Appeals Court Limits Scope of Corporate Espionage Laws in Goldman Programmer Case

April 11, 2012

The New York Times on April 11, 2012 released the following:

“BY MICHAEL J. DE LA MERCED AND PETER LATTMAN

A federal appeals court has restricted the use of a federal law cited in federal prosecutors’ efforts to prosecute a former Goldman Sachs programmer accused of illegally downloading computer code from his onetime employer.

In an opinion released on Wednesday, the United States Court of Appeals for the Second Circuit ruled that the former employee, Sergey Aleynikov, did not violate the Electronic Espionage Act of 1996 or federal stolen property laws.

The opinion elaborates on the decision by a three-judge panel of the appeals court to overturn Mr. Aleynikov’s conviction in February. That move set the programmer free, dealing a blow to one of the most prominent federal prosecutions of corporate espionage in recent years.

Mr. Aleynikov was arrested nearly three years ago, after Goldman accused him of downloading programming code for its high-speed computerized trading operations.

The act was almost literally on Mr. Aleynikov’s way out the door, shortly before a going-away party. He had accepted a job at a software company catering to other trading firms.

Mr. Aleynikov’s lawyers had argued that while their client had violated Goldman’s confidentiality policy, he had not broken the law.

Writing for the appeals court, Chief Judge Dennis Jacobs, who presided over the February hearing, agreed. While conceding that Goldman’s code was “highly valuable,” the investment bank’s trading program was never intended to be sold. That fell short of the interstate commerce requirements of the Electronic Espionage Act, according to the appeals court’s reading of the statute.

Because the high-frequency trading “system was not designed to enter or pass in commerce, or to make something that does, Aleynikov’s theft of source code relating to that system was not an offense under the EEA,” Judge Jacobs wrote in the opinion.

The judge also found that while Mr. Aleynikov had taken code and uploaded it to his own computers, he had not actually taken a physical object — and therefore did not violate the letter of federal law. That he later transferred the code to a thumb drive still did not make his actions a federal crime.

“We decline to stretch or update statutory words of plain and ordinary meaning in order to better accommodate the digital age,” Judge Jacobs wrote.

In a separate opinion, Judge Guido Calabresi said that while he agreed with the court’s analysis, it was hard for him “to conclude that Congress, in this law, actually meant to exempt the kind of behavior in which Aleynikov engaged.”

Judge Calabresi said he hoped Congress would return to the issue and clarify what it meant to make criminal under the Electronic Espionage Act.

A spokeswoman for the United States attorney’s office for the Southern District of New York, which prosecuted the case, declined to comment.”

US v Sergey Aleynikov – 2nd Circuit Opinion

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Douglas McNabb – McNabb Associates, P.C.’s
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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas C. McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Appeal is Blagojevich’s last hope to cut sentence

December 9, 2011

The Associated Press (AP) on December 8, 2011 released the following:

“By MICHAEL TARM

CHICAGO (AP) — Rod Blagojevich has one last hope to reduce his harsh 14-year sentence: an appeal.

But lawyers for the disgraced former Illinois governor face long odds in chipping away at the time he must serve for attempting to auction off an appointment to President Barack Obama’s old Senate seat and other crimes, legal experts said Thursday.

Attorneys will have the daunting task of demonstrating that the respected, 25-year veteran Judge James Zagel who oversaw Blagojevich’s two trials made major errors at trial and in calculating a sentence for the 18 convictions, said Lance Northcutt, an adjunct professor at Chicago’s John Marshall Law School.

“Zagel is careful to rule in a way to avoid having his decisions overturned and his reasoning for this sentence on Wednesday was detailed,” he said. “A higher court is loath to second-guess the trial court – and they rarely do.”

Northcutt was in the crowded Chicago courtroom Wednesday observing as Zagel scolded a visibly anxious Blagojevich – in a tone befitting a school principal – for harming public confidence in government.

Blagojevich’s attorney Sheldon Sorosky told The Associated Press on Thursday that the defense would ask for the convictions to be overturned and for the sentence to be reduced.

“We intend to appeal everything,” he said.

Potential issues on appeal, he said, included whether Zagel placed so much emphasis on sending a message to other would-be political schemers that he unduly inflated the sentence of the twice-elected Democrat.

“He absolutely did,” said Sorosky, noting that Zagel several times mentioned Blagojevich’s predecessor, Republican George Ryan, who was convicted in 2006 and is serving a 6 1/2-year sentence for corruption.

“He said Ryan got 6 1/2 and so I have to give you way more,” Sorosky said. “He was giving Blagojevich the sentence not to punish Blagojevich for what he did but to stop other governors. That’s not right.”

An appeal could drag on for years, and experts add that there is virtually no chance Blagojevich, who turns 55 Saturday, would be able to put off reporting to prison as scheduled on Feb. 16.

Blagojevich has started a bleak countdown toward that date. In the meantime, he will spend a Christmas at home with his wife, Patti, and their daughters – Amy, 15, and Annie, 8. Once behind bars, Blagojevich will be cut off from the outside world, with visits from his family strictly limited. He’ll share a cell and perform a menial job.

As it stands, he won’t be eligible for early release until 2024, when he’s 67.

Only felons deemed likely to prevail on appeal can stay out of prison in the interim, and that doesn’t seem to apply to Blagojevich. Zagel will make that determination.

The chance that Zagel will let Blagojevich remain free pending appeal?

“Slim to none,” said Gal Pissetzky, a Chicago-based attorney who practices in federal court.

Zagel’s comments at the sentencing weren’t devoid of conciliation. He told Blagojevich he accepted that he did some good as governor, such as on children’s health issues, and said it was “a mitigating factor” for the sentence.

He also cited the former governor’s direct appeal for mercy, in which an untypically contrite Blagojevich repeated apologized and said, “I have nobody to blame but myself. … I am just so incredibly sorry.”

Zagel’s acceptance of Blagojevich’s apologies, Northcutt said, likely kept the former governor from getting an even longer term. Blagojevich’s attorneys will thus likely focus their appeal on trial errors and not on asserting that he did not commit the crimes, Northcutt said.

If the higher court determines Zagel didn’t give Blagojevich a fair trial – even if he admitted the crimes during sentencing – they could toss out the convictions and order a new trial.

In defense motions filed during Blagojevich’s retrial, the defense accused Zagel of bias, pointing to how he almost invariably sided with prosecutors when there were objections during testimony.

They could make similar claims in any appeal.

Blagojevich’s lawyers also have complained that Zagel had repeatedly rejected their requests to play FBI wiretap evidence that they claimed would help their defense.

Chicago attorney Michael Ettinger, who represented Blagojevich’s brother and co-defendant, Robert Blagojevich, at a first trial, said the tapes may be good grounds for appeal.

“I’ve heard those tapes, and what Rod says in one hour, he says something the opposite the next hour,” he said Thursday.

During the sentencing hearing, Zagel rejected the notion – made often by Blagojevich’s own attorneys at trial – that the recordings showed Blagojevich was merely a big talker who brainstormed wildly as a way to weed out good ideas from bad ones.

“Musings are talks without purpose, not the material of arranged meetings and repeated phone calls” to commit crimes, Zagel said. “The jury and I do not believe these were musings.””

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Judges Rule Galleon Chief Must Go to Prison

December 2, 2011
Raj Rajaratnam

The New York Times on December 1, 2011 released the following:

“BY PETER LATTMAN

A federal court has denied Raj Rajaratnam’s request to remain free on bail while he appeals his insider-trading conviction, a ruling that forces the fallen hedge fund manager to report to prison on Monday.

Mr. Rajaratnam, the former head of the hedge fund Galleon Group, is set to serve his 11-year sentence — the longest prison term to date for insider trading — in a federal prison in Ayer, Mass.

In a last-ditch try to keep their client out of jail pending his appeal, his lawyers appeared at the United States Court of Appeals for the Second Circuit in Lower Manhattan on Wednesday. They argued that his case raised substantial questions of law that mandated his release until the appeal was resolved.

In a short order issued Thursday afternoon, the three-judge panel, without explanation, denied Mr. Rajaratnam’s request. During the hearing, the judges had expressed concern that Mr. Rajaratnam was a flight risk and could have an incentive to flee to his native Sri Lanka.

“Wouldn’t he rather be living as a centimillionaire in his own country rather than as a convict in a jail?” Judge Dennis Jacobs asked Patricia A. Millett, a lawyer for Mr. Rajaratnam, at the hearing on Wednesday.

Beginning Monday, Mr. Rajaratnam will be living at the Federal Medical Center Devens in Massachusetts. Mr. Rajaratnam, 54, was assigned there because of his health problems. He has diabetes that could lead to eventual kidney failure, according to medical records submitted to the court.

The Devens prison is located about 200 miles from his luxury apartment on Sutton Place in Manhattan, where he lives with his wife and three children.

Mr. Rajaratnam’s surrender to the Bureau of Prisons is a milestone in the government’s most prominent insider trading prosecution since the 1980s. Federal authorities arrested Mr. Rajaratnam in October 2009, charging him with orchestrating a multiyear insider trading conspiracy involving senior corporate executives, management consultants and other hedge fund managers.

In May, a jury found him guilty of securities fraud and conspiracy. Between the criminal case and a parallel civil proceeding brought by the Securities and Exchange Commission, Mr. Rajaratnam has been ordered to pay about $157 million in fines, the largest penalty assessed so far in an insider trading case.

The pursuit of insider trading by federal prosecutors appears to be continuing unabated. Before year end, the government is expected to bring a new set of insider trading charges against traders at Diamondback Capital Management and Level Global Investors, according to a person with direct knowledge of the case who spoke on the condition of anonymity because he was not authorized to discuss it publicly.

The new cases are based in part on wiretapped conversations between the traders and illegal tipsters, this person said. Dozens of secretly recorded conversations between Mr. Rajaratnam and his accomplices also formed the core of the evidence against him at trial.

They will also form the core of Mr. Rajaratnam’s appeal, which could take as long as a year to resolve. His lawyers will argue that the government improperly obtained judicial authorization to wiretap his telephone, violating the law and Mr. Rajaratnam’s constitutional rights.”

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Douglas McNabb – McNabb Associates, P.C.’s
Federal Criminal Defense Attorneys Videos:

Federal Crimes – Appeal

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To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.


Justices Take Case on Lying About Honors From Military

October 18, 2011

The New York Times on October 17, 2011 released the following:

“By ADAM LIPTAK

WASHINGTON — The Supreme Court on Monday agreed to decide whether Congress can make it a crime to lie about having earned a military decoration.

The case arose from the prosecution of Xavier Alvarez under a 2005 law, the Stolen Valor Act. Mr. Alvarez, an elected member of the board of directors of a water district in Southern California, described his background at a public meeting in 2007.

“I’m a retired Marine of 25 years,” he said. “I retired in the year 2001. Back in 1987, I was awarded the Congressional Medal of Honor. I got wounded many times by the same guy.”

That was all false, and Mr. Alvarez was charged with violating the law, which makes it a crime to falsely say that one has “been awarded any decoration or medal authorized by Congress for the armed forces of the United States.” Mr. Alvarez argued that his remarks were protected by the First Amendment.

The trial judge rejected that defense, saying the First Amendment does not apply to statements the speaker knows to be false. The judge sentenced Mr. Alvarez to three years of probation.

A divided three-judge panel of the United States Court of Appeals for the Ninth Circuit, in San Francisco, reversed the ruling.

Judge Milan D. Smith Jr., writing for the majority, said that a ruling upholding the law would set a dangerous precedent. “There would be no constitutional bar,” Judge Smith wrote, “to criminalizing lying about one’s height, weight, age or financial status on Match.com or Facebook, or falsely representing to one’s mother that one does not smoke, drink alcoholic beverages, is a virgin, or has not exceeded the speed limit while driving on the freeway.”

“The sad fact is,” he wrote, “most people lie about some aspects of their lives from time to time.”

The full Ninth Circuit declined to rehear the case. Chief Judge Alex Kozinski concurred, saying that a ruling against Mr. Alvarez would be “terrifying,” as it would allow “the truth police” to censor “the white lies, exaggerations and deceptions that are an integral part of human intercourse.”

In a dissent, Judge Ronald M. Gould said the “lack of any societal utility in tolerating false statements of military valor” justified the law. He rejected the slippery slope argument, saying that “making false statements about receiving military honors is a carefully defined subset of false factual statement not meriting constitutional protection.”

In urging the justices to hear the case, United States v. Alvarez, No. 11-210, Solicitor General Donald B. Verrilli Jr. argued that Congress was entitled “to guard against dilution of the reputation and meaning of the medals.”

“The law,” Mr. Verrilli continued, “serves a compelling interest in protecting the integrity of the military honors program, thereby preserving the medals’ ability to foster morale and esprit de corps in the military.”

The central question in the case is whether statements known by the speaker to be false are entitled to First Amendment protection. In defamation and fraud cases, Mr. Verrilli wrote, the requirement of knowing falsity is sufficient to ensure adequate “breathing space” for statements that should be protected by the First Amendment, notably including criticism of the government. That same analysis should apply to false statements about medals, he said.

The Supreme Court under Chief Justice John G. Roberts Jr. has generally been sympathetic to free speech claims, ruling in favor of protesters at military funerals, the makers of violent video games and the distributors of materials showing cruelty to animals. Later this term, the court will consider whether the Federal Communications Commission may regulate cursing and nudity on broadcast television.”

To find additional federal criminal news, please read Federal Crimes Watch Daily.

Douglas McNabb and other members of the U.S. law firm practice and write and/or report extensively on matters involving Federal Criminal Defense, INTERPOL Red Notice Removal, International Extradition and OFAC SDN Sanctions Removal.

The author of this blog is Douglas McNabb. Please feel free to contact him directly at mcnabb@mcnabbassociates.com or at one of the offices listed above.