Schneiderman has a broad mandate to investigate mortgage related false statements and misrepresentations at the highest levels of the process.  If larger institutions are investigated by criminal law enforcement authorities potential felony charges could be brought against individuals.  The type of felonies which could be charged are federal mail fraud and wire fraud offenses as well as bank fraud and securities fraud.  In New York State the complex Martin Act could be used to bring charges and other states including Florida may look to larceny and theft related provisions to vote indictments against individuals and companies.

If Obama’s appointment of Eric Schneiderman is more that simple election year rhetoric it could mean that many people and entities will receive subpoenas, be questioned by law enforcement authorities and potentially face serious criminal charges.  Under such circumstances it would be important for those who may catch the attention of law enforcement authorities to receive the effective counsel of experienced white collar criminal defense lawyers.

Ms. Diallo’s decision to file a civil suit while criminal charges are pending is “completely out of the ordinary,” said Charles A. Ross, a criminal defense lawyer in Manhattan. He said a sworn statement she makes in the civil case “locks her in and provides the defense with tremendous amounts of grist for cross-examination.”

“I think that it will continue to substantially damage the district attorney’s chances of prevailing,” Mr. Ross said. He said a civil suit can be used in a criminal case to portray her testimony as financially motivated.

He added that Ms. Diallo will face “significant limitations” in trying to get evidence involving other women admitted. Such evidence is allowable only in certain circumstances, when a judge determines it is relevant to the current allegations and outweighs the risk that the material would unfairly sway a jury against the defendant, Mr. Ross said.

The tremendous amount of discovery and sworn testimony in a civil case give the defense an advantage.  Any sex crime attorney will exploit inconsistencies among testimony, statements to the prosecution, interviews with the media, and now sworn statements in a civil filing.  A rape defense lawyer will make use of this sort of filing to the great benefit of his or her client.

(1) an improper jury instruction on “willful causation” and (2) the admission into evidence of misleading charts.   According to the Court, the “willfully caused” instruction allowed the jury to make a finding of guilt without finding causation, even though both the prosecution and defense submitted proper jury instructions on the issue.  While the defense interposed an objection to the jury instruction generally,  it “did not specifically object” to causation.  Therefore, the issue was ruled not to be properly preserved.  Thus, the Second Circuit was required to reverse only if  it could “determine with absolute certainty that the jury based its verdict on the ground on which it was correctly instructed.”  The Court ruled that it was “improbable, let alone absolutely certain” that the jury’s relied on a proper causation instruction to render its verdict.

In the second ground for reversal, the government admitted into evidence charts that portrayed a transaction at issue caused AIG’s shares to plummet 12% during the relevant time period.  The Court ruled this chart was admitted without foundation.   The charts were inadmissible to show a criminal chronology because they fell outside the scope of actions the defendants were charged with committing.  The charts were unduly prejudicial because they set forth only one reason for the many problems faced by AIG, raising serious issues that concerned the materiality of the alleged lies.

The Wall Street Journal asked me whether the prosecution would be likely to retry the case.  They said;

Charles A. Ross, a New York criminal defense attorney, said he doesn’t believe the stock-loss issue will ultimately keep prosecutors from retrying the case. Other issues, such as witnesses whose memories have grown stale in the interim, could have more of an impact on any retrial decision.

“This legal issue alone, I don’t think would cause them not to retry it,” Mr. Ross said.

The AIG-Gen Re reversal illustrates how important it is in a white collar criminal defense for the trial lawyers to be not only focussed on winning, but also make a good record for the potential appeal of any possible conviction.  A fraud defense lawyer with a handle on the law is absolutely critical to the success of any representation.

“Having another cooperating witness can bolster prosecutors’ efforts to pursue cases against other individuals, legal experts say.

‘Government lawyers always want to have more than one,’ said Charles A. Ross, a criminal defense lawyer in New York who has represented a former U.K. Madoff employee not charged in the case. “If you have one cooperator only, the case is going rise and fall, absent ironclad documentary proof, on that one cooperator.”

It looks like there is the distinct potential for others to be charged in the on-going Madoff investigation now that the government has more than a single cooperating witness.

Here, despite a flurry of media attention orchestrated by the Brooklyn D.A.’s office, we negotiated a no-jail time deal once the dust had settled.  Part of that process involved preparing our client to properly address the court at sentence.  Here, the effort paid off.  As excellent fraud defense lawyers we got our client what he cherished most.  His freedom.

Indeed, if there is no physical evidence of forcible compulsion, how did Mr. Strauss-Kahn possibly overpower the maid and cause her to have unauthorized sexual contact with him?   Much of the factual scenario simply makes no sense.  While the mere allegation of this kind of conduct has essentially ruined Mr. Strauss-Kahn’s career, the tale told in the courtroom will likely be an altogether different one and it is virtually certain that the defense will build on already existing inconsistencies to attack the prosecution’s case.  Such an approach to witness credibility is not some sort of unfair “blame the victim” attack by an unscrupulous sexual assault attorney.  It is the sworn duty of any defense lawyer to seek every ethically permissible advantage for his or her client.

Sex crimes attorneys in the Manhattan D.A.’s office have charged serious attempted rape counts and sexual assault counts where there appears to be no bruising, torn clothing, or any objective indicia of struggle.  Accordingly, the believability of the maid will be paramount to the prosecution’s case.  The defense will do everything they can to expose what promises to likely be a significant number of discrepancies upon which they will argue there is reasonable doubt.

          At the outset of the case, it is important to discover what sort of mortgage fraud is alleged and what position a potential client supposedly played in the activities under investigation.  There are many types of potential fraud schemes which prosecutors investigate.  If you don’t know the nature of the scheme being alleged, you can’t begin to understand the role the prosecution claims a client had in the whole process.  Without a true understanding of a client’s role, you cannot begin to determine a client’s potential downside risk.  Sometimes, a client can tell you exactly what the nature of the transactions at issue are, but often, especially in a pre-indictment situation, we must figure things out on our own.  That is why it is critical to retain an experenced fraud and mortgage fraud attorney.  

If you are in a pre-indictment posture the prosecutor or regulator involved may, at first, not know as much as a good defense lawyer.  Indeed, in a pre-indictment, pre-charge investigative situation an attorney may not want to surface to discuss the alleged scheme with the government because you may not want to alert them to your client’s existence.

          On the other hand, if an attorney does not immediately understand the scheme and the potential approximate scope of the loss, a client cannot begin to decide whether it makes sense to approach the prosecutors early or hold off and view the case in an adversarial, trial oriented manner.  If your attorney does not get a handle on the law and the probable loss figure, you make an informed decision as to how to proceed.  Thus, it is imperative that you and your attorney understand not only the nature of the scheme but the potential scope of the loss.  At Charles A. Ross and Associates we are experienced in all stages of mortage fraud cases.

          Next, your attorney  must become intimately familiar with all the various forms and documents specifically involved in the list of felonies which are comprise mortgage fraud which are being investigated.  While the mortgage application process may seem straightforward, the path a mortgage loan takes is often quite complicated.  Every transaction has multiple documents which all require that detailed information be provided by particular parties to the transaction.  It is important to know the purpose of the each document in any given file and what its particular significance and function is to the case as a whole.  All mortgage related criminal cases, like most white collar matters involve a money trail.  It must be followed. 

          To that end, a mortgage fraud defense attorney should always try to hire an expert.  No matter what stage the mortgage fraud case is in, an expert on mortgage fraud can be helpful — if not critically necessary — to proper preparation. Not only can forensic accounting experts with experience in mortgage fraud investigations help counsel understand the nature of the scenario, but they can assist in the process of evaluating where all the money went.  Since fraud loss calculation under the Sentencing Guidelines is complex, a forensic expert can often provide assistance in reducing the loss calculation or presenting potential offsets to the alleged fraud. 

          It is particularly important to consider retaining an accounting expert in advance of a charge decision.  Perhaps an expert can be utilized to help convince the U.S. Attorney’s Office not to bring an indictment because they are targeting the wrong person; or to make a case to defer prosecution or to plea bargain as to the amount of loss attributable to the client.  An expert may also be helpful in a trial posture, to demonstrate that liability does not lie with the client.  Certainly at sentencing, where the critical factor is likely to be the loss calculation, an expert can be called to demonstrate that the amount of loss attributable to a client is lower than that alleged by the prosecution.

          There is no mortgage fraud statute as such –these cases are prosecuted with a now familiar arsenal — the mail and wire fraud statutes (18 U.S.C. 1341 & 1343); the conspiracy statute (18 U.S.C. §§ 371 and 1349); and the false statements statute (18 U.S.C. § 1001).  The district courts look to advisory Sentencing Guideline § 2B1.1 for guidance prior to imposing sentence.  The amount of loss attributable to a client under §2B1.1 (b) (1) of the guidelines can make a significant difference in the sentence imposed and it is here where an expert can have great impact.  The Commentary to § 2B1.1 (b) (1) provides that “[t]he court need only make a reasonable estimate of the loss,” U.S.S.G. § 2B1.1, cmt. n.3(C), and that the loss is the greater of “actual loss” or “intended loss” less the credits against the loss.  See U.S.S.G. § 2B1.1, cmt. n.3 (A).  Actual loss is defined as the “reasonably foreseeable pecuniary harm that resulted from the offense,”   U.S.S.G. § 2B1.1, cmt. n.3 (A)(i), while intended loss is defined as “the pecuniary harm that was intended to result from the offense,” including such harm that would have been impossible or unlikely to occur such as harm that resulted in a government sting operation. See U.S.S.G. § 2B1.1, cmt. n.3 (A)(ii).

Excluded from the loss calculation is “interest of any kind, finance charges, late fees, penalties, amounts based on an agreed-upon return or rate of return, or other similar costs,” and the “[c]osts to the government of, and costs incurred by the victims primarily to aid the government in, the prosecution and criminal investigation of an offense.” See U.S.S.G. § 2B1.1, cmt. n.3(D)(i) and (ii). 

Of particular interest in the mortgage fraud cases, is the credit against loss for collateral.  The commentary to the Guidelines instructs that loss shall be reduced by “the amount the victim has recovered at the time of sentencing from disposition of the collateral, or if the collateral has not been disposed of by that time, the fair market value of the collateral at the time of sentencing.” See U.S.S.G. § 2B1.1, cmt. n.3 (E) (ii). 

In United States v. Woolf-Turk, 626 F.3d 743 (2^d Circuit 2010), the client argued that the loss amount should be offset by the value of the real estate at the time the fraud was discovered, before the collapse of the housing market.  In that case, the defendants were alleged to have lied to investors and promised them that their investments were secured by what turned out to be non-existent first mortgages.  At the time the fraud was unraveled, the real estate market was in “full-bubble” mode and a hedge fund was set to purchase the client’s real estate holdings in an amount that would have made all victims whole.  The district court rejected the argument that it wasn’t the client’s fault that the real estate market went south and she should get the benefit of the value of the collateral at the time of the fraud discovery.  The Second Circuit upheld the ruling of the district court and maintained that the collateral offset amount should be calculated at sentence.  Moreover, since first mortgages were never filed, there was arguably no collateral at all to offset loss.  The reality was that the real estate in question was virtually worthless at the time of sentence and the court did not reach the hypothetical loss calculation which might have been occasioned by a rising real estate market.  Thus, expert involvement at an early stage of representation is critical when dealing with the collateral offset rule.

Another potentially important role an expert could play is to assist counsel to identify the possible victims of an alleged mortgage fraud scheme.  In United States v. Mancini, 624 F.3d 879 (8^th Circuit 2010), the Eighth Circuit held that not only was a particular lending institution a victim of a fraudulent mortgage application but the insurer was a victim as well.  If counsel can get a handle on the law and the number of victims, the type of victims, and any potential offsets of victim loss at the outset of the case, more accurate and helpful advice may be given to a client.

Indeed, in one recent case, the immediate surrounding community in an alleged property flipping mortgage fraud scheme, hired an expert real estate/accounting firm and argued under the Victim and Witness Protection Act, and the Mandatory Victim Restitution Act, that their geographic community was a compensable victim of the wide-ranging scheme.  In United States v. Bold, 412 F.Supp.2d 818 (S.D. Ohio 2006), the sentencing proceeding involved an elaborate presentation by counsel for a local nonprofit group as to why the scheme depressed property values and therefore the client should be required to pay restitution to the “victim community.”  While the district court denied the group’s restitution claim, a defense expert is necessary to counter third party applications, which are increasingly common.

  Often, the government will allege a scheme involving inflated appraisals of real estate parcels, as was the case in United States  v. Curtis, –F.3d –, 2011 WL 846703 (5^th Circuit, March 11, 2011).  There, the entire straw-purchaser type scheme allegation was completely dependant upon an inflated appraisal.  An expert retained early could determine whether there is an arguable issue regarding the legitimacy of the appraisals in a purported mortgage fraud case.  As the above examples demonstrate, the ways to utilize an expert in a mortgage fraud case are as varied as each individual case.

Thus, an expert retained early, could at least assess a current value on a particular portfolio of real estate and provide crucial information about the potential for collateral offset, should a client be interested in an early plea.  Certainly, no expert has a crystal ball to determine the direction of value in a rising or falling real estate market.  But since case law overwhelmingly supports collateral offset valuation at the time of sentence, an expert retained early can provide a snapshot of what might be possible regarding an effective argument to lower any given loss calculation.

Perhaps in valuing the collateral yet to be sold, the expert may be of the greatest assistance in disputing the amount the purported victim bank and/or investors claim to have been harmed.  Valuing loss may be thorny when several mortgage loans are at issue and the loans have taken a complicated journey.  An expert will trace such loans from their formation through securitization and disposition of collateral or the fair market value of the collateral. 

The government appreciates the complicated issues presented by mortgage fraud cases and has often engaged its own experts.  A defense attorney should engage an expert at the earliest stages of representation so that the attorney may, at the very least, understand the loans at issue; the loss attributable to his/her client and be able to counter the government’s experts.

Someone who receives a tip regarding the stock of a company must either disclose the source of the information or refrain from trading stock if the information came from an insider and is material, non-public information.  The case law reasons that insiders have a fiduciary obligation to their companies and to the securities markets not to pass on otherwise secret informaton to gain unfair advantage over the rest of the investor population who do not have access to such information.  For example, in United States v. O’Hagan, 521 U.S. 642 (1997), the United States Supreme Court ruled that James O’Hagan, a big firm Minneapolis lawyer, committed insider trading when he stole information from law firm files that their client, a London company named Grand-Metropolitan, was about to merge with Pillsbury.  Mr. O’Hagan made over $4 million in trading profits by betting the stock would go up.  The Supreme Court ruled that he had fraudulently misappropriated material, non-public information and engaged in securities transactions without informing his firm, his firm’s client, or the markets in general.  The Court ruled that as an attorney he had a fiduciary obligation to either make such a disclosure or refrain from trading.

However, every single day in the competitive securities markets, hedge funds, investment advisors, securities analysts and expert networks furiously and persistently attempt to learn about companies they follow in an effort to figure out what is going to happen to the stock of their targets.  They will follow everything from litigation involving the companies, to cultivating friendships with employees, to ferreting through the garbage left on the sidewalk in order to divine what moves are afoot and what will happen to the stock of the particular company.  If there is no fraud, if the information is otherwise public knowledge, or the source of the information does not owe a fiduciary obligation to the company being studied or to the market place then there is no insider trading.

The defense in the Rajaratnam case has persistently tried to demonstrate that despite tape recorded conversations which involve their client and informant testimony which claims he was provided with insider information, that research from available public sources was the basis for successful Galleon trading.  Thus, insider trading law may help Mr. Rajaratnam prevail in his securities fraud defense.