The term “white collar crime” encompasses a wide range of offenses involving elements of theft or fraud. The offense of embezzlement, for example, involves outright theft from an employer. Other white collar offenses are more complicated and much more difficult for prosecutors to prove. Federal securities laws do not define a specific offense called “insider trading,” but it is a well-known term in this area of law. Insider trading is a type of securities fraud that involves the use of information that is not available to the public. This is usually “inside information” about a corporation that affects trades in that company’s stock. A recently filed indictment goes in a different direction, alleging the use of nonpublic information from a government agency. United States v. Blaszczak, et al., No. 1:17-cr-00308, indictment (S.D.N.Y., May 24, 2017). The case involves a relatively unknown industry known as “political intelligence,” in which consultants obtain information about government operations for clients.

The Securities Exchange Act of 1934 regulates the trading of securities. Insider trading occurs when a person who has inside access to a corporation with publicly traded stock uses information that is available to them as an insider, and therefore not available to the public, to make a decision about trading that corporation’s stock. This puts all other stockholders and potential stockholders at a disadvantage, and it can affect the market as a whole. If, for example, a corporate insider learns that the corporation is going to be the target of an upcoming government investigation, it might constitute insider trading for that insider to sell all or most of their stock before any public announcement of the investigation. The news is likely to have a negative effect on the stock’s price, but the insider has an unfair advantage because of their access to information.

Rather than corporate inside information, the Blaszczak case involves inside information about a government agency. The field of “political intelligence” is difficult to define. It essentially involves consultants with access to government officials. The consultants are able to obtain useful information about government operations for their clients, who are often hedge funds and other investors. In order to be valuable, the information must not be generally available to the public. In this way, it resembles inside corporate information.

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Federal prosecutors recently announced the settlement of a civil claim against a former money transfer company executive, which related to acts allegedly performed by the defendant in his executive capacity. U.S. Treas. Dept. v. Haider, No. 1:14-cv-09987, complaint (S.D.N.Y., Dec. 18, 2014), transferred to No. 0:15-cv-01518 (D. Minn., Mar. 17, 2015). For certain “white collar” offenses, prosecutors and regulators may bring a civil lawsuit to recover penalties and damages, rather than a criminal case. One reason is that the burden of proof is usually lower in civil cases. Instead of proving guilt beyond a reasonable doubt, the state must prove liability by either a preponderance of evidence or clear and convincing evidence. The government filed suit against the defendant for alleged violations of the Currency and Foreign Transactions Reporting Act, more commonly known as the Bank Secrecy Act (BSA) of 1970.

The BSA requires financial institutions in the U.S. to take certain actions to assist government investigations of alleged financial crimes, such as money laundering, as well as “intelligence or counterintelligence activities” intended “to protect against international terrorism.” 31 U.S.C. § 5311. For example, financial institutions must establish anti-money laundering programs (AMLs) according to guidelines established by the government. 31 U.S.C. § 5318(h), 31 C.F.R. § 1020.210. They are also required to keep records of various transactions and to report “suspicious” transactions in a “suspicious activity report” (SAR). 31 U.S.C. § 5318(g), 31 C.F.R. § 1020.320.

The Financial Crimes Enforcement Network (FinCEN), part of the U.S. Department of the Treasury, is responsible for investigating and prosecuting alleged BSA violations. Civil liability for violations may extend not only to the financial institution itself but also to “a partner, director, officer, or employee.” 31 U.S.C. § 5321. Criminal penalties may apply to any “person,” defined by federal law to include both individuals and business entities. Id. at § 5322, 1 U.S.C. § 1.

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The term “probation” applies to a variety of outcomes in criminal cases, usually ordered by a court as an alternative to a jail or prison term. Courts impose sentences based on statutory authority and sentencing guidelines, and they often have discretion to “probate” sentences for a specified period of time. If the defendant abides by all of the conditions set by the court for the duration of the probation period, their case will be closed. If they do not meet all of the requirements, or they commit an act found to be in violation of their probation terms, the state may ask the court to revoke their probation. This can result in the imposition of the original sentence. When probation revocation coincides with another criminal case, the proceedings can appear very confusing. A recent case in a Georgia court, for example, involved a man acquitted in a criminal case but sent to prison anyway because of probation revocation.

Texas uses the term “community supervision” to refer to “a continuum of programs and sanctions” that a court may order. Tex. Code Crim. P. Art 42A.001(1). Two types of community supervision are possible:

– “Probation” generally refers to the suspension of a sentence after an adjudication of guilt, based on either a verdict or a plea. The court enters a finding of guilt or recognizes a plea of no contest and imposes a sentence. Rather than ordering the defendant to begin serving the sentence, however, the court orders that the sentence be probated, identifies the length of the probation period, and sets conditions for the defendant.
– “Deferred adjudication” is a form of community supervision in which the court accepts a defendant’s guilty or no contest plea, but it does not enter a final adjudication of guilt. Id. at Art. 42A.101. The court orders services and sanctions for the defendant, much like with probation.

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The protection of intellectual property is critically important for many businesses, particularly in the electronics and technology industries. Computer and software companies rely extensively on copyright, trademark, and patent protections. Most acts of alleged copyright infringement result in civil claims, but federal criminal law allows prosecution in some situations. An individual often described as a “e-waste recycler” is facing a prison sentence for acts that he stated were intended to help extend the lives of personal computers, but which a major software company considered infringement. Prosecutors indicted him on 21 counts in 2016. United States v. Lundgren, No. 16-cr-80090, superseding indictment (S.D. Fla., Feb. 2, 2017). Last year, he pleaded guilty to two counts, criminal copyright infringement and conspiracy to traffic in counterfeit goods. An appeals court has now affirmed the district judge’s sentence of 15 months’ imprisonment and a $50,000 fine. United States v. Lundgren, No. 17-12466, slip op. (11th Cir., Apr. 11, 2018).

Copyright infringement involves the use of copyrighted material without a license from the copyright owner. It becomes a criminal offense when a person infringes a copyright “willfully,” and “for purposes of commercial advantage or private financial gain.” 17 U.S.C. § 506(a)(1)(A). The penalty for criminal copyright infringement depends in part on the number of copies made of any infringed works and their total value. If a defendant is found to have produced or distributed 10 or more copies, “including by electronic means,” they could face up to five years in prison and a fine. 18 U.S.C. § 2319(b)(1).

The defendant in Lundgren operated a business that refurbished discarded electronic devices, such as cell phones, for resale. His legal problems began when he attempted to take on the issue of “planned obsolescence.” This is a practice by many designers and manufacturers to set a limit on the useful life of a product or device, requiring consumers to purchase a new one. Light bulbs offer one example. While they reportedly could last much longer, light bulb manufacturers design them with a limited life span. Computers and cell phones become effectively unusable as newer software and hardware enter the market.

Numerous statutes throughout the country identify and prohibit controlled substances, creating an elaborate set of drug schedules containing hundreds of plants, synthetic compounds, and other materials. Correct identification of an allegedly illegal drug is a key part of proving guilt beyond a reasonable doubt. Police officers charged with enforcing drug laws cannot reasonably be expected to recognize all, or even most, of these substances on sight. Field kits used to test suspicious substances, however, have a very poor track record for reliability and have led to multiple wrongful convictions in Texas drug crime cases. Police often focus on a small number of drugs that, because of their general familiarity, tend to stand out among the multitudes of substances contained in state and federal schedules. A recent case, which involved the inaccurate visual identification of a hibiscus plant as marijuana, demonstrates this problem.

Both the federal Controlled Substances Act and its Texas equivalent prohibit the possession and distribution of marijuana. In Texas, it is an offense to “knowingly or intentionally possesses a usable quantity of marihuana.” Tex. Health & Safety Code § 481.121(a). The offense ranges from a Class B misdemeanor to a felony punishable by life imprisonment, depending on the amount. Texas prohibits “delivery” of marijuana, defined as “transfer[ring]…to another a controlled substance,” with similar penalties. Id. at §§ 481.002(8), 481.120. Delivery of marijuana to a child is a second-degree felony, regardless of the amount. Id. at § 481.122. All of these offenses require proof that the defendant acted “knowingly” and that the substance at issue was, in fact, marijuana.

A lawsuit filed by a married couple in Pennsylvania illustrates how quickly misidentification of an alleged controlled substance can go wrong. Cramer v. Nationwide Mut. Ins. Co., et al, No. 17-11043, complaint (Pa. Ct. Comm. Pleas, Butler Cty., Nov. 16, 2017), removed to No. 2:17-cv-01657 (W.D. Pa., Dec. 22, 2017). Although the case involves a civil lawsuit, one erroneous field test could have made it a criminal matter. According to the plaintiffs’ complaint, an insurance agent visited their home in October 2017 to survey damage from a fallen tree. They allege that the agent took photographs of several hibiscus plants, mistakenly believing them to be marijuana plants. The agent allegedly turned these photographs over to local police and reported that the plaintiffs were growing marijuana on their property.

Texas continues to impose strict prohibitions on marijuana possession, even as other states substantially reduce criminal penalties or even legalize recreational use altogether. A bill introduced in the Texas Legislature this year, HB 81, would have eliminated criminal penalties for possession of small amounts of marijuana. This should not be confused with legalization, however. The bill would have replaced the criminal penalty with a civil penalty. A person would have to pay a fine but would not face jail time or gain a criminal record. As the 2017 legislative session draws to a close, the bill’s prospects do not look good. Still, it often takes more than one session to gain enough support for certain bills, and this bill made it farther than many other bills addressing this issue. When the next session begins in 2019, a similar bill might have a better chance.

State law deals with marijuana separately from other controlled substances. The classification of the offense of possession of marijuana (POM) depends on the amount that a person “knowingly or intentionally possesses.” Tex. Health & Safety Code § 481.121. At a minimum, POM is a Class B misdemeanor. This occurs when someone possesses a “usable quantity” up to two ounces, and it can result in up to 180 days in jail and a fine of up to $2,000. Id., Tex. Pen. Code § 12.22. Possession of more than two ounces, but no more than four ounces, is a Class A misdemeanor, which has twice the maximum potential penalty as a Class B misdemeanor. Tex. Pen. Code § 12.21. POM becomes a felony under current law for amounts in excess of four ounces. The lowest-level felony in Texas, a state jail felony, could result in a maximum fine of $10,000 and 180 days to two years in jail. Id. at § 12.35.

HB 81 would have amended the statutory provisions dealing with the lowest-level POM offense. Possession of one ounce of marijuana or less would no longer be subject to criminal penalties, while possession of more than one ounce, up to two ounces, would be a Class B misdemeanor. POM of one ounce or less would result in a civil penalty of $250 but no arrest or criminal conviction. A fourth or subsequent violation of this provision would be a Class C misdemeanor, which is punishable by a fine of up to $500 but does not include jail time. Id. at § 12.23.

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As more and more U.S. states enact measures allowing marijuana possession and use for medical or even recreational purposes, federal laws regulating marijuana look increasingly out of step with the rest of the country. More than half of all U.S. states, including Texas, allow medical marijuana use as of early 2018, although Texas’ medical marijuana program is one of the country’s most restrictive. The federal Controlled Substances Act (CSA), however, still classifies marijuana in its most restricted schedule. Various efforts to challenge the constitutionality of the CSA’s marijuana classification have failed. A recent lawsuit filed by medical marijuana users, including a young girl from Texas who had to move to Colorado for epilepsy treatment, challenged the CSA’s marijuana scheduling on Due Process grounds. The court ruled against them and granted the defendants’ motion to dismiss, partly on procedural grounds. Washington, et al. v. Sessions, et al., No. 1:17-cv-05625, opinion (S.D.N.Y., Feb. 26, 2018).

According to the CSA, a Schedule I controlled substance “has a high potential for abuse,” has “no currently accepted medical use,” and “lack[s]…accepted safety for use…under medical supervision.” 21 U.S.C. § 812(b)(1). The statute classifies “marihuana” directly alongside drugs like LSD, peyote, and heroin. Id. at § 812(c)(I). The Attorney General has authority to review the schedules and to remove a drug upon a finding that it “does not meet the requirements for inclusion in any schedule.” Id. at § 811(a)(2).

The U.S. Supreme Court struck down a challenge to the CSA under the Commerce Clause in Gonzales v. Raich, 545 U.S. 1 (2005). The plaintiffs argued that Congress did not have the power to prohibit them from growing marijuana for their own personal use in compliance with state medical marijuana laws. The court compared the CSA’s marijuana prohibition to federal laws regulating wheat production, and it held that the CSA “is squarely within Congress’ commerce power” because even production solely for personal use “has a substantial effect on supply and demand in the national market.” Id. at 19.
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The Texas criminal justice system primarily deals with adults suspected of, charged with, or convicted of criminal offenses under the Penal Code. A separate system deals with juvenile offenders. According to the Texas Juvenile Justice Code (TJJC), the purpose of this separate system is, in part, “to remove…the taint of criminality from children committing certain unlawful acts,” and “to provide treatment, training, and rehabilitation.” Tex. Fam. Code §§ 51.01(2)(B), (C). The goal of a juvenile proceeding is supposed to be the rehabilitation of the child, with confinement being a last resort. A recent study of incarceration of juveniles in Texas found that more than one-fourth of children in state custody in 2015 were there for non-criminal matters, also known as “status offenses.”

The TJJC defines a “child” as someone who is at least 10 years old, but younger than 17. Id. § 51.02(2). This definition also applies to someone who is 17 or 18 years old but has been convicted—or the juvenile court equivalent—for conduct that occurred before they turned 17. The state’s definition of “delinquent conduct” by a child includes almost anything that violates the Texas Penal Code, as well as various acts that are only prohibited for children. Id. § 51.03. State law defines a “status offender” as a child involved in a case that would not result in criminal prosecution if an adult engaged in similar conduct, such as “running away from home,” being a minor in possession of alcohol, or “a violation of standards of student conduct” resulting in expulsion. Id. at § 51.02(15).

The Texas Juvenile Justice Department (TJJD), which oversees juvenile cases throughout the state, was created by SB 653 in 2011. That bill abolished two agencies, the Texas Juvenile Probation Commission and the Texas Youth Commission (TYC), and consolidated their functions in the TJJD. The TYC had operated state juvenile correctional facilities since 1957, but it faced numerous scandals and lawsuits related to alleged abuses by officers and conditions in its facilities. A lawsuit filed against the state in 2008, for example, alleged that girls at a facility in Brownwood were “frequently subjected to punitive solitary confinement” in harsh conditions, among other abuses. K.C. et al. v. Nedelkoff et al., No. 1:08-cv-00456, complaint at 2 (W.D. Tex., Jun. 12, 2008).

Marijuana possession under Texas drug crime laws ranges from a misdemeanor offense to a major felony, depending on the amount. The Texas Legislature passed a law in 2007 that allows a “cite and release” policy, rather than arrests, for minor marijuana possession and other misdemeanors. Some, but far from all, Texas cities have adopted this policy. Law enforcement officials in neighboring or overlapping jurisdictions might disagree over cite and release. For example, the District Attorney’s Office in Bexar County, where San Antonio is located, announced the implementation of cite and release last year, while the San Antonio Police Department and other local police departments have expressed disagreement with the policy.

Possession of small amounts of marijuana is a misdemeanor offense under Texas law. If the amount is no more than two ounces, it is a Class B misdemeanor, increasing to a Class A misdemeanor for an amount that does not exceed four ounces. Tex. Health & Safety Code §§ 481.121(b)(1), (2). A Class A misdemeanor carries a maximum penalty of one year in jail and a $4,000 fine. Tex. Pen. Code § 12.21. The maximum punishment for a Class B misdemeanor is half of that:  180 days in jail and a fine of $2,000. Id. at § 12.22.

The 80th Texas Legislature passed HB 2391 in May 2007. It took effect on September 1 of that year. Analysis of the bill noted the burdens on county jails throughout Texas, many of which were filled to capacity. The law at the time effectively required police to take people into custody for Class A and Class B misdemeanors. The bill amended Article 14.06 of the Texas Code of Criminal Procedure to create exceptions to this requirement. For certain offenses, police could issue a citation instructing a person to appear before a magistrate at a specified time and place, much like a ticket issued for a traffic violation. This applies to Class A and B marijuana possession, as well as certain misdemeanor offenses under the Texas Penal Code.

Pardons are part of the constitutional authority of an executive, such as the President of the United States or the Governor of Texas, in criminal cases. Late last year, the presidential pardon power was in the news after the president pardoned an Arizona sheriff who had been convicted of criminal contempt of court. This led to debates, both in and out of the courtroom, over the extent of the pardon power. In Texas criminal cases, the governor’s pardon power is specifically limited by the Texas Constitution, requiring the prior recommendation of a board appointed by the Texas Legislature.The U.S. Constitution grants the president the “Power to grant Reprieves and Pardons for Offences against the United States,” with impeachment as the only specified exception. U.S. Const. Art. II, § 2, cl. 1. The Office of the Pardon Attorney (OPA), part of the U.S. Department of Justice, accepts petitions for clemency for convictions in federal district courts, the Superior Court of the District of Columbia, and military courts-martial. See 28 C.F.R. § 1.1 et seq. The president may decide to issue a pardon, however, without the recommendation of the OPA, or even without a petition for clemency. Presidents may issue a pardon at any time during their term. Recent presidents have often issued multiple pardons shortly before leaving office.

The Texas governor has authority to grant full pardons “upon the recommendation and advice of a majority of the” Board of Pardons and Paroles (BPP). Tex. Const. Art. 4, § 11(b); 37 Tex. Admin. Code § 143.1. The governor can grant a temporary reprieve of up to thirty days in capital cases without going through the BPP. Recently, the governor of Texas has issued a small number of pardons at the end of each calendar year.
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