Recently in Federal Criminal Statutes Category

November 27, 2012

Middle District of PA Holds Quid Pro Quo Not Necessary To Charge Violation of 18 U.S.C. §666

1035691_money_in_hand.jpg18 U.S.C. §666(a)(1)(B) prohibits, among other things, state government officials from accepting anything of value with an intent to be influenced or rewarded in connection with business related to the state government. There is a split amongst the circuits as to whether a conviction under §666 requires that the official actually confer some benefit in return for the payment (e.g., a quid pro quo). The Fourth and Second Circuits have held that a conviction under §666 requires a quid pro quo. The Sixth, Seventh, Eighth and Eleventh Circuits have held that a conviction under §666 does not require a quid pro quo. The Third Circuit has not ruled on this issue.

On November 21, 2012, Judge A. Richard Caputo, United States District Judge for the Middle District of Pennsylvania, held that no such quid pro quo is necessary:

The text of §666 only requires Defendants to accept or agree to accept anything of value with the intent to be influenced or rewarded in connection with any business or transaction...

The case, United States v. Musto, Case No.: 3:10-CR-338, involves charges against a former Pennsylvania State Senator, Ray Musto, who was indicted for accepting more than $28,000 from a construction company that sought preferential treatment in relation to certain state financed projects. The construction company at issue (although not named in the indictment) has subsequently been identified as Mericle Construction, whose principal, Robert K. Mericle, pled guilty in 2009 for a crime related to the corruption cases against former Luzerne County Judges Michael T. Conahan and Mark A. Ciavarella. In their motion to dismiss, Musto's attorneys argued that the indictment was factually insufficient because it did not plead that Mericle Construction received anything in return for the money that it allegedly paid to Musto. Judge Caputo disagreed, noting that while such a quid pro quo "is sufficient to violate [§666], it is not necessary."

Judge Caputo's memorandum opinion is attached here: United States v. Raphael Musto Memorandum Opinion on Motion to Dismiss.pdf

November 19, 2012

Department of Justice Publishes Business Persons' Resource Guide to the FCPA

1083202_business_man.jpgThe Criminal Division of the United States Department Of Justice has just published a 125-page "Resource Guide" to give both non-lawyers and lawyers at least some clarification in the real world workings of the Foreign Corrupt Practices Act ("FCPA"). Link to the FCPA Resource Guide here: FCPA Guidebook 2012.pdf. The Resource Guide is written in a conversational, non-legalistic style that business persons will likely find helpful. Business persons who conduct business in foreign countries have complained for many years that the practical workings of the FCPA were ambiguous, at best. Employees of American corporations abroad were unsure whether whether relatively minor conduct might be enough to amount to a violation of the law subjecting their employer and themselves to horrific penalties. There were many rumors of "zero tolerance" for even the most abstract payments and no place to quickly consult for an authoritative answer. The Resource Guide, while not perfect, at least partially fills that gap.

The most valuable part of the Resource Guide is the section that lists numerous travel, gift and entertainment hypotheticals that sound very much like real life situations that a corporation engaging in foreign commerce might run into. The first hypothetical for example finds no fault with an American company which provides business class airfare to foreign senior officials traveling a long distance to examine the company's facilities and products especially since the company's own employees would be entitled to such an upgraded ticket if they were on a journey of similar length. The hypothetical continues to find no fault with taking the foreign officials to a reasonably priced dinner, a baseball game and a play. The line is crossed in the hypothetical, however if the foreign officials are given first class tickets, told to bring their spouses and given a week long, all expenses paid trip to Las Vegas after the review of the more mundanely located factory.

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November 16, 2012

Attennnnn-tion! 4 Important Lessons From the General Petraeus Scandal

6444_email_or_e-mail.jpgThe dirty details of this presently unfolding scandal do not require repetition on this page. Google will lead you to all that you want (and don't want) to know about these sordid details. However, you won't read much of the following advice in the mainstream media. So, here we go ...

1) Discuss business on corporate e-mail accounts only

The FBI's cyberstalking investigation led to a personal Gmail account, which the government accessed and ultimately resulted in the downfall of General Patraeus. A recent Google transparency report revealed that it has fully or partially complied with at least 90% of the U.S. government's nearly 8,000 requests for user data during the first half of 2012. requests/ The lesson learned is that it is much easier for the government to get e-mails from Gmail, then from your own IT department. This is information that (1) you do not control; (2) might not have notice that the government has requested access to; and (3) do not have say whether the communications are protected by some privilege or confidentiality clause. As a corporation, there are many things that you might want to keep quiet: trade secrets, potential business deals, future products, etc. As Google does not have your company's interests at heart, having employees discuss these developments through personal e-mail accounts could lead to their public disclosure. Further, you would receive no notice that the information has been sought out by the government. Therefore, reminding your employees to keep business e-mails on corporate e-mail accounts will prevent your company's private issues from going public.

2) Be careful who you are e-friends with

While investigating the cyberstalking complaint, the e-mails of the victim led to the discovery of potentially inappropriate e-mails of another senior general who was uninvolved in the original cyberstalking charge. Now that senior general is being investigated. The lesson learned here is that the government, while investigating someone else on a matter unrelated to you, could come to learn information that would place you or your corporation under surveillance or investigation. Therefore it is imperative that not only you keep your corporate and personal e-mails separate (see point 1), but also that you know the person who are sending the e-mails to. A joke in poor taste to someone under surveillance could result in you landing in hot water.

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November 16, 2012

Financial Advisor Convicted of Insider Trading for Trading on Info Received at AA Meeting

952313_gavel.jpgHere is an update to our October 8, 2012 post about an insider trading case involving information received at an Alcoholics Anonymous ("AA") meeting.

On November 15, 2012, a jury in the Eastern District of Pennsylvania found Timothy McGee guilty of insider trading based on his use of information he received from a fellow member of his AA group. McGhee was a financial adviser for Ameriprise Financial Services Inc. As you may recall, a corporate executive of Philadelphia Consolidated Holding Corporation ("PHYL") who was also a member of McGhee's AA group spoke to McGhee about his struggles arising out of the stress created by the pending acquisition of PHYL. McGee used that knowledge to purchase PHYL stock in advance of the acquisition transaction, netting almost $300,000 after the company went public. In less than four hours, a jury determined that McGee was guilty of acting on insider information. Sentencing has been scheduled for February 20, 2013 and McGee could face up to 25 years in prison. In addition, McGee also faces a civil suit, which had been stayed pending the outcome of the criminal trial, based on the $1.5 million that others netted from his disclosure of the information.

October 8, 2012

Twelve Steps to Insider Trading

292292_alcoholics_anonymous.jpgUsing information learned from a fellow Alcoholics Anonymous ("AA") member to make money in the stock market may be morally dubious. Should it be a federal crime, however? A recent case in the Eastern District of Pennsylvania, United States v. McGee, Crim. No. 12-236, deals with this very question.

The defendant, Timothy McGee, was a member of AA. He and a senior executive of Philadelphia Consolidated Holding Corporation ("PHYL") formed a close personal relationship while attending AA meetings, whereby they shared confidences in their struggles with alcoholism. The senior PHYL executive revealed to McGee that he was under a great deal of stress due to the pending acquisition of PHYL. McGee then purchased shares of PHYL which he sold for a $292,128.00 profit after the acquisition was announced. McGee was indicted for insider trading.

There are two bases for insider trading. The first is the classic situation where a corporate insider trades in securities using material, nonpublic information he or she obtains as a result of his or her insider position. The second, the misappropriation theory, occurs when an outsider, who has a "duty of loyalty and confidentiality" to an inside source of nonpublic information, uses information learned from that insider to trade in securities. Determining the existence of such "a duty of loyalty and confidentiality" is tricky. To help define when such "duty of loyalty and confidentiality" exists, the SEC promulgated Rule 10b5-2, codified at 17 C.F.R. 240.10b-5. According to Rule 10b5-2(b)(1) and (2), such duty arises where there is an agreement to keep the information confidential, and/or when the parties have a "history, pattern or practice of sharing confidences, such that the recipient of the information knows or reasonably should know that the person communicating the material nonpublic information expects that the recipient will maintain its confidentiality." In order to prove a violation of the misappropriation theory, the government must prove that the defendant knew that his conduct was unlawful.

In McGee, the government contended that, as part of AA's tradition, AA members agree to keep information they share confidential. The government further contended that there existed a history of shared confidences between McGee and the insider. Thus, the government argued, McGee had a "duty of loyalty and confidentiality" to keep information learned form the insider confidential. McGee moved to dismiss, arguing that there existed no duty precluding him from trading on the information and that he did not know that he was breaking the law when he traded on the information. The court denied the motion and held that the jury would have to decide whether McGee's relationship with the corporate insider featured a "duty of loyalty and confidentiality" and whether the information about the acquisition was disclosed within the confines of that relationship.

October 7, 2012

A Day on Health Law: False Claims Act Update

Wednesday, October 10, 2012

1153096_man_with_microphone.jpgThe CLE Conference Center
Wanamaker Building, 10th Floor, Suite 1010, Philadelphia

Hosted by the Pennsylvania Bar Institute, this full day program addresses the latest hot topics in health law. David M. Lagaie, Dilworth Paxson Partner and Chair of the firm's White Collar practice will join a panel discussion of the most notable False Claims Act cases from the past year.

For additional information and to register, click here Simulcast available throughout the state. CLE Credits will be offered!

August 27, 2012

Uncertainty Continues in Application of Computer Fraud and Abuse Act

995000_php_code.jpgThe Department of Justice has decided not to appeal the Ninth Circuit's decision in U.S. v. Nosal, where the Court held that the CFAA only applies to hackers, as opposed to employees who misuse their corporate computer access. Thus, in the Ninth Circuit, the CFAA would not apply to an employee who steals corporate information and provides it to a competitor or an employee who intentionally deletes information from his or her employer's computer systems. Our prior summary of the Ninth's Circuit's opinion in U.S. v. Nosal can be found here.

The refusal of the DOJ to appeal to the Supreme Court results in a circuit split where the Fourth and Ninth Circuit explicitly forbid CFAA claims against employees, whereas the Fifth, Seventh, and Eleventh Circuits explicitly permit such claims against employees. Although there are other state claims an employer could pursue against employees who misuse their computer access, these state claims deal more with employee disloyalty, breach of contract, or trade secret theft as opposed to the misuse of the computer. For this reason, CFAA claims are preferred as computer access can be easily traced and the information an employee is authorized to access should be known. A further benefit of suing under the CFAA is that employers have the option to bring actions in federal, as opposed to state, court.

When faced with a situation where a company wishes to pursue an action against an employee for stealing, altering or destroying company data, it is important to check not only if your circuit allows for a CFAA claim against employees, but also the requirements for a CFAA claim in your circuit. For instance, even within the Third Circuit, there is a no definitive answer as to whether the employee must actually damage the computer systems or if the costs associated with the responding to the misuse of a company's computer systems is enough to meet the damage or loss element to the CFAA. For those employers who live in a jurisdiction where the CFAA can be brought against employees, it is a valuable tool that should be used against former employees who misuse corporate computer data.

April 27, 2012


351746_pinocchio_nose.jpgEven little lies can have big consequences. 18 U.S.C. 1001 criminalizes knowingly engaging in a falsehood in any matter within the jurisdiction of the United States. Prosecutions under 1001 usually involve a false statement to a federal agent, although false statements to anyone can trigger liability where the false statement both interferes with a federal function and is "material." Section 1001 is frequently used to obtain a conviction when more substantive charges would be difficult to prove. For example, Martha Stewart was convicted of a 1001 violation even though insider trading charges would have been very difficult to prove. The Wall Street Journal recently described the absurd reach of 1001. It reported on a situation where the owner of a whale watch boat denied that one of her captains whistled at a humpback whale in an attempt to lure the animal closer for her customers to get a better view. While prosecutors did not pursue prosecution under the Marine Mammal Protection Act of 1972, they did embark on a five year investigation - including executing a search warrant with twelve gun wielding agents - and charged the boat owner with four federal crimes. The defendant, a marine biologist and world renowned expert on killer whales, has spent more than $100,000 in attorney fees; she faces a potential twenty years in prison. This is not an isolated instance. As a practical matter, anyone approached by the government for an interview who is tempted in the least to shade the truth, omit facts or do anything less than tell the complete truth should refuse the interview and consult with their attorney. In that way, they might avoid being the subject of a similar horror story.

April 11, 2012


546228_working_1.jpgYesterday the Ninth Circuit, in an en-banc opinion, determined that the Computer Fraud and Abuse Act ("CFAA") did not apply to employees who "spend[] six hours tending his FarmVille stable," visit, or play Sudoku on while at work. While seemingly an obvious conclusion, the Court also excluded from the CFAA other more nefarious employee computer misdeeds.

At issue was the phrase "exceeds authorized access" as defined by the CFAA. Corporations have policies preventing the personal use of the internet during company time. The Ninth Circuit was concerned that employees who surf the web at work, could violate the CFAA by exceeding his or her authorized access granted by the corporate internet use policies.

The Ninth Circuit determined that "exceeds authorized access" means violations of restrictions on the access to information, not restrictions on its use. Therefore the CFAA would apply to hackers, who circumvent technological barriers to access computer systems, as opposed to employees who are granted access by the company. As a result, an employee who checks his personal e-mail or updates his status on Facebook at work would not violate the CFAA because the employee's use of the company's internet access is not actionable under the CFAA.

Unfortunately, the case at hand, U.S. v. Nosal, Docket No. 10-10038, dealt with a former employee who convinced current employees to steal information from a confidential database to help his competing business. The Ninth Circuit found that the Nosal, the former employee, did not aid and abet the current employees in violating the CFAA because the current employees had access to the corporate computers and the issue was their "use" of the access. In other words, the Ninth Circuit determined that an employee can use information it obtains from a corporate computer in any way he or she pleases - even to the detriment of the employer - and not violate the CFAA so long as the employer gave the employee access to the computer system.

The majority's focus on clearly not fraudulent use of a workplace computer is misleading. The CFAA only punishes unauthorized use of a computer done with an intent to defraud. Employees who watch YouTube, surf the web, or update their Facebook pages have no such intent and are therefore outside the prohibition of the CFAA. By contrast, the employees in Nosal who purloined confidential information from their employer to assist a competitor clearly had the requisite intent and therefore it would not be unreasonable for the CFAA to apply.

April 9, 2012


764088_shhhh.jpgThe Financial Crimes Enforcement Network (FinCEN) recently issued an Advisory to remind financial institutions and the lawyers that represent them that Suspicious Activity Reports (SARs) must remain confidential. SARs are issued by financial institutions to report suspicious activity to law enforcement. The unauthorized disclosure of a SAR could tip off suspects, deter institutions from filing SARs and jeopardize the institutions that issue the SARs. FinCEN is concerned because private parties are attempting to learn of the existence of SARs in the context of civil litigation. Financial institutions, and people representing them, are forbidden from disclosing the existence of a SAR, or even from disclosing information that would reveal that a SAR may exist. Unauthorized disclosure of a SAR is subject to civil penalties of up to $100,000 per violation or criminal penalties of up to $250,000 and imprisonment of up to 5 years. The disclosing financial institution, moreover, could be subject to penalties for anti-money laundering program deficiencies. FinCEN even requires a financial institution that recieves an unauthorized request for a SAR to immediately contact FinCEN's Office of Chief Counsel. As to SARs, therefore, the best policy is clearly "don't ask, don't tell."