Articles Posted in Federal Crimes

While drug laws at the federal and state levels classify a vast array of “controlled substances,” two in particular have stood out in recent political and legal debates. The legalization of marijuana for medical use is now a reality in at least 26 states, including Texas. Several states have gone a step further and legalized the distribution and possession of small amounts of marijuana for recreational use. At the same time, opioid use is on the rise across the country, and the number of deaths resulting from overdoses have led many to call it an “epidemic.” Both drugs are scheduled as controlled substances, but the similarities mostly end there. Some research suggests that allowing medical marijuana use may reduce the number of opioid overdose deaths. Federal officials, however, continue to view opioid use as a matter of criminal enforcement rather than public health. The federal government’s approach to these issues is likely to influence the Texas criminal justice system’s response.

The term “opioid” can refer to almost any drug derived from opium, including heroin. In its current usage, it usually refers to prescription painkillers like hydrocodone and oxycodone, as well as synthetic products like fentanyl. Heroin is classified as a Schedule I controlled substance, meaning it has “a high potential for abuse” and “no currently accepted medical use.” 21 U.S.C. §§ 812(b)(1), (c)(I)(b)(10), (c)(I)(c)(10). Fentanyl and many other pharmaceutical opioid products are Schedule II controlled substances, meaning that, while addictive, they have medical uses. Id. at §§ 812(b)(2), (c)(II)(b)(6). The Drug Enforcement Administration moved hydrocodone from Schedule III to Schedule II in 2014, largely because of the increase in overdose deaths. 79 Fed. Reg. 49661 (Aug. 22, 2014).

Scientific studies have not shown marijuana to have addictive properties at all similar to those of opioids. It is nevertheless classified in Schedule I alongside heroin. 21 U.S.C. §§ 812(c)(I)(c)(10). Numerous state medical marijuana laws dispute the assessment that the drug has no accepted medical use. The Texas medical marijuana law is among the most restrictive in the country, and it allows the use of “low-THC cannabis” only in the treatment of intractable epilepsy. See Tex. Health & Safety Code § 487.001 et seq., Tex. Occ. Code § 169.001 et seq.

Marijuana’s legal status has recently undergone major changes. The federal Controlled Substances Act (CSA) still places marijuana in its most highly restricted category, but more than half of the states in the U.S., including Texas, now allow medical marijuana to some extent. Colorado, California, and several other states have legalized the production, sale, and possession of small amounts of marijuana for recreational purposes. This has led to legal disputes over whether states like Colorado have exceeded their constitutional authority. For criminal justice advocates in Texas, where marijuana remains a highly controlled substance, law enforcement attention to suspected interstate drug trafficking raises a variety of constitutional civil rights questions.

The CSA classifies “marihuana” as a Schedule I controlled substance. 21 U.S.C. § 812(c)(I)(c)(10). The statute prohibits “manufactur[ing], distribut[ing], or dispens[ing]” a controlled substance, or “possess[ing] with intent to” do any of the aforementioned acts with a controlled substance. Id. at § 841(a)(1). Penalties depend on the identity and amount of the controlled substance involved. Texas marijuana law classifies THC, the active component of marijuana, in Penalty Group 2. Tex. Health & Safety Code § 481.103(a)(1). It identifies numerous offenses related to the manufacture, delivery, and possession of both Penalty Group 2 controlled substances in general and marijuana in particular. See, e.g. id. at §§ 481.116, 481.121.

The U.S. Constitution’s Commerce Clause authorizes Congress “to regulate Commerce…among the several States.” U.S. Const. Art. I, § 8, cl. 3. The CSA has faced constitutional challenges alleging that the federal government lacks jurisdiction to enforce federal drug laws within states that have legalized marijuana to various extents. The Supreme Court rejected this argument in Gonzales v. Raich, 545 U.S. 1 (2005), but it remains a controversial question. The federal government’s authority to deal with controlled substances that cross state lines, on the other hand, rather unambiguously falls within the federal government’s constitutional authority. This is where many recent legal challenges have arisen.

Federal and state laws regarding both medical and recreational use are coming more and more into conflict. More than half of the states in the U.S., as well as the District of Columbia, allow the possession and use of marijuana for medical purposes. Federal law, on the other hand, classifies it alongside the most highly restricted controlled substances. The current U.S. Attorney General (AG) has repeatedly stated an intention to crack down on legal state medical marijuana programs. A group of medical marijuana patients, including a father and daughter who relocated from Texas to Colorado so that the daughter could obtain relief from intractable epilepsy, have filed suit against the AG and other federal officials and agencies. Washington, et al. v. Sessions, et al., No. 1:17-cv-05625, complaint (S.D.N.Y., Jul. 24, 2017). The plaintiffs allege that the federal government’s scheduling of marijuana as a controlled substance violates the Due Process Clause of the Fifth Amendment, unlawfully restricts some plaintiffs’ freedom of travel between states, and exceeds the authority conferred by the Commerce Clause.

Of the five schedules established by the Controlled Substances Act (CSA), Schedule I is the most restrictive. It is defined to include substances with a “high potential for abuse,” “no currently accepted medical use,” and a “lack of accepted safety for use…under medical supervision.” 21 U.S.C. § 812(b)(1). Schedule I has included “marihuana” since its original enactment. Id. at § 812(c)(I)(c)(10). The Washington lawsuit alleges that “the Federal Government does not believe, and…never has believed” that marijuana meets these three criteria. Washington, complaint at 4.

Texas is among the states that have authorized medical marijuana to some extent, although in Texas’ case, the extent is not far at all. The Texas Compassionate-Use Act only applies to “low-THC cannabis.” This means cannabis products that contain, at most, “0.5 percent by weight of tetrahydrocannabinols” and at least “10 percent by weight of cannabidiol.” Tex. Occ. Code § 169.001(3). This essentially minimizes the active component of marijuana, THC. It may only be prescribed for the treatment of intractable epilepsy after a patient has tried two “maximally titrated antiepileptic drugs” without success. Id. at § 169.001(2).

A jury in a federal court convicted a former hedge fund manager of three out of eight counts related to securities fraud in early August 2017. The government had charged the defendant with multiple counts related to alleged defrauding of investors and misuse of corporate funds, as well as conspiracy to commit various fraudulent acts. United States v. Shkreli, No. 1:15-cr-00637, superseding indictment (E.D.N.Y., Jun. 3, 2016). The case is notable in part because of the high degree of infamy gained by the defendant for reasons unrelated to this case. The securities and wire fraud charges in this case added to the defendant’s unpopularity, presenting challenges for the defense team.

The Securities Exchange Act of 1934 regulates the trading of various securities, particularly corporate stocks. It prohibits “any manipulative or deceptive device or contrivance” connected to “the purchase or sale of any security.” 15 U.S.C. § 78j(b). This broad phrasing has been applied to a wide range of actions deemed fraudulent by securities regulators and prosecutors. The statute allows criminal prosecution for “willful” violations, allowing penalties for individuals of up to 20 years’ imprisonment and a fine of up to $5 million. Id. at § 78ff(a).

Proving the required elements of securities fraud in a federal or Texas criminal case can be very difficult, but federal law also allows the government to charge a person with conspiracy to commit an offense. 18 U.S.C. § 371. A conspiracy charge requires evidence that two or more persons, which could include individuals or certain organizations, conspired to commit an offense and that the defendant took an “overt act” in furtherance of the conspiracy. If the underlying offense is a felony, the conspiracy statute provides for imprisonment of up to five years.

The federal Controlled Substances Act (CSA) defines five schedules of controlled substances and prescribes penalties for their production, distribution, and possession. Texas drug crime laws contain similar schedules. The CSA includes a list of substances in each schedule, but it also gives some authority to the Department of Justice (DOJ) to modify or adjust the schedules. The DOJ has delegated this authority to the Drug Enforcement Administration (DEA). One factor considered in the scheduling of controlled substances involves the potential for medical use. A different federal agency, the U.S. Food and Drug Administration (FDA), deals with drugs used for medical purposes. Recently, the FDA announced that it will allow further research into the medical potential of a Schedule I controlled substance known as MDMA. While this research could lead to FDA approval of MDMA for medical purposes, the DEA or Congress would still have to remove it from Schedule I.

The CSA places the most highly restricted controlled substances in Schedule I. MDMA, scientifically known as 3,4-methylenedioxymethamphetamine and colloquially known as ecstasy, among other names, was not among the drugs originally added to Schedule I by Congress. The DEA designated MDMA as a Schedule I “hallucinogenic substance” in the 1980s. 21 C.F.R. § 1308.11(d)(11). Texas places MDMA in Penalty Group 2. Tex. Health & Safety Code § 481.103(a)(1).

The CSA’s criteria for inclusion in Schedule I are “high potential for abuse,” a lack of “currently accepted medical use,” and “a lack of accepted safety for use…under medical supervision.” 8 U.S.C. § 812(b)(1). Other well-known Schedule I controlled substances include heroin, lysergic acid diethylamide (LSD), and marijuana. Id. at §§ 812(c)(I)(b)(10), (c)(9), (c)(10). Many controlled substances commonly associated with the illegal drug trade are actually listed in Schedule II, including cocaine and methamphetamine. Id. at § 812(c)(II)(a)(4), 21 C.F.R. § 1308.12(d)(2).

The legal status of marijuana at the state level is changing across the country, with more than half of all U.S. states now allowing the possession and use of marijuana to some extent. Federal law, however, still considers marijuana to have no medical use and therefore no acceptable reason for possession, cultivation, or sale. The disparity between federal law and many state laws has produced numerous unusual and unfortunate results. A ruling by the Ninth Circuit Court of Appeals from last year, while not binding on Texas, ought to be concerning to many Texas drug crime defendants, since the court held that federal law may bar lawful medical marijuana users from purchasing firearms. Wilson v. Lynch, 835 F. 3d 1083 (9th Cir. 2016).

Marijuana is a Schedule I controlled substance under federal law. 21 U.S.C. § 812(c)(I)(c)(10). Texas enacted a medical marijuana law in 2015 that allows the use of “low-THC cannabis,” with a prescription, to treat “intractable epilepsy.” See Tex. Occ. Code § 169.001 et seq., Tex. Health & Safety Code § 487.001 et seq. This is one of the most restrictive medical marijuana laws in the country, but it is still far less restrictive than federal law. The Wilson case involves Nevada law, which exempts individuals from prosecution for marijuana possession if they have a valid state registration card. See Nev. Rev. Stat. § 453A.010 et seq.

Federal law makes it a crime for certain individuals to possess firearms in a manner that affects interstate commerce, which has often been interpreted as prohibiting the sale of a firearm to someone covered by the statute. This includes “unlawful user[s] of…any controlled substance.” 18 U.S.C. § 922(g)(3), 21 U.S.C. § 802(6). The law further states that it is a crime for someone to sell a firearm to someone they know or have “reasonable cause to believe” meets this criterion. 18 U.S.C. § 922(d)(3).

The policies of the U.S. Department of Justice (DOJ) regarding federal drug sentencing have gone through several major changes recently. Former Attorney General (AG) Eric Holder undertook a major overhaul several years ago, seeking to focus attention away from low-level drug offenses and onto major ones. In May 2017, however, AG Jeff Sessions rescinded Holder’s policy and issued a new memorandum directing federal prosecutors to “charge and pursue the most serious, readily provable offense.” The memorandum does not specifically mention drugs and drug-related offenses, but that is where it is likely to have the most far-reaching effects.

Federal sentencing guidelines derive, in part, from a list of factors established by Congress in 1984 that courts must consider when imposing a sentence. These include “the nature…of the offense and the…characteristics of the defendant,” the effect of the sentence on society at large, the need to maintain consistent sentencing practices for similar offenses, and “the need to provide restitution to any victims of the offense.” 18 U.S.C. § 3553(a).

A “mandatory minimum” sentence gives courts no discretion to adjust the sentence downward. Such sentences became particularly widespread with the Anti-Drug Abuse Act of 1986, Pub. L. 99-570 (Oct. 27, 1986). That law established lengthy minimum sentences for various drug offenses, such as 10 years for manufacturing, distributing, or possessing with intent to manufacture or distribute one kilogram of heroin or five kilograms of cocaine. 21 U.S.C. §§ 841(b)(1)(A)(i), (ii). According to the United States Sentencing Commission (USSC), 47.9 percent of all federal drug convictions in fiscal year 2015 involved an offense with a mandatory minimum penalty.

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More than half of the states in the U.S. now allow the use of medical marijuana to some extent. At the same time, federal law still treats marijuana as having “no currently accepted medical use in treatment in the United States.” 21 U.S.C. §§ 812(b)(1)(B), (c)(I)(c)(10). This has, obviously, created conflicts between federal and state law enforcement. Congress relieved this tension somewhat in 2014, when it passed legislation known as the Rohrbacher-Farr amendment as part of a spending bill. This amendment prohibits the U.S. Department of Justice (DOJ) from spending funds on law enforcement activities that interfere with lawful state medical marijuana systems, which range from the extensive in California to the restrictive in Texas. Texas marijuana lawyers are aware, however, that officials in the new White House administration have sought to use federal resources against state medical marijuana. So far, the Rohrbacher-Farr amendment remains in force.

California was the first state to allow the use of medical marijuana with a doctor’s prescription. Voters approved Proposition 215 in November 1996, also known as the “Compassionate Use Act.” Cal. Health and Safety Code § 11362.5. Twenty years later, in November 2016, voters in that state approved Proposition 64, which authorized the sale, purchase, and possession of limited amounts of marijuana for recreational use. Id. at § 11362.1. Most states have not gone this far, but states that allow medical marijuana in some form outnumber those that do not. Texas is among the states that allow medical marijuana use, although it is strictly limited to “low-THC cannabis” to treat “intractable epilepsy.” Tex. Health & Safety Code Ch. 487, Tex. Occ. Code Ch. 169.

The U.S. Supreme Court has rejected at least two challenges to the applicability of federal marijuana laws over state medical marijuana laws. The court rejected a common-law medical necessity defense in U.S. v. Oakland Cannabis Buyers’ Cooperative, 532 U.S. 483 (2001). Justice Thomas, writing for the court, noted that federal criminal law generally does not recognize common-law defenses unless Congress specifically includes them in a statute. He concluded that “a medical necessity exception for marijuana is at odds with the terms of the Controlled Substances Act.” Id. at 491. The court held that the Commerce Clause of the U.S. Constitution allows a federal prohibition of marijuana production, distribution, and possession, regardless of state medical marijuana laws, in Gonzales v. Raich, 545 U.S. 1 (2005).

The gradual decriminalization of marijuana in several states around the country has created unusual legal pitfalls. The U.S. Securities and Exchange Commission (SEC) has taken an interest in efforts to attract investors to the legal marijuana trade. This is practically unexplored legal territory, since such investments would have been unambiguously illegal just a few years ago. The SEC recently filed a civil complaint for securities fraud against a California company involved in legal marijuana sales, as well as its founder and two corporate officers. The founder and the corporation settled with the SEC, which is the civil equivalent of pleading no contest. SEC v. Notis Global, Inc., et al., No. 2:17-cv-01905, final judgment (C.D. Cal., Mar. 21, 2017).

“Securities fraud” encompasses a wide range of activities. The Securities Act of 1933, 15 U.S.C. § 77a et seq., regulates the issuance of new securities, including corporate stocks. The Securities Exchange Act of 1934, 15 U.S.C. § 78a et seq., deals with the trading of securities after they have been issued, such as in the various stock exchanges. Both statutes prohibit fraudulent statements and other deceptive acts in connection with the sale or purchase of securities. Violations may result in civil liability and, in some situations, criminal penalties. 15 U.S.C. §§ 77x, 78ff; see also 18 U.S.C. §§ 1348, 3301.

Lawmakers and law enforcement must often figure out how to reconcile new marijuana laws with old systems. One state might have removed criminal penalties for the production, distribution, sale, and possession of marijuana, but financial institutions subject to federal regulations might still shy away from doing business with them. In 2014, the SEC issued a memorandum about potential microcap investment scams, also known as penny stock fraud, in the marijuana business. The memo sought to warn investors about “pump-and-dump” scams, which involve making false or misleading statements about a company in order to artificially inflate its stock price.

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Unauthorized access to computer systems, commonly known as “hacking,” undoubtedly causes significant damage to individuals and businesses around the country. As often happens, however, the law has had difficulty keeping up with new technology. Federal law prohibits a wide range of computer fraud-related activities, but most offenses require proof that a defendant acted with intent, which is the most difficult mental state for prosecutors to prove. Perhaps as a result, some prosecutors have developed creative strategies to pursue alleged hackers. In one recently filed case, federal prosecutors have charged an individual under the federal hacking statute with no allegations that he personally engaged in any hacking activities. Instead, they essentially allege that he developed software with the intent that it would be used by hackers. United States v. Huddleston, No. 1:17-cr-00034, indictment (E.D. Va., Feb. 16, 2017).

Congress first enacted a criminal statute related to computer fraud, found at 18 U.S.C. § 1030, in 1984. It has amended this section numerous times over the years, perhaps most notably in 1986 with the Computer Fraud and Abuse Act (CFAA). That bill significantly expanded the legal definition of “computer fraud.” The original 1984 law made it a federal crime to access computer systems of the federal government or a financial institution without authorization. The CFAA added provisions about unauthorized access, or access that exceeds granted authority, to any “protected computer,” which it defined to include nearly any computer whose use affects interstate commerce. 18 U.S.C. §§ 1030(a)(4) – (6), (e)(2)(B).

Federal prosecutors are not accusing the defendant in Huddleston of hacking anybody. Instead, the alleged conduct leading to the indictment consisted solely of developing a software tool reportedly used by hackers. According to the indictment, the defendant created a “remote administration tool,” or “remote access trojan” (RAT), a type of software that allows a user to take control of someone else’s computer without their knowledge or consent. This RAT has allegedly been used in multiple cyberattacks around the world. Prosecutors allege that the defendant created this software for the specific purpose of making it available to hackers.

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