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In connection with a May 14, 2012 hearing, Judge James Selna has prepared Tentative Minute Orders which deny two motions in the Carson FCPA cases. In a Motion to Suppress and a Motion to Dismiss, the defendants raised issues regarding DOJ’s relationship with Control Components, Inc. (“CCI”), the employer of defendants, who cooperated with the investigation and provided certain information. In addition to our discussion below, Professor Mike Koehler of The FCPA Professor Blog takes a careful look at the case (which includes copies of the tentative rulings, here and here).

On July 31, 2009, DOJ announced that Control Components, Inc. (“CCI”), a California company that designs and manufactures valves, had pled guilty to a three-count criminal information for its involvement in a lengthy scheme to secure contracts in approximately 36 countries by paying bribes to employees of various companies. That plea marked the culmination of an internal investigation by CCI and the company’s cooperation with DOJ. The cooperation led to the indictment of six former executives of CCI in the Carson case, alleging that the group conspired to violate the FCPA in order to secure contracts which yielded approximately $46.5 million in profits.

As discussed here, on March 5, 2012, several of the defendants in the Carson case filed a Motion to Dismiss and a Motion to Suppress in the case.

• In the Motion to Suppress, defendants argued that because CCI had collaborated with DOJ during the investigation, it was, in effect, a Government agent or a state actor who improperly compelled statements from the defendants during an internal investigation, violating their Fifth Amendment rights. As a result, defendants argued that the statements should be suppressed.

• In the Motion to Dismiss, defendants argued that “the impact of the cumulative impediments – unique investigation tactics preventing Defendants access” to certain evidence deprived them of their Due Process and Sixth Amendment rights, (“including the right to present a complete defense”) and that “dismissal is the only appropriate remedy” for such severe prejudice.

As discussed here, the Government filed its Opposition to the Motion to Suppress on April 2, 2012, arguing, among other things, that the statements should not be suppressed because the employer’s “actions were not the result of any pressure or influence from the government sufficient to convert the Company’s lawyers to state actors.” On April 6, 2012, the Government filed its Opposition to the Motion to Dismiss, arguing that the motion was meritless because, among other things, the Government “has gone beyond its discovery obligations” to make sure that defendants receive the appropriate documentation that had been in the possession of CCI.”

An interesting development occurred while the motions were pending: two of the four defendants who had filed the Motion to Dismiss and the Motion to Suppress – Stuart and Hong (“Rose”) Carson – pled guilty to one count of violating the FCPA on April 16, 2012. However, the remaining movants, Paul Cosgrove and David Edmonds, continue to pursue the motions. As discussed here, the two remaining defendants Reply Briefs on April 30, 2012.

The Motion to Suppress. With respect to the Motion to Suppress, Judge Selna rejected the defendants’ theory that CCI had become a “state actor.” After reviewing the correspondence between Steptoe & Johnson, counsel to CCI and its parent corporation (IMI plc), and DOJ prior to the interviews of Messrs. Cosgrove and Edmonds, Judge Selna found that “there is no basis to conclude on the basis of events that transpired prior to the interviews or in the aftermath that the Steptoe lawyers were acting as agents of the Government.” Instead, the Court determined that there was nothing “more than a unilateral determination on the part of CCI and its parent to cooperate with the Government.” Judge Selna acknowledged that “it was in CCI’s interest and a legitimate activity to investigate potential criminal conduct in its business operations.” The Court also noted that the Government was not involved with the Defendants’ interviews, and corporate counsel’s acts were not “so intertwined with the Government” that the interviews could be viewed as Government conduct, specifically pointing out that “[t]he record is clear that CCI through its parent IMI had made a decision to conduct an internal investigation before Steptoe contacted the Government.”

Judge Selna also reviewed the issue of whether the defendants were coerced to give statements during the investigation, and if so, did the Government bring about the coercion? He pointed out that: (1) none of the defendants said they were threatened with termination; (2) while the company instructed defendants to cooperate, there were no threats in those instructions; (3) there was no evidence that the Government “precipitated or encouraged any threats of sanctions for failing to cooperate;” and (4) the company had already made a decision to suspend the defendants. The Court concluded that “the Defendants’ Fifth Amendment right were not violated during the conduct of the Steptoe interviews” and denied the Motion to Suppress.

The Motion to Dismiss. Judge Selna also denied the Motion to Dismiss, stating that many of the arguments raised in the motion had “been previously presented and rejected.” For example, a theory based on the claim that Steptoe and CCI were, in effect, Government agents was already denied in the Motion to Suppress discussed above. The Court also rejected the argument that the Government had interfered with defense access to witnesses, pointing out that while “the Government has a responsibility not to interfere with witness access, … the Government is not the guarantor of such access.” According to Judge Selna, defendants failed to prove the Government interfered with access to those witnesses or that their testimony was going to be “material and favorable” to the defense. The Court also rejected arguments regarding the production of documents, the ability of defendants to secure foreign documents by Letters Rogatory, or the production of documents under Brady v. Maryland, 373 U.S. 83 (1963). Finally, the Court ruled that “[t]ere has been no systemic or systematic denial of access to evidence enabling the Defendants to present a complete defense.”

The theories in these two motions raised interesting issues which could have impacted future cases where a company cooperated and individual employees did not and faced the Government alone. In this case, the Government concluded that, with respect to the issues raised by defendants, the Government, CCI and its counsel did not act inappropriately. It will be interesting to see how the companies, the Government and the Courts behave the next time a case involving similar circumstances occurs.

In the mean time, Messrs. Cosgrove and Edmonds are scheduled to be tried beginning on June 26, 2012.

Today, the Federal Securities Law Blog takes a look back at the last 30 days in the federal securities world in a regular feature which appears on approximately the 15th of each month. The last month saw our Blog turn five years old, but more importantly, the SEC continued to provide guidance relating to the Jumpstart Our Business Startups Act (“JOBS Act”), and there were a host of issues in insider trading cases and cases involving companies in China. These and other matters from the last month are discussed in greater detail after the jump.

The JOBS Act.

As discussed last month, on April 5, 2012, President Obama signed into law the JOBS Act. On April 16, 2012, the SEC Division of Corporation Finance issued additional Frequently Asked Questions to provide guidance on the implementation and application of the Act, addressing questions of general applicability under Title I of the JOBS Act (as discussed here). Title I provides scaled disclosure provisions for emerging growth companies and allows emerging growth companies to use test-the-waters communications with Qualified Institutional Buyers and institutional accredited investors. CorpFin supplemented that guidance on May 3, 2012 (as discussed here). The FAQs clarify how an issuer can qualify as an emerging growth company, applicable dates for qualification and registration, and various reporting and disclosure requirements.

Information on EDGAR.

As discussed here, the Commission announced that beginning on April 19, 2012, the SEC staff will begin to republish Commission orders pursuant to Exchange Act Section 12(j) revoking a company’s Exchange Act registration and Commission stop orders pursuant to § 8 of the 1933 Act on EDGAR. Although these orders are currently posted on the SEC’s website as administrative orders, they have not been posted on EDGAR. The SEC staff will begin with the most recently issued orders and go backwards through 2004. New orders will be published on EDGAR when issued going forward.

Commission Improvements in Economic Analysis in Rulemaking.

On Tuesday, April 17, 2012, SEC Chairman Mary Schapiro testified before the House Subcommittee on TARP, Financial Services and Bailouts about the steps the SEC has taken and is taking to strengthen our economic analyses in the rulemaking process. Chairman Schapiro acknowledged that “economic analysis is a critical element of the SEC’s rulemaking obligation,” and that “the unprecedented rulemaking burden generated by passage of the Dodd-Frank Act has tested the resources and analytical capabilities of the agency.” However, she explained, the Commission has “learned a great deal and our rulemaking processes have continued to evolve.” As discussed here, she told the Subcommittee that the SEC’s “new guidance reflects many of the current best practices, which the agency will refine in the future as necessary to ensure high quality economic analysis in its rulemaking.”

Insider Trading Issues.

News in the last thirty days provided some excellent insight into the SEC’s efforts to combat insider trading. Devin Leonard’s fine profile in BusinessWeek of Sanjay Wadhwa, a deputy chief of the SEC’s market abuse group, in took a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded) and was instructive in highlighting how the SEC overcomes disadvantages and what it has done to improve its investigative efforts in recent years. The article, discussed here, focused on the investigation into the Galleon Group and early key discoveries such as the remarkably similar trading by Mr. Rajaratnam and others and his instant messages with Roomy Khan (a witness who ultimately cooperated with prosecutors). As the article points out, the Galleon investigation has led to 56 arrests and 48 convictions, including the conviction of Mr. Rajaratnam, his subsequent sentencing to 11 years in prison and the SEC’s civil judgment against him for over $92 million. For those who follow matters investigated and litigated by the SEC, the BusinessWeek article provides a rare insight into how the SEC performs those tasks and what changes have occurred in their methodology in recent times.

The investigation which ensnared Mr. Rajaratnam continues and the Commission received a positive result on a procedural issues in its litigation against him and Rajat Gupta. Judge Jed Rakoff denied a motion to compel by the two defendants, who were seeking an order that the SEC produce documents concerning settlement negotiations between the Commission and cooperating witnesses. As discussed here, Judge Rakoff rejected the defendants’ argument that the information from the negotiations could be used to prove bias, stating that “[t]he best evidence of bias in a cooperator’s testimony comes from the actual agreement he struck with the SEC, not from his lawyer’s attempt to get him a good deal.”

Another positive story arising from insider trading investigations was the May 3, 2012 announcement from DOJ that it “has returned approximately $44 million to victims of [the] securities fraud scheme” involving of Joseph Nacchio, the former CEO of Qwest Communications International Inc. Following a trial, a jury convicted Mr. Nacchio of 19 counts of insider trading on April 19, 2007 based on events which took place between 1999 and 2002. As discussed here, the long process of litigation in the District Court and the Appellate Court meant that those who invested in Qwest waited ten years to see any recovery (even though Mr. Nacchio paid the forfeiture amount in 2007). However, ultimately $44 million in forfeited funds is “being returned to 112,210 victims who incurred losses on Qwest securities purchased during the fraud scheme.” The distribution of funds to victims was authorized and overseen by the Department of Justice’s Victim Asset Recovery Program in the Criminal Division’s Asset Forfeiture and Money Laundering Section.

The SEC also achieved success in a pair of cases discussed here involving families that engaged in insider trading. In both cases, the insider and the tippees settled with the Commission, paying far more than the profit they earned. In one case, the SEC filed a case against Mohammed Mark Amin, a Hollywood movie producer (“the producer or executive producer for more than 75 Hollywood movies including Frida, Eve’s Bayou, and four movies in the Leprechaun series,” according to the Commission) and his brother, cousin, and three other friends and business partners for insider trading in the shares of DuPont Fabros Technology Inc., a company in which Mr. Amin served on the board of directors. Those who traded earned approximately $618,000, but the six defendants settled by paying nearly $2 million. The same week, the Commission filed a case against Angela Milliard, a former paralegal at Semitool Inc., a semiconductor company in Montana, and her father for trading on inside information about the 2009 acquisition of the company. The daughter and father (who earned $67,000) agreed to settle the SEC’s case by paying more than $175,000.

Whistleblower Unmasked.

An April 25, 2012 article by Scott Patterson and Jenny Strasburg in the Wall Street Journal revealed that, during an investigation of Pipeline Trading Systems LLC, an SEC attorney showed a witness a notebook which included handwritten notes from a whistleblower, and the witness recognized the handwriting and was able to tell his employers who the whistleblower was. As discussed here, the Whistleblower spoke to the Journal and agreed to be identified (and provided some insight on how he was treated both before and after he blew the whistle on Pipeline’s activities). The Journal also published a letter from a letter from George S. Canellos, the Director of the SEC’s New York regional office, which stated that the SEC did not expose the whistleblower and stated that the agency’s use of notebooks with his handwriting was not “inadvertent” and not a “gaffe.”

Chinese Entities.

The last thirty days saw developments in several cases involving Chinese companies, including a case filed yesterday against China Natural Gas, Inc. and its former CEO Qinan Ji for having the corporation make loans to Mr. Ji’s family and failing to disclose the transactions.

In another case against a Chinese company discussed here, on April 23, 2012, the SEC filed a case against SinoTech Energy Limited, an oil field services company, with intentionally misleading investors about the value of its assets and its use of $120 million in IPO proceeds. The SEC also charged CEO Guoqiang Xin and former CFO Boxun Zhang for their involvement in the fraud. The Complaint, filed in federal court in Louisiana, alleges that the company’s IPO registration statement misled investors about the acquisition and value of a key asset lateral hydraulic drilling units (“LHD Units”) that are central to its business. In addition, the SEC charged Qingzeng Liu, SinoTech’s chairman and controlling shareholder, with misappropriating at least $40 million of SinoTech’s cash between June, 2011 and August 2011. The SEC’s complaint seeks permanent injunctive relief against all defendants, and disgorgement of ill-gotten gains by SinoTech and Mr. Liu, as well as civil penalties against the three individuals. The Commission also director-and-officer bars against each of the individual defendants.

As discussed here, on April 25, 2012, DOJ announced that Garth Peterson, a former managing director for Morgan Stanley’s real estate business in China, pled guilty in federal court in Brooklyn, New York for participating in a conspiracy to evade the internal accounting controls which the company was required to maintain under the FCPA. The SEC also announced that it brought and settled a case against Mr. Peterson. However, in announcing the case against Mr. Peterson, DOJ stated that it was not bringing any enforcement action against Morgan Stanley related to this conduct (noting that “Morgan Stanley constructed and maintained a system of internal controls, which provided reasonable assurances that its employees were not bribing government officials”).

On May 9, 2012, the SEC announced that it has filed an Administrative Proceeding against Deloitte Touche Tohmatsu CPA Ltd. (“D&T Shanghai”) for its refusal to provide the agency with audit work papers in connection with the Commission’s investigation of the firm’s client for alleged fraud. The Administrative Proceeding was filed while the Commission is in the midst of a subpoena enforcement action against the same accounting firm, that is scheduled to be heard in federal court in early June. The new matter is latest proceeding in the dispute over whether the SEC can compel the Chinese accounting firm to respond to its subpoena – the penalty which D&T Shanghai could face for its failure to comply is censure or being denied the ability to appear before the Commission.

Class Action Settlement.

In the In re: Lehman Bros. Sec. and ERISA Litig., Judge Lewis Kaplan issued a May 3, 2012 Memorandum and Order directing certain defendants (five officers, who had already allowed a retired Judge specially retained to assist in the parties’ discussions to review information regarding their assets), to provide that same financial information to the Court for an in camera review. As discussed here, Judge Kaplan will review that information in order to make a determination regarding the fairness a $90 million settlement (which was to be paid by insurance coverage) between class action plaintiffs and the directors and officers.

On May 9, 2012, the SEC announced that it has filed an Administrative Proceeding against Deloitte Touche Tohmatsu CPA Ltd. (“D&T Shanghai”) for its refusal to provide the agency with audit work papers in connection with the Commission’s investigation of the accounting firm’s client for alleged accounting fraud. The Administrative Proceeding was filed while the Commission is in the midst of a subpoena enforcement action against the same accounting firm, that is scheduled to be heard in federal court in early June. The new matter is latest proceeding in the dispute over whether the SEC can compel the Chinese accounting firm to respond to its subpoena – the penalty which D&T Shanghai could face for its failure to comply is censure or being denied the ability to appear before the Commission.

In May 2011, the SEC commenced an investigation into Longtop Financial Technologies Limited (“Longtop”), a Cayman Islands corporation whose ADRs are traded on the New York Stock Exchange. Longtop’s principal offices are located in China, where D&T Shanghai served as its auditors until the accounting firm resigned in May 2011 after, according to the SEC, “discovering numerous financial improprieties” at Longtop.

As part of its investigation of Longtop, the SEC subpoenaed documents from D&T Shanghai, and the discussions regarding that subpoena boiled over into litigation.

• On May 27, 2011, the SEC served its subpoena on D&T Shanghai’s former U.S. counsel (who had represented that he had authority to accept service). The accounting firm acknowledged that it possessed “vast amounts of responsive documents,” but refused to produce them to the Commission.

• On July 8, 2011, new counsel for D&T Shanghai wrote to the SEC and explained that the firm was refusing to comply with the subpoena because, among other things: (1) it could not be compelled to produce documents that predated the July 21, 2010 passage of the Dodd-Frank Act; and (2) the production of any documents may subject the firm to sanctions under Chinese law.

• On September 8, 2011, the SEC filed a Motion for an Order to Show Cause in Federal Court in D.C., arguing, among other things, that the “vague assertions of possible conflicts with a foreign law” did not justify D&T Shanghai’s non-compliance with the subpoena.

• On October 7, 2011, Magistrate Judge Deborah Robinson issued a Minute Order requiring the SEC to submit a brief “to address (1) the authority for the proposition that the court can require Respondent to appear to show cause where Respondent has not been served and has not appeared, and (2) the authority for the request that service be permitted pursuant to Rule 4(f)(3) of the Federal Rules of Civil Procedure [service by other means] rather than Rule 4(f)(1) [service under the Hague Convention on Service Abroad of Judicial and Extrajudicial Documents or some other internationally agreed-upon method].”

• On October 13, 2010, the SEC responded by arguing that the Court could issue the order to show cause on an ex parte basis, pointing out that D&T Shanghai will have “the full protections provided by due process, and will have an opportunity to be heard on the merits of this case.” The SEC also argued that it should not be required to “exhaust all possible means of serving a foreign person, including service through the Hague Convention,” but should be permitted to serve its papers on D&T Shanghai’s U.S. counsel.

• In a January 4, 2012 Opinion and Order discussed here, Magistrate Judge Robinson granted the SEC’s motion for a order to show cause, ruling that “service of the application is not a prerequisite to the issuance of the proposed show cause order.” She directed D&T Shanghai to file responsive papers addressing why it should not be ordered to respond to the Commission’s subpoena.

• As discussed here, in January 2012, D&T Shanghai filed: (1) a motion seeking clarification of the Magistrate Judge’s Order, raising a question of whether the Order was intended to require the SEC to serve D&T Shanghai under the terms of the Hague Convention, or whether the Order was intended to allow service on D&T Shanghai’s counsel by e-mail; and (2) a Motion seeking to establish a revised briefing schedule.

• As discussed here, on February 1, 2012, Magistrate Judge Deborah Robinson issued a Minute Order which reiterated that the SEC can serve its Order to Show Cause on counsel for D&T Shanghai by e-mail.

D&T Shanghai, which is registered with the Public Company Accounting Oversight Board (“PCAOB”), filed its Brief in Response to the Order to Show Cause on April 11, 2012, arguing, among other things, that the China Securities Regulatory Commission (“CSRC”) has prohibited D&T Shanghai from producing the work papers directly to the SEC (insisting that the SEC must work through the CSRC to obtain access to them). D&T Shanghai further argued that Chinese regulators “would be authorized to dissolve the firm entirely and to seek prison sentences up to life in prison for any [D&T Shanghai] partners and employees who participated in the violation,” which represented an undue burden. D&T Shanghai also argued that the securities laws under which the SEC served the subpoena do not allow the Commission to obtain the documents located abroad. The accounting firm also argued that the Commission should be required to serve the subpoena under the Hague Convention (D&T Shanghai also moved to quash the subpoena for the same reason). The SEC will be filing a Reply Brief on May 23, 2012 and the matter is scheduled to be heard by Magistrate Judge Robinson on June 8, 2012.

The Administrative Proceeding filed yesterday begins the process which could result in the punishment of D&T Shanghai for its failure to respond to the subpoena. The SEC claimed that D&T Shanghai violated the Sarbanes-Oxley Act and the Securities Exchange Act of 1934 by failing to provide the SEC with the audit work papers, claiming, among other things that “Section 106(b) of Sarbanes-Oxley directs a foreign public accounting firm that issues an audit report, performs audit work or interim review’ to ‘produce the audit work papers of the foreign public accounting firm and all other documents of the firm related to such audit work’ to the Commission upon request.” The Commission further stated:

it is appropriate that this proceeding be brought … to determine whether D&T Shanghai should be censured or denied the privilege of appearance and practice before the Commission for having willfully violated Section 106 of Sarbanes-Oxley.

D&T Shanghai is required to respond to the SEC’s Order commencing the Administrative Proceeding within twenty days.

In a Memorandum Order entered on May 1, 2012, Judge Jed Rakoff formally denied a motion to compel by Rajat Gupta and Raj Rajaratnam, who were seeking an order that the SEC produce documents concerning settlement negotiations between the Commission and cooperating witnesses. In an April 11, 2012 telephone conference, Judge Rakoff tentatively ruled in the Commission’s favor, but allowed the parties to submit letter briefs on the issue. In the Memorandum Order, Judge Rakoff confirmed his tentative ruling, rejecting the defendants’ argument that the information from the negotiations could be used to prove bias, stating that “[t]he best evidence of bias in a cooperator’s testimony comes from the actual agreement he struck with the SEC, not from his lawyer’s attempt to get him a good deal.”

In the past fourteen months, the litigation between Mr. Gupta, the former Managing Director of McKinsey & Company and board member at Goldman Sachs and Procter & Gamble, and the Commission has been remarkably active. From the outset, when the SEC brought an Administrative Proceeding against him alleging that he engaged in an insider trading scheme by providing nonpublic material information to Mr. Rajaratnam of Galleon Management, Mr. Gupta has argued that he should be able to take discovery to defend himself in Court. Mr. Gupta and the SEC agreed to the dismissal of the Administrative Proceeding and a related case in August, 2011 (as discussed here). By October 2011, both the SEC and the U.S. Attorney’s Office for the Southern District of New York filed charges against Mr. Gupta (with the Commission also naming Mr. Rajaratnam, as well) (described here).

As they had planned, the attorneys for Mr. Gupta have raised discovery issues. During the factual investigation that preceded the two cases, Assistant U.S. Attorneys from the Southern District of New York and an attorney from the SEC conducted joint interviews of 44 witnesses. Mr. Gupta’s attorneys filed motions in both the civil and criminal cases to seek materials regarding those interviews. On March 26, 2012, Judge Rakoff issued an Opinion and Order in the two cases (discussed here), granting in part a Motion to Compel and ordering the SEC to turn over to the U.S. Attorney’s Office materials relating to the 44 witnesses and ordered the prosecutors to review those memoranda and promptly turn over to the defense any material under Brady v. Maryland, 373 U.S. 83 (1963) (material exculpatory evidence to the defense – including evidence that could allow the defense to impeach the credibility of a prosecution witness).  With respect to the motion in the civil case, Judge Rakoff found that Mr. Gupta could not meet the burden of showing a “substantial need” for the SEC documents sufficient to overcome the attorney work product doctrine (except for the Brady material in the SEC’s notes and memoranda).

In the most recent discovery dispute, Messrs. Gupta and Rajaratnam requested the Commission to produce documents concerning settlement negotiations between the SEC and cooperating witnesses, including tax returns or other financial statements provided by the cooperators to the SEC during negotiations. They argued that the documents were relevant to probing the bias of the cooperators expected to testify against them. The SEC objected, pointing out that the final settlement agreements themselves would satisfy defendants’ interest in materials relating to bias.

Judge Rakoff held that Messrs. Gupta and Rajaratnam failed to demonstrate “that the settlement negotiations are relevant to proving bias.” Instead, the Court held, “what is relevant are the actual cooperation agreements themselves. The otherwise protected negotiations that led to the agreements have very limited, if any, additional probative value.” Judge Rakoff that the SEC did not have any Wells submissions or statements from the cooperating witnesses. In any event, the Judge noted:

Attorneys stake out adversarial positions in negotiations and engage in “puffing and posturing” in their attempt to obtain the best deal.  But these posturings have only indirect and attenuated relevance, at best, to anything bearing on proof of their clients’ bias.   

Judge Rakoff also rejected defendants’ request for financial information from the cooperators, because he did not see how it was relevant to bias.  “the cource of any bias in a cooperator’s testimony would be the ‘break’ the cooperator received from the the SEC in exchange for the cooperator’s testimony, something that is readily apparent from comparing the complaint to the final agreement.” 

On Monday, April 30, 2012, two of the remaining defendants in the Carson FCPA case submitted Reply Briefs in support of motions that raise significant issues about the impact on the employees when a corporation conducts an internal investigation and ultimately cooperates with the Government. The briefs argued that: (1) certain statements should be suppressed because the Government offered no evidence from the participants in discussions between the corporation’s counsel and DOJ prior to interviews of employees during an internal investigation (thereby failing to rebut defendants’ arguments that their Fifth Amendment rights were violated); and (2) the Government’s tactics during discovery violated defendants’ rights by denying them the opportunity to present a complete defense. The arguments on these issues are set to be heard on May 14, 2012.

On July 31, 2009, DOJ announced that Control Components, Inc. (“CCI”), a California company that designs and manufactures valves, had pled guilty to a three-count criminal information for its involvement “in a decade-long scheme to secure contracts in approximately 36 countries by paying bribes to officials and employees of various foreign state-owned companies as well as foreign and domestic private companies.” That plea marked the culmination of an internal investigation by CCI and the company’s cooperation with DOJ. The cooperation led to other CCI executives being indicted even before CCI pled guilty. For example, on April 8, 2009, prosecutors indicted six former executives of CCI, alleging that the group conspired to pay bribes to officials of foreign state-owned companies in order to secure contracts which yielded approximately $46.5 million in profits.

As discussed here, on March 5, 2012, the defendants in that case filed a Motion to Dismiss and a Motion to Suppress regarding DOJ’s relationship with CCI. In the Motion to Suppress, defendants argued that because CCI had collaborated with DOJ during the investigation, CCI and its counsel “were de facto public actors” and acted as “an agent of the government during the interviews.” Defendants further argued that “CCI compelled the Defendants’ statements under a classic ‘penalty situation’ – CCI required them to answer all questions regardless of their Fifth Amendment right against self-incrimination or be fired.” This conduct, defendants claimed, “violated their Fifth Amendment rights and the statements must be suppressed.”

In the Motion to Dismiss, the defendants argued that they had been prejudiced by the Government’s investigative tactics (including its relationship with CCI, who, according to defendants, “worked hand-in-hand with DOJ to investigate the matters at issue in this case), including: (1) tactics precluding defendants access to millions of pages of normally-discoverable evidence; (2) the lack of a meaningful review under Brady (including the fact that CCI would not turn over material to DOJ); (3) CCI’s loss of crucial documents underlying many of the counts and transactions; and (4) CCI’s instructions to its employees not to speak with the defense. The defendants argued that that combination of tactics “deprived [them] of their Due Process and Sixth Amendment rights, including the right to present a complete defense.” According to the motion, the “only appropriate remedy” for such severe prejudice is dismissal.

As discussed here, the Government filed its Opposition to the Motion to Suppress on April 2, 2012, arguing the statements should not be suppressed because the employer’s “actions were not the result of any pressure or influence from the government sufficient to convert the Company’s lawyers to state actors,” and because defendants could not “show that their statements were involuntary.” On April 6, 2012, the Government filed its Opposition to the Motion to Dismiss, arguing that the motion to dismiss was meritless because, among other things, the Government “has gone beyond its discovery obligations in ensuring that defendants receive Brady/Giglio material in the possession of CCI.”

In an interesting development on April 16, 2012, two of the four defendants who had filed the Motion to Dismiss and the Motion to Suppress – Stuart and Hong (“Rose”) Carson – pled guilty to one count of violating the FCPA. However, the remaining movants, Paul Cosgrove and David Edmonds, continue to pursue the motions.

In filing the Reply Brief in support of the Motion to Suppress, Messrs. Cosgrove and Edmonds highlighted the fact that the Government had not offered any evidence from any witness who participated in the discussions between CCI (or their counsel) and DOJ during the key time frame. As a result, defendants argue, it is uncontroverted that CCI’s counsel was a state actor when its attorneys interviewed defendants, those defendants had a reasonable fear that that they could lose their jobs if they did not answer, and that counsel did not warn them of their rights under the Fifth Amendment. As a result, the statements should be suppressed, according to defendants.

In their Reply Brief regarding the Motion to Dismiss, defendants argue that the “real issue” is whether the Government’s tactics, whether undertaken in good faith or bad faith, deny defendants the opportunity to present a complete defense. The defendants also point to the Government’s Brady obligations, asserting that the government significantly reduced the requests defendants made for Brady items when it (the Government) forwarded those requests to CCI, essentially exercising “unfettered discretion to unilaterally redact requests and deprive Defendants of a comprehensive Brady review.”

Both motions are scheduled to be heard on May 14, 2012 and have the potential to provide insight and guidance regarding the interaction between counsel for the corporation and the employees in future investigations.

The case is presently scheduled to go to trial on June 5, 2012.

An April 19, 2012 article by Devin Leonard of BusinessWeek profiles Sanjay Wadhwa, currently a deputy chief of the SEC’s market abuse group. The article takes a close look at the insider trading investigation of Raj Rajaratnam (and the many leads that investigation has yielded). Although many bloggers point out situations where the SEC or prosecutors are criticized (this blog included, in entries such as here and here), the BusinessWeek article, entitled “The SEC: Outmanned, Outgunned and On a Roll,” is instructive in highlighting how the SEC overcomes disadvantages and what it has done to improve its investigative efforts in recent years.

The article focuses on the investigation into the Galleon Group (including a May 2007 subpoena which yielded 4 million pages of documents, hundreds of thousands e-mails and 50,000 instant messages). Those documents yielded key discoveries such as the remarkably similar trading by Mr. Rajaratnam and his younger brother Rengan (which led the SEC to examine Mr. Rajaratnam more closely), and instant messages between Mr. Rajaratnam and Roomy Khan (a witness who ultimately cooperated with prosecutors). As the article points out, the Galleon investigation has led to 56 arrests and 48 convictions, including the conviction of Mr. Rajaratnam, his subsequent sentencing to 11 years in prison and the SEC’s civil judgment against him for over $92 million.

The article emphasizes a number of the bureaucratic challenges SEC staff members like Mr. Wadhwa faced, as well as detailing how things have changed in recent years (particularly with the appointments of Mary Schapiro and Robert Khuzami). For example, the article describes the “unfathomable bureaucratic iceberg” which existed previously, that, for example, required multiple levels of review to have a subpoena issued. However, now an attorney within the Division of Enforcement can act immediately to get a subpoena issued, without going through layers of review.

The article also emphasizes the SEC’s interaction with criminal prosecutors and the different powers they each have. For example, the criminal prosecution of Mr. Rajaratnam featured evidence from wiretaps, but the SEC is not permitted to use them. Mr. Wadhwa questioned that policy, saying: “… the U.S. Fish and Wildlife Service has access to wiretaps and the SEC doesn’t? And somehow you expect us to oversee Wall Street?”

Ultimately, the Commission moves slowly at times, can be an advantage, according to the article: “As an investigatory method, this translates into the staff collecting as much information as possible – phone records, trading records, lists of people at public companies who possessed confidential information – and sequestering themselves until they figure out if they have anything.”

For those who follow matters investigated and litigated by the SEC, the BusinessWeek article provides a rare insight into how the SEC performs those tasks and what changes have occurred in their methodology in recent times.

How do you efficiently handle large volume e-discovery in a high-profile case? Digital Detectives co-hosts, Sharon D. Nelson, Esq., President of Sensei Enterprises, Inc., and John W. Simek, Vice President of Sensei Enterprises, get expert advice from Joe Mulenex, the Regional Technical Director for Avansic, who assisted the discovery team for the Plaintiffs Steering Committee in the BP Oil Spill case. Joe discusses the biggest challenges of handling documents and the importance of project management. He also shares his biggest e-discovery take away from this case.

Are you guilty of making big mistakes when it comes to e-discovery searches? On Digital Detectives, co-hosts Sharon D. Nelson, Esq., President of Sensei Enterprises, Inc., and John W. Simek, Vice President of Sensei Enterprises, welcome guest Attorney Craig Ball, one of the countryas leading computer forensics technologists, to share his insights on brainless blunders in e-discovery searches. Craig also talks about recall and precision as mortal enemies, data volume rather than data quality and tips on looking at data as data rather than as documents.

Management of e-discovery is a challenge for large firms, whose clients present complex litigation with literally millions of electronically stored documents. In todayas competitive environment, firms have been exploring everything from e-discovery practice groups to vendor alliances, in order to attract clients. On Law Technology Now, host and Law Technology Newsa editor-in-chief, Monica Bay joins John Rosenthal, partner at Winston & Strawn, and Paul Weiner, national e-discovery counsel and shareholder at Littler Mendelson, to discuss Law Technology Newsa February issue cover story, True Grit: Scrapping for E-discovery Business, Law firms Push New Creative Options.

Usually a law firm will hand off documents to a process server who will then take care of service. Locating a process server who will do this promptly and ethically is very important. On this edition of The Paralegal Voice, co-host Vicki Voisin joins Adam Camras, co-founder and CEO of LAWgical which operates ServeNow.com. Adam provides tips for locating a reputable process server, red flags paralegals should look for, and the questions they should ask of a process server before making a hiring decision.

When it comes to redaction and the process of removing confidential information from legal documents, some paralegals still rely on the traditional yet cumbersome method of using a black marker and the copier machine. A new option is growing in popularity: the use of specialized electronic tools like Redact-It, which is specifically built for redaction. On this edition of The Paralegal Voice, co-hosts Lynne DeVenny and Vicki Voisin join Christine Musil, Director of Marketing for Informative Graphics Corporation, to discuss the benefits of this modern face of redaction and how paralegals can get current and step away from their redaction methods of yesterday.

Collaborating in business with SharePoint can be very convenient. It can also be a dumping ground for electronic documents. On this edition of Litigation Support Reivew, host Mary Pat Poteet, an eDiscovery/Litigation Support expert with almost 20 years experience, welcomes Larry Briggi, Director of the Electronic and Evidence Consulting group of FTI Consultingas Technology practice base in New York to discuss the challenges of forensic data recovery with SharePoint and a helpful list of doas and donats.

Church versus State issues are the basis for some very interesting U.S. Supreme Court cases. In this first edition of the Boston University School of Law podcast, host and media veteran, Dan Rea of WBZ-Radio 1030 gets beyond the legal documents and summary judgments in a conversation with BU Law Professor Jay Wexler, who brings those cases to life in his book, Holy Hullabaloos: A Road Trip to the Battlegrounds of the Church/State Wars. You will hear about the people and places involved in serious and sometimes funny cases involving religion and the law.

Earlier this year, the 1st Circuit stymied the IRS in its ongoing effort to attack aggressive corporate tax shelters. In a sharply divided 2-1 panel ruling, the court determined that internal documents of Rhode Island-based Textron didnat have to be given to the IRS because they are protected by the attorney work-product privilege. In-House Legal host, Paul D. Boynton, Esq., welcomes Attorney Brian Bixby of Burns & Levinson, to help assess the important issues in the Textron case, including the scope of the how much information companies need to divulge to the IRS and perhaps other government regulators.

With so many layoffs and corporate restructuring, companies must be very careful not to blow their existing legal holds when employees leave and their work and computers are reassigned to others. Monica Bay, Editor-In-Chief of Law Technology News welcomes John J. Jablonski , partner with Goldberg Segalla LLP , to discuss how exiting personnel can compromise legal holds. Jablonski is the author of Law Technology News April cover story, E-DISCOVERY: Watch the Door.

Are lawyers qualified to craft key words for searching discovery documents? That’s one of the most important questions addressed in a landmark 2008 case, Victor Stanley Inc. v. Creative Pipe Inc. Craig Ball, Law Technology News’ e-discovery columnist and editor Monica Bay discuss why Judge Grimm is hailed for his insightful rulings in the case, and how his opinion is helping shape trends in e-discovery.

Country music legend Loretta Lynn is three years older than she has led people to believe, an age change that undermines the story she told of being married at 13 in “Coal Miner’s Daughter,” documents obtained by The Associated Press show.

Country music legend Loretta Lynn is three years older than she has led people to believe, an age change that undermines the story she told of being married at 13 in “Coal Miner’s Daughter,” documents obtained by The Associated Press show.

Country music legend Loretta Lynn is three years older than she has led people to believe, an age change that undermines the story she told of being married at 13 in “Coal Miner’s Daughter,” documents obtained by The Associated Press show.

Country music legend Loretta Lynn is three years older than she has led people to believe, an age change that undermines the story she told of being married at 13 in “Coal Miner’s Daughter,” documents obtained by The Associated Press show.

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