Justia White Collar Crime Opinion Summaries

Canopy Financial developed and marketed software for banks and health-care payers to handle health-related savings accounts and administered the health-care funds of almost 2,000 entities. When Canopy entered bankruptcy in 2009, it came to light that Banas and Blackburn had misappropriated more than $90 million from Canopy’s investors and the customers. Each was sentenced to more than 10 years’ imprisonment. Blackburn committed suicide. The Trustee for the benefit of Canopy’s creditors has recovered about $50 million by seizing assets from Blackburn’s mansion and is attempting to recover from recipients of fraudulent conveyances, transfers made while Canopy was insolvent, not in exchange for reasonably equivalent value, 11 U.S.C. 544(b), 548, 550; 740 ILCS 160/1 to 160/12. According to the Trustee, Banas and Blackburn spent more than $80,000 of Canopy’s money at a Nevada nightclub. After obtaining default judgment, the Trustee began to collect from its assets in Nevada. The owner sought to vacate the default under Rule 60(b)(1) for excusable neglect by its agent for service of process. The bankruptcy judge declined. The Seventh Circuit affirmed, noting that the owner had the burden of proof, but chose not to present any evidence about whether the agent received the essential documents. View "Buddha Entm't, LLC v. Paloian" on Justia Law

Plaintiffs, American citizens, had bank accounts in UBS, Switzerland’s largest bank, in 2008 when the UBS tax-evasion scandal broke. The accounts were large and the plaintiffs had not disclosed the existence of the accounts or the interest earned on the accounts on their federal income tax returns, as required. Pursuant to an IRS amnesty program, they disclosed the interest and paid a penalty. They brought a class action to recover from UBS the penalties, interest, and other costs, plus profits they claim UBS made from the class as a result of the fraud and other wrongful acts. The Seventh Circuit affirmed dismissal, noting that the “plaintiffs are tax cheats,” and rejecting an argument that UBS was obligated to give them accurate tax advice and failed to do so. Plaintiffs did not argue that they asked UBS to advise them on U.S. tax law or that the bank volunteered advice. The court stated that: “This is like suing one’s parents to recover tax penalties one has paid, on the ground that the parents had failed to bring one up to be an honest person who would not evade taxes.” The court noted, but did not decide, choice of law issues. View "Thomas v. UBS AG" on Justia Law

Preacely pleaded guilty in 2009 to tax fraud, 26 U.S.C. 7206(2). The district court sentenced him to 18 months’ imprisonment to be followed by three years of supervised release, with a special condition, prohibiting him from participating in his former occupation of tax preparer. When the district court imposed the special condition, counsel asked: “may he own the business if he himself does not prepare any taxes himself?” The court responded, “No … you should not engage in the business of tax preparation directly or indirectly.” After his release from prison, Preacely transferred ownership of his business to his wife, but when an undercover IRS agent asked to speak to the vice-president, he was directed to Preacely. The IRS also executed a search warrant at the business and interviewed a number of employees. The district court revoked Preacely’s supervised release. The Seventh Circuit affirmed, rejecting arguments that the condition was unconstitutionally vague and that Preacely was involved only administratively with the business by doing things such as dropping off food, office supplies, and signing paychecks. View "United States v. Preacely" on Justia Law

Huber operated a Ponzi scheme in which 118 investors lost a total of $22.6 million. He told investors, mainly friends and acquaintances, who trusted him, that he administered investment funds, using a computer trading model. He pleaded guilty to mail fraud and related crimes, and was sentenced to 20 years in prison. A receiver appointed to marshal and distribute remaining assets found $7 million, roughly 24 percent of the total amount and has distributed all but about $1 million to the 118 investors. Instead of distributing recovered assets pro rata among the investors, the receiver made a distinction, counting withdrawals made before discovery of the scheme as partial compensation (“rising tide” method). Those investors argue that he should have used the “net loss” method, under which each investor would receive a sixth of his loss. The district court approved the method of distribution. The Seventh Circuit affirmed, reasoning that the investors did not withdraw “their money,” but withdrew portions of the commingled assets in the Ponzi schemer’s funds. View "Merel v. Duff" on Justia Law

Owens, a Chicago zoning inspector, was convicted of two counts of federal program bribery, 18 U.S.C. 666(a)(1)(B), for accepting two $600 bribes in exchange for issuing certificates of occupancy for four newly constructed homes. The Seventh Circuit reversed, finding that there was insufficient evidence, to establish beyond a reasonable doubt, that the issuance of the certificates of occupancy had a value of $5,000 or more as required by the statute. View "United States v. Owen" on Justia Law

Four defendants were convicted of conspiring to defraud the U.S. by impeding the functions of the IRS and of related fraud and tax offenses in connection with abusive trusts promoted by two Illinois companies. Although the system of trusts was portrayed as a legitimate, sophisticated means of tax minimization grounded in the common law, the system was in essence a sham, designed solely to conceal a trust purchaser’s assets and income from the IRS. It was promoted through a network of corrupt promoters, managers, attorneys, and accountants, but prospective customers who sought independent advice were routinely warned of its flaws. Defendants were sentenced to prison terms of 120 to 223 months. The Seventh Circuit affirmed. View "United States v. Vallone" on Justia Law

The company, S.C. Johnson & Son, was injured by a bribery and kickback scheme involving a dishonest employee and transportation companies with which it had contracts and filed a tort lawsuit in Wisconsin state court. The company filed a second suit, against different transportation defendants, in federal court, based on diversity jurisdiction. The district court dismissed the suit, which raised state law claims of fraudulent misrepresentation by omission; criminal conspiracy to violate Wisconsin’s bribery statute, Wis. Stat. 134.05; conspiracy to commit fraud; violations of the Wisconsin Organized Crime Control Act, Wis. Stat. 946.80, through racketeering activity and mail and wire fraud; and aiding and abetting a breach of fiduciary duty by providing bribes and kickbacks. The court indicated that federal law preempted state tort claims because they could have “the force and effect of a law related to a price, route, or service of any motor carrier . . . with respect to the transportation of property.” 49 U.S.C. 14501(c)(1). The Seventh Circuit reversed. A claim for fraudulent misrepresentation was properly dismissed, but theories based on bribery and kickbacks fall outside the scope of the preemption provision. View "SC Johnson & Son Inc. v. Transp. Corp. of Am., Inc." on Justia Law

Robers pleaded guilty to conspiracy to commit wire fraud, 18 U.S.C. 371, based on his role in a mortgage fraud scheme; Robers signed mortgage documents seeking loans based on inflated income and assets and on his claim that he would reside in the houses and pay the mortgages. The loans went into default. The district court sentenced Robers to three years’ probation and ordered him to pay $218,952 in restitution to a lender and a mortgage insurance company. The Seventh Circuit affirmed the restitution order. The Mandatory Victims Restitution Act, 18 U.S.C. 3663A, requires restitution in the case of a crime resulting in damage to or loss or destruction of property. The court rejected Robers’s argument that the MVRA requires the court to determine the offset value based on the fair market value the collateral had on the date the lenders obtained title to the houses following foreclosure as the “date the property is returned.” Money was the property stolen and foreclosure is not a return of that property; only when the real estate is resold do the victims receive money. Victims are also entitled to expenses, other than attorney’s fees and unspecified fees, related to foreclosure and sale. View "United States v. Robers" on Justia Law

Turner was convicted on four counts of wire fraud and two counts of making false statements to the FBI stemming from a scheme to defraud the State of Illinois of salaries paid to but not earned by a team of janitors responsible for cleaning state office buildings. As was typical at the time in federal fraud prosecutions, the wire fraud counts were submitted to the jury on alternative theories that Turner aided and abetted a scheme to defraud the state of its money and also its right to honest services, 18 U.S.C. 1343, 1346. The Seventh Circuit affirmed in 2008. Two years later, the Supreme Court decided Skilling v. United States, 130 S. Ct. 2896 (2010), limiting the honest services fraud statute to schemes involving bribes or kickbacks. Turner moved to vacate the wire-fraud convictions based on Skilling error, and the court agreed. The Seventh Circuit reversed, reinstating the conviction. The Skilling error was harmless; the honest services alternative was unnecessary to Turner’s conviction. The evidence was coextensive on the two fraud theories; the jury could not have convicted Turner of honest-services fraud without also convicting him of pecuniary fraud. View "Turner v. United States" on Justia Law

Chapman was convicted of six counts of forging checks (18 U.S.C. 513(a)) that were made payable to the IRS and given to him by a client who had hired Chapman to resolve a tax dispute. The Seventh Circuit affirmed, rejecting challenges to the sufficiency of the evidence and to the district court’s admission of a previous forgery conviction. View "United States v. Chapman" on Justia Law