A new filing in the re-trial of former Dewey & LeBoeuf chief financial officer Joel Sanders and former executive director Stephen DiCarmine alleges that two former Dewey partners put pressure upon the Manhattan District Attorney’s office to look into the financials of the failed firm, reports Kathryn Rubino in Above the Law.

Three former Dewey executives went on trial last year for their roles in the demise of the firm. After a mistrial, former Dewey chairman, Steven Davis, signed a deferred prosecution agreement, and Sanders and DiCarmine could be facing a new trial in 2017.

“It is in the context of this new trial that Sanders’s legal team filed documents suggesting two attorneys pressured the District Attorney’s office to investigate the firm’s finances,” Rubino reports.

Read the article.

Florida lawyer and lobbyist Alan Koslow was charged Thursday with a federal money-laundering conspiracy after prosecutors said he and a friend laundered what they believed was cash linked to illegal gambling and drug dealing, according to a report in the Sun Sentinel of Fort Lauderdale.

The report says the manner in which Koslow, 62, and Susan Mohr, 57, of Delray Beach, were charged suggests both have already reached plea agreements with prosecutors.

The criminal charges are linked to an undercover FBI sting that began more than three years ago, in which Koslow allegedly accepted $220,000 in cash that he agreed to launder for the undercover FBI agents between December 2012 and August 2013, according to court records. In exchange, he was paid $8,500, investigators wrote.

Read the article.

The suspicious death of a Dallas attorney has triggered tighter security inside in a downtown Dallas courthouse, and a Dallas County District judge has made a direct connection between the defendant in an ongoing civil lawsuit and the possible murder of attorney Ira Tobolowsky, reports NBC 5 TV in Dallas.

In a recent suit, Steven Aubrey asked for more than $500,000 from Tobolowsky and wrote that: “Tobolowsky must be punished with sanctions for his outrageous abuse of the judicial system and his violation of statutes, codes and rules.”

“I think at this point with the allegations which have been made related to Mr. Aubrey and his implication in the death of Mr. Tobolowsky and related issues, I don’t think that it is unreasonable for a judge other than myself to hear this case,” said Dallas County District 14 Judge Eric Moye. “And so I’ve conferred with Judge Murphy and we have agreed that a voluntary recusal is appropriate at this time.”

Tobolowsky , a prominent Dallas attorney, died in a house fire last week. Investigators say that fire may have been arson.

Read the article.

A former Skadden Arps lawyer who cheated friends and relatives of life savings in a Ponzi scheme and then tried to kill himself was sentenced in New York to five years in prison Thursday, reports the Associated Press and the New York Post.

His crime was revealed when he wrote a long suicide note and jumped into the Hudson River in a 2014 suicide attempt that ended with his rescue by police divers.

A U.S. District Court judge gave Bennett a sentence at the high end of federal sentencing guidelines. She announced it after hearing several of the 58-year-old’s friends describe giving hundreds of thousands of dollars for a supposedly safe investment. Some of them told the judge he is a “pathological liar.”

Read the AP story and the Post story.

A Delaware judge has dismissed a lawsuit by Wal-Mart Stores Inc. shareholders who accused the board of the world’s largest retailer of trying to cover up bribes paid by company executives in Mexico, according to a report by Reuters.

The Delaware judge ruled that an earlier dismissal by an Arkansas judge of a nearly identical lawsuit by another group of shareholders precluded the Delaware case from going forward.

“He said that while the Arkansas plaintiffs may have chosen to rush their case rather than fully investigate alleged wrongdoing, their haste did not disqualify them from representing Wal-Mart shareholders,” Reuters reported.

In 2012, The New York Times reported that found Wal-Mart had engaged in a multi-year bribery campaign to build its Wal-Mart de Mexico business.

Read the article.

A federal bankruptcy judge in Dallas ruled late Tuesday that Dallas entrepreneurs Sam and Charles Wyly committed tax fraud when they created a series of offshore trusts in the Isle of Man in the 1990s to shield more than $1 billion for the family tax-free, according to a report in The Dallas Morning News.

There is “clear and convincing evidence” that the “heart of the Wyly offshore system had been established through deceptive and fraudulent actions,” wrote U.S. Bankruptcy Judge Barbara Houser.

“The IRS claims that the Wylys, who made billions of dollars growing and then selling Michaels Stores and Bonanza steakhouses, set up the series of offshore trusts in the Isle of Man in order to hide income from being taxed, while still using the money in the trusts to fund a lavish lifestyle,” the report says.

Under the ruling, Sam Wyly, the surviving brother, could be required to pay the IRS as much as $1.4 billion in back taxes and penalties.

Read the article.

A federal judge sentenced the leader of digital currency company Liberty Reserve to 20 years in prison for running a global money-laundering scheme that prosecutors said was unprecedented in size and scope, reports Reuters.

Arthur Budovsky, 42, had earlier pleaded guilty to one count of conspiracy to launder money related to his role in Liberty Reserve, which allowed cybercriminals to conceal and move their illegal proceeds anonymously through a digital currency. Authorities shut down the company in 2013.

“Liberty Reserve operated a widely used digital currency, processing more than $8 billion in financial transactions and earning Budovsky over $25 million, prosecutors said,” according to the report. “Much of its business came from criminals seeking to launder proceeds from Ponzi schemes, credit card trafficking, identity thefts and computer hacking, prosecutors said.”

Read the article.

The former chief digital officer of the Epix cable television network was arrested on Tuesday on charges that he defrauded the company of more than $8 million, reports Reuters.

FBI agents arrested Emil Rensing, 42, at his Manhattan home and charged him with wire fraud and aggravated identity theft, authorities said.

“He was released on a $500,000 bond following a court hearing later in the day. His lawyer, Henry Mazurek, in a statement said Rensing disputed the allegations and ‘did not steal any money or identities from anyone.'” the report says.

Rensing worked at Epix from April 2010 to August 2015, and is alleged to having contracted with vendor companies he owned to perform digital media services. The complaint says he hid the scheme by using false and stolen identities.

Read the article.

A disbarred lawyer who swindled clients on Staten Island and in Brooklyn is on the hook for nearly $1 million in restitution and will spend up to a dozen years in prison, according to a report on silive.com.

“According to authorities, Robert Fontanelli helped himself to more than $1 million owed a client from a real-estate sale and to more than $155,000 from another client in an unrelated property deal,” the site reports.

A judge in state Supreme Court sentenced Fontanelli to one to three years in prison and ordered him to pay $55,760 to a Staten Island client whose personal-injury settlement the ex-barrister pocketed. The report says the sentence will run concurrently to a separate sentence of four to 12 years in prison and $933,245 in restitution imposed on Fontanelli last week in Brooklyn state Supreme Court for grand larceny and fraud-related convictions.

Read the article.

Harvey Newkirk, a former lawyer at Bryan Cave LLP was sentenced to six months in prison for lying to lenders as part of a failed scheme to buy Maxim Magazine through impersonation, a false e-mail and stolen money, reports Bloomberg BNA.

New York prosecutors wanted the judge to sentence Newkirk, 39, to a “significant term of imprisonment,” describing him as “a facile liar lacking shame, remorse or sympathy for his many victims.” Newkirk’s lawyers sought probation, saying he was a “precocious only child born into a family of God” who lost his job and suffered from the shame of a criminal conviction.

Newkirk, while not part of the most “despicable aspects” of the scheme, “was a knowing and willful perpetrator of fraud in his own part,” U.S. District Judge Jed Rakoff in Manhattan said Thursday at his sentencing. “The jury’s verdict was amply deserved.” He could have been sentenced to more than 17 years in prison under federal sentencing guidelines, the Bloomberg report says.

Michael J. Rivera has joined Schiff Hardin LLP as a partner in the Financial Markets and Products Group.

The firm said Rivera defends businesses and individuals in criminal and civil government investigations and enforcement proceedings and conducts internal investigations.

He has experience in securities and financial investigations by the Securities and Exchange Commission (SEC), Financial Industry Regulatory Authority (FINRA) and Department of Justice (DOJ). He also counsels companies on compliance and regulatory issues under the federal securities, anti-money laundering, and anti-corruption (FCPA) laws.

He is resident in the firm’s Washington, D.C. and New York offices.

In a release, the firm said:

In addition to working over two decades in private practice at Fried Frank LLP, and, most recently, Venable LLP, Mike gained valuable experience as a government investigator and prosecutor. From 2010-2013, Mike served as Chief Investigative Counsel for the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). At SIGTARP, Mike managed a premier white collar fraud unit of seasoned federal prosecutors and law enforcement agents engaged in investigations and prosecutions of complex financial frauds. Mike also functioned as SIGTARP’s lead liaison to the senior staff of law enforcement agencies, federal prosecutor offices, securities and bank regulators, and President Obama’s Financial Fraud Enforcement Task Force (FFETF).

“Mike’s breadth of experience makes him a valuable counselor to a wide variety of our clients, from public companies, hedge funds, and accounting firms to securities professionals, executives, and lawyers,” said Marci A. Eisenstein, Schiff Hardin’s Managing Partner. “He is a welcome addition to our firm, particularly as we build out our regulatory capabilities in Washington, D.C.”

Paul Dengel, leader of the firm’s Financial Markets and Products Group, said, “As a public servant, Mike led complex, high-profile securities fraud investigations. In private practice, he helps clients understand, anticipate, and respond to investigations. Relying on his counsel, our clients can make smarter compliance decisions.”

Mike began his legal career as a staff attorney in the Enforcement Division of the Securities and Exchange Commission (SEC), where he conducted investigations into insider trading, disclosure and reporting violations, fraudulent securities transactions, and other violations of the federal securities laws.

“Given the current regulatory and enforcement climate, companies must be more mindful than ever of their compliance policies and obligations,” said Mike. “I look forward to advising Schiff Hardin’s clients on current and pending securities regulations and, when necessary, guiding them through complex investigations and enforcement proceedings.”

Mike earned his J.D. from the University of Pennsylvania Law School and his B.S. from St. John’s University, where he graduated magna cum laude.

A recently disbarred Kansas City lawyer pleaded guilty Wednesday to embezzling more than $1.2 million from St. Luke’s Health System, reports The Kansas City Star.

Alan B. Gallas, 64, previously worked for a law firm that collected from patients who were behind on payments to the hospital system. He waived his right to a grand jury and pleaded guilty in U.S. District Court in Kansas City to mail fraud.

“Gallas admitted that from 2009 to July 2015, he defrauded St. Luke’s Health System out of $1,224,264,” the report says. “He must pay that amount in restitution as part of Wednesday’s plea agreement.”

Read the article.

A Georgia lawyer who admitted to stealing hundreds of thousands from clients was sentenced to nearly four years in prison and ordered to pay restitution, reports The Florida Times-Union.

Before Chief U.S. District Judge Lisa Godbey Wood sentenced him, Donald Carlton Gibson told Wood that he had tried his very first case in the courtroom where he stood before her with a “surreal sense of shame…”

“Instead of that man full of promise,’’ Gibson said, “I am here to be judged for what I am. I’m a thief.”

Read the article.

A federal judge has ordered Bernard Madoff to submit to a deposition by lawyers for some former customers who lost money when the imprisoned swindler’s firm collapsed in December 2008, Reuters reports.

But the bankruptcy judge in Manhattan set strict limits on what Madoff can be asked, restricting questions to the meaning of more than 91,000 transactions recorded as “profit withdrawal” on the books of the former Bernard L. Madoff Investment Securities LLC.

“Madoff, 77, would be deposed at the North Carolina prison where he is serving a 150-year sentence for running a huge Ponzi scheme,” according to the report.

Read the article.

Photo by Jay Greinsky

Donald Trump’s campaign for the Republican presidential nomination rests on the notion, relentlessly promoted by the candidate himself, that his record of business deals has prepared him better than his rivals for running the country. But an examination of legal maneuvers around a 46-story luxury Trump condominium-hotel in Lower Manhattan provides a window into his handling of one such deal and finds that decisions on important matters like whom to become partners with and how to market the project led him into a thicket of litigation and controversy, writes Mike McIntire for The New York Times.

The buyers of some units asserted that they had been defrauded by inflated claims made by Trump, his children and others of brisk sales in the struggling project. Contrary to his claims that he rarely settles litigation, he and his co-defendants settled the case in November 2011, agreeing to refund 90 percent of $3.16 million in deposits, while admitting no wrongdoing.

A separate lawsuit claimed that Trump SoHo was developed with the undisclosed involvement of convicted felons and financing from questionable sources in Russia and Kazakhstan, the report states.

Read the article.

By  Jose Tabuena, JD, CFE, CHC

As the compliance field evolves, auditors should take heed of the power of data analytics and predictive models. The area of program evaluation is one that is ripe for opportunity to apply such techniques for both assessing compliance effectiveness and for nudging employee behavior toward supporting an ethical workplace. But keep in mind predictive models yield benefits only if appropriately acted upon.

Behavioral science provides a powerful set of tools for acting on data analytic indications when behavior change is the order of the day. Specifically, “behavioral economics” combines elements from economics and psychology to understand human behavior— even when it’s irrational.

The U.S. Department of Justice (DoJ) has signaled strong messages on the importance of having an “effective” compliance program finally bringing the conundrum of program measurement to the forefront. Although the Federal Sentencing Guidelines and its “elements” of compliance have existed for over twenty years, the formal standards and processes by which compliance programs are currently measured for effectiveness remain notoriously sketchy. This trend of the government to provide more guidance has continued with the DoJ stating it plans to release a set of sample questions to give companies an idea what investigators and prosecutors are concerned with. Apart from the ability of “effective” compliance programs to reduce the risks of high fines and liability, management has a financial stake in measuring the effectiveness of a compliance program. Operating a compliance program requires a significant investment in time and resources. Poorly functioning compliance programs are likely to waste money, divert scarce resources and operate sub-optimally with respect to mitigating serious, business-threatening risks.

Moreover, the positive effects of a compliance program may include better financial performance. Studies have started to show that in the long-run, a truly ethical and lawabiding corporation is more likely to foster on several measures—customer loyalty, increased employee retention, and strengthened public reputation.

The new DoJ compliance counsel in assisting federal prosecutors develop appropriate benchmarks for evaluating compliance programs, is to provide expert guidance to help prosecutors evaluate whether the implementation of such measures has been effective and has had a remediation effect. Naturally there is acute interest by compliance professionals in the work and impact of the DoJ compliance counsel. This position will be a focus for determining the benchmarks for effective compliance programs, and there is legitimate concern whether sufficient input from the industry compliance community will be considered in connection with future developments. Compliance professionals have had more than 20 years’ of practical experience in direct observation of what effectiveness means for organizational compliance programs, and the DoJ is only now embarking on zeroing in on this in a focused and systemic manner. The hope is that the DoJ will allow for constructive input from the compliance community on the meaningful measures of an effective compliance program.

Applying the “law” is not enough

The legal system is replete with examples where assumptions on how the world works as the basis for establishing laws and regulations has proven dreadfully wrong. Take the value of eyewitness testimony as one example. For a long history, prosecutors could argue for convictions based on the strength of a single eyewitness—the more confident the witness, the more seemingly infallible the testimony. That is, until psychologists conducted controlled studies on the reliability of eyewitness perceptions and the ability to accurately recall from memory.

An auditor evaluating an established compliance program could start with evidence that the organization has consistently implemented the elements of a program as defined by the Federal Sentencing Guidelines. But that is just the beginning. The experienced program evaluator recognizes that measuring implementation is different from the more difficult task of evaluating effectiveness.

After initial resistance, there was eventual recognition by the criminal justice system that eyewitness testimony can be extremely unreliable depending on the circumstances of the event and how potential suspects are presented to the witness. As a result, strict procedures for showing photographs and lineups for suspect identification have evolved. The use of psychologists to provide expert testimony during trials on eyewitness reliability is allowed by many judges. The emergence of DNA testing and the release of wrongly convicted individuals further demonstrate the danger of untested assumptions.

The modern American law school started with the belief that law can be understood and taught as a science. This belief was based on ideology that what mattered was understanding and rationalizing the law applied in courtrooms by judges. The search for the underlying principles provided the basis for the science of law. The body of cases, correctly analyzed, would reveal a set of internally consistent principles inherent in either human nature or culture and expressed case by case through the judges.

This approach of the law as a science has since fallen by the wayside. One only has to look at the divided opinions of the U.S. Supreme Court to recognize the fallacy of the law as a robust science. However, the myth that legal principles result in rational truth still persists. One example is the definition of an effective compliance program under the Federal Sentencing Guidelines. The elements of an effective program seem conceptually sound, but how do we know that applying them actually promotes a culture of compliance and prevents violations of law?

The fallacy is that while legal principles may seem rigorous in theory, they may not reflect actual reality. The idea of a classic mathematical proof is to begin with a series of statements that can be assumed to be true or that are self-evidently true. Then by arguing logically, it is possible to arrive at a conclusion. If the statements are correct and the logic is flawless, then the conclusion will be undeniable.

Scientific theory, on the other hand, can never be proved to the same level of a mathematical theorem. It is only considered highly likely based on the evidence available. Scientific proof relies on perception and observations both of which are fallible and provide only approximations to the truth. This is why experiments are performed to test the predictive power of a scientific hypothesis.

Legal principles often make assumptions about human behavior—such as the accuracy of eyewitness perceptions or the view that investors act rationally in financial markets. But science has started to reveal the weaknesses and subtleties underlying those assumptions.

Applying behavioral science

Principles, such as compliance program components, shouldn’t be taken on faith. When practical, the underlying elements should be field-tested using randomized controlled trials to measure their validity.

For instance, simply having a code of conduct and related compliance policies is obviously not enough to influence employee behavior. So what is it about a code of conduct, how it is written, communicated, and trained to the workforce, that can make a real difference?

In the field of behavioral economics, priming has proven to be an effective tool to subtly encourage honest behavior. Priming occurs when an individual is exposed to a specific stimulus that influences his or her ensuing actions. In studies by behavioral economist, Dan Ariely, experiments were designed to influence honest behavior when researchers “primed” people with a stimulus that involved morality and then observed how often cheating occurred when solving small math problems. When the participants were asked to recall the Ten Commandments, cheating significantly decreased compared with those who were instead asked to recall the names of Shakespeare’s sonnets.

Similar studies provide additional behavioral insights. It is easier to be just a little dishonest. Experiments show that we are more likely to cheat over a small amount of money than a large amount. People also tend to find it harder to be dishonest when interacting with another person than with an impersonal mechanism. The belief that we make rational decisions is a myth that belies the complexity of human behavior.

How do you know a program is working?

How can the auditor tasked with evaluating a compliance program take into account the findings of behavioral scientists? In the short history of the compliance profession, a variety of distinct approaches have been attempted. Yet any approach taken in isolation may yield unreliable information.

An auditor evaluating an established compliance program could start with evidence that the organization has consistently implemented the elements of a program as defined by the Federal Sentencing Guidelines. But that is just the beginning. The experienced program evaluator recognizes that measuring implementation is different from the more difficult task of evaluating effectiveness.

One might look to see if the compliance program incorporates “best practice” features adopted by leading companies. As to the code of conduct, one could inquire whether it was written with simple, understandable text and distributed to all employees. However, experience shows that just because employees received a reasonably well designed code of conduct does not necessarily mean that they understood it, found it useful or took it seriously.

Academic research indicates that the highest indicator of workplace misconduct is fear of retaliation and the confidence employees feel when raising issues. So data on employee willingness to address matters with their immediate supervisor or to use the compliance hotline, as well as their views on what would happen if they reported misconduct, can prove meaningful as a measure of effectiveness.

The current obstacle is the lack of an accepted methodology for consistent measurement along with the absence of a comprehensive set of metrics in which to benchmark your compliance program. The means by which organizations measure the effectiveness of their programs still vary, and in some cases organizations can be lulled into a false sense of security by evaluations that may not be empirically based or reliable.

Which is why the recent moves by the DoJ and particularly the hiring of a compliance counsel are such promising developments. Compliance professionals have been seeking open discussion and analysis on the measurement challenge, including consideration of possible outcome measures by which organizations could demonstrate the impact of their programs (e.g., observed misconduct, frequency and nature of reporting, fear of retaliation, direct measurement in risk areas where this is possible). Doing so could encourage companies to undertake high-quality evaluative efforts, and prompt boards of directors to review and reflect on the results of such efforts.

Subject matter expertise

When considering the compliance program as a broad control and evaluating program elements, don’t neglect the value of technical expertise. While auditors have expertise in the methodology of program evaluation (itself a valuable skill), subject matter expertise is just as essential. It does occur that auditors miss a significant problem because the evaluation approach was structurally blind to the domain and members of the review team not truly understanding the details of “how it works.” And technical folks are nudged outside their core expertise such as when audit and professional services teams strive for high utilization of its staff. Have a fraud specialist on the team for financial controls, a cyber-expert during an information security review, and definitely have a compliance specialist when evaluating a compliance program.

As the field of compliance management continues to mature, reliable means to evaluate compliance program effectiveness will increasingly become imperative. This is true not only for auditors assisting operational leaders who must effectively manage risk, but for those in enforcement who need to make informed decisions, consistent with announced policies, relating to prosecution and punishment.

Originally published in Compliance Week

Four of Hillary Clinton’s closest aides appear to have adopted an unusual legal strategy, hiring the same ex-Justice Department attorney to represent them in the FBI’s investigation of Clinton’s private email server, reports Politico.

“The united front suggests they plan to tell investigators the same story — although legal experts say the joint strategy presents its own risks, should the interests of the four aides begin to diverge as the probe moves ahead,” writes Rachael Bade.

She explains that the aides’ decision to use a so-called “joint-representation” or “common-defense” strategy suggests the staffers believe they’re in this together and are unlikely to turn on each other.

Read the article.

Now that Marco Rubio is out of the race, for the first time in U.S. political history, every presidential candidate — of both parties — supports at least states’ rights to do as they please with regard to marijuana legalization, according to a report in Rolling Stone.

Bernie Sanders, who pledges to end the drug war, is the most progressive on marijuana policy. And fellow Democrat supports states’ rights to legalize, but proposes to reschedule instead of deschedule cannabis, the newspaper says.

Donald Trump believes there should be more research on cannabis. Ted Cruz says he would not support legalization, but he believes states have a right to determine the legality for themselves. John Kasich also is opposed to marijuana use, but would defer to states’ rights, the report says.

Read the article.

Photo by Jamelle Bouie

GOP presidential candiate Senator Ted Cruz angered American Muslims on Tuesday with a call to “patrol and secure Muslim neighborhoods” in the wake of the terrorist attacks in Brussels, reports The New York Times.

He said that some politicians had “tried to deny this enemy exists out of a combination of political correctness and fear.” And he added that Europeans were “seeing what comes of a toxic mix of migrants who have been infiltrated by terrorists and isolated, radical Muslim neighborhoods.”

“We need to empower law enforcement to patrol and secure Muslim neighborhoods before they become radicalized,” he said in a release

The Times reported that the comments drew immediate rebukes from Muslim groups. Last week, he came under fire after announcing a team of national security advisers that included Frank Gaffney Jr., a former Reagan administration official who is perhaps best known for holding extreme views about Islam.

Read the article.