Most people intuitively know what fraud is. The simplest legal definition is that it is the intentional misrepresentation of a material fact. The common law and several state and federal statutes and regulations prohibit fraud in a number of commercial settings, but when it comes to registered securities, Securities and Exchange Commission Rule 10b-5 is frequently invoked to hold a corporation (and its officers) accountable for fraudulent statements.
Rule 10b-5 makes it unlawful to (a) employ any device, scheme, or artifice to defraud,” (b) “make any untrue statement of a material fact,” or (c) “engage in any act, practice, or course of business” that “operates . . . as a fraud or deceit” in connection with the purchase or sale of securities.
But what happens when someone repeats a fraudulent statement in the sale of securities, knowing the statement to be false, although that person is not the “maker,” ie, the originator of the statement? The Supreme Court recently answered this question in Lorenzo v. SEC, No. 17-1077. In that case, Francis Lorenzo, while he was the director of investment banking at an SEC-registered brokerage firm, sent two e-mails to prospective investors. Lorenzo’s boss supplied the content of the e-mails, which described an opportunity to invest in a company with “confirmed assets” of $10 million. Lorenzo knew, however, that the company had recently disclosed that the assets were worth less than $400,000.
Although the SEC found that Lorenzo had violated Rule 10b-5 (and Section 10b of the Securities Act) by sending false and misleading statements to investors with the intent to defraud, the U.S. Court of Appeals for the District of Columbia Circuit held that he could not be held liable as a “maker” of the fraudulent statement under the Supreme Court’s 2011 decision in Janus Capital Group, Inc.v. First Derivative Traders, 564 U.S. 135. The Circuit Court did, however, sustain the Commissions findings of violations with respect to subsections (a) and (c).
In Janus, the Supreme Court held that to be a “maker” of a fraudulent statement under Rule 10b-5(b), one must have “ultimate authority over the statement, including its content and whether and how to communicate it.” This meant that an investment advisor who had merely participated in the drafting of a false statement that was made by another could not be held liable in a private action.
In a 6-2 opinion, the Court concluded that the “dissemination of false or misleading statements with intent to defraud[,]” regardless of the “maker” of those statements, can fall within the scope of Rule 10b-5 and the relevant statutes. By sending the e-mails, which he knew contained false information about the company’s value, Lorenzo “employ[ed]” a “device,” “scheme,” and “artifice” to defraud. By the same conduct, he “engage[d] in a[n] act, practice, or course of business” that “operate[d] . . . as a fraud or deceit” under the Rule. Whether he was the “maker” of the statements did not mater under the Rule, read as a whole.
Technical nuances and aspects of the opinion aside, the Court’s analysis makes sense. As the majority notes, “Congress intended to root out all manner of fraud in the securities industry[,]” and anyone who knowingly disseminates a false statement in the sale of securities is subject to civil liability, and in the most egregious cases, criminal prosecution under other provisions.
Newly-sentenced defendants (and many attorneys for that matter) often wonder whether to appeal a conviction and sentence, despite having agreed to an appeal waiver during the plea bargaining process. Regardless of any particular defendant’s prospects of prevailing on appeal, the U.S. Supreme Court recently made clear that trial counsel’s failure to timely file a notice of appeal pursuant to his or her client’s instructions is deficient, prejudices the client, and therefore deprives the client of his constitutionally-guaranteed right to effective assistance of counsel.
In Garza v. Idaho, the defendant signed two plea agreements to resolve state criminal charges. Each plea agreement contained an appeal waiver, which in this case was a clause stating that the defendant “waive[d] his right to appeal.” Shortly after the sentencing hearing, the defendant told his lawyer that he wanted to file an appeal. The lawyer, however, did not file a notice of appeal, and told his client that “an appeal was problematic because he waived his right to appeal.” The appeal window closed with no notice having been filed on the client’s behalf.
Four months after the sentencing hearing, the defendant sought post-conviction relief in Idaho state court. He argued that his trial counsel was ineffective because he did not file the notices of appeal on his behalf. The Idaho trial court, Court of Appeals, and state Supreme Court all concluded that the defendant did not demonstrate that his trial counsel’s performance was deficient and that he was prejudiced as a result. In affirming the lower courts’ decision, the Idaho Supreme Court concluded that the presumption of prejudice, previously recognized by the U.S. Supreme Court in Roe v. Flores Ortega, does not apply when a defendant has agreed to an appeal waiver.
The U.S. Supreme Court disagreed. It held that the defendant was, in fact, prejudiced because “prejudice is presumed” when trial counsel’s “constitutionally deficient performance deprives a defendant of an appeal that he otherwise would have taken.” The Court further explained that the presumption of prejudice is not diminished just because a particular defendant has poor prospects on appeal or fewer possible claims than some other appellants.
Garza’s takeaway is simple and straightforward. Appeal waivers – even those that seem to foreclose all possibility of success on appeal – should not discourage a defendant or his counsel from timely giving notice of appeal if the defendant so requests. Criminal law is constantly evolving, and appealable issues that might appear to fall within the scope of a waiver at first glance might not be subject to dismissal. For example, while federal prosecutors will almost always pursue dismissal of an appeal that raises issues that are squarely within the scope of a valid appeal waiver, Garza re-confirms that prosecutors have discretion as to whether to seek the enforcement of the waiver. Additionally, matters concerning the constitutionality of a statute (and whether a criminal offense has been committed at all) arguably are never subject to waiver.
That said, Garza also does not mean that trial counsel should always indiscriminately give notice of appeal prior to a full discussion with the client. For example, in some cases, an ill-considered appeal might undermine a defendant’s ability to pursue a sentence reduction through a Rule 35 motion. When a defendant expressly declines to pursue an appeal, the best practice is to adequately inform him of his appellate rights and then secure written confirmation that he elects not to appeal. Alternatively, if a defendant is not certain, trial counsel should give notice of appeal to preserve the defendant’s appellate rights.
Current and prospective clients who face federal criminal prosecution often ask us whether, after arrest, they will be able to go home by posting bail through a bondsman, just as someone would in state court. Much to their surprise, the answer is no.
Following passage of the Bail Reform Act of 1984, federal courts largely moved away from the cash bail system that remains in state courts, and judges now consider a number of factors to determine whether a defendant should be released before final disposition of a case.
To be sure, federal magistrate judges still can, and do, allow pre-trial release through the posting of secure and unsecured bonds, but unlike state court, the judge decides whether the defendant should even have the opportunity to post a secure or unsecured bond. It’s not just a matter of the judge setting an amount and the defendant coming up with enough money to pay a bondsman.
And, in most cases, the question is simply whether the defendant should be detained until the case is resolved, or should be able to live with a relative pursuant to certain terms and conditions of release.
In order to answer some, but by no means all, questions, we have written a free guide to securing federal pre-trial release. You can download a copy by clicking on this text or the image.
If you have questions about it, please feel free to contact us through the forms on this website, call us at (919) 833-1931, or e-mail email@example.com.
Dhamian Blue has been recognized in the 2019 edition of Super Lawyers magazine in the Business Litigation category. He previously was recognized by the magazine as a Rising Star in 2013.
Super Lawyers is a rating service of lawyers from more than 70 practice areas. Its patented selection process includes independent research, peer nominations, and peer evaluations. No more than 5 percent of attorneys in North Carolina are recognized each year.
In United States v. Simms, No. 15-4640, in an 8 to 7 decision, the U.S. Court of Appeals for the Fourth Circuit, sitting en banc, declared 18 U.S.C. § 924(c)(3)(B) unconstitutionally vague. Dhamian Blue represented the client on appeal.
18 U.S.C. § 924(c) criminalizes the use of a firearm in furtherance of a “crime of violence.” The issue is Simms was whether conspiracy to commit Hobbs Act robbery was a “crime of violence” as defined in § 924(c)(3)(B), also known as the “residual clause.” The residual clause defines a crime of violence as a crime that “by its nature, involves a substantial risk that physical force against the person or property of another may be used in the course of committing the offense.”
On appeal, Blue argued that the § 924(c) residual clause was unconstitutionally vague because similar language in the Armed Career Criminal Act was declared vague in United States v. Johnson, and identical language was declared as such in Sessions v. Dimaya. Th Court’s decision in Simms deepens the Circuit split on this issue, with four Circuits having held that the provision is unconstitutional, and three upholding the residual clause.
Today in Beckles v. United States, the US Supreme Court held that the United States Sentencing Guidelines are not subject to vagueness challenges under the Constitution’s Due Process Clause.
A recent new story posted on WRAL.com (and now available on CBS News) highlights the collateral consequences that a federal drug prosecution and conviction can have on not only a defendant’s life, but also the lives of family members and unsuspecting business associates. As noted in the story:
An online auction with a wild back story allowed Atlanta-area brides to save big on wedding expenses.
When a federal drug bust in Alaska led to the seizure of a bridal store’s inventory, the government was left with thousands of bridal gowns, tuxedos, tiaras and even engagement rings. So the General Services Administration handled it like any other seizure of valuables and set up an auction.
Understandably, the first thing that comes to mind for anyone who has received a federal target letter or has been indicted for committing a federal drug crime is the prospect of spending time in prison. Federal sentencing laws are harsh, and prosecutors routinely seek the maximum punishment allowed by law. But what happens to a convicted person’s personal property?
FORFEITURES IN THE EASTERN DISTRICT OF NORTH CAROLINA ARE COMMON
In the Eastern District of North Carolina, most indictments are accompanied by a forfeiture notice. A forfeiture notice informs a defendant of the government’s intent to recover assets that it believes were obtained through criminal activity. If, for example, a defendant uses proceeds from drug sales to buy cars or a house, that property can be seized by the government and liquidated (usually at an auction). The notice generally becomes final upon entry of a guilty plea or conviction by a jury.
What happens, however, if a defendant acquires assets jointly with his wife or other legitimate sources of income are used to buy property. Sometimes, the extent to which those properties can be forfeited can be negotiated with the federal prosecutor. Otherwise, a defendant has to demonstrate that property that the government may have an interest in is not “ill-gotten” and was acquired legitimately.
If you have been charged with a federal crime or otherwise have an interested in forfeited property, time is not on your side. You must act quickly, or your rights to seized property can be lost. Contact Blue Law LLP if you have a forfeiture issue.
It has been said that the life of the law is experience. Nine years’ experience trying to derive meaning from the residual clause convinces us that we have embarked upon a failed enterprise.
It is rare for the US Supreme Court to declare, almost unanimously, that it doesn’t know what something means. But that just happened in Johnson v. United States, a case about the proper interpretation of the residual clause of the Armed Career Criminal Act, 18 U.S.C. §924(e) (the “ACCA”).
We’ll start with the facts. The defendant in Johnson is a felon with a long criminal record. In 2010, the FBI began to monitor him because of his involvement in a white supremacist organization that was suspected of planning a terrorist attack. During the investigation, the defendant told undercover agents that he planned to use explosives to attack the Mexican consulate in Minnesota, progressive bookstores, and liberals. He showed the agents an assault rifle, several semiautomatic firearms, and over 1,000 rounds of ammunition. The defendant was arrested and pleaded guilty to violating 18 U.S.C. §922(g).
THE ARMED CAREER CRIMINAL ACT HAS A 15 YEAR MANDATORY MINIMUM SENTENCE
Section 922(g) forbids convicted felons from possessing firearms (most people are familiar with the crime and commonly refer to it as “being a felon in possession of a firearm”). The law generally punishes violators with up to 10 years’ imprisonment. If, however, a defendant has three or more prior convictions for a “serious drug offense” or a “violent felony,” the ACCA increases the prison term to a minimum sentence of 15 years and a maximum sentence of life.
So, what is a “violent felony” under the ACCA? The Act defines a violent felony as:
any crime punishable by imprisonment for a term exceeding one year . . . that —
(i) has as an element the use, attempted use, or threatened use of physical force against the person of another; or
(ii) is burglary, arson, or extortion, involves use of explosives, or otherwise involves conduct that presents a serious potential risk of physical injury to another.“
The highlighted language above is referred to as the ACCA’s “residual clause.” The question in Johnson was whether the defendant’s prior conviction for the unlawful possession of a short-barreled shotgun (under Minnesota law) was a violent felony under the residual clause. The Court held that it was not because the residual clause is unconstitutionally vague and therefore violates the Constitution’s guarantee of due process.
Let’s dig a little deeper. The Court begins its legal analysis with the Fifth Amendment:
The Fifth Amendment provides that “[n]o person shall . . . be deprived of life, liberty, or property without due process of law.” Our cases establish that the Government violates this guarantee by taking away someone’s life, liberty, or property under a criminal law so vague that it fails to give ordinary people fair notice of the conduct it punishes, or so standardless that it invites arbitrary enforcement. . . . The prohibition of vagueness in criminal statutes “is a well-recognized requirement, consonant alike with ordinary notions of fair play and the settled rules of law,” and a statute that flouts it “violates the first essential of due process.” . . . These principles apply not only to statutes defining elements of crimes, but also to statutes fixing sentences.
Prior to Johnson, the Court adopted a framework called the “categorical approach” to decide whether an ACCA predicate offense is “burglary, arson, or extortion, involves the use of explosives, or otherwise involves conduct that presents a serious potential risk of physical injuty to another[,]” as those terms and that language is used in the ACCA text. This framework required a court to assess whether a crime is a violent felony “in terms of how the law defines the offense and not in terms of how an individual offender might have committed it on a particular occasion.” Johnson at 4. It further required “a court to picture the kind of conduct that the crime involves in ‘the ordinary case,’ and to judge whether that abstraction presents a serious potential risk of physical injury.” Id.
The Court cited two features of the residual clause that make it unconstitutionally vague. First, the clause “leaves grave uncertainty about how to estimate the risk posed by a crime” in the judicially imagined “ordinary case.” For example, “does the ordinary instance of witness tampering involve offering a witness a bribe? Or threatening a witness with violence?” The Court concluded that “[t]he residual clause offers no reliable way to choose between . . . competing accounts of what” an “ordinary case” involves. Id. at 6.
Second, the clause “leaves uncertainty about how much risk it takes for a crime to qualify as a violent felony.” The Court offered the following as an example:
Does the ordinary burgler invade an occupied home by night or an unoccupied home by day? Does the typical extortionist threaten his victim in person with the use of force, or does he threaten his victim by mail with the revelation of embarassing personal information? By combining indeterminancy about how to measure the risk posed by a crime with indeterminancy about how much risk it takes for the crime to qualify as a violent felony, the residual clause produces more unpredictability and arbitrariness than the Due Process Clause tolerates.”
Throughout the opinion, the Court explains its (and lower courts’) failure to develop a consistent, reliable, and predictable framework for application of the residual clause to different felonies. This failure mandated striking the clause as unconstitutionally vague. Importantly, application of the ACCA to the four specifically enumerated offenses (burglary, arson, extortion, or a crime involving the use of explosives) remains in tact.
The Supreme Court ruled in City of Los Angeles v. Patel, No. 13-1175, that a Los Angeles City Ordinance that compels “[e]very operator of a hotel to keep a record” containing specific information concerning guests and to make that record “available to any officer of the Los Angeles Police Department for insepection” on demand is facially unconstitutional.
The Court ruled, in a 5-4 opinion written by Justice Sotomayor, that non-compliant individuals could not constitutinally be subjected to criminal penalties, including 6 months imprisonment, without the benefit of a precompliance review by a judicial official. What in the world does that mean? We’ll get to it, but let’s look at the stricken ordinance first.
Los Angeles Municipal Code §41.49 required hotel operators to collect certain information about their guests including: a guests name, address, the number of people in the guest’s party, and the make, model, and license plate number of the guest’s vehicle parked on hotel property. The ordinance required this, and other, information to be “kept on the hotel premises in the guest reception or guest check-in area or in an office adjacent” thereto for a period of 90 days. Further, the hotel gust records shall be made available to any officer of the Los Angeles Police Department for inspection,” provided that “[w]henever possible, the inspection shall be conducted at a time and in a manner that minimizes any interference with the operation of the business.” The opinion describes that “[a] hotel operator’s failure to make his or her guest records available for police inspection is a misdemeanor punishible by up to six months in jail and a $1,000 fine.”
Justice Sotameyor begins her analysis of the stricken ordinance (after more generally discussing facial challenges under the Fourth Amendment) by pointing out that “the Court has repeatedly held that searches conducted outside of the judicial process, without prior approval by [a] judge or [a] magistrate [judge], are per se unreasonable . . . subject only to a few specifically established and well-dilineated exceptions.” 576 U.S. ___, 2 (2015) (internal quotation marks omitted). “Search regimes where no warrant is ever required may be reasonable where special needs . . . make the warrant and probable-cause requirement impracticable . . . and where the primary purpose of the searches is [d]istinguishable from the general interest in crime control[.]” Id. (citations and internal quotation marks omitted). These “special needs” searches are also referred to as “administrative searches,” and in this particlar case, the Court noted that the administrative search contemplated by the ordinance was to ensure compliance with the record-keeping requirement, which deterred criminals from operating on hotels’ premises.
Justice Sotameyor explains that “[t]he Court has held that absent consent, exigent circumstances, or the like, in order for an administratiev search to be constitutional, the subject of the search must be afforded an opportunity to obtain precompliance review before a neutral decisionmaker.” Id. at 10. Thus, the problem with the LA ordinance was that a hotel owner who refused to give an officer acces to his or her registry could have been arrested on the spot, without having any opportunty to challenge the breadth or scope of the search. “Absent an opportunity for precompliance review, the ordinance creates an intolerable risk that searches authorized by it will exceed statutory limits, or be used as a pretext to harass hotel operators and their guests.” Id. at 11. The Court cites, as a reasonable alternative, an officer’s abilility to obtain an administrative subpoena. The ordinance had no such flexibility, and therefore, was stricken as facially unconstitutional.