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 The Feds’ Advantage 

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Lawrence Hartman

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Our contributor, Lawrence Hartman, wrote this post to help us understand why most people choose to limit damages when facing a government investigation

There’s an old adage that jokes an overzealous prosecutor can even indict a ham sandwich. Most people assume it’s an exaggeration – it’s not!  The definitions of certain crimes are so overly broad that they can capture anyone at any time.  Combine that with a periodic willingness to push the envelope past the margins and you can quickly understand why no one is safe.  

The legal concepts of Conspiracy, Willful Blindness, and Money Laundering are particularly open-ended and damning.  On any given day, every single bank in the world could be accused of Money Laundering hundreds to thousands of times over. 

Does it happen? 

No, because it would cause total economic pandemonium.  So, it’s used surgically instead, to destructive effect once they’ve set you in their sights.  Sort of like “show me the person, I’ll show you the crime.”  Completely turning justice on its head.  

Under Conspiracy, you can be tied to a criminal enterprise without even being aware of illegal activity or even knowing many of the people allegedly involved.  The government uses a multi-pronged, hub and spoke approach that casts a wide net.  Who decides whether you should be implicated? 

Your prosecutor, of course, with input from the federal agents doing the leg work of a government investigation.  One person I met was owed money for boat repair.  He was caught on tape innocently saying, “I don’t care how you pay me back; I just want my money.”  Little did he know, the guy who owed him money was a small-time drug dealer up to his neck in trouble.  Two years for conspiracy.  I also met numerous physician assistants and therapists from different clinics who only first met each other at trial as co-defendants, all trapped under the same umbrella of ownership that supposedly cheated Medicare.  Getting in trouble for just doing their job. 

How could this happen, you might wonder?  Well, they either knew or should have known what the owners were up to.  At least, that’s the government’s claim.  Willful Blindness.  In politics it passes as plausible deniability.  Not in the real world.  You can’t even imagine what the government insists you should have questioned or investigated further.  Then again, there are numerous crimes that don’t even require a criminal intent.  One guy I did time with was there for capturing an endangered fish – who knew?  You’re at the mercy of prosecutors picking hot spots of focus and casting broadly to rack up victories.       

Compounding this expansive legal exposure is the steady erosion of personal rights.  Most people are generally aware of the concept of Double Jeopardy, for example, that you can’t be charged for the same crime twice.  However, that quaint legal protection does not apply between the states and the Feds.  You can be charged by both for the exact same crime.  Granted, it’s not a common occurrence but it creates huge complications and headaches when it does occur.  Paul Manafort stands out as a prominent example.  While his situation may have been politically motivated, it demonstrates the danger and extraordinary costs you face when the government is truly out to get you. 

Another aggressive prosecutorial tactic is Overcharging.  One single act such as a minor drug transaction or receiving an investment can be interpreted as several, depending on the creativity of your AUSA.  Any given financial transaction, for example, can lead to charges of (a) money laundering, (b) wire fraud, and (c) conspiracy to commit wire fraud.  In a drug case, there’s little distinction between possession and distribution.  One person I met got 15 years for sharing a small amount homemade Meth with his girlfriend.  Unsurprisingly enough, this same concept can be applied to virtually any alleged crime. 

The Feds can also further expand that outreach by including each and every transaction, technically leading to thousands of charges.  Imagine a brokerage firm or doctor’s office and how many clients and patients they tend to.  Get the picture?  While the Feds rarely go beyond 30 or 40 counts, that number can be awfully intimidating, which is all part of the point.  With an average of 10 years per charge, I was looking at a sentence that would take me into the 24th century.  Clearly an absurd result, highlighting the fact that those numbers are nothing more than a scare tactic and ploy to get at least one count from the jury.  After all, at the end of the day, even losing on (or pleading out to) just one charge can still lead to a lot of prison time.  It’s a mind game of the highest order. 

From businessmen to drug dealers, the process is equally damning.  Perhaps you get caught selling just a small quantity of drugs, a case barely worth bringing.  Well, all the prosecutor needs to do is find a couple of snitches seeking to save their skin, who’ll swear that they’ve been involved with you for years, aggregating the whole lot.  A few ounces quickly turn into kilos, leading to a LIFE sentence.

Which brings us to the death of laws against Entrapment.  FBI and DEA agents regularly run stings enticing small time drug dealers into big time crime.  My cellmate Glenn had a local rap sheet for some possession and dealing.  He gets offered an opportunity to make a score stealing from some phantom drug operation.  A quick in and out.  The thing is, though, he’s being set up by a DEA agent.  Does he have a gun?  No.  “Okay,” says the agent, “I’ll bring one for you.”  Glenn and three others, similarly approached, none of whom know each other, all come upon the warehouse where agents are hiding in wait.  “You’re all under arrest!” they scream, dozens of agents, pouncing on Glenn and his cohorts.  What quantity of drugs are they charged with?  Whatever amount the federal agents claimed was involved.  It’s called a Dry Conspiracy.  And don’t forget the gun.  That charge alone enhanced Glenn’s sentence from 10 years to 15.  All for a bunch of drugs that never existed and a plot none of them would ever have gotten involved with, had the DEA not suckered them in.

Overzealous prosecution has other creative ways of sneaking into the system.  RICO (Racketeering Influenced and Corrupt Organizations Act) was originally created to help law enforcement go after big time Mafia families and the like.  US Attorney Rudy Giuliani later famously expanded it to attack white collar crime.  Sarbanes Oxley, created to fight corporate fraud, was used to threaten a poor, old fisherman out of Louisiana with 20 years.  He caught undersized fish and was throwing them overboard as the Coast Guard arrived – destruction of evidence.  Thankfully, the Supreme Court nipped this last overreach in the bud, but tomorrow is another day. 

Even the powerful are not necessarily safe.  The renowned international accounting firm Arthur Andersen, for example, was put out of business by an overly aggressive prosecutor.  In a rare and stunning rebuke, the Supreme Court slapped that prosecutor down in a 9-0 decision, but victories like that are few and far in between.  It was also of little solace to the thousands of employees who lost their jobs as the firm was destroyed and the five executives who needlessly spent a year in prison.  This overzealous expansion also has an impact beyond the territorial boundaries of the US, as America becomes policemen for the world.  The IMDB Fund in Malaysia, bond losses in Zimbabwe, bribery charges in Africa, and numerous other cases including my own which involved not a single US investor, are brought by enthusiastic prosecutors more than happy to broaden Uncle Sam’s reach.

Which brings us all back to indicting that ham sandwich.  Someone I know was brought before just such a Grand Jury as a witness in order to save his butt from a long-term sentence bordering on LIFE.  He was shown pictures and asked whether any of those people had worked with him.  Some pictures were grainy, and he couldn’t recall the name of most of his “co-conspirators,” but that’s all it took to issue indictments and get his sentence reduced to 8 years.  Targets get no opportunity to defend themselves in front of a Grand Jury.  And, we now all know what happens once that indictment comes down.  It’s a rough and tumble system, that randomly catches unwitting flies, both guilty and innocent, into its wide and durable web.

            About the author:  Lawrence Hartman, is a Columbia Law School grad who has done deals worth hundreds of millions of dollars over his lengthy career as a Wall Street attorney, General Counsel of a publicly traded REIT, internet entrepreneur and international financier.  He also, found himself on the other side of the process as a defendant and then inmate, learning all too well that things don’t work how they teach in law school.  He served 7-1/2 years utilizing his legal background to gain unique insights and perspectives vital for mitigating criminal legal exposure.      

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