Party Time Continues For White-Collar Crime

Lawyers for Joseph L. Bruno, a former New York State Senate majority leader found guilty of fraud last year, are preparing an appeal of his verdict while the Justice Department decides how to proceed.

Last week, lawyers for David Zachary Scruggs asked a federal judge in Mississippi to vacate his conviction relating to a judicial bribery scheme involving him and his former law partner and father, the trial lawyer Richard Scruggs. (The younger Mr. Scruggs served a 14-month prison term; his father is serving a seven-year sentence.)

The White-Collar Pushback After the Skilling Ruling
The New York Times - LEGAL - by Peter Lattman - August 25, 2010

On Friday afternoon, a federal judge swore in Barry Grissom as the new United States attorney in Kansas. Just hours later, his office filed a motion to dismiss its highest profile criminal case, a seven-year-old corporate fraud prosecution against two former top executives at Westar Energy, the state’s largest electric utility. The reason? The United State Supreme Court’s ruling in June that narrowed the scope of the theft of “honest services” statute left him with little choice but to drop the charges, Mr. Grissom said in a short statement. “The law no longer supported our position,” he said. “We were duty bound not to go forward with the prosecution.” The decision to dismiss the Westar case — among the first “honest services” prosecutions the government has dropped since court’s decision — underscores the challenges facing the government in the wake of the Supreme Court ruling. Over the last two decades the Justice Department has aggressively used the “honest services” law to bring fraud charges against an array of defendants, including local politicians accused of graft and corporate executives charged with looting their companies.

On June 24, the Supreme Court ruled that a section of the 1988 federal fraud statute making it a crime to deprive others “of the intangible right of honest services” was unconstitutionally vague. The court, ruling on three cases — including ones against Jeffrey K. Skilling, the former chief executive of Enron, and the newspaper mogul Conrad M. Black — narrowed the scope of the law. It ruled that an honest services prosecution required more than an allegation of an undisclosed conflict of interest or self-dealing on the part of a business executive or politician. Instead, the court said that prosecutors must prove that defendants received bribes or kickbacks. “In its heyday, the honest services theory allowed prosecutors to pursue sleaziness of all sorts without identifying a victim who lost property or money,” said Daniel Richman, a criminal law professor at Columbia Law School. “Now the Supreme Court decision has thrown a large wrench into the system and the Justice Department finds itself with the prospect of reversals and abandoned cases.” In the two months since the court’s ruling, defense lawyers across the country have filed, or are prepping, a flurry of pleadings asking judges to vacate convictions or reopen cases against their clients. A Justice Department spokeswoman said the agency did not keep statistics on how many motions or appeals had sought relief since the Supreme Court ruling, but anecdotal evidence suggests that the agency is now faced with defending a raft of earlier decisions.

Some requests have succeeded. A federal appeals court in Chicago set Mr. Black free on bail while he awaits an appeals court ruling on whether to reverse his conviction. Last month, a federal judge in New Jersey vacated the federal fraud conviction of Joseph A. Ferriero, former chairman of the Bergen County Democratic Organization, after his lawyers argued that his indictment was legally flawed in the wake of the Supreme Court ruling. But in other prosecutions, judges have rejected defense lawyers’ pleas to drop cases against their clients. This month, a federal judge in Washington refused to dismiss a case against Kevin A. Ring, a former lobbyist facing a second trial on corruption charges after his first ended in a hung jury in October. In July, a federal judge in Michigan allowed a bribery case against a school superintendent to go to trial, rejecting a request by his defense lawyers to dismiss the case in light of the Supreme Court’s ruling. Other cases hang in the balance. Lawyers for Mr. Skilling have asked a federal appeals court to release him from prison. Lawyers for Joseph L. Bruno, a former New York State Senate majority leader found guilty of fraud last year, are preparing an appeal of his verdict while the Justice Department decides how to proceed. Last week, lawyers for David Zachary Scruggs asked a federal judge in Mississippi to vacate his conviction relating to a judicial bribery scheme involving him and his former law partner and father, the trial lawyer Richard Scruggs. (The younger Mr. Scruggs served a 14-month prison term; his father is serving a seven-year sentence.)

A spokeswoman at the Justice Department in Washington declined to discuss the agency’s position on honest services prosecutions. But legal experts say that the change in the law won’t prevent the government from prosecuting financial crimes. Federal prosecutors still have an array of tools to pursue corporate or political corruption, like the wire fraud and mail fraud statutes to sections of the Sarbanes-Oxley Act of 2002. “The honest services statute is just one arrow in the government’s quiver,” said David Seide, a lawyer at Curtis, Mallet-Prevost, Colt & Mosle in Washington.”But we’re already seeing the Skilling decision have a real-world effect, and the Justice Department has been and will be more cautious in bringing these cases.” Senior Justice Department officials in Washington played an active role in determining the fate of the Westar prosecution, according to two people close to the case who requested anonymity because they were not authorized to speak about the case. The government had particular concerns about the nearly seven-year-old Westar indictments in light of the Supreme Court’s ruling, these people say. The case against the two defendants, the former Westar executives David C. Wittig and Douglas T. Lake was set to go to trial for a third time on Sept. 20. The defendants are two New York investment bankers who had moved to Kansas to take senior posts at Westar, based in Topeka.

In December 2003, the government indicted the two men on charges that they looted the company by, among other things, using corporate aircraft for personal use and failing to disclose it to securities regulators. After a 2004 mistrial, in September 2005, a jury convicted Mr. Wittig and Mr. Lake. A federal judge sentenced Mr. Wittig to 18 years in prison and Mr. Lake to 15 years. They appealed their convictions, and in January 2007, the federal court of appeals in Denver tossed their convictions on the grounds that prosecutors failed to prove their case. The dismissal allowed for a retrial on narrow grounds of conspiracy and circumventing internal controls, and the federal prosecutors in Kansas decided to try them a third time. Last month, a team of seven lawyers representing Mr. Wittig and Mr. Lake met with federal prosecutors in Washington. Lanny Breuer, the head of the Justice Department’s criminal division, attended the 90-minute meeting, at which the effect of the Supreme Court’s ruling on the case was discussed at length, according to two people in attendance who requested anonymity because they were not authorized to discuss the meeting. The legal travails of the two former Westar executives are not over, however. The company says it will pursue civil claims in an arbitration proceeding to recoup the expenses it has incurred paying the legal bills of their former employees.