U.S. Attorneys Offices, White-Collar Crime

Negotiating Is Not a Crime

The government's epic fail: trying to jail someone for basic negotiation...

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brown gavelIf you’re worried that federal criminal statutes are too broad, there are three places you can look for relief. You can hope that Congress will pass legislation to narrow these statutes, though Congress doesn’t seem to be terribly good at passing legislation these days. You can hope the executive branch will exercise some restraint and not push for broader readings of criminal statutes, though people tend not to think that they ought to have less power. Or you can look to the courts to interpret criminal statutes more narrowly.

The Seventh Circuit recently narrowed — a little bit — how broad wire fraud is. Score one for the courts.

Here’s the summary from the Court:

Federal wire fraud is an expansive tool, but as best we can tell, no previous case at the appellate level has treated as criminal a person’s lack of candor about the negotiating positions of parties to a business deal.

David Weimert was a vice president of a bank. The bank owned a share of a real estate development in Texas. Because of some lean times at the bank, Weimert was told to sell the bank’s share. He negotiated a deal that did just that, and which was a very good deal for the bank.

In the course of the negotiations, Weimert took care of himself too. Here’s how the Court described it:

Weimert saw an opportunity to insert himself into the deal personally. He persuaded two potential buyers that he would be a useful partner for them. Both buyers included in their offer letters a term having Weimert buy a minority

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interest in the property. The bank agreed. It also agreed to pay Weimert an unusual bonus to enable him to buy the minority interest.

Weimert sounds like a really good negotiator. But negotiating is not a crime.

In commercial negotiations, it is not unusual for parties to conceal from others their true goals, values, priorities, or reserve prices in a proposed transaction. When we look closely at the evidence, the only ways in which Weimert misled anyone concerned such negotiating positions. He led the successful buyer to believe the seller wanted him to have a piece of the deal. He led the seller to believe the buyer insisted he have a piece of the deal. All the actual terms of the deal, however, were fully disclosed and subject to negotiation. There is no evidence that Weimert misled anyone about any material facts or about promises of future actions. While one can understand the bank’s later decision to fire Weimert when the deception about negotiating positions came to light, his actions did not add up to federal wire fraud.

AUSAs spend their days negotiating in a nominal sense — they tell defense lawyers the terms of deals that their office will accept and, within very very narrow bounds there are a few things that may be in play to change those terms. But the professional experience of a prosecutor generally doesn’t include the kind of conversation about deal terms that are familiar to just about any person in business.

As the Court said, “it is possible to put together broad language from courts’ opinions on several different points so as to stretch the reach of the mail and wire fraud statutes far beyond where they should go.”

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The case is a thorough and good discussion of what’s wrong with the reach of mail and wire fraud. It’s a case study in how our criminal statutes make things illegal that should never be crimes.

Ultimately, Weimert was ordered released from prison because he was convicted of a crime that didn’t exist.

Matt Kaiser is a white-collar defense attorney at KaiserDillon. He’s represented stockbrokers, tax preparers, doctors, drug dealers, and political appointees in federal investigations and indicted cases. His twitter handle is @mattkaiser. His email is mkaiser@kaiserdillon.com He’d love to hear from you if you’re inclined to say something nice.

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