Criminal Law Outline - Fraud

  1. **Abridged Corporate Liability/Fraud**

    • Corporate Liability
      • Common law method…
        • A corporation can be held liable in criminal law.
        • A corporation can be found guilty of a crime requiring specific intent for actions committed by its agent if… (State v. Christy Pontiac-GMC)
          • The agent was acting within the course and scope of his employment, having the authority to act for the corporation with respect to the particular corporate business which was conducted criminally,
          • The agent was acting, at least in part, in furtherance of the corporation's business interests, AND
          • The criminal acts were authorized, tolerated, or ratified by corporate management.
      • MPC Method (2.07)
        • A corporation may be convicted of the commission of an offense if…
          • The offense clearly shows the legislature's intent to impose liability on corporations AND
            • Conduct is performed by an agent of the corporation acting in behalf of the corporation within the scope of his office or employment OR
            • The offense consists of an omission to discharge a specific duty of affirmative performance imposed on corporations by law OR
            • The commission of the offense was authorized, requested, commanded, performed, or recklessly tolerated by the board of directors or by a high managerial agent acting in behalf of the corporation within the scope of his office or employment.
    • Collective Knowledge of a Corporation (U.S. v. Bank of New England)
      • The knowledge of a corporation is the sum of the knowledge of all of its employees; totality of what all of the employees know within the scope of their employment.
      • A corporation cannot plead innocence by asserting that the information obtained by several employees was not acquired by any one individual who then would have comprehended the full import.


    • Federal Mail, Wire, Computer Fraud (Honest Services Fraud)
      • Mail/Wire Fraud statute
        • Two Elements
          • D's knowing and willing participation of a scheme or artifice to defraud with the specific intent to defraud.
          • The use of interstate mail/wire communications in furtherance of the scheme.
      • Required that prosecution shows that D intended to deprive another of their protected right.
        • When dealing with intangible property (information), some actual harm must befall the holder of the property as a result of D's conduct or some gainful use must be intended by D, in an economic or noneconomic sense.
        • Scheme or artifice to defraud includes a scheme or artifice to deprive another of the intangible right to honest services.
          • Honest services convictions of public officials typically involve serious corruption
          • The broad scope of the fraud statutes does not encompass every instance of official misconduct that results in personal gain.
            • To do so would make most every misconduct by a federal employee a federal crime.
          • Prosecution must not merely indicate wrongdoing by a public official, but must also demonstrate that the wrongdoing at issue is intended to prevent or call into question the proper or impartial performance of that public servant's official duties.
          • Required that the offense be in violation of state law to avoid notice problem?
      • Computer Fraud statute
        • Two Elements
          • D must access a Federal interest computer without authorization (or exceed authorized access) knowingly and with intent to defraud
          • And by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer.
        • Congress intended this statute to punish attempts to steal valuable data and did not wish to punish mere unauthorized access.
    1. Federal Mail, Wire, and Computer Fraud
      1. U.S. v. Czubinski
        1. D convicted of nine counts of wire fraud and four counts of computer fraud. Was employed in IRS, routinely accessed information in IDRS comp system.  Could retrieve info on any taxpayer, but rules said he was not allowed to outside official duties. D carried out unauthorized searches, but did not do anything more than observe the info. Only evidence is testimony of an acquaintance, who says D said he was going to use the info to build dossiers on people involved in the white supremacist movement, but there is no evidence he did that.
        2. Wire fraud counts
          • To support a conviction, gov't must prove that
            1. The D knowingly and willingly participated in a scheme or artifice to defraud with the specific intent to defraud, AND
            2. The use of interstate wire communications in furtherance of the scheme.
          • Ct finds that D did not participate in a scheme to defraud under the meaning of the statute.
            • Necessary that D intended to deprive of something ("obtain money or property"). However, accessing confidential info is not depriving the IRS of property, because there must be some clear intention to do more with the info.
              • Must be some gainful use.
            • Did he intend to deprive another of their protected right?
              • Taking the IRS's right to exclusive use cannot be proven unless the D actually uses the info, because otherwise the intent to deprive is not proven.
            • Basically, D had to prove beyond a reasonably doubt that D was actually going to do something with the info, and they did not. Only testimony was one remark made at a social gathering. D never made any steps toward acting on any of this.
        1. Honest services fraud
          • SCOTUS  held that mail and wire fraud statutes do not prohibit schemes to defraud individuals of their intangible, non-property right to honest government service. Congress enacted honest services amendment as a response.
          • In Sawyer, court held that honest services convictions typically involve serious corruption, such as embezzlement of public funds, bribery of officials, failure to disclose conflicts of interest.
            • Cautioned that it does not encompass every instance of official misconduct.
            • Also holds that the gov't must not merely indicate wrongdoing, but must also demonstrate that the wrongdoing is intended to prevent or call into question the proper or impartial performance of that public servant's official duties.
            • Conduct actually has to deprive the public of their right to honest services.
              • No deprivation in this case.
          • Under these principles, D's conviction cannot stand.
          • D did not receive any indication from the IRS that violating the regulation would result in anything more than dismissal. Sawyer cautions that every transgression of a government official cannot be a federal felony.
        1. Computer fraud counts
          • Arose out of unauthorized searches, which also formed the basis of four of the wire fraud counts.
          • Statute- "whoever knowingly and with intent to defraud, accesses a Federal interest computer without authorization, or exceed authorized access, and by means of such conduct furthers the intended fraud and obtains anything of value, unless the object of the fraud and the thing obtained consists only of the use of the computer."
          • Gov't has to show that the information was valuable, and the gov't failed to prove that D intended anything more than to satisfy idle curiosity..
            • "Thing obtained" has to be more than just the use. D did not print out or record any of the info he browsed. No rational jury could conclude that D intended to use or disclose the info, and merely viewing info is not something of value under this statute.
          • Legislative history further supports reading of the term "anything of value"- court looks at senate co-sponsor's comments, which distinguish unauthorized access from theft of info.
        1. Court cautions that the broad language can be used to prosecute things that were not meant to be a federal felony. It should not be used just to prosecute citizens whose views are "against the tide."
      1. Mail fraud statute interpreted similarly.
      2. Statutes often used to prosecute highly inchoate fraudulent schemes, and often succeed in this regard.
      3. Do these statutes violate the legality principle?
      4. United States v. Weyrauch
        1. Weyrauch is an Alaska House Rep. accused of using the U.S. mail to deprive Alaska of his honest services
          1. Accused of soliciting future legal work from oil field services companies in exchange for voting favorably on oil tax legislation.
          2. Issue whether a federal mail fraud prosecution under 18 U.S.C. §§ 1341 and 1346 requires proof that the conduct also violated state law.
            1. Ninth circuit says no, granted cert. in the Supreme Court.
          1. Are the contours of "honest services" defined in the federal code or by state law?
            1. For instance, must a public official breach a fiduciary duty?
          1. Other courts limited 1346 to prevent undue influence into state and local affairs (so that not every single dishonest act becomes a federal crime).
            1. Fair notice to public officials
            2. Firm boundaries
            3. Selective enforcement against partisan politicians.
          1. Ninth circuit DOES NOT adopt this the state law limiting principle
            1. Federal action based on constitutional authority is not improper simply by intruding on state affairs or interests.
          1. Appropriate (federal) contours for "honest services fraud:"
            1. Taking a bribe or being paid for a decision
            2. Nondisclosure of material information.
          1. 1346 created UNIFORM standard that governs every public official.
            1. No independent state law violation required.
      1. United States v. Conrad M. Black
        1. Conrad Black had a majority stake in Hollinger through his stake in Revelston. Hollinger has a subsidiary named APC, which paid Black and other executive over 5.5 million dollars in exchange for a promise not to compete (APC had one newspaper in a town of 7000 people).
        2. Private honest services fraud.
          1. Jury was told that in addition to traditional fraud the Ds "Schemed to deprive Hollinger and its shareholders "of their intangible right to the honest srervices of the corporate officers, directors or controlling shareholders of Hollinger"
            1. Provided the objective of the scheme was "private gain."
        1. Issue: Can they be guilty of both and was the honest services fraud instruction properly given?
          1. Yes. The same conduct can violate more than one criminal statute.
          2. Instruction was proper; general verdict will stand and will assume that jury followed the instruction according to the court.
        1. Black argues "no harm, no foul" because he structured the transactions this way to get a tax benefit in Canada.
          1. Court argues that this argument will always fail w.r.t. honest services because even if the reason was money from a third party, they deprived their employer (Hollinger and stakeholders) the honest services they owed it.
          2. The fact that they hid and obstructed this information from the SEC exacerbates.
        1. The challenge arises because the Ds claim that the general verdict given (on both money/property and honest services fraud), and that the honest services instruction may be illegal, that the judgment must be reversed.
          1. Court says that even if instruction was illegal, defendants requested a general verdict in order to make the appeal they are making now.
          2. Prosecution wanted verdicts on each charge.
          3. Perhaps the jury ought to be polled after they reach a verdict?
            1. Appellate court is skeptical of this approach because it is burdensome on juries.
      1. United States v. Jeffrey K. Skilling
        1. Skilling charged with conspiracy, securities fraud, making false representations to auditors, and insider trading.
          1. Convicted of all counts.
            1. 5th circuit affirms.
          1. Skilling contends "honest services fraud" theory is incorrect, and all convictions should be vacated.
            1. Jury convicted of one count of conspiracy.
              • Three objects of the conspiracy:
                • Securities Fraud
                • Wire fraud to deprive Enron and shareholders of money and property
                • Wire fraud to defraud of honest services
              • Yates says that if a general verdict returned that rests on multiple legal theories, at least one insufficient in law and the others sufficient, the verdict must be set aside.
                • Cannot trust the jury to have chosen the legally sufficient theory.
          1. Court says that the elements of honest services wire fraud are:
            1. Material breach of a fiduciary duty imposed under state law, including duties under employee/employer relationship.
            2. That results in a detriment to the employer.
          1. Even though it's not clear which theory the jury used, because all three are legally sufficient, they could have convicted on any of the three.
      1. United States v. Bank of New England
        1. 31 counts of violating the Currency Transaction Reporting Act
          1. Did not report transactions of individuals withdrawing over 10,000 (even in multiple checks)
          2. Major issue is collective knowledge
            1. Court rules that collective knowledge instruction appropriate in corporate liability.
            2. Knowledge gained by employees in course of employment can be imputed to corporation
            3. SC has willfulness as "a disregard for the governing statute and an indifference to its requirements"
              • Clearly violated the CTRA
              • Flagrantly indifferent to the reporting requirements at multiple levels.
              • Court says the collective knowledge requirement is necessary in the corporate context.
    1. Corporate Liability
      1. Early History
        1. In early years, corporate liability was inhibited by conceptual constraints
          • Ex: Idea that a corporation might not be held liable for a crime involving criminal intent.
        1. Recently, these limitations relaxed, but law still difficult to pin down.
      1. State v. Christy Pontiac-GMC, Inc
        1. D found guilty of theft by swindle and aggravated forgery, each $1k fine.
        2. D argued that a corporation cannot be prosecuted or  convicted for theft or forgery (specific intent crime) and that acts were not acts of corporation. D also argues that punishment is imprisonment w/ or w/o a fine, so legislature must have meant "persons" to mean human persons, not a corporation.
        3. Pontiac employee Hesli (salesman and fleet manager) forged signatures and backdated forms and gave them to GM even though rebate period had expired. Customers found out when rebate rejected by GM and sent back to them.
        4. Court holds that corporation can be prosecuted for theft and forgery and that it is not exempt from criminal liability.
        5. For a corporation to be guilty of a specific intent crime committed by its agent:
          1. The agent must be acting within the course and scope of his or her employment, having the authority to act for the corporation with respect to the particular corporate business which was conducted criminally.
          2. The agent must be acting, at least in part, in furtherance of the corporation's business interests;
          3. The criminal acts were authorized, tolerated, or ratified by corporate management.
        1. Court holds that evidence here is sufficient to sustain the convictions under the above proof requirements.
      1. Two major standards for criminal corporate liability:
        1. Traditional/Respondeat Superior Approach (common law- mostly federal):
          • Agent must commit a crime
          • In the scope of employment
            • Doesn't matter if conduct strictly forbidden by corporate policy
          1. With the intent to benefit the corporation
            • Doesn't matter if corporation received no benefit
            • Doesn't matter if no one knew of the conduct when it occurred.
        1. MPC 2.07 approach: (for major infractions and Code penal offenses)
          • Criminal conduct must be "authorized, requested, commanded, performed, or recklessly tolerated by the board of directors or by a high managerial agent acting in behalf of the corporation within the scope of his office or employment."
            • Only liable for some agents, not all.
          • Potential problems
            • Maverick employee- automatically imputes intent of individual corporate agents to the whole corporation.
            • Even if a clear corporate policy caused a lower employee to commit an offense, the corporation is only liable if a higher official recklessly tolerated the conduct.
            • Encourages higher echelon officials to insulate themselves from knowledge of corporate activity, which discourages self-policing by corporations.
          • For minor infractions and non-Code penal offenses, there is no MR requirement ((2.07(1)(a)).
      1. Problems with corporate deterrence
        1. Inability to imprison corporations
          • Hornbook rule is that a corporation cannot be imprisoned or killed, so corporations cannot be found guilty of these crimes.
        1. Fines and Deterrence
          • Moderate fines don't deter, while severe penalties fall on the relatively blameless.
          • Inability to set an adequate punishment cost which does not exceed the corporation's resources.
        1. Rates of apprehension are low
          • Victims often do not know about their injury (e.g., price-fixing)
        1. Individual Actors make up Corporation
          • Individual manager may perceive illegal conduct to be in his best interest, even if it exposes the firm to a potential cost that outweighs the risk.
          • Individuals act out of loyalty to a small group, which are known to make riskier decisions. (Mid-level management crime)
        1. Externalities
          • The costs of deterrence spill over onto stockholdings, bondholders, creditors, low-level employees who received no benefits from the crime, and the general consumer.
          • These parties are not culpable or much much less culpable.
    1. Arthur Andersen LLP v. United States
      1. Issue: What counts as "corrupt persuasion" under 18 USC §1512(b)
        1. Crime to "knowingly use intimidation or physical force, threaten or corruptly persuade another person  … with intent to … cause" that person to "withhold" documents from or "alter" documents for use in, an "official proceeding."
      1. Did the orders to shred documents have a/the judicial proceeding in mind to count as "corrupt?"
        1. Thus, person must knowingly corruptly persuade others to destroy documents.
        2. Buell unsure of what this means, since "corruptly" seems to have implicit knowledge mens rea.
      1. Court rules that there must be a "nexus" between the obstructive act and the judicial proceeding.
        1. Can't just be that the person impeded the government's factfinding ability with the requisite intent to do so.