The last week has seen various developments in three FCPA cases that have been closely watched in the legal community this year. The Government has previously pledged a "new era" of FCPA enforcement and not surprisingly, the Government’s aggressive tactics and theories that appear to be part of this new era have come under attack.
• On Monday in the Lindsey Manufacturing case (previously discussed here and here), the defendants filed a supplemental brief further detailing claimed prosecutorial misconduct, and again requesting that the convictions in that case be vacated.
• On Monday in the Carson case (previously discussed here), which is scheduled to go to trial in 2012, the parties filed objections to proposed jury instructions regarding the key issue of whether an employee of a state-owned company is a foreign official.
• Two recent developments occurred in the FCPA "Sting" Case (previously discussed here) which resulted in a July 2011 mistrial: a new motion attacking the Government’s theory was filed last Thursday, and the Court held a hearing on Tuesday to discuss a new schedule for the trials in the 22-defendant case.
Each of the cases merit close attention as they proceed.
Lindsey Manufacturing. In the Lindsey Manufacturing case, captioned U.S. v. Aguilar, No. 10-cr-1031 (C.D. Cal.), Judge A. Howard Matz previously denied a motion to dismiss the Indictment on the claim that an employee of a state-owned company is not a foreign official (the same issue exists in Carson and third case, U.S. v. O’Shea). After a 5-week trial, defendants Lindsey Manufacturing Company, and co-defendants President Keith Lindsey and CFO Steve Lee, were convicted on one count of conspiracy to violate the FCPA and five counts of actually violating the Act as discussed here. The May 10, 2011 conviction was the first FCPA conviction of a corporation after a trial.
However, as described here, the three defendants filed a prosecutorial misconduct motion, accusing the Government of presenting the Grand Jury with "knowingly false and misleading representations on critical matters" and omitting the "disclosure of material facts" during the testimony of an FBI Special Agent. The defendants further accused the Government of covering up this testimony by refusing to produce the complete Grand Jury transcript of the agent’s testimony until ordered by the Court in the middle of the trial. The Government argued that the defendants’ claims were simply examples of "a few instances in which [the agent] made a slight misstatement or used poor word choice …," rather than false statements. At a June 27, 2011 hearing, Judge Matz said he was "shocked" by the Government’s conduct, including its failure to turn over certain grand jury transcripts to the defense, finding it "very troubling." The Government asserted that the failure was inadvertent.
On Monday, July 25, 2011, the defendants filed a supplemental brief, stating that the Government’s "investigation and prosecution of this case were permeated with instances of purposeful, prejudicial government misconduct. The government’s misconduct was patent and pervasive, designed to win the case, not do justice." In this latest pleading, defendants argued that the conviction should be vacated because the Government:
• fatally contaminated the presentation of this case to two grand juries;
• purposefully concealed the testimony and other material matters from scrutiny;
• misused witness lists to deceive the defense as to the witnesses it would call; and
• gave a prejudicial and improper summation, including an argument which had been explicitly rejected by the Court.
The Government’s response is due on August 8, 2011. According to a story on Law360, Judge Matz has vacated the September 16, 2011 sentencing date for the defendants and will hear arguments on their motion to dismiss on September 8, 2011.
Carson. In May 2011, Judge James Selna held in U.S. v. Carson, No. 09-cr-00077 (C.D. Cal.) that "the question of whether state-owned companies qualify as instrumentalities under the FCPA is a question of fact," and, as a result, the issue will be presented to the jury. He noted that he could not simply assume as a matter of law that a state-owned company was an "instrumentality" under the FCPA, but there were several factors (none of which were dispositive) that must be considered.
On June 30, 2011, the parties submitted proposed jury instructions regarding this issue. The Government requested that the Court instruct the Jury that "[a]n ‘instrumentality’ of a foreign government is any entity through which a foreign government achieves an end or purpose, and can include state-owned entities" and that the jury should consider six non-exclusive factors. Defendants requested that the jury be instructed that "[t]o conclude that a business enterprise is an "instrumentality" of a foreign government, you must conclude beyond a reasonable doubt that the business enterprise is part of the foreign government itself," and that the Government must establish four factors, including a majority ownership by the state. Defendants also requested a separate instruction that the Government must prove beyond a reasonable doubt that a defendant knew that the transaction at issue involved a foreign official.
The objections to the jury instructions filed on Monday, July 25, 2011 brought a further focus to their views. The Carson defendants argued that the Government’s request for a definition of "instrumentality" to include any entity through which a foreign government achieves an end or purpose was an incorrect statement of the law. The defendants also argued that the Government’s instruction was "devoid of a clear benchmark that must be met before the jury may conclude that the government has satisfied its burden to prove beyond a reasonable doubt" that a state-owned entity was an instrumentality of a foreign government.
The Government’s Objections asserted that the defendants’ proposed instructions contradicted this Court’s prior ruling on the defendants’ motion to dismiss the indictment because, among other things, the Court expressly stated that the relevant factors to be considered by a jury "are not exclusive, and no single factor is dispositive." As a result, the Government argued, defendants’ requested instruction (which required proof of all elements – which the Government claimed numbered 12 subparts) ran afoul of that prior ruling. The Government also argued that many aspects of the defendants’ proposed scienter instructions do not accurately reflect the law and that there is no requirement under the FCPA that the Government demonstrate that a defendant knew that the intended recipient was a foreign official.
At present, the Carson case is scheduled to be tried on June 5, 2012, but the Court has scheduled a hearing on the jury instructions for August 12, 2011.
The FCPA "Sting" case. U.S. v. Goncalves, No. 09-cr-00335 (D.D.C.), which was brought against 22 defendants, has been closely followed because it was based on a sting operation, the first of its kind to involving FCPA charges that has gone to trial. The central allegation was that each defendant met with and agreed to bribe the "Minister of Defense" of Gabon, who was, in reality, an undercover FBI agent. The first trial, which was against four of the defendants, began in June. However, on July 7, 2011, Judge Richard Leon declared a mistrial when the jury was unable to reach an unanimous verdict on all charges.
On Thursday, July 21, 2011, the four defendants (Pankesh Patel, John Benson Wier, Andrew Bigelow and Lee Allen Tolleson) filed a renewed Rule 29 motion for judgment of acquittal, arguing that the Government’s theory that all 22 defendants acted as part of a single interdependent conspiracy was "unprecedented, unsustainable and unsupported." The defendants argued that the defendants were actually in competition and odds with each other, which did not support the Government’s argument that a single conspiracy existed, especially one with a Government agent or informant at the "hub." The Defendants further argued that in light of the jury’s inability to reach a verdict, the Court should dismiss the conspiracy charge.
At a hearing held on Tuesday, July 26, 2011 with all defendants, the Court discussed scheduling of the retrial four defendants involved in the mistrial, as well as a schedule of the multiple trials for the remaining defendants. Although no new trial dates have been set yet, according to Mike Scarcella of the Legal Times, Judge Leon "warned the government that he will not take as an excuse any manpower issues down the road in the event one or more of the prosecutors are unable to participate in a trial."
As with all criminal cases, the stakes are quite high in each of these cases for the defendants. However, the stakes are high for the Government as well – the Government has been quite aggressive in pursuing FCPA cases and success or failure in any of these cases will impact their position in future FCPA matters.