Financial Fraud

Different agencies have different mandates but often work in concert. The FBI investigates criminal violations like wire fraud and embezzlement. The IRS Criminal Investigation Division focuses on tax evasion and money laundering. The Securities and Exchange Commission (SEC) handles civil enforcement regarding investment fraud and insider trading.

It is common to face parallel investigations. This means a defendant may be deposed by the SEC while simultaneously being investigated by the DOJ. This creates a perilous legal landscape. Testimony given in a civil deposition can be used by prosecutors in a criminal trial. We manage these parallel tracks carefully to ensure that a defense in one arena does not compromise the other.

The grand jury is the primary investigative tool of the federal prosecutor. They issue subpoenas for bank records, corporate emails and witness testimony. If you receive a subpoena (even as a witness) it indicates that the government is building a case.

We analyze the scope of the subpoena to determine the focus of the investigation. We also prepare witnesses for the grand jury or negotiate immunity deals. If a client is a target (meaning the government has substantial evidence linking them to a crime), we generally advise against testifying to avoid self-incrimination. The goal at this stage is to limit the flow of damaging information while demonstrating to the prosecutor that their case is factually flawed.

When a company discovers potential fraud, it often launches an internal investigation to limit liability. Outside counsel is hired to interview employees and review documents.

For an individual employee, these interviews are dangerous. The corporate attorneys represent the company and not the employee. They can and will turn over interview notes to the government to gain leniency for the corporation. We advise individual clients on their rights during these internal probes. We ensure they understand that the attorney-client privilege belongs to the company and can be waived by the board of directors at any time.

Wire fraud (18 U.S.C. § 1343) and mail fraud (18 U.S.C. § 1341) are the favorite tools of federal prosecutors. To secure a conviction, the government must prove the existence of a scheme to defraud, fraudulent intent and the use of interstate wires (internet, phone, bank transfer) or mail to execute the scheme.

The bar is surprisingly low. The communication itself does not have to be fraudulent; it just has to further the scheme. We defend these cases by attacking the intent element. We argue that the defendant acted in good faith and that any deception was immaterial to the transaction. If the alleged victim did not rely on the misrepresentation or if the misrepresentation did not affect the value of the bargain, the fraud charge may fail.

This category includes Ponzi schemes, insider trading, pump and dump schemes and accounting fraud. The prosecution must prove that the defendant made material misstatements or omissions to investors to induce them to buy or sell securities.

In insider trading cases, we challenge the notion that the information was non-public or material. In accounting fraud cases, we rely on the complexity of Generally Accepted Accounting Principles (GAAP). We argue that the defendant followed a reasonable interpretation of accounting rules and that any errors were matters of professional judgment rather than criminal deceit.

Money laundering charges (18 U.S.C. § 1956 and § 1957) are often added to fraud indictments to increase the sentencing exposure and allow for asset forfeiture. This involves conducting financial transactions with proceeds known to be from unlawful activity.

Prosecutors use this to freeze assets early in the case. This can leave a defendant without funds to hire counsel. We fight these pretrial asset seizures by requesting a hearing to prove that the assets are untainted. We also challenge the underlying specified unlawful activity. If the government cannot prove the initial fraud, the money laundering charge collapses automatically because there are no dirty proceeds to launder.

Defendants often claim they were unaware of the fraudulent nature of the scheme (especially in large corporations). Prosecutors counter this with the doctrine of willful blindness. They argue that the defendant deliberately closed their eyes to the high probability that they were involved in criminal activity.

We aggressively defend against this theory. We present evidence showing that the defendant asked questions, sought assurances and was deceived by others. We use email chains and meeting minutes to show that the client was kept in the dark by co-conspirators who were the actual architects of the fraud.

Good faith is a complete defense to fraud. If a defendant honestly believed in the truth of the representations they made (even if they turned out to be false), they cannot be convicted.

We build this defense by showing that the defendant invested their own money in the project or that they refused to sell their shares when they could have profited. These actions are inconsistent with the intent to defraud. We also highlight the defendant’s efforts to save the business when it started to fail (demonstrating that they were working for the benefit of the investors rather than trying to steal from them).

In complex financial matters, executives rely on lawyers, accountants and compliance officers. The reliance on counsel defense argues that the defendant made full disclosure to their professionals and acted in accordance with their advice.

If a lawyer reviewed a deal structure and said it was legal, the client lacks criminal intent. We interview these professionals and review their opinion letters. Even if the advice was wrong, the fact that the client sought it and followed it is powerful evidence of a lack of criminal intent.

The SEC has broad powers to seek injunctions, fines and officer/director bars. An officer/director bar prohibits an individual from ever serving on the board of a public company again. This is a career death sentence for executives.

We litigate the materiality of the alleged violations. We also negotiate settlements (known as consent decrees) where the defendant neither admits nor denies the allegations but agrees to pay a fine. This allows the client to resolve the matter without creating a factual record that could be used against them in future criminal or private litigation.

When a company’s stock price drops due to allegations of fraud, shareholders often file class-action lawsuits or derivative suits against the directors and officers. They allege a breach of fiduciary duty.

These suits seek damages for the loss in share value. We work with the company’s Directors and Officers (D&O) liability insurance carriers to fund the defense. We file motions to dismiss based on the business judgment rule (which protects directors who act in good faith) and lack of standing.

Financial fraud cases are won and lost in the data. The government produces terabytes of discovery. We employ forensic accountants to trace the funds and analyze the books.

Often, the government’s theory is based on a simplified or incorrect understanding of the transaction. Our experts can demonstrate that the funds were used for legitimate business expenses or that the accounting treatment was permissible under alternative standards. We use data visualization to make these complex financial flows understandable to a jury (showing that there was no theft).

In some cases, the evidence of wrongdoing is substantial. In these scenarios, we aim for damage control. We negotiate for Non-Prosecution Agreements (NPAs) or Deferred Prosecution Agreements (DPAs).

Under these agreements, the government agrees not to file charges or to dismiss charges after a period of time if the client pays a fine, cooperates and implements compliance reforms. This avoids a criminal conviction and the collateral consequences that come with it. It is a lifeline for corporations and professionals that allows them to stay in business.

We also scrutinize how the government obtained its evidence. Financial investigations often rely on search warrants for offices and computers. We challenge the probable cause used to obtain these warrants.

If the warrant was overly broad (a general warrant) or if the agents seized privileged attorney-client communications, we file motions to suppress. If successful, this can gut the prosecution’s case by rendering key documents inadmissible at trial. We are vigilant about protecting the Fourth Amendment rights of our clients even in the corporate setting.