22 May

Hoskins FCPA Trial Pushed Back Until November Despite Government’s Objection

Judge Janet Bond Arterton has granted a continuance in the prosecution of Lawrence Hoskins, the former Alstom executive who allegedly violated the Foreign Corrupt Practices Act in an effort to win business for a Connecticut-based subsidiary.  The defense had asked the court to push back a June trial date on account of a recently-filed superseding indictment, volumninous discovery and ongoing discovery disputes, and the complexity of preparing to defend a case involving facts that transpired eleven years ago.  The governent opposed the motion, but Judge Arterton granted the request, citing the new indictment and ongoing discovery efforts.

Jury selection will now begin on November 24, 2015.  Our prior posts on the case can be read here.

20 May

Laurie Bebo and the SEC Press Arguments Before the Seventh Circuit

Laurie Bebo has asked the Seventh Circuit Court of Appeals to reinstate her action against the Securities and Exchange Commission. Bebo, the former CEO of Assisted Living Concepts who was charged administratively by the SEC, filed suit arguing in part that Section 929 of the Dodd-Frank Act, which allows the SEC to seek penalties from unregulated persons administratively or in federal court, is unconstitutional because it “provides the SEC unguided authority to chose which citizens will (and which will not) receive the procedural protections of federal district court . . . in defending themselves against the same alleged violations for the same potential penalties.” As we reported, although Judge Rudolph T. Randa called Bebo’s claims “compelling and meritorious,” he found that he lacked jurisdiction over the matter after concluding that the Securities Exchange Act requires Bebo to litigate her claims before the SEC and then, if necessary, before the Court of Appeals.

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08 May

Prosecutors Move to Stop Hoskins From Arguing that Lack of Agency Defeats FCPA Claim

With trial scheduled to start in early June – despite a pending defense motion for a six-month delay – the government filed motions  this week in its case against Lawrence Hoskins to prohibit Hoskins from making certain arguments to the jury. Hoskins is the former Alstom executive who allegedly violated the Foreign Corrupt Practices Act by arranging for the payment of bribes to Indonesian officials to secure work for Alstom Power, Inc., a Connecticut-based subsidiary. In various briefs seeking to dismiss the case and for discovery, Hoskins has argued that because he worked for the French parent company and not the U.S. subsidiary, he was not an “agent of a domestic concern” and therefore could not have violated the FCPA. The government has opposed Hoskins’ argument throughout the prosecution and now has filed a motion to prohibit him from making it to the jury.

The government believes it has properly charged Hoskins under the theory he violated the statute as an agent of Alstom Power. But the government’s argument in limine is premised on the fact it has also advanced “alternative theories of liability, both in the form of a conspiracy charge under 18 U.S.C. § 371 and accessorial liability for the substantive charges under 18 U.S.C. § 2.” Because Hoskins was unsuccessful in getting those theories dismissed, the government claims it is entitled to have the jury instructed on them at trial and even if the jury determines he was not an agent of a domestic concern, it could still convict under the accomplice and conspiracy theories. Therefore, to avoid confusion, the government wants an order precluding Hoskins from arguing at trial “that the only basis for convicting the defendant of the substantive FCPA violations is if the jury finds that the defendant was an agent of Alstom Power, Inc.”

Our prior posts on the case can be read here.

07 May

Government Argues Neither Newman Nor Exclusion of Evidence Justifies Overturning Martoma’s Conviction

The government has filed a brief opposing Mathew Martoma’s motion to vacate his 2014 conviction on insider trading charges or to obtain a new trial. As we reported in February, Martoma raised three principal issues on appeal to the Court of Appeals for the Second Circuit. First, he argued the government failed to present sufficient evidence he obtained inside information in exchange for providing a personal benefit. Second, Martoma claimed Judge Paul G. Gardephe committed reversible error when he refused to allow Martoma to present testimony that the SEC obtained from Steven A. Cohen, who was unavailable at trial. And third, Martoma challenged the court’s exclusion of proposed expert testimony. The government claims none of Martoma’s arguments is persuasive.

With respect to the sufficiency of the evidence, Martoma argued the government failed to prove Dr. Sidney Gilman received a personal benefit in exchange for inside information as the Second Circuit’s intervening decision in U.S. v. Newman, 773 F.3d 438 (2d Cir. 2014), requires. Gilman was a University of Michigan neurology professor with whom Martoma consulted through a third-party “expert networking” firm. But the government contends Newman does not change things for Martoma because “Newman’s discussion of what type of personal relationship might suffice to demonstrate a personal benefit is immaterial.” Instead, “irrespective of any personal relationships, the tippers [Gilman and another doctor] here had a business relationship with Martoma that sufficiently—indeed, overwhelmingly—established that they tipped Martoma because he was a lucrative client who had already paid them tens of thousands of dollars and, if kept satisfied, could be expected to continue doing so.”

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24 Apr

Former Alstom Exec Claims Government Owes Him Company Documents Under Brady and Rule 16

Former Alstom Holdings executive Lawrence Hoskins continues his effort to prove he was not an “agent” of a “domestic concern” and therefore could not have criminally violated the Foreign Corrupt Practices Act. He has moved to compel the government to produce numerous documents Hoskins claims are key to his defense. As we reported earlier this year, Hoskins, who was employed by Alstom’s French parent company, has been charged with money laundering and FCPA violations in connection with his alleged role in bribing Indonesian government officials to help Alstom’s Connecticut-based subsidiary win a contract.

Hoskins argues he is entitled to information — including e-mails, org charts, personnel files, and corporate policies — under Brady v. Maryland, 373 U.S. 83 (1963), which obligates the government to disclose material exculpatory or impeachment evidence to the defense. He also contends he is entitled to discover the same items under Federal Rule of Criminal Procedure 16, pursuant to which defendants can inspect certain items “within the government’s possession, custody, or control” that are material to the defense or will be used in the government’s case-in-chief. In opposition, the government says it has satisfied its obligations and that Hoskins is merely engaging in “eleventh hour civil-style discovery.”

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23 Apr

Government Pursues UK Futures Trader Who Allegedly Contributed to “Flash Crash”

The Justice Department has brought criminal charges against Navinder Singh Sarao, a British futures trader who prosecutors allege used a modified automated trading program to manipulate the market for “E-Minis” between June 2009 and April 2014. E-Minis are a stock market index futures contract based on the Standard & Poor’s 500 Index that Sarao traded on the Chicago Mercantile Exchange. According to a criminal complaint filed in the Northern District of Illinois in February but unveiled this week, upon Sarao’s arrest, Sarao’s manipulative and fraudulent conduct allegedly contributed to a dramatic plunge in the U.S. stock markets on May 6, 2010 that came to be known as the “Flash Crash.”

Sarao’s manipulative conduct supposedly took multiple forms, including a type of spoofing called “layering,” whereby “a trader places multiple, bogus orders that the trader does not intend to have executed—for example, multiple orders to sell a financial product at different price points—and then quickly modifies or cancels those orders before they are executed.” The purpose is “to trick other market participants and manipulate the product’s price.” By creating a false impression of market depth, the trader can artificially move prices to his advantage. Sarao allegedly employed this technique by repeatedly placing, modifying, and ultimately cancelling large sell orders visible to others in the E-Mini market. Sarao supposedly placed the orders “in the middle of the order book on the sell side” and kept modifying the orders as the market moved down so that it was almost certain that his orders would not be filled before he cancelled them. He then took advantage of the downward pressure by selling futures contracts and buying them back at a reduced price. Sarao employed a similar scheme when moving the market in the other direction, too, according to the government.

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22 Apr

Ninth Circuit Reverses Barry Bonds’ Conviction: “Wholly Irrelevant” “Verbal Detour” Not Obstructive

In a brief, unsigned opinion accompanied by several concurrences plus a dissent, the Court of Appeals for the Ninth Circuit today reversed Barry Bonds’ conviction for obstruction of justice under 18 U.S.C. § 1503, a statute that “was designed to proscribe all manner of corrupt methods of obstructing justice.” Bonds was found guilty of obstruction in 2011, although the jury was unable to reach a verdict on related false statements charges, all of which stemmed from grand jury testimony he gave concerning his suspected use of steroids while playing professional baseball. The statement on which the jury based Bonds’ obstruction conviction was Bonds’ response to a question about whether a friend ever gave him an injectable substance. Bonds testified: “That’s what keeps our friendship. You know, I am sorry, but that—you know, that—I was a celebrity child, not just in baseball by my own instincts. I became a celebrity child with a famous father. I just don’t get into other people’s business because of my father’s situation you see.” Bonds later answered the question directly during his grand jury testimony, but a three-judge panel of the Ninth Circuit upheld Bond’s conviction for obstruction, holding his “celebrity child” answer was “misleading or evasive” and impeded the grand jury’s investigation. After re-hearing Bonds’ appeal en banc, the Ninth Circuit’s opinion today vacates Bond’s conviction.

The principal concurrence, authored by Judge Alex Kozinski, concluded that although the obstruction statute’s “coverage is vast,” the government’s pursuit of Bonds for a non-responsive answer went too far. Criminalizing such conduct would make “everyone who participates in our justice system a potential criminal defendant for conduct that is nothing more than the ordinary tug and pull of litigation” like filing an ultimately unsuccessful motion or frivilously pursuing an appeal, “risks chilling zealous advocacy.” According to Judge Kozinski, Bonds’ statement was not material because it “communicates nothing of value or detriment to the investigation. . . . The most one can say about this statement is that it was non-responsive and thereby impeded the investigation to a small degree by wasting the grand jury’s time and trying the prosecutor’s patience. But real-life witness examinations, unlike those in movies and on television,” he noted, “invariably are littered with non-responsive and irrelevant answers.” Bonds’ non-responsive and irrelevant answer simply was not material, particularly when considered in the context of his three hours of testimony.

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16 Apr

Another Federal District Judge Court Rejects Constitutional Challenge to SEC Administrative Proceedings

Another challenge to the SEC’s use of administrative proceedings to charge individuals has failed. Yesterday, Judge Richard Berman of the Southern District of New York rejected Barbara Duka’s attempt to enjoin the SEC’s in-house action against her. As we reported, Duka, formerly of Standard & Poors, argued the SEC’s action was unconstitutional because the administrative law judges who adjudicate such cases are too insulated from removal by the President. Judge Berman disagreed, ruling that Free Enterprise Fund v. Public Company Accounting Oversight Board, 561 U.S. 477 (2010), did not establish “a categorical rule forbidding ‘two levels of good-cause’” tenure protection, and that under the applicable “functional test to determine whether and when statutory limitations on the President’s power to remove executive officers violate Article II,” the SEC’s ALJ position passes muster.

Notably, Duka had more success in getting the court to address the merits of her arguments than Laurie Bebo, whose similar challenge was recently dismissed after a federal district court judge in Wisconsin concluded the court lacked jurisdiction to hear Bebo’s case. Noting that courts are more likely to find jurisdiction over facial pre-enforcement challenges to agency actions than as-applied ones, Judge Berman ruled the three criteria for subject matter jurisdiction were met, paving the way for him to address the substance of Duka’s argument. First, according to Judge Berman, the absence of jurisdiction could foreclose meaningful judicial review of Duka’s claim for declaratory and injunctive relief, which would be moot if she could not pursue her case until the allegedly unconstitutional proceeding had taken place, at which time “there would be no proceeding to enjoin.” Second, her claim was “wholly collateral” to the administrative proceeding because, as Duka argued, she “asserts a facial challenge to the very ‘existence’ of the Administrative Proceeding.” And third, “the constitutional claim posed in this injunctive/declaratory judgment case is outside the SEC’s expertise.” Nonetheless, Judge Berman held Duka was unlikely to succeed on the merits of her claim that ALJs “enjoy two layers of tenure protection” that effectively shields them from removal by the president and rejected her attempt to enjoin the administrative proceedings.

Our sister blog’s report on the opinion can be read here. As the SDNY Blog notes, Brune & Richard LLP currently represents a plaintiff in an action asserting a similar constitutional challenge.

03 Apr

Second Circuit Declines to Revisit Newman Decision on Tippee Liability

In a brief order issued today, the Court of Appeals for the Second Circuit denied the government’s request for rehearing of the court’s U.S. v. Newman decision.  The Second Circuit also denied the government’s request for rehearing of the decision en banc.  Newman is the Second Circuit’s landmark decision holding that to convict a tippee of insider trading, the government must prove the tippee knew the tipper provided inside information in exchange for a personal benefit. In that same decision, the court added teeth to the personal benefit requirement holding that evidence of mere friendship or the exchange of career advice does not suffice. In seeking rehearing, the government abandoned its argument that it need not prove knowledge of the benefit and instead asked the court only to reconsider its more stringent definition of the requisite benefit. The government’s remaining step to challenge the decision would be to seek Supreme Court review.

Our earlier posts on Newman can be read here.

10 Mar

Court Dismisses Laurie Bebo’s “Compelling and Meritorious” Claims For Lack of Jurisdiction

Last Week, Judge Rudolph T. Randa of the Eastern District of Wisconsin dismissed the suit filed by former Assisted Living Concepts, Inc. CEO Laurie Bebo, challenging the SEC’s right to pursue administrative securities fraud charges against her. The court determined it lacked subject matter jurisdiction over the case.

Bebo had sought to enjoin the SEC’s administrative action against her, arguing Section 929(P) of the Dodd-Frank Act is unconstitutional “because it gives the SEC unfettered discretion through its choice of forum to provide (if federal) or withhold (if administrative) a citizen’s Seventh Amendment jury trial right for the same conduct and the same remedies.” She also contended the SEC’s decision to proceed against her administratively violated her procedural due process rights because certain key witnesses are Canadian citizens who are not subject to subpoena power in that forum while their testimony could have been compelled had the case proceeded in the Eastern District of Wisconsin. Rather than reaching the merits of Bebo’s arguments, Judge Randa concluded “Bebo’s claims are subject to the exhaustive remedial scheme set forth in the Securities Exchange Act,” which proscribes litigation “before the SEC and then, if necessary, on appeal to the Court of Appeals for the Seventh Circuit.” The district court therefore lacked jurisdiction to hear the case.

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