White Collar Crime Outline 2020

White Collar Crime
Fall 2020
Professor Eliason
Federal Prosecutor – send him an email
Class 1: Introduction to White Collar Crime

Cb. 1-20
Class 2: 8/26 Corporate Criminal Liability

Chap. 2, pp. 21-32; Chap. 15, pp. 646-654; Hudson River Case
Respondeat Superior—This doctrine imposes liability on corporations for the acts committed by
corporate agents acting
1. On behalf of the corporation
2. To benefit the corporation
3. Within the scope of the agents authority
New York Central & Hudson River Railroad Co. v. United States
United States Supreme Court 212 U.S. 481 (1909)
Rule of Law: A corporation may be held criminally culpable for the acts of its employee agents.
Facts: New York Central & Hudson River Railroad Company (New York Central) (defendant) was an
entity bound by the federal Elkins Act (the Act) which forbade common carriers such as railroads from
charging rates less than their posted rate. New York Central and one of its employees were convicted for
paying rebates to certain companies who shipped their products using New York Central, thereby lowering
their shipping rate in violation of the Act. New York Central appealed, arguing that parts of the Act were
unconstitutional and more specifically, that Congress lacked authority to impute to a corporation the
commission of criminal offenses or to subject a corporation to criminal prosecution.
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Issue: May a corporation be held criminally culpable for the acts of its employee agents when committed
within the scope of their employment?
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Holding and Reasoning (Day, J.): Yes. New York Central argues that to punish the corporation is to
punish its stockholders and to deprive them of their property without an opportunity to be heard and without
due process of law. Historically, corporations were held by courts as not being able to commit crimes even
though their employees could. That tendency is now changing. Section 417 of Bishop’s New Criminal Law
states “since a corporation acts by its officers and agents their purposes, motives, and intent are just as much
those of the corporation as are the things done. If, for example, the invisible, intangible essence of air, which
we term a corporation, can level mountains, fill up valleys, law down iron tracks, and run railroad cars on
them, it can intend to do it, and can act therein as well viciously as virtuously.” It is now well established
that in actions for tort the corporation may be held responsible for damages for the acts of its agent within
the scope of his employment. Further, this is the rule when the act is done by the agent in the course of his
employment, albeit done wantonly and recklessly or against the express orders of the company. In those
cases, the liability is not imputed to the principal company because it participates in the malice or fraud, but
because the act is done for the benefit of the principal, while the agent is acting within the scope of his
employment in the business of the principal. Justice requires that the corporation be held responsible for
damages to the individual who has suffered by such conduct. There are some crimes which a corporation
certainly cannot commit. However, there remains a large class of offenses where the crime may be imputed
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to a corporation when the acts are committed by the corporation’s employees. There is no valid rationale in
law, and every reason in public policy, why the corporation which acts through its employee agents and
which profits by the transaction, should not be held punishable by fine because of the knowledge and intent
of its agents to whom the corporation has entrusted authority. The judgment of conviction is affirmed.
Notes:
• Created the Respondeat Superior Standard: A corporation is liable for the criminal acts of its
agents acting within the actual or apparent scope of their authority and with the intent, at least in
part, to benefit the corporation.
Two Prong for Respondeat Superior

1. Within the Scope of Authority
• Agent must be acting within the scope of their authority—the type of thing they were doing is what
the company put them out there to do
• Purpose: to ensure the employee is acting on company business, so it is fair to hold the company
accountable
• Specific authorization or approval is not required
• Knowledge or acquiescence of high-ranking official or superior is not required
• Actual authority not required – apparent is enough
2. “To benefit the corporation”
• Purpose: to limit corporate liability to those acts done on the company’s behalf
• Corporation need not have actually received a benefit, and may even have been harmed
• Benefit to the corporation need not be the employee’s only, or even primary, motivation (AML, Sun
–Diamond
• As long as we can find SOME benefit to the company that is going to be enough
Chap. 2, pp. 21-32

United States v. Automated Med. Labs., Inc. cb. 23
770 F.2d 399 (4th Cir. 1985)
(sufficiency of evidence on the scope of employment)
Rule of Law: to be acting within the scope of his employment an agent must be performing acts
of the kind which he is authorized to perform and those acts must be motivated at least in part
by an intent to benefit the corporation
Facts: On December 12, 1983, a grand jury indicted Automated Medical Laboratories, Inc. ("AML"), along
with one of its wholly-owned subsidiaries, Richmond Plasma Corporation ("RPC"), and three individuals,
Hugo Partucci, Noberto Queris, and Pedro Ramos, for engaging in a conspiracy that included falsification
of logbooks and records required to be maintained in connection with the commercial enterprise of
producing blood plasma. They had been in trouble in the past for over bleeding their donors. The indictment
alleged that the falsification of logbooks and records was engaged in to conceal from the Food and Drug
Administration ("FDA") various violations of federal regulations governing the plasmapheresis process and
facilities. The remainder of the eight-count indictment alleged specific violations of the false statements
statute, 18 U.S.C. § 1001, with regard to particular logbooks or records at the RPC facility. AML was
convicted of one count of conspiracy, in violation of § 371, and three counts of making and using false
documents in a matter within the jurisdiction of a federal agency, in violation of § 1001. On appeal,
defendant argued that prosecutorial misconduct, i.e., pre-indictment delay, denied it a fair trial.
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Issue: Did the government prove the “element” that AML’s agents criminal acts were undertaken primarily
to benefit AML?
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Holding: Yes. In US v. Basic Construction Co. this court rejected the argument that the government had to
prove that the corporation presumably as represented by its upper level officers and managers had an intent
separate from that of its lower level employees to violate the anti-trust laws. We summarized the rule of
corporate criminal liability as follows: “a corporation may be held criminally responsible for antitrust
violations committed by its employees if there were acting within the scope of their authority or apparent
authority and for the benefit if the corporation even if. . . such acts were against corporate policy or express
instructions.” Thus, AML can be held criminally liable for the awful practices of RPC if its agents were
within the scope of their employment which includes a determination of whether the agents were acting for
the benefit of the company. To be acting within the scope of employment the agent must be performing acts
of the kind which he is authorized to perform and those acts must be motivated at least in part by an intent
to benefit the corporation. Here the agents were clearly within the scope of their employment they were
assigned the job of assuring compliance with FDA regulations in the plasmapheresis centers. However, the
purpose of requiring an agent to be acting with intent to benefit the company is to absolve the corporation
of criminal liability due to actions taken by its employees with the intent to benefit themselves or some
other entity that just so happen to also benefit the corporation. Here the agents were clearly trying to benefit
the corporation.
Corporate Compliance Efforts

• Generally irrelevant to criminal liability
• Corporation can be held liable even if employee violated express instructions or company policy
(Hilton Hotels)
• May be important in prosecutor’s decision whether to charge, or at sentencing
United States v. Hilton Hotels Corp. cb. 28

467 F.2d 1000 (9th Cir. 1972)
(employee who violated explicit corporate policy)
Rule of Law: Congress may constitutionally impose criminal liability upon a business entity for
acts or omissions of its agents within the scope of their employment. Such liability may attach
without proof that the conduct was within the agent's actual authority, and even though it may
have been contrary to express instructions. The intention to impose such liability is sometimes
express, but it may also be implied.
Facts: Operators of hotels, restaurants, hotel and restaurant supply companies, and other businesses in
Portland, Oregon, organized an association to attract conventions to their city. To finance the association,
members were asked to make contributions in predetermined amounts. Companies selling supplies to hotels
were asked to contribute an amount equal to one per cent of their sales to hotel members. To aid collections,
hotel members, including appellant, agreed to give preferential treatment to suppliers who paid their
assessments, and to curtail purchases from those who did not. The trial court held that these were per se
violations of the Sherman Act's provisions against refusals to deal as unreasonable restraints on trade.
Appellant hotels sought reversal of their conviction in a United States District Court for violating the
Sherman Act, 15 U.S.C.S. § 1, by agreeing with other hotels to give preferential treatment to suppliers who
paid assessments while curtailing purchases from those who refused.
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Issue: Did the trial court err when it instructed the jury to consider such an agreement by hotel members, if
proven, would be a per se violation of the Sherman Act?
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Holding: No. The Court of Appeals for the Ninth Circuit held that the evidence was clearly sufficient to
establish that appellant hotels agreed to prefer suppliers who paid contributions over those who did not. The
primary purpose and direct effect of appellants' agreement was to bring the combined economic power of
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the hotels to bear upon those suppliers who failed to pay. The exclusion of uncooperative suppliers from
the market was the object of the agreement, not merely its incidental consequence. A corporation was liable
for acts of its agents within the scope of their authority even when done against company orders. Thus, the
general policy statements of appellant's president were no defense. The purchasing agent exercised
complete authority. Even if denial of appellant's motion for a copy of the transcript of witness' testimony
were treated as tantamount to denying appellants the benefit of the witness' trial testimony, the error, if any,
would be harmless. Thus, the court affirmed the ruling.
Notes:
• Here the court reasoned that employees of a company act the way they do based on pressure from
higher management to maximize profits.
• Additionally, the court noted that high management officials for whose conduct the corporate
directors and shareholders are most clearly responsible are likely to have participated in the policy
decisions underlying the Sherman Act violations.
Chap. 15, pp. 646-654
Policy Arguments for Corporate Criminal Liability

• Pros of CCL:
o Encourage good behavior
o Bigger harm leads to bigger remedies
o Encouraged internal monitoring
o Punishes a would-be-benefitting party (the company)
§ Provide compensation for victims
o Moral stigma (committing crimes isn’t just a cost of doing business)
o Only way to get change
o Deterrence through accountability and moral condemnation
• Cons of CCL:
o Harms innocent shhs and employees
o Macro effects on economy and third parties
o Misplaced accountability – charging company and not individuals accountable
o Is it really effective to punish these companies if it’s so easy for them to mitigate costs?
o Can accomplish same thing with civil liability
• Note on prosecutorial discretion: the fact that these corps are so large and affect so many people
who are arguably innocent means that there should be prosecutorial discretion. This led to the
usage of Deferred Prosecution Agreements and Non-Prosecution Agreements
• Corps can be held liable for the acts of the employees under either respondeat superior or MPC
o MPC approach cb. 33: High Managerial Approval (different from respondeat superior)
§ Corp liable for regulatory offenses, or when the criminal offense was authorized,
requested, committed, or recklessly tolerated by BOD or high managerial officials
§ Not the law in federal courts or in most states
Critique of Respondeat Superior Standard

• Imputes the intent of one person to the entire company
• Fails to distinguish between corporations that actively encourage criminal activity and those that try
their best to be law-abiding but have one “rogue employee.”
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A Better Approach?
• Model Penal Code: a corporation is liable for “regulatory offenses,” or when the criminal offense
was authorized, requested, committed, or recklessly tolerated by the board of directors or high
managerial officials.
• Not the law in federal court or in most states
Other Possible Approaches

• Consider the company’s history of violations
• Consider the pervasiveness of wrongdoing within the company
• Consider the level of the employee who committed the crime
• Consider corporate compliance efforts
• Consider corporate “personality” or culture
Currently:
• All of the foregoing may be relevant to the prosecutor’s charging decision, or at sentencing, but are
not relevant to the legal question of criminal liability.
DOJ Charging Principles

• Policies have been set forth in a series of memos from different Deputy Attorneys General, and are
now codified in the Justice Memo Chap. 9, Title 28.
• Ongoing revisions have concerned policy on whether a cooperating corporation should be required
to waive attorney-client privilege and to refuse to pay employee attorney’s fees.
Deferred Prosecution Agreements

• Currently the favored approach with DOJ; corporate prosecutions are rare.
• Company must agree to substantial reforms, penalties, and cooperation with the government,
including cooperation against employees.
• If company complies for required period of time, charges are dropped.
• Same for Non-Prosecution Agreements (NPAs), except not judicial oversight and no formally
filed charges
Mandamus: A writ ordering a public agency, governmental entity, or governmental official to perform an
act required by law.
Class 3: 8/31 Criminal Investigations: Federal Grand Jury

Chap. 16, pp. 657-665
Review US Attorney’s Manual, Title 9, Chap. 11, “Grand Jury” (link on class website)
• After indictment, the grand jury may be used if its investigation is related to a superseding
indictment of additional defendants or additional crimes by an indicted defendant.
• It is improper to utilize the grand jury solely as an investigative aid in the search for a
fugitive in whose testimony the grand jury has no interest.
• A grand jury may properly subpoena a subject or a target of the investigation and question the
target about his or her involvement in the crime under investigation.
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The Prosecutor’s Role
• The prosecutor presents the evidence for the grand jury’s consideration and acts as the legal
advisor to the grand jury
• “In dealing with the grand jury, the prosecutor must always conduct himself or herself as an
officer of the court whose function it is to ensure that justice is done and that guilt shall not escape
nor innocence suffer . . . the prosecutor must be scrupulously fair to all witnesses and must do
nothing to inflame or otherwise improperly influence the grand jurors.” USAM 9-11.010
Grand Jury Procedure

• Grand jury is accusatory, not adjudicatory
• Rules of evidence generally do not apply
• Grand jury votes whether to indict based on probable cause, need at least 12 votes to bring an
indictment
• Consists of 16-23 people
Fed. R. Crim. Pro. 6 (the Grand Jury)

• Grand Jury Secrecy – Rule 6(e)
o Rule 6(e) protects secrecy of “matters occurring before the grand jury”
o All participants sworn to secrecy, except the witness
o No one may be present but grand jurors, witness, prosecutor, and court reporter
o During deliberations and voting, no one present but the grand jurors
o Rule 6(e) has implications for other proceedings – GJ materials can’t just be turned over
• Can disclose to a government attorney for use in their official duties
Fed. R. Crim. Pro. 17 (Subpoena)

• Grand Jury Subpoenas
o Governed by Fed. R. Crim. Pro. 17; enforced by federal district court
o May be for witness testimony or documents
o Vehicle to challenge a subpoena is a motion to quash
o Subpoena is presumed to be reasonable and within the grand jury’s authority
o To quash, must demonstrate that compliance would be unreasonable or oppressive, or that
there is no reasonable possibility that the materials sought will produce information
relevant to general subject matter of the investigation (R. Enterprises)
Timeline
• Pre-indictment is private behind closed doors with the grand jury
• Only requires probable cause to go forward
• The prosecutor is investigating with the help of the grand jury
• Grand Jury will decide if the charges should be brough if there is enough evidence for probable
cause to vote on indictment
• When you ask to indict the grand jury vote does not have to be unanimous, only need 16 for a
Quorum and only 12 out of 16 need to agree to bring charges
• Would send a target letter to the person who is a target of the investigation and give them the
opportunity to come in and testify but you do not subpoena the target, so usually the target will not
come in because it does not benefit them
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SCOPE OF GRAND JURY INVESTIGATIONS
United States v. R. Enterprises, Inc. cb. 659
(Relevancy, Admissibility and Specificity—Investigative powers of federal grand jury)
Rule of Law: It is error for a court to quash a grand jury subpoena duces tecum in the absence of
a determination that there is no possibility that the materials sought by the subpoena will
produce evidence relevant to the subject of the grand jury investigation.
Facts: A grand jury subpoenaed R. Enterprises (defendant) and two other companies for the production of
business records and videotapes in relation to allegations of interstate transportation of obscene materials.
The companies moved to quash the subpoenas. The district court denied the motion to quash. The court of
appeals reversed and quashed the subpoenas issued to two of the three companies. The United States
(plaintiff) petitioned the Supreme Court for review.
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Issue: Is it error for a court to quash a grand jury subpoena duces tecum in the absence of a determination
that there is no possibility the materials sought by the subpoena will produce evidence relevant to the
subject of the grand jury investigation?
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Holding and Reasoning (O’Connor, J.): Yes. It is error for a court to quash a grand jury subpoena duces
tecum in the absence of a determination that there is no possibility that the materials sought by the
subpoena will produce evidence relevant to the subject of the grand jury investigation. The court of
appeals quashed two of the grand jury’s subpoenas because it concluded that the government had not
demonstrated the requirements of relevancy, admissibility, and specificity set forth in United States v.
Nixon, 418 U.S. 683 (1974). The subpoena at issue in Nixon was a trial subpoena as opposed to a grand
jury subpoena. A trial subpoena requires a showing of probable cause. By contrast, a grand jury
subpoena issues for the purpose of investigating the existence of probable cause and is not subject to
the same requirements as a trial subpoena. Imposing the Nixon standards on grand jury subpoenas
would invite hearings over the validity of subpoenas and would hinder the grand jury’s investigative
functions. In addition, requiring the government to disclose the particularities supporting its demand for
production of evidence would undermine the secrecy of grand jury proceedings. The grand jury’s
investigative authority is not unlimited, and the court may quash a subpoena when compliance would be
unreasonable or oppressive. The law affords a strong presumption that any act of a grand jury is within
the scope of its authority. A party seeking to quash a grand jury subpoena bears the burden of
demonstrating that compliance would be unreasonable. Only when there is no reasonable possibility
that the disclosure sought by a subpoena will be relevant to the grand jury investigation should a subpoena
be quashed. When the subject of a subpoena is unaware of the general subject of a grand jury
investigation, the court may be justified in requiring the government to disclose the general purpose of the
investigation. That disclosure could be made in camera in order to preserve the secrecy of the grand jury
investigation. In this case, the district court could reasonably have concluded that the information
demanded by the grand jury subpoena was relevant to its investigation. The court of appeals improperly
placed the burden of demonstrating reasonableness upon the government. Accordingly, the judgment of
the court of appeals is reversed.
Notes:
• subpoena duces tecum: A court order for the production and inspection of documents or other
items of physical evidence.
• “In short, the Government cannot be required to justify the issuance of a grand jury subpoena by
presenting evidence sufficient to establish probable cause because the very purpose of requesting
the information is to ascertain whether probable cause exists.”
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• Challenging a subpoena duces tecum: See United States v. Under Seal (In re Grand Jury Doe
No. G.J. 2005-2)
• Confidentiality: the court in another case held that statements made by cops to the internal affairs
office should not be subpoenaed to preserve their confidential statements and instead the grand
jury could subpoena the officers directly and ask them their statements.
Class 4: 9/2 Criminal Investigations (cont.) - Federal Grand Jury, Search Warrants
Chap. 16, pp. 665-675, 679-687
Review sample search warrant (on class website)
Witnesses before the Grand Jury
• Target: prosecutor has substantial evidence linking you a crime and considers you a likely
defendant
• Subject: your conduct is within the scope of the grand jury’s investigation
• Witness: you simply have information relevant to the investigation (neither subject nor target)
• Targets generally will not be subpoenaed to testify, but may be invited to do so (USAM 9-11.150
– 11.153)
{Exculpatory Evidence}
• Constitution does not require the prosecutor to present exculpatory evidence to the grand jury
(Williams)
• DOJ policy: if prosecutor is “personally aware of substantial evidence that directly negates the
guilt” of the target, it must be disclosed to the grand jury (USAM 9-11.233)
• Prosecutor’s obligation to do justice, fairness concerns, and tactical considerations all support
liberal disclosure of exculpatory materials
United States v. Williams cb. 665

(says the prosecutor doesn’t have to show grand jury exculpatory evidence)
Rule of Law: Courts have a supervisory power that allows them to control their own procedures
but not those of the grand jury.
Facts: Williams (defendant) was indicted by a federal grand jury for insurance fraud. Williams petitioned
the district court to dismiss the indictment. He claimed that the government did not present substantial
exculpatory evidence to the grand jury which negated an essential element of the charged offense. The
district court agreed with Williams. The district court held that the exculpatory evidence created reasonable
doubt about Williams’ guilt and the grand jury’s decision to indict was therefore suspect. The appeals court
affirmed.
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Issue: Can a court dismiss a valid indictment if the government failed to disclose to the grand jury
substantial exculpatory evidence?
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Holding and Reasoning (Scalia, J.): No. While courts maintain a supervisory power that allows them to
regulate their own procedures, federal courts have only limited control over grand jury procedures and
cannot dismiss a valid indictment where the government fails to include exculpatory evidence. Furthermore,
it is the role of a grand jury to assess whether there is sufficient evidence to bring criminal charges. If the
grand jury had to compel the prosecution to present exculpatory evidence, the grand jury would no longer
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be an accusatory body but rather an adjudicatory body. The grand jury is a separate institution from the
courts and the courts do not preside over its functioning. The rules governing a grand jury are not as stringent
as those governing the courts. A grand jury can launch an investigation simply to ensure no laws are being
broken and it needs no court authorization to do so. It is true that the grand jury cannot compel the
appearance of witnesses and the production of evidence, and must appeal to the courts when such
compulsion is necessary. However, precedence shows that the grand jury is free to pursue an investigation
and function independent of the courts unless what it seeks to do violates the Constitution. Accordingly, the
judgment is reversed and the case is remanded.
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Dissent (Stevens, J.): It is the duty of the courts to supervise prosecutors and prevent prosecutorial
misconduct. The potential for a prosecutor to abuse his power during a grand jury proceeding is tremendous
since the defendant never has the opportunity to present his case. Furthermore, the consequences of a
mistaken indictment are serious. Therefore, the judiciary must monitor the prosecution to prevent unfairness
and ensure the administration of justice. This position is consistent with prior jurisprudence and the history
of grand jury proceedings. Grand juries are not independent of the judiciary. While Congress and the courts
have chosen not to impose procedural rules on grand juries, they maintain the power to do so. The
prosecution has no duty to present all the evidence that favors the defendant but it must disclose evidence
that directly negates the guilt of the defendant.
Notes:
• Textbook note 7
Grand Jury Secrecy and Related Issues

Rule 6(e)
• Rule 6(e) protects secrecy of “matters occurring before the grand jury”
• All participants sworn to secrecy, except the witness
• No one may be present but grand jurors, witness, prosecutor, and court reporter
• During deliberations and voting, no one present but the grand jurors
• Rule 6(e) has implications for other proceedings – GJ materials can’t just be turned over
{Leaks}
In Re Sealed Case No. 99-3091 cb. 680
United States Court of Appeals for the D.C. Circuit 192 F.3d 995 (1999)
(Leaks—Example of complex issues under rule 6- Clinton Case)
Rule of Law: A statement disclosing a prosecutor’s desire to seek a grand jury indictment of a
particular person does not violate Rule 6(e)’s prohibition on disclosing matters occurring before a
grand jury because it merely discloses deliberations within the prosecutor’s office.
Facts: While President Clinton was being tried for impeachment, a New York Times article reported that
some prosecutors in the Office of Independent Counsel (OIC) thought that Clinton would likely be indicted
on perjury charges shortly after the impeachment trial. The Office of the President and President Clinton
moved for an order to show cause why OIC should not be held in contempt for violating Rule 6(e) of the
Federal Rules of Criminal Procedure. Rule 6(e) prohibits jurors, the prosecutor, and the court reporter
from disclosing matters that occur before the grand jury. The OIC argued that the information in the
article did not violate Rule 6(e) because it did not disclose any matter occurring before a grand jury. The
court held that the article was a prima facie violation of Rule 6(e). It ordered the OIC and Charles Bakaly,
an OIC attorney who talked to the article’s author, to show cause why they should not be held in civil
contempt. The OIC and Bakaly requested that the court certify the issue of Rule 6(e)’s scope for
interlocutory appeal. The court denied the request and appointed the United States Department of Justice
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(DOJ) as prosecutor against Bakaly and OIC. The OIC filed an emergency motion to vacate the court order
appointing DOJ as prosecutor of the contempt charges against it.
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Issue: Does a statement disclosing a prosecutor’s desire to seek a grand jury indictment of a particular
person violate Rule 6(e)’s prohibition on disclosing matters occurring before a grand jury?
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Holding and Reasoning (Per Curiam): No. The disclosure in the New York Times article is not a prima
facie violation of Rule 6(e). To establish a prima facie violation of Rule 6(e), the claimant must show
that the statement discloses matters occurring before a grand jury and that a government attorney
was a source of the statement. The district court held that because the statement regarding the likely
indictment of Clinton shortly after his impeachment trial included a specific time frame and details about a
possible indictment, it violates Rule 6(e). The court relied on our previous holding that Rule 6(e)
prohibits disclosure of not only matters previously and currently before a grand jury, but also
matters likely to occur before a grand jury. Rule 6(e)’s scope is limited by the purposes of the rule which
include protecting the privacy of witnesses, the privacy of persons accused but later exonerated, and
ensuring that those who may be indicted do not flee. The purposes behind the rule and the text of the rule
itself indicate that it is meant to protect only the secrecy of grand jury proceedings; not the
investigation or proceedings of the prosecutor’s office. Thus, statements that merely disclose the
deliberations within the prosecutor’s office do not violate Rule 6(e) when they do not include information
presented to or likely to be presented to a grand jury. The statement that some prosecutors may want to
indict Clinton on perjury charges does not reveal information presented before a grand jury. The statement
merely reflects deliberations within the prosecutor’s office. Therefore, the statement that prosecutors may
seek to indict Clinton does not violate Rule 6(e). Normally, disclosing the name of a grand jury witness
violates Rule 6(e). The statement’s reference to the fact that the OIC wishes to indict Clinton for perjury
before a grand jury would therefore normally violate Rule 6(e). However, it was widely known that Clinton
was a witness before the grand jury and a prosecutor’s statement revealing only information that is
already public knowledge does not violate Rule 6(e) because there is no longer any secrecy to protect.
Thus, the article is not a prima facie violation of Rule 6(e). The court’s order to show cause and its order
appointing the DOJ as prosecutor against the OIC are reversed. This case is remanded with instructions to
dismiss the Rule 6(e) charges against the OIC.
Notes:
• Rule 6(2)(e) allows disclosure before the grand jury when there is “particularized need”
• Reasoning behind secrecy on page 20
• A witness could grant pre and post media interviews after their grand jury appearance if they want
to spin the narrative but only the witness can disclose what was discussed
• Disclosure to Government Attorneys: no disclosure of grand jury material for civil use without a
court order.
o Two provisions of Rule 6 govern disclosure
§ 6(e)(3)(A)(i): “disclosure of grand jury material other than the grand jury’s
deliberations or any grand juror vote may be made to: (i) an attorney for the
government for use in performing that attorney’s duty
§ 6(e)(3)(E)(i): states that disclosure is permissible “at a time manner and subject to
any other conditions that it directs – of a grand jury matter: (i) preliminarily to or in
connection to a judicial proceeding.”
Search Warrants
• Increasingly popular in white collar cases
• Issued only on a showing of probable cause
• Must be signed by judge or magistrate
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Search Warrant v. GJ Subpoena
• We search v. they search
• Surprise v. no surprise/ability to shred
• Need for probable cause v. no need
• Need to lay out case v. GJ secrecy
• Free to use docs for other purposes v. not
• Need to know where docs are v. no need
• Cost and resource considerations
• Other potential advantages of search warrant
Class 5: 9/9 Mail and Wire Fraud: The Scheme to Defraud

Chap. 4, pp. 109-116, 163-169
Lustiger v. U.S., 386 F.2d 132, 132-38 (9th Cir. 1967)
Mail and Wire Fraud Statutes

• 18 U.S.C. 1341 and 1343
• 18 U.S.C. 1346 and 1349
Mail Fraud Wire Fraud

Requirement
Scheme or artifice to defraud X X
Actual harm
Scheme comes to fruition
U.S. Postal Service, FedEx, UPS, etc. X
Phone, fax, radio, cell phone, Internet, etc. X
Cross state lines X*
* Defendant need not know that the transmission is crossing state lines.
Elements of the Offense

• 1) Defendant devised or participated in a scheme or artifice to defraud; and
• 2) In advancing or carrying out the scheme, or attempting to do so, the defendant used or caused
the use of the mails or an interstate wire transmission
Mail Fraud v. Wire Fraud

• Statutes are interpreted almost identically. The key to both is proof of a “scheme or artifice
to defraud.”
• Only distinction:
o Mail fraud requires use of the mail in furtherance of the scheme
o Wire fraud requires the use of an interstate wire or radio transmission in furtherance of the
scheme
For exam: first define scheme to defraud, then define the object/purpose, then focus on finding
appropriate mail/wires, then demonstrate that those mails/wires were in furtherance of the scheme
Statutory Elements
• 1. Scheme or Artifice to Defraud
o What is the Nature of the scheme to defraud
§ Affirmative misrepresentations (actual lies)
§ Silence in the face of a duty (silence + duty)
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• 2. Scheme resulted in or upon completion would result in loss of money, property or honest
services
o What is the Object of the scheme to defraud
§ Deprivation of money or property (including intangible property)
§ Honest services: intangible right – type of mail and wire fraud, not a separate crime
(don’t have to show loss of any $ or property)
• 3. Specific Intent to Defraud (falls under Scheme)
o Intent: scheme contemplated to harm or injure victim and gain to D
o Materiality: fraud must go to the heart of the bargain
• 4. Jurisdictional Element (falls under Scheme)
o The US mail, private courier operating in interstate commerce or interstate wires were used
in furtherance of scheme to defraud or D used or caused the use of mail, courier or wires
Mailing Requirement
• Mail Fraud applies to U.S. Postal Service as well as private interstate carriers (Federal Express,
UPS)
• Mailing need not cross state lines
“Wire” Transmission Requirement

• Wire fraud applies to phone calls, faxes, radio transmissions, cell phones, internet transmissions,
etc. -- includes wireless
• The transmission must cross state lines
• Defendant need not know that the transmission is crossing state lines
The Causation requirement

• The defendant need not make the mailing or transmission personally
• “Where one does an act with knowledge that use of the mails will follow in the ordinary course of
business, or where such use can reasonably be foreseen, even though not actually intended, then he
‘causes’ the mails to be used.” Pereira v. United States, 347 U.S. 1 (1954)
“Scheme or Artifice to Defraud”

• Not defined in the statutes
• Generally, a plan or strategy to obtain something of value from another through the use of deceit,
trickery, or other dishonest methods
• Violates “the sense of moral uprightness, of fundamental honesty, fair play and right dealing in the
general and business life of members of society”
Scheme to Defraud – Intent

• To prove an “intent to defraud,” the government generally must show that some harm or injury
to the victim, and some gain to the defendant, was contemplated by the scheme
• Need not show actual injury, because attempts to defraud are also covered
Scheme to Defraud - Materiality

• Concept of a scheme to defraud includes a requirement that the deceptions be “material.” Neder
• “Material” means that reasonable person would consider the issue important in determining how
to act in the transaction in question, OR that the maker of the representation has reason to know
that the recipient would regard the matter as important, even if a reasonable person would not.
12
Nature of the Scheme
Object of the Scheme Actual Lies Silence+ Duty
Money/Property Cleveland; Lustiger Carpenter
Honest Services McNally
Intent to Defraud
United States v. Regent Office Supply Co. cb. 112
421 F.2d 1174 (2d Cir. 1970)
(what does the statute require for fraud)
RULE: an intent to deceive is not equivalent to an intent to defraud where the deceit does not go to the
nature of the bargain itself. To reach a conviction under §1341 some injury must reasonably flow from
the deception whether actual or reasonably probable. To show intent to defraud, the falsity of the
representations must be capable of affecting the customers understanding of the bargain or influencing
his assessment of the value of the bargain to him.
Facts: Defendants Regent Office Supply Co., Inc., and Oxford Office Systems, Inc., were in the business
of selling stationery supplies through salesmen, or "agents," who solicited orders for their merchandise by
telephone. Defendants admitted the "sales pitches" employed by their agents used false pretenses and
representations to customers, such as asserting that the agent had been referred to the customer by a friend
of the customer. Defendants were indicted on mail fraud charges and tried in federal district court under a
procedure whereby defendants agreed to be indicted and expeditiously tried upon certain admissions and
stipulations of fact constituting the alleged crime. The government's case consisted entirely of defendants'
stipulation. On the stipulation, the government rested its case. The district court found defendants guilty
as charged, and they received minimal fines for their violations. Defendants then filed a post-verdict, pre-
sentence motion to dismiss the indictment based on lack of jurisdiction. The district court denied the
motion. Defendants appealed.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does solicitation of a purchase by means of false representations not directed to the quality,
adequacy or price of goods to be sold or otherwise to the nature of the bargain constitute a “scheme to
defraud” or “obtaining money by false pretenses” within the prohibition of 18 USC §1341?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. The court of appeals reversed defendants' convictions for mail fraud. The court ruled that
the conduct described in defendants' admissions and stipulations of fact did not come within the
prohibition of the mail fraud statute, and particularly the "scheme to defraud" prong. The court ruled that
the solicitation of a purchase by means of false representations not directed to the quality, adequacy or
price of goods to be sold, or otherwise to the nature of the bargain, did not constitute a "scheme to
defraud" or "obtaining money by false pretenses" within the prohibition of 18 U.S.C.S. § 1341. The
government did not contend that defendants' agents made any false representations regarding the quality
or price of their nationally advertised merchandise. The government offered no direct proof that any
customer was actually defrauded by defendants. Moreover, the agents did not attempt to deceive their
prospective customers with respect to the bargain they were offering; rather, they gave a false reason for
being able to offer the bargain. There are two elements to the offense of mail fraud: use of the mails and a
scheme to defraud. Since only a "scheme to defraud" and not actual fraud is required for conviction, it is
not essential that the government allege or prove that purchasers were in fact defrauded. But this does not
mean that the government can escape the burden of showing that some actual harm or injury was
contemplated by the schemer. Proof that someone was actually defrauded is unnecessary simply because
13
the critical element in a "scheme to defraud" is fraudulent intent, and therefore the accused need not have
succeeded in his scheme to be guilty of the crime. But the purpose of the scheme must be to injure, which
doubtless may be inferred when the scheme has such effect as a necessary result of carrying it out. Of
course, proof that someone was actually victimized by the fraud is good evidence of the schemer's intent.
Notes:
• Court says that they were deceived not defrauded
• The government needed to prove that some actual harm or injury was contemplated by the
schemer
• Because the customers in this case were not deceived by Regent-oxford agents in respect to the
bargain they were offering there was no actual harm
• Could have satisfied the requirements of scheme to defraud if:
o Product failed to do what it was claimed to do
o Scheme of promotion is based on claims of additional benefits to accrue to the customer if
the benefits as represented are not realistically attainable by the customer
• Materiality: There needs to be a material deception—the court does not actually define material
but it cites to the torts restatement definitions:
o 1) A reasonable person would attach importance t pots existence or nonexistence in
determining his choice of action in the transaction in question or
o 2) The maker of the representation knows or has reason to know that its recipient regards
or is likely to regard the matter as important in determining his choice of action although a
reasonable reason would not regard it as so
The Use of the Mails and Wires

The “in furtherance” requirement
• The mailing/transmission need not be an essential part of the scheme, but must be related to or
incident to an essential part of the scheme.
• Must be “part of the execution of the scheme as conceived by the perpetrator at the time.”
(Schmuck)
• The mailing/transmission itself need not be fraudulent or false, and can be routine or innocent
Schmuck v. United States cb. 164

(the in furtherance requirement)
489 U.S. 705 (1989)
Rule of Law: A mailing that is incident to an essential part of the scheme satisfies the mailing
element of the mail fraud offense
Facts: Schmuck was rolling back miles, selling to the dealers, dealers would sell the car and then they
would mail the title of the car to the DMV. So, they charged Schmuck but as the mailing they use the
mailing of the title by the car dealers to the DMV. Schmuck argues that the mailings were not necessary
to carry out the fraud.
-------------------------------------------------------------------------------------------------------------------------------
Issue: can routine mailings that are innocent in themselves (such as the mailing of title and registration
forms here) supply the mailing element of the mail fraud offence?
-------------------------------------------------------------------------------------------------------------------------------
Holding (Justice Blackmun): Yes. The court thinks that the mailing was necessary to maintain the long-
term relationship with the dealership which was needed to continue the fraud. Schmuck’s operation was
not one isolated deal it was an ongoing fraudulent venture. It depended on his relationship with the retail
dealers which in turn required smooth flow of cars from the dealers to their Wisconsin customers. A
reasonable jury could have found that the title-registration mailings were part of the execution of the
14
fraudulent scheme, because the scheme did not reach fruition until the retail dealers resold the cars and
effected transfers of title. His relationship with the deals depended on the successful transfer of title
among the various parties. Thus, although the registration form mailings may not have contributed
directly to the duping of either the dealers or the customers, they were necessary to the passage of title,
which in turn was essential to the perpetuation of the scheme. The mailing of title registrations was
essential to successful passage of title and effected his relationship and goodwill with the dealers whose
unwitting corporation his scheme depended on. A mailing that is incident to an essential part of the
scheme satisfies the mailing element of the mail fraud offense and the mailing here fits that description.
The relevant question at all times is whether the mailing is part of the execution of the scheme as
conceived by the perpetrator at the time, regardless of whether the mailing later, through hindsight may
prove to have been counterproductive and return to haunt the perpetrator of the fraud.
-------------------------------------------------------------------------------------------------------------------------------
Dissent: the purpose of the mail fraud statute is to prevent the post office from being used to carry
fraudulent schemes into effect. The statute reaches only those limited instances in which the use of the
mails is a part of the execution of the fraud, leaving all other cases to be dealt with by appropriate state
law. The fraud was complete with respect to each car when the defendant pocketed the dealers money.
Assuming that failing to pass title was essential to the success of the scheme the same could be said for
failure to collect taxes or to pay the credit card bills in Parr. In Kann the government presented an
identical theory as presented in this case saying that because the scheme was ongoing the fact that the
checks were mailed after the defendants had pocketed the cash made no difference. There the court
rejected the argument saying that the subsequent transactions were merely incidental and collateral to the
scheme. The mailing of title application forms is equivalently incidental to the scheme here.
Notes:
• Once the scheme has reached fruition anything that happens afterwards cannot be said to satisfy
any essential part of the scheme
o (Kann) Once defendants cashed fraudulent checks the mailing of one bank to the drawee
bank to get paid had nothing to do with the defendants, their scheme reached fruition when
they cashed the original checks.
o (Parr) Defendants used company (school) credit card issued by the oil company to buy
gasoline and other items. Court found that the oil company mailing a bill to the school and
the school mailing back payment did not count for mailing requirement because it was
immaterial to the defendant’s scheme how the oil company collected payments.
o (Maze) Defendant stole roommates credit card traveled south booking motels, and getting
food along the way. The mailing was the motels sending a bill to the credit card company
and the creditor mailing a bill to the card owner for payment. Court said this doesn’t satisfy
the mail requirement because the defendants scheme reached fruition as soon as he
checked out of the hotel. The success of his scheme in no way depended on the mailings;
they merely determined which of his victims would ultimately bear the loss.
o Court said all of these cases were different because interbank mailings and credit card
billings involved little more than post fraud accounting among potential victims and the
long-term success of the fraud did not depend on which potential victims bore the ultimate
loss. Here Schmuck by no means was indifferent to who bore the loss because he needed to
maintain good relationships with the dealers which required the title and registration
passage to occur without issue.
• Note 4. Lulling: use of mails after furtherance schemes where mails/wires used to “lull” victim
into false sense of security, postponing reporting = in furtherance (US v. Sampson, US v. Lane)
• Required Mailing Exception: Under Schmuck most mailings necessary to continuation of the
ongoing scheme will qualify under the mail fraud statute. However most circuits have recognized
a required mailing exception that is mailings of documents which are required by law to be mailed
15
and which are not themselves false and fraudulent cannot be regarded as mailed for the purpose of
executing a fraudulent scheme.
• HYPO: When check cashing place mails a check to the bank is that in furtherance of the fraud?
o Yes
• Hypo: going to prosecute Schmuck, the car dealer has to have electricity, and they mail in a light
bill every month. We charge Schmuck, and use the dealer mailing the light bill as the mailing is
this going to be considered furthering the fraud?
o No
Lustiger v. U.S.
386 F.2d 132, 132-38 (9th Cir. 1967)
(property by the lake)
Rule of Law: Where Defendants’ statements are technically true, Court may still find fraud on
the whole if the misleading statements involve the quality and nature of product being sold and
are material to the deal
Facts: Think that you are buying this nice property on the lake, but actually the “water hole” were
disgusting, they were too far from any power lines and there was no roads to get to freshwater or to the
nice lakes etc. The brochure made this community look one way but in reality, that was not the case at all.
Defendant convicted of violating the mail fraud statute as a result of a scheme by which he sent pamphlets
all over the country advertising land in AZ, but he made a number of misleading statements about the
property. The statements, each taken individually, were technically true, so he claimed the statements
were just sales puffery.
-------------------------------------------------------------------------------------------------------------------------------
Holding: The Ninth Circuit says that it’s fraud: “If a scheme is devised with intent to defraud and the
mails are used in executing the scheme, the fact that there is no misrepresentation of a single existing fact
is immaterial.” “Deceitful statements of half-truths or the concealment of material facts is actual fraud”
-The law still protects the naïve and gullible (footnote in Lustiger). Here the literally true statements in
brochures that property would have been habitable and access to water by as a whole, was a scheme to
defraud because it was misleading – at the end of the deal, clients did not get anything they were
expecting to get (products were not as advertised to be). Prosecutors look to see if scheme was made so
that a reasonable person would be tricked by the fraud (or just puffery in advertising)
Notes:
• He was using a P.O. Box in Arizona but he was in California on the beach—this was to make
people think there was a company there. He has a bus bring the mail to him and then it is brought
back to Arizona and sent from there so it is post marked from Arizona, this is a “badge of fraud.”
There is no other logical reason to do this other than trying to fool people in to thinking that there
is something more their than there is.
Class 6: 9/14 Mail and Wire Fraud: The Property Requirement

Chap. 4, pp. 118-134
Honest Services Fraud

• In an honest services case, the defendant is charged with defrauding the victim not of money or
property, but of the intangible right of honest services.
• Doctrine has been applied both to public officials and private individuals, particularly in the
employee/employer relationship
16
• Applies only to cases involving bribes or kickbacks, in either the public or private sectors (Skilling
v US).
The “McNally fix”

• 18 U.S.C. 1346 (1988): “For the purposes of [mail and wire fraud and other statutes], the term
‘scheme or artifice to defraud’ includes a scheme or artifice to deprive another of the intangible right
of honest services.”
McNally v. United States

483 U.S. 350, 107 S. Ct. 2875 (1987) cb. 118
(mail and wire fraud must be based upon an intended loss of money or property)
Rule of Law: The mail fraud statute clearly protects property rights, but does not refer to the
intangible right of the citizenry to good government.
Facts: Defendants Gray, a former Kentucky official, and McNally, a private individual, along with one
Howard Hunt, the former chairman of the Commonwealth's Democratic Party, were charged with violating
18 U.S.C.S. § 1341, which prohibited the use of the mails to execute "any scheme or artifice to defraud, or
for obtaining money or property by means of false or fraudulent pretenses, representations, or promises."
Specifically, the Government alleged that defendants devised a scheme to defraud the Commonwealth's
citizens and government of their "intangible right" to have the Commonwealth's affairs conducted honestly,
and to obtain money by means of false pretenses and the concealment of material facts. At trial in federal
district court, after informing the jury of the charges, the court instructed the jury that defendants' alleged
scheme could be made out either by finding: (1) that Hunt had de facto control over the award of the
Commonwealth's workmen's compensation insurance contract; that he obtained commission payments from
the company awarded this contract, which were mailed to a company he owned and controlled with his co-
defendants, without disclosing his ownership interest to commonwealth officials; and Gray and McNally
aided in the scheme; or (2) that Gray had supervisory authority over the insurance when his company
received payments; that he did not disclose his interest in the company to commonwealth officials; and that
McNally aided and abetted him. The jury convicted defendants. An appellate court affirmed, relying on a
line of decisions holding that § 1341 proscribed schemes to defraud citizens of their intangible rights to
honest and impartial government.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does a state official violate the mail fraud statute when he chooses an insurance agent to provide
insurance for the state but specifies that the agent must share its commissions with other named insurance
agencies in on of which the officer has an ownership interest and hence profits when his agency receives
commission thus violating the intangible right of the citizenry to good government?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. The mail fraud statute was intended to protect property rights not the intangible right of the
citizenry to good government. If congress would like the statute to go further than it does the it must speak
more clearly than it has. The Court reversed the convictions and remanded for further consistent
proceedings.
-------------------------------------------------------------------------------------------------------------------------------
Dissent: Courts have routinely charged officials with honest services fraud when they deprive people of
their rights to things such as free and fair elections, or to the honest services of the official and now the
court is calling these rights intangible. Nothing in the words of the statute justify limiting its applications to
schemes intended to deprive victims of only money or property. Law dictionaries define defraud as “to
withhold from another that which is justly due to him or to deprive him of a right by deception or artifice.”
Another defined it as “to cheat; to deceive; to deprive of a right by an act of fraud to withhold from another
17
what is justly due him, or to deprive him of a right by deception or artifice.” Common law criminalizes
fraud beyond that which is “tangible.”
Notes:
• Supreme Court rejected the honest services theory as too vague and amorphous
• Held that mail and wire fraud apply only to schemes to obtain money or property
• Held that if Congress intends otherwise, it must “speak more clearly.” Cb. 121
o We do not want federal prosecutors determining what is right for states
o If congress wanted to clarify an ambiguous statute it can
• Congress passed 1346 the following year to bring back in honest services fraud
o Strictly speaking you cannot violate 1346 this is just the definitions of schemes to defraud
Post-McNally Property Issues

• The following year, Court makes it clear that “property” may include intangible property, such as
confidential business information (Carpenter)
• Object of the fraud must be property in the hands of the victim at time of the fraud; government
regulatory interests are not property. (Cleveland)
Intangible Property Rights

Carpenter v. United States
(intangible property rights—) cb. 125
Rule of Law: The mail-fraud statute is not limited to protecting tangible property rights.
Facts: R. Foster Winans, Kenneth Felis, and David Carpenter (defendants) were involved in a scheme that
used confidential information to take advantage of the stock market. Winans was one of the writers on a
daily column for the Wall Street Journal (the Journal) that discussed selected stocks and provided readers
of the Journal with investment insight. Information published in the column often impacted the value of the
stocks discussed. The Journal’s policy was that, prior to publication, the content of the column was
considered confidential business information. Despite awareness of this policy, Winans entered into an
agreement with Felis and Peter Brant, who were both stock brokers at Kidder Peabody. Under the agreement,
Winans would reveal the contents and release dates of several columns so that Felis and Brant could trade
advantageously before publication. Over a four-month period, the prepublication trades amassed net profits
of approximately $690,000. The scheme was discovered when both Kidder Peabody and the Journal became
suspicious of the correlation between the columns and the trades. Winans and Carpenter, Winans’s
roommate, eventually went to the Securities and Exchange Commission to reveal the scheme. Winans and
Felis were convicted of violating the mail and wire-fraud statutes, 18 U.S.C. §§ 1341, 1334, and other
securities statutes. Carpenter was convicted of aiding and abetting. Winans and Felis appealed on the
grounds that: (1) the conduct was not a scheme to defraud within the scope of the mail and wire-fraud
statutes, and (2) there was no evidence that money or property was taken from the Journal, which was a
required element for conviction under the statutes.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Is the mail-fraud statute limited to protecting tangible property rights?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (White, J.): No. The mail-fraud statute is not limited to protecting tangible
property rights. In McNally v. United States, 483 U.S. 350 (1987), the United States Supreme Court held
that the mail-fraud statute does not protect against schemes to defraud the public of the intangible rights to
impartial and honest government. McNally did not, however, limit the scope of the mail-fraud statute to
protecting only tangible property rights. Confidential business information acquired in the course of a
corporation’s business, although intangible, is property to which the corporation is entitled to the exclusive
18
use and benefit. This property right is protectable under the mail-fraud statute. The mail and wire-fraud
statutes apply to any scheme to defraud another of property by use of false representations, pretenses, or
promises. Further, the concept of fraud includes embezzlement, a situation in which a person fraudulently
appropriates property entrusted to that person by another. In this case, the scheme to defraud the Journal of
the exclusive use and benefit of its confidential business information—the contents and release dates for
Winans’s column—falls within the scope of the mail and wire-fraud statutes. The scheme clearly interfered
with the Journal’s property right to control all prepublication uses of the information. It is irrelevant that
the scheme did not interfere with the Journal’s intended use of the information or the Journal’s ability to be
the first to publish the information to the general public. Finally, it is also noted that eventual circulation of
Winans’s column, which occurred through mail and wires, was an essential component to the scheme’s
success due to the anticipated impact of the column on stock prices. As a result, the scheme meets all of the
requirements of the mail and wire-fraud statutes, and Winans’s and Felis’s convictions for mail and wire
fraud are affirmed.
Notes:
• No need for monetary loss it is sufficient when the entity has been deprived of its right to exclusive use of its
confidential business information
• You can exclusively control property, prevent others from using and you could sell it to others for
money and that is what made it an intangible property right.
o This is why Mcnally does not prevent this case
• The journal decides for itself what is confidential business information
o Does this mean that any corporation gets to now define these statutes?
o the right to control theory—is the right to control how property is used a property interest?
§ Courts are split
Cleveland v. United States cb. 129

(is license a property)
531 U.S. 12, 121 S. Ct. 365 (2000)
Rule of Law: The federal mail fraud statute, 18 U.S.C.S. § 1341, is limited in scope to the
protection of property rights. It does not suffice that the object of fraud may become property in
the recipient’s hands; for purposes of the mail fraud statute the thing obtained must be property
in the hands of the victim.
Facts: Louisiana law authorized the state to award nontransferable, annually renewable licenses to operate
video poker machines. License applicants had to meet suitability requirements designed to insure that they
had good character and fiscal integrity. The state itself did not run any video poker machinery. In 1992, a
limited partnership was formed to participate in the video poker business in Louisiana. Defendant Carl W.
Cleveland, a lawyer, assisted in preparing the partnership's initial and subsequent video poker license
applications, each of which identified the children of another party as the sole beneficial owners of the
partnership. Cleveland and another party were charged in federal district court with money laundering under
18 U.S.C.S. § 1957 and racketeering and conspiracy under 18 U.S.C.S. § 1962 in connection with a scheme
to bribe state legislators to vote in a manner favorable to the video poker industry. Among the alleged
predicate acts supporting these charges were four counts of violating the mail fraud statute (18 U.S.C.S. §
1341), which proscribed use of the mails in furtherance of any scheme or artifice to defraud, or for obtaining
property by means of fraudulent representations. The indictment alleged that Cleveland: (1) had tax and
financial problems that could have undermined his suitability to receive a video poker license, and; (2)
fraudulently concealed that he was among the true owners of the partnership on the license applications
mailed to the state. Before trial, Cleveland filed a motion to dismiss the mail fraud counts on the ground
that the alleged fraud did not deprive the state of "property" under § 1341. The district court, in denying the
motion, concluded that licenses constituted property even before they were issued. A jury found Cleveland
19
guilty on two mail fraud counts and on other counts predicated on the mail fraud. On appeal, the United
States Court of Appeals for the Fifth Circuit affirmed the conviction.
-------------------------------------------------------------------------------------------------------------------------------
ISSUE: for the purposes of the federal mail fraud statute, does a government regulator part with “property”
when it issues a license?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. The Supreme Court of the United States reversed the appellate court's judgment, vacated
Cleveland's conviction, and remanded the matter for further proceedings. The Court concluded that the state
video poker license did not qualify as property within the meaning of § 1341 in the government regulators
hands. It did not suffice that the object of the fraud could have become property in the recipient's hands; for
purposes of the mail fraud statute, the thing obtained must have been property in the hands of the victim.
State and municipal licenses in general, and the video poker licenses in particular are part of a regulator
program. It is telling as to the character of Louisiana’s stake in the video poker licenses that the government
nowhere alleges that Cleveland defrauded the State of any money to which the State was entitled by law.
The intangible rights of the state to allocate, exclude and control the licenses amounts to no more than
Louisiana’s sovereign power to regulate. “Unless congress conveys its purpose clearly, it will not be deemed
to have significantly changed the federal-state balance.” Thus, absent a clear statement by Congress, the
Court declined to read the mail fraud statute to place under federal superintendence a vast array of conduct
traditionally policed by the states.
Notes:
• What is the current definition of property under the mail and wire fraud statutes?
Kelly v. United States

590 U.S. (2020)
(link on class website)
Rule: Cannot violate fraud or wire fraud laws if the scheme did not aim to obtain money or
property
Facts: This case arises from the scandal that became known as “Bridgegate.” Defendants William E. Baroni,
Jr. and Bridget Anne Kelly conspired to create major traffic jams in Fort Lee, New Jersey, after Fort Lee’s
mayor refused to endorse the 2013 reelection bid of then-Governor Chris Christie. The defendants and
others limited motorists’ access to the George Washington Bridge, the world’s busiest bridge, for four days
during the first week of Fort Lee’s school year, resulting in extensive traffic delays.
In 2015, a grand jury indicted Baroni and Kelly for their roles in the scheme. Each was charged with seven
counts, including conspiracy to obtain by fraud, knowingly convert, or intentionally misapply property of
an organization receiving federal benefits, in violation of 18 U.S.C. § 371, and the substantive offense
underlying that conspiracy, 18 U.S.C § 666(a)(1)(A). A jury convicted the defendants on all counts. On
appeal, the U.S. Court of Appeals for the Third Circuit affirmed the conviction as to four of the seven,
including the two at issue here. In support of its conclusion, the court reasoned that the defendants had
defrauded the Port Authority of its property by citing a “traffic study” as the purpose for the lane closures
rather than their “real reason” of political payback.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Did the public officials in this case “defraud” the government of its property by advancing a “public
policy reason” for an official decision that is not her subjective “real reason” for making the decision?
-------------------------------------------------------------------------------------------------------------------------------
Holding: Baroni and Kelly could not have violated the federal-program fraud or wire fraud laws because
the scheme did not aim to obtain money or property. Justice Elena Kagan authored the opinion for a
unanimous Court. First, the Court looked to the language of the federal wire fraud statute and the federal-
program fraud statute, finding those statutes “limited in scope to the protection of property rights.” Thus,
20
the government needed to prove not only that Baroni and Kelly engaged in deception, but that the object of
that deception was money or property. Taking control of the lanes of the bridge does not constitute taking
of government property because under Court precedent, a scheme to alter a regulatory choice does not
amount to taking of property. Similarly, causing increased costs of compensating traffic engineers and back-
up toll collectors is an incidental product and not the “object of the fraud,” as required by the statute.
Class 7: 9/16 Mail and Wire Fraud: Honest Services Fraud

Chap. 4, pp. 137-159 18 U.S.C. § 1346
Methods of Analysis
• What is the nature of the scheme to defraud?
• Affirmative misrepresentations
• silence in the face of a duty to disclose
What is the object of the scheme to defraud?

Money or property (including intangible property)
Honest services
Honest Services Fraud after 1346

• Courts adopted a wide variety of rules to limit the scope of the doctrine, resulting in “chaos”
• In Skilling v. US (2010), Supreme Court limited theory to cases involving bribes or kickbacks, in
either the public or private sectors
Sarbanes-Oxley Act of 2002

• Enacted 18 U.S.C. 1349: Attempts and conspiracies to commit mail and wire fraud now subject to
the same punishment as mail and wire fraud
• Increased statutory maximum penalties for mail and wire fraud from 5 to 20 years
Skilling v. United States cb. 138

(court attempts to clarify the honest services fraud statute)
Rule of Law: 1346 covers only bribes and kickbacks.
Facts: Jeffrey Skilling (plaintiff) was one of three executives at Enron Corporation indicted for
manipulating financials to mislead the public about Enron’s profitability. Count 1 of the indictment charged
Skilling with conspiracy to commit securities and wire fraud; in particular, it alleged that Skilling had sought
to “deprive Enron and its shareholders of the intangible right of his honest services.” Skilling’s argued that
his conviction was based on an improper theory of honest-services wire fraud. Skilling petitioned the
Supreme Court and the Court granted certiorari.
-------------------------------------------------------------------------------------------------------------------------------
Issue: is § 1346 impermissibly vague
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Ginsburg. J.): No. The vast majority of pre-McNally honest services cases
involved offenders who in violation of a fiduciary duty participated in bribery or kickback schemes.
Congress intended 1346 to reach at least bribes and kickbacks. Reading it to cover more would raise due
process concerns so we hold that it criminalizes only the bribe and kickback core of the pre-McNally case
law. When interpreted to encompass only bribes and kickbacks it is not unconstitutionally vague. Skilling
did not except money from a third party so as we read it he did not violate 1346.
21
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Scalia): The entire statute is too vague and therefor violates the due process clause of the Fifth
Amendment. The first step of the courts analysis – holding that “the intangible right of honest services”
refers to “the honest services doctrine recognized in the Court of Appeals decisions before McNally” – is a
step out of the frying pan into the fire. Arriving at the courts conclusion requires not interpretation but
invention.
United States v. Milovanovic cb. 149

678 F.3d 713 (9th Cir. 2012)
(is a breach of fiduciary duty required in a public sector honest services case and is a foreseeable
economic harm required in such a case?—Truck Driver Case)
Rule: a fiduciary relationship is an element of honest services fraud under 18 U.S.C.S. §§ 1341
and 1346, but that the fiduciary relationship did not need to be a formal, or classic, fiduciary
relationship.
RULE: The U.S. Supreme Court, in an attempt to salvage the honest services doctrine, has limited its scope
to pre-McNally applications, which contain the vast majority of the honest-services cases involving
offenders who, in violation of a fiduciary duty, participated in bribery or kickback schemes. Embedded in
the Court's holding that § 1346 criminalizes only the bribe-and-kickback core of the pre-McNally case law
is the implication that a breach of a fiduciary duty is an element of honest services fraud. Justice Scalia's
characterization of the Skilling holding, which he framed as "the intangible right of honest services" means
the right not to have one's fiduciaries accept bribes or kickbacks, is premised on the Court's holding that a
breach of fiduciary duty is a requisite element of honest services fraud. This interpretation is further
evidenced by the manner in which the majority responded to Justice Scalia's concurrence. By observing
that the existence of a fiduciary relationship, under any definition of that term, was usually beyond dispute
in bribe and kickback cases, the majority similarly declared that a breach of fiduciary duty is required.
Consequently, the United States Court of Appeals for the Ninth Circuit holds that a breach of a fiduciary
duty is an element of honest services fraud under 18 U.S.C.S. §§ 1341 and 1346.
-------------------------------------------------------------------------------------------------------------------------------
FACTS: Defendants Brano Milovanovic (Milovanovic), Tony Lamb (Lamb), Ismail Hot (Hot), Muhamed
Kovacic (Kovacic), Elvedin Bilanovic (Bilanovic), and Aleksandar Djordjevic (Djordjevic) were charged
with conspiracy and with devising a scheme and artifice to defraud and deceive the Washington State
Department of Licensing (DOL). The government alleged that defendants solicited and were paid bribes to
help unqualified, non-resident applicants obtain commercial drivers' licenses (CDLs) through materially
false and fraudulent misrepresentations and omissions on CDL applications achieved by cheating on the
exams, by false certifications that skills tests were completed successfully when no such tests were
successfully performed, and by use of in-state addresses in Spokane, Washington, when the applicants
actually resided out of state. A federal grand jury returned an indictment for mail and wire fraud on a theory
of honest services fraud. The district court held that the existence of a formal fiduciary duty to the State and
resulting economic harm were required, and the court dismissed all charges. The United States brought an
appeal to reinstate the case.
-------------------------------------------------------------------------------------------------------------------------------
ISSUE: 1. Is a breach of a fiduciary duty an element of honest services fraud under 18 U.S.C.S. §§ 1341
and 1346?
2. Is foreseeable economic harm a necessary element when evaluating whether a party breached a fiduciary
duty in violation of honest services fraud under §§ 1341 and 1346?
-------------------------------------------------------------------------------------------------------------------------------
Holding: 1. Yes. A fiduciary relationship is an element of honest services fraud under 18 U.S.C.S. §§ 1341
and 1346, but the fiduciary relationship need not be a formal, or classic, fiduciary relationship, a trust
relationship as existed here is sufficient. The statutes reach those who assumed a comparable duty of loyalty,
22
trust, and confidence, the material breach of which, with the intent to defraud, deprived the victim of the
intangible right to honest services. A fiduciary duty for the purposes of the Mail Fraud Statute is not limited
to a formal fiduciary relationship well known in law but also extends to a trusting relationship in which one
party acts for the benefit of another and induces the trusting party to relax the care and vigilance which it
would ordinarily exercise. It is within the province of the trier of fact to determine if a fiduciary duty existed
between the parties based on a position of trust, for the material breach of which the victim was defrauded
of the entitlement to hones services by the defendant. As a matter of law the jury can convict the defendants
as charged if the evidence shows material misrepresentations were intentionally made in return for bribes,
well knowing that the DOL would rely on those representations to issue CDLs to applicants who did not
actually qualify for them.
2. No. Foreseeable risk of economic harm is not a necessary element when evaluating whether a party
breached such a fiduciary duty. Instead, the mail fraud statute required fraudulent intent and a showing of
materiality. A misrepresentation is material when the misinformation or omission would naturally tend
to lead or is capable of leading a reasonable employer to change its conduct. In reliance on the services
of the defendants in the case the state issued the CDL’s sought by unqualified applicants who did not reside
in Washington. The defendant’s dishonest provisions of those important services resulting from bribery is
exactly the type of conduct §§1341 and 1346 were intended to prevent. The superseding indictment properly
stated an offense for honest services fraud. The appellate court reversed and remanded the case to the district
court.
Notes:
• Remember that you need to establish that the DUTY EXISTS in honest services fraud, especially
when it is not with a public official or someone where there is clearly a duty.
• This case adopted the materiality test in public sector cases
• Rybucki adopted it in private sector
**Key Takeaways: A defendant in a mail or wire fraud need not be the person making the
misrepresentation or engaging in the omission. Nor does the defendant need to have a personal duty to the
victim in an omission case. All the statutes require is proof that the defendant participated in a scheme to
deprive the victim of money, property or honest services.
Class 8: 9/21 Conspiracy

Chap. 3, pp. 61-73, 83-93, 98-108 18 U.S.C. § 371
Conspiracy—18 U.S.C. 371
Advantages of a Conspiracy Charge

1. Straightforward and easy to understand.
2. Easy to lay out the entire criminal scheme.
3. Hearsay advantages – Fed. R. Evid. 801(d)(2)(E).
4. Statute of limitations advantages.
5. Venue advantages.
6. Allows joinder of many defendants and charges in single indictment.
7. Success or completion of the criminal scheme is not required.
Elements of a Conspiracy
1. Existence of an agreement between 2 or more people to commit an offense against the US or
defraud the US;
23
o US government does not necessarily have to be the victim
§ Does not have to be a monetary loss. May be impairing, obstructing, or impeding a
lawful government function by deceit, craft, or trickery.
§ To commit an offense against the US simply means committing any federal crime,
including violation of an Executive Order for which Congress has provided
criminal sanction (US v Arch Trading).
2. Defendant knowingly and voluntarily joins the conspiracy with the intent to further the criminal
objective; and
3. At least one overt act in furtherance of the conspiracy is committed by one member of the
conspiracy.
Agreement
1. The agreement is the heart of a conspiracy – it is a “partnership in crime.”
2. Agreement often must be proven by circumstantial evidence.
3. Knowledge of the agreement’s illegal purpose may be shown by willful blindness (conscious
avoidance)
a. Cannot use willful blindness to show intent, but can be used to show knowledge
The Two Prongs of §371

• Note that both prongs – to defraud the US and to commit an offense against the US – may be
charged in the same indictment, and even in the same count.
• Conspiracy to commit an offense against the US does not necessarily mean that the US is the
victim – committing any federal crime will satisfy this element.
• A conspiracy may have multiple objects, and all may be alleged in the same count.
• Conspiracy to defraud the US includes not only defrauding the US of money or property, but also
impairing, obstructing, or impeding a lawful government function by deceit, craft, or trickery.
Monetary loss is not required.
Plurality Requirement
• A conspiracy requires an agreement between two or more human minds
• A defendant cannot conspire solely with his own corporation (Stevens) or solely with a federal
undercover agent
The Overt Act Requirement

1. The overt act need not be illegal itself.
2. The overt act need not have been committed by this particular defendant.
3. All of the overt acts alleged in the indictment need not be proven – only need to prove one.
4. Overt act must be in furtherance of the conspiracy and must take place during the life of the
conspiracy.
5. Overt acts can be the key to venue and statute of limitations issues.
Mens Rea: the existence of a conspiracy is demonstrated by circumstantial evidence. Courts generally
agree that a defendant must
1. Intend to enter into an agreement with knowledge of the illegal objectives, and
2. Intend that illegal objectives would be committed.
a. Proof of willful blindness will suffice
United States v. Lewis cb.65
(2d Cir. 2013)
(willful blindness)
24
Rule: Cannot use willful blindness to show intent, but can be used to show knowledge
Holding: a jury must find that a defendant decided to ignore an inconvenient truth and the took steps to
do so. The standard for proving a conspiracy is that there must be a mutual understanding either spoken
or unspoken between two or more people to cooperate with each other to accomplish an unlawful act, that
the agreement is one to disobey or disregard the law and that the alleged conspirators agreed to work
together in furtherance of the unlawful scheme. Conscious avoidance cannot be used as a substitute for a
finding that the defendant knowingly agreed to a joint undertaking and that the jury can find the defendant
guilty if and only if it finds that she knowingly and intentionally joined the conspiracy charged in the
indictment. Conscious avoidance instruction can only be given if two factual predicates are met; 1. The
defendant must assert the lack of some specific aspect of knowledge required for the conviction and 2.
There must be evidence that allows a rational juror to reach the conclusions beyond a reasonable doubt
that the defendant was aware of a high probability of the criminal objective and consciously avoided
confirming that fact. In this case there were several red flags that Lewis knew something unlawful was
going on and avoided looking into it further for example she didn’t read any of the documents her son
prepared for her and had her sign, also in the past he had used her name to take out money and lied to her
saying she was just a cosigner on the loan so she had reason to suspect him of fraudulent behavior and
nevertheless signed all the documents without reading.
Notes:
• Global Tech Decision: Supreme Court adopted a stricter willful blindness standard than in the
past by requiring proof that the defendant undertook “deliberate actions” to avoid learning the
truth.
• Willful blindness standard—To be guilty of conscious avoidance:
o The defendant must take deliberate actions to avoid learning a fact (Global Tech)
o The defendant must “deliberately decide not to confirm a key fact” and “act with a
conscious purpose to avoid learning the truth.” (Lewis)
o In both cases a jury must find that a defendant decided to ignore an inconvenient truth and
then took the steps to do so.
The Offense Clause and the Defraud Clause

United States v. Arch Trading Co. cb. 70
987 F.2d 1087 (4th Cir. 1993)
RULE: To establish a violation of 18 U.S.C.S. § 1001, it must be proved that (1) the defendant made a
false statement to a governmental agency or concealed a fact from it or used a false document knowing
it to be false, (2) the defendant acted "knowingly or willfully," and (3) the false statement or concealed
fact was material to a matter within the jurisdiction of the agency. A material fact about a matter within
the jurisdiction of the agency is one that has a natural tendency to influence agency action or is capable
of influencing agency action.
Facts: Arch Trading Company, Inc. (“Arch Trading”) was indicted after government agents discovered that
Arch Trading's executives violated two emergency executive orders prohibiting doing business with Iraq
by their attempt to enter Iraq to install laboratory equipment pursuant to an existing contract with an Iraqi
agency. Arch Trading was convicted of disobeying the emergency executive orders in violation of 50
U.S.C.S. § 1701 et seq., and of lying to the Department of Treasury's Office of Foreign Assets Control in
violation of 18 U.S.C.S. § 1001.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Did the district court err in convicting Arch Trading of conspiring to commit an offense against the
United States in violation of 18 U.S.C.S. § 371, of disobeying the emergency executive orders in violation
25
of 50 U.S.C.S. § 1701 et seq., and of lying to the Department of Treasury's Office of Foreign Assets Control
in violation of 18 U.S.C.S. § 1001?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. The court affirmed and held that when Congress provided criminal sanctions for violations
of executive orders, such violation constituted an "offense" for the purposes of 18 U.S.C.S. § 371. Also, the
evidence supported a conviction under either the "offense" or the "defraud" clause of § 371, the orders were
not void for vagueness, and Arch Trading had actual notice of the illegality of its actions. Finally, Arch
Trading's conviction under 18 U.S.C.S. § 1001 involved a question of materiality, which was a question of
law to be determined by the trial judge and, therefore, there was no reversible error by the trial court's failure
to clarify that issue for the jury.
Notes:
• Because of the overlap given conduct may be proscribed by both of the section’s clauses
o In such a situation the fact that a particular Course of conduct is chargeable under one clause
does not render it immune from prosecution under the other.
o When both prongs of §371 apply to the conduct with which a particular defendant is charged,
the government enjoys considerable latitude in deciding how to proceed.
Arch Trading Sample Charging Language

• Between on or about August 2, 1990 and on or about April 3, 1991, defendants Arch Trading Co.,
John Doe, and Jane Doe did combine, conspire, confederate, and agree with each other and with
others known and unknown to the Grand Jury, to:
o 1. Defraud the United States, by impairing, obstructing, and impeding the lawful
functions of the United States by deceit, craft, and trickery; and
o 2. To commit offenses against the United States, that is,
§ a. to violate Executive Orders 12722 and 12724 concerning trade with Iraq, duly
issued pursuant to the International Emergency Economic Powers Act; and
§ b. in a matter within the jurisdiction of the United States Department of Treasury,
to knowingly and willfully make and use a false writing and document, knowing
the same to contain a materially false, fictitious, and fraudulent entry, in violation
of Title 18, United States Code, Section 1001.
• All in violation of Title 18, United States Code, Section 371 (Conspiracy)
Scope of the Conspiracy 83-90

Defining the Scope of the Conspiracy
• “Wheel” analogy – one person at center, with multiple “spokes.” To be a single conspiracy,
“spokes” must be aware of each other and do something to further a common criminal goal.
• “Chain” analogy – each conspirator is a link in the chain, dependent on the other links for the
conspiracy’s overall success
• Variance – prosecution charges one conspiracy, but proves multiple conspiracies – conviction
may be thrown out if defendant was prejudiced
Kotteakos v. United States cb. 83 (Spoke and Wheel)

(leading case on when the government has sufficiently pleaded and proven a single overarching
conspiracy)
Rule of Law: A single conspiracy cannot exist when two or more persons have no contact or
transactions with each other, even though each person may transact with the same, single
individual.
26
Facts: Simon Brown acted as a broker for Kotteakos (defendants) and others in making fraudulent loan
applications. Brown knew when he obtained the loans that the proceeds would not be used for the purposes
stated in the applications. Kotteakos and 18 others were brought to trial and seven were ultimately convicted,
including Kotteakos. At trial, there was evidence that each of the defendants had transacted with Brown,
but there was no evidence that any of the defendants had transacted with each other. Kotteakos and the
others appealed and their convictions were affirmed by the court of appeals. The U.S. Supreme Court
granted certiorari to review.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Can a single conspiracy exist when two or more persons have no contact or transactions with each
other, even though each person may transact with the same, single individual?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Rutledge, J.): No. The evidence presented in this case is not of a single
conspiracy, but of several conspiracies even though only one conspiracy was presented in the indictment
against the defendants. The trial judge incorrectly charged the jury that there was one conspiracy and that
the government had to prove that each defendant was a member of the conspiracy. Upon reviewing the case,
the court of appeals noted that “[T]hieves who dispose of their loot to a single receiver – a single ‘fence’ –
do not by that fact alone become confederates; they may, but it takes more than knowledge that he is a
‘fence’ to make them such.” In affirming the convictions, the appellate court concluded that the trial judge
had erred in supposing that there was a single conspiracy, but such error was not prejudicial and that it was
“proper” to join the conspiracies. Here, the jury could not possibly have concluded that there was one
conspiracy based on the evidence. The trial court was of the view that one conspiracy existed by showing
that each defendant was linked to Brown in one or more transaction and that it was possible for the jury to
conclude that all defendants were in a common scheme due to each defendant’s transactions with Brown
for the purpose of submitting fraudulent loan applications. The trial court’s error in making the assumption
of a single conspiracy permeated the instructions to the jury, and ultimately to the entire trial. The
assumption allowed the jury to find that each defendant had conspired with each other even though the
evidence did not support it. The judgments of conviction are reversed.
Notes:
• single conspiracy charge to induce financial institution to grant credits with false information;
single key figure in all 8 transactions so thought it was a wheel but each instance of fraud was
independent of other – multiple separate conspiracies (spokes but no rim to the wheel)
• Hub and Spoke (wheel)—A conspiracy in which one or more of the conspirators act as the "hub"
of a wheel, with other conspirators being the wheel's "spokes," which connect with and take their
guidance from the hub, and which are joined by the wheel's "rim" with the other spokes in
carrying out the various functions of the conspiracy.
• In a Chain Conspiracy case – the government seeks to show that each participant in the
conspiracy constituted a link. The various links can be charged as part of a single conspiracy so
long as each link was are of the other links existence.
• Not every conspiracy will fall into wheel or chain categories – most are just a group of people
acting together
• Conspirators must know that other conspirators exist, but need not know their identity
27
{Duration and Withdrawal 90-93, 98-108}
Impossibility
• Not a defense to conspiracy
• The dangers of a conspiracy still exist even if, unknown to the conspirators, it will be impossible
for them to achieve their criminal goals
• The agreement is a “distinct evil” which may exist and be punished whether or not the substantive
crime occurs
United States v. Jimenez RECIO cb. 90

(Defining the Termination Point)
Rule of Law: A conspiracy does not automatically end when the object of the conspiracy becomes
impossible to achieve.
Facts: The police seized a large amount of drugs from a truck. The truck drivers cooperated with the
police and agreed to continue on to the truck’s destination and meet Francisco Jimenez Recio and Adrian
Lopez-Meza (defendants), so they could pick up the drugs as planned. The truck drivers did so and
transferred the drugs to the defendants, who were subsequently pulled over and arrested. The defendants
were charged with conspiracy to possess and distribute drugs. A jury convicted the defendants. The trial
judge ordered a new trial, and the second jury also convicted the defendants. The United States Court of
Appeals for the Ninth Circuit reversed, holding that a conspiracy terminates when the government
intervenes, defeating the conspiracy’s objective. The court concluded that there was insufficient evidence
presented at trial to show that the defendants had joined the conspiracy before the government seized the
drugs. The United States petitioned the United States Supreme Court for certiorari.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does a conspiracy automatically end when the object of the conspiracy becomes impossible to
achieve?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Breyer, J.): No. A conspiracy does not automatically end when the object of
the conspiracy becomes impossible to achieve. The crux of a conspiracy charge is the agreement to
commit a crime. Defendants can be charged with a conspiracy without the underlying crime ever being
committed. Therefore, government intervention is irrelevant in a conspiracy charge. As long as the
defendants have agreed to commit a crime and made some act toward doing so, they can be criminally
liable for conspiracy. Accordingly, to the extent the Ninth Circuit's holding is based on the principle that a
conspiracy automatically ends when the object of the conspiracy becomes impossible to achieve, the
judgment is reversed, and the matter is remanded for further proceedings and consideration of the
defendants' remaining arguments.
Withdrawal (Defense’s Burden to Prove It)

• A defendant may withdraw from a conspiracy by committing affirmative acts inconsistent with the
conspiracy’s goals
• It’s not enough just to passively stop participating – must affirmatively withdraw
• A conspirator is not liable for the substantive crimes of the co-conspirators that are committed
after his withdrawal – but remains liable for conspiracy
• Statute of limitations starts to run upon withdrawal for the withdrawing co-conspirator
• Defense has the burden of proof on withdrawal
28
{Withdrawl}
Smith v. United States p. 99
133 S. Ct. 714 (2013)
Rule of Law: to avert a continuing criminality there must be affirmative action to disavow or
defeat the purpose of the conspiracy
Facts: Calvin Smith and John Raynor, along with four others, were tried together and convicted on
multiple charges including drug conspiracy and RICO act violations. The defendants filed motions for a
new trial on various grounds, including that the leaders of the conspiracy, Rodney Moore and Kevin Gray,
split up before the relevant statute of limitations period. Because of this, the jury did not have sufficient
evidence to prove that all defendants were part of a single conspiracy. The defendants argued that the
government had the burden to prove that the conspiracy continued into the valid statute of limitations
period. The court denied the motions. On appeal, the U.S. Court of Appeals for the District of Columbia
Circuit affirmed.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does withdrawing from a conspiracy prior to the statute of limitations period put the burden of
persuasion on the government to prove beyond a reasonable doubt that the accused was a member of the
conspiracy during the relevant period?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. Justice Antonin Scalia delivered the opinion for the unanimous court. The Court held that
the defendant has the burden of proving withdrawal from a conspiracy regardless of when the withdrawal
took place. Placing the burden on the defense does not violate the Due Process Clause because a defense
of withdrawal does not negate an element of the crime of conspiracy. Instead, it assumes that the crime
has occurred and starts the clock on the statute of limitations period for the prosecution. The Court held
that a defense of withdrawal is considered an affirmative defense that places the burden of proof on the
defendant. The Court also held that placing the burden on the prosecution to prove the withdrawal never
happened would be a nearly impossible task, as witnesses would invoke the Fifth Amendment rather than
discuss their criminal associations with the defendant.
Notes:
• If defendant continued to benefit from the conspiracy after withdrawal then the withdrawal is not
effective
{Vicarious Liability}
• 18 USC §2 Whoever commits an offense against the United States or aids, abets, counsels,
commands, induces or procures its commission, is punishable as a principal.
The Pinkerton Rule

• Each member of a conspiracy is liable for substantive crimes committed by co-conspirators – even
if they did not actually participate in those crimes – if the crimes were committed during the
course and in furtherance of the conspiracy, were within the scope of the conspiracy, and were
reasonably foreseeable.
29
Pinkerton v. United States p.105
Rule of Law: A defendant who conspires with another person is criminally liable for all
substantive offenses committed by the coconspirator in furtherance of the conspiracy, even if the
defendant did not know about the coconspirator’s acts and did not assist him in any manner.
Facts: Walter and Daniel Pinkerton (defendants) were brothers who lived a short distance from each other
on Daniel’s farm. The brothers were indicted for various violations of the Internal Revenue Code involving
the unlawful possession, transportation, and sale of whiskey. The proof presented at trial demonstrated that
Daniel and Walter had agreed to commit the crimes, but the government’s evidence demonstrated that it
was Walter alone who committed the substantive offenses without any assistance from Daniel. The court
instructed the jury that Daniel could be convicted of the substantive offenses committed by Walter if Walter
did them in furtherance of the conspiracy. The jury found Walter guilty on nine of the substantive counts
and on the conspiracy count, and the jury found Daniel guilty on six of the substantive counts and on the
conspiracy count. Each brother was fined and sentenced to terms of imprisonment. Walter and Daniel
appealed, and their convictions were affirmed by the circuit court of appeals. The United States Supreme
Court granted certiorari to review.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Is a defendant who conspires with another person criminally liable for all substantive offenses
committed by the coconspirator in furtherance of the conspiracy, even if the defendant did not know about
the coconspirator’s acts and did not assist him in any manner?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Douglas, J.): Yes. If two or more individuals conspire to commit illegal acts, the
criminal intent to commit the substantive offenses has been achieved, regardless of who actually commits
the illegal substantive offenses. Further, the conspiracy is ongoing until one of the coconspirators
affirmatively withdraws from it. Until a conspirator does some act to disavow the conspiracy or defeat the
conspiracy’s purpose, he continues to be a part of the conspiracy. Therefore, the ongoing conspiracy is
attributable to all coconspirators until one intentionally removes himself from it. In this case, there is no
evidence that Daniel directly participated in the commission of the substantive offenses. However, the
evidence shows that the illegal acts committed by Walter were done in furtherance of an unlawful agreement,
i.e., conspiracy, between Walter and Daniel. Daniel argues that his alleged participation in a conspiracy is
not enough to sustain his conviction on the substantive offenses even though they were committed by Walter
in furtherance of the conspiracy. However, the unlawful agreement between Daniel and Walter
contemplated precisely what was subsequently accomplished. The acts were done in execution of the
conspiracy. An overt act is an essential ingredient of the crime of conspiracy. If that act can be supplied by
one conspirator, there is no reason why other acts in furtherance of the conspiracy cannot be equally
attributable to other members of the conspiracy. The judgments of conviction are affirmed.
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Rutledge, J.): The judgment of conviction against Daniel should be reversed. There is no evidence
to establish that Daniel participated in, or aided and abetted Walter in, the commission of the substantive
offenses. In fact, Daniel was in prison when some of the crimes were committed by Walter. The majority
has created a dangerous precedent that allows an ignorant and passive member of a conspiracy to be
convicted of all substantive crimes committed by a coconspirator in furtherance of the conspiracy. Further,
the majority’s holding is not consistent with what Congress intended in its enactment of the laws about
conspiracy and aiding and abetting. Those are distinct classes of crimes, and the majority has wrongly
allowed a defendant to be convicted of substantive offenses, which the defendant did not aid or abet, based
on a mere conspiratorial agreement.
Notes: The model penal code rejected the Pinkerton rule and several states have also rejected Pinkerton
liability.
30
Class 9: 9/ 23 Case Evaluation Exercise: Review of Corporate Criminality, Mail and Wire Fraud,
and Conspiracy.
Class 10: 9/28 Public Corruption: Bribery and Gratuities

Chap. 7, pp. 279-295
McDonnell v. U.S., 136 S.Ct. 2355 (2016)
18 U.S.C. 201
18 U.S.C. 1951
Bribery – 18 U.S.C. 201(b)

1) A “public official;”
2) Corruptly;
3) Demands, seeks, receives, accepts, or agrees to receive and accept, something of value;
4) In exchange for being influenced in the performance of an official act, or for being induced to do
or omit to do an act in violation of his/her official duty, or for being influenced to commit a fraud
against the U.S.
• (also applies to person who gives the bribe)
Gratuities – 18 U.S.C. 201(c)

1) A “public official;”
2) Knowingly and willfully;
3) Demands, seeks, receives, accepts, or agrees to receive and accept, something of value;
4) For or because of any official act performed or to be performed.
• (also applies to person who gives the gratuity)
Bribe or Gratuity?
• Key to bribery is the corrupt intent to influence
o Intent to influence or be influenced, changing the official’s behavior somehow
• A gratuity can be an after-the-fact payment; no need to prove the official was influenced or
induced to do anything
• A bribe says “please,” a gratuity says “thank you.”
Bribery (18 U.S.C. § 201(b)) Gratuity (18 U.S.C. § 201(c))

Corrupt intent to influence Can be after-the-fact payment, no need to
prove official was influenced or induced to
do anything
Quid Pro Quo YES required Quid Pro Quo NOT required
“Please” “Thank you”
Timing of intent to pay occurs before Usually occurs after the official act, could be
official act before
May be received personally or on behalf of Must be received personally
“any other person or entity”
15-year penalty, fine up to 3x monetary 2-year penalty + fine
equivalent of bribe, and disqualification
from any federal office
Must be linked to specific act, not just Must be linked to a specific act, not just
currying favor currying favor
31
“Public Official”
Public Official for all of §201 (for both bribery and gratuity)
• Defined in 201(a)(1): include members of Congress and officers, employees, and other persons
“acting for or on behalf of the US, or any department, agency or branch of government thereof in
any official function
• Applies only to public officials, not to private commercial bribery/gratuity
• Public official includes
o Federal employees
o State employees
o Private individuals administering federal programs or funds, or who “occupy position of
public trust with federal responsibilities
• Federal money not required (but it helps – not enough to just say you are associated with an
institution that gets federal money)
• Explicitly covers employees of DC, in addition to federal employees
• It is not enough to be an employee of an institution that is getting federal funds to be a federal
public official
o Dixson says you have to focus on what particular individual is actually doing (nature of the
duties you are carrying out)
§ To determine whether any particular individual falls within “persons performing
activities for or on behalf of the US,” the proper inquiry is whether the person
occupies a position of public trust with official federal responsibilities
o Ex: State and local prison guards who are guarding federal prisoners on k from the federal
government are considered public officials
Level of Intent: “Corruptly” (for bribery; hard to prove)

• Bribery requires a “corrupt” intent; gratuities does not
• Corrupt intent is defined as acting with the intent to influence, or to be influenced in, the
performance of official acts.
“Thing of value”: (both bribery and gratuity requirement)

• Very broadly defined, to include almost anything of subjective value to the recipient.
• Note that a bribe may be received personally or on behalf of “any other person or entity;” a
gratuity must be received “personally.”
“Official Acts”
• Bribe or gratuity must be connected to an “official act” as defined in the statute; Section 201 is not
a general ban on public officials receiving outside income or cashing in on government
connections
Sun-Diamond
Held that both bribery and gratuities require a link to a specific official act
Rejected the theory of a “status gratuity” or “currying favor gratuity”
32
{Public Official}
Dixson v. United States cb. 281
465 U.S. 482, 104 S. Ct. 1172 (1984)
(HUD Block Grants)
Rule of Law: To be a public official under §201(a) an individual must possess some degree of official
responsibility for carrying out a federal program or policy.
Facts: The City of Peoria received two federal block grants from the United States Department of Housing
and Urban Development. The city then designated a community-based social service organization to be the
city's subgrantee in charge of administering the federal block grant funds. The organization subsequently
hired petitioners to act as officers in charge of administering the programs. Later, a federal grand jury named
the petitioners in an indictment which charged that as "public officials" under 18 USCS 201(a) they had
sought a series of bribes in return for being influenced in regard to awarding housing rehabilitation contracts
in violation of 18 USCS 201(c)(1), (2). Before trial, the petitioners moved to dismiss the indictment on the
ground that they were not "public officials" within the meaning of the federal statute. Their motions were
denied, and they were convicted as charged and sentenced following a jury trial in the United States District
Court for the Central District of Illinois. The petitioners appealed, but the United States Court of Appeals
for the Seventh Circuit affirmed the decision.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Were the officers of a private, non-profit corporation administering and expending federal
community development block grants “public officials” for the purposes of the federal bribery statute?
-------------------------------------------------------------------------------------------------------------------------------
Holding: Yes. The Court held that the petitioners were "public officials" within the meaning of 18 USCS
201(a), and therefore were subject to prosecution under the federal bribery statute, since any person
occupying a position of public trust with official federal responsibilities was a "public official" under 201(a),
a contract or agency relationship with the United States not being necessary, and the two officers held such
a position by virtue of their operational responsibilities for administering the program, of their having been
charged with abiding by federal guidelines, and of their having accepted responsibility for distributing the
funds. The United States Supreme Court agrees that 18 U.S.C.S. § 201(a) is accurately characterized as a
comprehensive statute applicable to all persons performing activities for or on behalf of the United States,
whatever the form of delegation of authority. To determine whether any particular individual falls within
this category, the proper inquiry is not simply whether the person signs a contract with the United States or
agrees to serve as the government's agent, but rather whether the person occupies a position of public trust
with official federal responsibilities. Persons who hold such positions are public officials within the
meaning of § 201 and liable for prosecution under the federal bribery statute. Given the structure of the
Housing and Community Development Act program and petitioners’ responsible positions as
administrators of the subgrant, we have little difficulty concluding that these persons served as public
officials for purposes of 201(a). By finding petitioners to be public officials within the meaning of 201(a),
we do not mean to suggest that the mere presence of some federal assistance brings a local organization and
its employees within the jurisdiction of the federal bribery statute or even that all employees of local
organizations responsible for administering federal grant programs are public officials within the meaning
of 201(a). To be a public official under 201(a), an individual must possess some degree of official
responsibility for carrying out a federal program or policy.
-------------------------------------------------------------------------------------------------------------------------------
Dissent: the statute is too broad, and the rule of lenity should apply. Evidence of congressional intent is too
weak to meet the higher standard for resolving facial ambiguity against a defendant when interpreting a
criminal statute
-------------------------------------------------------------------------------------------------------------------------------
33
Notes:
• To determine whether any particular individual falls within “persons performing activities for or
on behalf of the US,” the proper inquiry is whether the person occupies a position of public trust
with official federal responsibilities
• 201 criminalizes offering to give or agreeing to receive something of value for any of three
purposes: (a) to influence a public official in an official act; (b) to influence a public official to
commit a fraud on the US; or (c) to induce a public official to act in violation of a lawful duty
o when the first theory is used, the government must prove the official act as an element of
the offense
§ courts broadly interpret this term, finding acts to be official even when the acts
were not formally within the public official’s duties
Mens Rea
Gratuities – 18 U.S.C. 201(c)
United States v. Sun-Diamond Growers cb. 289
526 U.S. 398, 119 S. Ct. 1402 (1999)
(illegal receipt of gratuity—trade association lobbyist)
RULE: In order to establish a violation of the "illegal gratuity statute," 18 U.S.C.S. § 201(c)(1)(A), the
government must prove a link between a thing of value conferred upon a public official, and a specific
"official act" as defined in 18 U.S.C.S. § 201(a)(3) for or because of which the gift was given.
Facts: Respondent Sun-Diamond Growers was a trade association that engaged in marketing and lobbying
activities on behalf of its member cooperatives, which were owned by approximately 5,000 individual
growers of raisins, figs, walnuts, prunes, and hazelnuts. It was alleged that respondent gave tickets, luggage,
meals, and other gratuities worth more than 5,000 to former Secretary of Agriculture Michael Espy while
two matters in which it had an interest in favorable treatment were pending before Espy. As such, the United
States charged respondent with violating the illegal gratuity statute, which made it a criminal offense for
anyone to give anything of value to a public official "for or because of any official act performed or to be
performed" by such official. The indictment, while mentioning certain matters as to which the association
allegedly had an interest in favorable decisions by Espy at the time that the association made the gifts, did
not allege a specific connection between those matters and the gratuities. Respondent therefore moved to
dismiss that charge. The United States District Court for the District of Columbia denied the motion.
Furthermore, the district court included in its instruction to the jury concerning the scope of 18 U.S.C.S. §
201(c)(1)(A), statements that it was sufficient if respondent provided the Espy with unauthorized
compensation simply because he held public office, and the government did not need to prove that "the
alleged gratuity was linked to a specific or identifiable official act or any act at all." The United States Court
of Appeals for the District of Columbia Circuit, however, reversed respondent's subsequent conviction on
the illegal gratuity charge and remanded the case for a new trial on that charge, as the court ruled that the
district court's instructions invited the jury to convict on materially less evidence than the statute demanded.
-------------------------------------------------------------------------------------------------------------------------------
Issue: does conviction under the illegal gratuity statute require any showing beyond the fact that a gratuity
was given because of a recipient’s official position?
-------------------------------------------------------------------------------------------------------------------------------
Holding: Yes. In order to establish a violation of the "illegal gratuity statute," 18 U.S.C.S. § 201(c)(1)(A),
the government must prove a link between a thing of value conferred upon a public official, and a specific
"official act" as defined in 18 U.S.C.S. § 201(a)(3) for or because of which the gift was given. “official
Acts” in this context are defined to mean any decision or action on any question, matter, cause, suit,
proceeding or controversy which may at any time be pending, or which may by law be brought before any
34
public official, in such officials official capacity, or in such officials place of trust or profit.” According to
the Court, to hold otherwise would criminalize token gifts made to public officials by special interest
groups without proof that a political favor was expected in return. The term official act could be linked to
absurd things such as when the president invites the winning sports team to the white house and they give
him a jersey, would that be an illegal gratuity, obviously not. Thus it is important to link the alleged
illegal gratuity to an “official act” in order to eliminate the absurdities through the definition of that term.
Otherwise, gifts given to recipients because of their mere tenure in office would constitute a violation.
The crime of bribery requires intent to influence an official act or to be influenced in an official act,
while the crime of illegal gratuity requires only that the gratuity be given or accepted for or because of
an official act. In other words, for bribery there must be a quid pro quo—a specific intent to give or
receive something of value in exchange for an official act. An illegal gratuity, on the other hand, may
constitute merely a reward for some future act that the public official will take and may already have
determined to take or for a past act that he has already taken.
Notes:
• Official Acts
• The CRIME in a Bribery case is the agreement
• Bribery: requires a showing that something of value was corruptly given, offered, or promised to
a public official or corruptly demanded, sought, received, accepted, or agreed to be received or
accepted by a public official with intent, inter alia, to influence an official act or in return for being
influences in the performance of an official act
• Illegal Gratuity: requires a showing that something of value was given, offered, or promised to a
public official, or demanded, sought, received, accepted, or agreed to be received or accepted by a
public official, for or because of any official act performed or to be performed by such public
official
• The distinguishing feature of each crime is its intent element
o Bribery requires intent to influence and official act or to be influenced in an official act
§ There must be a quid pro quo – a specific intent to give or receive something of
value in exchange for an official act
o Illegal gratuity requires only that the gratuity be given or accepted for or because of an
official act
§ May constitute merely a reward for some future act that the public official will take
or for a past act that he has already taken
• Proof of corrupt intent for the crime of bribery rests on the party’s understanding that the payment
was offered for a quid pro quo
McDonnell v. U.S
136 S.Ct. 2355 (2016)
(on class website--
Rule of Law: Setting up a meeting, talking to another official, or organizing an event—without

more—does not fit that definition of “official act.”
Facts: Petitioner, former Virginia Governor Robert McDonnell, and his wife, Maureen McDonnell, were
indicted by the Federal Government on honest services fraud and Hobbs Act extortion charges related to
their acceptance of $175,000 in loans, gifts, and other benefits from Virginia businessman Jonnie
Williams, while Governor McDonnell was in office. Williams was the chief executive officer of Star
Scientific, a Virginia-based company that had developed Anatabloc, a nutritional supplement made from
anatabine, a compound found in tobacco. Star Scientific hoped that Virginia's public universities would
perform research studies on anatabine, and Williams wanted Governor McDonnell's assistance in
obtaining those studies.
35
Holding/Reasoning:
• An “official act” is a decision or action on a “question, matter, cause, suit, proceeding or
controversy.” That question or matter must involve a formal exercise of governmental power, and
must also be something specific and focused that is “pending” or “may by law be brought” before
a public official. To qualify as an “official act,” the public official must make a decision or take an
action on that question or matter, or agree to do so.
• The first inquiry is whether a typical meeting, call, or event is itself a “question, matter,
cause, suit, proceeding or controversy.”
o The terms “cause,” “suit,” “proceeding,” and “controversy” connote a formal exercise of
governmental power, such as a lawsuit, hearing, or administrative determination. Although
it may be difficult to define the precise reach of those terms, a typical meeting, call, or
event does not qualify. “Question” and “matter” could be defined more broadly, but under
the familiar interpretive canon noscitur a sociis, a “word is known by the company it
keeps. Because a typical meeting, call, or event is not of the same stripe as a lawsuit
before a court, a determination before an agency, or a hearing before a committee, it does
not count as a “question” or “matter” under § 201(a)(3).
• Because a typical meeting, call, or event is not itself a question or matter, the next step is to
determine whether arranging a meeting, contacting another official, or hosting an event may
qualify as a “decision or action” on a different question or matter.
o Section 201(a)(3) states that the question or matter must be “pending” or “may by law be
brought” before “any public official.” “Pending” and “may by law be brought” suggest
something that is relatively circumscribed—the kind of thing that can be put on an agenda,
tracked for progress, and then checked off as complete. “May by law be brought” conveys
something within the specific duties of an official's position. Although the District Court
determined that the relevant matter in this case could be considered at a much higher level
of generality as “Virginia business and economic development,” Supp. App. 88, the
pertinent matter must instead be more focused and concrete.
o “on” implies resolving something
§ Here, it might be a decision or action about the issue or in relationship to it, but he
is not acting on the issue
• The question remains whether merely setting up a meeting, hosting an event, or calling
another official qualifies as a decision or action on any of those three questions or matters. It
is apparent from United States v. Sun–Diamond Growers of Cal., 526 U.S. 398, 119 S.Ct. 1402,
143 L.Ed.2d 576, that the answer is no.
o Something more is required: § 201(a)(3) specifies that the public official must make a
decision or take an action on the question or matter, or agree to do so.
o A public official is not required to actually make a decision or take an action on
a “question, matter, cause, suit, proceeding or controversy”; it is enough that he agree to do
so. Setting up a meeting, hosting an event, or calling an official (or agreeing to do so)
merely to talk about a research study or to gather additional information, however, does
not qualify as a decision or action on the pending question of whether to initiate the study.
• Court vacates Governor McDonnell's convictions.
Notes:
• A “question, matter, cause, suit, proceeding or controversy” must be relatively circumscribed
and involve a formal exercise of government power.
• A “decision or action” “on” that matter involves taking some steps to influence or resolve it, or
pressuring others to do so.
• Simply arranging a meeting or making a call will not qualify, although they may serve as
evidence of a corrupt agreement.
36
Class 11: 9/30 Public Corruption: Federal Program Bribery & Hobbs Act
Chap. 7, pp. 297-305; Chap. 8, pp. 319-320, 326-340
Ocasio v. United States, 136 S.Ct. 1423 (2016)
Federal Programs Bribery 18 U.S.C. §§ 666, 1951
Federal Program Bribery –18 U.S.C. 666

5) Defendant solicited or received a thing of value;
6) Defendant was agent of organization or agency that received > $10k/year in federal benefits;
7) Bribe was in connection with business valued at $5000 or more;
8) Defendant acted corruptly.
• (Also applies to one who paid the bribe)
18 U.S.C. 666
• Another good vehicle for targeting state and local corruption
• Note that there need not be any direct link between the federal funds and the bribe (Sabri)
• Second Circuit recently held that McDonnell does not apply to 666 (United States v. Ng Lap
Seng)
Sabri v. United States cb. 298

(The Reach of the Statute)
Rule of Law: Bribes do not need to involve the direct misuse of identified federal funding in order
to come under federal jurisdiction, it is enough that the federal funds flow from the agency or
governmental unit that is involved in the bribery.
Facts: Congress enacted 18 U.S.C. §666(a)(2) to provide federal criminal penalties for the giving and
receiving of bribes for the benefit of state, local, and tribal officials of entities that receive at least $10,000
in federal funds. Sabri (defendant), a real estate developer, bribed a Minneapolis city official on three
separate occasions in an effort to obtain permission to circumvent local licensing and zoning laws. The city
official headed a Minneapolis public community development organization, which received approximately
$23 million annually in federal funds. The United States government (plaintiff) prosecuted Sabri in district
court under 18 U.S.C. §666(a)(2) but Sabri moved to dismiss the indictment. Sabri argued that the statute
was unconstitutional because it did not require proof of a connection between the federal funds and the
alleged bribe in establishing criminal liability. The district court held for Sabri and dismissed the indictment,
but the court of appeals reversed. The United States Supreme Court granted certiorari.
-------------------------------------------------------------------------------------------------------------------------------
Issue: May Congress prohibit bribing of federal officials under its spending powers without requiring proof
of a logical nexus between federal funds and the alleged bribe?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Souter, J.): Yes. Congress has authority under the Spending Clause to
appropriate federal monies to promote the general welfare. Congress has corresponding authority under the
Necessary and Proper Clause to ensure that taxpayer dollars appropriated under that power are actually
spent for the general welfare. The Constitution does not mandate that Congress require proof of a logical
connection between the elements of a regulated offense and federal monies for the valid exercise of
Congress’s Article I powers. Bribes do not need to involve the direct misuse of identified federal
funding in order to come under federal jurisdiction, it is enough that the federal funds flow from the
agency or governmental unit that is involved in the bribery. Sabri’s argument that a logical nexus
37
between an alleged bribe and federal money is required for Congress to regulate bribes is dismissed.
Corruption committed by state and local government officials presents a sufficient threat to the general
welfare to justify congressional regulation of this activity. It is irrelevant that Congress’s regulation would
limit some corruption that did not directly impact federal money. The Necessary and Proper Clause grants
Congress broad spending powers that may be exercised to promote the general welfare in any way Congress
believes is rationally related to achieving that goal. Congress has the power to spend for the general welfare
and may enact, under the Necessary and Proper Clause, any provision rationally related to carrying out
its spending powers for the promotion of the general welfare. The power to keep a watchful eye on
expenditures and on the reliability of those who use public money is bound up with congressional
authority to spend in the first place. The decision of the court of appeals is affirmed.
-------------------------------------------------------------------------------------------------------------------------------
Concurrence (Thomas, J.): Congress must show more than a rational relationship between a statute and
the exercise of an enumerated power for it to be upheld. It is unnecessary to decide what Congress must
additionally show since the same holding can be reached under the Commerce Clause.
Chapter 8 Extortion
Extortion: The Hobbs Act – 18 U.S.C. § 1951

• Applies to robbery, extortion by force, violence, or fear, and extortion “under color of official
right.”
• Extortion Under Color of Official Right
o Elements:
1. A public official obtained property of another;
2. With consent;
3. Under color of official right;
4. Causing an effect on interstate commerce.
o “Under color of official right”
§ No “shakedown,” threat, or explicit demand by the official is required
§ “. . . The Government need only show that a public official has obtained a payment
to which he was not entitled, knowing that the payment was made in return for
official acts.” Evans v. United States
• Terms of the Hobbs Act
o Note that, unlike in 201, “public official” is not defined, and it applies to federal, state and
local officials.
o Applies to “property,” not the broader “thing of value” defined in 201
o Property is given “with consent” and must be “obtained” (not robbery)
The Color of Official Right Theory

McCormic v. United States cb. 326
(campaign contributions)
Rule of Law: A promise of official action or inaction in exchange for campaign contributions is
necessary to uphold an indictment for extortion under color of official right.
Facts: Robert McCormick (defendant) was a member of the West Virginia House of Delegates. He
sponsored and/or supported various pieces of legislation that were to help foreign doctors keep their jobs
in his state. After he did so, the doctors’ organization made donations to McCormick to help him get
reelected. McCormick never promised official action in exchange for the donations. McCormick was
38
indicted for extorting property under color of official right. The jury convicted him and the court of
appeals affirmed. The United States Supreme Court granted certiorari.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Is a promise of official action or inaction in exchange for campaign contributions necessary to
uphold an indictment for extortion under color of official right?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (White, J.): Yes. A promise of official action or inaction in exchange for
campaign contributions is necessary to uphold an indictment for extortion under color of official right. To
hold otherwise would be to completely change the norm of campaign contributions. Supporting
legislation that will help their constituents is the job of politicians. It is only normal that groups
representing those constituents will contribute to politicians’ campaign funds. Campaigns are very
expensive to run and private contributions are perfectly legal. Politicians are thus not guilty of extortion
when they receive campaign contributions unless they make a specific promise to act or not to act in
exchange for the contribution. Here, McCormick made no such promise. He sponsored legislation, but
never promised to do so in exchange for the doctors’ contributions. He can therefore not be held liable for
extortion. The court of appeals is reversed and the case is remanded.
Evans v. United States cb. 332

(does color of official right occur when the official does not initiate the transaction?)
Rule of Law: A public official who obtains a payment in exchange for an exercise of his or her
official power is guilty of extortion even if the public official did not induce the offering of the
payment.
Facts: Evans (defendant) was an elected representative of the Board of Commissioners of DeKalb County,
Georgia. The Federal Bureau of Investigation (FBI) launched an initiative to investigate public corruption
involved in the rezoning of property in DeKalb County. An FBI agent acting as a real-estate developer
spoke to Evans numerous times. In their conversations, which were all initiated by the FBI agent, the agent
asked Evans to help with rezoning a piece of land. The agent gave Evans $7,000 in cash, as well as a check
for $1,000, payable to Evans’s campaign. Evans reported the check on his disclosure form for state-
campaign financing, but Evans did not report the cash. Evans was charged with extortion in violation of the
Hobbs Act, 18 U.S.C. § 1951, which forbids affecting commerce by robbery or extortion. Extortion is
defined as obtaining property from another through inducement (1) by wrongful use of threatened force or
fear or (2) under color of official right. The trial judge instructed the jury that the solicitation of campaign
contributions by an elected official was a permissible activity, but that, if a public official demanded or
accepted money in exchange for a requested exercise of his or her official power, that conduct violated the
Hobbs Act regardless of whether the payment was made under the guise of a campaign contribution. Evans
was convicted and appealed. The court of appeals affirmed the conviction, stating that an official who
accepted payment in exchange for a specific, requested exercise of his or her official power could be
convicted without having taken any specific action to induce the offering of the payment. Evans appealed
again.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Is a public official who obtains a payment in exchange for an exercise of his or her official power
guilty of extortion even if the public official did not induce the offering of the payment?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Stevens, J.): Yes. The passive acceptance of a benefit by a public official
constitutes extortion under the Hobbs Act if the public official knows that he or she is being offered the
payment in exchange for a specific, requested exercise of his or her official power, regardless of whether
the public official did anything to induce the offer. At common law, extortion was an offense committed by
39
a public official who, under color of official title, took money that he or she was not entitled to for the
performance of his or her official duties. A demand or request by the public official was not required for a
conviction. Extortion was therefore similar to a modern-day taking of a bribe. Congress has since further
expanded the common-law definition of extortion to also include conduct by private individuals. Even
though the current statutory language is much broader than the common-law definition of extortion, the part
of the statute referring to official misconduct still matches the common-law definition. Here, the jury found
that Evans had accepted the cash from the FBI agent despite knowing that the cash was meant to ensure
Evans would vote in favor of the rezoning application. Even though Evans had not induced the transaction,
Evans’s acceptance of the bribe constituted an implied agreement to use his official power to do what the
FBI agent requested. Therefore, the jury instructions given by the trial judge were proper. Accordingly, the
judgment of the court of appeals is affirmed.
-------------------------------------------------------------------------------------------------------------------------------
Concurrence: rationale underlying the Court’s holding applies not only in campaign contribution cases,
but in all 1951 prosecutions
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Thomas, J.): Common-law extortion only encompasses wrongful takings under a false pretense
of official right, and the majority is therefore incorrect in stating that common-law extortion is equivalent
to the taking of a bribe. A public official is the only wrongdoer in the commission of extortion, because the
public official acts under color of official title. In a bribery, the payor knows that the public official is not
entitled to the payment, and both parties may thus be punished for the crime. Congress has always
distinguished between these crimes. Here, each of the conversations between Evans and the FBI agent was
initiated by the agent, who repeatedly brought up the campaign contributions. Evans accepted the money,
but there is no reason to believe that Evans claimed an official entitlement to the payment as required by
the Hobbs Act.
Notes:
• Assuming that the quid pro quo requirement applies, what is the standard for determining
whether the government has met its burden of proof?
o In McCormic the court stated that the government must prove that the defendant made an
explicit promise to engage in an official act in return for the payment
o In Evans the court said that the evidence was sufficient because the defendants acceptance
of the bribe constituted an implicit promise to use his official position to serve the interests
of the bribe-giver.
§ Some commentators have called Evans approach a watered-down version of the
McCormic quid pro quo requirement.
Ocasio v. United States

136 S.Ct. 1423 (2016)
Rule of Law: In order to establish the existence of a conspiracy to violate the Hobbs Act, 18 U.S.C.S. §
1951, the Government has no obligation to demonstrate that each conspirator agreed personally to
commit—or was even capable of committing—the substantive offense of extortion under the Hobbs
Act, 18 U.S.C.S. § 1951. It is sufficient to prove that the conspirators agreed that the underlying crime
be committed by a member of the conspiracy who was capable of committing it. In other words, each
conspirator must have specifically intended that some conspirator commit each element of the
substantive offense.
Facts: Petitioner Samuel Ocasio, a former officer in the Baltimore Police Department, participated in a
kickback scheme with the owners of a local auto repair shop. When petitioner and other Baltimore
40
officers reported to the scene of an auto accident, they persuaded the owners of damaged cars to have
their vehicles towed to the repair shop, and in exchange for this service the officers received payments
from the shopowners. Ocasio was convicted of obtaining money from the shopowners under color of
official right, in violation of the Hobbs Act, 18 U.S.C. §1951, and of conspiring to violate the Hobbs Act,
in violation of 18 U.S.C. §371. He challenged his conspiracy conviction, contending that, as a matter of
law, he cannot be convicted of conspiring with the shopowners to obtain money from them under color of
official right.
-------------------------------------------------------------------------------------------------------------------------------
Issue: In his challenge of his conspiracy conviction, was a local police officer correct when he argued that
as a matter of law he cannot be convicted of conspiring with the shop owners to obtain money from them
under color of official right?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. Under longstanding principles of conspiracy law, a defendant may be convicted of
conspiring to violate the Hobbs Act based on proof that he entered into a conspiracy that had as its
objective the obtaining of property from another conspirator with his consent and under color of official
right. A former police officer was properly convicted of conspiracy to violate the Hobbs Act, 18 U.S.C.S.
§ 1951, by routing damaged vehicles from accident scenes to an auto repair shop in exchange for
payments from the shop owners because obtaining property of another under color of official right did not
require that the payments to the officer be obtained from someone outside the conspiracy. Although the
shop owners could not act under color of official right, they were nonetheless conspirators in the extortion
scheme since they shared a common purpose with the officer to commit every element of the extortion
offense with the shop owners' consent.
-------------------------------------------------------------------------------------------------------------------------------
Concurrence: decision in Evans makes it difficult to draw a distinction between the involuntary action of
paying a bribe and the voluntary behavior of joining a conspiracy
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Stevens): the Court’s decision in Evans wrongly conflated bribery with extortion and the
majority’s opinion here continued that error. Under the Hobbs Act definition of extortion, people cannot
conspire to extort one of their own people all those involved would know that the person accepting the
money is not entitled to it
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Sotomayor): the majority opinion endorses an unnatural reading of the Hobbs Act, which clearly
criminalizes extortion “from another.” Therefore, a conspiracy to violate the Hobbs Act must still focus on
a victim that is “other” than the conspiratorial group. This reading is also consistent with the Court’s
conspiracy precedent, which focuses on the criminal behavior of the conspiratorial group as a whole
Notes:
• Supreme Court held that public officials and those paying bribes may be charged with conspiracy
to violate the Hobbs Act.
• Effectively means that those paying can be charged with conspiring to extort money from
themselves.
• Property does not need to be property of someone outside of the conspiracy
Interstate Commerce
• Hobbs Act requires the government to show an effect on interstate commerce
• Usually not much of a hurdle – effect can be minimal
• The commerce in question does not have to
Is it Bribery or Extortion?
41
• After Evans, not much difference between bribery and extortion under color of official right
o Both require a quid pro quo
o Extortion is narrower than bribery in one critical aspect – it only applies to one side of the
transaction
§ Status of those who paid: if a bribe, they are guilty; if extortion they are a victim
(coerced to pay official)
Bribery (18 U.S.C. § 201(b)) Extortion (18 U.S.C. § 1951)

Applies to payor and receiver Applies only to the public official (who is
coercing another to give money)
Payor often charged in bribery case Payor not charged, usually victim/star witness
QPQ – YES required QPQ – YES required
Essence is voluntariness Essence is duress
15-yr penalty, fine up to 3x monetary 20-yr penalty
equivalent of bribe, and DQ from any fed.
office
Only applies to fed. officials (separate state Applies to all public officials (state, federal,
laws) etc.) (hence interstate commerce req.)
**After Evans not much difference [Kennedy concurrence] so if federal official, could
apply both; but think about “victim,” are they guilty?
Class 12 10/5 The Foreign Corrupt Practices Act (FCPA)

Chap. 7, pp. 305-316, Review DOJ Fraud Section, Guide to the FCPA (link on class website)
FOREIGN CORRUPT PRACTICES ACT (FCPA)

15 U.S.C. § 78dd-I et seq.
• FCPA criminalizes commercial bribery under certain circumstances and requires publicly traded
companies to submit relevant information to the government
o Contains both anti-bribery and accounting provisions
• In general, the FCPA prohibits offering to pay, paying, promising to pay, or authorizing the
payment of money or anything of value to a foreign official in order to influence any act or
decision of the foreign official in her or her official capacity or to secure any other improper
advantage in order to obtain or retain business
• Elements government must prove:
o 1. The defendant used the mails or an instrumentality of interstate commerce in furtherance
of a payment, gift, etc. of anything of value;
o 2. The payment, gift, etc. was to a foreign official for an enumerated purpose, including
securing any improper advantage, in order to assist the corporation in obtaining or
retaining business for or with, or directing business to, any person; and
o 3. The defendant acted willfully and corruptly
• The FCPA provides for affirmative defenses if the payments were lawful under the written law of
the foreign country or the payments were a reasonable and bona fide expenditure
Wendy Wysong Lecture

Case Studies
• Societe Generale French bank bribing Libya
42
• There were meetings in the United States in Furtherance
Airbus Case
Anti- Bribery Provisions

• Defendant is an issuer a domestic concern or other
• Defendant paid offered to pay or authorized another
• (check for the others)
Limitations
• FCPA is limited to foreign officials not US official s
• And it is limited to the bribery not the person being bribed
Greece Payments
• A facilitating payment
The FCPA in Action

Business Nexus Element: the requirement that the allegedly unlawful payment be “in order to assist in
obtaining or retaining business for or with or directing business to any person.”)
United States v. Kay cb. 307

United States Court of Appeals for the Fifth Circuit, 359 F.3d 738 (2004)
(rice company bribery of Haitian officials)
Rule of Law: The Foreign Corrupt Practices Act applies broadly to prohibit payments to foreign
officials intended to directly or indirectly assist in obtaining or retaining business.
Facts: American Rice Inc. (ARI) was a United States based company that exported rice to Haiti. Kay
(defendant), an ARI officer, was indicted for violating the Foreign Corrupt Practices Act (FCPA). Kay was
charged with making payments to customs officials in Haiti to bribe them into accepting documents listing
less rice than was, in fact, being imported, so that less taxes would be due. Kay filed a motion to dismiss
the indictment for failure to state an offense, contending that payments made to officials with the intent of
reducing taxes are not payments to “obtain or retain business,” as required for a conviction under the FCPA.
The district court granted Kay’s motion. The United States appealed, arguing that the FCPA applies to
payments that indirectly assist in obtaining or retaining business.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does the Foreign Corrupt Practices Act apply broadly to prohibit payments to foreign officials
intended to directly or indirectly assist in obtaining or retaining business?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Wiener, J.): Yes. The FCPA applies broadly to prohibit payments to foreign
officials intended to directly or indirectly assist in obtaining or retaining business, including payments to
illegally reduce taxes and tariffs. A payment only violates the FCPA if it is made with the intent to assist in
getting or keeping business. This is referred to as the business-nexus requirement. Whether the business
nexus confines the FCPA to a narrow set of bribery situations requires an examination of the legislative
history. The statute’s language was based on a Securities and Exchange Commission (SEC) report, and
language from the report was used by Congress in the final FCPA statute, including the business-nexus
language. However, unlike the SEC report, which recommended that the FCPA be narrow in scope in
applying only to payments made with the intent of obtaining or retaining a government contract, Congress
wrote the FCPA to apply more broadly by prohibiting payments made with the intent of obtaining or
retaining any business, not just government contracts. By failing to use the narrow language proposed in
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the SEC report, Congress showed an intent for the FCPA to apply broadly. Congress’s intent that the FCPA
apply broadly is further supported by subsequent amendments to the statue. Here, the question is whether
the FCPA’s business-nexus requirement is met if payments are made to officials in order to have taxes
reduced. If Congress wanted to prevent the award of a contract because of the unethical competitive
advantage garnered by a bribe, it follows that Congress wanted to stop companies from winning contracts
by having a lower cost of business through bribes paid to tax officials. Bribes paid to foreign officials in
consideration for unlawful evasion of customs duties and sales taxes could fall within the purview of the
FCPA’s proscription. This conduct does not automatically constitute a violation of the FCPA: it still
must be shown that the bribery was intended to produce an effect – here, through tax savings – that
would assist in obtaining or retaining business. Thus, although payments to tax officials will not always
violate the FCPA, here, it would be a violation if it was shown that ARI intended to reduce its cost of
business by making payments to tax officials in order to maintain or increase its business in Haiti. The
district court’s motion to dismiss is reversed, and the case is remanded.
Notes:
• FCPA criminalizes payments that are intended to:
o Influence foreign official to act or make a decision in his official capacity; or
o Induce such an official to perform or refrain from performing some act in violation of his
duty; or
o Secure some wrongful advantage to the payor
o EVEN THEN the FCPA only criminalizes these kinds of payments if they are intended to
produce—their quid pro. Quo—will assist (or is intended to assist) the payor in efforts to
get or keep some business for or with “any person.”
• Willfully: as a general matter, when used in the criminal context, a willful act is one undertaken
with a bad purpose (S.Ct.)
• The FCPA defines a “foreign official” in part, as any officer or employee of a foreign government
or a department, agency, or instrumentality thereof
• There is no private right of action under the FCPA
Class 13: 10/7 Public Corruption

Case Studies: Jack Abramoff, Duke Cunningham, & Robert Menendez
Abramoff
Casino jack movie
Cunningham Case
• Most brazen public corruption case in recent memory
• Jack Abramoff: Was a lobbyist. The facts sound like bribery. Abramoff & associates giving
things of value to public officials. There were a number of Native American tribes paying him to
lobby for their interests. He convinced a number of those tribes that he was the go to guy and
charged them ridiculous $$ for little to no work. Also pushed the tribes to hire his friend’s firm for
“grassroots” lobbying + kickback back to Abramoff
• Duke Cunningham: He was basically just giving out defense contracts to the highest bidder.
There was a company struggling until they met him. Gifts were very generous: antique
furnishings, lots of cash, little attempt to hid, launder $$ through his private company, his Rolls
Royce, his board à pretty straight forward when it comes to quid pro quo. All came to light when
44
there was a plan where the contractor bought the house and then put it back on the market –
clearly just a payoff. Led to investigation which uncovered all of the other stuff
• Robert Menendez: Senator Menendez was indicted for bribery charges from doctor in Florida –
accepted free trips, private jet rides, commercial jets, campaign contributions
Class 14: 10/12 Securities Fraud – Insider Trading

Chap. 5, pp. 194-224
Salman v. United States, 137 S.Ct. 420 (2016)
15 U.S.C. § 78j(b)
17 CFR § 240.10b-5
Statutes
Criminal Provisions Used for Securities Fraud
• 15 U.S.C. 78j – prohibits “manipulative or deceptive” practices in connection with the purchase or
sale of a security, in violation of SEC rules.
• SEC Rule 10b-5 – prohibits any scheme or artifice to defraud or fraudulent act or course of
conduct, in connection with purchase or sale of a security
o Rule 10b5-1: defines trading on basis of material nonpublic information
§ Presumption that if you got it and you trade then it was on the basis of the
information that you made the trade
o Rule 10b5-2: defines relationships that will give rise to a duty of trust and confidence for
purposes of misappropriation theory
• Penalties: 20 years and $5 million fine for individuals; $25 million fine for organizations
(increased by Sarbanes-Oxley Act)
New Statute: 18 U.S.C. 1348 (added by Sarbanes-Oxley)

• Prohibits knowingly executing, or attempting to execute, a scheme or artifice –
o To defraud any person in connection with any security regulated by the SEC; or
o To obtain, by means of false or fraudulent pretenses, representations, or promises, any
money or property in connection with the purchase or sale of any security
• Penalty: up to 25 years in prison
• Eliminated need to use mail or wire fraud for securities fraud schemes and eliminated need for
fraud scheme to be in connection with purchase or sale of securities
Willfulness
• Proof of willfulness distinguishes criminal from civil securities law violations
• Does not require proof that defendant knew actions were against the law
• Courts differ on the exact definition of “willfulness;” generally means acting intentionally and
deliberately, not accidentally or inadvertently
Insider Trading
• An individual’s purchase or sale of securities on the basis of material, nonpublic information, in
breach of the individual’s fiduciary duty or a similar duty of trust and confidence.
• Key requirement is the violation of a duty of some kind -- liability does not arise merely from the
possession of material, non-public information
In Each Insider Trading Case you must determine:

1. To whom the defendant owed a duty
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2. The theoretical traditional and or misappropriation theory – basis for that duty
3. The company the stock of which was traded
4. The harm that flowed from the trading
Insider Trading
• Two different, overlapping, definitions of insider trading:
o Under the traditional/classical theory, a corporate employee or agent – the insider – takes
information from the corporation and uses the information to trade in the corporation’s
stock in violation of a duty to that corporation and its shhs
§ Applies to (1) officers and employees of that corporation (insiders), and (2) outside
lawyers, accountants, and others who work for the corp on a temporary basis
(quasi/temporary insiders)
o The broader misappropriation theory applies to anyone who steals confidential information
in violation of a duty and uses the information to buy or sell securities
§ Would apply to a reporter who stole confidential info from a financial magazine
prior to publication and then traded on that information
• The Elements of Insider Trading: the government must prove that:
o 1. The defendant bought or sold securities;
o 2. The defendant –
§ (a) was an insider of the company the securities of which were traded;
§ (b) was a temporary insider of the company the securities of which were traded;
and/or
§ (c) was a misappropriator of information from a person or entity to whom the
defendant owed a fiduciary duty à to whom did D owe a duty?
® To shh based on corporate position (directors, officer, controlling shh)
® To shh based on position just for particular transaction (attorney, auditor)
® To source of information because entrusted with information à
misappropriation theory
o 3. The defendant knowingly possessed material, nonpublic information; and
o 4. The defendant acted willfully (intentionally and deliberately)
• It is critical to identify precisely: (a) to whom the defendant owed a duty; (b) the theoretical –
traditional and/or misappropriation theory – basis for that duty; (c) the company the stock of
which was traded; and (d) the harm that flowed from the trading
Two Theories of Insider Trading

1) “Classical” theory
2) Misappropriation theory
Classical or Traditional Theory

• A corporate “insider” (officer, director, controlling shareholder) uses material, nonpublic
information to trade in the corporation’s stock, in violation of fiduciary duty to the shareholders
with whom the insider transacts.
• Note that some individuals who are normally "outsiders" (attorneys, auditors, etc.) may become
"insiders" with respect to a particular transaction or item of information, if they are expected to
keep the information confidential (Dirks fn. 14)
Misappropriation Theory
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• An individual misappropriates confidential information for securities trading purposes, in breach
of a duty owed to the source of the information (not to the stockholders with whom he/she is
transacting). O’Hagan
• First suggested by C.J. Burger in dissent in Chiarella; also a theory used in Carpenter
Classical vs. Misappropriation Theory

• Classical: A person is guilty of securities fraud by trading on information in breach of a duty
owed directly to the company whose securities he traded. If he took the information from someone
else, even In breach of a duty he is free to trade.
• Misappropriation: A person violates Rule 10b-5 by trading securities on the basis of material
nonpublic information in breach of a duty of trust or confidence that he owed to the source of the
information.
Two Kinds of Information

• True “inside” information: information about the company’s business or internal operations
(upcoming new product, earnings, dividends, financial information, etc.) [Dirks]
• “Market” information: information that will affect the market for the securities (company will be
the subject of a tender offer or a favorable review in financial press, etc.) [Chiarella, Carpenter,
O’Hagan]
The Traditional Theory

Chiarella v. United States cb. 195
(first case decided on insider trading theory—the court adopted Burgers theory later)
Rule of Law: An allegation of securities fraud based upon nondisclosure of information will not
succeed unless there is a duty to speak.
Facts: Chiarella (defendant) was an employee for a printing company that handled documents concerning
corporate takeovers. The companies to be acquired were redacted until the final draft of the takeover
agreements. In one instance, Chiarella was able to discover the companies involved in a takeover bid
through the information provided in the draft takeover agreement. He then traded on this information, which
was not public, and enjoyed earnings of $30,000. When it was discovered he was trading on nonpublic
information, the United States (plaintiff) brought charges against him for violation of § 10(b) of the
Securities Exchange Act of 1934, prohibiting fraud in the purchase or sale of securities, based on Chiarella's
nondisclosure of information. At trial, Chiarella testified that the information he used in the stock trading
was confidential, and that he obtained the information by deciphering the documents that the companies
had provided to his employer. The trial court instructed the jury, among other things, that the jury must
decide whether Chiarella used material nonpublic information to which he knew other people in the
securities-trading market did not have access. A jury convicted Chiarella of insider trading, and the court
of appeals affirmed Chiarella’s conviction. The United States Supreme Court granted Chiarella's petition
for certiorari.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Will an allegation of securities fraud based upon nondisclosure of information succeed if there is no
duty to speak?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Powell, J.): No. There is no general duty that all participants in a stock transaction
must refrain from taking actions based on material, nonpublic information. Rather, an allegation of
securities fraud based upon nondisclosure of information will not succeed unless there is a duty to
speak. A duty to speak arises from a fiduciary or other trusting relationship between the parties. For instance,
47
there is a relationship of trust and confidence between a corporation's insiders (e.g., officers, directors, or
controlling shareholders) and the corporation's shareholders, and the corporate insider has a duty to disclose
based on this relationship to avoid taking advantage of uninformed minority shareholders. If the purchaser
of stock has no fiduciary relationship or insider status with respect to the seller, there is no duty of disclosure.
A duty to disclose before trading under Section 10(b) does not arise from the mere possession of
nonpublic market information. In this case, Chiarella was not a corporate insider of the companies in
which he traded stock, and he received no confidential information from the companies. Moreover, he was
a total stranger to the sellers. There was thus no fiduciary relationship between Chiarella and the sellers,
and he had no duty to disclose the information in his possession prior to executing his trades. The jury was
not given any instructions regarding an affirmative duty to disclose; the jury was simply instructed to
determine whether Chiarella used nonpublic information to which he knew not everyone in the market had
access. This effectively imposed a duty of disclosure on Chiarella to the entire securities market, which was
incorrect. Because Chiarella had no duty to disclose the information in his possession, he cannot be found
guilty of insider trading. The judgment of the court of appeals is reversed.
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Blackmun, J.): Chiarella's conduct violates § 10(b) even without relying on the theory that he
misappropriated the information. He clearly was not supposed to use the information he learned in his job
for trading purposes, and Chiarella himself admits that his actions were wrong. However, even if Chiarella
had engaged in the same conduct with his employer's approval, this would still violate the securities laws.
Chiarella had in his possession confidential information that the average investor would have no way of
knowing. At common law, these types of "special facts" would give rise to a duty to disclose if the
transaction would be unfair without their disclosure. Cases from both the Securities and Exchange
Commission and the courts have utilized this special-facts reasoning and looked to the possession and
misuse of secret information as a key component of insider-trading liability. By holding that a duty to
disclose under § 10(b) only arises if there is a confidential or fiduciary relationship between the parties, the
majority both downplays these decisions and overlooks that the purpose of the securities laws was to ensure
fairness in securities transactions. Here, Chiarella had access to secret information, he knew nobody else in
the market had access to the information, and he used the information to his advantage in the trading.
Chiarella's trading was unfair in violation of the statute, and his conviction should be affirmed.
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Burger, C.J.): It is true that there is no duty to disclose information in an arms-length commercial
transaction, absent a fiduciary or other confidential relationship between the parties to the transaction.
However, if someone has misappropriated nonpublic information, the standard should be that the person
has an absolute duty either to disclose the information or choose not to trade. The language and legislative
history of § 10(b) supports this framing of the rule. The law is aimed at preventing "undue" trading
advantages among investors; it is not limited only to corporate insiders or corporate information. Trading
on the basis of misappropriated nonpublic information is an "undue" advantage within the scope of the law.
The jury instructions in this case can fairly be read to require misappropriation of the information as an
element of the offense, and even assuming the instructions did not sufficiently charge misappropriation,
this error is harmless. Chiarella testified that the information he used was confidential and that he obtained
it by deciphering the confidential documents trusted to his employer. Chiarella misappropriated the
information and used it to his advantage in the purchase of the stock. Accordingly, his conviction should
be affirmed.
Notes
• Here the court held that the Affirmative duty to speak arises only from a fiduciary duty or other
relationship of trust. This affirmative duty has traditionally been applied to:
o Corporate insiders
o Officers
o Directors
o Controlling stockholders
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• 20 years later in O’Hagan the court adopted Chief Justice Burger’s Misappropriation Theory
The Misappropriation Theory

United States v. O’Hagan cb. 203
(this case rejects the classical theory—Misappropriation Theory)
Rule of Law:
1. A person is guilty of securities fraud when he misappropriates confidential information for
securities trading purposes, in breach of a duty to the source of that information.
2. SEC Rule 14e-3 is a proper use of the SEC’s rulemaking authority and should be given
deference.
Facts: James O’Hagan (defendant) was a partner in the law firm that represented Grand Metropolitan PLC
in its tender offer of Pillsbury Company (Pillsbury) common stock. The possibility of the tender offer was
confidential and not public until the offer was formally made by Grand Met. However, during the time
when the potential tender offer was still confidential and nonpublic, O’Hagan used the inside information
he received through his firm to purchase call options and general stock in Pillsbury. Subsequently, after the
information of the tender offer became public, Pillsbury stock skyrocketed and O’Hagan sold his shares,
making a profit of over $4 million. The Securities and Exchange Commission (SEC) initiated an
investigation into O’Hagan’s transactions and brought charges against O’Hagan for violating § 10(b) and §
14(e) of the Securities Exchange Act. The trial jury convicted O’Hagan, but the United States Court of
Appeals for the Eighth Circuit reversed on the grounds that violation of SEC Rule 10b-5 cannot be grounded
in the misappropriation theory of insider trading. The United States Supreme Court granted certiorari.
-------------------------------------------------------------------------------------------------------------------------------
Issue: 1. Is a person guilty of securities fraud when he misappropriates confidential information for
securities trading purposes, in breach of a duty to the source of said information?
2. Is SEC Rule 14e-3, creating a duty to disclose or abstain from trading on information that is obtained
from an insider, a proper use of the SEC’s rulemaking authority that should be given deference?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Ginsburg, J.):
1. Yes. A person is guilty of securities fraud when he misappropriates confidential information for securities
trading purposes, in breach of a duty to the source of the information. Under the misappropriation theory of
insider trading, an individual misappropriates material nonpublic information for the purposes of trading,
in breach of a fiduciary duty to the source of the information. This is in contrast to the classical theory of
insider trading where a corporate insider misappropriates material nonpublic information for the purposes
of trading, in breach of a fiduciary duty to the shareholders of the corporation itself. Insider trading under
the misappropriation theory satisfies SEC Rule 10b-5’s requirements of fraudulent practices because
individuals who engage in such misappropriation clearly use deceptive practices in connection with
the purchase of securities. Such individuals “deal in deception” by feigning loyalty to the principal while
using confidential information to purchase stocks—a clear violation of Rule 10b-5. In this case, the
misappropriation theory applies because O’Hagan violated a fiduciary duty to his law firm and Grand Met
(i.e., the sources of the information), not Pillsbury, the trading party in which he bought the stock. This
deceptive misuse of confidential information in order to purchase stocks constitutes a violation of Rule 10b-
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5. Therefore, O’Hagan breached his duty, and his conviction should be upheld. The judgment of the court
of appeals is reversed.
2. Yes. SEC Rule 14e-3, which creates a duty to disclose or abstain from trading on information that is
obtained from an insider, is a proper use of the SEC’s rulemaking authority and should be given deference.
O’Hagan’s conviction based on violation of Rule 14e-3 should not have been vacated because the SEC’s
creation of this rule was proper. The SEC is permitted to prohibit acts if the intent is to prevent fraudulent
acts, and if the prohibition is reasonably designed to prevent these acts. The SEC will be granted deference
in its prohibition of certain acts as long as the prohibition is not arbitrary, capricious, or contrary to statute.
In regard to Rule 14e-3, the SEC has created a reasonable rule in which fraud is prevented by prohibiting
trades based on the acquisition of inside information. The SEC is well within its authority to prohibit trades
that may be fraudulent. Since the rule is proper, O’Hagan may be found guilty of violating the rule. The
judgment of the court of appeals is reversed.
-------------------------------------------------------------------------------------------------------------------------------
Concurrence/Dissent (Thomas, J.): The use of nonpublic information to trade securities does not, by itself,
violate Rule 10b-5. The violation is the use of fraud in connection with the transaction. Here, O'Hagan's
misconduct did not occur "in connection with the purchase or sale of any security," as required by Rule
10b-5. Once O'Hagan learned of the potential tender offer, he could have done many things with that
information that would not have violated Rule 10b-5. He could have sold the information, he could have
kept the information for himself, or he could have given Pillsbury the information. The fact that O'Hagan
ultimately used the information to purchase securities does not establish a necessary connection between
the misappropriation of the information and the securities transaction.
Notes:
• To establish a criminal violation under 10b-5:
o the government must prove that a person willfully violated the provision
o A person cannot be imprisoned if they can prove that they did not know about Rule 10b-5
• The misappropriation theory is thus designed to protect the integrity of the securities markets
against abuses by outsiders’ to a corp who have access to confidential information that will affect
the corporation’s security price when revealed, but who owe no fiduciary or other duty to that
corp’s shhs
• Full disclosure forecloses liability under the misappropriation theory: because the deception
essential to the misappropriation theory involves feigning fidelity to the source of information,
there is no deceptive device and thus no section 10(b) violation – although the fiduciary-
turned0trader may remain liable under state law for breach of a duty of loyalty
• The misappropriation theory does not catch all conceivable forms of fraud involving confidential
information; rather, it catches fraudulent means of capitalizing on such information through
securities transactions
• Misappropriation at issue here was properly made the subject of 10(b) charge because it meets the
statutory requirement that there be deceptive conduct in connection with securities transactions
• The “in connection with” requirement: majority concludes that one who embezzles an
employer’s money to use in trading securities has not committed insider trading, while one who
steals an employer’s confidential information for such use has committed insider trading
• After this line of cases the SEC adopted 10b5-2 to try and define when a duty arises (p. 212)
Rule 10b5-2: Duties of trust or confidence in misappropriation insider trading cases – attempts to define
the fiduciary duties that may give rise to misappropriation liability: for purposes of this section, a “duty of
trust or confidence” exists in the following circumstances, among others:
• (1) Whenever a person agrees to maintain information in confidence;
50
• (2) Whenever the person communicating the material nonpublic information and the person to
whom it is communicated 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; or
• (3) Whenever a person receives or obtains material nonpublic information from his or her
spouse, parent, child, or sibling; provided, however, that the person receiving or obtaining the
information may demonstrate that no duty of trust or confidence existed with respect to the
information, by establishing that he or she neither knew nor reasonably should have known that
the person who was the source of the information expected that the person would keep the
information confidential, because of the parties' history, pattern, or practice of sharing and
maintaining confidences, and because there was no agreement or understanding to maintain the
confidentiality of the information.
“Tipper/Tippee” Liability
• One who receives a “tip” concerning inside information is liable for insider trading if the tipper
was in violation of a fiduciary duty when disclosing the information, and the tippee knew or had
reason to know of that violation.
• Insider violates fiduciary duties by “tipping” if the insider will benefit personally, either directly or
indirectly, from the disclosure (Dirks)
Dirks v. Securities and Exchange Commission cb. 215

(Tipper v. Tippee Liability)
Rule of Law: A breach of an insider’s fiduciary duty must occur before a tippee inherits the duty
to disclose inside information. Thus, a tippee assumes a fiduciary duty to the shhs of a corp not to
trade on material nonpublic info only when the insider has breached his fiduciary duty to the shhs
by disclosing the info to the tippee and the tippee knows or should know that there has been a
breach
Facts: Ronald Secrist, a former officer of Equity Funding of America (Equity Funding), told Raymond
Dirks (defendant) that Equity Funding’s assets were exaggerated due to fraudulent corporate practices.
Secrist told Dirks to verify the fraud and publicly disclose it. Dirks investigated Equity Funding and over
the course of his investigation, he discussed his findings with various investors, including some investors
who had stock in Equity Funding and who sold the stock after they spoke with Dirks. As a result of the
stock sales, Equity Funding’s stock fell abruptly and the SEC opened an investigation. The SEC found that
Dirks aided and abetted insider trading in violation of SEC Rule 10b-5. The court of appeals affirmed. Dirks
appealed.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does a tippee violate a fiduciary duty to the shareholders of the corporation on which he received a
tip if the insider from whom he received the tip did not receive a benefit of any kind from giving the tip?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Powell, J.): No. A tippee assumes a fiduciary duty to the shareholders of the
corporation not to trade on the material nonpublic information only when the insider giving the tip has
breached his fiduciary duty to the shareholders by disclosing the information to the tippee, and the tippee
knows or should know that there has been a breach. An insider breaches that duty only if he gives the
information to the tippee in order to personally benefit, directly or indirectly, from his disclosure. Where
the insider does not violate any fiduciary duty, the tippee cannot be deemed to violate a fiduciary duty either.
In the instant case, Secrist’s motivation in telling Dirks about the fraud within Equity Funding was for the
purpose of exposing the fraud, not to benefit personally in any way. Therefore, because Secrist in fact did
51
not benefit either directly or indirectly from telling Dirks, he did not violate a fiduciary duty to the Equity
Funding shareholders. Consequently, Dirks did not violate any resulting fiduciary duty to the Equity
Funding shareholders. The court of appeals is reversed.
-------------------------------------------------------------------------------------------------------------------------------
Dissent: it appears that Dirk’s knowledge of this breach makes him liable as a participant in the breach
after the fact
• The fact that the insider himself does not benefit from the breach does not eradicate the shh’s
injury. it makes no difference to the shh whether the corporate insider gained or intended to gain
personally from the transaction; the shh still has lost because of the insider’s misuse of nonpublic
information
• The duty is addressed not to the insider’s motives, but to his actions and their consequences on the
shh. Personal gain is not an element of the breach of this duty
• Secrist violated his duty to Equity Funding shhs by transmitting material nonpublic info to Dirks
with the intention that Dirks would cause his clients to trade on that info. Dirks, therefore, was
under a duty to make the information publicly available or to refrain from actions that he knew
would lead to trading
Notes:
• Willfulness requirement: court said that, if a tippee knows or should know of the breach of
fiduciary duty, then the tippee can be liable
• A duty to disclose arises from the relationship between parties and not merely from one’s ability
to acquire information because of his position in the market
• Dirks established that a tippee’s liability is derivative of a tipper’s breach of fiduciary duty and that
the tipper breaches that duty only if the tipper receives personal benefit from sharing the information.
The tippee is liable only if the tipee knew or should have known of the tippers breach whether the
tipper received personal benefit from the disclosure is a question of fact
o A corporate insider breaches the fiduciary duty to shareholders if the nsider receives direct
or indirect personal benefits from the disclosure
• Providing confidential information to a family member for trading purposes is sufficient to
constitutes a breach of fiduciary duty—Newman case said different
** Note Case—United States v. Newman

A tipper only breaches a fiduciary duty if he or she expects something of monetary value in exchange
for information.
United States Court of Appeals for the Second Circuit 773 F.3d 438 (2014)
Rule of Law: To sustain a conviction for insider trading against a tippee, the government must
prove that the tippee knew that an insider disclosed confidential information in exchange for a
personal benefit.
Facts: Financial analysts at various firms obtained non-public information from corporate insiders. The
analysts knew the insiders as family friends, casual acquaintances, or fellow business school alumni. With
one exception involving the mutual sharing of career advice, the insiders received nothing in exchange for
their disclosures to the analysts. Todd Newman and Anthony Chiasson (defendants) were fund managers
several levels removed from the disclosing corporate insiders. They received and traded on the inside
information. The U.S. government (plaintiff) charged Newman and Chiasson with securities fraud. The
district court instructed the jury that, in order for it to reach a guilty verdict, the defendants had to have
known that the corporate insiders disclosed material, non-public information. Newman and Chiasson were
convicted. They appealed, arguing that the jury instructions were improper and that the government had
52
failed to prove that they knew that the corporate insiders had obtained a personal benefit in exchange for
their disclosure.
-------------------------------------------------------------------------------------------------------------------------------
Issue: To sustain a conviction for insider trading against a tippee, must the government prove that the tippee
knew that an insider disclosed confidential information in exchange for a personal benefit?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Parker, J.): Yes. To sustain a conviction for insider trading against a tippee, the
government must prove that the tippee knew that an insider disclosed the confidential information and that
he did so in exchange for a personal benefit. This is the same standard as is applied to a tipper. A tippee’s
liability is derived from the tipper’s breach of fiduciary duty, and the tippee must have knowledge of each
element of the tipper’s breach. A receipt of personal benefits in exchange for disclosure of information is a
necessary element of a tipper’s breach. If a tippee does not know that the tipper received a personal benefit
in exchange for information, then the tippee cannot know that the tipper has breached his or her fiduciary
duty. If the tippee did not know about the tipper’s breach, then the tippee is not guilty. In this case, the
district court erred because its jury instructions did not require Newman and Chiasson to have knowledge
of the corporate insiders’ receipt of personal benefit in exchange for their disclosure. No reasonable jury
could find that Newman and Chiasson had such knowledge, because there was not sufficient evidence that
the insiders received any personal benefit in exchange for their disclosure. The insiders mostly had casual
relationships with the analysts. Even the career advice received in one instance is not sufficient to constitute
the personal benefit necessary to maintain a securities fraud claim. This advice was what any analyst might
give a fellow alumnus without the exchange of any insider information. Moreover, the government also
failed to prove that Newman and Chiasson knew that the information originated from corporate insiders in
the first place. In sum, Newman and Chiasson did not have the intent to commit insider trading. The
convictions are reversed.
Notes:
• Required proof as to the tippee’s mens rea: without establishing that the tippee knows of the
personal benefit received by the insider in exchange for the disclosure, the government cannot
meet its burden of showing that the tippee knew of a breach
• Meaning of a tipper’s personal benefit: personal benefit is broadly defined to include not only
pecuniary gain, but also any reputational benefit that will translate into future earnings and the
benefit one would obtain from simply making a gift of confidential information to a trading
relative or friend
o This requires evidence of a relationship between the insider and the recipient that suggests
a quid pro quo from the latter, or an intention to benefit the latter
Note on SEC Rule 10b5-1: in the insider trading context, a person has traded “on the basis” of inside
information when the person was “aware” of the info when making the purchase or sale.
• The rule provides an affirmative defense where the person making the purchase or sale
demonstrates that, before becoming aware of the info, the person had (a) entered into a binding k
to purchase or sell the security, (b) instructed another person to purchase or sell the security for the
instructing person’s account, or (c) adopted a written plan for trading securities
“Benefit” to the Insider

• Supreme Court in Salman confirmed that benefit to tipper could include intangible benefit that
comes from making a gift to friends or family
• Rejected 2d Circuit Newman test requiring an exchange that is consequential and represents
potential pecuniary gain
• Future cases are likely to focus on the purpose of the tip – was it for a corporate purpose or
personal?
53
Salman v. United States
United States Supreme Court 137 S. Ct. 420 (2016)
Rule of Law: A tippee is liable for securities fraud if the tipper breaches a fiduciary duty by making
a gift of confidential information to a trading relative or friend.
Facts: Maher Kara (Maher) was an investment banker for Citigroup. Maher gave inside information to his
brother, Michael Kara (Michael). Maher knew that Michael would trade on the information. Maher loved
his brother and testified at trial that he gave Michael the information to help him. In addition to trading on
this information himself, Michael gave the information to his friend Bassam Salman (defendant), who also
traded on the inside information. At trial, Michael testified that Salman knew the inside information was
coming from Maher. Salman made over $1.5 million in profits using the inside information. A jury in the
United States District Court for the Northern District of California convicted Salman of securities fraud.
The United States Court of Appeals for the Ninth Circuit affirmed. The United States Supreme Court
granted certiorari.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Is a tippee liable for securities fraud if the tipper breaches a fiduciary duty by making a gift of
confidential information to a trading relative or friend?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Alito, J.): Yes. A tippee is liable for securities fraud if the tipper breaches a
fiduciary duty by making a gift of confidential information to a trading relative or friend. Generally, a tippee
is liable for securities fraud based on insider trading if the tipper personally benefits from the disclosure of
the inside information. A tipper personally benefits from a gift of the inside information if the gift is made
to a trading relative or friend because, absent the gift of information, the tipper could simply use the
information to trade for himself or herself and then pass the profits on to the tippee. This practice would
clearly be securities fraud, and if the information is given to and traded on by a friend or relative, the result
of the practice is the same. Thus, in a securities fraud case under these circumstances, the jury can infer that
the tipper intended the information to be the same as a cash gift. Here, the lower courts properly found
Salman liable for securities fraud. Maher gifted inside information to Michael, a close relative. The jury
was entitled to infer that Maher intended the information to be the equivalent of a monetary gift to Michael,
and that Maher thus personally benefitted from disclosing the information. Salman knew Maher had gifted
the information to Michael, and, as a tippee, Salman is also liable for securities fraud. The conviction is
affirmed.
Class 15: 10/14 Perjury

Chap. 10, pp. 383-408
18 U.S.C. 1621 (Perjury) & 1623 (False Declarations)

Perjury – Elements
1. Testimony given (or, for 1623, records or documents used) while defendant was under oath;
2. Testimony (or record or document) was actually false at the time;
3. Defendant knew at the time that it was false;
4. False information was material.
Differences Between 1621 and 1623
Perjury Only (18 U.S.C. 1621)
54
1) Applies to testimony not just before a U.S. court or grand jury, but in any proceeding where an oath
is authorized by law.
2) Recantation is not a defense.
3) Two-witness rule applies.
False Declarations Only (18 U.S.C. 1623)

1) Applies only to proceedings before or ancillary to a U.S. court or grand jury.
2) Applies to documents and records as well as to oral testimony.
3) Proof may be made by two inconsistent statements -- 1623(c)
4) Limited recantation defense provided by statute – 1623(d)
5) No two-witness rule -- 1623(e)
Common Defenses to Perjury

1. Literal truth
2. Question was ambiguous
3. No criminal intent (thought it was true)
4. Recantation (for 1623)
5. Two-witness rule (for 1621)
Oath Requirement
• To be perjury, testimony must be under oath or sworn to under pain and penalty of perjury
• Must look to other statutes for unsworn statements to federal agents, unsworn testimony before
Congress, and other false statements not under oath
Tribunals and Proceedings

Prosecutions under §1623 may raise the issue whether the alleged falsity occurred before or ancillary to
any court or grand jury proceeding. The statute itself does not define or describe “ancillary proceeding”
that duty fell to the courts in the following case:
Dunn v. United States cb. 385

442 US 100 1979
(Tribunals and proceedings—inconsistent statements provision)
Rule: an out of court interview will not be considered an ancillary proceeding under § 1623. That
statute does not encompass statements made in any setting less formal than a deposition.
Facts: Petitioner's testimony before a grand jury in June, 1976, implicated one Musgrave in various drug-
related offenses, and an indictment of Musgrave followed. On September 30, 1976, petitioner recanted his
testimony in an oral statement made under oath in the office of Musgrave's attorney. Musgrave then moved
to dismiss his indictment, alleging that it was based on perjured testimony. At an evidentiary hearing on
this motion on October 21, 1976, petitioner adopted his September 30 statement and testified that only a
small part of his grand jury testimony was true. As a result, the charges against Musgrave were reduced.
Petitioner was subsequently indicted for violations of 18 U.S.C. § 1623 (1976 ed., Supp. 1), which prohibits
false declarations made under oath "in any proceeding before or ancillary to any court or grand jury." The
indictment charged that petitioner's grand jury testimony was inconsistent with statements made "on
September 30, 1976, while under oath as a witness in a proceeding ancillary to" the Musgrave prosecution.
At trial, the Government introduced, over petitioner's objection, pertinent parts of his grand jury testimony,
his testimony at the evidentiary hearing, and his sworn statement to Musgrave's attorney. Petitioner was
convicted, and the Court of Appeals affirmed. Although it agreed with petitioner that the September
interview in the attorney's office was not an ancillary proceeding under § 1623, the court concluded that the
55
October 21 hearing was such a proceeding. While acknowledging that the indictment specified the
September 30 interview, rather than the October 21 hearing, as the ancillary proceeding, the court construed
this discrepancy as a nonprejudicial variance between the indictment and the proof at trial.
-------------------------------------------------------------------------------------------------------------------------------
Issue: does a sworn statement made during an interview in a private attorney’s office constitute a
proceeding ancillary to court or grand jury within the meaning of the statute?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. As both the language and legislative history of Title IV of the 1970 Organized Crime Control
Act make clear, an interview in a private attorney's office at which a sworn statement is given does not
constitute a "proceeding ancillary to a court or grand jury" within the meaning of § 1623. The word
proceeding gives it a more formal tone and narrows the scope congress intended it to cover. Moreover, to
characterize such an interview as an ancillary proceeding would contravene the long-established practice
of resolving doubt concerning the ambit of criminal statutes in favor of lenity. Since the indictment and jury
instructions specified the September 30 interview as the ancillary proceeding, the Court of Appeals erred
in predicating its affirmance on petitioner's October 21 testimony. To uphold a conviction on a charge
that was neither alleged in an indictment nor presented to a jury offends the most basic notions of
due process. Although the jury might well have reached the same verdict had the prosecution built its case
on petitioner's October 21 testimony adopting his September 30 statement, rather than on the latter statement
itself, the offense was not so defined, and appellate courts are not free to revise the basis on which a
defendant is convicted simply because the same result would likely obtain on retrial.
Notes:
• Based on the legislative history of the statute the court held that it could not conclude that
Congress intended or clearly expressed an intent that 1623 should encompass statements made in
contexts less formal than a deposition
• Legislative history – states that Congress did not intend for 1623 to not cover pretrial depositions,
affidavits and certifications
o Had the Subcommittee wished to bring all affidavits and certifications within the statutory
prohibition, it would have stated so, but instead it only stated pre-trial depositions
Falsity
• Under §1621 the government must show that the defendant willfully committed perjury.
• Under §1623 the government must prove that the defendant knowingly made a false statement or
declaration.
• Either level of mens rea is likely met if the defendant is shown to have knowingly given false
testimony
• Testimony must be actually false at the time it is given
• No room for ambiguity – even if misleading but still literally true, it’s not perjury
• If answers are evasive or misleading, burden is on the questioner to pin them down
Bronston v. United States cb. 391

(question of §1621—production company with bank accounts in other countries)
Rule of Law: A witness cannot be convicted of perjury based on testimony that is literally true,
but unresponsive to a question asked.
Facts: Bronston (defendant) testified in the following way under oath at a bankruptcy hearing for his
company:
Q: Do you have any bank accounts in Swiss banks, Mr. Bronston?
A: No, sir.
56
Q: Have you ever?
A: The company had an account there for about six months, in Zurich.
Bronston actually did have a personal bank account at a bank in Geneva for almost five years. In essence,
Bronston’s response was literally true, but because he replied with information about the company and not
himself, the response was unresponsive to the question and arguably misleading. Bronston was charged and
convicted of perjury. He appealed.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Can a witness be convicted of perjury based on testimony that is literally true, but unresponsive to a
question asked?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Burger, C.J.): No. A witness cannot be convicted of perjury based on testimony
that is literally true, but unresponsive to a question asked. By defining someone who commits perjury as a
witness who “willfully . . . states . . . any material matter which he does not believe to be true,” the legislature
does not seem to include the case at hand under the statute. The statute does not state that it is perjury if a
witness states a material matter that implies a material matter that is not true; the witness must actually state
the matter he does not believe to be true. In cases such as this one, it is up to the questioning attorney to
realize that the witness is not answering the question and further probe the witness and clarify the question
so that he is forced to answer under oath. Bronston’s testimony is literally truthful. He does not state a
material matter which he does not believe to be true. Although he clearly avoids answering the question
asked, it was up to the examining attorney to clarify his question to get an answer out of Bronston. The fact
that Bronston evaded answering the question asked is not sufficient to warrant a perjury conviction.
Accordingly, the lower courts are reversed.
Notes:
• Under the pressure and tensions of interrogation, it is not uncommon for the most earnest
witnesses to give answers that are not entirely responsive
o It is the responsibility of the lawyer to probe; testimonial interrogation and cross-
examination is a probing, prying, pressing form of inquiry. If a witness evades, it is the
lawyer’s responsibility to recognize the evasion and to bring the witness back to the mark,
to flush out the whole truth with the tools of adversary examination
• It is no answer to say that here the jury found that petitioner intended to mislead his examiner
o This is because the state of mind of the witness is relevant only to the extent that it bears
on whether he does not believe his answer to be true. To hold otherwise would be to inject
a new and confusing element
o Don’t want to discourage witnesses from appearing or testifying because worried what the
jury might read into the witness’s intent
• Must find that perjury is not the sole, or even the primary, safeguard against errant testimony
o The perjury statute is not to be loosely construed, nor the statute invoked simply because a
wily witness succeeds in derailing the questioner – so long as the witness speaks the literal
truth. The burden is on the questioner to pin the witness down to the specific object to the
questioner’s inquiry
o it doesn’t matter if the petitioner’s answers were not guileless but were shrewdly calculated
to evade, so long as they were literally true
Materiality
• Materiality is an element in a perjury case that must be submitted to the jury, but it is generally
broadly interpreted.
• Testimony must be material to the proceeding
57
• Testimony is material if it has the natural tendency to influence, or is capable of influencing, a
decision of the tribunal
• Not all lying under oath is perjury; must be material
o To be material, a statement must be capable of having an effect on the tribunal or
proceeding
o Although defendants frequently raise the materiality defense, it is rarely successful
Intent
• Defendant must know at the time of the testimony that it is false
• Mistakes, carelessness, and failures to recall are not perjury
Competent Tribunals
• 1621 applies to any proceeding where an oath is authorized by law
• 1623 applies to testimony before or ancillary to any courts or grand jury
• Ancillary proceeding requires some degree of formality, as in a deposition (Dunn)
Two-Witness Rule cb. 400

• Under common law, perjury could not be proven solely by testimony of one witness
• Rule requires either two or more witnesses, or one witness plus sufficient corroborative evidence
inconsistent with innocence
• 1623 abolishes the two-witness rule for prosecutions under that section – 1623(e) but the
government still must satisfy the rule in § 1621 cases
• Two reasons for this rule:
o Requirement encourages a witness to testify without the fear of later being charged with
perjury simply because the witness has contradicted another witness
o The rule prevents prosecutions based solely on a swearing contest between two witnesses
• In assessing the sufficiency of the corroborative evidence, two elements are considered:
o That the evidence, if true, substantiates the testimony of a single witness who has sworn to
the falsity of the alleged perjurious statement
o That the corroborative evidence is trustworthy
United States v. Chestman cb. 400

United States Court of Appeals for the Second Circuit 947 F.2d 551 (1991)
(did a stock broker commit insider trading)
Rule of Law: A person violates SEC Rule 10b-5 and section 10(b) when he misappropriates
nonpublic information in breach of a fiduciary duty, and trades on that information to his own
advantage.
Facts: Ira Waldbaum, the controlling shareholder in Waldbaum, Inc., agreed to sell the corporation. Ira told
several family members, including his sister, Shirley Witkin, about the pending sale, and told them to keep
the information confidential. Shirley told her daughter, Susan Loeb, but told her to keep the information
secret. Susan told her husband, Keith Loeb (Loeb), but stressed the need for secrecy. Loeb contacted a
broker, Chestman (defendant), and told him that the company was going to be sold at a substantially higher
price than its market price. Chestman purchased stock in Waldbaum, Inc. for himself and for Loeb. The
U.S. government (plaintiff) brought suit against Chestman, and he was convicted of aiding and abetting
Loeb’s misappropriation of nonpublic information in violation of Loeb’s fiduciary duty to the Waldbaum
family and to Susan, in violation of Securities and Exchange Commission (SEC) Rule 10b-5 and section
10(b) of the Securities Exchange Act of 1934. The Second Circuit Court of Appeals set aside Chestman’s
conviction.
-------------------------------------------------------------------------------------------------------------------------------
58
Issue: Does a person violate SEC Rule 10b-5 and section 10(b) if a third party misappropriates nonpublic
information, but the third party has not breached a fiduciary duty in doing so?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Meskill, J.): No. A person does not violate SEC Rule 10b-5 and section 10(b) if
a third party misappropriates nonpublic information, and that third party has not breached a fiduciary duty
in doing so. The misappropriation theory provides that a person violates section 10(b) and Rule 10b-5 when
he misappropriates nonpublic information in breach of a fiduciary duty, and trades on that information to
his own advantage. In this case, Chestman was convicted of aiding and abetting Loeb’s misappropriation
of nonpublic information in breach of a duty that Loeb owed to the Waldbaum family and to Susan.
However, because the misappropriator in this case was Loeb, Chestman’s conviction must be supported by
sufficient evidence showing that (1) Loeb breached a duty that he owed to the Waldbaum family or to Susan
based on a fiduciary relationship or a similar relationship of trust and confidence; and (2) that Chestman
knew that Loeb had done so. This court has never applied the misappropriation theory, and its requirement
of a fiduciary breach, to a case involving family relationships. A fiduciary duty cannot be imposed
unilaterally by providing confidential information. In addition, marriage in itself does not create a fiduciary
relationship. Something more is therefore required to establish a fiduciary relationship than the telling of a
secret to a family member. In this case, the relationships between Loeb and Susan, and between Loeb and
the Waldbaum family, were clearly not traditional fiduciary relationships. For a relationship to constitute
the functional equivalent of a fiduciary relationship, it must share the basic qualities of a fiduciary
relationship: one person relies on another person to serve his interests; the beneficiary entrusts the fiduciary
with property of some kind; the fiduciary has a duty not to appropriate the beneficiary’s property for his
own use; and the fiduciary has a duty not to use or disseminate confidential information. In this case, there
is insufficient evidence to establish a fiduciary relationship, or a similar relationship of trust and confidence,
between Loeb and the Waldbaum family. The only evidence presented by the government was Loeb’s
relationship as Ira Waldbaum’s nephew-in-law, and Ira’s testimony that his three children know not to
speak about business outside the family. Because Loeb did not owe a fiduciary duty, or its equivalent, to
either Susan or the Waldbaum family, he did not defraud them by telling Chestman about the pending sale.
Without fraud by the misappropriator, Loeb, Chestman could not be found liable for aiding and abetting
him, and Chestman’s convictions must be reversed.
Notes:
• Sufficiency of Evidence: a defendant bears the burden of proving that evidence was insufficient
when arguing to have their conviction overturned due to insufficient evidence. In such a
circumstance the appellate court must draw all factual inferences in favor of the government.
Recantation Defense
• Applies only to 1623 – no defense to 1621
• Statute says recantation is a defense if at the time defendant recants, the false testimony has not
substantially affected the proceeding OR it has not become manifest that falsity will be exposed
• Most courts read “or” to mean “and”
United States v. Smith cb. 404

35 F.3d 344 (8th Cir. 1994
Rule of Law: In order to employ §1623(d) to claim protection from prosecution for perjury a
party is not required to recant before it has become manifest that the falsehoods have been or will
be exposed. The declarant may also use the defense if she explicitly recants before the false
testimony has substantially affected the proceeding.
Facts: Smith was charged with a variety of things including perjury. If she pleas guilty to the perjury the
other charges would be dropped. The perjury charge arose out of Smith’s testimony before a grand jury
59
investigating several individuals one of which was her boyfriend Craig Keltner. Keltner bought a corvette
with cash but in order to avoid it being reported to the IRS he paid $9,800 in cash and then got a check from
Smith for the rest. He then gave her the $2400 in cash to put back in her account. When asked by the grand
jury she said that she invested her own money from her savings in the car. After a 38 minuet break where
she reviewed her bank statements she came back and recanted her prior statement and admitted that he had
given her the $2400 as part of the transaction to purchase the corvette. Prior to her conditional guilty plea
Smith moved for dismissal of the perjury charge on the ground that 18 USC § 1623(d) bars prosecution for
perjury on the facts of her case.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Under §1623(d) must a declarant recant before It becomes manifest that the falsehoods have been or
will be exposed or is a perjury charge bared if the declarant recants before the false testimony has
substantially affected the proceeding?
-------------------------------------------------------------------------------------------------------------------------------
Holding: a perjury charge is bared under §1623(d) if the declarant recants before the false testimony
substantially effects the proceeding. The government wants the provisions in §1623(d) to be read as though
there is the word “and” between them rather than the word which is present “or.” The plain language of the
statute indicates that after recantation a perjury charge is barred if (1) The proceeding has not been
substantially affected by the false testimony, or (2) It has not become manifest that the false nature of
the testimony has been or will be exposed. Because the wording of the statute is plain, simple and
straightforward the words must be accorded their normal meaning. The ordinary usage of the word or is
disjunctive, indicating an alternative. To read the statute any other way would defeat the intent of congress
to encourage truthful testimony by allowing people to recant prior statements in exchange for the truth
without the threat of a perjury charge. Any other interpretation of the statute would also violate the rule of
lenity.
Notes:
• The proper test to apply when determining whether recantation occurred before imminent
exposure was manifest, is whether the fact that the statements have been or will be exposed as
false is objectively manifest to the declarant
Class 16: 10/19 False Statements

Chap. 9, pp. 351-378 18 U.S.C. §§ 1001
False Statements 18 U.S.C. 1001
Elements:
1. A false statement, writing, or concealment.
o (Prong 1) concealing material facts by trick scheme, or device
o (Prong 2) making material false statements
o (Prong 3) making or using materially false writing or document
2. False statement or information concealed was material;
3. In a matter within the jurisdiction of the federal executive, legislative, or judicial branches;
4. Defendant acted knowingly and willfully
o Government must prove that the defendant knew the statement was false; may also have to
prove that defendant acted with intent to deceive.
o Do NOT need to prove that the defendant knew the statement was “within the jurisdiction”
of the federal government - Yermian
60
Note what is NOT required:
• No requirement that the statement be under oath
• No requirement that the government relied upon the statement in any way
• No requirement that the government suffered damage, financial or otherwise
Prong One: Concealing material fact by “trick, scheme or device”

• Only applies if there was a DUTY TO DISCLOSE the concealed information
• Duty to disclose must be based on specific requirements to disclose specific information
• If mere silence, must be a duty to disclose
o Broader standard for false statements as opposed to perjury (applies to statements that
would not pass Bronston test)
o Duties come from statutes, rules, and regulations
o Must be based on specific requirements to disclose specific information
§ No duty created when defendant had let government in, started talking, then lied –
that’s more like obstruction of justice
o Hypo: social security check keeps coming after parent dies; kid continues to accept them
and cash them; there is no statement, and no duty to disclose à no false statement
• Safavian (DC Cir. 2008): no false statement claim – he had no obligation to speak so you can’t
prosecute him for holding back what the government thinks is material
Prongs 2 & 3 False Statements or Writings:

• Require government to prove that defendant verbally or in writing made a false or fraudulent
statement
• Must prove actual falsity – no room for ambiguity, misinterpretation, or literal truth
• Does not matter whether the statements are required or voluntary – no “duty to disclose”
requirement
18 USC 1001 can be used in two ways:

• Prosecutors may employ this statute to charge those who have lied to cover up other illegal
activities
• Government may also use 1001 to prosecute those who have lied in efforts to defraud the
government or to disrupt government functions in such matters as federal employment,
government benefits, and federal regulations
“Within the jurisdiction”

• Phrase is construed very broadly (U.S. v. Rodgers)
• Covers “all matters confided to the authority of an agency or department”
• Statement need not be made directly to the federal agency, so long as it concerns matters within the
federal agency’s jurisdiction
{Jurisdiction}
United States v. Rodgers cb. 352

466 U.S. 475 (1984)
(guy who told secret service his wife was going to assassinate the president)
61
Rule of Law: jurisdiction covers all matters confided to the authority of an agency or
department. Jurisdiction should be read more broadly to cover anything that falls within the
duties of the agency.
Facts: Respondent was indicted for making false statements to the Federal Bureau of Investigation (FBI)
and the United States Secret Service, in violation of 18 U.S.C. § 1001, which makes it a crime knowingly
and willfully to make a false statement "in any matter within the jurisdiction of any department or agency
of the United States." Respondent admittedly had lied in telling the FBI that his wife had been kidnaped
when, in fact, as the FBI determined upon investigation, she had left him voluntarily, and in also telling the
Secret Service that his wife was involved in a plot to assassinate the President when, in fact, the Secret
Service, after investigating the charge and upon locating the wife, was told by her that she had left home to
get away from respondent. The District Court granted respondent's motion to dismiss the indictment on the
grounds that the investigations were not matters "within the jurisdiction" of the respective agencies, as that
phrase is used in § 1001. The Court of Appeals affirmed, relying on its decision in a prior case that limited
the term "jurisdiction" as used in § 1001 to "the power to make final or binding determinations."
-------------------------------------------------------------------------------------------------------------------------------
Issue: Should the definition of jurisdiction in § 1001 be narrowly construed?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. The language of § 1001 clearly encompasses criminal investigations conducted by the FBI
and Secret Service, and nothing in the legislative history indicates that Congress intended a more restrictive
reach for the statute.
• (A) A criminal investigation surely falls within the meaning of "any matter," and the FBI and Secret
Service equally surely qualify as "department[s] or agenc[ies] of the United States." And the most
natural, nontechnical meaning of "jurisdiction" is that it covers all matters confided to the authority
of an agency or department. Understood in this way, the statutory phrase "within the jurisdiction"
merely differentiates the official, authorized functions of an agency or department from matters
peripheral to its business. To limit the term "jurisdiction," as the Court of Appeals did, would
exclude from the statute's coverage most, if not all, of the authorized activities of many federal
departments and agencies, and thereby defeat Congress' purpose in using the broad inclusive
language it did.
• (b) Policy arguments favoring a more limited construction of the statute will not change the result
in this case. Resolution of the pros and cons of whether a statute should sweep broadly or narrowly
is for Congress.
• (c) The critical statutory language of § 1001 is not sufficiently ambiguous to permit the rule of lenity
in construing criminal statutes to control here.
• (d) Any argument against retroactive application of this decision to respondent, even if he could
establish reliance on the Court of Appeals' decision in the prior case, is unavailing, since conflicting
cases from other Courts of Appeals made review of the merits by this Court and a decision against
respondent's position reasonably foreseeable.
Notes:
• Remember the matter has to be WITHIN the jurisdiction – it is not a prohibition about just
talking about a matter the statement has to be made to the government within the course of the
government’s investigation in order to violate §1001
• Judicial Proceedings: Congress added the judicial proceedings exception in order to prevent the
use of 1001 to chill advocacy in judicial proceedings
o Also has been applied to statements made by agents such as to court clerks, probation
officers
• Congressional Matters: Constituent statements made to members of Congress are excluded from
the statute’s breach
62
• State and local government benefits: even when the subject of the statement is a federal program it
is important to focus on to whom the statement is made or owed.
o US v. Ford state senator did not disclose to state campaign and election registry his financial
interests in a healthcare group receiving federal funds. Court said that while he failed to
disclose information related to an entity inseparable from federal ties, the entities to which
he failed to disclose those facts to were anything but federal (state election board). Thus
while the state board had jurisdiction to reprimand him no federal entity had similar authority.
“Executive, legislative, or judicial branch”

• Before 1996, statute referred only to a “department or agency of the United States”
• Amended in 1996 following Supreme Court decision in Hubbard v. U.S. (the “Hubbard fix”)
• Note exceptions in the statute for certain statements made to legislative and judicial branches
o 1001(b): subsection (a) does not apply to party to a judicial proceeding, or that party’s
counsel, for statements, representations, writing or documents submitted by such party or
counsel to judge or magistrate in that proceeding
o 1001(c): with respect to any matter within jurisdiction of legislative branch, subsection (a)
shall apply only to
§ (1) administrative matters, including a claim for payment, a matter related to
procurement of property or services, personnel or employment practices, or support
services, or document required by law, rule or reg to be submitted to Congress or
any office/officer within leg. branch; OR
§ (2) any investigation or review, conducted pursuant to the authority of any
committee, subcommittee, commission or office of the Congress, consistent with
applicable rules of House or Senate
o Judicial function exception: 1001 doesn’t work for courtroom proceedings (can use perjury
statute instead for these proceedings)
THE FALSE STATEMENT

{The Exculpatory No Doctrine}
• Judicially-created rule said that a simple denial of guilt was not a false statement under §1001
• Rejected by the Supreme Court in Brogan – Court says if there is a problem, up to Congress to fix
it
• DOJ policy is generally not to charge pure “exculpatory no” cases
Brogan v. United States cb. 359

Rule of Law: There is not an exception to the federal false statements statute for an exculpatory
no.
Facts: James Brogan (defendant) had accepted cash payments from a real estate company. However, when
IRS and Department of Labor agents came to his home seeking cooperation in an investigation of the
company, Brogan denied receiving any cash from the company. A jury in the United States District Court
for the Southern District of New York found Brogan guilty of making a false statement to a federal agent.
The United States Court of Appeals for the Second Circuit affirmed. Brogan appealed on the grounds that
many courts of appeals had recognized an exception to the false statement statute for the “exculpatory no”
and that denying such an exception is against the “spirit” of the Fifth Amendment.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Is there an exception under the federal false statements statute for a false statement that consists of
the mere denial of wrongdoing, the so called “exculpatory no”?
63
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Holding and Reasoning (Scalia, J.): No. There is not an exception to the federal false statements statute
for an exculpatory no. The statute literally covers “any false statement,” which clearly includes an
exculpatory no. There is no exception expressly in the statute and the fact that other courts have carved one
out is immaterial to the Court’s analysis. Courts “may not create their own limitations legislation, no matter
how alluring the policy arguments for doing so. . . .” In addition, Brogan’s Fifth Amendment argument
must fail because the Fifth Amendment does not grant a privilege to lie. The plain language of the false
statements statute covers the exculpatory no. The Court will not create an exception. Brogan is therefore
guilty of violating the statute for his statement to the federal agents denying taking payments, even though
the false statement was an “exculpatory no.” The lower courts are affirmed.
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Concurence (Ginsburg, J.): §1001 arms government agents with authority not simply to apprehend
lawbreakers but to generate felonies, crimes of a kind that only a government officer could prompt. §1001
may apply to encounters between agents and their targets under extremely informal circumstances which
do not sufficiently alert the person interviewed to the danger that false statements may lead to a felony
conviction. As was the case here the target may not be informed that a false “no” is a criminal offense until
after he speaks. If a prosecutor cant prove a crime or certain elements they can just question about the
elements they can prove and trick someone into lying and then charge them for the lie. For a crime which
the statute of limitations has run such as 4 of the 5 bribes here, it is not a case of the government “punishing
the denial of wrongdoing more severely than the wrongdoing itself” but rather the government generation
of a crime when the underlying suspected wrongdoing is or has become nonpunishable. At the time even
the US Attorneys Manual said that it is not appropriate to charge §1001 when the suspect simply denies
guilt during government questioning.
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Dissent (Stevens, J.): It is not rare for this court to take the position that the literal text of a criminal statute
is broader than the coverage intended by congress. Thus, the fact that a false denial fits within the
unqualified language of §1001 is not a sufficient reason to reject a well-settled interpretation of the false
statement’s statute
{Implied False Statements}

• If incapable of being true/false, cannot be the basis for a false statement conviction
• Williams (S.Ct. 1982): Williams intentionally wrote checks on account with insufficient funds;
cashed checks at federally insured bank
o Held this was not a false statement; check is not a factual assertion at all; cannot be
characterized as “true” or “false”
• Contracts paid with federal funds addressed in Blankenship (11th Cir. 2004): à like a check a
contract is not a factual assertion and therefore cannot be characterized as true or false à no false
statements. § 1001 cannot be applied to any false statement to any private entity whose funds in
whole or in part happened to originate from the federal government, if this was allowed the results
would be shocking. For example someone who padded their resume to get a job with the
contractor would now be guilty of a federal crime.
• A literally true statement can be enough
o Ex: someone who owns plant has corporate subsidiary that is dumping toxic waste into the
river and he says he is not doing it à concealing material facts violated because it is
literally true but concealing because his solely owned subsidiary is doing it
64
CONCEALMENT
United States v. Safavian cb. 366

528 F.3d 957 (D.C. Cir. 2008)
(does the defendant have a duty to disclose facts to the government? — golfing in Scotland)
RULE: There must be a legal duty to disclose in order for there to be a concealment offense in
violation of 18 U.S.C.S. § 1001(a)(1).
FACTS: The prosecution arose from defendant David H. Safavian's overseas golf trip with a high profile
lobbyist, Jack Abramoff, while defendant was the General Services Administration (GSA) chief of staff.
Defendant checked with the GSA's general counsel about whether he could accept airfare for the trip, stating
that he was paying all other expenses out of his own pocket. Based on the information he provided, he was
advised he could accept airfare. Defendant paid the lobbyist what he claimed to believe was full
reimbursement for the trip. A grand jury indicted Safavian on Oct. 5, 2005, on numerous counts, including
three counts of "falsify[ing], conceal[ing] and cover[ing] up by a trick, scheme, and device material facts"
in violation of 18 U.S.C.S. § 1001(a)(1). A jury in federal district court later convicted him on those counts.
-------------------------------------------------------------------------------------------------------------------------------
ISSUE: Did defendant have a legal duty to disclose under 18 U.S.C.S. § 1001(a)(1)?
-------------------------------------------------------------------------------------------------------------------------------
Holding: no. There must be a legal duty to disclose in order for there to be a concealment offense in
violation of 1001, yet the government failed to identify a legal disclosure duty except by reference to vague
standards of conduct for government employees. If an employee violates the standard of conduct, they are
subject to disciplinary action, this does not translate to criminal liability. Concealment cases have found a
duty to disclose material facts on the basis of specific requirements for disclosure of specific
information. There was good reason for demanding such specificity: To comply with Fifth Amendment due
process, a defendant must have "fair notice . . . of what conduct is forbidden. This 'fair warning' requirement
prohibits application of a criminal statute to a defendant unless it was reasonably clear at the time of the
alleged action that defendant's actions were criminal." The applicable ethical principles gave no indication
of the particular facts or information an executive employee was required to disclose. Nor did they suggest
that they had any bearing on conduct during a GSA investigation or a request for an ethics opinion. The
government is essentially asking the court to old that once an individual starts talking, he cannot stop. §1001
does not demand that individuals choose between staying everything and saying nothing. Therefore,
Safavian had no legal duty to disclose and his concealment conviction cannot stand. AS to Counts 2 and 5
the statements about Abramoff having no business with the GSA, Safavian maintained that he intended the
meaning common to government contracts professionals, that someone who has not secured a GSA contract
is not doing business with the GSA. The district court did not allow expert testimony to speak to this
understanding of “doing business” this was not harmless error. Literal truth would have been a complete
defense to Counts 2 and 5. It was up to the jury to determine what meaning the defendant meant the
contractors meaning or the “lay” person meaning of doing business—by considering the term in context,
taking into account the setting in which it appeared and the purpose for which it was used.”
Notes:
• The duty to disclose could have been specified on any form, regulation, or statute but here there was
none.
• Literal Truth. The courts agree with Safavian that a literally true statement, even if misleading,
cannot be the basis of a false statements charge under §1001.
MENS REA
• Knowingly and Willfully: §1001 requires that the government prove that the defendant acted
knowingly and willfully
65
o The government must show beyond a reasonable doubt that the defendant intended to
make a false statement
o Government must prove defendant knew statement was false
§ Must prove beyond a reasonable doubt that the defendant intended to make a false
statement
• May also have to prove defendant acted with intent to deceive
• Do NOT need to prove defendant knew statement was within jurisdiction of federal government
• Yermian (S.Ct. 1984): filed private job application form and lied about his background; employer
was defense contractor and all their employees had to get security clearance; Yermian didn’t know
application would go to federal government; but the app did have an 18 USC 1001 warning on the
bottom of the form
o Only mental state required by statute is that you know the statement is false
o Don’t have to know it will go to the federal government
o Holding: this was a false statement
• Feola (S.Ct. 1975): Defendants convicted of assaulting a federal officer but didn’t know it was a
federal officer (note: didn’t read case for class)
o Knowledge of the victim’s status is not required; this reading would frustrate the statute’s
intent

• Added new 18 U.S.C. 1350, providing criminal penalties for corporate officers who make false
statements when complying with the new requirement that they certify their company’s financial
reports
MATERIALITY: Statement is material if it has “a natural tendency to influence, or is capable of

influencing, the decision of the decision-making body to which it was addressed”
• No requirement that the statement actually influenced the agency
• No requirement that the statement was relied upon, believed, or even looked at
• No requirement that the agency was damaged or harmed
• Doesn’t matter if statements were required or voluntary
Class 17: 10/ 21 Obstruction of Justice

Chap. 11, pp. 415-427, 434-442, 449-456
18 U.S.C. §§ 1503, 1505, 1512, 1519, 1520

• General Obstruction
o 1503: Obstruction in Judicial Proceedings, omnibus clause
o 1505: Obstruction in Federal Agency Proceedings and Congressional Investigations
o 1512: Tampering with Witness’ and Physical Evidence, new omnibus
• Destroying Evidence
o 1519: Document Destruction, Alteration, Falsification
o 1520: Destruction of Corporate Audit Records
• More broad than False Statements and Perjury/False Declarations
• Usually follows earlier criminal activity (which can usually also be charged)
Obstruction of Justice – 18 U.S.C. 1503/1505

• §1503 Most commonly charged is the “omnibus clause” – applies to anyone who corruptly
influences, obstructs, or impedes the due administration of justice, or endeavors to do so.
66
o Applies only to federal judicial and grand jury proceedings
• § 1505 Basically the same as omnibus clause of 1503, except 1505 applies to obstruction of
Congressional and federal agency proceedings.
Elements of 1503/1505 Obstruction –

1. There is a pending proceeding;
2. Defendant knew about the proceeding;
3. Defendant corruptly influenced, obstructed, or impeded the proceeding’s due administration of
justice, or endeavored to do so.
Pending Proceeding
• 1503 and 1505 require that a proceeding be pending and that defendant knows it is pending
• 1512, 1519, and 1520 do not require that a proceeding be pending (see 1512(f)(1)), but some
proceeding must be contemplated or foreseen by the defendant – some “nexus” still required.
(Andersen)
Corrupt Intent
• 1503, 1505 and 1512 require corrupt intent
• Defendant must wrongfully or dishonestly intend to obstruct the proceeding by his/her conduct
• A great deal of conduct may impede a proceeding but not be obstruction because not done with
corrupt intent
Comparing 1503 with 1512(b) and 1512(c)

1503 1512(b) 1512(c) (S-Ox)
Knowing that a judicial Knowingly Corruptly
proceeding is pending
and corruptly (incl.
nexus requirement)
Endeavors to influence, uses intimidation, threatens, or corruptly persuades Otherwise obstructs,
obstruct, or impede due another person, or attempts to do so, or engages in influences, or impedes
administration of misleading conduct toward another person any official
justice proceeding (or
attempts to do so)
With a specific intent to with intent to— Alters, destroys,
obstruct (1) influence, delay, or prevent the testimony of any mutilates, or conceals
person in an official proceeding; an object (or attempts
(2) cause or induce any person to— to do so) with the
(A) withhold testimony, or withhold a record,
intent to impair the
document, or other object, from an official
proceeding; object’s integrity or
(B) alter, destroy, mutilate, or conceal object w/ availability for use in
intent to impair object’s integrity /availability for an official proceeding
use in official proceeding;
(C) evade legal process summoning that person to
appear as a witness, or to produce a record,
document, or other object, in an official proceeding;
or
(D) be absent from an official proceeding to which
such person has been summoned by legal process; or
(3) hinder, delay, or prevent the communication to a
law enforcement officer or judge of the United States
of information relating to the commission or possible
commission of a Federal offense
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18 U.S.C. 1519 and 1520
• Two obstruction statutes were enacted as part of the Sarbanes-Oxley Act of 2002:
o §1519: Applies to the destruction or alteration of any “record, document, or tangible
object” with intent to obstruct a federal investigation that is pending or contemplated.
§ No requirement of corrupt intent so likely no nexus requirement.
§ Supreme Court in Yates limited “tangible object” to those objects designed to
record and preserve information.
o §1520: destruction of corporate audit records
THE NEXUS REQUIREMENT

• The omnibus clauses of 1503 and 1505 criminalize “endeavoring to influence, obstruct, or
impede” a pending judicial, legislative, or administrative proceeding
• Elements:
o The act “must have a relationship in time, causation, or logic with the judicial proceeding”
o And, to constitute obstruction, defendant must know that the endeavor to obstruct will have
the “natural and probable effect” of interfering with due administration of justice (Aguilar)
§ Note that an “endeavor” is enough; defendant need not be successful
§ If defendant lacks knowledge that his actions are likely to affect the judicial
proceeding, he lacks the requisite intent to obstruct
United States v. Aguilar cb. 418

515 U.S. 593 (1995)
(Endeavor Element: member of brotherhood of teamsters, convicted of embezzling, wiretap for
racketeering)
Rule: Uttering false statements to a federal agent that may or may not testify before a grand jury
is not sufficient to violate the Omnibus Provision of 18 U.S.C. § 1503.
Facts: Judge Aguilar (defendant) found out that Abraham Chalupowitz’s (Chapman) name had appeared
on a wiretap authorization. Aguilar told Chapman about the wiretap. When Aguilar was later interviewed
by the FBI about his knowledge of the situation, Aguilar lied and stated that he did not know about the
wiretap. During that conversation, Aguilar asked whether he was the target of a grand jury investigation.
The FBI agent responded that a grand jury was convening and that some evidence may be heard. Aguilar
was charged with obstruction of justice under the Omnibus Provision of 18 U.S.C. § 1503. The jury
convicted Aguilar of violating the statute. The circuit court reversed the conviction and the state supreme
court affirmed the reversal. The prosecution appealed.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Is uttering false statements to a federal agent that may or may not testify before a grand jury sufficient
to violate the Omnibus Provision of 18 U.S.C. § 1503?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Rehnquist, C.J.): No. The Omnibus Provision of 18 U.S.C. § 1503 provides that
one may not corruptly endeavor to influence, obstruct, or impede the administration of justice. Under the
statute, the allegedly corrupt act must be done with intent to influence a proceeding, and the endeavor must
have the “natural and probable effect” of interfering with the administration of justice. Uttering false
statements, then, to a federal agent that may or may not testify before a grand jury is not sufficient to violate
the Omnibus Provision. There is no guarantee that the investigating agent will testify before a grand jury
and thus any claim that such false statements interfere with a grand jury proceeding is mere speculation.
Hence, Aguilar’s lie to the FBI agent about his knowledge of the wiretap does not amount to a violation of
the Omnibus Provision because it was not at that time “probable” that the agent would testify before a grand
68
jury about his interview of Aguilar. The state supreme court is affirmed. Our reading of the statute gives
the term “endeavor” a useful function to fulfill: it makes conduct punishable where the defendant acts with
an intent to obstruct justice, and in a manner that is likely to obstruct justice, but is foiled in some way.
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Dissent (Scalia, J.): The majority’s holding effectively takes “endeavor” out of the Omnibus Provision. In
this case, Judge Aguilar certainly endeavors to obstruct justice by lying to a federal agent. The fact that the
agent may not end up testifying before a grand jury is immaterial. It is Aguilar’s attempt that constitutes a
violation of the statute. Rather than correctly stating that a “natural and probable consequence” is a way of
proving intent, the majority improperly replaces “intent” with “natural and probable consequence.”
Notes:
• A defendant could be punished for both perjury and obstruction based upon the same false
testimony. Most court believe this where all the elements of obstruction are met. If, however, the
government has failed to prove an element of obstruct – such as the defendant’s intent to obstruct,
or the nexus between the testimony and the pending proceeding – then perjury alone will not
support an obstruction conviction
• Materiality and the Barry Bonds Case
o Because the statute sweeps so broadly, due process calls for prudential limitations on the
government’s power to prosecute under it
o This limitation is found in the requirement of materiality
§ The government must prove beyond a reasonable doubt that the charged conduct
was capable of influencing a decision making person or entity – for example, by
causing it to cease its investigation, pursue different avenues of inquiry or reach a
different outcome
MENS REA
{1512 Obstruction}
• 1512 traditionally was a witness tampering statute; applied to corrupt attempts to influence others
• 1512(b) prohibits using intimidation, threats, or corrupt persuasion to cause another person to not
testify, to withhold or destroy evidence, or otherwise to obstruct an official proceeding.
• Arthur Andersen was charged under the old version of 1512 with corruptly persuading its
employees to withhold documents from an official proceeding
• Not necessary to show that Defendant was successful in efforts
• “Official Proceeding” defined broadly to include proceedings before all three branches of
government (18 USC 1515(a)(1)(A))
• “Official Proceeding” need not be pending at time of obstruction efforts (1512(f)(1)) – still have to
have proceeding in mind, but need not have begun
Mens Rea requirement of § 1512(b)

Arthur Andersen LLP. V. United Sates cb. 434
(Enron Accounting Firm)
Rule of Law: To be guilty of obstructing justice under 18 U.S.C. § 1512(b), a defendant must have
criminal intent.
Facts: Arthur Andersen LLP (Andersen) (defendant) was Enron’s accountant during Enron’s financial
record manipulation scandal in 2002. When the Securities and Exchange Commission opened an informal
investigation of Enron, Andersen began telling its employees as well as Enron employees to strictly adhere
to the company’s document retention policy, meaning that if any Enron-related documents were eligible to
be destroyed under the policy, they should be so destroyed immediately. Andersen informed its employees
of this directive multiple times and it resulted in the “substantial destruction of paper and electronic
69
documents” that were then not available to the government in Enron’s subsequent litigation. Andersen was
charged with obstruction of justice under 18 U.S.C. § 1512(b) in that it knowingly and corruptly persuaded
others to withhold documents from an official proceeding. The United States District Court for the Southern
District of Texas issued jury instructions which included directing the jury to find Andersen guilty even if
Andersen honestly and sincerely believed that its conduct was lawful. The jury was also instructed to find
Andersen guilty if it found that Andersen intended to impede governmental fact finding by telling
employees to adhere to the document retention policy. The jury convicted Andersen and the United States
Court of Appeals for the Fifth Circuit affirmed. The United States Supreme Court granted certiorari to
review the proper meaning of the obstruction of justice statute.
-------------------------------------------------------------------------------------------------------------------------------
Issue: To be guilty of obstructing justice under 18 U.S.C. § 1512(b), must a defendant have criminal intent?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Rehnquist, C.J.): Yes. To be guilty of obstructing justice under 18 U.S.C. §
1512(b), a defendant must have criminal intent. The statute by its plain language requires that the defendant
“knowingly . . . corruptly” persuade another. A defendant must therefore know that its actions in question
are corrupt. The jury instruction in this case, therefore, which called for conviction even if Andersen
honestly and sincerely believed that its conduct was lawful is inappropriate as it does not contain the
requisite level of culpability. In addition, the other jury instruction was also inappropriate. The jury was
instructed to find Andersen guilty if it found that Andersen intended to impede governmental fact finding
by telling employees to adhere to the document retention policy. However, there are many instances when
a party’s advice or instruction will legally impede a government’s fact finding mission; for example,
counseling someone to invoke a Fifth Amendment right of silence, or telling an individual to invoke some
other privilege not to testify. The fact that a party persuades another to invoke such a privilege does not,
without more, constitute obstruction of justice. Accordingly, this jury instruction was also improper. As a
result of the foregoing, the court determines that the jury instructions were flawed. The conviction is
reversed and the case is remanded.
Notes:
• In 1512 the proceeding does not need to have started but there at least needs to be a proceeding in
mind in order to have the requisite corrupt intent
• Response to Arthur Andersen: Sarbanes-Oxley added 1512(c): applies to anyone who corruptly
obstructs, influences, or impedes any official proceeding or attempts to do so
o Not just for witness tampering, also applies to destruction of documents and other
obstruction of official proceedings
o Displaces/used more often now than 1503 and 1505
o Requires proof that the defendant acted corruptly – knowingly corrupt persuader

1. New 18 U.S.C. 1512(c) – applies to document destruction and other obstruction of “official
proceedings”
2. New 18 U.S.C. 1519 – document destruction or alteration in federal agency investigations and
bankruptcy
3. New 18 U.S.C. 1520 – destruction of corporate audit records
The New Omnibus Clause?

• Section 1512 (c) applies to anyone who corruptly “obstructs, influences, or impedes any official
proceeding or attempts to do so.”
• “Official proceeding” is defined broadly to include proceedings before all three branches of
government (see 18 USC 1515(a)(1)(A)).
• Official Proceeding does not need to be pending – see 1512(f)(1)
70
• Penalty is 20 years, vs. 10 for 1503
1519 & 1520 – Sarbanes Oxley Act of 2002

1519: Destruction, Alteration, or Falsification of Records in Federal Investigations and Bankruptcy (Anti-
shredding)
• Very broad: applies to the destruction or alteration of any record, document, or tangible object
with intent to obstruct a federal investigation that is pending or contemplated
o Can include not only proceedings, but any act in contemplation of potentially pending
proceedings
o Includes investigations, even though an investigation isn’t a proceeding
§ Ex: FBI investigation qualified under 1519 but not under 1512
o No requirement of corrupt intent so likely no nexus requirement
Yates v. United States cb. 449

United States Supreme Court 135 S.Ct. 1074 (2015)
(fisherman with undersized grouper)
Rule of Law: The term “tangible object” in § 1519 of the Sarbanes-Oxley Act refers to an object
used to record or preserve information and does not include fish.
Facts: John Yates (defendant), a commercial fisherman, caught undersized red grouper in federal waters in
the Gulf of Mexico in violation of federal conservation regulations. To prevent federal authorities from
confirming that he had caught the fish, Yates ordered a crew member to toss the fish back into the water.
As a result, Yates was charged with violating a provision of the Sarbanes-Oxley Act (Act), 18 U.S.C. §
1519, which criminalized the destruction or concealment of any record, document, or tangible object to
obstruct a federal investigation. At trial, Yates argued that § 1519 did not apply to throwing fish overboard
in a commercial-fishing context. The government disagreed and claimed that fish were a tangible object
within the purview of § 1519. Yates was convicted and sentenced to 30 days of imprisonment. Yates
appealed. The court of appeals affirmed. The United States Supreme Court granted certiorari to review.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does the term “tangible object” in § 1519 of the Sarbanes-Oxley Act refer to an object used to record
or preserve information, not including fish?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Ginsburg, J.): Yes. The term “tangible object” as used in § 1519 of the Act
refers to an object used to record or preserve information and does not include fish. In this case, the
government concedes that the Act was intended to prohibit corporations from shredding documents to hide
financial wrongdoing, but maintains that § 1519 is broad enough to encompass Yates’s conduct. Conversely,
Yates claims that Congress never intended the Act, specifically § 1519, to cover the type of conduct that
Yates is alleged to have committed. Whether a statutory term is ambiguous does not turn solely on how it
is defined, but also includes the context in which the term is used. Here, the term “tangible object” in §
1519 favors a narrow reading because the section applies to any destruction, alteration, or falsification of a
record in a federal investigation. There is no mention in the law that “tangible object” includes fish. Instead,
§ 1519 was placed a section titled “Criminal penalties for altering documents.” Congress probably did not
intend § 1519 to sweep within its reach physical objects of every kind, including items that would not be
described as records, documents, or devices. The term “tangible object” is the last in a list of terms that
begins with “any record or document.” Therefore, “tangible object” should be read to refer specifically to
the subset of objects involving records and documents. If Congress had intended “tangible object” in § 1519
to be interpreted so generically as to capture all physical objects, including those as dissimilar as documents
and fish, Congress would have no reason to refer specifically to “record” or “document.” Congress is
71
unlikely to have intended to expose individuals to a possible 20-year prison sentence for tampering with
any physical object that might have some evidentiary value in any federal investigation. Because the term
“tangible object” as used in § 1519 of the Act applies to financial documents and records and not to fish,
the judgment of the court of appeals is reversed, and the matter is remanded for further proceedings
consistent with this opinion.
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Concurrence (Alito, J.): The plurality's conclusion is supported by traditional canons of statutory
construction. First, it is presumed that if a statute contains a list, each word in the list has a similar meaning.
Likewise, if general words follow a list of specific words, the general words should be read in view of the
specific words to mean something similar. Applying these two canons first to the list of nouns in § 1519, it
is clear that "tangible object" should mean something similar to records or documents. This obviously does
not include fish. Similarly, applying the canons to the list of verbs in § 1519, the inclusion of the verb phrase
"makes a false entry in" makes clear that § 1519 was not intended to apply to fish or fishing. It is unclear
how someone could make a false entry in a fish. Rather, this phrase appears to apply exclusively to the
filekeeping context. Furthermore, the statute's title refers to the destruction, alteration, or falsification of
records. Although titles are not dispositive of statutory meaning, the wording of this title, in combination
with the nouns and verbs listed in § 1519, clearly suggests that the statute applies to filekeeping and not
fishing and that the term "tangible object" in the statute does not refer to every possible tangible object.
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Kagan, J.): The term “tangible object” in § 1519 is broad but clear. The ordinary meaning of
"tangible object" is something discrete with a physical form. As a fish is a discrete thing with a physical
form, a fish is a tangible object. Throughout the United States Code and state statutes alike, a tangible object
invariably covers physical objects of all kinds. Although context of course matters in statutory interpretation,
the context of § 1519 supports the conclusion that "tangible object" should be given its ordinary broad
meaning and should not be limited. A fisherman who dumps undersized fish in order to avoid a fine should
be treated the same as a fisherman who shreds his vessel's catch log to avoid a fine, as one is no less
blameworthy than the other. In enacting § 1519, Congress understood that destroying tangible evidence
falls within the purview of the Act regardless of the form the object takes.
Class 18: 10/26 Cover-up Crime Case Studies: Martha Stewart & Scooter Libby
Review U.S. v. Stewart, 433 F.3d 273, 279-89 (2d Cir. 2006) Additional materials to be provided on-line
Cover Up Crimes Case Studies (Martha Stewart and Libby)

• US v. Martha Stewart and Peter Bacanovic: Stewart and Bacanovic come up with a story as to
why she sold her stock (which wasn’t the truth) à repeated it in multiple FBI interviews and
under oath in SEC deposition à indictment for story of the cover up crime – conspiracy to
commit perjury, false statements, and obstruction of justice under 371; false statements by both
Stewart and Bacanovic (1001); perjury by Bacanovic under 1621 for lying during sworn testimony
to the SEC; obstruction of justice by both Stewart and Bacanovic for obstructing SEC
investigation by providing false and misleading information and documents
o Verdict: Stewart guilty of conspiracy, false statements, obstruction of justice; Bacanovic
guilty of conspiracy, false statements, perjury, obstruction of justice
• US v. Lewis Scooter Libby: case arose out of outing of CIA agent’s identity and indictment
detailed how hard Libby worked on this one issue to show it is unlikely a few months later in the
GJ he had forgotten it
o Verdict: guilty of obstruction of justice under 1503; false statements; perjury under 1623
because in the GJ
72
Class 19: 10/28 Racketeer Influenced and Corrupt Organizations Act (“RICO”)
Chap. 14, pp. 551-558, 563-577 18 U.S.C. §§ 1961-1964
Applicable Statutes: 18 USC §§1961-1964

• 1961: Definitions
• 1962:
o (a) prohibits use of funds obtained through a PORA to acquire an interest in, or to establish
or operate, any enterprise (enterprise as the victim)
o (b) prohibits using a PORA itself to acquire or maintain an interest in or control of any
enterprise (least common) (enterprise as the victim)
o (c) cannot use a legitimate business to carry out PORA (most common)
o (d) prohibits conspiracies to violate §§ (a), (b), and (c) (typically use this over 371 because
penalty for 371 is 5 years whereas here is 20 years)
• 1963: criminal penalties (20-years; forfeiture)
• 1964: civil remedies
Elements – 18 USC 1962(c) (Enterprise as the vehicle)

1. Defendant was “associated with” or “employed by;”
2. an “enterprise” affecting interstate commerce; and
3. defendant engaged or participated in the conduct of the enterprise’s affairs;
4. through a “pattern of racketeering activity.” (“PORA”)
Conduct of the Enterprise’s Affairs

• 1962(c) requires that the defendant conduct or participate in the conduct of the enterprise’s affairs
• “Conduct” requires some element of direction. To participate in the conduct of the affairs, one must
have some part in directing those affairs. (Reves)
o Operation or management test that comes out of (Reves)
• Unclear to what extent this applies to lower-level employees or outsiders
THE ENTERPRISE
• Defined at 1961(4)
o Category 1: “any individual, partnership, corporation, association, or other legal entity”
§ Legal entities (e.g. corps) are automatically enterprises
o Category 2: “any union or group of individuals associated in fact although not a legal
entity”
• Most controversy surrounds “association in fact” enterprises
• Enterprise includes both legitimate and illegitimate enterprises (Turkette)
• Enterprise may have economic or non-economic purpose (Scheidler)
{The Nature of the Enterprise}

United States v. Turkette cb. 553
Rule of Law: Under RICO, a group of individuals can be found guilty of racketeering when they
combine forces as an enterprise to further their illegal activities.
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Facts: Turkette (defendant) and twelve accomplices were part of a criminal network that distributed
narcotics and other drugs and were indicted for these actions under the Racketeering Influenced and Corrupt
Organizations (RICO) Act. Turkette was convicted under the RICO Act and appealed, claiming that the
RICO Act only applied to legitimate businesses, not criminal networks that only performed illegal actions.
The court of appeals agreed with Turkette and overturned his conviction under the RICO Act. The United
States Supreme Court granted certiorari.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does the term “enterprise” in the RICO statute apply to illegal criminal networks as well as legitimate
businesses?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (White, J.): Yes. An enterprise is any group of individuals that combine together
for a common purpose, and an illegal criminal network falls within this definition. Under RICO, a group of
individuals can be found guilty of racketeering when they combine forces as an enterprise to further their
illegal activities. The combining of forces must be an enterprise, but need not be a legal enterprise. Here,
Turkette and twelve other individuals combined forces for an extended period of time in order to spread
narcotics throughout the United States. This constitutes an enterprise, even though it is an illegal enterprise.
The RICO statute does not state that the enterprise in question needs to be legal in order for RICO to apply;
it simply contains the word “enterprise.” Therefore, RICO also applies to individuals who participate in
illegal enterprises. Turkette’s conviction under the RICO statute is reinstated and the court of appeals’ ruling
is reversed.
Notes:
• To secure a conviction under RICO the government must prove:
o the existence of an enterprise and
§ enterprise is an entity for present purposes a group of persons associated together for
a common purpose of engaging in a course of conduct
§ proved by evidence of an ongoing organization, formal or informal and by evidence
that the various associates function as a continuing unit
o the connected pattern of racketeering activity
§ the pattern of racketeering activity is a series of criminal acts as defined by the statute
§ proved by evidence of the requisite number of acts of racketeering committed by the
participants in the enterprise.
• Here the Court held Two logical distinct elements:
o The relationship within the group that creates the enterprise
o The PORA itself (activity that group does)
o Here, proving this group of guys got together and committed crimes proves both enterprise
element and racketeering element
o Evidence for these might coalesce, but still have to prove both
o Policy: this is preventative – want to be able to attack the illegitimate enterprise before it
infiltrates a legit one
National Association For Women v. Scheidler cb.559

510 S. 249 (1994)
(anti-abortion group)
Rule of Law: Under §1962(c) enterprise may have economic or non-economic purpose
Facts: abortion protestors, Pro Life Action Network (PLAN) à charged with 1962(a), (c), and (d). Claim
alleged that the respondents were members of a nationwide conspiracy to shut down abortion clinics
through a pattern of racketeering activity including extortion in violation of the Hobbs Act.
-------------------------------------------------------------------------------------------------------------------------------
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Issue: Does RICO require proof that either the racketeering enterprise or the predicate acts of
racketeering were motivated by an economic purpose?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. Enterprise may have economic or non-economic purpose. Neither racketeering enterprise
nor predicate acts require economic motive. Nowhere in 1962(c) or in the definitions of 1961 is an
economic motive required. An Enterprise can have a detrimental influence on interstate commerce
without have its own profit-seeking motives. There are different meanings of enterprise. In (a) and (b)
enterprise is something acquired through the use of illegal activities or by money obtained from illegal
activities. The enterprise in these subsections Is the victim of unlawful activity and may very well be a
profit seeking entity that represents a property interest and may be acquired but the language does not
mandate that it be profit seeking. It simply required that the enterprise be an entity that was acquired
through illegal activity or the money generated from illegal activity. By contrast subsection (c) it is the
vehicle through which PORA happens rather than the victim of that activity. Since enterprise is
subsection (c) is not being acquired it need not have a property interest nor an economic motive for
engaging in illegal activity; it need only be an association in fact that engages in a pattern of racketeering
activity. There is no ambiguity here, petitioners may maintain this action if respondents conducted the
enterprise through a pattern of racketeering activity.
{Proving an Association-in-Fact Enterprise}

• A group of persons associated together for a common purpose of engaging in a course of conduct
• Must have a common purpose, relationships among the members, and sufficient longevity to
pursue the enterprise’s purpose
• Supreme Court in Boyle rejected the argument that there must be a structure beyond that inherent
in the PORA
Boyle v. United States cb. 563

(group of bank robbers)
Rule of Law: Under the Racketeering Influence and Corrupt Organizations Act, 18 U.S.C. §
1963(c), an association-in-fact enterprise must have an ascertainable structure, but evidence of
such structure beyond that inherent in the pattern of racketeering activity in which it engages is
not necessary.
Facts: Boyle (defendant) was charged with violating the Racketeering Influence and Corrupt Organizations
Act (RICO Act), 18 U.S.C. § 1963(c). He was part of a group that engaged in a series of bank robberies.
The group was “loosely and informally organized.” The group did not have a leader or a hierarchy, and it
seemed to define the roles for the bank robberies (e.g., driver, lookout, etc.) on an ad hoc basis. The RICO
Act stated that it was “unlawful for any person employed by or associated with any enterprise engaged in,
or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or
indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection
of unlawful debt.” The RICO Act did not define “enterprise.” Over Boyle’s objection, the district court
instructed the jury that it could “find an enterprise where an association of individuals, without structural
hierarchy, form[ed] solely for the purpose of carrying out a pattern of racketeering acts.” Additionally, the
district court instructed the jury that “[c]ommon sense suggests that the existence of an association-in-fact
is oftentimes more readily proven by what it does, rather than by abstract analysis of its structure.” The jury
convicted Boyle, and the United States Court of Appeals for the Second Circuit affirmed. Boyle petitioned
for certiorari on the ground that the district court’s jury instructions improperly defined enterprise. The
United States Supreme Court granted certiorari.
-------------------------------------------------------------------------------------------------------------------------------
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Issue: Under the Racketeering Influence and Corrupt Organizations Act, 18 U.S.C. § 1963(c), must an
association-in-fact enterprise have an ascertainable structure beyond that inherent in the pattern of
racketeering activity in which it engages?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Alito, J.): No. Under the RICO Act, an association-in-fact enterprise must have
an ascertainable structure, but evidence of such structure beyond that inherent in the pattern of racketeering
activity in which it engages is not necessary. In other words, an association-in-fact enterprise need not have
a formal structure with characteristics such as a chain of command, defined roles, rules and regulations,
regular meetings, or a name. Rather it is sufficient that an association-in-fact enterprise be a continuing unit
that functions over a period of time to achieve a common purpose. In this case, then, the district court’s jury
instructions on enterprise were proper. The jury instructions stated that an enterprise may be evidenced by
what it does, i.e., the pattern of racketeering activity itself, moreso than by an abstract analysis of the
association’s structure. This instruction is in line with the jurisprudence on enterprises under the RICO Act,
indicating that an enterprise can be informal and need not have formal indicators such as a hierarchy and
defined roles. The judgment of the court of appeals is affirmed.
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Stevens, J.):Under the RICO Act, the definition of enterprise is limited to businesslike entities
that have both a structure and existence outside of the pattern of racketeering activity in which they engage.
The majority’s decision essentially removes the element of enterprise from the RICO Act by permitting a
jury to infer an enterprise simply by the existence of the racketeering activity. The holding improperly
expands the scope of the RICO Act.
Notes:
• RICO has become a glorified conspiracy statute after this case
o Because of how it is written it can cover so much criminal conduct
o This is why you need permission from justice to use it
• If you have an enterprise then you are set
o Need only be three structural features for association in fact enterprise:
§ 1. Purpose
§ 2. Relationship (among those associated in the enterprise)
§ 3. Longevity (long enough to permit the entities to complete purpose)
§ This does not need to be over and above why they committed the crimes
• On exam: if you start thinking about conspiracy, also consider RICO
o Corps are enterprises, any group of people coming together and engaging in criminal
activity are both potential conspirators and potential RICO violators
• Legal Entities vs. Association in Fact
o A legal entity is, by definition, an enterprise. 1961(4)
o If enterprise is a legal entity (e.g. a corporation) you don’t need to get into the “association
in fact” analysis discussed in Turkette and Boyle.
{The Relationship Between the Person and the Enterprise}

• Under 1962(c), the enterprise cannot be a defendant “person,” because it cannot be “employed by
or associated with” itself
• Under 1962(a) and 1962(b), the enterprise may also be a defendant
Cedreic Kushner Promotions v. King cb. 569

533 U.S. 158 (2001)
76
Rule of Law: 18 U.S.C.S. § 1962(c)--a provision of RICO--applies when a corporate employee
unlawfully conducts the affairs of the corporation of which he is the sole owner, whether he conducts
those affairs within the scope, or beyond the scope, of corporate authority.
Facts: Petitioner, a corporate promoter of boxing matches, sued respondent Don King, the president and
sole shareholder of a rival corporation, alleging that King had conducted his corporation's affairs in violation
of the Racketeer Influenced and Corrupt Organizations Act (“RICO”) through the alleged commission of
at least two instances of fraud and other RICO predicate crimes. RICO made it "unlawful for any person
employed by or associated with any enterprise to conduct or participate in the conduct of such enterprise's
affairs through a pattern of racketeering activity," 18 U.S.C. § 1962(c). The District Court, citing Circuit
precedent, dismissed the complaint. In affirming, the Second Circuit expressed its view that § 1962(c)
applied only where a plaintiff showed the existence of two separate entities, a "person" and a distinct
"enterprise," the affairs of which that "person" improperly conducted. The appellate court noted that King,
who was an employee of his corporation and who acted within the scope of his authority, was part of the
corporation, and not a "person," distinct from the "enterprise," who allegedly improperly conducted the
“enterprise’s affairs.”
-------------------------------------------------------------------------------------------------------------------------------
Issue: Did 18 U.S.C. § 1962(c), a provision of RICO, apply when a corporate employee unlawfully
conducted the affairs of a corporation of which he was the sole owner?
-------------------------------------------------------------------------------------------------------------------------------
Holding: Yes. Under 1962(c), must at least be two distinct entities: person and enterprise – the enterprise
cannot also be a defendant. While the enterprise required by the statute must be more than the person
operating under another name, the requisite distinctness between respondent and his corporation was
established because they were legally different entities. The corporate owner/employee was a natural person
and distinct from the corporation itself, which was a legally different entity with different rights and
responsibilities due to its different legal status; nothing in the statute required more "separateness" than that.
According to the Court, the formal legal distinction between respondent and his corporation was sufficient
to apply RICO to respondent's conduct, and it made no difference whether respondent was acting within
the scope of his corporate employment when he allegedly engaged in the criminal activities. Accordingly,
the Court concluded that the "person" and "enterprise" here were distinct and that the RICO provision
applied.
Notes:
• Under 1962 (c) the person who conducts the affairs of the enterprise must be separate from the
enterprise
• Under 1962(a) and 1962(b), enterprise may be a defendant
o Statutory language does not imply that enterprise and defendant are separate
{Required Proof for the Conduct Element}

Reves v. Ernst & Young Cb. 573
(What does it mean to “conduct” the affairs of an enterprise—Farmer Co-ops accounting firm)*
507 U.S. 170 (1993)
Rule of Law: “Conduct” requires some element of direction. To participate in the conduct of the
affairs, one must have some part in directing those affairs.
Facts: A provision of the Racketeer Influenced and Corrupt Organizations Act (RICO) made it unlawful
for any person employed by or associated with an interstate enterprise to conduct or participate, directly or
indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. After
respondent's predecessor, the accounting firm of Arthur Young and Company, engaged in certain activities
relating to valuation of a gasohol plant on the yearly audits and financial statements of a farming cooperative,
77
the cooperative filed for bankruptcy. The bankruptcy trustee brought suit, alleging that the activities in
question rendered Arthur Young civilly liable under 18 U.S.C.S. § 1962(c) to holders of certain of the
cooperative's notes. Among other things, the District Court applied Circuit precedent requiring "some
participation in the operation or management of the enterprise itself" in order for such liability to attach,
ruled that Arthur Young's activities failed to satisfy this test and granted summary judgment in its favor on
the RICO claim. Agreeing with the lower court's analysis, the Court of Appeals affirmed in this regard.
-------------------------------------------------------------------------------------------------------------------------------
Issue: What does it mean “to conduct or participate directly or indirectly in the conduct of such enterprise’s
affairs”?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning: The word “conduct” is both a noun and a verb in this subsection and requires an
element of direction. Participate in this context means “to take part in.” Thus in order to participate directly
or indirectly in the conduct of such an enterprise’s affairs, one must have some part in directing those affairs.
The word “Participate” makes clear that RICO liability is not limited to those with primary responsibility
for the enterprise’s affairs, just as the phrase “directly or indirectly” makes clear that RICO liability is not
limed to those with a formal position in the enterprise, but some part in directing the enterprise’s affairs is
required. The “operation or management” test expresses this requirement in a formulation easy to apply.
The Supreme Court of the United States affirmed the holding that the firm was not liable under 18 U.S.C.S.
§ 1962(c) unless it participated in the operation or management of the enterprise itself. The firm's failure to
tell the co-op's board that a plant owned by the company should have been given its fair market value was
not sufficient participation in the operation or management of the co-op itself to give rise to liability under
§ 1962(c). Congress did not intend to extend RICO liability under §1962(c) beyond those who participate
in the operation or management of an enterprise through a pattern of racketeering activity—this is the
“operation or management” test.
-------------------------------------------------------------------------------------------------------------------------------
Dissent: Arthur Young actually took on management responsibilities because the alleged activity went
beyond traditional auditing so by the courts very adopted “operation and management” test Artur Yung
took on management responsibilities and thus should be found guilty.
Notes:
• The Court here Adopted the “operation and management” test: to conduct or participate in the
conduct of an enterprises affairs, one must have some part in directing those affairs, one must
participate in operation or management
o Unclear to what extent this applies to lower-level employees or outsiders
o Implied element of control or direction
o Defendant must have been steering the ship in some way
• If you are just an advisor who is giving advice and someone else is making all the calls you
probably won’t qualify as participating in the conduct of the enterprise
Class 20: 11/2 RICO (cont.

Chap. 14, pp. 593-602
“Racketeering Activity” (Predicates)

• Defined at 1961(1)
• Includes nine categories of state offenses and dozens of federal crimes
• White collar RICO predicates include mail and wire fraud, Hobbs Act, bribery, obstruction of
justice, and money laundering
o State crimes include arson, extortion, homicide, prostitution
78
• Defendant need not be charged with or convicted of the predicate acts
“Pattern of Racketeering Activity” (Defined at 1961(5))

• Must be at least two acts of racketeering activity within a ten year period
• Pattern need not involve multiple schemes, but there must be “continuity plus relationship” in the
acts of racketeering activity (Northwestern Bell)
1962(a) vs. (b)

• 1962(a) is two steps
o You engage in your pattern or record your activity, you make money from it and then use
that money to acquire and interested in or control over some enterprise.
• (b) is one step
o b we talked about is the one-step process where you acquire control over through pattern
director indirectly. And the best example of that I think, is the idea of defendant through
extortion or bribery, controlling what some enterprise is doing.
RICO Conspiracy – 1962(d)

• Makes it a crime to conspire to violate sections (a), (b), or (c)
• No requirement that each conspirator personally agree to commit at least two predicate acts
(Salinas)
Forfeiture
• One of the great advantages of the RICO statute for the prosecution
• 1963(a) provides that the defendant shall forfeit to the US any interest in the RICO enterprise and
any property constituting or derived from proceeds of the racketeering activity
THE PATTERN REQUIREMENT

GOOD CASE FOR 1962(B)
H.J. INC. v. Northwestern Bell Telephone Co. cb. 593
492 U.S. 229 (1989)
(determining the existence of a RICO pattern-- Best example of 1962(b))
Rule of Law: to prove a pattern of racketeering activity a plaintiff or prosecutor must show that
the racketeering predicates are related, and that they amount to or pose a threat of continued
criminal activity.
Facts: Bell was accused of bribing the MN Public Utilities Commission, in order to approve rates in
excess of fair and reasonable amount. They are charged with RICO violations. The defense was that all of
the actions were part of 1 scheme and under the 8th circuit precedent it needed to be more than one type
of scheme in order to have a pattern
-------------------------------------------------------------------------------------------------------------------------------
Issue: What is the test for a “pattern” of activity required for a RICO prosecution.
-------------------------------------------------------------------------------------------------------------------------------
Holding: The term pattern itself requires the showing of a relationship between the predicates and
of the threat of continuing activity. It is this factor of continuity plus relationship which combines to
produce a pattern. The statute first imposes the restriction that there must be “at lease two acts”, this
serves as a very small restriction, however two acts are not necessarily sufficient. It is not the number of
predicates but the relationship that they bear to each other or to some external organizing principle that
renders them ‘ordered’ or ‘arranged’. This court has two requirements necessary to constitute a
79
pattern: a showing of a relationship between the predicates, and of the threat of continuing activity. The
threat of continuing activity is required, because that is what Congress intended to address. There cannot
be a standard test for continuity and relatedness because it is a case-by-case analysis. In terms of
continuity, the court defines two kinds: closed-ended (proving a series of related predicates extending
over a substantial period of time) and open-ended (past conduct that by its nature projects into the future
with a threat of repetition). Predicate acts extending over a few weeks or month s and threatening no
future criminal conduct do not satisfy this requirement. Some courts try and establish a test that would
narrow the pattern of racketeering activity by requiring the acts to be those traditionally associated with
organized crime or of an organized crime type perpetrator. The court rejects this limitation, since the
language is clearly very broad in RICO, although it may have been passed with the intention of attacking
organized crime, the court says it was written very broadly, and it is not the court’s place to rewrite it…
furthermore, it is very hard to define what is an organized crime. The court does find that Bell was guilty
of RICO because the bribes were all related to accomplish a common purpose, and they continually
occurred over a 6 year period.
-------------------------------------------------------------------------------------------------------------------------------
CONCUR: Scalia condenses the majority’s holding and says that the majority does not add anything…
they merely say that the acts must be related and result in a continuous threat… he says that it is tough to
define this for lower courts, but that todays decision does not bode well if there is ever a constitutional
challenge to the act.
Notes:
• For Exam: If I was ever advising someone on this act I would say that we should challenged the
statute as void for vagueness, based on Scalia’s concurrence I think we would have a good case.
• The test for a pattern is “continuity + relationship”
• Relationship: the predicate acts must be related (not isolated events)
o Some organizing principle
o Criminal acts with similar purposes, results, participants, victims, or methods of
commission, or are otherwise interrelated
• Continuity: predicates must amount to, or constitute a threat of, continuing activity (unclear how
long is enough)
o Nothing specific, just whatever suggests a threat of a continuing scheme, can show it was
the entity’s regular way of doing business
o Extending to only a few weeks or months is not sufficient
o Open ended continuity: there is a threat that will continue in future if nothing had
intervened
o Closed ended continuity: continued for a long time and is done now but lasted sufficiently
long to satisfy RICO
• They plead all four sections: They are prosecuting under §1962
o Rico Section à Enterprise
o 1962(a) à NW Bell
o 1962(b) à MPUC
• The theory in (b) argument was that the defendant suer bribing the MPUC
in Minnesota Public Utilities Commission to set higher rates through that
pattern racketeering activity they are directly controlling that enterprise
because they're bribes are influencing what the enterprise does. Best
example of 1962(b)
o 1962(c)à MPUC
o 1962(d) à conspiracy to violate all of them
80
Class 21: 11/4 Money Laundering (cont.)
Chap. 13, pp. 514-539, 500-503, U.S. v. Jackson, U.S. v. Campbell
18 U.S.C. §§ 1956, 1957
MONEY LAUNDERING
• The concealment of the existence, nature, or illegal source of illicit funds in such a manner that the
funds will appear legitimate if discovered.
• Money Laundering Statutes
o 18 U.S.C. 1956: prohibits financial transactions or international transportation of funds
with a specific unlawful intent or knowledge concerning the nature or purpose of the act
o 18 U.S.C. 1957: requires only a knowing monetary transaction with illicit funds, no further
specific intent or knowledge
18 U.S.C. 1956(a)(1) – Elements

1. Defendant conducts or attempts to conduct a “financial transaction;”
2. Knowing that the property involved represents the proceeds of some form of unlawful activity;
3. The financial transaction does in fact involve the proceeds of a “specified unlawful activity”
(SUA); and
4. Defendant acts with one of four specific intents or types of knowledge.
o *Plowback/Promotion: intent to promote an SUA (a)(1)(A)(i)
o Intent to evade income taxes (a)(1)(A)(ii)
o *Classic Concealment: Knowing transaction designed to conceal or disguise nature,
location, source, ownership, or control of proceeds of SUA (a)(1)(B)(i)
o Knowing that transaction is designed to avoid a CTR filing requirement (a)(1)(B)(ii)
“Financial Transaction” (Element 1)

• Defined in the statute: 1956(c)(4)
• Very broad definition, includes virtually any kind of transaction or transfer involving money,
financial instruments, or certain types of property
o Only limitation is that there has to be some sort of transfer or disposition of the money –
just transporting is not enough
• Financial transaction is the unit of prosecution – each transaction may be a separate money
laundering count
• Common examples: checks, wire transfers in and out of banks, transfer of title of property
• Could be thousands of transactions to use in potential counts, but only use best ones
• Does not have to involve a bank
Knowledge Requirement (Element 2)

• Defined in the statute at 1956(c)(1)
• Must show that at the time of the transaction, the defendant knew the property was proceeds of
“some form of unlawful activity”
o Just have to show D knew it was dirty money, not specifically what crime the money came
from
• Note that, unlike “specified unlawful activity,” there is not a specific list of offenses that will
qualify – any felony under state, federal, or foreign law will suffice
• Common way to prove knowledge: willful blindness
Specified Unlawful Activity (SUA) (Element 3)

81
• Defined in the statute at 1956(c)(7)
• Financial transaction must in fact involve the proceeds of an SUA
o SUA refers not to what defendant knew but where in fact the money came from – just as a
factual matter must show what specified unlawful activity generated the money
• SUAs include many common white collar offenses, including bribery, mail and wire fraud,
obstruction of justice, and the Hobbs act
• Have to be able to show where the money came from
Specific Intent/Knowledge for 1956(a)(1) (for Element 4)

1. Intent to promote an SUA – (a)(1)(A)(i)
2. Intent to evade income taxes – (a)(1)(A)(ii)
3. Knowing that transaction is designed to conceal or disguise the nature, location, source,
ownership, or control of the proceeds of the SUA – (a)(1)(B)(i)
4. Knowing that transaction is designed to avoid a CTR filing requirement – (a)(1)(B)(ii)
Promotion: intent to promote an SUA (1956(a)(1)(A)(i))

• Promotion/plowback: money going back into the SUA
• Examples:
• Fraudster paying for office space to set up fake business
• Using money from drug proceeds to buy car for drug transport
• Car Dealer Fraud in Brown (5th Cir. 1999): Defendant was defrauding banks through car
dealership; fronting down payments; getting banks to give loans when they wouldn’t have
otherwise; made financial transactions to buy business-related stuff
• Government argued every purchase made was promoting fraudulent scheme/whole business was a
fraud
• Holding: these purchases were not being used to promote the fraud – the link is to indirect
o They may have the effect to allow the fraud to continue, but that is not enough because
need actual transaction designed to promote
“Proceeds”
• The term “proceeds” appears in two different elements of the offense
• Defendant must know, at the time of the transaction, that the property involved is “proceeds” of
“some form of unlawful activity”
• The property must, in fact, be “proceeds” of a “specified unlawful activity” (SUA)
• Statute was amended in 2009 to define “proceeds” for the first time: “any property derived from or
obtained or retained, directly or indirectly, through some form of unlawful activity, including the
gross receipts of such activity.” 1956(c)(9)
• Generally, “proceeds” are funds that have been generated by an already completed unlawful
activity
• The laundering must be a “downstream” transaction, distinct from the SUA itself
18 U.S.C. 1956(a)(2) - Elements

1. Defendant transported, transmitted, or transferred, or attempted to transport, transmit, or transfer,
“a monetary instrument or funds;”
2. Across the US border; Either
3. With intent to promote the carrying on of an SUA; or
82
4. With the knowledge that the funds are proceeds of some form of unlawful activity, and that the
movement of the funds is designed in whole or in part to conceal the nature, location, source or
ownership of the funds, or to avoid a CTR requirement
1956(a)(1) vs, 1956(a)(2)

• (a)(1) focus (unit of prosecution) is on the “financial transaction;” (a)(2) focus is on the act of
international transportation or transfer
• (a)(1) applies to any “financial transaction;” (a)(2) applies only to international movement of
“monetary instruments or funds”
• (a)(1) always requires the defendant know the property involved is proceeds of some form of
unlawful activity; “promotion” laundering under (a)(2)(A) does not
• (a)(1) requires proof that the property involved was in fact proceeds of an SUA; (a)(2) does not.
18 U.S.C. 1956(a)(3)
• Applies to laundering funds from undercover operations
• Provides that the property involved need only be “represented” to be proceeds of an SUA or to
promote an SUA
• Representation comes from law enforcement officer or someone working with law enforcement
Other 1956 Provisions

• 1956(b) – civil penalty to U.S.
• 1956(h) – conspiracy penalty provision
• Money laundering provides a basis for forfeiture – 18 U.S.C. 982(a)(1)
18 U.S.C. 1957 - Elements

1. The defendant engages or attempts to engage in a “monetary transaction;”
2. Knowing that the transaction is in “criminally derived property;”
o Criminally derived property: proceeds of some kind of criminal activity – basically the
same as proceeds of some unlawful activity in 1956
3. The transaction is in excess of $10,000.00; and
4. The property is in fact derived from a “specified unlawful activity” (SUA).
• Has no intent or knowledge requirement (like you need in 1956) – just aimed at freezing dirty money
out of banks
o If you know it is proceeds of an SUA and it is dirty money, that is enough so long as putting
the money in the bank – doesn’t need to be promoting or concealing
1956 vs. 1957

• 1957 applies only to “monetary transactions,” narrower than “financial transactions” for
1956(a)(1)
• 1957 has $10,000 minimum requirement
• No specific intent or additional knowledge required for 1957
• Commingling rules not as favorable for 1957
• Penalties:
o 1956 max. 20 yrs
o 1957 max. 10 yrs.
Currency Transaction Reports (CTRs)

• Must be filed for all cash transactions in excess of $10,000
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• Form 4789: for financial institutions
• Form 8300: for any “trade or business”
• Willful failure to file the reports is a felony.
• 31 U.S.C. 5324: makes it a crime to structure transactions so as to avoid CTRs being filed –
“structuring” or “smurfing.” 5 year felony.
Concealment Money Laundering à (a)(1) Cases

United States v. Corchado-Peralta cb. 518
318 F.3d 255 (1st Cir. 2003)
(sufficiency of proof of mens rea in a concealment case- wife of drug smuggler charged with money
laundering)
Rule: To conceal of disguise the nature of an illegal proceed in a money laundering charge, there must
be some action by the defendant to indicate its concealment in the expenditure.
Facts: From 1987 to 1996, Ubaldo Rivera Colon smuggled over 150 kilogram of cocaine into Puerto
Rico, obtaining about $4 million, and, thereafter, laundered through multiple investments and purchases.
Colon’s wife, Elena Corchado Peralta, Defendant, and two associates, were indicted and tried together for
co-conspiracy with Colon to launder money. Additionally, Defendant was also indicted with one count of
bank fraud. Defendant appealed alleging that the evidence was insufficient to support a conviction.
Defendant met Colon in the early 1990s and got married in 1994. Defendant, at that time, was a student
and a part time employee of a jewelry store. Currently, Defendant has a college degree in business
associations. Colon testified that he held himself out to be a legitimate business man to his wife, and his
wife never knew about his drug smuggling or money laundering schemes. Defendant performed many
deposits and expenditures with Colon’s drug proceeds, such as writing and endorsing checks to purchase
expensive cars, boats, real estate, and personal services, at Colon’s direction. Additionally, Defendant
would make monthly payments to American Express; one time which she paid $18,384 in a single
monthly payment. Overall, Defendant signed the majority of 253 checks, which contained a many
hundreds of thousands of dollars of purchases. Likewise, Defendant signed tax records, which indicated
that she knew her husbands legitimate business’ income was far less than the amount she was handling,
only $12,390. At the end of the trial, the jury found Defendant guilty of co-conspiracy of money
laundering and bank fraud. Defendant appeals.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Whether a reasonable jury could find that Defendant is guilty of conspiracy to money launder.
-------------------------------------------------------------------------------------------------------------------------------
Holding: No, a reasonable jury could find that Defendant is guilty of conspiracy to money launder.
The State must prove that Defendant knew that the property represented proceeds of drug dealings and the
transaction was designed to conceal disguise of the illegal nature of the proceeds. Here, a reasonable jury
could find that Defendant knew or should have known the property represented proceeds of an illegal
business because Defendant, an educated person who was involved in family book keeping, saw Colon’s
tax records which indicated his legitimate business income was substantially lower than the money he
actually had. Nevertheless, it is much harder for the government to prove that Defendant under such
transaction for her husband with the knowledge that her husband designed to conceal of disguise the
illegal proceeds. In this case, there is no evidence that the purchases were done in a manner to conceal or
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disguise the activity. The proceeds were not buried in a garden, readily concealable, acquired in
someone’s name, nor away in a foreign repository. Therefore, based on the evidence, a reasonable jury
could not find that Defendant is guilty of conspiracy to money launder.
{Promotion Money Laundering}

United States v. Brown cb. 525
186 F.3d (5th Cir. 1999)
Rule: payments for legitimate business expenses of the enterprise cannot support a "promotion"
money laundering charge, absent a showing of intent such as expenditures that "were not
necessary to the defendant's legitimate business operations and played an important role in his
[illegal] scheme"
Facts: car dealer charged with money laundering and fraud because through his dealership SGC he was
doing a cash for gas program which was fronting the price of the car to the client then upping the price of
the car and getting it done by the lender. Defrauding lenders by making it look like the buyer is putting in
the down payment when in reality it is the dealer. This conduct constituted fraud because the lender would
not have extended credit to the purchaser absent his having some genuine equity interest in the automobile.
He also committed bank fraud with a similar scheme and for each fraud scheme there was a corresponding
count of money laundering. Each money laundering count on which Graves was indicted was charged under
18 U.S.C. § 1956(a)(1)(A)(i). The transactions the indictment charged as money laundering consisted of
expenditures, paid by checks written by SGC, that allegedly promoted the fraud.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Do checks written for legitimate business purposes that use funds obtained illegally satisfy the intent
prong of the money laundering charge?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. To obtain a conviction under § 1956(a)(1)(A)(i), the government must prove beyond a
reasonable doubt “[t]hat the defendant (1) conducted or attempted to conduct a financial transaction, (2)
which the defendant knew involved the proceeds of unlawful activity, (3) with the intent to promote or
further unlawful activity.” Graves asserts that there was insufficient evidence to establish that the charged
money laundering transactions were intended to promote any fraud committed at SGC and the court
agrees. The government tried to argue that writing checks for use on legitimate business expenses to keep
the dealership running qualified as financial transactions with the intent to promote the specified unlawful
activity because it would ensure a steady stream of potential victims. While this argument is creative it
does not pass muster with this court. We agree with Graves that there is insufficient evidence that the
charged expenditures were financial transactions conducted “with the intent to promote the carrying on of
specified unlawful activity.” The problem with the government's position is that it ignores the intent
aspect of the promotion element. Section 1956(a)(1)(A)(i) is not satisfied by a showing that a financial
transaction involving the proceeds of specified unlawful activity merely promoted the carrying on of
unlawful activity. The provision has a specific intent element: The government must show that the “dirty
money” transaction was conducted “with the intent to promote the carrying on of specified unlawful
activity.” This element is not satisfied by mere evidence of promotion, or even knowing promotion, but
requires evidence of intentional promotion. This does not mean that there must always be direct evidence,
such as a statement by the defendant, of an intent to promote specified unlawful activity. In many cases,
the intent to promote criminal activity may be inferred from the particular type of transaction. The
government needed to prove a connection between using the money and the fraudulent aspects of the
business. The money laundering statute cannot be turned into a money spending statute. Absent such
proof, § 1956(a)(1)(A)(i) does not permit conviction of a defendant who, like Graves, deposits proceeds
of some relatively minor fraudulent transactions into the operating account of an otherwise legitimate
business enterprise and then writes checks out of that account for general business purposes. Accordingly,
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we reverse Graves's money laundering convictions.
CB. 530-534
{Criminally derived property}
• In a money laundering case, the government must prove that the financial or monetary transaction
actually involved criminally derived property. This requirement raises several distinct issues
Proceeds
• US v. Santos (S.Ct. 2008): court defines proceeds as not meaning receipts but meaning net profits
o Facts: defendant was convicted of money laundering in connection with an illegal lottery
scheme.
o Interpreting the term proceeds to mean profits eliminates the merger problem (of merging
the illegal lottery laws with money laundering statutes)
• In response to Santos, Congress responded by passing the Fraud Enforcement and Enhancement
Act of 2009 – provides that the term proceeds means any property derived from or obtained or
retained, directly or indirectly, through some form of unlawful activity, including the gross
receipts of such activity
o This effectively overruled Santos
Timing
• Considering at what point funds can be considered to be the product of the unlawful activity
• US v. Kennedy (10th Cir. 1995): defendant used mail and wires to fraudulently obtain funds that
he deposited into his bank account as part of a Ponzi scheme à based on deposits he was
convicted of promotion of money laundering
o The crimes of mail and wire fraud were complete upon the use of mail and wires, and that
the funds therefore were proceeds of the fraud when the defendant received them
o Congress targeted only those transactions occurring after proceeds have been obtained
from the underlying unlawful activity
o Congress clearly intended the money laundering statutes to punish new conduct that occurs
after the completion of certain criminal activity, rather than simply to create an additional
punishment for that criminal activity
Commingling
• Under 1956 the government must prove that the financial transaction involved the proceeds of the
SUA
• Under 1957 the government must prove that the monetary transaction was derived from the
unlawful activity
• Considering how the government meets its burden of proof when clean money has been mixed or
commingled with dirty money
o Under 1956, courts generally hold that where clean and dirty money have been
commingled the government need not prove that the financial transaction specifically
derived from the dirty money
United States v. Rutgard cb. 534

116 F.3d 1270 (9th Cir. 1997)
(commingling)
Rule of law:18 U.S.C.S. § 1957 bears the title: "Engaging in monetary transactions in property derived
from specified unlawful activity." It punishes by up to ten years' imprisonment and a fine anyone who:
knowingly engages or attempts to engage in a monetary transaction in criminally derived property that
is of a value greater than $ 10,000 and is derived from specified unlawful activity. 18 U.S.C.S. §
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1957(a). The description of the crime does not speak to the attempt to cleanse dirty money by putting it
in a clean form and so disguising it. This statute applies to the most open, above-board transaction.
Facts: Defendant Jeffrey Jay Rutgard was a physician who was convicted in federal district court of
numerous counts of mail fraud on, and filing false claims with, Medicare; mail fraud on other insurers; and
transferring funds in violation of 18 U.S.C.S. § 1957. Government claims he defrauded Medicare by making
false diagnoses, performing unnecessary procedures, and falsely describing the procedures he performed.
Jury found his guilty of fraud and court of appeals reversed because of insufficient evidence. He was
sentenced to 11-1/4 years imprisonment, ordered to forfeit the proceeds of his fraud, and ordered to pay
restitution. Defendant appealed.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Under §1957, is the statute forbidding certain bank transfers violated if the transfers involve
commingled criminal and innocent funds?
-------------------------------------------------------------------------------------------------------------------------------
Holding: The court reversed defendant's § 1957 conviction, holding that the evidence was insufficient to
prove that the transferred funds were fraudulently obtained. The court held that the government must trace
the money in doctor fraud. The power is in the ability to freeze a criminal’s money outside the bank if he
doesn’t want to commit another crime. Under 1956 the statute not only proscribes any transaction whose
purpose is to hide criminal funds but reaches any fund involved in the transaction. Neither the same
reasoning nor the same language is present in §1957. Under 1957, there is no word “involve,” so the
government has to trace the funds directly to SUA. To prevail the government need show only a single
$10,000 deposit of criminally derived proceeds. Normally that should not be difficult for them. Here, the
Doctor didn’t transfer enough out that it would have required him to transfer at least $10k of criminal
proceeds (there was more than $46k left in his bank account after withdrawal). Thus, he is not liable under
1957. The court also reversed the forfeiture order, vacated defendant's sentence, and vacated the restitution
order.
Notes:
• Circuits are split on this holding
• Ways to prove comingling tainted frauds
o Basic math:
§ 50k clean and 50k dirty in account; 60k is removed à definitely removed at least
10k of dirty money for 1957 claim
o Or, can charge based on deposits, trace where money came from
U.S. v. Jackson
(online)
935 F.2d 836, 836-42 (7th Cir. 1991)
Rule of Law: Holding that where an indictment charges violations of both § 1956 and § 1956(B),
the statute only requires proof on one or the other
Facts: Reverend Davis was a preacher and also dealt crack cocaine. Davis deposited some of the cash he
collected from the crack houses in bank accounts maintained in the name of the 15th street Baptist church
development corporation. Davis also deposited into these bank accounts funds he received from more
legitimate activities, including a contract for the corp to demolish a building in east St. Louis. Davis could
write checks on these accounts – some made to cash which he used for personal use, others made out to
local vendors to provide services such as beepers and cell phones and some were made out to landlords on
a variety of vehicles for personal and church use.
Davis was charged with laundering funds derived from drug activities --- one count was based on a series
of checks drawn for cell phones and beepers. Another was based on checks drawn on the same account and
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made out to Davis’ landlord. A third was based on a series of checks that Davis or the church secretary
presented at the S&L in return for cash. The fourth was based on Davis’ use of $5,500 in cash derived in
part from his drug activities to purchase a car
Davis argues the money laundering convictions were wrong because they were impermissibly vague
Government responds that the statute gave Davis enough notice
Conclude that 1956 is not unconstitutionally vague
Davis was charged under promotion laundering and concealment laundering
The evidence established Davis’ knowing and intentional use of a bank account controlled by his employer
to promote his continued narcotics activities and to hide the source of his tainted gains in an account
containing both drug profits and legitimate income. As applied to these facts, the money laundering statute
is sufficiently definite to survive a vagueness challenge
-------------------------------------------------------------------------------------------------------------------------------
Issue: whether a defendant can be convicted under 1956 where the transaction that forms the basis of the
indictment involves the proceeds of both SUA and other conduct, either innocent or criminal, but not among
the enumerated criminal activities that may serve as a predicate for a money laundering conviction
-------------------------------------------------------------------------------------------------------------------------------
Holding: Do not read Congress’ use of the word “involve” as imposing the requirement that the
government trace the origin of all funds deposited into a bank account to determine exactly which funds
were used for which transaction
o Moreover, cannot believe that Congress intended that participants in unlawful activities
could prevent their own convictions under the money laundering statute simply by
commingling funds
• The commingling in this case is itself suggestive of a design to hide the source of ill-gotten gains
that the government must prove under 1956
• Conclude that 1956 allows for convictions where the funds involved in the transaction are derived
only in part from SUAs
o Think that a rational juror could find that the government sustained its burden of proving
these elements beyond a reasonable doubt as to the transactions charged
§ Beepers were used to communicate between dealers – so meets money laundering
statute
§ Cannot find that the phones, the rental payments, or the checks written to cash are
intended to promote the continued operations of Davos’ continuing criminal
enterprise – not enough evidence
• Writing a check, whether for cash or to a vendor who has provided services, falls within the
definition of a “financial institution the activities of which affect interstate commerce”
• Note: receipt and deposit cases where take the money from the crime itself and put it into the bank
– this likely constitutes the initial crime, so is likely not a downstream event and therefore not a
plowback
U.S. v. Campbell [online]

(Real estate Agent)
977 F.2d 854, 854-59 (4th Cir. 1992)
Rule of Law: A money laundering conviction under 18 U.S.C.S. 1956(a)(1)(B)(i) requires proof of
the defendant's knowledge of two separate facts: (1) that the funds involved in the transaction
were the proceeds of illegal activity; and (2) that the transaction was designed to conceal the
nature of the proceeds.
88
Facts: In the summer of 1989, Ellen Campbell was a licensed real estate agent working at Lake Norman
Realty in Mooresville, North Carolina. During the same period, Mark Lawing was a drug dealer in
Kannapolis, North Carolina. Lawing decided to buy a house on Lake Norman. He obtained Campbell's
business card from Lake Norman Realty's Mooresville office, called Campbell, and scheduled an
appointment to look at houses. Over the course of about five weeks, Lawing met with Campbell
approximately once a week and looked at a total of ten to twelve houses. Lawing represented himself to
Campbell as the owner of a legitimate business, L & N Autocraft, which purportedly performed
automobile customizing services. Lawing eventually settled upon a house listed for $ 191,000 and owned
by Edward and Nancy Guy Fortier. The listing with the Fortiers had been secured by Sara Fox, another
real estate agent with Lake Norman Realty. After negotiations, Lawing and the Fortiers agreed on a price
of $ 182,500, and entered into a written contract. Lawing was unable to secure a loan and decided to ask
the Fortiers to accept $ 60,000 under the table in cash and to lower the contract price to $ 122,500.
Lawing contacted Campbell and informed her of this proposal. The Fortiers agreed, and Fox had the
Fortiers execute a new listing agreement which lowered the sales price and increased the commission
percentage in order to protect the realtors' profits on the sale. Campbell was indicted on a three count
indictment alleging: 1) money laundering, 2) engaging in a transaction in criminally derived property, and
3) causing a false statement (the HUD-1 form) to be filed with a government agency. She was tried and
convicted by a jury on all three counts. After the verdict, the district court granted Campbell's motion for
judgment of acquittal with respect to the money laundering and transaction in criminally derived property
counts. The district court also conditionally ordered a new trial on these counts if the judgment of
acquittal was reversed on appeal. The Government appealed.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Did the district court err in granting Campbell’s motion for judgment of acquittal?
-------------------------------------------------------------------------------------------------------------------------------
Holding: Yes. The appellate court reversed the district court’s decision, holding that there was sufficient
evidence for the jury to have found that Campbell knew that the funds were the proceeds of illegal
activity, and that the transaction was designed to disguise the nature of those proceeds. The appellate
court ruled that the district court erred as to the elements of the offense. According to the court, the
government only had to show that Campbell knew that the transaction was designed to conceal illegal
proceeds, not that her purpose was to conceal, and that the funds were proceeds of unlawful activity, not
that she knew of the drug dealer's activities. The trial court made an impermissible judgment on witness
credibility; in ruling on the motion for judgment of acquittal, it should have weighed Campbell's
statement that the funds "might have been drug money" most favorably to the government. The court held
that the evidence of her lifestyle, the "might have been drug money" statement, and the fraudulent nature
of the transaction were sufficient to create a question for the jury.
Class 22: 11/9 Sentencing: The Federal Sentencing Guidelines

Review Chap. 19, pp. 757-778
Review U.S. Sentencing Guidelines 2B1.1 and 2C1.1 (links on class website)
For exam we should talk about sentencing generally like what the results of a guilty plea would be
but we do not need to know how to use the table or anything like that
I. SENTENCING: THE FEDERAL SENTENCING GUIDELINES

History
• Pre-guidelines (pre-1987)
• Max penalties for certain crimes, and the judge got to decide
• Could be consecutive, concurrent, harsh, lenient
89
• Lots of disparity between judges and localities
• Mandatory guidelines
• Sentencing Reform Act created the US Sentencing Commission
• No more parole (1987-2005)
o Less gaming by judges who would try to make up for parole in sentencing
o Now, there is only the 15% good time credit
• Similar defendant’s in similar cases should get similar sentences
• Judges hate the guidelines, takes away their freedom
• There was departures, but they were rare
o Very rare, and judges would often get overturned for departing
o Had to convince judge your case was extraordinary
• No longer mandatory (post 2005)
• Mandatory nature of guidelines struck down in Booker (S.Ct. 2005)
o Judges were finding elements of the guidelines based on preponderance of the
evidence without submitting to jury
o This was in violation of 6th amendment right to a jury trial
o Remedy Majority – made the guidelines non-mandatory/merely advisory
• Severed portion of the statute making the guidelines mandatory
• Appellate courts are to review sentences for unreasonableness
• So now, they are just a starting point/guideline
o More uniformity than pre-guidelines, and judges still have to explain any changes
o But judges still have flexibility
• US v. Cavera (2nd Cir. 2008): court’s ground for deterring from the guidelines (which was
deterrence) provides an independently sufficient justification for its variation from the
Guidelines à sentence is substantively reasonable
• Traditional goals of sentencing: retribution, deterrence, incapacitation, rehabilitation
Mechanics
• Chapter 5: determine base sentence
• Chapter 2: how the crimes translate to which level, lists criminal statutes
• Chapter 3: adjustments that apply to any crime
• Guilty plea adjustment
• Keep the incentive to plea guilty, reduce 3 levels
• No more “substantial assistance” which could have gotten anything to probation
• Chapter 4: criminal history (adjustment for criminal history)
• Will move columns to the right
• Increase your range
• Judge must abide by maximum or minimum sentence if one is listed
• Zone A = probation; Zone B = home confinement or community confinement; Zone c = split
sentence with jail and home/community confinement; Zone D = federal prison
Modern Federal Appellate Review in Action
90
United States v. Cavera cb. 770
550 F.3d 180 (2d Cir. 2008) (en banc)
Rule of Law: When all is said and done though, once we are sure that the sentence resulted from
the reasoned exercise of discretion, we must defer heavily to the expertise of district judges. In
this respect, we emphasize that sentencing discretion is like an elevator in that it must run in both
directions. Under Gall, Kimbrough, and Irizarry v. United States, district courts have the power
to impose sentences both above and below the Guidelines range.
Facts: The district court imposed an above-Guidelines sentence after finding that the Sentencing Guidelines
failed to take into account the need to punish more severely those who illegally transport guns into areas
like New York City. On appeal, Cavera contends, among other things, that the district court erred when it
relied on local conditions to justify a higher sentence. Cavera, a septuagenarian army veteran with
residences in New York and Florida, was arrested by the FBI with the aid of a confidential informant.
Beginning in July 2003, the informant purchased guns illegally in New York City on several occasions from
a man named Peter Abbadessa. Abbadessa told the confidential informant that his uncle, Anthony Lucania,
had a friend named Gerry (Cavera), who acted as Abbadessa's Florida gun supplier. In April 2004, the
confidential informant flew to Florida, along with Abbadessa and Lucania, for the express purpose of
procuring firearms. At the FBI's direction, the informant paid Lucania $11,500 for sixteen guns. Abbadessa
and Lucania then went to Cavera's residence in Deerfield Beach, Florida, where they gave Cavera money
in exchange for two boxes containing sixteen firearms. The boxes were later given to the informant, who
turned them over to the FBI. Abbadessa, Lucania, and the confidential informant returned to New York on
separate flights. The sentencing judge sentenced above the recommended amount because he thought
trafficking in new York was different from the rest of the country.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Must a judge follow the guidelines?
-------------------------------------------------------------------------------------------------------------------------------
Holding: No. A sentencing judge has very wide latitude to decide the proper degree of punishment for an
individual offender and a particular crime. Even after Gall and Kimbrough, sentencing judges, certainly, are
not free to ignore the Guidelines, or to treat them merely as a “body of casual advice.” A district court
should normally begin all sentencing proceedings by calculating, with the assistance of the Presentence
Report, the applicable Guidelines range. The Guidelines provide the “starting point and the initial
benchmark” for sentencing and district courts must “remain cognizant of them throughout the sentencing
process,” It is now, however, emphatically clear that the Guidelines are guidelines—that is, they are truly
advisory. A district court may not presume that a Guidelines sentence is reasonable; it must instead conduct
its own independent review of the sentencing factors, aided by the arguments of the prosecution and defense.
District judges are, as a result, generally free to impose sentences outside the recommended range. When
they do so, however, they “must consider the extent of the deviation and ensure that the justification is
sufficiently compelling to support the degree of the variance.” In this way, the district court reaches an
informed and individualized judgment in each case as to what is “sufficient, but not greater than necessary”
to fulfill the purposes of sentencing.
Class 23: 11/11 Plea Bargaining, Immunity, and Cooperation Agreements

Chap. 17, pp. 691-701
Sample plea and immunity agreements (on class website) Fed. R. Crim. Pro. 11
18 U.S.C. §§ 6001-6003
Testimony
91
• Witness
• Subjects
• Targets
Prosecutorial Discretion
• Part of your role as a prosecutor is deciding when to continue or drop a case, not to just let the jury
decide if you have a reasonable doubt about the case
• Best outcomes (in order) for prosecution: plead guilty (still subject to impeachment)
• Last resort: immunity when you need someone’s testimony
Defense
• Best outcomes (in order) for defense: never get charged; immunity; plead guilty
• Joint defense agreement (common interest privilege): counsel for clients with common or shared
interests can agree to share info that would otherwise be privileged or work product protected
without disposing of those protections
• Allows you to share info, doesn’t force you to share it – only share what is in your clients
best interests
• Lecroy (E.D. PA 2004): JDA existed between parties. One party stated they were going to
turn the notes of their meeting over to the government, and the other parties nonetheless
engaged in the meeting à waiver of that part of the JDA and agreement to modification of
part of the JDA
Immunity
• Use/Derivative Use Immunity: can’t use your testimony directly against you or as a derivative to
find other things to use against you. Can’t use anything that came out of their mouth directly or
indirectly.
o 18 USC § 6002: use/derivative use immunity protects a witness against any adverse
governmental use of the immunized testimony or documents in subsequent proceedings
§ Allows the government to prosecute a witness if the government has an
independent source for the information on which the prosecution is based.
§ In Kastigar the court held that the use/derivative use immunity is coextensive with
the fifth amendment guarantees in the nothing from the witness own mouth can be
used against the witness but other independent evidence can be used to prosecute
the witness
o With this type of immunity theoretically you could still be prosecuted if the prosecution
can establish a completely independent source
• Transactional Immunity: if you testify we cannot prosecute you for these events no matter what
the source of the evidence is
o Not provided by the statute can only get this through a deal with the prosecutor and is
extremely rare
Kastigar is the leading case

• Federal law only requires use/derivative immunity [Kastigar]
o But, to charge immunized witness, government must hold a “taint hearing” (“Kastigar
hearing”)
§ Have to show not only that the prosecutors were not tainted, but also that every
witness who testified was also not tainted and that they have an independent basis
for it and wasn’t affected in any way by anything they might have been him say
during the testimony (very hard burden to meet)
92
o Government has burden of proving that its trial evidence came from legitimate source
wholly independent of the compelled testimony
• Need to be left as though you had never testified at all under the Fifth Amendment
• But once you testify there could be personal consequences, civil suits, lose your job etc. so you are
not really in the same position but court says that all the Fifth amendment covers is not being
compelled to testify against yourself in a CRIMINAL case
How Immunity Works

• Prosecutors do internal paperwork
o Immunity is policed by main justice
o why it is in the public interest – basically justifying your request
o then it goes to main justice to get an approval
• then it goes to court with the attached approval from main justice
• Judge reviews it and makes sure everything is in order
Prosecuting the Immunized Witness

• Although the DOJ is the entity most likely to seek immunity during the course of a criminal
investigation, the legislative branch of government also has this power and can grant immunity in
order to obtain testimony for Congressional hearings
• Ex: Iran-Contra investigation – congressional immunity was granted to North and others during
the court of a Congressional investigation into matters that were simultaneously being investigated
by the Independent counsel. Despite this grant of immunity, the Independent Counsel prosecuted
North and others. North was convicted and appealed
United States v. North cb. 695

285 U.S. App. D.C. 343, 910 F.2d 843 (1990)
(funneling money to the contras in Nicaragua by selling weapons to iran)
Rule of Law:
Facts: Congress established two committees charged with investigating the sales of weapons to Iran, the
diversion of proceeds therefrom to rebels (or "Contras") fighting in Nicaragua, and the attempted cover-up
of these activities (controversial events popularly known as "the Iran/Contra Affair"). Defendant Lieutenant
Colonel Oliver L. North, a former member of the National Security Council ("NSC") staff, testified before
the Iran/Contra congressional committees. North asserted his Fifth Amendment right not to testify before
the committees, but the government compelled his testimony by a grant of use immunity pursuant to 18
U.S.C. § 6002. North was subsequently indicted and tried on twelve counts arising from his role in the
Iran/Contra affair. North was convicted on three counts: aiding and abetting an endeavor to obstruct
Congress in violation of 18 U.S.C. §§ 1505 and 2; destroying, altering, or removing official NSC documents
in violation of 18 U.S.C. § 2071; and accepting an illegal gratuity, consisting of a security system for his
home, in violation of 18 U.S.C. § 201(c)(1)(B). North argued that the government violated his Fifth
Amendment right against self-incrimination by using his immunized congressional testimony in violation
of 18 U.S.C.S. § 6002.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Under the circumstances, was the defendant’s conviction on all three counts proper?
-------------------------------------------------------------------------------------------------------------------------------
Holding: It simply does not follow that insulating prosecutors from exposure automatically proves that
immunized testimony was not used against the defendant
93
o Kastigar is instead violated whenever the prosecution puts on a witness whose testimony is
shaped, directly or indirectly, by compelled testimony, regardless of how or by whom he
was exposed to that compelled testimony
• Rinaldi explicitly recognizes that witnesses’ exposure to immunized testimony can taint their trial
testimony irrespective of the prosecution’s role in the exposure and that an inquiry is therefore
necessary into whether the content of witnesses’ testimony was derived from or motivated by the
immunized testimony
o It specifically mandates an inquiry into what a witness knew prior to exposure to the
immunized testimony and what information she gleaned from that exposure. And even
where the witness testifies from personal knowledge, use within the meaning of Kastigar
may occur, if the immunized testimony influenced the witness’ decision to testify. Our
opinion is thus entirely consistent with Rinaldi in calling for an inquiry on remand into the
content and circumstances of witnesses’ testimony
• Content and circumstances of testimony given by a witness expose to the defendant’s immunized
testimony may constitute “use” of the immunized testimony in violation of a defendant’s
constitutional rights regardless of the prosecutor’s “fault”
• Immunity from use and derivative use is coextensive with the scope of the privilege against self-
incrimination because it prohibits the prosecutorial authorities from using the compelled testimony
in any respect
o When the prosecution reneges on this constitutionally-mandated bargain and presents the
immunized testimony to the grand jury, the constitutional violation is part and parcel of the
grand jury process. The presentation – “use” – of the testimony is precisely the proscribed
act
• A prosecutor has to PROVE that the witnesses who testified against the defendant did not draw
upon the immunized testimony to use it against the defendant; the burden of disproving cannot
under Kastigar be shifted onto the defendant nor can the defendant be required to assume the
burden going forward with evidence that puts in issue the question of use. Most important the
defendant is entitled to a. hearing at which he would be able to challenge the prosecutions case for
non-use.
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Wald): statutes does not require that independent witness exposure and prosecutorial exposure
be treated identically for prophylactic purposes
Notes:
• Tainted Prosecutors: at the Kastigar hearing the government bears the burden of showing that its
case was not tainted in anyway by the earlier immunized testimony
o This is a nearly impossible burden
o If the prosecutor were to demonstrate through testimony that a particular witness exposed
to the immunized testimony had not been affected by the exposure—for example by
showing that the witness had set down his story before exposure—then the burden of going
forward would shift to the defendant to challenge that version.
Class 24: 11/16 Defending the White Collar Case (guest speaker)
Review Chap. 15, pp. 621-622, 633-645
Ten Things About Being a White Collar Defense Attorney

• How Do you become a white collar defense attorney?
o Public defender first
o Prosecutor, most AUSAs are in a firm first
94
o Can be a state prosecutor
o DC and New York are the strongest white collar places
o It Is good to do it in a smaller market because it is less competitive but the same work
• What do you do when you meet a client
o First tell them not to destroy documents
o Do not talk to other potential witnesses
o If an agent does a knock and talk—tell them you have a lawyer, get their card and then ask
them to leave
o Have a conversation about how hard the next few weeks/months of their life are going to
be
• First Steps
o If you are in the eastern district of VA (Rocket docket) you cannot get out of the case so
the retainers are very large
Proffers
• Reverse Proffers: these are when the prosecutor basically lays out their case
o Always ask for one, but when the prosecutor is anxious to do this then they probably have
a really good case, if they refuse then they probably have a bad case
INTERNAL INVESTIGATIONS, COMPLIANCE PROGRAMS, AND DEFERRED AND NON-

PROSECUTION AGREEMENTS (DEFENSE SPEAKER)
• Internal investigations have become increasingly frequent because of the increase civil and
criminal enforcement efforts against corps and the government’s willingness to treat favorably
those companies that make efforts to ferret out misconduct
o A thorough investigation will assist the company in developing defense strategies,
promoting detection, and halting illegal or improper conduct by employees at an early
stage
o Despite some risks, most large businesses today regularly conduct voluntary internal
investigations
The Bergonzi Case: Confidentiality Agreements and Common Interests
• Common interest privilege is frequently referred to as the joint defense agreement. It applies
where (1) the communication is made by separate parties in the court of a matter of common
interest, (2) the communication is designed to further that effort, and (3) the privilege has not been
waived
• Confidentiality agreements: in many cases involving internal investigations, corporations often
create confidentiality agreements with the government when disclosing information from internal
investigations. However, this confidentiality agreement does not prevent the waiver of the attorney
client privilege
• Non-waiver agreements: some US Attorneys offices will enter into non-waiver agreements with
a corp under investigation. Questions remain as to the extent to which the courts will recognize
such agreements
• Well Letters: a Wells Notice is a letter sent by an SEC regulator to a prospective respondent,
providing the substance of charges that the regulator intends to bring against the respondent, and
affording the respondent the opportunity to submit a written statement to the ultimate decision
maker
Joint Defense Agreements
95
• In complex litigation, individuals and entities who are parties to the litigation often share common
interests. A JDA (joint defense agreement) may create a privilege, also known as the common
interest privilege, which protects the free flow of information among such parties
• The privilege provides that communications among the parties are protected when the
communications are designed to establish a common litigation strategy
United States v. Lecroy cb. 639

348 F. Supp. 2d 375 (E.D. Pa. 2004)
(common interests—joint defense agreement)
Rule of Law:
Facts: Defendants Charles LeCroy and Anthony C. Snell are charged in Counts 26 and 27 of this
indictment with wire fraud under 18 U.S.C. §§ 1343 and 2, for allegedly soliciting and obtaining from
Philadelphia attorney Ronald White (originally a named co-defendant in this case but now deceased) a
false $50,000 invoice presented to J.P. Morgan Chase ("JPMC") for legal services purportedly performed
by White's law firm.
-------------------------------------------------------------------------------------------------------------------------------
Issue: The issue presented is whether this Court should preclude the government from using certain notes
and memoranda it has in its possession, which were taken by JPMC counsel during interviews held with
JPMC employees LeCroy and Snell by JPMC counsel, or whether these notes and interviews are
protected by either the attorney-client privilege and/or a joint defense agreement entered into by counsel
for LeCroy, Snell and JPMC.
-------------------------------------------------------------------------------------------------------------------------------
Holding: Because a joint defense agreement (JDA) is sometimes used outside of the context of litigation
the more appropriate term for it is the “common interest rule.” A party seeking to prove a joint defense
agreement exists has the burden of proof and also the burden of proving applicability of the privilege.
In order to assert joint defense privilege as a defense the person claiming it must prove (1) The
communications were made in the course of the joint defense effort; (2) the statements were made in
furtherance of that effort; (3) the privilege has not been waived. A participant in a JDA must be free to
withdraw unilaterally. A participant may also decide that they want to “go it alone” and plead guilty to a
charge that appears inevitable and that continuance of the JDA would deprive the party of the benefits of
an early plea arrangement. LeCroy and Snell knew that if they interviewed with JPMG’s counsel the notes
could be turned over to the government and they had the right to refuse the interview but they did not so
they waived the right to claim a JDA privilege
• The burden of demonstrating the existence of a JDA falls on the person claiming it, a party
seeking to assert the JDA privilege must demonstrate that (1) the communications were made in
the course of a joint defense effort; (2) the statements were made in furtherance of that effort; and
(3) the privilege has not been waived
o Likewise, the party asserting privilege, both in the context of JDA and otherwise, bears the
burden of proving the applicability of the privilege
o Courts have found that an oral JDA may be valid and that a person need not be a litigant to
be a party to a JDA
o The communication must be made in confidence and that the client reasonably understood
it to be so given
• Public policy mandates that a participant in a JDA must be free to withdraw from it, unilaterally,
but the withdrawal or waiver must be prospective only
• Waiver: there is no waiver of the individual privilege between LeCroy and his counsel or Snell
and his counsel. The only issue of waiver relates to certain protections of the JDA
96
o The subsidiary could not unilaterally waive a JDA, and that the JDA privilege may attach
irrespective of whether an action is criminal or civil, and regardless of whether an action is
ongoing or contemplated
o The existence of a JDA does not increase the number of parties whose consent is needed to
waive the attorney-client privilege – it merely prevents disclosure of a communication
made in the course of preparing a joint defense by the third party to whom it was made
o The Court finds that LeCroy and Snell waived some protections of the JDA by proceeding
with the interviews with JPMC counsel. Specifically, they voluntarily and knowingly
waived the protection of the JDA to the extent that JPMC would be allowed to turn over
the notes of those interviews to the government
• Withdrawal: it is clearly contemplated by the parties to a JDA that one party could withdraw
prospectively
• Modification: parties to an agreement have the right to modify it. While one party to a k cannot
modify its terms without the assent of the other parties, the fact of agreement as to a modification
may be implied from a course of conduct in accordance with its existence
• Here, court finds partial withdrawal from JPMC and a partial waiver by LeCroy and Snell
• The facts in this case demonstrate that although entering into a JDA is often, indeed generally,
beneficial to its participants, like skating on this ice, dangers lurk below the surface
o When JPMC insisted on its right to turn over the notes of its interviews with Snell and
LeCroy to the government, Snell and Lecroy had the option to reject JPMC’s terms and
refuse to submit to the interviews. By proceeding the wat they did, LeCroy and Snell
waived the protections they had under the existing JDA and, by their conduct, agreed to a
modification of the JDA.
o For this court to refuse the government use of the interview notes which JPMC turned over
to the grand jury would amount to judicial suppression of evidence that the recipient of a
grand jury subpoena legitimately turned over to the GJ
Class 25: 11/18 Plea Bargaining Exercise
Class 26: 11/23 Parallel Proceedings

Chap. 18, pp. 719-720, 732-737, 741-755
PARALLEL PROCEEDINGS
• Parallel proceedings exist when the government pursues simultaneous or successive civil and
criminal investigations and/or cases relating to the same parties and activities
• A corporation or individual may simultaneously confront parallel administrative, civil, and/or
criminal actions based on the same or similar facts.
• Parallel proceeds present important issues concerning the right against self-incrimination, stays of
parallel civil proceedings, and discovery
Civil and Agency Investigations
• Specific federal agencies have primary responsibility for enforcing the laws related to their
respective zones of authority
o The investigative power is located within the specific agency’s Office of Inspector General
(OIG)
• Agencies have the power to issue subpoenas
o Courts have authority to review both the scope and propriety of subpoenas and summonses
issued by federal agencies
97
o A court does not normally consider the merits of a party’s claim that it has not violated a
statute or regulation administered by the agency when reviewing an agency’s actions in a
subpoena enforcement proceeding
• Standing alone, federal agencies cannot institute criminal actions. Instead, they must refer matters
to the DOJ for a determination of whether criminal charges may be appropriate
Deferred Prosecution
• Corporate diversion agreements (deferred and non-prosecution agreements) allow the government
to impose terms of probation before or without conviction
{Fifth Amendment Risks}

United States v. Kordel cb. 733
Rule of Law: When a civil and criminal proceeding are pending against the same individual, the
court may exercise its discretion to stay the civil matter during the pendency of the criminal case
where the absence of a stay would jeopardize the individual’s Fifth Amendment privilege against
self-incrimination.
Facts: The Federal Drug Administration (FDA) requested the government (plaintiff) file a lawsuit in federal
district court to seize two products manufactured by Detroit Vital Foods, Inc., on the ground that the sale
of the products violated the Federal Food, Drug, and Cosmetic Act (Act). The government filed
interrogatories that the corporation was required to answer under the Federal Rules of Civil Procedure. Ten
days later, the government notified Vital Foods that it was the subject of a contemplated criminal proceeding.
Vital Foods sought to stay the civil action or extend the time to answer the interrogatories until after the
disposition of the criminal proceeding. In moving for the stay, the plaintiffs did not assert their Fifth
Amendment privilege against self-incrimination. The court denied the motion upon finding that the
corporation had failed to demonstrate that it would suffer substantial prejudice and harm if required to
respond to the interrogatories. The President and Vice President of Vital Foods (defendants) were convicted,
along with the company, of violating the Act. The federal court of appeals reversed their convictions on the
ground that the government improperly used interrogatories to obtain evidence from the defendants in a
nearly contemporaneous civil condemnation proceeding. The United States Supreme Court granted
certiorari to consider questions regarding the government’s invocation of simultaneous civil and criminal
proceedings in the enforcement of federal law.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Does the government’s use of interrogatories in a civil case against a corporate defendant necessarily
immunize the corporation’s officers from subsequent criminal prosecution?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Stewart, J.): No. The Fifth Amendment protects against compulsory self-
incrimination. The privilege applies to people, not companies. When a civil and criminal proceeding are
pending against the same individual, the court may exercise its discretion to stay the civil matter during the
pendency of the criminal case where the absence of a stay would jeopardize the individual’s Fifth
Amendment privilege against self-incrimination. When a criminal case is pending, service of interrogatories
on a corporation in a related civil matter requires appointment of an agent who can, without fear of self-
incrimination, provide the requested information. Where no such agent may be appointed, the appropriate
remedy is the issuance of a protective order or the postponement of civil discovery until the criminal case
is resolved. Certain circumstances might require the issuance of a civil stay in the interests of justice, such
as: where the government brought the civil case solely to obtain evidence for its criminal prosecution; where
the government failed to advise the defendant in its civil case that it was contemplating his criminal
prosecution; where the defendant is without counsel or reasonably fears prejudice from adverse pretrial
98
publicity or other unfair injury; or where any other special circumstances exist that might suggest the
unconstitutionality or even the impropriety of the criminal prosecution. Here, the defendants answered the
interrogatories voluntarily. They could have asserted a Fifth Amendment privilege against self-
incrimination, but they did not. Similarly, they did not demonstrate that there was no authorized person who
could answer the interrogatories without the possibility of compulsory self-incrimination. Plaintiffs’ claims
that the government’s conduct here violated their rights to due process and constituted a departure from
proper standards in the administration of justice also fails. The public has a strong interest in prompt action
by the FDA regarding misbranded drugs. No special circumstances exist to warrant a stay in the interests
of justice. Accordingly, the lower court’s decision is affirmed.
Notes:
Defendant’s Options When Receive Interrogatories in a Civil Case
• Not respond to interrogatories or get a stay
o Court will balance the interests
o D will probably lose the balancing test against the P, the court, and the public
• Answer interrogatories in civil case – solves problem in civil case
o But, possibly negative implications if parallel criminal proceeding – statements against D’s
interest can be admitted against D in criminal proceeding
o Inherent risk: Kordel (S.Ct. 1970): parallel proceedings against D (FDA and crim.); stay
denied, D answered interrogatories; then, convicted in criminal proceeding
§ Individual could have plead the 5th, but chose not to, so his 5th amendment right
was not violated
§ Corp could have had other person answer questions – if no one can answer without
pleading the 5th, have to ask for protective order
§ May be legitimate constitutional claim if government brought civil action solely for
purpose of getting evidence for criminal prosecution
• Answer the interrogatories, but seek a protective order
o Provides some protection, but protective order is not indefinite and can be revoked by the
judge; GJ subpoena will overrule protective order
• Plead the Fifth and not answer interrogatories (only for individuals, not corps)
o Note: in civil cases, can draw adverse inference from pleading fifth, but cant do this in
criminal case
§ Adverse inference is not enough to prove civil case, but can be used as one piece of
evidence
{Grand Jury Risks}

Douglas Oil Co. v. Petrol Stops Northwest cb. 741
Supreme Court of the United States 441 U.S. 211 (1979)
Rule of Law: Disclosure of grand jury proceedings is appropriate only when the demonstrated and
particularized need for disclosure outweighs the public’s interest in maintaining the confidentiality
of those proceedings.
Facts: Petrol Stops Northwest and other gasoline retailers (plaintiffs) filed a civil suit in the Arizona federal
district court against Douglas Oil Company of California and other oil companies (defendants) for alleged
price fixing. At about the same time, a grand jury in the United States District Court for the Central District
of California investigated criminal allegations against the defendant oil companies. The retailers
successfully moved the California judge to order the grand jury transcripts to be released under certain
protective conditions. The oil companies appealed to the United States Court of Appeals for the Ninth
99
Circuit, which affirmed the California judge's order. The oil companies appealed to the United States
Supreme Court.
-------------------------------------------------------------------------------------------------------------------------------
Issue: Is disclosure of grand jury proceedings appropriate only when the demonstrated and particularized
need for disclosure outweighs the public’s interest in maintaining the confidentiality of those proceedings?
-------------------------------------------------------------------------------------------------------------------------------
Holding and Reasoning (Powell, J.): Yes. Disclosure of ongoing or completed grand jury proceedings is
appropriate only when the demonstrated and particularized need for disclosure outweighs the public’s
interest in maintaining the confidentiality of those proceedings. Confidentiality serves many purposes: (1)
encouraging prospective grand jury witnesses to testify fully and frankly, without fear of retribution and
without the danger they will be induced to withhold or falsify their testimony; (2) deterring the risk a
prospective witness will flee or attempt to improperly influence the grand jurors; and (3) protecting the
interests of a person exonerated by the grand jury. Federal Rule of Criminal Procedure 6(e) provides specific
requirements for disclosure of grand jury procceedings. Judges have substantial discretion to examine the
extent of the need for continuing grand jury secrecy, the need for disclosure, and the extent to which the
request was limited to directly pertinent material. The judge may impose protective limitations on the use
of disclosed material. When grand jury proceedings are held in one court, and the need for disclosure arises
from proceedings in another court, circumstances will dictate which court should rule on the request for
disclosure. Here, the California district judge imposed appropriate conditions on release of the grand jury
transcripts. However, under the specific circumstances of this case, the California district judge should have
decided only whether the grand jury transcripts could be released without harming the public interest in
preserving their confidentiality. If so, the judge should have sent the transcripts to the Arizona district judge
who, of the two judges, was the only one with first-hand knowledge of the need for and relevance of those
transcripts to the Arizona case. Therefore, although the California judge’s action might have been proper
under different circumstances, his ruling was improper and the appellate court’s judgment is reversed.
-------------------------------------------------------------------------------------------------------------------------------
Dissent (Stevens, J.): The majority should not have reversed the appellate court’s judgment without finding
the California district judge egregiously abused his broad discretion.
Notes:
• A party seeking access to grand jury transcripts must show a particularized need. Consider two
factors:
o The need for continued grand jury secrecy
o Respondents’ need for the requested material
• Standard for determining when the traditional secrecy of GJ may be broken: parties seeking GJ
transcripts under 6(e) must show (1) that the material they seek is needed to avoid a possible
injustice in another judicial proceeding, (2) that the need for disclosure is greater than the need for
continued secrecy, and (3) that their request is structured to cover only material so needed
• The federal courts who have addressed the question generally have said that the request for
disclosure of GJ minutes under rule 6(e) must be directed toward the court under whose auspices
the GJ was empaneled.
o Those who seek GJ transcripts have little choice other than to file a request with the court
that supervised the GJ, as it is the only court with control over the transcripts
• Notes:
o DOJ civil attorneys may receive GJ information only via court order based on a showing of
particularized need
o Administrative agencies cannot inspect GJ materials unless the primary purpose of
disclosure is to assist in preparation or conduct of a judicial proceeding
100
{Timing of Parallel Proceedings}
United States v. Stringer cb. 748
535 F.3d 929 (9th Cir. 2008)
Rule of Law: The United States Supreme Court holds that the government may conduct parallel civil and
criminal investigations without violating the due process clause, so long as it does not act in bad faith. The
Supreme Court suggests that the government may act in bad faith if it brings a civil action solely for the
purpose of obtaining evidence in a criminal prosecution and does not advise the defendant of the planned
use of evidence in a criminal proceeding. The Supreme Court thus distinguishes a United States v. Kordel
investigation from bad faith cases where the government has brought a civil action solely to obtain evidence
for its criminal prosecution or has failed to advise the defendant in its civil proceeding that it contemplates
his criminal prosecution; or any other special circumstances might suggest the unconstitutionality or even
the impropriety of this criminal prosecution.
-------------------------------------------------------------------------------------------------------------------------------
Facts: Defendants were investigated by the SEC on alleged civil securities fraud. The SEC coordinated its
investigation with the United States Attorney's Office (USAO) as authorized under 15 U.S.C.S. §§ 77t(b)
and 78u(d). The SEC provided defendants with Form 1662 that advised them of their Fifth Amendment
rights and that any information could be used by the SEC or any other agency. The district court held that
the government had engaged in deceitful conduct, in violation of defendants' due process rights, by
simultaneously pursuing civil and criminal investigations of defendants' alleged falsification of the financial
records of their high-tech camera sales company.
-------------------------------------------------------------------------------------------------------------------------------
Issue: May the government conduct parallel civil and criminal investigations without violating the due
process clause?
-------------------------------------------------------------------------------------------------------------------------------
Holding: Yes. The appellate court found that the government's conduct did not amount to a constitutional
violation under either the Fourth or Fifth Amendments. There was nothing improper about the government
undertaking simultaneous criminal and civil investigations, and nothing in the government's actual conduct
of those investigations amounted to deceit or an affirmative misrepresentation that justified the rare sanction
of dismissal of criminal charges or suppression of evidence received in the course of the investigations.
Notes:
• When there are common facts between the parallel civil and criminal proceeding, courts give
judicial deference to the criminal proceeding. A criminal prosecution will have priority in
scheduling
• Note on Recurring Issues
o Settlements: subject of a parallel proceeding has the opportunity to seek a global settlement
in order to resolve criminal charges along with the civil claims simultaneously
§ Rule 408 of FRE protects settlement discussions from disclosure at a subsequent
trial or hearing – does not extend to criminal cases, only civil
• Admissions: government can use previous statements of defendant in indictment or in preparing
cross examination questions (under FRE 801(d)(2)(A))—can be admitted against the party as
admissions
101
EXAM:
NO FCPA
NO Sentencing Guidelines
Don’t worry about venue or statute of limitations just assume that is all fine
Best Answer:
• The application of the facts to the law
• What issues do you see
• Look for several different possibilities—different events to charge on
o Ex. Instead of latching on to one mail fraud maybe there are several different possibilities
several different wires
o Maybe several regal enterprises etc.
• Be sure to discuss the different options!
• Would one be better than the other, if so, why?
• Shorthand reference to cases is fine
Word limit is 4,000 words for 3 hour exam

Latest time you can start is 630am Saturday
Money Laundering
• Financial transaction vs. monetary instrument
o Monetary instrument defined in 1956(c)(5)
o Funds is just money – financial instrument of some kind
• Financial Transaction for (A)(1) requires some type of exchange
o So you're, you're purchasing something or depositing the checker, cashing a check or things
like that. There's some kind of a exchange going on.
o And the key for a2 is the transport actually moving the funds across the international border
even if you're not exchanging them with anybody.
o So even more important than that. Distinguishing between the types of funds that might be
involved, the types of instruments that maybe involved is sort of the nature of the event, the
financial transaction or just some kind of exchange transaction versus just the transport.
§ So financial transaction does include the transfer of title to certain kinds of things
like cars and airplanes and real estate and things like that. And also so pretty much
any any transaction you can you can do with money
• Difference between 3 and 4 conceal versus designed to avoid a CTR filing requirement.
o Okay. So the first two talk about intent, right? So intent to disguise the are intended to
promote rather the SUA, or they intent to avoid income taxes.
o And then 3 and 4, talk about knowledge like knowing that it was designed to disguise and
knowing that it was designed to evade the SUA. So they're a little different.
o One consequence of that difference is, you remember the Campbell case, the real estate
agent, for example, who is charged with helping the drug dealer launder his money through
buying the house. She knew the drug or the allegation was that she knew that the purpose of
the transaction was to disguise the nature origin, source of the funds, right? That wasn't her
own purpose, that wasn't her own intent. She knew that was his purpose basically, right. So
she knows that's the reason for the transaction. That's why this drug dealers doing it. And
that's all that's required there.
o And the same is true with the evading A CTR. You know that the reason you're setting up
your transactions as ways to avoid the bank filing those currency transaction reports.
102
o With the first two you've got to show it's actually the defendant's intent in engaging in a
financial transaction is with the intention of promoting the SUA is you're plowing the
money back in or intent to evade income taxes. And we didn't talk much about the tax prawn
or the CTR prong.
o More significant ones are intended to promote and knowing that that was designed to
conceal.
So I was wondering what's the difference between concealment under 1956 and using 1957 period because
1957 also discussing also discusses a Knowledge requirement that the transactions criminally derived
property. Yes.
• So the so for poll 56 and 57, you have to know that it's dirty money, right? You've got to know that
it's to say criminal derived property in 37 proceeds with some form of unlawful activity in 36
basically means the same thing if you look at the definitions. So in both of those statutes, the
defendant has to know that the money is dirty.
• The difference is 57. It doesn't matter why you're putting it into bank. Right? You can put in the
bank and your own account in your own name, not concealing anything. Not hiding anything. That's
that's still violates 1957 Just the fact that putting your dirty money in the bank, knowing that it's
dirty money, that violates 57,
• But you cannot violate 1956(A)(1) unless you also have one of the other knowledge or intent. So
you not only have to know that it's dirty money, but you have to intend to conceal or intend to
promote or know that the purpose of the transactions to conceal the nature origin, source, you have
to have that additional element of knowledge or intent that's lacking in 1957.
1956 SHOULD CITE THE SPECIFIC SECTION

Four Theories that we covered
• The intent to promote
• intent to evade taxes, [DON’T REALLY NEED THIS ONE FOR EXAM]
• knowing that it's designed to conceal or
• knowing that it's design to evade an SUA [DON’T REALLY NEED THIS ONE FOR EXAM]
For Securities Fraud

You can mention both 78j and 1348
Elements don’t change for insider trading
If you need to talk about it identify the offense and usually pursued under title 15, 1348 is also an option
but not likely to make a big difference which one you use, so sorta flag them both.
Hobbes Act
• Public Officials Conspire with themselves
• Ocasio v. United States
103

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White Collar Crime

Federal Prosecutor – send him an email

Class 1: Introduction to White Collar Crime

Class 2: 8/26 Corporate Criminal Liability

Two Prong for Respondeat Superior

Chap. 2, pp. 21-32

Corporate Compliance Efforts

United States v. Hilton Hotels Corp. cb. 28

Chap. 15, pp. 646-654

Policy Arguments for Corporate Criminal Liability

Critique of Respondeat Superior Standard

Other Possible Approaches

DOJ Charging Principles

Deferred Prosecution Agreements

Class 3: 8/31 Criminal Investigations: Federal Grand Jury

Grand Jury Procedure

Fed. R. Crim. Pro. 6 (the Grand Jury)

Fed. R. Crim. Pro. 17 (Subpoena)

Witnesses before the Grand Jury

United States v. Williams cb. 665

Grand Jury Secrecy and Related Issues

Class 5: 9/9 Mail and Wire Fraud: The Scheme to Defraud

Mail and Wire Fraud Statutes

Mail Fraud Wire Fraud

Elements of the Offense

Mail Fraud v. Wire Fraud

“Wire” Transmission Requirement

The Causation requirement

“Scheme or Artifice to Defraud”

Scheme to Defraud – Intent

Scheme to Defraud - Materiality

The Use of the Mails and Wires

Schmuck v. United States cb. 164

Class 6: 9/14 Mail and Wire Fraud: The Property Requirement

Honest Services Fraud

The “McNally fix”

McNally v. United States

Post-McNally Property Issues

Intangible Property Rights

Cleveland v. United States cb. 129

Kelly v. United States

Class 7: 9/16 Mail and Wire Fraud: Honest Services Fraud

What is the object of the scheme to defraud?

Honest Services Fraud after 1346

Sarbanes-Oxley Act of 2002

Skilling v. United States cb. 138

Rule of Law: 1346 covers only bribes and kickbacks.

United States v. Milovanovic cb. 149

Class 8: 9/21 Conspiracy

Conspiracy—18 U.S.C. 371

Advantages of a Conspiracy Charge

The Two Prongs of §371

The Overt Act Requirement

The Offense Clause and the Defraud Clause

Arch Trading Sample Charging Language

Scope of the Conspiracy 83-90

Kotteakos v. United States cb. 83 (Spoke and Wheel)

United States v. Jimenez RECIO cb. 90

Withdrawal (Defense’s Burden to Prove It)

The Pinkerton Rule