As a recent post on PointofLaw.com noted, the Tenth Circuit recently affirmed the convictions of Howard O. Kieffer.  Kieffer, who for several years practiced criminal defense law, had a problem - he never went to law school and had no license to practice law.  A California resident, Kieffer held himself out as a criminal defense attorney via a domain name with a Virginia company, which also hosted the web site.  The government argued that the web site he maintained, which was accessed by two of his victims, in Colorado and Tennessee, was a “wire communication in interstate commerce” sufficient to establish jurisdiction under the federal wire fraud statute.

One aspect, in particular, of the Tenth Circuit decision raises eyebrows.  The issue is what constitutes an interstate wire for the purpose of the wire fraud statute.  The White Collar Crime Professor Blog identified this as a particularly important issue in the cyber-connected world we now live in.  This issue has been evolving for some time, as shown in United States v. Phillips, 376 F. Supp2d 6 (D. Mass. 2005).  There, the court rejected the government argument that “in order to satisfy the elements of the wire fraud offense, it was not necessary to present evidence that the pertinent wire communications themselves actually crossed state lines, as long as the communications (whether interstate or intrastate) traveled via an ‘instrument of an integrated system of interstate commerce,’ such as the interstate phone system.”  More recently, the Tenth Circuit, in United States v. Schaefer, 501 F.3d 1197 (10th Cir. 2007), held that one person’s use of the internet, “standing alone” was insufficient evidence that the item “traveled across state lines in interstate commerce.”

Therefore, it is now somewhat surprising to read in Kieffer that the Tenth Circuit changed its position.  The court noted that before the website could reach the local host server, it had been uploaded by Kieffer to the Virginia company, and then transmitted from Virginia to Colorado and Tennessee. Based on those facts, the court held that "[t]he presence of end users in different states, coupled with the very character of the internet” permitted the jury to infer transmission across state lines.  Now, under Kieffer, an allegation that a web site was used to perpetrate fraud would give rise to federal wire fraud jurisdiction in nearly every case.  Stated differently, given the “the very character of the internet,” it is unlikely that a defendant will reside in the same state as his web site host and victims. 

Now, as Paul F. Enzinna noted, unless other courts reject Kieffer, the potential exists for a surge in federal wire fraud prosecutions.  With Kieffer seemingly establishing such minimal interstate contact requirements, it would seem that virtually any viewing or use of a web site could be used to trigger federal jurisdiction.

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On May 25, the Securities and Exchange Commission adopted new rules concerning the whistleblower program implemented under Section 922 of the Dodd-Frank Act.  In a party-line divided vote of 3-2, the SEC took a “middle of the road” approach to the controversial aspect of the rule of whether to require a whistleblower to first inform his or her company of the alleged conduct.  While the SEC did not require whistleblowers to take this step, it provided additional monetary incentives for those who do and guaranteed whistleblower status to those who report internally where the company subsequently discloses the conduct to the SEC.  The new rules, which become effective 60 days after publication in the Federal Register, require a whistleblower provide the SEC with original information that results in the successful enforcement by the agency in a federal court or administrative proceeding where the SEC obtains more than $1 million in sanctions. 

The requirement for internal reporting of alleged conduct has been hotly debated.  Senior Vice President and General Counsel of the Association of Corporate Counsel Susan Hackett characterized the SEC’s new rules as a “Pandora’s box.”  Likewise, public companies have criticized the SEC’s new rules and foreshadowed the potential damage to internal compliance and reporting systems. 

In contrast, SEC Chairman Mary Schapiro commented that the rules “are intended to the break the silence of those who see a wrong” and that the SEC found the proper balance between encouraging whistleblowers to report internally, but also gave them the option to contact the SEC directly.

Read the SEC Press Release in its entirety here.

 

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An important decision has been rendered by the United States Court of Appeals for the 7th Circuit in Beck v. Dobrowski. Particularly noteworthy is Judge Posner's citation with approval to an article authored by Steven Puiszis of Hinshaw & Culbertson in Chicago. Steve is currently serving as the DRI State Representative for Illinois and has been an active DRI member. He was also a Past President of the Illinois Association of Defense Trial Counsel (IDC). Congratulations to Mr. Puiszis.

Charles H. Cole
Schuyler Roche
ccole@schuylerroche.com

 

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