Citizens from all walks of life — doctors, accountants, businessmen, political activists, and others — have found themselves the targets of federal prosecutions, despite sensibly believing that they did nothing wrong, broke no laws, and harmed not a single person. In these wheels of injustice, vague laws are the lynchpin, functioning in very much the opposite way than originally intended: they obscure, rather than clarify, the law’s demands.
Material Support to Terrorist Groups
The criminal ban against providing “material support” to organizations listed by the government as “terrorist” groups is an often-used tool in the post-9/11 “war on terror.”1 Fearful that even its peace-promoting activities might be deemed criminal, the Humanitarian Law Project, a human rights group, challenged the government’s extraordinarily broad and vague definition of the phrase “material support.”
After wending its way through lower courts for more than a decade — during which time the “material support” statutes were amended twice — the case finally reached the Supreme Court in its 2009-2010 term. At issue in particular was whether and where pure speech might qualify as “material support.” The solicitor general (later Supreme Court justice), Elena Kagan, asserted in oral argument that it would be a crime for a lawyer to file a friend-of-the-court brief supporting a group designated “terrorist” by the government, or to assist such groups in filing petitions with international bodies.2
The Court’s decision offered the Humanitarian Law Project little comfort and even less clarity. Explaining how the law would effectively criminalize human rights advocacy,3 a six-justice majority wrote:
A person of ordinary intelligence would understand that instruction on resolving disputes through international law falls within the statute’s definition of “training” because it imparts a “specific skill,” not “general knowledge.” … Plaintiff ’s activities also fall comfortably within the scope of “expert advice or assistance”: A reasonable person would recognize that teaching the PKK [Kurdistan Workers’ Party] how to petition for humanitarian relief before the United Nations involves advice derived from, as the statute puts it, “specialized knowledge.”4
Even the three dissenters — Justices Stephen Breyer, Ruth Bader Ginsburg, and Sonia Sotomayor — did not deem the statute vague, but instead would have invalidated certain portions because they conflict with the First Amendment’s guarantees of free speech and association. Hence, not a single justice was prepared to declare any part of this exceptionally obtuse statute void on account of vagueness. One is left with the disturbing impression that the Supreme Court fails to grasp the fundamental problem that even intelligent citizens with skilled legal counsel face when trying to deal with indecipherable prohibitions of this kind.
If proof were needed that the Supreme Court’s asserted clarification of the statute provided no clarity at all, a dramatic example arose in December 2010. As Professor David Cole of Georgetown University Law Center, who unsuccessfully argued the Humanitarian Law Project case, pointed out in a New York Times op-ed, the wide-sweeping statute could be inadvertently violated, even by those who laid the groundwork for the current “war on terror.” Former Attorney General Michael Mukasey, former New York Mayor Rudolph Giuliani, former Homeland Security Secretary Tom Ridge, and former National Security Advisor Frances Townsend almost certainly committed “a federal crime … in Paris when they spoke in support of the Mujahedeen Khalq at a conference organized by the Iranian opposition group’s advocates.” The Mujahedeen Khalq had been dubbed a “foreign terrorist organization,” and so providing it with direct or indirect “material support” was a felony, Cole wrote. He continued:
Chief Justice Roberts reasoned [in his majority opinion] that a terrorist group might use human rights advocacy training to file harassing claims, that it might use peacemaking assistance as a cover while re-arming itself, and that such speech could contribute to the group’s “legitimacy,” and thus increase its ability to obtain support elsewhere that could be turned to terrorist ends. Under the court’s decision, former President Jimmy Carter’s election monitoring team could be prosecuted for meeting with and advising Hezbollah during the 2009 Lebanese elections.5
Yet the true depth and persistence of the vagueness problem in federal criminal law was not fully demonstrated until three days after the release of the Humanitarian Law Project opinion, when the Court decided another highly contentious case, this one dealing with so-called “honest services” fraud. The 28-word statute had enabled federal prosecutors to go after all kinds of public officials and private businessmen for depriving those who elected or hired them of their “honest services.”
Remarkably, all nine justices agreed that the statute was unconstitutional as it was being enforced because it failed to define the central term “honest services,” and the conduct the statute required or prohibited was hardly intuitive. The only difference among the justices, which caused them to divide into majority (agreeing on the reasoning and result) and concurring (agreeing only on the outcome) camps, was that the majority was prepared to effectively rewrite the statute by limiting prosecutions to cases involving bribery and kickbacks. In contrast, concurring Justice Antonin Scalia, joined by Justices Anthony Kennedy and Clarence Thomas, pronounced the judicial rewriting of the statute an improper foray into the legislative business of writing statutes, changing “a prohibition of ‘honest services fraud’ into a prohibition of ‘bribery and kickbacks.’”6
And so the very justices who claimed three days earlier that the average citizen could and should be able to understand what constituted the rendering of “material support” to a foreign terrorist organization now concluded that those same citizens could not be expected to fathom the meaning of “honest services” fraud.
Notwithstanding this disparity, the “honest services” ruling was a step in the right direction. It represented a recognition by the justices that, without violating a specific state or federal law, public officials and perhaps sharp-elbowed businessmen should not face federal prosecution merely because their performance subjectively offends someone in the U.S. Attorney’s Office. Time will tell, however, whether this recognition spreads beyond “honest services” fraud to the myriad other statutes that serve as traps for the unwary public official or private citizen who ends up in a prosecutor’s sights.7
Options Backdating
Individuals in the financial realm accused of crimes are not likely to engender public support. It is far more likely that the media will act as cheering section, rather than watchdog, regarding government assertions of power over such individuals.
Consider the trajectory of the Justice Department’s high-profile campaign to put practitioners of “options backdating” in the dock. It all started when Erik Lie, a University of Iowa finance professor, published a paper demonstrating a glaring coincidence: It was extraordinarily common for public companies to grant stock options to their executives very shortly before marked increases in the stock price.8 This, of course, made the options valuable — in the money — right away. Some news reporters, and then the Securities and Exchange Commission, began to delve into some of the examples. It turned out that, in fact, the options had been issued in many instances after the stock price increase, but were backdated to a period before the rise.
The news media, embodying the old adage that “dog bites man” is not news but “man bites dog” is, concluded that there must have been some species of fraud involved.9 Later, the author of the study that started it all admitted that “at the time we published the paper, it wasn’t clear that regulators would view the activity as illegal.”10 But view it as illegal they did, and with a vengeance — all without a statute or regulation clearly designating the widespread practice as fraudulent.
The campaign against options backdating reached its apex when Judge Jed S. Rakoff of the U.S. District Court for the Southern District of New York sentenced James J. Treacy, the former chief operating officer of Monster Worldwide, to two years in prison for improperly accounting for backdated options on his company’s books. (Because prosecutors could not articulate a theory for why and how backdated options somehow cheated anyone — stockholders, tax authorities, or anyone else — they focused on the notion that because the options were accounted for erroneously in corporate income statements, they were somehow fraudulent. Some journalists concurred.)11 Judge Rakoff blasted the defendant, saying, “It is disgusting that this practice went on.”
But other judges, as well as some journalists, took a step back. They realized that this method for compensating executives over and above their salaries — the purpose, after all, of stock options — could not be said to have cheated anyone, since those executives were going to be paid bonuses by one means or another for improving the company’s profitability (and thus lifting the stock price).12 Indeed, in some cases prosecutors relied on the fact that defendants, when questioned about the practice and given the impression that backdating was a fraud, were less than forthcoming. They were thus indicted for the ever convenient crime of lying to a federal agent.13
Judge Cormac J. Carney of the U.S. District Court for the Central District of California, who presided over the high-profile criminal backdating case against former executives of Broadcom Corporation, can probably be credited with turning the tide in this Wall Street scandal du jour. Days after setting aside a guilty plea from one defendant,14 Judge Carney dismissed charges against two others in December 2009, finding that the case was built upon false or distorted testimony pried out of frightened (because threatened) cooperating Broadcom employees.15 During the course of reciting the litany of the Justice Department’s dirty-pool tactics to force witnesses to make the options practice sound secret and sinister, Judge Carney commented on the heart of the manufactured backdating scandal:
The accounting standards and guidelines were not clear, and there was considerable debate in the high-tech industry as to the proper accounting treatment for stock option grants. Indeed, Apple and Microsoft were engaging in the exact same practices as those of Broadcom.16
Needless to say, neither Steve Jobs nor Bill Gates had been called on the carpet for his company’s use of the same device that landed other executives in the hot seat.
Nearly a year later, in November 2010, Judge Otis D. Wright II sentenced Bruce Karatz, former CEO of KB Home, to probation, although the U.S. Attorney’s Office had recommended a six-year prison term. Judge Wright explained that he would not imprison a man who simply did not harm either his company or its shareholders.17 Thus, even judges who could not get themselves to toss out such charges entirely were beginning to question why backdating was even a crime. The atmosphere, at least with regard to the backdating scandal, seemed to have begun to clear.
With an increased focus on financial fraud, vague prosecutions in this arena continued apace.18 Yet like Judge Carney, some on the federal bench refused to play ball. One of the most trenchant counterattacks came in December 2010 from Alex Kozinski, the libertarian-inclined chief judge of the U.S.Court of Appeals for the Ninth Circuit. The court was hearing an appeal of one Prabhat Goyal, former chief financial officer of Network Associates Inc.19 The prosecution was based on a complicated government theory as to how Goyal supplied the firm’s auditor with misleading and false information that caused the audited statements to overstate income. The charges ranged from securities fraud to lying to the auditor. After an exhaustive analysis, the panel not only reversed the convictions on all 15 counts, but declared Goyal innocent, thus prohibiting the government from trying again.
Not fully satisfied with this relief, Kozinski added a concurrence in rather blunt language:
This case has consumed an inordinate amount of taxpayer resources, and has no doubt devastated the defendant’s personal and professional life. … And, in the end, the government couldn’t prove that the defendant engaged in any criminal conduct. This is just one of a string of recent cases in which courts have found that federal prosecutors overreached by trying to stretch criminal law beyond its proper bounds.20
Kozinski’s opinion cited, among other cases, the infamous prosecution of Arthur Andersen LLP. There, the Supreme Court found the prosecution that destroyed the firm to have been based on behavior not criminal by any stretch of the law or the imagination. Kozinski continued:
This is not the way criminal law is supposed to work. Civil law often covers conduct that falls in a gray area of arguable legality. But criminal law should clearly separate conduct that is criminal from conduct that is legal.
One wonders why such straightforward language is not more common among federal judges, even when courts reverse convictions on the ground that vague statutes have been stretched far beyond reason. The spirited protestations of Judge Kozinski and Judge Carney are the exception rather than the rule.
Conclusion
The U.S. criminal justice system would appear to be at a crossroads. Some skepticism has emerged even within courts and among judges, and some sectors of civil society have sounded the alarm and formed coalitions to fight the trend. But the Department of Justice continues to press forward. It is too early in the history of the practice of prosecuting and convicting citizens and organizations under vague federal statutes, and much too early in our society’s effort to fight back, to predict whether the federal criminal justice system will be returned to its roots or continue along the current path.
© Harvey A. Silverglate, 2011. All rights reserved
Notes
1. Lyle Denniston, Analysis: Anti-Terrorism Case Not an Easy One, SCOTUSblog, Feb. 23, 2010, available at http://www.scotusblog.com/2010/02/analysis-antiterrorism-case-not-an-easy-one/.
2. Adam Liptak, Before Justices, First Amendment and Aid to Terrorists, N.Y. TIMES, Feb. 24, 2010, available at http://www.nytimes.com/2010/02/24/us/24scotus.html.
3. Wendy Kaminer, ‘Material Support’ Bans and the Criminalization of Political Advocacy, THE ATLANTIC, June 21, 2010, available at http://www.theatlantic.com/national/archive/2010/06/material-support-bans-and-the-criminalization-of-politicaladvocacy/58469/.
4. Holder v. Humanitarian Law Project, 130 S. Ct. 2705, 2720 (2010).
5. David Cole, Chewing Gum for Terrorists, N.Y. TIMES, Jan. 2, 2011, available at http://www.nytimes.com/2011/01/03/opinion/03cole.html.
6. Skilling v. United States, 130 S. Ct. 2896, 2935 (2010) (Scalia, J., concurring in part).
7. See Harvey A. Silverglate & Monica R. Shah, The Degradation of the ‘Void for Vagueness’ Doctrine: Reversing Convictions While Saving the Unfathomable ‘Honest Services Fraud’ Statute, CATO SUPREME COURT REVIEW 2009–2010, available at http://www.cato.org/pubs/scr/issue.php?year=2010.
8. Peter Burrows, He’s Making Hay as CEOs Squirm, BLOOMBERG BUSINESSWEEK, Jan. 15, 2007, available at http://www.businessweek.com/magazine/content/07_03/b4017075.htm.
9. An investigative series in The Wall Street Journal on options backdating was awarded the 2007 Pulitzer Prize for Public Service. See http://www.pulitzer.org/citation/2007-Public-Service.
10. Peter Lattman, Prosecutions in Backdating Scandal Bring Mixed Results, N.Y. TIMES, Nov. 12, 2010.
11. Id.
12. Holman W. Jenkins Jr., The Backdating Embarrassment, WALL ST. J., Nov. 17, 2010.
13. 18 U.S.C. § 1001 (making false statements to a federal official); Lattman, supra note 10.
14. Stuart Pfeifer & E. Scott Reckard, Judge Dismisses Charge Against Broadcom Co-Founder, L.A. TIMES, Dec. 10, 2009, available at http://articles.latimes.com/2009/dec/10/business/la-fi-samueli10-2009dec10.
15. Amanda Bronstad, Judge Says Government ‘Distorted the Truth-Finding Process’ in Broadcom Case, NAT’L L.J., Dec. 16, 2009, available at http://www.law.com/jsp/article.jsp?id=1202436371130.
16. Reporter’s Transcript of Proceedings, United States v. Ruehle, U.S. District Court, Central District of California, Southern Division, Dec. 15, 2009, at 5201.
17. Stuart Pfeifer, Former KB Home CEO Bruce Karatz Sentenced to Five Years’ Probation, L.A. TIMES, Nov. 11, 2010, available at http://articles.latimes.com/2010/nov/11/business/la-fi-karatz-sentence-20101111.
18. Zachary A. Goldfarb, Task Force to Take Up Financial Fraud Cases, WASH. POST, Nov. 18, 2009, available at http://www.washingtonpost.com/wp-dyn/content/article/2009/11/17/AR2009111703980.html.
19. Fairness dictates that I disclose that I played a paid advisory and strategy role in Goyal’s appeal.
20. United States v. Goyal, 629 F.3d 912, 922 (9th Cir. 2010) (Kozinski, C.J., concurring).