Supreme Court Holds General Statute of Limitations is Not Jurisdictional Defense

It appears that not even this weekend’s colossal winter snowstorm could deter the Supreme Court from its business, today deciding several criminal cases on its docket.  In addition to the landmark Montgomery v. Louisiana decision, which gives retroactive effect to Miller v. Alabama and will have massive implications for those juvenile defendants serving life sentences for murder who may now seek resentencing or parole, the Court affirmed the convictions of Michael Musacchio, a former logistics industry executive who was convicted of improperly penetrating his past employer’s computer system with help from another former employee.

Musacchio had been president of Exel Transportation Services until he resigned in 2004. In 2005, he started a rival logistics company, Total Transportation Services, and soon thereafter hired Roy Brown, Exel’s former chief of information-technology.  Using a password Brown supplied, both Brown and Musacchio continued to access Exel’s computer system until 2006.

In 2010, a grand jury indicted Musacchio for computer fraud under 18 U.S.C. § 1030(a)(2)(C), which makes it illegal to “intentionally access[ ] a computer without authorization or [to] exceed[ ] authorized access,” and in doing so “obtain[ ]… information from any protected computer.” Id. (emphasis supplied).  Although initially charged under both statutorily provided theories of liability, the government’s superseding indictment limited both the conspiracy-based and substantive charges (Counts 1 and 2, respectively) to the cohorts’ unauthorized access to the Exel computer system.

At Musacchio’s 2012 jury trial, his counsel apparently overlooked that the general five-year federal statute of limitations (codified at 18 U.S.C. § 3282) might have barred Count 2, and so he raised no defense on that basis.  And, for the government’s part, it raised no objection to a clearly erroneous jury instruction that diverged from the indictment and the proposed instructions, and directed the jury to consider whether Musacchio had both “intentionally accessed a computer without authorization” and “exceeded authorized access.” Musacchio v. United States, No. 14-1095, 577 U.S. ___, slip op. at 3 (filed Jan. 25, 2016) (emphasis supplied).  Little did the parties likely know that these omissions would catapult Musacchio’s case all the way to the High Court.

After the Fifth Circuit affirmed Musacchio’s sentence of sixty months’ incarceration, the Supreme Court granted certiorari to (1) determine the proper standard of review of a sufficiency-of-the-evidence claim where the court erroneously instructs the jury and adds an element to the offense as charged, and (2) determine whether Section 3282’s statute of limitations was a nonwaivable defense that could be asserted for the first time on appeal.

Unfortunately for Musacchio, he fared no better at the Court, but his case does provide guidance to practitioners. Continue reading

Supreme Court Takes on Insider Trading “Personal Benefit” After All

Just when the Supreme Court appeared to be turning its collective attention away from the standard for insider trading convictions by denying the writ for certiorari in United States v. Newman, the Court today granted cert. in Salman v. United States, which addresses the “personal benefit” that a tipper must receive in an insider trading case.  (And speaking of recent cert. grants:  kudos to my colleague, Charles Casper, who, along with others, obtained a grant of certiorari in Microsoft Corporation v. Baker, No. 15-457, on behalf of Microsoft, in a case raising a class action jurisdictional challenge).

Back to insider trading.  The Court will now take up the following question, as posed by the petitioner in Salman:

Does the personal benefit to the insider that is necessary to establish insider trading under Dirks v. SEC, 463 U.S. 636 (1983), require proof of an “exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” as the Second Circuit held in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), cert. denied, No. 15-137 (U.S. Oct. 5, 2015), or is it enough that the insider and the tippee shared a close family relationship, as the Ninth Circuit held in this case?

In Salman, the remote-tippee defendant (Salman) received and traded on information received from the brother (Michael) of a Citigroup investment banker-insider (Maher).  Maher testified that he provided the information to his brother Michael to “get him off his back.”  Michael then provided the information to Salman.  The petitioner argued that, under the standard set by Newman, Maher, the insider, gained “nothing” – or at the very least nothing that was “objective” or “consequential” or that represented “a potential gain of a pecuniary or similarly valuable nature.”  Maher, it seems, was – like Spaulding Smails in Caddyshack – that family member whose relative was content to declare:  “you’ll get nothing and like it!”

The Ninth Circuit, however, explicitly rejected the approach in Newman and determined that it was sufficient that the government proved that the insider “made a gift of confidential information to a trading relative or friend.”  Because the government had established that link, the Ninth Circuit (Southern District of New York Judge Jed Rakoff, sitting by designation) concluded that the government satisfied its “personal benefit” burden.

But why did the Supreme Court pick Salman rather than weigh in on Newman?  While it is, of course, reading tea leaves, it nonetheless appears that the Court was persuaded by the petitioners’ argument (adopting the Justice Department’s arguments from the Newman petition) that the conflict generated by Newman and widened by Salman creates “uneven enforcement” of the securities laws and that Supreme Court review is necessary to “restore certainty and order” to the law of insider trading.

Moreover, petitioner argued that, unlike in Newman, where the Second Circuit based its decision on a second ground (the defendant’s lack of knowledge of any personal benefit), the “personal benefit” test here was outcome-determinative:  apply Newman, judgment reversed; require merely a gift to a family member, judgment affirmed.

As we argued previously in the context of Newman, we think that Newman got it right (or, at least, put us on the right path) by providing clarity as to the level of personal benefit required of a tipper in an insider trading prosecution.  What the Court does with Newman and Salman will surely be debated going forward, but in the meantime, there appears to be at least a final word on the subject coming shortly from One First Street.

Third Circuit confirms right of defendant not to be cross-examined during sentencing allocution

This guest post was authored by our colleague Michael C. Witsch, an associate in the firm’s Litigation Department in Philadelphia. Michael can be reached at mwitsch@mmwr.com or 215.772.7592. 

On Tuesday, January 5, the Third Circuit ordered resentencing in the case of a Pittsburgh-area appraiser who the Court found had been improperly cross-examined by the prosecutor at his sentencing hearing. In doing so, not only did the court find plain error in permitting cross-examination during the defendant’s allocution, but it specifically invoked its supervisory authority to permit a defendant to address the sentencing court – sworn or unsworn – without being subject to cross-examination.

Jason Moreno was convicted of five counts of wire fraud and two counts of conspiracy growing out of a mortgage-fraud scheme in which he was found to have, among other things, provided inflated appraisals to other members of the scheme in exchange for money. At sentencing, Moreno took the stand and provided the court with a summary of his personal characteristics and explained at length that he was prepared to accept responsibility for his actions. In response to this testimony, the prosecutor questioned Moreno at length about his criminal behavior, including actions that were not even raised at trial, and later argued that the “seriousness of the offense [had been] ratcheted up” by Moreno’s responses to that cross-examination. The district court relied on the contents of the cross-examination in imposing sentence, denying Moreno a sentencing variance based, at least in part, on his responses to the prosecutor’s questions.

In the Court’s precedential opinion granting Moreno resentencing, authored by Judge D. Michael Fisher, the Third Circuit held that the district court erred by permitting the prosecutor to examine Moreno in response to what even the government conceded was a “classic allocution.” Despite Moreno’s failure to preserve his claim at sentencing with an objection, the Court held that this error was plain in light of its prior decision in United States v. Ward, 732 F.3d 175 (3d Cir. 2013).

The Third Circuit had previously explained in Ward that allocution – an ancient right afforded to criminal defendants that dates back at least six centuries – is intended to allow persons convicted of crimes to present mitigating factors and personal circumstances to the trial court before their sentences are imposed, and to preserve the appearance of fairness in the criminal justice system. In reliance on Ward, the Moreno Court explained that the cross-examination after Moreno’s allocution was contrary to these objectives, since it bolstered the factual case against Moreno by drawing out admissions about the scope of the conspiracy—facts that the prosecutor then used in his sentencing argument, and upon which the district court relied.

The district court’s error in permitting cross-examination was plain in light of Ward, the Court reasoned, because: (i) such cross-examination subverts the policy goals of allocution; (ii) Moreno was prejudiced by the prosecutor’s questioning and the district court’s reliance on the results of that questioning in determining his sentence; and (iii) a trial court’s violation of the right of allocution clearly affects the fairness, integrity, or public reputation of the judicial proceedings.

While the Court could have stopped there, it went on to conclude that, even had it not found the error plain, it would nonetheless “not hesitate to invoke [its] supervisory authority” over the district courts to hold that the right of allocution is so fundamental, and the potential for cross-examination to subvert the goals of allocution so severe, that a criminal defendant may never be cross-examined during allocution. Moreno thus provides a criminal defendant with an absolute right to provide a statement of mitigating factors and personal characteristics to the court at allocution without fear that the government may attempt to cross-examine him about that statement to bolster its case against him and argue for a sentencing enhancement.

The decision does, however, leave open some interesting questions. We know from Moreno that the prosecutor may not cross-examine a defendant about his allocution, but is there any limitation on the trial judge’s discretion to ask questions of the defendant about that statement? An even closer question raised by a member of the panel at the September oral argument: What if the prosecutor, rather than asking questions himself, proposes that the judge ask the defendant certain questions? Moreno suggests in a closing footnote that it is not to be read as constraining the district courts’ discretion in determining what may or may not be presented at allocution. Nevertheless, whether the Third Circuit would countenance such closer cases, especially given the concern at argument about where the line should be drawn in this context, will remain a question for another day.

Former Speaker Hastert Pleads Guilty in Hush-Money Case

This morning, former U.S. House Speaker Dennis Hastert appeared in district court in Chicago and pled guilty to one count of violating bank reporting laws. Hastert’s defense counsel had “indicated two weeks ago that he was planning to plead guilty, though the details of the deal weren’t known at the time and the politician maintained the right to withdraw from the agreement until he entered his formal plea [this] morning.” Jessica Corso, Ex-Speaker Hastert Pleads Guilty to Hush Money Charge, Law 360 (Oct. 28, 2015). Today the deal was revealed: in exchange for his plea, one of the charges against Hastert – making false statements – has been dropped and federal prosecutors have apparently recommended that he serve no more than six months in prison.

As White Collar Alert previously reported, in May Hastert was indicted in connection with his alleged agreement to pay an unknown individual $3.5 million “to compensate for and conceal his prior misconduct” against that unknown person. The indictment does not say what the former representative did that led him to pay the bribe, but it alleges that Hastert first withdrew cash in amounts of $50,000 and then, following questioning by bank representatives, structured his withdraws – reducing his payments to under $10,000 each – to evade the banks’ reporting requirements. He did this at least 106 times over a two-year period. Then, when questioned by the FBI about his conduct, Hastert allegedly lied, informing agents that he had withdrawn the cash and kept it “because he did not feel safe with the banking system.” For this conduct, he was charged with two counts: structuring and making false statements to the FBI.

Hastert pleaded not guilty to both charges but over the last few months his attorneys have been negotiating a plea deal, apparently seeking to avoid a trial that would disclose embarrassing secrets dating back to Hastert’s days as a high-school wrestling coach in Illinois. While the plea deal certainly has its up-sides for Hastert, his future remains uncertain:

  • Possible Disclosure of the Underlying Misconduct: Though the plea deal avoids a trail, some detail regarding Hastert’s misconduct may still come to light. As part of the sentencing process the government and defense counsel will provide the court with relevant information about Hastert’s background and the charged offenses. Furthermore, both parties have the ability to call witnesses at the sentencing hearing, including the individual whom Hastert was bribing. Thus, there is still a possibility that some details regarding the alleged misconduct will be revealed.
  • A Potential Period of Incarceration: While one of the charges against Hastert has been dropped and the government has recommended a sentence of no more than 6 months imprisonment, Hastert faces up to five years’ incarceration and a $250,000 fine. Hastert, however, has numerous arguments in favor of a non-incarceration sentence under the factors set forth in 18 U.S.C. § 3553 (discussed here), including the following:
  • The Collateral Consequences: Regardless of the sentence he serves, like most white collar offenders, the “collateral consequences” of Hastert’s conviction will be harsh and will last the duration of his lifetime. Once powerful and well-liked, Hastert’s name – like many a politician before him – has been completely sullied. Likewise, Hastert’s lucrative lobbying career is almost certainly over: as a convicted felon, Congressmen and Congresswomen will almost certainly refuse to meet with him. United States v. Vigil, 476 F. Supp.2d 1231, 1235 (D.N.M. 2007) (finding variance appropriate where defendant in public corruption case was already collaterally punished by loss of his position, loss of his reputation, and media coverage of his case).

Hastert is set to be sentenced on February 29th. White Collar Alert will be sure to report on the conclusion of Hastert’s case.

Supreme Court Denies Review of Second Circuit’s Newman Insider Trading Decision

We’ve taken a summer (early fall?) recess here at White Collar Alert but have been jolted back into the blogosphere with the news of the Supreme Court’s denial of certiorari in United States v. Newman. We’ve written and blogged repeatedly (and here, too) about the Second Circuit’s decision in Newman, including the Government’s petition for a writ of certiorari to the Supreme Court. Yesterday, the Court denied the government’s petition, meaning the Second Circuit’s opinion remains binding precedent in the Second Circuit.

What exactly does this mean? For starters, the Second Circuit’s holding stands: the government must prove that an insider disclosed confidential, non-public information for a personal benefit, which must be “of some consequence” resembling “a relationship between the insider and the recipient that suggests a quid pro quo” or an intention to confer a future benefit. Further, the Second Circuit’s other holding in Newman – that a downstream tippee must know that the corporate insider-tipper received a personal benefit from the tip – was not subject to the petition for writ of certiorari and further remains binding in the Second Circuit.

What is left is to determine what the implications are for existing and future insider trading prosecutions. Already, U.S. Attorney for the Southern District of New York Preet Bharara forecasted in a press conference following the high court’s denial that executives and traders will have a “bonanza for friends and family of rich people who have access to material nonpublic information.” Bharara’s “bonanza” rhetoric appears, to put it mildly, over the top, as he acknowledged that 90% of the cases he’s brought are not implicated by the Circuit’s decision.

As for the other 10%? We at White Collar Alert will continue to stand by to monitor how the courts – and the nation’s prosecutors – approach insider trading cases in light of the Second Circuit’s now final decision. From our perspective, however, having more clearly defined standards for what is a “personal benefit” and what the government is required to prove a defendant knew before trading in a security promotes a more fair and just application of the securities laws, which are designed to protect against breaches of fiduciary duties by insiders. For now, at least, the precedential value of the Second Circuit’s decision is secure.

Texas Attorney General Ken Paxton Indicted

Last Tuesday, a Texas grand jury indicted 52-year-old Texas Attorney General Ken Paxton on three counts of securities fraud. Paxton, sworn in on January 1, 2015, was previously a member of the Texas House of Representatives. The alleged illegal conduct arose while he was a member of the legislature and a private lawyer, and is connected to Paxton’s work soliciting clients and investors on behalf of two companies.

Yesterday morning, Paxton surrendered at the Collin County Jail to be booked. Bail was set at $35,000, and Paxton posted bond and was released. Paxton has been charged with two counts of securities fraud more than or equal to $100,000, a first-degree felony, and one count of failure to register with the state securities board as an investment advisor, a third-degree felony. In an ironic twist, as a state representative in 2003, Paxton voted in favor of changing Texas law to make it a felony for investment agents to fail to register. In Texas, a first-degree felony can result in 5 to 99 years in prison and a third-degree felony carries a possible range of punishment of 2 to 10 years.

The two counts of fraud Paxton committed according to the indictment occurred when Paxton sold more than $100,000 in stock to fellow Texas state representative Byron Cook and Florida businessman Joel Hochberg without revealing that he would make a profit from their investment. He also allegedly failed to disclose that he had already been compensated with 100,000 shares of the company and that he had not put any of his own money into the company. Commentators have already deemed these charges an “uphill battle” for the prosecution because fraudulent omission cases are more difficult to prove than fraudulent misrepresentation in securities cases: the facts will have to show that “information [Paxton] kept from clients during his time as an investment adviser was important enough to constitute a criminal omission.”

Last May, Paxton acknowledged the underlying conduct at issue for the third charge, failure to register, and admitted to the Texas State Securities Board that he had solicited clients for Mowery Capital Management (“MCM”) without abiding by the law requiring state registration. Paxton might have a harder time fighting this charge because of this admission. (As the New York Times has pointed out in yet another ironic twist, Paxton’s Attorney General website informs consumers that a “common theme of investment scammers” is that they are “not likely to be registered” with the Board.) The Texas State Securities Board disciplined him because he acted as an “investment advisor.” Paxton was reprimanded, paid a civil fine of $1,000, and called it an administrative error. The Texas State Securities Board order states that, “Respondent was compensated by MCM for each solicitation resulting in a client relationship with MCM. Specifically, MCM agreed to pay Respondent 30 percent of asset management fees collected by MCM from each client that Respondent solicited successfully.”

Despite the discipline action, the Texas State Securities Board did not refer Paxton for criminal charges. Texans for Public Justice, the same watchdog group that filed a complaint against former Texas Governor and current presidential candidate Rick Perry (who is currently still facing one felony count) deemed the Securities Board’s punishment insufficient and requested a criminal investigation. After the Travis County District Attorney referred the Paxton case to Collin County (where the alleged acts took place), Collin County District Attorney Greg Willis recused himself. Houston defense attorneys Brian Wice and Kent Schaffer were appointed as special prosecutors on the case, and a Texas Rangers investigation followed. Wice is well-known for representing former Republican House Majority Leader Tom DeLay, and securing a reversal of Delay’s conviction for violating Texas campaign-finance laws.

As the cases against now second-time Republican Presidential candidate Perry and former Majority Leader DeLay demonstrate, Texas politics can be hardball. In fact, Paxton has joined a long list of Texas politicians who have faced criminal charges. Our blog will keep you posted on the case.

U.S. Government Appeals Landmark Insider Trading Decision to the Supreme Court

This guest post was authored by our colleague Rimma Tsvasman, an associate in the firm’s Litigation Department in New York. Rimma concentrates her practice on corporate and securities transactions, investment management and commercial litigation. She can be reached at rtsvasman@mmwr.com or 212-867-9500. 

In a highly anticipated move following a denied request for a rehearing, the Government has petitioned the Supreme Court for a writ of certiorari requesting the high court to overturn the Second Circuit’s landmark insider trading decision in U.S. v. Newman.

Although the Newman decision has not reached far beyond New York’s borders, as noted by MMWR partner Lathrop Nelson in this recent Bloomberg article, there is no denying that the decision is a prominent one coming from what Supreme Court Justice Harry Blackmun has called the “Mother Court” for securities law.  Indeed, if the Supreme Court decides not to hear the case or if the decision is left to stand, it would represent a big change to the securities law landscape – both in New York and in other jurisdictions which historically have deferred to the Second Circuit on securities law matters – and a blow to U.S. Attorney Preet Bharara’s legacy in aggressively policing Wall Street in the area of insider trading.

The Government itself has conceded that the Newman decision will dramatically limit its ability to prosecute some of the most common forms of insider trading which involves downstream tipping to individuals two or three steps removed from the so-called insider.  As noted by MMWR partner Mark Sheppard in an earlier post reporting on the Newman decision, many of the Government’s highest profile cases have been built upon the cooperation of those “downstream” traders who would be more empowered to resist the government’s efforts to secure that cooperation.  And although Newman is a criminal case, the Second Circuit did not limit its holding to such cases.  Therefore, civil enforcement cases stand to be impacted as well.

Already, the change caused by Newman is palpable as industry professionals hold their breath to see what the Supreme Court will do.  In just several months following the decision, defendants – including S.A.C. Capital Advisors’s Mathew Martoma and Michael Steinberg – have begun to file appeals to overturn their convictions in reliance on Newman.    And some defendants have already had their guilty pleas vacatedJust over a month after the Newman case was decided, the District Court for the Southern District of New York applied the case to vacate four guilty pleas in an insider trading action involving tips about a 2009 acquisition by IBM.  In that case, United States v. Conradt, No. 12 CR 887 (ALC), 2015 WL 480419 (S.D.N.Y. Jan. 22, 2015), the court expanded Newman’s application to cases based on the misappropriation theory, which imposes liability on third parties – such as lawyers – who are entrusted with confidential information as part of their work and break that trust by divulging the confidential information to others.

Decided on December 10, 2014, the Newman court put the brakes on aggressive insider trading prosecutions by holding that the Government must prove that the defendant knew the insiders disclosed confidential information in exchange for a personal benefit, and that the benefit was consequential and represented at least a potential gain of a pecuniary nature.  In other words, under Newman, friendly tips are no longer actionable.

In its petition to the Supreme Court, the Government argues that the Newman decision is at odds with the Supreme Court’s decision in Dirks v. SEC, which sets forth the personal-benefit standard, as well as other appeals court rulings, and has troubling implications for the Government’s ability to police insider trading.

The Supreme Court begins its new term in October, and will likely decide this Fall whether to consider the Government’s appeal.  We will be sure to keep you posted.

Attorney General Kane Files Wiretap Charges Against Two Lawyers

This post was co-authored by David F. Herman, an associate in Montgomery McCracken’s Litigation Department. He serves an editor of the firm’s Data Privacy Alert blog, which focuses on data privacy and cybersecurity issues. David can be reached at 215.772.7614 or at dherman@mmwr.com.

On Monday, Pennsylvania Attorney General Kathleen Kane filed criminal charges against two Pennsylvania lawyers alleging violations of the Pennsylvania Wiretapping and Electronic Surveillance Control Act, 18 Pa. C.S.A. §§ 5701, et seq. (“Wiretap Act”).

Both lawyers are facing two felony counts under the Wiretap Act, and the charges arise from allegedly using illegally-obtained recordings in court proceedings. More specifically, charges against attorney Stanley T. Booker arise from his alleged use of a recorded telephone call (between his client and the victim of a robbery) during his cross-examination of a witness during a preliminary hearing. Attorney Gerald V. Benyo, Jr., allegedly attached a transcript of an unlawfully recorded call when he filed a motion for an evidentiary hearing. Both attorneys questioned why the Attorney General “would press charges,” but an Attorney General spokesperson stated: “Given all the new technology that is available today, we are aware that there may be more opportunities for potential violations of these laws. We are prepared to act when the situation warrants prosecution.” However, the Pennsylvania Supreme Court’s 2014 decision, Commonwealth v. Spence, which held that telephones are expressly exempt from the devices prohibited by the Wiretap Act, could be a challenge to the Attorney General’s prosecution of these cases.

Booker is scheduled to appear for his preliminary hearing on August 12, 2015, and Benyo is scheduled to appear on August 7, 2015. We will keep you updated on how these cases play out, but in the meantime, what is a practicing lawyer to do in our highly connected world where nearly everyone has a smart phone in his or her pocket, ready to be used at a moment’s notice? Continue reading

Seventh Circuit Upholds Non-Incarceration Sentence for Beanie Baby Creator

This guest post was authored by Mara Smith, a summer associate with Montgomery McCracken.

On Friday, the Seventh Circuit upheld what it determined to be a substantively reasonable sentence for billionaire Ty Warner, the creator of Beanie Babies. We previously blogged about Warner’s district court sentencing, during which Judge Kocoras found that Warner’s “very unique” circumstances warranted a non-incarceration sentence – well below the term of imprisonment recommended by the Sentencing Guidelines. Following this sentencing, the government appealed, arguing that Warner’s sentence was far too lenient.

As you may recall, Warner’s prosecution came out of the DOJ’s initiative to combat offshore tax evasion, which started in 2008 with a targeted investigation into the Swiss bank UBS, where Warner had an offshore account. In early 2009, UBS admitted wrongdoing and agreed to cooperate with the U.S. government investigation by handing over information about some U.S. offshore clients. Not long thereafter, Warner attempted to enroll in the offshore voluntary disclosure program (“OVDP”), but he was ineligible because the government had already acquired his account information and an investigation was pending. Ultimately, in 2013, the government charged Warner with one count of willful tax evasion. Less than a month later, Warner pled guilty to the charges and agreed to pay $56.3 million in penalties.

Although Warner’s Guidelines range was 46- to 57-months imprisonment, neither side proposed a sentence in that range in their pre-sentencing submissions. Rather, the government requested incarceration “in excess of a year and a day” while Warner argued that probation and community service were sufficient. In January 2014, Warner was sentenced to two years’ probation, at least 500 hours of community service, a $100,000 fine, and costs. The district court based this decision on, among other things, testimony revealing Warner’s consistently philanthropic character, his attempt to disclose the account through the offshore voluntary disclosure program, and his willingness to pay a penalty more than ten times the amount of the tax loss.

The government did not agree that this was a sentence “sufficient, but not greater than necessary” to achieve the purposes of sentencing. See 18 U.S.C. § 3553(a). But, thankfully for Warner, the Seventh Circuit did, concluding that the district court “fully explained and supported its decision and reached an outcome that is reasonable under the unique circumstances of this case.” See slip op., at 2. While upholding the sentence, Judge Kanne, who delivered the Seventh Circuit’s opinion, noted that “[i]n other cases, justice might demand a harsher sentence, but here it does not.” The Seventh Circuit made the following important points while reviewing the district court’s analysis of the 3553(a) factors:

  • The Appropriate Benchmark: “No one disputes that he deserved a below-guidelines sentence. … While the court was not strictly bound by the[] [parties’] recommendations, it was well within the court’s discretion to use that range as a benchmark,” meaning that the real choice before the district court was between probation and roughly a year in prison – not 46 to 57 months. Id. at 16.
  • Characteristics of the Defendant: According to the district court, the character letters submitted on Warner’s behalf showed that he consistently displayed concern for others and acted with “the purest of intentions” when making “overwhelming” charitable contributions, which he often did “quietly and privately.” at 2, 18. Indeed, Judge Kocoras – on the bench for 3 decades – had “[n]ever … had a defendant in any case – white collar crime or otherwise – demonstrate the level of humanity and concern for the welfare of others as has Mr. Warner.” Id. at 16. Such character is an appropriate mitigating factor and the district court did not err by placing as much weight on it as it did. Id. at 17-18
  • Seriousness of the Offense: While his offense was serious, his crime was isolated and uncharacteristic. Further, the district court properly took into account that Warner attempted to enroll in the OVDP and, after he could not be accepted, he cooperated with the government and paid full restitution, a $53.6 million FBAR penalty, and a $100,000 fine.
  • General Deterrence: The Seventh Circuit noted that, while incarcerating Warner would have sent a stronger message to the general public than probation, the message sent by his existing sentence – which included a penalty more than ten times the amount of the tax loss – was sufficient.
  • Disparity: Finally, the appellate court noted that, while most individuals receiving probation for offshore tax evasion had caused smaller tax losses, Warner’s unique situation meant that his sentence “did not cause any unwarranted disparities among similar Id. at 28 (emphasis in original).

In light of the above, the Seventh Circuit concluded that the district court’s decision was “reasoned” and “justified.” Id. at 31.

The district court’s careful and thoughtful analysis (as well as the Seventh Circuit’s affirmation thereof), also shows how courts are willing to fully consider the sentencing factors and to impose a sentence that is reasonable and appropriate for the person in front of them – even where that is wholly inconsistent with what the Sentencing Guidelines recommend. As we have blogged before in connection with the sentence of former Virginia Governor Bob McDonnell and Sentencing Guidelines reform proposals by both an ABA Task Force and United States Sentencing Commission, the fraud guidelines for white collar offenses have steadily increased over the years and may very well result in an unreasonable sentence. It is our job as white collar practitioners to ensure that the district court has all of the information it needs to make that careful and thoughtful analysis so that we may obtain the appropriate sentence for our clients.

Fourth Circuit’s “Official Act”: Former Virginia Governor McDonnell’s Appeal Rejected

This guest post was authored by Ernest Holtzheimer, a summer associate with Montgomery McCracken.

Earlier today, a three-judge panel of the 4th U.S. Circuit Court of Appeals unanimously upheld the conviction of former Virginia Governor Bob McDonnell on public corruption charges. We’ve previously blogged about how McDonnell’s public corruption conviction ended with a sentence of two years in prison for taking lavish gifts in return for helping a dietary supplement executive win business. On appeal, the former governor argued that the court’s jury instructions defined “official acts” too broadly such that “it would seem to encompass virtually any action a public official might take while in office.” McDonnell gained bipartisan support for this argument, with amici briefs signed by 44 former state attorneys general, two former U.S. attorneys general, attorneys for the past five presidents, the Republican Governors Association and prominent legal scholars. McDonnell also argued inter alia that the evidence against him was insufficient, that his trial should have been severed from his wife’s, and that the judge’s questioning of prospective jurors was insufficient given the pretrial publicity.The Court disagreed and found that the government evidence “demonstrated a close relationship between official acts and the money, loans, gifts and favors.” The court said that, “the jury could readily infer that there were multiple quid pro quo payments, and that (McDonnell) acted in the absence of good faith and with the necessary corrupt intent.” Judge Stephanie Thacker wrote the opinion for the court and stated that the former governor “failed to sustain his heavy burden of showing that the Government’s evidence was inadequate.” The Court concluded that McDonnell “received a fair trial and was duly convicted by a jury of his fellow Virginians.”

Given the prominence of former Governor McDonnell, the case has garnered significant media attention. The legal significance, however, may prove to be much more lasting, as the Court clarified – or, perhaps, expanded – the scope of what is an “official act” and the proper “quid pro quo” jury instruction.