Business Crime - Outline
a. Inchoate offenses – doesn’t have to be completed to be prosecuted.
i. Doesn’t require that some crime has actually been committed.
ii. Conspiracy, attempt, etc.
1. These theories are used more often in white collar crime prosecutions than in any other type.
iii. Fraud is not an inchoate defense bc fraud requires actual proof that something has been done, namely that
someone has been defrauded.
b. White-collar offenses shall constitute those classes of non-violent illegal activity.
i. does not include organized crime or street crimes
c. The importance of knowing the status of your client.
i. Is your client the target of the investigation or just a subject or person of interest?
d. The theme of white collar crime these days is federalization.
i. All statutes addressing federal crimes must state the jurisdictional requirements for prosecuting the crime.
1. For example, in order for the federal govt to prosecute for bank robbery, the bank must be
e. Congress may try to criminalize things on the basis that it affects commerce, and the Supreme Ct may or may not
declare that unconstitutional.
f. Three ways Congress has provided for the enforcement of certain statutes. It can all be provided for in the same
i. Criminal prosecution
ii. Civil prosecution
iii. Tort liability
g. All crimes are now statutory. No longer any common-law crimes.
i. POLICY Reason:
1. Notice is less adequate in common law.
h. Rule of Lenity – if a statute can be interpreted in more than one way, construe it in favor of the Δ.
i. The Public Welfare Doctrine is an exception to the rule of lenity.
i. An example statute – The Federal False Claims Act
i. Criminalizes govt contractors who submit fraudulent claims to the govt for reimbursement.
ii. US auditer and Lockheed
iii. Defense Contract Management Agency – designed to audit defense ks to make sure costs are not
1. Fixed-price ks – contractor decides from specs how much it will cost and submits a bid to build
for that price.
a. Creates an incentive to cut cost, but incentive may incite poor work.
2. Fee plus cost – reimburses all costs plus a fee or percentage of cost on top of that
a. Creates incentive for builder to bring up costs and not appropriately police subcontractors.
j. Whistleblower statutes
k. The SEC does not have the power to indict. It must go to the DOJ and ask it to convene a grand jury for
i. Securities fraud is a predicate offense to racketeering.
ii. Requisite mens rea stdd for securities fraud is intent, but for civil liabilities, the stdd is recklessness.
II. Mens Rea - White collar crime is not about who did it. Usually involves things that are known to have been done. Mens rea is
more the focus of white collar crime bc that can make the difference bt whether something is criminal or not. It is an attempt to
gain evidence of the state of mind of the Δ.
a. There is a presumption that Congress intended some form of mens rea to be proven. Presumption against reading a
statute as imposing strict liability.
i. Public Policy concerns:
3. Due Process
b. Knowledge of the law denotes 2 different kinds of knowledge.
i. Δ must know both that the criminal prohibition exists and that she is violating it.
ii. A criminal provision incorporates by reference a stdd of conduct from another source of law, and Δ must
know that there is a stdd of conduct and that she is violating it.
1. Δ need not know that such a violation is subject to criminal sanction.
c. The Public Welfare Doctrine – where invoked, the public welfare doctrine does not require actual knowledge that
one is violating a govt regulation as long as Δ knows that it is using publicly dangerous materials that are probably
subject to regulation.
i. US v. Int’l Minerals & Chem. Corp. – Employees dumping waste in excess of permit.
1. Most environmental crimes require proof that the Δ acted knowingly, but cts usually let
knowledge be inferred from surrounding circumstances.
2. US v. Freed – cited.
a. Limited need for prosecution to prove Δ knew he was violating a regulation.
ii. “Where dangerous or deleterious devices or products or obnoxious waste materials are involved, the
probability of regulation is so great that anyone who is aware that he is in possession of them or
dealing with them must be presumed to be aware of the regulation.”
1. Usually there is no requirement that Δ know the specific law being violated.
2. Courts will impute mens rea as the intent of Congress to impose a lower mens rea requirement.
3. Where you should have known, you are presumed to know.
4. Ignorance is no excuse in public welfare cases – you should have known and that is sufficient.
iii. Relaxes the mens rea requirement where it is not entirely clear to which element of the offense the mens rea
iv. Staples v. US – statute requiring the registration of automatic weapons. Δ said he did not know weapon
1. Public welfare doctrine does not apply here.
a. The mere fact that this is an automatic weapon does not make it inherently dangerous.
2. Ct required Π to prove Δ knew his conduct was of the kind regulated by this type of regulation.
3. This case is an example of the fine line Δ lawyers must walk. Ethically bound to claim any
defense to be defeated by the prosecution, but must never cross the line to where the jury sees you
4. Balint – prosecution needed only prove that Δ knew he was selling drugs, not that he knew the
specific items he had sold were narcotics within the ambit of the Narcotic Drug Act of 1914.
a. Does not require knowledge of violating the law.
5. Compare, Dotterweich, which fails to recognize the public welfare doctrine as to guns because
“guns in general are not deleterious devices or products or obnoxious waste materials that put
owners on notice that they stand in responsible relation to public danger.”
a. Requires knowledge that one is violating the law.
6. Liporata – page 84 – federal statute governing food stamp fraud. How far down the sentence did
the knowingly requirement go?
a. Rejected the application of the public welfare doctrine and required a showing of mens rea.
b. Ct held that and individual only violates the statute if he knows that he has acquired or
possessed food stamps and if he also knows that he has done so in an unauthorized
i. Requires knowledge of violation of the law
c. Invoked the rule of lenity.
d. PP – fear that broadly construing the statute would criminalize a broad range of apparently
v. US v. Weitzenhoff – water pollution. Does not require knowledge as to violating the Clean Water Act since
“the dumping of sewage and other pollutants into our nation’s waters is precisely the type of activity that
puts the discharger on notice that his acts may pose a public danger.”
d. Awareness of Legal Requirements
i. Bryan v. US – Δ was convicted of willfully dealing in firearms without a federal license. Question is
whether the term “willfully” requires proof that Δ knew that his conduct was unlawful, or whether it also
requires proof that he knew of the federal licensing requirement.
1. The willfulness requirement is not an exception to the rule that ignorance of the law is no excuse;
knowledge that the conduct is unlawful is all that is required.
2. Willfulness is a higher mens rea requirement than knowingly because willfulness embodies and
intent to break the law. But Δ does not have to know why he is violating the statute for
prosecution to meet its burden of showing willfulness.
e. Willful Blindness or Conscious Avoidance
i. Avoids the mens rea element where prosecution cannot totally prove knowledge bc Δ deliberately or
negligently avoided knowledge.
ii. Counter literal – allows proving of a fat when in fact an element is not proven.
iii. Jury Instructions
1. a willful blindness instruction is proper where the Δ claims a lack of guilty knowledge and the
evidence at trial supports an inference of deliberate ignorance.
iv. Public Policy
1. Unless carefully restricted the willful blindness, etc. instructions carry the danger of shifting the
burden to the Δ to prove his or her innocence
2. Courts are often wary of giving a willful blindness instruction because of the danger they perceive
in it allowing the jury to convict based on an ex post facto “he should have been more careful”
theory or to convict on mere negligence.
3. The substantive justification for the rule is that deliberate ignorance and positive knowledge are
equally culpable. One should not be rewarded for planning to avoid knowledge such that he could
be exonerated at trial because of a lack of actual knowledge. Isn’t such planning an indicator of an
even more evil, antisocial frame of mind?
f. Ignorance of the Law
i. MPC – Ignorance/mistake as to a matter of law is a defense if it negatives an element of a defense, but only
if the law in question is something other than the law which is being prosecuted.
g. Good-faith Defense – an affirmative defense.
i. If a jury finds that Δ acted in good faith, then Δ could not have acted with the requisite mens rea. BUT, a
judge may not allow the good faith jury instruction, and a judge may necessarily incorporate a good faith
defense without Δ raising it.
h. General Rules about Mens Rea
i. Some element of mens rea is required. The public welfare doctrine and the doctrine of willful blindness
can substitute for the actual requisite mens rea.
ii. Strict liability usually involves one with a duty to prevent some event from occurring.
iii. Interpretation of criminal statutes should be consistent with the goals of the criminal justice system:
a. maybe more of a human and personal goal but not a societal goal perhaps.
2. protection (removal)
iv. Generally, the govt will never be required to prove knowledge of the law, but they will often have to prove
knowledge of a fact.
v. In the federal criminal code, there are many mens rea terms. The issue of general intent versus specific
intent is very confusing:
1. general intent – the intention of a Δ to do the acts that the law forbids.
2. specific intent – ordinarily means a combination of general intent AND an intent to violate the law
III. Sentencing Guidelines
a. Constitutional Analysis
i. Witte v. US – double jeopardy. Judge considered evidence of activity in which the Δ had engaged but
which was not prosecuted and increased Δ sentence. Ct said this was not double jeopardy.
1. Blockberger – double jeopardy precluded subsequent prosecution of other acts here.
a. Test: when considering sentencing for 2 offenses, one must consider whether each provision
requires proof of a fact which the other does not.
ii. Apprendi v. NJ – predominantly a criminal procedure case.
1. Moral: Must prove every element of a criminal offense beyond a reasonable doubt.
2. Δs have a right to a jury determination of every element of a criminal offense beyond a reasonable
3. Arises in the context of sentencing guideline issues bc the job of a parol office is to give judge a
report of where Δ fits in grid of prior criminal history, severity of the crime, etc.
a. Additional factors enhance or reduce the sentence.
b. POLICY CONCERN: Ashcroft recently instructed federal prosecutors to keep a blacklist of
judges who sentence below federal guidelines. If judge sentences above the guidelines, that is
another issue entirely.
b. Useful in plea bargaining
IV. Entity Liability
a. When can a corporation be liable for the acts of employees?
b. Criminalizing Corporate Conduct
c. Principles of Liability
i. NY Central & Hudson River RR Co v. US – RR company and its assistant traffic manager were convicted
for violations of the Elkins Act, which prohibited a person or corporation from granting or receiving rebates
with respect to the transportation of property in interstate commerce by common carrier.
1. The act was not limited to conduct amounting to omissions, but included affirmative acts by any
director or officer thereof, or any receiver, trustee, lessee, agent or person acting for or employed
by such corporation.
2. Δ challenged constitutionality of charging a corporation, alleging a due process violation.
Punishing a corporation would be charging innocent stockholders. Since the corporation’s board
of directors could not authorize an illegal act, the corporation could not be liable.
3. Allowed charging a corporation using a tort theory of liability:
a. The acts of an agent, done for the benefit of the principal and within the scope of the
employment, are imputed to the principal.
4. This decision recognizing entity liability was limited to strict liability offenses.
5. What about where the acts of the agent do not benefit the principal?
ii. US v. Sun-Diamond Growers of California
1. The acts of the agent (Douglas) was not acting to benefit the corporation (principal). The act was
done to benefit a certain political campaign. Scheme was actually designed to defraud the
2. Ct upholds the conviction of the corporation, however, citing the right of the jury to make a
finding that the corporation was responsible and the prosecution’s discretion.
3. Imputation as to Fraud
a. Imputation is a legal fiction designed to assist in the allocation of liability, not a literal
description of the state of a principal’s knowledge. When an individual (in a corporation) is
swindled, the offender (the corporation) does not escape liablility just because the victim was
unwary, or even gullible.
d. Difficulties where Responsibility Defused
i. Agents Actions Contrary to Policy:
1. Hilton Hotels – even where the employee acts contrary to corporate policy and against direct
instructions, the corporation may still be held responsible for the acts of the employee under the
Sherman Act. – General rule.
a. Facts: Purchasing agent participated in a boycott by threatening a supplier with loss of the
hotel’s business if the supplier refused to pay a fee to an association organized to attract
conventions to the city. Agent’s conduct was in direct opposition to corporate policy and
b. Rationale for Imputing Liability Upon Corporation: Agents are pressured to maximize profits
for a corporation. Also, punishment of the agent is not likely to be a deterrent to the
corporation. Want to encourage corporations to police themselves.
ii. Collective Knowlege
1. US v. Bank of New England, NA – ct examined the propriety of jury instructions that permitted the
imputation of knowledge to the corporation by use of collective knowledge.
a. Facts: Bank of NE convicted of 31 violations of Currency Transaction Reporting Act (must
report all deposits of so much cash) in failing to report transactions in excess of 10k by a
customer who used multiple checks that were each under 10k. All checks presented to a
b. Ct had instructed jury that it could look at the bank as an institution with knowledge in the
sum of all its employees, not just one.
c. Collective knowledge instruction is appropriate when applied in the context of corporate
criminal liability because corporations compartmentalize knowledge, subdividing the
elements of specific duties and operations into smaller compartments.
e. Dept of Justice and SEC Charging Policies
f. Federal Prosecution of Business Organizations
g. Charging a Corporation – In Dec. 1999, the DOJ set forth criteria on criminally charging corporations. Fairly early
in the Bush administration (March 2003), the administration reaffirmed what had been added and added a few more
a. The nature and seriousness of the wrongdoing
b. Company’s history of wrongdoing
c. Company’s cooperation in the investigation
d. Willingness of company to disclose
e. Corrective actions taken immediately by the corporation
f. Consequences of the law-breaking
g. Whether the corporation, while purporting to cooperate, has taken action to impede the
i. Destroying documents
ii. Assertions of privilege
iii. Inappropriate directions to employees
ii. There exist real incentives in the process of charging a corporation to implicate another to absolve oneself
1. this is called covering your ass.
iii. Large law firms usually perform criminal audits of corporations.
iv. Factors to be Considered
v. Special Policy Concerns
vi. Pervasiveness of Wrongdoing
vii. The Corporation’s Past History
viii. Cooperation and Voluntary Disclosure
ix. Corporate Compliance Programs
x. Collateral Consequences
xi. Non-Criminal Alternatives
xii. Selecting Charges
h. Plea Agreements with Corporations
i. Public Policy Considerations
i. Is there any deterrent effect in punishing a corporation?
ii. Will the stockholders and consumers be forced to bear the eventual loss?
V. Managerial Liability
a. Asks the reverse question as in entity liability:
i. When can employees be liable for the acts of the corporation?
b. Client Notes, etc.:
i. One of the strategies of white collar criminal defense lawyers is to put your client and the corporation’s
other suspects as adversaries.
1. Counsel will often advise client to sue the person he thinks is the main target of the investigation.
2. Turn client from conspirator to victim.
ii. Essential to get counsel separate from the corporation.
c. Obstruction of Justice
i. Generally means that one has interfered with the investigation
d. Responsible Corporate Officer Doctrine – When the offense is a strict liability offense, there is no need to
concentrate on the level of knowledge held by the indicted corporate agent.
i. Originates from Dotterweich where Δ Dotterweich, president and general manager of a corporation, was
charged with violation of the Federal Food, Drug, and Cosmetic Act (eg- shipping interstate adulterated and
1. Ct found the offense was a SL offense where liability rested upon whether the individual had a
responsible share in furtherance of the transaction.
2. Dissent: The holding is inconsistent with established canons of criminal law to rest liability on an
act in which the accused did not participate and had no personal knowledge.
ii. Δ must generally have had a relationship of responsibility to the corporation.
1. must also usually have a position of authority and responsibility over the conduct upon which the
charges were brought.
iii. Vicarious liability theory requires that the law can only indict someone outside the chain of command
where there is evidence of direct implication.
iv. US v. Park – Not a traditional strict liability case but requires at least negligence and sometimes
1. Facts: Park, CEO of a food retailer, was advised that remedial measures were being taken to
address a rodent infestation problem in a warehouse in another state.
2. Ct reiterated holding in Dotterweich, emphasizing that those who have a responsible relationship
have a duty under the Federal Food, Drug, and Cosmetic Act not only to seek out and remedy
violations but also a duty to implement measures that will insure that certain violations will not
3. individual is or could be liable even if he did not consciously do wrong (sounds like strict
4. Ct noted that the decision was limited to the facts.
a. Limiting Principle
b. Ct noted in dicta that a Δ is afforded the defense, and has the burden of proof if this defense is
offered, that Δ was powerless to prevent or correct the violation. Govt is required only to
show that Δ had, by reason of his position in the corp., responsibility and authority either to
prevent or correct the violation at issue and that Δ failed to do so.
v. US v. Brittain – affirmed a conviction under the responsible corporate officer doctrine where the requisite
mens rea requirement was willfulness or negligence.
1. Π couldn’t show actual negligence, but the court upheld the conviction and substituted the
responsible corporate officer doctrine.
2. Responsible corporate officers are statutorily included as “persons” that are subject to criminal
penalties under the Clean Water Act (?). This inclusion, however, does not serve to limit the
prosecution of individuals who violate the act.
3. Public Policy:
a. Courts are essentially legislating when they dispense of the mens rea requirement.
vi. US v. MacDonald & Watson Waste Oil Co. – 33, 235 – goes the other way than Brittain. Must still prove
the requisite mens rea despite the responsible corporate officer doctrine.
1. the mere fact that one is in the position of official responsibility does not constitute knowledge
per se. However, where knowledge is an element of the offense, it can often be inferred from
circumstantial evidence, which may include the position and responsibilities of the corporate
vii. Park is still good law, but courts are getting leery of attempting to distinguish it and are moving toward
simply imposing a actual mens rea.
1. In a crime having knowledge as an express element, a mere showing of official responsibility
under Dotterweich and Park is not an adequate substitute for direct or circumstantial proof of
e. Defenses for Individuals Charged for Acts of the Corporation:
i. Δ was really powerless to prevent the activity.
1. Powerlessness might be equated to lack of knowledge.
a. But what about other factors such as failure to whistleblow, etc.?
2. What about practical powerlessness?
a. The president of a corporation is probably not really able to control something happening at a
small plant in bumblefuck.
VI. Perjury, False Declarations, and False Statements
a. Perjury applies only to statements under oath.
b. Prosecutors may initially charge for both, but a Δ cannot be convicted of both because of double jeopardy.
c. Submission of a false record (ie – changing the name of persons present at a meeting in meeting minutes and then
submitting those minutes under penalty of perjury) is a § 1623 violation and not § 1621 violation
VII. Perjury – 18USC § 1621
i. Lying under oath before a competent tribunal
1. includes affidavits, depositions, and federal employment applications (?)
b. material misstatement of fact knowingly and intentionally (the subjective and objective element)
i. Statements under oath - depositions, affidavits
1. A statement under oath must be both objectively and subjectively false.
i. The statement was actually false to any outsider.
i. The Δ knew the statement was untrue.
d. Elements/Principles of Liability
i. Oath (main distinction from 1623, which does not require an actual oath)
ii. Literally false and not simply misleading
1. this is a jury question that must be proven BARD.
2. falsity cannot exist where the statement is fundamentally ambiguous.
iii. Δ knew it was false
iv. Material – tendency to influence or be capable of influencing. Does not have to actually influence or
deceive, etc. to be material.
1. must be proven as an element beyond a reasonable doubt
2. Not defenses to materiality:
a. That the statement was not believed does not make it immaterial.
b. That no loss was incurred as a result of the false statement does not make it immaterial.
c. That the statement was not required does not make it immaterial.
i. At the time I made the statement or submitted the document, I believed it to be true.
ii. Recantation – will bar prosecution if at the time the admission is made the declaration has not substantially
affected the proceeding
iii. Literal Truth and Ambiguity
1. IE – President Clinton. There is no sex between me and Monica.
a. “IS” – do you mean now as in presently or now and never was.
2. the question asked and answer given is too ambiguous to be given a true answer.
3. Bronston v. US – (literal answer in a bankruptcy hearing). Literally true statement cannot be the
basis of a perjury conviction.
a. It is the responsibility of the questioner to pin the witness down to the specific object of the
questioner’s inquiry, even where the witness may be deliberately avoiding the question.
b. Evasion under oath is not perjury. However, if you answer something as fact under oath that
is untrue, then that is perjury.
VIII. False Declarations § 1623 – Any document or other material that is false and known to be false submitted pursuant to any
court or grand jury
a. Example of an affirmative false statement
i. Concealment of information for which there is an affirmative duty to disclose.
IX. False Statements – 18 USC 1001
i. Oral or written
ii. Sworn or unsworn
iii. Relate to past, present, or future activity
iv. Voluntary or pursuant to a requirement of law
b. Two types of Conduct
i. Falsifies, conceals, or covers up by trick, scheme, or device a material fact
1. an actual statement is not necessary
2. sufficient to show an affirmative act by Δ to conceal, etc.
3. failure to provide information on a form, etc.
c. Exculpatory “Nos”
i. Premised on a concern for upholding the 5 th amendment
ii. Brogan – the exculpatory no doctrine was rejected for false statements.
i. Can be achieved either by a false statement or concealment of a material fact.
ii. Where prosecution is based upon the making of a false statement, govt must prove actual falsity.
1. literally true statement and merely misleading statements have been found insufficient.
iii. Where prosecution is based on concealment of a material fact, govt must show failure to disclose was by
means of trick, scheme, or device.
e. Knowledge and Intent
i. Willfulness – met with proof that Δ intended to deceive
1. Can be met by evidence of reckless disregard for the truth or by conscious avoidance in learning
ii. Actual knowledge of the statement’s falsity is not required.
f. Materiality – 2 different takes.
i. Gaudin – Supreme Ct found that the issue of materiality is one for jury.
1. Constitution gives Δ the right to have a jury determine every element of the crime with which he is
ii. Wells – 18 USC 1014, a statute pertaining to false statements to a federally insured financial institution, did
not require the govt to prove materiality. Ct found that any false or fraudulent statement in an FDIC
transaction was actionable.
iii. What about false flattery? This could constitute bank fraud, but perhaps it is unlikely that govt would
X. Obstruction of Justice
a. The “Omnibus” Clause of 18 USC § 1503 -
i. US v. Aguilar – 104,105
1. Δ was a federal district judge charged with violating the omnibus clause of 1503. Δ lied to FBI
about his knowledge of a wiretap and participation in prior criminal proceeding.
a. This is an example of how 1503 violations can also be 1001 violations.
b. What is the effect of telling someone that he is the target of a wiretap?
i. Prevents suspect from giving information over the phone and thus interferes with a
grand jury investigation.
c. Ct here reversed the conviction because the govt failed to prove that the judge (Δ) knew of a
pending judicial proceeding.
i. Rejected the uttering of false statements to an investigating agent as grounds for a
ii. Ct said this could not have the “natural and probable” effect of interfering with the
due administration of justice.
d. OUTCOME: There must be a nexus between the act alleged and the pending investigation.
i. “The act must have a relationship in time, causation, or logic with the judicial
ii. US v. Cueto – criminal defense lawyer indicted for obstruction of justice by being too zealous in
representing client in a related investigation. Prosecution went after him because Δ took proprietary
interest in his client’s business. If the lawyer’s motive is to line his own pockets rather than simply
represent him zealously, then he may be indictable for obstruction of justice.
1. The govt must prove beyond a reasonable doubt that the Δ:
a. Knowing that a judicial proceeding was pending
d. To influence, obstruct, or impede the due administration of justice.
2. Sentolo – mob lawyer in Boston indicted and convicted for a 1503 violation because he advised
his client to plead the 5th. This was a problem because Sentolo also engaged in other activities to
make it impossible for the govt to gain access to a mob witness.
3. Advising a client (in bad faith – with intent to interfere with a prosecution’s investigation) to plead
the 5th can be indictable.
b. To meet the element of influencing, obstructing, or impeding the due administration of justice, there must be:
i. Pending proceeding
1. This has been construed liberally although some courts limit it to act occurring after a complaint
has been filed. Obstruction of an FBI, IRS, or other agency investigation would not by itself be
sufficient to meet the judicial proceeding requirement, but it could be.
ii. That the accused knew of or had notice of
iii. That the accused intended to influence, obstruct, or impede its administration.
c. Obstruction of Proceedings Before Congress and Federal Agencies under 18 USC § 1505
XI. Witness Tampering – has dramatically outgrown its initial purpose.
a. The original witness tampering statute was created to address the problem of witnesses being afraid to testify.
b. 1512 – Witness, Victim, Informant (Title) – could also read potential witness.
c. 1512b – our concern for this course – whoever knowingly uses intimidation, force, or corruptly persuades another
person or engages in misleading conduct toward another person.
i. “Corruptly” doesn’t appear before misleading. If ct sees a modifier appearing before one clause but not
another, it must be literally read.
ii. With intent to influence, delay, or prevent any official proceeding (not limited to ct proceeding, criminal
proceeding, grand jury proceeding but also includes federal civil litigation and federal agency proceedings.
i. Cause a person to destroy documents
ii. Cause a person to be unavailable as a witness.
iii. Attempting to bribe someone.
iv. Attempting to persuade someone.
v. NOT: Simply asking someone not to talk is generally not enough for witness tampering.
i. An official proceeding need not be pending OR about to be instituted.
1. Some courts have held that a nexus is not even required.
2. While materiality is not directly used, it is at least required.
a. Even where you don’t see the concept of materiality, cts will likely read it into the mens rea,
interference, or other requirement of the offense.
i. Materiality is not required insofar as the prosecutor must prove the witness’s
testimony or the document would have been admissible.
b. It should be a defense that one never anticipated the material to be potentially capable of
influencing a potential outcome or proceeding.
f. US v. Farrell – minority view as to the meaning of corrupt. The dissent is actually the majority opinion.
i. Secret agreement between 2 potential Δs not to incriminate each other. This is the tainted meat scheme
case. This is similar to the exculpatory no doctrine that the court has rejected.
ii. Δ’s asking his coconspirator not to talk to investigators did not meet the “corruptly” requirement of witness
iii. This is the minority view because “corruptly” traditionally means acting with an improper purpose.
g. Witness Tampering in a Nutshell
i. 1512 punishes corruptly persuading witnesses or potential witnesses or engaging in misleading conduct
toward these witnesses with the intent to influence their testimony or potential testimony.
ii. Proceeding does not have to be an official proceeding; it can be an agency, congressional, or potential
proceeding as well.
iii. The testimony need not be proven material insofar as it must be proven that it would be admissible.
iv. There is no nexus requirement since there is no need for a pending proceeding.
v. There is a conspiracy provision.
XII. Arthur Andersen Case Study: Conviction under § 1512
a. Still requires a specific intent to interfere with the ability of the prosecutor to prove the case. When prosecutors look
to prosecute on the simplest discrete act (ordering one to delete a file), maybe they are thinking this will be easy for
the jury to understand, but maybe it is more difficult to show intent in such a case.
XIII. Mail and Wire Fraud – one of the most litigated areas of federal white collar crime. Inchoate offenses.
a. Elements / Principles of Liability
i. Schmuck – use of the mails need not be an essential element of the scheme. Ct found the evidence
supported a rational finding that the mailing was part of the execution as conceived by Δ at the time.
1. Irrelevant if later it is shown that the use of the mails was counterproductive to the scheme.
2. Mailings do not resemble post-fraud accounting.
3. Dissent: Majority made mail fraud into a crime of mail and fraud as opposed to requiring the use
of the mails being in furtherance of the fraud.
4. Facts: Δ rolled back the odometers on cars. While Δ did not use the mails himself to further his
scheme to defraud, the mails were used as a result of his scheme (registering the title).
5. Is it enough to prove that a mailing occurred at some point and at some other unrelated point the Δ
hatched a scheme to defraud?
6. The relevant question is actually whether mailing is part of the execution of the scheme as
conceived by the perpetrator at the time?
ii. Parr – innocent mailings can supply the jurisdictional element of the case.
iii. Exam note: Does the use of FedEx (an interstate service) in-state meet the jurisdictional prerequisite for
mail fraud? Would that be constitutional under the Commerce Clause?
1. What if as a result of using FedEx there were some sort of email or telephone record (wire) that
would go out of state such as to corporate HQ to satisfy federal jurisdiction?
2. Ct has not held that the mailing has to be an essential part of the scheme. The Δ can cause an
innocent 3rd party to do the mailing.
3. What about where federal agents manufacture the jurisdiction?
a. Cts have considered that outrageous conduct and thrown out a conviction, but some courts
may allow that.
4. What if the mail if after the fraud?
a. That can be adequate if deemed relevant to carrying out and completing the fraud.
iv. Scheme to Defraud Element
1. Neder – reverses a prior trend. Decision tended to impose greater requirements on prosecutor.
Distinguished Wells. Held materiality a required element but failure to charge jury might be a
harmless error. Is that remedy, reversing but remanding for a harmless error review constitute a
constitutional violation of due process? Read the last paragraph with the remedy.
a. Harmless error – could not have contributed to the result or likely did not contribute to the
i. Any error can be considered harmless if found harmless beyond a reasonable doubt.
b. Materiality of falsehood is an element of mail and wire fraud.
i. When Congress uses a term such as fraud that has a common meaning, we assume
Congress intended to incorporate the elements of that meaning
c. Plain error – errors not objected to will not be the source of reversal unless they are plain
errors (likely did lead to the conclusion).
d. If an inchoate offense doesn’t have to be effective, then isn’t reliance an element of fraud as
v. Intent – What is fraud/materiality? To what extent do we require harm to the victim?
1. Regent Office Supply – (2nd circ.) Ct rejected the use of mail fraud premised upon use of false
pretenses in the preliminary stages of a sales solicitation. Δ stipulated that its agents used false
pretenses and representations in obtaining access to customers of stationary supplies. Argued,
however, was that the price and quality of the merchandise to be sold were being honestly
portrayed to the customers. Ct found that false pretenses which are not directed to the quality,
adequacy or price of goods to be sold or otherwise to the nature of the bargain do not form a
scheme to defraud.
a. Represents probably a majority of the cts.
b. Must be evidence of an intent to deprive the victim of money or property. Absent such intent,
there is no scheme to defraud.
c. Although actual defrauding is not required, the govt must show that some actual harm or
injury was contemplated by the schemer.
d. Intent must be to induce action to produce harm.
2. Note 4 – 507 – prosecution can prove fraud either by showing Δ had intent to harm victim OR had
an intent to profit personally or to benefit himself. – Frank.
a. Seems in conflict with Regent Office Supply.
3. Note 6 – 508 – law added an attempt and conspiracy section to the fraud chapter. Why? Chapter
never required proof of successful fraud (the equivalent of attempt?).
a. Also have possibility of a specific conspiracy charge …
i. Now do you charge that citing 1349 (doesn’t spell out the elements of a conspiracy)
or § 371 (requires an overt act)?
ii. We don’t know whether 1349 requires an overt act.
iii. Differences in sentencing also. 371 has a sentencing limitation, while 1349 would
allow same sentence for substantive violation.
vi. Relevance of Victim’s Potential Reliance or Identity – Is reliance required?
1. Brown – 11th circ.? (1996) – reverses a conviction for mail fraud where Δ were involved in home-
selling business and real estate lots. Δs were overstating in sales marketing the value of real estate
to be sold particularly directing it to persons looking to property for investment. Highly
misleading. Claiming these properties would be good investments.
a. Reversed on grounds that victims should not have relied on those claims. Unreasonable
reliance. Buyer could have checked out value on his own.
b. Requires reasonable reliance.
c. Page 511 – in this circ mf requires govt to prove that a reas person would have acted on the
fraud and been victimized.
i. Person of ordinary prudence.
2. So is the ct talking about reliance or materiality? The two overlap. Is there a difference bt reliance
and materiality? Cts maybe should adjust case law in light of Neder such that materiality must be
proven and to be material, must be such as would induce one to rely on it.
3. Coffman – 7th circ.? Posner seems to say something different. Suggests that in a fraud case
involving an attempt to sell something worthless to an investment banker, even though victim
knew immediately of the fraud, conviction could still stand. Here the false documents and
statements were material, but if that have to be sufficient to induce a reasonably prudent investor,
then the materiality stdd is much higher.
4. Factual impossibility (not an offense), but legal impossibility (victim got off lucky) may be an
5. Reliance or materiality?
6. other way from Brown.
vii. Varieties of Fraud
1. McNally - reverses a prior trend. Decision tended to impose greater requirements on prosecutor.
Former public official indicted for mail fraud for creating a scheme where he would get kickbacks
on insurance. No evidence that state was victimized. Is the case that Δ benefited, so goes back to
case above. Supreme Ct held that fraud (consistent with lower cts) requires proof of intent to
deprive of money or property. No fraud where only intent is to deprive of honest services.
a. Intangible rights to honest services. This kind of intent does not merit a claim.
b. Fraud statute read narrowly to mean prosecution had to prove there was an intent to deprive
the victim of money or property.
c. Honest services was not included; this decision spurred 1346, which added the sentence that
scheme includes the intent to deprive of the right to honest services,
d. BUT does it require one to benefit from the scheme?
e. LESSON: 1346 is not a separate offense; it is simply an interpretation of the fraud statutes.
viii. Intangible Property Rights
1. Carpenter – Read this case closely. Case usually covered in securities regulations. Reporter
wrote a column for Wall Street Journal where he reported information that would affect directions
of shares of stock. Got together with friends before it was published to invest according to the
way the article would affect investing. Who was defrauded here and of what? The Wall Street
Journal was defrauded of their property right to the content of the column. SCt asked whether
fraud statute covered intangible property. Said yes it is covered and upheld the conviction. Has 2
a. Securities fraud
b. Conspiracy to violate wire and mail fraud statutes.
ix. Section 1346 and “Honest Services” Prosecutions
1. transforms traditional view of fraud so don’t have to prove injury to proving that Δ benefited in
some one. Maybe can either show injury OR benefit.
2. show bribery/gratuities, conflict of interest, self-interest, fiduciary violation
3. will often see this invoked where the victim is the govt, but 1346 does apply in the private setting.
a. Familiarize with majority and dissenting opinion.
i. Majority – must find a violation of some state law or policy.
ii. Must cite other provisions as well when pushing for a 1346 violation.
b. Page 551 – lower ct decision – ample and convincing evid to support each aspect of the
indictment. Brumley uses his position with other agencies to get his friend a preferred
position. Conflict of interest
i. Fiduciary violation
ii. Bribe – arguable
iii. Clear evidence of ethical violations but did not rely on them to reach its decision.
c. 555 note2 – Magiata decision – individual who is not a public officer but participates
substantially owes a fiduciary duty (equating fido to honest services)
d. note 7 – 561 – Bryant – rejected the holding of Brumley in that you don’t have to show a state
e. In a university setting, faculty who act as faculty and also have a private work decide to give
graduate students inflated grades so can get these grad students to work in their private work.
i. But faculty have a fidu duty not to give inflated grades.
5. Frost (academics who involve themselves in a grade-changing schedule to help the academics in
their own private endeavors) – case which held changing grades was an honest services fraud.
Univ owed a duty of honest services. The profit here was the usefulness of their actions to the
academics’ private business.
a. Profit requirement can be somewhat intangible.
6. Vector – 11th circ agrees with Frost, that when talking about a public official, the concept of honest
services has more of a meaning bc public officials are held to a higher stdd than the general public.
a. Internal ethical rules may be violated to substantiate a charge of honest services violations.
b. A strict duty of loyalty is not generally a part of a private sector relationship.
7. 3 different ways 3 different circuits
a. reasonably foreseeable harm to potential victim.
i. not necessarily the majority view.
ii. Requires more than the majority of circuits.
iii. Honest services generally don’t require proof of harm to the victim as much as profit
to the official.
8. What would you say if an employee/officer of an agency seeks to make an investment without the
consent or knowledge of the agency? – Adams
9. Hasner – Chair of the Palm Beach Housing Authority (created to finance/facilitate low-income
housing. In addition to this public role, Δ was the proprietor of Hasner Realty Co. and had an
interest in a construction company. Δ pushed to hire the co-Δ at 5k/mo. Both end up getting
really large commissions with respect to the sale when they both voted on and pushed the sale
publicly and failed to disclose the financial consideration available.
10. Public officials inherently owe a fiduciary duty to the public. Breach of that fiduciary duty might
be a predicate offense to some actual offense such as mail fraud.
Public Corruption: Bribery and Gratuities - § 201 – page 586 – Talking about 3 primary statute 18 usc 201
(bribery and illegal gratuities), § 666, Hobbs Act (18 USC 1951)
XIV. Bribery (§ 201b): Δ (Federal Public Official Bribery) – more serious an offense than gratuities.
a. Bribery requires the govt to show that
i. Something of value was given, offered, or promised
ii. To a federal public official
iv. To influence an official act.
b. The person receiving or being offered is an official public official (defined broadly)
i. member of congress
ii. acting for us
3. law clerks.
4. Including persons selected to be a public official
5. Ct has expanded definition to include one who works for an agency that receives a lot of federal
c. note 1, page 595 – will get a bribery gratuities question.
ii. Directly or indirectly gave, offered, or promised to any “public official” or person who has been selected to
be a “public official;” or offered or promised any “public official” or a person who has been selected to be
a public official to give “to any person or entity”
iii. Anything of value
1. broadly defined and a subjective determination in the eyes of the Δ.
2. can be intangible – promise of a job, securities in a company.
iv. With intent to influence any official act
1. cause the other party to the transaction to act in a certain way, to bring about a decision or action.
2. also a subjective determination.
3. Primarily need to intend to influence an official act.
v. To induce such public official to do or omit to do any official act in violation of the lawful duty of such
d. Requires a quid pro quo – specific intent to give or receive something of value in return for an official act.
e. Applies only to future acts.
f. Official act – often very difficult to distinguish between official acts and campaign contributions.
i. does mean a specifically describable act and not a general pattern or preference.
ii. 201a3 – any decision or action on any question …in such official’s official capacity.
g. To answer a question:
i. discuss all elements of the crime
ii. look at statutory supplement – really describes 4 offenses.
iii. b – bribery
1. b1 - giver offense
2. b2 - receiver offense
iv. c – gratuities
1. c1 – giver
2. c2 - receiver
v. hard to tell the difference between the bribery and gratuities.
vi. Do we care more about creating a deterrent for givers or receivers?
1. Looks like prosecutors prefer to go after the prosecutor receiving the bribes and gratuities.
XV. Gratuity (§ 201c):
a. A distinguishing factor separating bribery from gratuities is the level of intent.
b. Gratuity does not require a quid pro quo.
c. Sufficient if the act is otherwise than as provided by law for the proper discharge of official duty.
d. Doesn’t require the specific intent of bribery. Rather, a gratuity conviction only requires that the thing of value be
given or accepted “for or because of” an official act.
e. Applies to future acts and past acts.
f. The Official Act in One’s Official Capacity
i. US v. Sun-Diamond Growers of California – Gratuties
1. In order to establish a violation of 18 USC § 201c1a, the govt must prove a link between a thing of
value conferred upon a public official and a specific official act for or because of which it was
2. 201c1a – for or bc of an official act to be performed.
a. so no quid pro quo required for gratuities.
b. Look to find a difference between just a tip, as in a thank-you for something, and …
3. Theory was that Sec of Agri was given gifts to effect certain
4. Govt prosecuting the giver, Sun-Diamond.
5. Indictment did not charge and JI did not say was that jury must find that the gifts were given to
influence a specific act.
6. The official act was not specifically proven; as such the conviction was reversed.
g. The Public Official – defined broadly but limited to federal officials (as distinguished from Hobbs Act)
i. Includes candidates, persons selected for appt, also.
ii. Dixson v. US – petitioners were charged with bribery for their acceptance of kickbacks from contractors
seeking work on a project arising as part of an urban renewal program. The city of Peoria, the recipient of
two federal block grants from the Dept. of HUD, designated a social service organization as subgrantee in
charge of administering the funds. Petitioners served in a supervisory capacity with this agency with
certain fiscal and contracting authority. The issue before the SCt was whether officers of a private,
nonprofit corporation administering and expending federal community development block grants are public
officials for purposes of the federal bribery statute.
1. SCt affirmed the convictions and found them to be public officials. BUT, the mere presence of
some federal assistance or being an employee of a local organization responsible for administering
a federal grant does not necessarily make one a public official.
2. The public official must possess some degree of official responsibility for carrying out a federal
program or policy.
3. said that Congress enacted § 201 in 1962 as part of an effort to reformulate and rationalize all
federal criminal statutes dealing with the integrity of government.
a. The statutes focuses on criminalizing conduct of those who improperly seek preferential
treatment from government officials and also those who improperly use their public office for
their personal gain.
h. US v. Alfisi – important case. Allegation of bribery and gratuities against people soliciting an official act regarding a
USDA inspection. Wholesalers bribing USDA officials to give lower grades to get to pay a lower price.
i. Not really a bribe as much as extortion on part of USDA officials because of compulsion to do it.
ii. Duress is really not a defense.
iii. Read majority and dissenting opinion.
iv. Δ made two arguments:
1. He is the victim of extortion. What really should have happened is that the USDA guys should
have been charged with extortion. Bc he gave the money, he was forced by the govt officials.
a. On exam, wouldn’t be able to tell who is the most guilty party.
b. Ct said this was a jury question.
2. All he really wanted was to procure honest services.
a. Ct again says this is a jury question. Whether the official act that you are seeking is the act
that you should have gotten anyway, is not a defense
i. Page 615 – note 2 – mens rea – gratuities does not require corrupt intent while bribery does.
j. The “Corruptly” Element of Bribery
i. Juries can infer the element of corrupt intent from circumstantial evidence.
ii. An attempt to influence. Corrupt intent has not really been separated from the quid pro quo. If you have
attempted quid pro quo, then you’ve acted corrupted.
k. Page 617, note 5 – go thru the elements of each offense and analyze whether the elements of each offense support
indictments. Can have several indictments.
l. Note 6, 617 – Singleton – panel ruled that there was a bribery violation where federal prosecutors bribed someone to
testify to avoid prosecution. Statute doesn’t give prosecutions a defense. World of prosecutors horrified at this
result. And bc offering this deal is a violation of 201, the ct excluded the witness’s testimony. Ponsoldt believes
this is the big problem with the case.
m. Other notes
i. Some elements apply to both bribery and gratuity.
1. Public Official
2. Thing of value – also defined broadly. Even if it is a crappy gift.
XVI. 18 USC § 666
a. This act, enacted in 1986, extends federal criminality to agents of state and local organizations that receive ten
thousand dollars or more in federal funds.
b. Purpose: to augment the ability of the US to vindicate significant acts of theft, fraud, and bribery involving federal
monies which are disbursed to private organizations or state and local govts pursuant to a federal program.
XVII. Hobbs Act Extortion – Extortion Under Color of Official Right Under § 1951 (the Hobbs Act)
a. Not limited to federal officials but applies to govt officials at any level.
b. Evans v. US – Petitioner Evans was a member of Board of Commissioners of DeKalb County, GA. Petitioner was
approached by an undercover FBI agent who sought petitioner’s assistance on rezoning. The agent paid the
petitioner 8k, of which the petitioner reported a 1k check as a campaign contribution but failed to include the cash
payment of 7k on his state campaign financing disclosure form or his federal income tax return. Evans was charged
with a Hobbs Act violation of failure to report income.
i. Ct accepted the majority view that an “affirmative act of inducement by a public official such as a demand”
is not required for extortion “under color of official right.”
ii. Govt need only show that a public official has obtained a payment to which he was not entitled, knowing
that the payment was made in return for official acts.
iii. Passive acceptance of a benefit by a public official can meet the extortion element of the Hobbs Act when
the official knows that he is being offered the payment in exchange for a specific requested exercise of his
iv. Dissent: cautioned that by stretching the bounds of extortion to make it encompass bribery, the Court today
blurs the traditional distinction between the crimes.
v. There is no need for an affirmative act of inducement. Merely accepting a bribe to misuse one’s office is
vi. Govt need not prove the Δ ever demanded the money or even started the process.
1. Ct reads this part of the Hobbs act quite broadly.
vii. Issue: - whether prosecution had to prove that Δ demanded the stuff. Demand could be shown thru
circumstantial evidence of implicit demand. Real proof is in the acceptance.
c. You can be guilty of a Hobbs Act violation even if you report if prosecution can show some intent to influence.
d. On the other hand, a traditional and legitimate campaign contribution will not be considered extortion or a violation
of the Hobbs Act.
e. Jury has to find the money was obtained from another with his consent UNDER COLOR OF OFFICIAL RIGHT.
i. Implied – wrongfully as opposed to legitimately.
ii. That the giver believed there was a demand is sufficient.
f. McCormick – has to be a quid pro quo. 128.
i. Facts: Δ was a member of the West VA House of Delegates who sponsored and spoke on behalf of
legislation that would exempt foreign medical school graduates with significant work experience from
having to take the state licensing examination. Δ allegedly received a CASH payment from the doctors
both before and after the passage of this legislation. Evidence presented at trial was that he failed to list the
funds received as campaign contributions and likewise failed to report it on his income tax return.
ii. Charged with 5 counts of violating the Hobbs Act. SCt reversed conviction finding that a quid pro quo is
necessary for a conviction that is predicated upon receiving a campaign contribution.
iii. Case need to know equally with Evans because it is the other side.
iv. Δ sponsored a bill extending the ability of doctors to practice under a temporary license.
g. Be familiar with the statute generally, § 1951. Most Hobbs Act violations involved violent interferences with
interstate commerce, but a small clause also applies to bribery and extortion.
h. Even when prosecuting a local official, must show the attempt had or would have had an effect on interstate
i. 1951b2 – the term extortion means obtaining property of another with the owner’s consent, induced by wrongful
force OR under color of official right.
i. Whoever in any way or degree obstructs, delays, or affects commerce (jurisdictional element) …
ii. The term extortion means the obtaining of property form another, with his consent, induced by wrongful
use of actual or threatened force, violence,, or fear, or UNDER COLOR OF OFFICIAL RIGHT.
iii. Color of official right
1. conduct engaged in by a govtal or quasi-govtal official.
iv. Does not criminalize the GIVING OF THE MONEY, BUT RATHER THE ACCEPTANCE OF THE
1. prosecutors exercise discretion
j. Success of the attempt
k. Applies only to persons receiving something of value, not the victim.
l. Scheidler v. National Organization for Women, Inc. – RICO does not require that the enterprise or predicate acts
have an economic motive.
m. Note 1, page 630 –
i. In extortion, the payer is the victim, even if the payer initiates the act.
1. punishable by up to 20 yrs (bc it is linked into truck hijacking).
ii. In bribery, the payer is just as culpable as the receiver.
1. punishable by up to 15 yrs.
iii. gratuities –
1. up to 3 yrs.
XVIII. Federal Program Bribery, Theft, and Fraud Under § 666, page 43 in supplement.
a. Need to read this for the test.
b. Broader than the statute seems to be:
i. Being an agent of an organization (not necessarily a federal org.)
ii. Embezzles, steals, obtains by fraud, or otherwise
iii. Property worth 5k or more
iv. Owned by or is under the care, custody, or control of such organization, govt or agency.
v. Corruptly solicits or demands for the benefit of any person (over broad??).
vi. Or accepts or agrees to accept
vii. Anything from any person
viii. Intending to be influenced or rewarded.
c. Subsection B further defines the offense.
d. Jurisdictional element:
i. Entity receiving the money (the victim).
e. Although primarily regarded as a bribery statute,
f. Fischer v. US – came later than Zwick. Would Zwick be decided differently in light of Fischer?
i. Addressed whether 666 addresses private hospitals that would submit requests for repayment from the
MediCare program. Is that sufficient for bribery?
ii. Auditer given a loan …
iii. Δ says 666 does not reach him, but Ct rejects this saying that MediCare funding from govt to hospital (the
victim of the bribe) is sufficient to support federal program bribery jurisdiction.
g. US v. Zwick – Δ is elected member of Board of Commissioners of local govt. Claim was that he obtained illegal
benefits and accused of mail fraud, etc. Premise is that he solicited a kickback from an individual seeking to
i. Must there be a direct connection bt the federal funding and the unlawful act. 3 rd circ says yes.
h. Are the facts in Zwick and the facts in Evans really different?
i. Is there a direct conflict between Fischer and Zwick?
i. Is there a tension at least?
XIX. Securities Fraud – fundamental 10b5 cases, civil and criminal offense.
a. Securities Exchange Act of 1934 is the source of what is thought of as securities fraud. We are generally talking
about § 10b. Codified at page 34 (?) of the supplement.
b. To be a violation of rule 10b5, the fraud must be “in connection with the purchase or sale of any security” regardless
of the subsection invoked.
c. General Principles of Securities Fraud
i. To be a 10b5 violation, there must be an actual purchase or sale … as opposed to a constructive one.
1. Not necessarily by Π or Δ.
ii. What is a security
1. an undifferentiated interest in an investment
b. bonds, etc.
d. marginalized securities
iii. Statute punishes fraud or manipulation in connection with a purchase of a security.
iv. Jurisdictional elements
2. not limited to purchases or sales occurring over a nation securities exchange
3. OR in the alternative:
a. Use of mail
b. Interstate telephone call
c. Really, it is ANY basis for imposing interstate jurisdiction.
v. Fraud by omission is at the heart of securities fraud, and frequently defines the subset of insider trading.
d. There must be:
i. Actual purchase or sale
ii. Actual fraud or manipulation NOT just a violation of fiduciary duties.
1. ie – conflict of interest transaction.
e. Securities fraud is one of the possible supplemental offenses for racketeering.
f. Traditional Theory
i. Principal Liability
1. Chiarella v. US:
a. Involves insider trading.
b. Δ received documents relating to a takeover. The docs did not disclose the names of the
parties, but he connected the dots and bought shares of the stock. He was convicted because it
was fraud for him to have this information and did not disclose it to the public. The SCt
reversed bc the jury was not told that he had to have had a duty to disclose the info.
c. SCt reversed a criminal conviction that was predicated on a violation of Rule 10b5. Petitioner
Chiarella worked as a markup man for a financial printer engaged in the printing of
announcements of corporate takeover bids. Although the documents delivered to the printer
did not initially disclose the names of the target companies, petitioner deduced this
information and purchased stock in the target companies prior to this information being
disclosed to the public. Chiarella’s profits from the purchase and sale of these stocks
d. Powell – examined effect of silence on the part of the person holding the nonpublic market
e. Chiarella was not a corporate insider and had not received confidential information from the
target company. Error in trial ct was instruction to jury that Δ owed a duty to everyone, to all
selllers, indeed to the market as a whole. Δ did not have a duty to disclose because he was not
an agent, fiduciary, or person in whom the sellers had placed their trust and confidence. To
hold otherwise would create a general duty between all participants in the market transactions
to forego actions based on material, nonpublic information.
f. Dissent (CJ Burger) – expressed the view that Δ had misappropriated (stolen) valuable
nonpublic information entrusted to him in utmost confidence.
ii. Tipper/Tippee Liability
1. Dirks v. SEC – Δ, a securities analyst, received inside info from a former officer of Equity
Funding of America. This info, of alleged overstatement of assets by the company as a result of
fraudulent corporate practices, was given to Dirks for the purpose of verification and disclosure to
the public. Δ received a censure from the SEC for disclosure of this inside info to clients and
visitors. The SEC took the position that a tippee “inherits” the duty to disclose the information or
abstain whenever the tippee receives the information from an insider. By passing that info to
traders the SEC found that Δ had breached this fiduciary duty.
a. SCt reversed the SEC position, Justice Powell (again) found that :
The tippee received no monetary or personal benefit for revealing Equity
Funding’s secrets, nor was their purpose to make a gift of valuable info to Δ.
b. Since the motivation was the exposure of the fraud, the SCt found no breach of duty to
shareholders by the insider. Absent a breach of duty by the insider, there was no derivative
breach by Δ.
c. Involves insider trading.
d. Tipper – someone with non-public information. Tippee – gets the information.
e. Δ was a stockbroker who learned about a huge overvaluing of financial info
f. There is a violation only when the distribution of the information from tipper to tippee is
g. No bad intent on part of original tipper.
iii. Notes on Dirks and Chiarella:
1. The SCt concentrated on the duty owed shareholders by an insider by individuals receiving
information from an insider. Absent a duty owed, the SCt was not willing to extend insider
g. Misappropriation Theory
i. US v. O’Hagan – 89, 90
1. SCt here directly addressed and endorsed Justice Burgers misappropriation theory asserted in
2. Justice Ginsburg writing for the majority initially distinguishes classical theory from the
misappropriation theory. The classical theory targets a corporate insider’s breach of duty to
shareholders with whom the insider transacts, and the misappropriation theory outlaws trading on
the basis of nonpublic info by a corporate outsider in a … - page 89.
a. 1962 ABC – each state a separate substantive racketeering offense.
b. 1962 D alleges the conspiracy offense.
c. Most frequently cited racketeering statute cited in 1962 C.
d. 1963 A 1 – provides for the forfeiture of “any interest the person has acquired or maintained in violation of § 1962.
i. Does seizure before trial violate due process or 5 th amendment right? What about pre-indictment?
1. any individual, p’ship, corporation, or any other legal entity including govtal offices
a. Any union or group of individuals associated in fact although not a legal entity.
ii. Persons engaged in racketeering activity in connection with the enterprise.
1. any act or threat involving a number of CL offense chargeable and punishable at state law
(murder, gambling extortion, drug offenses) by imprisonment of at least 1 year. Most of the time,
you are undertaking to prove the predicate offense as part of proving the overall offense of
racketeering. The fact of a charge of a predicate offense is a sufficient but not necessary element
2. 1961b – any act which is indictable under any of the following provisions of Title 18:
a. 201 – relating to bribery (includes gratuities)
b. not included is 666 – federal program bribery.
c. No reference to perjury or false statements or 1001 false statement or false declarations (
d. Obstruction of justice - included
e. 1951 – Hobbs – included (extortion under color of right)
f. fraud in the sale of securities generally and not limited to 10b5 - included
g. drug cases – included
3. Person – any individual or entity capable of holding title to property.
iii. Including a pattern of racketeering activity.
iv. Elements must be distinguishable from each other. The distinction can however be only on paper. SO the
actual evidence may all be the same.
f. Elements/Principles of Liability
i. Must show 2 or more predicate offenses that show some degree of relation to each other. Can come from a
long list of federal and state felonies.
ii. Federal racketeering statute is a way to turn state crime into federal crime.
iii. Enterprise – must show an actual enterprise
1. US v. Turkette:
a. Δ successfully argued in the appellate court that RICO was solely intended to protect
legitimate businesses and thus, criminal participation in an association that performed only
illegal acts and had not infiltrated or attempted to infiltrate a legitimate enterprise, could not
form a basis for a RICO charge.
b. The SCt reversed. Conceded that the Congressional purpose of RICO was to combat
organized crime that infiltrated legitimate businesses. The court noted, however, that this did
not preclude RICO charges where the enterprise was illegal. Since neither the language of the
statute nor the structure of RICO limited its application to legitimate its application to
legitimate enterprises, the SCt found it proper to follow Congress’s intent for RICO to have a
broad reading. To hold otherwise, the SCt noted, would omit whole areas of organized
criminal activity from the reach of the statute. RICO doesn’t, however, require that the
enterprise or predicate acts have an economic motive. (Scheidler).
c. Holds that the enterprise be separate from the pattern of racketeering.
2. Chang v. Chen – construing Turkette and talking about how much structure has to be involved in
the … ?
a. Note 1 – first circuit rejects Chang v. Chen.
3. Cedric Kushner Promotions, Ltd. v. King
iv. Pattern of Racketeering Activity
1. HJ Inc. v. Northwestern Bell Tel. Co.
a. Defined “pattern of racketeering activity” as requiring continuity plus relationship. The SCt
stated that “continuity” is both a closed and open-ended concept. Continuity is achieved by
proving related acts extending over a substantial period of time or by acts that demonstrate a
threat of continued racketeering activity.
b. Predicate acts over a few weeks or months that do not entail a threat of future criminal
conduct do not meet the continuity requirement.
c. Where the acts are over a short period of time but demonstrate a “specific threat of repetition
extending indefinitely into the future” or are part of an ongoing entity’s regular way of doing
business,” they can satisfy continuity.
d. The SCt defined the “relationship” requirement by referring to another provision of the
Organized Crime Control Act of 1970.
e. Key cases talking about what is a pattern of racketeering activity.
v. Conduct of Enterprise’s Affairs
1. Reves v. Ernst & Young – 143
a. The SCt resolved the jurisdictional dichotomy. The SCt held that 1962c required that one
participate in the operation or mgmt of the enterprise. The Ct noted, however, that the
“operation or mgmt” test would not be ltd to upper mgmt. An enterprise is operated not just
by upper management but also by lower-rung participants in the enterprise who are under the
direction of upper mgmt.
XXI. RICO Conspiracy
a. US v. Elliott - 142
b. Salinas v. US - 145
Pick up after 9-30-03 and fill in false statements, etc. Need also to go through the book and note cases mentioned in class notes or
case endnotes which are not in Nutshell and read and add into outline.
Double jeopardy does not prohibit retrial in the event of a mistrial.
Exam – with take-home exam option. 4 hrs to complete a 3-hr exam.