CFE Exam - Law

Reversing a Conviction

A U.S. appellate court will not reverse a conviction unless it finds error that affected the "substantial rights" of the defendant. Thus, errors that likely had no impact on the trial's outcome, or harmless errors, are not sufficient to justify a successful appeal.

Bustout Scheme

A bustout is a planned and fraudulent bankruptcy. It can take many different forms, but the basic approach is for an apparently legitimate business to order large quantities of inventory or other goods on credit, and then dispose of those goods through legitimate or illegitimate channels. Because the point of the bustout scheme is to quickly resell the goods for cash, the fraudster is likely to purchase more liquid items like inventory than real estate, insurance policies, or services. The perpetrator then closes shop, absconding with the proceeds and leaving the suppliers unpaid. The debtor might then go into bankruptcy. Often, by this point the debtor has already made false accounting entries or taken other steps to conceal the assets or make the sales look legitimate. Other times, debtors simply flee the jurisdiction or do not show up at the proceedings.

Commencement of Civil Action in US Federal Court

A civil action begins when the plaintiff files a complaint in the appropriate court, usually in the jurisdiction in which the defendant or the plaintiff resides or where the claim arose. The U.S. federal rules provide that the complaint should be a "short and plain statement" showing the court's jurisdiction to hear the case, the grounds for relief, and a demand for judgment. Indictments and informations are filing documents used in criminal cases, and a writ is a formal order by a court or other judicial body.

Conflict of interest

A conflict of interest occurs when an employee or agent—someone who is authorized to act on behalf of a principal—has an undisclosed personal or economic interest in a matter that could influence his professional role. Conflicts of interest do not necessarily constitute legal violations, as long as they are properly disclosed. Thus, for a conflict of interest claim to be actionable, the conflict must be undisclosed. When retained, experts must quickly determine if any conflicts of interest exist—or even appear to exist—in a particular case because a conflict might preclude participation. A conflict of interest exists when an expert's ability to objectively evaluate and present an issue for a client will be impaired by any current, prior, or future relationship with parties to the litigation. Prior or ongoing relationships might suggest to others that the expert cannot provide undivided loyalty to the cause and the client. Whether a relationship causes a conflict of interest depends on the facts. Simply meeting a person does not necessarily cause a conflict, but a close personal or business relationship is more likely to give the perception of a conflict. Compensation (whether from the parties or from the court) for expert testimony services is standard, and it is not generally considered a conflict of interest. The amount of compensation can be brought up at trial, so the payment should not be above normal.

Cross-claim

A defendant or plaintiff may file a cross-claim against a party on the same side of the lawsuit. A cross-claim is simply an action between parties on the same side of a lawsuit (i.e., claims between two defendants or two plaintiffs).

Criminal Case Legal Defenses

A defense is an assertion by a defendant in a criminal or civil suit that seeks to explain away the defendant's guilt or civil liability for damages. Common legal defenses in criminal cases include: alibi, consent, de minimis infraction (trivial), duress, entrapment, ignorance, infancy, insanity, legal impossibility, mistake, necessity, protection of others, protection of property, public duty, and self-defense. Also pertinent in the matter of defense are questions involving statutes of limitations, proper venue, and proper jurisdiction.

Limited Partnership

A limited partnership is similar to a general partnership, except that in addition to one or more general partners, limited partnerships also have one or more limited partners. In contrast to a general partner, who has unlimited personal liability, a limited partner is a passive investor whose liability is limited to the amount of his investment in the company. Thus, in a limited partnership, the general partners manage the enterprise's activities, and the limited partners supply the funding. Limited partners do not manage the enterprise's activities. Unlike general partnership interests, interests in limited partnerships generally constitute investment contracts.

CMIR Requirements

A person is required to file a CMIR if he transports or is about to transport monetary instruments of more than $10,000 into or out of the United States at one time, or if he receives by transport, mail, or shipment monetary instruments in excess of $10,000 at one time transported into the United States from a place outside the United States. The form is to be filed at the time of transportation or within 15 days of receipt.

Qui Tam

A qui tam suit is one in which a private individual sues on behalf of the government to recover damages for criminal or fraudulent actions committed against the government. It is a civil, not a criminal, suit. In the United States, most qui tam actions are brought under the False Claims Act, 31 U.S.C. § 3729 et seq. This statute provides, in part, that anyone who commits the following acts is liable to the government for three times the amount of damages it sustains, plus a civil penalty of $5,000 to $10,000 per false claim: • Knowingly presents or causes to be presented a false or fraudulent claim for payment or approval • Knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim • Conspires to defraud the government by getting a false or fraudulent claim allowed or paid • Has possession, custody, or control of property or money used, or to be used, by the government and knowingly delivers less than all of that property or money • Makes or delivers a document certifying receipt of property to be used by the government without completely knowing that the information on the receipt is true • Knowingly buys public property, or receives public property as a pledge of an obligation or debt, from a government employee or officer who cannot lawfully sell or pledge property • Knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the government

Tax Fraud Defenses

A suspect or a criminal defendant might raise various defenses to accusations of tax fraud. For example, the defendant can establish that there is no deficiency. If there is no deficiency, there is no tax liability. This is generally the best defense, if available, because several other defenses might negate willfulness, but do not necessarily eliminate a tax liability with interest and penalties. Another defense involves the reliance on an attorney or accountant. If a taxpayer properly relied on expert advice for the conduct in question, the jurisdiction might find no criminal liability. But generally, for this type of defense to succeed, the defendant must establish all of the following conditions: • The taxpayer specifically relied on the advice from an expert. • The expert is qualified, which is determined by a facts and circumstances test. • The taxpayer gave full disclosure of the facts to the expert. Some defenses will be ineffective against charges for tax crimes. The death of the taxpayer often cannot be used as a defense because taxes owed due to tax evasion typically survive the taxpayer's death, meaning the deceased taxpayer's estate will be held liable. Also, liabilities owed as a result of tax evasion may not be discharged in bankruptcy proceedings. If a person commits a tax fraud offense, amending fraudulent information held by the government will not generally relieve the taxpayer of criminal liability. Mental illness, however, may be an appropriate defense.

Adversarial and inquisitorial judicial processes

Adversarial and inquisitorial judicial processes refer to the type of approach that courts take to discover evidence in a case. Theoretically, neither of these processes is exclusive of common law or civil law systems. Civil law jurisdictions, however, almost always favor an inquisitorial process, while common law systems typically feature an adversarial system. The United States, for example, is a common law jurisdiction with an adversarial process. An inquisitorial process refers to a fact-finding approach that places the primary responsibility of discovering evidence on the presiding judge. In an inquisitorial process, the primary goal is to find the truth. Rather than serving as a referee over the parties' production of evidence, the judge is actively involved in discovery. For instance, judges may request relevant documents on their own accord and ask factual questions of witnesses themselves. As a result, attorneys play a smaller role in the evidentiary process than in an adversarial process. Adversarial processes are those in which the parties to a proceeding drive the discovery process (the search for evidence). The theory behind this approach is that the competing interests of the parties will serve to expose the relevant facts of the case. In adversarial systems, the parties to the litigation gather and present the evidence to the court. For example, the parties (usually through legal counsel) conduct questioning of fact and expert witnesses. The fact finder of the court, which can be a judge, jury, or administrator, is unaware of the details of the case until the parties present evidence. Judges facilitate the production of evidence between the parties, but they generally do not seek evidence on the court's behalf.

Closing Arguments

After both sides have presented their evidence in a U.S. criminal trial, they make their closing arguments. The closing arguments provide the jury with a final opportunity to hear each side's position. The prosecution delivers its closing argument first, the defense follows, and the prosecution has the opportunity for final rebuttal. The remarks in closing arguments are limited to issues pertinent to the case and confined to evidence presented during the trial. Closing arguments are not evidence; they provide an opportunity for attorneys to summarize the evidence presented during the trial. The remarks in closing arguments are limited to issues pertinent to the case and confined to evidence presented during the trial. The prosecutor is held to a particularly high standard during the closing arguments. A prosecutor may not misstate the evidence, express a personal opinion as to the defendant's guilt or the credibility of witnesses, or otherwise make prejudicial or inflammatory remarks. The prosecutor is expected to stick to the facts and to the reasonable inferences that can be drawn from them. In most cases, the defense's closing argument focuses on attacking the motives and credibility of the government's witnesses and emphasizes the heavy burden of proof the government bears.

Appelate State Courts

After the trial court enters its decision, a party may file an appeal with a higher court. Appeals involve questions of law or questions involving both law and fact. Most questions of law are decided by precedent—that is, prior court decisions of equal or higher authority that have considered similar cases.

Search Warrants (4th Amendment)

All warrants must satisfy the requirements under the Fourth Amendment to the U.S. Constitution. Under the Fourth Amendment, all warrants for searches must be judicially sanctioned and supported by probable cause, and they must particularly describe the place to be searched or things to be seized. There are a number of recognized exceptions to the warrant requirement under the Fourth Amendment to the U.S. Constitution, including: • Workplace searches by government employers • Searches performed incident to a lawful arrest • Searches of motor vehicles • Searches in exigent or emergency circumstances, to prevent the destruction of evidence, or while in "hot pursuit" of a suspect • Searches conducted pursuant to valid, voluntary consent • Searches when the evidence is in "plain view" • Border, customs, and prison searches

Civil Law vs. Common Law

Almost every country can be classified as having either a common law or a civil law judicial system; knowing the differences between the two is essential to understanding how legal and judicial processes work in foreign jurisdictions. Civil law systems apply laws from an accepted set of codified principles or compiled statutes. Individual cases are then decided in accordance with these basic tenets. Under a civil law system, judges or judicial administrators are bound only by the civil code and not by the previous decisions of other courts. In deciding legal issues, a civil law judge applies the various codified principles to each case. In common law countries, there are two sources of substantive law: statutory law and common law. Statutory law includes statutes passed by legislatures (and regulations passed by administrative bodies). The common law consists of the usages and customs of a society as interpreted by the judiciary; it is often referred to as judge-made law. In most common law systems, there are laws that judges develop through court decisions (called the common law), as well as codes and statutes that establish laws. As opposed to legislative statutes, the common law is developed on a case-by-case basis. That is, the common law is a system of legal principles developed by judges through decisions made in courts. It consists of the usages and customs of a society as interpreted by the judiciary, and it is often referred to as judge-made law. An additional feature of the common law system is the precedential value of court decisions. In common law systems, judges, particularly at the appellate level, often set out the reasons for their decisions in a written opinion. These written decisions serve to guide judges in deciding cases of a similar nature. Decisions that establish particular legal principles are called precedent. Under the doctrine of stare decisis, lower courts are bound to follow the precedents of higher courts until or unless the rule of law established is overturned by a higher court or the legislature. Common law originated as a legal system in England, and some of the principles established hundreds of years ago in court decisions remain influential to contemporary legal issues. Today, common law systems exist in the United Kingdom, the United States, India, Australia, and many other countries that were once part of the British Empire or were influenced by such legal systems.

Alternative Dispute Resolution

Alternative dispute resolution in fraud cases usually involves one of two types of methods: mediation or arbitration.

Alternative Remittance Systems

Alternative remittance systems (also called parallel banking systems) are methods of transferring funds from a party at one location to another party (whether domestic or foreign) without the use of formal banking institutions. These systems are characterized by the lack of direct physical or digital transfer of currency from the sender to the receiver. Instead, in the typical alternative remittance system, the payer transfers funds to a local broker who has a connection to another broker in the region where the payee is located. The latter broker then distributes the funds to the payee. The parties involved in alternative remittance systems form a network and track their exchanges on an informal ledger. Unlike formal financial institutions, these ledgers will not generally list specific information about the payers and payees (such as bank account numbers and names) but will keep track of amounts owed. When the first broker requests that another broker in the network distribute funds, the debt is recorded in the ledgers. These debts between brokers could be paid back by offsetting transactions (i.e., the first broker pays someone locally at the request of the second broker). Alternatively, the parties could meet to settle all outstanding debts at a later time.

Failure to disclose material facts

An action for fraud may be based on the concealment of material facts, but only if the defendant had a duty in the circumstances to disclose. The essential elements of fraud based on the failure to disclose material facts are: • The defendant had knowledge of a material fact. • The defendant had a duty to disclose the material fact. • The defendant failed to disclose the material fact. • The defendant acted with intent to mislead or deceive the victim(s). It is not necessary to prove that the defendant knew for certain that the victim would be harmed. It is only necessary to prove that he intended to mislead or deceive the victim.

Voluntary Confession

Apart from the Miranda warning requirements, a confession made in the United States also must be voluntary (i.e., not coerced by physical or psychological means). A confession may be voluntary even if there was some inducement, such as informing the suspect that a confession might result in more lenient treatment. Confessions obtained by deceit and trickery, such as telling the suspect that an accomplice had confessed when in fact he had not, may be deemed inadmissible. Courts treat confessions obtained by deceit and trickery differently, with some courts permitting such confessions and others not allowing them. No confession will be admitted if the circumstances under which it was obtained render it unreliable.

AML Compliance Program

At a minimum, a written anti-money laundering (AML) compliance program should: • Establish a system of internal policies, procedures, and controls to ensure ongoing compliance with the regulatory AML regime. • Provide for independent testing of compliance by internal auditors and/or outside examiners. • Designate a compliance officer(s) to ensure day-to-day compliance with AML laws and regulations. • Provide training on an ongoing basis for all personnel.

Smurfing/Structuring

Bank checks (such as cashier's checks and money orders) could provide evidence of smurfing operations. Many countries require financial institutions to report all currency transactions above a certain threshold (e.g., more than $10,000 in the United States) to the government. As a result, the most common type of illegal structuring scheme in the money laundering context is smurfing, where the launderer breaks up the illicit money into smaller amounts and deposits it into bank accounts or purchases cashier's checks, traveler's checks, or money orders. A red flag of a smurfing scheme is a customer who attempts to make many deposits just under the reporting threshold.

Bankruptcy

Bankruptcy is a federal court process in the United States. All bankruptcy cases are filed in federal court, and many are filed in the local district of the U.S. bankruptcy court. U.S. district courts have jurisdiction over bankruptcy proceedings, but, in practice, virtually all cases are deferred to the U.S. bankruptcy courts. Although bankruptcy courts are federal courts, they do not derive their power from Article III of the Constitution. Article III courts include the U.S. district courts, the U.S. Circuit Courts of Appeal, and the U.S. Supreme Court. Instead, bankruptcy courts derive their power from Article I (congressional powers). Article III states that judicial power of the United States rests with the Supreme Court and in inferior courts established by Congress. Bankruptcy judges hear all cases involving debtors' and creditors' rights, approve plans of reorganization, award fees to professionals who assist with the proceeding, and conduct hearings and trials when necessary to resolve disputes.

UK Bribery Act vs. FCPA

Both the UK Bribery Act and the U.S. Foreign Corrupt Practices Act (FCPA) make it a crime to offer foreign public officials bribes or to accept bribes from them in connection with international business transactions, and their prohibitions on bribing foreign government officials are broadly comparable. Thus, like the FCPA, the Bribery Act seeks to punish corruption on a global level, but the Bribery Act has an even broader application than the FCPA. One way in which the Bribery Act has a broader application than the FCPA is that it makes commercial bribery—bribes paid to people working in the private sector—a crime, whereas the FCPA only prohibits bribes involving foreign government officials. Consequently, even if an organization's anti-corruption program is sufficiently robust for the purpose of complying with the FCPA, it might not be sufficient for the purpose of complying with the UK Bribery Act. Therefore, it is important for international organizations to be aware of the differences between the FCPA and the Bribery Act. Another way that the UK Bribery Act differs from the FCPA concerns facilitating payments. The FCPA does not prohibit all payments to foreign officials; it contains an explicit exception for facilitating payments made to expedite or secure performance of a routine governmental action. The Bribery Act, however, makes no such exception.

Unsuitable Recommendations

Broker-dealers subject to a suitability requirement, such as those in the United States, are prohibited from recommending investments or investment strategies that are unsuitable for their clients. Thus, making unsuitable recommendations (e.g., recommending high-risk options to a senior citizen with limited assets) is prohibited. Essentially, there are two rules relating to suitability: the know-your-customer rule and the suitability rule. The know-your-customer rule provides that securities broker-dealers must know their customer financially to effectively service the customer's account and to minimize the risk of recommending an inappropriate investment. Thus, this form of suitability violation occurs when a broker recommends an investment or investment strategy to a client without having conducted due diligence to ascertain relevant personal and financial information about the client. In addition to the know-your-customer requirement, there are suitability requirements that broker-dealers must follow when making recommendations to a client. Suitability rules prohibit broker-dealers from making recommendations to clients if they do not have reasonable grounds for believing that the recommendations are suitable for the respective clients. This form of suitability violation occurs when a broker recommends an investment, recommends an investment strategy, or makes an investment that is inconsistent with the client's objectives, and the broker knows or should know the investment is inappropriate.

ACFE Code of Professional Ethics

Certain standards for fraud examiners are found in the ACFE Code of Professional Ethics. Specifically, fraud examiners are prohibited from expressing opinions as to the guilt or innocence of any person or party. This is not to say that the witness cannot testify to the badges, hallmarks, or characteristics of fraud found in the case. It also does not mean that the fraud examiner cannot testify that, based on the evidence, he believes that the accused may have committed the offense. But the ultimate guilt or innocence of any person or party is the sole responsibility of the fact finder. The fraud examiner typically will not be permitted to testify to the ultimate fact questions.

Chapter 11 Bankruptcy

Chapter 11 is a type of bankruptcy that is designed to help the debtor by allowing the debtor to reorganize its financial affairs and continue in business. It enables debtors to restructure their debt, pay their creditors, and emerge from bankruptcy.

Chapter 7 Bankruptcy

Chapter 7 bankruptcy is the most common/basic type. It allows the debtor to get a court order under which some or all debts may be eliminated. In addition, it involves the liquidation of assets that are not exempt by state law. Taxes, fines, alimony, child support, and certain student loans, however, generally cannot be discharged under a Chapter 7 bankruptcy. A Chapter 7 case is a type of liquidation proceeding; it involves accounting for all dischargeable debts the subject owes, identifying all of the subject's assets, and liquidating nonexempt assets to pay off creditors.

Commercial bribery

Commercial bribery refers to the corruption of a private individual to gain a commercial or business advantage. That is, in commercial bribery schemes, something of value is offered to influence a business decision rather than an official act. The elements of commercial bribery vary by jurisdiction, but they typically include: • The defendant gave or received a thing of value. • The defendant acted with corrupt intent. • The defendant's scheme was designed to influence the recipient's action in a business decision. • The defendant acted without the victim's knowledge or consent.

Truth in Negotiations Act (TINA)

Congress enacted the Truth in Negotiations Act (TINA) to protect the U.S. government from unscrupulous contractors that inflate costs by falsifying their cost proposals with inaccurate, incomplete, or noncurrent cost and pricing data. TINA is designed to provide for full and fair disclosure by contractors when negotiating with the government.TINA applies to government purchases involving negotiations between the government and a contracting entity. Under TINA, government contractors must submit cost or pricing data before negotiations, and they must certify that the information is current, accurate, and complete as of the date the agreement on price occurred.

Criminal Conspiracy

Conspiracy refers to a situation in which two or more people agree to commit an illegal act. The essential elements that must be shown to prove a conspiracy are as follows: • The defendant entered into an agreement with at least one other person to commit an illegal act. • The defendant knew the purpose of the agreement and intentionally joined in the agreement. • At least one of the conspirators knowingly committed at least one overt act in furtherance of the conspiracy. Under the first element, the government must prove that the defendant reached an agreement or understanding to commit an illegal act with at least one other person. The conspirators must agree about the precise illegal act. Under the second element, the government must establish that the defendant knew of the conspiracy's existence and its objective. The government, however, does not have to establish that the defendant knew all the details or objectives of the conspiracy, and it does not have to prove that the defendant knew the identity of all the participants in the conspiracy. Finally, the purpose of the conspiracy need not be accomplished for a violation to occur, but at least one of the co-conspirators must have carried out at least one overt act in furtherance of the conspiracy. The overt act need not be criminal and could be as innocuous as making a phone call or writing a letter.

Cross-Examination

Cross-examination refers to the questioning of one side's witness by the opposing side, and it is truly the highlight of the adversarial court system. Cross examination, however, is uncommon in inquisitorial systems, although some civil law jurisdictions allow counsel for the parties to question witnesses in limited circumstances. Cross-examination is geared to allow opposing counsel or another questioning party either to clarify or to make points at the witness's expense. Questions during cross-examination might concern anything that might refute or embarrass the witness. During adversarial cross-examination, the witness's credibility will constantly be called into question. First, opposing counsel will seek to diminish the importance of the testimony presented by the witness. Second, opposing counsel will seek to have the witness testify in support of the opposing position by providing a series of assumptions. Third, opposing counsel will attack the witness's report or expert opinion (as applicable) itself to show the inadequacies, thereby discrediting the opinion, the report, and the witness. The opposing counsel can attack or question anything that has been said or entered into court. This includes notes, working papers, affidavits, reports, and preliminary trial or discovery transcripts. Often, cross-examination creates an atmosphere of confrontation and contradiction. Opposing counsel will generally not ask a question to which it does not already know the answer. During cross-examination, the questioning party might employ various methods to discredit an expert witness or to diminish the importance of his testimony. The sounding board cross-examination method uses the witness as a sounding board to reacquaint the judge or jury with the favorable aspects of the questioning party's theory. This technique often uses the "Is it not true?" and "Would you agree with me?" approach. Constant, nonstop agreement is used to intimidate the witness. In the eyes of the judge or jury, agreement with various questions raised by the questioning party also might be assumed to be general concurrence with the questioning party. This often is a very valuable psychological tool. It is critical to never underestimate the expertise of the opposing counsel in adversarial proceedings. Often, opposing counsel will be underplaying its understanding of the issues to lull the witness into a sense of security. This can lead the witness into a difficult situation. Opposing counsel's golden rule is to cross-examine only if it would benefit the case. In asking questions of the witness, opposing counsel will generally ask either short questions in plain words or will ask leading questions. Opposing counsel usually knows the answers to the questions it poses.

Defamation vs. Libel vs. Slander

Defamation is an unprivileged publication of a false statement about a person that causes harm to that person's reputation. To recover for defamation, the plaintiff must prove all of the following elements: • The defendant made an untrue statement of fact. • The statement was communicated (published) to third parties. • The statement was made on an unprivileged occasion. • The statement damaged the subject's reputation. The law of defamation actually consists of two civil wrongs: libel and slander. Libel is basically defamation that appears in written form, while slander involves defamatory remarks that are only spoken.

Counterclaim

Defendants can file a counterclaim against the plaintiff in a civil action. A counterclaim (also known as a countersuit) does just what its name implies; it levels a claim against the original plaintiff, who is now the defendant of the counterclaim. The specifics of the counterclaim may be filed as part of the defendant's answer or as a separate document. If a defendant files a counterclaim, the counterclaim and the original complaint will be tried concurrently, with the final judgment stipulating a decision on each side's petition.

Depositions

Depositions are probably the most popular and useful form of civil discovery. A deposition is sworn testimony given by a party or witness upon questioning by counsel for one of the parties before trial and outside of court, usually in a lawyer's office. Opposing counsel and a stenographer, who administers the oath and transcribes the testimony, also are present. Deposition testimony may be used to obtain evidence about the party's own case or the opponent's, or it may be used to preserve testimony for trial. For example, during the pretrial discovery process, Henry meets with the opposing party's counsel at his legal office, and the attorney asks Henry various questions concerning the case. The testimony is sworn, and it can later be used at trial.

Digital Currencies

Digital currencies are a type of online payment method that has emerged as a money laundering concern. Broadly defined, digital currencies are currencies that exist and are traded in a digital format. The term typically excludes government-backed currencies, despite the fact that they can also exist and be traded digitally. Digital currencies can come in several forms and can have limited or broad uses. Among the most popular digital currencies is Bitcoin, which features a peer-to-peer network that allows users to send units of the currency to each other online without the use of a traditional financial institution. Digital currencies are often vulnerable to money laundering because many of them function as international person-to-person payment systems that cross jurisdictional boundaries, creating difficulties for authorities pursuing enforcement or legal actions. As is typical with developing payment systems, digital currencies face less strict regulations than payments made through traditional financial institutions. Furthermore, many service providers who exchange or otherwise deal with digital currencies do not have effective customer identification or recordkeeping practices, while others actively promote anonymous payments.

Direct Examination

Direct examination is the initial questioning of a witness by the party that called the witness (in adversarial jurisdictions) or the judge (in inquisitorial jurisdictions). Most of the time, direct examination is a nonconfrontational questioning aimed at exposing the facts and issues of the case. Direct examinations in adversarial jurisdictions are conducted by the attorney who retained the expert. Because experts are hired for their opinions, they are often not subject to the usual restrictions about statements of judgment. During direct examination in adversarial systems, expert witnesses present their findings in various ways, such as narrative questions, hypotheticals, specialized materials, and special exhibits. Experts are commonly asked to answer narrative questions, which are broad, open-ended questions that allow experts to present their opinions in their own words with minimal prompting. Expert witnesses also are typically allowed to demonstrate their findings by using hypotheticals, which are fictional situations, analogous to the act in question, that clarify and highlight particular aspects of the dispute. But to be effective, hypotheticals must be constructed exquisitely. Fraud cases, with their divergent paths of activity and intrigue, can require complex summarizing for the facts to make any sense. Average jurors and some judges have never considered how someone could manipulate store inventories to drive up the company's stock price and then make a profit on the phony surge. The expert witness in cases dealing with such issues often will begin testimony by recounting the narrative background of a case, the tests and experiments that were performed during the investigation, and a summary of the findings based on the witness's professional expertise. For example, during a direct examination, the judge or counsel for the party presenting the expert witness might ask open questions, such as, "Could you please tell us about the background of this case?" or "What procedures did you perform in your examination?" In contrast, a cross-examining attorney needs to control the flow of testimony and would not likely ask an expert witness a narrative question. Instead, cross-examining attorneys often attempt to ask leading questions, where the answer is suggested in the question. They might also ask questions that would call for the expert to go beyond the proper scope of his testimony. Compound (two-part) and hostile questions do not generally occur in the direct examination process. Additionally, leading questions are generally not allowed during direct examination (e.g., "The results were negative, weren't they?").

Discovery

Discovery refers to the formal process whereby the parties collect evidence and learn the details of the opposing case. The principal methods of civil discovery are oral depositions, written interrogatories, requests for production, requests for admissions, requests for physical or mental examinations, and requests for inspection of property. Under U.S. federal rules (of Civil Procedure), either party may take discovery regarding any matter, not privileged, that is relevant to the subject matter of the action or that might lead to admissible evidence. Thus, even information that is not admissible at trial can be obtained through discovery.

Myopic vision

During cross-examination, the questioning party might employ various methods to discredit a witness or to diminish the importance of a witness's testimony. Myopic vision, a tactic primarily used against expert witnesses, entails getting the expert witness to admit excessive time being spent on a specific matter, and then selecting an area to highlight in which the witness is unsure or has not done much work. This area might not be central to the issues in the case or to the conclusions reached. Then, the questioning party will make a large issue of it and prove that the witness's vision is myopic in that the work was limited in extent or scope and, as such, substandard.

Work-Related Misconduct

Every U.S. government agency is considered a public employer, regardless of whether it is a local, state, or federal government agency. Public employers are not generally required to obtain a warrant when they conduct searches for investigations of workplace misconduct. In O'Connor v. Ortega, 480 U.S. 709 (1987), the Supreme Court held that requiring warrants for all forms of public workplace searches would be unworkable and would impose intolerable burdens on public employers. Therefore, the Supreme Court ruled that workplace searches should be held to a lower standard. When a public employer conducts an investigation of work-related misconduct, and when that investigation necessitates a search of an employee's workspace, the employer is not generally required to obtain a warrant to perform the search, nor is the employer required to make a showing of probable cause that the suspect has committed a crime. This does not mean, however, that there are no restrictions on the employer's ability to conduct the search; it still must meet the test for "reasonableness under all the circumstances."

False Imprisonment

False imprisonment is the unlawful restraint by one person of the physical liberty of another without consent or legal justification. To recover for a claim of false imprisonment, the plaintiff generally must prove all of the following elements: • The defendant used words or actions intended to restrain the plaintiff. • The defendant's words or actions resulted in the restraint of the plaintiff without the plaintiff's consent (i.e., against the plaintiff's will) and without legal justification. • The plaintiff was aware that he was being restrained. is the unlawful restraint by one person of the physical liberty of another without consent or legal justification. A claim of false imprisonment might arise if an employee is detained in any way during a search or interview. Generally, an employer is entitled to question an employee at work about a violation of company policy without incurring liability as long as the employee submits to the questioning voluntarily; that is, not as a result of threats or force.

Fraud

Fraud includes any intentional or deliberate act to deprive another of property or money by guile, deception, or other unfair means.

Fraudulent misrepresentation of material facts

Fraudulent misrepresentation of material facts is most often thought of when the term fraud is used. The specific elements of proof required to establish a misrepresentation claim vary somewhat according to where the fraud occurred and whether the case is brought as a criminal or civil action, but the elements normally include: • The defendant made a false statement (i.e., a misrepresentation of fact). • The false statement was material (i.e., the statement was sufficiently important or relevant to influence the making of a decision). • The defendant knew the representation was false. • The victim relied on the misrepresentation. • The victim suffered damages as a result of the misrepresentation.

Deferred Prosecution Agreements

Generally, deferred prosecution agreements occur when prosecutors file criminal charges against a company, but then they agree not to prosecute the claims as long as the company successfully complies with the deferral agreement's terms. These requirements typically focus on getting the business to reform its policies and reduce the risk of illegal practices. Essentially, deferred prosecution agreements help companies avoid indictment, trial, and conviction while providing prosecutors with another channel for disposing of a corporate case that punishes malfeasance and effectuates changes in a company's culture. Deferred prosecution agreements can result in no conviction if the agreement is fulfilled.

Criminal Appeals

Generally, in the United States, an appeal may be made only for errors of law to which the defendant made timely objection at trial or in pretrial proceedings. The failure to object is said to waive any claims of error. The underlying rationale for this rule is that a timely objection permits the trial judge to correct any error when it occurs, eliminating the delay and expense of an appeal and possible new trial. Only very serious errors that affect the substantial rights of the defendant may be raised on an appeal without the necessity for an earlier timely objection. Because of the Fifth Amendment's double jeopardy provisions, only a convicted defendant in a U.S. criminal case can appeal a verdict. The government cannot appeal an acquittal on the merits. If a statute authorizes the prosecution to appeal, such an appeal is constitutional only if the appellate court can decide the appeal without subjecting the defendant to a second trial. The prosecution may, however, appeal adverse pretrial rulings on the admissibility of evidence and certain other matters that can terminate a prosecution temporarily (but do not result in a decision on the merits in favor of the defendant).

Impeachment

Impeachment is the practice of questioning a witness's knowledge or credibility. There are numerous ways an attorney might impeach a witness, but the most common ways include efforts to show that the witness: • Is influenced by bias or self-interest • Has an impaired ability to observe • Made prior inconsistent statements • Has been convicted of a felony or equivalent crime • Has a reputation for untruthfulness In some common law systems, such as that in the United States, a witness's credibility may be challenged, though not automatically impeached, by showing that the witness has been convicted of a felony crime. For example, under Rule 609 of the U.S. Federal Rules of Evidence, evidence that a witness has been convicted of a crime may be offered to attack the witness's character for truthfulness if the crime was punishable by death or imprisonment in excess of one year or if the crime, regardless of the punishment, involved dishonesty or a false statement. Here, the crime of driving while intoxicated crime is not admissible because it is a misdemeanor and does not relate to a reputation for untruthfulness.

Terry v. Ohio

In Terry v. Ohio,392 U.S. 1 (1968), the U.S. Supreme Court held that police may briefly detain and question a person for investigative purposes if there are specific "articulable" reasons to do so. The decision imposes a lesser standard than probable cause.

Civil litigation

In U.S. civil trials, the plaintiff usually offers its evidence first. In most cases, civil plaintiffs must prove their case only by the preponderance of the evidence, meaning that there must be only slightly more evidence in favor than against. Like criminal trials, civil trials begin with the opening statements, starting with the party that bears the burden of proof. Thus, civil trials begin with the plaintiff's counsel speaking first. As in criminal trials, the opening is devoted to introducing the parties, stating the nature of the dispute, and outlining the evidence the party expects to produce. The arraignment is part of the criminal justice process; it is not part of civil litigation.

Brady Material

In U.S. criminal trials, government prosecutors have an ethical responsibility not to use evidence that is false and must correct testimony that they know is false. In 1963, the Supreme Court (in the case of Brady v. Maryland, 373 U.S. 83) expanded the prosecution's duty further. Under Brady, the prosecution must disclose all exculpatory (favorable to the defendant) evidence that is material to the defendant's guilt or punishment. The U.S. government is expressly forbidden from concealing evidence that would call the charges into question.

Arbitration

In an arbitration proceeding, the arbitrator acts as a judge or jury by deciding the case on its merits. Arbitration is the process whereby a dispute is submitted to an impartial third person (known as an arbitrator) who then decides the outcome of the case (i.e., which party should win). The arbitrator acts as a judge or jury by deciding the case on its merits. Arbitration can be either binding or nonbinding. If the arbitration is binding, then the decision of the arbitrator is final, and the parties cannot later submit their dispute to a judge or jury for determination. Conversely, if the arbitration is nonbinding, the arbitrator's determination is not binding upon the parties.

Mail Fraud

In general, mail fraud is the use of the mail to perpetrate a scheme to defraud a victim of money or property. This includes the use of the U.S. postal system or private interstate commercial carriers (e.g., FedEx, UPS, and DHL) for the purpose of executing, or attempting to execute, a fraud scheme. Thus, where the mail is not used, no matter how large or serious the fraud, there is no federal jurisdiction under this statute. Yet, a mail fraud offense can occur even if the mailing itself does not contain false and fraudulent representations. Thus, routine mailings are sufficient to invoke the mail fraud statute even when they are innocent (nondeceptive) mailings. The mailing element is satisfied as long as the mailing helps advance the scheme in any significant way. For a scheme to violate the mail fraud statute, it is not necessary that the scheme succeed or that the victim suffer a loss.

Civil trials - judge and jury

In general, the judge and jury serve important roles during a trial. In the trial setting, the jury finds the facts, while the judge applies the law, makes rulings on evidence, and generally moderates the proceeding to ensure a fair trial. If, however, a jury is waived by the defendant and government, the judge decides both the facts and the law in what is called a bench trial.

Writ of certiorari

In the U.S. federal system, an appeal to the U.S. Supreme Court is accomplished by applying for a writ of certiorari. Relatively few appeals are granted. Usually they involve an important question of constitutional law, or they may be used to resolve a split or disagreement on a point of law among the circuits or on issues which have considerable significance to the judicial system. If the U.S. Supreme Court denies a petition for a writ of certiorari (a request to hear a case on appeal), then the decision of the lower court is final.

Securities Exchange Act of 1934 Rule 10b-5

In the United States, Rule 10b-5—which the SEC promulgated pursuant to Section 10 of the Exchange Act—prohibits false statements and other fraudulent activity in connection with the purchase or sale of any security. Rule 10b-5 is often referred to as the Act's anti-fraud provision. Specifically, Rule 10b-5 states: "It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, • To employ any device, scheme, or artifice to defraud, • To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or • To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security." Providing non-material information (whether inadvertently or not) would not be a violation of Rule 10b-5. In the United States, a successful Rule 10b-5 action requires the party bringing the action to allege and prove the following five elements: • The defendant made a material misstatement (false statement) or omission. • The alleged fraud was in connection with the purchase or sale of a security. • The defendant acted with scienter (typically meaning that the party charged with the violation acted with a specific intent to defraud). • The plaintiff relied on the misrepresentation or omission. • The plaintiff suffered economic loss caused by the misrepresentation or omission.

Motion to Surpress Evidence

In the United States, a motion to suppress evidence asks the court to issue an order that certain evidence be excluded from consideration at trial because the evidence was improperly obtained, is impertinent or unduly prejudicial, or violates some other right such as the privilege against self-incrimination. In many cases, motions to exclude evidence—decided at a suppression hearing, where the judge (without a jury) rules on the propriety of the government's conduct—are more important than the trial itself. If the defense is able to exclude certain pieces of evidence (e.g., seized narcotics, a tainted confession, or critical books and records), the prosecution might be forced to dismiss the charges (at least temporarily) for lack of adequate proof. But if a defendant's motion to suppress evidence is unsuccessful, the failed motion might renew the defendant's interest in a plea bargain.

US Bankruptcy Judge Responsibilities

In the United States, all bankruptcy cases are filed in federal court, and many are filed in the local district of the U.S. bankruptcy court. Bankruptcy judges hear all cases involving debtors' and creditors' rights, approve plans of reorganization, award fees to professionals who assist with the proceeding, and conduct hearings and trials when necessary to resolve disputes.

Involuntary Bankruptcy Proceeding

In the United States, an involuntary petition for bankruptcy can only be filed under Chapters 7 and 11. Creditors who have not been paid by the debtor can file a petition forcing the company into bankruptcy. Generally, the creditors must be able to demonstrate in court that the debtor is not paying debts as they mature. To commence the filing of an involuntary proceeding, creditors must satisfy the following criteria: • The debts must not be subject to a bona fide dispute and must be noncontingent. • The creditor(s) must be owed at least $15,775 more than the value of the lien or collateral. • If there are 12 or more creditors, then three creditors are needed to file. • If there are fewer than 12 creditors, only one creditor is needed to file.

Pre-trial discovery statutory rights

In the United States, both the defendant and prosecution have statutory rights to certain pretrial discovery. Upon the defendant's request, the government must allow the defendant to inspect and copy any results or reports of physical or mental examinations, scientific tests, or experiments that are material to the preparation of the defense or that the government plans to use as evidence at trial. The defendant does not have a right to the work product of the state, which includes reports, memoranda, and other internal documents created by the government attorney in preparing for and prosecuting the case. In addition, the defendant does not have a right to inspect statements made by government witnesses prior to the time that a witness actually testifies. In the pretrial discovery phase of U.S. criminal litigation, if the defendant requests disclosure of the prosecution's documents and tangible objects, reports of examinations and tests, and its expert witnesses, then the prosecution is correspondingly entitled to disclosure of these items from the defense. The prosecution is not, of course, entitled to disclosure of the defendant's work product, nor is it entitled to statements made by prospective witnesses to the defendant or his attorneys.

Defense for Bankruptcy Concealed Asset Charges

In the United States, defendants facing criminal charges for concealing assets in bankruptcy cannot use the fact that their creditors have actual knowledge of the concealed assets or that they did not conceal assets from all of their creditors as a defense against the charges. They also cannot use the fact that they returned the concealed assets to the estate as a defense, though this might mitigate the defendant's criminal culpability.

Venire

In the United States, each party may remove any number of prospective jurors for cause. The defendant also may challenge the entire jury pool—called the venire—if the selection process systematically excludes certain groups, such as minorities, women, or young people.

Tax Fraud Allegations

In the United States, if the IRS determines that a taxpayer has a deficiency and owes an additional amount of taxes, there is a presumption of correctness in favor of the IRS that requires the taxpayer to come forward with prima facie evidence to prove that the IRS's determination was erroneous. However, there is no presumption of correctness afforded the government when it alleges civil or criminal tax fraud. In such cases, the government bears the burden of proving tax fraud.

Creditors Rights in Bankruptcy

In the United States, individual creditors may conduct their own investigations and also assist Chapter 7 and Chapter 11 trustees in performing their investigations. Trustees are normally very appreciative of creditors who can provide information regarding the debtor's financial affairs. Creditors also can attend the 341(a) meeting with the debtor and ask pertinent questions. Creditors may bring copies of documents, such as prior loan applications or pictures of particular assets, to the 341(a) meeting and ask the debtor what happened to the various assets listed on the loan applications or assets shown in photographs.

Deductions for illicit income

In the United States, individuals must report all of their taxable income, regardless of its source. This includes income from illegal activities, such as illegal kickbacks, which must be reported just like legitimate income. If, however, a criminal pays taxes on his illegal gains even though he is under a duty to repay the illegal funds, the taxpayer, upon repayment, gets a deduction for the repayment. For example, in Stephens v. Commissioner, 905 F.2d 667 (7th Cir. 1990), a taxpayer embezzled about $530,000 from his employer and recorded it on his tax return as "consulting income." The taxpayer was ordered to pay restitution to the employer, plus interest. But he was allowed deductions under IRS Code Section 165(c)(2), relating to losses incurred in a transaction entered into for profit, for the restitution amount in the year paid. The court, however, did not allow the taxpayer to take a deduction for the interest.

Tax Deficiencies

In the United States, individuals with tax deficiencies may be subject to either civil or criminal penalties. The Internal Revenue Service (IRS) pursues civil violations, and it refers criminal tax cases to the Department of Justice (DOJ) for prosecution.

Criminal Charges

In the United States, prosecuting attorneys have the discretion to settle criminal charges with a plea bargain arrangement, avoiding the expenditures of time and effort involved at trial. About 90% of criminal defendants never go to trial, opting instead for a deal. Critics have charged that the plea privilege is abused by cynical prosecutors and leads to dangerous offenders being released quickly and without retribution. In a plea bargaining agreement, the defendant pleads guilty to a violation in exchange for some sort of leniency.

Frivolous Tax Return

In the United States, taxpayers who file frivolous tax returns—returns that are incorrect on their face or that do not contain enough information to make tax liability determinations—or act on frivolous positions may be subject to civil penalties.

Commodities Futures Trading Commission (CFTC)

In the United States, the Commodities Futures Trading Commission (CFTC), which can be described as the SEC's counterpart for the futures and commodities industry, regulates the activities of futures commission merchants (FCMs) and their associated persons.

FBI and UST Responsibilities

In the United States, the FBI investigates bankruptcy crimes and the U.S. Attorney's Office prosecutes them. The Office of the United States Trustee (UST) is a Department of Justice (DOJ) agency that is responsible for administering bankruptcy cases; appointing Chapter 11 committees; overseeing and monitoring trustees; reviewing employment and fee applications; and appearing in court on matters of interest to the estate and creditors. The Office of the UST is divided into 21 regions, each made up of one or more federal districts. Each region has a U.S. Trustee (or an Assistant Trustee in several regions). The Office of the UST in each region principally is comprised of staff attorneys, bankruptcy analysts (including accountants), and, in some instances, special investigative units.

Bankruptcy Trustee

In the United States, the duties of the trustee are as follows: administer assets of the estate; liquidate assets; pay creditors; litigate matters where necessary; have the right to sue and be sued; conduct hearings; conduct investigations of the debtor's financial affairs; file reports as required by the Office of the UST; and, where appropriate, file criminal referrals with the U.S. Attorney's Office. In a U.S. bankruptcy proceeding, the appointed trustee has the power to gather financial information from various sources, including the debtor's attorneys and accountants. A trustee takes the debtor's place and has all of the debtor's ownership rights; this gives the trustee the ability to bypass restrictions on information, such as those afforded by the attorney-client and accountant-client privileges. Attorneys might attempt to raise the attorney-client privilege as a defense to providing information to the trustee, but they are usually unsuccessful in this regard. The trustee must be able to understand what legal actions need to be taken and, therefore, it is imperative that the debtor's attorney cooperate with the trustee. The trustee also should have access to the accountant's work papers, tax returns, and client documents, which might provide the trustee and creditors with the opportunity to locate and recover hidden assets. Another useful tool for the trustee is the power to access the debtor's records that are in the possession of law enforcement authorities. Additionally, the trustee has the right to inspect and use these records to conduct the debtor's business affairs. To fulfill their fiduciary investigative responsibilities, U.S. trustees need to gather financial information. If the debtor's books and records are missing, incomplete, or unreliable, they should be obtained from third parties, such as banks, customers, related parties, and so on. A trustee takes the debtor's place and has all of the debtor's ownership rights; this gives the trustee the ability to bypass restrictions on information, such as those afforded by the attorney-client privilege. Attorneys might attempt to raise the attorney-client privilege as a defense to providing information to the trustee, but they are usually unsuccessful in this regard. If a third party resists the trustee's request, the trustee can subpoena records or testimony under Bankruptcy Rule 2004.

Admission of evidence in common law systems

In the United States, the general rule of evidence provides that all relevant evidence is admissible. Rule 401 of the Federal Rules of Evidence defines relevant evidence as evidence "having any tendency to make the existence of any fact that is of consequence to determination of the action more probable or less probable than it would be without the evidence." Evidence is relevant if it tends to make some fact at issue more or less likely than it would be without the evidence. The facts in issue vary according to the case, but generally can be said to be those that tend to prove the essential elements of the offense or claim, as well as related matters, such as motive, opportunity, identity of the parties, and credibility. In common law systems using adversarial processes, such as the United States, the fact that an item of evidence is relevant does not automatically mean that it will be admitted. Relevant evidence might be excluded if it is unduly prejudicial, threatens to confuse or mislead the jury, threatens to cause unnecessary delay or waste of time, or is merely cumulative. In common law systems using adversarial processes, exhibits—the tangible objects presented as evidence—are inadmissible unless they are relevant and established as authentic. Thus, to be admissible at trial, evidence, other than testimonial evidence, must be properly authenticated; that is, the party offering the item must produce some evidence (e.g., testimony from a person with firsthand knowledge) to show it is, in fact, what the party says it is and to show it is in the same condition as when it was seized. If an exhibit cannot be authenticated, it will not be admitted even if it is plainly relevant. The most likely methods of authenticating digital records are: • Testimony from a witness with personal knowledge (e.g., an authenticating witness attests to the process by which the digital records are created, acquired, maintained, and preserved) • Circumstantial evidence of distinctive characteristics (e.g., a person's business habit is consistent with the document) • Certified copies of business records (e.g., digital records are accompanied by a custodian's written certification)

Grand Jury

In the United States, the grand jury hearing is a non-adversarial proceeding. The accused has no right to be informed of the grand jury's deliberations, to know the evidence against him, or to confront the accusers. The accused also has no absolute right to appear before the grand jury, but, if he does appear before it, he may not be accompanied by counsel. The accused may, however, periodically leave the grand jury to consult with his attorney. In the United States, serious criminal charges and most felony fraud charges may be accomplished by a grand jury indictment. The grand jury consists of 16 to 23 people sworn as jurors who meet in secret deliberation, usually in biweekly or monthly sessions, to hear witnesses and other evidence presented by prosecutors and to vote on indictments. An indictment or true bill must be concurred by at least 12 jurors voting without the prosecutor present. The grand jury has the right to subpoena witnesses and documents, and refusals to appear or produce may be punishable as contempt, with fines or jail terms until the subpoena is complied with or the grand jury term expires. A witness or target of the grand jury retains the Fifth Amendment right against self-incrimination. A grand jury may be used to obtain evidence of possible violations of the criminal law, but the process may not be used as a ruse to obtain evidence for parallel civil actions. A common example of such parallel proceedings would be investigation of possible anti-trust violations. The grand jury may, however, make evidence available to the proper government authorities for a civil proceeding with the appropriate court order, as long as the primary purpose of its inquiry is to enforce the criminal laws. Access by private parties through court orders to grand jury evidence for use in private civil proceedings is difficult and unlikely to be granted because of secrecy requirements, unless substantial need is demonstrated.

voir dire

In the United States, the pretrial process during which the court or the attorneys for both parties interview a group of potential jurors and determine whether they are impartial and suitable to serve on the jury is called voir dire. Most U.S. criminal cases are tried with a jury of 12, with two alternates, but the parties may stipulate to a lesser number. During a process called voir dire, the parties or the court may ask questions of the prospective jurors to determine their suitability or impartiality. Each party may remove any number of prospective jurors for cause, and each side has a limited number of peremptory challenges, depending on the offense charged, under which a party may strike a prospective juror without having to give any reason.

Civil case judgments

In the United States, the rules for appeal differ in civil and criminal court. Either party in a civil case may appeal a judgment. A judgment is a court order, but it is not a guarantee of payment. A plaintiff who obtains a money judgment often must take additional steps to collect it. This might include garnishing wages of the defendant or levying against assets. In many instances, particularly in fraud litigation, a judgment might go uncollected because the defendant has already squandered the ill-gotten gains or has secreted them. In the latter circumstances, a plaintiff may conduct post-judgment discovery, including a deposition of the defendant, in an attempt to locate assets to satisfy the judgment.

Civil Jury Trial - Adverse Verdict

In the United States, the rules for appeal differ in civil and criminal court. Either party in a civil case may appeal a judgment. Both sides may appeal from an adverse verdict, either as to liability or damages. As in the U.S. criminal system, the appellate court is largely limited to reviewing the legal decision of the court rather than the factual determination of the fact finder. The appeals court may reverse and remand for a new trial on some or all of the issues, may order that a certain portion of the awarded damages be remitted, or may enter final judgment, if legal grounds are clear, in favor of either party.

Bankruptcy Examiners

In the context of bankruptcy proceedings in the United States, an examiner is a neutral party appointed by the bankruptcy court to investigate and report on relevant matters to Chapter 11 bankruptcy cases. An examiner is normally appointed in a bankruptcy proceeding to investigate certain allegations of fraud and misconduct on the part of the debtor (or principals of the debtor). Typically, a bankruptcy examiner is appointed when creditors, the Office of the UST, or other interested parties file a motion for the appointment of a trustee or an examiner in which allegations of fraud or misconduct are made. A bankruptcy judge will hold a hearing on the motion and consider the evidence submitted by all filing parties (creditors, etc.), as well as the debtor's response to the allegations. After hearing the evidence, the judge can either appoint a trustee or an examiner, or leave the debtor in possession of the business—a decision that depends on what the judge determines is best for the interested parties. If an examiner is appointed, that individual's sole responsibility is to investigate and report the results of the investigation to the court and other parties in interest as quickly as possible. Examiners have the power to subpoena records and depose witnesses. They do not have the power to run businesses, make business decisions, or propose plans of reorganization (generally speaking). Courts might expand the examiner's powers to perform certain duties of trustees or debtors-in-possession.

Immunized Testimony

In the course of a U.S. grand jury investigation or trial, the prosecution may apply for a court order compelling testimony from a witness under a grant of immunity. Because immunized testimony cannot be used against the witness in any criminal proceeding, such an order does not violate Fifth Amendment protections. Although it is legally permissible to prosecute an immunized witness on the basis of other testimony and evidence, as a matter of practice this is seldom done because of policy considerations and the difficulty of demonstrating—as the law requires—that the subsequent prosecution was not in any way based on the compelled testimony. A decision to immunize a witness is solely within the discretion of the prosecution. If the application meets statutory requirements, the court must grant the order. In the United States, an immunized witness can be compelled to testify in a proceeding, but his testimony is immune from use in a criminal prosecution. If an immunized witness refuses to testify—out of fear of reprisals or for any other reason—the witness may be held in contempt and jailed until he agrees to testify or until the grand jury term expires. An immunity order protects a witness only from prosecution for past crimes about which his testimony is compelled; other, undiscovered crimes are not covered, nor is the witness immune from prosecution for perjury based on the immunized testimony. Such testimony also may be used against the witness in a civil proceeding.

Insurance Redemption Scheme

Insurance policies are designed to protect assets (as well as life and health), but they are also assets in their own right. As is the case with most assets, they can become part of a money laundering scheme. This scenario is a redemption scheme. A person can redeem some insurance policies, such as life insurance, before the event that triggers the insurance occurs. In other words, the insurer agrees to pay the beneficiary of the policy an amount less than what the payout on a claim occurrence (in the case of life insurance, the death of the insured) would be. Using illicit assets, launderers can purchase life insurance or other redeemable contracts for themselves or their associates. If the investigator did not know that the launderer bought the insurance policy with illicit assets, the redemption payout would appear legitimate. In an insurance prepayment scheme, the launderer makes advance payments on insurance premiums. For instance, if a health insurer allowed $10,000 in advance premium payments, then the launderer could use the illicit assets to "store" those funds. Perhaps the launderer was going to buy that health insurance anyway; now illicit assets have taken care of that bill.

Interrogatories

Interrogatories are questions that are submitted to an opposing party in a suit; they are something like a written deposition. Interrogatories cannot be given to anyone (such as a witness/potential witness) other than a party to a suit. Questions are submitted to the party in writing. If the receiving party thinks that a question is improper, then the party may object to the question. If no objection is given, then the party must answer the question in writing. All answers to interrogatories must be sworn to under oath. Some parties will try to provide as little information as possible but still give a "truthful" answer. However, that tactic can backfire—if the answering party does not provide the information requested, that party cannot introduce evidence on those issues at trial and can be sanctioned by the court. All answers must be sworn to under oath. Unlike responses to requests for admission, responses to interrogatories are not binding, meaning the responding party may offer testimony that is inconsistent with its responses to interrogatories. However, the inconsistent response to an interrogatory can be used to impeach (discredit the testimony of) the witness at trial.

Jurisdiction

Jurisdiction is the power of a court to hear and decide a given case; it refers to the subject matter or persons over which lawful authority may be exercised by a court. A probate court, for instance, only has jurisdiction to hear cases related to wills and other probate matters. Lower trial courts (e.g., a justice of the peace court) may only have jurisdiction to hear matters under a certain dollar amount (e.g., cases with less than $5,000 in controversy). Determining the proper court requires a three-part test. First, does the court hear cases of the type in question? For example, if a plaintiff brings a civil complaint claiming $500,000 in damages, the plaintiff needs a court that hears civil complaints of that magnitude. Second, does the court have the authority to exercise its power over a particular defendant or piece of property? For instance, a plaintiff can sue a Nebraska company in a Nebraska state court because state courts have personal jurisdiction over all enterprises that do business in that state. Third, does the claim arise within the court's venue? Venue is technically an element of the court's jurisdiction. It refers to the physical location where the lawsuit is to be tried. A trial court in Dallas County, Texas, for example, can only hear cases that have some connection with either parties or events that occurred in that county.

Cancelled policy scheme

Launderers do not always need to keep or redeem the insurance policies they purchase. Many policies have cancellation provisions that, for a certain amount of time, allow the launderer to cancel the policy and have any unused premiums returned. This technique can be used to temporarily store illicit assets and confuse the money trail by having the cancellation paid out to a different account.

Substantive vs. Procedural Law

Law can be categorized as substantive or procedural law. In the United States, substantive law includes statutes and ordinances at every level; common law, or case law, from all the various courts; and state and federal constitutions. The U.S. mail fraud statute, for example, is a federal criminal statute and is therefore most properly characterized as substantive law. Substantive law defines the type of conduct permissible and the penalties for violation; it is comprised of the basic laws of rights and duties. When people say an act is "against the law," they are referring to substantive law.

Investment Contracts

Many fraudulent schemes involving exotic investments can be argued to constitute the offer or sale of investment contracts. The following are types of investments that frequently qualify as investment contracts: • Ponzi schemes • Illegal pyramid schemes • Prime-bank note schemes • Investment schemes involving precious metals or stones • Viatical settlements • Partnerships • Joint ventures • Oil, gas, and mineral interests • Hedge funds • Promissory notes

Mediation

Mediation is the process whereby an impartial third person assists the parties in reaching a resolution to the dispute. The mediator does not decide who should win but instead works with the parties to reach a mutually agreeable settlement. Any mediation agreement will be enforced as a binding contract.

Miranda warnings

Miranda warnings (named after the Miranda v. Arizona U.S. Supreme Court case) are only required if the suspect is (1) interrogated (2) while held in custody (3) by government authorities. The warnings are not required at all when a person is being questioned by private parties; however, some fraud examiners may choose to do so as a matter of policy. Custodial setting refers to questioning initiated by government agents after a person has been taken into custody, or otherwise deprived of his freedom or action in any significant way. As a result, both private and public employers in the United States may interview employees in noncustodial settings without giving Miranda warnings. In the context of employee interviews by public employers, the answer to whether Miranda warnings are legally required depends on the applicability of the Fifth Amendment to the employee interviews. When a public employee is being questioned by his employer, he is being questioned by the government; therefore, the Fifth Amendment applies to employee interviews that are related to potentially criminal conduct. And because the Fifth Amendment's protection against self-incrimination applies to internal investigations conducted by government employers, public employers must give Miranda warnings to employees being subjected to custodial interviews (i.e., employees in custody and subject to interrogation). That is, public employers must give Miranda warnings to employees being interviewed about a potentially criminal matter if the government (or its agent) has arrested the employee or deprived him of action in a significant way.

Mobile payments/banking

Mobile payments, also known as mobile banking, involve using an account associated with a mobile phone—as opposed to cash, credit cards, and debit cards—to facilitate transactions. Similar to the way in which credit and debit cards significantly cut into the use of checks and cash for consumer transactions, mobile payments are likely to grow in popularity. As compared to other transaction methods, mobile payments are vulnerable to money laundering schemes in a few key ways. For one thing, given that mobile payments are still in the process of growing and developing definition, regulations are not as sophisticated or complete as they are for older payment systems. For another thing, many developing countries lack functional AML and anti-terrorism laws, making mobile payments outside of the jurisdiction even more difficult to prevent and trace. Also, a user can send mobile payments to almost anywhere in the world, making them a tool that launderers often use to move funds to foreign jurisdictions. In addition, the use of prepaid phones causes substantial money laundering issues because the owner of a prepaid phone can be virtually anonymous. Prepaid phones can be purchased with cash, and the user typically does not need to provide personal information to open or add funds to an account associated with the phone. Anonymity is a strong attraction for launderers because it helps to obscure the paper/digital trail leading back to them.

Money Laundering

Money laundering is the disguising of the existence, nature, source, control, beneficial ownership, location, and disposition of property derived from criminal activity. Put differently, money laundering is the process by which criminals attempt to disguise illicit assets as legitimate assets that they have a right to possess and spend. In this context, the term assets assumes the wider definition of that which is physical, intangible, or represented in the form of rights or obligations, such as a pension or trust fund. Money laundering operations are designed to take the proceeds of illegal activity, such as profits from drug trafficking, and cause them to appear to come from a legitimate source. Once illegal money has been laundered, the perpetrator is able to spend or invest the illicit income in legitimate assets. A money laundering scheme cannot be successful until the paper trail is eliminated or made so complex that individual steps cannot be easily traced. The number of steps used depends on how much distance the money launderer wishes to put between the illegally earned cash and the laundered asset into which it is converted. A greater number of steps increases the complexity of tracing the funds, but it also increases the length of the paper trail and the chance that the transaction will be reported.

Money Services Business

Money services business (MSB) is a term used with growing frequency to define a regulatory class of non-depository financial service providers that transmit or convert money. Although an MSB has particular meanings in different jurisdictions, it generally includes any business that operates in one or more of the following capacities: • Currency exchangers • Check cashers • Issuers, sellers, or redeemers of traveler's checks, money orders, or stored value • Money transmitters • Prepaid access providers or sellers MSBs offer an alternative to depository institutions for both financial services and money laundering. For this reason, an individual unable to transfer illegal funds into the traditional depository banking system might turn to an MSB. In addition, most MSBs operate under less strict regulations than traditional financial institutions. For example, an MSB might not check a customer's credit report before opening an account, or it might require less rigorous proof of a customer's identity than a traditional bank. These overall less stringent requirements tend to raise the money laundering risk in certain transactions involving users of MSBs. However, there is a regulatory trend to expand certain requirements, such as customer due diligence programs, to MSBs.

3 or 4 tiered court system

Most U.S. states use a three- or four-tier court system. • Lower-level trial courts try misdemeanors and hold preliminary hearings for felony cases, as well as civil disputes below a certain dollar amount (e.g., $10,000 or less). • Higher-level trial courts (sometimes called superior courts) try felony cases, as well as civil disputes above a certain amount (e.g., $10,000 or more). • Appellate courts review trial court decisions. • Superior appellate courts, or supreme courts, review lower appellate court decisions. A higher-level trial court would be responsible for trying civil disputes above a certain amount. Superior appellate courts generally do not hold trials; instead, they review lower appellate court decisions. Each federal district has a chief prosecutor, a political appointee, known as the United States Attorney, and a staff of prosecutors, known as Assistant United States Attorneys. Almost all cases are prosecuted by assistants. Criminal cases at the local level are prosecuted by the district attorney's office or the attorney general's office. In most cases, appeals from decisions of the U.S. District Courts are heard in the U.S. Court of Appeals for the "Circuit," which covers a particular geographic area. The United States has 13 Courts of Appeals. There are 11 numbered judicial circuits, plus the District of Columbia, all of which are defined by a geographic area. There is also the U.S. Court of Appeals for the Federal Circuit, which has nationwide jurisdiction over appeals involving certain subject matters. The U.S. Supreme Court is the highest appellate court in the federal system and may hear certain appeals from state courts, particularly on constitutional grounds. Each federal district, not each court of appeals, is assigned a chief prosecutor.

Official Bribery

Official bribery refers to the corruption of a public official to influence an official act of government. Illegal payments to public officials can be prosecuted as official bribery, and they can give rise to stiff penalties. The elements of official bribery vary by jurisdiction, but they generally include: • The defendant gave or received (offered or solicited) a thing of value. • The recipient was (or was selected to be) a public official. • The defendant acted with corrupt intent. • The defendant's scheme was designed to influence an official act or duty of the recipient.

Criminal Trial Opening Statements

Once the jury is selected and sworn, and after some introductory remarks by the judge, the actual trial begins with the opening statements. In general, the prosecution presents its opening statement first. In it, the prosecutor usually explains the charges, outlines the evidence he intends to produce, and tells the jury that the prosecution will ask for a verdict of guilty. The prosecutor is not permitted to argue the case at this point; that will be done at the end.

Front Businesses Money Laundering

One of the most common methods of laundering funds is to filter the money through a front business. A front business can be useful to a criminal for the following reasons: I. It provides a safe place for organizing and managing criminal activity. II. It provides a base of operations where the comings and goings of large numbers of people will not arouse undue suspicion. IV. The front that does the legitimate business provides cover for delivery and transportation related to illegal activity. Bars, restaurants, and nightclubs are commonly used to front money laundering operations for a number of reasons. These businesses charge relatively high prices, and customers vary widely in their purchases. As a result, a red flag of front businesses is observing a low amount of business, despite the business's books showing a relatively high income for that period. Sales are generally in cash, and it is difficult to match the cost of providing food, liquor, and entertainment with the revenues they produce. Vending machine operations also possess many characteristics favorable to a money laundering operation. Wholesale distribution businesses have historically been a prominent part of money laundering. Wholesale distribution is attractive for money laundering because it is well embedded in a community's economic fabric.

Witness Testimony

Opposing counsel might attempt to take psychological control of a witness by: • Using physical presence to intimidate • Making nonstop eye contact • Challenging the witness's space • Asking questions at a fast pace to confuse the witness • Not allowing the witness to explain or deviate from the exact question It is not the witness's job to argue with or challenge the person conducting questioning. The witness should simply try to get through the cross-examination in the most professional way possible. If the questioning party uses blatantly unfair practices, the judge or jury will take note, and such practices might hurt the opposing side's case. In no circumstances should the witness argue. In adversarial proceedings, the counsel who called the witness is tasked with objecting to improper questioning, so the witness should continue answering questions until an objection is made, and then follow the court's directions. In inquisitorial proceedings, the judge should intervene if questioning is improper.

Overstating Revenues

Overstating revenues occurs when the money launderer records more income on a business's books than the business actually generates. The fictitious revenue accounts for the illegal funds that are secretly inserted into the company.

Parallel proceedings

Parallel proceedings are simultaneous criminal and civil actions against the same defendant that are based upon a single set of facts. The general rule is that, in the United States, criminal and civil actions for fraud may proceed simultaneously even though such parallel proceedings present a dilemma for the defendant. For example, a defendant lawfully may assert his Fifth Amendment right against self-incrimination to avoid answering questions or producing certain documents in the criminal investigation. He may not do so in the corresponding civil case, however, without suffering the possibility of sanctions that can include the dismissal of affirmative defenses or the striking of testimony. Generally, U.S. courts have not been sympathetic to the defendant's dilemma and have allowed civil discovery to proceed even though criminal charges are pending.

Fiduciary Duty

People in a position of trust or fiduciary relationship—such as officers, directors, high-level employees of a corporation or business, and agents and brokers—owe certain duties to their principals or employers, and any action that runs afoul of such fiduciary duties constitutes a breach. The principal fiduciary duties are loyalty and care. The duty of loyalty requires that the employee/agent act solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage. Employees/agents who owe a duty of loyalty must act solely in the best interest of their principal and may not seek to advance their personal interests to the detriment of their principal. The duty of care means that people in a fiduciary relationship must act with such care as an ordinarily prudent person would employ in similar positions. In general, officers and directors do not owe fiduciary duties to other constituencies, such as creditors, whose rights are purely contractual.

Perjury

Perjury is an intentional false statement given under oath on a material point at issue. The basic elements for the crime of perjury are as follows: • The defendant made a false statement. • The defendant made the false statement while under oath. • The false statement was material or relevant to the proceeding. • The defendant made the statement with knowledge of its falsity. Laws that criminalize perjury, however, do not require that the false statement be given in a court of law or that the false statement influence a jury's decision. Generally, the forum for a perjurious statement includes any court proceeding, depositions in connection with litigation, bail hearings, venue hearings, suppression hearings, and so on. Thus, an individual can commit perjury for false statements made somewhere other than a court of law.

Expert Reports in Civil Action

Rule 26 of the U.S. Federal Rules of Civil Procedure requires certain disclosures concerning people who might be used as expert witnesses at trial. The rule applies to experts who have been retained specifically for a given case, and it includes employees of a party if part of the employees' duties involves giving expert testimony. A written report must be produced for each expert witness. Expert reports in all civil actions in U.S. federal court must comply with Rule 26 of the Federal Rules of Civil Procedure. Rule 26 states that testifying experts must prepare a written report and make certain disclosures about their opinions and supporting grounds. Specifically, the expert report, which must be prepared and signed by the expert witness, must include the following: • A complete statement of all expert opinions to be expressed and the basis and reasons for such opinions • The facts or data considered by the witness in forming the opinion • Any exhibits to be used as support for or as a summary of the opinions • The qualifications of the expert witness • All publications authored by the expert in the preceding ten years • A list of all other cases in which the expert has testified as an expert at trial or at deposition within the preceding four years • The expert's compensation for his study and testimony

False claims and statements to the federal government

Section 1001 prohibits a person from lying to or concealing material information from a federal official. A statement is false for the purposes of Section 1001 if it was known to be untrue when it was made, and it is fraudulent if it was known to be untrue and was made with the intent to deceive a government agency. For a violation to occur, the agency need not actually have been deceived, nor must it have in fact relied upon the false statement. Also, to establish a violation, the government does not have to show that it suffered a loss. The statement must have been capable, however, of influencing the agency involved. Moreover, for a false statement to violate Section 1001, it need not be made directly to the government; it can be made to a third party as long as it involves a matter within the jurisdiction of any governmental department or agency. The elements of a typical Section 1001 violation are set forth below: • The defendant willfully made a false statement (or used a false document). • The false statement was material (i.e., sufficiently important or relevant to influence the making of a decision). • The statement concerned a matter within the jurisdiction of any agency of the United States. • The defendant knew the statement was false, acted in deliberate ignorance of the claim's truth, or acted in reckless disregard of the claim's truth or falsity.

Aiding and abetting

Section 2 of Title 18, U.S. Code, is the federal aiding and abetting statute, which provides that anyone who induces another to commit an offense or who aids in its commission may himself be charged and convicted of the underlying offense and subject to its penalties.

Customer Identification Program

Section 326 of the USA PATRIOT Act expands the Bank Secrecy Act by requiring U.S. financial institutions to implement Customer Identification Programs (CIPs). These CIPs are to be incorporated into financial institutions' money laundering programs, and, at a minimum, they must include reasonable procedures for: • Verifying the identity of any person seeking to open an account to the extent reasonable and practicable • Maintaining records of the information used to verify a person's identity, including name, address, and other identifying information • Consulting lists of known or suspected terrorists or terrorist organizations to determine if the person seeking to open the account appears on any such list

Following the Wall Street Crash of 1929, the U.S. Congress passed the ______________ to regulate the public offering of securities and to protect investors.

Securities Act of 1933 - Concern over the Wall Street Crash of 1929 and the manipulation of the securities markets precipitated the need for federal intervention. In 1933, the U.S. Congress enacted the Securities Act of 1933 to regulate the public offering of securities and to protect investors. The U.S. Securities Act of 1933 created interstate registration requirements, providing that it is unlawful to sell or offer to buy or sell a security unless a registration statement has been filed with the SEC. The registration filing, however, will not prohibit the offer or sale of a security if the transaction is exempt or the security being sold is exempt. Therefore, if a security qualifies for an exemption, it can be offered to the public without being registered with the SEC. Both federal and state laws provide for exemptions.

Expert Qualification

Simple qualification is not sufficient in the United States. Federal Rule of Evidence 702 states that before allowing an expert to testify before the jury, the judge must make three determinations: • Is the person qualified as an expert witness? • Will the expertise of the witness assist the jury in understanding the evidence or determining a fact at issue? In other words, is the proposed testimony relevant to the facts of the case? • Is the testimony reliable? Bias and payment are relevant issues. However, in adversarial systems, these issues are readily addressable by the parties' legal representatives, rather than being predetermined by the judge. The evaluation process mainly centers around the candidate's formal education and work experience—whether that includes 30 years in law enforcement or ten years in a large accounting firm. But credentials also cover the candidate's: awards and honors; licensing or certification; technical training; published books and journal articles; and positions in professional associations, societies, and organizations. The important thing to remember is that a person can be qualified as an expert based on either special training or experience. Although professional designations are considered in evaluating credentials as an expert witness, the determination of whether someone is an "expert" is made on a case-by-case basis. Therefore, a professional designation does not automatically qualify someone as an expert for purposes of testifying in court. Under Rule 702 of the U.S. Federal Rules of Evidence, a witness qualified as an expert by "knowledge, skill, experience, training or education" may testify in the form of an opinion or otherwise to "scientific, technical or other specialized knowledge" if such testimony will "help the trier of fact to understand the evidence or to determine a fact in issue." Note that the standard is that the testimony will assist the fact finder, not whether it is relevant to any issue. The determination of whether a witness is qualified as an expert or whether expert testimony is needed is left to the discretion of the trial judge. There is no particular educational requirement for expert testimony; a witness with no formal education may be qualified based on training or experience.

Securities Act of 1933 and Securities Exchange Act of 1934

Simply put, the U.S. Securities Act of 1933 regulates the issuance of the securities themselves, and the U.S. Securities Exchange Act of 1934 covers subsequent trading of securities through brokers and exchanges.

Best-evidence rule

Sometimes testimony may be excluded in common law systems because of the best-evidence rule, which prohibits a party from orally testifying about the contents of a document without producing the document itself or proving to the judge that there is a valid reason for being unable to do so. This rule, however, only applies when an original or copy is being used to prove the contents of a writing, and it does not demand that a party produce the very best evidence to prove a fact in dispute. Also known as the original-writing rule, the best-evidence rule provides that when a witness testifies about the contents of a document, at least a fair copy of the original must be available for inspection. If there is no original, a copy of the proven authentic document will do, but the court must be assured that the copies are reliable and accurate. If the document is lost—no original, no copies—the judge will have to be convinced that there is good reason to forgo the exhibit and admit the testimony.

Making a false return

Spencer most likely committed the crime of making a false return. This offense occurs when a taxpayer uses false or misleading information on his tax return. The elements of this crime include all of the following: • The defendant made and subscribed a return, statement, or other document that was false with regard to a material matter. • The document contained a written declaration that it was made under the penalties of perjury. • The defendant did not believe the document was true and correct as to every material matter. • The defendant falsely subscribed to the document willfully, with the specific intent to violate the law.

Suspicious Activity Reports (SARs)

Suspicious Activity Reports (SARs) are used to report a known or suspected criminal offense or a transaction that involves money laundering or violates the U.S. Bank Secrecy Act. More specifically, a SAR must be filed with FinCEN for any transaction conducted or attempted to be conducted through the financial institution when the institution has reason to suspect that (1) the funds were derived from illegal activities, (2) the transaction is designed to evade any regulations under the Bank Secrecy Act, or (3) the transaction appears to have no business purposes or appears unusual in normal banking practice. Persons who deal in jewels, precious metals, and precious stones are required to establish anti-money laundering programs. Dealers are defined as persons who have purchased at least $50,000 and sold more than $50,000 worth of jewels, stones, or metals during the preceding year. Additionally, the person must also be in the business of selling significant amounts of such items; therefore, the rule would not apply to occasional sellers or hobbyists. Dealers, however, are not required to file SARs. In addition to traditional financial institutions, such as banks and credit unions, a number of other U.S. industries are also required to file Suspicious Activity Reports with FinCEN if they suspect that a client or customer is attempting to launder funds or engage in other illegal activity. These include securities broker-dealers; casinos and card clubs; insurance companies; and unregistered investment firms. In 2002, FinCEN announced a new rule requiring U.S. brokers and dealers in securities to report suspicious activity via a Suspicious Activity Report by Securities and Futures Industries (SAR-SF; FinCEN Form 101). These firms are obligated to report suspicious transactions conducted or attempted by, at, or through a broker-dealer that involve or aggregate at least $5,000 in funds or assets. Brokers and dealers in securities are required to report to FinCEN transactions that fall into one of the four categories below: • Transactions involving funds derived from illegal activity, or intended or conducted in order to hide or disguise funds derived from illegal activity • Transactions designed, whether through structuring or other means, to evade the requirements of the Bank Secrecy Act • Transactions that appear to serve no business or apparent lawful purpose or are not the sort of transactions in which the particular customer would be expected to engage, and for which the broker-dealer knows of no reasonable explanation after examining the available facts • Transactions that involve the use of the broker-dealer to facilitate criminal activity

Bank Secrecy Act

The Bank Secrecy Act (BSA), which went into effect in the United States in 1970, was the first major piece of legislation aimed at detecting and preventing money laundering. The purpose of the law as stated in Section 5311 is "to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings." The BSA sets forth a system of reporting and recordkeeping requirements designed to help track large, unusual, and suspicious financial transactions. Title I contains provisions requiring that financial institutions and securities brokers and dealers keep extensive records of the transactions and accounts of their customers. Title II of the BSA (originally entitled Currency and Foreign Transactions Reporting Act) requires banks, financial institutions (which include casinos, securities brokers and dealers, and currency exchanges), and, in some cases, individuals to report to the government certain transactions that tend to have a relatively high risk of money laundering or other crime.

UK Bribery Act

The Bribery Act is the United Kingdom's analogue of the FCPA, although with several distinctions. In short, the Bribery Act contains a specific offense for the bribery of foreign public officials; it contains a general commercial bribery offense; and it creates a corporate offense of failure to prevent bribery. The Bribery Act exercises broad jurisdiction over all individuals and corporate entities for such acts when any part of the offense occurs in the UK. Furthermore, liability exists for acts committed outside the UK by individuals and entities with a close connection to the UK, including: • British citizens, overseas citizens, overseas territories' citizens, and any person declared a British subject under the 1981 British Nationality Act • Individuals who normally reside in the UK • An entity incorporated under the law of any part of the UK. More specifically, foreign companies that have offices in the UK, employ UK citizens, or provide any services to a UK organization are responsible for complying with the UK Bribery Act. A listing on the London Stock Exchange will not, in itself, subject a company to the Act.

CAN-SPAM Act

The CAN-SPAM Act, or the Controlling the Assault of Non-Solicited Pornography and Marketing Act, attempts to reduce the amount of unsolicited commercial email, also known as spam, by establishing national standards for sending email solicitations. To reduce the amount of spam, the CAN-SPAM Act provides several provisions that apply to individuals or companies sending spam. More specifically, the Act prohibits several deceptive and/or fraudulent practices commonly used in spam, including the prohibition of using deceptive subject lines, using deceptive header information, and requiring sender identification.

Economic Espionage Act

The Economic Espionage Act of 1996 outlaws two types of trade secret misappropriation: economic espionage and theft of commercial trade secrets. Section 1831 criminalizes economic espionage, which refers to the theft of a trade secret to benefit a foreign government, instrumentality, or agent. Section 1832 criminalizes the theft of commercial trade secrets, which refers to the theft of commercial trade secrets to obtain an economic advantage.

FCPA

The FCPA has two principal components: the anti-bribery provisions and the accounting provisions. In short, the anti-bribery provisions make it unlawful to bribe foreign government officials to obtain or retain business, and the accounting provisions require publicly traded companies subject to the FCPA's jurisdiction to keep accurate books and records and adopt internal controls to prevent improper use of corporate funds. For individuals and businesses within its jurisdiction, the FCPA prohibits the payment or offer of anything of value to a foreign official for the purpose of obtaining or retaining business. Promises to pay are considered items of value. Furthermore, foreign companies are within the reach of the FCPA if they have registered securities or are otherwise required to file under the U.S. Securities and Exchange Act of 1934. Here, the German company would be subject to the FCPA because it is publicly traded on the New York Stock Exchange (NYSE), which requires registration with the U.S. Securities and Exchange Commission (SEC). The anti-bribery provisions of the FCPA make it unlawful for regulated parties (such as issuers, domestic concerns, and foreign nationals or businesses) to bribe a foreign official for business purposes. Only regulated parties are subject to FCPA jurisdiction. An issuer is a corporation that has issued securities that have been registered in the United States or that is required to file periodic reports with the SEC. A domestic concern is any citizen, national, or resident of the United States, or any business entity that has its principal place of business in the United States or that is organized under the laws of a state, territory, possession, or commonwealth of the United States. Moreover, the FCPA applies extraterritorially to U.S. citizens working for foreign subsidiaries of domestic companies. A foreign national or business is subject to the FCPA if it takes any act in furtherance of a corrupt payment within U.S. territory. Additionally, the agents, subsidiaries, or other third-party representatives who act on behalf of an issuer, a domestic concern, or a foreign national or business are liable under the same conditions as the issuer, domestic concern, or foreign national or business. The FCPA's anti-bribery provisions extent only to corrupt payments made to foreign officials. The FCPA does not, however, prohibit all payments to foreign officials; it contains an explicit exception for certain types of payments, known as facilitating payments, or grease payments, made to expedite or secure performance of a routine governmental action by a foreign official, political party, or party official that relates to the performance of that party's ordinary and routine functions. For example, the payment of a foreign corporation fee that is statutorily required in a country in order to do business in that country would fall under this exemption and would not be considered a violation of the FCPA.

Fifth Amendment Privilege

The Fifth Amendment to the U.S. Constitution provides that an individual cannot be compelled to give information that might incriminate him in a criminal case. But the Fifth Amendment does not protect corporations and other entities from compelled self-incrimination. The constitutional right to jury trial in criminal cases is addressed by the Sixth Amendment. In the United States, the Fifth Amendment privilege can be asserted in any proceeding, civil or criminal, administrative or judicial, investigatory, or adjudicatory. The Fifth Amendment privilege against self-incrimination is more limited in U.S. civil proceedings than in criminal proceedings; a party still may refuse to answer questions or produce evidence, but, if the party does, inferences might be drawn and the refusal may be disclosed to the jury. The judge also may enter sanctions against the party refusing to produce evidence up to and including the entry of a judgment against such party. Criminal and civil actions for fraud may proceed simultaneously even though such parallel proceedings present a dilemma for the defendant. For example, a defendant lawfully may assert his Fifth Amendment right against self-incrimination to avoid answering questions or producing certain documents in the criminal investigation. But he may not do so in the corresponding civil case without suffering the possibility of sanctions that can include the dismissal of affirmative defenses or the striking of testimony. Additionally, if a defendant takes the stand in a civil case and testifies on his own behalf, he cannot later invoke the Fifth Amendment and refuse to answer questions concerning the same subject matter on cross-examination. If he does, the judge may order that his testimony on direct examination be stricken from the record.

Financial Action Task Force's Recommendations

The Financial Action Task Force (FATF) is an intergovernmental body that was established at the G-7 Summit in 1989. Its purpose is to develop and promote standards and policies to combat money laundering and terrorist financing at both the national and international levels. The FATF's Recommendations, revised in 2012, created the most comprehensive standard with which to measure a country's anti-money laundering, counterterrorism, and nuclear proliferation laws and policies. They serve as a basic framework of laws that its members should have. While the recommendations are not required by members and the FATF acknowledges that following each rule might not be possible, members of the FATF often adopt them. Some of the key measures in the Recommendations provide that countries should: • Use a risk-based approach when setting anti-money laundering policies. • Create policies that increase cooperation and coordination with other countries. • Specifically criminalize money laundering and terrorist financing. • Enable authorities to trace, freeze, and confiscate assets suspected in laundering and terrorist financing. • Require financial institutions to keep certain records and establish anti-money laundering policies, avoid correspondent banking with shell banks, and continuously monitor wire transfers.

Searches and Seizures (4th Amendment)

The Fourth Amendment to the U.S. Constitution guarantees the right of all citizens to be free from unreasonable searches and seizures and permits reasonable searches. The general rule is that a reasonable search is one that is carried out pursuant to a valid search warrant (i.e., a court order that grants authorities the right to search a person or place for evidence of a crime). In Katz v. United States, 389 U.S. 347 (1967), the Supreme Court held that the Fourth Amendment protects the privacy interests of "people, not places" from government intrusion whenever they have a reasonable expectation of privacy. That is, the Fourth Amendment protects a person's reasonable expectation of privacy against government intrusion. Thus, Katz held that the Fourth Amendment applies wherever there is a reasonable expectation of privacy, and it also held that a search without a warrant is "per se unreasonable" in the absence of exigent circumstances. Here are some general rules on Fourth Amendment privacy protections in certain circumstances: • Residences: Every person has a reasonable expectation of privacy in the location where they reside (e.g., home, apartment, hotel room, mobile home). • Business premises: Employees have a reasonable expectation of privacy in their offices as long as they are not open to the public. • Discarded trash and other items left outside of a residence: Generally, discarded trash and other items left outside a residence are not protected by the Fourth Amendment. • Public places: Public places (e.g., sidewalks, public parks, restaurants, stores) are not protected by the Fourth Amendment. • Information stored by third parties: Generally, the Fourth Amendment's privacy protections do not apply to information revealed to third parties and conveyed. So, people do not have a reasonable expectation of privacy in most information that they freely gave to third parties. • Contents of containers, packages, and clothes that are not transparent: Even when in public, people have reasonable expectations of privacy in the contents of opaque containers, packages, and clothes. • Mail sent through the U.S. Postal Service: Mail sent through the U.S. Postal Service is protected by the Fourth Amendment. Thus, the police normally need to obtain a warrant not only to search a house but also to intercept calls from a public telephone booth or to otherwise intrude into matters that the courts would reasonably consider to be private.

Office of Foreign Assets Control (OFAC)

The Office of Foreign Assets Control (OFAC) is an office within the Department of the Treasury charged with administering and enforcing U.S. sanction policies against targeted foreign organizations and individuals that sponsor terrorism and international narcotics traffickers. OFAC maintains a list of individuals, governmental entities, companies, and merchant vessels around the world that are known or suspected to engage in illegal activities. Persons or entities on the list, known as Specially Designated Nationals and Blocked Persons (SDNs), include foreign agents, front organizations, terrorists and terrorist organizations, and drug traffickers.

U.S. Constitutional Protections

The U.S. Constitution protects individuals from abuse of governmental power, and several constitutional provisions can come into play in the course of a fraud investigation. Although the U.S. Constitution protects individuals, the general rule is that it only protects individuals from certain action by the government. That is, the Constitution limits government action; it does not limit the powers of private parties. Thus, as a general rule, the Constitution restricts the activities of government agents and employers, but it does not limit the power of private employers in conducting a corporate investigation. These constitutional restrictions apply to all levels of government: local, state, and federal. For an employee to bring a successful suit against an employer for violating one of his constitutional rights, there must be some form of "state action" involved. State action is involved during any investigation by a state or federal entity, including investigations of its own employees. Because private individuals and companies can engage in state action, private companies can, however, be held liable for violating an employee's constitutional rights in such circumstances.

U.S. Uniform Securities Act of 2002

The U.S. Uniform Securities Act of 2002 provides that, unless certain exemptions apply, a security cannot be sold or offered for sale until all of the following requirements are satisfied: • There is a registration in place to cover the security. • The securities professional is registered. • There is full and fair disclosure of all material information.

Attorney-Client Privilege

The U.S. attorney-client privilege precludes disclosure of communications between an attorney and client, but only if all of the following conditions are met: • The client retained the attorney to provide legal advice (i.e., there must be an attorney-client relationship). • Thereafter, the client communicated with the attorney on a confidential basis. • The privilege has not been waived. To be protected under the attorney-client privilege, a communication must be made to obtain legal advice, but it is not necessary that the communication take place after a lawsuit has been filed. Also, to qualify for the privilege, there must be intent to keep the communications confidential (i.e., the communications must not be disclosed to third parties, such as vendors, customers, auditors, or governmental officials). The U.S. attorney-client privilege is not absolute; it is subject to waiver. Because the attorney-client privilege does not protect communications disclosed to outside parties, the privilege will be waived if confidential communications are disclosed to a third party whose role has little to do with the client's pursuit of legal representation. Generally, waiver occurs when the client, who holds the privilege, voluntarily discloses (or consents to or encourages someone else disclosing) any significant part of the privileged communications. Although the client holds the privilege, the privilege can also be waived by the client's attorney or a third party (someone who is neither the attorney nor the client). Although the attorney-client privilege only applies to confidential communications between an attorney and the attorney's client, the privilege extends to communications with third-party consultants hired to help provide legal advice to the client (e.g., fraud examiners, accountants, bankers, or other experts). Thus, waiver does not occur when an attorney shares privileged information with an outside consultant hired in a role that concerns the client's pursuit of legal representation and when the communication is made for the purpose of effectuating legal representation for the client. But when privy to privileged information, such consultants can waive the client's privilege. Under the U.S. attorney work-product doctrine, work-product protection applies only to documents and things prepared in anticipation of litigation or for trial. Documents and tangible things prepared in the course of an in-house or other pre-litigation investigation, even if at the direction of an attorney, may not be privileged if they were not prepared in anticipation of litigation. Just because there is a possibility of future litigation does not mean that the investigation is in anticipation thereof. Litigation must be actually planned and the work for which protection is sought must have been undertaken for the specific purpose of preparing for that litigation. However, if the work to be protected was done in anticipation of litigation, then it does not matter in most jurisdictions that a lawsuit has not yet been filed.

Federal Court System

The U.S. federal court system uses a three-tier model. • U.S. District Courts conduct trials on criminal charges and civil complaints under federal law. • Courts of Appeals, including the Court of Military Appeals, review district court decisions. • The U.S. Supreme Court reviews lower court decisions. It is sometimes called the court of last resort. Each federal district has a chief prosecutor, a political appointee, known as the United States Attorney, and a staff of prosecutors, known as Assistant United States Attorneys.Almost all cases are prosecuted by assistants. Criminal cases at the local level are prosecuted by the district attorney's office or the attorney general's office. In most cases, appeals from decisions of the U.S. District Courts are heard in the U.S. Court of Appeals for the "Circuit," which covers a particular geographic area. The United States has 13 Courts of Appeals. There are 11 numbered judicial circuits, plus the District of Columbia, all of which are defined by a geographic area. There is also the U.S. Court of Appeals for the Federal Circuit, which has nationwide jurisdiction over appeals involving certain subject matters. The U.S. Supreme Court is the highest appellate court in the federal system and may hear certain appeals from state courts, particularly on constitutional grounds.

Wire Fraud

The U.S. federal wire fraud statute makes it a crime to use wire communications (or other electronic communications (e.g., computer, telephone, radio, or television)) to perpetrate a scheme to defraud a victim of money or property in foreign or interstate commerce. The U.S. wire fraud statute, unlike the mail fraud statute, requires an interstate or foreign communication for a violation. To prove wire fraud, the government must establish the following elements: • The defendant undertook a scheme to defraud a victim of money or property. • The defendant knowingly participated in the fraud with the specific intent to defraud the victim. • The defendant used wire communications that traveled via interstate or international commerce in furtherance of the scheme.

Self-Regulatory Organizations (SROs)

The U.S. securities and futures markets are regulated through a combination of self-regulation by self-regulatory organizations (SROs) and direct federal regulation. SROs in U.S. securities and futures markets are subject to federal regulation. Securities and futures laws authorize the Securities and Exchange Commission (SEC), which regulates the U.S. securities industry, and the Commodity Futures Trading Commission (CFTC), which has authority over U.S. futures markets, to delegate authority to and oversee SROs, empowering authorized SROs to regulate the markets in which securities and futures are traded. Generally, SROs in U.S. securities and futures markets perform various regulatory responsibilities, but, in basic terms, SROs oversee the markets in which they operate and police the members and member firms participating in those markets. More specifically, the regulatory responsibilities of SROs include matters such as: • Creating rules to protect the integrity of the market in which they operate (e.g., rules that govern market conduct and that regulate exchange trading) • Establishing the standards and rules under which their members operate (e.g., regulating their members' trading practices, member qualifications, and how members should relate to their clients) • Offering professional training, testing, and licensing to individuals in their industry • Monitoring compliance with and enforcing the rules of the markets in which they operate through market surveillance programs, trading analysis, and examinations of member firms' trading operations There are several SROs in U.S. securities and futures markets, including: • The national exchanges:The national exchanges that operate the markets where securities and futures are traded (e.g., the New York Stock Exchange, the NASDAQ Stock Market, and the Chicago Board Options Exchange) are SROs. • The Financial Industry Regulatory Authority (FINRA):FINRA, which is overseen by the SEC, regulates all firms selling securities in the United States. • The Municipal Securities Rulemaking Board (MSRB): The MSRB, which is overseen by the SEC, regulates the U.S. municipal bond market. • The National Futures Association (NFA):The NFA, which is overseen by the CFTC, regulates the commodities and futures industry.

Arraignment

The arraignment takes place in open court and consists of the reading of the charges in the indictment or information. The defendant may plead guilty, not guilty, or nolo contendere.

Civil Cases - Burden of Proof

The burden of proof for the civil plaintiff is lower than for the criminal prosecutor. In most cases, civil plaintiffs must prove their case only by the preponderance of the evidence, meaning that there must be only slightly more evidence in favor than against. In contrast, criminal prosecutors must prove their case beyond a reasonable doubt. Some civil fraud cases require a party to prove its claim under the clear and convincing evidence standard, which means the fact finder must find that the claim is substantially more likely to be true than untrue. While it is difficult to explain or measure the exact level of certainty necessary, the clear and convincing standard is recognized as being higher than the preponderance of the evidence but lower than beyond a reasonable doubt. The standard used in civil fraud cases depends on the jurisdiction and the alleged violation.

Stages of Money Laundering

The first stage of the money laundering process is placement. In this stage, the launderer introduces his illegal profits into the financial system. Placement occurs after the initial act of stealing or receiving illicit assets. It is at this stage that legislation has been developed to prevent launderers from depositing or converting large amounts of cash at financial institutions or taking cash out of the country. Money laundering schemes are most often detected at the placement stage. If the placement of the initial funds goes undetected, the launderer can design numerous financial transactions in complex patterns to prevent detection. For example, the launderer can move funds between bank accounts, transfer funds from one form of currency to another, or transfer money between businesses. This stage of the money laundering process is referred to as layering. Integration is the final stage in the laundering process. In this stage, the money is integrated back into the economy in a way that makes it appear to be part of a legitimate business transaction.

Illegal Gratuity vs. Bribery

The major difference between an official bribe and an illegal gratuity is that an illegal gratuity charge doesn't require proof that the gratuity was given for the purpose of influencing an official act. That is, an illegal gratuity charge only requires that the gratuity be given for, or because of, an official act. In general, the elements of an illegal gratuity are: • A thing of value • Given, offered, or promised to (or demanded, sought, received, or accepted by) • A (present, former, or future) public official • For or because of any official act performed or to be performed by that public official Under these facts, there is no evidence that Zantigo gave the laptop to Moore to influence his decision, since the gift occurred after the decision was made. The government would be more likely to bring illegal gratuity charges against Moore, charging that the gift was for, or because of, Moore's official act.

Concealed Asset (Bankruptcy) Scheme

The most common type of bankruptcy fraud scheme involves the concealment of assets rightfully belonging to the debtor's estate to avoid forfeiting the assets in bankruptcy. In these schemes, concealed assets might include cash, consumer property, houses, and interests in partnerships and corporations, as well as lawsuits in which the debtor is a plaintiff. Concealed assets might also include the debtor's books and records.

Chain of Custody

The primary reason for maintaining the chain of custody on an item of evidence is to establish that the evidence has not been altered or changed. If evidence is subject to change over time, or is susceptible to alteration, the offering party might need to establish that the evidence has not been altered or changed from the time it was collected through its production in court. This is done by establishing a chain of custody. Thus, the chain of custody can be an important factor in establishing authenticity. The chain of custody is both a process and a document that memorializes (1) who has had possession of an object and (2) what they have done with it.

Attorney-Client Work-Product Doctrine

The protection offered by the U.S. attorney work-product doctrine extends to not only information and documents prepared by a party or the party's attorneys but also by third-party consultants and examiners hired by the attorneys. For instance, communications with the attorney and any work or analysis done by an expert with whom the attorney has consulted is protected as work product, although that protection will be waived if the expert is called to testify as an expert witness at trial. The U.S. federal discovery rules were amended in 2010 to further extend the work product doctrine over many communications between attorneys and experts, such as fraud examiners. For example, communications regarding the expert's or attorney's impressions of the case are designed to be protected work product. However, there are a few exceptions to this protection. The following communications are not protected by Rule 26(b)(4): • Communications relating to compensation for the expert's study or testimony • Communications that identify facts or data that the party's attorney provided and the expert considered in forming the opinions • Communications that identify assumptions that the party's attorney provided and that the expert relied on in forming the opinions

Tax Evasion vs. Tax Avoidance

The term tax evasion refers to any fraudulent actions that a taxpayer commits to avoid reporting or paying taxes. Tax evasion, however, should not be confused with tax avoidance. Tax avoidance refers to a legal means of lowering one's tax bill through legitimate deductions, credits, and shelters. The intent of the taxpayer to wrongly file a tax return or provide other false tax information will determine the difference between tax evasion and tax avoidance. The primary distinguishing characteristic of tax evasion as compared to tax avoidance is that tax evasion is illegal, but tax avoidance is legal.

Forms of Evidence

There are three basic forms, as distinguished from types, of evidence: testimonial, real, and demonstrative. A photograph can be either demonstrative evidence or real evidence. Real evidence describes physical objects that played a part in the issues being litigated. The term includes both documentary evidence—such as canceled checks, invoices, ledgers, and letters—as well as other types of physical evidence. Demonstrative evidence is a tangible item that illustrates some material proposition (e.g., a map, a chart, or a summary). Accordingly, a photograph can be real evidence if it was part of the underlying event, or it can be demonstrative evidence if it was created specifically for the trial

Lay Witness vs. Expert Witness

There are two basic kinds of testimony. The first is lay testimony (sometimes called factual testimony), where witnesses testify about what they have experienced firsthand and their factual observations. The second kind is expert testimony, where a person who, by reason of education, training, skill, or experience, is qualified to render an expert opinion concerning certain issues at hand. A lay witness (or fact witness) is anyone who provides nonexpert testimony. Note, however, that an expert witness might also provide lay testimony. Typically, a fraud examiner who worked on a case will be capable of providing lay testimony based on observations made during the investigation. When a trial involves issues that are complex or unfamiliar to most people, as is common in incidents of fraud, expert testimony is appropriate to help the fact finder understand these issues.

Direct vs. Circumstantial Evidence

There are two basic types of admissible evidence: direct evidence and circumstantial evidence. Direct evidence is evidence that tends to prove or disprove a fact in issue directly, such as eyewitness testimony or a confession. Circumstantial evidence is evidence that tends to prove or disprove facts in issue indirectly, by inference.

General partners

There are various partnership forms, including general partnerships and limited partnerships. General partnerships are associations of two or more persons acting as co-owners in a business for profit. In a general partnership, each general partner can incur obligations on behalf of the partnership, and each partner assumes unlimited liability for the partnership's debts. Thus, a general partner has unlimited personal liability. Also, in a general partnership, the partners take an active role in the business's operation (i.e., they have management responsibilities).

Currency Transaction Report (CTR) Requirements

Title II of the Bank Secrecy Act requires certain reports or records to be filed or kept by U.S. financial institutions. The Act defines financial institution very broadly in some sections and can include not only banks, but also securities brokers; currency exchange houses; insurance companies; loan companies; travel agencies; telegraph companies; issuers or cashiers of checks or money orders; auto, boat, and airplane dealers; casinos; and persons involved in real estate closings and settlements. All banks, and certain other financial institutions (including securities broker-dealers, money transmitters, and currency exchangers), are required to fill out Currency Transaction Reports (CTR) whenever there is a currency transaction (deposit, withdrawal, exchange, or cashing of checks) of $10,000 or more. The easiest way to summarize the filing requirement is to remember the following: if currency in excess of $10,000 is brought into a financial institution to conduct a transaction, or if $10,000 in currency leaves the financial institution as the result of a transaction, a CTR must be filed.

Litigation Hold

To comply with the legal obligations to preserve information relevant to litigation, organizations should create "litigation hold" procedures. These are the steps taken to notify employees to suspend the destruction of potentially relevant records. The duty to issue a litigation hold arises when litigation is "reasonably anticipated." Whether an organization should "reasonably anticipate" litigation is determined based on the facts and varies from case to case. Common triggers for anticipation are notices sent by government agencies, unequivocal threats of litigation for credible issues, receiving a summons or complaint, and many others. Vague rumors of litigation generally do not trigger litigation holds, but it is best to contact experienced legal counsel when faced with threats of litigation to determine whether such procedures are necessary.

Bankruptcy Fraud

To constitute and be proved as a U.S. federal crime, bankruptcy crimes must have been committed during the pendency of a bankruptcy proceeding, with the defendant's knowledge, and with a fraudulent intent to defeat the bankruptcy laws. The FBI investigates bankruptcy crimes and the U.S. Attorney's Office prosecutes them.

Willfulness to commit tax fraud

To establish criminal liability for tax evasion, most jurisdictions require a willful attempt to evade or defeat taxes in an unlawful manner. Willfulness can be inferred from conduct such as: • Keeping a double set of books (not to be confused with keeping separate books and tax records, which might require different recording techniques) • Making false entries or alterations or creating false invoices or documents • Destroying books or records • Concealing assets • Covering up sources of income • Avoiding making records that are typical in transactions of the kind • Moving taxable assets beyond the government's reach (e.g., into offshore accounts) • Engaging in misleading or deceitful conduct In the context of tax evasion, a good faith or legitimate misunderstanding of the applicable law typically negates willfulness (the voluntary, intentional violation of a known legal duty). That is, honest mistakes, in contrast to willful evasion, do not constitute tax evasion. However, a court might find that a defendant's claimed misunderstanding of the law is implausible given the evidence presented.

Secured Interests

To qualify as a secured creditor in a bankruptcy proceeding, the creditor must hold a claim for which there is a properly perfected security interest. The perfection of a security interest often requires the creditor to file a financing document, lien, or some other document to demonstrate to other potential creditors that the debtor's property is subject to a security interest. For instance, to perfect a security interest in personal property, the creditor must make a Uniform Commercial Code (UCC) filing, and to perfect a security interest in real estate, the creditor records the lien in the county in which the property is located. The bankruptcy court will rely on state law where the property is located to determine if a secured claim exists. A secured creditor's claim is secured to the extent of the property's value on the petition date. When the debt is undersecured (i.e., the debt is secured by property that is worth less than the amount of the debt), the debt will be considered both unsecured and secured. For example, if a note for $500 is secured by property having a value of $400 on the petition date, there will be a secured claim for $400 and an unsecured claim for $100. An automatic stay protects the debtor by preventing creditors from continuing attempts to collect debts from the petitioner. The stay remains in effect until the bankruptcy case ends or the discharge of debts is granted or denied.

Intentional Infliction of Emotional Distress

To recover for intentional infliction of emotional distress, the plaintiff must prove all of the following elements: • The defendant engaged in extreme and outrageous conduct. • The defendant acted intentionally or recklessly (i.e., the defendant intended that his conduct would cause severe emotional distress, or he acted recklessly with regard to whether his actions would cause severe emotional distress). • The victim actually did suffer emotional or mental distress as a result of the defendant's conduct.

Civil Trial Procedures

Trial procedures in U.S. civil actions are similar to criminal cases, with several notable exceptions. In civil trials, juries need not necessarily consist of 12 people, and many civil cases are heard by six jurors. The parties in civil cases also may stipulate that the verdict need not be unanimous.

Security Business Requirements

True brokerages are required to register and meet certain financial thresholds, and broker-dealers must register with the appropriate regulatory authority. Thus, operating a security business without a license or acting as broker-dealer without proper registration violates the law. Also, the personnel at true brokerages must be registered, and often, the salespeople at such firms must pass certain tests. There might also be other licensing or registration requirements depending on the type of business in which the brokerage engages. The following red flags might indicate that an entity is operating a security business without the proper license or registration: • Agents with criminal records • Unexplained gaps in a promoter's work history • Prior customer complaints • A history of regulatory problems • Questionable credentials • Website lacks background information or contains generic contact information

Types of Securities

Types of investments most commonly recognized as securities include: stocks, bonds, and certificates of deposit (CDs). Retirement plans and fixed insurance policies are not generally recognized as securities.

Report of Foreign Bank and Financial Accounts (FBAR)

U.S. Treasury Department regulations require citizens of the United States and resident aliens to file a Report of Foreign Bank and Financial Accounts (FBAR) (Treasury Form 114) when they maintain a financial interest or signature authority over a foreign bank account with a balance of more than $10,000 during the calendar year. Accounts in different foreign countries have to be aggregated.

Currency Reporting Requirements

U.S. financial institutions have specific regulations requiring currency transaction reporting, but nonfinancial individuals and entities engaged in business also have currency reporting requirements. Title 31, Section 5331 of the U.S. Code (instituted as part of the USA PATRIOT Act) requires persons engaged in a trade or business and who in the course of such trade or business receive more than $10,000 in cash in one or more related transactions to file IRS Form 8300. Reported transactions include any sale made in a trade or business that is retail in nature, a sale of goods and services, a sale of real property, an exchange of cash for cash, a collectible, a consumer durable, repayment of a loan, and conversion of cash to negotiate instruments. The information required to be reported under Section 5331 is very similar to the information that was already required by the IRS under Section 6050I of the Internal Revenue Code. Because of the similarity between the two statutes, the reports are to be made on the same Form 8300, which is filed jointly with the Financial Crimes Enforcement Network (FinCEN) and the IRS.

Expert Testimony

Under Rule 703 of the U.S. Federal Rules of Evidence, an expert may base an opinion on: • Firsthand observations • Facts, data, or opinions presented at trial • Facts, data, or opinions conveyed outside of court Under Rule 703 of the U.S. Federal Rules of Evidence, experts can rely on inadmissible hearsay or other inadmissible evidence as long as it is the type reasonably relied upon by experts in the particular field—a determination that is left to the discretion of the trial judge. Rule 703 of the U.S. Federal Rules of Evidence says that an expert may testify based on facts that are disclosed at or before the hearing in which the expert testifies. The facts need not themselves be admissible in evidence as long as they are of a type reasonably relied upon by experts in a particular field. This rule allows an expert to employ data usually used by experts in the field, though the data itself may not be admissible. For example, an expert may rely on a table of interest rates taken from a Department of Commerce publication even if the table is not admissible. Similarly, an accountant serving as an expert witness may rely on private sources in forming an opinion if such sources normally are relied upon by accountants. Depending on the rules of the jurisdiction, the expert witness may be called by the court (i.e., the judge) or the parties. If called by the prosecution or plaintiff, fraud examiners might testify to their findings, and if called by the defense, they might testify regarding opinions expressed by the prosecution's or plaintiff's expert—to create doubt in the fact finder's mind about the credibility or weight to be given to that expert. Alternatively, an expert might be called upon to give an opinion different from that reached by an equally credible expert called by the court or on the other side. This might be due to different interpretations of the facts of the case. In some instances, given equally plausible alternatives, the case might be decided based on which expert witness was the most credible. Testifying expert witnesses give opinion testimony when specialized knowledge is needed to help the fact finder understand evidence or determine a fact in issue. Unlike fact (or lay) witnesses, who generally can only testify about things they have personally observed, expert witnesses usually may express opinions or draw conclusions in their testimony.

Howey Test

Under U.S. federal law, the default definition of a security is the term investment contract, which was defined in the case of SEC v. Howey Co. In Howey, the Supreme Court defined an investment contract as "a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of" someone other than the investor. Thus, in Howey, the Supreme Court established a four-factor test, which is known as the Howey test, to determine whether a financial instrument is an investment contract. All four factors must be present for an investment contract to exist. The leading global definition of investment contract parallels the Howey test established by the U.S. Supreme Court, and it provides that a contract, transaction, or scheme is an investment contract if all of the following four elements are met: • There is an investment of money or other asset. • The investment is in a common enterprise. • The investment was made with expectations of making a profit. • The profits are to come solely from the efforts of people other than the investor.

Request for Production

Under the U.S. federal system, documents in civil cases are obtained from the opposing party by using a request for production. A request for production is one of the methods of civil discovery in the United States. Requests for production may be served on opposing parties. Records from third-party witnesses or institutions may be obtained by subpoenas, which often must be accompanied by deposition notices so that the documents can be authenticated by testimony.

exclusionary rule

Under the exclusionary rule, which is in effect in all U.S. federal and state courts, evidence seized in violation of the Fourth Amendment will be suppressed—that is, it becomes inadmissible—in any criminal prosecution against the suspect except under a few limited exceptions. In addition, all evidence that is obtained as a result of the illegally obtained evidence will also be excluded. An unlawful search and seizure does not mean the suspect cannot be prosecuted, and it does not invalidate a conviction based on other evidence. But it does prevent the wrongfully obtained evidence and all evidence derived from it from being presented at trial.

Tax Preparer Understatement Penalty

Unless there is a reasonable cause for an understatement and the preparer acted in good faith, a penalty will be assessed against any preparer who knew or reasonably should have known that a position taken on a return was: • Not realistically possible of being sustained on its merits • Not disclosed under 26 U.S.C. § 6662(d)(2)(B)(ii) • A frivolous position

Venue

Venue is technically an element of the court's jurisdiction. It refers to the physical location where the lawsuit is to be tried. A trial court in Dallas County, Texas, for example, can only hear cases that have some connection with either parties or events that occurred in that county. In the United States, a motion for a change of venue is a pretrial motion asking the judge to move the trial to another court because the defendant cannot receive a fair trial due to public prejudice or because a statute mandates the venue to be elsewhere.

Union Contracts/Collective Bargaining Agreements

While employees have a duty to cooperate, they also have certain other rights that define the scope of that duty. Employee rights, however, vary from case to case, generally depending on the employee's contractual rights, applicable U.S. federal and state statutes, and constitutional protections. Often, employee contractual rights during investigations stem from the existence of a union contract, a collective bargaining agreement, or an employment contract. If the employee is a member of a union, the union contract or collective bargaining agreement might contain certain restrictions on the company's investigatory procedures. For instance, the company might be required to notify the union before the interview, and the employee may have the right to have a union representative present. In NLRB v. Weingarten, Inc., 420 U.S. 251 (1975), the U.S. Supreme Court held that the National Labor Relations Act (NLRA), which governs the labor relations of most private sector workers, guarantees union-represented employees the right to have a union representative present at an investigatory interview—an interview that reasonably could result in discipline or some other adverse consequence. The rights established by the Supreme Court in NLRB v. Weingarten have become known as Weingarten rights. Management is not required to inform union-represented employees of their Weingarten rights, and nonunion employees do not enjoyWeingarten rights.