In Kaley v. United States, the U.S.
Supreme Court held that criminal defendants are not entitled to
challenge an asset freeze by relitigating a grand jury's
determination that probable cause exists to believe they committed
the crimes charged. The defendants, Kerri and Brian Kaley, were
charged with engaging in a scheme to steal prescription medical
devices and resell them for profit. After the indictment, the
prosecutors obtained a restraining order freezing the Kaleys'
assets. The Kaleys asked the district court to lift the asset
freeze so that they could pay their attorneys. The Kaleys did not
dispute that the assets restrained were traceable to their conduct;
instead, they argued that the indictment against them was
"baseless." The district court upheld the restraining
order, and the U.S. Court of Appeals for the Eleventh Circuit
affirmed, holding that the Kaleys were not entitled to challenge
the grand jury's probable cause determination at a hearing on
the asset freeze. A divided Supreme Court agreed, holding that
"[i]f judicial review of the grand jury's probable cause
determination is not warranted (as we have so often held) to put a
defendant on trial or place her in custody," the Court held,
"then neither is it needed to freeze her property."
Disgorgement Order Can Include Profits Earned by
Others
In a split decision, the Second Circuit in Securities and Exchange Commission v.
Contorinis held that in an enforcement action by the
Securities and Exchange Commission (SEC), an inside trader may be
ordered to disgorge profits earned by others. In a separate
criminal action, Joseph Contorinis was convicted of using inside
information to trade on behalf of an investment fund of which he
was managing director. Contorinis was sentenced to six years'
imprisonment and ordered to forfeit $12.7 million. On appeal in the
criminal case, the Second Circuit reversed the forfeiture order,
holding that Contorinis did not have to forfeit money he never
actually possessed. In the action brought by the SEC, however, the
Second Circuit upheld an order requiring Contorinis to disgorge
approximately $7.2 million, which included profits to the
investment fund in which he traded rather than to Contorinis
personally. The court likened the situation to one in which a
tipper is responsible for the gains of his tippee even without
direct economic benefit to the tipper. Because a purpose of
disgorgement is to ensure that illegal actions do not unjustly
enrich third parties, the Second Circuit held, one who obtains
funds for others by trading on inside information can be forced to
disgorge those funds as well.
Defendant Waived Argument He Pleaded Guilty to a
Nonoffense
On appeal in United States v. Rubin, the
defendant, Ira Rubin, argued that his conviction for conspiracy to
violate the Unlawful Internet Gambling Enforcement Act of 2006
(UIGEA) was invalid because the indictment against him alleged only
that he engaged in "the activities of a financial transaction
provider" that are expressly excluded from the definition of
"business of betting or wagering" under the UIGEA. This
defect in the indictment, Rubin argued, deprived the district court
of jurisdiction to accept his guilty plea. The Second Circuit held
that it need not reach Rubin's argument because the defect
asserted by Rubin was nonjurisdictional and therefore could be, and
was, waived by Rubin's guilty plea. The Second Circuit also
noted in a footnote that Rubin failed to raise, and thus waived,
"any argument that Rule 12(b)(3)(B) allows him to challenge
for the first time on appeal that the Indictment fails to state an
offense ? a non-jurisdictional challenge to the
prosecution."
SEC Claims "Whistleblowers" Don't Have to
Report to SEC
The SEC filed an amicus brief in Meng-Lin Liu v. Siemens
AG, which is currently before the Second Circuit, arguing that
an individual can qualify as a "whistleblower" for
purposes of the Dodd-Frank anti-retaliation provisions even if the
individual did not report to the SEC. Rather, the SEC argues,
consistent with its clarifying rule, the anti-retaliation
protections extend to anyone who engages in the whistleblowing
activities described in Section 21F(h)(1)(A) of the Securities
Exchange Act of 1934 irrespective of whether the individual makes a
separate report to the SEC. According to the SEC, this reading will
"maintain incentives for individuals to first report
internally in appropriate circumstances." In Liu,
Meng-Lin Liu alleged that Siemens had retaliated against him after
he internally reported alleged corrupt practices by the company.
The district court dismissed Liu's case on the grounds that the
anti-retaliation provisions do not extend to Liu as an overseas
whistleblower. The district court discussed but did not reach
Siemens' argument that because Liu did not report to the SEC,
he did not qualify as a whistleblower under the anti-retaliation
provisions.
Wal-Mart Spent $282 Million in Pre-Enforcement FCPA
Expenses in 2013
In a recent post on the "FCPA Professor" blog,
Professor Michael Koehler notes that "pre-enforcement action
professional fees and expenses are typically the most expensive
aspect[s] of [Foreign Corrupt Practices Act (FCPA)] scrutiny."
Koehler references Wal-Mart's earnings conference call on
February 20, 2014, in which Wal-Mart reported spending $282 million
in charges related to FCPA matters, including approximately $173
million for ongoing inquiries and investigations and $109 million
for compliance and organizational enhancements. Wal-Mart also
stated that it anticipated FCPA expenses for fiscal year 2014 to be
between $200 million and $240 million.
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