• The Kettle Falls 5: Pot Growers Who Are Constitutional Law Experts

     

    Five marijuana growers may give us definitive precedent on state vs. federal law and the issues of preemption under the U.S. Constitution.  

    The Kettle Falls 5 have been charged by federal prosecutors with drug-trafficking for growing 68 marijuana plants on their property in eastern Washington state.  However, the Kettle Falls 5 are also one of 30 holders of licenses under Washington state law for operating retail pot shops.  Under Washington’s state laws, which permit marijuana use and which permit the pot shops as of July 1, its Liquor Control Board can issue licenses for sale and production. 

    The U.S. Justice Department, representing the United States, which has laws that make the use, growth, sand sale of marijuana federal crimes, has taken the position that it will not interfere with state laws allowing marijuana production and use except in circumstances where there are additional issues that arise such as when crime syndicates become involved in sale and production.  The DOJ has taken the position that those in compliance with state laws regulating the production, sale, and use of marijuana should not be prosecuted.

    However, Washington has a limit of 45 plants per co-op, and the Kettle Falls 5, which consists of a Larry Harvey, his wife, their son, and two others, went over with 68, with the federal government alleging that going over the state limit constituted drug-trafficking. Mr. Harvey maintains that he believes the state limits is 15 plants per person, which would get us to 7 below the legal limit, but, it turns out that it's the lesser of 15 per person or 45.  In fact, federal prosecutors became involved when a sheriff executed an order to cut down the plants of the Kettle Falls 5 that were over the 45-plant limit. The sheriff’s actions made the news and caught federal prosecutors’ attention. 

    As one constitutional lawyer put it, federal prosecutors have discretion and “it hangs over everybody.”  The states where marijuana is being sold, in addition to Washington, are Colorado and California. Jolie Lee, “Case Against Washington Pot Growers Challenges State Law,” USA Today, May 19, 2014, p. 3A. 

    What we have here is a classic confrontation between inconsistent state and federal laws, which gives us a case of preemption.  When state and federal laws conflict, which law takes priority?  That question has been explored a number of times by the U.S. Supreme Court and requires the examination of the following factors:

    1.    How extensive the federal regulation is

    2.    Whether the state and federal regulatory schemes can co-exist

    3.    Whether Congress intended to preempt state laws with the federal statutory scheme

    4.    What confusion or uncertainty would result if the state regulatory scheme were permitted to stand

    Federal laws on marijuana are clear, but state laws have been chipping away at that clarity for years, with medical marijuana exceptions, and now wider spread availability and use.

    Drug trafficking offenses carry up to 10 years in prison.  However, it is clear that even if the Kettle Falls 5 are convicted, their sentences will be delayed as their lawyers seek a clarification on which law applies – state or federal?

    DISCUSSION STARTERS 

    1.    Explain what laws are in conflict.

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    2.    When are state laws preempted?

     

     

  • US Indicts Chinese Hackers Who Targeted US Companies; Economic Espionage Act

              

    The United States Justice Department has obtained indictments (formal charges issued by a grand jury, a panel of citizens convened by a court to determine if charges should be brought against a suspect)  that   against five Chinese hackers.  They are believed to be part of a Chinese military unit whose mission is to hack the computers of well-known American companies and also government agencies. The defendants allegedly broke into computers at numerous US companies including Westinghouse Electric Co., Alcoa, Allegheny Technologies, Coca-Cola  and United States Steel Corporation.

    The charge in the indictment is economic espionage, meaning the use of stolen or misappropriated trade secrets for commercial or economic gain of a foreign government.  Such practice is outlawed by the Economic Espionage Act passed by Congress in 1996. Penalties are substantial and include a fine up to $500,000 and up to 15 years in federal prison. Violations are prosecuted by the United States Department of Justice with assistance from the Central Intelligence Agency (CIA) and other international enforcement agencies.  

    The information the hackers have wrongfully obtained includes plans for a next-generation nuclear power plant from Westinghouse, technical details of valuable American technology, and data on deals U.S companies transacted with Chinese  companies.  For example, in 2009 Coca-Cola attempted a $2.4 billion acquisition of China’s Huiyan Juice Group.  Hackers infiltrated Coke’s computer systems and took information about the transaction. This deal would have been the largest foreign takeover of a Chinese company ever, but it was halted by the Chinese Ministry of Commerce based on China’s Anti-Monopoly Law.   

    The Chinese military unit to which the accused belong is well known to the Western cybersecurity industry which dubs the unit Comment Crew.  This name arises from the group’s practice of penetrating computers by using hidden code on web pages known as comments.

    The Chinese defense ministry denies the government is connection to the hackers, saying the military “has never supported any hacker activities”. To the contrary, US internet security firm reports that the unit has targeted 141 companies of which 115 are located in the US. The industries targeted include aerospace, satellite and telecommunications, and information technology.  These are industries identified in China’s five year plan for 2011 - 2015.

    Perhaps the best known of the hackers is Wang Dong, age 37, nicknamed UglyGorilla.  He has been linked to 100’s of computer break-ins.  While most hackers modify their online personas with regularity to hide their identity, Wang has been surprisingly consistent with his.   The apparent explanation is misplaced pride in his hacking successes.

    One of the tactics reportedly used by the hackers is spear-phishing.  This is a trick that makes scam emails appear to be from a sender the receiver knows.  So the emails typically would be personally addressed to an employee in a hacker’s target company, and would appear to be signed by another employee in the same company.  Spear-phishers often scan social media to find out personal details about a victim to make the fake emails appear legitimate.

    Hacking in China is quite common.  It is even promoted at trade shows, in classrooms, and on internet forums.

    Western cybersecurity experts are tracking at least 25 “active Chinese-based threat groups”.

    It appears the US may never have the opportunity of prosecuting the case. To move the case forward the court needs jurisdiction over the defendants.  That would require their being in the United States.  Knowing the indictments are outstanding, we cannot anticipate the defendants will voluntarily come to this country.  And given that they were working for the Chinese government, we can anticipate China would not cooperate with our government in extraditing  (transferring the defendants from China to the US).

     For further information, click here: http://www.nytimes.com/2014/05/23/world/asia/us-case-offers-glimpse-into-chinas-hacker-army.html?_r=0

    DISCUSSION QUESTIONS;

    1) What do you think prompted Congress to pass the Economic Espionage Act?

    2) If the US is not going to be able to prosecute the cases, why did it seek indictments?.

     

  • Hackers Holding Your Files Hostage for Ransom

    Hackers are getting more sophisticated in their attacks, and with sophistication comes easy money.  Hackers are now invading vulnerable computers and infecting them with a virus that encrypts the files of the computer owner.  Once encrypted, the computer owner is unable to access his or her files.  However, the computer owner will then receive a request for payment to sites such as bitcoin, PaySAFE, or MoneyPak. These anonymous payment systems allow the hackers to collect their ransom from the computer owners without fear of detection.

    The amounts that the hackers seek is relatively small -- $300 to $500 because the hackers understand what the market will bear in term of rescuing those files.

     The virus has struck about 250,000 computers in the first 100 days of 2014.  The figure as 11,000 for March with a total of $34,000 collected. Donna Leinwand Leger, “Hackers Hold Computers Hostage,” USA Today, May 15, 2014, p., 1A

    When your computer is hacked, you receive a warning about the need to pay and the warning has a time clock on it that shows you how much time you have to make the payment. 

    Computer companies, such as Dell SecureWorks and CrytoLocker are working to find prevention tools. Law enforcement struggles with trying to identify the hackers because they have been very careful to set up numerous accounts for depositing the funds so that the act of became untraceable.

    Why do experts advise if you get a hacker demand for ransom? Well, computer experts are frustrated because they have not been able to come up with a way to stop the virus once it makes its way into the computer. There have been few arrests of the hackers, and those arrests have come only because police infiltrated existing hacker rings, and not because they were able to determine the sources of the attacks. There is little that you can do once the virus in in your computer.

    However, prevention is the key.  Watch out for e-mails that appear to come from the FBI and law enforcement agencies. Do not open files and do not click on links unless you have a known sender. Don’t go to pornographic sites or sites that you are led to with the lure of free gifts. 

    DISCUSSION STARTERS

    1.    What are the secrets to the hackers’ anonymous success?

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    2.    What warnings have computer owners been given about the hacking scheme?

  • The Aaron Hernandez Tattoo Artists: Witnesses for the Prosecution?

     

    Former Patriots player, Aaron Hernandez, is facing multiple murder charges.  However, it is the investigation by the police in Boston that is charting new territory when it comes to evidence.  Prosecutors in the case are seeking to speak to tattoo artists who created the tattoos on Hernandez’s right forearm between February 2012 and June 2013.  The investigators are not saying which tattoos (Mr. Hernandez is fully tattooed on both forearms) because they do not wish to influence what the tattoo artists may or may not have to say about the tattoos and their work on Mr. Hernandez’s right forearm.

    The investigators are looking to find tattoo artist in Hermosa Beach, California, Bristol, Connecticut, Palm Beach, Florida, Miami, Boston, and Rhode Island.  The tattoos were obtained following the two new murders with which Mr. Hernandez was just charged that were committed in 2012. Jim Corbett, “Hernandez Ink of Interest,” USA Today, May 22, 2014, p. 8C.

    A statement released by the prosecutor’s office explained the reasons the tattoo artists are needed for statements: "In order not to taint any potential statements, authorities are not publicly describing the specific tattoos or the nature of the inquiry -- only that the artists may have made observations of evidentiary value in the pending Suffolk County murder prosecutions.” Ray Sanchez, CNN News, May 22, 2014. The evidence would be related to charges filed last week against Mr. Hernandez for the alleged murder in 2012 of two individuals who had angered Mr. Hernandez. 

    There are certain types of tattoos that signify life events, and that are obtained following these life events or even achievements, achievements that are sometimes the commission of a crime.  Investigators did view Mr. Hernandez’s arms and concluded that there is some artwork present that traditionally signifies participation in certain crimes, such as murder. Birds, tear drops, and other images are often linked to a type of bragging about crimes committed. 


    The use of Mr. Hernandez’s physical features as evidence in a case would not be unusual.  Physical marks, including tattoos, are often used by witnesses in cases in order to make identifications.  However, in this situation, the physical markings would then be tied to cultural symbols and gang-related symbols to signify the commission of crimes. 

    The investigators and prosecutor have emphasized that the tattoo artists have not committed any crimes. However, a possible use of the tattoo artist would be to obtain information about discussions they had with Mr. Hernandez in his decisions on the type of tattoo and their purpose.  Such discussions, if they involved Mr. Hernandez's admission of committing the murders (proof of the matter at issue in the trial), could run into hearsay issues at trial, but something Mr. Hernandez may have revealed to the tattoo artist could lead to additional evidence in the case.

    Another possible result of the exploration of this type of evidence  is that a tattoo artist could be used as an expert on the symbolism of certain tattoos.  Again, physical appearance is evidence in a case.  The novel legal question here is whether the commentary on the physical attributes could be used.  And in this case, the attributes were added by the defendant.  Those tattoo additions are something the prosecutors want to establish are tied to two 2012 murders with which Mr. Hernandez is charged.  However, there is also the explanation that many who wish to mimic the body art of those who have committed crimes simply copy the symbols.  There are some tricky evidentiary questions ahead in the trial.   

    DISCUSSION STARTERS

    1.      Discuss the use of physical appearance as evidence in a case.

    2.     What is different about the possible use of the Hernandez tattoos as evidence in the murder case?

     

     

     

     

     

  • Pub Excludes Children; Illegal or Permissible Discrimination?

            

    The Hot Bird Pub in Brooklyn recently posted a sign stating, “Children Are Not Allowed”. This set off a firestorm on a mom message board, beginning with a mother who, along with her young child, was asked to leave the restaurant.  She posted her discontent about exclusion of children.  “Hotbird no longer allows babies/toddlers/kids.  So I wanted to spread the word, before you go and get kicked out.”    

    Not surprisingly, not everyone was unhappy with the rule.  Said one bar patron, “Kids shouldn’t be running around where people are trying to drink and hook up.”

    The bar’s owner weighed in.  “When children are left unattended, which happens constantly because parents treat Hot Bird like a playground, kids run around, go up to patrons who smile because it’s a child but are in fact annoyed. . .Unattended children fall, climb on stools, etc. [and the bar might be liable] . . . Some parents would ask us to turn down the music because their five month old baby was trying to sleep . . my staff is there to serve drinks, not to watch over children and deal with unreasonable demands from parents.”

    In legal terms, a tavern is a place of public accommodation.  This means the public is invited in and discrimination is prohibited against protected classes. These include race, color religion, national origin, disability, gender, and in some states, sexual orientation.  Age is not a protected class in places of public accommodation.  Thus, refusal by a restaurant to permit admission based on age is not illegal discrimination.  This is true regardless of the age excluded.  Thus, Hot Bird’s refusal to permit entry to youngsters is not illegal.  Likewise, if a bar wanted to cater for example to just twenty-somethings, it could legally exclude as customers people younger than 20 and older than 30 or 40 or whatever cut-off age it chose.

    But note, age is a protected class in employment. By a federal law called the Age Discrimination in Employment Act of 1967, people aged 40 and older are protected against discrimination.  Most states supplement this statute by prohibiting age discrimination against any and all ages, whether young or old.  Therefore, a restaurant cannot refuse to hire people who are of a certain age, be it young or old (assuming the applicant is legally old enough to do the job).

     Concerning the owner’s  apprehension about possible liability if children are injured while inside the restaurant,  the liability, if any, would be based on negligence, failing to act as a reasonable person.  All places of public accommodation must make reasonable inspections of the premises at reasonable intervals (depending on traffic) to look for dangerous conditions and correct them.  An additional consideration with children is the attractive nuisance doctrine which recognizes that children do not always appreciate danger and places a heightened responsibility on facilities to maintain their property in a manner safe for children.

    For more information, click here:http://nypost.com/2014/05/21/brooklyn-pub-bans-kids-after-being-swamped-by-families/

    DISCUSSION QUESTION:

    Why is age protected in employment but not in places of public accommodation?

    Why does the federal employment law protect only people 40 and order?

    Why do you think most states have chosen to extend the age protection for employment to all ages legally able to work?

  • Judge Denies Change of Venue in Boston Marathon Bombing Cases

            

    A criminal case generated by the bombing at the 2013 Boston Marathon raises questions about the proper venue  (location of a trial) in high profile crimes. The case in question involves criminal charges against three friends of Dzhokhar Tsarnaev, the suspect in the bombing which killed three people and injured more than 260.

     The friends are charged with trying to help Tsarnaev allude the police. The charge is obstructing justice (interfering with the work of police, or lying to an officer about an investigation) .  Two of the friends are charged with removing Tsarnaev’s laptop and backpack from his dorm room, precluding the police from finding and searching those items for evidence.  The third friend is accused of lying to investigators about the removal of the possessions.  Each will be tried separately

    Usually the venue is the locality where the crime occurred.  Change of venue is the legal term for moving a trial from that location to another.  A change may occur where an impartial jury will be hard to achieve because of widespread publicity.   The media is a powerful force in our society, relaying the news and molding public opinion.  People in another community who were exposed to considerably less media coverage are likely to be more objective.  

    The Sixth Amendment to the United States Constitution guarantees defendants the right to fair trial.  This right  includes an unbiased jury.  The First Amendment guarantees freedom of the press, precluding courts from barring the media from reporting truthful information about crimes and trials.  In the bombing case, and other particularly heinous crimes that effect many people and so garner much media attention, the two Constitutional rights seemingly collide.

     The defense lawyers seeking to move the obstruction of justice trials to a location outside of the state of Massachusetts.  They claim that an unbiased jury will be impossible to find in that state based on the massive media coverage. The judge denied the motion, wanting first to conduct a voire dire (the jury selection process consisting of questioning of potential jurors by the judge and usually also by the lawyers) and determine from that whether an impartial jury can in fact be impaneled.  If not, the judge will reconsider the motion. 

    This is not a surprising ruling because the impact of the media on the jury pool is difficult to assess without jurors being questioned  about whether they have formed opinions based on the publicity.  Further, the marathon bombings were covered extensively by the press nationwide, not just in Boston or Massachusetts.  Thus, there is no certainty that jurors outside Massachusetts are any less impacted by the media than those within the state.

    The judge’s hesitation is likely due to inconvenience and related cost of a transfer.   The parties, judge, lawyers and witnesses typically are situated in or near the original venue. Thus, transportation issues can arise.  Additionally, transplanted lawyers and judges will not have ready access to their offices, computers, and support staff.  Further, the original locality, which usually has the greatest interest in the trial, loses the opportunity to conveniently observe the case up close.

    The first of the three trials begins June 30th.  Stay tuned to see if an unbiased jury can be found.

    For more information, click here: http://cambridge.wickedlocal.com/article/20140513/News/140518775.

     

    DISCUSSION QUESTION:

    1) What do you think is the likelihood of finding an unbiased jury in the vicinity of Boston? 

    2) If you were the judge, how would you have ruled on the motion to change venue?  Why? 

     

  • GM Lawyers and the Confidential Settlements

    As the internal and government investigations into GM’s defective switch and ignition problems, new evidence has emerged that GM lawyers entered into confidential settlements with plaintiffs in order to avoid disclosure of documents and depositions of various employees, including officers and engineers.  Bill Vlasic, “Inquiry by G.M. Is Said to Focus on Its Lawyers,” New York Times, May 18, 2014, p. A1.  

    As the documents continue to emerge through federal court filings in the litigation over the defective cars, we are gaining a picture of lawyers trying to keep information about a company’s internal decision-making (including memos and e-mails) from falling into the hands of plaintiffs’ lawyers who were representing car owners or those killed in the cars.  For example, Jim Federico, a top engineer who left GM shortly after the problems became public, was scheduled to be deposed by one of the plaintiff’s lawyers. Mr. Federico had been in charge of GM’s internal investigation into the switch and ignition problems.  However, one day before his scheduled deposition, the lawyer settled the case for his client, a settlement that included a confidentiality agreement.  GM settled the case after having gone through two years of discovery. That settlement, entered into in July 2013, was the fifth of a series of settlements with confidentiality agreements.  By September 2013, GM would begin the process of issuing recalls for the cars with the design problems.  

     


    GM settled the cases rather than proceed with depositions and, possibly, a trial.  Companies settle cases for many reasons:  expense, fault, costs to the company in terms of loss of the time managers devote to depositions and discovery, and public disclosure of information.  In this situation, settling meant that whatever testimony Mr. Federico had to offer  was not going to be recorded, under oath, for use by other plaintiffs in their litigation against the company.  The decisions by GM illustrate how there is a business decision side to all litigation.

    The situation also illustrates how slowly litigation can move as the parties seek documents and schedule depositions.  In GM’s case, the longer time required for the scheduling of depositions allowed the company to understand the facts underlying the ignition and switch problems.  The discovery stage helps the parties understand  the facts in their cases and determines the strength of their position.  The longer the discovery process goes, the more information the parties uncover and the clearer the fault, negligence, and other legal theories become, or do not become, depending on how the facts unfold.  Discovery in this situation for GM was truly a matter of discovering the depth of the issues with its cars, something that resulted in a multi-million car recall.

    The goal of the settlements was to not only head off the depositions, but also keep the facts from public disclosure.  Confidential settlement agreements mean that the parties cannot discuss the terms of the settlement with others.  Since the time of the asbestos litigation, lawyers have used this tool to settle suits and prevent the use of litigation information by other potential plaintiffs.  However, in this day of rapid information dispensing, confidential agreements are less helpful as facts find their way into the public eye through other means, documents, and, in GM's case, government regulator information being disclosed.  For example, the NHTSA lists all of the consumer complaints it receives by type of vehicle.  Even if the plaintiffs are quiet, the problems emerge through other avenues. 

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     DISCUSSION STARTERS

    1.    Explain the purpose of discovery.

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    2.    Why do parties settle a case AFTER discovery has been ongoing for some time?             

  • Quiznos Secures Court Approval for Its Bankruptcy Reorganization Plan

              

    Quiznos, a chain of sandwich shops, has filed for chapter 11 bankruptcy. The company had been experiencing sales declines for several years, in part due to the competition from the aggressively expanding Subway restaurants as well as other sandwich establishments such as Jimmy John’s, Which Wich, Firehouse Subs and Potbelly.  At Quiznos’ height in 2008, it boasted about 5000 locations.  That number has been reduced to 2100, virtually all owed by franchisees (owners of individual shops authorized to do business using the Quisnos trademark).

    Like most fast food franchisors (trademark owners who authorize others to use the mark provided they comply with various conditions), Quiznos’ income comes from royalties (a percentage of income) paid by franchisees for the use of the Quiznos name, and the sale to them by Quiznos of food and other products.  As the number of franchisees shrinks, so too does the franchisor’s income.  This circumstance led to the financial issues that caused the bankruptcy filing.

    A company pursuing a Chapter 11 bankruptcy hopes to stay in business. The proceeding is usually initiated voluntarily by the bankrupt company.   Typically, a goal is to restructure debt, meaning the company is seeking relief from high debt payments it cannot afford. Typically, the bankrupt business develops a plan, called a reorganization plan, designed to increase revenues and reduce debt.

    The business’ creditors - including lenders, shareholders and other interested parties - review the plan and either give it a thumbs up or a thumbs down.  If the creditors approve it, the debtor continues to run the business with modifications required by the plan. In effect, the plan serves as a contract between the debtor and its creditors on how the debtor will operate and pay its obligations going forward.

    If creditors do not approve the plan, they can propose an acceptable plan. Either way, a bankruptcy judge must approve it, The approval is called confirmation. The judge bases the decision on three factors – feasibility (is the plan likely to be successful?); good faith (does the bankrupt have a sincere intention to deal fairly with all interested parties?); and fairness and equity (is the plan in fact fair to all?).

    Prior to filing in bankruptcy court, Quiznos worked with its creditors to develop the plan and obtained their approval. Such pre-approval from the creditors results in a quicker and cheaper Chapter 11.

     Per Quiznos’ plan, the company’s creditors agreed to reduce the debt by $400 million which constitutes about two-thirds of the company’s obligations.  In exchange, the senior creditors received all the equity (ownership interest) in the chain and $200 million in new debt.

    Another component of the plan concerns franchisees.  They were an unhappy bunch claiming the cost to operate a sandwich shop was too high. Quiznos’ reorganization plan includes reductions in food costs for franchisees, and financing to assist them in making restaurant improvements.

    The CEO summarized the company’s objectives for its chapter 11 proceeding as follows: enhance customers’ experience at the sandwich shops, elevate the brand, increase sales, and improve profitability for franchisees.

    For more information, click here: http://www.forbes.com/sites/spleverage/2014/05/12/leveraged-loans-quiznos-prepackaged-bankruptcy-reorganization-plan-nets-ok/

     DISCUSSION QUESTION:

    Why is approval by creditors of a bankrupt’s reorganization plan required?

     

     

     

     

  • Watch Out! China Is Charging Western Executives with Bribery

     

    When the story on bribery on the pharmaceutical industry in China broke last July, the thought was that China would, once again, crack down on local company agents and recipients in the bribery scams. The bribery networks were described here on the blog last year  ("GlaxoSmithKline and Corruption in CHina, July 14, 2013) and were an attempt for pharmaceutical companies s to have their drugs used hospitals based upon physician recommendations that the companies were garnering through trips and other perks.  These exclusive relationships also allowed GlaxoSMithKline (GSK or Glaxo)  to charge higher prices. However, n May 14, 2014, the usual anti-bribery response took a turn when Chinese prosecutors indicted Mark Reilly, the executive in charge of GSK’s China operations. Mr. Reilly, who is British, is accused of ordering his subordinates to create a “massive bribery network” in order to secure drug sales at higher price levels, something that the charges say netted Glaxo about $150 million in revenue.Laurie Burkitt, "Beijing Warns Sternly on Glaxo," Wall Street Journal, May 15, 2014, p. B1.  These charges are also unique in that the focus is on management and culture, not on actual acts of bribery. 

    Experts indicate that the move to prosecute a Westerner is a signal that government officials are serious about tackling corruption in the country’s pharmaceutical industry.  Also unusual in the charges is not that Mr. Reilly himself engaged in bribery but that he fostered the culture within the company in China that resulted in the scheme. Glaxo’s executives were briefed by CHineses officials on the charges and indicated that the conduct revealed in the charges is “contrary to the values of GSK.”  David Barboza and Katie Thomas, “Former Head of Glaxo in China Is Accused of Bribery,” New York Times , May 15, 2014, p. B1.

    Glaxo reduced its CEO’s pay following the revelations about the China pharma bribery scams  last year.  There have been 46 Chinese employees, physicians, and government agents charged in the bribery scandal.

    The complaint against Mr. Reilly contains documentation of false transactions designed to hide payments as well as the transfer of illegal gains to off-shore accounts. The complaint also alleges that at points during China’s 10-month investigation of GKS China and Mr. Reilly that company employees had attempted to bribe officials in order to have them stop the investigation.

    Companies operating in China and those considering expanding into China will need to weigh carefully the issues of culture, operations, and ethics as they determine how to compete in the world’s #2 economy.  The country is a large potential market for so many products, but these charges mean that there is risk if the companies do not control payments, scams, gifts, and other networks of activities designed to win product placements or sales.  In addition, the assumptions about a particular culture tolerating bribery appear to be incorrect.  This new direction by the Chinese government is a worldwide message to those from other countries who seek to do business in China and especially to those who serve as managers in China.  A survey conducted last year of 399 member companies by the American Chamber of Commerce in Shanghai showed 70% said that corruption hindered their business. In addition, 55% said they are concerned about kickbacks to customers and 53% said they are worried about employees defrauding their companies. (Burkitt, WSJ)

    DISCUSSION STARTERS

    1.      Explain what is unusual about the charges in this case.

    2..     Develop a list of things a company should check about operations in other countries that might lead it to the discovery of problems with bribery in that division.

     

     

  • Zulily and Slow Delivery

     

    Most online retailers are aiming for delivery as fast as they can get the goods out the door.  However, Zulily, Inc. has a different approach.  It is remaining solvent by following a slow delivery policy -- on average about two to three weeks to get the ordered goods to its buyers. Purchases of brand items such as Spanx and Crocs can take about a month to arrive. Serena Ng, "Zulily's Secret to Profit Means Slow Deliveries," Wall Street Journal, May 5, 2014, p. B1.   Amazon, QVC, and voerstock.com have average delivery times of three to four days.  

    Zulilly has was the Wall Street Journal refers to as a "bare-bones distribution system."  The company does not purchase inventory in advance; it waits for the orders and then orders its shipment from manufacturers.  Zulilly also does not accept returns -- all sales are final.  However, the end result of the no-inventory and no-returns policies is that the prices at Zulilly are much lower than other online retailers. 

    The company is building a strong customer base through its focus on deals of the day, and its customer count was double ion 2013 what it was in 2012.  But, shopping at Zulily requires an understanding of the terms in advance.  In fact, before you gain access to the site, you must fill in your e-mail address, which represents and acknowledgement that you agree to abide by Zulilly terms and conditions.  Here are the critical terms and conditions that are so different from other online retailers:

    2.3 Orders. Your receipt of an order confirmation from us does not signify our acceptance of your order, nor does it constitute confirmation of our offer to sell. We reserve the right at any time after receipt of your order to accept or decline or cancel your order (in whole or in part) for any reason. We may require additional verifications or information before accepting any order. Your order is not accepted until it is shipped (or a portion of the order is shipped). Notwithstanding the foregoing, you agree that, if we cancel all or a part of your order, your sole and exclusive remedy is that we (a) issue a credit to your credit card or PayPal account in the amount charged for the cancelled portion (if your credit card has already been charged for the order) or (b) not charge your credit card or PayPal account for the cancelled portion of the order.

    2.5 Shipping Policy Any delivery dates provided by zulily are estimates. zulily reserves the right to make deliveries in installments. zulily will send you an email when your order has shipped and you may review your order and shipping information on your zulily My Account page. We ship within the US (including Alaska, Hawaii and APO/FPO/DPO addresses), and to Canada, UK and more than 80 other countries.

    2.6 Return Policy

    (a) Return Policy. zulily will only accept returns on products that are identified on the Product information page as eligible for return or as provided in Section 2.6(c). Once zulily confirms that your Product was returned in accordance with Section 2.6, your sole and exclusive remedy is a store credit in the amount charged for the applicable Product; provided that the credited amount will not include the applicable Delivery Fee, which is nonrefundable. Store credits may only be used for future purchase of Products on the Web site (excluding gift cards) and are subject to the restrictions set forth in Section 14.

    (b) Exchanges. We do not accept any Product exchanges.

    The bottom line is that Zuliy can ship goods if it has the goods and will do so when it does and you agree to the delay by signing in.  You also agree that the sale is final -- you cannot return or exchange the goods.  Zuliy is a no-nonsense inline retailer.  Consumers who use the sight need to understand the terms of contracting for those terms require a waiver of timely performance and the right to return non-conforming goods. The contract terms and discounts may not cover for the delays -- as one customer noted, "What's the point of saving $15 if you have to wait six weeks?"

    The Federal Trade Commission rules only require consumer notification and the right to cancel for delayed delivery, but Zulilly has that all covered through its upfront disclosure and the buyer's agreement to abide by those longer shipping terms. 

    DISCUSSION STARTERS

    1.  Explain the terms of contracting with Zulily.

    2.  Why don't the FTC rules on disclosure apply?

  • Five-Finger Shoes, Snapchat, & Kashi: Settlements and Ad Claims

    What you say in your ads counts.  Three recent cases illustrate what happens when products fall short of ad claims.


    The first case involved Snapchat, the Los Angeles start-up company that promised consumers the following:

    1.      That it would not collect information consumers posted on the service;

    2.      That items posted there would “disappear”; and

    3.      That users would be notified if anyone tried to access their information.

    Teh Federal Trade Commission (FTC) brought an action against Snapchat. According to the FTC complaint, Snapchat was storing videos that were posted outside the “sandbox,” meaning that the videos were still accessible.  Further, Snapchat was collecting phone numbers from users and saving those and users were not notified, as promised, when someone was accessing their data. The FTC complaint also alleges that Snapchat failed to secure its “Find Friends” feature.

    The settlement requires Snapchat to stop making these representations and requires it to retain an independent privacy expert for 20 years in order to make sure that a comprehensive privacy policy is developed and enforced. One of Snapchat’s founders actually acknowledged in an interview that the privacy promise about Internet postings cannot be made, “Nothing ever goes away on the Internet.” Jenna Wortham, ‘Off the Record In a Chat-App?  Don’t Be So Sure,” New York Times, May 9, 2014, p. A1.

    Snapchat has already changed its ad claims, eliminating the claim that messages self-destruct.  The final settlement will take effect following a 30-day comment period with fines being determined at that time. What you say on the Internet, stays on the Internet.

    Kellogg Company, the owner of the Kashi line of foods, has agreed to stop using the terms “all natural” and “nothing artificial” in its Kashi breakfast cereal ads.  The settlement is the result of a class-action suit brought by consumers because the Kashi cereals contain ingredients such as pyridoxine hydrochloride, calcium pantothenate, and hexane (made from gasoline).  There is plenty of wheat germ and flaxseed in the cereals, but they are not all natural.  Kellogg will pay$5 million to settle the suit.


    The FDA, which has taken over the issue of “all natural” claims by food advertisers has followed a standard of allowing the claim as long asthere are not artificial colors, flavors, or synthetic substances.   What you say on your boxes and ads counts for purposes of buyers and their reliance on such claims. Stepheanie Strom, “Kellogg Agrees to Alter Labeling on Kashi Line,” New York Times, May 9, 2014, p. B7.

     

     

    In a final ad case, Vibram, the maker of the FiveFingers glove-like shoe, has agreed to pay consumers $94 for every pair of FiveFingers shoes they have purchased.  The reason for the settlement is the company’s claim that ditching sneakers and running in minimalist footwear would lessen their aches, injuries, and problems.  Sara Germano, “’Barefoot’ Running Fad Falling Out of Favor,” Wall Street Journal, May 9, 2014, p. B6. The class-action suit was brought by runners who experienced a whole new sets of aches, pains, and problems from the glove-like shoes, including calf pain. Sales of the shoes have dropped 47% in the past year.  The company has added cushioning to its new models in order to eliminate some of the customers’ problems and has stopped making claims that the shoes are healthier for your foot. What you claim about your product counts for purposes of liability.

    DISCUSSION STARTERS

    1.      Explain the difference between an FTC settlement and a class-action settlement.

    2.     List the lessons companies should learn about ad claims from these three cases. 

  • ADA Mandates Accommodations for Deaf & Diabetes-Inflicted Theatre Patrons

              

    Three New York City theatres just settled claims by the state Attorney General of violations of the Americans with Disabilities Act (hereafter ADA or the Act),.  It is a federal law passed in 1991 that prohibits discrimination against people with disabilities by places of public accommodation (and employers). Discrimination is defined by the ADA as including failure to make reasonable accommodations, meaning modifications to practices and procedures when such adjustments are necessary to provide goods or services to disabled folks.  Thus, the Act requires establishments to adapt their policies  within limits to the needs of their handicapped clientele. Under the Act, theaters must provide for hard of hearing patrons wireless headsets and install hearing loops that transmit audio signals to certain hearing aids. The attorney general’s office had received complaints that the theaters were not providing available technology to enable customers with hearing loss to enjoy the shows.  The three theaters – The Manhattan Theatre Club, the Atlantic Theater Company, and the School of Visual Arts Theatre - have now all agreed to install the technology.

    Places of public accommodation include businesses open to the public such as hotels, restaurants, theaters, bar, stadiums, stores, colleges and the like.  When determining whether a modification is reasonable, and therefore required, courts consider the cost of the action needed, the overall financial resources of the facility, the effect on expenses and resources, the size of the business, and the type of operation.

    A disability is defined as a physical or mental impairment that substantially limits one or more major life activities.  These include activities of central importance to most people’s daily lives such as walking, seeing, hearing, breathing, and working. 

    In a second case involving disability discrimination, an employee at a Brooklyn movie theater called the police and evicted a patron because he brought strawberries into the building.  The movie-goer, Michael Kass, a 41-year old financial analyst, has Type 2 diabetes.  For medical reasons he cannot eat candy or popcorn, the only items sold at the Pavillion Theater in Park Slope, a neighborhood of Brooklyn. Kass brought a carton of the pre-washed fruit to the movies both to enjoy a snack during the show compatible with his illness, and also to keep his insulin level in check.

    As he entered the theater, an employee demanded he discard the berries, explaining that no outside food is permitted (presumably to boost sales at the snack counter in the theater). Kass tried to explain his disease but the worker would not listen. Kass then asked for a refund but the manager refused.  So the customer stuffed the fruit in his bag and took a seat.  Ten minutes into the previews the police arrived, ousted him from his seat and escorted him out of the building, citing the offending fruit.

    Kass, embarrassed and angry, posted a lengthy complaint on the theater’s Facebook page, which was seen by the movie house’s owner, Ben Kafash.  Within a day he contacted Kass and apologized. ”sincerely”. Kafash also promised to change the theater’s no-outside-food policy, and explore options for selling healthier snacks.

    If a person’s disability prevents him from eating food offerings at a place of public accommodation such as a theatre, reasonable accommodations must be made.  Such an adjustment would include allowing that person to bring compatible food to the establishment.  True,  even if the  theater has a policy, as the Pavillion did, that prohibits patrons from bringing outside food .

    Is diabetes a disability?  Diabetes is a disease in which blood glucose levels are above normal.  The illness can cause serious consequences including heart disease, blindness, kidney failure, and death. The ADA does not contain a list of medical conditions that constitute disabilities.  Rather, in each situation a person claiming protection by the ADA must satisfy the definition of disability.  According to the US Equal Employment Opportunity Commission, individuals with diabetes should “easily” be found to have a disability because they are substantially limited in the major life activity of endocrine function. As such, the Brooklyn theater had a duty to make reasonable accommodations including allowing Kass and others to bring outside healthy food into the theatre if such food is not available for purchase inside.

    DISCUSSION QUESTION:  

    What other accommodations might be needed  to accommodate deaf patrons of a theatre?  Of a restaurant?  Of a college

  • The Baby Eel Market -- $2,600 Per Pound and Poachers Abound

    Eels do not reproduce in captivity, and eels are needed in Asia as a critical part of their food supply.  The elvers, also known as glass eels, once captured area sold in Asian markets where they are used to restock eel supplies and they are raised to adulthood before being harvested for food. The damage in Japan due to the earthquake has resulted in exceptionally high demand from that country to replenish its destroyed aquaculture ponds.
    As a result of the demand, Maine and South Carolina have authorized the harvesting of baby eels (also called elvers).  However, the demand is so high (with the price per pound closing out in the 2012 market at $2,600 per pound, that poachers in other states are joining in because the work is lucrative. With prices now at $800-$900 per pound, other states are experiencing illegal poaching and Maine and Carolina are finding that many are fishing without an elver license.  Scott Calvert, “Illegal Trading of Young Eels Probed,” Wall Street Journal, May 7, 2014, p. A7.
    Maine regulators have begun what they call, “Operation Broken Glass,” a program to catch poachers.  In cooperation with the federal government, Maine officials have determined that the supply of eels has been affected and that they need to enforce limits as well as the number of authorized harvesters of elvers.
    Maine fishers are protesting the elvers quotas because of its impact on their sources of income. Harvesting elvers brings the highest price per pound than any of the other fish products Maine has to offer. However, members of the Mainer Elvers Fishing association have rallied for government intervention.

     Maine fishers are protesting the elvers quotas because of its impact on their sources of income.  However, rumors are that Maine officials are concerned about possible fraud by fishers who claim unemployment benefits during the non-elver months. 
    South Carolina has also imposed limits on catching elvers through regulations that limit the types of nets that the elvers can use. 
    DISCUSSION STARTERS 

    1.    What type of entity in Maine would be responsible for regulation of elvers?

    2.    Explain the concern about elver fishing and foreign governance.

     

  • University Uses Co-Ed’s Picture without Permission; Sued for Invasion of Privacy

           

    A model is suing for unauthorized use of her pictures in an advertising campaign for the New School, a University in New York City with 130 degree programs.  The photos are being disseminated in the following ways: on the school’s website; in a pamphlet promoting  summer school;  in a local newspaper; and on signs in subways and train stations. The plaintiff, Christine James Walker, brought the lawsuit only after the school disregarded a case-and-desist letter sent by her attorney.

    Walker graduated from the New School in 2012 with a degree in musical theater.  The pictures were taken in 2011 while she was a student  attending a class in Italian. The school photographer arrived unannounced and began taking pictures.  Not wanting to be photographed, Walker intentionally looked down while the pictures were being shot. 

    Walker has several grounds for being unhappy about the use of her pictures.  She is a professional model but was dressed for class and not for a photo shoot.  Unlike normal modeling gigs, she did not receive pre-photo makeup assistance or hair care treatment.  She asserts that the photos devalue her image as a result.  Further, she argues that she has lost the opportunity to model for another college or university.

    After the photos were taken, Walker was never contacted by anyone on behalf of the school seeking authorization to use the image or to discuss payment.  Yet, “All of a sudden, I’m the face of The New School.”.  Her picture is the only person shown in the ad, and so her images are not incidental..  She seeks  $250,000 for emotional distress, $125,000 for other compensatory damages, plus $10 million for punitive damages.  She also seeks a ban on the New School’s use of the images, and a recall of all advertising currently using her photo.

    The basis for the lawsuit is invasion of privacy, a tort meaning use of someone’s name or picture for business or commercial purposes without the person’s written permission.  The New School’s use of the photos is for the university’s business purpose of promoting the school to potential students. 

    Two exceptions exist to the need for written permission but neither applies in Walker’s circumstances.  The first is “newsworthiness.” This exception is interpreted broadly and includes images that are of legitimate public interest in association with an article or story about news, political happenings, social trends or any other topic that attracts the public’s attention.  In this case the New School’s use of Walker’s pictures were exclusively for business promotional purposes.

    The second exception is “incidental use” meaning that the use of plaintiff’s photo is brief or fleeting.  Here, Walker was featured solo in the college’s ad, and the ad was distributed in numerous formats.  Such use is central and significant, not brief or fleeting.

    To recover compensatory damages (money to compensate for plaintiff's loss), Walker will need to prove that she suffered losses in the amounts she seeks. Those amounts are high; proof may be difficult.  The invasion of privacy statute does authorize punitive damages, also called exemplary damages.  They can be awarded by a jury in addition to compensatory damages where the defendant’s actions are particularly outrageous and unacceptable.  Such damages are intended to punish the wrongdoer and deter others from similar conduct. Additionally, the statute authorizes equitable remedies including an injunction (a court order requiring a party to do or refrain from doing some specified act) prohibiting the New School from using her photo, and a recall of the existing ads.

     DISCUSSION QUESTION:

    1) How might Walker prove $250,000 worth of damages for emotional distress?

    2) What is the basis for the newsworthy exception to invasion of privacy?

     

  • Thirty-Year KPMG Partner Gets Prison Time for Passing Along Audit Client Info to a Friend

     

    Former KPMG partner (KPMG is one of the Big 4 public accounting firms) entered a guilty plea to insider trading. The U.S. Attorney in the case had recommended a three-year sentence, a term that feel short of the 46-57 months that was recommended under the federal sentencing guidelines. The U.S. Attorney in the case recommended a sentence less than the guidelines because Mr. London had "led an exemplary life."  Tamara Audi, "Prison Time for KPMG Ex-Partner," Wall Street Journal, April 25, 2014, p. C3. However,  the federal judge sentenced him to 14 months.  Interestingly, the judge noted that Mr. London passed along inside, non-public information about audit clients to a friend 14 times. His friend was then able to use the advance information to position himself in the stock market with regard to that audit client.  Mr. London's audit clients included Herbalife and Skechers USA. 

    The judge noted that one or two times is different from 14 times because, as the judge noted, Mr. London passed from inadvertent into conspiracy. Mr. London's lawyer argued that Mr. London was simply trying to help a friend whose business was experiencing some setbacks and who was in need of cash. In exchange, Mr. London received cash as well as gifts such as a watch.  The prosecutor summed up his argument in favor of prison time by noting, "Anytime you're a vice president of KPMG and you're on a street corner accepting nags of cash you're part of a corrupt arrangement."

    In reducing the amount of recommended prison time to the 14 months, the judge noted that  Mr. London spent 30 years with KPMG and had no prior criminal record. The judge also required Mr. London to pay a fine of $300,000 and serve three years of probation after he is released from prison.  Those three years must also include community service. 

     

    DISCUSSION STARTERS

    1.  Explain what the sentencing guidelines and prosecutors recommended in this case and why and why the judge went with a lesser sentence.

    2.  Why does the 14 times passing along information matter?

  • Fake Purses? Nope! Worry More About Fake Chain Saws and Viagra

    We know that Gucci and Louis Vuitton go after counterfeit purses and luggage with a vengeance.  WE also know that Cartier and Rolex protect their watch brands through aggressive infringement actions -- one of which ended in a public bull-dozing of fake designer watches.  However, the counterfeit market crosses all boundaries and involves all types of goods.  For example, Stihl, the German manufacturer of high quality chain saws, is in a constant battle with counterfeiters. The company's concern is not just the unauthorized use of its trademark and trade name, but that these knock-off chain saws are poorly made and, without necessary safety features. can be deadly for their buyers. Another example involves Viagra, and the dangers of using counterfeit drugs where content and production are not regulated as they are for the pharmaceuticals that own the patent.  And the dangers of using the fake saws?  Well, have a look.

     

    Other products that are counterfeit include batteries and air bags.  Currently, there are 50 federal investigations into the sale of counterfeit airbags, airbags that are defective because of the shoddy materials and also because of the chemicals they release if they are deployed in an accident. Product liability is not available as a means of recovering for the injuries caused by these fake pills, saws, and airbags because it is almost impossible to find the sources of production.  U.S. authorities suspect that the saws and air bags are being produced in China, but investigators have difficulty locating sources. Jon Swartz and Elizabeth Weise, "Online Buyer, Beware of Fakes," USA Today, May 1, 2014, p. 1A. 

    One tip that federal authorities give is to beware of purchasing products online, particularly at a substantial discount.  However, federal authorities are also the first to conclude that there is no easy way to determine what is authentic and what is fake, unless you are buying directly from the company that produces the goods. Pfizer is working to develop videos and advice for consumers in how to tell a real Viagra pill from a counterfeit one.  Pfizer is taking swift action because the counterfeit pills contain harmful substances.  Pfizer is also alerting emergency room physicians about symptoms that have developed in those who have used counterfeit Viagra.There is some progress in the online sales battle.  Currently, there are 250 of the 7,000 U.S. ICE agents who are classified as "computer agents" and who go online to investigate counterfeit pharmaceuticals.  With some help from Amazon and Alibaba, the agents are able to identify the fake products, and the online retailers are then pulling them from their sites. 

    The sale of counterfeit goods such as saws, prescription drugs, and batteries has proven more elusive than the traditional watch and purse counterfeit items.  These types of counterfeit products are also dangerous for those who purchase them.  Mixing in the fact that these sales are done online through untraceable sources makes shutting down the counterfeiters even more unlikely. Perhaps the education campaign companies are undertaking about the dangers of the fake products may prove to be the best way to stop the infringement.  Halting sales through the warning to potential purchasers makes for an unprofitable counterfeiter. 

    DISCUSSION STARTERS

    1.  Explain how some types of counterfeit goods are elusive and dangerous.

    2.  What actions are the trademark owners taking to stop the counterfeiting?

     

     

  • What's a FOIA? And Who Is Ben Ghazi?

    Sometimes the rumblings from Washington, DC seem as if they have little to do with our lives and it seems difficult to find much that affects us directly.  But, there are several unfolding events that can help you to understand administrative law, constitutional law, and criminal law (think obstruction of justice).

    The legal events that bring together administrative law, constitutional law, and criminal law into one vortex began on September 11, 2012.  The U.S. Embassy in Benghazi, Libya was attacked by an arm of the terrorist group, al Qaeda. The U.S. Ambassador to Libya, along with three members of the embassy’s security team were killed and many others wounded in a lengthy firefight with the terrorists.

    Initially, the attack was attributed to outrage in the region over an Internet video that was made in the United States, a video that was anti-Islamist.  However, that explanation was later clarified and/or changed to conclude that it was indeed a terrorist attack.  Because of the shifting explanations and contradictions, the House of Representatives began an investigation and requested copies of e-mails, documents, and other correspondence from the White House.  The three co-equal branches of government do provide checks and balances on each other, and congressional investigations are one means of checking up on the Executive Branch (i.e., the White House).

    The White House responses to requests for documents from Congress were slow, redacted, and selective.  Judicial Watch, a private, non-profit group filed a Freedom of Information Act request (this is where you get “FOIA request”) that asked for all documents and e-mails relating to the analysis of the Benghazi attacks.  The FOIA allows private citizens to request federal agencies to disclose documents unless exempted, as in the case of national security.  However, a federal court upheld the Judicial Watch FOIA request and ordered the disclosure of Benghazi materials and information.  In the disclosures made as a result,  were several e-mails from White House officials regarding preparation of State Department officials for their discussion of the Benghazi attacks.  When the State Department released its documents under the court order, some inconsistencies in various statements and actions arose.  Further, the documents disclosed had been part of White House records sought by Congress, but were never produced. You can read a summary of the FOIA requests here. 

    As a result of the FOIA disclosures, inconsistencies, and the problems of new documents emerging after 20 months of requests, Congress has formed a select committee to investigate what really happened at Benghazi.  A select committee has subpoena power, and this type of committee is the tool used by Congress to get to the bottom of presidential conduct, including the Nixon Watergate scandal and the Reagan Iran-Contra issues.  The constitutional power to investigate has been upheld by the U.S. Supreme  so that presidents can always be held accountable.

    In this situation, Congress will have its own lawyers representing it in the quest for documents, testimony, and in writing its reports.  Congress can also make recommendations for prosecution. One of its most frequent recommendations or referrals for prosecution will come from its findings as to why documents were not disclosed upon original request by Congress.  Withholding documents in congressional or other investigations is obstruction of justice.  For example, many staff members in the Nixon White House were prosecuted for their failure to disclose information to Congress regarding the Watergate burglary.

    The Select Committee has already begun its work.  Its work stems from a combination of constitutional law, administrative law, and criminal law. You are also witnessing history as FOIA plays a critical role. 

    DISCUSSION STARTERS

    1.      Explain what a FOIA request is and who can make these requests. Explain also who enforces the requests.

    2.     Discuss the interrelationships of the three branches of government under our constitution. 

  • Lengthy Sentence Imposed for Prolonged Economic Crimes against NYC

                 

    A federal judge imposed sentences of 20 years in prison for each of three men convicted of defrauding NYC of $100 million, plus a fine of $47 million.

      A business with which the three were connected was hired in 1998 by the municipality in 1998 to develop an automated payroll system to replace the city's  antiquated one.  The company was retained to manage the new system as well. The budget for the program was $63 million.  By 2011 the city had been billed almost $700 million.  That amount included overbilling for independent contractors hired to do computer programming for the project, money pocketed by the three defendants, and other misdirected revenues.

    Jurors convicted the men five months ago of conspiracy to commit scheme to defraud, bribery, money laundering, and theft.  The crime of conspiracy means that a defendant contracted with another to commit a crime.  A scheme to defraud refers to almost any deception that deprives a person, business or government entity of property by trick, overreaching or other dishonest method.  Such acts constitute the crime even though the victim was gullible, failed to protect himself, or should have perceived the problem but did not. Bribery is the crime of giving something of value in exchange for action that benefits the bribing party.  Accepting a bribe is likewise a crime. One of the defendants had offered a bribe to the other two, wanting to participate in the lucrative scheme.  The other two accepted the bribe.  Money laundering is concealment of illegally obtained money by making it appear to be proceeds of a legitimate business.

    Before the criminal case was commenced against the three  conspirators, the state prosecutor settled a case against their company.  It agreed to forfeit $500 million and signed a deferred prosecution agreement meaning that the state prosecutor agreed to refrain from pursing criminal charges provided the company met certain requirements including the large payment. The federal prosecution likely resulted from  discontent over the lenient resolution of the state criminal charges.

    The judge imposed the maximum sentence on each of the several charges of which the men were convicted.  The judge directed that the prison terms be served concurrently meaning simultaneously.  Thus, the maximum each man will spend behind bars is approximately 20 years.

    The new mayor of NYC, Bill de Blasio, concurred with the sentence saying, "[T]he people who did it really have to experience an outcome that makes clear to others that crime doesn't pay."  This underscores two of the goals of sentencing - deter recidivism by the defendant, and deter the public from committing similar crimes.

    The crimes were enabled in part by New York City’s weak oversight of the consultants.  The sentencing judge chastised the city during the sentencing procedure for lack of “adequate and effective oversight” which might have stopped the scheme long before the defendants' fraud was discovered.   A city spokesperson announced "new internal control protocols" for technology contracts intended to address the deficiencies.

    The business was apparently a family affair. Five others already pled guilty to aiding the scheme including the wife, mother and cousin of one of the sentenced defendants.

    Lengthy sentences for economic crimes that don’t involve violence are somewhat unusual.  In this case, the long duration of the fraudulent scheme was likely a significant factor in the sentencing decision.

    For more information, click here: http://www.nytimes.com/2014/04/29/nyregion/three-men-sentenced-to-20-years-in-citytime-scheme.html?hpw&rref=nyregion&_r=0

    DISCUSSION QUESTIONS:

    1) Is jail an appropriate sentence for a nonviolent crime?

    2) Do you agree with the judge's decision that the sentences should run concurrently?  Why or why not?