In The Courts

Noting that “no reported decision on a JDA appears to address or even come close to the facts presented in this case,” the court held that public policy mandates the members of a JDA have the right unilaterally, but only prospectively, to withdraw from the JDA. Here, JPMC initiated a modification of the JDA, or a partial withdrawal from it, and LeCroy and Snell agreed to the modification by agreeing to be interviewed by JPMC's counsel knowing that the notes and memoranda of such interviews may be turned over to the government. Finally, by proceeding with the interviews, LeCroy and Snell waived the protection of the JDA to the extent that JPMC would be allowed to turn over the notes of those interviews to the government.

Indictment Charging Bank Fraud Requires Allegation of a Connection Between Defendant's Activities and Federally Insured Funds

In United States v. Bortnick, 2004 WL 2752471 (E.D. Pa. Nov. 29, 2004), the court granted the defendant's motion to dismiss a count of the indictment for failure to state a criminal offense under the Bank Fraud Statute, 18 U.S.C. ' 1344. The Bank Fraud Statute prohibits schemes “to defraud a financial institution.” The term “financial institution” is statutorily defined to include federally insured institutions.

The defendant was charged with making fraudulent statements to Congress Financial Corporation, which was not a federally insured institution. In the indictment, the government attempted to meet the Bank Fraud Statute's element of a financial institution by alleging that Congress was a wholly owned subsidiary of a federally-insured institution, First Union National Bank. Because “the indictment establishes no connection between First Union's federally-insured funds and those extended to Defendant by Congress [Financial],” the court granted the motion to dismiss. In doing so, the Court distinguished the extension of the statute of limitations under the Wire Fraud Statute for offenses that “affect a financial institution.” The Third Circuit previously held that the extension applied where the defrauded entity was a wholly owned subsidiary of a federally-insured institution. In explaining the difference between the two standards, the court noted that the extension of the statute of limitations for the Wire Fraud Statute “requires only that the defendant's activity 'affect' a financial institution, while … [the Bank Fraud Statute's] financial institution element [] is much closer to requiring a showing that the federally-insured entity was the 'object of fraud.'”

Certification Requirements of Sarbanes-Oxley Not Unconstitutionally Vague

In United States v. Scrushy, 2004 WL 2713262 (N.D. Ala. Nov. 23, 2004), the court held that section 906 of the Sarbanes-Oxley Act, 18 U.S.C. ' 1350, was not unconstitutionally vague. Section 906 requires CEOs and CFOs (or equivalent thereof) of publicly-traded companies to certify by a written statement the accuracy of the company's periodic financial reports required under the Securities and Exchange Act of 1934. Section 906 provides criminal penalties for knowing and willful violations.

Richard Scrushy, the former CEO of HealthSouth Corporation, was indicted for various criminal offenses relating to alleged wrongful inflation of HealthSouth stock. In a motion to dismiss the counts relating to section 906,. Scrushy argued that section 906 was so vague as to be unconstitutional on its face. Scrushy specifically challenged the terms “fairly presents, in all material respects” and “willfully certifies” in section 906 as lacking sufficient clarity of meaning to inform citizens of their responsibility under the law. The court rejected this argument, noting that “[a] great deal of accumulated legal meaning and specific case law attach to these concepts.” Accordingly, section 906 gives fair notice of what conduct is forbidden and is therefore not unconstitutionally vague.

Joint Defense Agreement Includes Right to Withdraw Unilaterally

In United States v. LeCroy, 2004 WL 2914210 (E.D. Pa. Dec. 17, 2004), the court addressed whether notes and memoranda taken by J.P. Morgan Chase (JPMC) counsel during interviews held with two JPMC employees, Charles LeCroy and Anthony Snell, were subject to an oral joint defense agreement (JDA) between the parties. JPMC, LeCroy, and Snell received grand jury subpoenas during an investigation that preceded return of an indictment against LeCroy and Snell. JPMC's internal counsel questioned LeCroy and Snell about the facts underlying the grand jury subpoena. Recognizing their need for individual counsel, however, JPMC retained outside counsel and LeCroy and Snell retained their own individual counsel.

During the discussions among counsel, JPMC's counsel indicated a desire to interview LeCroy and Snell again. However, JPMC's counsel informed LeCroy's and. Snell's counsel that JPMC would turn the notes of the interviews over to the government. Nevertheless, LeCroy and Snell allowed JPMC's counsel to interview them. Subsequently, JPMC decided to produce, pursuant to its grand jury subpoena, the notes and memoranda of the interviews.

Noting that “no reported decision on a JDA appears to address or even come close to the facts presented in this case,” the court held that public policy mandates the members of a JDA have the right unilaterally, but only prospectively, to withdraw from the JDA. Here, JPMC initiated a modification of the JDA, or a partial withdrawal from it, and LeCroy and Snell agreed to the modification by agreeing to be interviewed by JPMC's counsel knowing that the notes and memoranda of such interviews may be turned over to the government. Finally, by proceeding with the interviews, LeCroy and Snell waived the protection of the JDA to the extent that JPMC would be allowed to turn over the notes of those interviews to the government.

Indictment Charging Bank Fraud Requires Allegation of a Connection Between Defendant's Activities and Federally Insured Funds

In United States v. Bortnick, 2004 WL 2752471 (E.D. Pa. Nov. 29, 2004), the court granted the defendant's motion to dismiss a count of the indictment for failure to state a criminal offense under the Bank Fraud Statute, 18 U.S.C. ' 1344. The Bank Fraud Statute prohibits schemes “to defraud a financial institution.” The term “financial institution” is statutorily defined to include federally insured institutions.

The defendant was charged with making fraudulent statements to Congress Financial Corporation, which was not a federally insured institution. In the indictment, the government attempted to meet the Bank Fraud Statute's element of a financial institution by alleging that Congress was a wholly owned subsidiary of a federally-insured institution, First Union National Bank. Because “the indictment establishes no connection between First Union's federally-insured funds and those extended to Defendant by Congress [Financial],” the court granted the motion to dismiss. In doing so, the Court distinguished the extension of the statute of limitations under the Wire Fraud Statute for offenses that “affect a financial institution.” The Third Circuit previously held that the extension applied where the defrauded entity was a wholly owned subsidiary of a federally-insured institution. In explaining the difference between the two standards, the court noted that the extension of the statute of limitations for the Wire Fraud Statute “requires only that the defendant's activity 'affect' a financial institution, while … [the Bank Fraud Statute's] financial institution element [] is much closer to requiring a showing that the federally-insured entity was the 'object of fraud.'”

Certification Requirements of Sarbanes-Oxley Not Unconstitutionally Vague

In United States v. Scrushy, 2004 WL 2713262 (N.D. Ala. Nov. 23, 2004), the court held that section 906 of the Sarbanes-Oxley Act, 18 U.S.C. ' 1350, was not unconstitutionally vague. Section 906 requires CEOs and CFOs (or equivalent thereof) of publicly-traded companies to certify by a written statement the accuracy of the company's periodic financial reports required under the Securities and Exchange Act of 1934. Section 906 provides criminal penalties for knowing and willful violations.

Richard Scrushy, the former CEO of HealthSouth Corporation, was indicted for various criminal offenses relating to alleged wrongful inflation of HealthSouth stock. In a motion to dismiss the counts relating to section 906,. Scrushy argued that section 906 was so vague as to be unconstitutional on its face. Scrushy specifically challenged the terms “fairly presents, in all material respects” and “willfully certifies” in section 906 as lacking sufficient clarity of meaning to inform citizens of their responsibility under the law. The court rejected this argument, noting that “[a] great deal of accumulated legal meaning and specific case law attach to these concepts.” Accordingly, section 906 gives fair notice of what conduct is forbidden and is therefore not unconstitutionally vague.