Editor: Please describe your respective backgrounds in the U.S. Attorneys Offices in the Southern and Eastern Districts of New York.
Strassberg: Before I was a partner at Goodwin Procter, I was an assistant U.S. attorney in the Southern District of New York for eight years, and for the last three of those years I was the chief of the major crimes unit which was charged with prosecuting a wide array of white collar offenses.
Pitofsky: I was in the U.S. Attorney's Office for the Eastern District of New York, across the Hudson River in Brooklyn, from 1996 to 2005. During my last two years I was the principal deputy chief of the criminal division for that office. I came to the White Collar Crime and Government Investigations Practice area of Goodwin Procter in June of 2005.
Editor: You were both instrumental in obtaining an acquittal of one of the defendants, David Greenberg, a KPMG partner in the case of United States v. Stein , et al. While 17 ex-KPMG executives were originally charged, the number was winnowed down to three KPMG former executives and an attorney. Mr. Greenberg was exonerated. Why had Mr. Greenberg been singled out from the group of KPMG executives to stand trial and on what grounds was he exonerated?
Strassberg : U.S. v. Stein was a groundbreaking case in many ways. The decision by Judge Kaplan in that case literally changed the way government investigations occur in the white collar context. The case examined the pressure the government put on companies that advanced legal fees for individual employees that the government thought might be involved in wrongdoing, even though no finding had been made by a jury or a judge that the individuals had actually done anything wrong. Judge Kaplan found that the government had no business interfering in a company's decision regarding whether to pay for its employees' legal fees, and that the government's improper pressuring of KPMG amounted to a violation of the defendants' rights. Judge Kaplan dismissed the charges against the individuals who had had their fees curtailed because of government pressure. That decision was upheld on appeal. The basic legal principle underlying his rationale was that the former KPMG people had a right under an implied contract with KPMG to have their legal fees paid, and the government had no business interfering with that contractual right.
Our client was not part of the group dismissed, because when he left KPMG many years before the criminal investigation, he signed a very broad release that Judge Kaplan found waived any right to have his legal fees paid. The result was that we were forced to go to trial to defend Mr. Greenberg on the substance of the charges. Frankly, he is the only person who was charged in this case who was found to be not guilty on the merits.
Pitofsky: Why was he exonerated by the jury? The simple answer is that the government presented insufficient evidence to convict him. There are several ways to look at why he was exonerated. As opposed to his co-defendants at trial who were really on trial for their participation in a particular type of tax shelter known by the acronym of BLIP, Mr. Greenberg was on trial for his participation in a different kind of tax shelter, known as the "short option strategy" or SOS. At trial we were able to establish that there was a real possibility of making a profit from the SOS transaction, and that in fact some of his clients had made money from that transaction. The fact that they could and did make money was strongly indicative of the fact that the transactions were bona fide financial transactions. The other reason is that the government relied in both the BLIPS case and the SOS cases heavily on the testimony of insiders who had worked with the defendants at the time. As to the insider who had worked with Mr. Greenberg, we were able to establish under cross-examination that he was not a credible witness. So, it was easy for the jury to reject his testimony.
One of the unfortunate issues in this case was that, before we began to represent our client, he spent six months in pre-trial detention in federal prison because the government had relied on the same witness who was later discredited at trial but who pre-trial claimed that Mr. Greenberg intended to flee the jurisdiction, an allegation that was totally untrue. At the end of the case, the judge recognized that in hindsight that witness never should have been relied on and he apologized to Mr. Greenberg for the injustice of having been incarcerated based on the government's representations about that witness. It was quite a moving moment in the courtroom.
Editor: Richard, during your closing argument to the jury in the David Greenberg trial, the prosecutor conceded that you "destroyed" the government's key cooperating witness on cross-examination. Please share some tips on cross-examination of a cooperating witness.
Strassberg : The key to that cross-examination and the key to most successful cross-examinations is preparation. We had done a lot of work prior to that witness taking the stand to develop substantial ammunition to show to the jury that this witness was in fact a liar and would be lying on the stand when he was attempting to implicate our client in wrongdoing. In our view, this case was one where the government had very heavily staked its case against our client to the testimony of this single witness, the only witness in the entire case who had said our client had done something wrong. Whether the jury believed or didn't believe him really became the centerpiece of whether we were going to be able to win - obviously we put a lot of effort into our cross-examination. Another central part of our planning was how the cross-examination was structured and presented before the jury to maximize its impact. We spent the first part of the examination establishing a number of affirmative points that were very helpful to our case, since the witness did know our client very well. Just before the jury was going to go home for the day, we locked the witness unequivocally into a statement about his testimony, and then confronted him with his own statement, made the year before, that was flatly inconsistent with his trial testimony. This earlier testimony we used was from an arbitration that had not been filed, and that the government apparently had not tracked down, and therefore had not prepared the witness about. The goal was to leave the jury with the impression that the witness was a liar who couldn't be trusted, and that they shouldn't believe the things that he had said in his direct examination when questioned by the government earlier that day. And the witness did just what I had hoped he would do: he attempted to be evasive because he saw he was caught in a lie. Once he did that, we were able to show very dramatically before the jury that this was someone who not only would lie, but was lying right in front of them. This cross turned the case dramatically in our favor and led to our client's acquittal. It was incredibly satisfying, both personally and professionally, to have our client hear the not guilty verdicts from the jury, especially in the environment we are in now, where juries are skeptical of any defense in a case alleging very substantial financial or tax fraud.
Editor: Following Arthur Andersen, do you find that the government is more inclined to favor deferred prosecution agreements with subsequent oversight by an independent monitor than prosecution of a case involving a criminal charge?
Pitofsky : I think that is definitely the case. Deferred prosecution agreements existed before Arthur Andersen and were used more and more by the Department of Justice after Arthur Andersen. One of the most difficult questions a prosecutor needs to look at when investigating corporate fraud is the degree to which, not just the individual, but the entity itself should be held criminally responsible for the misconduct that has occurred. That was a hard decision to make before Arthur Andersen and it was a hard decision to make after Arthur Andersen. There is always the issue when considering whether to charge the corporation, whether doing so is going to harm innocent third parties: other employees that weren't involved in the misconduct, vendors, counterparties and those who do not deserve to be punished for the misconduct of a limited number of people. That was always an issue, but clearly the fact that there was an indictment in that case and the fact that the indictment resulted in the death of Arthur Andersen put the spotlight on the consequences that can flow from indicting a company. It has caused the Department of Justice, even more so than it had before Arthur Andersen, to think twice before indicting a company and to consider whether a deferred prosecution agreement that does not require an indictment is the best way to send a deterrent message without incurring all of the collateral consequences to innocent third parties.
Editor: As I recall, there was speculation that the government might prosecute KPMG.
Strassberg : Some of the Southern District prosecutors were arguing for a KPMG indictment, but ultimately the Department of Justice in Washington overruled them, preferring a deferred prosecution agreement to avoid a criminal charge because of the concern that the firm would go out of business and have the collateral consequences both to their employees and the financial community at large of losing another one of the big accounting firms. A reminder of the immense power of a criminal charge, in that this would only be a charge - not a conviction - but the mere act of charging KPMG was perceived to mean its death knell. Against that same backdrop, the government was aggressively pressuring KPMG about not paying attorneys' fees, which the court found to be a violation of the constitutional rights of certain of the defendants.
Editor: In the wake of the current economic crisis, has the government changed its approach in pursuing financial crimes by corporate executives?
Strassberg: I wouldn't say that the government has changed its overall approach in that it always takes a hard line against theft and fraud and certainly schemes like the Madoff scheme, where investors' monies are taken and fictitious types of trades are reported. But what we are likely to see as a result of the current credit crisis, and what I think we've seen before when there has been public outrage over financial crimes like the Enron case, is a very aggressive interpretation of the facts of a case by the prosecutors who are doing the investigation. While the clear theft and fraud cases are the easy ones, the hard ones are the ones where the facts are subject to different interpretations. It is very much in question whether the other KPMG defendants understood that what they were doing was criminal. What I expect will happen in response to today's economic crisis is that the prosecutors will be very aggressive in interpreting the facts in a way that suggests criminality, resulting in more cases being brought, including some against people who never believed they were doing anything illegal at the time.
Editor: Are you seeing any more activity on the part of state or federal prosecutors?
Strassberg : Andrew Cuomo, continuing the tradition of Eliot Spitzer, has been active in a number of investigations, most recently in a pension fund pay-to-play scandal where his office has taken the lead in that inquiry. But I also think we are going to see an aggressive approach from the SEC with the recent hiring of three of my former colleagues from the Southern District of New York federal prosecutors office into the highest level positions at the SEC enforcement division. This is a pretty clear signal that they will be taking a very aggressive approach to bringing securities- related actions in the future.
Published August 5, 2009.
