Top Menu

Lindsey Manufacturing Case Officially Over

As detailed in this prior post, in May 2011, Lindsey Manufacturing Company (a privately held manufacturer of electrical transmission and related products that employs approximately 100 individuals) and Keith Lindsey (President) and Steven Lee (Chief Financial Officer) were convicted after a five week trial by a federal jury in the Central District of California of one count of conspiracy to violate the FCPA and five counts of FCPA violations.  Reacting to the guilty verdicts, Assistant Attorney General Lanny Breuer stated in this release as follows. “Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last.”

As detailed in this prior post, in December 2011, the DOJ’s “important milestone” was erased when Judge Howard Matz, after months of legal wrangling, vacated the convictions and dismissed the indictment.   See here for Judge Matz’s ruling.  In his ruling, Judge Matz summed up the government’s conduct as an “unusual and extreme picture of a prosecution gone badly awry.”

The DOJ appealed Judge’s Matz’s ruling to the 9th Circuit.  Earlier today, the DOJ filed a motion for voluntary dismissal of the appeal.

Jan Handzlik (Venable – here) represented Lindsey Manufacturing and Lindsey and Janet Levine (Crowell & Moring – here) represented Lee.

In an e-mail statement, Handzlik stated as follows.  “By filing today’s dismissal motion, the government has dropped its prosecution of the Company and its officers, and will also end its efforts to forfeit about $24 million from the Company.  By deciding not to pursue its appeal of Judge Matz’ dismissal order, the government has ended the case.”  Handzlik further stated as follows.  “This is a great day for the fair administration of justice. We couldn’t be happier for Keith, Steve and the 110 loyal, hard-working employees of Lindsey Manufacturing Company.  This dismissal further vindicates Dr. Lindsey’s belief in our system of justice and in his innocence.  Keith and Steve were steadfast in their belief that the government had not played fair and that the truth would come out.”

Writer’s Cramp At The DOJ?

This is the second time I have written about this issue (see here for the first).  This time, the examples are more numerous and more significant.

The DOJ has stated (here) that its FCPA website (here) includes documents related to more than 140 FCPA prosecutions including “charging documents, plea agreements, deferred prosecution and non-prosecution agreements, press releases,and relevant pleadings and orders.”  To be sure, the DOJ has a nice (and much improved upon) FCPA website.  However, as demonstrated below, if one’s objective is to be informed of all FCPA developments (not just those that cast the DOJ in a favorable light), there are a number of websites, this one included, that highlight such developments, but the DOJ’s website is not one of them.

*****

In January 2010, the DOJ issued this release announcing the Africa Sting charges and it also held a press conference to discuss the charges.  In July 2011, Judge Richard Leon declared a mistrial in the first Africa Sting case (see here for the prior post).  However, there was no DOJ press release announcing this development and if your only source of information was the DOJ’s FCPA website you would not know that this development occured because there is no mention of it.

In 2007 Si Chan Wooh, an employee of SSI International, a wholly-owned subsidiary of Schnitzer Steel, was criminally charged (see here).  The DOJ issued a release (here) anouncing the charges and related guilty plea.  However last year, as reported in this Wall Street Journal Corruption Currents story, “the Justice Department informed Wooh’s counsel that a Federal Bureau of Investigation agent assigned to the investigation of Schnitzer and its employees had written a letter to high-ranking prosecutor in Washington saying Wooh should not have been charged in connection with the case.”  In October 2011, in this filing the DOJ moved to dismiss the case “out of prosecutorial discretion in the interests of justice and the efficient use of government resources.”  There was no DOJ press release announcing this development and if your only source of information was the DOJ’s website you would not know that this development occured because there is no mention of it.

In May 2011, the DOJ issued this same day release when Lindsey Manufacturing and its executives Keith Lindsey and Steve Lee were found guilty of FCPA offenses after a jury trial.  However, in November 2011, Judge Howard Matz vacated the FCPA convictions of Lindsey Manufacturing and its executives and dismissed the indictment (see here for the prior post).  Again nothing from the DOJ, no press release, and no mention of this development on its website.

In December 2011, during the second Africa Sting case, Judge Richard Leon, at the close of the DOJ’s case, dismissed a conspiracy charge as to all defendants (see here for the prior post).  Because this was the only charge Stephen Giordanella faced, he was exonerated.  However, if your only source of FCPA knowledge was the DOJ’s website, you would not know this because there is nothing there as to this development.

In November 2009, the DOJ issued this release when John Jospeh O’Shea was arrested and charged with FCPA and related offenses.  However, on January 16th, Judge Lynn Hughes, after the DOJ’s case, dismissed the FCPA charges against O’Shea (see here for the prior post).  However, if your only source of FCPA knowledge was the DOJ’s website, you would not know this because the DOJ did not issue a release and there is nothing on its website regarding this development.  [Someone was staffing the DOJ press office at this time because approximately 18 hours later, the DOJ announced (here) a $55 million FCPA enforcement action against Marubeni Corporation of Japan.]

Returning to the second Africa Sting trial, earlier this week, Patrick Caldwell and John Godsey were found not guilty by the jury (see here for the prior post).  The next day, Judge Leon declared a mistrial as the remaining defendants –  John Mushriqui, Jeana Mushriqui and Marc Morales (see here for the prior post).  Again, nothing from the DOJ as to these developments.

President Obama has championed transparency and open government.  In this release, President Obama stated as follows.  “Transparency promotes accountability and provides information for citizens about what their Government is doing.  Information maintained by the Federal Government is a national asset. My Administration will take appropriate action, consistent with law and policy, to disclose information rapidly in forms that the public can readily find and use.”

Consistent with President Obama’s directive, the DOJ’s website ought to be improved and ought to keep citizens informed of all FCPA developments – not just those that cast the DOJ in a favorable light.

Milestone Erased: Judge Matz Dismisses Lindsey Convictions, Says That “Dr. Lindsey And Mr. Lee Were Put Through A Severe Ordeal” And That Lindsey Manufacturing, A “Small, Once Highly Respected Enterprise … Placed In Jeopardy”

As detailed in this prior post, last May, Lindsey Manufacturing Company (a privately held manufacturer of electrical transmission and related products that employs approximately 100 individuals) and Keith Lindsey (President) and Steven Lee (Chief Financial Officer) were convicted after a five week trial by a federal jury in the Central District of California of one count of conspiracy to violate the FCPA and five counts of FCPA violations.

Reacting to the guilty verdicts last May, Assistant Attorney General Lanny Breuer stated in this release as follows. “Today’s guilty verdicts are an important milestone in our Foreign Corrupt Practices Act (FCPA) enforcement efforts. Lindsey Manufacturing is the first company to be tried and convicted on FCPA violations, but it will not be the last.”

The DOJ’s “important milestone” has been erased as Judge Howard Matz, after months of legal wrangling, vacated the convictions and dismissed the indictment.   See here for Judge Matz’s ruling.

Jan Handzlik (Venable – here) represented Lindsey Manufacturing and Lindsey and Janet Levine (Crowell & Moring – here) represented Lee.

Judge Matz’s ruling begins as follows.  “In this Court’s experience, almost all of the prosecutors in the Office of the United States Attorney for this district consistently display admirable professionalism, integrity and fairness.  [A footnote states – Two of the three members of the prosecution team in this case were from the Washington, D.C., main office of the Department of Justice, including the lawyer who initiated the investigation. Only one “local” AUSA was involved].  So it is with deep regret that this Court is compelled to find that the Government team allowed a key FBI agent to testify untruthfully before the grand jury, inserted material falsehoods into affidavits submitted to magistrate judges in support of applications for search warrants and seizure warrants, improperly reviewed e-mail communications between one Defendant and her lawyer, recklessly failed to comply with its discovery obligations, posed questions to certain witnesses in violation of the Court’s rulings, engaged in questionable behavior during closing argument and even made misrepresentations to the Court.  Consequently, the Court throws out the convictions of Defendants Lindsey Manufacturing Company, Keith E. Lindsey and Steve K. Lee and dismisses the First Superseding Indictment.”

In reaching his conclusion, Judge Matz  acknowledges that even he was overwhelmed by the pace of the case and thus unable to see sooner the gravity of the DOJ’s misconduct.  The following paragraph from his order is telling.  “… [When a trial judge managing a large docket is required to devote a great deal of time and effort to a fast-moving case that requires numerous rulings, often the judge will miss the proverbial forest for the trees. That is what occurred here.  This Court was confronted with so many motions challenging the Government’s conduct that it was difficult to step back and look into whether what was going on reflected not isolated acts but a pattern of invidious conduct. Although the Court did issue orders granting various of Defendants’ motions to suppress, motions to exclude evidence, motions to compel further discovery, motions for curative instructions, etc., it did not fully comprehend how the various pieces fit together. And fit together they do. The Government has acknowledged making many “mistakes,” as it characterizes them. “Many” indeed. So many in fact, and so varied, and occurring over so lengthy a period (between 2008 and 2011) that they add up to an unusual and extreme picture of a prosecution gone badly awry. To paraphrase what former Senator Everett Dirksen supposedly said, “a few mistakes here and a few mistakes there and pretty soon you’re talking misconduct.””

Upon first hearing of Judge Matz’s tentative ruling earlier this week, my initial reaction was that his decision would have little impact on FCPA enforcement (other than perhaps the O’Shea case pending in the S.D. of Texas given that it focuses in part on the same evidence and involves the same prosecutor).  After all,  prosecutorial misconduct motions focus on specific actions by specific actors.

Upon reading Judge Matz’s order however, it seems clear that his decision was based in part on the quality of the DOJ’s case in the first instance.  Post-trial motions as to sufficiency of the evidence and based on various FCPA elements were pending, but are now moot.  In any event, it is reasonable to conclude that Judge Matz might have vacated the jury verdict based on substantive grounds.

For instance, in addition to criticizing the DOJ’s willful blindness instruction, Judge Matz stated that it was improper and misleading for the DOJ to take inconsistent positions as to certain alleged school payments to the son of the Mexican “foreign official.”   Because of the DOJ’s misconduct, Judge Matz stated as follows concerning Defendants’ opening statement.  “In their opening statements defense counsel were not in a position to cite grand jury transcripts as support for what eventually became part of their defense. Lacking the factual support they needed, they could not and did not assert, in effect, “The evidence will show that the Government team failed to conduct a complete and fair investigation. In fact, the Government obtained the very charges in the indictment through false and misleading grand jury testimony of an FBI agent. The prosecution has been scrambling to find out what happened ever since. Had they done their homework properly, they would have learned long before now that there was no crime.””

More on point, Judge Matz stated as follows.  “A clearly established additional basis for finding prejudice is the weakness of the Government’s case. The case against the Lindsey Defendants was far from compelling. That the jury returned its verdicts after some seven hours of deliberation is not a reliable indication of just how close the evidence was, contrary to the Government’s contention. For example, the key issue as to the Lindsey Defendants was whether they knew that the monies that LMC would and did pay to Grupo would be used by Enrique Aguilar to bribe CFE officials, and whether they intended that to happen. There was no direct evidence of such intent. There were no oral admissions (secretly recorded or otherwise); no writings acknowledging the payments were corrupt; no evidence of furtive conduct, except perhaps for the disputed bookkeeping reclassification of one contract, described above. The circumstantial evidence, at best, was murky.”

In conclusion, Judge Matz stated as follows.  “The unavoidably dry recital of the background and prosecution of this case set forth above does not fully account for the real impact of the Government’s conduct. Dr. Lindsey and Mr. Lee were put through a severe ordeal. Charges were filed against them as a result of a sloppy, incomplete and notably over-zealous investigation, an investigation that was so flawed that the Government’s lawyers tried to prevent inquiry into it. In some instances motives, statements and conduct were attributed to them that were wholly unfounded or were obtained unlawfully, such as the statements attributed to Dr. Lindsey that were suppressed because of Miranda violations and Agent’s Guernsey’s grand jury testimony that Lee “didn’t want to know” what Aguilar would do with the commission payments. The financial costs of the investigation and trial were immense, but the emotional drubbing these individuals absorbed undoubtedly was even worse. As for LMC, the very survival of that small, once highly-respected enterprise has been placed in jeopardy. That is not to say that the Lindsey Defendants are entitled to a finding of factual innocence; they are not. Moreover, the hardships described in the preceding paragraph are the plight of many defendants who go to trial. But as the Kohring dissent phrased it, “In this case, dismissal of the Superseding Indictment is justified not only as a deterrent but to release [defendant] from further anguish and uncertainty.””

Whatever impact Judge Matz’s decision will have on FCPA enforcement, this much is clear:  the DOJ is now 0-2 in corporate criminal prosecutions.  As detailed in this prior post, in 1991, in an FCPA case involving Harris Corporation, John Iacobucci, and Ronald Schultz, U.S. District Judge Charles Legge (N.D. of California) granted a verdict of acquittal after the DOJ’s case.  Citing insufficient evidence, Legge said the government had failed to show any intent by the defendants to enter into a criminal conspiracy.

Lindsey Misconduct Briefing Complete

Circle October 17th on your FCPA calendar.  On this day, U.S. District Court Howard Matz (C.D. Cal.) will hear arguments whether the DOJ’s first and only jury trial conviction of a corporate FCPA defendant (as well as two individual defendants) should stand or be dismissed because of the DOJ’s alleged prosecutorial misconduct.

This prior post asked, based on comments Judge Matz made during a June hearing, whether the DOJ’s conviction of Lindsey Manufacturing and its executives Keith Lindsey and Steve Lee is hanging by a thread.  This post summarized (and linked to) the defendants’ supplemental motion to dismiss.  This post summarized (and linked to) the DOJ’s response brief.

Recently, Janet Levine (Crowell & Moring – here) and Jan Handzlik (Venable – here), counsel for the defendants, filed a reply brief (here).  The issues in dispute are highly factual and the brief opens as follows.  “From at least October 2008, the prosecution engaged in a course of misconduct that was both flagrant and prejudicial.  Among other things, the prosecutors inserted false factual statements into their agent’s search warrant affidavit; failed to bring those statements to the agent’s attention; repeatedly used affidavits containing these falsehoods for searches and seizures; changed the contents of proposed search warrant authorizations from language that comported with the Fourth Amendment to language that allowed the case agents to conduct general searches of electronically stored information; allowed false testimony to be presented to the grand jury; shielded that false testimony and other falsehoods and failures in the investigation from disclosure to the grand jury, the Court and the Lindsey-Lee Defendants; failed to comply with disclosure orders and with Brady v. Maryland; failed to comply with this Court’s limiting instructions; and improperly and prejudicially argued willful blindness to the jury.” 

In closing, defendants argued as follows.  “Regardless of what terms are used to describe the prosecution’s actions — “mistake,” “misconduct,” “error” — and regardless of whether the prosecution acted willfully or not, one thing is clear: the prosecution, at the very least, recklessly and continuously disregarded its obligations to the Court, the defendants and the Constitution. The cumulative effect of this misconduct substantially prejudiced the defendants’ ability to secure a fair trial.”  According to defendants, “[t]his pattern of misconduct requires dismissal with prejudice.”

DOJ – Mistakes Were Made, But Lindsey Defendants Were Fairly Convicted

DOJ attorneys were laboring away over the holiday weekend as it filed (here) its response brief in the Lindsey Manufacturing prosecutorial misconduct motion to dismiss. 

By way of review, in May (see here for the prior post), after a five week trial in federal court in the C.D. of California, a jury returned guilty verdicts against Lindsey Manufacturing and its executives Keith Lindsey and Steven Lee for conspiring to violate the FCPA and for violating the FCPA. During a June hearing on the Lindsey defendants’ motion to dismiss for prosecutorial misconduct, Judge Matz made comments suggesting that the DOJ’s only jury trial conviction of a corporate entity in FCPA history may be hanging by a thread. (See here for the prior post). Judge Matz invited the Lindsey defendants to file a supplemental brief, which they did in late July (see here for the prior post), and yesterday the DOJ filed its response brief.

The DOJ’s brief is 91 pages (the nature of the issues in dispute are highly factual) and  states, in summary, as  follows.  “… [A]lthough the government did make some mistakes during its investigation and prosecution of this case, they were inadvertent and non-prejudicial errors made during a complex matter.  The defendants not only unfairly and improperly characterize these honest mistakes as ‘misconduct,’ but the defendants often go even further, alleging misconduct where the government made no error at all.”  The DOJ further stated as follows.  “In short, the defendants stand fairly convicted, and the jury’s unanimous verdict is amply supported by the evidence and free of prejudicial error. Whether assessed individually or cumulatively, the defendants’ claim that ‘[e]very aspect of this case was infected by purposeful prosecutorial misconduct,’ …  cannot withstand scrutiny and is simply not true.”

The Lindsey defendants have until September 26th to file their reply brief and a hearing on the motion is set for October 17th.

 

 

Powered by WordPress. Designed by WooThemes