Federal Circuit Court in Atlanta Vacates Criminal Identity Theft Conviction

August 31, 2009 by Kish & Lietz

In this post in May, we discussed Flores-Figueroa v. United States, in which the Supreme Court held that a federal identity theft statute requires the government to prove that a criminal defendant knew that the identification that he or she used actually belonged to another person. That decision overruled a prior decision by the Eleventh Circuit Court of Appeals, which sits here in Atlanta and hears appeals in all federal cases originating in Georgia, Florida, and Alabama. Last Friday, in United States v. Gomez, the Eleventh Circuit applied the law in Flores-Figueroa, vacating an identity theft conviction because the trial court failed to instruct the jury on the correct law.

The defendant, Ramon Gomez, is an undocumented alien from the Dominican Republic. Because of his illegal immigration status, he was unable to find a job, so he purchased a Social Security card and birth certificate bearing the name Raul Rodriguez Delgado for $800. In April 2008, he used those documents to apply for a U.S. passport. Because another person using the same identity had obtained a passport in 2001, the State Department investigated and Gomez admitted to his true identity. Gomez was charged and convicted with making a false statement in a passport application, falsely representing himself as a citizen of the United States, and aggravated identity theft.

The Eleventh Circuit recognized that its earlier decision was no longer good law and that the district court erred when it failed to instruct the jury that it had to find that Gomez knew that the birth certificate he used belonged to another actual person. It then determined that the district court’s error was not harmless. The United States had introduced circumstantial evidence that Gomez knew Delgado was an actual person, but Gomez contested that evidence. An agent had tried to locate Delgado, but failed, so the jury may have questioned whether he existed. Because the error was not harmless, the Court vacated Gomez’s conviction for aggravated identity theft.

The opinion in Flores-Figueroa is available here.
The opinion in Gomez is available here.

Federal Supreme Court Will Hear Argument on Federal Criminal Constitutional Law, Affecting Law Here in Atlanta, Georgia

August 17, 2009 by Kish & Lietz

One of Justice Sotomayor’s first decisions on the Supreme Court will be in Maryland v. Shatzer, which is set for argument on October 5, 2009. The Court will decide whether the federal criminal constitutional protections afforded by Edwards v. Arizona in 1981 extend to Shatzer.

prohibits interrogation of a suspect who has requested counsel, unless an attorney is provided. This rule protects suspects from police coercion and serves an administrative purpose of providing judges and law enforcement with a clear and easily enforceable rule. Shatzer requested counsel when he was interrogated in 2003, while he was in prison for a different crime. Counsel was never provided. In 2006, while he was still incarcerated, another officer interrogated him again about the same subject, again without providing a lawyer. That time, Shatzer gave a statement that eventually led to his conviction. The highest appeals court in Maryland found that the Edwards rule applied, reversing his conviction.

The state of Maryland asserts 3 primary points in its briefs to the Supreme Court:
(1) The Edwards rule should not apply where a break in custody occurred;
(2) A break in custody has occurred where a prisoner returns to the general prison population; and
(3) The Edwards rule should not apply when significant time passes.
To argue these points, the State argues that the purposes of the Edwards rule are not met in these situations and that social costs require limitations on the rule. The same arguments are reiterated in amicus curie briefs submitted by the United States, 37 states (not including Georgia,) and the Criminal Justice Legal Foundation, a organization that advocates reducing rights for persons accused of crimes.

Briefs in support of Shatzer seek to protect the bright-line rule established by Edwards, arguing that:
(1) Any custodial reinterrogation is improper until an attorney is provided;
(2) Passage of time and breaks in custody should not render Edwards inapplicable; and
(3) Correctional custody qualifies as “custody” for the purpose of the Edwards rule.
Shatzer and the National Association of Criminal Defense Lawyers argue that the purposes of Edwards would be undermined by the requested exceptions and that there is no effective alternative to the bright-line rule.

The passage of time does nothing to change a suspect’s belief in his vulnerability to the pressures of custodial interrogation. Additionally, any exceptions regarding time-passage would be arbitrary and erode the bright-line rule imposed by Edwards. A break in custody does no more to change the custodial pressures without the presence of a lawyer. As NACDL's amicus brief points out, such an exception would only increase those pressures by incentivizing police to badger suspects through repetitive catch-and-release tactics. Arguing that incarceration does not qualify as “custody” for Miranda/Edwards purposes is simply absurd. Under Miranda, (on which the Edwards rule is based,) “a person is in custody if a reasonable person would understand he was under formal arrest or restrained in his freedom of movement.” A person in the general prison population is certainly restrained in his freedom of movement. The pressure to cooperate with authorities to be eligible for parole after a significant passage of time in prison creates even stronger custodial pressures than where the initial interrogation was recent.

The Eleventh Circuit Court of Appeals, which hears federal appeals here in Atlanta, Georgia, has held that Edwards does not apply where a suspect invoked the right to counsel during an interrogation regarding one offense, was convicted of the offense and incarcerated, then was interrogated regarding a separate offense while still in custody for the first offense. Georgia state criminal law has a similar “break in custody” exception. While this case is distinguishable from such a situation, we hope that the Supreme Court clarifies that incarceration is "custody" within the context of Edwards.

The Court of Appeals of Maryland's opinion below is available here.
The briefs in this case are available at the following links:
Brief for Petitioner
Brief for Respondent
Reply Brief for Petitioner
Amicus Brief of NACDL
Amicus Brief of United States
Amicus Brief of Florida, et al
Amicus Brief of CJLF

The Effect of the Pressure to Cooperate by Federal Prosecutors on White-Collar Criminal Defendants

August 14, 2009 by Kish & Lietz

Frank DiPascali, Bernie Madoff’s top financial aide, pleaded guilty on Tuesday to ten criminal counts, including conspiracy, tax evasion, and securities fraud. He was taken into federal custody immediately after the hearing, at which he had waived indictment and admitted to helping Madoff falsify trading records for decades.

Although he faces up to 125 years in federal prison for his crimes, he may receive a lenient sentence due to his cooperation with the prosecution. Other than Madoff (who received a 150-year sentence) and DiPascali, only accountant David Friehling has been charged in connection with the massive Madoff fraud. DiPascali likely has a wealth of information on many potential targets of investigation and has been cooperating with the prosecution since January. Based upon his cooperation, the prosecution recommended a bail package pending sentencing in his case. Despite the recommendation, Judge Richard Sullivan denied bail, ordering DiPascali into custody immediately. Whether he will benefit from his cooperation at sentencing remains to be seen.

One of the prosecution’s most formidable tools in a criminal case is the bargaining power inherent in its prosecutorial discretion. The prosecution usually wields significant power at sentencing. In other accounting scandal cases, highly culpable defendants who have cooperated have received light sentences in comparison to their former co-workers. Scott Sullivan, for instance, former WorldCom CFO who testified against CEO Bernard Ebbers, has already returned to his home in Boca Raton, after serving four years of his five-year sentence. Ebbers, on the other hand, is scheduled for release in 2028. Jeffrey Skilling, former president of Enron, is also scheduled for release in 2028, whereas CFO Andy Fastow received only six years, due to his significant cooperation with the prosecution.

More worrisome is the pressure prosecutors place on lesser associates to cooperate in the investigation and prosecution of bigger fish. Prosecutors investigate potential witnesses who may be useful to their cases. When those witnesses refuse to cooperate for any number of reasons, prosecutors will sometimes threaten those people with indictments of their own. Even when innocent, many people cannot afford the economic and social costs of fighting such charges, let alone the risks of losing at trial. In any case the pressures to cooperate are immense and those who do not are penalized heavily when it comes to sentencing. Because of the risks, defense attorneys face difficult decisions when advising clients as to whether they should cooperate.

A recent law review note by Sarah Ribstein addresses the economic costs white-collar criminal defendants face. “A Question of Costs: Considering Pressure on White-Collar Criminal Defendants” is available here.

Federal House Subcommittee on Crime holds Hearing on Federal Criminal Law

August 13, 2009 by Kish & Lietz

At the end of last month, the federal House of Representatives Subcommittee on Crime, Terrorism, and Homeland Security, which is a part of the Committee on the Judiciary, had a hearing on the over-criminalization of conduct and the over-federalization of criminal law. The importance of this issue cannot be overstated.

NACDL president John Wesley Hall submitted a statement regarding over-criminalization to the subcommittee. It focused on the absence of meaningful state-of-mind requirements in criminal laws, criminal punishment for the conduct of others, criminalization of business and economic activity, and mandatory minimums in sentencing.

This article by Paul Rosenzweig provides an instructive history of the elimination of criminal intent requirements in criminal laws. An original principle of our jurisprudence is that guilt should not be imputed to a person without any evil intention or consciousness of wrongdoing. Now, though, the law has evolved to criminalize even accidental conduct by turning thousands of administrative and civil regulations into strict liability crimes.

Similarly, through vicarious liability, people can be criminally prosecuted for the acts of other people, despite no personal neglect or even awareness. In one case discussed in the article linked above, a man was convicted for violating the Clean Water Act after an employee of a contractor he’d hired accidentally broke a pipeline with a backhoe, even though he had been off-duty and away from the site at the time of the accident. The employee wasn’t charged. The defendant hadn’t had any criminal intent or even personally caused the accident, but his conviction was affirmed on appeal.

Over-federalization is the alarming congressional trend of responding to every new crisis with new federal crimes. Last year there were more than 4,450 offenses carrying criminal penalties in the United States Code. In addition to those, at least 10,000 federal regulations can be enforced criminally. In this post we discussed the Fraud Enforcement and Recovery Act of 2009. At a hearing regarding this legislation, federal law enforcement witnesses explained that the existing federal laws were sufficient to punish criminal conduct associated with the financial crisis, but Congress enacted the new law, anyway. Federal criminal law abounds with redundancies such as this.

Because the federal judiciary is backlogged, the federal prisons are overflowing, the taxpayer costs are enormous, and, most importantly, the number of innocent individuals behind bars is growing, we hope that the magnitude of the testimony and written statements at this hearing stuck with the members of the House subcommittee on crime. Reforms to the broken federal criminal justice system are crucial.

Testimony and written statements from the hearing are available through the following links:

Hon. Richard Thornburgh
former U.S. Attorney General presently with K&L Gates LLP
Washington, DC

Timothy F. Lynch
Director of the Project on Criminal Justice
Cato Institute
Washington, DC

Kathy Norris
Victim/Personal Impact

Krister Evertson
Victim/Personal Impact

Stephen A. Saltzburg
George Washington University Law School
Washington, DC

James Strazzella
Temple University Beasley School of Law
Philadelphia, PA

John Wesley Hall

NACDL President

Federal Court of Appeals Limits Calculation of Criminal Insider-Trading Gain for Sentencing Purposes

August 6, 2009 by Kish & Lietz

Last Friday, the Tenth Circuit Court of Appeals decided U.S. v. Nacchio, a white collar criminal case involving insider trading by the former CEO of Quest Communications. The Court held that, in calculating Mr. Nacchio’s gain for purposes of sentencing, the district court must determine the proceeds related to his insider information, rather than simply calculating total net profit. The Eighth Circuit Court of Appeals held the opposite in U.S. v. Mooney in 2005. The Eleventh Circuit, which hears appeals in federal cases here in Atlanta, Georgia, has never addressed this issue.

Mr. Nacchio began earning stock options through his position as CEO of Quest in 1997. By early 2001, he held over 4.4 million vested options. Between April and May 2001, he sold more than 1.3 million of his shares. That July, the company announced to investors that its expected revenue for 2001 would be near the lower end of previously announced ranges. In August, Quest disclosed the magnitude of its prior use of nonrecurring sources of revenue, such that it was at substantial risk of not meeting its year-end guidance.

Alleging that Mr. Nacchio was aware of material, nonpublic information when he sold his shares of Quest stock, the federal government charged him with forty-two counts of insider trading in 2003. He was convicted on nineteen counts covering the trades he made in April in May. The district court sentenced him to 72 months imprisonment, 2 years of supervised release, a $19 million fine, and forfeiture of $52 million. The Tenth Circuit reversed the sentencing order and remanded to the district court for resentencing.

The problem with the district court’s original sentencing calculation involves Section 2F1.2 of the 2000 Sentencing Guidelines, which is in the current Guidelines at Section 2B1.4, and applies specifically to insider trading. The Sentencing Guidelines prescribe progressively greater penalties based on the relevant amount of losses to victims. For insider trading, however, because victims and their losses would be so difficult to identify, the courts must look to the defendant’s gains.

The dispute in this case was over how to calculate those gains. Rather than agreeing with the district court’s use of the net proceeds from the sale, the Tenth Circuit decided that the method used for figuring disgorgement in civil insider cases was an appropriate analogue to the sentencing calculation. Disgorgement seeks to strip wrongdoers of ill-gotten gains and deter improper conduct, while taking into account that stocks have inherent value and some purported gain amounts may actually be the product of the ordinary influences of the market.

Basically, the district court’s approach ignored that some profits from the sale of Mr. Nacchio’s stock could have been (and probably were) due to normal appreciation in market prices during the period from 1997 to 2001 that he owned it. The Tenth Circuit’s disgorgement approach takes normal market forces into account and holds defendants culpable for only those gains attributable to the information based upon with they improperly traded.

The Tenth Circuit’s opinion is available here.