Dude, That’s My Lighter: Lacrosse, Suspensions, the Fourth Amendment and the White-Collar Thanatos of Zero Tolerance

Early adopters.

Early adopters.

The relationship between lacrosse and white-collar crime is not obvious, although for much of its 20th century history the sport was powered by mid-Atlantic and New England prep-school products whose high schools also provided several All-American rosters of white-collar defendants.  And even for perfectly lawful activities, there has long been a close relationship between lacrosse and Wall Street, as shown in this 2008 Wall Street Journal article about how On Lacrosse Fields, A Battered Bank Is Still a Player

The story of how these Maryland lacrosse players’ case moves into court  raises some curious insights, though, into matters of compliance and internal policing, not to mention Fourth and Fifth Amendment issues that can figure prominently in white-collar trials:

Families of two former Maryland high school lacrosse players have filed a federal civil rights lawsuit against school officials alleging that the teens were suspended for having dangerous weapons after an unconstitutional search of their equipment bags turned up two small knives and a lighter.

The lawsuit alleges that school officials in Talbot County, on Maryland’s Eastern Shore, violated the students’ constitutional rights to due process and their protections against unreasonable search and seizure in 2011 when they boarded the team bus to investigate a tip about alcohol and took action against the teenagers for items the students said they used to maintain their lacrosse equipment.

The Leatherman.

The Leatherman.

The items were a lighter and a knife.

Leftover from a Doobie Brothers concert (1978).

Left over from a Doobie Brothers concert (1978).

The suspensions were reversed by the state board of education, and the players filed a federal civil rights action:

The Maryland State Board of Education ruled against the school system in 2012 and ordered that the students’ records be cleared of the incident. The state’s decision was a rare reversal of student punishment and appeared to be in opposition to the zero-tolerance policies that have taken hold in schools across the country.

Lawyers with the nonprofit Rutherford Institute, a civil liberties advocacy firm, filed the lawsuit last month in U.S. District Court in Baltimore, seeking monetary damages from the Talbot County school board and four current or former school officials. It comes at a time when U.S. Education Secretary Arne Duncan has urged that out-of-school suspensions be used as a last resort for school-related incidents.

Before we recoil from the lighter and the knife, and begin to mutter about terrorism, consider this:

No alcohol was found, but during the search, Graham Dennis, then a 17-year-old junior, volunteered that he had a small knife, which he used to fix his lacrosse sticks, inside his gear bag.

School officials took the knife as well as a Leatherman tool they found and called police. The teenager was led away in handcuffs and suspended for 10 days.

A teammate, Casey Edsall, also a 17-year-old junior at the time, was suspended for having a lighter in his gear bag. The teenager said it was used to seal the frayed ends of strings on his lacrosse stick.

In its 2012 ruling, the Maryland board [i.e., the panel that reversed the school’s decision] said knives and lighters don’t belong at school but concluded that “this case is about context and about the appropriate exercise of discretion.”

The state board said the coaching staff had tacitly approved the use and possession of the items and that players had openly used them on the bus.

The facts are relatively obvious; their implications, less so.

High school varsity, but lacking Wi-Fi.

High school varsity, but lacking Wi-Fi.

First, students should not have lighters and knives at school.

Second, knives and lighters are frequently necessary to work on lacrosse heads and their stringing.  For a YouTube video on the subject by a mildly-hungover guide, try YouTube Burning String Tips

Third, the school — through the actions of the coaches — approved the open use of knives and lighters on the bus.

The decision of the Maryland state school board is appropriate.  For us, though, it is the board’s note about “context” and the “appropriate use of discretion” that is pertinent both for the thanatos of internal compliance and for the sometimes over-reaching character of white-collar criminal investigations and prosecutions.

(As a refresher: “Thanatos,” a minor Greek deity and the son of Nyx, was the personification of death.  The word now refers to an impulse towards death or self-destruction).

Whose street?  And, does the defendant live on it?

Whose street? And, does the defendant live on it?

First, both the sport and Wall Street have had bad press that at times have made them targets for politicians, activists and prosecutors of all stripes — sometimes with justification, sometimes not.

No doubt, lacrosse has had a tumultuous recent history, starting with the Duke lacrosse case  in which players were falsely accused of rape.

The burden of proof and a university's shameful behavior.

The burden of proof and a university’s shameful behavior.

That case ended with the prosecutor’s suspension and surrender of his license to practice law after an ethics complaint against him.

Prosecutor Michael Nifong

Prosecutor Michael Nifong

Separately, there was later a murder charge against the woman who falsely accused the Duke players, a charge of which she was convicted.  More recently, a member of the University of Virginia men’s lacrosse team murdered a member of the Virginia women’s team.

 

Second, “zero tolerance” is an antonym to “context.”  Context — the business, social, cultural and ethical landscape in which a person operates — is precisely what many compliance programs and white-collar investigations lack.  As in the Maryland lacrosse-suspensions matter, a policy of “zero tolerance” is a often a cover for something else (especially the fear of civil, administrative or criminal liability) other than solicitude for the people, institutions or values that are offered in justification of the policy.

Third, an appreciation of “context” would introduce the concept of proportionality, whether externally (for example, in grand jury investigations) or internally (for example, in compliance-program investigations).  The former investigations are distorted by the fact that many (perhaps most) of the folks at the levers of white-collar investigations have little or no experience of the industries, professions and services being investigated.  Without such experience and context, it is understandable that one tends to see a Red under every bed.

"Senator McCarthy, the compliance staff is ready to meet."

“Senator McCarthy, the compliance staff is ready to meet.”

The latter investigations are distorted by the business internal impulses and pressures under which they operate.  A compliance investigation that leaves significant risk on the table is a failed compliance investigation.

In fairness, though, at times the internal compliance investigation can suffer from over-familiarity, and can fail to see the customary as also potentially criminal.

Alger Hiss at the CrossFit breath-holding competition.

Alger Hiss at the CrossFit breath-holding competition.

And, of course, there are plenty of actual criminals, some of them of distinguished pedigree, even if those investigating and accusing them are clumsy.

Fourth, just as we have an odd body of Fourth Amendment law within the schoolhouse door, we have too casual a view within the corporate boardroom of Fourth Amendment protections.  Much as businesspeople shrink from asserting their Fifth Amendment rights, however wise such an assertion might be, they tend to think of the Fourth Amendment as the province of drug dealers, terrorists, pornographers and the faculty of Harvard Law School.  Both views arise from the otherwise common-sense notion that, “if you have nothing to hide,” why not testify, or be searched?  The “nothing to hide” rationale fails in the context of most white-collar crime, however, because what incriminates is intent, rather than the object or statement itself.  A loan application can contain an error, or it can be a false statement.  A check can be a commission or a kickback.

Burn here.  And here.  And there.

Burn here. And here. And there.

Such considerations come into play in most compliance and white-collar investigations, even those less important than burning the ends of the shooting strings on your lacrosse stick.

Dude.


Martoma and Harvard Law School (Again)

Forgery and bad-movie posters.

Forgery and bad-movie posters.

We recently addressed the ongoing Mathew Martoma trial “Harvard Law School fraud” story: The Martoma Trial and Character Evidence in White-Collar Trials

From Professor Susan Brenner, who blogs at Cyb3rCrim3, here’s a detailed analysis of the Court’s ruling not on the substantive issue — whether the government can discuss his HLS misdeeds at trial — but rather on Martoma’s motion to seal the discussion: The Law Student, Forgery and the Motion in Limine


McKinsey, General Lee and the Culture of Compliance

Except perhaps for “paradigm” and “silo,” the word “culture” is one of the most abused in the vocabulary of compliance, ethics and consultants.  (I once heard a consultant say that he needed “a high hover over the silos.”  I thought it an ironic mash-up about drones and agriculture; it was not).  Yet, “culture” has a meaning in the broader world; in commerce; and in compliance.  “Culture” represents a gear-shift in compliance and ethics, and can be smooth or bone-rattling.

McKinsey

McKinsey

Consider this story about  McKinsey’s culture in the wake of insider-trading scandals:

For a quarter of a century, except for a brief stint as a currency analyst at Rothschild, Mr. Barton has worked at McKinsey, the consulting firm with more than 1,400 partners and 18,500 employees around the world. And that is why he is facing the most daunting task of his career: as McKinsey’s global managing director, he is trying to change the culture of the firm that shaped him.

There are two reasons that Mr. Barton is on this mission: Anil Kumar and Rajat K. Gupta. Mr. Kumar was a McKinsey director who, in 2010, pleaded guilty to insider trading charges and publicly acknowledged giving corporate secrets gleaned on the job to Raj Rajaratnam, a founder of the Galleon Group hedge fund, in return for cash. Never in the history of the firm had a partner been charged with violating securities laws.

A year after the Kumar scandal, the Securities and Exchange Commission filed a civil complaint accusing Mr. Gupta, a Goldman Sachs board member and former McKinsey managing director, of telling Mr. Rajaratnam about a $5 billion investment in Goldman by Warren E. Buffett’s Berkshire Hathaway at the height of the financial crisis. Mr. Gupta, a revered former partner who had been elected managing director three times in a row, serving at the helm for a decade, was ultimately convicted of criminal charges of leaking boardroom business. He awaits the outcome of his appeal, even as insider trading charges continue to occupy prosecutors. The trial of Mathew Martoma, a former trader at SAC Capital Advisors, run by Steven A. Cohen, started last week in Manhattan, not long after another SAC trader, Michael S. Steinberg, was convicted of trading on corporate secrets. SAC itself pleaded guilty in November to violating insider trading laws.

So where does that lead Mr. Barton?

At McKinsey, Mr. Barton has been trying to prevent another disgrace: a “third man,” as some have put it. McKinsey is known for what it calls its culture based on values and trust — a culture that was created and nurtured by Marvin Bower, its longtime managing director. The values that Mr. Bower instilled included putting the clients’ interests above the firm’s, providing independent advice and keeping confidences. These ideas were imparted from one generation to the next, mentor to apprentice. But after Mr. Kumar’s arrest in late 2009, Mr. Barton, who had been elected to head the firm just months earlier, decided that the honor-driven, values-based system was not enough. What the firm needed was some rules.

“We needed more safety moats around the castle,” he says. “We have this values/trust culture. I get that. Now we have a little more edge.”

The rest of the article details why some in the firm think this a great idea while others pan it.

Multiple rules in the compliance handbook.

Multiple rules in the compliance handbook.

Given the size and diversity of his organization, I applaud Mr. Barton.  For better or for worse, if there is no more “values/trust culture” to be poured in from the top, then the only reasonable thing to do is add “a little more edge.”  Like edging your lawn: it seems to grow luxuriantly by itself, but you don’t want grass clogging the sidewalk.

On the other hand, rules — especially rules that are applied to thousands or tens of thousands of employees, perhaps in dozens of countries — are blunt instruments.  They hack at the lawn, rather than trim it.  In addition, people sometimes revolt against the governing values, but they always revolt against the governing rules.  Finally, the rules do a much better job of describing how you transgress than how you non-transgress.

The Collonade.

The Colonade at W&L

Consider the example of my alma mater, Washington & Lee University in Lexington, Virginia and the Honor System created by President (formerly General) Lee:

The mid-1800s saw the development of honor systems at many colleges. Lee replaced the elaborate disciplinary rules of Washington College by a single standard: “Every student must be a gentleman.” He intended for the young men under his charge to acquire a sense of responsibility based on truth, honor, and courtesy. Lee also placed a premium on civility and spoke to each student as he passed him on campus, encouraging by his example the same show of respect between students.

Today’s honor system, administered by students, has been a unique feature of Washington and Lee University for well over a century. It is based on the fundamental principle of mutual trust among students, faculty, and staff that students attending Washington and Lee will not lie, cheat, steal, or otherwise act dishonorably. With the rule of civility, exemplified by the W&L “speaking tradition,” Lee’s legacy of honor continues to permeate academic and social life at Washington and Lee University and serves as a model nationwide.

 

An Honor System works well at W&L and poorly at many other universities for several reasons.  Some of those reasons illumine the strengths and weaknesses of many corporate compliance programs.

Robert Edward Lee

Robert Edward Lee

First, as implied above, it is a system, not a code:

Young gentleman, we have no printed rules here.  We have but one rule and that is that every student must be a gentleman.

— Robert E. Lee to student Wallace E. Colyar (1866)

Although there are more rules and regulations today in Lexington than there were formerly, the Honor System coalesces around a concept (‘honor”) rather than dividing between thou shalts and thou shalt nots.  Despite lip-service to soft concepts in compliance programs, most come down to crypto-Scriptural commands.

Second, the Honor System is single-sanction.  There is one penalty — dismissal — without regard to the severity of the offense.  In other words, it does not seek proportional justice.  Most corporate compliance officers who tried a single-sanction system would get fired.

Third, it marries two starchy concepts: “honor” and “duty.”  President Lee cherished the latter as much as the former:

The forbearing use of power does not only form a touchstone, but the manner in which an individual enjoys certain advantages over others is a test of a true gentleman.

The power which the strong have over the weak, the employer over the employed, the educated over the unlettered, the experienced over the confiding, even the clever over the silly–the forbearing or inoffensive use of all this power or authority, or a total abstinence from it when the case admits it, will show the men in a plain light.

The gentleman does not needlessly and unnecessarily remind an offender of a wrong he may have committed against him. He cannot only forgive, he can forget; and he strives for that nobleness of self and mildness of character which impart sufficient strength to let the past be but the past. A true man of honor feels humbled when he cannot help humbling others.

“Duty,” for many employees in highly-diversified, extremely large global organizations is a term roughly co-extensive with “pay.”

Fourth,Washington & Lee is a liberal-arts college, not the org-chart Tower of Babel that many large-company compliance officers must deal with.  Coalescing around a concept (like “honor” or “duty”) rather than submitting to a rule or a checklist is easier when at least a core group is composed of individuals who possess more experiences, taboos, creeds and rituals that unite them than divide them.  (Or, at a minimum, they perceive such to be the case).

Corporate compliance programs cannot readily have the grace of the Washington & Lee Honor System — much as (a biased alumnus says) the corporate officer, director or employee without the benefit of a W&L education cannot readily have the grace of a W&L alum.  Both require work; both produce imperfection.  But, as the effort of McKinsey’s Mr. Barton demonstrates, both are commendable.

 


John D. MacDonald and King Saul

The Quick Red Fox (1964).

The Quick Red Fox (1964).

We worked John D. MacDonald’s private eye, Travis McGee, into this discussion of King Saul and the young David:  Spare the King and Seize the Spareribs.  I most recently read The Quick Red Fox, which I was thinking about for the Saul and David post.

MacDonald had fine PI prose:

Darker Than Amber (1966).

Darker Than Amber (1966).

“We were about to give up and call it a night when somebody threw the girl off the bridge” (Darker Than Amber (1966)).

 


The Martoma Trial and Character Evidence in White-Collar Trials

Former SAC manager Mathew Martoma

Former SAC manager Mathew Martoma

In the trial of former SAC hedge fund manager Mathew Martoma, the dispute over getting kicked out of Harvard Law School  is worth noting for what evidence we have juries consider at white-collar trials and what we don’t:

In 1999, Mr. Martoma was expelled from Harvard for creating a false transcript when he applied for a clerkship with a federal judge, court papers unsealed on Thursday showed. Mr. Martoma used a computer program to change several grades from B’s to A’s, including one in criminal law, and then sent the forged transcript to 23 judges as part of the application process.

Then, during a Harvard disciplinary hearing to determine whether he should be expelled, Mr. Martoma tried to cover his tracks by creating a fake paper trail that included fabricated emails and a counterfeit report from a computer forensics firm that Mr. Martoma had created to help conceal his activities.

After Harvard expelled him, Mr. Martoma, who at the time was known as Ajay Mathew Thomas, legally changed his name to Mathew Martoma.

The Government wishes to introduce this evidence, it says, not because it’s trying to paint Martoma as a bad guy but rather to prove that he has the computer-forensic capability to destroy real evidence, create bogus evidence and thus mislead the authorities:

The prosecution argues in court papers that Mr. Martoma’s deception is relevant to show that he has the technical knowledge to alter computer files. That could be relevant, prosecutors say, if Mr. Martoma’s lawyers seek to argue he never received a copy of a confidential report that discussed problems with a clinical trial for an experimental Alzheimer’s drug being developed by Elan and Wyeth.

Prosecutors charge that Mr. Martoma recommended that SAC sell its shares in Elan and Wyeth after receiving the report from a key cooperating witness in the case, Dr. Sidney Gilman, and then flying to Ann Arbor, Mich., to discuss the results of the trial with him.

Mr. Martoma’s lawyers at Goodwin Procter, in the run-up to the trial, have raised questions about the government’s failure to find any email evidence that Dr. Gilman sent Mr. Martoma a copy of the report. Dr. Gilman, 81, who received a nonprosecution agreement from the government, is expected to testify that he sent the report to Mr. Martoma and discussed the findings both on the phone and when the two men met a few days before SAC began selling the companies’ shares.

Prosecutors have conceded they have not found any email evidence to support Dr. Gilman’s contention that he sent a copy of the report to Mr. Martoma. But they said Mr. Martoma’s pattern of deception at Harvard is “evidence of the defendant’s capacity to destroy or fabricate electronic forensic evidence.”

In other words, the Government lacks evidence (other than the testimony of the cooperating email-sender) that the report was actually sent to or received by the defendant.

You hit "Send," you never know what happens.

You hit “Send,” you never know what happens.

Essentially, the Government wants jurors to conclude that the defendant could have received the report; could have destroyed it; and could have hidden the fact of destruction from investigators because of his (unsuccessful) attempts to do something similar in law school.

This is over-reaching.

First, such questions are usually handled at trial by each side offering computer-forensic experts.  The expert offers an opinion on which he or she can be cross-examined, then jurors decide whom to believe.  (Of course, if there is nothing an expert can opine on — if old servers are simply gone, for example — then experts are of little help.)

Second, this is “character evidence.”  Rule 404 provides:

(a) Character Evidence.

(1)Prohibited Uses. Evidence of a person’s character or character trait is not admissible to prove that on a particular occasion the person acted in accordance with the character or trait.

(2)Exceptions for a Defendant or Victim in a Criminal Case. The following exceptions apply in a criminal case:

(A) a defendant may offer evidence of the defendant’s pertinent trait, and if the evidence is admitted, the prosecutor may offer evidence to rebut it;

(B) subject to the limitations in Rule 412, a defendant may offer evidence of an alleged victim’s pertinent trait, and if the evidence is admitted, the prosecutor may:

(i) offer evidence to rebut it; and

(ii) offer evidence of the defendant’s same trait; and

(C) in a homicide case, the prosecutor may offer evidence of the alleged victim’s trait of peacefulness to rebut evidence that the victim was the first aggressor.

(3)Exceptions for a Witness. Evidence of a witness’s character may be admitted under Rules 607, 608, and 609.

(b) Crimes, Wrongs, or Other Acts.

(1) Prohibited Uses. Evidence of a crime, wrong, or other act is not admissible to prove a person’s character in order to show that on a particular occasion the person acted in accordance with the character.

(2) Permitted Uses; Notice in a Criminal Case. This evidence may be admissible for another purpose, such as proving motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident. On request by a defendant in a criminal case, the prosecutor must:

(A) provide reasonable notice of the general nature of any such evidence that the prosecutor intends to offer at trial; and

(B) do so before trial — or during trial if the court, for good cause, excuses lack of pretrial notice.

Rule 608 is also pertinent:

(a) Reputation or Opinion Evidence. A witness’s credibility may be attacked or supported by testimony about the witness’s reputation for having a character for truthfulness or untruthfulness, or by testimony in the form of an opinion about that character. But evidence of truthful character is admissible only after the witness’s character for truthfulness has been attacked.

(b) Specific Instances of Conduct. Except for a criminal conviction under Rule 609, extrinsic evidence is not admissible to prove specific instances of a witness’s conduct in order to attack or support the witness’s character for truthfulness. But the court may, on cross-examination, allow them to be inquired into if they are probative of the character for truthfulness or untruthfulness of:

(1) the witness; or

(2) another witness whose character the witness being cross-examined has testified about.

By testifying on another matter, a witness does not waive any privilege against self-incrimination for testimony that relates only to the witness’s character for truthfulness.

The fact that the defendant points out the prosecution’s lack of evidence — that is,there’s apparently no evidence that Martoma received the email to which the report was attached — does not magically turn that same lack of evidence into admissible 404(b) evidence of “motive, opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of accident.”  

"From the Old Fields Must Spring the New Corn."

“From the Old Fields Must Spring the New Corn.”

Plus, the prejudicial effect of the evidence — here’s a guy who went to Harvard Law School, a fancy institution, where he cheated and tried to cover it up, then ended up at SAC, another fancy organization, and is nowaccused of cheating — would grossly outweigh any probative value.