Second Circuit Halts Prosecutions of Extraterritorial
Securities Fraud
The U.S. Court of Appeals for the Second Circuit in United States v. Vilar set off a spate of
interest by ruling Morrison v. National Australia Bank
Ltd. applies in the criminal context. In Morrison,
the U.S. Supreme Court had held that § 10(b) of the Exchange
Act of 1934 cannot be used in civil litigation regarding the
purchase or sale by foreign investors in foreign markets of
securities of foreign issuers. In Vilar, the Second
Circuit extended Morrison's holding to criminal cases.
There, the government prosecuted the defendant for securities
fraud. But, in appealing his conviction, the defendant claimed that
because none of the purchases or sales underlying the indictment
occurred in the United States and none of the securities was listed
on a domestic exchange, § 10(b) could not apply. Vilar won the
battle as the appeals court agreed Morrison applied to
criminal prosecutions, but he lost the war because the court found
that at least one of the transactions took place in Puerto
Rico.
You Can't Tap This (Mobile Phone)
In United States v. North, the Fifth Circuit
limited the government's ability to intercept communications
when neither the phone nor the listening post is within the
territorial jurisdiction of the court. Title III (the statute that
allows courts to order wiretaps) has a territorial limitation, but
it also includes an exception to that limitation for "mobile
interception device[s]." In North, Drug Enforcement
Administration (DEA) agents received authorization from a federal
judge in Mississippi to intercept communications of a phone in a
drug investigation. The DEA set up a listening post in Louisiana
and began to intercept calls. During the investigation, the
defendant left Mississippi by driving into Texas, and the agents
intercepted a "dirty" call. The defendant moved to
suppress the intercepted call, claiming the DEA could not intercept
the calls on a phone in Texas from Louisiana when the court in
Mississippi had authorized the wiretap. He lost in the district
court but won on appeal. The Fifth Circuit noted the Title III
exception for "mobile interception device[s]" allowed the
authorities to use a mobile device for interceptions but did not
authorize them to intercept mobile phones without regard to the
jurisdiction of the court that authorized the wiretap. As a result,
the court reversed the district court, ordered that the calls be
excluded at trial and remanded.
Anything You Say CANNOT Be Used Against You
The First Circuit took federal prosecutors in Massachusetts to
task in United States v. Melvin for violating the
(slightly) prosecution-friendly terms of their proffer agreement.
After being arrested on drug charges, the defendant agreed to
attend a proffer session with the government at which he was given
and signed a proffer agreement. In the agreement, the government
promised not to use in its case-in-chief against him any
"statements made or other information" from the session.
While proffer sessions can lead to guilty pleas, this one
didn't, and the parties proceeded to trial. At trial, the
government called one of the agents who attended the proffer
session to testify that he recognized the defendant's voice as
having been one on an incriminating call that was intercepted on a
wiretap. The district court allowed the testimony, the jury
convicted and the defendant appealed. The First Circuit reversed,
bluntly stating it "will not countenance [the type of]
sleight-of-hand" at play in the case, where the government in
essence "reneged" on its agreement. The court found that
the error was not harmless, vacated the judgment and remanded for a
new trial.
From Law Enforcer to Law Breaker in 17 Days
According to this press release from Deirdre M. Daly, acting U.S.
attorney for the District of Connecticut, an information was filed
in the District of Massachusetts against Kenneth Kaiser, the former
head of the Federal Bureau of Investigation's (FBI's)
Boston office. According to the information, just 17 days after
retiring from the FBI -- where he had been the special agent in
charge of the Boston office and an assistant director at the
FBI's headquarters -- Kaiser began contacting former colleagues
to learn about the status of an FBI investigation into his new
employer. He also solicited interest at the FBI in purchasing his
new employer's products and services. By law, a former FBI
employee is prohibited from engaging in such activities for a
period of one year after leaving federal service. Clearly, starting
to engage in them just 17 days after retirement didn't comply
with the terms of the one-year ban. Kaiser
has agreed to plead guilty to avoid jail.
Just the Facts
Former baseball great and convicted felon Barry Bonds is still
stuck with both titles after the Ninth Circuit affirmed his
conviction in United States v. Bonds. Bonds had been
convicted in April 2011 of obstruction of justice after a jury
found he had lied to the grand jury. At issue was a statement that
Bonds gave, describing his life as a celebrity child, when asked
about whether his trainer ever gave him any self-injectable
substances. Because the statement was factually true, Bonds claimed
it was insufficient to support an obstruction-of-justice
conviction. But the Ninth Circuit disagreed, noting that
"[w]hen factually true statements are misleading or evasive,
they can prevent the grand jury from obtaining truthful and
responsive answers," which alone can obstruct the
administration of justice.
Turnabout Is Fair Play
The Securities and Exchange Commission (SEC) was taken to task in a civil complaint for failing to comply with the Freedom of Information Act (FOIA) request by current SEC employee and whistleblower Kathleen Furey. As reported here, the complaint alleges that the SEC has not properly responded to Furey's FOIA request, which she made to obtain evidence to support her separate allegations that an assistant director in the New York Regional Office had told his 20 staff attorneys not to bring administrative proceedings or file civil actions under the Investor Advisor Act or the Investment Company Act. Furey alleges that this policy was one of the reasons the SEC failed to uncover the frauds committed by Bernard Madoff.
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