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Too Big to Go To Jail

On July 17, 2013, The Association of Prosecuting Attorneys, the Brennan Center for Justice at New York University School of Law, the Foundation for Criminal Justice, the National Association of Criminal Defense Lawyers, the Center for NuLeadership on Urban Solutions, and the New York County Lawyers' Association released Criminal Justice in the 21st Century: Eliminating Racial and Ethnic Disparities in the Criminal Justice System, a critically important and inclusive examination of the profound racial and ethnic disparities in America's criminal justice system, and concrete ways to overcome them.

This conference report prepared by Professor Tanya E. Coke is based upon a multi-day, open and frank discussion among a distinguished group of criminal justice experts - prosecutors, judges, defense attorneys, scholars, community leaders, and formerly incarcerated advocates. In this episode of The Criminal Docket, we hear from Barbara Moses, President of the New York County Lawyers' Association, which hosted the conference, and Professor Tanya E. Coke, who prepared the report.

Gov. Jerry Brown Vetoes EFF-Backed Privacy Measure
Cheryl Miller
2013-10-14

"SACRAMENTO -- In a legislative battle between privacy rights groups and law enforcement over online conversations, Governor Jerry Brown has sided with authorities -- again.

Brown on Saturday vetoed legislation, Senate Bill 467, that would have required police to obtain search warrants before collecting emails and other electronic communications, including Twitter and Facebook posts. Federal law, he noted, already requires authorities to secure a court order or search warrant in some cases.

"The bill, however, imposes new notice requirements that go beyond those required by federal law and could impede ongoing federal investigations," Brown wrote in his veto message. "I do not think that is wise."

Brown's veto marked the third loss in recent years for the Electronic Frontier Foundation in its attempts to place new restrictions on law enforcement's access to personal data. Last year the governor nixed EFF-sponsored legislation to require search warrants for electronic information that might track a person's location. In 2011 he said no to a bill mandating search warrants for cell phones and other electronic devices authorities find incident to a suspect's arrest.

"All three [bills] would have cemented California's status as a leader when it comes to protecting its citizen's electronic privacy," EFF staff attorney Hanni Fakhoury said in a prepared statement. "As the home of the largest and most innovative technological companies in the world, California should be at the forefront of ensuring technology works for the public benefit."

Current federal law, enacted in 1986, does not require law enforcement to obtain a search warrant for electronic communications that have been stored longer than 180 days. But SB 467 would have codified the practice of companies like Yahoo and Facebook, which typically require a warrant before handing over any data.
The bill would also have forced authorities in most cases to alert customers within three days of receiving their communications from service providers. Courts could have approved notification delays if persuaded that they risked harming investigations.

Sheriffs and district attorneys complained that the bill's changes would create a confusing mish-mash of state and federal laws.

"In short, this bill appears to be completely unnecessary in view of the extensive federal statutes on this subject," the California District Attorneys Association wrote in opposition to SB 467.

The U.S. Department of Justice announced earlier this year that it would be open to changes in the 1986 law governing access to emails and other stored communications, including possible elimination of the 180-day rule for search warrants.

In other action Saturday, the governor vetoed SB 131, which would have extended the statute of limitations for some childhood sexual abuse claims brought against private organizations. In an unusually long three-page veto message that seemed professorial at times, Brown said the measure, which faced significant opposition from the Catholic Church, was "too open-ended and unfair."

The bill's author, Senator Jim Beall, D-San Jose, has not said whether he will pursue similar legislation next year.
"I believe the veto is bad public policy," Beall said. "It is a retreat in the fight to protect our children."
The deadline for Brown to act on legislative bills passed Sunday. The governor signed 800 bills and vetoed 96 in 2013, according to his office."

Contact the reporter at cmiller@alm.com

Here's Another Example of "Too Big to Go To Jail"

OCTOBER 16, 2013, 10:25 AM
JPMorgan to Admit Wrongdoing and Pay $100 Million to Settle 'London Whale' Inquiry

By BEN PROTESS and JESSICA SILVER-GREENBERG

"JPMorgan Chase has agreed to pay $100 million and make a groundbreaking admission of wrongdoing to settle an investigation into market manipulation involving the bank's multibillion-dollar trading loss in London, a federal regulator announced on Wednesday, underscoring how far the bank was willing to go to put the blunder behind it.

The regulator, the Commodity Futures Trading Commission, took aim at JPMorgan for trading activity that was so large and voluminous that it violated new rules under the Dodd-Frank Act, the financial regulatory overhaul passed in response to the financial crisis.

The trading commission charged the bank with recklessly "employing a manipulative device" in the market for swaps, financial contracts that allowed the bank to bet on the health of companies like American Airlines. The bank sold "a staggering volume of these swaps in a concentrated period," the trading commission said.

Unlike other regulatory actions involving the loss, which focused on porous controls and governance practices at the bank, the pact with the trading commission exposed the bank's actual trading activity. And the case, which brings JPMorgan's tally of fines in the trading loss case to more than $1 billion, was a first for the trading commission. Until now, the commission had never exercised its authority under Dodd-Frank to combat manipulation.

"In Dodd-Frank, Congress provided a powerful new tool enabling the C.F.T.C. for the first time to prohibit reckless manipulative conduct," David Meister, the agency's enforcement director, said in a statement. "As this case demonstrates, the commission is now better armed than ever to protect the market from traders, like those here, who try to 'defend' their position by dumping a gargantuan, record-setting, volume of swaps virtually all at once, recklessly ignoring the obvious dangers to legitimate pricing forces."

The bank's admission of wrongdoing made the case all the rarer. Banks are typically loath to make such admissions, fearing that an acknowledgment of bad behavior will open the floodgates to litigation from shareholders. But to resolve the investigation, JPMorgan took the unusual step of admitting to facts that the trading commission outlined in its order. In doing so, the bank acknowledged that its traders acted recklessly.

The concession was the latest, and perhaps most significant, phase of a broader policy shift in Washington, where federal regulators are reversing a practice of allowing banks to "neither admit nor deny" wrongdoing. That practice, in place for decades, rankled consumer advocates and lawmakers, who questioned why Wall Street misdeeds generated only token settlements that banks could easily afford.

JPMorgan's admission to the trading commission - coupled with its acknowledgment to the Securities and Exchange Commission last month that "severe breakdowns" had allowed a group of traders in London to run up more than $6 billion in losses - could provide a template for pursuing other admissions in Wall Street cases.

"Admitting to these findings of fact needs to be something part and parcel to these types of settlements," said Bart Chilton, a Democratic member of the trading commission. "All too often, a firm will neither admit nor deny any wrongdoing. That needs to stop."

The trading commission still provided the bank some cover from private litigation. JPMorgan noted that, although it admitted to facts in the order, it "neither admitted nor denied the C.F.T.C.'s legal conclusion that there was a violation." While it is a small and technical distinction, it could save the bank from an onslaught of shareholder lawsuits.

The trading commission was the sole holdout in settling cases arising from the trading loss, a debacle last year that has come to be known as the London Whale episode. In September, to resolve accusations that the bank allowed a group of traders to go unchecked as they racked up losses, JPMorgan paid $920 million to four other regulatory agencies -- the S.E.C., the Federal Reserve and the Office of the Comptroller of the Currency in the United States, and the Financial Conduct Authority in Britain. The bank, also blamed for nor alerting its board and regulators to the gravity of the problem, admitted to the S.E.C. that it had violated federal securities laws. The agency, however, continues to investigate whether senior executives at the bank ran afoul of any civil regulations.

The London Whale case also features a criminal component. In August, federal prosecutors and the Federal Bureau of Investigation in Manhattan announced criminal charges against two of the former traders: Javier Martin-Artajo and Julien Grout, who were accused of covering up the size of their losses. The traders deny wrongdoing. Bruno Iksil, a third trader known as the London Whale for his role in the outsize derivatives bet, reached a non-prosecution deal that requires him to testify against his two former colleagues.

The flurry of federal activity cast a pall over the bank. And the trading commission, by striking out on its own, frustrated JPMorgan's efforts to resolve the regulatory cases all at once.

The settlement hinged on whether the bank would admit wrongdoing. JPMorgan, arguing that its trading was legitimate, initially resisted an admission. That prompted the trading commission to draft a potential lawsuit. But talks reopened in recent weeks, paving the way for the admission.

For years, the agency was hamstrung in its pursuit of market manipulation cases. Under existing laws, it had to prove that a trader intended to manipulate the market, and successfully created artificial prices.

That high hurdle deterred the agency from taking action in manipulation investigations. And even when cases were filed, they rarely panned out. In fact, according to Mr. Chilton, the agency has successfully litigated only one manipulation case in the agency's 38-year history.

But under Dodd-Frank, the agency must show only that a trader acted "recklessly." The agency harnessed that new authority to pursue the JPMorgan trading, where it was unclear whether the traders had intended to distort the market. The broader authority also enabled the agency to accuse the bank of "employing a manipulative device," without proving that the bank actually manipulated the price of swaps.

The agency's sole Republican commissioner, Scott D. O'Malia, objected to the narrower design of the case under Dodd-Frank. In a dissent published on Wednesday, he argued that the agency "should have taken more time to investigate whether the company is liable for a more serious violation, namely price manipulation."

Mr. Chilton, in contrast, praised the $100 million fine as an "appropriate amount" He argued, however, that the agency still lacked authority to impose huge fines.

"I still seek a statutory change from our current puny penalty regime," he said.

While the case was a first for the agency, it could be one of the last for Mr. Meister, a former federal prosecutor and defense lawyer who recently announced that he would depart the agency this fall."

The lesson here: If the average guy did anything like this, he'd be indicted, prosecuted, convicted, imprisoned and be forced to give up pretty much all his worldly possessions. But if you're "Too Big to Prosecute," you pay a few bucks and continue on your way. Fair? Not at all.

- James W. Burdick

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