In the Courts

Tenth Circuit Holding Broadens Scope of Internet Communications

On June 11, 2012, in United States v. Kieffer, 681 F.3d 1143 (10th Cir. 6/11/12), the Tenth Circuit held that testimony by website end-users in two different states was sufficient proof that “a transmission in interstate commerce” occurred, as required for conviction under the federal wire fraud statute, 18 U.S.C.
' 1343. The case involved false statements, contempt of court and wire-fraud allegations against defendant Howard Kieffer, a now somewhat notorious criminal defense “attorney” who practiced law without a license, representing scores of individuals as a trial and post-trial advocate and gaining admission to federal trial and appellate courts across the country despite never having attended law school or sat for any bar examination.

In 2009, a North Dakota jury convicted Kieffer of mail fraud and making false statements. He was sentenced to 51 months' imprisonment and ordered to pay $152,750 in restitution. Kieffer was subsequently convicted of false statements, contempt of court and wire fraud in the District of Colorado. He was sentenced to 51 months' imprisonment, to be served consecutively to his North Dakota sentence, as well as being fined an additional $152,019 for restitution to victims in Colorado. On appeal, Kieffer presented several challenges to both the conviction and his sentence. Of particular note, Keiffer argued that his wire-fraud conviction was legally insufficient because the government failed to prove that the Internet communications at issue traveled in interstate commerce.

Kieffer's conviction for wire fraud rested on the jury's finding that Kieffer promoted his unauthorized practice of law through a website, www.boplaw.com, which several of his victims testified to having accessed prior to retaining him. One individual, the brother of one of Kieffer's clients, testified that he accessed the website from his home in Tennessee, while another, a federal public defender, testified that he accessed the website from Colorado. The custodian of records for the company hosting Kieffer's website also testified, explaining that the servers processing and storing the data were located in Sterling, VA.

Kieffer based his argument largely on United States v. Schaefer, 501 F.3d 1197 (10th Cir. 2007), which held, in relevant part, that “one individual's use of the [I]nternet, standing alone, is insufficient to establish that a web transmission traveled across state lines in interstate commerce.” (internal quotations omitted). The defendant argued that, under this standard, the government's wire fraud case failed because the government provided no evidence of any interstate wire transmission by the defendant in posting the website advertising his legal services. *8. The Tenth Circuit disagreed, holding that the government met its burden under Schaefer by offering proof that the website's hosting server was in Virginia while two separate individuals accessed the website from Colorado and Tennessee. *9. In a holding notable for its potentially broad implications, the Tenth Circuit explained that “the presence of end users in different states, coupled with the very nature of the internet, render [the inference that Defendant caused the content to be transmitted across state lines] permissible, even absent evidence that only one host server delivered web content in these two states.”

Eleventh Circuit Overrules 'Obey-the-Law' Injunction Issued by SEC

In Securites & Exchange Commission v. Goble, 682 F.3d 934 (11th Cir. 2012), the Eleventh Circuit held that a broad injunction requiring the defendant to refrain from future violations of the statute at issue (known as an “obey-the-law” injunction) was not permissible because it was not “sufficiently specific.” The case involved Richard Goble and the securities and clearing brokerage firm he founded in 1995 ' North American Clearing, Inc. Goble, his CFO, Timothy Ward, and the company's President and CEO, Bruce Blatman, allegedly falsified records of a $5 million money market purchase in order to withdraw money from the company's Reserve Account, which had to maintain a minimum balance in accordance with Securities Exchange Commission (SEC) regulations. After settling with the company, Ward and Blatman, the SEC earned a district court ruling in its favor against Goble, including an “obey-the-law” injunction that “permanently restrained Goble from violating the Consumer Protection Rule, the books and records requirements, ' 10(b), and Rule 10b-5.” Id. at 942. On appeal, however, the Eleventh Circuit vacated parts of the injunction as impermissible “obey-the-law” commands that violate Rule 65(d) of the Federal Rules of Civil Procedure.

The SEC argued that in the context of securities, injunctions that only used the statutory language of securities laws are permissible and satisfy the Rule 65(d) requirement for detail and specificity. Responding to that argument, the court acknowledged that under some circumstances simple use of the statutory language may be enough, but countered that use of the statutory language alone in an injunction against violations of securities laws is not appropriate or permissible in “all” circumstances. Id. at 950. Using ' 10(b) as an example, the court stated that some injunctions requiring compliance and just using statutory language would not “inform the defendant of precisely what conduct is forbidden.” Id. at 951. According to the court, to fully understand ' 10(b) a defendant “would need to review hundreds of pages of the Federal Reporters, law reviews, and treatises before he could begin to grasp the conduct proscribed.” Id.

Regardless, the injunction at issue in this case did not even use the language of the statutes, but merely cited to the statutes. According to the court, parties should only need to “look with[in] the four corners of the injunction” and should be able to “understand their obligations under the order.” Id. at 952. Since cross-reference alone does not provide such an understanding “without a compendious knowledge of the codes,” the court vacated the injunction and remanded with instructions to issue an injunction that would “specifically describe the proscribed conduct.” Id.

Given the prevalence of these types of injunctions in SEC actions, this decision may have a significant impact on the future scope and permissibility of “obey-the-law” injunctions.

Tenth Circuit Holding Broadens Scope of Internet Communications

On June 11, 2012, in United States v. Kieffer , 681 F.3d 1143 (10th Cir. 6/11/12), the Tenth Circuit held that testimony by website end-users in two different states was sufficient proof that “a transmission in interstate commerce” occurred, as required for conviction under the federal wire fraud statute, 18 U.S.C.
' 1343. The case involved false statements, contempt of court and wire-fraud allegations against defendant Howard Kieffer, a now somewhat notorious criminal defense “attorney” who practiced law without a license, representing scores of individuals as a trial and post-trial advocate and gaining admission to federal trial and appellate courts across the country despite never having attended law school or sat for any bar examination.

In 2009, a North Dakota jury convicted Kieffer of mail fraud and making false statements. He was sentenced to 51 months' imprisonment and ordered to pay $152,750 in restitution. Kieffer was subsequently convicted of false statements, contempt of court and wire fraud in the District of Colorado. He was sentenced to 51 months' imprisonment, to be served consecutively to his North Dakota sentence, as well as being fined an additional $152,019 for restitution to victims in Colorado. On appeal, Kieffer presented several challenges to both the conviction and his sentence. Of particular note, Keiffer argued that his wire-fraud conviction was legally insufficient because the government failed to prove that the Internet communications at issue traveled in interstate commerce.

Kieffer's conviction for wire fraud rested on the jury's finding that Kieffer promoted his unauthorized practice of law through a website, www.boplaw.com, which several of his victims testified to having accessed prior to retaining him. One individual, the brother of one of Kieffer's clients, testified that he accessed the website from his home in Tennessee, while another, a federal public defender, testified that he accessed the website from Colorado. The custodian of records for the company hosting Kieffer's website also testified, explaining that the servers processing and storing the data were located in Sterling, VA.

Kieffer based his argument largely on United States v. Schaefer , 501 F.3d 1197 (10th Cir. 2007), which held, in relevant part, that “one individual's use of the [I]nternet, standing alone, is insufficient to establish that a web transmission traveled across state lines in interstate commerce.” (internal quotations omitted). The defendant argued that, under this standard, the government's wire fraud case failed because the government provided no evidence of any interstate wire transmission by the defendant in posting the website advertising his legal services. *8. The Tenth Circuit disagreed, holding that the government met its burden under Schaefer by offering proof that the website's hosting server was in Virginia while two separate individuals accessed the website from Colorado and Tennessee. *9. In a holding notable for its potentially broad implications, the Tenth Circuit explained that “the presence of end users in different states, coupled with the very nature of the internet, render [the inference that Defendant caused the content to be transmitted across state lines] permissible, even absent evidence that only one host server delivered web content in these two states.”

Eleventh Circuit Overrules 'Obey-the-Law' Injunction Issued by SEC

In Securites & Exchange Commission v. Goble , 682 F.3d 934 (11th Cir. 2012), the Eleventh Circuit held that a broad injunction requiring the defendant to refrain from future violations of the statute at issue (known as an “obey-the-law” injunction) was not permissible because it was not “sufficiently specific.” The case involved Richard Goble and the securities and clearing brokerage firm he founded in 1995 ' North American Clearing, Inc. Goble, his CFO, Timothy Ward, and the company's President and CEO, Bruce Blatman, allegedly falsified records of a $5 million money market purchase in order to withdraw money from the company's Reserve Account, which had to maintain a minimum balance in accordance with Securities Exchange Commission (SEC) regulations. After settling with the company, Ward and Blatman, the SEC earned a district court ruling in its favor against Goble, including an “obey-the-law” injunction that “permanently restrained Goble from violating the Consumer Protection Rule, the books and records requirements, ' 10(b), and Rule 10b-5.” Id. at 942. On appeal, however, the Eleventh Circuit vacated parts of the injunction as impermissible “obey-the-law” commands that violate Rule 65(d) of the Federal Rules of Civil Procedure.

The SEC argued that in the context of securities, injunctions that only used the statutory language of securities laws are permissible and satisfy the Rule 65(d) requirement for detail and specificity. Responding to that argument, the court acknowledged that under some circumstances simple use of the statutory language may be enough, but countered that use of the statutory language alone in an injunction against violations of securities laws is not appropriate or permissible in “all” circumstances. Id. at 950. Using ' 10(b) as an example, the court stated that some injunctions requiring compliance and just using statutory language would not “inform the defendant of precisely what conduct is forbidden.” Id. at 951. According to the court, to fully understand ' 10(b) a defendant “would need to review hundreds of pages of the Federal Reporters, law reviews, and treatises before he could begin to grasp the conduct proscribed.” Id.

Regardless, the injunction at issue in this case did not even use the language of the statutes, but merely cited to the statutes. According to the court, parties should only need to “look with[in] the four corners of the injunction” and should be able to “understand their obligations under the order.” Id. at 952. Since cross-reference alone does not provide such an understanding “without a compendious knowledge of the codes,” the court vacated the injunction and remanded with instructions to issue an injunction that would “specifically describe the proscribed conduct.” Id.

Given the prevalence of these types of injunctions in SEC actions, this decision may have a significant impact on the future scope and permissibility of “obey-the-law” injunctions.