White Collar-Crime Outline I. Individual v. Corporate Liability Charging Corporations - Respondent Superior – RS imposes liability on corporations for acts committed by corporate agents acting: (1) on behalf of the corporation, (2) to benefit the corporation, and (3) within the scope of the agent’s authority. Third requirement is met when agent is acting under actual or apparent authority. o Acting on Behalf of C – Gov must prove person placed in position by C and had power, duty, responsibility, and authority to act for and in behalf of C to handle business of C engaged in at the time of the crime. C liable even if actions contrary explicit policy or compliance program. o To Benefit C – Agent intended at least in part to benefit C. Additional motives, like A’s intent to gain personally, won’t relieve C. Actual benefit to C not required, agent’s intent, not results governs U.S. v. Automated Medical Laboratories - C’s convicted for subsidiary's EE action despite claim that EE acting only own benefit to “ascend ladder" since C benefited b/c advancing depended C’s well-being. U.S. v. Sun-Diamond Growers of Cali – C convicted when VP's scheme of making illegal contributions to congressmen defrauded C, but benfitted C b/c part of job was to build relationship. Jury could conclude that VP acted w/intent however befuddled to benefit C. U.S. v. Cincotta – C convicted notwithstanding the personal benefit reaped by EEs b/c fraudulent scheme required money to pass through C’s treasury and fraudulently obtained goods were resold to the corporation's customers in the corporation's name). Factors To Consider When Charging a Corp – These factors apply both to Invidivuals and Corps. - Nature & Seriousness of Offense – Primary factor. Risk of harm to public, applicable policies and priorities. - Pervasiveness of Wrongdoing - Consider complicity or condemnation of wrongdoing by MGT. Even if minor the pervasiveness can override. Pay most attention to MGT. - History of Similar Conduct - Prior criminal, civil, warnings, sanctions, and regulatory actions. - Timely & Voluntary Disclosure of Wrongdoing & Willingness to Cooperate w/Investigation – cooperation is a potential mitigating factor. Failure to cooperate does not in of itself support a filing of charges. o Qualifying for Immunity, Amnesty or Pretrial Diversion – P’s can use non-prosecution agreement when C’s "timely cooperation is necessary to the public interest and other means of obtaining the desired cooperation are unavailable or would not be effective." Self-investigation, voluntary disclosure, and remedial action is helpful. o Waiving Attorney-Client and Work Product Protections – Not a prerequisite for cooperation. Helps timeliness and accuracy of investigation. Can only request facts, can’t request waiver unless EE asserts an advice of counsel defense based upon communication w/counsel, so D must tender info to support this basis. Additionally, communication in furtherance of a crime are not protected. o Other Consideration – Is C shielding it’s EE? Don’t consider paying legal fees. Is C obstructing the investigation, protecting too many EE’s, or asserting overly broad privilege? Cooperation does not automatically equate to immunity. - Existence & Adequacy Pre-Existing Compliance Program. - Remedial Actions - Implementing or improving compliance program, replacing MGT, discipline/terminate wrongdoers, pay restitution, & cooperation w/relevant gov. agencies. - Collateral Consequences - Disproportionate harm to SH, pensions, and EE not culpable. Impact on public. - Adequacy of Prosecution - of individuals responsible for C’s malfeasance. - Adequacy of Remedies - civil or regulatory enforcement actions Corporate Mens Rea – NO knowledge requirement. It’s strict liability. Liability of Corporate Officers & Agents – EE and agents of C may be criminally liable, even if acting solely on behalf of C. That D was merely “following orders” generally not a defense. G must prove all elements. - Strict Liability of MGT for Subordinates’ Acts – Some crimes are strict liability the fact that D is responsible corporate officer = guilt. Justified even though no knowledge b/c it involves health and lives of innocent individuals who are largely unable to self-protect themselves. Burden is thus on person to act. U.S. v. Park – D was Prez and COO of retail food chain. Dead rats found in factories.
II. IMMUNITY Compelled Production by Subpoena – Cs don’t have 5th Amendment protection and this applies to individuals who may be corporate custodians of records, even if the documents would incriminate the custodian. This is because businesses are required by law to keep these records is regulatory function, not criminal. - The Act of Production Doctrine – Typically the act of production itself is not sufficiently testimonial to warrant 5th Amendment protection. Production is held to be incriminating if the person producing the documents is compelled to admit the documents exist, that they are authentic, and in the producer’s possession. Thus, during trial if custodian produced documents is now charged with that evidence, gov can introduce the documents, but can’t say where they came from. o U.S. v. Hubbell - L on white water plead guilty, agreed to cooperate, but didn’t supply all docs gove requested. L subpoenaed to produce documents, L claimed 5th and given immunity and produced. L was then indicted on information contained in the documents. Court found gov relied on testimonial aspects of L immunized act of producing documents and the derivative use no allowed. Types of Immunity – 18 U.S.C. § 6001-6005 - Use or Derivative Use Immunity – W’s testimony, and any evidence learned from that testimony, may not be used against the witness in a subsequent prosecution. - Transactional (blanket) Immunity – forbids any prosecution against the witness concerning the matter at hand, even if the government does not make direct or derivative use of the witness’s testimony in that case. o Kastigar v. U.S. – Immunity granted by §6002 coextensive w/5th Amendment. Gov must meet requirements to prosecute a previously-immunized witness by holding “Katigar hearing” or “taint hearing” where gov has burden of proving by a preponderance of the evidence that its trial evidence came from a “legitimate source wholly independent of the compelled testimony.” Very difficult. III. CONSPIRACY Advantages of a Conspiracy Charge - Joinder – Allows gov to prosecute all DF at a single trial who are apart of the conspiracy. Bringing Ds together in single trial substantially increases chances of conviction, especially if some D’s had minor roles. - Venue – Gov may bring conspiracy case in any federal district in which the conspiratorial agreement was reached or any district in which any co-conspirator committed an act in furtherance of the conspiracy. Advantage to bring case in district most convenient to gov and witnesses. May be pain to D’s witnesses. - Evidence – Including charge greatly expands the scope of relevant evidence b/c all acts done by any coconspirator in furtherance of the conspiracy are potentially relevant. Weakens hearsay rule b/c statements made by CC during course and in furtherance of the conspiracy are admissible even if normally not. - Vicarious Liability – The Pinkerton Rule – Conspiracy charge may substantially increase the scope of a DF’s potential liability. Can be found guilty of both conspiracy, the substantive offense committed, and substantive offense committed by other co-conspirators. - Statute of Limitations – May extend limitations period (5 years). B/C C is an ongoing crime, does not begin to run until all member of conspiracy abandon the criminal scheme or its goals are achieved. Elements of General Conspiracy Statute 18 U.S.C §371 – Government must show that: (1) Agreement existed (a) to commit an offense against the U.S., and/or (b) defraud the U.S.; (2) Two or more persons were parties to that agreement; (3) D intended (a) to enter into the agreement, and (b) that the object offense(s) or fraud to pass; and (4) A co-conspirator committed an “over-act” in furtherance of the offense. Overt Act – any act, or failure to act, by any CC during and in furtherance of the C. The overt act itself need not be unlawful, must contributes to unlawful ends. Very easy to meet, meetings, phone calls qualify. OA is attributable to all co-conspirators who are members at time act is committed or who join later. The Agreement - Generally – The agreement determines both the parties to the conspiracy and the scope of the object crimes. Only liable for what you understood and agreed to. Not all parties to C must be charged, convicted, or even known to convict 1 person.
Government Agents as CC – Agreement between D and gov agent who never intended scheme be carried out does not meet the plurality requirement. Need 2 people who intend to agree to object offense. - Plurality in Corporate Context: (1) 2 or more C’s are capable of conspiring; (2) Corporate entity can conspire with individuals associated w/that entity so long as at least two corporate agents participate; (3) under respondent superior, C can be liable for conspiracy entered into by its agents. The “Offense” Clause and the “Defraud Clause” - The “Offense” Clause – Liability wherever DF agreed with one or more people to violate federal laws. This includes securities fraud or mail fraud. Addition, civil crimes included. Impossibility to commit is not a defense. What is considered an offense is construed very broadly. - The “Defraud” Clause – Encompasses both (1) schemes to deprive the U.S. of money or property (taxes) and; (2) schemes to obstruct or interfere with government functioning or to deprive the gov of information. Does not require proof that D’s intended to engage in conduct constituting a separate federal “offense,” but the scheme must involve a misrepresentation, trick, or deceit. o Federal Gov as Victim – Some courts hold that defraud clause requires proof that Ds intended that the federal government be defrauded. The clause does encompass scheme that affect the U.S. only indirectly. (Defrauding CSU which receives aid from Gov.?) - Relationship Between Clauses – Goc can bring conspiracy charge both on theory they tried to commit an offense against U.S. or Defraud the U.S.. Jury could convict under either or both theories, but D would only be subject to penalty for a single conspiracy count. Required Mental State - Specific Intent – Must prove both that D (1) intended to enter into the agreement, and (2) intended that the object offenses be committed. Proof of one proves the other. The gov need not prove that D specifically intended all object crimes be committed nor D knew all detail of the object crimes. Enough D knew general nature of scheme and intended some object offenses to be committed. - Knowledge v. Purpose – Knowledge is not enough. Must be specific purposeful intent on part of DF to conspire. However, this is somewhat muddled. Knowledge seems allowed. - Conscious Avoidance – If person agrees to enter into a scheme, but deliberately avoids learning of the illegal nature of the scheme, person is guilty. Like insider trading and deny knowing person obtained information illegally. Proof of Guilt in a Conspiracy Case - Level of Proof Required – Agreement element hardest to prove, thus, circumstantial evidence is allowed. Facts from which a jury could reasonably infer a DF participation, even in the face of D’s denial, will support a conviction. U.S. v. Brown – D was associate of firm that assisted two clients in bankruptcy fraud scheme. Although D was subordinate acting at direction of superiors, his extensive participation in handling the case, attending meetings, destroying records, and failing to produce documents entitled jury to infer agreement to enter illegal scheme. Single Conspiracy v. Multiple Conspiracies - Joinder Issues – In conspiracy case, D not part of the single scheme must be severed from the case and given separate trial or the conspiracy count must be dismissed. Each D must intend to enter into a scheme broader than the single scheme to which the D was a party. Each D doesn’t have to agree to each individual act, but must understand the essential nature of the scheme in order to join in single trial. If Ds have reason to know of broader scheme and the multiplicity of the objectives, then single charge is okay. - Showing of Prejudice – Even if defense convinces appellate court that gov. failed to prove single conspiracy, reversal is not required. Defense also has burden of proving that the error resulted in substantial prejudice. - Double Jeopardy – Sometimes its D’s advantage to argue single rather than multiple conspiracies. Better to be charged with Conspiracy X than X & Y. If charged for two when really one, than it’s double jeopardy. Viacarious Liability – Pinkerton Doctrine - Pinkerton v. U.S. – D was found to have entered conspiracy with brother to commit tax fraud even though brother was in jail when number of offenses committed and had no knowledge nor participated. Upheld. -
o Rule – D may be vicariously liable for substantive offense that another member of conspiracy committed if: (1) D was party to that conspiracy; (2) offense was within the scope of the unlawful project; (3) offense was in furtherance of the conspiracy; and (4) D could have reasonably forsee the offense as a necessary or natural consequence of the unlawful agreement. Inconsistent Verdicts – Inconsistent verdicts are allowed. Can be aquitted of narcotics charges but convicted of using telephone to commit the crimes. Can just be jury leniency. Can be convicted of conspiracy charge even if co-conspirators are aquitted. Withdrawal – If withdrawal, statute of limitation starts running as to that person. Also withdrawn person is not vicariously liable for others acts and statements made after withdrawal are not admissible hearsay. Ceasing to participate is not enough, affirmative acts inconsistent with object of the conspiracy and communicated in a manner reasonably calculated to reach co-conspirators is sufficient. IV. PROCEDURE & GRAND JURY ISSUES (1-17 FRCP) Composition and Duration of the Grand Jury – Consists of between 16 and 23 people, at least 12 must agree to bring a formal charge (indictment). GJ sits for specified period, usually longer than 18 months. A person whom grand jury has focused for purposes of indictment is called a “target.” A “subject” is one about whom the GJ seeks general information but is not the focus of criminal charges. Purposes of the GJ – Serves dual function of determining if there is probable cause to believe that a crime has been committed and of protecting citizens against unfounded criminal prosecution. Has power to subpoena witnesses and tangible evidence and is not bound by rule of evidence or exclusionary constraints. It helps prosecutors investigate complex case and helps defense learn information. GJ Investigatory Powers – Can issue subpoenas for documents or testimony. Subpoena for documents may be quashed under 4th Amendment if “unreasonable” or under 17(c) of FRCP if it is “unreasonable or oppressive.” Grand Jury Secrecy – Formalized in rule 6(e). Secrecy protects jurors from outside influences, protects right of innocent persons whose names arise during investigation. So hearing limited to grand jurors, the prosecutors and their staff members, the witnesses, and support staff such as stenographers and interpreters. Only the witness may reveal the contests of the proceeding to a member of the public. Bail – FRCP 5. Bail is determined on whether someone is safety concern or a flight risk. V. MAIL/WIRE FRAUD - §1341 and 1343 - Appeal of MF Statutes – “our Stradivarius, our Colt 45, our Louisville Slugger, our Cuisinart – our true love.” Or “in effect, mail and wire fraud have long provided prosecutors with a means by which to salvage a modest, but dubious, victory from investigations that essentially proved unfruitful.” Elements: Need not show the scheme succeeded. D doesn’t have to know that the use of mails was interstate. And convictions are upheld even where a government agent instigated the use of the wires. 1) D engaged in a scheme to defraud; 2) The scheme involved material misstatements or omissions; 3) D acted w/the specific intent (or purpose) to defraud; 4) Scheme resulted, or would result upon completion, in the loss of money, property, or honest services; & 5) The U.S. mail, a private courier, or interstate or international wires – (a) were used “in furtherance” of the scheme to defraud, and (b) the D used, or caused the use, of the U.S. mail, a private courier service, or interstate or international wires. Scheme to Defraud - Intent to Defraud – D must engage in a deception or deceit – a false or misleading statement or omission intended to trick the victim. o Deception Relating to the Economic Bargain – D must have intended that the deception go to the substance of the bargain between the D and the intended victim. Thus, mere “puffing” will not support a mail or wire fraud charge. o Literally True & Misleading Statements – Literally true statements designed to deceive a party concerning the essential economic bargain will support mail fraud charges. So, can’t say the house is 5 miles from a lake when actual driving distance is 15-40 miles on roads not useable by regular cars.
o Omissions & Concealment – Material acts of omission or concealment can give rise to charges. By failing to reveal a misuse of fund to company considered BOFD that satisfies deception element. o Good Faith & Reliance on Counsel Defense – Finding that DF acted in good faith, with good will and w/o intent to harm will provide a complete defense. Thus, acting in honest reliance on counsel. - Materiality – Required that scheme to defraud involve a material deception. o The “Reasonable Reliance” Issue – Some circuits hold that in order for a deception to be material, it must have been one upon which a reasonable person would have relied. Most circuits hold, however that mail fraud exits even if the person relying upon the deception is unusually gullible. Other cases have claimed that it should be viewed from perspective of person making statements, whether they said them intended to deceive. U.S. v. Brown – D accused of defrauding home buyers by selling homes at above market prices. They were safe and rental income would exceed mortgage payments and homes could be sold for a profit after a year. B/C info freely available to potential buyers, reasonable person would not be deceived. Otherwise, over criminalization. Use of the Mails and Wires – mails use for purpose of executing the scheme or artifice to defraud. - “In Furtherance” Requirement – A mailing that is far removed from the fraud may not support a mail fraud charge. However, mailing need not be essential to the scheme and can even be incidental. If scheme could not have continued without the mailings (even legal) then enough. o The “Lulling” Rule – Where use of the mail/wires designed to “lull” the victim into a false senese of security. Thus, charges can be brought even though the scheme already reached fruition. Typically, though the mailing must “lull” the victims, if complete and mailings direct toward someone else, there is a distinction. U.S. v. Sampson – Ds called prospective customers offering to help obtain loans and sell business. C’s made payment for service D’s never intended to provide. After they sent letter designed to assure the D’s they intended to perform the services. Letter were in furtherance even though fraud was complete. U.S. v. McDougal – D’s convicted based on mailing false SBA loan application form. Ds used money for personal expenses and not for business. Although mailing occurred after money given, mailing was necessary step to enable use of funds and continue the fraud. - The “Causation” Requirement – In addition to proving that the use of mails was in furtherance of the fraud, court also require proof that the D “caused” the mailing. Usually proven by showing the D knew or should have reasonably foreseen that the mail would be used as part of the scheme. Overlap with last req. Deprivation of Money, Property, or Honest Services - must include proof that D intended to cause some loss of money or property. This also include intangible property rights like goodwill and trademarks, but not licenses and trademarks. Usually the person deceived, must also be the victim of the fraud. - §1346 – The Deprivation of “Honest Services” – Scheme or artifice to defraud include s or a to deprive another of the intangible right to honest services. Applies both to public officials and private employees. o Prosecution of Public Officials – Case we studied limits honest services to cases involving serious corruption, where the wrongdoing at issue is intended to prevent or call into question the proper or impartial performance of the D’s duties. U.S. v. Brumley – D, worked for workers compensation commission, and handled worker’s claims. D received $112k of loans from claimants lawyers he dealt with. Receipt of loans deprived Texas citizens of his honest services. Victim can be public or private. Test: To convict, must show (a) D’s scheme involved a violation of state law duties and (b) the violation of state law duties affected the DF ability to perform the official task honestly. So state law violation necessary, but not sufficient. Other Test: Most courts reject the necessary state violation. But, usually require something more than violation of workplace policy. VI. FALSE STATEMENTS 18 U.S.C. § 1001 – Applies to unsworn stmts made to gove; any fraudulent/deceptive statement that meets elements and may affect the functioning of the gov in matters ranging btwn fed employment to enforcement of
regulation. Used w/cover-up crimes of perjury, false declarations, obstruction of justice, person who attempted to hide earlier crime, and government fraud cases. Tactical advantage to bring w/big indictment b/c questions D’s credibility merely by assertion. - Scope – Covers statements involving material matters “within the jurisdiction of the executive, Legislative, or judicial branch” of the federal gov.. Can’t knowingly or willfully engage in: 1. Falsify, conceal, or cover-up a material fact by any trick, scheme, or device; 2. Make any materially false, fictitious, or fraudulent statement, or representation; or 3. Making or using any false writing or document knowing it to contain any materially false, fictitious, or fraudulent statement or entry. o What the statute Excludes – statements made by parties or their attorneys in judicial proceedings, and also limits to some extent the statutes application to statements made in Congressional matters. - Elements – most charges rely on second part which requires gov to prove that: 1) DF made a statement; (2) that was false or fraudulent; (3) material; (4) D acted knowlingly & willfully; and (5) D made stm w/in jurisdiction of the ex, leg, or JD of federal government. - Penalty – fine and sentence of not more than 5 years. Meaning of “Statement- Stm can be written oral, sworn, or unsworn. Volunteered statements are covered and those required by law. Silence may also be covered where a person has a duty to speak, or where the silence is misleading. Brogan v. U.S.- denying a crime counts. But may lead prosecution to manufacture crimes. Falsity & Concealment - Implied Falsity & Concealment – gov. can prove falsity by showing either that (1) DF made an untrue stm or (2) D concealed a material fact. Conviction may rest upon an implied falsity by engaging in affirmative act of non-disclosure by means of trick, scheme, or devices. (dispute whether duty to disclose must be statutory. - Literally True or Ambiguous Stm – Literally true statements that are inherenetly false/misleading not enough. Where a stm is subject to two plausible interpretations, burden is on the gov to show D intended interpretation was the false one. - Stm Concerning Future Actions- Generally statements of intent to undertake or not undertake a future action can be false at the time the statement was made. - Documents – Contracts and depositing a check written on a bank account w/insufficient funds not assertion of fact. Not statements. Materiality – one having a natural tendency to influence, or be capable of influencing, the deicison of the decision-mailing body to which it was addressed.” Seldom reverses on materiality. Statement doesn’t actually have to influence, just the capacity. Required Mens Rea – D must have acted knowingly and willfully. Issues around “knowledge.” - Knowledge of Falsity – G must prove D knew statement was false at time it was made. Can be proven by evidence of actual knowledge or evidence that D intentionally or recklessly avoided learning the stmt was untrue or false. - Knowledge of Facts Giving Rise to Federal Jurisdiction – G not required to show knowledge of jurisdictional element. So no knowledge that statements would go to federal agency not a defense. - Intent to Deceive – G must prove D acted w/intent to deceive. Proof that D knew a statement was false will be strong circumstantial evidence that D intended that the statement deceive the listener. Jurisdiction – any matter w/in jurisdiction of exec, leg, or JD. This usually includes any federal angency whose power is statutorily based and is there to serve a public interest. - Exceptions: However, statement, representations, writings or documents submitted by a party to a judicial proceeding, or that party’s counsel to a judge or magistrate in that proceeding are excluded. And w/ congressional matters, 1001 only applies to administrative and investigative matters that the statue specifies. Excluded stm: statements made to members of Congress in correspondence from constitutuents. - Stm made to State & Local Agencies & Private Parties – other parties that have relationship w/federal gov. 1001 applies to these agencies and parties when federal funding or some other connection, is sufficient to bring the agencies or parties w/in the ambit of the statute. Not necessary that stm is submitted to fed gov.
Double Jeopardy? – One instance of conduct can give rise to punishment for multiple charges if not DJ. Same conduct ok so long as (1) each crime requires proof of an element that the other does not, (2) there is not clear congressional intent to prohibit multiple charges. VII. OBSTRUCTION OF JUSTICE – Martha Stewart §1505 OJ – covers acts intended to affect judicial, administrative, or legislative proceedings. D intended improperly to interfere with official proceedings. Usually attempts to alter or destroy documents, offering or promoting false testimony, and threatening or influencing witnesses, jurors, and court officials. Elements 1. DF acted w/corrupt intent; 2. Endeavored to interfere w/a judicial, administrative, or congressional proceeding; 3. There is a nexus between the endeavor and the proceeding; 4. Proceeding was actually pending at the time of the endeavor; and 5. D knew that the proceeding was pending. - Actus Reus – The “endeavor” – inchoate liability, D need not exceed. “must have natural and probale effect of interfering w/due administration of justice.” If an L encourages a W to plead the 5th with corrupt intent, this can be obstruction of justice. Like in a conflict of interest thing. o Interfering w/Production of Documents – concealing, altering, or destroying documents that pertain to judicial, administrative, or legislative proceedings. Even documents that have not been subpoenaed are covered so long as D had the requisite corrupt intent and other elements. - Nexus Requirement – to prove D committed an endeavor to obstruct, gov must show that there was a direct connection, or “nexus,” between D’s acts and the pending proceeding. Merely lying to agent is not enough. - Pending Proceeding – must show that a proceeding was pending at the time of the alleged obstruction before any department or agency of the U.S. Formal or informal investigation. Must be LE agent acting on behald of a grand jury. - Mens Rea – D knew of pending proceeding, and D acted corruptly. o Knowledge Requirement – D knew of the pending proceeding, court, gj, or congressional. If D interfered w/witness at proceeding g must show D knew the victim was a witness. o Corrupt Intent – Corruptly means acting with an improper purpose, personally, or by influencing another, including making a false or misleading statement, or withholding, concealing, altering, or destroying a document or other information. But must also show specific intent to obstruct J. Some C’s allow conviction if jury finds that D intended to commit an action, and could have reasonably foreseen that obstruction would result from that action. VIII. SECURITEIS FRAUD Statutory Scheme - Securities Act of 1933 – regulates a company’s original registration and issuance of securities by requiring full disclosure of information to potential investors. Applies to primary or “new-issue” securities market. - Securities Exchange Act of 1934 – regulates trading in securities markets. Applies to secondary markets. - Investment Advisor Act of 1940 - regulates people who are in the business of giving advices to others about what companies to invest in. So you make sure there are no conflicts of interest. - Investment Company Act of 1940 - public companies that invest in securities. Material Misrepresentations & Omissions - Section 10b-5 – PL must show that D made: (i) A misstatement or omission; (ii) of material fact; (iii) w/scienter; (iv) in connection with the purchase or sale of a security; (v) upon which the PL reasonably relied; and (vi) that PL’s reliance proximately caused his or her injury. Material Deception – NO false or misleading statements of material fact (lies & half-truths). Not all deception is actionable, misinformation must be material. - Entanglement Liability – Sometimes C can be liable for M or O made by persons outside company. For example, M or O in reports of investment analysts may be attributed to a company if the company sufficiently entangled itself in the production of the analysts report.
Test for Materiality – Substantial likelihood reasonable investor “would” consider it as altering “total mix” of information in deciding whether to buy or sell. Generally, if disclosure would affect price of stock = material. If probability of event is uncertain balance the probability of occurrence with the anticipated magnitude of the event in light of the totality of the co activity. Optimism by a C which is puffery is immaterial, but numerically specified predictions are material. Scienter – Manipulative or Deceptive Device or Contrivance –“intent to deceive, manipulate, or defraud.” Standard for SEC or private PL should be same, but SEC has gotten lower negligence while other is reckless. - Recklessness Requirement – Df aware of truth and appreciated the propensity of his misstatement or omission to mislead. Misrepresentations so obvious, DF must have been aware. Recklessness exists when circumstantial evidence strongly suggests actual knowledge. - Willfulness – necessary for criminal prosecution. DF action are intentional, deliberate, and not the result of an innocent mistake, negligence, or inadvertence. DF does not have to be aware they are breaking the law, but can’t go to prison if don’t have knowledge. . Can defend himself by saying that he sought the advice of counsel and acted on this advice. - Forward-Looking Statements – Statements about future given special protections: projections of revenues, income, earnings, capital expenditure, dividends, plans and objective of management for future operations, and statement of future economic performance. SEC 21E(c)(1) provides safe harbors: 1. No liability if identified as FLS and accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the statement. 2. No liability if PL fails to prove that the statement was made with actual knowledge--not simply with recklessness-- that the statement was false or misleading. o “Bespeaks Caution” - CL doctrine - No liability, even if it is misleading taken in isolation, if document contained sufficient cautionary language. Fact based application, generic boilerplate language won’t suffice. Must be tailor specific for language that is challenged. o PLSRA - Forward looking Statements – PL must establish that the misstatement made was w/”actual knowledge”. Eliminates recklessness as sufficient. Fraud “in Connection with” Purchase or Sale of a Security - Interpreted broadly, normally satisfied if some kind of transaction in securities and some kind of fraud. - “in connection with” – Any statement reasonably calculated to affect investment decisions. DF need not be Purchaser or Seller. Enough the fraud alleged “coincides” w/a securities transaction, by PL or anyone else. - Purchase or Sale of a security – applies to options, “pledges of securities,” oral contracts, public, private, or CHC. Only limitation jurisdictional, violation must involve instrumentality of interstate commerce. - Definition of Security o Family Resemblance Test from Reeves v. E & Y – a security that looks like a security (9-months) is presumed to be one. However, can be overturned if note bears strong family resemblance to delineated non-sec notes. Test not all inclusive, can consider other factors: Test: (1) the motivation for entering the transaction, (2) the plan of distribution, (3) reasonable expectation of the investing public; & (4) whether any risk-reducing factors exist that would make the application of the securities laws unnecessary. Notes not considered Securities – includes “the note delivered in consumer financing, note secured by a mortgage on a home, the short-term note secured by a lien on a small business or some of its assets, the note evidencing a “character” loan to a bank customer, short-term notes secured by an assignment of accounts receivable, or a note which simply formalizes an open-account debt incurred in the ordinary course of business. If the note is exchanged to facilitate the purchase and sale of a minor asset or consumer good, to correct the seller’s cash-flow difficulties, or to advance some other commercial or consumer purpose, less of a chance it is a security. o Investment Contract – SC has defined IC as any transaction in which a person (1) invests money, (2) in a common enterprise, and (3) is led to expect profits (4) solely from the efforts of others. “Common Enterprise” – CE is one in which the fortunes of the investor are interwoven w/& dependent upon the efforts and success of those seeking the investment or of third parties. -
Horizontal Commonality – Investor’s funds must be pooled or their returns must fluctuate together for the investment to constitute a common enterprise. Vertical Commonality – Relationship between investor & promoter: 1. Broad Vertical Commonality – CE test satisfied if the promotor’s efforts are the dominant factor in the success of the investments. 2. Strict Vertical Commonality – fortunes of investors must be tied not only to the efforts of the promoter, but to the fortunes of the promoter. Other - Some court hold CE test met if there is a pooling of investment funds accompanied by pro-rata interests in profits among the investors. Reliance – Link between alleged misinformation and PL’s buy-sell decision. Weeds out claims where misinformation had little or no impact on PL’s decision. - Nondisclosure – When DF fails in a duty to speak, whether in face2face transaction or an anonymous trading market, courts dispense w/proof of reliance if the undisclosed facts were material. The materiality of the undisclosed info indicates a reasonable investor would have considered it important, suggesting they would have acted differently. If proof of reliance req. in cases of nondisclosure, it would be near impossible. - Misrepresentations - “Fraud on the Market” – Used in class action or else impossible. FOTM doesn’t apply in face-2-face transactions. In cases of false/misleading representations on a public trading market, there is a rebuttable presumption of reliance. Traders on public markets rely on integrity of market’s price. In open and developed market, efficient capital market hypothesis posits, prices reflect all publicly available info about a co’s stock. Infer investors relied on the misinformation. o Rebuttal Presumption - DF can rebut presumption by showing either (1) the trading market was not efficient, and the challenged misrepresentation did not in fact affect the stock price, or (2) the particular PL would have traded regardless of the misrepresentation. Basic Inc. v. Levinson – Following merger announcement by co. that previously denied it was negotiating a merger, SH who sold stock b/c of denial filed class action. May adopt rebuttable presumption of SH reliance on a corporation’s material misstatements of fact under a “fraud-on-the-market” theory to establish reliance req. In Re Verifone – FOTM theory shifts inquiry from whether an individual investor was fooled to whether the market as a whole was fooled. It knocks out materiality, causation, and damages, b/c if fooled mkt must satisfy. Insider Trading – prohibition of material, non-public information from being used to purchase or sell any security in breach of a fiduciary duty. Classic Theory – Corporate insider purchases or sells securities on the basis of material non-public info. Must abstain from trading or disclose the information - Fiduciary Duty of Confidentiality – Applies to persons who take material nonpublic info from company and then trade in the stock in violation of their direct fiduciary duties to that company and shareholders. Typical insiders are liable and temporary insiders and tippers and tippees. o Temporary Insiders – Accountant’s, underwriters, attorney’s, consultants, or others who temporarily gain access to any inside info, have a duty to disclose or abstain from trading on the info b/c they are temporary fiduciaries. o Tippees – People who trade on info received from insiders. Tippee must (1) possess material nonpublic info (2) tipper disclosed info to tippee (3) trade on that info (4) knew or should have known tipper violated a relationship of trust by relying info (5) tipper benefited by disclosing info to tippee. Misappropriation theory – Liability arises b/c person trades on info in BOFD owed to the source of the info, even if the source is a complete stranger. (1) misappropriator “deceives” the source that entrusted him w/the material inside info by not disclosing his evil intentions; (2) the fraud is consummated, not when he gains the info, but when he uses the info to trade on it. - Requires: (i) deceptive device; (ii) breach of fiduciary duty; (iii) use of material nonpublic info in connection with the purchase or sale of a security; and (iv) willfulness on part of the defendant. o 3 Situations Where Theory Applies – (1) Person explicitly agrees to maintain information in confidence; (2) history or practice of relationship demonstrates implicit understanding between
parties that info can be held in confidence; (3) info comes from spouses, parents, children, or a sibling, unless under circumstance can be demonstrated no reason to trust. - Special Rule 14e-3- for Tender Offers – Prohibition of trading by people w/inside info on tender offer. Prohibits, during the course of a tender offer, trading by anybody (other than the bidder) who has material nonpublic information about the offer that he knows (or has reason to know ) was obtained from either the bidder or the target. No need to prove FD. - Distinction Between Possession and Use – Under 10b5-1 purchase/sale is a violation if person is aware of material nonpublic info at the time of the transaction. BUT, if trade made pursuant to pre-existing agreement or instruction and plans to trade entered into before becoming aware of the info is valid defense. Intent-Based Defenses - Lack of Fraudulent Intent – Did not willfully violate securities law. Had pre-existing plans to buy the stock. Did not have knowledge of the law. Can show DF honest belief in the truth of the allegedly fraudulent statements, but should show some sort of due diligence. May also claim relied on advice of counsel, but must show they requested advice regarding the legality, counsel received full disclosure, counsel assured it was legal, and D relied on advice in good faith. Reliance-Based Defenses – truth on the market-theory and bespeaks caution doctrine. Remedies – SEC administrative proceeding, cease and desist authority, monetary penalities. Civil remedies, injunctive action and ancillary measures, disgorgement and monetary penalties. Criminal violations IX. PUBLIC CORRUPTION Bribery Elements Under §201(b) - Elements of Giving or Offering a Bribe: 1. D gave or offered to give something of value; 2. Recipient/offeree was or was selected to be a federal public official; 3. D acted with corrupt intent; and 4. D scheme was designed to (a) influence the public official in an official act, (b) influence the public official to commit a fraud on the U.S. or (c) induce the public official to act in violation of a lawful duty - Elements of Receiving or Agreeing to receive a bribe: 1. D received or agreed to receive something of value; 2. D was or was selected to be a federal public official; 3. D acted with corrupt intent; and 4. Scheme designed to (a) influence the D in an official act; (b) influence D to commit fraud on the U.S., or (c) induce the D to act in violation of a lawful duty. Gratuity §201(c) - Elements of giving or offering to give an illegal gratuity: 1. D gave or offered to give something of value; 2. Recipient or offeree was or was selected to be a federal public official; and 3. 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 the D’s official duty. - Elements of receiving or agreeing to receive and Illegal gratuity: 1. D received or agreed to receive something of value 2. D was or was selected to be a federal public official; and 3. 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 the D official duty. Sentencing – Gratuity punished by up to two years in prison, bribery by up to 15. Additional payment of 3(x). Comparison of Bribery and Gratuity - Intent & Quid Pro Quo – W/bribery, intent that public official is influenced in certain way in connection w/a particular act, there is a quid pro quo. W/gratuity, no quid pro quo, payment intended as compensation for
an official act so only an appearance of improper influence is required, but no intent. Gratuity can be included as a lesser bribery charge like murder and manslaughter. - Intent & Timing – If D intents to give payment knowing the public official has already performed or decided to perform, then only gratuity. Bribery is entirely future oriented, but the focus is on the intent. One can agree to bribe b/f the official acts, but make payment after the act occurs. A gratuity that occurs before an act takes place would be a gift given with the mere expectation the official would be more likely to act in a specific way, as opposed to an agreement. Or a reward for a decision the public official has already made but not taken. Definition of Something of Value – construed broadly. Measured by D’s subject view. Definition of Public Officials – Any federal officer or employee qualifies. - Employee of Entities Other than the Federal Government – Defined broadly. Whether D “occupied a position of public trust with official federal responsibilities.” Can be a private company that receives public funds, state deputy sheriff w/authority over jails, director of city housing authority funded by state and federal government, and low-level corporate employee responsible for determining eligibility for federally subsidized housing. - Participant in Legislative Process – Applies to members of congress, and lobbyists who participate in legislative process. o U.S. v. Anderson – Gov alleged that lobbyist made payment to Senator for agreement to vote in manner favor to L’s employer. L convicted of bribery and S of gratuity. Court rejected argument that jury should have been instructed that lobbying efforts are not corrupt are they are paid to influence legislators, b/c jury may have believed lobbyists could never bribe then. - Federal Program Bribery 18 U.S.C. §666 – gov. must prove (1) D solicited or received, or offered, or gave a thing of value; (2) thing was given to benefit an agent of an organization, or of a state, local, or Indian tribal government, or any agency thereof; (3) involved anything of value of $5,000 or more; (4) D acted corruptly; and (5) the entity for which D acted as an agent received more than $10,000 a year in federal assistance (act’s don’t have to directly involve federal funds). Not limited to bribes. Definition of “Official Act” – “any decision or action on any question, matter, cause, suit, proceeding, or controversy, which may at any time be pending, or which may by law be brought b/f any public official, in there official capacity, o in such officials place of trust or profit.” - The Parties’ Intent - Sufficient if bribing party believed the public official would be influenced in an official act, even if the official never intended to be influenced and never undertook the official act. If the public official understands the bribing party has that belief, the official is also culpable. Thus, D may be convicted of giving or receiving a bribe, even if the official has no intention of being influenced, or could not be influenced in an official act. - Scope of the Public Official’s Duties – Official acts includes act not formally within public officials duties, but does not extend to receiving something of value in a purely private venture. Additionally, even if federal interest is involved, the matter must relate to a specific pending matter. Definition of Criminal Intent - Bribery – Bribe giver or receiver acted “corruptly.” Usually must prove through circumstantial evidence. Parties must have specifically intended that payment was given in exchange for influence over an official act. TOUGH to distinguish between this and legal campaign contributions. That’s how in Anderson, lobbyist was convicted of bribery and senator of gratuity. - Gratuity – illegal payment be made “for or because of any official act performed or to be performed by such public official.” Conviction can’t rest merely on proof that D gave something of value in order to create goodwill and to possibly affect future official acts. Must show payment for specific act. o U.S. v. Sun-Diamond Growers – SD was trade association engage in marketing and lobbying. Gov didn’t allege or prove that there was a specific connection between the official matters before the secretary of agriculture and things of value give to him. EXTORTION Elements of Extortion 18 U.S.C. 1952 1. D’s acts affected interstate commerce;
2. D obtained, or attempted, or conspired to obtain another person’s property to which the D was not entitled; 3. The property was obtained, or would have been obtained, with the other person’s consent; 4. The D acted with the required mens rea; and 5. The property was obtained, or would have been obtained by: (a) the wrongful use of fear; and/or (b) under color of official right. Effect on Interstate Commerce – sufficient if DF obstructed, delayed, or affected commerce “in any way or degree” and de minims effects will suffice. Rarely a defense. If the money depletes assets that could be spent on supplies purchased through interstate commerce, this is enough. Obtaining Property From Another – Read broadly. The extortion must not only injure the victim, but also benefit the defendant. Interfering or depriving of property is not enough, must obtain property. Physical violence unrelated to robbery or extortion does not fall within the Hobbs Act. The Required Mens Rea – Usually, no intent required to effect interstate commerce. Most courts hold that where the theory is use of force or fear, proof that D purposefully or knowingly used force induced fear, or exploited victims fear is enough. If acted under official claim of right, must show D purposefully or knowingly used an official position to obtain property, “D knows that payment made in return for official act.” Extortion by Use of Fear – Fear may be based on physical or economic fear. Gov must show that D intended to take advantage of the victim’s fear, but doesn’t have to show D created or attempted to create the fear. Look at victim’s perspective to see whether fear existed. - Test Used Government must show the victim both actually and reasonably believed “first, that the defendant had the power to harm the victim, and second, that the defendant would exploit that power to the victim’s detriment.” o Threats to Withhold Access to a Level Playing Field May = Extortion – Seems to be a distinction between requiring payment to obtain preferential treatment, which is not extortion by use of fear, and requiring payment to obtain fair treatment which is. U.S. v. Collins – Governor’s husband & Kentucky officials solicited investments from out of state banks who were awarded business. Rejected argument that threatening to withhold preferential treatment doesn’t count. Court found that failure to make investments deprived banks of opportunity to compete on fair basis for business, not gain preferential treatment. Extortion Under Color of Official Right §1346 – D uses power of office to extract something of value from alleged victim. Cases may be brought against any state or local official, not just federal like bribery & extortion. - “Inducement” in Extortion Under Color of Official Right – Need not show that public official induced the person. Only have to show that the public official has obtained a payment to which he was not entitled, knowing that the payment was made in return for official acts. So no initiation is necessary on part of official, just an understand. Inducement is required for fear prong though. - Distinction between Bribery and Extortion Under Color of Official Right – There is overlap in these statutes. Thus, a public official can be liable for both Extortion and bribery. However, the payor can only be liable for bribery under the official right prong. - Distinguishing Extortion from Legitimate Campaign Fundraising – There is a distinction and to prove that there something is not a legitimate campaign fundraising, gov must point to specific quid pro quo. X. BANK FRAUD BF §1344 Elements – whoever (1) knowingly executes, or attempts to execute, (2) a scheme or artifice, (3) to defraud a financial institution; or (4) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises. - Penalty – fined not more than $1,000,000 or imprisoned not more than 30 years, or both. - Scheme to defraud – Must have scheme to defraud financial institution. Defined same way as mail fraud. - Crimes – BF brought in connection with financial fraud schemes. Like not disclosing something on loan documents to a bank. May be brought in tandem with other charges. Also includes, check kiting, check forging, false statements on nondisclosures or loan applications, stolen checks, unauthorized use of AtM’s, credit card fraud, student loan fraud, bogus transactions between offshore shell banks and domestic banks, automobile title frauds, false statements intended to induce check cashing.
Knowledge – D must have intent to defraud a FI. Can be adduced from the totality of the evidence, including evidence of prior similar acts, and other circumstantial evidence. Showing of reckless indifference or willful blindness will support inference. Turns on what D actually knew about the status of the account used, don’t have to prove D knowingly made direct misrepresentation to FI. Executes or Attempts to Execute – Courts consider: (i) ultimate objective of the scheme, (ii) nature of the scheme, (iii) benefits intended, (iv) interdependence of the acts, and (v) number of parties involved. Scheme or Artifice – any plan, pattern, or course of action… intended to deceive others to obtain something of value. Must be material. Natural tendency to influence. Reliance is not required. To Defraud or Obtain Monies by False or Fraudulent Pretenses – §1 does not require false or fraudulent misrepresentations nor D depriving FI or money or property (so includes right to honest services). §2 does. Defenses: - FI had no Control or Custody of Assets in Question – Won’t succeed by showing that no actual loss occurred or funds not directly at risk. - D Acting in Good Faith – attack G’s evidence of Knowledge and intent. Not good faith defense if D believed act was legal when performed nor where D made deliberate and conscious effort to avoid discovering the details of suspicious activity or had a belief that the collusion of the bank’s defrauded officers removed the fraudulent component. - Indictment Multiplicitous- Can only punish for each “execution” of the scheme, unlike mail or wire fraud that punish each act undertaken to further. SUSPICIOUS ACTIVITY REPORT (SAR) SAR – Banking agencies required to file SARs w/Financial Crimes Enforcement Network (FinCEN) in following situations: 1. Whenever there is known or suspected insider abuse, regardless of money involved; 2. Following any crime or attempted crime against or through a FI involving $5000 or more when suspect can be identified; 3. Whenever FI suspects a crime involving $25,000 or more, even w/o knowledge of suspects; 4. Following any transaction through banking institution of $5000 or more if FI has reason to suspect money laundering; 5. In the even “transaction which has no business or apparent lawful purpose or is not the sort of transaction in which the particular customer would normally be expected to engage and the bank has no reasonable explanation for the transaction after confirming the available facts. Civil Remedies – can sue banking institution employees. Usually need a duty and higher up. FIFFERA can investigate these cases but usually must involve $5000 lose and higher up kind of. Criminal Penalties 12 USC §1818(j)- Applies to bank officers, employees, controlling SH and appraisers, attorneys and accountants who: (i) cause financial loss to an FDIC-insured institution; (ii) prejudice the interest of the bank’s depositors; or (iii) receive financial gain or other benefit from the violation. - Elements – D (i) knowingly participates in the conduct of the affairs of any insured FI; (ii) is subject to an order which prohibits such participation; and (iii) has not received written approval from a regulatory agency prior to such participation. BANK SECRECY ACT Purpose – requires FI maintain certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings, or in the conduct of intelligence or counterintelligence activities, including analysis, to protect against international terrorism. - Record Keeping Requirement – FI must retain for a period of not less than 5 years records of: (i) certain transactions that exceed $10,000; (ii) the sale or issuance of bank checks, cashier’s checks, traveler’s checks, or money orders that equal or exceed $3,000; and (iii) funds transfers and transmittals that equal or exceed $3,000. - Additional Records to be Retained by Banks – Banks must obtain taxpayer ID # of customer involved or person who has interest. Additionally must (1) provide for a system of internal controls to assure ongoing compliance; (2) provide for independent testing to assure ongoing compliance (3) designate individuals responsible for coordinating and monitoring ongoing compliance; and (4) provide training for appropriate personnel.
o Even more – must also maintain records of transaction in excess of $100 and foreign financial transaction in excess of $10,000. Bank also must retain signatory cards for each account holding customer. - Additional Records Retained by Brokers & Dealers in Securities – Must get S.S. # within 30 days of account opening. Must maintain original copies of (i) signature card or grant of trading authority; (ii) each record required by SEC; (iii) record of each remittance or transfer of funds, currency, check, or other monetary instrument, investments, securities, or credit of more than $10,000 to person, place, or account outside U.S.; and (iv) a record of each receipt of currency, check, other monetary instrument, more than $10,000 received on any one occasion directly from any person, place, or account outside U.S.. - Additional Records Retained by Casinos and Currency Dealers – see page 12. International Transportation of Currency & Monetary Instruments Reports 31 USC § 5316 – person who transports, is about to transport, or has transported” currency or monetary instruments exceeding $10,000 out of into or through U.S. at one time, or receive amount from abroad must file report of CMIR. - Elements: (i) legal duty to file; (ii) knowledge of the reporting requirement; and (iii) willful failure to file. Structuring Transactions to Avoid Reporting Requirements – BSA makes is crime to: (i) cause or attempt to cause a report not to be filed; (ii) cause or attempt to cause a report to be filed with a material omission or misstatement of fact; or (iii) structure financial transaction to avoid or attempt to avoid reporting requirements. Transaction individually less than $10,000 but in aggregate total over $10,000. - Elements: D (1) engaged in acts of structuring; (2) did so w/knowledge of the reporting requirements of FI under §5324, and (3) intended to evade those reporting requirements. XI. ANTI-TRUST The sole objective antitrust and trade regulation law is to insure a competitive economy. SC explained purpose ''rests on premise that the unrestrained interaction of competitive forces will yield the best allocation of our economic resources, the lowest prices, the highest quality and the greatest national progress....'' Sherman Anti-Trust Act 15 U.S.C. §1 - §1 deals w/restraints of trade and §2 deals w/monopolization, attempted monopolization, or a combination or conspiracy to monopolize. Individuals can’t be charged alone there is a plurality requirement. - Penalty - Imprisoned up to 3 years and fined up to $350,000; corporations fined up to $10,000,000. Private parties may also enforce and may recover treble damages, cost of lawsuit (reasonable attorneys' fees). Elements 1. Every Contract, combination, or conspiracy – Basically an agreement o Intent - D undertakes action w/knowledge of probable consequences & anticompetitive effects. Direct/circumstantial evidence that reasonably tends to prove that D and others had a conscious commitment to a common scheme designed to achieve an unlawful objective. Consistent conduct not enough. U.S. v. Gypsum o Sufficiency of Evidence : Can prove by direct evidence (phone calls, video surveillance, and wire taps) or circumstantial evidence (parallel behavior inexplicable for any other reason). Also, plus factors (pattern of communication between competitors, meetings, trade shows, factors unique to industry like sellers in the market, action which if taken alone would be harmful to self-interest). 2. In restraint of trade; or (3) Commerce among the Several States or w/Foreign Nations – o Vertical v. Horizontal – Horizontal agreements are among competitors to apportion markets among themselves. Vertical concern business that operate at different levels of distribution. Horizontal restraints are generally judged under the per se rule, vertical = rule of reason. o Reasonableness - Only unreasonable restraints of trade are illegal. Two tests to consider reasonableness, rule of reason and Per Se: Rule of reason - looks if the restraint is unreasonable in light of the industry, history industry, co-competitive benefits, market power, . Usually vertical agreements fall under this test. Per se - Mere act of restraining trade is unreasonable. There's no way the persons action could help the market. It can have no redeeming virtue. (Horizontal agreement test) Ex:
Non-solicitation agreements, price-fixing, territorial allocation, volume allocation. Any agreement that impact price is going to be a per se violation. U.S. v. Cooperative Theatres of Ohio, Inc. - booking agents agreed not to tread on each others turf. There is intent to enter agreement and intent to accomplish the agreement. Don’t need to show intent to accomplish object of agreement, but must show knowledge of intent to enter into the agreement. U.S. v. Andreas & Wilson - the execs at ADM. Agreemtn Volume allocation agreements are per-se illegal. D argued that no intent b/c just trying to trick other side and beat the pants off them. However, there was no evidence of this. Robinson Patman Act 15 U.S.C. 13(a) & (b) –Modified §2 of Clayton Act. Unlawful for any person engaged in commerce, to discriminate in price, services, or facilities, when effect of discrimination may lessen competition or tend to create a monopoly in any line of commerce. o Purpose - Intended to preserve equal competitive opportunity for small businessmen and prevent large firms from gaining price advantages to drive out small firms. Does not apply to purchases of supplies ''for their own use'' by schools, colleges, universities, public libraries, churches, hospitals, and charitable institutions not operated for profit. Sections 1. §2(a) unlawful for seller to discriminate in prices for goods of ''like grade and quality,” if the effect of such price discrimination may be substantially to lessen competition in a line of commerce or with the seller's competitors or among his customers. Direct or indirect. Justified Discrimination – price differences may be justified: (1) If they reflect cost savings to the seller, in the manufacture, sale, or delivery of the goods; (2) When changing market conditions may affect value of the goods in question, as in the case of perishable goods, distress sales, and the like. “Commodities” includes any kind of tangible personal property or goods. Restriction - §2(a) is restricted to price discrimination (a) incident to sales, of (b) goods, that are (c) intended for use or resale within U.S. territory. 2. §2(b) when a prima facie case of discrimination in price, services, or facilities is proven, D bears burden of rebutting charges by justifying actions; and when seller's discrimination is ''made in good faith to meet an equally low price of a competitor, or the services or facilities furnished by a competitor,'' the prohibitions of subsections (a), (d), and (e) shall not apply. XII. RICO §1962(a)-(c) Structure of Statute – Does not create crime, but criminalized repeated “predicate acts” (state and federal crimes) and there is no separate mens rea beside the requisite underlying acts. Is suppose to be “liberally construed to effectuate its remedial purposes.” Penalties – In criminal, D subject to fines and/or imprisonment for up to 20 years, and to mandatory asset forfeiture. D is also subject to punishment for each of the predicate acts of which the D is convicted. Elements 1. A RICO enterprise existed: 2. D(s) committed two or more predicate acts (the racketeering activity); 3. Commission of the predicate acts constituted a “pattern” of racketeering activity; 4. D(s): (a) invested in an enterprise through the pattern of racketeering activity; (b) acquired an interest in or maintained control over an enterprise through the pattern of RA; and or (c) conducted the affairs of an enterprise through the pattern of racketeering activity; and 5. The racketeering activity affected interstate commerce. RICO Theory - §1962(a) – prohibits any person from taking any income derived from a pattern of racketeering activity and using or investing that income in an enterprise. So D uses RA to obtain money to invest in a legitimate business.
1962(b) – prohibits person from acquiring or maintaining control of an enterprise through a patter of racketeering activity. (used least) D uses RA to infiltrate or take control of a business or other entity. Like organized crime infiltrating labor organizations by extortion and murder. - 1962(c) – directed at activities of person employed by or associated w/any enterprise. Prohibits person to conduct or participate in the enterprise’s affairs through a pattern of RA. D uses legitimate business as vehicle for illegal activity. Health care fraud, bankruptcy fraud, securities fraud, and mail/wire fraud. - 1962(d) Conspiracy – prohibits any person from conspiring to violate any provision of §1962. Does not require an overt act by the D. Partners in criminal plan must agree to pursue the same criminal objective. Can prosecute d, who have not committed any predicate acts of racketeering as long as prove D intended to further an endeavor which, if complete would satisfy all of the elements of the criminal offense. The Enterprise - Definition – any individual, partnership, corp, association, or legal entity, union or group of individuals associated in fact although not a legal entity. Applies to legal and illegal groups/business. Entity does not have to have an economic or profit motive. - Association in Fact – can include individuals with legal entities. People running bar and their bar. Entity is separate and apart from the pattern of activity in which it engages. It is proved by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit. o Three Elements – 1) E must function as continuing unit; (2) participants must function with a common purpose; (3) E must exhibit some identifiable structure. - Naming the Enterprise as a Defendant – possible to name a entity as an enterprise and the DF, like a company, but this only works under section A and B. NOT C. This is b/c the DF can’t be employed by or associated with itself so the corporation can’t be a DF. It is possible to name the main SH as a D, conducting activities through a corporation. The Operation or Management Test Under §1962(c) – D who had only a minor or peripheral role in the enterprise may not fall within language of being employed or associated with RA and is not liable. - Test – D must take some part in directing the enterprise’s affairs through the “operation or management” of the enterprise. Can be operated by upper and lower rung people under direct supervision or other who exert control over it through e.g. bribery. Racketeering Activity – D must have committed at least two underlying crimes or “predicate acts.” Does not have to be separately convicted of acts to qualify, act must only be chargeable, indictable, or punishable. Acts must fall within 5 year statute of limitations (can fall outside SO SOL). - State Crimes – any act or threat involving murder, kidnapping, gambling, arson, robbery, bribery, extortion, dealing in obscene matters, or w/controlled substances, and is punishable for more than 1 year. It is the substance of the state law crime. Must resolve if guilty under state crime to be guilty under RICO. - Federal Crimes – Mail fraud used often, and bribery, extortion, FI fraud, OJ, money laundering, and securities fraud. Pattern Requirement – two acts of RA, occurring within 10 years of each other (excluding imprisonment). - Supreme Court Test – two predicate acts is necessary, but not sufficient, more is needed, a relationship plus continuity: o Relationship – A relationship must exist between the predicate acts. Might have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events. o Continuity – Demonstrated in either of two ways: (1) “close-ended pattern” by proving a sequence of predicate acts related to each other extending over a substantial period of time (more than a few weeks or months); or (2) show an open ended pattern where there is an implicit or explicit threat of repetition extending into the future (predicate acts part of regular way entity did business. Note – courts focus on likelihood of repetition. Defenses - Invalidity of One or More Predicate Acts - Courts can reverse RICO conviction when it appears the jury based the RICO conviction on invalidated convictions; or the jury does not indicate which of the predicate acts formed the basis of the conviction. As long as two predicate acts are not invalidated, conviction can be sustained despite some invalidation. -
Limitations of Actions - Statute of limitations period runs 5 years from last predicate act. Withdrawal From Conspiracy – can do this for 1962(d) if D can prove they took affirmative steps inconsistent with the objective of the conspiracy, to disavow or to defeat the conspiratorial objectives. Additional D must have either made a reasonable effort to communicate those steps to CC or law enforcement. Horizontal Preemption – RICO claims are preempted or otherwise not within jurisdiction of court because an administrative body has the duty of regulating the conduct in dispute. Usually invoked in labor law cases. Reverse Vertical Preemption – Court can’t rule even if have jurisdiction to promote an overriding policy, such as the maintenance of a particular relationship between the national government and the states. Like if there are serious unanswered questions of state law involved.
XIII. SENTENCING Brooker – (1) Found that the 6th Amendment’s right to a jury trial is violated when a sentence is enhanced based on the sentencing judge’s determination of a fact, other than a prior conviction, that was not found by the jury or admitted by the defendant. (2) Courts should consider guidelines when imposing sentences, but guideline sentences are no longer mandatory. (3) Appellate Courts should evaluate sentences for unreasonableness under the abuse-of discretion standard of review. §3553(a)(2) – sentences should be designed to (a) reflect the seriousness of the offense, promote respect for the law, and to provide just punishment for the offense; (b) to afford adequate deterrence to criminal conduct; (c) to protect the public from further crimes of the defendant; and (d) provide D w/needed educational or vocational training, medical care, or other correctional treatment in the most effective manner. - Courts Should Also consider – (1) nature and circumstances of the offense; (2) history and characteristic of the D; (3) kinds of sentencing available; (4) need to avoid unwanted sentencing disparities among D’s with similar record found guilty of similar conduct; (5) need to provide restitution to victims of the offense. FRE 502 (a) In a preceding if waiver is made to certain privileged documents, there is no subject matter waiver on all related documents unless the waiver was done on a particular document to be deceptively misleading. (b) Inadvertent disclosure of privileged documents does not waive entire privilege if it was indeed by accident, the person took reasonable steps to try and prevent it, and to try and rectify the error. (c) If disclosure of privileged info is made in a state proceeding, this waiver doesn’t automatically apply to federal proceeding. The court should apply the state or federal law which is most protective of privilege. (d) A federal court may order that the privilege or protection is not waived by disclosure connected with the litigation pending before the court. So disclosure is not a waiver in any other proceeding. (e) Agreements regarding disclosure in a federal proceeding are binding on all parties.