12 Aug 10 Prosecution for Attempted TARP Fraud
The focus of investigators and prosecutors in exposing fraudulent criminal activity related to federal government bailout efforts has resulted in the first criminal charge for attempting to defraud the Troubled Asset Relief Program (“TARP”).
On March 15, 2010, Charles J. Antonucci, Sr., former President and Chief Executive Officer of a bank in New York City, was arrested and charged with, among other unlawful conduct, making and causing to be made false statements “in connection with [a bank's] application for an [approximately US$11 million] investment from the Capital Purchase Program of [TARP].” The federal false statements statute covers statements made in connection with TARP applications, as the statute broadly proscribes false statements made “in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States.” Such jurisdiction can include state agencies receiving federal support, and false statements to officials of those state agencies receiving federal assistance are federal crimes even if the person making the false statement was unaware of the federal assistance. The criminal complaint also charges Antonucci with federal mail fraud in connection with the submission of the application via the US Postal Service.
According to a Department of Justice press release, Antonucci’s case represents the first instance of a criminal charge for attempting to defraud TARP. Notably, the bank allegedly voluntarily withdrew the TARP application on which the government based the charges in February 2009, after the Federal Deposit Insurance Corporation (“FDIC”) advised the bank that its application would not be recommended for approval.
Agents of the Special Inspector General for the Troubled Asset Relief Program (“SIGTARP”) participated in the investigation, combining the SIGTARP’s substantial regulatory resources with those of several other federal and state agencies. In discussing Antonucci’s case, SIGTARP Neil M. Barofsky stated:
This case should stand as a stark warning to would-be wrongdoers that if you attempt to profit criminally from this historic program, SIGTARP and its law enforcement partners will work tirelessly to ensure that you will be caught, you will be charged, and you will be brought to justice.
Antonucci’s case is just the latest example of the federal government’s aggressive use of its broad regulatory authority to investigate and prosecute financial crimes. Antonucci’s prosecution results from the increased coordination of enforcement resources possible through the federal Financial Fraud Enforcement Task Force (“Task Force”), which President Obama established in November 2009. The efforts of the Task Force and the investigative resources of SIGTARP are examples of the federal government’s commitment to “wage an aggressive, coordinated, and proactive effort to investigate and prosecute financial crimes.” As The Wall Street Journal recently noted, “regulators are ratcheting up their efforts to hold bank executives responsible as more financial institutions succumb to bad real-estate loans and other problems.”
In this regulatory environment, recipients of—and even applicants for—TARP and other federal funds continue to be well advised to consider the broad regulatory and investigative authority associated with federal funds and to carefully consider any statements made to federal agents related to TARP funds. In addition to the false statements and mail fraud criminal risks apparent in Antonucci’s prosecution, the risk to TARP recipients from False Claims Act whistleblower allegations, see White & Case’s prior advisory, remains. Additionally—as yet another example of the risks of requesting federal assistance—on March 15, 2010, the Recovery Accountability and Transparency Board (“RATB”) issued its Quarterly Report to the President and Congress: Insight and Information on the Recovery Board’s Operations through February 2010. In the report, the RATB disclosed that it and the relevant Inspectors General have received 1,771 complaints related to the US$787 billion in spending under the American Recovery and Reinvestment Act of 2009. Those complaints, through February, resulted in 49 referrals to the Department of Justice, of which the DOJ accepted 43 for criminal prosecution. As previously noted in our prior client alert taking into account the aggressive regulatory stance of federal agencies continues to be wise practice when applying for or utilizing federal funds.
This article is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons. This article should not be acted upon in any specific situation without appropriate legal advice, and it may include links to websites other than the White & Case website. White & Case LLP has no responsibility for any websites other than its own, and does not endorse the information, content, presentation or accuracy, or make any warranty, express or implied, regarding any other website.
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White & Case LLP is a leading international law firm with more than 2,000 lawyers in five continents. Specialists in a range of practices including the white collar practice which offers clients expertise in dealing with government investigations and enforcement matters.
14 May 10 Senate Amends Patent Reform Bill
March 4, 2010 – The United States Senate Judiciary Committee released details of a new compromised patent reform bill entitled the “Patent Reform Act of 2010.” Introduced by Senators Patrick Leahy (D-VT) and Orrin Hatch (R-UT), the proposed amendment retains several of the key components of the original bill but also adds new provisions such as a provision limiting false patent marking lawsuits and the creation of a new administrative post-grant review procedure.
First to File:
As in the previous patent reform bills, the proposed bill would transform the United States’ unique first-to-invent patent system into the more common first-to-file system. In a first-to-file patent system the patent is granted to the first person who files a patent application, regardless of the date of conception.
Limitation on Damages:
The amended bill also retains the provision designed to prevent excessive damages awards. This provision allows the judge to act as gatekeeper during the damages phase of the trial, including determining whether a party’s damages theories and methodologies are sound and, therefore, should be allowed before the jury. The judge may keep potentially damaging evidence from the jury if the party’s damages theory lacks legally sufficient evidentiary basis. Therefore, the court acts as the gatekeeper, permitting the jury to hear evidence relating to the determination of damages only if the evidence is relevant to the methodologies and factors that the court determines are sound.
Opponents of the gatekeeper provision argue that the provision is unnecessary because the existing judicial framework already allows the court to prevent excessive damages awards, as seen in the recent Lucent Techs. v. Gateway, Inc. case, (580 F.3d 1301 (Fed. Cir. 2009)). In Lucent v. Gateway, the Court of Appeals for the Federal Circuit vacated a US$357 million damages award against Microsoft because the evidentiary record failed to show how the US$357 million lump sum award was calculated.
Heightened Willfulness Pleading Standard:
In addition, the amended bill makes it harder to plead willful infringement because, under the amended bill, the plaintiff must plead willfulness with particularity as set forth under Federal Rule of Civil Procedure 9(b). The amended bill also allows bifurcation so that the infringement and validity portions of the case are decided before the issues of damages and willful infringement.
Post-Grant Review:
Also new to the bill is an administrative post-grant provision which allows third parties to challenge the patentability of newly issued patents within nine (9) months of issue. Similar to inter parte re-examination, the patent owner is allowed to file responses throughout the process. Final determination in any post-grant review is to be issued within one (1) year after the post-grant review petition is granted.
False Marking Provision:
Finally, the new bill includes a provision addressing the flood of false marking litigations since the Court of Appeals for the Federal Circuit’s decision in Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295 (Fed. Cir. 2009) (imposing a US$500 penalty for each article falsely marked). Under the amended bill, the plaintiff must show it has suffered a competitive injury as a result of the false marking. If enacted, this provision would apply to all pending and future cases.
Due to the bipartisan compromises contained in the current bill, the full Senate is likely to vote on the bill without additional amendments.
The press release can be found here.
The full text of the proposed bill, S. 515, is here.
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21 Apr 10 DOJ and FBI Go Undercover to Ensnare Twenty-Two Executives in Foreign Bribery Scheme
On January 19, 2010, the Department of Justice (“DOJ”) unveiled the latest weapon in its arsenal for combating foreign bribery and corruption—undercover “sting” operations.
According to a DOJ press release, twenty-two executives and employees of various law enforcement product companies, including Smith & Wesson, were indicted for conspiring to violate and violating the Foreign Corrupt Practices Act (“FCPA”), and conspiring to commit money laundering based on interactions with federal agents posing as foreign ministers of an African country. The undercover “sting” investigation, which resulted in the execution of 14 search warrants in half a dozen states across the country, is unprecedented in size and scope and is considered to be the largest single investigation and prosecution of individuals in the history of FCPA enforcement.
As Assistant Attorney General Lanny A. Breuer noted in unsealing the grand jury indictments, it represents a significant new strategy for investigating those suspected of foreign bribery: “This ongoing investigation is the first large-scale use of undercover law enforcement techniques to uncover FCPA violations and the largest action ever undertaken by the Justice Department against individuals for FCPA violations. . . . From now on, would-be FCPA violators should stop and ponder whether the person they are trying to bribe might really be a federal agent.”
The DOJ’s announcement also has real implications for corporations and their executives:
- The DOJ continues to prioritize prosecutions of individuals because of the perception that such cases have greater deterrent effects. In fact, the twenty-two individuals involved in this investigation nearly matches the total number of individuals (23) who were indicted or pled guilty to FCPA-related charges in 2009. The DOJ’s continued emphasis on personal criminal liability means that officers and executives should fully appreciate the level of personal risk arising from the company’s foreign business transactions. Effective compliance policies and operations are needed to keep responsible executives informed and directors assured that systems and controls to both avoid and detect corruption schemes are in place.
- US enforcement authorities are dedicating more time and resources to FCPA investigations. According to Assistant Attorney General Breuer, the DOJ now has more than 140 open investigations, many of which do not arise from voluntary disclosures, but rather are the result of proactive investigations. Where a prosecution arises from a DOJ-initiated investigation, rather than from self-reporting, one can expect that the DOJ will be less flexible at the negotiation table and expect a greater return on their “investment” in prosecuting and settling cases. In light of that, corporations need to self-monitor and test compliance policies and structures to ensure that they adequately prevent and detect potential violations of US anti-bribery laws.
- Know your business partners. While we do not yet know all the facts surrounding each individual’s role in the alleged conspiracy, the recently announced indictments serve as a reminder that businesses need to know who they are dealing with by performing background checks and conducting other appropriate due diligence on potential business partners to avoid the reputational damage and collateral prosecution that may result from a business partner’s misconduct.
- “Didn’t know” won’t sell. The ever-greater attention to corrupt payment schemes by both US and non-US enforcement authorities, coupled with the availability to prosecutors of the “conscious avoidance” theory of criminal knowledge, suggests that businesses and their executives can expect authorities to be more demanding of affirmative responses to any indications of corrupt business practices, and more hostile to claims of lack of knowledge where such indications are shown to have existed.
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White & Case LLP is a leading international law firm with more than 2,000 lawyers in five continents. Specialists in a range of practices including the white collar practice which offers clients expertise in dealing with government investigations and enforcement matters.
31 Mar 10 56 New Extradition and Mutual Legal Assistance Treaties Take Effect Throughout Europe and the United States
On February 1, 2010, 56 new agreements between the United States, the European Union (“EU”), and each of the EU Member States addressing extradition and mutual legal assistance took effect, according to the US Department of Justice (“DOJ”). The new treaties will make it easier for US and EU enforcement authorities to investigate and prosecute violations of antibribery and antifraud statutes, including the US Foreign Corrupt Practices Act, by individuals and corporations overseas. The agreements have been under negotiation since the September 11, 2001 terrorist attacks. The DOJ characterized the agreements as constituting “a milestone in cooperation on criminal matters between the EU, along with its Member States, and the United States.”
The agreements as a whole are intended to facilitate both the extradition of individuals charged with transnational crimes, along with the gathering and sharing of information needed to investigate and prosecute those crimes. The agreement on extradition, for instance, replaces lists of crimes which were deemed extraditable with a more flexible “dual criminality standard.” Under prior extradition treaties, if a particular offense was not identified expressly in a given treaty, the individual charged could potentially defeat the prosecuting country’s attempt at extradition. This became more problematic over time as new criminal statutes were added to individual countries’ criminal codes after the effective date of the treaties that had been in effect for years. Individuals charged under such new statutes could avoid extradition because the charged crimes were not listed in the treaty. Dual criminality, on the other hand, typically requires only that the charged offense constitute a criminal act in both countries, regardless of the name given the offense or the listing of the offense in the applicable treaty.
Similarly, the agreement on mutual legal assistance will provide for “prompt identification of financial account information in criminal investigations,” will facilitate “the acquisition of evidence, including testimony, by means of video conferencing” and, perhaps most importantly, will authorize “the participation of US criminal investigators and prosecutors in joint investigative teams in the EU.” Historically, mutual legal assistance treaties required the host country, where evidence was located, to deputize a local prosecutor to act on behalf of the requesting prosecutor for purposes of issuing subpoenas for documents and testimony, and conducting witness examinations without the benefit of the requesting prosecutor’s presence or participation. By authorizing the use of joint investigative teams and video conferencing, requesting prosecutors presumably will be able to examine witnesses personally without traveling to the host country where the witnesses reside, thereby significantly increasing the pace of transnational investigations and reducing costs.
At a time when US enforcement authorities are dedicating significantly more time and resources to Foreign Corrupt Practices Act, conspiracy and other transnational fraud investigations, the new agreements will add yet another weapon to their arsenal.
This Client Alert is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons. This Alert should not be acted upon in any specific situation without appropriate legal advice, and it may include links to websites other than the White & Case website. White & Case LLP has no responsibility for any websites other than its own, and does not endorse the information, content, presentation or accuracy, or make any warranty, express or implied, regarding any other website.
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