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 NACDL’s 2023 White Collar Seminar October 18-21, 2023

 Presented by:

Cynthia Orr


Goldstein & Orr

310 South Saint Mary’s Street, Suite 2900 San Antonio, Texas 78205


1. Res Ipsa Criminal will discuss the criminalization of conduct that, without more, would result in finding civil liability.


The concept known as res ipsa loquitur is a civil negligence theory that stands for “the thing speaks for itself.” This theory allows a Plaintiff to establish that the Defendant owed the plaintiff a duty of care and breached such duty by showing that the harm suffered would not ordinarily occur without negligence. An example of this theory would be when a surgeon is found liable for medical malpractice for leaving a surgical instrument inside a patient. This civil concept has and continues to bleed over into finding criminal liability. However, this flies in the face of the requirement for a criminal mental state before one can be found guilty of a crime. Morissette

  1. United States, 342 U.S. 246, 252 (1952) (“wrongdoing must be conscious to be criminal”).


Criminal punishment must also require a culpable mental state and fair notice that something is a crime. “The fair notice doctrine requires that, in order for a person to be punished criminally, the offense with which she is charged must provide adequate notice that the conduct in which she engaged was prohibited.” Brian Walsh and Tiffany Joslyn, The Heritage Foundation and NACDL, Without Intent: How Congress is Eroding the Criminal Intent Requirement in Federal Law, at xi (2010) (hereinafter referred to as Without Intent). Although ignorance of the law is no excuse, the United States Supreme Court has repeatedly held that in most cases, the defendant must at least be aware that their conduct was unlawful before they can face criminal punishment. See Cheek v. United States, 498 U.S. 192, 203, 111 S. Ct. 604 (1991); Ratzlaf v. United States, 510 U.S. 135, 137 (1994). This is especially critical where criminal sanction conduct is not contained in the criminal code but is buried within regulations generated by agencies. But we increasingly see prosecutors charge crimes for conduct traditionally thought as civil wrongs.


II. Historically, prosecutors have attempted to criminalize not only regulatory noncompliance but also deviations from general business practices and private company policies.


The United States Supreme Court has long recognized that there is a difference between criminal conduct and conduct that goes against standard business practices. See United States v. Britton, 107 U.S. 655, 667 (1883) (finding that some of the counts in the indictment “charge[d] maladministration of affairs of the bank, rather than criminal misapplication of its funds.”). Yet, to this day, prosecutors continue to try and bolster their criminal charges against defendants by using noncriminal violations.

A. Banking Regulations


One example of this is prosecutors’ reliance upon banking regulations to charge misapplication of bank funds. The Fifth Circuit rejected this in the United States v. Christo, 614 F.2d 486 (5th Cir. 1980). The government attempted to argue that Christo’s excessive account overdrafts, which was a civil violation of 12 U.S.C. § 375(a), also “constituted a criminal misapplication of banks funds under 18 U.S.C. § 656.” United States v. Christo, 614 F.2d 486, 489 (5th Cir. 1980). The Fifth Circuit held that “[a] conviction, resulting from the government’s attempt to bootstrap a series of checking account overdrafts, a civil regulatory violation, into an equal amount of misapplication felonies, cannot be allowed to stand.” Id. at 492. The government’s reliance on the civil wrongs and the trial court’s jury instructions were plain error. Id. at 492.

A majority of the Circuit Courts of Appeals agree with the sentiment in Christo that violating civil banking regulations alone does not establish criminal misapplication of bank funds. See United States v. Munoz-Franco, 487 F.3d 25, 65–66 (1st Cir. 2007); United States v. McElroy, 910 F.2d 1016, 1023–24 (2nd Cir. 1990); United States v. Wolf, 820 F.2d 1499, 1505 (9th Cir.


1987); United States v. Stefan, 784 F.2d 1093, 1098–99 (11th Cir. 1986). While some of these courts allow the introduction of evidence concerning the violation of civil regulations as circumstantial evidence of a criminal wrong, because this evidence can confuse the jury and may even lead to an “alternative standard of guilt” being applied by the jury, such evidence should not be admissible in a criminal trial. United States v. Christo, 614 F.2d 486, 491 (5th Cir. 1980). Therefore, the wiser course is not to admit civil wrongs for any purpose in a criminal trial.

B. CPT Codes in the Healthcare Arena


The American Medical Association drafted the Current Procedural Terminology (CPT) codes to provide healthcare workers with a uniform language for coding medical procedures and services when billing Medicare and Medicaid. These codes were then adopted by the Secretary of Health and Human Services to assist in “carry[ing] out the administration of Medicare.” United States v. Semrau, 693 F.3d 510, 530 (6th Cir. 2012). Billing based on these codes is frequently relied upon by prosecutors to bring healthcare fraud cases charging upcoding and unbundling healthcare services. Prosecutors continue to do this even though courts have clarified that “CPT codes themselves create no laws or liability.” Id. at 530.

Allowing for the introduction of violations of these CPT code policies when charging a person with criminal healthcare fraud creates a real possibility that the jury might believe that violating CPT code policies constitutes criminal conduct. As in Christo, it would lead to an alternative standard of guilt. While the court may allow evidence of compliance with CPT codes as circumstantial evidence, counsel should eliminate reference to them in the indicted as surplusage and seek strong jury instructions setting out both the elements of the crime and instructing the jury of violating CPT code policies is not a criminal offense.


Another area where we continuously see prosecutors attempting to use noncriminal violations to support criminal convictions is through the use of noncompliance with the Generally Accepted Accounting Principles (GAAP) as evidence of crime. Creating and enforcing GAAP is done by the Security and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). Although the SEC can fine public companies that do not comply with GAAP, violating GAAP is not a crime. However, this has not stopped prosecutors or the SEC from attempting to use GAAP violations to support securities fraud charges.

Courts have repeatedly held that violating GAAP does not establish guilt. See United States

  1. Rigas, 490 F.3d 208, 220 (2nd Cir. 2007) (“GAAP neither establishes nor shields guilt in a security fraud case.”). A showing of something more is required. Fine v. American Solar King Corp., 919 F.2d 290, 297 (5th Cir. 1990) (“[A] failure to follow GAAP, without more, does not establish scienter.”). This requires the prosecution to provide evidence beyond a reasonable doubt that an individual’s conduct meets the elements of securities fraud, specifically either knowing or recklessly publishing materially false information. See Id. at 297. Therefore, noncompliance with GAAP or any other standard business practices will confuse and mislead a jury trying to determine an accused’s culpability of securities fraud. When our lawmakers have not criminalized codes, procedures, regulations, or general business practices these should not form the basis for criminal convictions.

III. Congress does not do a good job of legislating the mens rea requirement and inappropriately delegates law-making.


The importance of sound legislative drafting cannot be overstated, as the drafting of a criminal offense often determines whether an individual will face criminal liability. Without Intent, at 32. However, data shows that more than half of the criminal offenses enacted into law by Congress fail to include adequate mens rea requirements. Without Intent, at 22. Moreover, the


delegation of law-making authority by Congress to unelected officials in administrative agencies has led to the proliferation of criminal offenses that lack sufficient mens rea requirements. Without Intent, at xi. This proliferation of criminal offenses lacking mens rea requirements creates grave dangers for our civil liberties. Id.

The imposition of criminal liability for offenses that lack the necessary mens rea requirements produces unjust and disproportionate punishment of individuals for making honest mistakes or engaging in conduct they had no reason to know was illegal. Without Intent, at 1. In fact, Harvey Silverglate, convincingly argues that any of us can be guilty of committing three felonies a day with the current hodgepodge of agency-generated regulations. “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.” HARVEY A. SILVERGLATE, THREE FELONIES A DAY: HOW THE FEDS TARGET THE INNOCENT XI (2011).

Further, the Supreme Court has recently shown a great deal of sensitivity to the problems associated with this delegation of congressional authority. See Kisor v. Wilkie, 139 S. Ct. 2400 (2019) (moving away from Auer and Chevron deference). The delegation of Congress’s law- making authority to administrative agencies is entirely inappropriate, as the United States Constitution places that power in the lands of the legislative branch, not the hands of unelected regulators. Without Intent, at 32. However, Congress’s delegation of its law-making authority to these agencies permits unelected regulators to decide what conduct will be criminally punished rather than Congress making that determination itself. Without Intent, at 9. Such delegation of congressional authority deprives the American people of the protections that the separation of powers was intended to provide, and thus, criminal offenses created and enforced by these administrative agencies should not be enforceable.


IV. The proliferation of hundreds of thousands of regulatory wrongs obscures rather than gives notice of what conduct is criminal.


The increase in congressional delegation and judicial deference has led to a drastic increase in the number of federal regulations. And many of these federal regulations include some form of criminal penalty. It is believed that there are currently over 300,000 federal regulations. However, there are currently so many federal regulations that even the United States Justice Department could not ascertain an accurate total. GianCarlo Canaparo & Zack Smith, Count the Crimes on the Federal Law Books. Then Cut Them., THE HERITAGE FOUNDATION (June 24, 2020). This sheer volume of federal regulations has created a complex and intricate web that is largely unnavigable by the average layperson. This allows individuals to be criminally punished without any idea that their actions constituted a crime.

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