January 2011 Archives

Sixth Circuit Tackles Valuation Under the Computer Fraud and Abuse Act

January 31, 2011, by The McKellar Law Firm, PLLC

Although the Computer Fraud and Abuse Act ("CFAA"), 18 U.S.C. § 1030, has been alive and well for 25 years, Courts have varied in their approach on determining valuation under this statute. Under the CFAA, valuation plays a pivotal role in determining whether the crime will be treated as a misdemeanor or felony, the appropriate Sentencing Guidelines Range, and the amount of restitution.

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In United States v. Batti, 2011 WL 111745, (6th Cir., Jan 14, 2011), the Defendant was charged with violating the CFAA and particularly with improperly accessing information from a protected computer, in violation of 18 U.S.C. § 1030(a)(2)(C) and (c)(2)(B)(iii). Batti appealed the trial court's finding that the value of the information that he obtained exceeded $5,000 and the district court's order of $47,565 in restitution. The Sixth Circuit determined that the trial court properly used the "value of production" in determining the value of the information that Batti illegally took, and the Court further decided that the trial court did not abuse its discretion in ordering restitution in the amount of $47,565.

18 U.S.C. § 1030(a)(2)(C) sets out the prohibited conduct as follows:

(a) Whoever ... (2) intentionally accesses a computer without authorization or exceeds authorized access, and thereby obtains ... (C) information from any protected computer ... shall be punished as provided in subsection (c) of this section.

Per the indictment, the prosecution sought a felony conviction by alleging, pursuant to subsection (B)(iii) of the CFAA, that Batti "obtained information valued in excess of $5,000.00." The only portion of this charge that Batti challenged in the court below was whether the value of the information that he obtained exceeded $5,000. The appellate court ultimately agreed with the trial court's valuation for both sentencing and restitution purposes.

Batti first argued that since he did not damage the stolen information, the "value of the information obtained" could not have exceeded $5,000. The Sixth Circuit echoed the view of the trial court by stating, "There simply is no requirement under the pertinent subsections of § 1030 that Defendant's unauthorized access must have led to any sort of loss, that the value of the information must have been diminished as a result of his conduct, or that he somehow must have profited from his actions. Rather, the trier of fact-in this case, the Court-is called upon only to determine the value of the information through some appropriate means."

Batti also argued that there was no "market value" to the information that was stolen, and accordingly, the court could not assess a value to the information. Again, the Sixth Circuit rejected this argument by stating, "We believe there is also no merit in this argument, because, as we explain below, although there may be no readily ascertainable market value for the video footage that Batti obtained, the cost of production of that footage was a permissible basis on which the district court could rely in determining whether the value of the information obtained exceeded $5,000."

The Sixth Circuit Court of Appeals concluded:

...where information obtained by a violation of § 1030(c)(2)(B)(iii) does not have a readily ascertainable market value, it is reasonable to use the cost of production as a means to determine the value of the information obtained. The district court here believed that the amount Campbell-Ewald paid for the "spots" or video footage that Batti later obtained could be viewed as the footage's market value, but the district court also recognized that footage of this type is not sold on a typical retail market. As a result, the district court believed that the amount that Campbell-Ewald paid for the footage could also be viewed as the cost of production for the development of advertisements or commercials. We see no error in this approach.

The Court acknowledged that the "value of production" method is not the only way to calculate value under the CFAA, and in fact, other circuits have not agreed with the analysis used by the Sixth Circuit. However, computer fraud attorneys in the Sixth Circuit should be aware of the implications of this ruling on a client's sentencing and restitution amounts.

Sixth Circuit Upholds Constitutionality of Federal Sexual Enticement Law

January 26, 2011, by The McKellar Law Firm, PLLC

Earlier this week, the Sixth Circuit Court of Appeals upheld the constitutionality of federal law regarding enticing a minor to engage in a criminal sexual act, in violation of 18 U.S.C. § 2422(b). In United States v. Hughes, No. 09-5787 (Decided January 24, 2011), after pleading guilty to violating this statute, the defendant appealed his 10-year minimum mandatory sentence on the basis that the statute violated the Fifth and Eighth Amendments.

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18 U.S.C. § 2422(b) provides:

Whoever, using the mail or any facility or means of interstate or foreign commerce, or within the special maritime and territorial jurisdiction of the United States knowingly persuades, induces, entices, or coerces any individual who has not attained the age of 18 years, to engage in prostitution or any sexual activity for which any person can be charged with a criminal offense, or attempts to do so, shall be fined under this title and imprisoned not less than 10 years or for life.

In July of 2008, Hughes exchanged online communications with someone he believed to be a14-year-old girl, but who in actuality was an undercover detective. Hughes eventually proposed meeting at a park in Louisville, Kentucky to engage in sexual activity. When Hughes arrived at the park, he was arrested by the Louisville Metro Police Crimes Against Children Unit, and indicted on the charge of attempting to persuade, induce, or entice a 14-year-old girl to engage in sexual activity, in violation of 18 U.S.C. § 2422(b). The statute carries a mandatory minimum sentence of ten years of imprisonment.

Defendant Hughes appealed on the grounds that the 10-year minimum mandatory sentence was grossly disproportionate to his offense, which would therefore violate the Eighth Amendment's protection against cruel and unusual punishment. The Sixth Circuit rejected this argument, and wrote that "A defendant challenging his sentence under the Eighth Amendment has a tremendously difficult burden to meet. In the last century, the Supreme Court has struck down only a handful of non-capital sentences under the Eighth Amendment, and those cases have been egregious in the extreme." The Sixth Circuit concluded that the minimum mandatory under 18 U.S.C. § 2422(b) was not grossly disproportionate.

Hughes' next argument was that the statute violated the equal protection rights of the Fifth Amendment because of the sentencing disparity between himself and similar defendants who were sentenced under a different statute, 18 U.S.C. § 2423(b), "Transportation of Minors." Hughes claimed that other defendants committed acts that were similar to his (i.e., that those defendants used the internet to arrange sexual encounters with minors), but that those defendants were indicted under 18 U.S.C. § 2423(b) and were therefore not subject a minimum mandatory sentence. The Sixth Circuit rejected his argument because these two statutes address "separate crimes encompassing different elements." The Court noted that an important difference between the two statutes is that "§ 2423(b) requires interstate travel and intent to engage in sexual conduct, but has no requirement that there be an element of enticement or coercion. Section 2422(b), on the other hand, requires that a defendant 'persuades, induces, entices, or coerces' a minor to perform illicit sexual activity, or attempts to do so."

Possession of Prohibited Gun Parts Can Lead to Severe Punishment Under Federal Law

January 25, 2011, by The McKellar Law Firm, PLLC

Federal Criminal Defense Lawyers often deal with cases involving firearms and handguns, and these types of cases come in a variety of shapes and sizes. This blog post is designed to address a few issues arising from possession of prohibited gun parts, including silencers, which is prohibited by 26 U.S.C. § 5861(d).

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26 U.S.C. § 5861(d) makes it "unlawful for any person ... to receive or possess any firearm which is not registered to him in the National Firearms Registration and Transfer Record." A silencer is a type of firearm, according to 26 U.S.C. § 5845(a)(7), and is defined by 18 U.S.C. § 921(a)(24) as "any device for silencing, muffling, or diminishing the report of a portable firearm, including any combination of parts, designed or redesigned, and intended for use in assembling or fabricating a firearm silencer or firearm muffler, and any part intended only for use in such assembly or fabrication." Defenses to violations of these laws based on a silencer being inoperable typically fail. (See United States v. Carter, 465 F.3d 658 (6th Cir.2006); and United States v. Rose, 522 F.3d 710, (6th Cir.2008).

The penalties and punishment for violating this federal gun law are found in 26 U.S.C. §§ 5871 & 5872 and United States Sentencing Guidelines § 2K2.1. The statute states, "Any person who violates or fails to comply with any provisions of this chapter shall, upon conviction, be fined not more than $10,000, or be imprisoned not more than ten years, or both." The statute also provides for forfeiture of any weapon governed under the statute. The sentencing guidelines vary greatly depending on factors such as criminal history, type of weapon, number of weapon, and intended use of the weapon, among others.

Gun collectors and amateur firearm enthusiasts should be very careful about the types of guns, firearms, and ammunition, that they maintain in their possession or control. Simply having illegal or prohibited parts, even if inoperable, may result in your arrest for violation of federal gun laws.

Tennessee Man Pleads Guilty to Violating Arms Export Control Act

January 21, 2011, by The McKellar Law Firm, PLLC

Knoxville, Tennessee federal criminal defense lawyers won't often deal with violations of 22 U.S.C. § 2778, which is commonly referred to as the Arms Export Control Act (AECA). The AECA provides the federal government with authority to control the export of defense articles and services.

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Earlier this week, Jerome Pendzich of Hampton, Tennessee, pleaded guilty to violating the AECA here in U.S. District Court in Knoxville. According to an article by Jamie Satterfield in the Knoxville News Sentinel, Immigration and Customs Enforcement Agency (ICE) officials searched the internet to find sellers who were selling munitions and other weaponry which violated the AECA. ICE officials found Pendzich on Ebay offering "worldwide shipment" of a type of body armor which is governed by the AECA.

Federal agents set up a sting as they pretended to be customers from Bogota, Colombia. Pendzich mailed prohibited items to Colombia and labeled them as "gifts" and "ceramic plates." ICE agents raided Penzich's home in 2009, and he ultimately admitted that he knew his actions were illegal. Penzich has not yet been sentenced.

Violation of the AECA is governed in part by the United States Sentencing Guidelines Section 2M5.2. This section of the Guidelines provides a base offense level of 26 (which would be 63-78 months of imprisonment for Category I offenders) or a level of 14 if the offense involved only non-fully automatic small arms, and the number of weapons did not exceed ten. Level 14 provides a range of punishment of 15-21 months for Category I offenders. However, a downward departure from these ranges of punishments may be in order if the offense did not have the potential to be harmful to a security or foreign policy interest of the United States, as was the case with Pendzich.

Tennessee Court Reprimands Detectives Who Posed As Criminal Defense Attorneys

January 18, 2011, by The McKellar Law Firm, PLLC

The Sixth Amendment to the U.S. Constitution provides, among other things, that an accused shall have the right to assistance of counsel for his/her defense. The Tennessee Constitution, Art. 1, § 9 provides for similar protections by mandating that "[I]n all criminal prosecutions, the accused hath the right to be heard by himself and his counsel." In Tennessee, the right to counsel attaches following the issuance of an arrest warrant, the holding of a preliminary hearing when no arrest warrant precedes the hearing, or the return of an indictment or presentment by the grand jury. State v. Mitchell, 593 S.W.2d 280, 286 (Tenn. 1980).

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On January 13, 2011, the Tennessee Court of Appeals decided a unique case involving a defendant's right to counsel in the matter of State v Dawson 1-13-11.pdf, No. E2009-02469-CCA-R3-CD. In Dawson, two Sheriff's Department detectives devised a scheme to convince the accused, Dawson, that they were either attorneys themselves or were working for "mob lawyers" out of Detroit by the names of Harris and Fink, and that they were willing to provide him with legal representation. Dawson had previously been appointed counsel by the trial court. According to the Court of Appeals opinion, "The defendant testified that he believed that the fictitious attorneys Harris and Fink were representing him on all of his charges. He stated that the 'lawyers' instructed him not to cooperate or discuss any of the underlying facts of his cases with appointed counsel." Further, Dawson testified that he had no interest in working with appointed counsel while he was purportedly represented by attorneys Harris and Fink and that he had turned down plea offers from the State because he thought he would be released based upon their promises. Dawson said that attorneys Harris and Fink said that they would call appointed counsel. He said that he believed that "[t]hey had it all under control."

The Dawson court wrote, "Once the right to counsel has attached, the State is under an affirmative duty to ensure that no action is taken to interfere with an accused's right to counsel." The Court concluded that Dawson's right to counsel was violated by the Sheriff's detectives, and the Court referred to the officers' actions as "abhorrent," "unconscionable," and "egregious." The Appeals Court reversed the trial court's decision to deny the defendant's motion to dismiss the case, and the Court vacated Dawson's pleas and dismissed the indictments against him.

Federal Prosecutors Seek Injunction Against North Carolina Man Promoting Religious Tax Scam

January 17, 2011, by The McKellar Law Firm, PLLC

Criminal Tax Attorneys often venture into the civil arena of tax disputes, especially when potential federal criminal tax issues are looming. Such is the case of North Carolina man Andrew DeDominicis of Dallas, North Carolina. In an earlier blog post, I discussed the dangers of "corporation sole" and the IRS' view of these entities.

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Federal prosecutors claim that DeDominicis encouraged people to form or declare themselves to be churches in an effort to evade taxes. According to a January 14, 2011 article in The Washington Post, DeDominicis has earned over $280,000 over the past 8 years by assisting 163 people in 34 states form Nevada corporations to improperly protect for-profit income under the guise of the sole corporation tax structure.

The Washington Post article noted, "Prosecutors said DeDominicis urged participants to keep some of his materials private and discouraged them from consulting an attorney or a tax professional." As a tax attorney, I have a difficult time believing that it's ever a good idea to embark in tax planning without consulting a professional.

For those who followed DeDominicis' advice, they are undoubtedly wishing they had consulted a legitimate tax professional prior to following the advice of someone who simply created a website aiming to lure people into giving funds to form a bogus corporation sole. In addition to any criminal implications, DeDominicis and his followers are now looking at costly fines and penalties being assessed against them, and the little they believed they were saving by following DeDominicis' plans is gone.

Doctor Receives Prison Sentence for Lying to FBI

January 12, 2011, by The McKellar Law Firm, PLLC

Federal Criminal Defense Lawyers rarely allow their clients to speak to government agents for a variety of reasons, most of which have to do with protecting clients from themselves. A great example of a person hurting themselves by talking to government agents is the case of Dr. Howard Goldstein.

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Last week, Goldstein was sentenced to 5 months imprisonment, a $30,000.00 fine, and he agreed to an additional $100,000.00 forfeiture for making false statements to an agent of the Federal Bureau of Investigation, in violation of 18 U.S.C. Sec. 1001. In an April 2010 interview with the FBI, Goldstein was questioned about problems with his Medicare billing practices and he "minimized and mis-characterized concerns and problems" that had been raised by his former employer. Goldstein also previously paid $830,329 to the government in a related civil settlement agreement, and has been banned from participating in the Medicare program for five years.

18 U.S.C. Sec. 1001(a) provides:
Except as otherwise provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully--
(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact;
(2) makes any materially false, fictitious, or fraudulent statement or representation; or
(3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry;
shall be fined under this title, imprisoned not more than 5 years or, if the offense involves international or domestic terrorism (as defined in section 2331), imprisoned not more than 8 years, or both. If the matter relates to an offense under chapter 109A, 109B, 110, or 117, or section 1591, then the term of imprisonment imposed under this section shall be not more than 8 years.

Some of the best advice I can ever give a client is to simply shut up. Talking to investigators, police, case workers, and other government officials rarely benefits a client's case. To make matters worse, many people choose to talk to government officials without an attorney present. I can only imagine that Dr. Goldstein's case would have worked out differently had he consulted with an attorney prior to an interview with FBI agents.

Additional Resources
18 U.S.C. Section 1001
"Doctor Sentenced For Making False Statements to FBI," St. Louis Globe-Democrat (Online Edition), January 5, 2011

Catholic Priest Sentenced to One-Day Prison Sentence for Tax Structuring and Filing a False Tax Return

January 10, 2011, by The McKellar Law Firm, PLLC

Tax evasion cases provide a wide range of sentencing options for federal courts. A perfect example of a district court fashioning a "creative" sentence is the case of U.S. v. Samuel R. Ciccolini (Hat Tip to Jack Townsend's Federal Tax Crimes Blog).

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In Ciccolini, Judge James Gwin of the United States District Court for the Northern District of Ohio sentenced 68-year-old Catholic Priest Samuel Ciccolini to a sentence of one day imprisonment, a fine of $350,000, and a restitution order of $3,500,000. The sentence was a result of Ciccolini pleading guilty to one count of structuring bank transactions to evade reporting requirements in violation of 31 U.S.C. Sec. 5324(a)(3) and one count of making a false income tax return in violation of 26 U.S.C. Sec. 7206(1).

The sentencing court stated that Ciccolini had deposited over a million dollars into his bank accounts in 139 separate transactions in an effort to evade bank reporting requirements, and that Ciccolini had filed a false U.S. income tax return in 2003, where he claimed his income for the year was $101,064 when it was in reality at least $508,126. Further, the Court notes that Ciccolini is unable to account for approximately $4.5 million in "income," which may be derived from embezzling funds from charitable organizations.

After reviewing the appropriate Sentencing Guidelines calculations and the factors set forth in 18 U.S.C. Sec 3553(a), the court chose to impose a financial penalty as opposed to a traditional incarceration penalty. The court reasons as follows:

In crafting a punishment that will most adequately deter similar conduct by other individuals in the future, the Court is influenced by the writings of Nobel Prize winning economist Gary Becker. In his seminal article on crime and punishment, Professor Becker recommends more emphasis on fines -- and less on incarceration -- for many white-collar or financial offenses. Becker theorizes that in financial crimes the incarceration of the specific offender is less important than providing a disincentive to future offenders through financial penalties. The Court generally agrees with these propositions and finds them persuasive here. See United States v. Turner, 998 F.2d 534, 535 (7th Cir. 1993) (agreeing with Becker's theory that fines are often an effective means of increasing deterrence). With Becker's theory in mind, the Court finds that imposing a financial penalty in the current case, rather than prison time, will adequately deter future financial crime.

Both Ciccolini and the United States have appealed the district court's sentence.

Tennessee Man Sentenced to 25 years in Federal Child Pornography Case

January 5, 2011, by The McKellar Law Firm, PLLC

Persons charged with violation of federal child pornography laws can face severe sentences due to both federal statutes and the federal sentencing guidelines. A local Tennessee child pornography case illustrates this point well. As reported by Jamie Satterfield in the Knox News Sentinel, Joseph Wayne Jennings was sentenced to 25 years in prison for various child pornography and sexual exploitation of a minor crimes. Jennings was arrested in June 2009 at a Morristown, Tennessee, hotel after he arrived expecting to have sex with an 8-year-old girl. Prosecutors allege that in addition to possessing child pornography, Jennings was trying to entice mothers to set up sexual encounters between Jennings and their young daughters.

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Under U.S. Sentencing Guidelines § 2G2.2, Jennings' advisory guideline range was 292-365 months of incarceration, and he was subject to a minimum term of 120 months as to Count One (using a means of interstate commerce to attempt to induce a minor to engage in illegal sexual activity), a minimum term of 60 months as to each of Counts Two and
Three (distribution and receipt of child pornography) and a maximum term of imprisonment of
120 months imprisonment as to Count Four (possession of child pornography).

Ms. Satterfield writes, "Joseph Wayne Jennings faced more punishment for looking at pictures of child rape victims than he did for trying to lure a child to be raped. His case highlights a sentencing disparity long claimed by defense attorneys and increasingly questioned by federal judges nationwide, including some in East Tennessee, as the average sentence for suspects caught with child pornography has jumped 443 percent over a 10-year period."

Determining the correct sentence for someone convicted of Sexual Exploitation of a Child, pursuant to 18 U.S.C. § 2251, or of possessing, receiving, or distributing Child Pornography, pursuant to 18 U.S.C. § 2252, takes a careful analysis of both the statutes involved and the Federal Sentencing Guidelines.


Additional Resources
"Porn Sentencing Rules Puzzle," Jamie Satterfield, Knox News Sentinel (Online Edition), January 5, 2011.
18 U.S.C. § 2251
18 U.S.C. § 2252