Posted On Friday, December 15, 2017
What Happened?
In the fraud trial of Martin Shkreli, co-defendant and former Katten Muchin Rosenman LLP attorney, Evan Greebel, the Court sent the jury home for the day after the defense made “potentially career-ending allegations” concerning an unnamed government official.
The Rundown
Greebel is charged for his role in Shkreli’s scheme of using sham consulting and settlement agreements for cash and shares of Retrophin, Inc., to pay off investors in one of Shkreli’s MSMB hedge funds. Trial commenced on October 20, 2017, and the defense began to present its case on December 6, 2017.
On December 13, 2017, Steven Rosenfeld, an investor in Retrophin and one of Shkreli’s MSMB hedge funds, took the stand for the defense. He testified that, while he entered into a consulting agreement that provided him with $200,000 and stock in Retrophin, he actually performed consulting services for the company.
His testimony went off the rails when defense counsel inquired about his meetings with the government. First, defense counsel asked about a 2015 encounter with the FBI, where agents came to his home. Rosenfeld began to testify that he had asked the agents if he could call his attorney, but the prosecution objected, and a sidebar ensued. Defense counsel then turned to Rosenfeld’s next meeting with the government. A question regarding whom Rosenfeld met with led to a second objection from the prosecution and another lengthy sidebar. After the sidebar, Judge Kiyo Matsumoto dismissed the jurors for the day. She ordered sealed briefing from the parties on what she described as “potentially career-ending allegations” made by the defense. The parties will brief the matter, addressing among other issues, whether any statements made by government officials outside the courtroom constitute party admissions.
The Take-Home
The Court will rule on the admissibility of the Rosenfeld’s testimony regarding his second meeting with government officials. Whether the allegations raised at sidebar have a more significant impact on the trial, or on any officials’ careers, remains to be seen.
What Happens Next?
The trial, which has lasted for more than two months, will proceed on December 14, 2017.
Posted On Thursday, December 7, 2017
What Happened?
The Supreme Court heard oral argument yesterday in Marinello v. United States. The case will determine whether a defendant can be convicted under Internal Revenue Code 7212(a) for the corrupt obstruction of the administration of the code in the absence of an ongoing IRS audit or proceeding of which the defendant was aware.
The Rundown
Petitioner Carlo Marinello pled guilty to misdemeanor charges of failing to file tax returns for his all-cash courier freight service business. The government alleged that in addition to not filing tax returns or withholding payroll taxes, Marinello also shredded bank statements and other relevant financial records. Marinello was charged and convicted under Section 7212(a) of the Internal Revenue Code, which makes anyone who “corruptly or by force…endeavors to obstruct or impede the due administration of this title” guilty of a felony. After the verdict, Marinello argued in his motion for a judgment of acquittal, or a new trial, that the government had to prove that an IRS investigation was ongoing and that Marinello knew of the investigation at the time he destroyed his financial records and failed to provide tax information. The district court denied his motion and the Second Circuit affirmed the conviction, finding that an obstruction charge under Section 7212(a) need not be tied to an IRS proceeding.
Marinello argued that criminal liability under the statute must be based on the obstruction of a specific proceeding or investigation. Without that necessary tie, interpretation of the provision would be so broad as to encompass innocent actions like paying your gardener or snow shoveler in cash, because doing so would make it harder for the IRS to assess tax liability for both parties. The cash payment would also meet the statute’s mens rea requirement if the payor knew about the statute and made the payment in cash anyways to assist the gardener in some way. Three tax and defense lawyers’ associations as well as the Chamber of Commerce each filed an amicus brief on Marinello’s behalf.
The government admitted that the gardener/snow shoveler example may fall within the statute’s purview but argued that the “corruptly” mens rea requirement sufficiently limited the statute’s scope because that action would only have an obstructive effect if it is paired with efforts to mislead or deceive the IRS. Therefore, simply paying someone in cash because it’s easier to do so in certain circumstances would not be obstruction because the law does not require “that the administration of the code has to be made maximally easy.” On the other hand, paying in cash would violate the statute if it was done with knowledge that the payee preferred a cash payment because he would rather not report the income.
For the Record
Justice Breyer noted in his questioning with respect to the gardener/shoveler example that under Marinello’s interpretation of the statute, the government would have “discretion to indict, I won’t say half the country – but…a very significant number of people.”
The Take Home
As DOJ policy mandates that prosecutors must prosecute cases to the maximum extent allowed by law, the Court’s ruling will dictate whether the government can tack on this felony obstruction charge to an otherwise relatively minor misdemeanor tax case (of which there are many). The ruling also has implications for the interpretation of other types of obstruction statutes and whether the defendant’s conduct must be tied to an ongoing government action or proceeding.
If you become the subject of an audit or investigation, contact one of our Attorneys today.
