Federal Criminal Lawyer Blog

Federal Criminal Charges were announced yesterday here in Atlanta by the U.S. Attorney. The feds have indicted a well-known State legislator, Representative Tyrone Brooks. According to the indictment, Representative Brooks committed mail fraud, wire fraud, and tax crimes. The grand jury returned a 30-count indictment which charges that, from the mid-1990s through 2012, Brooks solicited contributions from individuals and corporate donors to combat illiteracy and fund other charitable causes, but then used the money to pay personal expenses for himself and his family.

It seems there are three basic sets of crimes alleged in the indictment. First, there are two separate supposed frauds, followed by allegations that Representative Brooks violated the tax laws.

The first of the two fraud schemes supposedly involves a tax-exempt charity, Universal Humanities, Inc., that Brooks established in the early 1990s. The grand jury alleges that Brooks solicited contributions from corporate and individual donors purportedly to combat illiteracy in disadvantaged communities in Georgia and across the southeastern United States, eventually raising more than $780,000. The feds claim that Representative Brooks made specific false representations about the work that Universal Humanities was doing and how the donated funds would be used. Prosecutors also contend that in reality, Brooks did not use the donations to promote and address literacy in Georgia or elsewhere. Instead, the indictment alleges that Brooks used the money to pay personal expenses for himself and members of his family.

The second fraud scheme alleged involved the organization Georgia Association of Black Elected officials (GABEO). The indictment alleges that Brooks diverted charitable donations he solicited on behalf of GABEO and used much of the money to pay personal expenses for himself and his family.

The indictment alleges that Brooks solicited contributions to GABEO from corporations, organizations and individuals. The feds contend that Brooks secretly opened a second GABEO bank account, and set himself up as the sole signatory on this account, and had the account statements sent to his address rather than the address of the GABEO Treasurer. Brooks then deposited the donations he solicited on behalf of GABEO into this undisclosed account, and used much of these funds to pay personal expenses for himself and his relatives.

Finally, the indictment charges that Brooks underreported his income to the IRS for the years 2007 through 2011. Prosecutors contend that Representative Brooks misappropriated of hundreds of thousands of dollars through the two fraud schemes concerning Universal Humanities and GABEO, yet his tax returns for the years between 2008 through 2011 falsely reported income of only approximately $35,000 annually.

This indictment is like so many we have seen when we have represented public officials who face federal criminal charges. While often the defense team can show there was no fraud, or at least some confusion as to the fraud charges, it is exceedingly difficult to defend the tax charges when they come up with specific expenditures that clearly show the Defendant had income, yet that same income never shows up on the Defendant's tax return. We have represented a number of public officials facing similar charges, and look forward to seeing how the defense responds to these allegations.

More and more both here in Atlanta and around the country we see news stories about bankers getting indicted, financial professionals being accused of fraud, and other white collar criminal actions brought against people working in the financial sector. Also, in a recent post, I wrote about a federal criminal case where the indictment did not even charge a federal crime, yet none of the lawyers nor judges noticed the problems until the judges on the Court of Appeals brought up the issue after the case was on appeal. The combination of these two stories reminded me of how important it is for lawyers to carefully scrutinize the charging documents when the attorney is defending a person in the financial industry against criminal charges.

This also reminded me about a case we had a couple of years ago where we represented a young banker here in Georgia. Back when the real estate market was flying high, he was a superstar, bringing in millions of dollars in loans to developers who were fueling the Atlanta housing boom. When the market began getting soft, he was dismayed by how his bosses were treating him, so he took his book of business to another local bank. The bosses at the first bank did an "investigation", and turned over to the authorities the dirt they had supposedly uncovered on this young banker. The local District Attorney thought he'd be a star also, and could get his name in the papers by indicting a banker just as the housing market was collapsing. They accused our client of claiming in memos to the loan committee that his developer/clients were putting 10% into the deals, when in fact they were not. The DA then got an indictment that charged our client with making "false entries" in the "books reports or statements" of a financial institution.

We were hired, and, like attorneys should do in every case, we went over everything with a fine-toothed comb. We discovered that the law they charged in the indictment had not been used for over 50 years! Next, we compared this old law, and the few cases interpreting it, to the actual language in the indictment. We came to the conclusion that the memos to the loan committee were not "false entries", and even if they were, a memo to the loan committee is not a "book, report or statement" of a financial institution.

We took the unusual step of filing what is called a "demurrer" in Georgia. By this step, we basically argued that even if we admitted to the facts in the indictment, those facts did not constitute a crime. The judge was convinced we were right. He had us write up an order, which he then signed, and the judge then dismissed all the charges. This young banker got his life and career back, and we occasionally hear of how well he is doing.

None of us are perfect. But when as lawyers we are asked to defend another human being, that enormous responsibility requires that we look at every possibility when defending our clients. I know that most lawyers representing the growing number of indicted bankers face many of the same challenges.

A few hours ago the Atlanta-based United States Court of Appeals for the Eleventh Circuit reversed a former county attorney's mail fraud and money laundering convictions based on a "material variance" between the allegations in the indictment and the proof at trial. The money laundering charges were based on the underlying fraud case, so these convictions also were reversed. A second set of fraud convictions were affirmed, but because the sentence was based on both sets of fraud charges, the court sent the matter back for a new sentencing hearing. The case is United States v. Lander.

Mr. Lander was the County Attorney of Dixie County, Florida. He also was trying to develop a vitamin company. The Court affirmed the fraud conviction that arose from the scheme involving the vitamin company.

Other fraud and money laundering charges emanated from a different set of facts. Some real estate investors wanted to develop property in the county and approached Lander for assistance. The developers put up about $850,000 as assurance that the project would go forward. Lander deposited these funds into his law firm's trust account, but used a large chunk of these funds for purposes not related to the real estate development.

The indictment alleged that Mr. Lander engaged in a scheme to defraud by falsely telling the developers that the county required the $850,000 as a performance bond. However, at trial the developers did not recall hearing Landers say this. The government then shifted gears mid-trial, arguing that the scheme to defraud involved Lander falsely telling the developers that he would help them through the regulatory process, when instead he used some of the funds for other purposes.

The Eleventh Circuit noted that a defendant has the right to defend against the specific allegations in an indictment, and when the prosecution changes theories mid-stream this can result in what we lawyers call a "material variance." If the defendant was surprised and disadvantaged by this change in theory, the variance is deemed to be "prejudicial." Here, the Court noted that Landers walked into trial planning on defending against a claim that he falsely told the developers one thing, but by the time the prosecutor made the closing argument the government had shifted to a different theory. This prejudicial material variance thus doomed the fraud charges, the money laundering crimes that came out of this supposed scheme, and the sentence that was predicated in part of the reversed charges.

Often in our business, being innocent and acquitted of a crime is not enough to remedy the harms caused by a criminal prosecution. These harms are often emotional, professional, and financial. The federal government has taken inadequate steps to alleviate the burdens that these innocent people must bear.

In 1997 Congress passed the Hyde Amendment.* This law says that when an innocent person wins against criminal charges in federal court, the defendant can sometimes get his legal bills reimbursed by the government. This is important because defending against a federal criminal case is very expensive. Lawyers who do this kind of work are often the finest in their field, and they charge fees that recognize their superior skills. The Hyde Amendment provides for the innocent person to be reimbursed only if the prosecution’s position was “frivolous” or the prosecutors acted in “bad faith.”

The recent case of J. Mark Shelnutt is a perfect example of how even the innocent must pay massive legal bills. Mr. Shelnutt is a criminal defense lawyer. Federal prosecutors love going after lawyers who do such work, and they tried to make a massive federal criminal case against Mr. Shelnutt based on the word of some drug-dealing folks whom Shelnutt had represented in the past. The federal judge threw out some of the charges and the jury acquitted Mr. Shelnutt on the remaining counts against him.

After trial, Mr. Shelnutt wanted the government to pay him back for the legal fees he had to pay to defend his case. While the judge was sympathetic, he would not order the government to do so. A Daily Report article about the judge’s ruling is here.

Mr. Shelnutt’s situation shows how dangerous it is when federal prosecutors decide to focus on someone and bring criminal charges. The truly innocent defendant suffers the toll of years of stress, heartache and damage to their professional reputation. Such an innocent man or woman also is saddled with huge legal bills, and the innocent defendant rarely gets this money back, even under the Hyde Amendment.

Our previous post on Mr. Shelnutt's money laundering case is here.

*The 1997 Hyde Amendment is unrelated to the 1976 Hyde Amendment that has recently been in the news regarding the health care debate.