For many of us following the news, the recent enactment of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), Congress’ historic $2.2 trillion aid package, evokes memories of the bailouts and relief packages put through a decade ago in response to the financial meltdown fueled by the subprime mortgage crisis. The first piece of stimulus legislation came in the fall of 2008 when Congress, in an effort to restore confidence in the financial system and reestablish lending activity, passed the Emergency Economic Stabilization Act (EESA). Among other things, the EESA established the Troubled Asset Relief Program (TARP), which authorized a $700 billion buy back of toxic assets and equity from banks and other financial institutions. In early 2009, Congress followed up the EESA with the American Recovery and Reinvestment Act (ARRA), which pumped over $800 billion into the U.S. economy via stimulus checks and tax rebates for families; tax credits, tax deductions, and loan guarantees for small businesses; and large-scale investments in infrastructure, healthcare, education, and scientific research, among others, through contract projects awarded to federal, state, and local programs. In total, the 2008 bailout and 2009 stimulus package came with a hefty price tag of just over $1.4 trillion.

Not surprisingly, these stimulus measures had the unintended consequence of creating ample opportunities for fraud, thus creating the need for robust systems of oversight and control. To this end, the EESA established the Special Inspector General for TARP (SIGTARP), a separate federal law enforcement agency with broad authority to investigate fraud by TARP fund recipients, while the ARRA established a Recovery Accountability and Transparency Board and earmarked tens of millions of dollars to the GAO and agency inspectors general to investigate fraud, waste, and abuse. Such oversight mechanisms were largely successful and led to significant enforcement action. By the close of FY 2019, SIGTARP investigations had resulted in criminal charges against 430 individuals. Of those, 373 were convicted and 291 sentenced to prison. Defendants in TARP prosecutions have included homeowner scammers, borrowers, and bank executives, while charges have included bank fraud, accounting fraud, securities fraud, insider trading, mortgage fraud, public corruption, false statements, obstruction of justice, theft of trade secrets, money laundering, and bankruptcy fraud. And, in the years following passage of the ARRA, the Justice Department opened thousands of investigations into alleged grant fraud and pursued charges against individuals and businesses involving false statements, false claims, bid rigging, corruption, and bribery.

While the CARES Act is similar in several respects to its forebearers, it involves nearly twice as much money, making it the most expensive economic stimulus legislation in the country’s history. Among other things, the Act allocates roughly $600 billion to individuals and families; $377 billion to small businesses; $340 billion to state and local governments; $180 billion to public services; and a staggering $500 billion to large businesses.

To briefly summarize the previous post on Federal Grand Jury Subpoenas, we understand that receiving a Grand Jury subpoena can be a frightening experience, especially if you are not aware of the ongoing investigation. While your instinct may be to tell the federal agents or prosecutor everything you know, it is important to speak with an attorney first, so that your rights are protected if and/or when you do talk to the government. Typically, a review of the subpoena will direct our next steps.

After reviewing the subpoena and talking with you to get a general idea of the situation, we would want to meet with you to discuss what you recall about the matter under investigation and to determine whether you have any documents that will need to be produced to the government. Depending upon the scope of the subpoena, this could require more than one meeting. Another initial step we generally take when a client receives a grand jury subpoena is to contact the lead prosecutor. This is important both to establish a rapport early on and to gain valuable information about the investigation, including how the government views your role in the case, or has “categorized” you. During a grand jury investigation, the government will typically categorize individuals as “witnesses,” “subjects,” or “targets,” each of which corresponds to a different, and increasingly higher, level of alleged culpability and potential criminal exposure. Understanding early on whether you are a witness, a subject, or a target is critical, as that categorization often drives our advice and determines how we proceed.

The Department of Justice’s (“DOJ”) Justice Manual defines a target as “a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant.”[1] If you are a “target,” then that means the prosecutor believes there is enough evidence to bring charges against you. On the other end of the spectrum are witnesses. A witness is simply someone whom the prosecutor believes has information concerning the investigation. In between targets and witnesses are “subjects.” A subject is defined in the Justice Manual as “a person whose conduct is within the scope of the grand jury’s investigation.”[2] This means that while the government does not have enough evidence to support a target classification, it is still investigating your actions and views you as more than merely a witness.

As we noted in a prior post entitled, “The Promise and Pitfalls of the Advice-of-Counsel Defense,” an individual accused of a federal crime may be able to take advantage of the good-faith reliance on advice-of-counsel defense.  The Eleventh Circuit’s pattern jury instruction on point requires that an accused attempting to assert this defense show, in part, that he sufficiently disclosed “all material facts” to a competent attorney.[1]

What are “material facts”?

Materiality is context specific; what is “material” in one case may not be in another.  And what is material now, may not have been material then.  As circumstances change, the legal significance of certain facts may change.

Although it almost got by me, earlier this week, I learned that last Friday marked the 50th anniversary of the arrest of Jerry Garcia and other members of the Grateful Dead down in New Orleans.  On the evening of January 31, 1970, the Dead played a show with Fleetwood Mac at the Warehouse in New Orleans.  After the show, the Dead went back to their hotel, only to find the police searching their hotel rooms pursuant to a search warrant.  According to reports that I read, police arrested a total of 19 people, and ultimately charged them with possession of various drugs and other unlawful items.  After posting bail, the Dead were nearly out of money, so they scheduled a bonus show for the purpose of raising money to hire lawyers to defend them.  Fortunately for the Dead, hiring good lawyers paid off; all charges were eventually dismissed and the experience inspired the Dead to write Truckin, including the line, “if you got a warrant, I guess you’re gonna come in.”

As white collar lawyers, we routinely deal with cases involving search warrants.  In fact, a major part of our pretrial motions practice involves litigating search warrant challenges.  Over the years, we have challenged search warrants involving searches of businesses, residences, vehicles, computers, and other devices.

But in the last few years, we have spent a great deal of time working on cases in which federal prosecutors have obtained search warrants to gather the entire contents of an individual’s email account, and other electronic data.  The search warrants federal prosecutors use in these cases involving searches for electronic data are different than typical search warrants in several ways.

Being served with a Grand Jury subpoena by federal agents, a government attorney, or both can be a frightening experience. While the initial inclination may be to simply explain to the government agent everything that you know about the investigation, it is important to keep in mind that any statements you make could be used against you (and/or your company) down the road. While the information may very well be transmitted to the government at a later date, an experienced white-collar criminal defense attorney can guide you through this process and help protect you and your rights until the matter is resolved.

The first thing after speaking with you, the attorney will want to review the federal grand jury subpoena itself and that is the focus of this blog post. The subpoena, which is defined as “a writ commanding a person designated in it to appear in court under a penalty for failure”[i], must be complied with or there can be consequences. It will tell you if you are being subpoenaed for in-person testimony, to produce documents, or both. Being subpoenaed for in-person testimony requires you to appear before a Grand Jury on a certain date to answer questions under oath that will be asked by a government attorney, who is referred to as the prosecutor. The Grand Jury is a secret process so while your attorney cannot be present during your testimony, they can wait outside and be available to you if you have questions during the process. More information on the Grand Jury process will be available in a later post in this Federal Grand Jury Subpoena series. If the subpoena is a request for documents (or both testimony and documents), it will also provide a description of the documents to be produced. This request for documents could be served to you individually or as a Custodian of Records for a company. Once you are served, you will need to preserve any and all documents related to the requests to review with your attorney.

The grand jury subpoena can also provide some initial information that will be helpful to both you and your attorney, especially if you are not aware of the pending investigation. It can tell you the jurisdiction or Court where the Grand Jury is being convened and the Assistant United States Attorney, or lead prosecutor handling the investigation. The prosecutor handling the case may also clue your attorney in to the type of investigation at issue, for example, if it is healthcare fraud, anti-trust, tax fraud, etc. If the subpoena includes a request for documents, the documents requested, and any time limitations on the document requests will also assist your attorney in gathering more information on the investigation and the various federal statutes at issue.

Since the 1970s, the number of federal criminal statutes has exponentially increased. So too has the number of federal regulations, many of which carry criminal penalties. Though there is disagreement among DOJ lawyers, academics, and private lawyers about the precise number of criminal laws codified in federal statutes and regulations, there is no dispute that it is at least several thousand.[1]

Given the potentially severe consequences for failing to comply with the expanding web of federal criminal laws, modern companies are wise to turn to expert and sophisticated legal counsel for advice on legal compliance. “The extensiveness and complexity of the laws governing” corporate affairs “have made legal advice a crucial element of [not only] major business decisions,” but also of “more mundane kinds of corporate activity.” Douglas W. Hawes & Thomas J. Sherrard, Reliance on Advice of Counsel as a Defense in Corporate and Securities Cases, 62 Va. L. Rev. 1, 5 (1976). As the Supreme Court noted in Upjohn Co. v. United States, 449 U.S. 383, 389 (1981), the need to seek and rely on attorneys is especially important “[i]n light of the vast and complicated array of regulatory legislation confronting the modern corporation.” In the decades since these quotes were penned, their messages have become even more apt. Suffice it to say, modern corporations regularly need to rely on lawyers and compliance experts to help ensure they stay on the right side of the law.

Our white-collar defense group frequently represents executives who interface with lawyers on a regular basis in the course of making business decisions.  When the government investigates or prosecutes an executive we represent, we determine what legal advice (if any) the executive relied upon prior to engaging in the conduct at issue.  In the Eleventh Circuit, like others, this inquiry is relevant to, among other things, the defense of good-faith reliance upon advice of counsel.  For most crimes, such reliance is a complete defense because “evidence that the [accused] in good-faith followed the advice of counsel would be inconsistent with [] an unlawful intent.”  Eleventh Circuit Pattern Jury Instruction, Criminal Cases, S18 (Jan. 2019).  The Eleventh Circuit’s pattern jury instructions advise jurors that “[u]nlawful intent has not been proved if the Defendant, before acting: (1) made a full and complete good-faith report of all material facts to an attorney he or she considered competent; (2) received the attorney’s advice as to the specific course of conduct that was followed; and (3) reasonably relied upon that advice in good-faith.”

Those of us that handle federal criminal cases are closely watching a case that is currently before the Supreme Court concerning the use of acquitted conduct at sentencing.  The case, Asaro v. United States, which the Court has not yet decided it will hear, provides the Court with an opportunity to revisit its holding in United States v. Watts.

The background in Watts is fairly straightforward.  In Watts, the defendant was charged with a drug offense and a separate offense involving a firearm.  At trial, the jury acquitted Watts of the firearm offense but convicted him of the drug offense.  However, although Watts was found not guilty of the firearm related offense, the court that sentenced Watts concluded that it was permissible for courts to nonetheless hold defendants like Watts responsible for conduct for which they have been acquitted, as long as the government can establish the various factual prerequisites on the acquitted conduct by a preponderance of the evidence.  Finding that the government had indeed satisfied that standard in Watts, the lower court applied a firearm enhancement against Watts and increased his sentence, despite the jury’s conclusion that Watts was not guilty of the firearm related conduct.  Although the lower court’s decision was reversed on appeal, the Supreme Court, in a 7-2 ruling, reinstated the lower court’s decision in Watts.

Not surprisingly, the Court’s decision in Watts received a great deal of criticism on a number of grounds.  On its face, the idea that one can be held accountable for conduct for which one has been acquitted not only appears to offend the basic and fundamental Sixth Amendment right to a jury trial, but it also seems to be plainly unfair.  Significantly, though, over 15 years after the Court’s decision in Watts, Justice Scalia (joined by Justice Thomas and Justice Ginsburg) urged the Court to reconsider its decision in Watts.  Unfortunately, however, on that particular occasion and others, the Court has been unable to gather the 4 votes that are needed in order for the Court to accept a case that would allow it to revisit this issue.

Last month, I attended a seminar put on by the Federal Defender Program for the Northern District of Georgia that focused on how to handle large scale discovery in criminal cases. The seminar also provided a good discussion of ways to describe to Judges in quantifiable terms the discovery produced by the government in a case. While there is no one right approach, the seminar reaffirmed for me what we have implemented here at Finch McCranie and I took away some tips to improve upon our process. I appreciate them sharing their ideas on organizing and analyzing large scale discovery in criminal cases.

The quantity of discovery that can be produced in a White-Collar case is now largely talked about in terms of gigabytes and terabytes, thumb drives and hard drives. However, being able to quantify it in terms of number of pages, documents, or bankers’ boxes in addition to the electronic file size may provide a visual image that is helpful to a Judge, if and when a motion to extend pretrial discovery deadlines needs to be filed to allow defense counsel time to review the discovery.

To track and analyze the discovery, there are three key control documents that we create and build upon as we work through each case. The first document is an Overarching Discovery Index. In almost all the Federal White-Collar cases I have worked on, the discovery productions are ongoing, not all at one time, and that is where this index comes in. It summarizes the productions and usually includes the following column headings: Date Produced, Bates-Range (including any bates-prefix or other file name), and Description. A Comments column is also included to note any follow up that is needed. Not only does this document create a snapshot of each production that can be used to quantify the data, but it also creates a road map to track and focus the discovery review.

On January 14, 2020, the Supreme Court will hear argument in Kelly v. United States (No. 18-1059), coined the Bridgegate case.  We are eager to see how the Court resolves this appeal because it raises important issues relating to the scope of money-or-property fraud prosecutions.

The material facts in the case are largely undisputed: in 2013, senior officials for the Port Authority of New York and New Jersey (Port Authority) reallocated lanes over the George Washington Bridge.  Of the twelve lanes on the upper level of the bridge, three were generally reserved for drivers coming from local Fort Lee, New Jersey streets (“Local Access Lanes”) and the remaining nine were reserved for drivers traveling on various highways, including I-95 (“Main Line”).  The reallocation reduced the number of Local Access Lanes to one and increased the number of Main Line lanes to eleven.  Unsurprisingly, the reallocation caused massive gridlock in Fort Lee and expedited traffic flow on the Main Line.

The stated reason for the lane reallocation—issued to Port Authority employees by David Wildstein, Chief of Staff to William E. Baroni, Jr., Deputy Executive Director of the Port Authority—was to study traffic patterns and determine whether the Port Authority would continue to reserve three Local Access Lanes for Fort Lee going forward.  In reality, the government alleged, the traffic study was a sham justification used to conceal the true purpose for the reallocation; according to the government, Baroni and Bridget Anne Kelly, Deputy Chief of Staff to erstwhile Governor Chris Christie, hatched the lane reallocation strategy as retribution for Fort Lee’s mayor refusing to endorse Governor Christie’s reelection.

As we move towards the holidays and the year end rush to get as many things done as possible, I am sure that most folks are not thinking about CLE hours in 2020.  But for those of you that handle federal criminal cases in the white collar area, be sure to mark your calendars for the annual White Collar Crime Seminar here in Atlanta on January 31, 2020.  Danny Griffin and Paul Murphy have been hosting this great seminar for years.  Although they took last year off, the seminar is back in full force this year.  As everyone knows, Paul moved over to work at the FBI in the summer of last year.  But Danny teamed up with Matt Baughman over at King & Spalding to continue the tradition of hosting an outstanding white collar crime seminar here in Atlanta.  And this year, Danny and Matt have put together another great program.

The morning starts off with a session on Hot Topics and Trends in White Collar Crime, with the panel being moderated by Tom Bever, who incidentally, is starting a new white collar crime practice group over at Smith Gambrell and Russell, along with long time friend and partner, Tony Cochran, and colleague and friend Emily Ward.  From there, Paul Monnin moderates a panel on Securities and Financial Fraud.  I know this will be an interesting panel and I look forward to seeing and listening to Lynsey Baron, who left the U.S. Attorney’s Office not long ago to take a position over at UPS.  After that, Deputy Assistant Attorney General Matt Miner leads a panel that includes Paul Murphy, our local U.S. Attorney, BJ Pak, and other government lawyers. The topic of this panel is Views from the Government.

Over lunch, Sally Yates, our former U.S. Attorney and Deputy Attorney General, will be there to give a talk.  Sally’s talks are always interesting and entertaining and I am sure this one will be as well.  After the lunch break, Judge Baverman, Natahsa Silas, Gary Spencer, and Steve Sadow will participate in a session entitled Practical Tips: From Bonds to the BOP and In Between.  The participants on this panel have a ton of trial and courtroom experience in white collar cases and I look forward to participating in this panel as the moderator.  One highlight of the afternoon session will be the panel discussion on Health Care Fraud moderated by our friend Brian McEvoy.  Mr. McEvoy has a way of livening things up and I was glad to see that Tom Clarkston is traveling up from the Southern District of Georgia to participate in this session.  Finally, to close out the day, our buddy Joey Burby will lead a panel on Trial Tactics in White Collar Cases.  Undoubtedly, this will be a fun and lively session as well, with Craig Gillen and Amanda Clark Palmer participating along with a few others.

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