Tennessee Federal Criminal Lawyer Blog

The Sixth Circuit has recently upheld a Detroit man's conviction for manufacturing and distributing child pornography, transporting a minor with intent to engage in criminal sexual activity, and sex trafficking children. In United States v. Daniels, No. 09-1836, the Sixth Circuit dealt with defendant Robert Daniels, who was convicted of running a prostitution ring in Detroit that included underage girls. While most of the minors were from Detroit, one was brought back to Detroit from Maryland. Daniels also posted a nude photo of one of the minors on craigslist.com as an escort ad.

While Daniels was convicted for the nude photo of the minor even though another prostitute actually took the photo, the most significant aspect of the court's decision relates to posting a pornographic photo of a child on a site like craigslist.com. Under 18 U.S.C. § 2252(a)(2)(A), a person can be guilty for distributing "any child pornography that has been mailed, or using any means or facility of interstate or foreign commerce shipped or transported in or affecting interstate or foreign commerce by any means, including a computer." While the issue was whether the image was distributed after it traveled interstate commerce, the court ruled that Daniels's actions were sufficient to be punished under the statute. By uploading the image to craigslist.com, the photo met the "interstate commerce" requirement. Daniels then "distributed" the photo when he verified via a craigslist.com e-mail that he wanted to display the photo to the public.

The court also reinforced the notion that one does not need to know that the victim is a minor in order to be guilty of transporting a minor with intent to engage in sexual activity. 18 U.S.C. § 2423(a) punishes a "person who knowingly transports an individual who has not attained the age of 18 years in interstate or foreign commerce, ... with intent that the individual engage in prostitution, or in any sexual activity." While Daniels argued that he is not liable since he did not know that the girl he transported from Maryland to Detroit was a minor, the court disagreed. Under the Mann Act, transporting any individual for the purpose of prostitution is a crime. Therefore, the knowledge requirement under § 2423(a) is not a factor that distinguishes innocence from guilt, but rather is used to determine the harshness of the penalty. The court's reasoning was '"context may well rebut the presumption' that a [knowing] requirement applies to every element of a defense." Such was the case here since minors need special protection against sexual exploitation.

Yet even though Daniels was convicted of the above charges, he was not convicted of engaging in a child exploitation enterprise (CEE). To be convicted of CEE, the government must prove that (1) the defendant committed at least three separate predicate offenses that constitute a series of at least three incidents; (2) more than one underage victim was involved; and (3) at least three other people acted "in concert" with the defendant to commit the predicate offenses. While Daniels was guilty of the first two elements, the government did not have enough evidence to prove that Daniels worked with three other people when committing the above offenses. The court determined that in order for someone to have acted "in concert" with Daniels, they must have "had the mens rea required to 'conspire' with him to commit the offense, " or in other words, there must be "a tacit or material understanding among the parties." While there was sufficient evidence that two of Daniels's prostitutes acted "in concert" with him, there was not enough evidence that Daniels acted "in concert" with three other people anytime while manufacturing and distributing child pornography, transporting a minor for purposes of prostitution, or when engaging the minors in sex trafficking. While members of Daniels's family aided Daniels by driving prostitutes to their destinations, there was no evidence that they knew Daniels was involved in the sex trafficking of minors.

One of many sensitive issues that a criminal tax attorney must address is whether the attorney-client privilege extends to those involved in a case, and in particular, whether such privilege applies to accountants and CPAs who work on the case. In United States v. Kovel, 296 F.2d 918 (2nd Cir. 1961), the Second Circuit Court of Appeals extended the attorney-client privilege to accountants assisting attorneys in criminal tax claims. This has become known as "Koveling" and has allowed accountants--known as Kovel accountants--to assist practicing tax attorneys giving legal services to clients. However, this privilege does have some caveats that, if not known, could cause ordinarily privileged information to be released to the IRS if one is not careful.

Under I.R.C. § 7525, privileged communications between a taxpayer and an accountant are only available in non-criminal tax matters. Koveling allows this privilege to extend to criminal tax cases when accountants assist attorneys render legal services. This privilege is similar to the work product privilege, which allows any information that was given while anticipating litigation to be protected from opposing counsel.

If a taxpayer is facing criminal tax charges, it is unwise to have the taxpayer's regular accountant be the Kovel accountant in the criminal tax claim. While the regular accountant may already know the ins and outs of the taxpayer's current situation, this will only hurt the taxpayer. While Koveling protects information gathered by an accountant assisting an attorney anticipating litigation, any information gathered outside of that scope is fair game for the IRS. A regular accountant may know the taxpayer's situation from the outset, but that opens the risk that the accountant may already know information that would be damaging to the taxpayer before litigation was anticipated. The accountant then would have to release that information to the IRS if they requested it. A new accountant, on the other hand, could successfully gather privileged information since everything they gather is "Kovelized."

Another important fact is that Koveling only applies to providing legal services. As an example, an accountant would not be a Kovel accountant for merely filing tax returns. But, if tax returns are prepared along with some legal service, then Koveling may apply. A taxpayer's safest course of conduct would be to have a Kovel accountant work with attorneys in developing information, and then have another accountant actually prepare the tax returns if a client wanted both services performed. While this option is more costly since it would require hiring two different accountants, this course of action provides the greatest protection to a client/taxpayer.

Ultimately, while Koveling can be very beneficial in helping tax attorneys assist clients facing criminal tax charges, this privilege is not absolute. If a Kovel accountant provides any services other than legal services for an attorney's client, or is a client's regular accountant before the client is charged with a tax crime, the Government could bypass the Kovel privilege--thereby allowing a client's potentially damaging information to be released to the IRS or Department of Justice.

When Enron collapsed and filed for bankruptcy in 2001, tens of thousands of people suffered the financial fallout. Many employees lost their jobs along with their life savings. Many more still lost money as the value of Enron's stock plummeted from over $80 per share in December 2000 to virtually nothing one year later. Public anger at Enron was fierce, and the company came to symbolize the effects of greed and corruption in corporate America. As federal investigations into the Enron scandal mounted following the company's collapse, prosecutors had to decide what charges should be brought against the executive officers and board members who had either engineered or ignored the accounting practices that contributed to Enron's downfall. In the case of former CEO Jeffrey Skilling, prosecutors alleged that Skilling and other top Enron officials engaged in a conspiracy to commit honest services fraud under 18 U.S.C. §§ 371, 1343, and 1346.

Federal wire fraud statutes are designed to punish those who devise or intend to devise "any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises" and then transmits information by "wire, radio, or television communication in interstate or foreign commerce . . . for the purpose of executing such scheme or artifice." The statute specifically includes schemes to obtain "money or property," but courts have also interpreted § 1343 to include so-called "honest services fraud" as well.

In Skilling's case, the indictment charged that Skilling and other Enron executives had devised a scheme to trick investors and Enron shareholders regarding Enron's performance by 1) "manipulating Enron's publically reported financial results," and 2) "making public statements and representations about Enron's financial performance and results that were false and misleading." Prosecutors charged that in doing so, Skilling had "depriv[ed] Enron and its shareholders of the intangible right of [his] honest services." He was ultimately convicted under § 1346. On appeal, Skilling challenged the constitutionality of § 1346, claiming that it was unconstitutionally vague. If a law fails to describe an offense "[1] with sufficient definiteness that ordinary people can understand what conduct is prohibited and [2] in a manner that does not encourage arbitrary and discriminatory enforcement" then the statute does not satisfy due process and will be held unconstitutional. Skilling claimed that the phrase "the intangible right of honest services" in § 1346 does not sufficiently define the conduct that it prohibits, rendering it void for vagueness.

The Supreme Court ultimately upheld § 1346, finding it was not unconstitutionally vague. The Court did, however, dramatically limit the scope of the law; in doing so, the Court ordered the Court of Appeals to review Skilling's conviction in light of its decision. The majority looked at the circumstances that led to the statute's enactment in 1988 in reaching its decision. Congress passed § 1346 in response to the Supreme Court's decision in McNally. Prior to that decision, all federal courts had adopted an interpretation of "scheme or artifice to defraud" that included deprivation of honest services. When McNally overturned that interpretation, Congress enacted § 1346. The Court interpreted this to mean that Congress intended § 1346 to apply in the same way that case law had applied prior to McNally. Most pre-McNally cases for deprivation of honest services involved payment of bribes or kickbacks. Thus, the Court concluded that Congress intended § 1346 to include such schemes at a minimum. The Court determined, however, that penalizing any further conduct raised issues of vagueness, so only schemes involving bribery or kickbacks fall within the scope of § 1346.

There were no allegations that Skilling received any bribes or kickbacks. The government's case against Skilling was that he and other Enron executives had conspired to defraud shareholders by lying about the company's financial health. These false reports caused Enron's stock price to become inflated. Skilling and the other conspirators benefited because they received bonuses based on the artificially high stock prices. The Court determined that Skilling did not take a bribe from a third-party and then make the misrepresentations in return; therefore, he did not commit honest services fraud by depriving Enron of his honest services within the meaning of § 1346. The Court remanded the case to the Fifth Circuit Court of Appeals so that court could determine whether Skilling's conspiracy conviction must be vacated.

Justice Scalia concurred in the judgment in the case, but disagreed strongly with the majority's logic; Justice Scalia would have vacated the conviction under § 1346 because the statute is vague as applied in Skilling's case. He points out that the statute fails to clearly define what guilt is under § 1346, what honest services are, or who is required to provide them. Justice Scalia also notes that prior to the Court's decision in McNally, many honest services fraud cases included allegations of bribery or kickbacks, but none were limited to those types of misconduct. Pointing out that the pre-McNally cases reached no consensus on what conduct qualifies as a denial of the right of honest services, Justice Scalia observes such conduct could "range from any action that is contrary to public policy or otherwise immoral, to only the disloyalty of a public official or employee to his principal, to only the secret use of a perpetrator's position of trust in order to harm whomever he is beholden to." Justice Scalia continued, noting "[t]he duty probably did not have to be rooted in state law, but maybe it did. It might have been more demanding in the case of public officials, but perhaps not. At the time § 1346 was enacted there was no settled criterion for choosing among these options . . . ." Essentially, Justice Scalia opined that the majority was creating a whole new law in its opinion rather than interpreting or clarifying the existing legal landscape.

The Court's decision significantly narrowed the scope of § 1346. Going forward, prosecutors will probably not be able to use this statute as a catch-all for behavior that is unethical or improper, but probably not otherwise criminal. It will also be interesting to see whether Congress will act - as it did after McNally - to expand the law to include not just bribes and kickbacks, but other conduct as well.

An Atlanta, Gerogia chiropractor was sentenced to nearly five years in prison for conspiracy to commit health care fraud, according to a press release from the United States Attorneys' Office. Andrew Sokol pleaded guilty to charges that he fraudulently billed several private insurance companies for millions of dollars in physical therapy services that he never actually provided his patients. In addition to his prison sentence, Sokol was also ordered to pay restitution of over $6.5 million.

According to the Government's press release, Sokol defrauded insurance companies by offering services like chiropractic care, personal training, and massages to the patients at his "WellnessOne" clinics in the Atlanta area. He would then bill insurance companies for the services, claiming he provided patients with physical therapy. Sokol specifically targeted employees at companies that offered Blue Cross Blue Shield policies because their plans provided generous physical therapy benefits. Sokol would offer promotional incentives to these employees such as massage gift cards, restaurant and gas cards, gift bags, and free lunches to entice them to use the clinic's services. He also waived deductibles and co-payments, so his patients were actually compensated for the services they received. Sokol did employ doctors and physical therapists, but they saw very few WellnessOne patients. These professionals were merely on the payroll so that Sokol could bill the insurance companies for their higher rates, while massage therapists were actually providing the massages. The scheme allowed Sokol to pocket millions of dollars by billing personal training sessions and massages as physical therapy.

Sokol's case is another example of the Government's crackdown on health care fraud as a means to help control skyrocketing health care costs. According to the FBI, fraudulent billing to private insurance companies and public health care programs such as Medicare and Medicaid account for an estimated 3 to 10 percent of total health care expenditures in the U.S., a potential cost of over $200 billion annually. Because of these enormous costs, federal law enforcement agencies are increasing their efforts to detect these schemes. In 2010, the government recovered $4 billion from health care fraud enforcement and prevention efforts relating to public programs alone. There are huge sums of money at stake for both public health programs and private insurers, so cases like Andrew Sokol's are likely to be prosecuted vigorously well into the future.

A Nashville, Tennessee woman was sentenced to over 15 years in prison after pleading guilty in federal court to one count each of Sex Trafficking of a Minor and Conspiracy to Obstruct Justice. Defendant Teresa Ann West pled guilty to operating prostitution businesses in Nashville and Pigeon Forge, Tennessee. A number of women worked as prostitutes for West, including four girls under the age of 18. West knew that these four girls were minors but instructed them to lie about their age to clients. Additionally, prosecutors are still working on cases against Teresa West's children. West's son, Casey, recruited minors to work as prostitutes for his mother and drove prostitutes to meetings with clients. West's daughter, Diana, worked as a prostitute for her mother.

According to a press release from the U.S. Attorney's Office for the Middle District of Tennessee, prosecutors introduced evidence and testimony at the sentencing hearing showing how these underage girls were lured into working for West as well as how their experiences negatively affected their psychological health and well-being. West promised to help one girl, who was 17 years old and homeless. West then used the girl as a prostitute and exposed her to crack cocaine. Another girl stated in an interview that she too had gotten involved with prostitution and crack cocaine through West. West's son, Casey, also provided testimony at his mother's sentencing. He stated that West knew some of the girls were underage, but she still used them as prostitutes so she could make money and buy drugs.

Based on the testimony at the sentencing hearing, United States District Judge Todd Campbell imposed a sentence of 188 months imprisonment, followed by 10 years of supervised release. Additionally, West must register as a sex offender.

Child sex trafficking is a serious crime, and law enforcement agencies are stepping up efforts to apprehend those who engage in such conduct. Project Safe Childhood is a program sponsored by the Department of Justice aimed at fighting child exploitation, including sex trafficking and child prostitution. Since Project Safe Childhood was created in 2006, federal prosecutions for cases involving sexual exploitation of minors have increased 40 percent, and indictments were filed against nearly 2,500 defendants in 2009 alone. The Department of Justice also plans to expand the efforts of the Innocence Lost Initiative, a group of task forces led by the FBI that focuses child prostitution in the U.S. The Innocence Lost Initiative has helped secure convictions for over 500 commercial sex traffickers of children. As the national coalition of law enforcement offices at the local, state, and federal level work with prosecutors and agencies throughout the U.S. through these initiatives, the trend toward increased prosecutions in cases like Teresa West's is almost certain to continue.

According to a press release from the United States Attorney for the Northern District of Georgia, a Monroe, Georgia man was sentenced to 15 months in prison for failing to file his income tax returns. James Guinn owned a plumbing business near Atlanta, and from 2003 to 2006, Guinn's adjusted gross income was over $350,000. However, Guinn failed to file tax returns for any of those years.

Guinn apparently refused to file his federal returns because of information from the group "American Rights Litigators." American Rights Litigators is an anti-tax organization that advises clients on avoiding payment of income taxes. The group is probably best known for its connection with actor Wesley Snipes, who did not file tax returns for years based on the advice he received from the founder of American Rights Litigators, Eddie Kahn.

James Guinn was warned by the IRS that the anti-tax arguments he advanced were not legally valid and that he was required to file income tax returns. Guinn nonetheless refused to pay a total of approximately $67,513 in income tax. Guinn will be paying that amount now as restitution to the IRS along with a $20,000 fine.

As the Guinn case shows, non-payment of income tax can result in serious financial penalties and even imprisonment. The government will continue its crackdown on alleged financial fraud and tax crimes, and cases like Guinn's will become increasingly common. If you have received a summons or warrant from the IRS, you need a criminal defense attorney experienced in federal tax law.

According to a press release from the U.S. Attorney's Office for the Northern District of Georgia, federal law enforcement officers arrested five people last week connected to an alleged "pill mill" in the Atlanta, Georgia area. The five defendants are the owners, manager, and doctor at the Atlanta Medical Group, a pain clinic that prosecutors allege was illegally distributing Oxycodone. According to the indictment, Jason Cole Votrobek, Jesse Violante, and Roland Rafael Castellanos provided the financing and were responsible for operating the clinic; Tara Atkins worked as the office manager; and Dr. James Chapman was the primary physician on staff.

The investigation suggests that Dr. Chapman was seeing as many patients as possible in order to maximize profits since most of the Oxycodone was dispensed on site. The indictment further alleges that patients were not given proper medical examinations prior to receiving their prescriptions and that non-medical staff helped with medical procedures so that the clinic could see even more patients. The defendants may have pocketed millions of dollars in just one year. The five defendants are now facing drug and money laundering charges in federal court.

These arrests illustrate how law enforcement and prosecutors are increasing their focus on stopping the illegal distribution of prescription drugs. As John S. Comer of the DEA stated in discussing the investigation, "those involved in 'pill mill' activity are in fact drug dealers." Law enforcement is also focusing on illegal prescription drugs because of the consequences of abuse of pain medications. Overdose deaths caused by prescription pain killers have increased four-fold from 1999 and now account for more overdose deaths in the U.S. than heroin and cocaine combined.

Investigations into these "pill mills" frequently involve many different law enforcement organizations. For example, in the Atlanta Medical Group case, the FBI, the Georgia Bureau of Investigation, Drug Enforcement Administration, Bartow County Sheriff's Office, and the IRS all participated in the investigation.

The penalties these defendants are facing are severe, and this case illustrates that not only are the doctors and clinic owners exposed to potential criminal action, but the staff can be exposed to criminal action as well. Federal law provides a maximum sentence of 20 years in prison for illegal distribution of a controlled substance such as Oxycodone, and even more time could be warranted if the medicine distributed results in someone's death. Additionally, the charges for money laundering also carry fines and a maximum penalty of 20 years imprisonment. As the government continues to crack down on suspected pill mills, many more people could be facing these serious charges.

Last year, a University of Tennessee student garnered national headlines after he accessed Sarah Palin's email account while she was governor of Alaska and the Republican vice presidential candidate. The student, David Kernell, accessed Palin's Yahoo email account without having permission to do so. In November 2010, Kernell was sentenced to a prison term of one year and a day. For a federal criminal defense attorney, one of the noteworthy aspects of this case is that the majority of the sentence was not imposed for illegally accessing the email account; it was for anticipatory obstruction of justice.

There are several federal provisions relating to obstruction of justice, but 18 U.S.C. § 1519 is particularly powerful. Most obstruction provisions require prosecutors to prove that a defendant's conduct was intended to disrupt a particular proceeding or investigation. Section 1519, enacted in 2002, eases the government's burden tremendously by removing the requirement that the obstructive conduct be intended to influence a specific investigation. It merely requires that the obstructive conduct be done knowingly and "with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States . . . or in relation to or contemplation of any such matter or case. . . ." In other words, there does not even have to be an investigation at the time the obstructive conduct takes place. If the defendant's conduct is motivated in part to obstruct an investigation if one occurs, then § 1519 applies.

After accessing Governor Palin's email, Kernell became concerned that his actions could be discovered by the police. According to court testimony, he then deleted files and records on his computer relating to his access of Palin's email account. Obviously, Kernell was unsuccessful. Kernell was indicted not only for illegally accessing Governor Palin's email, but also for obstruction under 18 U.S.C. § 1519. The court found that § 1519 did apply to Kernell's case because this provision does not require that there be an open investigation into the defendant's conduct; it merely requires that the defendant act in anticipation of such an investigation. Kernell's conviction under § 1519 for felony obstruction was a more serious matter than the misdemeanor conviction for actually accessing the email account.

Kernell's case is not the only high-profile case where prosecutors have used this powerful statute. In United States v. Alexander Wolff, et al., the defendants - a number of executives and several corporations - are charged with a conspiracy to illegally import less-expensive Chinese honey into the United States by misstating the country of origin. This was allegedly done in order to avoid paying the high import duties on Chinese honey; prosecutors charge the defendants did not pay approximately $80 million in duties and tariffs because of this scheme. The United States attorney has charged the defendants with violations of 18 U.S.C. § 1519 because the conspiracy involved filing false sales contracts and filing false records with the U.S. Department of Commerce, as well as destroying potentially incriminating documents and emails.

The consequences for violating this provision can be severe; there is a 20-year maximum prison term that undoubtedly appeals to some prosecutors. But the most significant aspect of this law from a prosecution standpoint is likely that there is no requirement under § 1519 to show that a defendant intended to obstruct a particular investigation, reducing the burden on the prosecution. These recent cases illustrate a previously unprecedented use of § 1519. Kernell and Wolff could prove to be bellwether cases if prosecutors continue to utilize this provision.

Federal child pornography defense lawyers are discovering that more and more courts are declining to follow the Sentencing Guidelines in cases involving receipt and possession of child pornography. The U.S. Sentencing Guidelines are designed to advise federal courts on appropriate sentences based on the severity of the crimes committed and a defendant's criminal history. The Guidelines then suggest an appropriate range of prison time so that judges still have discretion to look at the particular facts and circumstances of a given case while avoiding the widely varying sentences that were common prior to the introduction of the Guidelines. Although these Guidelines are generally followed with little fanfare, federal courts are continuing to depart from the recommended Guidelines range in child pornography cases.

Persons convicted of trafficking in child pornography can face extremely long prison terms. It is not unusual for such individuals to face decades of prison time, even if they have no prior criminal history and are not charged with any direct sexual contact with a minor. This is because the Sentencing Guidelines provide for a number of increases in "levels" on top of the base offense level. Every added level indicates a more serious offense and therefore results in a longer sentence.

The problem for some courts is that the child pornography Guidelines create increased penalties that apply in the majority - if not virtually all - cases. For example, if a computer is used in "the possession, transmission, receipt, or distribution of [child pornography], or for accessing with intent to view the material" a two-level increase results. U.S.S.G. § 2G2.2. There are also level increases if the pornographic material involves a prepubescent minor or a child under 12, distribution in the expectation of receiving anything of value (including other child pornography), and increases based on the number of images.

As the Second Circuit Court of Appeals noted its recent decision United States v. Dorvee, 616 F3d 174, 186, n.9 (2d Cir. 2010), over 97 percent of cases today involve a computer, nearly 95 percent involve a prepubescent minor, and 96 percent of cases involve at least a two-level enhancement based on the number of images the individual possessed. The bizarre result of these numerous enhancements is that, in this case, if Dorvee had actually sought out and had sex with a 12-year-old child, the applicable Guideline range would be significantly lower than the Guideline range that applied in Dorvee's case, where he never engaged in any sexual contact with a minor. Id. at 187. Moreover, the Court noted that the statutory maximum sentence was actually shorter (240 months) than the low end of the Guideline range (262 months). Id. at 180-81. The Court of Appeals found this to be so unreasonable that it amounted to a substantive error and vacated Dorvee's sentence. Id. at 188.

The Sentence Guidelines are not mandatory; they are intended to be just that: guidelines. They are, however, very influential, and courts do not frequently depart from them without serious consideration and explanation. But Dorvee is one of an increasing number of child pornography cases where courts have determined that the goals of the Sentencing Guidelines are not being advanced, leading the courts to disregard them.