ILLINOIS: An Introduction to Litigation: White-Collar Crime & Government Investigations
ILLINOIS: An Introduction to Litigation: White-Collar Crime & Government Investigations
Illinois is home to highly regulated industries that draw the attention of the Department of Justice (DOJ), the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), and other federal regulators. In 2022 and beyond, we expect these federal prosecutors and regulators to focus their investigations and prosecutions on cryptocurrency, market manipulation, healthcare-related COVID-19 fraud, and criminal antitrust violations. In Illinois, white-collar crime and government investigations are also nearly synonymous with public corruption prosecutions. We anticipate more headline-grabbing corruption prosecutions and trials this year.
Cryptocurrency
Federal prosecutors and regulators announced their intentions to increase their cryptocurrency-related prosecutions and enforcement efforts in 2022, and we anticipate those efforts will reverberate in Illinois and elsewhere.
In late 2021, the DOJ launched its National Cryptocurrency Enforcement Team (NCET), which operates at the strategic center of the DOJ’s efforts in cases involving the criminal use of cryptocurrency and other digital assets. The NCET will collaborate closely with other DOJ components, including the FBI’s Virtual Asset Exploitation Unit, a specialized team of cryptocurrency experts.
Cryptocurrency is also subject to overlapping regulations that subject its issuers, owners, and traders to different requirements depending on the transaction or circumstances at issue. Federal regulators, including the IRS, SEC, CFTC, Financial Crimes Enforcement Network (FinCEN), and the Department of Treasury’s Office of Foreign Assets Control (OFAC), have all issued guidance and requirements for cryptocurrency transactions. For example, the IRS classifies cryptocurrency as property for purposes of federal income tax laws, while the SEC has found that offers and sales of digital assets, such as “Initial Coin Offerings” and “Token Sales,” are securities offerings subject to the federal securities laws. The CFTC defines “commodity” to include virtual currencies subject to its regulation, while FinCEN regulates businesses involved in the exchange of cryptocurrency as “money” exchangers. Likewise, the Treasury Department now defines cryptocurrency exchanges, which it refers to as “virtual asset service providers” (VASP), doing business in the United States as “money transmitters” required to comply with the Bank Secrecy Act (BSA), including registering with FinCEN.
Recently, the Infrastructure Investment and Jobs Act of 2021 created new reporting requirements for certain crypto transactions. The Act expanded the definition of a “broker” subject to IRS reporting requirements to include those who help effectuate transfers of digital assets. It also expanded the definition of “digital assets” to include virtual currencies that are “recorded on a cryptographically secured distributed ledger or any similar technology.” And the Act expanded IRS rules requiring businesses to report cash transactions over $10,000 to cover transactions involving digital assets.
In March 2022, President Biden signed an executive order directing the Consumer Financial Protection Bureau and the Federal Trade Commission to evaluate how they can use their enforcement tools to protect against fraud and abuse of crypto transactions. The executive order also encouraged the SEC, CFTC, Federal Reserve, Federal Deposit Insurance Corporation, and Comptroller of the Currency to consider additional measures to protect crypto-asset markets and investors.
Whether the DOJ and federal regulators will succeed in coordinating their efforts remains to be seen. At very least, we expect the increased scrutiny of crypto-related transactions to yield more investigations and prosecutions.
Market Manipulation
Futures contracts traded on the CME Group’s commodities exchanges have given the DOJ Fraud Section venue in federal court in Chicago to pursue market manipulation cases based on spoofing. Spoofing, which was criminalized by the 2010 Dodd-Frank Act, is bidding or offering with the intent to cancel the bid or offer before execution. In practice, it means placing a large order on one side of the market and a small order on the opposite side with the intent to trade only the small order. Once the small order is executed, the large order is canceled.
Despite COVID-related restrictions during trial in 2021, the DOJ secured convictions of two former Bank of America precious metals traders on wire fraud and conspiracy charges based on allegations of spoofing. The DOJ alleged that the traders defrauded market participants by placing orders they intended to cancel because those orders artificially moved prices and affected the trades of other market participants. The DOJ’s successes in spoofing-related prosecutions and achieving related corporate resolutions—amounting to more than $1 billion since 2019—mean that we can expect continued efforts to identify and aggressively pursue corporate entities and individuals on novel market manipulation theories.
Healthcare-Related COVID-19 Fraud
The DOJ continues to investigate and prosecute COVID-19-related fraud in the healthcare industry, emphasizing schemes involving false billings relating to federal programs. These false billings range from misuse of patient information to submitting claims to Medicare for unrelated or medically unnecessary tests, to billings for telehealth visits that never occurred. Given the extraordinary amount of aid and resources spent to battle the pandemic, the speed with which funds were distributed, and the changing rules and regulations governing the use of COVID-19 relief funds, investigations and prosecutions are likely to become more complex as prosecutors and regulators ferret out more sophisticated schemes perpetrated by companies and executives.
Criminal Antitrust Violations
The DOJ Antitrust Division recently suffered trial losses in two criminal antitrust cases based on no-poach and wage-fixing agreements between competitors. In both cases, United States v. DaVita Inc. and United States v. Jindal, the indictments withstood motions to dismiss with the courts finding that no-poach agreements (DaVita)—agreements between competitors not to hire each other’s employees—and wage-fixing agreements (Jindal) are per se violations of Section 1 of the Sherman Act. With these favorable holdings, the DOJ has reconfirmed its commitment to pursuing criminal prosecutions for anticompetitive behavior in the labor markets, and we do not anticipate any significant deviation from this commitment, particularly where there is evidence that such agreements were intended to affect compensation rates.
Corruption
Illinois has long served as a target-rich environment for aggressive corruption prosecutors. We expect 2022 to raise the stakes on these prosecutions. Trial dates on federal racketeering and bribery-related charges have yet to be set in the high-profile prosecutions of the former Speaker of the Illinois House of Representatives, the longest-serving leader of any legislative body in U.S. history, and the longest-serving alderman in Chicago history. In the meantime, a steady stream of current and former Chicago aldermen, state legislators, suburban mayors, and other politicians await trials and sentencings in their respective corruption prosecutions.
Also awaiting trial are former executives and the former Chief Executive Officer of Commonwealth Edison Company, who are accused of conspiring with outside consultants to corruptly influence and reward the former Speaker in connection with the passage of legislation favorable to the utility company. Commonwealth Edison entered into a three-year deferred prosecution agreement in which it admitted wrongdoing and agreed to pay a $200 million fine and cooperate with prosecutors. The trial of its former executives is now set for September 2022, and it will likely be a preview of the evidence offered against former Speaker at his trial.