White Collar Crime Outline (DOC) by sanmelody

VIEWS: 150 PAGES: 60

									White Collar Crime Outline


                                   Fall 2004, Professor Strader

    A. Rule of lenity: where there is ambiguity in a criminal statute, doubts are to be
       resolved in favor of D
    B. Dual sovereignty: can be charged in both state and federal court for the same crime
    C. Double Jeopardy: The 5th A double jeopardy clause provides that a D may not be
       subject for the same offense to be twice put in jeopardy of life or limb
           a. Double Jeopardy clause prohibits:
                   i.   Being charged w/ a crime after you've been acquitted of that crime
                  ii.   Being charged w/ a crime after you've been convicted of the crime
                 iii.   Being punished twice for the same crime at the same trial
           b. Blockburger Rule
                   i.   If each crime has an element that the other doesn't have, then it's
                        a separate crime and you can be charged and punished for both,
                        UNLESS there is clear congressional intent that that shouldn't
                        happen
                  ii.   Lesser included offense is an offense that is always proven when the
                        other offense is proven. You cannot be convicted of the offense and
                        the lesser included offense since they don't each have elements that
                        the other lacks

        D.        Corporate and Individual Liability

             a. When a crime involves an artificial entity such as a corporation, the govt may
                indict the entity itself, and/or the individual wrongdoers or corporate
                managers responsible for the area in which wrongdoing occurred
             b. Purpose:
                    i.  Corporate liability is necessary to ensure that corporations
                        adequately supervise their agents and employees;
                   ii.  Encourages corporations to develop general policies to deter
                        wrongdoing;
                  iii.  Places responsibility on the entity that benefits from the wrongdoing
                        rather than solely on the individual wrongdoer
             c. How Do You Charge a Bank/Corporation, etc.?
                  i.  Respondeat Superior
                         1. Where an agent has acted illegally and we impute that
                             person's criminal activity to the corporation itself
                         2. RS is the general rule for federal cases (federal common
                             law of corporate liability is RS, MPC standard doesn't
                             apply in federal cases)
                         3. Imposes liability on corporations for acts committed by
                             corporate agents acting:
                                 a. On behalf of the corporation
                                 b. To benefit the corporation, AND



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                                              i.       This is met so long as the agent intended in
                                                       part to benefit the corporation, additional
                                                       motives won't relieve the corporation of
                                                       liability nor will they be relieved if they
                                                       received no actual benefit
                                                ii.    If the agent's acts are harmful to the
                                                       corporation there is a split of authority on
                                                       whether the corporation is still liable
                                                           1. If company fostered the conditions
                                                                that created the problem, then
                                                                they are generally liable
                                        c. Within the scope of the agent's authority
                                                 i.    Can be met when an agent is acting under
                                                       actual or apparent authority
                                                ii.    Person observing agent would believe the
                                                       agent was acting on behalf of employer
                              4.    General:
                                        a. Successor corporations can be held liable for
                                              actions committed by agents of predecessor
                                              corporations (can also indict dead corporations)
                                        b. A corporation can be held liable even where the
                                              agent's acts are contrary to explicit corporate
                                              policy, or if the corporation has in place a
                                              corporate compliance program to ensure its agents
                                              and employees comply w/ the law
                   ii.    Model    Penal Code
                             1.     DOES NOT apply in federal cases
                             2.     State courts can follow RS or MPC for corporate criminal
                                    liability
                              3.    Corporation may be convicted of a crime where:
                                        a. Conduct is performed by an agent of the
                                              corporation acting on behalf of the corporation
                                              w/in the scope of his office or employment, OR
                                        b. The offense consists of an omission to discharge a
                                              specific duty of affirmative performance imposed
                                              on corporations by law, OR
                                        c. Commission of offense was authorized or recklessly
                                              tolerated by the board of directors or by a high
                                              managerial agent acting on behalf of the
                                              corporation w/in the scope of his office or
                                              employment
                                        d. *Must prove that mgmt approved or recklessly
                                              tolerated the conduct
                              4.    Due diligence defense
                                        a. MPC provides a due diligence defense in all non-
                                              strict liability cases brought under §2.07(1)(a)



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                                       b. Under §2.01(5) the defense applies if D probes
                                          that the high managerial agent having supervisory
                                          responsibility over the subject matter of the
                                          offense employed due diligence to prevent its
                                          commission
                  iii.     Corporate Mens Rea
                               1. Use these to demonstrate mens rea if needed
                               2. Collective Knowledge
                                       a. All the knowledge of the individual corporate
                                          agents is collected together and then attributed to
                                          the organization
                                       b. May be necessary for conviction where no
                                          corporate agent possessed the mens rea necessary
                                          for the crime (can aggregate knowledge and
                                          willfulness)
                                       c. None of the employees acted willfully, but add all
                                          the pieces together and that's sufficient
                               3. Corporate Willfulness
                                       a. Flagrant organizational indifference
                                             i.    Gross disregard or reckless
                                            ii.    Evidence that the company was sloppy in
                                                   enforcing the applicable laws was enough
                                                   that the jury could infer willfulness
                               4. Ex: US v Bank of New England - Bank was found guilty of
                                  failing to file records on cash withdrawals by a customer
                                  that exceeded $10k. Ban k argued the judge's
                                  instructions on willfulness were flawed since the evidence
                                  didn't show they willfully failed to file the necessary
                                  records. Court found willfulness since the bank was
                                  sloppy in the way it trained its employees and enforced
                                  its own rules, thus okay for jury to infer willfulness and
                                  intent to act illegally b/c of the way the company
                                  behaved. Also able to use collective knowledge here and
                                  add up what each of the employees knew individually.
             d. How      Do You Charge A Manager?
                  i.       Prove all the elements of the crime
                 ii.       Responsible Corporate Officer Doctrine:
                               1. Where officer is responsible for the activity and the
                                  activity falls w/in what the court has termed a public
                                  welfare offense, then strict liability is allowed (intent is
                                  presumed, no mens rea required)
                               2. Limited, only applies to:
                                       a. Officers who are responsible, AND
                                             i.    Wrongdoing had to fall w/in that officer's
                                                   realm of organizational responsibility
                                       b. Public welfare offenses



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                                            Danger to public welfare is so great you
                                              i.
                                            can impose strict liability for those
                                            offenses
                                       ii.  Great chance of physical harm (so far has
                                            only applied to mislabeled drugs)
             e. How Do You Charge The Subordinates?
                  i.  Prove all the elements of the crime
                 ii.  It's not a defense that the subordinate was acting at the
                      direction of a manager or just following orders

        E.        Conspiracy

             a. Elements:
                    i. Agreement
                   ii. 2 or more people
                 iii.  To commit object crimes
                  iv.  D must have intent to agree and intent that object crimes be
                       committed
                   v.  Some statutes impose overt act requirement
             b. Benefits of bringing a conspiracy case
                    i. Evidentiary - everything one co-conspirator does becomes relevant
                       to everyone else; hearsay exception kicks in
                   ii. Allows govt to prosecute at a single trial all D's alleged to have been
                       parties to the conspiracy
                 iii.  Venue = any federal district court where the conspiratorial
                       agreement was reached or in any district where a co-conspirator
                       committed any act in furtherance of the conspiracy
                  iv.  SOL - doesn't start to run until the last act is committed
                   v.  Pinkerton Liability
                           1. Theory of vicarious liability - liable for the acts of another
                           2. D may be vicariously liable for a substantive offense that
                               another member of the conspiracy committed if:
                                   a. D was a party to that conspiracy
                                   b. The offense was w/in the scope of the unlawful
                                        project
                                   c. The offense was in furtherance of the conspiracy,
                                        AND
                                           i.   Something to help them commit their
                                                objective
                                   d. D could have reasonably foreseen the offense as a
                                        necessary or natural consequence of the unlawful
                                        agreement
                           3. Mens rea is lowered to negligence standard in most cases
                               (reasonably foreseeable)
             c. Statutes
                   i.  §371 - general federal criminal conspiracy statute



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                           1. Criminal liability is predicated on proof of an agreement
                               to defraud the US or to commit an offense against the
                               US, coupled w/ an overt act by any conspirator in
                               furtherance of that agreement
                           2. Offense Clause
                                   a. People have agreed to commit an offense against
                                        the US, criminal or civil, and do any act to affect
                                        the object of the conspiracy (overt act)
                                   b. This is 80% of cases
                           3. Defraud Clause
                                   a. People have agreed to defraud the US in a way
                                        that might not rise to the level of a criminal
                                        offense
                                   b. Ex: false record keeping in a way designed to
                                        mislead the govt
                           4. If the govt has alternate theories, they could charge one
                               conspiracy count under alternate theories (either offense
                               or defraud)
                  ii.  §1962 RICO statute - statutory supplement P50
                           1. No overt act requirement
             d. Conspiratorial Liability
                   i.  D may be held responsible for substantive offenses after joining
                       a conspiracy that were committed by any co-conspirator pursuant
                       to the conspiracy or as a foreseeable consequence of the
                       conspiracy
                  ii.  Premised on D's assent to the unlawful agreement; if a
                       conspirator withdraws or abandons the agreement, he is no longer
                       a member of the conspiracy and cannot be liable for any
                       substantive offenses thereafter committed by the co-
                       conspirators
                 iii.  Withdrawal from a conspiracy triggers the running of the 5 year
                       SOL to each conspirator who has withdrawn (occurred more than
                       5 years prior to indictment, then this bars any subsequent
                       conspiracy prosecution)
             e. Withdrawal Defense
                   i.  Withdrawal from a conspiracy can generally be effected by
                       affirmative acts inconsistent w/ the object of the conspiracy and
                       communicated in a manner reasonably calculated to reach co-
                       conspirators
                           1. Mere cessation won't satisfy
                           2. D need not show he either disclosed the illegal scheme to
                               the authorities or notified each co-conspirator of the
                               abandonment
                  ii.  Opting to Retire
                           1. D can w/draw from a business conspiracy (carried out
                               through the regular activities of an otherwise legitimate



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                                 business enterprise) by severing his ties to the
                                 conspiratorial enterprise and to its business activities
                              2. D must first show his association w/ a former employer
                                 was essential to his continued involvement in the alleged
                                 conspiracy
                              3. D must make a clean break
                                     a. If D retains an interest in the enterprise or
                                          otherwise continues to reap the benefits of the
                                          conspiracy, the withdrawal defense will be
                                          foreclosed
                  iii.    If you withdraw you're still guilty for conspiracy, just not future
                          crimes
                   iv.    Benefits of withdrawing from a conspiracy
                              1. Starts the SOL to run
                              2. No liability for future acts of co-conspirator (Pinkerton
                                 liability)
                              3. Co-conspirator Hearsay exception no longer applies
                                     a. Exception: statements made by co-conspirators in
                                          furtherance of the conspiracy are admissible b/c
                                             i.  Conspiracy is hard to prove
                                            ii.  When in a conspiracy the co-conspirators
                                                 are sort of agents to each other (almost
                                                 like the other person saying it)

             b. General:
                    i. No conspiracy if one of the two people is an undercover agent b/c
                       the agent doesn't intend the crime to occur
                   ii. Conspiracy never merges w/ the target offense
                 iii.  Inconsistent verdicts (acquitting all but one co-conspirator) don't
                       necessarily require reversal b/c we don't know why juries give
                       inconsistent verdicts
                  iv.  A conspiracy doesn't end automatically when the object of the
                       conspiracy becomes impossible to achieve or if the govt frustrates
                       the conspiracy (factual impossibility isn't a defense)
                   v.  Conspiracy will continue until everyone is: caught, abandons,
                       withdraws or all the crimes are complete and there's no more
                       activity
                  vi.  Duration: starts when the agreement occurs
                 vii.  You are deemed to adopt previous acts of your co-conspirators after
                       you join a conspiracy
                viii.  R8b - can't try D's together if they haven't committed the same
                       crime - to try all Ds together in the same conspiracy case you have
                       to prove they were part of the same conspiracy
                 ix.   Test isn't whether you know your co-conspirators but that you know
                       they are out there and are part of the same scheme




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                              1.   Ex: two distributors bought booze from a seller, they were
                                   all charged in a conspiracy b/c the distributors, even though
                                   they didn't know each other, they knew they were only
                                   buying half the lot of the booze so there had to be someone
                                   else involved

        B.        Securities Fraud

             a.   Governing Statutes and Rules
                    i.   R14e3 - if information relates to tender offers, no breach of duty is
                         required, just need to know that the information relates to a tender
                         offer
                   ii.   Section 10b - Statute
                             1. Elements
                                     a. D engaged in a fraudulent scheme, or made a
                                         material misstatement or omission;
                                     b. The act or omission occurred in connection w/ the
                                         purchase or sale of a security by one to whom D
                                           owed a duty
                                     c. D's act or omission resulted in damages to P
                                     d. D acted w/ the intent to defraud
                   iii.   Rule 10b5 - rule that the SEC issued to prohibit securities fraud
                              1. It shall be unlawful for any person, directly or indirectly,
                                 by the use of any means or instrumentality of interstate
                                 commerce, or of the mails or of any facility of any
                                 national securities exchange,
                              2. To employ any device, scheme or artifice to defraud
                              3. 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
                              4. 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 w/ the purchase or sale of any
                                 security
                              5. Requires a breach of duty
                   iv.    "On the basis of" requirement for §10b and Rule 10b5
                              1. Knowing Possession Standard - Rule 10b5-1
                                     a. For insider trading purposes, a person trades on the
                                         basis of insider information if the person was aware
                                         of the information when making the purchase or sale
                                     b. Affirmative Defense: where in specified
                                         circumstances the person making the purchase or sale
                                         demonstrates that before becoming aware of the
                                         information, the person had:




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                                               i.   Entered into a binding K to purchase or sell
                                                    the security
                                              ii.   Instructed another person to purchase or sell
                                                    the security for the instructing person's
                                                    account, OR
                                         iii.       Adopted a written plan for trading securities
                           2. Circuit Split
                                   a. Govt has to prove that a person traded on the basis
                                       of the information, but the SEC has suggested that
                                       if you knowingly possess insider information and
                                       trade then you're guilty.
                  v.   Open question about eavesdropping tippee - R10b5-2
                           1. Some cts think tippee can only be liable if tipper intended
                               to give the information
                           2. Some argue that a mere eavesdropper shouldn't be liable
                           3. An eavesdropper would be liable under 14e3 if it were
                               related to a tender offer (must know it's related to
                               tender offer and is secret)
             b. Insider Trading
                   i.  Policy: the harm is to the investing public, which assumes that it
                       is operating on a playing field that is level for all potential
                       investors; want to encourage honest securities markets and
                       promote investor confidence
                  ii.  Theories of Insider Trading
                           1. Insider
                                   a. Trading in a company's stock by corporate
                                       officers, directors and others who owe a direct
                                       fiduciary duty to both the company and to the
                                       company's shareholders
                                   b. Scenario: Trading by an insider of a company
                                       (employed by corporation and owes a fiduciary
                                       duty to the corporation)
                                   c. Insiders and quasi insiders who steal information
                                       from the company in whose stock they are trading
                           2. Quasi-Insider
                                   a. Trading in a company's stock by temporary or
                                       quasi-insiders, such as lawyers and accountants,
                                       who acquire a temporary duty to the company and
                                       its shareholders
                                   b. Accountant, printer, who b/c of the temporary
                                       relationship owes a fiduciary duty to the
                                       corporation
                                   c. Scenario: Owes a duty to a company and buys/sells
                                       stock in the company on information that belongs
                                       to the company
                           3. Misappropriation



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                                    a. Misappropriation will apply any time the traditional
                                        theory applies
                                    b. Misappropriation of confidential information for
                                        securities trading purposes, in breach of a duty
                                        owed to the source of the information
                                    c. Scenario: D owes a duty to the owner of the
                                        information, takes that information and trades on
                                        it. Even where the stock he's trading in isn't
                                        connected to the company that owns the
                                        information, this is still misappropriation.
                                            i.  Ex: Carpenter owes a duty to WSJ, he
                                                learns info about GM and buys GM's
                                                stock. This is misappropriation b/c he
                                                defrauds the principle out of the exclusive
                                                use of the information.
                                    d. Need a fiduciary duty: Husband-wife duty isn't
                                        sufficient, fiduciary duty are people like lawyers,
                                        doctors, psychiatrist who have power over people
                                        to whom they owe their duties traditionally;
                                        employees owe fiduciary duty to employers
                                    e. SEC not happy w/ Chestman, so they adopted
                                        R10b5-2 to define fiduciary duty:
                                            i.  Party receiving the information agrees to
                                                keep it confidential
                                           ii.  Parties involved in the communication of
                                                material nonpublic information have a
                                                history or pattern of sharing confidences
                                                and both parties have a reasonable
                                                expectation of confidentiality
                                          iii.  Family relationships including: spouses,
                                                parents, kids and siblings
                                          iv.   Affirmative defense: no reasonable
                                                expectation of confidentiality exists
                                    f. General:
                                            i.  Insider trading must be premised upon a
                                                breach of duty (Chiarella)
                                           ii.  There is no general duty to disclose before
                                                trading on material nonpublic information, a
                                                duty to disclose under §10b doesn't arise
                                                from the mere possession of nonpublic
                                                material information, but rather from the
                                                existence of a fiduciary relationship
                  iii.    Elements - Principal Actor's Insider Trading Liability
                             1. D must have been an insider or temporary insider of the
                                 company the stock of which was traded or must have




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                                misappropriated the information from a person or entity
                                to whom D owed a fiduciary duty
                           2. D must have possessed material, nonpublic information
                                    a. Nonpublic is determined by how a company treats
                                       the information
                                          i.   Do they treat it as secret information
                                         ii.   Being a rumor doesn't mean something is
                                               public unless it is out there in some sort of
                                               concrete form
                                    b. Information has to be material
                                          i.   Would it significantly alter the total mix of
                                               information for a reasonable investor
                                         ii.   Materiality in the context of extraordinary
                                               corporate transactions is to be determined
                                               by assessing the:
                                                   1. Likelihood of the event, AND
                                                   2. Degree of the event's potential
                                                       impact on the shareholders
                                                           a. Look to size of corps and
                                                               change in market price
                           3. D must have acted willfully
                           4. D must have bought or sold securities
                           5. D must have used the information when making the
                                purchase or sale
             c. Tippee Liability
                  i.   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 by disclosing the information to the tippee,
                                AND
                           2. The tippee knows or should know that there has been a
                                breach
                 ii.   Elements of Tippee liability - for a tippee to be liable.
                           1. The tipper must have been an insider, quasi-insider or
                                misappropriator
                           2. The tipper must have breached a duty
                                    a. A tipper breaches a duty only in the specific
                                       circumstances where the tipper stood to benefit
                                           personally from passing the information
                                       b. This can be in the form of:
                                            i.   The tipper's direct or indirect profits from
                                                 the trading
                                       c. A reputational or business benefit to the tipper,
                                          OR
                                          The tipper's giving of a gift, which could benefit



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                                          the tipper in the future as the recipient of a
                                          return gift
                                       d. No liability if the tipper hasn't breached a duty
                              3.   The tippee must have obtained material, nonpublic
                                   information from the tipper
                              4.   The tippee must have bought or sold securities
                              5.   The tippee must have knowingly possessed the information
                                   when making the purchase or sale, AND
                           6.      The tippee must have acted willfully
             d. Stock Parking
                  i.   Stock parking occurs when the first party, who is the true owner
                       of the stock, arranges w/ a second party (the nominal owner) to
                       hold the stock in the nominal owner's name. Under such an
                       arrangement, any profits and losses that the nominal owner has
                       are later transferred to the real owner.
                 ii.   Why would you park stock?
                           1. Margin rules limit the amount that can be borrowed to
                               buy stock; if a stock owner exceeded or is about to
                               exceed that limit the owner can temporarily sell (park)
                               the stock so it won't apply to the margin limit
                           2. Avoid taxes (sell some stock at a loss w/ the agreement
                               to buy it back later)

Deception: Fiduciary Duty


The Rule 10b-5 traditional theory holds an insider liable for trading securities of his corporation
based on relevant, non-public information. Such trading is viewed as a deception due to the
relationship of trust and confidence reposed in the insider by virtue of his position. The
duty applies to officers and directors, as well as anyone else who acts in a fiduciary capacity
towards the corporation, i.e. Attorneys, accountants and consultants.
The duty to ―disclose or abstain‖ only applies to those who have some kind of fiduciary relationship of
trust and confidence with the company, by means of which they have had access to the material non public
information: insiders, constructive insiders, tippees or misappropriators.

        Chiarella v. US
        Trading with inside information will only violate Rule 10b-5 when the trader has violated, or
        knowingly benefited from another’s violation of, a fiduciary duty.

Epstein: Whereas common law is not clear about the question whether directors owe fiduciary duties to
someone who is not yet a shareholder, but rather becomes one through the questionable transaction, Rule
10b-5 is clear as to this point: if you finally bought the shares you can sue! This constitutes a certain
asymmetry.

   Insider: One who obtains inside information by virtue of his employment with the company whose
    stock he trades in.

    Goodwin v. Agassiz (Mass. SC 1933) p. 85
       A director may not personally seek out a stockholder for the purpose of buying his shares
       without disclosing material facts within his peculiar knowledge as director and not within



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         reach of the stockholder. But the fiduciary obligations of directors are not so onerous as
         to preclude all dealings in the corporation’s stock where there is no evidence of fraud.
         Here there is no evidence of fraud because
             (1) There was no personal solicitation by the director
             (2) The stockholder was an experienced stock dealer
             (3) At the time of the sale, the undisclosed theory had not yet been proven, and
             (4) Had the director disclosed it prematurely, he would have been exposed to litigation if it
                  proved to be false


   Constructive Insider: One who is entrusted with inside information by virtue of professional relation
    with the company whose stock he trades in (e.g. attorneys; outside counsel)


   Tippee: One who receives inside information from an insider/tipper. The tippee will only violate Rule
    10b-5
        (1) if the insider/tipper has consciously violated his fiduciary duties to the company whose stock
            the tippee trades in
        (2) For his (insider/tipper) own personal direct or indirect gain. The insider/tipper must receive
            some benefit or at least, must have intended to make a pecuniary gift to the tippee.

         Dirks v. SEC (1983) p.35
             The liability of a tippee is derivative. A tippee assumes a fiduciary duty to the shareholders of
             a corporation not to trade on material nonpublic information only
                  (1) When the insider/tipper has breached his fiduciary duty to shareholders by disclosing
                      the information to the tippee, and
                  (2) the tippee knows or should know that there has been a breach

         Martha Stewart
         The SEC charged her as a tipee under Dirks, but the gov’t didn’t; they used the manipulation
         theory. Because the conversation with her broker was very brief, the gov’t didn’t think they could
         meet the burden beyond a reasonable doubt. The damages under the insider trading charge would
         be higher and bring more jail time. The gov’t thought that she would plead out. But she didn’t.

       Dirks v. SEC (1983) p. 35
           SEC charged Dirks with disclosure of material non-public information. The liability of a
           tippee is derivative. A tippee assumes a fiduciary duty to the shareholders of a corporation not
           to trade on material nonpublic information only :
                (3) When the insider/tipper has breached his fiduciary duty to shareholders (earns a
    RULE             personal benefit from the tip) by disclosing the information to the tippee, and
                (4) the tippee knows or should know that there has been a breach AND that the
                     information is secret

                  DIRKS v. SECURITIES AND EXCHANGE COMMISSION, 463 U.S. 646 1983)
                  NATURE OF CASE: SEC action for violation of 5 10(b). FACT SUMMARY: Dirks
                  (D), based on some nonpublic information he received and a subsequent investigation,
                  aided the SEC (P) in convicting EFA for corporate fraud and was then sued by theSEC
                  (P)for violating § 1O(b) because he openly disclosed the nonpublic information to
                  investors.
                  CONCISE RULE OF LAW: A tippee will be held liable for openly disclosing
                  nonpublic information received from an insider, if the tippee knows or should know that
                  the insider will benefit in some fashion from disclosing the information to the tippee.
                  Epstein: This is the ―fiduciary flow‖ case because it flows liability from insider to
                  outsider. Scienter is required under 10(b)(5) That is why Dirks got off.



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                   Footnote 14: wouldn’t work w/ O’Hagan b /c he was not a constructive insider to
                   Pillsbury. That is why you need the misappropriation theory. Read note 14.
                   NO BREACH IF TIPPER DOESN’T BENEFIT FROM THE DISCLOSURE
                   Problem 5-1 is U.S. v. Kimm
RULE 10-B5-1
IF you trade while in knowing possession of insider information, you are fucked.

Problem 5-2 on p. 46 of chap. 4
                   Insider Trading Analysis
                   1) Chiarella - classic theory of liability - links disclosure w/ fiduc. duty
                   2) Dirks - tippee’s liab. is derivative of tipper’s liab.
                   3) O’Hagan and misappropriation theory

    1.   Insider           Duty to Shareholders

    2.   Misappropriator Duty to Deanna 10b5-2 on counts 1 & 3

    3.   Tippee            Duty to

         U.S. v. Falcone—people were getting businessweek before it was on the market.


       Remote Tippees – must meet the Dirks prong at each level; so everyone who passes it along
becomes a tipper.




         US v. Chestman
                 A mere familial relationship between the source of information and the tipper was not
                 enough to impose a fiduciary duty in the tipper (Second Circuit).




   Misappropriator: One who misappropriates information by breaching a fiduciary relationship with
    the source of the information.

    US v. O’Hagan and Carpenter (US 1997) p.20
               This case affirmed the application of the misappropriation theory with respect to
               the scope of Rule 10b-5.
               Apart form the deceptive device traditional theory of Rule 10b-5, a person may
               be liable for the misappropriation of
                        (1) Material non-public information for the purpose of trading thereon
                        (2) In breach of a fiduciary duty due to the provider of the information
               Here, O’Hagan did not owe a duty to the shareholders of the corporation since he
               was not an attorney involved in the case. But he owed a fiduciary duty to his law
               firm and its clients to refrain from trading on the basis of material non-public
               information he may have acquired by virtue of his position in the firm

                   Same basic scheme as Chiarella except the                       government   charged
                   misappropriation and not insider trading. So, it worked.




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                  The governmentcould not have prosecuted Ohagan under the classical theory,
                  for O’Hagan was not an “insider” of Pillsbury, the corp in whose stock he traded.
                  Although an outsider, with respect to Pillsbury, O’Hagan had an intimiate
                  association with, and was found to have traded on information from Dorsey &
                  Whitney, counsel to tender offeror Grand Met. Under the misappropriation
                  theory, O’Hagan’s securitiestradingdoes not escape Exchange Act sanction,as it
                  would under Justice Thomas’ dissenting view, simply because he was associated
                  with, and gained nonpublic information from, the bidder, rather than the target.

                  So, if the classical theory applies, so will missapropriation.

                  Reread Carpenter (The Winans Wall Street Journal Case). They should have
                  charged him with misappropriation.

                  10b5-1 – Knowing possession of insider information and you trade, you’re guilty.
                  Only defense is if you already had a binding contract to sell or buy at the time
                  you got the inside information.
                      th
O’Hagan v. U.S. (8 Cir. 1998) p. 49
O’Hagan argues that he didn’t willfully break the law. He cites Cheek (tax law) and Ratzlaff
(currency reporting law) to show that knowledge of your unlawful act is required. Must know you
are doing something wrong and you want to do it. Intending to do it. No need to prove you know
you were violating a law. But the no knowledge proviso no jail defense rarely works.

United States v. Stewart (S.D.N.Y. 2004) P. 54
Rule 29 case – motion for judgment of acquittal b/c government has not met its burden. Same as
a jury verdict of acquittal; cannot be appealed.
She was accused of defrauding her own shareholders by giving a press conference and 2 press
releases. Court dismissed the charge because no way to prove intent; a rational juror would have
to speculate. Simple exculpatory no is not proof of securities fraud. Dismissed as a matter of
fact, not law. This is the first time the government ever used this theory; so did she have notice of
the crime charged?
                       nd
U.S. v. Bilzerian (2 Cir.1991) p. 70
Stock parking scheme; he filed motion in limine to testify that he had good faith based on attorney
advise without subjecting himself to cross-examination which would pierce the attorney-client
              nd
privilege. 2 Circuit told him to get fucked and try the damn case without whining. The attorney-
client privilege cannot be used at once as a sword and a shield.




d) Scienter

The defendant must know that the information to which he had access while trading was both, (1) material
and (2) nonpublic. Recklessness will also satisfy the requirement, especially in connection with the failure
to control another person’s insider trading.

Materiality


There can be liability under 10b-5 only if there is non-disclosure or misrepresentation of material facts.

    (i)       Standard of materiality:
The Supreme Court in TSC Industries v. Northway (1976) defined the standard of materiality (in the
context of proxy solicitation):


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―an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider
it important in deciding how to vote‖, ―there must be 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.

Thus, materiality depends on the significance the reasonable investor would place on the withheld or
misrepresented information.
There can be liability under 10b-5 only if there is non-disclosure or misrepresentation of material facts.

     (ii)     Standard of materiality:
The Supreme Court in TSC Industries v. Northway (1976) defined the standard of materiality (in the
context of proxy solicitation):
―an omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider
it important in deciding how to vote‖, ―there must be 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.

Thus, materiality depends on the significance the reasonable investor would place on the withheld or
misrepresented information.

What is material? Is a key person leaving? Is your key person 90 years old? Usually the disclosures are
very thorough; they try to include every possible risk.

Epstein example: disclosure for acquisition; he discovered underground storage tanks that had not been
disclosed. Too much liability; due diligence led him to kill the deal.
If they still wanted to do the deal, then he would have to disclose everything. Like ―this deal could put us
out of business‖

No one cares whether it’s a good deal; it’s all about the disclosure. CYA through disclosure.

Risk disclosure under the ’33 Act is a negligence standard; written in reaction to widespread corporate
malfeasance.

The government will regulate the disclosure, but not the risk. No matter how crappy your business plan, if
you disclose everything, you’re OK.

S1 Registration Statement is most common registration form under ’33 Act. If the company is deemed to be
selling securities, and they did not make these disclosures, then they are liable under the Act.

Some private placement exemptions – Reg. D, etc.


    (iii)    Application of this standard to contingent or speculative information or events:

                  Basic v. Levinson (US 1988) p. 444
                           To determine the materiality of contingent or speculative information or events,
                           the following test must be applied: The Probability/Magnitude Test
                           “Materiality will depend at any given time upon a balancing of
                           both the indicated probability that the event will occur and the
                           anticipated magnitude of the event in light of the totality of the
                           company activity”.
                           The SEC is concerned about the integrity of the markets. The
                           company’s denials led to a class action. These people want the
                           money they lost during the 15 months of negotiation that the
                           company denied there was a negotiation.



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                           Reasonable investor – will he care?
                           Scienter – knowledge: π must show that  acted with intent to
                           defraud; negligence will not suffice. Ernst & Ernst v. Hochfelder.
                           Although, some Courts say that intentional malice will suffice;
                           recklessness counts in some courts. But, the Supreme Court
                           says you need an intent to defraud or deceive.
                           Causation: see p. 452. Just need to show that the  made
                           material misstatements and the π sold stock at that time. Fraud
                           on the market theory.
                           But,  can rebut by showing that π was not affected.
                           But, how do you show reliance by each member of the class
                           action?
                           The Fraud on the Market Theory creates a rebuttable
                           presumption of reliance. It gets around this issue of trying to
                           prove causation. If the π can prove an affirmative false
                           disclosure, then the π has to prove reliance. But if  failed to
                           disclose, then π gets rebuttable presumption.
                           Disclose Falsley – π must prove reliance
                           Failure to Disclose – rebuttable presumption.



Wednesday, 06 October 2004
U.S.v. Booker
U.S.v. Fanfan
Sentencing guidelines cases.
RehnquistO’conner Kennedy Breyer no
Scalia, Ginsburg Thomas Souter Stevens  will vote to overturn
So, what happens?
Court could overturn the guidelines and constructively amend them
Or it could strike them in their entirety
Federal Judges hate the guidelines because the guidelines tie their hands
Will any changes be retroactive?

Review from last week
§ 10b of the 1934 Act
Rule 10b-5 under the act
10b is just a regulatory scheme to interprete the rule
Also, 10b5-1
10b5-2

Chiarella Review
    The printer w/ the inside info.
    Convicted of securities fraud; but reversed because he had not fiduciary duty to
      the company in the target company or any of the shareholders.
    Cady-Roberts defined insider trading. Defined duty of corporate officers to the
      company and its shareholders.
    Court said his duty to market in general is non-existent b/c too broad
    No other duties charged, so couldn’t bitch about it on appeal.


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       Court amended the common law of fraud; omission is only actionable in the
        presence of an affirmative duty. This was a judicial narrowing of the reach of
        10b.




e) Causation/Reliance



        C.       False Statements

             a. Governed by §1001
             b. Elements - Govt must prove that:
                   i.  D made a statement
                  ii.  The statement was false or fraudulent
                           1. Literally true statements aren't false/fraudulent
                           2. The word "no" in response to a question is a false
                               statement when it's not true
                           3. Shown by the fact that D either made an untrue
                               statement, or concealed a material fact
                 iii.  The statement was material
                           1. A statement that has a natural tendency to influence or
                               be capable of influencing the decision of the decision-
                               making body to which it was addressed
                           2. Don't have to show actual influence, just capacity to
                               influence
                           3. Whether something is material is an issue for the jury
                 iv.   D acted knowingly and willfully, AND
                           1. Gov't must prove D knew the statements was false at the
                               time it was made (constructive knowledge is ok) and that
                               D acted w/ intent to deceive
                  v.   D made the statement w/in the jx of the executive, legislative
                       or judicial branch of the federal gov't
                           1. D doesn't have to know the statement fell w/in a matter
                               of federal jx
             c. Exculpatory No Doctrine
                   i.  There is no exculpatory no defense to a false statements
                       prosecution
                  ii.  A false statement can adversely affect gov't functioning b/c it
                       assists in hiding the truth, thus exculpatory no falls w/in the
                       statute's design
                 iii.  5th A doesn't require an exculpatory no defense b/c a person can
                       decline to answer




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                   iv. DOJ has adopted guidelines saying they won't use exculpatory no
                       as basis for prosecution
             d. General:
                   i.  §1001 covers statements that are written, oral, sworn or unsworn,
                       volunteered or those required by law. Silence may also be covered
                       where a person has a duty to speak or where silence is misleading.
                  ii.  §1001 excludes statements made by parties or their attorneys in
                       judicial proceedings, and also limits the statute's application to
                       statements made in Congressional matters

                         iii.A check drawn on an account in which you have no money is a
                             statement of fact b/c you are signing that you have money to
                             cover the check (implied assertion of fact)

                   iv.     An implied assertion of fact may be a false statement of fact
                    v.     False statement is the lesser included offense of perjury, thus you
                           can't be convicted of both (false statement doesn't have any
                           elements that perjury lacks)

        D.       Perjury

             a. Perjury occurs when a person lies under oath
             b. You can't be charged with both §1621 and §1623 - prosecution must chose
                one or the other
             c. §1623
                   i.   **Only applies to court and grand jury proceedings
                  ii.   Recantation Defense
                            1. If a D takes back or recants false testimony, that
                               recantation may be a complete defense in certain
                               circumstances under §1623
                            2. §1623 provides that where:
                                   a. In the same continuous court or grand jury
                                       proceeding in which a declaration is made
                                   b. 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,
                                          i.   The declaration has not substantially
                                               affected the proceeding, OR
                                         ii.   It has not become manifest that such
                                               falsity has been or will be exposed
                            3. D must make a clear admission that the earlier statement
                               was false, at attempt by D to explain earlier testimony or
                               to later claim faulty memory won't suffice
                            4. Split circuit
                                   a. Majority rule: you must prove both prongs to
                                       recant


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                                       b. Minority rule: you need only prove one prong or
                                          the other to recant
                  iii.    General:
                             1. Recantation defense allowed under certain circumstances
                             2. Allows use of inconsistent statements to prove guilt, w/o
                                 requiring the govt to prove which of the two was false
                             3. No two-witness rule
             d. §1621
                   i.  **Applies to all federal proceeding where an oath is authorized
                  ii.  Two-Witness Rule
                           1. Requires that the alleged perjurious statement be
                              established either by:
                                  a. The testimony of two independent witnesses, OR
                                  b. One witness + corroborating evidence that is
                                      inconsistent with the innocence of D
                           2. To assess the sufficiency of corroborative evidence two
                              elements are considered:
                                  a. That the evidence, if true, substantiates the
                                      testimony of a single witness who has sworn to the
                                      falsity of the alleged perjurious statements
                                  b. That the corroborative evidence is trustworthy
                           3. General:
                                  a. Corroborative evidence doesn't have to be another
                                      witness
                                  b. All evidence offered to corroborate must be
                                      consistent w/ guilt - can't be just as consistent
                                      w/ innocence
                 iii.  General:
                           1. No limited recantation defense (may be able to use it to
                              show that D didn't intentionally make a false statement in
                              the first instance)
                           2. Broader in application than §1623
                           3. Two witness rule applies
                           4. You can't use §1621 to get a conviction based on the
                              existence of inconsistent statements, you need to be able
                              to prove which statement was false
             e. Elements of Perjury
                   i.  Oath
                           1. §1621, 1623 the govt must prove beyond a reasonable
                              doubt that D made the alleged false statement under
                              oath
                           2. No particular type of oath is required by statute
                  ii.  Tribunals and Proceedings
                           1. §1621, 1623 the govt must show that the tribunal was
                              authorized to conduct the proceeding
                           2. §1623



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                                     a. Only applies to proceedings before or ancillary to
                                         any court or grand jury
                                            i.   A sworn statement made in the informal
                                                 setting of an attorney's office was not
                                                 made in a proceeding ancillary to a court or
                                                 grand jury
                                           ii.   Congress intended only that statements
                                                 made in a formal setting be prosecuted
                                                 under 1623. Look for:
                                                     1. Stenographer
                                                     2. Opposing Counsel
                                                     3. Some sort of formal notification
                                                         requried
                              3. §1621
                                     a. Applies to both court and grand jury proceedings,
                                         and to all other proceedings in which an oath is
                                         authorized under federal law (i.e., congressional
                                         and administrative agency proceedings)
                  iii.    Falsity
                              1. Any perjury charge must include proof beyond a
                                  reasonable doubt that any allegedly perjurious statement
                                  was indeed false
                              2. Literally True or Non-Responsive Answers
                                     a. A literally true statement won't suffice for a
                                         conviction (Bronston)
                                     b. When a party has given an ambiguous answer, the
                                         burden is on the questioner to clarify the answer
                                     c. Under the pressures of interrogation, it isn't
                                         uncommon for the most earnest witness to give
                                         answers that are not entirely responsive
                              3. Inconsistent Statements
                                     a. Under §1623, but not §1621, the govt may prove
                                         falsity by proving that D made two or more
                                         declarations which are inconsistent to the degree
                                         that one of them is necessarily false.
                                     b. Proof of inconsistency will suffice even if the govt
                                         is unable to identify which of the statements is
                                         false
                                     c. Each statement must be material to the point at
                                         issue and must have been made w/in the statute
                                         of limitations period
                   iv.    Intent
                              1. Knowledge of Falsity
                                     a. §1621, 1623 require that the govt prove beyond a
                                         reasonable doubt that D knew the statement was
                                         false at the time the statement was made



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                                     b. The knowledge requirement isn't met if D made an
                                        honest mistake or genuinely had a faulty
                                        recollection
                            2. Willfulness
                                     a. §1621, unlike §1623, requires that in addition to
                                        proof of knowledge, the govt prove that D acted
                                        willfully
                                     b. Once the govt has proven that D knowingly made a
                                        false statement, a jury can naturally infer that D
                                        intended to deceive
                   v.    Materiality
                            1. In a perjury prosecution, govt must prove beyond a
                                reasonable doubt that the false statement was material
                            2. A material statement is one that is capable of having an
                                effect on the tribunal or proceeding; a statement is
                                material if a truthful statement would assist in the
                                matter
                            3. Govt need not show that the tribunal or proceeding was
                                actually affected
             f.   General:

                          i.Can't be charged and convicted under both §1621 and 1623

                    ii.    Literally true answers aren't perjurious - can't prosecute
                   iii.    Ambiguous question or answer - lower courts have said that if a
                           question or answer is ambiguous, then the jury must decide whether
                           there was perjury by determining what the witness understood and
                           intended his answer to be

        E.        Obstruction of Justice

             a. Obstruction charges are based upon allegations that D intended improperly
                to interfere w/ official proceedings
                   i.   Acts or attempted acts of altering or destroying documents
                  ii.   Offering or promoting false testimony, and
                 iii.   Threatening or influencing witnesses, jurors and court officials
             b. Elements of Obstruction of Justice/Proceeding
                  i.    Under the omnibus provision (§1503 or 1505) the govt must prove
                        that D:
                           1. Corruptly
                                   a. Mens rea: Split Circuit
                                           i.  Improper or evil motive, OR
                                          ii.  Specific intent to obstruct justice, OR
                                         iii.  D intended to commit an action and could
                                               have reasonably foreseen that obstruction
                                               would result from that action



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                              2. Endeavored to interfere
                                    a. Actus Reus
                                           i.  D need not succeed in the obstruction
                                               effort to fulfill this element
                                          ii.  Endeavor to obstruct must have the natural
                                               and probable effect of interfering w/ the
                                               due administration of justice
                                         iii.  Need not rise to the level of an attempt
                                    b. Endeavor covers:
                                           i.  Interfering w/ production of documents
                                                   1. Concealing, altering or destroying
                                                       documents that pertain to judicial,
                                                       administrative or legislative
                                                       proceedings, or w/holding documents
                                                   2. Documents that haven't been
                                                       subpoenaed may be covered so long
                                                       as D had a corrupt intent
                                          ii.  Giving or encouraging false testimony
                                                   1. Relating to judicial, administrative
                                                       and legislative proceedings
                                                   2. Also includes evasive testimony (no
                                                       different than encouraging a witness
                                                       to lie or not testify)
                                         iii.  Making false statements to govt agents
                                                   1. Simply lying to a govt agent who
                                                       may or may not testify before a
                                                       court or grand jury doesn't count as
                                                       obstruction
                                         iv.   Encouraging a witness to assert the 5th A
                                               privilege
                                                   1. This may constitute an endeavor to
                                                       obstruct justice so long as the
                                                       attorney acted w/ corrupt intent
                                          v.   Threatening jurors or court officers
                                                   1. Covered by the omnibus act even
                                                       though this is covered elsewhere
                                                   2. Starting at jurors during the case
                                                       isn't obstruction
                                                   3. Even if a judge isn't working on
                                                       your case, but other people's cases,
                                                       the judge is still covered if you
                                                       threaten him
                                    c. ***Nexus Requirement***
                                           i.  In order to prove that D committed an
                                               endeavor to obstruct, the govt must show
                                               that there was a direct connection or nexus



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                                             between D's act and the pending
                                             proceeding
                                       ii.   Obstruction act must have the natural and
                                             probable effect of interfering w/ the due
                                             administration of justice
                                 d. A Deceptive Promise to Commit an Endeavor
                                        i.   If someone promises to interfere w/ a
                                             pending proceeding but doesn't intend to do
                                             so, or isn't successful in doing so, there
                                             may still be an endeavor to obstruct.
                          3. With a pending
                                 a. Govt must prove the proceeding was pending at the
                                     time of the endeavor
                          4. Judicial, administrative or congressional proceeding, and
                                 a. Court Proceedings
                                        i.   A case begins w/ the filing of a
                                             complaint/indictment and ends when the
                                             opportunity for appeal has been exhausted
                                 b. Grand Jury Proceedings
                                        i.   Grand jury proceeding is pending when it is
                                             empaneled and has acted in conjunction w/
                                             an investigation
                                       ii.   If the investigation is being conducted by
                                             law enforcement agents who aren't acting
                                             on behalf of a grand jury then there is no
                                             pending grand jury proceeding
                                      iii.   Grand jury proceedings is over when an
                                             indictment is issued or it's dismissed
                                 c. Agency and Legislative Proceedings
                                        i.   IRS investigations and informal
                                             congressional investigations both constitute
                                             pending proceedings
                          5. That D knew such proceeding was pending
                                 a. Mens rea showing:
                                        i.   Govt must show that D knew of the pending
                                             proceeding
                                       ii.   If govt theory is that D interfered w/ a
                                             witness at the proceeding, the govt must
                                             also show that D knew the victim was a
                                             witness
                                      iii.   If govt theory is that D engaged in
                                             obstructive conduct toward a juror or court
                                             officer, then govt must prove that D knew
                                             the victim was a juror or court officer
             c. §1503 - Influencing or injuring officer or juror generally
                  i.  **Only applies to federal judicial proceedings



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                   ii. Rule:
                           1. Whoever corruptly or by threats or force, or by any
                              threatening letter or communication
                                  a. Endeavors to influence, intimidate or impede any
                                         i.  Grand or petit juror, OR
                                        ii.  Officer in or of any court of the US, OR
                                  b. Injures
                                         i.  Any such grand or petit juror in his person
                                             or property on account of any verdict or
                                             indictment assented to by him, or on
                                             account of his being or having been such
                                             juror, OR
                                        ii.  Any such officer, etc. in his person or
                                             property on account of the performance of
                                             his official duties
                           2. Corruptly or by threats or 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 under the
                              terms of the statute
                 iii.  §1503 Criminalizes
                           1. Endeavoring to influence a juror or court officer
                           2. Injuring a juror or court officer, AND
                           3. Endeavoring to interfere w/ the judicial system
             d. §1505 - Obstruction of proceedings before departments, agencies and
                committees
                   i.  **Only applies to matters under the Antitrust Civil Process Act
                  ii.  Rule
                           1. Whoever, w/ the intent to avoid, evade, prevent or
                              obstruct compliance, in whole or in part, w/ any civil
                              investigative demand made under the Antitrust Civil
                              Process Act, willfully w/holds, misrepresents, etc.
                              documentary material, answers to written interrogatories
                              or oral testimony which is the subject of demand, or
                              attempts to do so or solicits another to do so
                           2. Whoever corruptly or by threats of force, etc.
                              influences, obstructs or impedes or endeavors to
                              influence. the administration of the law under which any
                              pending proceeding is being had before any department or
                              agency of the US, 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 the Congress
                                       a. Contains Omnibus provision
             e.   General:
                    i.   Staring alone isn't obstruction



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                    ii.    Jurors are no longer discharging their duties once they have given
                           their verdict and been dismissed
                   iii.    Attempting to bribe a judge is obstruction since it may lead D not to
                           seek his full legal remedies and may lead a judge to have to recuse
                           himself from the case

        F.       Immunity

                 a.      Under federal law you can be compelled to testify against yourself
                 if you're given immunity from prosecution

                 b.      Corporations don't have immunity b/c they don't have 5th A
                 privileges (neither do corporate agents acting on behalf of corporations)

                          i.Exception - Act of Production Privilege:

                                   1.      If a corporate agent's act of producing the
                                   document would incriminate the agent, then he can claim
                                   the 5th

             c. Use Immunity
                   i.  Govt can't take your immunized testimony against you at a
                       criminal trial and they can't use any evidence derived from your
                       testimony against you
                  ii.  SC held this is all you're entitled to under the 5th A
                 iii.  If investigation is of crime A, they could still prosecute you for
                       it even though you have immunity, they just can't use your
                       testimony or derivative evidence against you
                 iv.   Derivative use is a but for kind of thing
                  v.   Govt must be able to prove they already had the information to
                       later indict you, this is a difficult burden to meet
             d. Transactional Immunity
                   i.  We can never prosecute you in connection w/ crime A period.
                       Much broader immunity.
                  ii.  You never have immunity from perjury - you can always be
                       indicted for perjury if you lie on the stand, even if you
                       otherwise had immunity

        G.       Bribery and Gratuity

             a. Governed by §201
             b. Bribery
                  i.    Essence: intent that the public official be influenced in a
                        particular way in connection w/ a particular official act (quid pro
                        quo)
                            1. Ex: I will give you this and in exchange you agree to do
                                that particular act
                            2. Involves using corrupt influence on an official act


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                   ii.      Elements of Bribery
                               1. Elements of the crime of giving or offering to give a
                                   bribe are:
                                       a. D gave or offered to give something of value
                                             i.    If the thing actually has value or the
                                                   person believes it has value, that is
                                                   sufficient
                                       b. Recipient or offeree was (or was selected to be) a
                                          federal public official
                                       c. D acted w/ corrupt intent, AND
                                             i.    Intent is met by showing that the payment
                                                   was given or received w/ the understanding
                                                   that it was designed to influence an official
                                                   act
                                       d. D's scheme was designed to influence the public
                                          official in an official act
                                             i.    Quid pro quo requirement
                                            ii.    Official act refers to any decision, etc.
                                                   which may at any time be pending or
                                                   brought before any public official in his
                                                   official capacity
                               2. Elements of the crime of receiving or agreeing to receive
                                   a bribe are:
                                       a. D received or agreed to receive something of value
                                       b. D was (or was selected to be) a federal public
                                          official
                                       c. D acted w/ corrupt intent, AND
                                             i.    Intent is met by showing that the payment
                                                   was given or received w/ the understanding
                                                   that it was designed to influence an official
                                                   act
                                       d. The scheme's design was that D be influenced in
                                          an official act

                 c.         Gratuity

                       i.   Essence: appearance of improper influence without requiring proof of
                            an intent to corrupt a particular govt action
                                1. Requires no quid pro quo, instead only requires that the
                                     payment be intended as compensation for an official act, it
                                     doesn't require an intent to influence or be influenced in a
                                     particular way
                                2. Includes merely giving a gift
                      ii.   Timing: If D formulates an intent to give the payment knowing that
                            the public official has already performed or decided to perform the
                            official act, then only a gratuity charge is appropriate (b/c D



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                          couldn't intend the official to be influenced in connection w/ the act
                          b/c the decision has already been made)
                  iii.    Elements of Gratuity
                              1. The elements of the crime of giving or offering to give an
                                  illegal gratuity are:
                                       a. D gave or offered to give something of value
                                       b. Recipient or offeree was (or was selected to be) a
                                           federal public official
                                       c. D intended that the thing of value be given as
                                           compensation for an official act already performed
                                           or to be performed otherwise than as provided by
                                           law for the proper discharge of D's official duty
                              2. The elements of the crime of receiving or agreeing to
                                  receive an illegal gratuity are:
                                       a. D received or agreed to receive something of value
                                       b. D was (or was selected to be) a federal public
                                           official, AND
                                       c. D received or agreed to receive the thing of value
                                           as compensation for an official act already
                                           performed or to be performed, otherwise than as
                                           provided by law for the proper discharge of D's
                                           official duty
                              3. Shall be fined or imprisoned for not more than 2 years or
                                  both

             d. General:
                    i. Govt must prove a link between a thing of value conferred upon a
                       public official and a specific official act for or b/c of which it was
                       given
                   ii. The key is the public official's understanding of why the person is
                       offering the money - if he thinks the other person is acting w/
                       corrupt intent, then he is guilty of soliciting a bribe
                 iii.  Gratuity is a lesser offense of bribery, so can't be convicted of both
                  iv.  With bribery and gratuities both the payer and payee can be
                       charged and convicted
                   v.  Whether something is of value is measured by D's subjective belief
                       at the time of the bribe/gratuity
                  vi.  D may be convicted of giving or receiving a bribe even if the public
                       official had no intention of being influenced or couldn't be influenced
                       in an official act; sufficient for the bribing party to believe that the
                       public official would be influenced in an official act
                 vii.  May find a federal official act even if the conduct of the federal
                       official is directed to state or local officials
                viii.  Bribery v Gratuity
                           1. Look to see when the intent developed - if intent developed
                                after the act has already occurred, then this is a reward for



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                                   something already done and can only be a gratuity b/c not
                                   influencing, etc. a future act
                              2. If the agreement occurs before the payment, this may be
                                   gratuity or bribery depending on the parties' understandings
                                   - if there is a quid pro quo understanding you have bribery, if
                                   no quid pro quo this is only a gratuity
                   ix.    Dixson test for public official: whether D occupied a position of
                          public trust w/ official federal responsibilities (to be a public
                          official under §201a, an individual must possess some degree of
                          official responsibility for carrying out a federal program or policy)
                              1. Director of city housing authority was found to be public
                                   official b/c it was funded w/ both state and federal money
                              2. Low level corporate employee responsible for determining
                                   eligibility for federally-subsidized housing was also
                                   considered to be a public official
                              3. Also applies to those who participate in the legislative
                                   process (congress, senate, lobbyist)

        H.        Extortion

             a. Two Theories:
                    i.  Use of Fear
                  ii.   Threat of Violence
             b. Obtaining of property from another w/ his consent induced by wrongful use
                of actual or threatened force, violence or fear or under color of official
                right
             c. Elements of Extortion
                   i.   D's acts affected interstate commerce
                            1. Depletion of a victim's assets is sufficient to show it
                                affected interstate commerce
                    ii.   McCormick (1991) Proof of quid pro quo is an essential element of a
                          Hobbs Act prosecution based upon payments identified as campaign
                          contributions. D’s conviction reversed b/c evidence insufficient to
                          support conviction b/c no explicit quid pro quo.
                              1. N.B. Most courts say this standard still applies when violation
                                  arises out of the receipt of campaign contributions
                   iii.   After Evans: implicit quid pro quo, relaxed standard.
                   iv.    Scalia, concurring says that color of official right means that
                          the official believes that he is ENTITLED to it. His
                          construction of the phrase is much narrower than that adopted
                          by the majority.
                   v.     D obtained or attempted or conspired to obtain, property of
                          another
                              1. Interference w/ right to participate in labor union affairs
                                  constitutes "property" deprivation
                              2. Also implicated in Hobbs Act prosecutions of anti-abortion
                                  activists



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                           3. Property must have value
                  vi.  The property was obtained, or would have been obtained, w/ the
                       other person's consent
                           1. This distinguishes the crime from robbery
                 vii.  D acted w/ the required mens rea, AND
                           1. Jx split - some require the govt show that D specifically
                               intended to achieve the desired result, others only
                               require the govt to show that D generally intended to
                               commit the acts proscribed by the statute
                           2. You know the money is being given to you b/c they are
                               acting out of fear or under duress of your official office
                viii.  The property was obtained, or would have been obtained, by
                       either:
                           1. Wrongful Use of Fear, OR
                                   a. Extortion by using physical force or exploiting fear
                                       of physical harm, OR
                                          i.   Not a white collar crime
                                   b. Extortion by exploiting fear of economic harm
                                          i.   Must be viewed from V's perspective
                                         ii.   Test for whether the victim acts out of
                                               fear of economic harm:
                                                   1. The victim must reasonably believe
                                                       that D had the power to harm the
                                                       victim, AND
                                                   2. D would exploit that power to the
                                                       victim's detriment
                                   c. Govt must show that D intended to take advantage
                                       of victim's fear (need not show that D created or
                                       attempted to create the fear)
                           2. Under Color of Official Right
                                   a. Not limited to federal public officials
                                   b. Occurs when a public official uses the power of
                                       public office to obtain payment from a victim
                                   c. Extortion can be proven even where the extorted
                                       party initiated the transaction
                                   d. When the theory is extortion under color of
                                       official right, the payment must be made in
                                       exchange for an explicit quid pro quo
                                          i.   In cases of campaign contributions you
                                               seem to need an explicit quid pro quo, but
                                               in other situations (non-campaign) an
                                               implicit quid pro quo (wink and nod) is okay
             d. General:
                    i. Distinguish extortion from bribery and gratuity by the culpability of
                       the parties




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                               1. Bribery and gratuity - payer and payee may be criminally
                                  liable b/c each has voluntarily acted in a way that potentially
                                  corrupts the govt system
                              2. Extortion - D has used some form of coercion to obtain
                                  payment from the payer, who is an innocent victim. Person
                                  receiving payment is the only culpably party
                   ii.     Extortion statute covers both conspiring or attempting to commit
                           extortion

        I.       Mail and Wire Fraud

                 a.      Feds can bring federal mail and wire fraud charges against any
                 fraud that involves the US mail or phone calls, etc. across state lines

                 b.        Elements of Mail and Wire Fraud

                          i.D engaged in a scheme to defraud

                                    1.      D must have engaged in a deception or deceit - a
                                    false or misleading statement or omission intended to trick
                                    the victim

                                    2.     The statute includes everything designed to defraud
                                    by representations as to the past or present or suggestions
                                    and promises as to the future

                         ii.D made material misstatements or omissions as part of that
                            scheme

                                    1.     D has to intend to mislead victim either by
                                    misstatement or omission

                                    2.     Some courts have held that for a deception to be
                                    material it must have been one upon which a reasonable
                                    person would have relied

                                    3.     Other courts have held that mail fraud exists even if
                                    the person relying upon the deception is unusually gullible

                         iii.D acted w/ specific intent to defraud

                                    1.     Need specific intent to commit the crime

                                    2.     A finding that D acted in good faith (with good will
                                    and w/o intent to harm) will provide a complete defense to
                                    the charge

                                           a.       D acted in honest reliance on counsel - D
                                           fully disclosed the material facts to the attorney and
                                           honestly relied upon the attorney's advice in an
                                           attempt to conform w/ the law



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                                   3.     Some cts say if the scheme wouldn't fool a
                                   reasonable person, that wouldn't qualify

                       iv.Scheme's design was to deprive victim of money, property
                          or honest services

                                   1.      Property/Money

                                           a.       The deceived party must also be the injured
                                           party

                                           b.     The thing obtained must be property in the
                                           hands of the victim

                                           c.    Person deceived must be the same person
                                           who would lose money or property

                                           d.     For there to be a deprivation of property
                                           (not honest services) D must gain something of
                                           value AND the victim must lose something of value

                                           e.       Property Includes:

                                                   i.Confidential business information

                                                   ii.Taking confidential information and not
                                                      doing anything w/ it isn't property

                                                 iii.Unissued licenses aren't property

                                                 iv.Right to regulate isn't a property interest

                                                   v.Good will is a property interest

                                   2.      Honest Services

                                           a.      Can use this theory against either public or
                                           private employees

                                           b.       Public Employees

                                                   i.Violation must be more than a work-place
                                                     rule violation; it must be a serious violation
                                                     that goes towards official corruption.

                                                   ii.Violating a gratuity statute wouldn't be
                                                      sufficient, but violating bribery statute would

                                                 iii.Violation must violate state law - minority
                                                     rule




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                                        c.   Private employees also qualify
                                                i.   Most cts say deprivation of honest services
                                                     would have to lead to a reasonably
                                                     foreseeable harm to the employer
                                               ii.   Can't criminalize every breach of K using the
                                                     mails
                                              iii.   Only in cases where employer could bring an
                                                     action in tort would their be sufficient
                                                     allegation of deprivation of Honest Svcs -
                                                     Strader doesn't know enough about tort law
                                                     to ask this he says

                                             d.     Honest services provision is void for
                                             vagueness as applied in Handakas (contractor
                                             bidding for govt K and lied about wages paid to
                                             employees b/c no sufficiency of notice here about
                                             what conduct is prohibited)

                        v.Scheme involves use of US mail, private courier, or wires

                       vi.Use of mail, courier or wires has to be in furtherance of the
                          scheme

                                   1.        Use of mail was tied to the scheme

                                   2.      If what the mailing does is lull the victim into
                                   thinking everything is okay and no reason to investigate,
                                   then this is in furtherance of the scheme

                      vii.D used or caused the use of the US mail, private courier
                          service or interstate or international wires

                              1. Courts require proof that D caused the mailing, usually
                                 proven by showing that D knew or should have reasonably
                                 foreseen the mail would be used as part of the scheme
                              2. Where one does an act w/ knowledge that the use of the
                                 mails will follow in the ordinary course of business, or where
                                 such use can reasonably be foreseen, even though not
                                 actually intended, then he causes the mails to be used
                              3. Question is whether the mailing is part of the execution of
                                 the scheme as conceived by the perpetrator at the time,
                                 regardless of whether the mailing later, through hindsight,
                                 may prove to have been counterproductive

             c.   General:
                     i.  Wire fraud includes interstate or international wires, don't have to
                         know it's going to travel interstate
                    ii.  Use of mail is inter or intra state



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                   iii.   Mail and wire fraud are inchoate crimes that are complete once all
                          the elements occur, regardless of whether the fraud reaches
                          fruition (need not succeed)
                   iv.    Courts have upheld wire fraud convictions even where a govt agent
                          instigated the interstate use of the wires
                    v.    Mere puffing won't support a mail or wire fraud charge
                   vi.    Literally true statements designed to deceive a party concerning the
                          essential economic bargain will support mail fraud charges
                   vii.   A single fraudulent scheme that uses multiple mailings could lead to a
                          huge number of criminal charges
                  viii.   Lulling Effect
                               1. Mailings occurring after receipt of goods obtained by fraud
                                   are w/in the statute if they were designed to lull the victims
                                   into a false sense of security, postpone their ultimate
                                   complaint to the authorities, and thus make apprehension of
                                   D less likely than if the mailings had not taken place

        J.        Tax Crimes

             a.   Tax Evasion
                     i.  All criminal tax prosecutions must be approved by the IRS criminal
                         division in Washington in order to ensure consistency of application
                         of the very complex tax laws.
                    ii.  Elements of §7201:
                             1. D underpaid taxes,
                                      a. Courts are split as to whether the underpayment
                                         must be substantial or whether a minimal
                                         underpayment will suffice for conviction
                                      b. Usually proven by showing that D failed to disclose
                                         income on D's tax return or from overstatement of
                                         deductions
                             2. Engaged in an affirmative act of evasion, AND
                                      a. Actus reus requirement
                                             i.  Affirmative willful attempt may be inferred
                                                 from conduct such as keeping a double set of
                                                 books, making false entries or alterations, or
                                                 false invoices or documents, destruction of
                                                 books or records, concealment of assets or
                                                 covering up sources of income, handling of
                                                 one's affairs to avoid making the records
                                                 usual in transactions of the kind, and any
                                                 conduct the likely effect of which would be to
                                                 mislead or to conceal
                                            ii.  Filing of a false tax return is an affirmative
                                                 act of evasion




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                                             iii.   Failure to file is NOT an affirmative act of
                                                    evasion
                                       b. Evasion
                                               i.   Covers attempts either to evade an accurate
                                                    assessment of taxes (determination of
                                                    amount owed), OR
                                              ii.   Evade payment of taxes after the amount due
                                                    is determined
                                            iii.    Any attempt to evade will qualify - but needs
                                                    to be some affirmative act, not merely failure
                                                    to file taxes (Spies)
                                             iv.    Could be lying to an agent
                                              v.    Could be mixing business and tax deductions
                                             vi.    Could be underreporting income
                               3. Acted willfully
                                       a. A consistent pattern of understatement of income
                                           may be used to establish the essential inference of
                                           willful intent
                   iii.    General:
                               1. D may be liable for one count of tax evasion for each tax
                                   year in which the evasive activity occurred
                               2. Penalty is up to 5 YEARS PER ACT+ back taxes and penalties
                               3. Underpayment is an element of this only
             b. False     Returns (Tax Perjury)
                   i.      Tax Payer
                               1. Governed by §7206 (1), Govt must prove that:
                                       a. D signed the tax return or related document
                                       b. D signed under penalty of perjury
                                       c. The return or related document was false
                                       d. The falsity was material, AND
                                               i.   Falsity is material if it has the capacity to
                                                    interfere w/ the govt's ability to monitor and
                                                    determine the tax owed
                                              ii.   False statement may be material even if it
                                                    doesn't lead to an underpayment of taxes
                                       e. D acted willfully
                                               i.   Voluntary, intentional violation of a known
                                                    legal duty
                                              ii.   A consistent pattern of understatement of
                                                    income may be used to establish the essential
                                                    inference of willful intent
                    ii.    Tax Preparer - One who assists in the filing of a false return
                               1. Governed by §7206 (2) - Govt must prove that:
                                       a. D aided or assisted in the preparation of the tax
                                           return or related document
                                       b. The return or related document was false



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                                       c. The falsity was material, AND
                                             i.  An omission can amount to a false statement
                                            ii.  Falsity is material if it has the capacity to
                                                 interfere w/ the govt's ability to monitor and
                                                 determine the tax owed
                                           iii.  False statement may be material even if it
                                                 doesn't lead to an underpayment of taxes
                                           iv.   Falsely reporting the source of income will
                                                 qualify b/c the IRS needs to keep track of
                                                 source of income so they can police and verify
                                                 reporting of individuals and corporations
                                       d. D acted willfully
                                             i.  Voluntary, intentional violation of a known
                                                 legal duty
                   iii. General:
                            1. D may be liable for one count for each false return filed
                            2. Purpose: intended to ensure that the tax payer not make
                                 misstatements that could hinder the IRS in carrying out such
                                 functions as the verification of the accuracy of tax returns
                            3. You aren't guilty of filing a false return if it's literally true
                                 (may be tax evasion)
                            4. When trying to establish willfulness, look to factors such as:
                                 education, consistent understatement of taxes, business
                                 experience, maintain expense records
                            5. No underpayment required
                            6. Essence: interference w/ govt ability to track taxing efforts
                                 appropriately
             c. Failure to File a Return or Pay Taxes (Misdemeanor) (Most Common Tax
                Charge)
                   i.   Governed by §7203 - Govt must prove that D:
                            1. Acted willfully
                                     a. Voluntary, intentional violation of a known legal duty
                                     b. D intended to commit the acts charged, and intended
                                         to violate the law by committing those acts
                            2. Failed to
                                     a. File a required return,
                                     b. Pay a required tax,
                                     c. Keep required records, OR
                                     d. Supply required information, AND
                            3. Failed to act at the time the law specified
             d. Defenses
                   i.   Reliance
                            1. Where a tax payer relied upon an attorney or an accountant
                                 in preparing a tax return, such reliance may be relevant to
                                 show that D didn't willfully commit tax fraud
                            2. D must show:



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                                     a. Sought advice from a professional
                                     b. Disclosed all relevant and material information
                                     c. Relied on the advice
                             3. This is a jury question
                   ii.    Legal Uncertainty/Good Faith
                             1. Honest misunderstanding of the law is a complete defense to
                                 tax fraud, even if that belief is unreasonable
                             2. Belief in the unconstitutionality of the tax code doesn't
                                 negate willfulness - this shows full knowledge of the
                                 provisions at issue and a studied conclusion that those
                                 provisions are invalid and unenforceable
                             3. The more unreasonable the asserted beliefs or
                                 misunderstandings are, the more likely the jury will consider
                                 them to be nothing more than simple disagreement w/ known
                                 legal duties
                             4. D may make a related argument when an aspect of the tax
                                 law is actually unclear - D may claim a good faith
                                 interpretation of the law that is different from the govt's
                                 interpretation
                             5. Exam: need to understand Regan and why D may be entitled
                                 to a specific good faith jury instruction, not enough to say
                                 good faith is a defense where law isn't clear, but must refer
                                 specifically to the statute

    2. Cheek v. United States (U.S. 1991)
    Pilot. Didn't file cause he didn't think he had to. Argues sincerely believed tax laws were
    unconstitutional and that wages are not income so didn't act "willfully" as required under
    §7201 and §7203. Ct disagreed, wilfullness requires gov't to prove that the law imposed
    a duty on the def, and the def knew of this duty, and that he voluntarily and
    intentionally violated that duty. Comes down to whether gov't proves def was aware of the
    duty at issue. Ct says by arguing the provisions were unconstitutional he acknowledged that
    he knew about them. His views about the validity of the tax statutes are irrelevant to the issue
    of willfulness. Strader Says: the judge by taking away Cheek's defense basically rendered a
    directed verdict. So, the issue is what mens rea must the government prove? The intentional
    violation of a known legal duty standard is the highest standard. It is imposed on tax cases
    due to the complexity of the tax laws.
    4. United States v. Mounkes (10th Cir. 2000)
        ∆'s cash balances didn't roll forward. He was warned after a 1989 audit then busted in
        '91 audit. He was co-mingling personal and business funds. The IRS agent showed that
        the ∆ under-reported his income. You can also roll forward the ∆'s net worth and see if it
        balances. Defenses include "cash was in the mattress"; government must refute this.
    5. United States v. Benson (7th Cir. 1995)
        ∆ was getting soc sec income while working; and he got $100k of income while working
        on his own case. He claimed the $ was a settlement with the insurance company for not
        handling his case earlier. Settlements in personal injury cases are not income. But it
        was a contract and not a settlement.




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        K. Currency Transaction
        Reporting Crimes
             a. Purpose: designed to help the govt track the movements of large amounts of
                cash
             b. §5313 - Applies to Domestic Financial Institutions (CTR Statute)
                   i.  Requires that banks and other financial institutions file w/ the
                       IRS CTRs of all cash transactions of more than $10k
                  ii.  §5313a - Elements - Govt must show:
                           1. A domestic financial institution was involved in a
                               transaction
                                   a. Financial institution includes: banks, stock brokers,
                                       insurance companies, pawn brokers, car dealers,
                                       etc.
                                   b. If you are in the financial business, this will
                                       probably qualify
                           2. The transaction involved US currency or specified
                               monetary instruments
                           3. The transaction was for more than $10K
                           4. The domestic financial institution failed to file the
                               required report, AND
                           5. D acted willfully
                                   a. Knowledge of regulations and intent not to file the
                                       CTR



                  c. §5324a - Structuring
                  Statutes - Financial
                  Institution Transactions
                  (Clients)
                      i.Elements - Govt must
                        show that D:
                                   1. Acted w/ the
                                   purpose of evading the
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                                   CTR laws and
                                   regulations, AND
                                   2. One of the
                                   following:
                                           a. Caused or
                                           attempted to cause
                                           a domestic financial
                                           institution to fail to
                                           file a CTR
                                           b. Caused or
                                           attempted to cause
                                           a domestic financial
                                           institution to file a
                                           CTR that contained
                                           a material false
                                           statement or
                                           omission, OR
                                           c. Structured or
                                           attempted to
                                           structure any
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                                           transaction with one
                                           or more domestic
                                           financial institutions
                    ii.General:
                                   1. Govt is required to
                                   prove that D knew of
                                   the reporting laws and
                                   intended to evade
                                   them
                                   2. Govt need not prove
                                   that D knew that
                                   structuring is a crime
                 d. §6050I - Cash
                 Transactions Reporting by
                 Businesses
                      i.Elements - govt must
                        prove that D:
                              1.   A domestic financial institution was involved in a transaction
                                      a. Financial institution includes: banks, stock brokers,
                                         insurance companies, pawn brokers, car dealers, etc.




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                                       b. If you are in the financial business, this will probably
                                           qualify
                              2.   The transaction involved US currency or specified monetary
                                   instruments
                              3.   The transaction was for more than $10K
                              4.   The domestic financial institution failed to file the required
                                   report, AND
                              5.   D acted willfully
                                       a. Knowledge of regulations and intent not to file the
                                           CTR

                        ii.General:

                                   1.     This section expands the cash reporting
                                   requirements to persons engaged in a trade or business

                                   2.      All transactions over $10k must be reported to the
                                   IRS

                                   3.     Exceptions: for filings that would duplicate
                                   information contained in CTR's filed under the Bank Secrecy
                                   Act

                 e.       §6050I(f) - Structuring Statute for Clients of Businesses



                      i.Elements - govt must
                        prove that D:
                                   1. Acted w/ the
                                   purpose of evading the
                                   reporting requirements
                                   2. Acted willfully, that
                                   is w/ the intent to
                                   violate the law, AND



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                                   3. One of the
                                   following:
                                           a. Caused or
                                           attempted to cause
                                           a trade or business
                                           to fail to file a report
                                           b. Caused or
                                           attempted to cause
                                           a trade or business
                                           to file a report that
                                           contained a material
                                           false statement or
                                           omission, OR
                                           c. Structured or
                                           attempted to
                                           structure any
                                           transaction w/ a
                                           trade or business
                                               i.   Regulations define the term to structure as
                                                    engaging in one or more cash transactions for
                                                    the purpose of evading the reporting
                                                    requirements



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                 f. CTR Exceptions:
                      i.Legal Advice Exception
                                   1. If revealing identity
                                   or fee information
                                   would implicate the
                                   client in the very case
                                   the client went to the
                                   attorney for, then it's
                                   protected (per some
                                   courts)
                                   2. Ex: drug dealer pays
                                   cash to an attorney
                                   and the drug dealer is
                                   charged w/ narcotics
                                   offense, b/c from the
                                   drugs he got the cash
                                   (cash generating
                                   business)
                                   3. Attorney/Client
                                   Issues
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                                           a. A client can
                                           retain counsel and
                                           avoid the reporting
                                           requirement by
                                           paying other than
                                           by cash
                                           b. Information
                                           relating to client
                                           identity and fees
                                           doesn't fall w/in the
                                           ambit of the
                                           attorney client
                                           privilege
                    ii.Last Link Exception
                                   1. Where the
                                   information would
                                   incriminate the client
                                   by providing the last
                                   piece of evidence


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                                           needed to convict the
                                           client
                   iii.Confidential
                       Communications
                       Exception
                                      1.   Where the information would reveal the nature of a
                                           confidential client attorney communication

                 g.               General:

                       i.         CTR reporting requirements apply to lawyers and law firms, this may
                                  present a problem b/c may infringe on attorney-client privilege
                                      1. Attorney client privilege protects
                                              a. Confidential information from a client,
                                              b. For the purpose of obtaining legal advice
                      ii.         General Rule: information concerning client identity and fees
                                  generally doesn't fall under attorney-client privilege b/c it's not give
                                  for that purpose (obtaining legal advice)
                   iii.           SC hasn't ruled on whether the exceptions apply to the currency
                                  transaction reporting statutes, thus you would want to argue this

        L.       Money Laundering

                 a.               Purpose:

                                 i.Primarily intended to target money generated from the sale of
                                   illegal narcotics

                                      a. To reach commercial transactions intended to disguise the
                                      relationship of the item purchased w/ the person providing the
                                      proceeds and that the proceeds used to make the purchase
                                      were obtained from illegal activities
                                      b. Three Basic Money Laundering Crimes:
                                      1. Financial Institution Reporting Statutes
                                      2. Cash Spending Statute
                                      3. Money Laundering Laws
             2. Steps in the Money Laundering
                            a.        Placement: introduction of cash into the banking system or
                                      into legitimate commerce




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                     b.       Layering: separating the money from its criminal origins in an
                              effort to disguise its source.
                     c.       Integration: co-mingling money with other legitimately
                              obtained money.
Money Laundering
    1. frequently fraud is the underlying offense and the plea for money laundering. Have to
       have dirty money. Attempt to clean up--make it look legit. Came from war on drugs, but
       the theory applied universally. In applying these statutes, it's gone far beyond the federal
       drug laws.
    2. Most used are §1956(a)(1)(A) and (1)(B)
    3. Elements: handout
             1. specific intent.
             2. 8.33a (financial transaction to promote unlawful activity) and 8.33b (laundering
                monetary instruments) are only different in the third element, the intent
                required.
             3. "specific unlawful activity": SUA. This is statutorily defined. p.648 of text (D).
                Any of this money would be potential money laundering money. Bribery,
                counterfeiting, theft, mail fraud, wire fraud, bank fraud. But look at (A), also
                includes §1961 which is racketeering. So anything in racketeering would be
                SUAs for money laundering. It's hard to find a federal offense that isn't a SUA for
                money laundering.
             4. §1956(1)(A): intent to carry on the illegal activity. §1956(1)(B): knew the
                transaction was designed to conceal or disguise the nature, location,
                source, ownership, or control of the proceeds of the illegal activity.
                     1. Guidelines: §2S1.1
                              1. adds a lot to the sentence. Level 23 which is about 4 years, as
                                 opposed to the 1 year you would've gotten for fraud. Max is 20
                                 years.
             5. §1957: Engaging in monetary transactions in property derived from
                specified unlawful activity. P649 of text. Doesn't require that the recipient
                exchange or "launder" the funds, that he have knowledge that the funds were
                proceeds of a specified unlawful activity, nor that he have any intent to further or
                conceal such an activity.
                     1. Elements:
                              1. §1957 is general intent--knowingly engages in or attempts to
                                 engage in . . . you don't have to have any intent to promote,
                                 conceal or disguise the underlying offense under this section,
                                 which is why it isn't treated as harshly. Another form of money
                                 laundering. The §1956 sections were specific intent. So if you
                                 don't know you're dealing in dirty money, it's a complete defense
                                 if the jury believes it, even if the gov't proves that it was dirty
                                 money. Have to know they are engaging in a criminal
                                 transaction, but also with dirty funds.
                     2. Guidelines
                              1. adds a lot to sentence. Level 17. knew were proceeds of
                                 unlawful activity--add 5 levels; if any other specified unlawful
                                 activity, add 2 levels.
    4. The monetary transaction is important, there are defined on p647(b)(4). Mere purchase



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        of an asset is not money laundering. You can't be convicted of ML for merely buying stuff
        with criminally derived or SUA money. For §1956 gov't has to prove intent was to
        conceal; for §1957 has to prove financial transaction.
    5. Structure: another form of money laundering
             1. reporting requirements. One of the things that Congress has done is that for any
                transaction over $10,000 a business has to file a currency transaction report
                (CTR) so that if someone is paying for stuff in cash, the recipient of those
                funds has to file a CTR and it is entered into a database by the IRS. If trade or
                businesses are complying with these, you get huge amount of information.
                Criminals will try to structure their transactions. Banks are included in this
                transaction as well so if they receive this much from a non exempted person (ex
                restaurants) the bank must file a CTR. What a criminal will do is instead of
                bringing in a bunch of money on one day, they break them up into transactions
                that are just under the statutory requirement. This defeated the money
                laundering statutes for awhile. That process of structuring is called
                SMURFING. This is now illegal. Attempting to defeat the CTR requirements is
                another form of money laundering. If you hire people to deposit in amounts less
                than $10,000 that can be a whole other offense. This doesn't include private
                transactions.
             2. Failure to file a CTR: these are called form 4789. Anyone that sells cars or high
                price machinery, boats, jewelry are well aware of these. As a lawyer, you have to
                know about them too. supp case where gov't survived a 6th amendment
                atty/client privilege claim and he was convicted for not filing. Example of 4789
                p164. Look at line 1. check box if amends prior report or suspicious transaction.
                Says $10,000 in any one day, not at one time. But what if you deposit $9,999.99
                in cash. Bank doesn't have to file the CTR, form 4789, but it can file what is
                called a suspicious transaction report, form 8300. They can file a 8300 and say
                there is a pattern. Don't have to file it but they do b/c they're suspicious so they're
                protecting themselves. Multiple transactions p161. Multiple parties. What's
                purchase, where it came from. Investigative tool. Use them to find out where they
                have accounts.
    6. United States v. Bucey: (text 132)
             1. academic case b/c statutory fix after this case. Bucey was former AG of New
                Mexico. Taking dirty money, putting it into what appeared to be a good account,
                a church account, and then have the checks written out of that account. Use of a
                church account is very difficult b/c it adds 1st amendment activity. Also attorney's
                fees. If you take cash from a client that gives you money that you think may
                be dirty you may be convicted of money laundering. Even if you file the
                CTR you may have reason to know that it is drug money. Better lawyers
                would never touch that money. Ask them to get a bank loan. Smart drug dealers
                would give it to mom and have mom write a check. This would probably be
                enough to insulate the attorney.
             2. focus is on who has a duty to file CTRs. CT says Busy is not a financial
                institution at the time. FI: bank, broker/dealer in securities, person
                engaging in business dealing or exchange in currency, person engaging in
                business in the issuing, selling, or redeeming of travelers' checks, money
                orders, or similar instruments, licensed transmitter of funds, licensed
                casino. See list p134. look at p134 fnp for def of financial institution. Congress
                said we're enabling the sec to supplement this list. regs to title 31 give a much
                broader list. Dealer in precious medals; vehicle sales; real estate closings
                and settlements. Wide range. A lot of entities are FI even though they aren't
                what you would think of.
             3. Ct reverses b/c the • was not a FI at that time.


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    7. in 1984 the def of FI was broadened to include many other things. Continuing education
       put on by the IRS to educate them about CTRs.
    8. United States v. Jackson: (text 140)
             1. back into a church. Def is a self prescribed preacher. Also deals in illicit
                drugs. Proceeds deposited into accounts. Dirty money b/c it's SUA. Co mingles it
                w/ legit income and then conducts certain transactions with the money. Beepers,
                cell phone, rent, and cash.
             2. If commingling funds, gov't doesn't have burden to show what money is
                good and what is bad. Can sentence on all of it.
             3. CT deals w/ whether they are const'l vague statutes. Held they were not. This is
                the case where they distinguish b/t the promotion aspect of §1961(a) and the
                other intent elements under (b).
             4. Commingling issue. Comes up a lot. If you take legit money and mix it with illegal
                income, and then go out and conduct transactions to conceal the money, how do
                you know what was bad. that has been a widely used defense. In 1956 statute,
                b/c it "involved proceeds" Defs lost this argument. Can't hide b/t gov'ts inability to
                prove what is good and what is bad. p144.
             5. Ct talks about the beepers and cell phone and says that on the beepers the gov't
                can prove that there was suff proof to show that the purchase of this was for drug
                dealing, but the purpose of the cell phone was not. Could probably get over that,
                but here ct found distinction in the proof.
    9. United States v. Sanders: (text 148)
             1. 1991. Purchase of vehicle. RICO, conspiracy, dist heroine. Designed to conceal
                the proceeds of drug dealing. Can't just be stuff, has to be to conceal it.
                Purchase of a volvo w/ cash and bank check then traded in and paid for another
                car in cash. • argued insufficient evidence for money laundering. CT said simply
                buying things with proceeds from drug money did not constitute a money
                laundering offense. More traditional ways of concealment would probably have
                made the case a lot stronger. Ct won't interpret the statute so broadly that
                spending illegal money no matter if designed to conceal or not, but they
                will be lenient on designed to conceal when this design is an untraditional
                method.
    10. Ricci v. Key Bancshares of Maine: (text 152)
             1. Banks in tough spot. If they don't report they may be liable for aiding and
                abetting. If they do report they may be liable for slander.
    11. United States v. Leventhal: (supp 11)
             1. atty case. Expect attys to file forms. Cts have ruled against attorneys that
                the identity for the form 8300 is protected by attorney/client privilege.
                §6050I is what requires you to file a 8300. gov't files motion to enforce the
                summons by the IRS to tell who it is. DC says he doesn't have to say. USCA
                reverses. Yes he does. Small possibility that some information doesn't have to be
                filed, but still, if you are an atty getting cash from a client explore your 8300
                responsibilities. It may be something that you would want to tell the client.
    12. Ratzlaf:
             1. the gov't must make a strong showing of intent to convict on criminal
                charges. Debt of $160,000 to casino and tell casino they don't want them to file
                CTR. Casino says that wouldn't be necessary if they purchase cashiers
                checks. They go and buy cashier checks instead of paying cash b/c they
                don't want these forms filed. Indicted for structuring transactions. Claim
                they didn't know their action was illegal and reject to JI that ignorance was no


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                 excuse. Ct held that they knew it was a crime and thus elements are
                 satisfied. However, legislative fix after this case. Now says wilfullness is
                 not an element of the statute. Don't have to prove that they actually knew it
                 was a crime just that they knew they were up to no good.
    13. United States v. Stein, (9th Cir. 1994)
             1. Oregon stockbroker caught swindling his clients. He signs consent decree with
                SEC agreeing to pay back victims of his fraud once certain telecommunications
                contracts mature. But he knew that the contracts were forged. So, he is charged
                with mail fraud (for the SEC mailing of the consent decree); securities fraud, wire
                fraud, and money laundering.
             2. Stein appeals his conviction on the grounds that the mail fraud couldn't lie
                because of the time lag between his scheme to defraud and the mailing of the
                consent decree (no dice);
             3. he also claimed that the jury instruction was not valid on the money laundering
                count because the mens rea requirement for money laundering was diluted by a
                general instruction on when an act is committed "knowingly." Court agrees and
                says that the mens rea requirement for money laundering is specific and that
                failure to include it in the jury instruction was reversible error
    14. :United States v. Loe, (5th Cir. 2001)
             1. Guys ran a huge marina which sustained heavy storm damage. They filed
                numerous insurance claims for storm losses.
             2. The land on which their marina was located was leased from the U.S. Army
                Corps of Engineers; the lease had a % rent clause
             3. The feds were tipped off by a disgruntled customer that the ∆'s were cooking the
                books. They were indicted, tried, and convicted of money laundering,
                conspiracy, and tax/wire/mail fraud.
             4. The ∆'s appeal claiming that there was insufficient proof that money withdrawn
                from a commingled account was "dirty." Court agrees. Rule: if account has
                enough dirty money to cover the amount of the withdrawal, then it's dirty for legal
                purposes. Conversely, if the account has enough clean money to cover the
                transaction, it's clean for legal purposes. In this case the withdrawal was $777k
                out of an account with $2.2mm in it. Only $470k of which was proven to be
                "dirty." As a result, conviction reversed on this count.
             5. The ∆'s appeal claiming that the jury instruction for money laundering was
                defective for not listing a "specified unlawful activity" that was the source of the
                laundered money. § 1957 requires that ∆ (1) knowingly (2) used "criminally
                derived property of a value greater than $10k" (3) in a monetary transaction, and
                (4) that the property must be "derived from specified unlawful activity." No dice
                because the criminal charges enumerated in the indictment were clear and
                disclosed to the jury.
    15. Willful Blindness
             1. United States v. Wert-Ruiz, (3rd Cir. 2002): courts will not tolerate willful
                blindness about money laundering activities. See United States v. Rodriguez
                (7th Cir. 1995).
    16. USA Patriot Act
             1. Money laundering actions can be brought in any district in which the financial or
                money transaction is conducted.
             2. Broad expansion of proscribed activities and required reporting.
    17. Comparison of § 1956 and § 1957: "Financial transaction" (1956) and "monetary



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        transaction" (1957) are terms of art that point out a key difference between these two
        statutory provisions.
             1. § 1956 is purely concerned with the actual laundering of the money in an effort to
                hide its true source. The financial transactions conducted with the proceeds of
                the suspected unlawful activity (SUA) between any two individuals must in some
                way affect interstate commerce. NO NEED TO TRACE; TO DISTINGUISH
                DIRTY FROM CLEAN MONEY. IF THE FUNDS WERE COMINGLED TO HIDE
                SOURCE, IT'S MONEY LAUNDERING.
             2. § 1957 "monetary transactions" must involve a financial institution. This is the
                $10,000 reporting rule. COURTS SPLIT ON WHETHER TRACING IS
                REQUIRED.
    18. United States v. Kennedy, (10th Cir. 1995) (Ponzi Gold Scam)
             1. Yet another "buy gold to hedge against the imminent collapse of the global
                economy" scam.
             2. Scam artists were locking the strike price for their customers before they locked
                their own strike price on the Comex. Cash shortages ensued and they filed
                Chapter 11. Indicted, tried, and convicted of 7 counts of money laundering. He
                was also charged with mail fraud and RICO.
             3. The money laundering § 1956 theory was D engaged in the transaction done
                with the intent to further a specified unlawful activity,
             4. ∆ appeals on 3 separate grounds:
                     1. Adequacy of proceeds: the deposits into his account occurred after the
                        predicate felonies of mail and wire fraud and thus constituted new
                        transactions involving the proceeds of the mail fraud.
                     2. Jury Instructions: objection not preserved below, so review is only for
                        "plain error". Plain error exists if the contested instruction was so
                        prejudicial or lacking in its elements that justice cannot have been
                        served.
                     3. Insufficiency of the Evidence: the deposit of money was before the mail
                        fraud so it couldn't be a deposit of money subsequent to the predicate
                        felony. But, the Court says they don't care which mail fraud transaction
                        was involved because the government charged him with a lot of
                        predicate felony mail fraud counts.
Wednesday, November 03, 2004

        1. Elements of § 5313(a) CTR requires a showing of:
                i. A domestic financial institution was involved
               ii. U.S. currency or specified monetary instruments
              iii. Transaction exceeded $10,000
              iv. Domestic Financial Institution failed to file the required report and
               v. ∆ acted willfully
        2. § 5324(a) structuring
                i. Acted with purpose of evading the CTR laws and regulations
               ii. Any one of the following:
                      1. Caused or attempted to cause a DFI to fail to file a CTR
                      2. Caused or attempted to cause a DFI to file a CTR which
                          contained a material false statement or omission



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                      3. Structured or attempted to structure any transaction with oneo
                          or more DFI’s
        3. § 6050I CTR for trade or business
                i. Form 8300
               ii. Requires all elements of § 7203 (Tax Fraud)
              iii. Because it’s a tax crime, must prove ∆ knew conduct was illegal

                 b.        §1956 - Laundering of Monetary Instrument:

                      i.   Elements - to prove a violation of §1956a1, govt must show that:
                              1. D conducted or attempted to conduct a financial transaction
                                      a. Financial transaction - includes a broad range of
                                          financial dealings that affect interstate or foreign
                                          commerce. Encompasses both bank transactions and
                                          other transfers of money, property and gifts
                                      b. This is pretty broad, includes buying a house, car,
                                          giving gift, etc. pretty much doing anything with
                                          money
                              2. D knew that the financial transaction involved the proceeds
                                  of some type of unlawful activity, which activity constitutes a
                                  felony under state, federal or foreign law
                                      a. D just has to know it's dirty money/comes from a
                                          felony
                              3. The funds in fact were proceeds from a specified unlawful
                                  activity, AND
                                      a. Govt must prove what specified unlawful activity (see
                                          p.43)
                                      b. Incorporates RICO acts, so encompasses mail and
                                          wire fraud, securities fraud, bribery and extortion,
                                          etc.
                              4. Any one of the following (theories of money laundering)
                                      a. D engaged in the transaction done with the intent to
                                          further a specified unlawful activity,
                                      b. D engaged in the transaction with the intent to
                                          commit tax fraud in violation of §7201 (tax evasion)
                                          or §7206 (false returns) of the Internal Revenue
                                          Code
                                      c. D engaged in the transaction knowing that the
                                          transaction is designed in whole or in part to disguise,
                                          conceal, or hide the source of the money, or
                                             i.    This is the general money laundering theory -
                                                   take dirty money and make it clean again
                                      d. D engaged in the transaction knowing that the
                                          transaction is designed in whole or in part to avoid
                                          the currency transaction reporting laws




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             c. Ex: US v Sanders - D was charged w/ money laundering concerning the
                purchase of two cars. Court held the govt didn't establish D was trying to
                hide the source of funds used to purchase the car b/c use of the cars was
                conspicuous, no third person was used, sales person could readily identify the
                purchaser
             d. Ex: US v Jackson - D, a pastor, was charged w/ money laundering. D was
                depositing drug money in the church bank account which he mixed w/ clean
                money, and then used it to draw cash from checks, pay his rent, purchase
                cars, buy beepers (which were given to drug runners) and cell phones. Govt
                argued both "concealment" and "further illegal activity." Court held there
                was sufficient evidence to support concealment on all four counts b/c D
                mixed the money and attempted to make it look clean, but only sufficient
                under further illegal activity for beepers b/c couldn't prove the rest were
                actually used for D's drug activities.
             e. General:
                   i.   A design to conceal or disguise the source or nature of the proceeds
                        is a necessary element for a money laundering conviction
                  ii.   The statutes allow for conviction where the funds involved in the
                        transaction are derived only in part from specified unlawful
                        activities - govt doesn't have to trace the amount of dirty money
                              1. years.
             f.   §1957: Engaging in monetary transactions in property derived from
                  specified unlawful activity. P649 of text. Doesn't require that the recipient
                  exchange or "launder" the funds, that he have knowledge that the funds were
                  proceeds of a specified unlawful activity, nor that he have any intent to further or
                  conceal such an activity.
                    i.    Elements:
                              1. §1957 is general intent--knowingly engages in or attempts to
                                 engage in . . . you don't have to have any intent to promote,
                                 conceal or disguise the underlying offense under this section,
                                 which is why it isn't treated as harshly. Another form of money
                                 laundering. The §1956 sections were specific intent. So if you
                                 don't know you're dealing in dirty money, it's a complete defense
                                 if the jury believes it, even if the gov't proves that it was dirty
                                 money. Have to know they are engaging in a criminal
                                 transaction, but also with dirty funds.
                    ii.   Guidelines
                              1. adds a lot to sentence. Level 17. knew were proceeds of
                                 unlawful activity--add 5 levels; if any other specified unlawful
                                 activity, add 2 levels.
    2. The monetary transaction is important, there are defined on p647(b)(4). Mere purchase
       of an asset is not money laundering. You can't be convicted of ML for merely buying stuff
       with criminally derived or SUA money. For §1956 gov't has to prove intent was to
       conceal; for §1957 has to prove financial transaction.




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Wednesday, November 10, 2004

        M.        RICO

             a. What kinds of businesses does organize crime invade? This was a Kennedy
                issue which culminated in the RICO statutes. Nowadays, the money
                laundering statutes have supplanted RICO as the weapon of choice for
                prosecutors. Both have heavy penalties and forfeiture clauses.
             b. Congress wanted to say that it’s a crime to be a member of an organized
                crime group. But belonging to a category cannot be criminalized (can’t be
                illegal to be an addict). So Congress tried to legislate around the Due
                Process issues.
             c. “Enterprise” is the heart of the statute. Continuous use of an enterprise for
                illegal acts.
             d. RICO also has civil provisions. Most federal criminal statutes don’t. But,
                from the beginning, RICO was designed to encourage private lawsuits. If
                you prevail you get treble damages; attorneys fees; and you stigmatize
                your opponent. So just alleging RICO gets you some leverage in negotiations.
             e. PREDICATE FELONY REQUIREMENT:
             f. Purpose: Originally designed to go after organized crime. Current purpose is
                to get corrupting influences out of legitimate businesses
             g. §1962 Elements - Govt or Private P Must prove:
                   i.    A RICO Enterprise Existed
                              1. 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
                              2. Association in fact enterprise includes groupings of
                                 individual persons and/or legal entities such as
                                 corporations
                                     a. A gang is a great example of an association in fact
                                         enterprise
                              3. Characteristics Possessed by all RICO Enterprises
                                     a. Common or shared purpose
                                            i.   It is sufficient if a RICO D shared in the
                                                 general purpose and to some extent
                                                 facilitated its commission
                                     b. Continuity of structure and personnel
                                     c. An ascertainable structure distinct from that
                                         inherent in a pattern of racketeering
                                            i.   Would the enterprise still exist if the
                                                 predicate acts were removed from the
                                                 equation
                                     d. *This means there's a common goal among
                                         participants, the enterprise exists over a period of
                                         time and has an ascertainable organizational chart
                              4. §1962a, b



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                                    a. D and the enterprise may be the same
                                    b. Enterprise under subsection a and b is something
                                        acquired through the use of illegal activities or by
                                        money obtained from illegal activities - the
                                        enterprise is the victim of the unlawful activity
                                    c. No economic motive required, but probably does
                                        have to be economic benefit
                              5. §1962c
                                    a. Reeves test - §1962c requires that D have
                                        conduct or participate in the affairs of an
                                        enterprise through a pattern of racketeering
                                    b. Operation or Management Test Under §1962c
                                            i.  Whether the proof shows that D conducted
                                                or participated directly or indirectly in the
                                                conduct of such enterprise's affairs as
                                                required by the statute
                                           ii.  A D who had only a minor or peripheral role
                                                in the enterprise may not fall w/in this
                                                language
                                          iii.  An enterprise is operated not just by upper
                                                management but also by lower-rung
                                                participants in the enterprise who are
                                                under the direction of upper management
                                          iv.   An enterprise may also be operated by
                                                others associated w/ the enterprise who
                                                exert control over it as by bribery, etc.
                                           v.   It is sufficient if the RICO D shared in
                                                the general purpose and to some extent
                                                facilitated its commission
                                          vi.   Strader says that the only way to reel in
                                                the RICO broad interpretation of
                                                “enterprise” is to alter the SC’s commerce
                                                clause jurisprudence which is where these
                                                yahoos get their jurisdictional nexus.
                                         vii.   JUST LIKE TAX LAW: ALL RICO CASES
                                                BROUGHT BY THE GOVERNMENT MUST
                                                BE APPROVED BY THE DOJ IN
                                                WASHINGTON
                                    c. Enterprise can't be D
                                    d. Enterprise is the vehicle for the unlawful pattern
                                        of racketeering activity
                              6. General:
                                    a. Furnishing a client w/ ordinary professional
                                        assistance, even when the client happens to be a
                                        RICO enterprise won't normally rise to the level
                                        of participation sufficient to satisfy the SC



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                                      b. If sole proprietorship but there are employees
                                          these will be distinct
                                      c. Enterprise may be the victim or vehicle (enterprise
                                          may be victimized if it is being embezzled, or the
                                          vehicle if it is being used for wrongdoing)
                                      d. An economic motive is not required
                                      e. An entity that exists only for illegal purposes is
                                          not excluded under this
                                      f. Ct has held that D could be named as D and his
                                          business the enterprise even though the enterprise
                                          is a sole proprietorship - but this may not work
                                          where the enterprise is operated solely by D w/o
                                          the assistance of employees
                                      g. Corporation is a legally distinct entity, different
                                          rights and obligations than an individual, so even if
                                          the corporation is one individual, this will qualify
                   ii.    D Committed Two or More Predicate Acts (the racketeering
                          activity)
                              1. Requires a minimum of two acts of racketeering activity
                                  within ten years - two acts may not be sufficient to
                                  prove a pattern
                              2. RICO doesn't require D to have been separately convicted
                                  of the predicate acts in order for the acts to qualify as
                                  racketeering activity, the predicate acts need only be
                                  chargeable, indictable or punishable under the applicable
                                  state or federal statute
                              3. Govt may include as predicate acts offenses that would be
                                  barred by the SOL so long as the last predicate act fell
                                  w/in RICO's 5 year SOL
                              4. §1961 lists categories of state and federal offenses that
                                  qualify as racketeering activity
                                      a. Mail/wire fraud, securities fraud, bribery,
                                          extortion are main predicate acts
                                      b. Must be punishable by imprisonment for more than
                                          one year (felony)
                              5. Use of mail fraud qualifies for RICO, even if it's perjury
                                  or tax fraud (which are themselves not RICO predicates)
                              6. DOJ has adopted guidelines saying that they won't charge
                                  mail fraud for tax fraud (statute says this is ok, but
                                  DOJ says they won't do it anymore)
                              7. NO CIVIL RICO FOR SECURITIES FRAUD
                              8. Most states have adopted baby RICO’s.
                  iii.    The Commission of the Predicate Acts Constituted a "Pattern" of
                          Racketeering Activity
                              1. Pattern requires:
                                      a. Relationship, AND



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                                              i.  Predicate acts have similar purposes,
                                                  results, participants, victims or methods of
                                                  commission or are interrelated by
                                                  distinguishing characteristics and aren't
                                                  isolated events
                                      b. Continuity between or among the predicate acts
                              2. Closed-ended pattern
                                      a. Proving a sequence of predicate acts related to
                                          each other extending over a substantial period of
                                          time
                                      b. Proof is usually insufficient if the racketeering
                                          activity lasts less than one year
                              3. Open-ended pattern
                                      a. Racketeering activity has only occurred over a
                                          short time, but continuity can be demonstrated by
                                          the implicit or explicit threat of repetition
                                          extending into the future
                                      b. Few weeks is often sufficient if you can show the
                                          scheme would keep going
                                      c. Look to the nature of the activity or if it's the
                                          way of doing business/ how the business operates
                                      d. Threat extending into the future doesn't have to
                                          be against the same parties
                              4. To establish a pattern courts look to the number and
                                  variety of predicate acts, the length of time over which
                                  the acts were committed, the number of and similarity
                                  among the victims, number of perpetrators and schemes
                                  and the character of the unlawful activity
                   iv.    The Defendant: (Three different kinds of RICO cases - these
                          aren't alternate theories for one crime, you could have four separate
                          convictions if you met each of a-d)
                              1. Invested in an enterprise through the pattern of
                                  racketeering activity
                                      a. D takes proceeds of illegal activity and invests it
                                          back into the enterprise
                              2. Acquired an interest in or maintained control over an
                                  enterprise through the pattern of racketeering activity
                              3. Conducted the affairs of an enterprise through the
                                  pattern of racketeering activity, or
                                      a. Unlawful for nay person employed by or associated
                                          w/ any enterprise to conduct or participate,
                                          directly or indirectly in the conduct of such
                                          enterprise's affairs through a pattern of
                                          racketeering activity
                              4. Conspired to do any of (a) - (c), and
                                      a. No overt act requirement



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                                   b. Inchoate offense - D iable even if the predicate
                                        acts are never committed
                                   c. D violates RICO not just the conspiracy statute if
                                        D enters into an agreement to violate any of the
                                        three substantive sections of §1962
                                   d. Conspiracy doesn't require that all co-conspirators
                                        agree to commit or facilitate every part of the
                                        substantive offense
                                   e. You must meet the conspiracy elements as well as
                                        the other RICO elements
                  v.   The Racketeering Activity Affected Interstate Commerce
             h. General:
                    i. RICO statute doesn't create a new underlying crime, instead it
                       criminalizes repeated predicate acts that include state and federal
                       crimes
                   ii. Doesn't violate double jeopardy for the govt to bring a RICO case
                       after D has been convicted or acquitted of the predicate acts in
                       state court, or convicted of the predicate acts in federal court
                 iii.  We don't care what a state calls an offense when we are looking for
                       RICO predicate acts, we only care whether in substance the crimes
                       is bribery, etc. and it's a felony
                  iv.  Courts aren't supposed to apply the doctrine of lenity when
                       interpreting RICO
                   v.  RICO can be brought by the govt or a private plaintiff in a civil suit
                  vi.  Private P would want to claim RICO if they could b/c they could
                       receive triple damages and attorney's fees if you prevail.
                 vii.  Since mail/wire fraud are included, it's easy for a case that would
                       normally be handled in state court to be turned into a federal RICO
                       case. Federal judges don't like having state law disputes clogging
                       court rooms federal judges are hostile to civil RICO cases

        N.        Forfeitures

             a. Purpose: to deter illegal activity and deprive wrongdoers of the fruits of
                their acts
             b. Civil Forfeitures
                   i.   Civil proceeding against the property, where the property is the
                        defendant and the court gets jx over the property
                  ii.   Main statutes:
                             1. Financial Crimes - §981
                                    a. Make subject to forfeiture all real and personal
                                        property related to money laundering, CTR crimes
                                        and other crimes involving financial transactions,
                                        institutions or fraud against the US
                             2. Narcotics Offenses - §881




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                                     a. Govt may obtain forfeiture of wide range of
                                         property, including materials used to mfg
                                         narcotics, conveyances and all proceeds of a
                                         controlled substance transaction, and all moneys,
                                         negotiable instruments and securities used or
                                         intended for use in the facilitation of such a
                                         transaction
                 iii.  Ex: Tractor - D transported cigarettes in the tractor portion of
                       his tractor trailer and govt sought forfeiture of the whole
                       tractor-trailer. D argued trailer not subject to forfeiture. Ct
                       held trailer wasn't forfeitable b/c no connection between trailer
                       and the offense and they were two separate vehicles (different
                       VIN, different titles, purchased separately).
                 iv.   Ex: Dolphin - a tug boat and barge were considered separate
                       pieces of property b/c tugboat wasn't part of the tackle
                       attached to the barge and no law to say they were one vessel
                  v.   Ex: Santoro - a piece of property w/ a road separating its
                       halves was considered one piece of property b/c the title/deed
                       listed it as one parcel, not two.
                 vi.   General:
                            1. Standard: Preponderance of the evidence
                            2. Civil forfeiture may be brought even where the alleged
                                wrongdoer hasn't been convicted or even charged w/ a
                                crime
                            3. Govt is allowed to seize or otherwise assume control over
                                property prior to obtaining forfeiture - must be
                                supported by probable cause that the property is subject
                                to forfeiture
                            4. Govt must establish a substantial connection between the
                                illegal activity and the property
                            5. When govt seeks forfeiture of property b/c t it was
                                substantially connected to the crime by shielding the
                                illegal activity from public view, it must show more than
                                that the property tends to conceal the crime
                            6. Proof of the owner's intent to use the property for the
                                purpose of shielding his criminal activity qualifies as the
                                something more required to establish a substantial
                                connection
                            7. Civil forfeitures aren't punishment for double jeopardy
                                purposes
                            8. Money needed to pay attorney's fees is subject to
                                forfeiture and doesn't violate 6th A b/c you can always
                                get a public defender
             c. Criminal Forfeitures
                   i.  Part of a criminal case - so you don't have an innocent owner,
                       you convict the person and during penalty phase of trial there is



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                       a forfeiture proceeding and govt has to show the property is
                       forfeitable
                  ii.  Statutes:
                            1. RICO - §1963
                                    a. Any interest acquired by way of racketeering or
                                       any property constituting or derived from the
                                       proceeds of racketeering activity is tainted and
                                       thus forfeitable
                                    b. RICO allows for the restraint of 3rd party (not
                                       govt or wrongdoer) b/c D may have transferred
                                       some assets to someone else who has a legitimate
                                       ownership interest in it. It is also appropriate to
                                       prevent D from transferring or hiding money.
                                    c. Trial judge has discretion to allow less onerous
                                       means of restraint
                            2. Financial Crime - §982
                                    a. Property is subject to forfeiture if it was either
                                       involved in a specified financial crime or if it is
                                       traceable to the tainted property
                            3. Drug Laws - §853
                                    a. Property used or intended for use in the
                                       facilitation of an offense is subject to forfeiture
                 iii.  General:
                            1. Govt may assume control of property prior to
                                determination of forfeiture at trial in order to preserve
                                the property for forfeiture
                            2. Criminal forfeitures are subject to the 8th A Excessive
                                Fines Clause
                            3. Govt obtains a restraining order in a criminal case to
                                seize property
             d. What is Subject to Forfeiture?
                   i.  Contraband are always forfeitable
                  ii.  Proceeds are forfeitable - if you sell drugs or engage in stock
                       fraud that amounts to RICO
                 iii.  Instrumentalities are forfeitable in their entirety
                 iv.   Land on which you engage in activity - if there's a substantial
                       connection
                  v.   If they can't find the property or it's been commingled, may
                       allow for substitute assets
             e. Innocent Owner Defense
                   i.  Innocent owner status may provide an affirmative defense to any
                       civil forfeiture claim
                  ii.  To be an innocent owner, the owner must establish by a
                       preponderance of evidence, that
                            1. The owner didn't know of the illegal conduct, OR




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                               2. Upon learning of its occurrence, the owner did all that
                                  reasonably could be expected to end the continued
                                  unlawful use of the property
                  iii.     An otherwise valid claim shall not be denied on the ground that
                           claimant gave nothing of value in exchange for the property if:
                               1. It is the primary residence of the claimant, OR
                               2. Depriving of property would deprive claimant of means to
                                  maintain reasonable shelter in the community
                   iv.     General:
                               1. A person may not have to be a BFP to claim she is an
                                  innocent owner
                               2. Govt isn't owner of property until forfeiture has been
                                  declared
                               3. Innocent owner may contest forfeiture even if the owner
                                  has less than a complete interest in the property
                               4. When an innocent owner has less than a complete interest
                                  in the property seized, the court may order the property
                                  be severed, transferred to the govt w/ compensation to
                                  the innocent owner, or retained by the innocent owner,
                                  but remain subject to a lien held by the govt

                 f.        8th A Excessive Fines Clause

                          i.Test for determining excessiveness: gross disproportionality

                         ii.To satisfy the Excessive Fines Clause, a forfeiture must fulfill two
                            conditions:

                                   1.     Property forfeited must be an instrumentality of the
                                   crime committed, and

                                   2.      The value of the property must be proportional to
                                   the culpability of the owner

                         iii.If the forfeiture is grossly disproportionate to the gravity of the
                             defendant's offense, it is unconstitutional

                         iv.Both criminal and civil forfeitures are subject to 8th A Excessive
                            Fines Clause

                         v.Under modern forfeiture law you can't have a forfeiture if you're
                           not culpable- if you know of the illegal activity you're not an
                           innocent owner and are culpable

                         vi.You have to have notice and a hearing before govt can seize your
                            real property, but not other property b/c you could sell/hide it.

        O.       Final




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             a. Everything we cover in class will be on the final, either essay or MC
             b. At least two (Securities fraud, mail/wire fraud, bribery/gratuity/extortion,
                RICO or money laundering) will form the basis of the essay
             c. Only one essay
             d. Fact pattern tends to revolve around securities fraud, political corruption or
                RICO/money laundering
             e. Only write about debatable issues, don't talk about elements that are clearly
                present b/c you get no points for listing the elements and talking about
                things that aren't issues




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