JD: The EDVA has claimed jurisdiction over some highly complex, international cases with regularity. Some of these cases would appear to have no or little connection to your former territory in the EDVA. How did you claim jurisdiction, and how has your office been able to maximize efficiency in bringing such cases to trial?
NM: We made the decision to be proactive at all levels when it came to pursuing criminal and civil cases — local, national and international — and we felt that combating 21st century crimes needed a 21st century playbook. Terrorists, Somali pirates, Hezbollah money launderers, economic espionage — a lot of those cases may originate with criminals operating on the other side of the globe, but their illegal actions victimized citizens or businesses in Virginia.
So, what we did was use the tools we had, most of which, in combination, were unique to our district.
For many securities fraud cases, we could rely on the fact that Congress in 1934 with the Securities and Exchange Act said that criminal cases could be charged in the place where the transaction underlying the illegal act occurred. So we litigated under that premise in the Fourth Circuit Court of Appeals, and the court agreed with us that the mere act of filing securities 10-Ks or 10-Qs the EDGAR system gave our prosecutors jurisdiction over most securities fraud cases because EDGAR’s servers that host such filings reside in Alexandria.
With FCPA cases, we used this venue option because, under the books and records provisions of the FCPA, the mere act of filing through the use of this server in our district gave us jurisdiction to prosecute such cases. Our thinking was, again, that in the age of the Internet and global commerce, such actions can victimize Virginians, no matter where the criminals reside.
In addition, we were able to prosecute some major bank fraud cases because the Richmond Federal Reserve handles bank wires for all of the east coast’s banks. Similarly, since the region comprises the backbone of the Internet, emails get transmitted, or web-hosting services get leased, through our region’s infrastructure, enabling us to claim jurisdiction in cases involving pirated digital content.
As other districts do, the EDVA establishes venue when a defendant is arrested abroad and returns to the United States by way of the eastern district of Virginia.
So, taking these unique factors together, along with the highly experienced district court judges of the EDVA — as well as their appellate counterparts on the U.S. Court of Appeals, who are familiar with the document-intensive and complex securities cases they have confronted for over 20 years — we’ve had a perfect combination with which to operate.
JD: How did you coordinate among many national and international regulators to ensure you’re getting the support and evidence you needed to prosecute complex cases, such as those involving criminal networks?
NM: First, having reputation in the last decade for spearheading cases involving terrorism, piracy and criminal networks helped when dealing with formal government-to-government requests, like Mutual Legal Assistance Treaty requests. Also, the informal networking that law enforcement does to find evidence and assist with these cases is significant. A lot of turf battles between law enforcement and the intelligence community are put aside when it comes to prosecuting international fraud, since everyone recognizes these cases are too important to fight over.
Second, on the domestic side, I set up the Virginia Financial and Securities Fraud Task Force to assist in creating greater coordination between criminal investigators and civil regulators when it came pursuing these complex financial fraud cases. It was — at the time — an unprecedented coordination between all of these regulators, particularly since it brought civil regulators into the mix, such as the SEC, CFTC and the Virginia State Corporation Commission. It’s often those entities that are the so-called ‘canaries in the coal mine’ who catch wind of an alleged fraud before it hits the radar screen of law enforcement.
Bringing these groups together brought a sense of urgency to these matters and a sense of economy. We had the IRS and FBI on one side with their great criminal toolkit, like wiretaps and search warrants and criminal subpoenas, but civil regulators have market intelligence or access to trading records. State corporation commissions can permanently bar entities from selling securities in a state, which is a potent tool. All of this helped us target the fraud while it was going on in many instances.
Finally, it helped that the Task Force viewed the smaller-value frauds of $100 million to $500 million as important as the huge ones, and we used ‘blue collar’ criminal investigative techniques to collect evidence before it became more routine to use them, and even before those cases got ‘big.’ It was our drive to stop such illegal activity in its tracks before it got to that point, while it was happening.
Plus, it was important for us to go over after the top executives in a company that were committing fraud, such as the head of the Bank of the Commonwealth in Norfolk, Va. He received a 23-year sentence in prison after a 10-week trial for the bank fraud and related conspiracy that caused the bank to fail in 2011. The Wall Street Journal called it one of the rare federal criminal cases against a federal bank chief executive arising from the 2008 financial crisis, which made me proud of the great work my prosecutors did.
JD: I want to ask you about some specific cases that you and the Task Force pursued. Could you tell us a little bit about the ones that stand out to you or that you’re particularly proud of in looking back at your time at the EDVA?
NM: Yes, we were able to obtain a 30-year sentence for Lee Farkas, the former chairman of the mortgage firm Taylor, Bean & Whitaker. It still stands as one of the biggest prosecutions stemming from the financial crisis.
Mr. Farkas’s bank fraud scheme led to the demise of Colonial Bank, one of the largest banks to fail during the crisis, and it robbed investors and government out of billions of dollars. The bank was located in Alabama, the defendant was in florida and the victims were located in New York and Europe, for the most part. We claimed jurisdiction using EDGAR filing venue.
I am also proud of the work the Task Force did with regard to prosecuting cases involving businesses in the life-settlment business. Two principals of A&O Resource Management Ltd., a Texas company, were sentenced for perpetrating a $100 million life settlement fraud scheme involving more than 800 victims across the United States and Canada. They each received sentences of 60 and 45 years in prison.
Their victims were duped into believing they were buying a no-risk secure investment, which was a lie, and many elderly retirees and ‘mom & pop’ business investors were wiped out financially by these scams.
The president of a Costa Rican company, Provident Capital Indemnity Ltd., was convicted in the EDVA for mail and wire fraud, conspiracy and money laundering in the life settlement market as well. Within eight months of beginning the investigation — again, showing the sense of urgency and economy we have in this jurisdiction — Minor Vargas was convicted at trial and sentenced to 60 years in prison. And we got the conviction even though we were dealing with a non-extradition country. We did it by indicting him under seal, so he would not know we were onto him, and arrested him at JFK Airport where he was on a stopover in traveling from Costa Rica to London.
JD: With white-collar crime, isn’t the reputation of prosecutions such that defendants get probation or 10 months in a ‘Club Fed’ type of institution? How did you secure such lengthy sentences?
NM: Well, we see deterrences as an important aspect in the fight against these type of crimes. The sentences we secured over the past 4 years — from 30 years to 100 years — reflected how we were going after the worst white-collar criminals, who deliberately engaged in wrongdoing, and did not just reflect the judges’ use of the Sentencing Guidelines. We heard wrenching testimony from victims, who lost all of their savings and nest eggs to these fraudsters. We sought the longest sentences we could under the Guidelines to serve as a deterrent.
JD: Can you tell jus your thoughts on FCPA prosecutions not he federal level and your experience regarding these types of cases?
NM: FCPA is an important area of concern for the EDVA and the Department of Justice as a whole. We pursued about a dozen or so FCPA cases in the last year or two, making us one of the busiest U.S. Attorney’s Offices in the country to partner with the Criminal Division’s Fraud Section.
We settled in some of them, but we prosecuted some individuals as well. We prosecuted then-Representative William Jefferson for FCPA conspiracy charges involving his efforts to secure contracts in Western Africa for businesses that were paying for his influence. The six-week trial led to a record 13-year sentence. Jefferson was ultimately cleared of the actual FCPA charge, since the money believed to be meant for the Nigerian vice president as a bribe remained in cash in his freezer. Regardless, the EDVA obtained one of the longest sentences ever for an FCPA-related prosecution on the conspiracy count.
We also brought to trial Charles Jumet, who was charged with conspiring to violate the FCPA and sentenced to 87 months in prison. It’s one of the longest sentences ever imposed in an FCPA-related case.
JD: As you know, our readers are compliance and risk professionals, consultants and lawyers, who are on the front lines in helping companies understand and meet their regulatory obligations. What do you see as some of the critical components of an effective compliance program, based on your experience in prosecuting these cases for the EDVA and your prior positions in the various branches of the U.S. government?
NM: Companies that distinguish between compliance programs that mitigate risk to a business and the ethics and business conduct rules that are meant to guide behavior are often the ones that get it right. As a prosecutor, I was more impressed by those companies that establish ‘business’ or ‘ethics’ conduct rules, rather than those that style such programs as ‘compliance programs.’ While both programs often contain similar elements, the former seem to be more aimed at influencing the underlying attitude by infusing an ‘ethical DNA’ into the organization.
In my experience at EDVA, companies that elected to self-disclose problems and take remedial actions helped themselves out a lot when they discovered an internal violation of law. Under the Principles of Federal Prosecution of Business Organizations, found in the U.S. Attorney Manual, self-disclosure and remedial actions can go a long way in reducing a company’s risk.
In my experience, it’s what a company does after it learns about a crime that often separates those companies that really ‘get’ compliance from those that have more to learn.
JD: Your off to Davis Polk’s D.C. office and its white collar and government investigations division. What are your thoughts on the transition to this new role and your plans from now until April?
NM: I am really excited about joining the Davis Pollk team in the District. Washington issues, including criminal, regulatory and congressional investigations, are increasingly important to the firm’s clients. I have spent the last two decades in the nation’s capital, working across all three branches of government, and I can advise our clients on how to best anticipate and mitigate risk in these areas.
Having worked art the intersection of law, business, policy, politics and the media, I can counsel clients who suddenly find themselves in the crosshairs of the Justice Department, the Hill, SEC or another regulatory agency.
And, from now until April, I plan to ski, go on family trips, read, sleep and learn how to cook. Maybe not in that order.
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Julie DiMauro is the executive editor of FCPA Blog and can be reached here.
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