Day Pitney White Collar Quarterly Newsletter, Winter 2010
Authors: Helen Harris, Doreen Klein, Daniel E. Wenner
Publisher: Day Pitney Newsletter
12/21/2009

The Supreme Court Takes a Hard Look at "Honest Services" Fraud

In an unusual move, the Supreme Court will review three criminal appeals this term challenging the government's prosecution of "honest services" fraud. While one of the cases involved a public official convicted of having defrauded his constituents of his "honest services" due to an undisclosed conflict of interest, the other two cases involved corporate officers convicted of defrauding shareholders or investors of their "honest services" by misrepresenting the true nature of certain business transactions. Published reports of the December 8, 2009, oral argument in two of those cases suggest that the government may have difficulty defending the pertinent criminal statute against charges that it is unconstitutionally vague or that it has been used to establish a uniform, federal standard of behavior for local and state officials regardless of any applicable state statutory scheme. more

Third Circuit Forges into the Meaning of "Honest Services" Fraud Under 18 U.S.C. § 1346

With several cases regarding "honest services" fraud pending before the U.S. Supreme Court, see The Supreme Court Takes a Hard Look at "Honest Services" Fraud, above, the Third Circuit became the latest circuit court of appeals to define the parameters of such fraud. On October 22, 2009, the Third Circuit reversed, in part, the convictions of two former executives of the Ben Franklin Technology Center ("BFTC"), a publicly funded, not-for-profit corporation, in Pittsburgh. The government alleged that the defendants had used public funds for their own benefit, violating both their fiduciary duties to BFTC and their contractual obligations to the U.S. Navy. Because there was no allegation that their violation of the Navy contract ran afoul of state law, the Third Circuit held that the superseding indictment had failed sufficiently to allege honest services fraud. more

Ninth Circuit Reverses Suppression Order Based Upon Attorney-Client Privilege and Remands Case for Trial of Former CFO

In the latest opinion in a high-profile case which calls attention to "the treacherous path? that public companies and their counsel must tread in conducting internal investigations, the Ninth Circuit recently reversed a decision to suppress communications between the former Chief Financial Officer of Broadcom Corporation and a California law firm and remanded the case for trial. In United States v. Ruehle, the Ninth Circuit held that Broadcom's former CFO had not adequately invoked the attorney-client privilege over information he had provided to lawyers simultaneously representing both Broadcom in an internal investigation of the company's stock option practices as well as him individually. Soon after the Circuit's remand, trial commenced against the former CFO for his alleged participation in a backdating scheme at Broadcom prompting a $2.2 billion restatement of earnings. more

First Circuit Sitting En Banc Reverses Panel on Attorney Work-Product Privilege

In United States v. Textron Inc., 577 F.3d 21 (1st Cir. 2009), the First Circuit, sitting en banc, issued an eagerly awaited decision that reversed the holding of the original appellate panel that first considered the case. In a 3-2 decision, the First Circuit held that tax accrual work papers are not shielded by the attorney work product doctrine from an Internal Revenue Service administrative summons. more

Justice Department Uses Wiretaps to Investigate Insider Trading

On October 16, 2009, federal prosecutors charged Raj Rajaratnam, the founder of hedge fund Galleon Group, in an alleged insider trading scheme that, to date, has swept up twenty defendants and resulted in six guilty pleas. According to the Department of Justice ("DOJ"), the case is the first of its kind, for unlike prior insider trading prosecutions, DOJ relied on court authorized wiretaps of telephone conversations to build the case. The electronic surveillance allowed the Government to intercept conversations between Rajaratnam and alleged insiders concerning trading in the stock of public companies. more



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