Justia White Collar Crime Opinion Summaries

Reichert was a forum moderator for Xbox-scene.com, a website dedicated to discussion of installing “modification chips in video game consoles so that they could run software for which the consoles were not originally designed. Reichert sold an undercover agent a modified Nintendo Wii, able to play both legitimate and pirated video games. After obtaining a warrant, agents seized modification chips, a soldering iron, computers, and business cards advertising Reichert’s services. Reichert was convicted under the Digital Millennium Copyright Act, which gives copyright owners a remedy against those who do not themselves infringe a copyright, but circumvent technological controls and enable others to infringe. The Act establishes circumvention liability for digital trespass, 17 U.S.C. 1201(a)(1), and trafficking liability, 17 U.S.C. 1201(a)(2). Circumventing or trafficking in circumvention tools is a criminal offense if committed “willfully” for financial gain. With a two-point “special skills” enhancement under U.S.S.G. 3B1.3, Reichert’s advisory Guidelines range was 15 to 21 months. The district court imposed a sentence of 12 months. The Sixth Circuit affirmed, rejecting arguments that the jury received an inaccurate “deliberate ignorance” instruction that negated the “willful” conduct requirement,” that exclusion of certain defense testimony violated Reichert’s constitutional right to present a defense, and that the “special skills” enhancement should not apply to Reichert’s self-taught technical expertise.View "United States v. Reichert" on Justia Law

Morales operated IPS to defraud small businesses. His sales agents contacted business owners and offered to collect on bad checks for a small commission. The agents would tell the owners that they worked for another business, not IPS, and asked them for personal information and a voided check, ostensibly for wiring funds. With that data, IPS made unauthorized withdrawals from bank accounts through financial intermediaries, stating that the withdrawals covered payments for credit card processing equipment. IPS neither collected bad checks nor leased credit‐card processing equipment. IPS fraudulently withdrew $645,000. In 2004, a team led by Secret Service Agent Kane executed a search warrant on IPS’s office and found extensive evidence. Morales was indicted for mail fraud, 18 U.S.C. 1341. At trial, the government presented witnesses including 10 victims, forensic analysts, the IPS receptionist, and Agent Kane. Convicted, Morales was sentenced to nine years in prison. Three weeks after the trial, an assistant U.S. attorney sent Morales’s lawyer two emails from Agent Kane to government attorneys that had not previously been disclosed. One attached a screenshot from the laptop as it appeared when discovered in Morales’s office; the other responded concerning picking up a grand jury subpoena for Paulina Morales. The email included a threat to "taze" Morales’s pet, although that never happened. The court denied a motion for a new trial. The Seventh Circuit affirmed, finding any Brady violation harmless because evidence implicating Morales was overwhelming.View "United States v. Morales" on Justia Law

Defendant, a member of the board of directors of Goldman Sachs, appealed his conviction for three counts of securities fraud, in violation of 15 U.S.C. 78j(b) and 78ff, and one count of conspiracy to commit securities fraud in violation of 18 U.S.C. 371. The prosecution arose out of a multiyear government investigation of insider trading at Galleon which included court-authorized wiretaps of Galleon's founder's cell phone. The court concluded that the trial court did not err by admitting statements of a coconspirator, recorded in wiretapped telephone conversations to which defendant was not a party where the statements were admissible both as nonhearsay statements in furtherance of the conspiracy and under the exception for statements against penal interest. The court also concluded that the trial court did not abuse its discretion by excluding relevant evidence offered by defendant. Accordingly, the court found defendant's arguments on appeal were without merit and affirmed the judgment of the district court.View "United States v. Gupta" on Justia Law

Walker was involved in a mortgage fraud scheme involving at least 10 loans and seven Chicago-area properties. Walker served as both a fraudulent buyer and seller and used his then‐girlfriend as a straw purchaser in some transactions. The loans went into default and the properties were foreclosed on, causing an estimated $956,300 in loss to the lender. Walker’s attorney entered his appearance just weeks before trial and sought to investigate whether illegally-seized material from an unrelated state case (involving Walker’s arrest for possession of a gun and the ensuing search of his home) may have been the basis of the federal case The government maintained that its evidence came from lenders, title companies, financial institutions and eyewitness testimony, not from the state search. The government informed the district court that a suburban police department held the evidence and had affirmed it had no connection with or knowledge of the federal case. Walker did not attempt to obtain that evidence and was convicted of wire fraud, 18 U.S.C. 1343. The Seventh Circuit affirmed, rejecting arguments that failure to turn over the state case evidence constituted a Brady violation and that the court erred when it refused to give Walker’s proposed buyer‐seller jury instruction and in ordering restitution.View "United States v. Walker" on Justia Law

Through Amusements Inc., owned by Szaflarski, a criminal enterprise distributed “video gambling devices” to bars and restaurants. The machines allow customers to deposit money in return for virtual credits and are legal for amusement only. The enterprise and the establishments, however, permitted customers to redeem credits for cash. The devices were modified to track money coming in and payouts, so that establishment owners and the enterprise could divide the profits. When a rival company encroached on Amusements Inc.’s turf, the enterprise placed a pipe bomb outside the rival’s headquarters. In addition to gambling, the enterprise committed home and jewelry‐store robberies, fenced stolen items through Goldberg Jewelers, owned by Polchan, and dealt in stolen cigarettes and electronics. Sarno was at the top of the enterprise’s hierarchy, followed by Polchan. Volpendesto was a perpetrator of robberies. The three were indicted for conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. 1962(d). Sarno and Polchan were indicted for conducting an illegal gambling business, 18 U.S.C. 1955; and Polchan for additional counts, including use of an explosive device, conspiracy to do so, 18 U.S.C. 844(i) and (n), and conspiracy to obstruct justice, 18 U.S.C. 1512(k). Others indicted included Szaflarski and Volpendesto’s father, and two police officers. Most entered pleas. Volpendesto, Polchan, and Sarno were convicted. The Seventh Circuit affirmed, rejecting challenges to the sufficiency of the evidence, jury instructions, evidentiary rulings, and the sentences.View "United States v. Sarno" on Justia Law

Elsass and his companies, FRG, and STS, were charged with violations of the Tax Code, including claiming theft-loss deductions for losses that did not involve criminal conduct, claiming those deductions before it was clear that there was no reasonable prospect of recovery, falsely characterizing theft losses as losses incurred in a trade or business to artificially inflate refunds, claiming theft-loss deductions to which taxpayers were not entitled because the losses were incurred by deceased relatives, negotiating customers’ tax-refund checks and depositing them into defendants’ bank accounts, falsely indicating that Elsass was an attorney in good standing, making deceptive statements to customers that substantially interfered with the administration of the tax laws, promoting an abusive tax shelter through false or fraudulent statements about the tax benefits of participation, and aiding and abetting the understatement of tax liability. The district court held that there was no genuine issue as to whether Elsass and FRG had engaged in each of these prohibited practices and enjoined them from serving as tax-return preparers. While it granted summary judgment to STS with respect to all claims except on, because STS is wholly owned by Elsass, it enjoined STS to the same extent as Elsass and FRG. The Sixth Circuit affirmed. View "United State v. Elsass" on Justia Law

In 2000 the SEC charged First Choice and others with fraud. The district court appointed a receiver to take charge of the defendants’ assets for victims of the $31 million fraud. The receiver found that some assets had been used to acquire oil and gas leases in Texas and Oklahoma and attempted to sell them and use the proceeds to compensate the victims. Over the next 14 years, third parties sought to establish ownership interests in the leases. In this case, CRM sought to contest the receiver’s proposed sale of oil leases in Osage, Oklahoma, which it claims to have operated since 2002. The district court denied CRM’s motion to intervene and approved the sale. The Seventh Circuit affirmed, noting that CRM knew as early as 2004 that the receiver was claiming the leases, but waited until the protracted and expensive receivership was finally moving toward an end and the receiver’s assets were dwindling to take action. View "Sec. & Exch. Comm'n v. First Choice Mgmt. Servs., Inc." on Justia Law

Defendant, the former CEO and board chairman of Duane Reade, appealed the district court's award of restitution after he was convicted of one count of conspiracy to make false statements and four counts of securities fraud. The court affirmed the district court's determination that Oak Hill should be awarded restitution as a "non-victim," and Duane Reade's employees' attorneys fees were properly subject to restitution; the court vacated and remanded for further proceedings as to whether Duane Reade's payment of fees and costs to Paul, Weise and Cooley constitute "necessary" expenses under the Victims and Witnesses Protection Act (VWPA), 18 U.S.C. 3663; and, on remand, the district court is free to exercise its discretion as to whether "determining complex issues of fact related to the cause or amount of the victim's losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process." View "United States v. Cuti" on Justia Law

Abair emigrated from Russia in 2005 and married an American citizen. Abair owned an apartment in Moscow. After her divorce, Abair sold the apartment and deposited the proceeds with Citibank Moscow. She signed a contract to buy an Indiana home for cash. Citibank refused to transfer funds because her local account was in her married name and the Moscow account used her birth name. Over two weeks Abair withdrew the daily maximum ($6400) from Citibank ATMs and deposited $6400 to $9800 at her local bank. A deposit on Tuesday, May 31 followed the Memorial Day weekend and was posted with one made on Saturday, pushing her “daily” deposit over the $10,000 trigger for reporting, 31 U.S.C. 5313(a). Abair was charged with structuring financial transactions to evade reporting. IRS agents testified that during her unrecorded interview, Abair, who is not fluent in English, revealed knowledge of the reporting rules. Abair testified that she was aware of the limit when she spoke with the agents, but had learned about it after making the deposits, when she asked why identification was required. She said her deposit amounts were based on how much cash would fit in her purse. Abair was convicted and agreed to forfeit the entire proceeds. The Seventh Circuit remanded, finding that the government lacked a good faith basis for believing that Abair lied on tax and financial aid forms and that the court erred (Rule 608(b)) by allowing the prosecutor to ask accusatory, prejudicial questions about them. On the record, Abair is at most a first offender, according to the court, which expressed “serious doubts” that forfeiture of $67,000 comports with the “principle of proportionality” under the Excessive Fines Clause.View "United States v. Abair" on Justia Law

Sentinel specialized in short-term cash management, promising to invest customers’ cash in safe securities for good returns with high liquidity. Customers did not acquire rights to specific securities, but received a pro rata share of the value of securities in an investment pool (Segment) based on the type of customer and regulations that applied to that customer. Segment 1 was protected by the Commodity Exchange Act; Segment 3 customers by the Investment Advisors Act and SEC regulations. Despite those laws, Sentinel lumped cash together, used it to purchase risky securities, and issued misleading statements. Some securities were collateral for a loan (BONY). In 2007 customers began demanding cash and BONY pressured Sentinel for payment. Sentinel moved $166 million in corporate securities out of a Segment 1 trust to a lienable account as collateral for BONY and sold Segment 1 and 3 securities to pay BONY. Sentinel filed for bankruptcy after returning $264 million to Segment 1 from a lienable account and moving $290 million from the Segment 3 trust to the lienable account. After informing customers that it would not honor redemption requests, Sentinel distributed the full cash value of their accounts to some Segment 1 groups. After filing for bankruptcy Sentinel obtained bankruptcy court permission to have BONY distribute $300 million from Sentinel accounts to favored customers. The trustee obtained district court approval to avoid the transfers, 11 U.S.C. 547; 11 U.S.C. 549. The Seventh Circuit, noting the unique conflict between the rights of two groups of wronged customers, reversed. Sentinel’s pre-petition transfer fell within the securities exception in 11 U.S.C. 546(e); the post-petition transfer was authorized by the bankruptcy court, 11 U.S.C. 549. Neither can be avoided.View "Grede v. FCStone LLC" on Justia Law