Justia White Collar Crime Opinion Summaries

Shaw used identifying numbers of Hsu's bank account in a scheme to transfer funds from that account to accounts at other institutions from which Shaw was able to obtain Hsu’s funds. Shaw was convicted under 18 U.S.C. 1344(1), which makes it a crime to “knowingly execut[e] a scheme . . . to defraud a financial institution.” The Ninth Circuit affirmed. A unanimous Supreme Court vacated and remanded for consideration of whether the district court improperly instructed the jury that a scheme to defraud a bank must be one to deceive the bank or deprive it of something of value, instead of one to deceive and deprive. The Court rejected Shaw’s other arguments. Subsection (1) of the statute covers schemes to deprive a bank of money in a customer’s account. The bank had property rights in Hsu’s deposits as a source of loans from which to earn profits or as a bailee. The statute requires neither a showing that the bank suffered ultimate financial loss nor a showing that the defendant intended to cause such loss. Shaw knew that the bank possessed Hsu’s account, Shaw made false statements to the bank, Shaw believed that those false statements would lead the bank to release from that account funds that ultimately, wrongfully ended up with Shaw. Shaw knew that he was entering into a scheme to defraud the bank even if he was not familiar with bank-related property law. Subsection (2), which criminalizes the use of “false or fraudulent pretenses” to obtain “property . . . under the custody or control of” a bank, does not exclude Shaw’s conduct from subsection (1). View "Shaw v. United States" on Justia Law

Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b–5 prohibit undisclosed trading on inside corporate information by persons bound by a duty not to exploit that information for their personal advantage. These persons are also forbidden from tipping inside information to others for trading. The Supreme Court has held (Dirks) that tippee liability hinges on whether the tipper disclosed the information for a personal benefit; personal benefit may be inferred where the tipper receives something of value in exchange for the tip or “makes a gift of confidential information to a trading relative or friend.” Salman was convicted for trading on inside information he received from Kara, who had received the information from his brother, Maher, a former investment banker at Citigroup. Maher testified that he expected his brother to trade on the information. Kara testified that Salman knew the information was from Maher. While Salman’s appeal was pending, the Second Circuit decided that personal benefit to the tipper may not be inferred from a gift of confidential information to a trading relative or friend, unless there is “proof of a meaningfully close personal relationship … that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.” The Ninth Circuit declined to follow the Second Circuit. A unanimous Supreme Court affirmed. When an insider gives a trading relative or friend confidential information, the situation resembles trading by the insider himself followed by a gift of the profits to the recipient. Maher breached his duty to Citigroup and its clients—a duty acquired and breached by Salman when he traded on the information, knowing that it had been improperly disclosed. View "Salman v. United States" on Justia Law

Former Virginia Governor McDonnell, and his wife were indicted on honest services fraud and Hobbs Act extortion charges related to their acceptance of $175,000 in loans, gifts, and other benefits from Williams, the CEO of Star Scientific, which developed Anatabloc, a nutritional supplement made from a compound found in tobacco. Williams wanted McDonnell’s assistance in getting public universities to perform research studies on the product. The government asserted that McDonnell committed (or agreed to commit) an “official act” in exchange for the loans and gifts. An “official act” is “any decision or action on any question, matter, cause, suit, proceeding or controversy, which may at any time be pending, or which may by law be brought before any public official, in such official’s official capacity, or in such official’s place of trust or profit,” 18 U.S.C. 201(a)(3). The claimed “official acts,” included “arranging meetings” for Williams with other Virginia officials, “hosting” events at the Governor’s Mansion, and “contacting other government officials” concerning the studies. The district court instructed the jury that “official act” encompasses “acts that a public official customarily performs,” including acts “in furtherance of longer-term goals” or “in a series of steps to exercise influence or achieve an end.” The court declined to give McDonnell’s requested instruction that “merely arranging a meeting, attending an event, hosting a reception, or making a speech are not, standing alone, ‘official acts.’” The Fourth Circuit affirmed the convictions. A unanimous Supreme Court vacated. An “official act” involves a decision or action (or an agreement to act or decide) on “question, matter, cause, suit, proceeding or controversy,” by a formal exercise of governmental power. The pertinent matter must be more focused and concrete than “Virginia business and economic development,” and a decision or action is more than merely setting up a meeting, hosting an event, or calling another official. The government’s expansive interpretation of “official act” would raise significant constitutional concerns. Conscientious public officials arrange meetings for constituents, contact other officials on their behalf, and include them in events all the time. The jury instructions, therefore, were significantly overinclusive. View "McDonnell v. United States" on Justia Law

Ocasio and other police officers routed damaged vehicles from accident scenes to an auto repair shop in exchange for kickbacks. He was charged with obtaining money from the shopowners under color of official right (Hobbs Act, 18 U.S.C. 1951), and conspiring to violate the Hobbs Act, 18 U.S.C. 371. The court rejected his argument that—because the Act prohibits the obtaining of property “from another”—a Hobbs Act conspiracy requires proof that the alleged conspirators agreed to obtain property from someone outside the conspiracy. The Fourth Circuit and Supreme Court affirmed his conviction. A defendant may be convicted of conspiring to violate the Act based on proof that he reached an agreement with the owner of the property in question to obtain that property under color of official right. The general federal conspiracy statute, under which Ocasio was convicted, makes it a crime to “conspire . . . to commit any offense against the United States.” It is sufficient that the conspirator agreed that the underlying crime be committed by a member of the conspiracy capable of committing it. Ocasio and the shopowners shared a common purpose that officers would obtain property “from another” (shopowners) under color of official right. The Court noted that its decision does not transform every bribe of a public official into conspiracy to commit extortion. View "Ocasio v. United States" on Justia Law

Musacchio resigned as president of ETS in 2004, but with help from the former head of ETS’s information-technology department, he accessed ETS’s computer system without authorization through early 2006. In 2010, Musacchio was indicted under 18 U.S.C. 1030(a)(2)(C), which makes it a crime if a person “intentionally accesses a computer without authorization or exceeds authorized access” and thereby “obtains . . . information from any protected computer.” A 2012 superseding indictment changed the access date to “[o]n or about” November 23–25, 2005. Musacchio never raised the 5-year statute of limitations. The government did not object to jury instructions referring to: “intentionally access a computer without authorization and exceed authorized access” although the conjunction “and” added an additional element. The jury found Musacchio guilty. In affirming his conviction, the Fifth Circuit assessed Musacchio’s sufficiency challenge against the charged elements of the conspiracy count rather than against the heightened jury instruction, and concluded that he had waived his statute-of-limitations defense. The Supreme Court affirmed. A sufficiency challenge should be assessed against the elements of the charged crime, not against the elements set forth in an erroneous jury instruction. Sufficiency review essentially addresses whether the case was strong enough to reach the jury. Musacchio did not dispute that he was properly charged with conspiracy to obtain unauthorized access or that the evidence was sufficient to convict him of the charged crime. A defendant cannot successfully raise section 3282(a)’s statute-of-limitations bar for the first time on appeal. The history of section 3282(a)’s limitations bar confirms that the provision does not impose a jurisdictional limit. View "Musacchio v. United States" on Justia Law

The bank fraud statute, 18 U.S.C. 1344(2), makes it a crime to “knowingly execut[e] a scheme ... to obtain” property owned by, or under the custody of, a bank “by means of false or fraudulent pretenses.” Loughrin was charged with bank fraud after he was caught forging stolen checks, using them to buy goods at a Target store, and then returning the goods for cash. The district court declined to give Loughrin’s proposed jury instruction that section 1344(2) required proof of “intent to defraud a financial institution.” A jury convicted Loughrin. The Tenth Circuit and Supreme Court affirmed. Section 1344(2) does not require proof that a defendant intended to defraud a financial institution, but requires only that a defendant intended to obtain bank property and that this was accomplished “by means of” a false statement. Imposing Loughrin’s proposed requirement would prevent the law from applying to cases falling within the statute’s clear terms, such as frauds directed against a third-party custodian of bank-owned property. The Court rejected Loughrin’s argument that without an element of intent to defraud a bank, section 1344(2) would apply to every minor fraud in which the victim happens to pay by check, stating that the statutory language limits application to cases in which the misrepresentation has some real connection to a federally insured bank, and thus to the pertinent federal interest. View "Loughrin v. United States" on Justia Law

Robers, convicted of submitting fraudulent mortgage loan applications to two banks, argued that the district court miscalculated his restitution obligation under the Mandatory Victims Restitution Act of 1996, 18 U.S.C. 3663A–3664, which requires property crime offenders to pay “an amount equal to ... the value of the property” less “the value (as of the date the property is returned) of any part of the property that is returned.” The court ordered Robers to pay the difference between the amount lent to him and the amount the banks received in selling houses that had served as collateral. Robers argued that the court should have reduced the restitution amount by the value of the houses on the date on which the banks took title to them since that was when “part of the property” was “returned.” The Seventh Circuit and a unanimous Supreme Court affirmed. “Any part of the property ... returned” refers to the property the banks lost: the money lent to Robers, not to the collateral the banks received. Because valuing money is easier than valuing other property, this “natural reading” facilitates the statute’s administration. For purposes of the statute’s proximate-cause requirement, normal market fluctuations do not break the causal chain between the fraud and losses incurred by the victim. Even assuming that the return of collateral compensates lenders for their losses under state mortgage law, the issue here is whether the statutory provision, which does not purport to track state mortgage law, requires that collateral received be valued at the time the victim received it. The rule of lenity does not apply here. View "Robers v. United States" on Justia Law

After a grand jury indicted the Kaleys for reselling stolen medical devices and laundering the proceeds, the government obtained a restraining order against their assets under 21 U.S.C. 853(e)(1), to “preserve the availability of [forfeitable] property” while criminal proceedings are pending. An order is available if probable cause exists to think that a defendant has committed an offense permitting forfeiture and the disputed assets are traceable or sufficiently related to the crime. The Kaleys moved to vacate the order, to use disputed assets for their legal fees. The district court allowed them to challenge traceability to the crimes but not the facts supporting the underlying indictment. The Eleventh Circuit and Supreme Court affirmed. In challenging a section 853(e)(1) pre-trial seizure, an indicted defendant is not entitled to contest the grand jury determination of probable cause to believe the defendant committed the crimes. A probable cause finding sufficient to initiate prosecution for a serious crime is conclusive and, generally, a challenge to the reliability or competence of evidence supporting that finding will not be heard. A grand jury’s probable cause finding may effect a pre-trial restraint on a person’s liberty or property. Because the government’s interest in freezing potentially forfeitable assets without an adversarial hearing about the probable cause underlying criminal charges and the Kaleys’ interest in retaining counsel of their own choosing are both substantial, the issue boils down to the “probable value, if any,” of a judicial hearing in uncovering mistaken grand jury probable cause findings. The legal standard is merely probable cause, however, and the grand jury has already made that finding; a full-dress hearing will provide little benefit. View "Kaley v. United States" on Justia Law

The Comptroller is sole trustee and chooses investments for the employee pension fund of the state of New York and its local governments. The Comptroller’s general counsel recommended against investing in a fund managed by FA; the general counsel then received anonymous e-mails demanding that he recommend the investment and threatening to disclose information about the general counsel’s alleged affair. Some of the e-mails were traced to the home computer of Sekhar, a managing partner of FA, who was convicted of attempted extortion under the Hobbs Act, 18 U.S.C. 1951(a). The Act defines “extortion” as “the obtaining of property from another, with his consent, induced by wrongful use of actual or threatened force, violence, or fear, or under color of official right.” The jury specified that the property at issue was the general counsel’s recommendation to approve the investment. The Second Circuit affirmed. The Supreme Court reversed. Attempting to compel a person to recommend that his employer approve an investment does not constitute “the obtaining of property from another” under the Hobbs Act. Congress generally intends to incorporate the well-settled meaning of the common-law terms it uses. Extortion historically required the obtaining of items of value, typically cash, from the victim. The Act’s text requires not only deprivation, but the acquisition of property; the property, therefore, must be transferable. No fluent English-speaker would say that “petitioner obtained and exercised the general counsel’s right to make a recommendation,” any more than he would say that a person “obtained and exercised another’s right to free speech.” View "Sekhar v. United States" on Justia Law

Petitioner’s father established a trust for the benefit of petitioner and his siblings, and made petitioner the nonprofessional trustee. The trust’s sole asset was the father’s life insurance policy. Petitioner borrowed funds from the trust three times; all borrowed funds were repaid with interest. His siblings obtained a state court judgment for breach of fiduciary duty, though the court found no apparent malicious motive. The court imposed constructive trusts on petitioner’s interests, including his interest in the original trust, to secure payment of the judgment, with respondent serving as trustee for all of the trusts. Petitioner filed for bankruptcy. Respondent opposed discharge of debts to the trust. The Bankruptcy Court held that petitioner’s debts were not dischargeable under 11 U. S. C. 523(a)(4), which provides that an individual cannot obtain a bankruptcy discharge from a debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” The district court and the Eleventh Circuit affirmed. The Supreme Court vacated. The term “defalcation” in the Bankruptcy Code includes a culpable state of mind requirement involving knowledge of, or gross recklessness in respect to, the improper nature of the fiduciary behavior. The Court previously interpreted the term “fraud” in the exceptions to mean “positive fraud, or fraud in fact, involving moral turpitude or intentional wrong.” The term “defalcation” should be treated similarly. Where the conduct does not involve bad faith, moral turpitude, or other immoral conduct, “defalcation” requires an intentional wrong. An intentional wrong includes not only conduct that the fiduciary knows is improper but also reckless conduct of the kind that the criminal law often treats as the equivalent. Where actual knowledge of wrongdoing is lacking, conduct is considered as equivalent if, as set forth in the Model Penal Code, the fiduciary “consciously disregards,” or is willfully blind to, “a substantial and unjustifiable risk” that his conduct will violate a fiduciary duty. View "Bullock v. BankChampaign, N. A." on Justia Law