So Much Money
Attorney General Eric Holder announced that the U.S. Department
of Justice (DOJ) collected more than $8 billion as the result of
civil and criminal actions in the fiscal year that ended on
September 30, 2013. Approximately $3.2 billion was related to
healthcare fraud, and more than $430 million came as the result of
environmental cases. The total haul dwarfs the DOJ's direct
appropriations of $2.76 billion that fund its litigation divisions,
including the 94 U.S. Attorneys' offices. To read the press
release, click here.
Kickbacks for Others Still Amount to Honest-Services
Fraud
The U.S. Court of Appeals for the Second Circuit in United States v. DeMizio analyzed the
impact of United States v. Skillingon the defendant's
pre-Skilling conviction for honest-services fraud. In the
case, the defendant, Darin DeMizio, was convicted of wire fraud for
steering "finder's fees" in stock-loan transactions
to his father and brother, who did very little work to earn the
fees. After conviction, the Skilling decision came down,
and DeMizio then argued he should have a new trial in light of that
case. The Second Circuit held that while the jury instructions at
his trial were erroneous, the error was harmless. It also rejected
DeMizio's argument that "kickbacks (a) do not include
payments made to entities other than the employee who steers his
employer's business to a third party in exchange for those
payments, and (b) do not include payments of large sums of money to
those recipients so long as they perform some minimal work."
Instead, the court concluded that "[a]lthough the kickback
amount frequently is paid directly to the employee who steered the
contract, the scheme is no less a kickback scheme when the employee
directs the third party to share its profits with an entity
designated by the employee in which the employee has an
interest." Further, the scheme "qualifies as a kickback
scheme where the recipient receives inordinate amounts of money for
doing minimal work."
Laying Out the Rules on Searching Cellphones
The U.S. Supreme Court agreed to hear two cases regarding whether
police can search an arrested suspect's cellphone without a
warrant. The Court agreed to hear both a state case, Riley v.
California, and a federal one, United States v.
Wurie. The question presented in Wurie is
"[w]hether the Fourth Amendment permits the police, without
obtaining a warrant, to review the call log of a cellphone found on
a person who has been lawfully arrested." The Court granted
the petition in Riley but limited the question to
"[w]hether evidence admitted at petitioner's trial was
obtained in a search of petitioner's cell phone that violated
petitioner's Fourth Amendment rights." Interestingly, in
Wurie the defendant had a simple flip phone, while in
Riley he had a smartphone. Does that matter? We'll
find out later in the term. For more, click here.
There's a Limit to the Scope of
Restitution
The Fourth Circuit in United States v. Freeman limited the
basis for restitution to funds lost because of the offense of
conviction. In the case, Robert Freeman, also known as "Dr.
Shine," who purported to be a minister, had convinced
churchgoers to donate money to the church. Instead of using that
money for the church, he converted it to his own use, buying cars,
homes and other goods. Ultimately, he filed for bankruptcy and made
a number of false statements in his bankruptcy petition. After
these lies were discovered, he was indicted and pleaded guilty to
obstructing an official proceeding, in violation of 18 U.S.C.
1512(c)(2). At sentencing, the court ordered him to pay more than
$630,000 in restitution to four of his purported victims. Freeman
appealed the order. The Fourth Circuit held that "because the
specific conduct that is the basis for [Freeman's] conviction
did not cause the purported victims' losses, they are not
entitled to restitution." The court vacated the sentence and
remanded. The Fifth Circuit had a similar ruling in United States v. Campbell.
A New Kind of Seizure: Bitcoins
The government has seized approximately $28 million in Bitcoins
from the alleged Silk Road mastermind, Ross William Ulbricht.
Ulbricht has been charged with hacking and drug trafficking, and
the government filed a civil forfeiture complaint against his
Bitcoins, seizing approximately 29,655 of them. Bitcoins are
currently trading at about $937 each. To read the press release
from Preet Bharara, the U.S. Attorney for the Southern District of
New York, click here. For more about the complaint and
Ulbricht's initial response, click here.
Speaking of Bitcoins . . .
Mr. Bharara also announced the arrest of Bitcoin exchangers,
including the CEO of a Bitcoin exchange company, for money
laundering in connection with the Silk Road investigation. Mr.
Bharara said, "As alleged, Robert Faiella and Charlie Shrem
schemed to sell over $1 million in Bitcoins to criminals bent on
trafficking narcotics on the dark web drug site Silk Road. Truly
innovative business models don't need to resort to
old-fashioned law-breaking, and when Bitcoins, like any traditional
currency, are laundered and used to fuel criminal activity, law
enforcement has no choice but to act. We will aggressively pursue
those who would co-opt new forms of currency for illicit
purposes."
Dodge an SEC Subpoena, Face Jail
According to this press release, Anthony Coronati was arrested on
civil contempt charges filed by the U.S. Securities and Exchange
Commission (SEC) for ignoring its subpoena for documents and
testimony. The SEC had served a subpoena on Coronati in 2013, but
he "neither produced documents nor appeared for
testimony." As a result, the SEC filed for an order to comply
with the subpoena, which the court ordered on November 7, 2013. On
January 17, 2014, the court found Coronati in contempt for ignoring
its November order. Coronati was arrested by the U.S. Marshals
Service. At a hearing before Judge William H. Pauley III in the
Southern District of New York, Coronati was released on bail and
ordered to appear for a hearing on February 6.
Paying (With Prison) for the Costs of Internal
Investigation
Judge Edward M. Chen of the District Court for the Northern
District of California held in United States v. Nosal that the
"actual loss" for a violation of the Computer Fraud and
Abuse Act includes the costs incurred by the employer to conduct an
internal investigation to unearth the fraud. In the case, David
Nosal was convicted for unlawfully downloading information from his
prior employer's servers. After analyzing the statute and case
law, Judge Chen held that "'actual loss' includes
those costs incurred as part of an internal investigation
reasonably necessary to respond to the offense, for example, by
identifying the perpetrator or the method by which the offender
accessed the protected information."
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