Articles Posted in Federal Crimes

leafThe federal Criminal Code imposes a variety of restrictions on people with felony convictions. The Armed Career Criminal Act (ACCA) of 1984 prohibits convicted felons from owning or possessing firearms. 18 U.S.C. § 922(g). This statute also imposes sentencing enhancements on people with three or more “violent felony” convictions. 18 U.S.C. § 924(e)(1). Since the precise definition of a “felony” varies from one jurisdiction to another, federal statutes attempt to provide general definitions. In 2015, the U.S. Supreme Court struck down part of the ACCA’s definition of “violent felony,” finding it to be unconstitutionally vague. Johnson v. United States, 576 U.S. ___ (2015). This year, the court held that the Johnson ruling applies retroactively to other individuals. Welch v. United States, 578 U.S. ___ (2016).

In Welch, the court was asked to decide whether its ruling in Johnson was “substantive” or “procedural.” These two terms are not particularly well-defined, but a “substantive” ruling generally affects fundamental rights or obligations, and therefore it has an impact beyond the parties to a particular dispute. A “procedural” ruling, on the other hand, addresses the manner in which a court handled a particular case, and therefore it does not have such a far-reaching impact. This distinction appears in many important civil rights cases that invoke “substantive due process.”

The ACCA, like many federal statutes, broadly defines a “felony” as a criminal offense that carries a potential punishment of more than one year’s imprisonment. 18 U.S.C. § 922(g)(1). This definition, it is important to note, does not require an actual sentence of more than one year. A person who is convicted of such an offense but who receives a lesser sentence is still a “convicted felon” for the purposes of the ACCA.

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Spider monkeyThe legal status of marijuana has become increasingly uncertain, ever since California became the first state to allow marijuana for medical purposes in the 1990s. More than half of all U.S. states have reduced criminal prohibitions on marijuana or decriminalized it altogether. It remains completely illegal under federal law, which creates an obvious and ongoing conflict between state and federal law enforcement. The Drug Enforcement Administration (DEA) recently affirmed marijuana’s status as a Schedule I controlled substance, and the Food and Drug Administration has declined to recognize any medical value. At the same time, Congress has effectively prohibited the Department of Justice (DOJ), which includes the DEA, from interfering with the implementation of state medical marijuana laws. A federal appellate court decision has held that federal prosecutors may not pursue drug charges for conduct permitted by state law.

Federal law describes Schedule I controlled substances as those with a “high potential for abuse,” “no currently accepted medical use,” and a “lack of accepted safety” for medical use. 21 U.S.C. § 812(b)(1). “Marihuana” is currently included under Schedule I in both the U.S. Code and DEA regulations. Id. at § 812(c)(I)(c)(10), 21 C.F.R. § 1308.11(d)(23). A new rule issued by the DEA affirms marijuana’s Schedule I designation, rejecting calls to have the drug rescheduled. 81 Fed. Reg. 53846 (Aug. 12, 2016). The agency did, however, slightly loosen the restrictions on the cultivation of marijuana for medical research. Any slight progress in the DEA’s position on marijuana seems to be increasingly at odds with the 28 U.S. states, along with the District of Columbia, Guam, and Puerto Rico, that now allow marijuana use for medical purposes.

About a year before the DEA issued its latest rule, the FDA reportedly advised the DEA to maintain marijuana’s Schedule I status. Many of the documents related to the FDA’s position on this issue were not publicly available until VICE News published over 100 pages it obtained from the agency. While the FDA has called for the rescheduling of certain “constituents” of marijuana used to treat conditions like epilepsy, it has opposed rescheduling marijuana itself. Its report to the DEA includes findings that marijuana can be addictive for monkeys, which apparently contributed to the recommendation that marijuana remain subject to stricter controls than cocaine and heroin.

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marijuanaMore than half of the states in the U.S. have enacted laws allowing marijuana use for medicinal purposes with a doctor’s prescription. A few states have gone even further by decriminalizing the recreational use of the drug. Under federal law, however, marijuana is still a Schedule I controlled substance, and the federal government shows no signs of relaxing its stance. Even in states that have, to varying degrees, decriminalized the cultivation, distribution, purchase, and possession of marijuana, federal authorities may still pursue charges. A ruling issued by a federal appellate court in August 2016 could significantly alter the power dynamic between the federal and state governments on this issue. The court ruled that a clause in an appropriations bill passed by Congress in 2015 effectively prohibits federal prosecutors from pursuing marijuana-related charges against people whose alleged conduct was permissible under applicable state laws.

Currently, 28 U.S. states, along with the District of Columbia, Guam, and Puerto Rico, have passed laws decriminalizing marijuana for at least some uses. Seventeen states, including Texas, now allow the use of certain low-THC cannabis products for specified medical purposes. Texas, for example, allows the use of low-THC cannabis with a doctor’s prescription for the treatment of intractable epilepsy. See Tex. Health & Safety Code § 487.001 et seq., Tex. Occ. Code § 169.001(3).

Despite this multitude of state laws, the federal government often continues to enforce federal marijuana laws in those states. Enforcement against individual users by federal law enforcement is relatively rare, but businesses engaged in cultivating and dispensing medical marijuana have found themselves the targets of federal investigations and prosecutions.

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Green Kratom LeafThe federal Controlled Substances Act (CSA), 18 U.S.C. § 801 et seq., establishes five schedules of chemicals and materials, setting restrictions on their manufacturing, distribution, sale, and possession. Schedule I contains the most highly restricted drugs. The Drug Enforcement Administration (DEA), part of the U.S. Department of Justice (DOJ), has the authority to add drugs to the schedules, remove them, or reschedule them. In August 2016, the DEA published a notice of intent to add two chemicals, the active components of a plant known as kratom, to Schedule I. 81 Fed. Reg. 59929 (Aug. 31, 2016). The DEA claimed that banning kratom “is necessary to avoid an imminent hazard to the public safety.” Id. The notice prompted a massive public response about the purported benefits of kratom. The DEA withdrew its notice of intent about six weeks later and requested additional feedback. 81 Fed. Reg. 70652 (Oct. 13, 2016).

Schedule I controlled substances, according to the CSA, have a “high potential for abuse,” lack a “currently accepted medical use,” and have no “accepted safety” standards for use “under medical supervision.” 21 U.S.C. § 812(b)(1). The CSA includes various opioids and opiate derivatives, including heroin, under Schedule I, as well as MDMA, marijuana, LSD, peyote, and psilocybin. Id. at § 812(c)(I). The DOJ, through the Attorney General, has the authority to add drugs to any of the schedules upon a finding that they have “a potential for abuse” and fit the CSA’s scheduling criteria. Id. at § 811(a). The DOJ has delegated this procedure to the DEA. 21 C.F.R. § 1308.01 et seq.

Kratom is native to Southeast Asia. It is reportedly used in pain management and to treat opiate withdrawal, although the Food and Drug Administration (FDA) has not approved it for any medical use. Since it has similar effects to opioids, it is also used recreationally. According to the Centers for Disease Control and Prevention (CDC), kratom use has been associated with various negative effects. Kratom proponents claim that it is a beneficial alternative to opioid drugs. Six states—Alabama, Arkansas, Indiana, Tennessee, Vermont, and Wisconsin—have banned kratom, along with one county in Florida. The FDA has issued an import alert regarding the plant, and the federal government has seized multiple shipments of dietary supplements containing kratom at U.S. ports.

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oil rigThe term “white-collar crime” encompasses a wide range of activities that generally involve the use of fraud or misrepresentation, rather than actual or threatened violence. One well-known example of white-collar crime, insider trading, involves the use of non-public or confidential information to gain an advantage in a financial market. “Insider trading” is not a distinct criminal offense under federal law but instead a term used to describe certain types of fraudulent or unfair financial practices. People generally associate insider trading with securities markets and exchanges. A recent case brought by the U.S. Commodity Futures Trading Commission demonstrates that laws targeting insider trading are not limited to securities. Matter of Ruggles, CFTC Docket No. 16-34, order (CFTC, Sep. 29, 2016). The respondent, a former airline executive, was also subject to disciplinary action by the New York Mercantiles Exchange (NYMEX).

The commodities market has many similarities to the stock market, in terms of how trades occur and how the government monitors and regulates trading activity. A “commodity future” is a contract to buy a specified amount of a commodity at a specified price on a specified date. It is similar to an option contract in the stock market, since both involve obligations to purchase something at a later date at a set price, regardless of the market price. The CFTC, as indicated by its name, regulates commodity futures trading through the Commodities Exchange Act (CEA), 7 U.S.C. § 1 et seq. Traders are also subject to regulations established by the exchanges where trading occurs, such as NYMEX.

The respondent in Ruggles was the vice president of fuel for a major airline from mid-2011 until near the end of 2012. He was in charge of the company’s fuel-hedging strategy, which partly involved trading fuel futures. According to the CFTC, the respondent used information that was only available to him as an airline executive to trade crude oil, heating oil, and gasoline futures for personal gain. He reportedly used a financial account registered in his wife’s name to trade the same futures and options that he was trading for his employer. The CFTC alleged that this “all but guaranteed that the orders he placed” for himself “would be filled at advantageous prices.” Ruggles, order at 4.

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map with flagsNumerous states have modified their drug laws in recent years, easing many of the excesses of the “War on Drugs” and relaxing certain restrictions. More than half of the states in the U.S. now allow medical marijuana use to some extent, and a handful of states have decriminalized recreational use. At the federal level, however, drug laws have not changed. Federal law enforcement, at least hypothetically, has the authority to enforce federal drug laws in states that have partially or wholly decriminalized marijuana. It has not done so because of decisions by the Department of Justice (DOJ) and other executive agencies. With a new administration now in office and new nominees for Cabinet positions awaiting confirmation by the Senate, these policies could change. This uncertainty is not likely to have much impact in Texas, where the medical use of a marijuana-based product is allowed only in extremely limited circumstances. In certain other states, the impact could be significant.

The federal Controlled Substances Act (CSA), 21 U.S.C. § 801 et seq., prohibits marijuana under nearly all circumstances. Each state has its own drug laws. See, e.g. Tex. Health & Safety Code § 481.001 et seq. Many states allow medical marijuana use, and several states, such as Colorado and Washington, now allow its recreational use. In Texas, the Compassionate Use Act allows the use of low-THC cannabis, under medical supervision, solely for the treatment of intractable epilepsy. Tex. Health & Safety Code § 487.001 et seq., Tex. Occ. Code § 169.001 et seq. A bill introduced in the Texas Senate in December 2016, S.B. 269, would authorize medical marijuana, but its prospects for passage seem low.

As a general rule, the federal government may not direct state and local law enforcement agencies or officials to enforce federal laws. See Printz v. United States, 521 U.S. 898, 935 (1997) (“Congress cannot compel the States to enact or enforce a federal regulatory program.”) Unless state or local law enforcement agencies voluntarily offer their cooperation, federal enforcement is the responsibility of executive agencies like the DOJ.

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David Stanley [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia CommonsThe Fifth Circuit Court of Appeals affirmed the conviction of a Texas financier on multiple counts in connection with what the federal government called a “$7.2 billion Ponzi scheme.” United States v. Stanford, No. 12-20411, slip op. (5th Cir., Oct. 29, 2015). A jury convicted the defendant on multiple counts in 2012, and the court sentenced him to 110 years in prison. Grounds for appeal included claims that he was not competent to stand trial, that the court improperly denied his request for a continuance, and that a criminal proceeding that occurs simultaneously with a civil proceeding by the Securities and Exchange Commission (SEC) violates the Double Jeopardy Clause of the Fifth Amendment. The pretrial portion of the case produced multiple reported decisions and interlocutory appeals that illustrate the complexity of a large white-collar criminal case.

Prosecutors filed a twenty-one count indictment against the defendant in June 2009. The counts included wire fraud, 18 U.S.C. § 1343; mail fraud, 18 U.S.C. § 1341; obstruction of an SEC investigation, 18 U.S.C. § 1505; and various conspiracy charges. A lengthy series of motions and appeals began when the trial court granted prosecutors’ motion for revocation of the defendant’s’ release order. 630 F.Supp.2d 751 (S.D. Tex. 2009). The Fifth Circuit affirmed this order, 341 F. App’x 979 (5th Cir. 2009), and then affirmed an order denying the defendant’s motion to reconsider. 367 F. App’x 507 (5th Cir. 2010).

The trial court denied the defendant’s motion for release or for dismissal of the indictment several months later, 722 F.Supp.2d 803 (S.D. Tex. 2010), and the Fifth Circuit affirmed that order. 394 F. App’x 72 (5th Cir. 2010). Shortly afterwards, the U.S. Supreme Court denied the defendant’s first petition for writ of certiorari. 131 S.Ct. 1028 (2011). The defendant filed a motion to determine competency under the Insanity Defense Reform Act of 1984, 18 U.S.C. § 4241 et seq., and the trial court ordered a psychiatric evaluation. 769 F.Supp.2d 1083 (S.D. Tex. 2011).
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Public Domain Pictures [CC0 1.0 (http://creativecommons.org/publicdomain/zero/1.0/)]The Sixth Amendment states that the government may not deny a person representation by counsel in a criminal proceeding. The U.S. Supreme Court recently issued a decision in a case brought by someone who could afford an attorney but was unable to access funds to pay legal fees because the government had frozen their assets before trial. Luis v. United States, 578 U.S. ___ (2016). Prosecutors even admitted that the funds in question were not tied to any alleged criminal activity. The court held that this violated the Sixth Amendment right to counsel.

Federal criminal law allows the government to obtain an injunction freezing a defendant’s assets in cases involving alleged health care or banking offenses. 18 U.S.C. § 1345(a)(2). An injunction issued under this section is not necessarily limited to assets that prosecutors can demonstrate are derived from, or otherwise connected to, an alleged offense. A defendant may also be enjoined from using “property of equivalent value” to any assets allegedly linked to an offense. Id. at § 1345(a)(2)(B)(i).

Prosecutors must file a separate civil action in order to obtain an injunction under § 1345. This type of proceeding bears some similarities to civil forfeiture under federal law. 18 U.S.C. § 981. Both types of cases involve civil claims aimed at assets, but the goal of a forfeiture proceeding is for the government to take title to property involved in a criminal offense. An injunction under § 1345 prevents a defendant from disposing of assets that might be needed as evidence in a prosecution, or to satisfy a future judgment against a defendant. Unfortunately, this type of injunction can potentially prevent a defendant—who has not been convicted of a crime—from accessing any funds at all.

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Targaryen (Own work) [CC BY-SA 3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia CommonsThe U.S. Securities and Exchange Commission (SEC) is charged with enforcing federal laws against securities fraud, which includes a constantly expanding range of activities. In late 2015, the agency turned its attention to Bitcoin, a virtual payment system that has been the subject of much attention and controversy in recent years. Bitcoins have no physical, tangible form. Instead, they exist as a series of complicated computer transactions and calculations. It is possible to create new Bitcoins by assisting in processing Bitcoin transactions, a process known as “mining.” The SEC filed a civil complaint in late 2015 against two companies engaged in Bitcoin mining, alleging violations of the Securities Act of 1933 and the Securities Exchange Act of 1934. SEC v. Garza, et al, No. 3:15-cv-01760, complaint (D. Conn., Dec. 1, 2015). Although the suit is civil, not criminal, it offers an idea of how financial regulators may approach cases that add elements of cyber crime to securities law.

Federal securities laws regulate the issuance, sale, and exchange of a wide range of intangible assets. The Securities Act and the Securities Exchange Act use similar definitions of “security,” which include familiar items like stocks, notes, bonds, treasury bills, and futures, as well as various other types of investments. 15 U.S.C. §§ 77b(a)(1), 78c(a)(10). Bitcoin is a new, and still relatively unfamiliar, technology, but the SEC is viewing the assets involved in this case as “investment contracts.” Garza, complaint at 1.

Speaking very generally, the Securities Act prohibits fraudulent activities in connection with the issuance of securities, and the Securities Exchange Act prohibits fraud in their secondary sale or exchange. The SEC alleges, however, that the defendants engaged in a typical type of fraud, albeit one “cloaked in technological sophistication and jargon.” They allegedly “sold what they did not own, and misrepresented the nature of what they were selling.” Id.

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By Thomas J. O'Halloran, photographer [Public domain], via Wikimedia CommonsThe U.S. Supreme Court denied the government’s petition for a writ of certiorari in a major securities fraud case last fall. Prosecutors were appealing a federal appellate court ruling that had not only reversed the defendants’ convictions but also dismissed the indictments filed against them. United States v. Newman, 773 F.3d 438 (2d Cir. 2014). The case initially seemed like a big win for federal prosecutors, who had accused two hedge fund portfolio managers of insider trading. The U.S. Attorney’s Office in New York has made prosecution of insider trading a priority. The Second Circuit’s decision, and the Supreme Court’s decision not to review it, affirms an important limitation on liability for alleged insider trading.

The Securities and Exchange Commission (SEC) generally defines the illegal type of “insider trading” as trading securities, particularly corporate stocks, based on “material, nonpublic information about the security.” 17 C.F.R. § 240.10b5-1. It is not a distinct criminal offense under federal law but instead is based on various interpretations of the offense of securities fraud. Laws and regulations relating to insider trading are found in §§ 10(b) and 32 of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78ff; and SEC Rules 10b-5 and 10b5-2, 17 C.F.R. §§ 240.10b-5, 240.10b5-2.

Certain types of trades would seem to fit the SEC’s definition clearly. A corporate officer, for example, who possesses confidential information about the corporation’s financial status, would commit illegal insider trading if they traded their own corporation’s stock based on that information. This breaches the officer’s fiduciary duty to the corporation and is generally considered fraudulent. Trades based on “tips” from insiders, however, present a more complicated picture. The Supreme Court has held that “tippees”—i.e., people who receive insider tips and trade based on that information—are not liable for insider trading unless the tipper received some “personal benefit” for the tip. Dirks v. SEC, 463 U.S. 646, 667 (1983).

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