Thursday, February 26, 2015

As the FBI investigation mounts, beware section 1001 . . . .

Image result for marion jones
Sprinter Marion Jones
Corporate executive Martha Stewart
Image result for john mctiernan director
Movie director John McTiernan

What do sprinter Marion Jones-Thompson, corporate executive Martha Stewart, movie director John McTiernan, and Scooter Libby (Vice President Cheney's chief of staff) have in common? All were convicted of making false statements to federal agents - and those statements weren't under oath.

Title 18 of the United States Code, Section 1001, states in relevant part:
[W]hoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully— 
(1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact;
(2) makes any materially false, fictitious, or fraudulent statement or representation; or
(3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; 
shall be fined under this title, imprisoned not more than 5 years.
In other words, it is a federal crime to lie to federal agents in any matter within the scope of their duties. Obviously, FBI agents are federal agents. Therefore, section 1001 could rear its head at some point down the road in the Kitzhaber/Hayes saga, especially given the latest news that FBI agents have already been interviewing government officials. The Oregon Live story gives some more indication of what the FBI is interested in:
Two agents - one FBI, one IRS - questioned [Dept. of Administrative Services Director Michael] Jordan for an hour. He said they focused on three questions. Two were about Hayes' work for Demos, a nonprofit that was one of her consulting clients. They asked about emails showing that Kitzhaber urged Jordan to hire a man connected to Demos.

Jordan said he told the agents he didn't feel pressure to hire the man and that he didn't know at the time Hayes was being paid by Demos.

Jordan said he also answered agents' questions about whether Kitzhaber's emails were being preserved. They were, he said.
I should emphasize that there's no reason to think that DAS Director Jordan made any false statements during the interview with the FBI. Indeed, anyone whom the FBI questions in this ongoing matter would be in a similar position of wanting to be careful about not giving any false responses. I'm simply using this aspect of the news story because (1) it shows that the FBI is actually talking to people already; and (2) these appear to have been fairly specific questions with specific answers, whose accuracy the FBI no doubt will be checking.

Section 1001 can be perilous territory for anyone who speaks to government agents because one can violate it by lying - or more importantly, by being perceived as lying - even if the subject-matter of the lie turns out not to have been a crime. This in fact perfectly describes what happened to Martha Stewart. The short story is that the Securities and Exchange Commission suspected that Stewart had engaged in insider trading with regard to stock in a biotech company named ImClone, which was working on a cancer drug called Erbitux. The day before the FDA announced that it was denying approval for further testing of Erbitux, Stewart had sold her entire holding of ImClone stock. By doing so, she avoided the severe drop in the stock price following the FDA's announcement, and saved herself over $45,000. When the SEC investigated, Stewart offered a number of false explanations* to conceal the fact that she had been tipped off to sell ImClone by her brokerage agent's assistant. The assistant was aware that something would be happening to ImClone stock because the agent also represented Samuel Waksal, the ImClone CEO, who had tried to sell his entire stake that same day (i.e., the day before the FDA announcement).

* For example, Stewart and her broker claimed that they had had an automatic sell order in the event ImClone stock fell below a certain price. If this were true, there would have been no need for the broker's assistant to have called Stewart to see if she wanted to sell.

This use of one client's (Waksal) information to benefit another (Stewart) may have been a violation of the brokerage firm's internal policies, but it did not constitute insider trading for the purposes of the securities laws. Hence, what Stewart did in terms of the stock sale was not insider trading. Yet, because she lied about it to SEC lawyers and FBI agents, she was convicted of violating section 1001 and served a short prison sentence. Thus, as the New Yorker's Jeffrey Toobin put it, "lying about something that wasn’t a crime."

Hence, numerous legal commentators have noted that section 1001 creates a disincentive to speak to the FBI, at least, not without a lawyer present. Oregon, by the way, doesn't have an equivalent statute to section 1001. There is a state crime of providing a false unsworn declaration, but that pertains to a false statement made under penalty of perjury but not under oath. There is also a state crime of unsworn falsification, but that relates to false statements made in connection with applying for a government benefit.

For much more about the history and rationale of section 1001, download an academic article I wrote a few years ago and read Part I.A.

No comments:

Post a Comment