United States: White Collar Roundup - November 2013

Last Updated: November 2 2013
Article by Day Pitney LLP

85 Years for Fraud

The U.S. Court of Appeals for the Second Circuit upheld an 85-year prison sentence in United States v. Stitsky over the defendants' claim it constituted "cruel and unusual punishment." The defendants had been convicted of fraud for their role in the scheme, in which 352 victims lost more than $23 million. During the approximately three-year scheme, the defendants allegedly misrepresented their firm's history and assets and failed to mention prior criminal history. (Notably, one defendant was in prison for a prior fraud conviction when he hatched this scheme and was on supervised release when he engaged in it.) After their hefty sentences were imposed, the defendants appealed, claiming the length violated the Eighth Amendment's ban on "cruel and unusual punishment." The Second Circuit disagreed, noting, "While the district court's sentence is severe, the facts it identified in support of its within-guidelines sentence adequately bear the weight assigned to them."

Attorneys Can't Just Blow the Whistle

Attorneys cannot breach their ethical duties and become False Claims Act (FCA) relators, according to the Second Circuit in Fair Laboratory Practices Assocs. v. Quest Diagnostics Inc. In that case, Mark Bibi, former general counsel of Quest's wholly owned subsidiary, Unilab Corp., along with two former executives created Fair Laboratory Practices Associates (FLPA) to bring an FCA claim against Quest and Unilab. Bibi had been Unilab's only in-house lawyer from 1993 to 2000, during the time of the alleged false claims. The defendants moved to dismiss the FCA complaint, alleging Bibi had breached his ethical duties by bringing the suit. The district court agreed and dismissed the complaint. FLPA appealed. The Second Circuit held that the FCA does not pre-empt state ethics rules and that Bibi had violated N.Y. Rule 1.9(c) by disclosing protected client confidences.

Millions Paid for Violating the False Claims Act

The U.S. Department of Justice (DOJ) announced a settlement with Boston Scientific Corp. to settle pending FCA litigation. According to the DOJ press release, Boston Scientific agreed to pay $30 million to settle allegations that between 2002 and 2005 its subsidiaries "knowingly sold defective heart devices to health care facilities that in turn implanted the devices into Medicare patients." One of Boston Scientific's subsidiaries pleaded guilty in February 2010 to criminal charges of "misleading the [Food and Drug Administration (FDA)] and failing to submit a labeling change to the FDA relating to the defective devices."

And for a Hat Trick on the False Claims Act...

The Eighth Circuit endorsed a fraud theory in FCA cases that might expand the act's reach. In Simpson v. Bayer Healthcare, the plaintiff-relator alleged Bayer Healthcare had fraudulently induced the Department of Defense (DOD) to enter two contracts for the purchase of its cholesterol-lowering drug, Baycol. The relator claimed Bayer misrepresented the risks and efficacy of Baycol. She alleged Bayer therefore fraudulently induced the DOD to contract to use Baycol, but in her complaint she did not identify any individual false claims paid under the contract. The district court dismissed the complaint, and the relator appealed. The Eighth Circuit (in a 2-1 decision) reversed, holding the relator had adequately pleaded a claim under the FCA by using a fraud-in-the-inducement theory, which the court said the U.S. Supreme Court endorsed long ago in United States ex rel. Marcus v. Hess, 317 U.S. 537 (1943). The dissenter in Simpson claimed the majority in its opinion overlooked the pleading requirements for fraud.

Acronym Soup: FinCEN, NBSC, AML, MOU

The U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) has a new partner in its anti-money-laundering (AML) efforts. FinCEN announced that it is entering into a memorandum of understanding (MOU) with Mexico's National Banking and Securities Commission. As noted in FinCEN director Jennifer Shasky Calvery's statement about the first-of-its-kind MOU with a foreign agency, the impact will be most acute in the efforts to fight drug trafficking and terrorist financing. The amount of information to be shared between the agencies about money-services businesses, such as currency dealers and exchangers, check cashers, and even the U.S. Postal Service, will certainly yield heightened attention on AML efforts for such businesses.

Recording the Evidence of Insider Trading

The Second Circuit, in the course of affirming the insider-trading conviction in United States v. Jiau, took up the issue of when recorded calls are inadmissible under the federal wiretap statute. Winifred Jiau was prosecuted for providing material nonpublic information to hedge fund managers at Tribeca Capital Management, Barai Capital Management, Sonar Capital Management and SAC Capital. Her conviction was based, in part, on the introduction of recordings of conversations she had with one of the tippees in her scheme, Samir Barai. The evidence indicated Barai was hard of hearing and authorized his employees to record and transcribe all calls. Jiau unsuccessfully argued in district court that the recordings were inadmissible under the federal wiretap statute, which prohibits the introduction of recordings obtained in violation of the statute. The statute criminalizes the making of recordings except in certain circumstances. One such circumstance is when the recordings are made in the ordinary course of business. Another exception applies when one party knowingly makes the recordings, but not "if the communication is intercepted for the purpose of committing any criminal or tortious act in violation of [law]." Jiau claimed this exception to the exception applied because the calls involved criminal conduct. The district court denied her motion to suppress, and she was convicted. On appeal, the Second Circuit affirmed, noting the focus of the inquiry for the criminal-purpose exception was not on the content of the conversation, but on the purpose of the recording. Because the recording was made to help the tippee conduct his business and not for the purpose of, for example, blackmailing one of the conspirators to ensure he or she continued in the scheme, the recordings were admissible.

Bank Fraud Can Yield Huge Forfeiture, Even Without Much Profit

The "proceeds" of bank fraud for forfeiture purposes include the gross receipts of the crime, not just the profits, according to the Second Circuit in United States v. Peters. Peters was the owner of two companies that had bank lines of credit that fluctuated based on the borrowing base at the companies. The companies manipulated their books to fraudulently increase that borrowing base. Peters was convicted, sentenced to 108 months in prison and ordered to forfeit more than $23 million, which included the gross receipts involved in the scheme. On appeal, he argued the forfeiture statute only authorized an order to forfeit the profits. The Second Circuit noted the forfeiture statute is punitive and held the term "proceeds" in 18 U.S.C. 982(a)(2) is not limited to profits. Citing a Ninth Circuit opinion, the court noted, "Congress sought to punish equally the thief who carefully saves his stolen loot and the thief who spends the loot on 'wine, women, and song.'"

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions