On September 15, 2022, Deputy Attorney General (DAG) Lisa Monaco, announced several significant policy updates impacting the U.S. Department of Justice’s (DOJ) enforcement practices for both corporations and individuals. Speaking to attendees at the NYU Program on Corporate Compliance and Enforcement (PCCE), DAG Monaco detailed a series of initiatives, some of which appear to have emerged from the Corporate Crime Advisory Group formed last fall to conduct a full-scale review of the DOJ’s corporate enforcement efforts. The DOJ simultaneously released a memorandum outlining the guidance announced by DAG Monaco. 

The new guidance bolsters enforcement priorities that DAG Monaco has emphasized over the past year. As discussed in further detail below, the Department’s policy updates are substantive and have significant ramifications on both the individual and corporate level, including: (1) continued focus on individual accountability; (2) enhanced policies to predictably reward voluntary self-disclosure; (3) further clarity on the impact of corporate recidivism considerations on negotiated resolutions with the DOJ; and (4) new metrics for evaluating effective corporate compliance, including compliance conscious compensation structures and policies on the use of personal devices and third party messaging applications.

Continue Reading DOJ Announces Sweeping Policy Updates Targeting Corporate Criminal Enforcement and Individual Accountability

The DOJ recently garnered a win in its spoofing case against two precious metals traders who prosecutors alleged had engaged in widespread market manipulation and fraud through a practice known as “spoofing.” But the verdict is also in on the DOJ’s novel attempt utilize racketeering charges against traders accused of spoofing: the jury found the defendants not guilty of the alleged RICO violations. While the case highlights the DOJ’s continued crackdown on market manipulation schemes, it also illustrates the limits of the government’s reach.

Background

The DOJ’s case against the traders dates back to 2019, when prosecutors unveiled sweeping charges alleging that the traders had engaged in thousands of deceptive trading sequences for gold, silver, platinum, and palladium futures contracts between May 2008 and August 2016.  The DOJ alleged that by engaging in these practices, the traders violated the Commodity Exchange Act’s anti-spoofing provisions, which prohibit disruptive trading practices, including “bidding or offering with the intent to cancel the bid or offer before execution.” 

However, in addition to the usual spoofing and other financial crime-related offenses, the indictment charged the traders with a racketeering conspiracy.  When the indictment became public back in 2019, commentators predicted that the DOJ’s inclusion of RICO charges could make the government’s case simpler to prove.  Instead of convincing the jury through a complicated series of orders, cancellations, price movements, and trades (i.e., the typical evidence used to establish a pattern of spoofing), the path to conviction under the RICO Act was supposed to be more straightforward.  In this case, the indictment alleged that “the defendants and their co-conspirators were members of an enterprise—namely, the precious metals desk at [the bank]—and conducted the affairs of the desk through a pattern of racketeering activity, specifically, wire fraud affecting a financial institution and bank fraud.”

Continue Reading DOJ Secures Spoofing Conviction, but Loses on Novel RICO Charges

In a criminal case against two former officers of Cognizant Technology Solutions Corp. (Cognizant), a New Jersey federal district court recently ordered Cognizant to produce unredacted internal interview memorandums and notes prepared by its outside counsel. The court found that the company had waived attorney-client privilege and work-product protection over those documents by disclosing the information contained in them to the U.S. Department of Justice (DOJ). The decision is a cautionary reminder to companies of the risk of waiving privilege when cooperating with the government.

Continue Reading Court Holds Oral Downloads of Witness Interviews Waive Corporate Privilege

JurorSearch CEO and Co-Founder Dan Johnson sits down with Perkins Coie White Collar & Investigations Partner Markus Funk to discuss some of the latest developments in jury selection. They talk about how customized software solutions can help prosecutors, civil litigators, and jury consultants collect and organize attorneys’ comments in real time while selecting jurors so they can craft voir dire questions to optimize potential juror selections and ward off unforeseen jury challenges down the road.

Listen to “Talking Jury Selection With JurorSearch CEO Dan Johnson” on Spreaker.

Note that all episodes are available on Apple Podcast, Google Podcast, and Spotify.

The US Supreme Court in Ruan sided with doctors seeking a burden of proof higher than mere negligence in prosecutions for unlawful distribution of controlled substances. The decision represents a significant win for those worried about overcriminalization and the associated risk of losing the criminal law’s critical stigmatic impact, write Perkins Coie attorneys T. Markus Funk and Sean B. Solis.

The US Supreme Court issued a significant decision in its Controlled Substances Act (CSA) jurisprudence as applied to the nation’s opioid epidemic. At issue in Ruan v. United States was the requisite intent the government must prove to convict a physician under the CSA for the unlawful distribution of controlled substances.

In a significant win for the defense, specifically, and those concerned about imposing criminal liability based on mere negligence, more generally, the Supreme Court held that “[a]fter a [physician] produces evidence that he or she was authorized to dispense controlled substances” (a given in almost every case), “the Government must prove beyond a reasonable doubt that the defendant knew that he or she was acting in an unauthorized manner, or intended to do so.”

In reaching this holding, the high court unanimously rejected the government’s position. In its briefing, the government argued that it should be allowed to convict a physician merely by showing that he or she acted “objectively unreasonably” in misprescribing opioids. In other words, under the government’s requested standard, federal prosecutors would de facto only have to show that a prescribing physician acted with negligence. (Notably, this scienter requirement would be lower than the standard necessary to convict a drug trafficker for distributing heroin or cocaine—namely, “knowingly or intentionally.”)

Concerns about ever-expanding prosecutorial discretion and the erosion of the criminal law’s traditional “guilty mind” requirement have for good reason focused significant attention on the case.

Per the implementing regulations of 21 U.S.C. § 841(a)(1), a physician may lawfully prescribe controlled substances only if they are prescribed for “a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.” Even a first-time offender could face decades in prison for misprescribing opioids in violation of the CSA.

The Government’s Case Against Ruan

In 2016, a federal grand jury returned an indictment charging Dr. Xiulu Ruan, a DEA-registered pain management physician, with, among other things, violating 21 U.S.C. §841(a)(1).

The government at trial presented evidence that Ruan and his business partner issued nearly 300,000 controlled substance prescriptions in a four-year period. Some of these prescriptions allegedly were signed without Ruan even seeing the patient. The government also presented evidence that he increased prescriptions of a biopharma company’s fentanyl drug a hundredfold after he and his business partner invested in it.

Ruan took the stand claiming that he, at all relevant times, honestly believed he was prescribing for a legitimate medical purpose. Ruan asked the district court to give the jury a defendant-friendly jury instruction ending with this statement: “If you find that [the] Defendant acted in good faith in dispensing or distributing a Controlled Substance, as charged in the indictment, then you must return a not guilty verdict.”

The district court rejected the instruction and instead instructed the jury that a controlled substance is prescribed “lawfully if the substance is prescribed by him in good faith as part of his medical treatment of a patient in accordance with the standard of medical practice generally recognized and accepted in the United States.”

Following a seven-week trial, Ruan was convicted of violating the CSA. He appealed, but the Eleventh Circuit affirmed his conviction, holding “[w]hether a defendant acts in the usual course of his professional practice must be evaluated based on an objective standard, not a subjective standard.”

SCOTUS Rejects DOJ’s Scienter Position

In reversing the Eleventh Circuit, the Supreme Court recognized that our system of justice, like most systems around the world, has traditionally (though not universally) operated on the proposition that a “vicious will” is necessary to establish a crime. See, e.g., Morissette v. United States.

This approach is driven by the belief that the stigma of a criminal sanction should be reserved for only those narrow categories of conduct representing the most significant deviations from the standard public morality and deserving of moral condemnation. Thus, when interpreting criminal statutes, the high court “start[s] from a longstanding presumption…that Congress intends to require a defendant to possess a culpable mental state.” Rehaif v. United States.

Here, in the case of a physician registered with the DEA to lawfully prescribe controlled substances, the only element of 21 U.S.C. §841(a)(1) to which moral judgment could attach is the act of prescribing the controlled substance “[e]xcept as authorized by this subchapter” —that is, for an illegitimate medical purpose. Making negligence the mens rea standard, however, would “criminalize a broad range of apparently innocent conduct,” including good faith medical prescribing error. See Liparota v. United States.

In Ruan, the Supreme Court applied the more robust “knowing or intentional” scienter requirement to the CSA to “diminish the risk of ‘overdeterrence,’ i.e., punishing acceptable and beneficial conduct that lies close to, but on the permissible side of, the criminal line.” This was particularly important since the CSA “imposes severe penalties upon those who violate it, including life imprisonment and fines up to $1 million.”

Ruan represents a significant win for those worried about overcriminalization and the associated risk of losing the criminal law’s critical stigmatic impact. Going forward, to sustain a conviction under the CSA, the government will be required to prove that a defendant knew or intended to prescribe controlled substances for an illegitimate medical purpose and outside the usual course of professional practice.

This article originally posted to Bloomberg Law.

In a May 25, 2022 speech at the annual Securities Industry and Financial Markets Association (“SIFMA”) Anti-Money Laundering (“AML”) and Financial Crimes Conference, Brian E. Nelson, the Under Secretary for Terrorism and Financial Intelligence at the U.S. Department of the Treasury (“Treasury”), described ongoing, government-wide efforts to identify and confront money laundering threats to the American financial system.  Of particular note, Under Secretary Nelson emphasized “money laundering risks associated with investment advisers” and revived a long-running debate about whether investment advisers should become subject to the Bank Secrecy Act (“BSA”) and its attendant AML compliance and reporting requirements.  Following his remarks, the continued viability of what some describe as a loophole in the current BSA/AML framework appears in doubt.

Investment Advisers in the Crosshairs

It is perhaps unsurprising that Under Secretary Nelson took the opportunity at the SIFMA conference to discuss investment advisers and the fact that they stand virtually alone among financial institutions that are not subject to BSA/AML requirements – a perennial criticism of the U.S. framework.  The concern is all the more timely given rising fear of manipulation of the U.S. financial system by Russian oligarchs seeking to hide assets and evade sanctions.

Continue Reading U.S. Treasury Renews Focus on AML Risks for Investment Advisors

On May 24, 2022, Glencore International A.G. (“Glencore”), a multi-national resource extraction and commodities trading company, pleaded guilty in the Southern District of New York to one count of conspiracy to violate the anti-bribery provision of the Foreign Corrupt Practices Act (“FCPA”). The same day, its subsidiary, Glencore Ltd., separately pleaded guilty in the District of Connecticut to one count of conspiracy to engage in commodity price manipulation. 

At the same time, Glencore, Glencore Ltd., and Chemoil Corporation (another Glencore subsidiary) also settled a parallel enforcement matter brought by the Commodity Futures Trading Commission (“CFTC”) alleging commodity price manipulation involving foreign corruption in violation of the Commodities Exchange Act (“CEA”). 

Glencore and its subsidiaries have agreed to pay over $1.1 billion to the Department of Justice (“DOJ”) and the CFTC to resolve these three U.S. enforcement matters, which are part of a coordinated global resolution with criminal and civil authorities in at least the United States, the United Kingdom, and Brazil. Notably, the three resolutions highlight the more aggressive approach to corporate enforcement previewed in public statements by DOJ officials under the Biden Administration, as well as the CFTC’s continued interest in pursuing market manipulation and fraud involving foreign corruption.

Continue Reading Glencore Resolves Charges of Global Corruption and Market Manipulation

The U.S. Supreme Court is poised to issue what could be a monumental decision in the Court’s Controlled Substances Act (“CSA”) jurisprudence as applied to the nation’s opioid epidemic. At issue in Ruan v. United States is the requisite intent the government must prove to convict a physician under the CSA for the unlawful distribution of controlled substances. 

The outcome in Ruan could have significant implications for prescribers, including whether their risk of criminal liability is actually higher than a narcotics trafficker distributing heroin or cocaine. More specifically, to convict a drug trafficker, federal prosecutors must prove beyond a reasonable doubt that the trafficker knowingly and intentionally manufactured, transported, or distributed narcotics. If the government prevails in Ruan, the government would de facto have to show only that a prescribing physician was negligent in misprescribing opioids.

Concerns about ever-expanding prosecutorial discretion and the erosion of the criminal law’s traditional “guilty mind” requirement have focused significant attention on the case.

A Mini Survey of the CSA’s Statutory Scheme

Per the implementing regulations of 21 U.S.C. § 841(a)(1), a physician may lawfully prescribe controlled substances only if they are prescribed for “a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.” Even a first-time offender could face decades in prison for misprescribing a Schedule II controlled substance, such as oxycodone, hydrocodone, hydromorphone, methadone, or fentanyl, in violation of the CSA.

The Government’s Case Against Dr. Ruan

In 2016, a federal grand jury returned an indictment charging Dr. Xiulu Ruan, a Drug Enforcement Administration (“DEA”)-registered pain management physician, with, among other things, “knowingly and unlawfully distribut[ing] and dispens[ing] . . . Schedule II Controlled Substances . . . outside the usual course of professional medical practice and not for a legitimate medical purpose, in violation of Title 21, United States Code, Section 841(a)(1).”

The government at trial presented evidence that Dr. Ruan and his business partner issued nearly 300,000 controlled substance prescriptions in a four-year period. Some of these prescriptions allegedly were signed without Dr. Ruan even seeing the patient. The government also presented evidence that Dr. Ruan increased prescriptions of a biopharma company’s fentanyl drug a hundredfold after he and his business partner invested in it.

Continue Reading Could It Be Easier to Convict a Doctor Than a Cartel Member? Why the Impending SCOTUS “Pill Mill” Ruling Makes Some Observers Nervous

On January 14, 2022, a federal district court in the Northern District of California declined to dismiss the first-ever enforcement action by the U.S. Securities and Exchange Commission (the “SEC”) based on allegations of “shadow trading” — the use of one company’s inside information to trade in securities of another, similarly situated, but unrelated company.  

In a typical insider trading case brought under Section 10(b) of the Securities Exchange Act of 1934 (“Section 10(b)”), liability is limited to trading on the basis of material, non-public information specific to the company in which the trading at issue occurred.  The court’s decision in SEC v. Panuwat, therefore, may signal an expansion of insider trading enforcement.

Continue Reading Shadow Trading: Examining the SEC’s Insider Trading Theory in SEC v. Panuwat

On April 14, 2022, the Financial Crimes Enforcement Network (FinCEN) issued an advisory focusing on detecting kleptocrats (i.e., government officials who appropriate national resources for personal gain) and the proceeds of foreign public corruption and preventing them from entering the U.S. financial system. This guidance is the latest in a series of advisories FinCEN has issued focusing on Russian kleptocracy, and is part of a broader strategic initiative among key U.S. and global law enforcement and regulatory agencies focusing on corruption and money laundering as critical national security risks. In particular, the advisory highlights the enhanced focus of U.S. enforcement resources on the attempts of Russian oligarchs to evade sanctions imposed by the United States and its allies in response to Russia’s invasion of Ukraine.

U.S. law enforcement and regulatory agencies have high expectations as to the compliance efforts U.S. companies will adopt to meet this moment. Enforcement against companies and individuals involved in missteps is likely to be aggressive and robustly resourced. Indeed, the Department of Justice (DOJ) announced on April 6, 2022, in connection with the unsealing of an indictment of a Russian oligarch charged with U.S. sanctions violations, that it will “work relentlessly to counter Russian aggression, including by enforcing U.S. sanctions law.” Continue Reading As Russia Sanctions Mount, FinCEN Issues Advisory on Kleptocracy and Foreign Public Corruption