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Business Crime _Ponsoldt_ - BUSINESS CRIME OUTLINE

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Business Crime _Ponsoldt_ - BUSINESS CRIME OUTLINE Powered By Docstoc
					                                BUSINESS CRIME OUTLINE
                                                Ponsoldt – Fall 2006


I.      CORPORATE CRIMINAL LIABILITY (INTRO)
      Remember: Choice of prosecuting corporation or not is within discretion of prosecutor!
        a. NY Central & Hudson RR v. US: Congress has authority to hold a corporation liable for criminal
            acts of its agents acting w/in their authority under Congress‟ Commerce Power.
                  i. Public Policy Justifications:
                           1. Deterrence;
                           2. Retribution;
                           3. Rehabilitation;
                           4. Protection

        b. Anza v. Ideal Steel Supply: A private party may sue a corporation under RICO only if alleged
            violation of Act was proximate cause of P‟s injuries.

        c. US v. CR Bard, Inc.: Corporate plea agreement. Court accepts plea agreement b/t corporation &
            govt. made under 11(e)(1)(C). Largest factor in judge‟s decision was that the plea agreement did not
            specify that govt. would drop charges against individual agents and, in fact, corporation agreed to
            cooperate in prosecution of those individuals. Further, corporation agreed to take remedial actions to
            ensure that similar incidents did not occur in future.

II.     THE RESPONDEAT SUPERIOR RULE
        a. CRIMINAL ACTS (Actus Reus):
            Govt. may prosecute a corporation for the acts of its employees/agents. BUT, how do
            they do this? What must they prove? Different standards for proving a “criminal act”:
                 i. CL Respondeat Superior Rule (Commonwealth v. Beneficial Finance Co.):
                     In order to sustain a conviction of a corporation for the criminal acts of its agent, state must
                     show that the corporation has placed the agent in a position where he has enough authority &
                     responsibility to act for & in behalf of the corporation in handing the particular corporate
                     business, operation or project in which he was engaged at the time he committed the criminal
                     act, with power of decision as to what he would or would not do while acting for the corporation,
                     and that he was acting for and in behalf of the corporation in accomplishment of that particular
                     business or operation or project, and that he committed a criminal act while so acting.
                          1. In passing this rule, Court rejects the MPC 2.07‟s approach that agent must be a “high
                               managerial agent.”
                          2. NOTE: This rule does not require express authorization by the corporation for the
                               agent to engage in the wrongful conduct.
                          3. NOTE: Under CL respondeat superior rule, corporation may incur criminal liability
                               for conduct of agents who are not, in the usual sense, its employees (e.g. independent
                               K‟r, subsidiary, division).
                          4. NOTE: This is going to be the rule applied in federal cases!

                ii. MPC 2.07 Approach:
                         1.   A corporation may be convicted of the commission of an offense if:
                                  a. The offense is a violation of the Code or the offense is defined by a statute
                                      other than the Code in which a legislative purpose to impose liability on
                                      corporations plainly appears & the conduct is performed by an agent of the
                                      corporation acting in behalf of the corporation w/in the scope of his office or
                                      employment, except that if the law defining the offense designates the agents
                                      for whose conduct the corporation is accountable or the circumstances under
                                      which it is accountable, such provisions shall apply; or

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                     b. The offense consists of an omission to discharge a specific duty of affirmative
                          performance imposed on corporations by law; or
                      c. The commission of the offense was authorized, requested, commanded,
                          performed or recklessly tolerated by the BOD or by a high managerial agent
                          acting in behalf of the corporation w/in the scope of his office or employment.
            2.   When absolute liability is imposed for the commission of an offense, a legislative
                 purpose to impose liability on a corporation shall be assumed, unless the contrary
                 plainly appears.
            5.   In any prosecution of a corporation or unincorporated association for
                 the commission of an offense included within the terms of (1)(a) other
                 than an offense for which absolute liability has been imposed, it shall
                 be a defense if D proves by a preponderance of the evidence that the
                 high managerial agent having supervisory responsibility over the
                 subject matter of the offense employed due diligence to prevent its
                 commission.

            3.   MPC 2.07 Notes:
                   a. Unlike the CL rule of respondeat superior from Beneficial Finance, MPC 2.07
                          requires the agent acting criminally to be a “high managerial agent” (usually
                          satisfied if he is a manager) in order for the corporation to be held liable. High
                          managerial agent = an officer of a corporation or any other agent of a
                          corporation having duties of such responsibility that his conduct may fairly be
                          assumed to represent the policy of the corporation or association.
                     b.   It is a little harder to prosecute corporation for crimes of employees under
                          MPC 2.07 than it is under the CL rule set out in Beneficial Finance.

            4.   Possible limited defense:
                    a. MPC 2.07 recognizes a limited due diligence defense for regulatory offenses
                          that do not impose strict liability. In prosecutions brought under MPC
                          2.07(1)(a), it is a defense that the high managerial agent with supervisory
                          responsibility over the offending transaction employed due diligence to
                          prevent the commission of the offense.
                     b.   VERY FEW STATES recognize this defense.

    iii. Liability of Partnerships:

            1.   People v. Lessoff & Berger A partnership (e.g. Dr.‟s office, law firm, etc.) may
                 be charged with a crime even if only one of the partners has committed a crime in the
                 name of the firm..
                     a. Note: This rule holds true even if the other partner had no idea what was
                         going on.
                     b. Note: A partner, by definition, is a “high managerial agent” and can therefore
                         bind the partnership with respect to actions w/in the scope of the partnership.

    iv. US v. Hilton Hotels Corp.: A corporation is liable under the Sherman Act for the acts of
        its agents done w/in the scope of their employment, even though contrary to general corporate
        policy & express instructions to the agent.

b. CRIMINAL INTENT (MENS REA):

     i. Collective knowledge doctrine (US v. Bank of New England): A corporation is
        considered to have acquired the collective knowledge of its employees and is held responsible
        for their failure to act accordingly. Therefore, a corporation cannot plead innocence by asserting
        that the information obtained by several employees was not acquired by any one individual who
        then would have comprehended its full import.


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                   1.   NOTE: Govt. can establish corporation‟s mens rea by pointing to that corporation‟s
                        “willful blindness” as to its agents‟ activities.

           ii. MPC 2.07 Approach (applied in State v. Chapman Dodge and State v.
               Christy Pontiac-GMC): A corporation may be guilty of a specific intent crime
               committed by its agent if:
                   1.   The agent was acting w/in the course and scope of employment, having authority to act
                        for the corporation with respect to the particular corporate business which was
                        conducted criminally;
                   2.   Agent was acting, at least in part, in furtherance of the corporation‟s business interests;
                        and
                   3.   The criminal acts were authorized, tolerated, or ratified by corporate management.

          iii. NOTE: In most states, inconsistent verdicts (e.g. where employee is acquitted of same
               charge that corporation is convicted of based on the same evidence used to convict the
               corporation) are not grounds for reversal.

II.   PERSONAL LIABILITY IN AN ORGANIZATIONAL SETTING
      a. DIRECT PARTICIPANTS:

           i. Once it became established that corporations could be held accountable for
              crimes committed by their agents, corporate agents began to argue that they
              shouldn‟t be personally liable for official acts they performed on behalf of the
              corporation. In US v. Wise (1962), the Court rejected this argument ruling that
              no intent to exculpate a corporate officer who violates the law is to be imputed
              to Congress without clear compulsion:
                  1. US v. Wise: A corporate officer is subject to prosecution under §1 of the Sherman
                        Act whenever he knowingly participates in effecting the illegal contract, combination,
                        or conspiracy (whether he authorizes, orders, or helps perpetrate the crime) regardless
                        of whether he is acting in a representative capacity.

      b. ACCOMPLACE LIABILITY:

           i. Federal law recognizes no distinction btwn. principals & accessories. Instead, it
              punishes all who participate in the commission of a crime and all who assist
              them as principals. Under §2, indirect participants such as aiders & abettors are
              vicariously liable for crimes they assist or encourage. Thus, one who aids in the
              planning of a crime or one who authorizes/induces another to commit one is
              punishable as a principal:

                   1.   18 USC § 2:
                           a. Whoever commits an offense against the U.S. or aids, abets, counsels,
                                 commands, induces or procures its commission is punishable as a principal.
                            b. Whoever willfully causes an act to be done which if directly performed by him
                                 or another would be an offense against the U.S. is punishable as a principal.
                   2.   NOTE: Under 18 USC § 2, indirect participants such as aiders & abettors are
                        vicariously liable for the crimes they assist or encourage.

                   3.   U.S. v. Walser: The test for determining guilt by aiding & abetting under §2(b) is to
                        determine:
                                      i. Whether a substantive offense was committed by someone;


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                                         ii. Whether there was an act by D which contributed to & furthered that
                                              offense; and
                                         iii. Whether D intended to aid its commission.
                                b.   §2 does not establish a separate crime. Instead, it merely permits one who aids
                                     & abets the commission of a crime to be punished as a principal. An
                                     individual, therefore, may be indicted as a principal for the commission of a
                                     substantive crime & convicted upon evidence that he aided & abetted only.
                                c.   An individual is criminally culpable for causing an intermediary to commit a
                                     criminal act even though the intermediary has no criminal intent & is innocent
                                     of the substantive crime.
                                d.   §2 applies to all federal criminal statutes.

       c. RESPONSIBLE CORPORATE OFFICERS:

             i. Responsible Corporate Officer Doctrine (US v. Dotterweich, US v. Park &
                US v. Jorgensen): D can be held criminally responsible for the acts of other people who are
                  officers, employees or other agents of the company if D is in a “responsible relationship” to an
                  activity within a company that violates federal law.
                       1. FDA “puts the burden of acting at hazard upon a person otherwise innocent but
                            standing in responsible relation to a public danger.” As long as D shared responsibility
                            in the business process resulting in unlawful distribution, he would be personally liable.
                            Govt. establishes a prima facie case under the FDA Act when it introduces evidence
                            sufficient to warrant a jury finding that D had, by reason of his position in the
                            corporation, responsibility & authority either to prevent or promptly correct the
                            violation complained of, and that he failed to do so.

                      2.   * NOTE: Ponsoldt thinks that there is a real question in cases like US v. Jorgensen.
                           He states that for an intent crime, generally speaking, the responsible corporate officer
                           doctrine does not apply – govt. must instead prove that this particular D had the
                           requisite mens rea.

III.   CONSPIRACY
       a. INTRO:

             i. Conspiracy is an inchoate offense (i.e. you can be guilty of conspiracy even if the illegal object
                  is not completed). A conspiracy consists of an agreement between 2 or more parties to commit
                  an unlawful act. The agreement is punishable whether or not the criminal objective is achieved.
                  The rationale behind this is that group danger poses a greater threat than individual wrongdoing.
            ii.   NOTE: Conspiracy doesn‟t “merge” into the substantive completed offense. So, you can be
                  charged with a substantive offense (e.g. mail fraud) and conspiracy to commit that offense (e.g.
                  § 371).
           iii.   Conspiracy law gives prosecutors a number of procedural & evidentiary advantages and,
                  therefore, it is one of the most frequently-charged federal crimes:
                       1. Members of a conspiracy can be held vicariously liable for crimes committed by their
                            co-conspirators in furtherance of the conspiracy (Pinkerton v. US).
                       2. Govt. may introduce evidence against anyone who alledgedly participates in a
                            conspiracy related to any other alleged conspirators (co-conspirator hearsay rule).
           iv.    Govt. need not indict or convict all participants in a conspiracy to establish the guilt of one. The
                  govt. may prosecute only 1 member of the conspiracy provided that it otherwise establishes a
                  plurality of parties acting in concert.

            v. The general federal conspiracy statute is 18 USC § 371, which contains 2
               distinct prohibitions:
                      1.   Conspiring to commit an offense against the US; and

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                2.   Conspiring to defraud the US.

                3.   OVERT ACT REQUIREMENT:
                       a. § 371 requires at least one member of the conspiracy to commit an overt act
                               to show the conspiracy is at work. This is different from CL conspiracy
                               doctrine which does not require an overt act.
                          b.   Under § 371, the overt act need not be unlawful – any act performed to further
                               the conspiratorial objective is sufficient, even though the conduct would be
                               wholly innocent in another context.
                          c.   Overt acts committed by one member of the conspiracy to further the
                               conspiratorial objective are chargeable to all members of the conspiracy.

                4.   Requirements under § 371:
                        a. Mens Rea I: Govt. must prove intent to agree.
                        b. Mens Rea II: Each person must have knowingly & intentionally desired to
                               complete the underlying offense.
                          c. Agreement: There must be an actual agreement to commit an illegal act.
                          d. Overt Act: At least 1 member of the conspiracy must commit an overt act to
                               show the conspiracy is at work. The overt act need not be unlawful – any act
                               performed to further the conspiratorial objective is sufficient even though the
                               conduct would be wholly innocent in another context.

      vi. Other federal conspiracy statutes: 21 USC §§ 846 & 963 (drug conspiracies); 18
          USC § 1962(d) (RICO); 15 USC § 1 (antitrust conspiracies); 18 USC § 1349
          (Sarbanes-Oxley – conspiracies to violate mail, wire & bank fraud statutes).
                1.   Differences btwn. § 371 and the Sarbanes-Oxley Act:
                         a. Unlike § 371, which requires proof of an overt act, SO Act doesn‟t require an
                              overt act.
                         b. Unlike § 371, which imposes a fixed maximum fine and imprisonment for
                              most conspiracies, maximum penalty for a SO conspiracy is the same as the
                              penalty authorized for the object offense; and
                         c. Unlike § 371, which applies generally to offenses throughout 18 USC, SO is
                              limited to a narrow range of offenses (mail, wire & bank fraud).

2 questions to ask with conspiracy:
(1) What does it take to prove existence of a conspiracy?
      - Plurality Reqt.: 2 people must have knowingly combined & agreed
        achieve an illegal end.

(2) What does it take to prove that particular D was part of that conspiracy?
        - If person knows of a conspiracy (which can generally be proved
          through “slight evidence”), then if you prove that this person
          through some act knowingly gave assistance to the conspiracy (or
          was in a position to stop someone else from participating in the
          conspiracy but failed to do so), then that person can be said to have
          joined/participated in the conspiracy & is liable. See Misle Bus &
          Gillen below.

b. THE PLURALITY REQUIREMENT (was there a “conspiracy”?):

        i. Intra-enterprise Conspiracy Doctrine (U.S. v. Hartley): A corporation may be
            held criminally liable when conspiring with its officers or employees. A group of alleged co-
            conspirators can be indicted & charged with conspiracy even though they are all acting on behalf


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          of a single corporate entity. In these cases, the corporation can also be charged with conspiring
          with its employees.
               1. “Exception” (U.S. v. Stevens): Although a § 371 conspiracy requires an
                    agreement btwn. 2 or more persons, generally a corporation may be held crimainally
                    liable under § 371 when conspiring with its officers or employees (this is the general
                    Hartley rule). However, in a case like this where there is only 1 human actor, acting
                    for himself & the corporate entity which he solely controls, there can be no conspiracy
                    because there is no plurality.
               2. Exception: In anti-trust cases, it is not possible for a corporation to conspire with its
                    employees. Thus, the intra-enterprise conspiracy doctrine doesn‟t apply.

     ii. Liability of a corporation:

              1.   US v. Hughes Aircraft (1994):
                      a. A corporation may be held liable under § 371 for conspiracies entered into by
                            its agents & employees.
                       b. Acquittal of all but one co-conspirator does not mean that the sole remaining
                            conspirator is entitled to acquittal as a matter of law; even if his co-
                            conspirators were acquitted on identical charges based on identical evidence.
                                i. Justification: “Inconsistent verdicts can just as easily be the result of
                                     jury lenity as a determination of the facts.”

c. KNOWING PARTICIPATION (was D involved in that conspiracy??)

      i. US v. Furkin: In order to sustain a conviction under § 371 for tax fraud (“Klein
          conspiracy”) the government has the burden of proving 3 elements:
              1. An agreement to accomplish an illegal objective against the U.S.;
              2. One or more overt acts in furtherance of the illegal purpose; and
              3. The intent to commit the substantive offense (i.e. to defraud the U.S.).
                      a. NOTE: This intent element requires the govt. to prove “not that the
                           conspirator was aware of the criminality of the objective, but that the
                           conspirator knew of the liability for federal taxes.”
              4. NOTE: Parties‟ agreement & intent may be inferred from the circumstantial evidence
                  concerning the parties‟ relationship, their overt acts, and the totality of their conduct.

     ii. Multiple-objectives conspiracies: There can be multiple objective conspiracies & there
          is nothing wrong with the govt. presenting evidence to prove multiple objectives (see U.S. v.
          Furkin).

     iii. Conspiracy liability for the acts of a subordinate (U.S. v. Misle Bus &
          Equipment Co.): In order for an individual to be liable for conspiracy based on the acts of
          his subordinate, the govt. must prove beyond a reasonable doubt that the individual was aware of
          the existence of the conspiracy, and that he was in a position to stop a subordinate who he knew
          was participating in that conspiracy from further participation, but failed to do so. A company
          official who knowingly participates in a conspiracy in this manner is liable to the same extent as
          any other member of the conspiracy.
               1. NOTE: Ponsoldt doesn‟t like this rule – he believes that knowing about someone else
                    engaging a conspiracy & failing to stop them is not “knowing participation.”
               2. Court in Misle Bus cites U.S. v. Gillen, where the court upheld following
                   jury instruction: “When a company president has knowledge that his
                   company is involved in a price-fixing conspiracy & takes no action to
                   stop it, he may not insulate himself from liability by leaving the actual
                   execution of the scheme to his subordinates.”



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    iv. “Tactic” agreement o.k. to prove conspiracy: One can be liable for conspiracy even
        if there was a “tactic” agreement (e.g. you winked your eye instead of making an explicit
        statement stating your agreement to accomplish the illegal act.) As long as there is sufficient
        evidence that there was a “meeting of the minds” (which isn‟t usually very hard to establish),
        you are liable.

d. THE OBJECT OFFENSE:

     i. U.S. v. Arch Trading Co.:
             1.   When Congress provides criminal sanctions for violations of executive orders that it
                  empowers the president to issue, such violation constitutes an “offense against the
                  U.S.” for purposes of § 371.
             2.   Because of the overlap of § 371‟s two prongs (conspiring to commit an “offense”
                  against the U.S.; and conspiring to “defraud” the U.S.), given conduct may be
                  proscribed by both the section‟s clauses. In such a situation, the fact that particular
                  conduct is chargeable under one clause doesn‟t render it immune from prosecution
                  under the other. In cases where certain conduct violates both prongs, Govt. has
                  considerable latitude in how they want to proceed. In many situations, they are even
                  allowed to list both prongs in the indictment.

    ii. § 371 & Mens Rea (U.S. v. Licciardi): Under § 371, in order to convict D of
        conspiracy, govt. must prove at least the degree of criminal intent (mens rea)
        necessary for the substantive offense itself (ie: you must prove that D had
        intent to commit substantive offense). No greater knowledge & intent is
        required for the conspiracy than for violation of the substantive statute.
             1.   Ingram v. U.S.: Ds engaged in illegal gambling where they were part of large-scale
                  enterprise which concealed its actions. Conspirators used a variety of dishonest means
                  and had effect of interfering with IRS‟ collection of federal gambling tax. Ds were held
                  not liable for violation of §371 since they did not have knowledge of the wagering tax
                  liability of the principals & without that knowledge not to have had the mens rea
                  required for conviction.

e. WITHDRAWAL & TERMINATION

     i. General Rule: Individual members of a conspiracy may terminate their participation in an
        ongoing conspiracy by withdrawing from it – i.e. taking affirmative steps to disassociate
        themselves from the conspiracy & its criminal objectives. Although withdrawal doesn‟t
        extinguish the withdrawing member‟s liability for conspiracy or for crimes already committed in
        furtherance of its objective, it insulates him from liability for future crimes committed by fellow
        members of the conspiracy & causes the SOL to begin running on conspiracy charges that could
        be brought against him.
             1. NOTE: Normally statute of limitations under federal law is 5 years.

    ii. U.S. v. Steele: Mere cessation of activity in furtherance of an illegal conspiracy doesn‟t
        necessarily constitute withdrawal. D must present evidence of some affirmative act of
        withdrawal on his part, typically either a full confession to the authorities or communication to
        his co-conspirators that he has abandoned the enterprise & its goals. Once D makes this prima
        facie showing, govt. must rebut it by either impeaching D‟s proof or by presenting evidence of
        some conduct in furtherance of conspiracy subsequent to act of withdrawal.

    iii. MPC § 5.03: A conspiracy terminates when the crime(s) that are its object are
         committed or when the relevant agreement is abandoned.

    iv. Defeat of Conspiracy by Govt. Intervention:


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                      1.   U.S. v. Jimenez Reci: The government‟s defeat of a conspiracy
                           objective does not necessarily & automatically terminate the conspiracy.
                           Where the police have frustrated a conspiracy‟s objective but
                           conspirators, unaware of this fact, have neither abandoned the conspiracy
                           nor withdrawn, those conspirators are still liable.
                               a. In thus holding, court rejects a prior rule set out in U.S. v. Cruz (9th 1997),
                                    which stated that a conspiracy continues until there is affirmative evidence of
                                    abandonment, withdrawal, disavowal, or defeat of the object of the conspiracy.
                                    Under this rule, a conspiracy ends through “defeat” when the govt. intervenes,
                                    making the conspiracy‟s goals impossible to achieve, even if the conspirators
                                    do not know that the govt. has intervened & are totally unaware that the
                                    conspiracy is bound to fail.

IV.   MAIL & WIRE FRAUD
      a. RELEVANT STATUES:

        18 U.S.C. § 1341 MAIL FRAUD: Whoever, having devised or intending to devise (so you
        didn’t have to actually devise the scheme, just intended to) any scheme or artifice to defraud, or for
        obtaining money or property by means of false or fraudulent (material) pretenses, representations, or
        promises, or to sell, dispose of, loan, exchange, alter, give away, distribute, supply, or furnish or procure
        for unlawful use any counterfeit or spurious coin, obligation, security, or other article, or anything
        represented to be or intimated or held out to be such counterfeit or spurious article, for the purpose of
        executing such scheme or artifice or attempting so to do, places in any post office or authorized
        depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or
        deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or
        commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly
        causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it
        is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined
        under this title or imprisoned not more than 20 years, or both. If the violation affects a financial
        institution, such person shall be fined not more than $ 1,000,000 or imprisoned not more than 30 years, or
        both.
              i. NOTES:
                       1. Under § 1341, it is not necessary that D actually defrauded someone – all you have to
                           show is that D intended to do so and used the mails to accomplish this goal (see U.S. v.
                           George infra).
                       2. § 1341 applies to individuals sending things through private/commercial interstate
                           carriers (like UPS; FedEx) as well as through the U.S. mail. Congress‟ basis for
                           regulating the former is the commerce clause & the latter the Postal Clause. Therefore,
                           if you send something the the U.S. mail, you can be liable whether or not you send the
                           item(s) inter or intrastate (since it is not based on the commerce power). The question
                           becomes, however, what if you send something intrastate through a private commercial
                           carrier? Can you be liable under §1341?

        18 U.S.C. § 1343 WIRE FRAUD: Whoever, having devised or intending to devise any scheme
        or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses,
        representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television
        communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the
        purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than
        20 years, or both. If the violation affects a financial institution, such person shall be fined not more than $
        1,000,000 or imprisoned not more than 30 years, or both.
             i. NOTES:
                      1. §1343 only talks about transmitting things through wire, radio, T.V. in interstate or
                           foreign commerce. Question remains whether this statute applies to people who send
                           things through these medians intrastate.


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       ii. Pasquantino v. U.S: Elements of §1343 offense:
              1. D engages in a “scheme or artifice to defraud”;
              2. D uses interstate wires to effectuate that scheme; and
              3. The object of the fraud is “money or property in V‟s hands.”
                      a. “Property” = something of value; valuable entitlements.
                      b. Depriving V of his entitlement to $ is considered obtaining
                          “property” (Court in Pasquantino rules that Canada‟s right to tax
                          revenue is “property” for purposes of §1343). This is in line with
                          the CL rule.
      iii. U.S. v. Czubinski: To support a conviction for wire fraud under §1343, govt.
           must prove 2 elements beyond reasonable doubt:
              1. D‟s knowing & willing participation in a scheme or artifice to defraud
                   with specific intent to defraud; and
              2. Use of interstate wire communications in furtherance of the scheme.

  18 U.S.C. § 1346 For the purposes of this chapter, the term "scheme or artifice to defraud" includes a
  scheme or artifice to deprive another of the intangible right of honest services.
       i. NOTES:
               1. This statute covers intangible “rights” or honest services; fraud statutes have always
                    covered intangible “property.” (See cases below).

       ii.   U.S. v. Czubinski: §1346 effectively restores the scope of mail & wire fraud
             statues to their pre-McNally (infra) applications to govt. officials‟ schemes to
             defraud individuals of their intangible right to honest services.
                1.   Honest services convictions of public officials typically involve serious corruption,
                     such as embezzlement of public funds, bribery of public officials, or the failure of
                     public decision-makers to disclose certain conflicts of interests.
                2.   Test: Govt. must not merely indicate wrongdoing by a public official, but must also
                     demonstrate that the wrongdoing at issue is intended to prevent or call into question the
                     proper or impartial performance of that public servant‟s official duties.
      iii.   U.S. v. DeVegter: §1346’s application to private-sector defendants:
             Although paradigm case of honest services fraud is the bribery of a public
             official, §1346 is not limited to such conduct but extends to the defrauding of
             some private sector duties of loyalty.
                1.   For private sector D to have violated V‟s right to honest services under §1346, it is not
                     enough to prove that D breached a duty of loyalty alone. Breach of loyalty by a private
                     sector D in each case must contravene – by inherently harming – the purpose of the
                     parties‟ relationship.
                2.   Govt. must prove that the employee intended to breach a fiduciary duty, and that the
                     employee foresaw or reasonably should have foreseen that his employer might suffer an
                     economic harm as a result of the breach.
                3.   Ct. in DeVegter suggests that there should be a different standard b/t honest services
                     fraud when it occurs in the public sector & when it occurs in the private sector. The
                     biggest difference is that when this fraud occurs in the private sector, courts are more
                     likely to closely look at whether D owed V a fiduciary duty.

b. INTENT TO DEFRAUD:

        i.   2 mens reas required under fraud statutes:
                1. Fraud must be done intentionally/knowingly.
                2. D must use mail/wire for purpose of executing that scheme.




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     ii.   U.S. v. Hawkey:. “INTENT TO DEFRAUD” = to act knowingly & with the intent to
           deceive someone for the purposes of causing some financial lose to another or bringing about
           some financial gain to oneself or another to the detriment of a 3 rd party (detriment doesn‟t have
           to be material).
                1. In order to obtain a conviction for mail fraud under §1341, Govt. must
                    prove:
                        a.   The existence of a scheme to defraud; and
                        b.   The use of the mails for purposes of executing the scheme.
               2.   NOTE: Scheme need not be fraudulent on its face but must involve some sort of
                    fraudulent misrepresentations or omissions reasonably calculated to deceive persons of
                    ordinary prudence & comprehension.
               3.   NOTE: Term “property” as used in §1341 includes intangible property rights (e.g. the
                    intangible right to honest services).

    iii.   Lustiger v. U.S.: If a scheme is devised with the intent to defraud, and the mails
           are used in executing the scheme, the fact that there is no misrepresentation of a
           single existing fact is immaterial. It is only necessary to prove that it is a
           scheme reasonably calculated to deceive, and that the mail service of the U.S.
           was used & intended to be used in the execution of the schem.
               1. Deceitful statements or half truths or the concealment of material facts is
                   actual fraud violative of the mail fraud statute.
               2. The deception need not be premised upon verbalized worlds alone. The
                   arrangement of the words, or the circumstances in which they are used,
                   may convey the false & deceptive appearance.
               3. Exaggeration within reasonable bounds under the circumstances will not
                   support a finding of a scheme to defraud.

    iv.    U.S. v. Regent Office Supply: Under §1341, the scheme at issue must be
           devised with the intent to deprive V of something of value.

c. MATERIALITY REQUIREMENT:
      i. Although the mail & wire fraud statutes contain no express materiality requirements, courts have
         traditionally assumed that false or fraudulent representations must be material. Cf. Neder v. U.S.
         (1999).
              1. A statement is material if:
                        a. A reasonable man would attach importance to its existence of nonexistence in
                           determining his choice of action in the transaction in question; or
                        b. The maker of the representation knows or has reason to know that its recipient
                           regards or is likely to regard the matter as important in determining his choice
                           of action, although a reasonable man would no so regard it.

d. PROTECTED INTERESTS

      i.   U.S. v. George: Since gravamen of a §1341 offense is a “scheme to defraud,” it is
           unnecessary that the govt. allege or prove that the AV of the scheme was actually defrauded or
           suffered a loss. If there was intent on the part of a schemer to deprive AV of something, and D
           used mails to do so, D is liable. It is unnecessary for the govt. to prove that anyone was actually
           defrauded.
                1. OTHER RULES:
                         a. There can be fraud liability even when V doesn‟t know that he is
                             being defrauded.

                                             10
                  b. A conflict of interest, along with a failure to disclose such a
                     conflict, is fraud even when there is no actual misrepresentation.
                  c. Fraud can exist either when (1) D makes $, or (2) V loses $.

ii.   Mc Nally v. U.S.: §§ 1341 & 1343 are limited in scope to the protection of
      “property” rights. Object of D‟s scheme must be to obtain V‟s “property.”
      Mail & wire fraud statutes do not prohibit schemes to defraud individuals of
      their intangible, non-property right to honest govt. services.

         1.   NOTE: In response to Court‟s ruling in McNally, Congress passed §1346, which
              defines "scheme or artifice to defraud" to include a scheme or artifice to deprive
              another of the intangible right of honest services (infra). This statute does not overrule
              McNally -- In a fraud case where §1346 is not cited, McNally is still good law, which
              means that in those fraud cases lacking §1346, it is true that fraud is limited to
              protection of property rights.

         2.  Cleveland v. U.S.: Court reaffirms McNally -- §1341 requires the object
             of the fraud to be “property” in the victim‟s hands. This court rules that
             a license for operating a gambling machine issued by the state is not
             property of the state as used under §1341.
iii. McNally tells us that the object of D‟s scheme must be to obtain “property” in
     order to be liable under §§1341 & 1343. But what exactly is classified as
     “property” for purposes of these statutes??

         1.   Misappropriation of confidential business information (Carpenter v.
              U.S.): §1341 is limited in scope to the protection of property rights (McNally).
              However, “property” includes intangible as well as tangible property. Confidential
              business information is an intangible property right. Any confidential info.
              acquired/compiled by a corp. in the course & conduct of its business is a species of
              “property” to which the corp. has the exclusive right & benefit. Therefore, the use of
              mail to carry out a scheme to misappropriate confidential business information violates
              §1341.
                  a. NOTE: Court in Carpenter states that a scheme to defraud under §1341 does
                       not require an actual monetary loss. It is sufficient that D intends to deprive V
                       of his exclusive right to use the confidential information (this is in line with
                       U.S. v. George).
                  b. U.S. v. Czubinski: To deprive a person of their intangible
                       property interest in confidential information under §1343, either
                       some articulable harm must befall the holder of the information
                       as a result of D‟s activities, or some gainful use must be intended
                       by the person accessing the information, whether or not this use
                       is profitable in the economic sense.

         2.   Pasquantino v. U.S.: (supra) “Property” = something of value; valuable
              entitlements. Depriving V of its entitlement to $ is considered
              “obtaining property.” This is in line with CL rule.
                  a. Ct. in Pasquantino concludes that Canada‟s right to tax revenue
                      is “property” under §1343.

         3.   Honest Services (U.S. v. Czubinski): §1346 effectively restores scope of
              mail & wire fraud statutes to their pre-McNally applications to govt.


                                       11
                  officials‟ schemes to defraud individuals of their intangible property
                  right to honest services.
                     a.   Honest services convictions of public officials typically involve serious
                          corruption, such as embezzlement of public funds, bribery of public officials,
                          or the failure of public decision-makers to disclose certain conflicts of interest
                     b.   Test: Govt. must not merely indicate wrongdoing by a public official, but
                          must also demonstrate that the wrongdoing at issue is intended to prevent or
                          call into question the proper or impartial performance of that public servant‟s
                          official duties.

                     c.   U.S. v. DeVegter: §1346’s application to private-sector
                          defendants: Although paradigm case of honest services fraud is
                          the bribery of a public official, §1346 is not limited to such
                          conduct but extends to the defrauding of some private sector
                          duties of loyalty.
                                i. For private sector D to have violated V‟s right to honest services
                                   under §1346, it is not enough to prove that D breached a duty of
                                   loyalty alone. Breach of loyalty by a private sector D in each case
                                   must contravene – by inherently harming – the purpose of the parties‟
                                   relationship.
                               ii. Govt. must prove that the employee intended to breach a fiduciary
                                   duty, and that the employee foresaw or reasonably should have
                                   foreseen that his employer might suffer an economic harm as a result
                                   of the breach.
                              iii. Ct. in DeVegter suggests that there should be a different standard b/t
                                   honest services fraud when it occurs in the public sector & when it
                                   occurs in the private sector. The biggest difference is that when this
                                   fraud occurs in the private sector, courts are more likely to closely
                                   look at whether D owed V a fiduciary duty.

e. USE OF THE MAILS:

     i.   General Rule: Even though the use of mails is the heart of §1341, use of mails
          need not be central to D‟s scheme to defraud. Use of mails need only be
          “incidental to an essential part of the scheme” (Pereira v. U.S.).

             1. Schmuck v. U.S. restates the rule in Pereira: A mailing that is incidental
                to an essential part of D‟s scheme satisfied the mailing element of a
                §1341 offense. IE: if it was “reasonably foreseeable” that mails would
                have been used as part of the scheme, then D can be held liable.
                    a. In dissent, J. Scalia states that under §1341, the mailing must be
                        in furtherance of the fraud.
             2. U.S. v. Sampson: Mailings can be considered used “for the purpose of
                executing” a scheme under §1341 even when, prior to using the mails, D
                has already received all of the property that he is planning on receiving
                from V as part of that scheme.

             3.   NOTES:
                    a. Proof of mailing. Govt. may use circumstantial evidence to prove that
                          mails were used to further alleged scheme to defraud. This relieves govt. of
                          burden of proving who actually mailed communications in question &
                          precisely how and when they were mailed. Proof may consist of evidence
                          concerning routine office procedures for processing documents like those in


                                          12
                                 question or evidence of conduct that is consistent with a response to the
                                 material allegedly mailed.
                            b.   Since gist of mail fraud offense under §1341 is the use of mails in
                                 furtherance of a fraudulent scheme rather than the commission of
                                 fraud itself, each separate mailing in furtherance of the scheme
                                 constitutes a separate offense.

V.   SECURITIES FRAUD:
     a. Securities Exchange Act of 1934 §10(b) & SEC Rule 10b-5: It shall be unlawful for
        any person, directly or indirectly, by use of any means or instrumentality of interstate
        commerce, or of the mails or of any facility of any national securities exchange,
             (a) To employ any device, scheme, or artifice to defraud;
             (b) To make any untrue statement of a material fact or to omit to state a material
             fact necessary in order to make the statements made, in the light of the
             circumstances under which they were made, not misleading; or
             (c) To engage in any act, practice, or course of business which operates or would
             operate as a fraud or deceit upon any person, in connection with the purchase or
             sale of any security.

     b. 18 U.S.C. §1348 (S-O Act): Whoever knowingly executes, or attempts to execute, a
        scheme or artifice –
                    1. To defraud any person in connection with any security of an issuer with
                        a class of securities registered under §12 of the 1934 Act or that is
                        required to file reports under §15(d) of the 1934 Act; or
                    2. To obtain, by means of false or fraudulent pretenses, representations, or
                        promises, any money or property in connection with the purchase or sale
                        of any security of an issuer with a class of securities registered under §12
                        of the 1934 Act or that is required to file reports under §15(d) of the
                        1934 Act.
        shall be fined under this title, or imprisoned not more than 25 years, or both.

                    3.   NOTE: Even individuals who attempt to execute a scheme or artifice to
                         defraud are in violation of §1348.

     c. DIFFERENCES B/T 10b-5 & §1348:
            i. 10b-5 has contains more jurisdictional hooks (use of interstate commerce, mails,
               national securities exchange facility).
           ii. §1348 has more serious penalties.
          iii. Under §1348, fraud doesn‟t have to be in “connection w/the purchase or sale of
               any security” as it does under 10b-5.
     d. WILLFULNESS:
             i. U.S. v. Weiner: For purposes of securities fraud, to act “knowingly” is not
                necessarily to act only with positive knowledge, but also to act with an
                awareness of the high probability of the existence of the fact in question. When
                such awareness is present, “positive” knowledge is not required. On proof of
                “reckless deliberate indifference to or disregard for truth or falsity,” jury may


                                                13
        infer D‟s willful & knowing participation in the filing of false information with
        the SEC.
            1. Evidence that D knowingly suppressed one fact permits, although
               doesn‟t compel, an inference that their suppression of another was
               likewise knowing & willful.
            2. For purposes of securities fraud, negligence is not sufficient.
            3. Proof of good faith constitutes a complete defense to charges of
               submitting false information to the SEC.
            4. In determining whether an independent auditor acted willfully &
               knowingly in violating securities regulations, a jury may consider as
               evidence (although not conclusive evidence) whether the CPA followed
               or deviated from GAAS or GAAP.
                   a. §10A of Securities Exchange Act of 1934: Requires accountants to adopt
                        procedures designed to detect illegal acts committed by their clients. If an
                        accountant discovers information indicating that an illegal act has occurred,
                        the accountant must report that to management and ensure that information is
                        conveyed to BOD if the illegality is material to financial condition of
                        company. If senior management fails to take appropriate remedial steps,
                        accountant must then report to full BOD which has 1 business day to notify
                        SEC.
                   b.   Sarbanes-Oxley Act imposes additional duties on lawyers who practice or
                        appear before SEC. §307 of S-O Act requires SEC to promulgate a rule
                        requiring lawyers “to report evidence of material violation (defined to mean
                        “credible evidence, based upon which it would be unreasonable, under the
                        circumstances, for a prudent & competent attorney not to conclude that it
                        is reasonably likely that a material violation has occurred, is occurring, or
                        is about to occur.”) of securities law or breach of fiduciary duty or similar
                        violation by the company or any agent thereof, to the chief legal counsel or the
                        CEO of the company.

e. THE “NO-KNOWLEDGE” PRIVISO:

     i. The 1934 Act punishes willful violations of SEC rules & regulations and also
        contains an unusual “no knowledge” proviso that may preclude imposition of a
        sentence of imprisonment for such violations:
            1. §78ff(a) of 1934 Act: “No person shall be subject to imprisonment
               under this section for the violation of any rule or regulation if he proves
               that he had no knowledge of such rule or regulation.”
            2. NOTE: This provision may protect ostensibly innocent business
               executives from serving a term of imprisonment for violating some
               obscure rule or unpublicized administrative action, but it does not
               insulate them from criminal liability for the violation itself. Implicit in
               this scheme is the premise that you can willfully violate a prohibition of
               which you are unaware.

    ii. General Rule (U.S. v. Lilley): The no knowledge provision permits D to rebut
        presumption that he had knowledge of the rule/regulation under which he is
        charged. Proof of “no knowledge” of a rule/regulation means proof of an
        ignorance of the substance of the rule, not proof that D didn‟t know the precise
        name or # of the rule or proof of a lack of knowledge that the conduct was
        proscribed by rule rather than statute. Proof that D knew securities fraud to be
        prohibited by law prevents him from discharging his conduct under the “no
                                       14
        knowledge” proviso. It was not intended by Congress that this provision should
        be available to persons who are charged with knowing their conduct was illegal,
        but didn‟t happen to know that it was in violation of a particular SEC
        rule/regulation.

f. INSIDER TRADING:

     i. General Rule: Insider trading basically says that “silence” or an “omission to
        disclose knowledge” at the time of purchase or sale can be a “deceptive device.”
        While insider trading is neither defined nor expressly forbidden by statute or
        regulation, federal prosecutors reach insider trading activities through §10(b) of
        the 1934 Act and SEC Rule 10b-5.
            1. Insider trading is prosecuted under 10b-5 on the theory that it constitutes
                a “scheme to defraud.”

     ii. CLASSICAL THEORY:

            1.   General Rule (Cady): A corporate insider must abstain from trading in
                 the shares of his corporation unless he has first disclosed all material
                 inside information known to him.
                     a. Insiders must disclose material facts which are known to them by
                         virtue of their position but which are not known to persons with
                         whom they deal & which, if known, would affect their
                         investment judgment.
                     b. Policy: There is a relationship of trust & confidence b/t
                         shareholders of a corporation & those insiders who have obtained
                         confidential information by reason of their position with that
                         corporation. This relationship gives rise to duty to disclose
                         because of the necessity of preventing insider from taking unfair
                         advantage of uninformed minority stockholders.
                     c. NOTE: This rule applies not only to officers, directors, or other
                         permanent insiders of a corporation, but also to attys,
                         accountants, consultants & others who temporarily become
                         fiduciaries of a corporation (U.S. v. O’Hagen).

            2.   Chiarella v. U.S.: When allegations of securities fraud is based upon
                 nondisclosure of material, nonpublic info, there can be no fraud absent a
                 duty to speak (“The party charged with failing to disclose market
                 information must be under a duty to disclose it.”). Duty to disclose
                 under §10(b) does not arise from mere possession of nonpublic market
                 information. Instead, in order for there to be a duty to disclose, D must
                 have been the corporation‟s agent (“insider”), a fiduciary, or a person in
                 whom the sellers of the securities had placed their trust & confidence.

    iii. MISAPPOPRIATION THEORY:

            1.   General Rule (U.S. v. O’Hagen): Under the misappropriation theory of
                 insider trading, a person commits securities fraud under §10(b) & Rule
                 10b-5 when he misappropriates confidential material, nonpublic


                                     15
information for securities trading purposes, in a breach of fiduciary or
similar duty owed to the source of the information.
   a.   IN ORDER FOR D TO BE LIABLE UNDER O’HAGEN, D MUST HAVE
        OWED A DUTY TO THE SOURCE OF THE INFORMATION GAINED.
   b.   Under this theory, a fiduciary‟s undisclosed, self-serving use of a principal‟s
        information to purchase/sell securities, in a breach of loyalty & confidentiality,
        defrauds the principal of the exclusive use of that information.
   c.   * This theory premises liability on a fiduciary-turned-trader‟s deception of
        those who entrusted him with access to confidential information.
   d.   This theory is designed to protect the integrity of the securities markets against
        abuses by “outsiders” to a corporation who have access to confidential
        information that will affect the corporation‟s security price when revealed, but
        who owe no fiduciary or other duty to that corporation‟s shareholders.
   e.   NOTE: Full disclosure forecloses liability under the misappropriation theory:
        Because the deception essential to the misappropriation theory involves
        feigning fidelity to the source of information, if the fiduciary discloses to the
        source that he plans to trade on the nonpublic information, there is no §10(b)
        violation. However, fiduciary-turned-trader may still be liability under state
        law for breach of duty of loyalty.
   f.   NOTE: Fiduciary‟s fraud is consummated under this theory, not when the
        fiduciary gains the confidential information, but when, without disclosure to
        his principal, he uses the information to purchase/sell securities. The
        securities transaction & the breach of duty thus coincide.
   a. Court in O’Hagen says that misappropriation theory & classical
      theory are complementary, each addressing efforts to capitalize
      on nonpublic information through purchase/sale of securities.
           i. Classical theory targets corporate insider‟s breach of duty
              to shareholders with whom insider transacts &
              misappropriation theory outlaws trading on basis of
              nonpublic info by a corporate outsider in a breach of duty
              owed not to a trading party, but to the source of that
              information.
   b. U.S. v. Chestman: What constitutes a “fiduciary or similar duty”
      for puposes of the misappropriation theory?
           i. A fiduciary duty cannot be imposed unilaterally by
              entrusting a person with confidential information.
          ii. Marriage does not, without more, create a fiduciary
              relationship. Although spouses certainly may by their
              conduct become fiduciaries, the marriage relationship
              alone does not impose fiduciary status. More than the
              gratuitous reposal of a secret to another who happens to
              be a family member is required to establish a fiduciary or
              similar relationshiop of trust & confidence.
         iii. Fiduciary relationships involve discretionary authority
              & dependence – one person depends on another to serve
              his interests. In relying on a fiduciary to act for his
              behalf, beneficiary may entrust fiduciary with custody
              over property. Because fiduciary obtains access to this
              property to serve ends of beneficiary, he becomes duty-
              bound not to appropriate the property for his own use.
         iv. CL recognizes that some associations are inherently
              fiduciary (non-exclusive list):

                        16
                                1.    Atty/Client
                                2.    Executor/heir;
                                3.    Guardian/Ward;
                                4.    Principal/Agent;
                                5.    Trustee/Trust;
                                6.    Senior corporate official/shareholder.
              c. Rule 10b5-2 addresses question considered in Chestman of when
                 non-business relationships may give rise to a duty of trust &
                 confidence for purposes of misappropriation theory of insider
                 trading:
                      i. “Whenever person communicating material nonpublic information &
                            the person to whom it is communicated have a history, pattern, or
                            practice of sharing confidences, such that recipient of information
                            knows or reasonably should know that the person communicating the
                            material nonpublic information expects that the recipient will
                            maintain its confidentiality; or
                      ii.   Whenever a person receives or obtains material nonpublic
                            information from his or her spouse, parent, child, or sibling; provided,
                            however, that the person receiving or obtaining the information may
                            demonstrate that no duty of trust of confidence existed with respect to
                            the information, by establishing that he/she neither knew nor
                            reasonably should have known that the person who was the source of
                            the information expected that the person would keep the information
                            confidential, because of the parties‟ history, pattern, or practice of
                            sharing & maintaining confidences, and because there was no
                            agreement or understanding to maintain the confidentiality of the
                            information.

iv. TIPPER/TIPPEE THEORY:

     1.   General Rule (Dirks v. SEC):
             a. Tipper Liability: Extends the Cady rule on insider trading – Not
                only are insiders forbidden by their fiduciary relationship from
                personally using undisclosed corporate information to their
                advantage, but they also may not give such information to an
                outsider for the same improper purpose of exploiting the
                information for their personal gain.
             b. Tippee Liability: Some tippees must assume an insider‟s duty to
                the shareholders not because they receive insider information, but
                rather because it has been made available to them improperly.
                Thus, a tippee assumes a fiduciary duty to the shareholders of a
                corporation not to trade on material nonpublic information only
                when (1) The insider has breached his fiduciary duty to the
                shareholders or source of information by disclosing the
                information to the tippee; & (2) The tippee knows or should
                know that there has been such a breach.
                     i. “Tippee responsibility must be related back to insider responsibility
                            by a necessary finding that the tippee knew the information was given
                            to him in a breach of duty by a person having a special relationship to
                            the issuer not to disclose the information.”
                      ii.   Issue isn‟t whether tippee owed the source of the information a duty,
                            but whether the tipper owed such a duty & the tippee knew about it.



                                     17
                      iii. J. Powell in Dirks v. SEC is clear that recipients of insider
                           information do not invariably acquire a duty to disclose or abstain.
                           He simply says that there are limits on what a tippee can do, and this
                           is one of those limitations.

v. KNOWING POSSESSION:

     1.   General Rule (U.S. v. Teicher): An insider violates §10(b) & Rule 10b-
          5 when a trade is conducted in “knowing possession” of material
          nonpublic information obtained in breach of a fiduciary or similar duty.
             a. In Teicher, 2nd Cir. favors this standard but does not conclusively
                adopt it. Court also criticizes the alternative standard, which
                requires proof that the trading was casually connected to the
                misappropriated information & not conducted on an independent
                & proper basis.

     2.   Rule 10b5-1 addressees issue considered in Teicher and attempts to
          define when a person in possession of material nonpublic information
          trades “on the basis of” the information:
              a. “Subject to affirmative defenses provided in paragraph (c), a purchase or sale
                   of a security of an issuer is “on the basis of” material nonpublic information
                   about that security or issuer if the person making the purchase or sale was
                   aware of the material nonpublic information when the person made the
                   purchase or sale.”
              b.   10b5-1(c) Affirmative Defenses: A person‟s purchase or sale is not “on the
                   basis” of material nonpublic information if the person making the
                   purchase/sale demonstrate that:
                         i. 1(i)(A) Before becoming aware of the information, the person had:
                                 1. Entered into a binding K to purchase/sell security;
                                 2. Instructed another person to purchase/sell security for the
                                      instructing person‟s account; or
                                 3. Adopted a written plan for trading securities.
                        ii. (B) The K, instruction, or plan described in (c)(1)(i)(A) must:
                                 1. Specify the amount of securitie to be purchased/sold & price
                                      at which and the date on which securities were to be
                                      purchased/sold;
                                 2. Included a written formula or algorithm, or computer
                                      program, for determining amount of securities to be
                                      purchased/sold & the price at which and the date on which
                                      securities were to be purchased/sold; or
                                 3. Did not permit the person to exercise any subsequent
                                      influence over how, when, or whether to effect purchases or
                                      sales, provided, in addition, that any other person who,
                                      pursuant to the K, instruction, or plan, did exercise such
                                      influence must have been aware of the material nonpublic
                                      information when so doing.

vi. MATERIALITY

     1.   General Rule: Insider trading is illegal only if purchase/sale is made on
          the basis of “material” nonpublic information. Supreme Court
          articulated this standard for materiality in TSC Industries v. Northway
          (1976):


                                  18
                               a. The question of materiality is an objective one involving significance of an
                                   omitted or misrepresented fact to a reasonable investor. An omitted fact is
                                   material if there is a substantial likelihood that a reasonable shareholder
                                   would consider it important in deciding how to vote (or whether to
                                   purchase/sell). It doesn‟t require proof of a substantial likelihood that
                                   disclosure of the omitted fact would have actually caused the reasonable
                                   investor to change his vote only that there is a substantial likelihood that the
                                   disclosure of the omitted fact would have been viewed by the reasonable
                                   investor as having significantly altered the “total mix” of information made
                                   available.

VI.   FALSE STATEMENTS
      a. RELEVANT STATUTE:

        18 U.S.C. § 1001: Statements or entries generally.
        (a) Except as otherwise provided in this section, whoever, in any matter within the jurisdiction of
        the executive, legislative, or judicial branch of the U.S. Govt., knowingly and willfully –
                 (1) Falsifies, conceals, or covers up by any trick, scheme, or device a
                 material fact;
                 (2) Makes any materially false, fictitious, or fraudulent statement or
                     representation; or
                 (3) Makes or uses any false writing or document knowing the same to
                 contain any materially false, fictitious, or fraudulent statement or entry;

        Shall be fined under this title, imprisoned not more than 5 years.

        (b) Subsection (a) doesn‟t apply to a party to a judicial proceeding, or that party‟s counsel, for
        statements, representations, writings or documents submitted by such party or counsel to a judge or
        magistrate in that proceeding. (Note: this type of conduct is covered by perjury/obstruction
        statutes).

        (c) With respect to any matter within the JN of the legislative branch, subsection (a) shall apply
        only to –
                  (1) Administrative matters, including a claim for payment, a matter
                  related to the procurement of property or sevices, personnel or
                  employment practices, or support services, or a document
                  required by law, rule, or regulation to be submitted to the Congress or any
                  office or officer within the legislative branch; or
                  (2) Any investigation or review, conducted pursuant to the authority of
                  any committee, subcommittee, commission or office of the Congress,
                  consistent with applicable rules of the House or Senate.


             i. §1001 Notes:
                   1. §1001 does not contain an oath requirement. Instead, it punishes
                      unsworn falsifications relating to any matter w/in the JN of a federal
                      dept. or agency.
                   2. Under §1001, the false statement in question doesn‟t have to be
                      committed “in” the place (e.g. it doesn‟t have to be committed in
                      Congress) – as long as it is made in relation to a matter within the JN of
                      the federal govt., it is a §1001 violation.
                   3. As a general matter, prosecutions under §1001 typically involve using
                      false information:
                          a. To obtain a monetary or proprietary benefit;

                                                   19
                  b. To obtain a privilege from the gov‟t;
                  c. To resist monetary claims by the gov‟t; and
                  d. To frustrate a lawful regulation.
            4. U.S. v. Shah: To establish a §1001 violation, Govt. must prove:
                  (1) A statement, that is
                  (2) False
                  (3) and Material,
                  (4) Made with the requisite specific intent (made with an intent to
                  deceive or mislead), and
                        NOTE: §1001 DOES NOT require an “intent to
                        defraud – that is, the intent to deprive someone of something by means of
                        deceit.
                    (5) Within the purview of govt. agency JN.

b. JURISDICTION:

     i. General Rule (U.S. v. Rodgers): The term “jurisdiction” as used in §1001
        mans any situation in which a government department or agency has the power
        to exercise authority. When you make a false statement to an agency that would
        have the power to investigate in this situation, you are liable. There does not
        have to be an ongoing investigation in order for you to be liable under §1001.
            1. The language of §1001 (“within the jurisdiction...”) clearly encompasses
                criminal investigations conducted by the FBI & Secret Service.
                                                                                        th
            2. In making this ruling, Court in Rodgers overturns Friedman v. U.S. (8
                Cir.) which held that the phrase “within the jurisdiction” as used in
                §1001 referred only to “the power to make final or binding
                determinations” and, therefore, did not cover criminal investigations.

     ii. U.S. v. Wright: Under §1001, the false statement(s) submitted by D need not be
         made directly to the federal agency to be “within its jurisdiction.” As long as
         the statement is made in the context of an activity in which a federal agency has
         the authority to operate then there is §1001 liability (at some point federal
         agency will receive the false statements even if not directly submitted by D).
             1. A state agency‟s use of federal funds, standing alone, is generally
                 sufficient to establish §1001 jurisdiction.

c. DEPARTMENT OR AGENCY:

     i. What constitutes a “department or agency” under §1001?
          1. In Hubbard v. U.S. (95), the Court held that the terms “department” or
              “agency” encompass only the executive branch of govt.
          2. Under the amended version of §1001 (above), the statute applies to false
              statements within the JN of the executive, legislative, or judicial branch
              of the federal govt. with certain exceptions:

     ii. JUDICIAL PROCEEDINGS EXCEPTION:

            1.   §1001(b) creates an exception for judicial proceedings: “Subsection (a)
                 does not apply to a party to a judicial proceeding, or that party‟s counsel,


                                       20
                 for statements, representations, writings, or documents submitted by
                 such party or counsel to a judge or magistrate in that proceeding.”
                     a. NOTE: This type of conduct is covered by perjury/obstruction statutes).

                     b. U.S. v. McNeil: To qualify for §1001(b) judicial exception, D must show that:
                                       1.    He was a party to a judicial proceeding;
                                       2.    His statements were submitted to a judge or magistrate; and
                                       3.    His statements were made “in that proceeding.”
                                                 a. “In that proceeding” refers to statements that are
                                                      made as part of a judicial proceeding, after it has
                                                      officially begun, which, with criminal proceedings,
                                                      is at the time that D is indicted.”

    iii. LEGISLATIVE LIMITATIONS:

            1.   §1001(c) limits liability with respect to any matter within the JN of the
                 legislative branch. “Subsection (a) shall apply only to –
                     (1) Administrative matters, including a claim for payment, a matter
                     related to the procurement of property or services, personnel or
                     employment practices, or support services, or a document required
                     by law, rule, or regulation to be submitted to Congress or any office
                     or officer within the legislative branch; or
                     (2) Any investigation or review, conducted pursuant to the authority
                     of any committee, subcommittee, commission or office of Congress,
                     consistent with the applicable rules of the House or Senate.


                     a. U.S. v. Pickett: Court held that D, a Capitol Security Guard who left a prank
                         anthrax threat letter at the Capitol Security Desk, could not face §1001 liability
                         since his conduct did not fall under either §1001(c)(1) or (2).

d. FALSE PROMISES:

     i. General Rule (U.S. v. Shah): A broken promise is not alone a basis for §1001
        liability. Instead, the government must prove that the promise for future
        performance was false when made. “It is not breaking a promise that exposes D
        to criminal liability, but making a promise with the intent to break it.”

e. THE “EXCULPATORY NO”

     i. General Rule (Brogan v. U.S.): §1001 does not contain an exception for an
        “exculpatory no.” By its terms, §1001 covers “any” false statement – that is a
        false statement of any kind. The word “no” in response to a question makes a
        statement. If that statement is false, it is a violation of §1001.
            1. In making this ruling, S.C. rejects the “exculpatory no” doctrine that had
                been adopted by the 1st, 4th, 7th, 8th, 9th, 11th & 10th Circuits which
                excluded from criminal liability under §1001 exculpatory “nos.”

f. MATERIALITY

     i. General Rule (Shah): Materiality is a required element of a §1001 violation
        (false statement must be material).

                                            21
                1.   Issue of materiality is a mixed question of law & fact to be decided by
                     the jury (U.S. v. Gaudin).
                         a. But see U.S. v. LeMaster: Materiality is a conclusion of law that
                             must be fully supported by the evidence, direct or circumstantial.

                2. TEST FOR MATERIALITY: Whether the statement has a natural
                   tendency to influence any governmental action or decision (Gaudin).
                       a. See also U.S. v. LeMaster: A false statement is material if it “has
                            a natural tendency to influence, or was capable of influencing,
                            the actions or decisions of the involved agency.”
                3. In determining whether a statement is material, the focus of the inquiry
                   relates to its intrinsic capacity to influence, not its actual effect (U.S. v.
                   White). Thus, neither actual influence nor reliance need be shown
                   (White).

    g. CULPABLE MENTAL STATE (Mens Rea):

         i. General Rule (U.S. v. Yermian): Under §1001, while the Govt. must prove
            beyond reasonable doubt that D‟s false statement was made knowingly &
            willfully, Govt. need not prove that D had actually knowledge of the federal
            agency JN. The terms “knowingly and willfully” in the statute do not modify
            the statute‟s jurisdictional element. “The existence of the fact that confers
            federal JN need not be one in the mind of D at the time he perpetrates the act
            made criminal by the federal statute” (U.S. v. Feola).
                1. See also U.S. v. Green -- §1001 does not require proof that D knew his
                    false statements were being made to a government agency. No mental
                    state is required with respect to federal involvement in order to establish
                    a §1001 violation.

VII. PERJURY & FALSE DECLARATIONS
    a. RELEVANT STATUTES:

         i. 18 USC §1621 (Perjury Generally): Whoever –
                1.   Having taken an oath before competent tribunal, officer, or person, in any case in
                     which a law of the U.S. authorizes an oath to be administered, that he will testify,
                     declare, depose, or certify truly, or that any written testimony, declaration, deposition,
                     or certificate by him subscribed is true, willfully and contrary such oath states or
                     subscribes any material matter which he does not believe to be true; or
                2.   in any declaration, certificate, verification, or statement under penalty of perjury as
                     permitted under §1726, willfully subscribes as true any material matter that he does not
                     believe to be true.

            is guilty of perjury and shall, except as otherwise expressly provided by law, be fined under this
            title or imprisoned not more than 5 years, or both. This section is applicable whether the
            statement or subscription is made within or without the U.S.

                1. Statute Notes:
                         a.   Courts have interpreted §1621 in a way that does not make much sense.
                              Courts have added a “two witness” rule to §1621 liability. Although this rule
                              still exists, there are so many exceptions to it that it essentially doesn‟t exist in
                              many circuits. This “two witness” rule is expressly excluded from §1623.


                                              22
               b.   HYPO: What happens in a situation where the witness testifying under oath
                    believes that what he is saying is false but it is, in reality, true?
                         i. Although there are no known cases where this conduct has been
                             prosecuted, Ponsoldt says that the language of §1621 technically
                             allows this sort of prosecution. NOTE, however, that under §1623,
                             the word “false” prevents this possibility.

ii. 18 USC §1623 (False Declarations before grand jury or court):
               a.   Whoever under oath (or in any declaration, certificate, verification, or
                    statement under penalty of perjury as permitted under §1746) in any
                    proceeding before or ancillary to any court or grand jury of the U.S.
                    knowingly makes any false material declaration or makes or uses any other
                    information, including any book, paper, document, record, recording, or other
                    material, knowing the same to contain any false material declaration, shall be
                    fined under this title or imprisoned not more than 5 years, or both.
               b.   This section is applicable whether the conduct occurred within or without the
                    U.S.
               c.   An indictment or information for violation of this section alleging that, in any
                    proceeding before or ancillary to any court or grand jury of the U.S., the D
                    under oath has knowingly made 2 or more declarations, which are
                    inconsistent to the degree that one of them is necessarily false, need not
                    specify which declaration is false if –
                                   1. each declaration was material to the point in question, and
                                   2. each declaration was made w/in the period of the SOL for
                                       the offense charged under this section.
                    In any prosecution under this section, the falsity of a declaration set forth in
                    the indictment or information shall be established sufficient for conviction by
                    proof that D while under oath made irreconcilably contradictory declarations
                    material to the point in question in any proceeding before or ancillary to any
                    court or grand jury. It shall be a defense to an indictment or information made
                    pursuant to the 1st sentence of this subsection that D at the time he made each
                    declaration believed the declaration was true.
               d.   Where, in the same continuous court or grand jury proceeding in which a
                    declaration is made, the person making the declaration admits such declaration
                    to be false, such admission shall bar prosecution under this section if, at the
                    time the admission is made, the declaration has not substantially affected the
                    proceeding, or it has not become manifest that such falsity has been or will be
                    exposed (RECANTATION DEFENSE).
               e.   Proof beyond a reasonable doubt under this section is sufficient for conviction.
                    It shall not be necessary that such proof be made by any particular # of
                    witnesses or by documentary or other type of evidence.
                          i. NOTE: This section expressly gets rid of the “two witness” rule.

iii. Distinctions b/t § 1621 & §1623 (Sherman):
        1. §1623 doesn‟t require govt. to employ “two witness rule” that is required
            under §1621;
        2. §1623 has a reduced mens rea requiring only that one “knowingly”
            commit perjury rather than “willfully,” as is required under §1621;
        3. §1623 is restricted to testimony before federal courts & grand juries and
            is therefore more limited in reach than §1621 which covers false
            statements made within JN “of any tribunal authorized to administer an
            oath” (court, grand jury, congressional committee, govt. dept. or agency,
            notary public).
        4. §1623 has a recantation defense; §1621 does not.




                                   23
b. MAKING MATERIAL FALSE STATEMENTS

     i. Materiality Requirement: Like with §001, test for materiality under
        perjury/false declaration statutes is not whether the statement has any actual
        effect on the proceeding but is, instead, whether the statement has the capacity
        or tendency to influence the outcome of the proceeding.

    ii. Bronston v. U.S. (US 73): “Literal Truth” Defense. A witness cannot be
        convicted under §1621 for an answer given, under oath, that is literally true but
        not responsive to the question asked & arguably misleading by negative
        implication. A jury should not be able to engage in conjecture whether an
        unresponsive answer, true and complete on its face, was intended to mislead. It
        is the questioner‟s job to pin the witness down to the specific object of the
        questioner‟s inquiry.
             1. But see U.S. v. Dezarn (98): The crime of perjury depends not only
                upon the clarity of the questioning itself, but also upon the knowledge &
                reasonable understanding of the testifier as to what is meant by the
                questioning. A defendant may be found guilty of perjury if a jury could
                find beyond a reasonable doubt from the evidence presented that D knew
                what the question meant and gave knowingly untruthful and materially
                misleading answers in response.
                    a. Court in Dezarn recognizes Bronston‟s “literal truth” defense and
                        rules that this defense applies in cases where a perjury D
                        responds to a question with an unresponsive answer.

    iii. Aiding & Abetting Perjury (U.S. v. Walser): One who willfully causes an
         innocent person to commit perjury under oath is liable as a principal under 18
         USC §2(b). §2(b) applies to all federal statues, including §1621 perjury.
            1. An individual is criminally culpable under §2(b) for causing an
               intermediary to commit a criminal act even though the intermediary has
               no criminal intent & is therefore innocent of the substantive offense.
            2.   See also Pereira v. U.S.: In order to aid & abet another to commit a crime it is
                 necessary that D in some sort associate himself with the venture, that he participate in it
                 as in something that he wishes to bring about, that he seek by his action to make it
                 succeed. One who causes the commission of an indispensable element of the offense
                 by an innocent agent or instrumentality, is guilty as a principal under §2(b). It is known
                 & familiar principle of criminal jurisprudence, that he who commands, or procures a
                 crime to be done, if it be done, is guilty of the crime, and the act is his act. This is so
                 true, that even the agent may be innocent, when the procurer or principal may be
                 convicted of guilt, as in the case of infants or idiots, employed to administer poison.

c. THE “TWO-WITNESS” RULE:

     i. The two-witness rule is an evidentiary rule that prohibits basing a perjury
        conviction solely upon an oath against an oath.
           1. Policies:
                   a. Equally honest witnesses may well have differing recollections of
                       the same event. Thus, something more than one person‟s word
                       against another‟s is necessary.



                                          24
                     b.   This rule protects a witness who has testified truthfully from
                          unfounded charges raised by one who is aggrieved by the
                          testimony.

    ii. General Rule (U.S. v. Davis): The two-witness rule requires that falsity of D‟s
        statement must be proved by (1) the testimony of 2 witnesses or (2) the
        testimony of one witness plus corroborating evidence.
            1. Corroborating evidence required need not be independently sufficient to
               establish D‟s guilt & may be circumstantial in nature.
            2. Corroborating evidence is sufficient if it, together with the direct
               evidence, is inconsistent with D‟s innocence, meaning that such evidence
               must tend to substantiate that part of the testimony of the principal
               prosecution witness which is material in showing that the statement
               made by the accused under oath was false.
                   a. Admissions of a party charged with perjury, if made under such
                       circumstances as to render the mclearly admissible, have sound
                       corroborative value.
            3. One the two-witness rule is satisfied, it is for the jury to decide the
               trustworthiness of the evidence & the weight that should be accorded it,
               and the credibility of the witnesses.

    iii. Note: False declarations statute (§1623(e)) expressly abandons the two-witness
         rule. Thus, under §1623, evidence provided by a single witness may establish
         the falsity of D‟s sworn declaration. Under §1623(c), if govt. can prove that
         declarant made 2 inconsistent statements under oath, one of which was
         necessarily false, it need not prove which statement is false. However, in a
         prosecution initiated under this theory, the statute provides that it is a defense
         that D at the time he made each declaration believed the declaration was true.

d. THE RECANTATION DEFENSE:

     i. The crime of perjury (§1621) is complete when the witness makes the false
        statement under oath. Therefore, if the witness later corrects/retracts the
        statement, it is no defense to perjury charge. There is no recantation defense
        under §1621. The false declarations statute (§1623), however, departs from this
        traditional rule & recognizes a limited recantation defense:
            1. § 1623(d): Where, in the same continuous court or grand jury proceeding in which a
                 declaration is made, the person making the declaration admits such declaration to be
                 false, such admission shall bar prosecution under this section if, at the time the
                 admission is made, the declaration has not substantially affected the proceeding, or it
                 has not become manifest that such falsity has been or will be exposed.

    ii. General Rule (US v. Sherman): Congress intended to limit recantation defense
        of §1623(d) only to those instances where perjurer recants before the declaration
        has not substantially affected the proceeding and it has not become manifest that
        such falsity has been or will be exposed. Using the word “or” was a mistake.
            1.   Sherman rule represents the majority rule. 2nd & 8th Circuits have concluded that “or”
                 in §1623(d) actually means or. Thus, in these circuits, a witness may recant perjured
                 testimony either before it becomes manifest that falsehood will be exposed or before
                 the testimony substantially affects the proceeding.


                                          25
        iii. Sometimes, conduct will fall under both §1621 & 1623 and prosecutor will have
             the discretion as to which statute D should be prosecuted under. In Sherman, D
             argued that prosecutor abused its discretion by prosecuting him under §1621 and
             thereby depriving D of a possible recantation defense.
                 1.   Court in Sherman ruled that with certain exceptions, when conduct runs afoul of more
                      than one prohibition of criminal law, prosecutors have discretion to choose under which
                      statute to prosecute. §§1621 & 23 operate independently of each other & the govt. can
                      normally elect upon which of those 2 statutes to base its prosecution. (“A defendant
                      has no constitutional right to elect which of 2 applicable statutes shall be the basis of his
                      indictment & prosecution.”). HOWEVER, notwithstanding the breadth of
                      prosecutorial discretion, a prosecutor‟s charging decisions cannot be motivated solely
                      by a desire to achieve a tactical advantage by impairing the ability of a defendant to
                      mount an effective defense, in such a case DP violation might be shown.

         iv. Note: Competent Tribunals & Ancillary Proceedings:
                1. §1621 punishes making a false statement that is “within JN of any
                    tribunal authorized by federal law to administer an oath.” Thus, offense
                    may be committed by testifying before a federal court or grand jury, a
                    congressional committee, a governmental dept. or agency, or a notary
                    public.
                2. §1623 is limited to sworn statements in a “proceeding before or ancillary
                    to” a federal court or grand jury. §1623 doesn‟t define “ancillary
                    proceedings,” but cases decided under this statute require that “certain
                    notions of formality & convention” must be observed before a
                    proceeding will fall within reach of §1623.
                          a.   In DUNN V. US, S.C. construed the ancillary proceeding language to require a
                               context at least as formal as a deposition. Therefore, giving sworn statement
                               in an interview in a private lawyer‟s office, for example, would lack requisite
                               degree of formality required.

VIII. OBSTRUCTION OF JUSTICE
      Note: When it comes to obstruction, there is a lot of focus on the way prosecutorial
      discretion is exercised. There are some prosecutors that believe that anything that
      someone does that gets in their way is obstruction.
    a. RELEVANT STATUTES:
          i. 18 USC §1503 (Obstruction of a Judicial Proceeding): Omnibus Provision
             (§1503(a)): Whoever ... corruptly (mens rea) or by threats of force, or by any
             threatening letter or communication, influences, obstructs, or impedes, or
             endeavors to influence, obstruct, or impede, the due administration of justice,
             shall be punished as provided in subsection (b) (imprisonment for not more than
             10 years, a fine, or both).
                 1. Requirements (US v. Collis): In order to satisfy §1503, govt. must prove:
                         a. There was a “pending” judicial proceeding;
                         b. D had knowledge or notice of the pending proceeding; and
                         c. D acted corruptly with intent of influencing, obstructing, or impeding the
                               proceeding in the due administration of justice.

         ii. 18 USC §1505 (Obstruction of a Congressional Proceeding): ... Whoever
             corruptly (mens rea), or by threats of force, or by any threatening letter or

                                               26
    communication influence, obstructs, or impedes or endeavors to influence,
    obstruct, or impede the due and proper administration of the law under which
    any pending proceeding is being had before any department or agency of the
    U.S., or the due and proper exercise of the power of inquiry under which any
    inquiry or investigation is being had by either House, or any committee of either
    House or any joint Committee of Congress...
        1.   NOTE: §1505 deals with obstruction of a congressional proceeding.

iii. 18 USC §1510 (Obstruction of Criminal Investigations):
              a. Whoever willfully (mens rea) endeavors by means of bribery to
                 obstruct, delay, or prevent the communication of information
                 relating to a violation of any criminal statute of the US by any
                 person to a criminal investigator shall be fined under this title, or
                 imprisoned not more than 5 years, or both.
              b. Whoever, being an officer of a financial institution -
                             1. With the intent to obstruct a judicial proceeding,
                                 directly or indirectly notifies any other person
                                 about the existence or contents of a subpoena for
                                 records of that financial institution, or information
                                 that has been furnished to the grand jury in
                                 response to that subpoena, shall be fined under
                                 this title or imprisoned not more than 5 years, or
                                 both.
                             2. Directly or indirectly notifies –
                                      a. A customer of that financial institution
                                          whose records are sought by a grand jury
                                          subpoena; or
                                      b. Any other person named in that subpoena

                                      about the existence or contents of that subpoena or
                                      information that has been furnished to the grand
                                      jury in response to that subpoena, shall be fined
                                      under this title or imprisoned not more than 1 year,
                                      or both.

iv. 18 USC §1512 (Tampering with a Witness, Victim, or an Informant):
          (a)(1) Whoever kills or attempts to kill another person, with intent to
                     (A) prevent the attendance or testimony of any person in an
                         official proceeding;
                     (B) prevent the production of a record, document, or other object,
                         in an official proceeding; or
                     (C) prevent the communication by any person to a law
                         enforcement officer or judge of the US of information relating to the
                         commission or possible commission of a federal offense or a violation of
                         conditions of probation, parole, or release pending judicial proceedings
             (a)(2) Using physical force or the threat thereof.
             (b) Whoever knowingly (mens rea) uses intimidation, threatens or
                 corruptly persuades another person, or attempts to do so, or engages
                 in misleading conduct toward another person, with intent to –

                                    27
       (1) influence, delay or prevent the testimony of any person in an official
          proceeding;
       (2) cause or induce any person to –
                 (A) withhold testimony, or withhold a record, document, or other
                     object, from an official proceeding;
                 (B) alter, destroy, mutilate, or conceal an object with intent to impair
                     the object‟s integrity or availability for use in an official
                     proceeding (Causing someone else to destroy documents See
                    Arthur Anderson).
                 (C) evade legal process summoning that person to appear as a
                     witness, or to produce a record, document, or other object, in an
                     official proceeding; or
                 (D) be absent from an official proceeding to which such person has
                     been summoned by legal process;
       (3) hinder, delay, or prevent the communication to a law enforcement officer
          or judge of information relating to the commission or possible commission
          of a federal offense or a violation of conditions of probation, supervised
          release, parole, or release pending judicial proceedings.
       shall be fined under this title or imprisoned not more than 10 years, or both.
(c) Whoever corruptly (mens rea) –
       (1) alters, destroys, mutilates, or conceals a record, document, or other object,
          or attempts to do so, with the intent to impair the object‟s intergrity or
          availability for use in an official proceeding (DOCUMENT
          DESTRUCTION PROVISION!); or
       (2) otherwise obstructs, influences, or impedes any official proceeding, or
          attempts to do so.
       shall be fined under this title or imprisoned not more than 20 years, or both.
(d) Whoever intentionally (mens rea) harasses another person and
    thereby hinders, delays, prevents, or dissuades any person from –
       (1) attending or testifying in an official proceeding;
       (2) reporting to a law enforcement officer or judge the commission or possible
          commission of a federal offense or a violation of conditions of probation,
          supervised release, parole, or release pending judicial proceedings;
       (3) arresting or seeking the arrest of another person in connection with a
          federal offense; or
       (4) causing a criminal prosecution, or a parole or probation revocation
          proceeding, to be sought or instituted, or assisting in such prosecution or
          proceeding;
       or attempts to do so, shall be fined under this title or imprisoned not more than
       1 year, or both.
(e) In a prosecution for an offense under this section, it is an affirmative
    defense, as to which the defendant has the burden of proof by a
    preponderance of the evidence, that the conduct consisted solely of
    lawful conduct & that D‟s sole intention was to encourage, induce, or
    cause the other person to testify truthfully.
(f) For the purposes of this section –
       (1) an official proceeding need not be pending or about to be instituted at the
           time of the offense (NO “PENDING PROCEEDING”
           REQUIREMENT LIKE UNDER §1503); and
       (2) the testimony, or the record, document, or other object need not be
          admissible in evidence or free of a claim of privilege.
(g) In a prosecution for an offense under this section, no state of mind
    need by proved with respect to the circumstance –
       (1) that the official proceeding before a judge, court, magistrate, grand jury, or
          gov.t agency is before a judge or court of the US, a US magistrate, a
          bankruptcy judge, a federal grand jury, or a federal govt. agency; or

                       28
                         (2) that the judge is a judge of the US or tha the law enforcement officer is an
                            officer or employee of the federal govt. or a person authorized to act for or
                            on behalf of the federal govt. or serving the federal govt. as an advisory or
                            consultant.

b. PENDING JUDICIAL PROCEEDINGS UNDER §1503:
     i. General Rule (US v. Simmons): A prerequisite for conviction under §1503 is
        the “pendency” at the time of the alleged obstruction of some sort of judicial
        proceeding that qualifies as an “administration of justice.”
           1.   An investigation that is being conducted by a federal law enforcement agency does not
                constitute a “pending” judicial proceeding because such agencies are not judicial arms
                of the government “administrating justice.”
           2.   Obstruction of a pending grand jury investigation is a §1503 violation. An
                investigation by a law enforcement agency ripens into a pending grand jury
                investigation for purposes of §1503 when officials of such agency apply for & cause to
                be issued, subpoenas to testify before a sitting grand jury. Instead of applying a rigid
                rule in determining whether there is a “pending” grand jury investigation, court should
                make a case-by-case inquiry as to whether the subpoena was offered in furtherance of
                an actual grand jury investigation, i.e., to secure a presently contemplated presentation
                of evidence before a grand jury.
                     a. IE: If there is just an investigation, there is no obstruction. You do need a
                          pending judicial proceeding. Court in Simmons says that grand jury subpoenas
                          must have been issued.
                     b. Note: It is not enough for there to be simply a “sitting grand jury” in order for
                          a case to be considered “pending” since in some JNs, there is always a sitting
                          grand jury.

           3.   While courts are in agreement that §1503 requires a pending proceeding,
                there is a split of authority when the charge is conspiracy to obstruct
                justice:
                    a. At least one circuit (5th) requires that a proceeding be pending
                         when the conspiracy is formed.
                    b. Majority of Circuits recognize that a punishable conspiracy may
                         be found even though no proceeding is pending when the
                         agreement is formed.
                             i. In the 11th Circuit, it is required that the conspiratorial objective have
                                  the “natural & probable effect of interfering with the due
                                  administration of justice” in a way that is more than merely
                                  “speculative.” (Vaghela).
                                       1. Vaghela Rule (11th): In order to sustain a conviction for
                                           conspiracy to obstruct justice under §1503, the government
                                           need not always show that a judicial proceeding existed at
                                           the time that Ds formed conspiracy, but must demonstrate
                                           that the actions that the conspirators agreed to take were
                                           directly intended to prevent or otherwise obstruct the
                                           processes of a specific judicial proceeding in a way that is
                                           more than merely speculative.
                                       2. This is majority rule.

           4.   When does a proceeding cease to be “pending” for purposes of §1503
                obstruction? Question remains unclear, but majority rule is that a
                proceeding is still “pending” even if an indictment has been issued. One
                way to determine whether a proceeding is “pending” is to look at the
                court‟s docket sheet.
                                         29
    ii. Pending Judicial Proceedings & Civil Actions (US v. Lundwall): Just like
        grand jury proceedings comply with §1503‟s pending proceeding requirement
        (see Simmons), the pendency of a civil action in a federal district court also
        satisfies the requirement. The willfull concealmeant/destruction of documents
        amounts to §1503 obstruction in both civil & criminal cases.
            1. Note: Neither a subpoena nor a court order directing the production of
                documents must be issued or served as a prerequisite to a §1503
                prosecution. Concealment & destruction of documents likely to be
                sought by subpoena is actionable under the statute.

c. ENDEAVORING TO INFLUENCE OR IMPEDE UNDER §1503:

     i. General Rule: §1503 punishes corrupt endeavors to influence the
        administration of justice. By using the term “endeavors,” Congress avoided
        technicalities of the law of attempt. Statute punishes any effort to do what the
        statute forbids, provided that the conduct has “at least a reasonable tendency”
        to corrupt a legal proceeding. Thus, conduct that falls far short of an attempt
        may still violate the statute.

    ii. US v. Collis: In order to satisfy §1503, govt. must prove:
           1. There was a pending judicial proceeding;
           2. D had knowledge or notice of the pending proceeding; and
           3. D acted corruptly with intent of influencing, obstructing, or impeding the
               proceeding in the due administration of justice.
                   a. In order to meet requirement (3), it is not necessary for govt. to
                       show that D‟s actions actually obstructed justice; so long as D‟s
                       actions had “the natural & probable effect” of impending
                       justice, it is a §1503 violation.

    iii. False testimony & §1503 (US v. Griffin): While false testimony alone is not
         sufficient to constitute obstruction under §1503, falsely denying knowledge &
         giving evasive answers do amount to obstruction under §1503‟s omnibus clause.
         If a false testimony under oath is material (has the natural effect of influencing
         the jury) and meets the other requirements of the obstruction statute, it can also
         be obstruction.
    iv. The “Nexus” Requirement (US v. Aguilar): Under §1503, there must be a
         “nexus” b/t the alleged obstructive conduct & the proceeding which is allegedly
         obstructed. IE: It must be foreseeable to D that what he does really will
         obstruct a pending judicial proceeding.
            1.   In order to be convicted under §1503, D‟s actions must be with an intent to influence
                 judicial or grand jury proceedings – D‟s act must have a relationship in time, causation,
                 or logic with the judicial proceeding – it is not enough that there be an intent to
                 influence some ancillary proceeding, such as an independent investigation.
            2.   An endeavor must have the natural & probable effect of interfering with the due
                 administration of justice. This is not to say that D‟s actions need be successful; and
                 endeavor suffices. But if D lacks knowledge that his actions are likely to affect the
                 judicial proceeding, he lacks the requisite intent to obstruct.
            3.   Uttering false statements to an investigating agent who might or might not testify
                 before a grand jury is insufficient for a §1503 conviction.



                                          30
            4.   The word “endeavor” in §1503 makes conduct punishable where D acts with an intent
                 to obstruct justice, and in a manner that is likely to obstruct justice, but is foiled in some
                 way. Where D with requisite intent to lie to a subpoenaed witness who is ultimately not
                 called to testify, or who testifies but doesn‟t transmit D‟s version of the story, D has
                 endeavored to, but has not actually, obstructed justice & is guilty under §1503.
     v. Corruptly influencing witness to claim privilege (US v. Cintolo): While a
        witness may invoke his 5th Amendment privilege against self-incrimination if he
        so chooses, one who bribes, coerces, forces or threatens a witness to claim the
        privilege, or advises with corrupt motive the witness to take it, is liable under
        §1503. This includes a lawyer who advises his client to plead the 5th with a
        corrupt motive.
            1.   Even if the lawyer‟s means are lawful (advising client to plead 5 th), clear proof of
                 improper motive could serve to criminalize his conduct. However, if an atty. acts in
                 good faith & in the honest belief that his advise is well-founded & in the just interests
                 of his client, he cannot be held liable under §1503.
            2.   NOTE: To alleviate concerns over lawyers being held liable for obstruction by
                 vigorously & zealously representing their clients, Congress passed 18 USC §1515
                 (“THE SAFE HARBOR PROVISION”), which provides that nothing in the
                 obstruction statutes prohibits or punishes “the providing of lawful, bona fide, legal
                 representation services in connection with or anticipation of an official proceeding. In
                 US v. Kloess, Court held that §1515 is an element of the offense rather than an
                 affirmative defense & therefore, where D is an attorney, Govt. must negate §1515
                 beyond a reasonable doubt.
    vi. Refusing to testify out of fear for your life:
            1.   In People v. Carradine (Ill.), where D refused to testify in a homicide trial against gang
                 members due to fear for herself & her family, D‟s obstruction conviction & 6 mos. Jail
                 sentence was upheld!
            2.   In US v. Banks (11th Cir.), Court held that D was not guilty of obstruction if refusal to
                 testify before grand jury was based solely upon realistic & reasonable perception that
                 giving testimony would result in imminent harm to safety of D or members of D‟s
                 family.

d. THE VICTIM & WITNESS PROTECTION ACT (§1512):

     i. NON-COERCIVE WITNESS TAMPERING:

            1.   §1503’s Omni-Bus Clause
                    a. General Rule (US v. Lester): §1512 does not preclude the govt.
                       from prosecuting witness tampering under §1503‟s omnibus
                       clause. Congress enacted §1512 to prohibit specific conduct
                       compromising various forms of coercion of witnesses
                       (intimidation, physical force, threats, harassment, or misleading
                       conduct), leaving §1503‟s omnibus provision to handle more
                       imaginative forms of criminal behavior, including forms of non-
                       coercive witness tampering, that defy enumeration.
                            i. Note: Court in Lester concluded that Congress intended
                               to limit §1512 to instances of witness tampering involving
                               coercion or deception, leaving inventive tampering by
                               other non-coercive means to §1503. Post-Lester,
                               however, §1512 has been amended. Now, both §1503 &
                               1512 cover non-coercive witness tampering. So, when
                               you are dealing with coercive witness tampering, govt.
                               can prosecute under §1512 only. When dealing with non-

                                           31
                      coercive witness tampering, govt. can prosecute under
                      either statute!

2.   §1512(b): Corrupt Persuasion
        a. General Rule (Arthur Andersen): To be liable under §1512(b),
           D must have “knowingly corruptly persuaded an individual to
           commit a prohibited act” – the word “knowingly” in the section
           modifies “corruptly persuaded.” Therefore, only persuaders
           conscious of the wrongdoing can be prosecuted under this
           section.
                i. Note: Court in Arthur Andersen held that a knowingly corrupt
                      persuader cannot be someone who persuades others to shred
                      documents under a document retention policy (which provides for the
                      destruction of documents) when he does not have in contemplation
                      any particular official proceeding in which those documents might be
                      material. While it is not necessary that an official proceeding to be
                      “pending” (§1512(f)(1)), it is necessary that a proceeding must have
                      been foreseeable at the time of the alleged criminal acts in order for
                      D to be liable. * If D believes that official investigation is likely
                      (“foreseeable”) & intends to destroy documents so that they won‟t be
                      available in that investigation, D will be held liable under §1512(b).*
                           1. There must be a nexus b/t the obstructive act & the
                                proceeding. If D lacks knowledge that his actions are likely
                                to affect the judicial proceeding, then he lacks the requisite
                                intent to obstruct. (NOTE: Court is applying Aguilar‟s
                                “likely to affect” requirement to §1512).
                ii.   Note: Document Destruction. In response to Andersen, Sarbanes-
                      Oxley provided prosecutors 2 new statutory theories for pursuing
                      obstruction charges based on document destruction, alteration &
                      falsification. Prior to these new statutes, document destruction was
                      prosecuted under §1512(c)(1) (destroying documents) or
                      §1512(b)(1)(B) (knowingly corruptly persuading someone to destroy
                      documents). When Congress enacted S-O Act, it made clear its
                      intention to broadly prohibit evidence tampering in anticipation of
                      govt. investigations:
                           1. 18 USC §1519: Makes it a crime to knowingly alter,
                                destroy, mutilate, conceal, or falsify any record, document,
                                or tangible object with intent to impede, obstruct, or
                                influence the investigation or administration of any matter
                                within the JN of any dept. or agency of the US, or any
                                bankruptcy case; or in relation to or contemplation of any
                                such matter or case.
                                     a. Dept. or agency has “JN” in a matter when it has
                                          statutory authority to act (see US v. Rodgers). This
                                          is true whether or not agency has actually exercised
                                          its power & authority over the matter & regardless
                                          of whether its JN is exclusive.
                           2. 18 USC §1520: Imposes record retention requirements on
                                accountants (like Arthur Andersen) who audit corporations
                                that are subject to Securities reporting requirements under
                                1934 Act. §1520 requires auditors to retain all audit or
                                review workpapers for 5 years. It is a crime to knowingly &
                                willfully violate the record retention requirements.
                           3. NOTE: Sarbanes-Oxley Act also added §1512(c), which
                                makes it a crime to corruptly:


                            32
                                                     a. Alter, destroy, mutilate, or conceal a record,
                                                          document, or other object, or attempt to do so,
                                                      b. With the intent to impair the object‟s integrity or
                                                          availability for use in an official proceeding; or
                                                      c. Otherwise obstruct, influence or impede an official
                                                          proceeding or attempt to do so.
                                 iii.   Note: In Upjohn v. US, the Court held that an attorney, who was
                                        charged under §1512(b)(1)(B), was justified in persuading his client
                                        to withhold documents that were covered by the attorney-client
                                        privilege from the IRS. No one would suggest that an attorney who
                                        “persuaded” Upjohn to take that step acted wrongfully, even though
                                        he surely intended that his client keep those documents out of the
                                        IRS‟ hands.

                  3.   §1512: Misleading Conduct:
                          a. General Rule (US v. Gabriel): In order to convict an individual
                              of witness tampering under §1512(b)(1), the govt. is not required
                              to prove that the witness was likely to testify or that D‟s actions
                              were likely to affect the witness‟ testimony. Rather, the govt. is
                              only required to prove that D endeavored corruptly to persuade or
                              mislead the witness with the intent of influencing the witness‟
                              potential testimony in an official proceeding. IE: The “likely to
                              affect” requirement of §1503 (Aguilar – D‟s actions must be
                              likely to affect judicial proceeding) does not apply to §1512
                              witness tampering.
                                   i. NOTE; Arthur Andersen overrules Gabriel!! Post-
                                      Anderson, §1512 does have a “likely to affect” nexus
                                      requirement.

                          b. Attempts to Dissuade Testimony (US v. Wilson): §1512(d)(1)
                             is not limited to conduct that actually dissuades testimony. The
                             statute also covers “attempts to” dissuade testimony. The success
                             of an attempt or possibility thereof is irrelevant; the statute makes
                             the endeavor a crime.
                                  i. Other Rules from Wilson:
                                         1. §1512(d)(1)‟s witness protection covers
                                             individuals who have already testified in a trial
                                             throughout the duration of the trial.
                                         2. The term “harass,” as used in §1512(d) is not
                                             defined by statute. This implies that Congress
                                             intended that “harass” takes its ordinary meaning
                                             which is “repeated attacks” or “to badger, disturb
                                             or pester.”

IX.   BRIBERY
      a. BRIBERY OF PUBLIC OFFICIALS & WITNESSES (§201):

        18 USC §201: Bribery of public officials & witnesses.
        (a) Definitions: For the purposes of this section –


                                              33
        (1) The term “public official” means (a) Members of Congress, Delegate, or Resident
        Commissioner, either before or after such official has qualified, or (b) an officer or employee or
        person acting for or on behalf of the US, or any department, agency or branch of Govt. thereof,
        including D.C., in any official function, under or by authority of any such dept., agency, or
        branch of govt., or (c) a juror.
        (2) The term “person who has been selected to be a public official” means any person who has
        been nominated or appointed to be a public official, or has been officially informed that such
        person will be so nominated or appointed; and
        (3) The term “official act” means any decision or action on any question, matter, cause, suit,
        proceeding or controversy, which may at any time be pending, or which may by law be brought
        before any public official, in such public official’s official capacity, or in such official’s place of
        trust or profit (see Parker and Sun Diamond Growers for clarity on this definition).

(b) Substantive offenses (bribery): Whoever –
       (1) Prohibits giving bribe: directly or indirectly, corruptly gives, offers, or
        promises anything of value to any public official or person who has been
        selected to be a public official, or offers or promises any public official or any
        person who has been selected to be a public official to give anything of value to
        any person or entity, with intent –
                  (A) to influence any official act; or
                  (B) to influence such public official or person who has been selected to be a public
                  official to commit or aid in committing, or collude in, or allow, any fraud, or make
                  opportunity for the commission of any fraud, on the US; or
                  (C) to induce such public official or such person who has been selected to be a public
                  official to do or omit to do any act in violation of the lawful duty of such official or
                  person.
        (2) Prohibits receiving bribe: being a public official or person selected to be
        a public official, directly or indirectly, corruptly demands, seeks, receives,
        accepts, or agrees to receive or accept anything of value personally or for any
        other person or entity, in return for:
                  (A) being influenced in the performance of any official act;
                  (B) being influenced to commit or aid in committing, or to collude in, or
                  allow, any fraud, or make opportunity for the commission of any fraud,
                  on the United States; or
                  (C) being induced to do or omit to do any act in violation of the official
                  duty of such official or person;
        (3) directly or indirectly, corruptly gives, offers, or promises anything of value
        to any person, or offers or promises such person to give anything of value to
        any other person or entity, with intent to influence the testimony under oath or
        affirmation of such first-mentioned person as a witness upon a trial, hearing, or
        other proceeding, before any court, any committee of either House or both
        Houses of Congress, or any agency, commission, or officer authorized by the
        laws of the United States to hear evidence or take testimony, or with intent to
        influence such person to absent himself therefrom (PROHIBITS BRIBING A WITNESS);
        (4) directly or indirectly, corruptly demands, seeks, receives, accepts, or agrees
        to receive or accept anything of value personally or for any other person or
        entity in return for being influenced in testimony under oath or affirmation as a
        witness upon any such trial, hearing, or other proceeding, or in return for
        absenting himself therefrom (PROHIBITS A WITNESS FROM SOLICITING A BRIBE);

        shall be fined under this title or not more than three times the monetary
        equivalent of the thing of value, whichever is greater, or imprisoned for not
        more than fifteen years, or both, and may be disqualified from holding any office
        of honor, trust, or profit under the United States.

(c) Substantive offenses (gratuities): Whoever –


                                            34
         (1) otherwise than as provided by law for the proper discharge of official duty--

                   (A) Prohibits offering gratuity: directly or indirectly gives, offers, or promises
                   anything of value to any public official, former public official, or person
                   selected to be a public official, for or because of any official act performed or to be
                   performed by such public official, former public official, or person selected to be a
                   public official; or
                   (B) Prohibits accepting gratuity: being a public official, former public official,
                   or person selected to be a public official, otherwise than as provided by law for the
                   proper discharge of official duty, directly or indirectly demands, seeks, receives,
                   accepts, or agrees to receive or accept anything of value personally for or because of
                   any official act performed or to be performed by such official or           person;
         (2) directly or indirectly, gives, offers, or promises anything of value to any person, for or
         because of the testimony under oath or affirmation given or to be given by such person as a
         witness upon a trial, hearing, or other proceeding, before any court, any committee of either
         House or both Houses of Congress, or any agency, commission, or officer authorized by the laws
         of the United States to hear evidence or take testimony, or for or because of such person's
         absence therefrom (PROHIBITS OFFERING GRATUITY TO A WITNESS);
         (3) directly or indirectly, demands, seeks, receives, accepts, or agrees to receive or accept
         anything of value personally for or because of the testimony under oath or affirmation given or
         to be given by such person as a witness upon any such trial, hearing, or other proceeding, or for
         or because of such person's absence therefrom (PROHIBITS A WITNESS FROM
         ACCEPTING A GRATUITY);

         shall be fined under this title or imprisoned for not more than two years, or both.


(d) Paragraphs (3) and (4) of subsection (b) and paragraphs (2) and (3) of subsection (c) shall not
be construed to prohibit the payment or receipt of witness fees provided by law, or the payment,
by the party upon whose behalf a witness is called and receipt by a witness, of the reasonable
cost of travel and subsistence incurred and the reasonable value of time lost in attendance at any
such trial, hearing, or proceeding, or in the case of expert witnesses, a reasonable fee for time
spent in the preparation of such opinion, and in appearing and testifying.

     i. Statute Notes: §201 is the principle federal bribery statute. §201 defines to
        distinct offenses – bribery (§201(b)) and gratuity (§201(c)). Both crimes revolve
        around giving or receiving something of value in connection with an official act.
        However, each crime is directed at a specific evil:
            1. Bribery = corruptly attempting to influence a public official in the
                performance of official acts by giving to the official valuable
                consideration.
            2. Gratuity = rewarding a public official on account of an official act, even
                if the payor‟s intent is benign. A gratuity is the payment of additional
                off-the-book compensation for the performance of an official act.

    ii. Official Acts:

             1.   §201 forbids a public official to solicit or accept anything of value “for
                  or because of an official act performed or to be performed by him.”
                  §201 defines “official act” as “any decision or action on any question,
                  matter, cause, suit, proceeding or controversy, which may at any time be
                  pending, or which may by law be brought before any public official in
                  his official capacity, or in his place of trust or profit.”



                                           35
       2.   General Rule (US v. Parker): §201(b)(2)(C) prohibits official from
            being induced to do or omit any act in violation of their official duty.
            §201(a)(3) defines “official act” broadly, which reflects Congress‟ intent
            to include any decision or action taken by a public official in his capacity
            as such. Official acts that violate an official‟s official duty are not
            limited to those proscribed by statutes and written rules & regulations,
            but may also be found in “established usage” because “duties not
            completely defined by written rules are established by settled practice,
            and action taken in the course of their performance must be regarded as
            w/in the provisions” of the bribery statute. Official acts that violate an
            official‟s official duty are also not limited to those w/in the official‟s
            specific authority.

       3.   Soliciting Bribe After Performing Official Act (US v. Arroyo):
            §201(b)(2)(A) Bribe solicitation – “Whoever, being a public official,
            corruptly solicits anything of value for himself in return for being
            influenced in his performance of any official act.” One is liability under
            this section when he performs an official act and then corruptly solicits a
            bribe, creating the impression in the potential briber‟s mind that his
            official act has not yet been taken.
                a. Congress defined “official act” broadly & didn‟t intend to limit
                    their coverage to future acts. Congress didn‟t intent for a public
                    official, who had solicited and encouraged a bribe with a false
                    representation that the official act was in futoro, to escape
                    liability for bribe-solicitation by proving that he had successfully
                    hidden the truth of past performance from the bribe-payor.

iii. Motive & Intent:

       1.   General Rule for Illegal Gratuities (US v. Sun-Diamond Growers):
            “Nexus” Requirement: §201(c)(1)(A) & (B) (illegal gratuities)
            requires a showing that something of value was given, offered, or
            promised to a public official (as to the giver), or demanded, sought,
            received, accepted, or agreed to be received of accepted by a public
            official (as to recipient), for or because of any official act performed or
            to be performed by such public official. In order to establish a violation,
            the govt. must prove a link b/t the thing of value conferred upon a public
            official and a specific “official act” for or because of which it was given
            (this must be alleged in the indictment, must be proved at trial & must be
            included in jury instructions).
                a. Note: by requiring a nexus with a “specific” official act, Court seems to be
                     defining official act more narrowly than other cases. The term “official act”
                     does not apply to anything an official does in the course of his employment.
                     However, Court doesn‟t give us a test to determine which official acts satisfy
                     the statute.
                           i. Ponsoldt says that “official act” might mean that the public official
                               does something that confers some value on the bribe/gratuity-giver.
                b.   Note: This Motive Requirement is different from Bribery: Unlike bribery,
                     which requires intent “to influence” an official act or “to be influenced” in an
                     official act (quid pro quo – specific intent to give/receive something of value


                                    36
                    in exchange for an official act), gratuity requires only that the gratuity be
                    given/accepted “for or because of” an official act. An illegal gratuity may
                    constitute merely a reward for some future act that the public official will take
                    (and may already have determined to take), or for a past act that he has already
                    taken.
                         i. Note: Although gratuity has a lesser mens rea requirement, it also
                             has a lesser punishment than bribery.
       2.   Lobbyists & Bribery Convictions (US v. Anderson): A gift or promise
            of something of value with the intent to exert an influence over a
            legislator in the performance of an official act is bribery. A lobbyist is
            under the same legal restrictions imposed by the bribery laws upon
            everybody else – that one who violates bribery laws is a lobbyist is no
            defense.
                a. In Anderson, the Court rejected D‟s proposed jury instructions:
                         i. “It is not corrupt in itself to influence or to attempt to influence a
                               Senator, nor is it corrupt in itself for a senator to be influenced in
                               respect to his actions … It is part of the duty of every Senator to pay
                               heed to & consider the views of all responsible parties on any matter
                               of legislation.”
                                    1. Note: This instruction is technically correct – without a gift
                                         or promise of something of value, influencing/attempting to
                                         influence a public official is not bribery. However, Court
                                         refuses to give it because of fears that it would confuse the
                                         jury.
                         ii.   “A lobbyist is a person who is paid for the purpose of attempting to
                               influence passage/defeat of legislation by Congress. Thie is neither
                               illegal nor iproper. The only legal restriction on a lobbyist is that he
                               must be properly registered with the clerk.”
                                    1. Note: This instruction is simply wrong – lobbyists are under
                                         the same bribery restrictions as anyone one else.
       3.   “Inconsistent” Bribery Verdicts (US v. Anderson): A bribery
            conviction should not be reversed due to inconsistent verdicts because
            the donor of the alleged bribe is convicted of bribery but the donee is
            not. These verdicts are not per se inconsistent. The payment & receipt
            of a bribe are not independent offenses – the donor‟s intent may differ
            from the donee‟s. Donor may be convicted of giving bribe despite fact
            that recipient had no intention of altering his official duties, or even
            lacked the power to do so.
                a. Note: In Anderson, Court said that even if these were inconsistent verdicts
                    (which they are not), that wouldn‟t mean that one of them should be
                    overturned since “there is nothing inherently wrong with inconsitent verdicts.”

iv. Thing of Value:

       1.   Although bribes & gratuities are commonly payments of money, § 201
            provides that the exchange/payment of “any thing of value” will suffice.

                a. General Rule (US v. Williams): Something is a “thing of value”
                   under §201 if, regardless of its actual worth in the commercial
                   world, D believed that it had value for himself. §201 focuses on
                   the value that D subjectively attached to the items received,
                   whether or not the “thing” was in reality worth something or not.


                                     37
v. Public Officials:

       1.   §201(c) defines “public official” to include (1) members of Congress,
            (2) government officers & employees, (3) anyone “acting for or on
            behalf of” the government in any official function, under or by authority
            of a federal governmental department or agency, and (4) jurors.

       2.   APPOINTED OFFICIALS:

               a. “Acting for or on behalf of” General Rule (Dixson v. US):
                  §201(a) is a comprehensive statute applicable to all persons
                  performing activities for or on behalf of the US, whatever the
                  form of delegation or authority. To determine whether any
                  particular individual falls within this category, proper inquiry is
                  not simply whether the person signed a K with the US or agreed
                  to serve as the government‟s agent but rather whether the
                  person occupies a “position of public trust” with official
                  federal responsibilities.
                       i. The mere presence of some federal assistance does not
                          put a local organization & its employees w/in the JN of
                          the bribery statue. All employees of local organizations
                          responsible for administrating federal grant programs are
                          not public officials within meaning of §201(a). To be a
                          public official under §201(a) an individual must
                          possess some degree of official responsibility for
                          carrying out a federal program or policy.

                       ii. Note: Since the passage of §666 (federal program
                           bribery), §201 should be read to require that public
                           official is directly involved in federal program (Salinas).

       3.   ELECTED OFFICIALS:

               a. General Rule: Bribery & Congressional Immunity (US v.
                  Brewster): The Speech or Debate Clause (Art. I, §6) does not
                  provide Congressmen with immunity from prosecution under
                  §201. The Clause prohibits inquiry only into those things
                  generally said or done in the House or Senate in the performance
                  of official duties & into the motivation for those acts. The Clause
                  does not prohibit inquiry into activities that are casually or
                  incidentally related to legislative affairs but not a part of the
                  legislative process itself. Since it is not necessary for the govt. to
                  inquiry into a congressmen‟s official legislative acts or
                  motivation behind those acts in order to make out a prima facie
                  case for bribery, the Speech or Debate Clause does not prevent
                  the Govt. from charging a Congressman with bribery.
                       i. Important Note: The illegal conduct under the bribery statute is
                           taking/agreeing to take money for a promise to act in a certain way.
                           There is no need for the govt. to show that D fulfilled the alleged
                           illegal bargain; acceptance of the bribe is the violation of the

                                 38
                                          statute, not performance of the illegal promise. Therefore, it is not
                                          necessary for the govt. to inquire into any official legislative acts or
                                          motivation therefore. Therefore, Speech or Debate Clause doesn‟t
                                          prevent prosecution for bribery.

        vi. Cooperating Witnesses:

                  1.   Although the primary focus of §201 is on preventing corruption of public
                       officials, bribery statute also prohibits bribing witnesses before federal
                       tribunals to influence their testimony (§201(b)(3), or paying gratuities
                       “for or because of” a federal witness‟ sworn testimony (§201(c)(2)).

                           a. §201 & Govt. Plea Bargains (US v. Ware): §201(c)‟s
                              prohibition on offering anything of value to a witness for or
                              because of the witness‟ testimony does not prohibit the Govt.
                              from offering a defendant leniency in exchange for his testimony
                              against a coD. The word “whoever” in §201(c) does not apply to
                              the govt.
                                   i. Note: Court in Ware does state that where one of these plea deals are
                                          entered into, it is a requirement of DP & Confrontation to inform D of
                                          the deal & allow D to cross-examine the cooperating witness about
                                          the deal.
                                    ii.   Note: In making this ruling, Court in Ware applies a canon of
                                          statutory interpretation which says that general words of a statute
                                          don‟t include the govt. or affect its rights unless the text of the statute
                                          expressly includes the govt. in two situations:
                                               1. Where application of the statute to the gov.t would deprive
                                                    sovereign of a recognized/established prerogative, title or
                                                    interest; or
                                               2. Where application of a statute to public officers would create
                                                    an obvious absurdity (Nardone).
                                   iii.   Note: In making this ruling, Court in Ware overrules 10th Cir. panel
                                          opinion in Singleton.

b. FEDERAL PROGRAM BRIBERY (§666):

18 USC §666 Theft or bribery concerning programs receiving federal funds.
(a) Whoever, if the circumstance described in (b) exists –
     (1) Being an agent of an organization, or of a State, local, or Indian tribal government, or any agency
         thereof –
           (A) embezzles, steals, obtains by fraud, or otherwise without authority knowingly converts
                to the use of any person other than the rightful owner or intentionally misapplies,
                property that --
                    (i) is valued at $5,000 or more, and
                    (ii) is owned by, or is under the care, custody, or control of such organization,
                        government, or agency, or
           (B) corruptly solicits or demands for the benefit of any person, or accepts or agrees to
               accept, anything of value from any person, intending to be influenced or rewarded in
               connection with any business, transaction, or series of transactions of such
               organization, govt., or agency involving anything of value of $5,000 or more;

              shall be fined under this title, imprisoned not more than 10 years, or both.

 (b) The circumstance referred to in (a) is that the organization, govt., or agency
    receives, in any one year period, benefits in excess of $10,000 under a Federal


                                                 39
Program involving a grant, contract, subsidy, loan, guarantee, insurance, or
other form of Federal assistance.

    i. Statute Notes: §666 prohibits payoffs to state & local officials who are agents
       of an organization or government entity that receives more than $10K in federal
       funds in any one-year period. In passing this statute, Congress intended to
       create new offenses to supplement the ability of the US to vindicate significant
       acts of theft, fraud & bribery involving federal monies that are dispersed to
       private organizations or State & local governments pursuant to a federal
       program.

    ii. Is there a Nexus Requirement?

             1. Salinas v. US (97): Supreme Court says “no.” To prove a case under
                §666(a)(1)(B), the govt. is not required to prove that the bribe in question
                in some way affected the federal funds received by the
                organization/agency. Subject to the $5K threshold for the business or
                transaction in question, the statute forbids acceptance of a bribe by a
                state or local official of an organization/agency receiving federal funds
                (more than $10K in any one year) intending to be influenced or rewarded
                in connection with any business, transaction, or series of transactions of
                the organizations. The prohibition is not confined to a business or
                transaction which affects federal funds.
                                                      rd
             2. US v DeLaurentis (3d Cir. 00): 3 Circuit says “yes.” Under §666,
                although it is not necessary for govt. to show that D‟s bribery activities
                actually impacted the federal funds themselves, or had a direct bearing
                on expenditure of those funds, it must appear that there is some
                connection b/t the bribery activities and a federal interest (I.E., a
                “nexus” b/t D‟s activities & the federal funds must exist).
                    a. IE: For a conviction under §666, the evidence must show some
                        connection b/t the defendant‟s bribery activities & the funds
                        supplied by the federal government, or the programs supported
                        by those federal funds.
                    b. Note: Court in DeLaurentis is reaffirming the holding of U.S. v.
                        Zwick (3d 99) and U.S. v. Phillips (5th Cir. 00).
             3. Sabri v. U.S. (04): The fact that §666(a)(2) does not explicitly require
                that bribery directly affect federal funds (lack of a “jurisdictional hook”)
                does not make it unconstitutional as beyond Congress‟ power.
                §666(a)(2) is w/in Congress‟ power under the Spending Clause coupled
                with the N&P Clause of Art. I.
                    a. Note: Court in Sabri accepts, for the sake of argument, that §666
                        doesn‟t require a nexus (Salinas) and holds that even if this is the
                        case, the statute is still constitutional. This ruling doesn‟t
                        necessarily make DeLaurentis irrelevant (although Ponsoldt
                        suggested in class that it did). Although the Court is saying that
                        if Salinas is correct, and §666 doesn‟t require a nexus, that §666
                        isn‟t unconstitutional, it doesn‟t conclusively say whether the
                        statute (apart from constitutional issue) requires a nexus or not.


                                          40
                         Even if the Constitution doesn‟t require a nexus, the statute still
                         might.
                      b. Note: The holding in Sabri substantially broadens the application
                         of §666.

    iii. What qualifies as a “benefit” under §666?
           1. General Rule (Fischer v. US): In order to determine whether an
               organization participating in a federal assistance program receives
               “benefits” under §666(b), an examination must be undertaken of the
               program‟s structure, operation & purpose. Inquiry should examine
               conditions under which the organization receives federal payments.
               Answer could depend on whether the recipient‟s own operations are one
               of the reasons for maintaining the program.
                   a. In Fischer, the Court held that hospitals & other health care providers that
                           participate in the Medicare program receive “benefits,” notwithstanding that
                           the elderly & disabled are the primary program beneficiaries. Because
                           Medicare is designed to ensure the availability of quality medical care and
                           because health care providers that participate in the program are subject to
                           extensive regulation & accreditation standards, both the government and the
                           community receive long-term advantagfes from maintaining the integrity of
                           the health care system. “The Govt. has a legitimate & significant interest in
                           prohibiting financial fraud or acts of bribery being perpetrated upon Medicare
                           providers. Fraudulent acts threaten the program‟s integrity. They raise the
                           risk participating organizations will lack the resources requisite to provide the
                           level & quality of care envisioned by the program.”
             2.   U.S. v. Copeland (11th 98): Scope of §666 is not limitless - §666(b)
                  clearly indicates that only those contractual relationships constituting
                  some form of “federal assistance” fall w/in its scope. Thus,
                  organizations engaged in purely commercial transactions with the
                  federal govt. do not qualify as organizations that received benefits
                  pursuant to a federal program as required by §666(b) and, therefore, are
                  not subject to §666.
                      a. In Copeland, the 11th Cir. concluded that Lockheed did not qualify as an
                           organization that received benefits pursuant to a federal program as required
                           by §666(b) since Lockheed received federal money under purely commercial
                           transactions with the federal govt. Although Lockheed was a prime contractor
                           for the US DOD and therefore received lots of federal monies through govt.
                           contracts, these were “purely commercial transactions” and therefore, didn‟t
                           count under §666(b).
                      b.   Note: Ponsoldt suggests that this holding is questionable post-Sabri.
                           However, as of right now, Copeland is still good law.

c. EXTORTION UNDER COLOR OF OFFICIAL RIGHT (HOBBS ACT)

     i. Hobbs Act, 18 U.S.C. §1951: Interference with commerce by threats of
        violence.
            (a) Whoever in any way or degree obstructs, delays, or affects commerce or
            the movement of any article or commodity in commerce, by robbery or
            extortion or attempts or conspires to do so, or commits or threatens physical
            violence to any person or property in furtherance of a plan or purpose to do
            anything in violation of this section shall be fined under this title or
            imprisoned not more than 20 years or both.

                                           41
(b) As used in this section –
      (1) The term “robbery” means the unlawful taking or obtaining of
          personal property from the person or in the presence of another,
          against his will, by means of actual or threatened force, or violence,
          or fear of injury, immediate or future, to his person or property, or
          property in his custody or possession, or the person or property of a
          relative or member of his family or of anyone in his company at the
          time of the taking or obtaining.
     (2) The term “extortion” means the obtaining of property from
          another, with his consent, induced by wrongful use of actual or
          threatened force, violence, or fear, or under color of official right.
     (3) The term “commerce” means commerce within D.C., or any
          territory or possession of the US; all commerce b/t any point in a
          state, territory, possession, or D.C. and any point outside thereof;
          all commerce b/t points w/in the same State through any place
          outside such state; and all other commerce over which the U.S. has
          jurisdiction.

1.   Statute Notes: Extortion under color of official rights comes from
     section (b)(2) of the Hobbs Act which defines extortion as “the obtaining
     of property from another, with his consent, under color of official right.”

2.   Evans v. U.S. (92): In order to convict a public official of a Hobbs Act
     violation for extortion under color of official right, the government need
     not prove an affirmative act of inducement by a public official. The
     word “induced” under §1951(b)(2) is part of the definition of the offense
     by the private individual, but not the offense by the public official. In
     the case of a public official, (b)(2) only requires that the public official
     obtain “property from another, with his consent, under color of official
     right” and the government 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 his official act. Public official need not
     have induced/solicited property in order to be liable for extortion under
     color of official right.
         a. Note: Although Court in Evans holds that a public official need not have
              “induced” or “solicited” a bribe to be liable under the Hobbs Act, Court does
              affirm the holding in McCormick v. U.S. (91), which held that a Hobbs Act
              violation required a “quid pro quo.” Therefore, although an affirmative act of
              inducement or solicitation is not required under the Hobbs Act, there must be a
              “quid pro quo” – the public official must receive payment knowing that it was
              in return for his official act.
                    i. IE: “Passive acceptance of a benefit by a public official is sufficient
                        to form the basis of a Hobbs Act violation if the official knows that
                        he is being offered the payment in exchange for a specific requested
                        exercise of his official power.”
         b.   Note: While public official must receive payment knowing that it was in
              return for his official act, fulfillment of the quid pro quo is not required –
              public official need not actually perform the official act which was the subject
              of the bribe. This is because the offense is completed at the time when the
              public official receives a payment in return for his agreement to perform
              specific official acts.


                             42
X.   RICO
     a. RICO STATUTE:

     18 USC §1961 Definitions. As used in this chapter –

     (1) “Racketeering activity” (predicate offenses) means (A) any act or threat involving murder, kidnapping,
     gambling, arson, robbery, bribery, extortion, dealing in obscene matter, or dealing in a controlled substance or
     listed chemical, which is chargeable under State law and punishable by imprisonment for more than one year;
     (B) any act which is indictable under any of the following provisions of 18 USC: §§ 201, 224, 471 – 473,
     659 if the act indictable under §659 is felonious, 664, 891 – 94, 1028, 1029, 1084, 1341, 1343, 1344, 1425,
     1426, 1427, 1461 – 1465, 1503, 1510, 1511, 1512, 1513, 1542, 1543, 1544, 1546, 1581-92, 1951, 1952, 1953,
     1954, 1955, 1956, 1957, 1958, 1960, 2251, 2251A, 2252, 2260, 2312, 2313, 2314, 2315, 2318, 2319, 2319A,
     2320, 2321, 2341-46, 2321-24, 175-78, 229-229F, 831, (C) any act which is indictable under 29 USC 186 or
     501(c), (D) any offense involving fraud in connection with a case under Title 11 (except §157), fraud in the
     sale of securities, or the felonious manufacture, importation, receiving, concealment, buying, selling, or
     otherwise dealing in a controlled substance or listed chemical, punishable under any law of the US, (E) any
     act which is indictable under the Currecny & Foreign Transactions Reporting Act, (F) any act which is
     indictable under the Immigration & Nationality Act, §274, 277, or 278 if the act indictable under such section
     of such Act was committed for the purpose of financial gain, or (G) any act that is indictable under any
     provision listed in §2332(g)(5)(B);
     (2) “State” means any state of the US, D.C., Puerto Rico, any territory or possession of the US, any political
     subdivision, or any department, agency, or instrumentality thereof;
     (3) “Person” includes any individual or entity capable of holding a legal or beneficial interest in property;
     (4) “Enterprise” includes any individual, partnership, corporation, association, or other legal entity, and any
     union or group of individuals associated in fact although not a legal entity;
     (5) “Pattern of racketeering activity” requires at least 2 acts of racketeering activity, one of which occurred
     after the effective date of this chapter & the last of which occurred within 10 years (excluding any period of
     imprisonment) after the commission of the prior act of racketeering activity;
     (6) “Unlawful debt” means a debt (A) incurred or contracted in gambling activity which was in violation of
     US law, a State or political subdivision thereof, or which is unenforceable under State or Federal law in whole
     or in part as to principal or interest because of the laws relating to usury, and (B) which was incurred in
     connection with the business of gambling in violation of US or state law, or the business of lending money or
     a thing of value at a rate usurious under State or Federal law, where the usurious rate is at least twice the
     enforceable rate;
     (7) “Racketeering investigator” means any attorney/investigator so designated by the Attorney General and
     charged with the duty of enforcing/carrying into effect this chapter;
     (8) “Racketeering investigation” means any inquiry conducted by any racketeering investigator for the
     purpose of ascertaining whether any person has been involved in any violation of this chapter or any final
     order, judgment, or decree of any US court, duly entered in any case or proceeding arising under this chapter;
     (9) “Documentary material” includes any book, paper, document, record, recording, or other material; and
     (10) “Attorney general” includes the AG of the US, the Deputy AG of the US, the Assoc. AG of the US, any
     Assistant AG of the US, or any employee of the DOJ or any employee of any dept. or agency of the US so
     designated by the AG to carry out the powers conferred on the AG by this chapter. Any dept. or agency so
     designated may use in investigations authorized by this chapter either the investigative provision of this
     chapter or the investigative power of such dept. or agency otherwise conferred by law.

     18 USC §1962 Prohibited Activities

     (a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a
     pattern of racketeering activity or through collection of an unlawful debt in which such person has participated
     as a principal within the meaning of 18 USC §2, to use or invest, directly or indirectly, any part of such
     income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of,
     any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. A
     purchase of securities on the open market for purposes of investment,a nd without the intention of controlling
     or participating in the control of the issuer, or of assisting another to do so, shall not be unlawful under this
     subsection if the securities of the issuer held by the purchaser, the members of his immediate family, and his

                                                     43
or their accomplices in any pattern of racketeering activity or the collection of an unlawful debt after such
purchase do not amount in the aggregate to 1% of the outstanding securities of any one class, and do not
confer, either in law or in fact, the power to elect one or more directors of the issuer.
(b) It shall be unlawful for any person through a pattern of racketeering activity or through collection of an
unlawful debt to acquire or maintain, directly or indirectly, any interest in or control of any enterprise which is
engaged in, or the activities of which affect, interstate or foreign commerce.
(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the
activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in
the conduct of such enterprise‟s affairs through a pattern of racketeering activity or collection of unlawful
debt.
(d) It shall be unlawful for any person to conspire to violate any of the provisions of (a), (b) or (c).


b. RICO NOTES:

          i. General Rule: RICO prohibits 3 discrete types of conduct: (1) investing in
             an enterprise (§1962(a)); (2) acquiring an interest in or maintaining control over
             an enterprise (§1962(b)); and (3) conducting or participating in the affairs of an
             enterprise (§1962(c)) – through a “pattern of racketeering activity” or through
             “collection of an unlawful debt.”
         ii. Although RICO was designed to combat organized crime, Congress defined
             “racketeering activity” broadly to include white collar crimes such as mail fraud,
             securities fraud, and bribery. Thus, prosecutors view RICO as a significant
             weapon against white collar & organized criminals.
        iii. RICO Statutory Requirements:
                  1.   A “person” (individual, partnership, corporation, etc.).
                  2.   An “enterprise” (any type of legal enterprise, informal enterprise, government
                       administrations, associations-in-fact of 2 or more people).
                  3.   A “pattern of racketeering” (at least 2 predicate offenses listed in §1961(1) w/in 10
                       years of one another that meet relatedness plus continuity test).
                  4.   Enterprise must “affect interstate commerce.
        iv. Although not expressly included, §666 (federal program bribery) can be a
            predicate RICO offense. You wouldn‟t expressly name §666 as the predicate
            offense but since you can base RICO case on state predicate crimes, you would
            simply say that D participated in “bribery” under state law.
         v. Most federal criminal statutes constitute predicate offenses under RICO. One
            exception is §1001 (false statements). Most would say that §1001 violation
            cannot constitute a predicate offense under RICO.
        vi. In order to convict under RICO, the government has to prove not only the
            elements of RICO itself (enterprise, pattern, etc.), but must also prove each
            element of the predicate offenses alleged.
                  1.   In Shyner v. NOW II, dealing with anti-abortion protestors, Court reverses Ds‟ RICO
                       conviction since the govt. failed to establish the elements of the predicate offenses
                       alleged (Hobbs Act violations).
       vii. Some courts will say that person (D), enterprise & pattern must be distinct &
            distinguishable (although they can definitely overlap). However, it is ok where
            the “persons” named as Ds overlap with the alleged enterprise (which is an
            association of the named Ds.).
      viii. In the context of a civil RICO action, civil P must prove things that prosecutor
            must not prove like injury, standing & causation.
                1. Anza v. Ideal Steel Supply: A private party may sue a corporation under RICO
                       only if alleged violation of Act was proximate cause of P‟s injuries.

                                                 44
c. THE ENTERPRISE:

     i. General Rule: RICO prohibits 3 discrete types of conduct: (1) investing in
        an enterprise (§1962(a)); (2) acquiring an interest in or maintaining control over
        an enterprise (§1962(b)); and (3) conducting or participating in the affairs of an
        enterprise (§1962(c)) – through a “pattern of racketeering activity” or through
        “collection of an unlawful debt.” The enterprise element thus is central to every
        RICO prosecution.
            1. Congress defined “enterprise” to include “any individual, partnership,
                corporation, association, or other legal entity and any union or group of
                individuals associated in fact although not a legal entity.” §1961(4).
                That definition did little to stem the tide of litigation challenging the
                breadth of the enterprise concept.
            2. The vast majority of criminal racketeering cases are brought under
                §1962(c) the “enterprise” alleged is a group of individuals “associated in
                fact.”

    ii. U.S. v. Turkette (81): RICO prohibits criminal participation, through a pattern
        of racketeering activity, in an “enterprise” as defined by the statute.
        “Enterprise” includes both legitimate and illegitimate/criminal organizations.
                   a. Note: While the statutory language of (a) and (b) and congressional history
                          suggest that Congress was mainly worried about people “taking over” a
                          legitimate enterprise through racketeering, Court in Turkette says that RICO is
                          not limited to these situations.
            2.   That a wholly criminal enterprise comes w/in the ambit of the statute
                 doesn‟t mean that a “pattern of racketeering activity” is an “enterprise.”
                 In order to secure a conviction under RICO, the government must prove
                 both the existence of an “enterprise” and the connected “pattern of
                 racketeering activity.”
                     a. The enterprise is an entity, for present purposes a group of persons associated
                          together for a common purpose of engaging in a course of conduct.
                                i. An “enterprise” is proved by evidence of an ongoing organization,
                                    formal or informal, and by evidence that the various associations
                                    function as a continuing unit.
                      b. The pattern of racketeering activity is, on the other hand, a series of criminal
                          acts as defined by §1961(1).
                                i. A “pattern of racketeering activity” is proved by evidence of the
                                    requisite number of acts (two) of racketeering committed by the
                                    participants in the enterprise.
            3.   While proof use to establish these separate elements may in particular cases coalesce,
                 proof of one does not necessarily establish the other. The “enterprise” is not the
                 “pattern of racketeering activity”; it is an entity separate & apart from the pattern of
                 activity which it engages. The existence of an enterprise at all times remains a separate
                 element which must be proved by the Govt.

    iii. NOW v. Scheidler I (94): §1962(c) does not require that the racketeering
         enterprise or the predicate acts of racketeering were motivated by an economic
         purpose. Since the enterprise in (c) (unlike in (a) or (b)) is not being acquired, it
         need not have a property interest that can be acquired nor an economic motive
         for engaging in illegal activity; it need only be an association in fact that
         engages in a pattern of racketeering activity.

                                          45
d. INTERSTATE COMMERCE REQUIREMENT:

      i. RICO enterprise must be engaged in – or its activities must affect – interstate or
         foreign commerce. This jurisdictional requirement may be satisfied by the
         presence of minimal contact with interstate commerce. Because RICO doesn‟t
         require proof that any of the racketeering activity had an interstate dimension,
         the prosecution need only show that the enterprise itself has some involvement
         with commerce. Thus, e.g., using mail/interstate telephone systems, purchasing
         goods from out-of-state vendors, and purchasing real estate in another state,
         have been held to satisfy the interstate commerce element.
     ii. In U.S. v. Robertson, the Court held that to pass constitutional muster, a
         substantial effect on commerce need by shown only when the regulated activity
         is wholly intrastate. Thus, if the person/entity in question is engaged in
         commerce, there need by now showing of “effect.”
    iii. Note that Congress‟ power to regulate activities which affect interstate
         commerce has been limited by the recent cases of Lopez and Morrison.

e. PATTERN OF RACKETEERING ACTIVITY:

     i. RICO forbids participating in affairs of an enterprise through a “pattern of
        racketeering activity.” Thus, like the enterprise requirement, “pattern” and
        “racketeering activity” elements are key components of a RICO violation.
        When it comes to “pattern” requirement, there is a lot of confusion. The
        definition of the term has proven troublesome because rather than telling us
        what a pattern of racketeering activity is, statute tells us what a pattern of
        racketeering activity requires. A pattern of racketeering activity “requires at
        least 2 acts of racketeering activity, one of which occurred after the effective
        date of this Act and the last of which occurred within 10 years (excluding any
        period of imprisonment) after the commission of a prior act of racketeering.”
        §1961(5).
    ii. Note: RICO defendant need not have been previously convicted of the alleged
        predicate offenses in order to be liable under RICO. However, it would be
        helpful to the government if D was previously convicted of the predicate
        offenses. The Court has rejected the claim that if D has been previously
        convicted of the predicate offenses, there is a double jeopardy bar to alleging the
        acts as predicates.
            1. If D has been previously convicted of the predicate acts, does the
                government have to “re-prove” the predicate offenses? Ponsoldt says
                MOST LIKELY; although no court has expressly held so. In the civil
                context, plaintiff can probably use ONCE to establish the predicate.

    iii. The “continuity plus relationship” test (HJ v. Northwestern Bell): To prove
         a “pattern of racketeering activity,” a plaintiff or prosecutor must show (1)
         Relatedness: that the racketeering predicates are related and (2) Continuity:
         that they amount to or pose a threat of continued criminal activity. Court holds
         that a pattern is not formed by “sporadic activity” and a person cannot be
         subjected to sanctions for committing two widely separated & isolated criminal
         offenses (quoting legislative history).

                                     46
           1.   Relatedness Requirement: Criminal conduct forms a pattern if it embraces criminal
                acts that have the same or similar purposes, results, participants, victims, or methods of
                commission, or otherwise are interrelated by distinguishing characteristics and are not
                isolated events.
                     a. Note: In practice, it is very easy to establish relatedness.
           2.   Continuity Requirement: Says that “continuity” is “both a closed- and open-ended
                concept, referring either to a closed period of repeated conduct (closed-ended), or to a
                past conduct that by its nature projects into the future with a threat of repetition (open-
                ended). There is no clear test here – plaintiff or prosecutor must prove continuity of
                racketeering activity, or its threat, simpliciter. While proof that a RICO D has been
                involved in multiple criminal schemes would certainly be highly relevant to this
                inquiry, it is not a requirement (court rejects proposed “multiple scheme test”).
                Whether the predicates proved establish a threat of continued racketeering activity
                depends on the specific facts of each case. Examples of continued racketeering activity
                offered by Court:
                     a. Open-ended continuity theory: RICO pattern may be established if related
                          predicates themselves involve a distinct threat of long-term racketeering
                          activity, either implicit or explicit Though the number of related predicates
                          involved may be small & they may occur close together in time, the
                          racketeering acts themselves include a specific threat of repetition extending
                          indefinitely into the future, and thus supply the requisite threat of continuity.
                                i. EG: Hoodlum sells “insurance” to a neighborhood‟s storekeeper to
                                    cover them against vandalism and tells Vs that he will be returning
                                    each month to collect the “premium.”
                     b. Closed-ended continuity theory: RICO pattern may be established by
                          continuity over a closed period by proving a series of related predicates
                          extending over a substantial period of time. RICO pattern may be established
                          by showing that predicate acts/offenses are part of an ongoing entity‟s regular
                          way of doing business. RICO pattern may be established by showing that
                          predicates are a regular way of conducting D‟s ongoing legitimate business or
                          enterprise.
                                i. EG: D is a member of an organized crime enterprise.
                     c. Note: Majority holds that “predicate acts extending over a few weeks or
                          months & threatening no future criminal conduct do not satisfy this
                          requirement” since “Congress was concerned in RICO with long-term criminal
                          conduct.
           3.   Note: Dissenting in NW Bell, J. Scalia says that majority‟s “continuity plus
                relationship” test is about as helpful as “life is a fountain.” Scalia says that majority is
                basically saying that “at least a few months of racketeering activity is generally for free,
                as far as RICO is concerned” and that “the „closed period‟ concept is a sort of safe
                harbor for racketeering activity that does not last too long, no matter how many
                different crimes & different schemes are involved, so long as it does not otherwise
                „establish a threat of continued racketeering activity.‟” Based on majority‟s test, this is
                basically correct.

f. STATE PREDICATE CRIMES:

     i. Under §1961(1), a limited number of state crimes may serve as RICO predicate
        crimes. Racketeering activity includes “any act or threat involving murder,
        kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene
        matter, or dealing in narcotic or dangerous drugs, which is chargeable under
        State law and punishable by imprisonment for more than one year.”

    ii. US v. Garner: Where §1961(1) refers to state CL offenses like bribery, it is not
        confined to any literal statute but is speaking more generally about the type of
        activity involved. Court in Garner says that “Congress intended for „bribery‟ to
                                         47
        be defined generically when it included bribery as a predicate act” under RICO.
        Thus, any statute that proscribes conduct which could be generically
        defined as bribery can be the basis for a predicate act . . . state offenses are
        included by generic designation.”

g. RELATIONSHIP B/T PERSON & ENTERPRISE:

     i. General Rule – Operation or Management Test (Reves v. Ernst & Young):
        In order to “conduct or participate in” the conduct of an enterprise‟s affairs
        under §1962(c), one must participate in the operation or management of the
        enterprise itself.
            1. The verb “conduct” requires an element of direction. In order to
                “participate, directly or indirectly, in the conduct of such enterprise‟s
                affairs,” one must have some part in directing those affairs. Word
                “participate” makes clear that RICO liability is not limited to those with
                primary responsibility for the enterprises affairs just as the phrase
                “directly or indirectly” makes clear that RICO liability is not limited to
                those with a formal position in the enterprise. HOWEVER, some part in
                directing the enterprise‟s affairs is required.

     ii. McCullough v. Suter (7th 85): A sole proprietor, acting alone, cannot be
         “associated” with his sole proprietorship under §1962(c), since this would
         essentially be saying that he is “associate with himself." HOWEVER, if the
         sole proprietorship has employees or other associates, then it is a distinct
         enterprise & its proprietor can be “associated” with it under RICO. Further,
         even if a business has no employees but its owner adopts the corporate form for
         his activity, the corporation is a distinct enterprise & the owner can be
         “associated” with the corporation for RICO purposes.
    iii. Cedric Kushner Promotions v King (2001): Court says that one who is
         formally affiliated with a corporate enterprise can be deemed a person who is
         separate from the enterprise. Court found that Don King, president & sole
         shareholder of Don King Productions, was a natural person with a distinct
         identity apart from the corporate legal entity, notwithstanding his status as a
         corporate owner/employee.
    iv. Note: §1962(c) requires both a relationship & interaction b/t the “person” and
         the “enterprise”:
            1.   Relationship: Person must be “employed by or associated” with an enterprise.
            2.   Interaction: Person must “conduct” or “participate in” the conduct of the affairs of the
                 enterprise through a pattern.
     v. Note: Relationship b/t person & enterprise is only a requirement of §1962(c).
        (a) & (b) do not contemplate a relationship b/t the person & the enterprise as an
        essential requirement for liability.
            1.   (a) is directed at use or investment of proceeds of racketeering activity to acquire,
                 establish, or operate an enterprise. Therefore, its possible for person & enterprise to be
                 the same (e.g., corporation that sells worthless securities may invest the proceeds of the
                 sales in its own stock or may use them for operating capital).
            2.   (b) contains no relational requirement & targets acquiring/maintaining an interest in or
                 control of an enterprise through pattern. Thus, a single corporation could engage in
                 fraudulent stock manipulation scheme to squeeze out minority shareholders in violation
                 of (b).



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              3.   Note: Since (a) & (b) don‟t contain a relational element, an enterprise that is a
                   wrongdoer can be named as D whereas under (c), the “person” is the proper defendant,
                   not the enterprise.

     vi. HYPO: Employee charged with RICO violation & the enterprise alleged is the corporation he
         works for. After this happens, can the government then turn around & hold the corporation
         liable for the employee‟s criminal conduct under respondeat superior? Yes; you can indict the
         individual (the “person”) and identify the enterprise as the employer/corporation and then you
         can say that because the employee is guilty, you‟re also naming the corporation as a defendant
         under respondeat superior. This is important to do because this is how you‟re going to get the
         most $.

h. RICO CONSPIRACIES:

      i. §1961(d) makes it unlawful “for any person to conspire to violate any of the
         provisions of (a), (b) or (c).” Therefore, when charging a RICO conspiracy, the
         govt. has to say that “defendant conspired under §1961(d) to violate” one of the
         other RICO provisions.

     ii. General Rule (Salinas v. US): A RICO conspiracy may exist even if a
         conspirator does not agree to commit or facilitate each & every part of the
         substantive offense.
            1. Therefore, a conspiracy to violate §1962(c) would have as the object of
                the offense an agreement to conduct or participate in the affairs of an
                enterprise through a pattern of racketeering activity. IT would not have
                as the object of the offense, an agreement to commit the individual
                predicate acts required for a pattern of racketeering.

    iii. Note: An overt act is not necessary for a RICO conspiracy.

     iv. Note: Under holding in Pinkerton v. US (1946), the partners in the criminal plan
         must agree to pursue the same criminal objective & may divide up the work, yet
         each is responsible for the acts of each other. “And so long as the partnership in
         crime continues, the partners act for each other in carrying it forward.”

i. CIVIL LIABILITY:

      i. Congress created a private civil RICO action for damages. §1964(c). To
         establish a cause of action, the civil RICO plaintiff must allege & prove all of
         the elements of a criminal violation (enterprise, interstate commerce, person,
         pattern, prohibited conduct) plus the plaintiff must prove injury to his or her
         business or property by reason of the RICO violation as well as standing to sue.

     ii. General Rules (Sedima, S.P.R.L. v. Imrex Co.):
            1. To bring a civil RICO coa, you do not have to prove that D has already
               been convicted of these predicate offenses.
            2. To collect damages under civil RICO provision, plaintiff does not have
               to prove some special “racketeering injury” but must only show that he
               has suffered injury to business or property as a result of conduct
               constituting the violation.



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