REPOST: Insider Trading: Civil Or Criminal Crime?

This Forbes.com article give readers an insight on the difference between criminal and civil violations.

I suppose if you were looking to buy/sell publicly traded stocks based on inside information, you would probably want to do the kind that, if detected, would result in a civil penalty (fine) rather than a criminal one (jail and fine). Nobody wants the “Big F” (Felony). But what is the difference between a criminal violation of insider trading versus a civil one?

Raj Rajaratnam was sentenced to 11 years in prison as a result of trading on inside, confidential information related to publicly traded companies (namely Goldman Sachs). His profits were said to be over $80 million and his firm, Galleon Group, has since closed. William Marovitz, husband of then Playboy CEO Christie Hefner, traded on Playboy stock between 2004 and 2009 based on “pillow talk” inside information that allowed him to realize gains of over $100,000 trading on Playboy stock. For his infraction, Marovitz paid a fine without admitting wrongdoing. While Marovitz and Hefner have since divorced, he was never in jeopardy of spending a night in federal prison. So why is one person jailed and the other fined for essentially the same crime? It depends on a number of factors.

I reached out to Jordan Thomas, Labaton Sucharow partner and Chair of the Whistleblower Representation Practice and also a former Assistant Director and Assistant Chief Litigation Counsel in the Division of Enforcement at the SEC, for his perspectives. Thomas told me that in his experience the triggers for criminal insider trading charges were based on three primary factors:

1) Significance of wrongdoing (amount of money involved, the number of people affected by the trade and the duration of the activity)

2) Corroboration of others to prove a criminal case and provide evidence of wrongdoing (need someone to flip or have someone on tape)

3) Recidivists of any securities violations (always looking to clean up Wall Street)

The Department of Justice (DOJ) may get involved once the Securities and Exchange Commission (SEC) has initiated its investigation. Thomas said, “You can assume that there is regular communication between the SEC and the DOJ on cases. If the SEC believes there is enough information that could lead to a criminal conviction, the DOJ may undertake its own, independent, investigation to see if it leads to the same conclusion.”

The SEC is not the only organization feeding the DOJ with prospective criminal cases. The Financial Industry Regulatory Authority (FINRA), the largest independent regulator in the U.S., is also looking for insider trading activities and regularly makes inquiries on suspicious trades to brokerage firms and brokers. If those inquiries turn something up, they too share that information with either state or federal authorities.

As to whether prosecutors these days are more willing to go after criminal versus civil, Thomas said, “There is a quiet revolution in white collar criminal securities cases led by cooperators and whistleblowers. New enforcement tactics like wire taps, previously used in organized crime, has yielded powerful evidence of criminal intent.” One only has to look at the wire taps used in the prosecution of dozens of insider trading cases in the Southern District of New York to see how effective that has been in bringing cases and getting guilty pleas/verdicts. When the Feds had no tapes, there were plenty of cooperating witnesses willing to finger a defendant.

According to Thomas, both the SEC and FINRA now can analyze massive volumes of trades and detect red flags that start their investigations. With regard to Compliance departments within firms taking cases to authorities, Thomas said that his experience has been that while illegal actions are detected internally, those are rarely sent on to state or federal law enforcement. “Compliance departments who have discovered wrongdoing within the company, rarely report it to authorities. They typically give offenders their walking papers and allow them to go find a new job,” Thomas said, “which isn’t much of a consequence for someone who has seemingly been successful at making money on Wall Street.”

Michael Bachner, white collar defense attorney in New York who has seen his share of insider trading cases, also noted that both FINRA and the SEC are the stalking horses for criminal cases eventually taken over by the FBI or state criminal authorities. On why some cases go criminal, Bachner believes that the defendant’s role plays a big part. ”If the person targeted for insider trading [tips] is a lawyer or some fiduciary that had an obligation to keep information confidential, then criminal authorities will want to send a message to the profession that that type of behavior will not be tolerated,” Bachner said.

As to whether civil cases deter criminal behavior, both Thomas and Bachner said that those involved in insider trading cases that result in civil charges rarely offend again. As Bachner put it, “Insider trading crimes are typically crimes of opportunity with a rational person making an irrational decision to act.” If civil litigation is so effective, it makes one wonder what is the purpose of these long prison terms associated with criminal prosecution of insider trading? I’ll leave that one for another day.

In the meantime, there are so many people with access to inside information that need to stay diligent. Bankers, lawyers, analysts, and executives are all part of mergers, purchases, earnings preparation and operational strategies. Bachner’s observation is a one you should take to heart …. insider trading is a crime of opportunity, a crime of passion undertaken at a moment of weakness. If you trade on inside information, the chances that you will get caught have gone up significantly and your odds of going to prison are just a coin flip away.

Stay Strong!

Evan Granowitz was named as a Southern California Rising Star in 2009 and 2010 by the Super Lawyers magazine. Follow this Twitter page for more updates.

Winning smart: The advantages of litigation

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The United States is said to be a far too litigious society—a country where remedies for perceived injustices are commonly pursued through the legal system.

As a form of dispute resolution, litigation is based on taking action through the courts, which involves a formal process, formal rules of evidence, and formal discovery. Furthermore, it also takes into account public records and the decision of the judge and jury. During the process, the courts are concerned with the application of public policy and strict adherence to the law of the land.

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Although commonly perceived as expensive and time-consuming, the advantages of litigation are mainly related to its nature, which involves transparency, compliance, uniformity, and binding final resolutions.

In addition, litigation is also considered as an effective legal method for highly charged issues. It allows the plaintiff to file lawsuits under a structure of rules that require facts, evidence, and arguments in support of the claim. The methods can be extraordinarily effective in clearing up obfuscation during arguments or debates.

Many companies today litigate to protect and advance their business interest. One of them is the multinational technology corporation Apple Inc. that has been a participant in various legal proceedings and claims since it began operations.

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Evan Granowitz is a recognized civil litigator in Southern California who counsels and represents clients in all facets of litigation. Learn more about him by visiting this Twitterpage.

The difference between arbitration and litigation

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Arbitration or litigation?

These are two of the most common choices confronting opposing parties in a dispute. Some would agree on arbitration because of its efficiency, while some parties would insist on litigation because of its benefits.

The choice is not a simple one to make. Hence, it is important to understand the subtle but significant distinctions between arbitration and litigation.

In simpler terms, litigation is a win or lose battle that involves a relevant state and federal courts to resolve “disputes,” which require a party to seek an attorney and file a lawsuit in court. The process of litigation is conducted in a courtroom where the judge or jury makes the final decision.

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In many cases, litigation is proven as an effective means to secure economic, social, and cultural rights for many companies and individuals as judges are bound to apply the rules of evidence and follow all relevant case law and Court rules.

Arbitration, on the other hand, involves a third party serving as an intermediary between the two disputants. In the pursuit of a dispute resolution, both parties have to agree to the matter adjudicated by the independent third party, who makes a legally binding judgment.

Some parties use arbitration because it is more private and is generally more time efficient than litigation. Moreover, others consider it less costly because it requires fewer expenses on counsel and meetings.

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An experienced professional in the field of law, Evan Granowitz is a Southern California-based civil litigator who works for Wolf Group LA. Know more about his experience and background by visiting this Linkedin profile.

REPOST: The essential cases every law student should know

From McLibel to Lord Denning's case, this article from The Guardian listed down the cases the every law student should know:

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Cases capture human stories, shape public debate and establish new expectations of the state. Their wider effect can reflect society's consciousness but often lead to new laws. Cases and judges' decisions are a law student's bread and butter. Here are a few you will come across:

Care for thy neighbour:

In 1932 Mrs Donoghue launched the modern law of negligence, after finding her ginger beer less than appealing. Known to generations of lawstudents as the "snail in the bottle" case, it is best known for Lord Atkin's famous neighbour principle. In declaring we should take reasonable care to avoid harm to those we foresee can be affected, he established when we owe duties to each other. Accidents and injuries were forever to be reshaped into claims and compensation.

Foreign detainees

Known as the Belmarsh decision, there is no modern case that better sets the boundary between national security and civil liberties. Decided by a panel of nine law lords, the 2004 decision became an important milestone in judges protecting both the rule of law and human rights. In a challenge to the Labour policy of indefinitely detaining foreign terrorist suspects without charge, the majority declared the British state acted illegally and in a discriminatory way. In his powerful rejection, Lord Hoffman stated "The real threat to the life of the nation… comes not from terrorism but from laws such as these."

Spanish fisherman

Providing the legal backdrop to a decade of EU-scepticism is the 1991 case of Factortame, this case on the rights of Spanish fisherman to fish in British waters is a mainstay on any public law course. It confirmed the priority of European laws over UK acts of parliament and thus struck a blow against parliament's legal supremacy. In so doing it provoked much constitutional debate about the extent of EU legal powers - and Britain's relationship with Europe as a whole.

McLibel

Officially the longest case in English legal history, this ten year David v Goliath libel battle exposed the price of justice when corporations take on individuals. The fast food giant sued green campaigners David Morris and Helen Steel for libel over a stinging pamphlet criticising the their ethical credentials. McDonalds walked away with both a win and a PR disaster. The European court of human rights later declared in 2005 that the pair, who were unfunded and were representing themselves, had been denied their right to a fair trial.

Jodie and Mary

In the year 2000 the plight of conjoined twins made front page news. The question was whether it was justified to separate and knowingly "kill" the weaker Mary in order to save her stronger sister Jodie, given both were destined for a premature death. In spite of parents favouring non-separation, doctors wanted a declaration that such an operation would be lawful. In a maze of ethical and legal conflicts, Lord Justice Wardrather hollowly declared that "this is a court of law, not a court of morals."

After admitting to sleepless nights, the judges allowed the doctors to separate. Lord Justice Brooke declared the situation as one of necessity, allowing the option of a lesser evil. The stronger twin survived and made a full recovery. The thankfully rare case, otherwise found in philosophy debates, demonstrates the relationship between law and morality, perhaps one of the first questions on a legal theory course.

Domestic abuse

A year after marital rape was declared rape in 1991, came the case ofKiranjit Ahluwalia, who had been abused for over a decade by a violent husband. She was convicted of murder after setting her husband alight as he slept. In recognising long-term domestic abuse and the possibility of a slow-burn anger that led to her snapping, the case was a cause célèbre for feminist and domestic abuse groups. Though finally the decision in the end was based on diminished responsibility, it was seen as a benchmark for tackling the gender bias in the criminal law and raising public awareness of domestic abuse. Ahluwalia's conviction was reduced to manslaughter, and she was freed.

Pinochet

International human rights law received a global TV audience in 1998 after former Chilean dictator General Pinochet was arrested in London. Under the rules of universal jurisdiction, he was detained following a Spanish extradition request facing charges of crimes against humanity. The law lords declared that there could be a limit to the immunity enjoyed by heads of states. Though Pinochet was never extradited, the case sent out a strong message about accountability for leaders who commit human rights abuses,before the international criminal court was established.

The case is also well known among lawyers when after the first hearing it was disclosed that that one of the ruling law lords, Lord Hoffmann, was a director of Amnesty International, a party to the cases. The entire hearing had to be repeated to show that "justice must not only be done but be seen to be done."

The internet age 

Injunctions, twitter, privacy and the extra marital activities of footballers were all the rage in early 2011. Nothing struck up more attention than theapplication for an injunction by Ryan Giggs against the Sun. His name was widely tweeted and the situation became more farcical when MP John Hemming revealed his name in the House of Commons. The debate forced the law to react to an age of the internet and social media. The case followed a long line of celebrity court battles in the 2000's, and became another marker in the debate between balancing freedom of expression and the right to a private life.

Roe v Wade 

From across the Atlantic arguably no case better demonstrates the political and social impact of judicial decisions. The landmark decision in 1973 upheld a woman's right to an abortion. Synonymous with abortion in the USA. Hundreds of thousands march on the US supreme court on the anniversary of the decision each year.

Any of Denning's cases 

In our common law system, many judges leave their mark on a particular area of law. However clichéd, no judge will live longer in the memory of law students than the controversial Lord Denning. He demonstrates the power of personality in a subject that is often seen technical, dry and rule-based. In the words of Lord Irvine, "the word Denning became a byword for the law itself." Denning reminds us that all cases are eventually decided by individuals who are made up of values and personal perspectives that make them who they are. Students, you are encouraged to think, debate and learn the law in the same spirit. Good luck.

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REPOST: Some NSA Opponents Want to 'Nullify' Surveillance With State Law

Here's an update about the anti-surveillance resolution from USNews.com:

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The National Security Agency has an Achilles heel, according to some anti-surveillance activists. The key vulnerability, according to members of the OffNow coalition of advocacy groups: The electronic spy agency's reliance on local utilities.

The activists would like to turn off the water to the NSA's $1.5 billion Utah Data Center in Bluffdale, Utah, and at other facilities around the country.

Dusting off the concept of "nullification," which historically referred to state attempts to block federal law, the coalition plans to push state laws to prohibit local authorities from cooperating with the NSA.

Draft state-level legislation called the Fourth Amendment Protection Act would – in theory – forbid local governments from providing services to federal agencies that collect electronic data from Americans without a personalized warrant.

No Utah lawmaker has came forward to introduce the suggested legislation yet, but at least one legislator has committed to doing so, according to Mike Maharrey of the Tenth Amendment Center. He declined to identify the lawmaker before the bill is introduced.

"We are still very early in the campaign, and this is in fact a multi-step, multi-year long-term strategy," says Maharrey, whose group is part of the OffNow coalition along with the Bill of Rights Defense Committee and a handful of other groups.

The campaign is looking beyond Utah, Maharrey adds.

He says a Washington state lawmaker has also committed to introducing the legislation and says state politicians in five other states have expressed interest in doing so without committing to it.

The city of Bluffdale successfully competed to supply water to the new NSA data center with an eye toward future economic development and offered discounted rates, The Salt Lake Tribune reported Nov. 30. The city is reportedly charging the NSA a rate of $2.05 for every 1,000 gallons of water, significantly less than the typical rate for high-volume consumers of $3.35 per 1,000 gallons.

KSL-TV reported in July the center will use up to 1.7 million gallons of water a day when it's fully functional, in part to cool mega-computers that collect and store data from around the world. The data-hub is encountering some problems, the Wall Street Journal reported Oct. 7, with meltdowns obliterating thousands of dollars of equipment at the million-square-foot facility.

At the federal level, the USA Freedom Act sponsored by Rep. Jim Sensenbrenner, R-Wis., and Sen. Patrick Leahy, D-Vt., would significantly curtail the most controversial NSA practices made public in June by whistle-blower Edward Snowden. Despite appearing poised to pass the House of Representatives, the bill has little chance of becoming law because of opposition from President Barack Obama, who supports the NSA's phone and Internet surveillance programs.

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