Trends in Corporate Fraud Enforcement
For high-profile defendants, timing is everything. In 1989, former junk bond king Michael Milken was indicted on RICO violations, stock manipulation and insider trading. After Milken pleaded guilty to securities, mail and tax fraud and market manipulation, he was sentenced to 10 years in prison, with anticipated actual service of 40 months. Due to cooperation and good behavior, Milken emerged from prison after serving less than 2 years, with a personal fortune in place. He has remained a power broker in financial and charitable circles since his release. In 2005, former WorldCom, Inc. CEO Bernard Ebbers was indicted for conspiracy, securities fraud and filing false statements with the Securities and Exchange Commission (SEC) after WorldCom announced that it had overstated earnings. After a New York jury found Ebbers guilty, Judge Barbara Jones sentenced 63-year-old- Ebbers -- a first-time violator -- to 25 years in prison, of which he must serve at least 21.
New Agreements with Europe
Conscientious corporate counsel and other careful practitioners soon should familiarize themselves with yet another prosecutorial and investigative weapon devised and implemented as a result of the terrorist attacks of 9/11. Prompted by an idea to promote cooperation between the European Union (EU) and the United States in fighting terrorism, the EU-U.S. Agreements on Extradition and Mutual Legal Assistance ("the Agreements"), once in effect, will provide new and powerful weapons for police and prosecutors on both sides of the pond. While the Agreements were created for a noble cause, their reach and grasp beyond terrorist activity is potentially troubling.
The KPMG Tax Shelter Prosecutions
On Aug. 29, 2005, the Department of Justice, the IRS and KPMG LLP (KPMG) announced that an agreement had been reached with the U.S. Attorney's Office for the Southern District of New York resolving the Grand Jury investigation into tax shelters designed, developed and sold by KPMG from 1996 to 2002 and related conduct. The settlement also resolved the IRS's examination of these activities. KPMG and the government entered into a deferred prosecution agreement (DPA), pursuant to which KPMG acknowledged responsibility for engaging in a massive tax fraud conspiracy that generated at least $11 billion in fraudulent tax losses, which cost the government at least $2.5 billion in evaded taxes.
Swinging for the Fences
On July 27, 2005, a Seattle federal judge sentenced the so-called "Millennium Bomber," who was convicted of conspiring to bomb Los Angeles International Airport during the 2000 New Year's holiday season (and who cooperated with the government for a period of time and then stopped), to 22 years in prison. The government had sought a 35-year sentence for the 38-year-old defendant.
The Rebirth of Advocacy
On Jan. 12, 2005, the Supreme Court in <i>United States v. Booker</i> ended months of speculation as to what was to become of the Federal Sentencing Guidelines after the Court's June 2004 decision in <i>Blakely v. Washington</i>, and held that the guidelines were unconstitutional. To remedy the unconstitutionality, the Court excised portions of the Sentencing Reform Act that required the sentencing judge to sentence within the guidelines range and that set the standard of appellate review of sentences.
