going to come from marketers who got caught trying to bribe someone else, who are then flipped to inform (and wear a wire) against the other doctors they deal with. Those are the easiest cases for law enforcement to initiate. Other cases may come from third-party complaints or referrals, but those are rare in secret one-on-one deals such as those being investigated here.

If any doctors out there think they might have had dealings with a marketer that could get them in trouble, it might be wise to get counsel from a good white-collar defense attorney sooner rather than later.

Food Fraud Prosecutors Caught Selling Snake Oil

Friday, March 13th, 2009

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Judge Posner issued a scathing decision yesterday for the 7th Circuit, reversing a jury’s fraud conviction and directing an acquittal. Why? Because the only fraudulent misrepresentations were those of the prosecutor.

The decision is great, and we plan to use some of it in our own future arguments. Sadly, it is just the latest in a string of recent cases where federal prosecutors — uncharacteristically — have far overstepped the bounds. We hope it’s not becoming a trend.

In U.S. v. Farinella, the government accused Farinella of fraudulently misleading consumers by slapping a new label over the “best when purchased by” date. The Justice Department alleged that this altered the dates on which “the dressing would expire.”

But the Justice Department was itself misleading when it said so. The dressing had a very long shelf life indeed — in fact, it has no expiration date. There is no time after which one shouldn’t eat it. The “best when purchased by” date was merely a marketing ploy. “For all we know,” Posner wrote, “the date is determined less by a judgment about taste than about concern with turnover.” Nevertheless, the government consistently referred to the date as the “expiration date,” routinely misleading the jury and the court.

Posner made an outstanding observation during his discussion of the government’s expert testimony. They had called an FDA employee, whose testimony strongly implied that changing food labels requires FDA approval. But though that may be the expert’s understanding, it wasn’t actually a requirement.

For it “to be a lawful predicate of a criminal conviction,” Posner wrote, it would “have to be found in some statute or regulation, or at least in some written interpretive guideline or opinion, and not just in the oral testimony of an agency employee.”

He then gave us white-collar defense attorneys a wonderfully quotable ruling: “It is a denial of due process of law to convict a person of a crime because he violated some bureaucrat’s secret understanding of the law. The idea of secret laws is repugnant. People cannot comply with laws the existence of which is concealed.”

There was no evidence of misbranding, and so the defendant had to be acquitted. However, even if there had been evidence, the Circuit would have reversed and ordered a new trial, because the Justice Department’s misconduct was beyond the pale.

As already pointed out, the prosecution repeatedly misrepresented the facts, referring to the “best when purchased by” date as the “expiration date.” In her closing argument alone, the prosecutor substituted that phrase 14 times.

The prosecutor further misled the jury when she told them that the “best when purchased by” date “allows a manufacturer to trace the product if there is a consumer complaint, if there is illness, if there is a need to recall the product.” That’s not remotely true, and there was no public safety issue with what the defendant did.

She made several more arguments hinging on implied threats to public safety: “If what he did was business as usual in the food industry, I suggest we stop going to the store right now and start growing our own food. . . . In spite of all this talk about the quality of the dressing, I don’t see them opening an of these bottles and taking a whiff. . . . [The defendant was indifferent to] safety. . . . The harm caused by the fraud was to public confidence in the safety of the food supply.” She called the still perfectly fine bottles “truckfulls of nasty, expired salad dressing.” She said that after the “expiration date” the dressing was no longer “fresh,” so the defendant “had to convert the expired dressing into new, fresh product.”

During rebuttal arguments, the prosecutor said “Ladies and gentlemen, don’t let the defendant and his high-paid lawyer buy his way out of this.” Then she went on to say “Black and white is our system of justice, ladies and gentlemen. You have to earn justice; you can’t buy it.” The implication that the defendant might be trying to bribe his way to an acquittal should have resulted in a warning of mistrial, but only resulted in sustained objections.

The Justice Department repeated its misrepresentations in its brief, using the phrase “expiration date” and hinting at public safety concerns. But the trial prosecutor’s misconduct alone was sufficient for the Circuit to order a new trial, and the only reason they didn’t do so was because there was no evidence in the first place, resulting in a directed acquittal.

“That does not detract from the gravity of the prosecutor’s misconduct and the need for an appropriate sanction,” Posner was quick to point out, however. “The government’s appellate lawyer told us that the prosecutor’s superior would give her a talking-to. We are not impressed by the suggestion.”

Posner finished his opinion with a nice kicker: “Since we are directing an acquittal on all counts, the sentencing issues are academic and we do not address them, beyond expressing our surprise that the government would complain about the leniency of the sentence for a crime it had failed to prove.”

Ouch.

Sen. Stevens Prosecutors Held in Contempt, Taken Off the Case

Wednesday, February 18th, 2009

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We took an unexpected trip out of state until yesterday, and so haven’t had a chance to catch up on the latest in the ongoing saga involving allegations of prosecutorial misconduct in the Sen. Ted Stevens case. When last we left off, District Judge Emmet Sullivan had ordered a status hearing for last Friday, the 13th.

In Friday’s status hearing, Judge Sullivan held four DOJ lawyers in contempt, for failing to turn over 33 documents to the defense. These documents pertained to December’s whistleblower claims of FBI agent Chad Joy, which had raised concerns of prosecutorial misconduct.

The judge had ordered these documents turned over on January 21. At first, the prosecutors said the documents were protected by the work-product doctrine. But then, even though they later determined that the doctrine did not apply, they still didn’t hand them over to the defense. At the hearing, the DOJ couldn’t give a good reason for the non-production, and so the judge held the lawyers in contempt.

The contempt order was imposed against William Welch II, the chief of the Public Integrity Section of the DOJ which had prosecuted Sen. Stevens. Also held in contempt were Brenda Morris, the section’s deputy chief and the lead prosecutor at trial; Patricia Stemler, chief of the Appellate Section of the Criminal Division; and Kevin Driscoll, a trial attorney with the Public Integrity Section. The order against Driscoll was revoked the following day, however, as he had only recently joined the prosecution team, and had not been a party to the relevant pleadings. Judge Sullivan stated that he would not impose sanctions until the case was over.

On Monday, Welch announced that the trial team of Brenda Morris, Nicholas March and Edward Sullivan were off the case, and would have no further role in the litigation of the charges of prosecutorial misconduct. This only makes sense, as they are necessarily witnesses to their own conduct, and will probably need to testify themselves. What is surprising is that the DOJ waited so long to take this simple action.

Welch added that the government will now turn over internal DOJ documents related to agent Joy’s allegations of misconduct, including memos and emails of the trial prosecutors. Again, what is surprising is not that this material is being disclosed, but that it took so long to do so. This notwithstanding Welch’s statement that the DOJ “understands that the interests of the parties and the public will be advanced by a prompt airing of these claims, and that additional delay relating to the whistleblower-status issue does not advance that cause.”

Antitrust Division Cuts Flat-Screen Prices, Just in Time for the Holidays

Thursday, November 13th, 2008

Antitrust Division gets guilty pleas in TV price-fixing conspiracy

Three major flat-screen TV and monitor manufacturers have pled guilty to price fixing, in a case brought by the DOJ’s Antitrust Division.

Sharp, LG Display and Chunghwa will pay $585 million in fines, pursuant to their plea. The DOJ alleged that, as a result of the price-fixing conspiracies, consumers paid inflated prices for products with LCD screens. Affected products ranged from flat-screen TVs to computer monitors, laptops, iPods and cell phones.

Division chief Thomas O. Barnett stated that these were international conspiracies that “affected millions of American consumers who use computers, cell phones and numerous other household electronics every day.” Without calculating how much extra the consumers wound up paying, he predicted that this plea would now result in lower prices.

The Wall Street Journal reports that the world’s largest LCD maker, Samsung, had cooperated with the Antitrust Division and was not named in the plea announcement. AAG Barnett declined to comment on whether Samsung had received legal immunity. Federal law provides that the first company to give evidence of a criminal conspiracy can receive immunity. When the investigation first became public in 2006, Samsung stated that it had “pledged its full and continuing cooperation” with law enforcement.