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SEC forces Mickelson to return $1 million from insider trading

PGA golfer Phil Mickelson agreed to forfeit almost $1 million that the Securities and Exchange Commission (SEC) said was obtained through insider trading. Mickelson was named as a “relief defendant” in a criminal case, filed in the Southern District of New York against professional gambler William Walters and a former director of Dean Foods, Thomas Davis. Mickelson was not criminally charged but is subject to a SEC civil action requiring a claw back of profits he made from the improper trades.

According the SEC complaint, Walters received non-public, insider information from 2008 through 2012 about Dean Foods, the nation’s largest milk producer, from his long-time friend Davis, who was at the time chairman of Dean Foods. The inside information concerned plan to spin off subsidiary WhiteWave Foods Co.

In 2012, Mickelson received a telephone tip from Walters that Mickelson should purchase Dean Foods stock because the company was about to spin off its profitable subsidiary. At the time of the call, Mickelson owed Walters money over sports gambling bets. Walters is considered by many as the most successful sports bettor in the country.…

DOJ explains rule changes in light of Yates memo

The U.S. Department of Justice (DOJ) detailed new rules that would focus investigations of corporations on responsible individuals and warned that companies cannot abuse the attorney-client privilege to hide key facts in criminal investigations.

On Monday, Deputy Attorney General Sally Yates, who issued the so-called Yates Memoranda in September, detailed DOJ policy on how the department will pursue criminal cases. Yates’ comments, at the ABA’s Money Laundering Enforcement Conference, specified changes to the United States Attorney’s Manual which establish objectives for criminal and civil investigations of corporations.

In prepared remarks, Yates provided a new mission statement for DOJ investigations: not to recover the largest amount of money from the greatest number of corporations but to “seek accountability from those who break our laws and victimize our citizens.” The changes make clear the practical impact of the shift to prosecuting individuals, not just corporations. Yates also cited a number of steps that prosecutors are expected to take to maximize the opportunity to pursue individual wrongdoers. …

Commodities trader found guilty in first “spoofing” prosecution

A Chicago jury took one hour to find a trader guilty of “spoofing” some of the world’s largest commodities futures markets by deceptive electronic trading. On Tuesday, Michael Coscia was found guilty of 12 counts of fraud and “spoofing” by attempting to flood the gold, corn, soybean and crude oil futures markets with small orders, which he intended to cancel prior to execution. This case marked the first test of anti-spoofing legislation which was enacted in the 2010 Dodd-Frank Act.

Spoofing occurs when traders rapidly place orders with the intent to cancel them before the trades can be executed – all with the intent to deceive other investors to believe that there is a spike in demand for the commodity. This tactic has become increasingly prevalent with the emergence of electronic trading which has taken the place of face-to-face trading in commodity “pits.” Federal authorities, and market experts, believe that this type of activity could not have occurred in face-to-face trading, but “spoofers,” like Coscia, can now use the anonymity of electronic trading to manipulate demand. …

Supreme Court refuses to review FCPA challenge

The U.S. Supreme Court on Monday refused to review the first Foreign Corrupt Practices Act (FCPA) case appealed to the highest Court. The appeal sought to limit the scope of the FCPA by narrowing the law’s definition of the term “foreign official.”

Joel Esquenazi and Carlos Rodriguez, former executives of Terra Telecommunications Corp., had challenged their convictions under the FCPA and had asked the Supreme Court to clarify who counted as a foreign official under the law. The Eleventh Circuit had affirmed the conviction and the ruling that defined the term instrumentality as “any entity controlled by the government of a foreign country that performs a function the controlling government treats as its own.”…

FBI increases criminal fraud investigations by 65%, director reports

FBI Director James Comey shared the bureau’s enforcement trends and objectives at the New York City Bar Association’s Third Annual White Collar Crime Institute on May 19.

Comey recognized that although counter-terrorism is still a top priority for the agency, white-collar cases are receiving significant focus and resources. In the mortgage industry, agents are investigating foreclosure rescue companies preying on stressed homeowners and criminals who target senior citizens with the lure of reverse mortgages. In money laundering, enforcement targets are involved in a buying anonymous prepaid credit cards, using of “virtual currency” to transfer money and using smaller institutions to inject money into the banking system. In securities markets, the FBI also is targeting micro-cap market manipulation, insider trading and accounting fraud.

Comey emphasized in his remarks that the FBI has received additional resources from Congress, which allowed the agency to hire 2,000 people this year. In addition, he disclosed that more than 1,300 agents are working more than 10,000 white collar crime cases. These figures represent a 65% increase in the number of criminal fraud cases investigated by the FBI since 2008.…

“Extraordinary Cooperation” in FCPA Investigation Earns Virginia Corporation a Deferred Prosecution Agreement

On Monday, June 18, 2012, DOJ announced that it had entered into a two-year Deferred Prosecution Agreement with Data Systems & Solutions LLC (“DS&S”), a company that provides design, installation, maintenance and other services at nuclear and fossil fuel power plants, to resolve violations of the Foreign Corrupt Practices Act. The company, which is based in Reston, Virginia, agreed to pay an $8.82 million criminal penalty. DOJ acknowledged DS&S’s “extraordinary cooperation” in resolving the matter.…

Rajat Gupta Convicted of Conspiracy and Insider Trading

Rajat Gupta, the former Managing Director of McKinsey & Company and board member at Goldman Sachs and Procter & Gamble, was convicted on four of six counts by a federal jury in New York today for providing nonpublic material information to Raj Rajaratnam in 2008. Specifically, Mr. Gupta was convicted of conspiring to commit insider trading and three counts of insider trading (but was acquitted on two other counts of insider trading).…

And Then There Were None … The Last U.S. Defendant in the Carson FCPA Case Enters Into Plea Agreement

On June 14, 2012, David Edmonds, the sole remaining U.S. defendant in the Carson FCPA case entered into a plea agreement. He will plead guilty to a one-count indictment alleging a violation of the FCPA. The case has been closely watched because of a number of the interesting arguments raised the defendants, but as those motions were denied, and the June 26 trial date approached, four defendants pled guilty in a two-month period.…

Stanford Sentenced to 110 Years in Prison For His Role in Ponzi Scheme

This afternoon, Judge David Hittner sentenced R. Allen Stanford to 110 years in prison for his decades-long Ponzi scheme that bilked investors of over $7 billion. The court also imposed a personal money judgment of $5.9 billion. The sentence was less than half of what the Government requested, but given that Mr. Stanford is already 62, today’s sentence means that he is destined to spend the rest of his life in prison.…

New Jersey Judge Sentences Lawyer Who Pled Guilty to a Record-Length Twelve Years For Insider Trading – Longer Than Raj Rajaratnam

On Monday, June 4, 2012, New Jersey Federal Judge Katharine Hayden sentenced Matthew Kluger (a former associate at several prominent law firms) to twelve years in prison for his role in a insider trading scheme. One of his co-conspirators, Garrett Bauer (a Wall Street trader), received a nine-year sentence. On Tuesday, June 5, 2012, Judge Hayden sentenced Kenneth Robinson, another co-conspirator (who cooperated and wore a wire to obtain evidence against Messrs. Kluger and Bauer) to 27 months in prison. As U.S. Attorney Paul Fishman pointed out, Mr. Kluger’s sentence "is the longest handed out for" insider trading. Remarkably, the prison term for Mr. Kluger (who pled guilty and apparently recovered less than $1 million in the scheme) eclipsed the eleven year sentence received by Raj Rajaratnam (who did not plead guilty and earned tens of millions of dollars in his scheme).…

FCPA Cooperation: Robert Antoine Receives a Sentence Reduction in Haiti Teleco

On May 29, 2012, Florida Federal Judge Jose E. Martinez granted a Government Motion to reduce the sentence of Robert Antoine, the former director of international relations for Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), the Haitian state-owned telecommunications company, from 48 months to 18 months, based on his cooperation with the Government’s FCPA investigation into the Haiti Teleco matter. The Government has had its share of difficulties in FCPA cases recently (as discussed here), but this case reflects what may happen when things go well in an FCPA prosecution. The Court papers discuss the cooperation provided by Mr. Antoine both before his plea agreement and during the two trials involving three other defendants.…

The Government Moves to Dismiss Its Appeal in the Lindsey Manufacturing FCPA Case

Back on December 1, 2011, when Judge A. Howard Matz entered an order vacating the convictions and dismissing the Superseding Indictment against Lindsey Manufacturing Company, Keith Lindsey, Steve Lee in the criminal FCPA case, he noted that "Dr. Lindsey and Mr. Lee were put through a severe ordeal. … The financial costs of the investigation and trial were immense, but the emotional drubbing these individuals absorbed undoubtedly was even worse. As for [Lindsey Manufacturing], the very survival of that small, once highly-respected enterprise has been placed in jeopardy." The Government appealed that decision to the Ninth Circuit. However, now, the ordeal for the two men and their company is over – on Friday, May 25, 2012, the Government filed a Motion to Dismiss their appeal.…

New York Times Reports on SEC Database and Other Tactics Used To Help Detect Insider Trading

An article by Ben Protess and Azam Ahmed of the New York Times examined the new techniques by used by the SEC to catch those engaging in insider trading. As the article explained, the Commission "is taking its cue from criminal authorities, studying statistical formulas to trace connections, creating a powerful unit to cull tips and assign cases and even striking a deal with the Federal Bureau of Investigation to have agents embedded with the regulator." As discussed here, last month, Devin Leonard of BusinessWeek profiled Sanjay Wadhwa, a deputy chief of the SEC’s market abuse group, and took a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded). That article and the Times piece reflect what the SEC is doing to aggressively pursue insider trading defendants.…

Haitian Foreign Official Jean Rene Duperval Sentenced to Nine Years in Prison For His Role in FCPA Scheme

On Monday, May 21, 2012, Florida Federal Judge Jose E. Martinez sentenced Jean Rene Duperval, the former director of international relations for Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), the Haitian state-owned telecommunications company, to nine years in prison for his role in a scheme to launder bribes paid to him by two Miami-based telecommunications companies. The sentence is the latest in the very lengthy sentences imposed to the participants in the Haiti Teleco scheme, and marks the second sentence of a foreign official in the case – Mr. Dupreval’s sentence was more than twice as long as his predecessor, Robert Antoine, who was sentenced to 48 months in prison in June 2010.…

Judge Selna To Deny Two Motions in FCPA Case Which Had Attacked DOJ’s Relationship With Company That Cooperated During Investigation

In connection with a May 14, 2012 hearing, Judge James Selna has prepared Tentative Minute Orders which deny two motions in the Carson FCPA cases. In a Motion to Suppress and a Motion to Dismiss, the defendants raised issues regarding DOJ’s relationship with Control Components, Inc. ("CCI"), the employer of defendants, who cooperated with the investigation and provided certain information. In addition to our discussion below, Professor Mike Koehler of The FCPA Professor Blog takes a careful look at the case (which includes copies of the tentative rulings, here and here).…

DOJ Returns $44 Million From Former CEO Joseph Nacchio To Investors of Qwest

Prosecutors and the SEC work quite vigorously to recover ill-gotten gains from those who have committed securities fraud, with the ultimate goal of compensating investors. A conviction in a criminal case or judgment in civil case brought by the SEC may result in a large number, like the $53.8 million forfeiture judgment in the criminal case and the $92 million civil judgment against Raj Rajaratnam (discussed here), but that is only the first step. A May 3, 2012 Press Release from DOJ provides some insight into this process (and how long it may take) – following a 2007 conviction of Joseph Nacchio, the former CEO of Qwest Communications International Inc., based on events which took place between 1999 and 2002, DOJ announced that it "has returned approximately $44 million to victims of [that] securities fraud scheme."…

Defendants in the Carson FCPA Case File Reply Briefs Attacking Government’s Interaction With The Employer During the Latter’s Internal Investigation and the Government’s Conduct During Discovery

On Monday, April 30, 2012, two of the remaining defendants in the Carson FCPA case submitted Reply Briefs in support of motions that raise significant issues about the impact on the employees when a corporation conducts an internal investigation and ultimately cooperates with the Government. The briefs argued that: (1) certain statements should be suppressed because the Government offered no evidence from the participants in discussions between the corporation’s counsel and DOJ prior to interviews of employees during an internal investigation (thereby failing to rebut defendants’ arguments that their Fifth Amendment rights were violated); and (2) the Government’s tactics during discovery violated defendants’ rights by denying them the opportunity to present a complete defense. The arguments on these issues are set to be heard on May 14, 2012.…

Former Morgan Stanley Executive Pleads Guilty to Conspiring to Evade Internal Accounting Controls Under the FCPA in China, While Morgan Stanley Avoids Prosecution Due to Internal Controls

On Wednesday, April 25, 2012, DOJ announced that Garth Peterson, a former managing director for Morgan Stanley’s real estate business in China, pled guilty in federal court in Brooklyn, New York for participating in a conspiracy to evade the internal accounting controls which the company was required to maintain under the FCPA. Because Morgan Stanley had a system of internal controls designed to assure that its employees were not bribing government officials, the Government did not prosecute the company. The SEC also announced that it brought and settled a case against Mr. Peterson.…

Government’s Opposition to Motion to Suppress in Carson FCPA Case Argues That Statements Made To Corporate Counsel During An Internal Investigation Do Not Violate The Employees’ Fifth Amendment Rights

In a Brief filed on April 2, 2012, the Government argued that the statements by defendants in an FCPA case that were given to their employer during an internal investigation should not be suppressed because the employer’s "actions were not the result of any pressure or influence from the government sufficient to convert the Company’s lawyers to state actors," and because defendants could not "show that their statements were involuntary." The Government was addressing a Motion to Suppress filed on March 5, 2012 in the Carson case in which defendants argued that because Control Components, Inc. ("CCI") had collaborated with DOJ during the investigation, it was a Government agent whom improperly compelled statements from the defendants during an internal investigation in violation of their Fifth Amendment rights. The Court has scheduled a hearing on the Motion for May 14, 2012.…

Discovery Issues in the Parallel Rajat Gupta Cases – Judge Rakoff Directs SEC To Turn Over Witness Interview Materials From the Investigation to Prosecutors For Review Under Brady and Potential Disclosure to Defendant

On March 26, 2012, Judge Jed Rakoff issued an Opinion and Order in the two related cases against Rajat Gupta, granting in part a Motion to Compel and ordering the SEC to turn over to the U.S. Attorney’s Office materials relating to 44 witnesses (who were interviewed by the SEC and prosecutors jointly during the investigations of Mr. Gupta). He further ordered the prosecutors to review those memoranda and promptly turn over to the defense any material under Brady v. Maryland, 373 U.S. 83 (1963) (material exculpatory evidence to the defense – including evidence that could allow the defense to impeach the credibility of a prosecution witness). The ruling identifies another possible method (albeit a limited one) for a party seeking discovery from the SEC’s investigative file).…

FCPA Sting Case: Government Dismisses Charges Against The Three Defendants Who Already Pled Guilty

On Tuesday, March 27, 2012, the Government filed a motion in the FCPA Sting Case to dismiss the charges against Jonathan M. Spiller, Haim Geri, and Daniel Alvirez, the three defendants who had previously pled guilty to conspiracy charges in the case and were awaiting sentencing. This unusual event occurred after the Court had dismissed the same conspiracy charge against other defendants in the case and the Government dropped all other charges against the other defendants. As a result, the Sting Case, which was announced in January 2010 as a "turning point" in FCPA prosecutions, will end with zero convictions.…

Haitian Foreign Official Convicted For Money Laundering Related to FCPA Violations

On Monday, March 12, 2012, a federal jury in Florida convicted Jean Rene Duperval on two counts of conspiracy to commit money laundering and 19 counts of money laundering related to an FCPA scheme involving Telecommunications D’Haiti S.A.M. ("Haiti Teleco"), the Haitian state-owned telecommunications company. Following a week-long trial, the jury took only three hours to convict Mr. Duperval, a former director of international relations for Haiti Teleco. The conviction is the latest Government prosecution related to FCPA at Haiti Teleco, and marks the second conviction of a foreign official involved in the scheme.…

Stanford Convicted on 13 of 14 Counts for His $7 Billion Ponzi Scheme

In a result that probably surprised few, Robert Allen Stanford was convicted on Tuesday, March 6, 2012 for his decades-long Ponzi scheme that bilked investors of over $7 billion. As reported by the New York Times (here), "the jury cleared Mr. Stanford of only one of several counts of wire fraud, but found him guilty of every other count of conspiracy to commit mail fraud, launder money and obstruct justice."…

Defendants in Carson FCPA Case File Two New Motions Attacking DOJ’s Relationship With Their Corporation (Who Has Cooperated)

On Monday, March 5, 2012, several of the defendants in the Carson FCPA case in California filed a Motion to Dismiss and a Motion to Suppress, raising a new set of interesting issues in a case where the corporation has already settled with the Government and individual employees face charges. In both motions, the defendants raised issues regarding DOJ’s relationship with Control Components, Inc. ("CCI"), the employer of defendants. In the Motion to Dismiss, defendants argued that "the impact of the cumulative impediments – unique investigation tactics preventing Defendants access" to certain evidence deprived them of their Due Process and Sixth Amendment rights, ("including the right to present a complete defense") and that "dismissal is the only appropriate remedy" for such severe prejudice. In the Motion to Suppress, defendants argued that because CCI had collaborated with DOJ during the investigation, it was a Government agent whom improperly compelled statements from the defendants during an internal investigation in violation of their Fifth Amendment rights. As a result, defendants argue that the statements should be suppressed.…

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