Former in-house counsel for GlaxoSmithKline acquitted

In another stunning and surprising ruling to come out of the prosecution of Lauren Stevens, a former in-house counsel for GlaxoSmithKline, for obstructing an FDA investigation into off-label marketing, the Court granted Ms. Stevens motion for a judgment of acquittal after the end of the presentation of the governments case at trial. Essentially, the Court found the evidence legally insufficient to have a jury consider it. The transcript of that decision can be found here. We previously blogged about the Stevens prosecution here and here.

What is notable about the Courts decision to acquit Ms. Stevens is not only the rarity of such acquittals before a jury gets to deliberate, but what the Court stated about the importance of the attorney-client privilege. Ms. Stevens was prosecuted for conduct during the course of her work responding to an FDA investigation as an in-house lawyer for a major pharmaceutical company. The Court found that many of the documents used as evidence by the government should never have been provided to it under the attorney-client privilege. Those documents were provided by GlaxoSmithKline under an exception to the attorney-client privilege involving cases where a lawyer is retained specifically to assist a client to commit a crime or a fraud. The Court found that Ms. Stevens was never retained or appointed for that purpose, but to provide representation to the corporation and to gather information. Therefore, the exception to the attorney-client privilege was inapplicable, and the government should never have had access to otherwise privileged documentation.

The Court also expressed a concern regarding possible abuses in permitting the prosecution of a lawyer for providing legal guidance. The Court stated that it had sentenced a number of lawyers who actually committed crimes or assisted others in committing crimes. This was not one of those cases. The Court stated that lawyers, “should never fear prosecution because of the advice that he or she has given to a client”, and that “a client should never fear that its confidences will be divulged unless its purpose in consulting the lawyer was for the purpose of committing a crime or a fraud”. This decision is important to businesses and individuals alike, in that it reaffirms that the government cannot invade the space between a lawyer and his or her client except under very narrow circumstances, none of which were applicable in the case of Ms. Stevens.

The Court also clearly rejected the governments theory of prosecution”that Ms. Stevens acted to obstruct justice. Instead, the Court reviewed Ms. Stevens conduct in zealously representing her client and placed it in the most favorable light in the investigation. Also, the Court found that the allegedly false statements to the FDA attributed to Ms. Stevens were taken out of context and were made under the advice of numerous lawyers for the company. The Court stated that “only with a jaundiced eye and with an inference of guilt thats inconsistent with the presumption of innocence could a reasonable jury ever convict this defendant”.

The government, including the FDA, has made it a priority to prosecute not just corporations, but also individuals in regard to the commission of strict liability criminal violations of regulatory laws. These so-called “Park” prosecutions have been discussed in our blogs here and here. The Stevens prosecution was not a “Park” prosecution because it alleged intentional, willful conduct, but it highlights the governments goal of prosecuting and convicting more individuals, not just companies, of criminal violations of regulatory laws. Our White Collar Criminal Practice group continues to monitor these cases in our effort to keep our clients informed and out of harms way.

Federal Prosecution of Tax Crimes up 25%

Federal prosecutors brought criminal charges in 1,250 tax cases in 2010, a 25.3% jump from 2001. Criminal tax prosecution recommendations by the Criminal Investigation Division of the IRS reached a high of 1,507, up 50.4% from 2001. The data is from Transactional Records Access Clearinghouse, a data research and distribution organization.

Part of the increase resulted from criminal charges in cases involving Swiss banking UBS. UBS agreed to assist the IRS by providing account data for 4,450 American clients. The U.S. Department of Justice recently disclosed in court documents that the IRS is investigating HSBC for assisting U.S. taxpayers hide accounts and income in India. Recently a New York woman plead guilty to filing a false 2008 income tax return that did not disclose that she owned multiple HSBC accounts in India that held $8.3 million. Additionally, the IRS recently opened field offices around the world including Australia, China, and Panama.

The attorneys at Fuerst Ittleman, PL have extensive experience in criminal and civil tax litigation, IRS audits, and federal tax compliance. You can reach an attorney by emailing us at: contact@fidjlaw.com.

Former GlaxoSmithKline in house counsel re-indicted

On March 23, 2011, U.S. District Judge Roger Titus dismissed the indictment of former in house counsel Lauren Stevens due to concerns that the prosecutors erroneously advised the grand jury regarding the advice of counsel defense. We originally blogged about this prosecution here and here.

Under certain circumstances, it is a defense to a charge of willful criminal conduct that the defendant relied on the advice of a lawyer in committing the offense. This reliance on the advice of counsel negates the defendants specific intent to violate the law. When Judge Titus raised the concern that the prosecutors may have improperly advised the grand jury regarding the defense, Judge Titus dismissed the indictment without prejudice, and allowed the government to re-indict Stevens.

The Government re-indicted Stevens shortly thereafter. On April 14, 2011, a different grand jury re-indicted Stevens on six counts that she allegedly obstructed justice, made false statements to the FDA and concealed and falsified documents in regard to a federal investigation, essentially the same charges with which she was originally indicted. Trial is scheduled for April 26, 2011.

Department of Justice Shuts Down Three of the Largest Internet Poker Sites in US, Charge Owners with Unlawful Internet Gambling, Fraud, Money Laundering, and Seek to Recover $3 Billion in Civil Penalties.

On April 15, 2011, federal prosecutors indicted eleven people in connection with their involvement in running PokerStars, Full Tilt Poker, and Absolute Poker, three of the largest internet poker sites in the United States. The Department of Justice has charged these individuals with multiple charges including violations of the Unlawful Internet Gambling Enforcement Act (“UIGEA”), conspiracy to commit bank fraud and wire fraud, operating an illegal gambling business, and money laundering conspiracy. A copy of the indictment can be read here.

Additionally, the FBI obtained a court order to block seventy-six bank accounts and five internet domain names associated with the poker websites. As of April 15, 2011, the FBI had shut down two of the sites, Full Tilt Poker and Pokerstars and were working to shut down Absolute Poker. The Department of Justice is also seeking $3 billion in civil money laundering penalties.

Prosecutors allege that, in an effort to get around the prohibitions on unlawful internet gambling under UIGEA, the defendants engaged in a fraudulent scheme to deceive US banks and financial institutions as to the true identity of the funds being transferred and payments being processed. Authorities allege that the companies used highly compensated third party payment processors to disguise money received from US poker players as payments to non-existent online merchants and phony companies. Authorities alleged that the phony websites, ranging from flower shops to pet supply stores, were all created to handle credit card payments to get funds from US players. A copy of the Department of Justices press release can be read here.

Though the law does not specifically address internet pay for play poker sites, UIGEA defines “unlawful internet gambling” as: 1) placing, receiving or transmitting a bet, 2) by means of the Internet, even in part, 3) but only if that bet is unlawful under any other federal or state law applicable in the place where the bet is initiated, received or otherwise made. However, since UIGEAs passage, debate has raged over whether pay for play poker qualifies under the act with poker sites and federal prosecutors reaching opposite conclusions. Internet poker site operators have argued that UIGEA does not apply because poker should be classified as a game of skill, not a game of chance, and thus beyond the reach of UIGEA.

The indictments may mark a shift in the strategies of federal prosecutors in dealing with internet pay for play poker websites. As we previously reported, prosecutors have previously focused their efforts on payment processors, the financial outfits that move money between online poker sites, their players, and the banks, rather than internet poker sites directly. However, with these new indictments, the Department of Justice has made clear its belief that internet pay for play poker sites do, in fact, violate UIGEA.

If you have questions pertaining to UIGEA, the BSA, anti-money laundering compliance, and how to ensure that your business maintains regulatory compliance at both the state and federal levels, or for information about Fuerst Ittlemans experience litigating white collar criminal cases, please contact us at contact@fidjlaw.com.

United States Petitions Court for Leave to Issue “John Doe” Summons to HSBC

On April 7, 2011, the U.S. Department of Justice “ Tax Division, filed a petition in U.S. District Court for the Northern District of California, San Francisco Division, for leave to issue a “John Doe” summons to HSBC. The case number is CV-11-1686-LB. On the same day, the Department of Justice issued a press release, available here.

the government alleges that since at least 2002, thousands of U.S. taxpayers of Indian origin have opened and maintained accounts at HSBC. The government further alleges that HSBC used representative offices in New York and California to solicit and maintain those accounts, and that HSBC assured its customers that the accounts in India would not be disclosed to the IRS.

The press release states that although HSBC India closed those offices in June 2010, its clients may still access their accounts at HSBC India from the United States. According to the petition documents, HSBC clients have told IRS investigators that HSBC representatives in the United States assured the clients that they could invest in accounts at HSBC India without paying U.S. income tax on interest earned on the accounts and that HSBC would not report the income earned on the HSBC India accounts to the IRS.

The governments attempt to obtain documents from HSBC comes in the wake of recent activity where grand jury subpoenas have been issued to taxpayers to produce their documents of the foreign bank accounts as required by the Bank Secrecy Act and the federal regulations issued by the Department of the Treasury.

The attorneys at Fuerst Ittleman, PL have been actively litigating against the Department of Justice in response to recent grand jury subpoenas. Additionally, the attorneys at Fuerst Ittleman, PL have extensive experience dealing with both the IRS and the Department of Justice in regards to undisclosed foreign bank accounts, civil and criminal tax evasion, and voluntary disclosures. You can reach an attorney by emailing: contact@fidjlaw.com.

U.S. Attorney Seeks $7 Million In Forfeiture Trial Of Privately Printed “Liberty Dollars”

On April 4th, federal prosecutors will resume the forfeiture trial of approximately $7 million in precious metals used to create “Liberty Dollar” coins, a privately minted and distributed currency which prosecutors believed was designed to compete with US currency in violation of federal law. The forfeiture trial comes after the March 18, 2011 conviction of the Liberty Dollars creator, Bernard von NotHaus, on multiple charges including making coins resembling US currency, issuing and passing Liberty Dollars coins intended for use as “current money,” and conspiracy. A copy of Federal Bureau of Investigations press release announcing the conviction can be read on their website here.

The authority of the federal government to regulate and coin money traces its roots directly to the U.S. Constitution. Article I, section8, clause 5 of the U.S. Constitution grants Congress the power to coin money. The power of Congress to regulate and coin money also necessarily includes the power to place restrictions on circulation of money printed by non-federal entities. However, no law currently exists that prevents a local community from printing and circulating it own currency.

Although locally printed and circulated alternative or “local currencies” do exist, they are subject to several federal laws. For example, 18 U.S.C. § 485 prohibits possession and sale of local currencies in “resemblance or similitude of any coin of a denomination higher than 5 cents.” This not only prevents local currencies from printing currency with the marks of U.S. minted coins and dollars, such as “In God We Trust,” but also prevents local currency minters from printing currency with marks which closely resemble those familiar U.S. marks, such as “Trust in God.” 18 U.S.C. § 485 protects against local money being printed and passed off as official legal tender of the U.S. Additionally, 18 U.S.C. § 486 prohibits individuals and organizations from creating “current money,” private coin and currency systems to compete with the official coinage and currency of the U.S. as the recognized legal tender.

In this case, prosecutors alleged that von NotHaus, and his organization National Organization for the Repeal of the Federal Reserve and Internal Revenue Code (NORFED), minted Liberty Dollar currency with features that resembled U.S. coin and currency. Additionally, prosecutors alleged that based upon the widespread sale of the Liberty Dollar through the U.S. and Puerto Rico, “NORFEDs purpose was to mix Liberty Dollars into the current money of the U.S.”

Von NotHaus, who remains free on bond, faces a sentence of up to 15 years imprisonment on count two of the indictment and a fine of not more than $250,000. Von NotHaus faces a prison sentence of five years and fines of $250,000 on both counts one and three. In addition, the United States is seeking the forfeiture of approximately 16,000 pounds of Liberty Dollar coins and precious metals, currently valued at nearly $7 million. For more information, please contact us at contact@fidjlaw.com.

Harsh sentences coming for strict liability FDA misdemeanor offense

The FDA has recently expressed that it intends to bring more criminal prosecutions for strict liability offenses under the Food, Drug & Cosmetic Act (FDCA) under the “Park” Doctrine. As we previously discussed, the FDCA makes it a criminal misdemeanor to violate the FDCA even if a person had no knowledge of a violation, did not commit fraud, and did not intend to violate the law. This is known as a “strict liability” misdemeanor, as opposed to criminal offenses that require a defendant to knowingly commit an offense.

On January 19, 2011, the United States Sentencing Commission (The Commission) issued a Federal Register Notice regarding amendments to the Federal Sentencing Guidelines which would require many persons convicted and sentenced under the misdemeanor, strict liability provisions of the FDCA to be sentenced under more serious guidelines for fraud rather than for regulatory offenses. The impact of these proposed changes is that strict liability, or “Park” misdemeanor offenses could receive the same guideline score as a felony offense requiring intent to defraud, and consequently a similar sentence, i.e. prison terms. The Commission proposal would amend the Guidelines with regard to “persons convicted of Federal health care offenses involving Government health care programs.” As currently noticed, the proposal would not contain a limitation with regard to the health care offenses and government health care programs to which increased sentences would apply. Therefore, they would apply to strict liability misdemeanors under the FDCA that involve health care offense and government health care programs.

What is left open to debate is how directly connected to a government health care program a FDCA offense must be to trigger the proposed guidelines. As seen from recent “off-label” use cases, the Department of Justice believes that such uses implicate government health care programs. As such, a wide swath of proscribed conduct under the FDCA regarding manufacturing, adulteration and misbranding may come under the purview of the new proposed Guidelines. Under the current proposals, there may be considerable litigation regarding the applicability of the enhanced Guidelines to strict liability misdemeanors if there is not further clarification or amendment by the Commission after the comment period.

Lawyers at Fuerst Ittleman concentrate their practices on defending individuals and corporations accused of FDCA offenses in administrative, civil and criminal cases. If you are in need of legal advice regarding the FDCA, criminal investigations or prosecutions regarding the FDA or require guidance on complying with the FDCA, Fuerst Ittleman can assist you.

US Government Audit Reveals Government Waste in Catfish Regulation

In 2008, the U.S. catfish industry convinced Congress to require tougher federal inspections on just one species of fish”catfish”by transferring regulation of domestic and imported catfish from the Food & Drug Administration (FDA) to the Department of Agriculture (USDA). The U.S. catfish industry supported these tougher inspections by the USDA not because it supported tougher regulation on catfish, but because it believed they would be a roadblock to imports from Vietnam and other countries.

Now, a recent government audit has cited the catfish program and its $30 million price tag as a prime example of government waste and duplication. It turns out that when the regulation of catfish, one of the most popular fish in the U.S., was transferred to USDA, the legislation did not clarify that FDA was relieved of any duties regarding the inspection of catfish. As such, there are now two federal agencies responsible for inspecting the same type of fish. The big difference, however, is that while the FDA usually inspects only about 2 percent of the fish imported into the U.S. through spot checks and sampling, the USDA also requires inspection on-site of production facilities. This would require the foreign producers of catfish to create and implement an equivalent inspection system and that could take years.

In the meantime, a Final Rule on implementation of the provision has yet to be issued by USDA. As such, the inspection regime by USDA has not been implemented despite millions already having been spent to implement the legislation.

Given what was stated to be government waste and duplication by the recent audit, Sen. John McCain has taken up the cause of repealing the provision, which was buried in the 2008 Farm Bill. McCain has stated that the provision is “nothing more than a protectionist tactic funded at taxpayers expense” to help special interests, here the U.S. catfish industry. McCain introduced legislation to repeal the provision, stating that “if implemented, the proposed USDA regulations will lead to a duplicative, costly and complex overseas inspection programs that serves no real purpose but to protect American catfish growers from competition while forcing American consumers to pay more for fish.”

Catfish have been a subject of much political debate in Washington. In 2002, legislation backed by the U.S. catfish industry was passed mandating changes in labeling so that Vietnamese catfish could not be imported into the U.S. under the name “catfish”; instead it was mandated that Vietnamese catfish be labeled “pangasius”. Vietnam has considered such restrictions to be trade barriers and has hinted at trade retaliation. In any event, Vietnamese exports of “pangasius” to the U.S. boomed.

Seafood labeling fraud on the other hand, is a serious problem. A February, 2009 General Accounting Office report to Congress found the most common types of Seafood fraud are: Transshipping through a third country to avoid duty; adding water or ice to seafood to increase its weight; substituting one species for another one listed on the label; and less seafood in the package than shown on the label. The Department of Justice takes this kind of fraud seriously; criminal prosecutions have resulted in recent months, as can be seen here. With the passage of the new Food Safety Modernization Act, which became law in January, regulation of seafood will inevitably skyrocket, with the FDA receiving new inspection and recall powers, and Customs implementing restrictions at the border.

11th Circuit Affirms Conviction in Tax Fraud Case Under 18 U.S.C. section 286

On August 17, 2010, the 11th Circuit affirmed the conviction of the Defendant in the case of the United States of America v. Maritiza Valiente, docket # 09-14493.

The facts of the case were somewhat unique, and described by the Court as follows:

Valiente and her codefendants falsely claimed that certain individuals were entitled to income tax refunds based upon their employment at Valiente’s business in 1999. However, in reality, Valiente’s business never had any employees. Using falsified W-2 forms provided by Valientes company, one codefendant prepared and filed false IRS1040 Forms. During early 2000, the two other codefendants assisted in preparing and filing false 1040 Forms. All three codefendants then distributed the illegal proceeds of the federal income tax refunds.

This case is unusual in that the government charged the tax fraud under 18 U.S.C. section 286 (conspiracy to defraud the government in respect to claims); the entire section can be found here. Typically, the government charges individuals with tax evasion under 26 U.S.C. section 7201, found here, or as “Klein conspiracies” under 18 U.S.C. section 371, found here.

Ultimately, the Court found that there was sufficient evidence to support a conviction, and the judgment and sentence were both affirmed. The Eleventh Circuits entire opinion can be found here.

The attorneys at Fuerst Ittleman have extensive experience litigating tax and other white collar criminal matters at trial and the appellate levels. You can contact an attorney at Fuerst Ittleman by emailing contact@fidjlaw.com.

Andrew Ittleman of Fuerst Ittleman to Instruct at 2011 US Money Transmitter Seminar in Los Angeles

On April 14 and 15, 2011, Andrew Ittleman, Esq. CAMS of Fuerst Ittleman will participate as an instructor at the US Money Transmitter Seminar at the Hotel Intercontinental in Los Angeles, California. The Seminar, which will be held as part of the 2011 International Money Transmitter Conference (IMTC), will be the first of its kind in California and will feature intensive discussions on a variety of issues affecting the money transmitting industry. The Seminar is intended to give an in-depth overview of the most important US money transfer regulations as well as the interpretations and expectations of US authorities regarding such regulations. Using examples drawn from real life, participants will receive practical advice on how to implement proper actions to prevent costly mistakes and avoid litigation risks. Among other issues, the Seminar will address the following questions:

  • What is a money transmitting business? Are you sure you are one? Are you sure you are not?
  • If you have a bank account in a state in the US, is your business required to become licensed there?
  • If you have corporate headquarters in a state, is your business required to become licensed there?
  • If you have a license to transmit money in one state, what types of activities can you conduct in other states where you are not licensed?
  • Can a foreign money transmitting business maintain bank accounts in the United States if the business is unregistered or unlicensed in the United States? Does it have to register with FINCEN?
  • Why are criminal investigations and prosecutions uniquely devastating for money services businesses?

For more information about the conference, please visit IMTC’s website. Additionally, Fuerst Ittleman clients and colleagues are entitled to a $100 discount off the cost of registration. For more information, please see the following announcement from IMTCs Director, Mr. Hugo Cuevas-Mohr:

Hugo Cuevas Letter [PDF]