Cooperating in a Federal Fraud Investigation.

Cooperation in federal fraud investigations may take many forms, such as:

• Disclosing information
• Providing testimony
• Monitoring communications
• Engaging in undercover activities

While cooperating with federal authorities is a critical step in reducing your sentencing exposure, there are many key facts to understand. The following five facts illustrate how cooperation and substantial assistance can result in reduced sentencing:

• A cooperation agreement does not guarantee that the U.S. Attorney’s Office will file a motion to depart under U.S.S.G. § 5K1.1. The federal judge retains ultimate sentencing authority within the applicable statutory range.
• Acceptance of responsibility and substantial assistance are separate sentencing concepts. Both of them can result in sentence reductions.
• Rule 35(b)(2) permits a prosecutor to move for a sentence reduction for cooperation provided after one year of sentencing when the information provided was unavailable within the first year.
• Rule 35(b)(2) also allows for a sentence reduction when the information provided within the one-year period becomes useful to prosecutors on a later date.
• Rule 35(b)(4) permits federal judges to reduce sentences below a statutory minimum when defendants have provided substantial assistance to prosecutors.

The following three facts illustrate the nature of federal sentencing recommendations:

• Sentencing recommendations under Federal Rule of Criminal Procedure 11(c)(1)(B) do not bind the federal court, which still has the power to make the final sentencing decision.
• Sentencing recommendations under Federal Rule of Criminal Procedure 11(c)(1)(C) do not bind the court unless the defendant accepts responsibility, waives the right to a jury trial, or does both.
• Sentencing recommendations under Federal Rule of Criminal Procedure 11(c)(1)(C) do not bind the court in cases involving illegal immigration allegations.

How long can a federal fraud investigation last?

There is no general statutory timeframe for how long a federal fraud investigation can last prior to the filing of criminal charges. While an investigation estimate of 12 to 24 months might be common, that timeframe is not an official national timetable and is not a legal requirement.

Once the investigation enters the formal stage, a U.S. Attorney’s Office will send target letters to suspected criminal defendants. A target letter is not a criminal charge, though it does make clear whether you are suspected of violating federal law in the U.S. Attorney’s Office’s ongoing investigation. However, federal targets can and should begin cooperating with federal authorities prior to formal charges. A guilty plea is not necessary to begin cooperating with federal authorities.

While the issuance of a target letter clarifies whether you are the target of a federal investigation, it does not make clear when or whether charges will be filed. All federal targets should start to build their defense immediately in order to avoid unnecessary charges or unnecessary criminal convictions.

The statute of limitations in a federal case is five years for most noncapital offenses under 18 U.S.C. § 3282. For certain financial institution fraud offenses, the statute of limitations is 10 years under 18 U.S.C. § 3293.

The Speedy Trial Act generally requires the government to obtain a criminal indictment within 30 days after the arrest. Although the government can secure a sentencing date very quickly, there are exceptions to the government’s duty to comply with the Speedy Trial Act. With a target letter in hand, a defendant should immediately contact an experienced federal criminal defense attorney.

What can prosecutors use against me after a proffer?

18 U.S.C. § 1001 requires a knowingly and willfully false material statement to be considered “false material statement.” While there are exceptions to this statutory requirement, in most cases, making a knowingly and willfully false material statement to federal prosecutors, investigators, and agents is a federal crime. However, when cooperating with federal authorities, targets often obtain additional protections.

While the U.S. Attorney’s Office may provide limited protections in a proffer agreement, there is no automatic rule of federal law that protects the target of a federal fraud investigation’s statement during a proffer discussion. Rather, proffer protections arise from contract law when prosecutors and targets enter into a written agreement.

Many proffer agreements permit investigators to use the target’s statements during a proffer to initiate additional law enforcement activity to establish a defendant’s guilt. Under these circumstances, investigators may use the target’s statements to establish a defendant’s criminal activity; however, they may be unable to use the target’s statements in federal court, because they will rely on other evidence that will be admissible.

The following are examples of proffer waivers that may be included in a federal target’s proffer agreement:

• The target consents to the government’s use of the target’s proffer statements for the purpose of impeachment or rebuttal during the target’s subsequent criminal prosecution.
• The target consents to the government’s use of the target’s proffer statements to rebut allegations that the target has substantial assistance information.
• The target’s proffer agreement is limited to certain types of crimes, permitting prosecutors to use the target’s statements for undisclosed crimes.

The Supreme Court’s decision in Kastigar v. United States, 406 U.S. 441 (1972), dealt with immunized testimony (where prosecutors compel testimony). The decision does not apply to voluntary proffer agreements.

As mentioned above, if a federal target’s proffer agreement is limited to certain types of crimes, target statements can potentially expose other criminal activity. The U.S. Attorney’s Office will then be able to determine whether the target’s other disclosures have legal implications.

With respect to the protections in Federal Rule of Evidence 410, federal judges have indicated that the rights therein can be waived under a signed agreement.

There is no official four-part taxonomy of prosecutorial misconduct under federal law. There is no formal set of criteria for determining prosecutorial misconduct. Judges and practitioners determine what constitutes prosecutorial misconduct on a case-by-case basis, guided by applicable constitutional principles and statutory authorities.

Who decides whether my cooperation earns a sentencing reduction?

Under U.S.S.G. § 5K1.1, a reduction in a sentence for substantial assistance to the government requires a motion from the prosecutor. A defendant cannot invoke Section 5K1.1 alone. Instead, the government must determine whether the defendant’s cooperation meets the requirements for a sentencing reduction.

When assessing the value of the assistance provided by a defendant under Section 5K1.1, federal prosecutors examine:

• Usefulness of the information provided.
• Truthfulness of the information provided.
• Scope of the assistance provided.
• Timing of the assistance provided.
• Danger resulting from providing information (if applicable).

Under 18 U.S.C. § 3553(e), a defendant may be sentenced below a statutory mandatory minimum. For a sentencing court to impose a sentence below a mandatory minimum, the cooperating defendant must provide substantial assistance to the federal government.

Wade v. United States, 504 U.S. 181 (1992), the Supreme Court held that “the U.S. Attorney’s Office, not the courts, should determine what assistance warrants a sentencing reduction for substantial assistance.” According to the Supreme Court in Wade, the courts have a limited role in reviewing the government’s decision to file a Section 5K1.1 motion, and judicial review may be denied in most cases. The exception is if a prosecutor is alleged to have withheld a § 5K1.1 motion for unconstitutional reasons, such as targeting a specific protected group.

Under Federal Rule of Criminal Procedure 35(b), a sentencing court may reduce a defendant’s sentence upon the government’s request. While most Rule 35(b) motions must be filed within one year of the defendant’s sentencing, exceptions to this rule apply under Rule 35(b)(2) and Rule 35(b)(4).

Under Section 5K1.1 and Rule 35(b), the government, not the cooperating defendant, decides what is valuable. As a result, if your efforts are insufficient, an informed federal criminal defense attorney will not suggest that you continue cooperating. However, if you have not yet entered into a cooperation agreement, an experienced lawyer can use a proffer discussion to help you determine if cooperation may be in your best interests. When working with the government, our attorneys will also advise you on the following aspects of cooperation:

• How to communicate with prosecutors and investigators.
• How to manage expectations with regard to the results of cooperation.
• How to maintain your attorney-client privilege during cooperation.

Todd Spodek is the managing partner of Spodek Law Group, a second generation criminal defense firm that has been practicing since 1976.

Can cooperation expose me in SEC or civil proceedings?

In addition to the risks associated with a criminal proceeding, there is also the risk that cooperation in a criminal case can lead to liability in civil proceedings.

If you are a target of parallel civil and criminal investigations, you should be aware of the risk of inconsistent statements. Although targets of parallel investigations can use their Fifth Amendment right to remain silent in response to criminal allegations, they cannot do so without consequences in civil litigation.

If your company is under investigation for a federal criminal offense, you should be aware that your company can provide information to the federal government. According to the Department of Justice, Corporate Enforcement Policy, company cooperation may be needed to “preserve a chance to avoid criminal prosecution and, in many cases, the only way for a company to resolve its wrongdoing favorably.” While company cooperation can lead to a non-prosecution agreement, this will not shield individual employees from the possibility of prosecution.

According to SEC Rule 240.24c-1, the Securities and Exchange Commission may share nonpublic information with federal agents and prosecutors. However, a DOJ proffer agreement does not have the same effect. While a DOJ proffer agreement may prevent prosecutors from using a target’s statements against the target in federal court, it will not bind the SEC or other parties not associated with the agreement. Many proffer agreements will expressly authorize federal prosecutors to share a target’s statements with other investigative agencies in addition to restricting their use in federal criminal court.

Although the Fifth Amendment protects your right to remain silent in response to criminal allegations during criminal proceedings, you can not use it during civil proceedings. In fact, federal judges can draw an adverse inference from your silence.

Your risk of facing civil liability for fraud, healthcare violations, or other allegations continues, even after a criminal resolution. A resolution under a federal criminal statute does not prevent a civil proceeding, such as False Claims Act litigation, which will focus on the civil liability of the target.

Finally, remember that voluntary work-product disclosure to federal prosecutors or agents can compromise your ability to claim work-product protection in the future. When you disclose a work product to federal prosecutors, you can inadvertently waive your ability to protect your work product from adversaries in civil litigation.

What should I not tell my federal fraud attorney?

Do not lie to or conceal material facts from your federal criminal defense attorney. Your lawyer cannot effectively protect your rights if you limit her or his ability to fully understand your situation and form an effective defense strategy.

In general, you can tell your lawyer anything without fear that it will be disclosed by your lawyer to federal prosecutors. Generally, disclosures of past wrongdoing qualify for attorney-client privilege. However, disclosures regarding ongoing or future illegality can fall within the crime-fraud exception. Under this exception, if a client seeks to use a lawyer’s services to commit or conceal a crime, the lawyer may be compelled to disclose information to federal prosecutors. While the crime-fraud exception is narrow in scope, it still highlights the importance of being fully truthful with your lawyer.

Your communications with your lawyer can become discoverable if unnecessary third parties are present. As a result, you should:

• Not lie to or conceal material facts from your lawyer; and
• Not involve unnecessary third parties in communications with your lawyer.

Under the rules of professional conduct, lawyers cannot knowingly present testimony or evidence that they know is false. While you do not have to disclose every single piece of information to the prosecution, any statement you testify to in court or that you file must be true. Again, your lawyer needs to know everything so she or he can form an effective defense strategy without compromising your case.

Attorney-client privilege does not shield underlying facts, preexisting business records, or statements made about those records; it only protects the communication itself. Additionally, attorney-client privilege generally applies to communications related to legal advice, while communications that contain only business advice are not privileged.

If you are approached by federal agents, you can decline to participate in a voluntary interview and request to speak with a lawyer. There are multiple statutory authorities that establish your right to speak with counsel, and the Fifth Amendment prohibits federal agents from compelling you to speak to them on your own.

How much does a federal fraud defense attorney cost?

There is no national standard fee for private federal criminal defense representation under federal law. Private defense costs vary by several factors, including:

• Complexity of the federal fraud allegations,
• Volume of discovery in the case,
• Number of experts,
• Geographic location,
• Probability of taking the case to trial,
• Amount of preparation necessary for trial,
• And,
• The level of reputation, experience, and resources of the federal criminal defense firm.

For example, a federal defense lawyer can provide a free consultation, but the consultation does not include continuing representation unless counsel agrees. 18 U.S.C. § 3006A authorizes federal courts to appoint counsel when defendants are financially unable to hire a private federal criminal defense attorney.

Due to the need for experts and vendors in many federal fraud cases, a target’s defense can become very expensive. Targets of federal fraud investigations may need to work with forensic accountants, electronic-discovery vendors, and other experts to defend against allegations. Depending on the case, these expenses can add up to the price of your federal fraud defense attorney.

While each federal criminal defense attorney determines her or his own fee structure, private counsel can seek compensation through:

• Hourly billing arrangements
• Flat-fee arrangements
• Staged billing arrangements

Regardless of the particular method of compensation, an initial retainer is the amount necessary to hire a federal criminal defense lawyer and begin working on the case, and it is not always the cap on a target’s total defense fees.

Depending on the fee agreement, you may owe the fees of any experts or vendors in addition to the fees of your federal criminal defense attorney.

Regardless of the fee agreement, your federal criminal defense attorney is not liable for your federal fraud prosecution. A successful outcome does not guarantee your freedom. Conversely, a negative outcome does not release you from liability for the services rendered by your federal fraud defense lawyer.

What penalties can remain even after substantial cooperation?

United States v. Booker, 543 U.S. 220 (2005), the Supreme Court held that the United States Sentencing Guidelines (U.S.S.G.) are advisory rather than mandatory. However, Booker did not remove sentencing guidelines from the federal legal landscape. Instead, it held that judges must consider sentencing guidelines and factor them into their sentencing determination based on a case-by-case analysis alongside 18 U.S.C. § 3553(a) factors.

While the guidelines no longer dictate the sentence in every case, many issues involving liability calculations remain in the guidelines. For example, under U.S.S.G. § 2B1.1, a defendant’s loss amount often determines how much time the defendant will spend incarcerated.

Additionally, even if a sentence reduction for substantial assistance is the right result, targets may not receive the outcome they want for other reasons. For example, public admissions in plea agreements will be made public, which can affect your licensing, employment opportunities, civil enforcement proceedings, and other areas of life.

Under 18 U.S.C. § 3663A, federal courts must order restitution for offenses involving identifiable victims. Restitution compensates victims for their losses. A different concept is forfeiture, and forfeiture involves transferring the defendant’s assets linked to the offense to the government. Both restitution and forfeiture may be part of a sentence.

A substantial-assistance reduction can potentially remove mandatory minimums from sentencing, but it does not automatically remove mandatory restitution or forfeiture obligations. However, while substantial assistance cannot automatically remove mandatory restitution or forfeiture obligations, federal defense lawyers can use substantial assistance to negotiate a favorable resolution that avoids these obligations.

Even though cooperating with the government can be the best strategy for targets of federal investigations, it does not always result in the desired outcome. With respect to liability for knowingly making a false material statement, 18 U.S.C. § 1001 provides for up to five years of imprisonment and a fine. For other offenses with more stringent statutory penalties, the criminal record is an option if the defendant’s efforts to cooperate failed.

Federal investigators investigate cases involving a variety of offenses and other crimes, and many of these crimes carry long-term sentences. If a target is determined to have provided substantial assistance, the court will reduce the defendant’s sentence. But with these crimes, the defendant may still face prison time. Again, federal prosecutors and federal judges have the final word when sentencing cooperating defendants, and substantial assistance is not a guarantee.

Get Advice on Your Situation

If you want someone to look at the specifics of your case, Spodek Law Group handles federal criminal defense nationwide from New York and Los Angeles. The firm has been practicing since 1976 and its motto is simple: we owe loyalty to only you. Call 212-300-5196.