Justia White Collar Crime Opinion Summaries

Harris was a registered representative with an affiliated broker of MetLife and sold insurance, annuities, and other financial products. Investigations by the Illinois Securities Division, MetLife, and the IRS revealed that for almost eight years, Harris had been diverting client funds, using deposit and accounting methods that substantially departed from MetLife’s standard practices. She manipulated software to generate account summaries that falsely displayed the investments that her clients intended to purchase. Harris received $10,938,986.58 in client funds from more than 50 but fewer than 250 clients, reinvested $4,055,945.73 on the clients’ behalf, and used the balance for personal purposes. MetLife settled with clients who suffered a loss, paying more than $7 million. Harris pled guilty to mail fraud, 18 U.S.C. 1341 and money laundering, 18 U.S.C. 1957. The court’s sentencing calculation included addition of 18 offense levels for a loss in excess of $2.5 million, four levels for the number of victims, two levels for sophisticated means, for a total offense level of 35. The final guideline range was 168 to 210 months; the court sentenced her to 210 months in prison plus $6,812,764.98 in restitution. The Seventh Circuit affirmed, rejecting an argument that the court erred in counting married couples as two separate victims. View "United States v. Harris" on Justia Law

Ciavarella and another state court judge, Conahan, received $2.8 million in three years from a commercial builder, Mericle, and an attorney and businessman, Powell, during the “Kids for Cash” scandal in Luzerne County, Pennsylvania . Ciavarella committed hundreds of juveniles to detention centers co-owned by Powell, including many who were not represented by counsel, without informing the juveniles or their families of his conflict of interest. The judges, aware that they were under investigation, met with Mericle and Powell to coordinate their stories in 2008. Powell was wearing a recording device, exposing the judges’ efforts to obstruct justice. The judges pled guilty to wire fraud and conspiracy in exchange for an agreed 87-month sentence. Noting that the stipulated sentences were significantly lower than the advisory Sentencing Guidelines for the offenses, the district court rejected the plea agreement; the judges withdrew their pleas. Ciavarella proceeded to trial, was convicted of racketeering, honest services mail fraud, money laundering conspiracy, filing false tax returns, and several other related crimes and was sentenced to 336 months’ imprisonment, restitution, forfeiture, and a special assessment. The Third Circuit remanded for modification of the special assessment for mail fraud, but otherwise affirmed, rejecting an argument that the trial judge was biased. View "United States v. Ciavarella" on Justia Law

Hill, Director of Risk Management for Detroit Public Schools invited Washington to submit a proposal for a wellness program for DPS employees. Washington and others joined Associates for Learning (A4L) and submitted a proposal quoting $150,000 for a pilot study. Contrary to DPS policy, Hill did not open competitive bidding or execute a written contract, and made payments by wire transfer, rather than by check. Hill, who later left DPS testified that he met with Washington to discuss larger amounts. Washington paid Hill five percent of the invoice amount for assistance in getting the invoices paid. Invoices totaling more than a million dollars for “future work” were paid. The partners met in public places to distribute cash. Washington was convicted of conspiracy to commit program fraud, 18 U.S.C. 371 and 666, and conspiracy to commit money laundering, 18 U.S.C. 1956. The district court enhanced Washington’s base offense level by 22 levels, finding that Washington was an “organizer or leader” and that the amount of loss to DPS was more than $2.5 million, and sentenced her to 84 months. The Sixth Circuit affirmed, finding that Washington was not prejudiced by errors made by counsel and that the evidence was sufficient. View "United States v. Washington" 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

Kennedy was Sheila’s husband and Scarborough was her close friend. They solicited money for investment in Sheila’s alleged real estate deals and proceedings to obtain an inheritance purportedly worth hundreds of millions of dollars. The multi-year scheme defrauded dozen of victims of more than three million dollars. Both Kennedy and Scarborough were convicted of mail and wire fraud. Scarborough was convicted on a separate money-laundering count. The district court subsequently sentenced Kennedy to 100 months of imprisonment and ordered him to pay more than $3 million in restitution. Scarborough was sentenced to 72 months of imprisonment and ordered to pay more than $2.6 million in restitution. The Sixth Circuit affirmed the convictions and sentences. View "United States v. Kennedy" on Justia Law

Jacob was convicted of selling an unregistered security, 15 U.S.C. 77e(a), and was sentenced to 14 months’ imprisonment and $241,630.95 in restitution. He was granted permission to travel to Australia two weeks after sentencing. He had been traveling to Australia for work while on bond before sentencing, had returned to be sentenced, and pledged to earn additional money to pay restitution. Five days after he was to report, the probation office informed the court that Jacob had failed to surrender as ordered, and his attorney suggested that he may have fled the country. The government then moved to dismiss Jacob’s pending appeal under the fugitive disentitlement doctrine. Jacob failed to respond to his attorney’s motion to withdraw, missed his deadline to file an opening brief, sent the court a rambling email arguing the merits of his appeal, and told his probation officer that he had no intention of returning to the U.S. The Seventh Circuit dismissed his appeal. View "United States v. Jacob" on Justia Law

Turner, the author of Tax Free!, instructed readers to escape income taxation by using common law trust organizations (colatos), and established FAR to assist in implementing colatos. In 1991, Turner enlisted Leveto, the owner of a veterinary clinic, as a FAR member. FAR created Center, a foreign colato, and appointed Leveto as the general manager and Turner as a consultant. Leveto “sold” his clinic to Center, which “hired” Leveto as its manager. Leveto continued to control the clinic, but stopped reporting its income. Center did not pay taxes because it distributed the income to other foreign colatos, which, Turner claimed, “transformed” it to untaxable foreign source income. Leveto began to market Tax Free! In 1995, the IRS began a criminal investigation. In 2001, Turner and Leveto were charged with conspiracy to defraud the IRS by concealing Leveto’s assets, 18 U.S.C. 371. Turner moved to exclude recorded conversations between Leveto and an undercover agent and foreign bank records seized from Leveto’s office and residence. The district court admitted the conversations, reasoning that they furthered an unindicted conspiracy to impede tax collection efforts, and held that the government properly authenticated the foreign bank documents. Turner was convicted, sentenced to 60 months’ imprisonment, and ordered to pay $408,043 in restitution, without any findings about his ability to pay. The Third Circuit affirmed. View "United States v. Turner" on Justia Law

After a jury trial, Appellant was convicted of conspiring to commit wire fraud and committing wire fraud for his participation in a wire fraud scheme. Appellant was sentenced to a term of imprisonment followed by supervised release. The First Circuit Court of Appeals affirmed Appellant's convictions and sentences, holding (1) the evidence was sufficient to support the convictions; (2) the district court did not err in admitting files by an attorney involved in the real estate transactions that were the basis of Appellant's indictment; (3) the district court properly admitted evidence related to Appellant's involvement in two real estate transactions that were not the basis of his indictment; and (4) the district court properly sentenced Appellant. View "United States v. Appolon" on Justia Law

Defendant pled guilty to one count of securities fraud in violation of 15 U.S.C. 78j(b), 78ff and 17 C.F.R. 240.10b-5 (Rule 10b-5). On appeal, defendant challenged his sentence of five years' imprisonment, arguing that because he had no knowledge that his conduct violated Rule 10b-5, imprisonment was not a permissible sentencing option. However, defendant had admitted to knowing the substance of Rule 10b-5, and this removed him from the protection of the no-knowledge provision. Because defendant failed to carry his burden of showing that he had no knowledge of Rule 10b-5, the court affirmed the judgment. View "United States v. Behren" on Justia Law

In 2004 Wallace financed a home purchase with a $272,315 mortgage. He took a second mortgage of $164,500 for improvements and to pay down debt. In 2006, Wallace sought a refinance loan of $422,500. Midwest obtained an appraisal from Brock, through the now-defunct Accupraise. A former Accupraise employee explained that Midwest would send a requested appraisal value and Brock would return a tailor-made appraisal, often without seeing the property. Accupraise and Brock valued Wallace’s home at $500,000. Unbeknownst to Wallace, his refinance was an adjustable-rate mortgage that allows negative amortization; he had a teaser rate of two percent that quickly multiplied. For securing a high long-term interest rate, Midwest received a premium in excess of $14,000. The loan created insurmountable financial problems for Wallace. He learned that the true 2006 value of his home was $375,000. Wallace declared bankruptcy, surrendered the home, and sued alleging that he was the victim of a fraudulent scheme violating the Racketeer Influenced and Corrupt Organizations Act and Kentucky conspiracy law. Mediation produced a settlement, under which Wallace prevailed on a RESPA claim. The district court granted defendants partial summary judgment. The Sixth Circuit reversed a finding that Wallace did not sufficiently demonstrate that the appraisal proximately caused his financial injuries, but otherwise affirmed. View "Wallace v. Midwest Fin. & Mortg. Servs., Inc." on Justia Law