Rajaratnam's Conviction Affirmed on Appeal
The U.S. Court of Appeals for the
Second Circuit in United States v. Rajaratnam affirmed the defendant's conviction.
Rajaratnam had appealed his conviction, disputing both the district
court's handling of his motion to suppress the wiretap evidence
and its instructions to the jury about securities fraud. The Second
Circuit held that the framework set out in Franks v.
Delaware, 348 U.S. 154 (1978), applied to motions to suppress
wiretap evidence. It also held that the district court's
instructions that the jury could convict the defendant of
securities fraud if the "material non-public information given
to the defendant was a factor, however small, in the
defendant's decision to purchase or sell stock" was even
more generous to the defendant than the "knowing
possession" standard that is the law in the Second
Circuit.
SEC Toughens Up
Securities and Exchange Commission
(SEC) Chair Mary Jo White has pulled back on the famed "no
admit, no deny" policy in enforcement actions. An internal
memorandum released to the commission's enforcement staff
advised there might be cases that "justify requiring the
defendant's admission of allegations in our complaint or other
acknowledgement of the alleged misconduct as part of any
settlement." Although this is a sea change for the SEC, its
impact may be slight. As Ms. White cautioned, most cases "will
still be resolved on a no admit, no deny basis." For more,
click here.
Listening In on the Marital Privilege
The spouse of a criminal defendant
whose phones were tapped during the government's
securities-fraud investigation will have her day in court,
according to District of Connecticut Senior Judge Warren W.
Eginton. The plaintiff in Drimal v.
Makol sued several Federal
Bureau of Investigation (FBI) agents under the civil
damages provision of the
federal wiretap statutes for improperly listening to private
marital conversations while investigating her husband for
securities fraud. The FBI agents, who had been warned not to invade
the marital privilege, improperly listened to certain calls,
including those of a deeply intimate and personal nature that did
not involve securities fraud. The defendants moved to dismiss,
relying in part on Southern District of New York Judge Richard
Sullivan's refusal to suppress the wiretaps in the ultimate
criminal case. But Judge Eginton faced a different question than
did Judge Sullivan and denied the motion.
Limiting the Scope of Searches of Computer
Files
The Second Circuit in United States v. Galpin analyzed the particularity requirement
for search warrants that seek to obtain evidence stored on
computers. The case involved a warrant to search the computer of
the defendant (a previously convicted sex offender who the
authorities believed was molesting young boys after using his
computer to lure them to his house) for evidence of violations of
"NYS Penal Law or Federal statutes." The court held this
language violated the Fourth Amendment's particularity
requirement. The court noted "advances in technology and the
centrality of computers in the lives of average people have
rendered the computer hard drive akin to a residence in terms of
the scope and quantity of private information it may contain."
It also mused about the limits of the plain view doctrine for
computer files, advising the district court that on remand, its
"review of the plain view issue should take into account the
degree, if any, to which digital search protocols target
information outside the scope of the valid portion of the warrant.
To the extent such search methods are used, the plain view
exception is not available."
Substitute Assets, Proceeds and a Forfeiture
First
The Eleventh Circuit in In re Rothstein, Rosenfeldt,
Adler PA (United States v. Rothstein) clarified when tainted money constitutes
"substitute assets" rather than "proceeds" in a
criminal-forfeiture action. In the case, a lawyer at the law firm
had pleaded guilty to using the firm to operate a Ponzi scheme. In
the firm's bank accounts, which contained legitimately earned
fees, he had commingled monies from his fraudulent scheme. The
government sought the forfeiture of the firm's bank accounts as
proceeds of the scheme. The firm's bankruptcy trustee fought
back, claiming the funds were not "proceeds" but were
instead "substitute assets." For those of you who cringe
at the term "forfeiture," the distinction is as follows:
If they are "proceeds," the court can order the
forfeiture of every dime in the bank account; if they are
"substitute assets," it can order forfeiture of only the
amount implicated in the scheme. The Eleventh Circuit held the bank
accounts were "substitute assets." For more on perhaps
the most tragic forfeiture of "proceeds" of a crime,
click here.
Sitting Silent Is Not Sitting on a Nickel
The U.S. Supreme Court in Salinas v.
Texas held that for
suspects in interviews to avail themselves of their Fifth Amendment
rights, they must clearly invoke them. If they fail to do so, the
prosecutor may comment at trial on their silence. In
Salinas, the suspect in a murder investigation took part
in a noncustodial, voluntary interview. During the interview, he
answered a number of questions, but when asked about shotgun shell
casings, he looked around and said nothing. At trial, the
prosecutor argued to the jury that an innocent man would have said,
"'What are you talking about? I didn't do that. I
wasn't there.'" The jury convicted, and Salinas
appealed, claiming the prosecutor improperly transgressed his Fifth
Amendment rights. After losing in state court, the Supreme Court
granted cert. With a fractured majority, the Supreme Court rejected
this claim, warning that silence alone does not invoke the Fifth
Amendment right.
Banned for Life ... or Not
The D.C. Circuit in Saad v.
SEC directed the
commission to revisit a lifetime ban it had imposed on the
petitioner. In the case, John M.E. Saad, who was a registered
broker, had violated rules of the Financial Industry Regulatory
Authority, Inc. (FINRA), "by submitting false expense reports
for reimbursement for nonexistent business travel and for
fraudulently purchasing a cellular telephone." Ultimately,
FINRA found he had violated its rules and "sanctioned him with
a permanent bar against his association with a member firm in any
capacity." The SEC did likewise. On appeal, Saad argued the
SEC abused its discretion by not considering all of the available
mitigating circumstances in his case. The court agreed, vacated the
SEC's sanction and remanded the case to the agency to determine
the appropriate sanction after considering "all potentially
mitigating factors that might militate against a lifetime
bar."
Choosing (and Paying for) Criminal Counsel
In United States v. Bonventre the Second Circuit clarified when a
defendant in a criminal action is entitled to a so-called
Monsanto hearing as a result of a civil-forfeiture action.
In United States v. Monsanto, the Second Circuit held that
the Fifth and Sixth Amendments entitle a criminal defendant to a
hearing when he wishes to use restrained funds to hire counsel of
choice. At a Monsanto hearing, the court decides whether
there is probable cause to believe (1) the defendant committed the
crimes that form the basis of the forfeiture and (2) the contested
funds are properly forfeitable. In Bonventre, the criminal
defendant sought a Monsanto hearing in his parallel
civil-forfeiture action, but the district court refused him one.
The Second Circuit considered whether such a defendant "must
first make a threshold showing that such a hearing is warranted,
and if so, what the standard for such a showing should be."
(The Second Circuit had not explicitly required such a showing in
the past.) The court held "a defendant seeking a
Monsanto or Monsanto-like hearing must
demonstrate, beyond the bare recitation of the claim, that he or
she has insufficient alternative assets to fund counsel of
choice." Unfortunately for Bonventre, the court found he had
failed to make such a showing and affirmed the district court's
refusal to allow him a Monsanto hearing.
Cell-Site Information to Prove Culpability
Expert testimony about cell-site
information was approved by Eastern District of Michigan Judge Sean
F. Cox in United States v. Reynolds. The government in that case, which was
a prosecution for receipt of child pornography, sought to introduce
expert testimony from an FBI agent that the cell-site data
regarding the defendant's cell phone put him at the location of
the computer used for the illegal conduct. The defendant sought --
under both Federal Rule of Evidence 702 and Daubert -- to
exclude the evidence, but the judge refused, finding the evidence
was both relevant and sufficiently reliable. In its ruling, the
court noted that although the cell-site information would not
pinpoint the defendant's exact location, it was relevant
because it would make it more probable that the defendant was in
the "general area of the house where the illegal activity was
occurring." Further, it would make it more likely the
defendant was the culprit because "call activity from the cell
phones of the other three individuals who had access to the
computer at issue place[d] them in areas away from the
house."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.