Supreme Court Takes On “Another” in Upholding Hobbs Act Conviction

The Hobbs Act – a law promulgated in 1946 to deal with the infiltration of racketeering activity in labor unions – got a “W” in its column yesterday with the Supreme Court’s issuance of Ocasio v. United States.  Justice Alito, writing for the 5-3 majority, affirmed the convictions of a Baltimore police officer for Hobbs Act extortion and conspiracy to commit the same for accepting kickbacks in exchange for directing cars post-accident to his co-conspirator’s auto body shop for repairs.

The Hobbs Act is a vehicle typically used by federal prosecutors to charge a public official “who took ‘by colour of his office’ money that was not due to him for the performance of his official duties,” or more simply put, the Hobbs Act provides for the prosecution of law enforcement officials and politicians who accept bribes or extort others via their professional office.  Evans v. United States, 504 U.S. 255, 260 (1992). The definition of extortion under the Hobbs Act requires the obtaining of property (think money, gifts, entertainment, etc.) from another with his consent.  Id. at 265.

In a strict constructionist argument that would have made the late Justice Scalia proud, Ocasio argued that the Government did not carry its burden on this requisite element of the Hobbs Act by failing to prove that he had obtained property “from another.”  Sure, Ocasio accepted money in exchange for routing beat up cars to his co-conspirator’s repair shop, but he shrewdly pointed to the fact that he accepted the said property, i.e. his kickbacks, directly from his co-conspirator and not from another individual outside the conspiracy.  Therefore, he concluded that although his co-conspirators paid him off, there was no agreement – and could be no agreement – to obtain property from another individual or individuals. Clever argument?  Yeah.  Successful?  No.

Justice Alito rejected this argument, in sum, agreeing with the Government that Ocasio’s acceptance of kickbacks from his conspiring bribe payors, satisfied the “from another” element of the Hobbs Act.  Any suggestion proffered by the defense that the bribe must have been paid from an individual outside or beyond the conspiracy was swiftly dismissed by majority Justices Alito, Kennedy, Ginsburg, Breyer, and Kagan.  Moral of the story:  just like the man who becomes his own grandpa, one can now be both a victim and a co-conspirator under the Hobbs Act.



Update: Second Circuit Limits Government’s “Stream of Payments” Statute of Limitations Theory

Last week, White Collar Alert editor Erin Dougherty reported on the Second Circuit’s unusual summary order reversing the convictions of three former General Electric Co. executives for bid rigging.  Yesterday, in a 2-1 decision, the Second Circuit confirmed the expected basis for the reversal, holding that ongoing (and artificially suppressed) interest payments under municipal derivatives contracts do not constitute overt acts in furtherance of a conspiracy sufficient to extend the statute of limitations.  The opinion provides an important check on the government’s efforts to extend the statute of limitations in financial crimes when a conspirator receives a continuous flow of economic benefits.

As explained in our post last week, the government charged Peter Grimm, Dominick Carollo, and Steven Goldberg with wire fraud conspiracies to deflate the interest rates of investment contracts with municipalities as part of the Antitrust Division’s municipal bond investigation.  The government did not allege any overt acts within the statute of limitations other than the continued interest payments that were made by the defendants’ employers (providers) to the municipalities.  The defendants contended that the last overt acts occurred upon the closing of the transactions; the government countered that the purpose of the conspiracy was economic enrichment and the continued interest payments by the providers at depressed levels were made “in furtherance of the conspiracy.”

The Second Circuit resolved this dispute by stating that although “economic enrichment” conspiracies continue “through the conspirators’ receipt of their economic benefits,” such a conspiracy does not continue indefinitely.  United States v. Grimm, No. 12-4310-cr, slip op. at 11-12 (2d Cir. Dec. 9, 2013) (citing United States v. Salmonese, 352 F.3d 608, 616 (2d Cir. 2003)).  Relying on both Salmonese and United States v. Doherty, 867 F.2d 47 (1st Cir. 1989) (Breyer, J.), the court explained:

[A] conspiracy ends notwithstanding the receipt of anticipated profits “where [ ] the payoff merely consists of a lengthy, indefinite series of ordinary, typically noncriminal, unilateral actions . . . and there is no evidence that any concerted activity posing the special societal dangers of conspiracy is taking place.”

Grimm, slip op. at 12 (quoting Salmonese, 352 F.3d at 616).

The court contrasted a conspirator’s receipt of stripped warrants over a ten-week period that was neither indefinite nor lengthy in Salmonese with the ordinary commercial obligations over a potentially 20-year period in Grimm.  The court rejected the government’s bright-line rule that so long as the stream of payments contains an element of profit the conspiracy continues.  Judge Jacobs, for the majority, echoing his comments at oral argument, noted that “a conspiracy to corrupt the rent payable on a 99-year ground lease would, under the government’s theory, prolong the overt acts until long after any conspirator or co-conspirator was left to profit, or to plot.”  Id. at 14.

Ultimately, the court held that where the continued economic benefit continues “in a regular and ordinary course” beyond “when the unique threats to society posed by a conspiracy are present,” the “advantageous interest payment is the result of a completed conspiracy and is not in furtherance of one that is ongoing.”  Id. at 15.  Judge Kearse, in dissent, argued that the majority ignored the fact that the providers were coconspirators and that the providers’ continuing payments, under existing circuit precedent, constituted continuing overt acts.

The majority’s holding reaches beyond merely the municipal derivatives contracts at issue in Grimm and provides a restraint on the government’s ability to rely on continuing payments under an “economic enrichment theory” to extend the statute of limitations.

Convictions of 3 Ex-GE Muni-Bond Execs Reversed by Second Circuit on Summary Order Just Days After Oral Argument

Yesterday, just a week after oral argument, the United States Court of Appeals for the Second Circuit issued a summary order (with an opinion to follow) reversing the convictions of three former General Electric Co. (“GE”) finance executives – Steven Goldberg, Peter Grimm, and Dominick Carollo – who were found guilty of conspiring to commit municipal bond-related bid rigging in May 2012 after a lengthy jury trial in the United States District Court for the Southern District of New York.

Though the court did not explain the basis for its swift and decisive action, the primary argument raised by the defendants – and the court’s main focus at oral argument last week – related to whether ongoing interest payments constitute overt acts in furtherance of a conspiracy, thereby tolling the statute of limitations.

In its July 2010 indictment, the Antitrust Division of the U.S. Department of Justice alleged, inter alia, that Goldberg, Grimm, and Carollo conspired with other providers of investment agreements and municipal finance contracts, as well as with brokers retained by municipalities issuing bonds, to defraud municipalities in violation of 18 U.S.C. § 371. More specifically, the defendants allegedly discussed with other providers the specific interest rates that would be bid and/or paid kickbacks to brokers in exchange for information and/or last looks, all allowing them to ensure contracts went to GE and to “lowball” their bids. Richard Vanderford, “3 Ex-GE Execs Found Guilty of Muni Bond Bid-Rigging,” Law-360 (May 11, 2012).

In their motions to dismiss the indictment and in their appellate briefs, counsel for Goldberg, Grimm, and Carollo argued that the government’s case was barred by the five-year statute of limitations applicable to a Section 371 conspiracy, which begins to run as of the last overt act in furtherance of the conspiracy. See Grunewald v. United States, 353 U.S. 391, 396-97 (1957). Here, the alleged bid rigging activities all occurred in connection with contracts that closed between August 1999 and May 2004. As the defendants and their co-conspirators took no further action following the closings, the defendants argued that the July 2010 indictment was untimely.

The government argued, however, that because GE was still making fraudulently-reduced interest payments to the municipalities in connection with the contracts, the statute of limitations had not tolled. More specifically, because the purpose of the conspiracy was economic enrichment, the conspiracy did not end at the contracts’ award, but continued as interest payments were made pursuant to the contracts because those interest payments, which realize the anticipated economic enrichment, are “in furtherance of” the conspiracy. See United States v. Salmonese, 352 F.3d 608, 615 (2d Cir. 2003); United States v. N. Improvement Co., 814 F.2d 540, 542 (8th Cir. 1987)United States v. Girard, 744 F.2d 1170, 1172-73 (5th Cir. 1984); United States v. Walker, 653 F.2d 1343-48 (9th Cir. 1981).

Defense counsel countered this proposition, arguing that pre-determined interest payments do not qualify as overt acts because: (1) they are merely the “result” of a completed conspiracy, not an act “in furtherance of” a conspiracy, Fiswick v. United States, 329 U.S. 211, 216 (1946); and (2) they are acts of an innocent third party (GE), not acts knowingly made by a conspirator (i.e., the defendants, other providers, and brokers), Salmonese, 352 F.3d at 617 n.3. Furthermore, defense counsel argued that finding that the conspiracy continues with each of GE’s interest payments would undermine the purpose of the statute of limitations, allowing it to run so long as the interest payments continue to be made under these long-term contracts.

According to one article, this latter argument seemed to resonate with the panel during oral argument. Judge Dennis Jacobs even noted that “if payments are made automatically under a 99-year-contract obtained through a conspiracy, the statute of limitations would also be extended by a century under the government’s theory – ‘more than a human lifetime in some hypotheticals.'”  Richard Vanderford, “Ex-GE Execs Tell 2nd Circ. Bid-Rigging Charges Were Late,” Law-360 (Nov. 19, 2013).

The possibility that the court’s reversal was based on these statute of limitations arguments has white collar practitioners awaiting the Second Circuit’s opinion with great anticipation. A broad holding regarding the statute of limitations for conspiracies aimed at economic enrichment could have major implications in the field.

In the meantime, Goldberg, Grimm and Carollo – whom the district court ordered to be released from the custody of the Bureau of Prisons – should have a very happy Thanksgiving and holiday season.