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Even though Green is innocent, he generally will not be able to recover under a defamation theory because Black's statement was not "published" to a third party. Defamation is an unprivileged publication of a false statement about a person that causes harm to that person's reputation. To recover for defamation, the plaintiff must prove the following elements:
• The defendant made an untrue statement of fact.
• The statement was communicated (published) to third parties.
• The statement was made on an unprivileged occasion.
• The statement damaged the subject's reputation.
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In 2002, FinCEN announced a new rule requiring brokers and dealers in securities to report suspicious activity via the Suspicious Activity Report by Securities and Futures Industries (SAR-SF; FinCEN Form 101). These firms are obligated to report suspicious transactions that are conducted or attempted by, at, or through a broker-dealer and involve or aggregate at least $5,000 in funds or other assets. Brokers and dealers in securities are required to report to FinCEN transactions that fall into one of the four categories below:
• Transactions involving funds derived from illegal activity, or intended or conducted in order to hide or disguise funds derived from illegal activity
• Transactions designed, whether through structuring or other means, to evade the requirements of the Bank Secrecy Act
• Transactions that appear to serve no business or apparent lawful purpose or are not the sort of transactions in which the particular customer would be expected to engage, and for which the broker-dealer knows of no reasonable explanation after examining the available facts
• Transactions that involve the use of the broker-dealer to facilitate criminal activity
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Businesses that deal in large amounts of cash sales have always been popular for money laundering. Such businesses make accurate audits difficult. These types of businesses include bars, restaurants, and nightclubs. These businesses charge relatively high prices, and customers vary widely in their purchases. Sales are generally in cash, and it is notoriously difficult to match the cost of providing food, liquor, and entertainment with the revenues they produce.
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The Bank Secrecy Act (BSA), which went into effect in 1970, was the first major piece of legislation aimed at detecting and preventing money laundering. The purpose of the law as stated in Section 5311 is "to require certain reports or records where they have a high degree of usefulness in criminal, tax, or regulatory investigations or proceedings."

The BSA sets forth a system of reporting and recordkeeping requirements designed to help track large, unusual, and suspicious financial transactions. Title I contains provisions requiring that financial institutions and securities brokers and dealers keep extensive records of the transactions and accounts of their customers. Title II of the BSA (originally entitled Currency and Foreign Transactions Reporting Act) requires banks, "financial institutions" (which include casinos, securities brokers and dealers, and currency exchanges), and, in some cases, individuals to report to the government certain transactions that tend to have a relatively high risk of money laundering or other crime.
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A money laundering scheme cannot be successful until the paper trail is eliminated or made so complex that individual steps cannot be easily traced. The number of steps used depends on how much distance the money launderer wishes to put between the illegally earned cash and the laundered asset into which it is converted. A greater number of steps increases the complexity of tracing the funds, but it also increases the length of the paper trail and the chance that the transaction will be reported.
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Money services businesses (MSBs) refer to non-depository financial service providers operating in one or more of the following capacities:
• Currency exchangers
• Check cashers
• Issuers, sellers, or redeemers of traveler's checks, money orders, or stored value
• The United States Postal Service
• Money transmitters
• Prepaid access providers or sellers

MSBs offer an alternative to depository institutions for both financial services and money laundering. For this reason, an individual unable to transfer illegal funds into the U.S. banking system might turn to MSBs. In addition, MSBs generally operate under less strict regulations than traditional financial institutions. These overall less stringent requirements tend to raise the money laundering risk in certain transactions involving users of MSBs. For example, an MSB might not check a customer's credit report before opening an account, or it might require less rigorous proof of a customer's identity than a traditional bank. However, there is a trend to expand certain requirements to MSBs, such as requiring them to maintain anti-money laundering programs and meet certain provisions of the Bank Secrecy Act.
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In addition to traditional financial institutions such as banks and credit unions, a number of industries are also required to file Suspicious Activity Reports with FinCEN if they suspect that a client or customer is attempting to launder funds or engage in other illegal activity. These include securities broker-dealers; casinos and card clubs; insurance companies; and unregistered investment firms.
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Alternative remittance systems (also called parallel banking systems) are methods of transferring funds from a party at one location to another party (whether domestic or foreign) without the use of formal banking institutions. These systems are characterized by the lack of direct physical or digital transfer of currency from the sender to the receiver. Instead, in the typical alternative remittance system, the payer will transfer funds to a local broker who has a connection in the region where the payee is located. The latter broker will then distribute the funds to the payee.

Transferring funds in this manner is not necessarily illegal (although some jurisdictions require brokers to register with the government). If available, using such systems can be beneficial because the commission that the networked brokers take might be lower than a banking fee for international transactions. Additionally, the payers and payees do not need to have bank accounts to perform the transactions.
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Insurance policies are designed to protect assets (as well as life and health), but they are also assets in their own right. As is the case with most assets, they can become part of a money laundering scheme.

Launderers do not always need to keep or redeem the insurance policies they purchase. Many policies have cancellation provisions that, for a certain amount of time, allow the launderer to cancel the policy and have any unused premiums returned. This technique can be used to temporarily store illicit assets and confuse the money trail by having the cancellation paid out to a different account.
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Placement of funds into a financial institution is the initial step in the process. It is at this step that legislation has been developed to prevent launderers from depositing or converting large amounts of cash at financial institutions or taking cash out of the country. Money laundering schemes are most often detected at this stage.
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The USA PATRIOT Act defines the term "financial institution" broadly to include not only insured and commercial banks, but also securities brokers and dealers, investment companies, currency exchanges, issuers of cashier's checks and money orders, credit card companies, insurance companies, travel agencies, and a host of other businesses. The complete list can be found at 31 U.S.C. Section 5312 (a)(2).
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Money laundering is the disguising of the existence, nature, source, ownership, location, and disposition of property derived from criminal activity. Businesses that are commonly used to front money laundering operations include bars, restaurants, and nightclubs. These businesses charge relatively high prices, and customers vary widely in their purchases. Sales are generally in cash, and it is notoriously difficult to match the cost of providing food, liquor, and entertainment with the revenues they produce. As a result, a red flag of front businesses is observing a low amount of business, despite the business's books showing a relatively high income for that period.
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The Financial Action Task Force (FATF) is an intergovernmental body that was established at the G-7 Economics Summit in 1989. Its purpose is to develop and promote standards and policies to combat money laundering and terrorist financing at both the national and international levels.

The FATF's Recommendations, revised in 2012, created the most comprehensive standard with which to measure a country's anti-money laundering, counterterrorism, and nuclear proliferation laws and policies. They serve as a basic framework of laws that its members should have. While the recommendations are not required by members and the FATF acknowledges that following each rule might not be possible, members of the FATF often adopt them.

Some of the key measures in the recommendations provide that countries should:
• Use a risk-based approach when setting anti-money laundering policies.
• Create policies that increase cooperation and coordination with other countries.
• Specifically criminalize money laundering and terrorist financing.
• Enable authorities to trace, freeze, and confiscate assets suspected in laundering and terrorist financing.
• Require financial institutions to keep certain records and establish anti-money laundering policies.
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The Office of Foreign Assets Control (OFAC) is an office within the Department of the Treasury charged with administering and enforcing U.S. sanction policies against targeted foreign organizations and individuals that sponsor terrorism and international narcotics traffickers. OFAC maintains a list of individuals, governmental entities, companies, and merchant vessels around the world that are known or suspected to engage in illegal activities. Persons or entities on the list, known as Specially Designated Nationals and Blocked Persons (SDNs), include foreign agents, front organizations, terrorists and terrorist organizations, and drug traffickers.
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Bank checks (such as cashier's checks and money orders) could provide evidence of smurfing operations. Smurfing is the process by which a subject structures a deposit into several transactions, each less than $10,000, to avoid filing a currency transaction report as required under the Bank Secrecy Act. Smurfing is a very common technique for avoiding reporting requirements. To identify smurfing operations, fraud examiners should look for large numbers of cashier's checks that are in even amounts and that are deposited on a regular basis.
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Alternative remittance systems (also called parallel banking systems) are methods of transferring funds from a party at one location to another party (whether domestic or foreign) without the use of formal banking institutions. These systems are characterized by the lack of direct physical or digital transfer of currency from the sender to the receiver. Instead, in the typical alternative remittance system, the payer will transfer funds to a local broker who has a connection in the region where the payee is located. The latter broker will then distribute the funds to the payee.

The parties involved in alternative remittance systems form a network and keep track of their exchanges on an informal ledger. Unlike formal financial institutions, these ledgers will generally not list specific information about the payers and payees (such as bank account numbers, names, etc.), but will keep track of amounts owed. When the first broker requests another broker in the network to distribute funds, the debt is recorded in the ledgers. These debts between brokers could be paid back by transactions occurring in the opposite direction (i.e., the first broker pays someone locally at the request of the second broker). Alternatively, the parties could meet to settle all outstanding debts at a later time.
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"Placement" of funds is the initial step in the money laundering process. It is the step in which the funds are deposited into a financial institution or taken out of the country. If a money laundering scheme is detected, it is most often detected at this stage. "Layering" involves the creation of numerous transactions to prevent detection, such as moving funds between bank accounts, transferring funds from one form of currency to another, or transferring money between businesses. The final stage in the laundering process is the "integration" of the asset back into the economy in such a way as to make it appear as if it were derived from a legitimate business transaction.
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Pursuant to Section 314(b) of the USA PATRIOT Act, the Treasury Department issued a rule allowing financial institutions to share customer information with one another. The term "financial institution" includes any entity that is required to have an anti-money laundering program under the Bank Secrecy Act. In order to share information with another financial institution, the sharing institution must file a prescribed notice form with FinCEN stating that it intends to share customer information.
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A financial institution's anti-money laundering (AML) program is highly dependent on what jurisdictions it operates in, as well as the services that it offers. At a minimum, financial institutions should adopt the AML policies and procedures as required under the PATRIOT Act, but might also need to tailor their programs to the requirements of other jurisdictions in which they operate. Section 352 of the USA PATRIOT Act requires all financial institutions to establish anti-money laundering programs, which must include, at a minimum:
• The development of internal policies, procedures, and controls to prevent money laundering
• The designation of a money laundering compliance officer
• An ongoing training program for awareness of money laundering
• An independent audit function to test the programs
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Section 326 of the USA PATRIOT Act expands the Bank Secrecy Act by requiring financial institutions to implement Customer Identification Programs (CIPs). These CIPs are to be incorporated into financial institutions' money laundering programs, and at a minimum, they must include reasonable procedures for:
• Verifying the identity of any person seeking to open an account to the extent reasonable and practicable
• Maintaining records of the information used to verify a person's identity, including name, address, and other identifying information
• Consulting lists of known or suspected terrorists or terrorist organizations to determine if the person seeking to open the account appears on any such list
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Money laundering is the disguising of the existence, nature, source, ownership, location, and disposition of property derived from criminal activity. The International Monetary Fund estimated that somewhere between 2-5 percent of the gross world product (GWP) goes through the money laundering system each year. Applied to the 2013 GWP, that would be somewhere between $1.5 and $3.7 trillion.
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Overstating revenues, which is a form of income statement laundering, occurs when the money launderer records more income on the books of a business than is actually generated by that business. The fictitious revenue accounts for the illegal funds that are secretly inserted into the company.
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Nonfinancial organizations and individuals are required to report any receipt of currency over $10,000 in the course of their trade or business using IRS Form 8300.
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Title II of the Bank Secrecy Act requires certain reports or records to be filed or kept by "financial institutions." The Act defines "financial institution" very broadly in some sections and can include not only banks, but also securities brokers; currency exchange houses; insurance companies; loan companies; travel agencies; telegraph companies; issuers or cashiers of checks or money orders; auto, boat, and airplane dealers; casinos; and persons involved in real estate closings and settlements.

All banks, and certain other financial institutions (including securities broker-dealers, money transmitters, and currency exchangers), are required to file Currency Transaction Reports (CTR) whenever there is a currency transaction (deposit, withdrawal, exchange, or cashing of checks) of $10,000 or more. The easiest way to summarize the filing requirement is to remember the following: If currency in excess of $10,000 is brought into a financial institution to conduct a transaction, or if $10,000 in currency leaves the financial institution as the result of a transaction, a CTR must be filed.
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Insurance policies are designed to protect assets (as well as life and health), but they are also assets in their own right. As is the case with most assets, they can become part of a money laundering scheme.

This scenario is a redemption scheme. A person can redeem some insurance policies, such as life insurance, before the event that triggers the insurance occurs. In other words, the insurer agrees to pay the beneficiary of the policy an amount less than what the payout on a claim occurrence (in the case of life insurance, the death of the insured) would be. Using illicit assets, launderers can purchase life insurance or other redeemable contracts for themselves or their associates. If the investigator did not know that the launderer bought the insurance policy with illicit assets, the redemption payout would appear legitimate.

In an insurance prepayment scheme, the launderer makes advance payments on insurance premiums. For instance, if a health insurer allowed $10,000 in advance premium payments, then the launderer could use the illicit assets to "store" those funds. Perhaps the launderer was going to buy that health insurance anyway; now illicit assets have taken care of that bill.
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Treasury regulations provide that, at a minimum, a written BSA compliance program should be adopted that (1) establishes a system of internal controls to ensure ongoing BSA compliance; (2) provides for independent testing of compliance by internal auditors and/or outside examiners; (3) designates a compliance officer(s) to ensure day-to-day compliance with BSA; and (4) provides training on an ongoing basis for all personnel.
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reasury Department regulations require citizens of the United States and resident aliens to file a Report of Foreign Bank and Financial Accounts (FBAR) (Treasury Form 90-22.1) when they maintain a financial interest or signature authority over a foreign bank account with a balance of more than $10,000 during the calendar year. Accounts in different foreign countries have to be aggregated.
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Digital currencies are a type of online payment method that has emerged as a money laundering concern. Broadly defined, digital currencies are currencies that exist and are traded in a digital format. The term digital currency typically excludes government-backed currencies, despite the fact that they can also exist and be traded digitally. Digital currencies can come in several forms and can have limited or broad uses. Among the most popular digital currencies is Bitcoin, which allows users to send units of the currency to each other online without the use of a traditional financial institution.
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The three stages of money laundering are placement, layering, and integration. "Placement" of funds is the initial step in the money laundering process. It is the step in which the funds are first deposited into a financial institution or taken out of the country. Placement occurs after the initial act of stealing or receiving illicit assets.

"Layering" involves the creation of numerous transactions to prevent detection, such as moving funds between bank accounts, transferring funds from one form of currency to another, or transferring money between businesses.

The final stage in the laundering process is the "integration" of the asset back into the economy in such a way as to make it appear as if it were derived from a legitimate business transaction.
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Digital currencies are often vulnerable to money laundering because many of them function as international person-to-person payment systems that cross jurisdictional boundaries, creating difficulties for authorities pursuing enforcement or legal actions. Furthermore, many service providers who exchange or otherwise deal with digital currencies do not have effective customer identification or recordkeeping practices, while others actively promote anonymous payments.

Mobile payments, also known as mobile banking, involve using an account associated with a mobile phone—as opposed to cash, credit cards, and debit cards—to facilitate transactions. Just as credit and debit cards significantly cut into the use of checks and cash for consumer transactions, mobile payments are likely to grow in popularity.

As compared to other transaction methods, mobile payments are vulnerable to money laundering schemes in a few key ways. For one thing, given that mobile payments are still in the process of growing and developing definition, regulations are not as sophisticated or complete as they are for older payment systems. For another thing, many developing countries lack functional AML and anti-terrorist laws, making mobile payments outside of the jurisdiction even more difficult to prevent and trace. Also, a user can send mobile payments to almost anywhere in the world, making them a tool that launderers often use to move funds to foreign jurisdictions.

In addition, the use of prepaid phones causes substantial money laundering issues because the owner of a prepaid phone can be virtually anonymous. Prepaid phones can be purchased for cash, and the user typically does not need to provide personal information to open or add funds to an account associated with the phone. Anonymity is a strong attraction for launderers because it helps to obscure the paper/digital trail leading back to them.
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Businesses that are commonly used to front money laundering operations include bars, restaurants, and nightclubs. These businesses charge relatively high prices, and customers vary widely in their purchases. Vending machine operations also possess many characteristics favorable to a money laundering operation. Wholesale distribution businesses have historically been a prominent part of money laundering. The revenues in a wholesaling business are not typically as flexible as in food service and vending machine operations, but with a diverse product line and falsified invoices, it is still possible to inject a good deal of illegal cash into the business.
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Digital currencies are a type of online payment method that has emerged as a money laundering concern. Broadly defined, digital currencies are currencies that exist and are traded in a digital format. The term digital currency typically excludes government-backed currencies, despite the fact that they can also exist and be traded digitally. Digital currencies can come in several forms and can have limited or broad uses. Among the most popular digital currencies is Bitcoin, which allows users to send units of the currency to each other online without the use of a traditional financial institution.

Digital currencies are often vulnerable to money laundering because many of them function as international person-to-person payment systems that cross jurisdictional boundaries, creating difficulties for authorities pursuing enforcement or legal actions. As is typical with developing payment systems, digital currencies face less strict regulations than payments made through traditional financial institutions. Furthermore, many service providers who exchange or otherwise deal with digital currencies do not have effective customer identification or recordkeeping practices, while others actively promote anonymous payments.
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A wire communication does not violate the federal wire fraud statute unless it traveled via _________________ commerce in furtherance of the scheme.


A. Interstate or international
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The elements of an official bribery offense under Section 201(b) of Title 18, U.S. Code, are as follows:
• Giving or receiving
• Anything of value
• With intent to corruptly influence
• An official act
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People in a position of trust or fiduciary relationship—such as officers, directors, high-level employees of a corporation or business, and agents and brokers—owe certain duties imposed by law to their principals or employers. The principal fiduciary duties are loyalty and care. The duty of loyalty requires that the employee/agent act solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage. The duty of care means that people in a fiduciary relationship must act with such care as an ordinarily prudent person would employ in similar positions.
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Chapter 47 of Title 18, U.S. Code, contains a number of related provisions that punish false or fraudulent statements, orally or in writing, made to various federal agencies and departments.

The false statement statutes of greatest importance to the fraud examiner include:
• False, Fictitious, or Fraudulent Claims (Title 18, U.S. Code, Section 287)
• False Statements (Title 18, U.S. Code, Section 1001)
• Conspiracy to Defraud the Government with Respect to Claims (Title 18, U.S. Code, Section 286)
• The Major Fraud Act (Title 18, U.S. Code, Section 1031)
• Obstruction of Federal Audit (Title 18, U.S. Code, Section 1516)
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An involuntary petition can only be filed under Chapters 7 and 11. Creditors who have not been paid by the debtor can file a petition forcing the company into bankruptcy. Generally, the creditors must be able to demonstrate in court that the debtor is not paying debts as they mature. To commence the filing of an involuntary proceeding, creditors must satisfy the following criteria:
• The debts must not be subject to a bona fide dispute and must be noncontingent.
• The creditor(s) must be owed at least $14,425 more than the value of the lien or collateral.
• If there are 12 or more creditors, then three creditors are needed to file.
• If there are fewer than 12 creditors, only one creditor is needed to file.
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Perjury is an intentional false statement given under oath on a material point. The basic elements for the crime of perjury are as follows:
• The defendant made a false statement.
• The defendant made the false statement while under oath.
• The false statement was material or relevant to the proceeding.
• The defendant made the statement with knowledge of its falsity.

Laws that criminalize perjury, however, do not require that the false statement be given in a court of law. Generally, the forum for a perjurious statement includes any court or grand jury proceeding, depositions in connection with litigation, bail hearings, venue hearings, suppression hearings, and so on. Thus, an individual can commit perjury for false statements made somewhere other than a court of law.

Also, for a statement to be perjurious, it must be material. Generally, a statement is material if it tends to influence, or is capable of influencing, the decision of the decision-making body to whom it is addressed.
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Commercial bribery refers to the corruption of a private individual to gain a commercial or business advantage. That is, in commercial bribery schemes, something of value is offered to influence a business decision rather than an official act. The elements of commercial bribery vary by jurisdiction, but typically include:
• The defendant gave or received a thing of value.
• The defendant acted with corrupt intent.
• The defendant's scheme was designed to influence the recipient's action in a business decision.
• The defendant acted without the victim's knowledge or consent.
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In bankruptcy proceedings, creditors typically prefer to have secured interests because such claims have priority over unsecured claims and normally get paid first in the distributions to creditors made by the trustee or debtor-in-possession. The claim will be considered a secured claim to the extent of the value of the property. When the debt is undersecured (amount of note is greater than the value of the security interest), the debt will be considered both unsecured and secured. For example, if a note for $500 is secured by property having a value of $400, there will be a secured claim for $400 and an unsecured claim for $100.

In this case, the secured interest in the equipment entitles creditor B to be paid first. The remainder then goes to creditor A. Therefore, creditor B receives $100,000, the full amount of its secured interest, while creditor A only receives $50,000 of its unsecured claim.



See pages 2.403-2.404 in the Fraud Examiner's Manual
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Congress enacted the Truth in Negotiations Act (TINA) to protect the government from unscrupulous contractors that inflate costs by falsifying their cost proposals with inaccurate, incomplete, or noncurrent cost and pricing data. TINA is designed to provide for full and fair disclosure by contractors when negotiating with the government.

TINA applies to government purchases involving negotiations between the government and a contracting entity. Under TINA, government contractors must submit cost or pricing data before negotiations, and they must certify that the information is
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To constitute and be proved as a federal crime, bankruptcy crimes must have been committed during the pendency of a bankruptcy proceeding, with the defendant's knowledge, and with a fraudulent intent to defeat the bankruptcy laws. The FBI investigates bankruptcy crimes and the U.S. Attorney's Office prosecutes them.
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A document is not a forgery just because it contains a false representation. To constitute a forgery, the writing as a whole must have apparent legal significance.
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The Bankruptcy Code provides multiple methods for individuals and organizations to file bankruptcy. Chapter 7 bankruptcy is the most common type; it involves liquidation of the debtor's assets by a trustee to pay the creditor's claims. A debtor's objective in a Chapter 7 case is to be relieved of all dischargeable debts and to obtain a fresh start. This is accomplished by the court granting the individual debtor a discharge. Personal bankruptcy does not eliminate taxes, fines, alimony, child support, and certain student loans.
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Delta could probably be charged with obstruction of justice. Obstruction of justice occurs when an individual engages in an act designed to impede or obstruct the investigation or trial of other substantive offenses. There are several criminal obstruction statutes in Title 18 of the U.S. Code that punish, among other things, document destruction; influencing a juror; theft or alteration of a record or process; obstruction relating to court orders; tampering with a witness, victim, or an informant; obstruction of a federal audit; and obstructing the examination of a financial institution.
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In general, mail fraud is the use of the mail to perpetrate a scheme to defraud a victim of money or property. The gist of the offense is the use of the mail, which includes the use of the U.S. postal system or private interstate commercial carriers (e.g., FedEx, UPS, and DHL). Thus, where the mail is not used, no matter how large or serious the fraud, there is no federal jurisdiction under this statute. Yet, the mailing does not need to contain the false and fraudulent representations, as long as it is an integral part of the scheme. What is integral or incidental depends on the facts of each case; generally, a mailing that helps advance the scheme in any significant way will be considered sufficient.

For a scheme to violate the mail fraud statute, it is not necessary that the scheme succeed or that the victim suffer a loss for the statute to apply.
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A bustout is a planned bankruptcy. It can take many different forms, but the basic approach is for an apparently legitimate business to order large quantities of inventory or other goods on credit, and then dispose of those goods through legitimate or illegitimate channels. The perpetrators then close shop, absconding with the proceeds and leaving the suppliers unpaid. The debtor could then either file for bankruptcy, or other parties will file an involuntary bankruptcy. Often, by this point the debtor has already made false accounting entries or taken other steps to conceal the assets or make the sales look legitimate. Other times, debtors simply flee the jurisdiction or do not show up at the proceedings.

Since the point of the bustout scheme is to quickly resell the goods for cash, the fraudster is much more likely to purchase more liquid items like inventory than real estate, insurance policies, or services.
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Embezzlement is the wrongful appropriation of money or property by a person to whom it has been lawfully entrusted. Embezzlement implicitly involves a breach of trust, although it is not necessary to show a fiduciary relationship between the parties.
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The FCPA makes it illegal for U.S. companies or individuals acting anywhere in the world to, directly or indirectly, offer or pay anything of value to foreign officials for the purpose of obtaining or retaining business.
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In the United States, the prosecution of most white-collar crimes, such as embezzlement, larceny, and false pretenses, is left to the states.
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An illegal gratuity charge doesn't require proof that the gratuity was given for the purpose of influencing an official act. That is, an illegal gratuity charge only requires that the gratuity be given for, or because of, an official act.
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For a false statement to violate Section 1001, it need not be made directly to the government; it can be made to a third party as long as it involves a matter within the jurisdiction of any governmental department or agency.
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The Economic Espionage Act of 1996 outlaws two types of trade secret misappropriation: economic espionage and theft of commercial trade secrets. Section 1831 criminalizes economic espionage, which refers to the theft of a trade secret to benefit a foreign government, instrumentality, or agent. Section 1832 criminalizes the theft of commercial trade secrets, which refers to the theft of commercial trade secrets to obtain an economic advantage.
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The most common bankruptcy crime is the concealment of assets rightfully belonging to the debtor estate. Assets might consist of cash, consumer property, houses, and interests in partnerships and corporations, as well as lawsuits in which the debtor is a plaintiff. Assets also include the debtor's books and records. Concealments vary from little or no monetary value to tens of millions of dollars. The various concealment offenses are described in more detail under the bankruptcy crime statutes.
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The Bankruptcy Code provides multiple methods for individuals and organizations to file bankruptcy. The purpose of the Chapter 11 filing is to allow the debtor breathing room from creditors so that the debtor can reorganize its financial affairs and continue as a going concern.

In contrast, a debtor's objective in a Chapter 7 case is to be relieved of all dischargeable debts and to obtain a fresh start. This is accomplished by the court liquidating the debtor's assets and granting the debtor a discharge of allowable debts.
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In general, mail fraud is the use of the mail to perpetrate a scheme to defraud a victim of money or property. The gist of the offense is the use of the mail, which includes the use of the U.S. postal system or private interstate commercial carriers (e.g., FedEx, UPS, and DHL). Thus, where the mail is not used, no matter how large or serious the fraud, there is no federal jurisdiction under this statute. Yet, the mailing does not need to contain the false and fraudulent representations, as long as it is an integral part of the scheme. What is integral or incidental depends on the facts of each case; generally, a mailing that helps advance the scheme in any significant way will be considered sufficient.
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Section 1001 prohibits a person from lying to or concealing material information from a federal official. A statement is false for the purposes of Section 1001 if it was known to be untrue when it was made, and it is fraudulent if it was known to be untrue and was made with the intent to deceive a government agency.
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Which of the following is required to prove a criminal violation under Section 1962(c) of the Racketeer Influenced and Corrupt Organizations (RICO) statute?
The defendant had some involvement in the commission of two or more predicate offenses through an enterprise
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Section 1001 prohibits a person from lying to or concealing material information from a federal official. A statement is false for the purposes of Section 1001 if it was known to be untrue when it was made, and it is fraudulent if it was known to be untrue and was made with the intent to deceive a government agency. For a violation to occur, the agency need not actually have been deceived, nor must it have in fact relied upon the false statement. Also, to establish a violation, the government does not have to show that it suffered a loss. The statement must have been capable, however, of influencing the agency involved. The elements of a typical Section 1001 violation are set forth below:
• The defendant knowingly and willfully (or with reckless disregard for truth or falsity)
• Made a false statement (or used a false document)
• That was material
• Regarding a matter within the jurisdiction of any agency of the United States
• With knowledge of its falsity
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Defendants cannot use the fact that creditors have actual knowledge of concealed assets or that the concealment was not from all creditors as a defense to charges. They also cannot use as a defense the fact that they returned the estate's assets, though this might mitigate damages.
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Larceny is defined as the unlawful taking of money or property of another with the intent to convert or to deprive the owner of its possession and use. Richard picked up the $50 with the intent to permanently deprive Alice of it. So, Richard committed larceny.
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The wire fraud statute makes it a crime to defraud a victim of money or property by means of wire or other electronic communications (e.g., computer, telephone, radio, or television) in foreign or interstate commerce.
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Adjusters, or operations agents, are the "right hand" to trustees and debtors. An adjuster is an individual who handles the peripheral duties of a trustee. Such duties include securing the business location, changing locks, locating assets of the estate, locating business records, opening new bank accounts, investigating thefts of assets in conjunction with the trustee, storing assets of the estate, and arranging sales of assets. Adjusters also can assist debtors and trustees in operating the debtor's business and in helping to prepare bankruptcy schedules, interim statements, and operating reports.
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All federal criminal laws are the product of statutes.
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The CAN-SPAM Act, or the Controlling the Assault of Non-Solicited Pornography and Marketing Act, attempts to reduce the amount of unsolicited commercial email, also known as spam, by establishing national standards for sending email solicitations. To reduce the amount of spam, the CAN-SPAM Act provides several provisions that apply to individuals or companies sending spam. More specifically, the Act prohibits several deceptive and/or fraudulent practices commonly used in spam, including the prohibition of using deceptive subject lines, using deceptive header information, and requiring sender identification.
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A debtor is defined in Title 11, U.S. Code, Section 101(13) as a person or municipality involved in a case under this title which has been commenced. A debtor may be an individual, partnership, or corporation.
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The Office of the United States Trustee (UST) is a Department of Justice agency responsible for administering bankruptcy cases; appointing trustees, examiners, and Chapter 11 committees; overseeing and monitoring trustees; reviewing employment and fee applications; and appearing in court on matters of interest to the estate and creditors. The Office of the UST is divided into 21 regions, each made up of one or more federal districts. Each region consists of a U.S. Trustee (or an Assistant Trustee in several regions). The Office of the U.S. Trustee in each region principally is comprised of staff attorneys, bankruptcy analysts (including accountants), and, in some instances, special investigative units.
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Larceny differs from embezzlement, and the difference centers on who has legal custody over the stolen articles. A larcenist takes something from its rightful owner without ever having had legal custody of the item stolen. The embezzler, conversely, takes something in which he has lawful possession. Thus, the major distinction between larceny and embezzlement lies in the issue of whether the thief had been lawfully entrusted with the stolen articles.
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The FCPA criminalizes the bribery of a foreign public official in order to obtain or retain business, and it requires publicly traded companies to keep accurate books and records and adopt internal controls to prevent diversion of assets or other improper use of corporate funds.
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Obstruction of justice occurs when an individual engages in an act designed to impede or obstruct the investigation or trial of other substantive offenses. There are several criminal obstruction statutes in Title 18 of the U.S. Code that punish, among other things, document destruction; influencing a juror; theft or alteration of a record or process; obstruction relating to court orders; tampering with a witness, victim, or an informant; obstruction of a federal audit; and obstructing the examination of a financial institution.
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A conflict of interest occurs when an employee or agent—someone who is authorized to act on behalf of a principal—has an undisclosed personal or economic interest in a matter that could influence his professional role. Conflicts of interest do not necessarily constitute legal violations, as long as they are properly disclosed. Thus, for a conflict of interest claim to be actionable, the conflict must be undisclosed.
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The duties of a panel trustee are as follows: administer assets; liquidate assets; pay creditors; litigate matters where necessary; have the right to sue and be sued; conduct hearings; conduct investigations of financial affairs of the debtor; file reports as required by the Office of the UST; and, where appropriate, file criminal referrals with the United States Attorney's Office.

If the debtor and the creditor cannot agree on the value of the collateral, there will be a hearing under Section 506 of the Bankruptcy Code and the court will determine the value of the collateral.
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Obstruction of justice occurs when an individual engages in an act designed to impede or obstruct the investigation or trial of other substantive offenses. There are several criminal obstruction statutes in Title 18 of the U.S. Code that punish, among other things, document destruction; influencing a juror; theft or alteration of a record or process; obstruction relating to court orders; tampering with a witness, victim, or an informant; obstruction of a federal audit; and obstructing the examination of a financial institution. Showing disrespect to a judge (among other things, such as refusing to obey a judge's order) is contempt of court.
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Fraud includes any intentional or deliberate act to deprive another of property or money by guile, deception, or other unfair means.
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People in a position of trust or fiduciary relationship—such as officers, directors, high-level employees of a corporation or business, and agents and brokers—owe certain duties imposed by law to their principals or employers. The principal fiduciary duties are loyalty and care. The duty of loyalty requires that the employee/agent act solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage. Officers and directors of a corporation have a fiduciary duty to act solely in the best interest of the corporation. The duty of care means that people in a fiduciary relationship must act with such care as an ordinarily prudent person would employ in similar positions.

In general, officers and directors do not owe fiduciary duties to other constituencies, such as creditors, whose rights are purely contractual.
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The anti-bribery provisions of the FCPA make it unlawful to bribe a foreign official for business purposes. Only regulated persons are subject to FCPA jurisdiction, and such persons include all of the following:
• A domestic concern, which is any citizen, national, or resident of the United States, or any business entity that has its principal place of business in the United States or that is organized under the laws of a state, territory, possession, or commonwealth of the United States
• An issuer, which is a corporation that has issued securities that have been registered in the United States or an entity that is otherwise required to file periodic reports with the SEC
• The agents, subsidiaries, or other representatives of domestic concerns and issuers
• A foreign national or business that takes any act in furtherance of a corrupt payment within U.S. territory

Also, the FCPA's anti-bribery provisions extend only to corrupt payments made to foreign officials.

Although the UK private company is attempting to influence a foreign official, the UK company did not violate the FCPA because it is not subject to FCPA jurisdiction. The UK company does not have its principal place of business in the United States, and it is not organized under the laws of the United States. Also, the UK company is a private company, so it is not an issuer. Moreover, the UK company did not take any act in furtherance of a corrupt payment within U.S. territory; the $60,000 transfer was made to a Chinese public official. Therefore, the $60,000 transfer does not violate the FCPA.
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Both the UK Bribery Act and the FCPA make it a crime to offer foreign public officials bribes or to accept bribes from them in connection with international business transactions, and their prohibitions on bribing foreign government officials are broadly comparable. Thus, like the FCPA, the Bribery Act seeks to punish corruption on a global level, but the Bribery Act has an even broader application than the FCPA. One way in which the Bribery Act has a broader application than the FCPA is that it makes commercial bribery—bribes paid to people working in the private sector—a crime, whereas the FCPA only prohibits bribes involving foreign government officials.

Consequently, even if an organization's anti-corruption program is sufficiently robust for the purpose of complying with the FCPA, it might not be sufficient for the purpose of complying with the UK Bribery Act. Therefore, it is important for international organizations to be aware of the differences between the FCPA and the Bribery Act.

Another way that the UK Bribery Act differs from the FCPA concerns facilitating payments. The FCPA does not prohibit all payments to foreign officials; it contains an explicit exception for facilitating payments made to expedite or secure performance of a routine governmental action. The Bribery Act, however, makes no such exception.

The Bribery Act exercises jurisdiction over all individuals and corporate entities for acts of corruption when any part of the offense occurs in the UK. Furthermore, liability exists for acts committed outside the UK by individuals and entities with a close connection to the UK, including:
• British citizens
• Individuals who normally reside in the UK
• An entity incorporated under the law of any part of the UK

More specifically, foreign companies that have offices in the UK, employ UK citizens, or provide any services to a UK organization will be responsible for complying with the UK Bribery Act. A listing on the London Stock Exchange will not, in itself, subject a company to the Act.



See pages 2.246-2.247 in the Fraud Examiner's Manual
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Illegal gratuities are items of value given to reward a decision, often after the recipient has made the decision. Illegal gratuities are similar to bribery schemes. In fact, under the federal legislation governing the offenses of bribery and illegal gratuity (18 U.S.C. § 201), an illegal gratuity is a lesser-included offense of official bribery.

The major difference between an official bribe and an illegal gratuity is that an illegal gratuity charge doesn't require proof that the gratuity was given for the purpose of influencing an official act. That is, an illegal gratuity charge only requires that the gratuity be given for, or because of, an official act.

The elements of an illegal gratuity are:
• A thing of value
• Was given, offered, or promised to (or demanded, sought, received, or accepted by)
• A (present, former, or future) public official
• For or because of any official act performed or to be performed by such public official

Under these facts, there is no evidence that Zantigo gave the laptop to Moore to influence his decision, since the gift occurred after the decision was made. The government would be more likely to bring illegal gratuity charges against Moore, charging that the gift was for, or because of, Moore's official act.
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Prosecution under the criminal fraud statutes in the U.S. Code, which is a consolidation and codification of the general and permanent federal laws of the United States, requires a federal jurisdictional basis, such as an effect on interstate commerce, transactions involving the federal government, or mail uses. The U.S. Code contains both civil and criminal laws.
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Federal bankruptcy courts are responsible for hearing bankruptcy cases, and the U.S. Attorney's Office primarily prosecutes bankruptcy fraud.

The Office of the U.S. Trustee (UST) is an agency that handles many administrative tasks for bankruptcy proceedings. The Office of the UST is responsible for appointing trustees, examiners, and Chapter 11 committees; overseeing and monitoring trustees; reviewing employment and fee applications; and appearing in court on matters of interest to the estate and creditors. The Office of the UST is divided into 21 regions, each made up of one or more federal districts. Each region consists of a U.S. Trustee (or an Assistant Trustee in several regions). The Office of the U.S. Trustee in each region principally is comprised of staff attorneys, bankruptcy analysts (including accountants), and, in some instances, special investigative units.
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To constitute an offense under the mail fraud statute, it is not necessary that the predicate mailing travel in interstate commerce; any use of the U.S. postal system or a private interstate commercial carrier (e.g., FedEx, UPS, and DHL) provides sufficient grounds for federal jurisdiction.

The wire fraud statute, unlike the mail fraud statute, requires an interstate or foreign communication for a violation.
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In the context of bankruptcy proceedings, an examiner is a neutral party that the court may appoint to investigate and report on relevant matters to Chapter 11 bankruptcy cases. An examiner is normally appointed in a bankruptcy proceeding to investigate certain allegations of fraud and misconduct on the part of the debtor (or principals of the debtor). In a typical motion for the appointment of a trustee or examiner, allegations of fraud or misconduct are raised by creditors, the Office of the UST, or other interested parties. A bankruptcy judge hears evidence submitted by all parties (creditors, et al.), as well as the debtor's response to the allegations. After hearing the evidence, the judge has the option to either appoint a trustee or an examiner, or leave the debtor in possession of the business—a decision that hinges on what is best for the interested parties. If an examiner is appointed, the sole responsibility is to "investigate and report" the results of the investigation to the court and other parties in interest as quickly as possible.

Examiners have the power to subpoena records and depose witnesses. They do not have the power to run businesses, make business decisions, or propose plans of reorganizations (generally speaking). Courts may expand the examiner's powers to perform certain duties of trustees or debtors-in-possession.
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Conspiracy refers to an agreement in which two or more people agree to commit an illegal act, and criminal conspiracy statutes punish such agreements. The essential elements that must be shown to prove a conspiracy are as follows:
• The defendant entered an agreement with at least one other person to commit an illegal act.
• The defendant knew the purpose of the agreement and intentionally joined in the agreement.
• At least one of the conspirators knowingly committed at least one overt act in furtherance of the conspiracy.

Under the first element, the government must prove that the defendant reached an agreement or understanding to commit an illegal act with at least one other person. The conspirators must agree about the precise illegal act.

The government must also establish that the defendant knew of the conspiracy's existence and its objective. The government, however, does not have to establish that the defendant knew all the details or objectives of the conspiracy, and it does not have to prove that the defendant knew the identity of all the participants in the conspiracy.

Finally, the purpose of the conspiracy need not be accomplished for a violation to occur, but at least one of the co-conspirators must have carried out at least one overt act in furtherance of the conspiracy. The overt act need not be criminal and could be as innocuous as making a phone call or writing a letter.
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Each of the above acts would constitute a violation under the FCPA. For individuals and businesses within its jurisdiction, the FCPA prohibits any transfers of value to a foreign official in a corrupt effort to obtain an improper advantage. Promises to pay are considered something of value. Furthermore, foreign companies are within the reach of the FCPA if they have registered securities or are otherwise required to file under the Securities and Exchange Act of 1934. Here, the German company would be subject to the FCPA because it is publicly traded on the NYSE, which requires registration with the SEC.

The anti-bribery provisions of the FCPA make it unlawful to bribe a foreign official for business purposes. Only regulated persons are subject to FCPA jurisdiction, and such persons include all of the following:
• A domestic concern, which is any citizen, national, or resident of the United States, or any business entity that has its principal place of business in the United States or that is organized under the laws of a state, territory, possession, or commonwealth of the United States
• An issuer, which is a corporation that has issued securities that have been registered in the United States or an entity that is otherwise required to file periodic reports with the SEC
• The agents, subsidiaries, or other representatives of domestic concerns and issuers
• A foreign national or business that takes any act in furtherance of a corrupt payment within U.S. territory

Also, the FCPA's anti-bribery provisions extend only to corrupt payments made to foreign officials.

Moreover, the FCPA does not prohibit all payments to foreign officials; it contains an explicit exception for certain types of payments, known as facilitating payments or "grease payments," made to expedite or secure performance of a routine governmental action by a foreign official, political party, or party official that relates to the performance of that party's ordinary and routine functions.
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Perjury is an intentional false statement given under oath on a material point. The basic elements for the crime of perjury are as follows:
• The defendant made a false statement.
• The defendant made the false statement while under oath.
• The false statement was material or relevant to the proceeding.
• The defendant made the statement with knowledge of its falsity.

Laws that criminalize perjury, however, do not require that the false statement be given in a court of law or that the false statement influence a jury's decision. Generally, the forum for a perjurious statement includes any court or grand jury proceeding, depositions in connection with litigation, bail hearings, venue hearings, suppression hearings, and so on. Thus, an individual can commit perjury for false statements made somewhere other than a court of law.
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A qui tam suit is one in which a private individual sues on behalf of the government to recover damages for criminal or fraudulent actions committed against the government. It is a civil, not a criminal, suit. Most qui tam actions are brought under the False Claims Act, 31 U.S.C. § 3729 et seq. This statute provides, in part, that anyone who commits the following acts is liable to the government for three times the amount of damages it sustains, plus a civil penalty of $5,000 to $10,000 per false claim:
• Knowingly presents or causes to be presented a false or fraudulent claim for payment or approval
• Knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved
• Conspires to defraud the government by getting a false or fraudulent claim allowed or paid
• Making or delivering a document certifying receipt of property to be used by the government without completely knowing that the information on the receipt is true
• Knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the government
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Official bribery refers to the corruption of a public official to influence an official act of government. Illegal payments to public officials can be prosecuted as official bribery, and they can give rise to stiff criminal penalties. The elements of official bribery vary by jurisdiction but generally are:
• The defendant gave or received (offered or solicited) a thing of value.
• The recipient was (or was selected to be) a public official.
• The defendant acted with corrupt intent.
• The defendant's scheme was designed to influence an act or duty of the official.
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All bankruptcy cases are filed in federal court, and almost all are filed in the local district of the United States Bankruptcy Court. U.S. district courts have jurisdiction over bankruptcy proceedings, but in practice virtually all cases are deferred to the U.S. Bankruptcy Courts. Although bankruptcy courts are federal courts, they do not derive their power from Article III of the Constitution. Article III courts include the U.S. District Courts, the U.S. Circuit Courts of Appeal, and the U.S. Supreme Court. Instead, bankruptcy courts derive their power from Article I (congressional powers). Article III states that judicial power of the United States rests with the Supreme Court and in inferior courts established by Congress.

Bankruptcy judges hear all cases involving debtors' and creditors' rights, approve plans of reorganization, determine fees awarded to professionals that assist with the proceeding, and conduct hearings and trials when necessary to resolve disputes.
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Private citizens may file actions against parties that defraud the government. A qui tam suit is one in which a private individual sues on behalf of the government to recover damages for criminal or fraudulent actions committed against the government. It is a civil, not a criminal, suit. Most qui tam actions are brought under the False Claims Act, 31 U.S.C. § 3729 et seq. This statute provides, in part, that anyone who commits the following acts is liable to the government for three times the amount of damages it sustains, plus a civil penalty of $5,000 to $10,000 per false claim:

• Knowingly presents or causes to be presented a false or fraudulent claim for payment or approval
• Knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved
• Conspires to defraud the government by getting a false or fraudulent claim allowed or paid
• Making or delivering a document certifying receipt of property to be used by the government without completely knowing that the information on the receipt is true
• Knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the government
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Illegal gratuities are items of value given to reward a decision, often after the recipient has made the decision. Illegal gratuities are similar to bribery schemes. In fact, under the federal legislation governing the offenses of bribery and illegal gratuity (18 U.S.C. § 201), an illegal gratuity is a lesser-included offense of official bribery.

The elements of an illegal gratuity are:
• A thing of value
• Was given, offered, or promised to (or demanded, sought, received, or accepted by)
• A (present, former, or future) public official
• For or because of any official act performed or to be performed by such public official
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Individual creditors may conduct their own investigations and also assist Chapter 7 and Chapter 11 trustees in performing their investigations. Trustees are normally very appreciative of creditors who can provide information regarding the debtor's financial affairs. Creditors also can attend the 341(a) examination of the debtor and ask pertinent questions. Creditors who bring copies of documents, such as prior loan applications or pictures of particular assets, to the 341(a) examination are of great interest to trustees. Creditors can ask the debtor what happened to the various assets listed on the loan applications or assets shown in photographs.
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Both the UK Bribery Act and the FCPA make it a crime to offer foreign public officials bribes or to accept bribes from them in connection with international business transactions, and their prohibitions on bribing foreign government officials are broadly comparable. Thus, like the FCPA, the Bribery Act seeks to punish corruption on a global level, but the Bribery Act has an even broader application than the FCPA. One way in which the Bribery Act has a broader application than the FCPA is that it makes commercial bribery—bribes paid to people working in the private sector—a crime, whereas the FCPA only prohibits bribes involving foreign government officials.
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Section 2 of Title 18, U.S. Code, is the federal aiding and abetting statute, which provides that anyone who induces another to commit an offense or who aids in its commission may himself be charged and convicted of the underlying offense and subject to its penalties.
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Larceny is defined as the wrongful taking of money or property of another with the intent to convert or to deprive the owner of its possession and use. In larceny, unlike embezzlement, the defendant never has lawful possession of the property, although he might have custody of the property. The elements of larceny typically include:
• Unlawfully taking or carrying away
• Money or property of another
• Without the consent of the owner
• With the intent to permanently deprive the owner of its use or possession
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Steven failed to act as a reasonably prudent director would under similar circumstances; therefore, George would likely file suit against Steven for violating his duty of care. People in a position of trust or fiduciary relationship—such as officers, directors, high-level employees of a corporation or business, and agents and brokers—owe certain duties imposed by law to their principals or employers. The principal fiduciary duties are loyalty and care. The duty of loyalty requires that the employee/agent act solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage. The duty of care means that people in a fiduciary relationship must act with such care as an ordinarily prudent person would employ in similar positions.
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In a bankruptcy proceeding, the appointed trustee's powers enable him to gather financial information from various sources, including the debtor's attorneys and accountants. A trustee steps into the debtor's shoes, which allows him the opportunity to break the attorney-client and accountant-client privileges. Attorneys might attempt to raise the attorney-client privilege as a defense to providing information, but they are usually unsuccessful in this regard. Since the trustee is now the client, he must be able to understand what legal actions need to be taken. Therefore, it is imperative that the debtor's attorney cooperate with the trustee. The trustee also should have access to the accountant's work papers, tax returns, and client documents, which might provide the trustee and creditors with the opportunity to locate and recover hidden assets. Another useful tool in the trustee's arsenal is the power to have access to the debtor's records that are in the possession of law enforcement authorities. Since the trustee steps into the debtor's shoes, he has the right to inspect and use these records to conduct the debtor's business affairs.
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Fraudulent misrepresentation of material facts is most often thought of when the term fraud is used. The specific elements composing proof of misrepresentation vary somewhat according to the jurisdiction and whether the case is prosecuted as a criminal or civil action. The elements normally include:
• The defendant made a misrepresentation of a material fact.
• The defendant knew the representation was false.
• The victim relied on the misrepresentation.
• The victim suffered damages as a result of the misrepresentation.
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To fulfill their fiduciary investigative responsibilities, trustees need to gather financial information. If the debtor's books and records are missing, incomplete, or unreliable, they should be obtained from third parties, such as banks, customers, related parties, etc. A trustee steps into the debtor's shoes, which allows him the opportunity to bypass restrictions on information, such as the attorney-client and accountant-client privileges. Attorneys might attempt to raise the attorney-client privilege as a defense to providing information, but they are usually unsuccessful in this regard.

If a third party resists the trustee's request, the trustee can subpoena records or testimony under Bankruptcy Rule 2004.
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Official bribery refers to the corruption of a public official with intent to influence an official act of government. Illegal payments to public officials can be prosecuted as official bribery, and they can give rise to stiff criminal penalties. The elements of official bribery vary by jurisdiction but generally are:
• The defendant gave or received (offered or solicited) a thing of value.
• The recipient was (or was selected to be) a public official.
• The defendant acted with corrupt intent.
• The defendant's scheme was designed to influence an act or duty of the official.



See pages 2.205 in the Fraud Examiner's Manual
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Embezzlement is the wrongful appropriation of money or property by a person to whom it has been lawfully entrusted (or to whom lawful possession was given). Embezzlement involves a breach of trust, although it is not necessary to show a fiduciary relationship between the parties.
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The federal wire fraud statute makes it a crime to use wire communications to perpetrate a scheme to defraud a victim of money or property.

To prove wire fraud, the government must establish the following elements:
• The defendant undertook a scheme to defraud a victim of money or property.
• The defendant knowingly participated in the fraud with the specific intent to defraud the victim.
• The defendant used wire communications that traveled via interstate or international commerce in furtherance of the scheme.
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To enjoy the benefits of being a secured creditor in a bankruptcy proceeding, the creditor must hold a claim for which there is a properly perfected security interest. The perfection of a security interest often requires the creditor to file a financing document, lien, or some other document to demonstrate to other potential creditors that the debtor's property is subject to a security interest. For instance, certain security interests in personal property require a Uniform Commercial Code filing. Real estate liens are recorded in the county where the property is located. The bankruptcy court will rely on state law where the property is located to determine if a secured claim exists.

A secured creditor's claim is secured to the extent of the value of the property. When the debt is undersecured (amount of note is greater than the value of the security interest), the debt will be considered both unsecured and secured. For example, if a note for $500 is secured by property having a value of $400, there will be a secured claim for $400 and an unsecured claim for $100. If the debtor and the creditor cannot agree on the value of the collateral, there will be a hearing under Section 506 of the Bankruptcy Code and the court will determine the value of the collateral.

At the time of the filing of the bankruptcy petition, an automatic stay precludes the creditor from taking any action to repossess the property, unless relief from the stay is granted. In a Chapter 11 case, the court generally will grant relief only if it can be shown that there is no equity in the property and that the property is not needed for reorganizing the business. The stay also might be removed if the property is declining in value and the debtor fails to compensate the creditor for this decline (referred to as "adequate protection payments"). If the stay is removed, the creditor then can proceed under state law to obtain possession of the property (often through a foreclosure) to satisfy the claim.
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Both the UK Bribery Act and the FCPA make it a crime to offer foreign public officials bribes or to accept bribes from them in connection with international business transactions, and their prohibitions on bribing foreign government officials are broadly comparable. Thus, like the FCPA, the Bribery Act seeks to punish corruption on a global level, but the Bribery Act has an even broader application than the FCPA. One way in which the Bribery Act has a broader application than the FCPA is because it makes commercial bribery—bribes paid to people working in the private sector—a crime, whereas the FCPA only prohibits bribes involving foreign government officials.
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While the FCPA prohibits bribes to foreign officials for business purposes, it does not prohibit all payments to foreign officials. It contains an explicit exception for certain types of payments, known as facilitating payments, or "grease payments," made to expedite or secure performance of a routine governmental action by a foreign official, political party, or party official that relates to the performance of that party's ordinary and routine functions. For example, the payment of a foreign corporation fee that is statutorily required in a country in order to do business in that country would fall under this exemption and would not be considered a violation of the FCPA.
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All bankruptcy cases are filed in federal court, and virtually all are heard in the U.S. Bankruptcy Courts. Bankruptcy judges hear all cases involving debtor and creditor rights, approve plans of reorganization, award fees to professionals, and conduct hearings and trials.
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Anderson has committed embezzlement, not larceny. Larceny is defined as the unlawful taking of money or property of another with the intent to convert or to deprive the owner. Embezzlement is the wrongful appropriation of money or property by a person to whom it has been lawfully entrusted (or to whom lawful possession was given). Unlike in embezzlement, in larceny, the defendant never has lawful possession of the property, but may have mere custody of it. Thus, because Anderson was in possession, not just custody, of the funds before he misappropriated them, he committed embezzlement.
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People in a position of trust or fiduciary relationship—such as officers, directors, high-level employees of a corporation or business, and agents and brokers—owe certain duties imposed by law to their principals or employers. The principal fiduciary duties are loyalty and care. The duty of loyalty requires that the employee/agent act solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage.

Thus, as part of his duty of loyalty, Paul is obligated to act solely in the best interest of his principal, free of any conflicts of interest. But here, Paul is engaged in an undisclosed conflict of interest by being on the boards of both companies at the same time.
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A juror may be dismissed for cause (i.e., a request that a prospective juror be dismissed because his predispositions make him unfit to serve as a juror). Attorneys argue before the judge the reasons why a particular juror's predispositions make him unfit to fairly evaluate the case, and the judge rules for or against the attorney's argument. Each party may remove any number of prospective jurors for cause, such as admitted bias or prejudice. Challenges for cause are not limited in number.
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Whether criminal cases are actually brought to trial generally depends on prosecutorial discretion, meaning that the decision to prosecute is left to the discretion of the appropriate jurisdictional authority. Prosecutors exercising this discretion consider issues like the potential for deterrence, the strength of the available evidence, and the resources (time, labor, money) incurred by going to trial. In general, the question is about the chances for obtaining a guilty verdict, but it is also about the cost and demands of achieving that verdict.
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Prosecuting attorneys have the discretion to settle criminal charges with a plea bargain arrangement, avoiding the expenditures of time and effort involved at trial. About 90 percent of criminal defendants never go to trial, opting instead for a deal. Critics have charged that the plea privilege is abused by cynical prosecutors and leads to dangerous offenders being released quickly and without retribution.
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In Terry vs. Ohio, 392 U.S. 1 (1968), the Supreme Court held that police may briefly detain and question a person for investigative purposes if there are specific "articulable" reasons to do so. The decision imposes a lesser standard than probable cause.
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the course of a grand jury investigation or trial, the prosecution may apply for a court order compelling testimony from a witness under a grant of immunity. Since immunized testimony cannot be used against the witness in any criminal proceeding, such an order does not violate Fifth Amendment protections.

An immunity order protects a witness only from prosecution for past crimes about which his testimony is compelled; other, undiscovered crimes are not covered, nor is the witness immune from prosecution for perjury based on the immunized testimony. Such testimony also may be used against the witness in a civil proceeding.



See pages 2.909 in the Fraud Examiner's Manual
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In the course of a grand jury investigation or trial, the prosecution may apply for a court order compelling testimony from a witness under a grant of immunity. Since immunized testimony cannot be used against the witness in any criminal proceeding, such an order does not violate Fifth Amendment protections.

Although it is legally permissible to prosecute an immunized witness on the basis of other testimony and evidence, as a matter of practice this is seldom done because of policy considerations and the difficulty of demonstrating—as the law requires—that the subsequent prosecution was not in any way based on the compelled testimony. A decision to immunize a witness is solely within the discretion of the prosecution. If the application meets statutory requirements, the court must grant the order.
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In criminal cases, the verdict must generally be based on assurance beyond a reasonable doubt. Conversely, civil trials usually require only a "preponderance of the evidence" (more likely than not) to support a decision; therefore, proving criminal violations requires stronger evidence. Plainly put, "beyond a reasonable doubt" requires jurors and judges to be as sure as they possibly can be that the defendant committed the acts as charged to find him guilty. In purely philosophical terms, there might not ever be absolute certainty, but the reasonable doubt standard is lower than that.
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Serious criminal charges and most felony fraud charges may be accomplished by a grand jury indictment.

The grand jury consists of 16 to 23 people sworn as jurors who meet in secret deliberation, usually in biweekly or monthly sessions, to hear witnesses and other evidence presented by prosecutors and to vote on indictments. An indictment or true bill must be concurred by at least 12 jurors voting without the prosecutor present.

The grand jury hearing is a nonadversarial proceeding, and the accused has no absolute right to appear during a grand jury hearing.
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A defense is an assertion by a defendant in a criminal or civil suit that seeks to explain away guilt or civil liability for damages. The facts indicate that Baron lacked the intent to evade taxes, and that his underreporting was a mistake. In some situations, mistake may be used as a defense.

Other common defenses in criminal cases include: alibi, consent, de minimis infraction (trivial), duress, entrapment, ignorance, mistake, insanity, necessity, protection of property, self-defense, public duty, legal impossibility, and protection of others. Also pertinent in the matter of defense are questions involving statutes of limitations, proper venue, and proper jurisdiction.



See pages 2.926-2.927 in the Fraud Examiner's Manual
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A defendant in a criminal trial is entitled to call "character witnesses" on his or her behalf who often have no knowledge of the charges or facts at issue, but who are prepared to testify to the defendant's "good character." Such testimony must be given in the form of the witness's opinion or testimony as to the defendant's general good reputation; testimony as to specific incidents of good conduct is not permitted.
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An immunized witness can be compelled to testify in a proceeding, but his testimony is immune from use in a criminal prosecution. If an immunized witness refuses to testify, out of fear of reprisals or for any other reason, he may be held in contempt and jailed until he agrees to testify, or until the grand jury expires.
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A defense is an assertion by a defendant in a criminal or civil suit that seeks to explain away the defendant's guilt or civil liability for damages. For instance, the increased use of the undercover approach in criminal investigations has led to an increase in the use of entrapment defenses. Entrapment occurs when law enforcement officers or government agents induce a person to commit a crime that he is not previously disposed to commit.
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An information is a charging document stating that the person or persons named or described committed an offense. An information may be signed only by the prosecutor without the involvement of the grand jury. A misdemeanor may be charged by either an indictment or information.

All offenses punishable by death must be charged by an indictment; all felonies (crimes punishable by imprisonment for more than one year or at hard labor) must be charged by indictment unless indictment is waived by the defendant. If the indictment is waived, the prosecution may proceed by filing an information. Misdemeanor crimes may be charged by indictment or information.

The arraignment takes place in open court and consists of the reading of the charges in the indictment or information. The defendant may plead guilty, not guilty, or nolo contendere. Charging a defendant using an information instead of an indictment does not eliminate the need for an arraignment.
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Tax evasion refers to any fraudulent actions that a taxpayer commits to avoid reporting or paying his taxes. To qualify as tax evasion, most jurisdictions require a willful attempt to evade or defeat the tax in an unlawful manner. Tax avoidance is a legal means of lowering one's tax bill by using provisions written into the tax code.

The intent of the taxpayer to wrongly file a return or provide other false tax information will determine the difference between tax evasion and tax avoidance. The U.S. courts have determined evasion to be unlawful, while avoidance has been deemed lawful.
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Prior to trial, the defendant may see all relevant statements made by him. The defendant does not have the right, however, to see copies of witness statements against him until a witness testifies. In many cases, however, the government might voluntarily produce these statements before trial. This is especially common in fraud prosecutions where there is less risk of reprisal or tampering with witnesses.
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The grand jury has the right to subpoena witnesses and documents, and refusals to appear or produce may be punishable as contempt, with fines or jail terms until the subpoena is complied with or the grand jury term expires. A witness or target of the grand jury retains the Fifth Amendment right against self-incrimination.
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The grand jury hearing is a nonadversarial proceeding. The accused has no right to be informed of its deliberations, to know the evidence against him, or to confront the accusers. The accused also has no absolute right to appear before the grand jury, and if he does, he may not be accompanied by counsel. The accused may, however, periodically leave the grand jury to consult with his attorney.
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Apart from the Miranda requirements, a confession also must be voluntary, or not coerced by physical or psychological means. Some inducement is permissible, however, such as informing the suspect that a confession might result in more lenient treatment. Using deceit and trickery to extract a confession, such as telling the suspect that an accomplice had confessed when in fact he had not, is treated differently by different courts, with some permitting such confessions and others not allowing them. No confession will be admitted if the circumstances under which it was obtained render it unreliable.
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A grand jury may be used only to obtain evidence of possible violations of the criminal law, and its process may not be used as a ruse to obtain evidence for parallel civil actions. However, the grand jury, with the appropriate court order, can make evidence available to the proper government authorities for a civil proceeding, as long as the primary purpose of the grand jury inquiry was to enforce the criminal laws. Access by private parties to grand jury proceedings is difficult and unlikely.
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A motion for a change of venue is a pretrial motion asking the judge to move the trial to another court because the defendant cannot receive a fair trial due to public prejudice or because a statute mandates the venue to be elsewhere.
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An appellate court will not reverse a conviction unless it finds error that affected the "substantial rights" of the defendant; "harmless error," not affecting the jury's decision, is tolerated.
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In some instances, tax violations extend beyond the taxpayer and can result in penalties for those who help prepare tax returns and information. A tax preparer can face penalties if he:
• Aids or assists in, procures, or advises with respect to the preparation of any portion of a false return, affidavit, claim, or other document
• Knows, or has reason to believe, that the information will be used in connection with any material matter arising under internal revenue laws
• Knows that the portion (if so used) would result in an understatement of tax liability for another person
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An indictment is an accusation in writing of a serious (that is, indictable) offense and is brought in the name of the government. Under Rule 7 of the Federal Rules of Criminal Procedure, the indictment must contain a plain, concise, and definite statement of the essential facts constituting the charge(s) against the defendant.

In the federal system, all offenses punishable by death must be charged by indictment; all felonies (generally crimes punishable by imprisonment for a year or more) must be prosecuted by indictment, unless the defendant waives the requirement, in which case the prosecution may proceed by filing an "information."

An information is a charging document stating that the person or persons named or described committed an offense. An information may be signed only by the prosecutor without the involvement of the grand jury. A misdemeanor may be charged by either an indictment or information.

The arraignment takes place in open court and consists of the reading of the charges in the indictment or information. The defendant may plead guilty, not guilty, or nolo contendere.
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The prosecutor has an ethical responsibility not to use evidence that is false and must correct testimony that he knows is false. In 1963, the Supreme Court (in the case of Brady v. Maryland, 373 U.S. 83) expanded the prosecution's duty further. Under Brady, the prosecution must disclose all evidence requested by the defendant that is material to guilt or punishment (i.e., evidence that would tend to exculpate him or reduce his penalty). The government is expressly forbidden from concealing evidence that would call the charges into question.
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A defendant might attempt to use advanced age, sickness, and illiteracy to evoke sympathy. Such assertions are not proper legal defenses, but they might persuade the judge or jury to be lenient in sentencing.

Common legal defenses in criminal cases include: alibi, consent, de minimis infraction (trivial), duress, entrapment, ignorance, mistake, necessity, protection of property, self-defense, public duty, legal impossibility, and protection of others. Also pertinent in the matter of defense are questions involving statutes of limitations, proper venue, and proper jurisdiction.
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Each side in a criminal trial has a limited number of peremptory challenges, depending on the offense charged, under which a party may strike a prospective juror without having to provide a reason. However, the prosecution may not use its peremptory challenges in a way solely influenced by racial factors.
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In the pretrial discovery phase of criminal litigation, if the defendant requests disclosure of the prosecution's documents and tangible objects, reports of examinations and tests, and its expert witnesses, then the prosecution is correspondingly entitled to disclosure of these items from the defense. The prosecution is not, of course, entitled to disclosure of the defendant's work product, nor is it entitled to statements made by prospective witnesses to the defendant or his attorneys.
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An information is a charging document stating that the person or persons named or described committed an offense. An information may be signed only by the prosecutor without the involvement of the grand jury. A misdemeanor may be charged by either an indictment or information.
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Generally, deferred prosecution agreements occur when prosecutors file criminal charges against a company, but then agree not to prosecute the claims as long as the company successfully complies with the deferral agreement's terms. These requirements typically focus on getting the business to reform its policies and reduce the risk of illegal practices. Essentially, deferred prosecution agreements help companies avoid indictment, trial, and conviction while providing prosecutors with another channel for disposing of a corporate case that punishes malfeasance and effectuates changes in a company's culture.

In a plea bargaining agreement, the defendant pleads guilty to a violation in exchange for some sort of leniency; deferred prosecution agreements can result in no conviction if the agreement is fulfilled.
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Miranda warnings (named after the Miranda v. Arizona U.S. Supreme Court case) are required only if the suspect is (1) interrogated (2) while held in custody (3) by law enforcement. Certain exceptions to the warning requirement apply, such as when immediate questioning is necessary to ensure public safety. The warnings generally are not required when a person is being questioned by private parties.

Probable cause is an issue in several constitutional rights issues, such as search and seizure laws, but is not directly relevant to whether officers must provide a subject with Miranda warnings.
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Both the defendant and prosecution have statutory rights to certain pretrial discovery. The defendant may inspect copies of all relevant statements made by him (or of a corporation by its employees) in the custody of the government; a copy of the accused's prior criminal record; and all documents, items, test results, and other evidence the government intends to introduce at a trial or that are necessary to the defense.

The defendant does not, however, have an absolute right to see copies of prior statements made by a witness against him until that witness testifies at trial. In many cases, however, the government might voluntarily produce these statements before trial. This is especially common in fraud prosecutions where there is less risk of reprisal or tampering with witnesses.
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Generally, an appeal may be made only for errors of law to which the defendant made timely objection at trial or in pretrial proceedings. The failure to object is said to waive any claims of error. A timely objection theoretically would permit the trial judge to correct the error at the time, eliminating the delay and expense of an appeal and possible new trial. Only very serious errors that affect substantial rights of the defendant may be raised on an appeal without the necessity for an earlier timely objection.
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In the context of tax fraud, a mere mistake in judgment is not sufficient to constitute fraud. There must be a willful intent to illegally evade the tax. In Smith v. Commissioner (40 BTA 387, supplemental opinion 42 BTA 505), the court held that the failure to know and understand the rules of first-in, first-out (FIFO) is not sufficient to sustain a tax fraud charge. There was no indication in this case that the taxpayer misrepresented any fact, withheld any information, or resisted or prevented the discovery by the Commissioner of any pertinent data. Therefore, fraud is more than a mistake in judgment.
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A tax return is considered fraudulent if the responsible party willfully attempts to defraud the government of owed tax dollars. A good faith or legitimate misunderstanding of the law based on the law's complexity negates willfulness [U.S. v. Cheek, 111 U.S. 604 (1991)]. The case held, however, that the belief that taxes are in violation of the Constitution was not relevant to willfulness.
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Although the burden of proving fraud is on the IRS, the primary determinant of whether the IRS pursues a civil rather than a criminal fraud charge is what the available evidence can prove. While the IRS pursues civil violations, it refers criminal tax prosecutions to the Department of Justice. There might be budgetary and staffing constraints at either agency that might dictate whether a suit is pursued civilly or criminally. The difference between civil and criminal in the view of the IRS is that a civil case never ripens into a crime, and a criminal offense involves behavior too insidious to be disposed of on a civil basis. Failure to cooperate might raise a civil case to a crime because it might demonstrate willful intent.
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Some defenses are inappropriate. They include: an amended or delinquent tax return, the three-year statute of limitations (in civil tax fraud cases), the death of the taxpayer, and bankruptcy. Mental illness may be an appropriate defense.
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Rule 7 of the Federal Rules of Criminal Procedure requires the indictment to be a plain and concise, but definite, statement of the essential facts constituting the charge(s) against the defendant.
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In order to prove innocence of tax fraud matters, the best defense is to establish that there is no deficiency. If there is no deficiency, there is no tax liability. A lack of willfulness reduces the fraud, no matter how great, to negligence.
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When the Internal Revenue Service investigates a suspected tax fraud, it may then refer it to the Department of Justice for criminal prosecution. However, there is no presumption of correctness afforded the government when it alleges civil or criminal tax fraud. Therefore, the government has the burden of proving tax fraud.
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Spencer most likely committed the crime of tax perjury, or making a false return. This offense occurs when a taxpayer uses false or misleading information on his tax return. The elements of this crime include all of the following:
• The defendant made and subscribed a return, statement, or other document that was false with regard to a material matter.
• The return, statement, or other document contained a written declaration that it was made under the penalties of perjury.
• The defendant did not believe the return, statement, or other document was true and correct as to every material matter.
• The defendant falsely subscribed to the return, statement, or other document willfully, with the specific intent to violate the law.
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Generally, deferred prosecution agreements occur when prosecutors file criminal charges against a company, but then agree not to prosecute the claims as long as the company successfully complies with the deferral agreement's terms. These requirements typically focus on getting the business to reform its policies and reduce the risk of illegal practices. Essentially, deferred prosecution agreements help companies avoid indictment, trial, and conviction while providing prosecutors with another channel for disposing of a corporate case that punishes malfeasance and effectuates changes in a company's culture.
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A decision to immunize a witness is solely within the discretion of the prosecution. If the prosecution decides to immunize a witness, it applies for a court order compelling testimony from the witness under a grant of immunity. If the application meets statutory requirements, the court must grant the order.
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Embezzled money is taxable income to the embezzler, even though he is under a duty to repay it; however, upon repayment, the embezzler gets a deduction for the repayment. For example, in Stephens v. Commissioner, 905 F.2d 667 (7th Cir. 1990), a taxpayer embezzled about $530,000 from his employer and recorded it on his tax return as "consulting income." The taxpayer was ordered to pay restitution to the employer plus interest. He was allowed deductions under IRS Code 165 (c) (2), relating to ordinary and necessary business expense, for the restitution amount in the year paid. But the court did not allow a deduction for the interest.
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Probation is the suspension of an offender's sentence in return for a promise of good behavior. Many laypersons confuse probation with parole. Although parole is functionally similar to probation, parole occurs after the offender has served at least part of his lawful sentence. Probation typically is a sentence imposed prior to (and instead of) incarceration. Probation laws vary from state to state, but the offender typically is placed under the control and guidance of a probation officer, who is to see to it that the conditions that are established are met.
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Green is not required to give White Miranda warnings under any circumstances. Miranda warnings (named after the Miranda v. Arizona U.S. Supreme Court case) are only required if the suspect is (1) interrogated (2) while held in custody (3) by law enforcement. The warnings are not required at all when a person is being questioned by private parties; however, some fraud examiners may choose to do so as a matter of policy.
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In the context of tax fraud, a mere mistake in judgment is not sufficient to constitute fraud. There must be a willful intent to illegally evade the tax. In Smith v. Commissioner (40 BTA 387, supplemental opinion 42 BTA 505), the court held that the failure to know and understand the rules of first-in, first-out (FIFO) is not sufficient to sustain a tax fraud charge. There was no indication in this case that the taxpayer misrepresented any fact, withheld any information, or resisted or prevented the discovery by the Commissioner of any pertinent data. Therefore, fraud is more than a mistake in judgment.

The belief that taxes are in violation of the Constitution has been held to be an insufficient defense for tax violations. [U.S. v. Cheek, 111 U.S. 604 (1991)].
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In a motion to suppress evidence, the defense argues that evidence was improperly obtained, is impertinent or unduly prejudicial, or violates some other right such as the privilege against self-incrimination. In many cases, motions to exclude evidence—decided at a suppression hearing, where the judge (without a jury) rules on the propriety of the government's conduct—are more important than the trial itself. If the defense is able to exclude illegally seized narcotics, a tainted confession, or critical books and records, the prosecution might be forced to dismiss the charges (at least temporarily) for lack of adequate proof. On the other hand, an unsuccessful suppression motion might be followed by renewed interest by the defendant in a plea bargain.
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The general rule is that the taxpayer bears the burden of proof at trial in civil proceedings (e.g., refund claims and civil deficiency claims). The Statutory Notice of Deficiency (90-day letter) generally enjoys the presumption of correctness. This presumption in favor of the IRS requires the taxpayer to come forward with prima facie evidence to prove that the IRS's determination was erroneous. After successfully rebutting the presumption of correctness, taxpayers have the burden of proving their case by at least a preponderance of the evidence.

The rule established under the Reform Act transferred the burden of proof to the IRS in civil court proceedings on income, gift, estate, or generation-skipping tax liability with respect to factual issues that are relevant to determining the taxpayer's tax liability, provided the taxpayer: (i) provides credible evidence on the factual issue; (ii) keeps records and backs up items as presently required under the Code and regulations; and (iii) cooperates with the IRS in regard to reasonable requests for meetings, interviews, witnesses, information, and documents.

However, there is no presumption of correctness when the government alleges civil or criminal tax fraud; the burden is on the government in tax fraud cases.
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A police officer or private citizen may arrest a person in public without a warrant for a felony committed in his presence. An arrest occurs whenever a reasonable person would feel he is not free to leave.
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The Fifth Amendment provides that an individual cannot be compelled to give information that might incriminate him. But the Fifth Amendment does not protect corporations and other entities from compelled self-incrimination.

The constitutional right to jury trial in criminal cases is addressed by the Sixth Amendment.
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Both the defendant and prosecution have statutory rights to certain pretrial discovery. Upon the defendant's request, the government must allow the defendant to inspect and copy any results or reports of physical or mental examinations, scientific tests, or experiments that are material to the preparation of the defense or that the government plans to use as evidence at trial.

The defendant does not have a right to the work product of the state, which includes reports, memoranda, and other internal documents created by the government attorney in preparing for and prosecuting the case. In addition, the defendant does not have a right to inspect statements made by government witnesses prior to the time the witness actually testifies.
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Taxpayers with a tax deficiency may be subject to civil or criminal penalties. Although the burden of proving fraud is on the IRS, the primary determinant of whether the IRS pursues a civil rather than a criminal fraud charge is what the available evidence can prove. While the IRS pursues civil violations, it refers criminal tax prosecutions to the Department of Justice. There might be budgetary and staffing constraints at either agency that might dictate whether a suit is pursued civilly or criminally. The difference between civil and criminal violations in the view of the IRS is that a civil case never ripens into a crime, and a criminal offense involves behavior too insidious to be disposed of on a civil basis. Failure to cooperate might raise a civil case to a crime because it might demonstrate willful intent.
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For an employee to sue an employer for violating one of his constitutional rights, there must be some form of "state action" involved. State action is involved during any investigation by a state or federal entity, including investigations of its own employees. But state action can also involve private individuals and companies.
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The Fourth Amendment to the U.S. Constitution guarantees the right of all citizens to be free from unreasonable searches and seizures and permits reasonable searches. The general rule is that a reasonable search is one that is carried out pursuant to a valid search warrant (i.e., a court order that grants authorities the right to search a person or place for evidence of a crime).

In Katz v. United States, 389 U.S. 347 (1967), the Supreme Court held that the Fourth Amendment protects the privacy interests of "people, not places" from government intrusion whenever they have a reasonable expectation of privacy. That is, the Fourth Amendment protects a person's reasonable expectation of privacy against government intrusion. Thus, Katz held that the Fourth Amendment applies wherever there is a reasonable expectation of privacy, and it also held that a search without a warrant is "per se unreasonable" in the absence of exigent circumstances.
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Defamation is an unprivileged publication of a false statement about a person that causes harm to that person's reputation. To recover for defamation, the plaintiff must prove the following elements:
• The defendant made an untrue statement of fact.
• The statement was communicated (published) to third parties.
• The statement was made on an unprivileged occasion.
• The statement damaged the subject's reputation.

To be defamatory, a statement must be a statement of fact (not opinion) and be untrue. Thus, truth is an absolute defense to defamation.

Here, Walsh's statement that Brock was cheating on his wife with a coworker was true, and thus the statement was not defamatory. Accordingly, Brock's suit for defamation will not succeed.
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Invasion of privacy laws concern a person's right to keep his life private and free from intrusion. There are two relevant torts of invasion of privacy: (1) intrusion upon seclusion and (2) public disclosure of private facts. Intrusion upon seclusion occurs when an individual intentionally intrudes into an area where another individual has a reasonable expectation of privacy and the intrusion would be highly offensive or objectionable to a reasonable person. The tort of public disclosure of private facts occurs when one party makes public statements about another party's private life that are not of public concern.

Unlike defamation claims, the public disclosure of private facts cause of action can arise even if the statements at issue are true. The key to this cause of action is that the information must be private in nature and not a matter of public interest.
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A duty to cooperate exists in every employer/employee relationship. The duty to cooperate extends to workplace investigations; therefore, employees have a duty to cooperate during an internal investigation as long as what is requested from them is reasonable.
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When a public employer conducts an investigation of work-related misconduct, and when that investigation necessitates a search of an employee's workspace, the employer is not generally required to obtain a warrant to perform the search, nor is the employer required to make a showing of probable cause that the suspect has committed a crime. This does not mean, however, that there are no restrictions on the employer's ability to conduct the search; it still must meet the test for "reasonableness under all the circumstances."
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To recover for the tort of intentional infliction of emotional distress, the plaintiff must prove the following three basic elements:
• The defendant engaged in extreme and outrageous conduct.
• The defendant acted intentionally or recklessly (i.e., the defendant intended that his conduct would cause severe emotional distress, or he acted recklessly with regard to whether his actions would cause severe emotional distress).
• The victim actually did suffer emotional or mental distress as a result of the defendant's conduct.
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Employers can reduce their potential liability for violations involving searches and seizures by lowering employees' expectation of privacy in the workplace. The best method that employers can use to lower employees' expectations of privacy is to adopt a written privacy policy that puts employees on notice that the workplace is not private and require employees to sign it. Such policies should provide that, to maintain the security of its operations, management may gain access to and search all work areas and personal belongings, including desks, file drawers, lockers, briefcases, handbags, pockets, and personal effects.

Also, to reduce their potential liability for violations involving searches and seizures, employers can take the following measures:
• Retaining a key to all desks, lockers, etc.
• Requiring employees to provide keys to all personal locks
• Obtaining consent to search workplace areas
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The United States Constitution protects individuals from abuse of governmental power, and several constitutional provisions can come into play in the course of a fraud investigation.

However, although the U.S. Constitution protects individuals, the general rule is that it only protects individuals from certain action by the government. That is, the Constitution limits government action; it does not limit the powers of private parties. Thus, as a general rule, the Constitution restricts the activities of government agents and employers, but it does not limit the power of private employers in conducting a corporate investigation. These restrictions apply to all levels of government: local, state, and federal.

For an employee to bring a successful suit against an employer for violating one of his constitutional rights, there must be some form of "state action" involved. State action is involved during any investigation by a state or federal entity, including investigations of its own employees. Because private individuals and companies can engage in state action, private companies can be held liable for violating an employee's constitutional rights in such circumstances.

The Fourth Amendment protections only apply to actions by the police or other governmental authorities; searches and seizures conducted by private parties are not regulated, unless they are substantially directed by public officers.
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As with other constitutional rights, the Sixth Amendment does not apply if there is no state action. Thus, in most cases, a private employer can interview an employee without the presence of the employee's attorney. An individual always has the right to consult an attorney, but there is typically no legal obligation to consult the employee's lawyer prior to the interview or allow the employee's lawyer to sit in during an interview.

In addition, Miranda warnings are only required when the suspect is in custody and is being questioned by public authorities.

The following are factors to include in determining whether to advise a suspect that he may seek counsel: the degree of evidence of the employee's culpability, whether the evidence is such that one would draw a conclusion concerning a violation of the law, the likelihood of criminal prosecution if the results of the investigation are disclosed, the existence of a conflict of interest between the employee and the company, and the state ethical codes.
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In short, the Fourth Amendment prohibits unreasonable searches and seizures, but it only applies to actions by the police or other governmental authorities. There must be some form of "state action" involved for an individual to recover for violations of constitutional rights. State action is involved during any investigation by a state or federal entity, including investigations of its own employees. But in some situations, state action can involve private individuals and companies.

Thus, the Fourth Amendment prohibits government employers from unreasonably invading their employees' privacy to conduct a workplace search, and it prohibits government employers from conducting unreasonable surveillance of employees (e.g., video surveillance or wiretapping) where they would reasonably expect privacy.
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The mere gathering of information is not a tort; however, the gathering of confidential information where the intrusion is unreasonable might give rise to a claim of intrusion upon seclusion. Intrusion upon seclusion occurs when an individual intentionally intrudes into an area where another individual has a reasonable expectation of privacy and the intrusion would be highly offensive or objectionable to a reasonable person
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The tort of public disclosure of private facts occurs when one party makes public statements about another party's private life that are not of public concern.

The tort of intrusion upon seclusion occurs when an individual intentionally intrudes into an area where another individual has a reasonable expectation of privacy and the intrusion would be highly offensive or objectionable to a reasonable person.
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Probable cause has been defined as those facts and circumstances sufficient to cause a person of reasonable caution to believe that a crime has been committed and that the accused committed it. Probable cause requires more than mere suspicion or hunch, but less than virtual certainty. "Reasonable grounds to believe" is probably as good a definition as any.
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False imprisonment is the restraint by one person of the physical liberty of another without consent or legal justification.

To recover for a claim of false imprisonment, the plaintiff must prove all of the following elements:
• The defendant used words or actions intended to restrain the plaintiff.
• The defendant's words or actions resulted in the restraint of the plaintiff without the plaintiff's consent (i.e., against the plaintiff's will) and without legal justification.
• The plaintiff was aware that he was being restrained.

A claim of false imprisonment might arise if an employee is detained in any way during a search or interview. Generally, an employer is entitled to question an employee at work about a violation of company policy without incurring liability as long as the employee submits to the questioning voluntarily; that is, not as a result of threats or force.
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Spoliation of evidence is broadly defined as the act of destroying evidence or making it otherwise unavailable. The act of spoliation can surface in just about any type of case, criminal or civil, and by any party, plaintiff, or defendant. The theory behind spoliation of evidence presumes that the individual who makes evidence unavailable following the probable initiation of a lawsuit is aware of its detrimental effect upon a case.

Although few jurisdictions have a separate cause of action for spoliation of evidence, almost every jurisdiction allows for sanctions resulting from such acts. To impose sanctions for spoliation, some courts require the spoliation to be intentional, though others merely require negligence or reckless spoliation. Thus, spoliation sanctions can arise from intentional acts and negligent acts.

Examples of situations that could give rise to spoliation sanctions include:
• Erasing (either intentionally or negligently) computer files (e.g., documents, images, databases) relevant to a lawsuit
• Losing or destroying physical evidence
• Accidentally shredding physical documents relevant to a lawsuit
• Altering documents or records
• Destroying tangible documents or records
• Losing or destroying physical evidence
• Failing to suspend routine destruction of electronic data
• Destroying evidence on a lawyer's desk by accident
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Police officers may, without a warrant, conduct a limited search incident to a lawful arrest. Such searches, however, must be limited to the arrestee's body and the area within his immediate control. This exception is designed to protect the officers and to prevent the destruction of evidence. For the search to be valid, the arrest must be valid (i.e., based on probable cause, and not merely a pretext to justify a search). If the arrest is unlawful when made, it cannot be justified by the fruits of the subsequent search, and all evidence obtained must be suppressed.
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While employees have a duty to cooperate, they also have certain other rights that define the scope of that duty. Employee rights, however, vary from case to case, generally depending on the employee's contractual rights, applicable federal and state statutes, and constitutional protections. Often, employee contractual rights during investigations stem from the existence of a union contract, a collective bargaining agreement, or an employment contract.

If the employee is a member of a union, the union contract or collective bargaining agreement might contain certain restrictions on the company's investigatory procedures. For instance, the company might be required to notify the union before the interview, and the employee may have the right to have a union representative present. In NLRB v. Weingarten, Inc., 420 U.S. 251 (1975), the U.S. Supreme Court held that the National Labor Relations Act (NLRA), which governs the labor relations of most private sector workers, guarantees union-represented employees the right to have a union representative present at an investigatory interview—an interview that reasonably could result in discipline or some other adverse consequence. The rights established by the Supreme Court in NLRB v. Weingarten have become known as Weingarten rights. Management is not required to inform union-represented employees of their Weingarten rights, and nonunion employees do not enjoy Weingarten rights.
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Under the exclusionary rule, which is in effect in all federal and state courts, evidence seized in violation of the Fourth Amendment will be suppressed—that is, it becomes inadmissible—in any criminal prosecution against the suspect except under a few limited exceptions. In addition, all evidence that is obtained as a result of the illegally obtained evidence will also be excluded. An unlawful search and seizure does not mean the suspect cannot be prosecuted, and it does not invalidate a conviction based on other evidence. But it does prevent the wrongfully obtained evidence and all evidence derived from it from being presented at trial.
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The United States Constitution protects individuals from abuse of governmental power, and several constitutional provisions can come into play in the course of a fraud investigation.

Although the U.S. Constitution protects individuals, the general rule is that it only protects individuals from certain action by the government. That is, the Constitution limits government action; it does not limit the powers of private parties. Thus, as a general rule, the Constitution restricts the activities of government agents and employers, but it does not limit the power of private employers in conducting a corporate investigation. These restrictions apply to all levels of government: local, state, and federal.

For an employee to bring a successful suit against an employer for violating one of his constitutional rights, there must be some form of "state action" involved. State action is involved during any investigation by a state or federal entity, including investigations of its own employees. Because private individuals and companies can engage in state action, private companies can, however, be held liable for violating an employee's constitutional rights in such circumstances.
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Constitutional protections generally only apply to public employees. This means that employees of federal, state, and local governments must be afforded protection under the Fifth Amendment.

Under the Fifth Amendment, a public employer cannot fire employees for refusing to answer questions that might incriminate them. The leading case on this issue is Garrity v. New Jersey, 385 U.S. 493 (1967). In Garrity, several New Jersey police officers were threatened with dismissal from their jobs if they refused to answer questions relating to a conspiracy to obstruct traffic laws. The officers, faced with termination, answered the questions and were subsequently prosecuted. The U.S. Supreme Court found that the statements had been improperly coerced and thus they were not admissible at trial.

The Fifth Amendment only protects persons against compelled testimony. Thus, if an employee voluntarily confesses to a crime, he can be fired without violating his constitutional rights. The confession, however, must be truly voluntary; the employee cannot be coerced in any way to give self-incriminating evidence during an interview.
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Spoliation of evidence is broadly defined as the act of destroying evidence or making it otherwise unavailable. The act of spoliation can surface in just about any type of case, criminal or civil, and by any party, plaintiff, or defendant. The theory behind spoliation of evidence presumes that the individual who makes evidence unavailable following the probable initiation of a lawsuit is aware of its detrimental effect upon a case.

Although few jurisdictions have a separate cause of action for spoliation of evidence, almost every jurisdiction allows for sanctions resulting from such acts. To impose sanctions for spoliation, some courts require the spoliation to be intentional, though others merely require negligence or reckless spoliation. Thus, spoliation sanctions can arise from intentional acts and negligent acts.
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Because Sharon is investigating work-related misconduct, she does not need a warrant to search Andy's desk.
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Consent is a recognized exception to the warrant requirement. Individuals are always free to waive their Fourth Amendment rights. If a subject consents to a search or seizure by a government agent, this eliminates the need for a warrant. Thus, the government does not need a warrant to perform a search if a person with proper authority consents to a search.

But to constitute an effective waiver of Fourth Amendment rights, an individual's consent to a search or seizure must be voluntary.

Consents to searches by government agents obtained by deceit, bribery, or misrepresentations are generally held to be involuntary and, therefore, do not waive the consenting parties' Fourth Amendment rights.
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False imprisonment is the restraint by one person of the physical liberty of another without consent or legal justification.

A claim of false imprisonment might arise if an employee is detained in any way during a search or interview. Generally, an employer is entitled to question an employee at work about a violation of company policy without incurring liability as long as the employee submits to the questioning voluntarily; that is, not as a result of threats or force.

There are no precise rules as to when a false imprisonment occurs, but factors such as the length, nature, and manner of the interview might determine whether liability arises. Other factors used to determine if an individual has been falsely imprisoned include:
• Conducting an interview in a room that is small and confined in nature (e.g., small, windowless, not easily accessible)
• Conducting an interview in a room with severe lighting
• Requiring the employee's presence or continued presence by any amount of physical force (e.g., holding the employee's arm to escort him or pushing the employee into a chair)
• Using violent behavior of any kind during the interview, including yelling, pounding on desks, or kicking furniture or walls
• Using a physical barrier to restrain the employee (e.g., locking the interview room's door or standing in front of an interview room's exit)
• Making threats of immediate physical force to restrain the employee
• Conducting an interview in the presence of numerous people
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The United States Constitution protects individuals from abuse of governmental power, and several constitutional provisions can come into play in the course of a fraud investigation.

Although the U.S. Constitution protects individuals, the general rule is that it only protects individuals from certain action by the government. That is, the Constitution limits government action; it does not limit the powers of private parties. Thus, as a general rule, the Constitution restricts the activities of government agents and employers, but it does not limit the power of private employers in conducting a corporate investigation.

For an employee to bring a successful suit against an employer for violating one of his constitutional rights, there must be some form of "state action" involved. State action is involved during any investigation by a state or federal entity, including investigations of its own employees. Because private individuals and companies can engage in state action, private companies can, however, be held liable for violating an employee's constitutional rights in such circumstances.
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To recover for the tort of intentional infliction of emotional distress, Brown must prove the following three basic elements:
• The defendant engaged in extreme and outrageous conduct.
• The defendant acted intentionally or recklessly (i.e., the defendant intended that his conduct would cause severe emotional distress, or he acted recklessly with regard to whether his actions would cause severe emotional distress).
• The victim actually did suffer emotional or mental distress as a result of the defendant's conduct.
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The plain view doctrine applies when contraband or evidence of another crime is inadvertently discovered during a search or arrest, even if there was no prior authority to seize the evidence.

Evidence in "plain view" of an officer who has a right to be in a position to observe it also may be seized without a warrant. An officer's seizure of evidence in plain view does not violate the Fourth Amendment because the officer has not conducted a search. The plain view exception usually applies in situations when an officer, during a search or arrest for another offense, inadvertently discovers contraband or evidence of another crime.

In Horton v. California, 496 U.S. 128 (1990), the Supreme Court established a three-part test that must be satisfied for the plain view exception to apply. The three-prong test requires:
• The evidence is in plain view of the officer.
• The officer is lawfully present at the place where he discovered the evidence.
• The incriminating character of the evidence is immediately apparent.
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Designed to protect an individual's Fifth Amendment right against self-incrimination and Sixth Amendment right to an attorney, Miranda warnings advise suspects that they have the right not to answer questions and the right to legal counsel during interrogations. Miranda warnings are required only if a person is being interrogated by public authorities in a custodial setting. Custodial setting refers to questioning initiated by government agents after a person has been taken into custody, or otherwise deprived of his freedom or action in any significant way. As a result, both private and public employers may interview employees in noncustodial settings without giving Miranda warnings.

In the context of employee interviews by public employers, the answer to whether Miranda warnings are legally required depends on the applicability of the Fifth Amendment to the employee interviews. When a public employee is being questioned by his employer, he is being questioned by the government; therefore, the Fifth Amendment applies to employee interviews that are related to potentially criminal conduct.

And because the Fifth Amendment's protection against self-incrimination applies to internal investigations conducted by government employers, public employers must give Miranda warnings to employees being subjected to custodial interviews (i.e., employees in custody and subject to interrogation). That is, public employers must give Miranda warnings to employees being interviewed about a potentially criminal matter if the government (or its agent) has arrested the employee or deprived him of action in a significant way.
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There are a number of recognized exceptions to the warrant requirement, principally:
• Workplace searches by government employers
• Searches performed as an incident to arrest
• Searches of motor vehicles
• Searches in exigent or emergency circumstances, to prevent the destruction of evidence, or while in "hot pursuit" of a suspect
• Searches conducted pursuant to valid, voluntary consent
• Searches when the evidence is in "plain view"
• Border, customs, and prison searches
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For an employee to sue an employer for violating one of his constitutional rights, there must be some form of "state action" involved. State action is involved during any investigation by a state or federal entity, including investigations of its own employees. But state action can also involve private individuals and companies.

There are no bright-line rules regarding when an investigation can be considered to involve state action.

The following examples, however, could be considered to involve state action:
• Investigations conducted by a private company but at the suggestion or request of the state or federal authorities
• Investigations begun by a private company that later are taken over or expanded by state or federal authorities
• Joint investigations with or aided by state or federal authorities
• Investigations conducted by a private company that are required by state or federal law
• Searches or interrogations conducted by outside investigators who are off-duty state, local, or federal authorities
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There are numerous federal and state whistleblower laws that are designed to encourage individuals to bring complaints of wrongdoing by providing protections for those who report unlawful conduct. Most of these laws protect employees from any adverse employment action or retaliatory action from their employers. Therefore, employers should not conduct investigations as a means to retaliate against employees, and they must be careful to conduct investigations in a way that avoids the appearance of retaliation.

Whistleblower laws do not, however, prevent individuals from being fired for engaging in unrelated fraudulent behavior.
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While employees have a duty to cooperate, they also have certain other rights that define the scope of that duty. Employee rights, however, vary from case to case, generally depending on the employee's contractual rights, applicable federal and state statutes, and constitutional protections. Often, employee contractual rights during investigations stem from the existence of a union contract, a collective bargaining agreement, or an employment contract.
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The mere gathering of information is not a tort; however, the gathering of confidential information where the intrusion is unreasonable might give rise to a claim of intrusion upon seclusion. Intrusion upon seclusion occurs when an individual intentionally intrudes into an area where another individual has a reasonable expectation of privacy and the intrusion would be highly offensive or objectionable to a reasonable person.

The elements of this tort include:
• An intentional intrusion
• Into an area where an individual has a reasonable expectation of privacy
• The intrusion would be highly offensive or objectionable to a reasonable person

Here, if Nelson searches the employee's purse without legitimate interest or authority, the employee may be able to recover from Nelson for intrusion upon seclusion.
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To recover for defamation, the plaintiff must prove the following elements:
• The defendant made an untrue statement of fact.
• The statement was communicated (published) to third parties.
• The statement was made on an unprivileged occasion.
• The statement damaged the subject's reputation.
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All warrants must satisfy the requirements under the Fourth Amendment. Under the Fourth Amendment, all warrants for searches must be judicially sanctioned and supported by probable cause, and they must particularly describe the place to be searched or things to be seized.
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Due to the prevalence of blogging, it is important for employers and employees to understand their rights and obligations with respect to such online activity. As a general rule, employers can monitor employee blogging because employees have a limited expectation of privacy with respect to their blog posts, which are posted publicly. However, the extent of an employer's rights to monitor largely depends on whether the employee blogged while on duty using the employer's computer system.

Employees have no reasonable expectation of privacy when blogging on the employer's system because the system was set up to provide business communications. If there is no reasonable expectation of privacy, then there is no constitutional or common law restriction on monitoring such activity. Therefore, an employee who uses an employer's system to blog about violating company policy or illegal activity, or who engages in other unacceptable conduct, can generally be disciplined for such posts. However, employers should formalize their computer/Internet use policies to cover blogging and to maintain control over such use.
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Defamation is an unprivileged publication of a false statement about a person that causes harm to that person's reputation. To recover for defamation, the plaintiff must prove the following elements:
• The defendant made an untrue statement of fact.
• The statement was communicated (published) to third parties.
• The statement was made on an unprivileged occasion.
• The statement damaged the subject's reputation.

For a statement to qualify as defamatory, the occasion in which the statement is made must be an unprivileged one. If the statement is made on a privileged occasion, then no liability can attach to the speaker. Basically, the law recognizes that there are some circumstances in which the need to share information is so important that people will be allowed to make mistakes from time to time without having to worry about being sued for defamation. Statements that are made in these circumstances are said to be privileged.
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A request to produce documents is one of the methods of civil discovery. Other methods include oral depositions, written interrogatories, requests for admissions, requests for permission to enter upon land, and physical and mental examinations. Requests to produce documents may be served on opposing parties. Records from third-party witnesses or institutions may be obtained by subpoenas that often must be accompanied by deposition notices, as well as testimony, to authenticate the documents.
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In addition to the "know your customer" requirement, there are suitability requirements that broker-dealers must follow when making recommendations to a client. The suitability rule prohibits a broker-dealer from making a recommendation to a client if the broker does not have reasonable grounds for believing that the recommendation is suitable for the client. This form of suitability violation occurs when a broker recommends an investment, recommends an investment strategy, or makes an investment that is inconsistent with the client's objectives, and the broker knows or should know the investment is inappropriate.
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Either party in a civil case may take discovery regarding any matter, not privileged, that is relevant to the subject matter of the action or that might lead to admissible evidence. The methods of civil discovery are oral depositions, written interrogatories, requests to produce documents, requests for admissions, requests for permission to enter upon land, and physical and mental examinations.
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The default definition of security is the term investment contract. In the case of SEC v. Howey Co., the Supreme Court established a four-step test for an investment contract. The test, which is known as the Howey test, states that a financial instrument is an investment contract if the following four elements are met:
• There is an investment of money or other asset.
• The investment is in a common enterprise.
• There are expectations of making a profit.
• The profits are to be derived solely from the efforts of someone other than the investor.
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Interrogatories are questions that are submitted to an opposing party in a suit; they are something like a written deposition. Interrogatories are submitted to the party in writing. If the receiving party thinks that a question is improper, then he may object to the question. If no objection is given, then the party must answer the question in writing. Some parties will try to provide as little information as possible but still give a "truthful" answer. However, that tactic can backfire—if the answering party does not provide the information requested, that party cannot introduce evidence on those issues at trial and can be sanctioned by the court.
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Rule 10b-5—which the SEC promulgated pursuant to Section 10 of the Exchange Act—prohibits false statements and other fraudulent activity in connection with the purchase or sale of any security. Rule 10b-5 is often referred to as the Act's anti-fraud provision.
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Like Securities Act of 1933, Congress enacted the Securities Exchange Act of 1934 due to concerns over the 1929 stock market crash and the manipulation of the securities markets, but unlike the 1933 Act, the Securities Exchange Act of 1934 mainly deals with post-issuance trading. Simply put, the 1933 Act regulates the issuance of the securities themselves, and the 1934 Act covers subsequent trading of securities through brokers and exchanges.
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Depositions are probably the most popular and useful form of civil discovery. A deposition is sworn testimony given by a party or witness upon questioning by counsel for one of the parties before trial and outside of court, usually in a lawyer's office. Opposing counsel and a stenographer, who administers the oath and transcribes the testimony, also are present. Deposition testimony may be used to obtain evidence about the party's own case or the opponent's, or to preserve testimony for trial.

Additional methods of civil discovery include written interrogatories, requests to produce documents, requests for admissions, requests for permission to enter upon land, and physical and mental examinations.
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In civil trials, the plaintiff usually offers its evidence first.

In most cases, the civil plaintiff must prove his case only by the preponderance of the evidence, meaning that there must only be slightly more evidence in favor than against.

Like criminal trials, civil trials begin with the opening statements, starting with the party that bears the burden of proof. Thus, civil trials begin with the plaintiff's counsel speaking first. As in criminal trials, the opening is devoted to introducing the parties, stating the nature of the dispute, and outlining the evidence the party expects to produce.

The arraignment is part of the criminal justice process; it is not part of civil litigation.
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Simply put, the Securities Act of 1933 regulates the issuance of the securities themselves, and the Securities Exchange Act of 1934 covers subsequent trading of securities through brokers and exchanges.
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Alternative dispute resolution usually involves one of two types of methods: mediation or arbitration. Mediation is the process whereby an impartial third person assists the parties in reaching a resolution to the dispute. The mediator does not decide who should win, but instead works with the parties to reach a mutually agreeable settlement. Arbitration is the process whereby a dispute is submitted to an impartial third person (known as an arbitrator) who then decides the outcome of the case (i.e., which party should win). The arbitrator acts as a judge or jury by deciding the case on its merits.
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A futures contract, or future, is a legally binding commitment to make delivery (i.e., sell) or to take delivery of (i.e., buy) a given quantity and quality of a commodity at a specified price and on a specified future date.
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Defendants can file a counterclaim against the plaintiff in a civil action. A counterclaim (also known as a countersuit) does just what its name implies; it levels accusations against the original plaintiff, who is now the defendant of the counterclaim. The specifics of this claim may be filed as part of the defendant's answer or as a separate document. If a defendant files a counterclaim, it and the original complaint will be tried concurrently, with the final judgment stipulating a decision on each side's petition.
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Insider trading occurs when an insider—any person who possesses material, nonpublic information—buys or sells securities on the basis of material information about the security that is not available to the public. Insider trading is a common claim under Rule 10b-5. Rule 10b-5 makes it illegal for insiders (i.e., directors, officers, employees, and controlling shareholders) and constructive (or temporary) insiders (i.e., someone who is temporarily entrusted with confidential information, such as accountants, lawyers, or investment bankers) to trade on the basis of material, nonpublic information.
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The fidelity bond claim is an often-overlooked method of recovery for losses due to internal fraud. A fidelity bond is a policy issued by many large insurance companies under which the insured entity is covered against losses caused by the dishonest or fraudulent acts of its employees. It is often helpful for organizations to have a fidelity bond, since general liability insurance and many other policies will not cover damages from intentional acts like internal fraud.
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The U.S. securities and futures markets are regulated through a combination of self-regulation by self-regulatory organizations (SROs) and direct federal regulation.

There are several SROs in U.S. securities and futures markets, including:
• The national exchanges: The national exchanges that operate the markets where securities and futures are traded (e.g., the New York Stock Exchange, American Stock Exchange, and the Chicago Board Options Exchange) are SROs.
• The Financial Industry Regulatory Authority (FINRA): FINRA, which is overseen by the SEC, regulates all firms selling securities in the United States.
• The Municipal Securities Rulemaking Board (MSRB): The MSRB, which is overseen by the SEC, regulates the U.S. municipal bond market.
• The National Futures Association (NFA): The NFA, which is overseen by the CFTC, regulates the commodities and futures industry.
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A civil action begins with the filing of a complaint in the appropriate court, usually in the jurisdiction in which the defendant resides or where the claim arose. In some limited circumstances, cases may occasionally be filed where the plaintiff resides, but the document would still be called a "complaint," not an information.

The federal rules provide that the complaint should be a "short and plain statement" showing the court's jurisdiction to hear the case, the grounds for relief, and a demand for judgment.

Indictments and informations are filing documents used in criminal cases, and a writ is a formal order by a court or other judicial body.
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Churning is the excessive trading of a customer account to generate commissions while disregarding the customer's interests. Specifically, churning occurs when an investment professional excessively trades an account for the purpose of increasing his commissions instead of furthering the customer's investment goals.
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commissions The amount of monthly gross commissions generated from the customer account as a percentage of the average account balance
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Alternative dispute resolution usually involves one of two types of methods: mediation or arbitration. Mediation is the process whereby an impartial third person assists the parties in reaching a resolution to the dispute. The mediator does not decide who should win, but instead works with the parties to reach a mutually agreeable settlement. Any mediation agreement will be enforced as a binding contract.

Arbitration is the process whereby a dispute is submitted to an impartial third person (known as an arbitrator) who then decides the outcome of the case (i.e., which party should win). The arbitrator acts as a judge or jury by deciding the case on its merits. Arbitration can be either "binding" or "nonbinding." If the arbitration is binding, then the decision of the arbitrator is final, and the parties cannot later submit their dispute to a judge or jury for determination. Conversely, if the arbitration is nonbinding, the arbitrator's determination is not binding upon the parties.
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Both sides may appeal from an adverse verdict, either as to liability or damages. As in the criminal system, the appellate court is largely limited to reviewing the legal decision of the court rather than the factual determination of the jury. The appeals court may reverse and remand for a new trial on some or all of the issues, may order that a certain portion of the awarded damages be remitted, or may enter final judgment, if legal grounds are clear, in favor of either party.
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Typically, analysis to determine if a financial investment is a security begins with the definition of security set out in Section 2(a)(1) of the Securities Act of 1933. Under Section 2(a)(1), the default definition of security is an investment contract. In the case of SEC v. Howey Co., the Supreme Court established a four-step test for an investment contract. The test, which is known as the Howey test, states that a financial instrument is an investment contract if the following four elements are met:
• There is an investment of money or other asset.
• The investment is in a common enterprise.
• There are expectations of profits.
• The profits are generated solely from the efforts of others.
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section 10 exchange act of1934 The main function of Rule 10b-5 is to prohibit false statements and other fraudulent activity in connection with the purchase or sale of any security.
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Arbitration is the process whereby a dispute is submitted to an impartial third person (known as an arbitrator) who then decides the outcome of the case (i.e., which party should win). The arbitrator acts as a judge or jury by deciding the case on its merits. Arbitration can be either "binding" or "nonbinding." If the arbitration is binding, then the decision of the arbitrator is final, and the parties cannot later submit their dispute to a judge or jury for determination. Conversely, if the arbitration is nonbinding, the arbitrator's determination is not binding upon the parties.
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Post-judgment discovery procedures include:
• Judgment debtor examinations: If a judgment creditor obtains an order for examination of a judgment debtor, the order will require that the judgment debtor appear in court and answer questions under oath about his financial assets.
• Post-judgment requests for documents or things to be produced: A judgment creditor can serve the debtor with a production request requiring the debtor to bring certain documents with him to the debtor examination if the documents are material and important to the creditor's collection efforts.
• Post-judgment interrogatories: Post-judgment interrogatories are written questions about the debtor's assets that he must answer in writing.
• Post-judgment depositions: A post-judgment deposition is sworn testimony given by a debtor upon questioning about his assets, liabilities, sources of income, and so on.
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The fidelity bond claim is an often-overlooked method of recovery for losses due to internal fraud. A fidelity bond is a policy issued by many large insurance companies under which the insured entity is covered against losses caused by the dishonest or fraudulent acts of its employees.
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Securities laws require that the investor receive full and fair disclosure of all material information, and they make it unlawful for anyone to obtain money or property by using a material misstatement or omission in the offer or sale of any securities.

As a general rule, to determine materiality, the fraud examiner needs to answer the following question: "Would a reasonable investor wish to know this information to make an informed decision?" If the answer is "yes," then this information, or the lack thereof, has a high likelihood of being deemed material. (If an actual investor acted based on the misrepresentation, that clearly strengthens the case, but it is not essential that the false or misleading statement influenced an investor, merely that a reasonable investor could have been so influenced.)
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A judgment is a court order, but it is not a guarantee of payment. A plaintiff who obtains a money judgment often must take additional steps to collect it. This might include garnishing wages of the defendant or levying against assets. In many instances, particularly in fraud litigation, a judgment might go uncollected because the defendant has already squandered the ill-gotten gains or has secreted them. In the latter circumstances, a plaintiff may conduct post-judgment discovery, including a deposition of the defendant, in an attempt to locate assets to satisfy the judgment.
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Mediation is the process whereby an impartial third person assists the parties in reaching a resolution to the dispute. The mediator does not decide who should win, but instead works with the parties to reach a mutually agreeable settlement.
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The burden of proof for the civil plaintiff is lower than for the criminal prosecutor. In most cases, the civil plaintiff must prove his case only by the preponderance of the evidence, meaning that there must only be slightly more evidence in favor than against. In contrast, criminal prosecutors must prove their case beyond a reasonable doubt. Some civil fraud cases require a party to prove its claim under the clear and convincing evidence standard, which means the fact finder must find that the claim is substantially more likely to be true than untrue. While it is difficult to explain or measure the exact level of certainty necessary, the clear and convincing standard is recognized as being higher than the preponderance of the evidence, but lower than beyond a reasonable doubt. The standard used in civil fraud cases depends on the jurisdiction and the alleged violation.
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The Commodities Futures Trading Commission (CFTC), which can be described as the SEC's counterpart for the futures and commodities industry, regulates the activities of futures commission merchants (FCMs) and their associated persons.
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subpoena duces tecum copies of records to a deposition or other court proceeding. If the deposing attorney wishes to inspect or refer to certain documents in the witness's possession during the proceedings, these can be demanded by a subpoena duces tecum, a legal order for the witness to produce the documents for reference during the deposition.
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A motion for summary judgment asks a judge to decide the case, without a trial, based on the evidence contained in the complaint and answer. A motion for summary judgment will be granted if the court determines that the pleadings and proof clearly demonstrate that there is no genuine material issue of fact involved in the proceedings and that the moving party is entitled to judgment as a matter of law.

Either side in a lawsuit can file for summary judgment. The motion is granted unless it can be shown that some of the facts as presented are in dispute.
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Under federal rules, either party may take discovery regarding any matter, not privileged, that is relevant to the subject matter of the action or that might lead to admissible evidence. Thus, even information that is not admissible at trial can be obtained through discovery.
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There are two types of partnerships: general partnerships and limited partnerships. General partnerships are associations of two or more persons acting as co-owners in a business for profit. In a general partnership, each general partner can incur obligations on behalf of the partnership, and each partner assumes unlimited liability for the partnership's debts. Thus, a general partner has unlimited personal liability. Also, in a general partnership, the partners take an active role in the business's operation (i.e., they have management responsibilities).
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Discovery refers to the formal process whereby the parties collect evidence and learn the details of the opposing case. Under federal rules, either party may take discovery regarding any matter, not privileged, that is relevant to the subject matter of the action or that might lead to admissible evidence. Thus, even information that is not admissible at trial can be obtained through discovery.
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A party can raise the Fifth Amendment privilege in civil proceedings, but his refusal may be disclosed to the jury.
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Under the Federal Rules, either party may take discovery regarding any matter, not privileged, that is relevant to the subject matter of the action or that might lead to admissible evidence. Thus, even information that is not admissible at trial can be obtained through discovery.
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The U.S. securities and futures markets are regulated through a combination of self-regulation by self-regulatory organizations (SROs) and direct federal regulation. SROs in U.S. securities and futures markets are subject to federal regulation. Securities and futures laws authorize the SEC, which regulates the U.S. securities industry, and the Commodity Futures Trading Commission (CFTC), which has authority over U.S. futures markets, to delegate authority to and oversee SROs, empowering authorized SROs to regulate the markets in which securities and futures are traded.



There are several SROs in U.S. securities and futures markets, including:


• The national exchanges: The national exchanges that operate the markets where securities and futures are traded (e.g., the New York Stock Exchange, American Stock Exchange, and the Chicago Board Options Exchange) are SROs.
• The Financial Industry Regulatory Authority (FINRA): FINRA, which is overseen by the SEC, regulates all firms selling securities in the United States.
• The Municipal Securities Rulemaking Board (MSRB): The MSRB, which is overseen by the SEC, regulates the U.S. municipal bond market.
• The National Futures Association (NFA): The NFA, which is overseen by the CFTC, regulates the commodities and futures industry.

Generally, SROs in U.S. securities and futures markets perform various regulatory responsibilities, but in basic terms, SROs oversee the markets in which they operate and police the members and member firms participating in those markets.

More specifically, the regulatory responsibilities of SROs include matters such as:
• Creating rules to protect the integrity of the market in which they operate (e.g., rules that govern market conduct and that regulate exchange trading)
• Establishing the standards and rules under which their members operate (e.g., regulating their members' trading practices, member qualifications, and how members should relate to their clients)
• Offering professional training, testing, and licensing to individuals in their industry
• Monitoring compliance with and enforcing the rules of the markets in which they operate through market surveillance programs, trading analysis, and examinations of member firms' trading operations
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Trial procedures in civil actions are similar to criminal cases, with several notable exceptions. Juries need not necessarily consist of 12 people, and many civil cases are heard by six jurors. The parties in civil cases also may stipulate that the verdict need not be unanimous.
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Concern over the 1929 stock market crash and over the manipulation of the securities markets precipitated the need for federal intervention. In 1933, the Securities Act was enacted to regulate the public offering of securities and to protect investors. Simply put, the 1933 Act regulates the issuance of the securities themselves, and the 1934 Act covers subsequent trading of securities through brokers and exchanges.
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During a deposition, the deponent or counsel can object to particular questions as in a trial, but even if an objection is made, the deponent must answer the questions. The evidence is taken subject to the objections. This means that if an objection is made to a particular question asked during a deposition, the objection is duly noted, and if the depositional evidence is presented at trial, the judge will be asked to rule on the objection before that part of the deposition is read to the jury.
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Depositions are probably the most popular and useful form of civil discovery. A deposition is sworn testimony given by a party or witness upon questioning by counsel for one of the parties before trial and outside of court, usually in a lawyer's office. Opposing counsel and a stenographer, who administers the oath and transcribes the testimony, also are present. Deposition testimony may be used to obtain evidence about the party's own case or the opponent's, or to preserve testimony for trial.
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Rule 10b-5—which the SEC promulgated pursuant to Section 10 of the Exchange Act—prohibits false statements and other fraudulent activity in connection with the purchase or sale of any security. Rule 10b-5 is often referred to as the Act's anti-fraud provision. Specifically, Rule 10b-5 states that: "It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange:
• To employ any device, scheme, or artifice to defraud,
• To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or
• To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security."
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Interrogatories are questions that are submitted to an opposing party in a suit; they are something like a written deposition. Therefore, interrogatories cannot be given to any witness or potential witness who is not a party to the lawsuit. Interrogatories are submitted to the party in writing. If the receiving party thinks that a question is improper, then he may object to the question. If no objection is given, then the party must answer the question in writing. All answers to interrogatories must be sworn to under oath.

Unlike responses to requests for admission, responses to interrogatories are not binding, meaning the responding party may offer testimony that is inconsistent with its responses to interrogatories. However, the inconsistent response to an interrogatory can be used to impeach (discredit the testimony of) the witness at trial.
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To comply with Rule 26 of the Federal Rules of Civil Procedure, organizations should create "litigation hold" procedures. These are the steps taken to notify employees to suspend the destruction of potentially relevant records. The duty to issue a litigation hold arises when litigation is "reasonably anticipated."
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Securities broker-dealers are prohibited from recommending investments or investment strategies that are unsuitable for their clients. Thus, making unsuitable recommendations (e.g., recommending high-risk options to a senior citizen with limited assets) is prohibited.

Essentially, there are two rules relating to suitability: the "know your customer" rule and the suitability rule. The "know your customer" rule provides that securities broker-dealers must know their customer financially to effectively service the customer's account and to minimize the risk of recommending an inappropriate investment. Thus, this form of suitability violation occurs when a broker recommends an investment or investment strategy to a client without having conducted due diligence to ascertain relevant personal and financial information about the client.

In addition to the "know your customer" requirement, there are suitability requirements that broker-dealers must follow when making recommendations to a client. The suitability rule prohibits a broker-dealer from making a recommendation to a client if the broker does not have reasonable grounds for believing that the recommendation is suitable for the client. This form of suitability violation occurs when a broker recommends an investment, recommends an investment strategy, or makes an investment that is inconsistent with the client's objectives, and the broker knows or should know the investment is inappropriate.
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A successful 10b-5 action requires the plaintiff (a purchaser or seller) to allege and prove the following five elements:
• The defendant made a material misstatement (false statement) or omission.
• The alleged fraud was in connection with the purchase or sale of a security.
• The defendant acted with scienter (typically meaning that the party charged with the violation acted with a specific intent to defraud).
• The plaintiff relied on the misrepresentation or omission.
• The plaintiff suffered economic loss caused by the misrepresentation or omission.
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To comply with Rule 26 of the Federal Rules of Civil Procedure, organizations should create "litigation hold" procedures. These are the steps taken to notify employees to suspend the destruction of potentially relevant records. The duty to issue a litigation hold arises when litigation is "reasonably anticipated."

Whether an organization should "reasonably anticipate" litigation is determined based on the facts and varies from case to case. Common triggers for anticipation are notices sent by government agencies, unequivocal threats of litigation for credible issues, receiving a summons or complaint, and many others. Vague rumors of litigation generally do not trigger litigation holds, but it is best to contact experienced legal counsel when faced with threats of litigation to determine whether such procedures are necessary.
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The Securities Act of 1933 created interstate registration requirements, providing that it is unlawful to sell or offer to buy or sell a security unless a registration statement has been filed with the SEC. The registration filing, however, will not prohibit the offer or sale of a security if the transaction is exempt or the security being sold is exempt. Therefore, if a security qualifies for an exemption, it can be offered to the public without being registered with the SEC. Both federal and state laws provide for exemptions.
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A limited partnership is similar to a general partnership, except that in addition to one or more general partners, limited partnerships also have one or more limited partners. In contrast to a general partner, who has unlimited personal liability, a limited partner is a passive investor whose liability is limited to the amount of his investment in the company. Thus, in a limited partnership, the general partners manage the enterprise's activities, and the limited partners supply the funding. Limited partners do not manage the enterprise's activities.

Unlike general partnership interests, interests in limited partnerships are generally held to be securities because this type of structure conforms closely to the definition of an investment contract.
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The securities industry is regulated by federal and state laws. And although there is some commonality between federal and state laws, there are also some differences. Consequently, there is a complex web of laws from the federal and state governments. Each state has its own securities laws, and even where the state law is similar to the federal law, the law's interpretation and rules may differ.
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A defendant may file a cross-claim against one of its co-defendants. A cross-claim is simply an action between co-parties (i.e., claims between two defendants or two plaintiffs).
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A civil action begins with the filing of a complaint in the appropriate court, usually in the jurisdiction in which the defendant resides or where the claim arose. In some limited circumstances, cases may occasionally be filed where the plaintiff resides.

The federal rules provide that the complaint should be a "short and plain statement" showing the court's jurisdiction to hear the case, the grounds for relief, and a demand for judgment.
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The Uniform Securities Act of 2002 provides that, unless certain exemptions apply, a security cannot be sold or offered for sale until all of the following requirements are satisfied:
• There is a registration in place to cover the security.
• The securities professional is registered.
• There is full and fair disclosure of all material information.
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In limited partnerships, the general partners manage the enterprise's activities, and the limited partners supply the funding. Limited partners do not manage the enterprise's activities.
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Front running is a type of insider trading. Front running involves the use of the privileged knowledge of a customer's order to buy or sell a large amount of a commodity, option, or security that, because of its size, is likely to move the market.
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Types of investments most commonly recognized as securities include: stocks, bonds, certificates of deposit (CDs), futures, and options. Retirement plans and fixed insurance policies are generally not recognized as securities.
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Discovery refers to the formal process whereby the parties collect evidence and learn the details of the opposing case. Under federal rules, either party may take discovery regarding any matter, not privileged, that is relevant to the subject matter of the action or that might lead to admissible evidence. Thus, even information that is not admissible at trial can be obtained through discovery.



See pages 2.1003 in the Fraud Examiner's Manual
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Either party in a civil case may take discovery regarding any matter, not privileged, that is relevant to the subject matter of the action or that might lead to admissible evidence. The methods of civil discovery are oral depositions, written interrogatories, requests to produce documents, requests for admissions, requests for permission to enter upon land, and physical and mental examinations.

Interrogatories are questions that are submitted to an opposing party in a suit. Interrogatories cannot be given to anyone other than a party to a suit. Questions are submitted to the party in writing. If the receiving party thinks that a question is improper, then he may object to the question. If no objection is given, then the party must answer the question in writing. Some parties will try to provide as little information as possible but still give a "truthful" answer. However, that tactic can backfire—if the answering party does not provide the information requested, that party cannot introduce evidence on those issues at trial and can be sanctioned by the court. All answers must be sworn to under oath.
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The U.S. securities and futures markets are regulated through a combination of self-regulation by self-regulatory organizations (SROs) and direct federal regulation. SROs in U.S. securities and futures markets are subject to federal regulation. Securities and futures laws authorize the Securities Exchange Commission (SEC), which regulates the U.S. securities industry, and the Commodity Futures Trading Commission (CFTC), which has authority over U.S. futures markets, to delegate authority to and oversee SROs, empowering authorized SROs to regulate the markets in which securities and futures are traded.



There are several SROs in U.S. securities and futures markets, including:


• The national exchanges: The national exchanges that operate the markets where securities and futures are traded (e.g., the New York Stock Exchange, American Stock Exchange, and the Chicago Board Options Exchange) are SROs.
• The Financial Industry Regulatory Authority (FINRA): FINRA, which is overseen by the SEC, regulates all firms selling securities in the United States.
• The Municipal Securities Rulemaking Board (MSRB): The MSRB, which is overseen by the SEC, regulates the U.S. municipal bond market.
• The National Futures Association (NFA): The NFA, which is overseen by the CFTC, regulates the commodities and futures industry.
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Under Section 2(a)(1) of the Securities Act of 1933, the default definition of security is an investment contract. Many fraudulent schemes involving exotic investments can be argued to constitute the offer or sale of investment contracts. The following are types of investments that frequently qualify as "investment contracts" and are, therefore, considered securities:
• Ponzi schemes
• Illegal pyramid schemes
• Prime-bank note schemes
• Investment schemes involving precious metals or stones
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There are several notable differences between civil and criminal trials. In most states, criminal juries are composed of 12 people, but in all states it's common for civil cases to be heard by only six jurors.
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In many instances, particularly in fraud litigation, a judgment might go uncollected because the defendant has already squandered or secreted the assets. In such circumstances, a plaintiff may conduct post-judgment discovery, including a deposition of the defendant, in an attempt to locate assets to satisfy a judgment.
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Types of investments most commonly recognized as securities include: stocks, bonds, certificates of deposit (CDs), futures, and options. Retirement plans and fixed insurance policies are generally not recognized as securities.
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Opposing counsel might seek to lull the witness into a feeling of false security by not attacking him, but then—after the witness feels safe—find a small hole in the testimony that can be enlarged quickly. This approach is often characterized by being friendly and conciliatory, by which the jury is made sympathetic to the cause of the opposing counsel. Opposing counsel also might attempt to achieve a certain amount of association with the witness that will make the witness want to help the opposing counsel to bring out information. Doing so might result in the witness giving information that otherwise would not have been given. With this additional information, it might be possible to find a chink or hole in the evidence and open it further.
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There are three basic forms, as distinguished from types, of evidence: testimonial, real, and demonstrative. Testimonial evidence refers to the oral statements made by witnesses under oath. Real evidence refers to physical objects that played a part in the issues being litigated. Demonstrative evidence is a tangible item that illustrates some material proposition (e.g., a map, a chart, or a summary). Demonstrative evidence differs from real evidence in that demonstrative evidence was not part of the underlying event; it was created specifically for the trial. Its purpose is to provide a visual aid for the jury. Nonetheless, demonstrative evidence is evidence and can be considered by the jury in reaching a verdict.
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The attorney-client privilege precludes disclosure of communications between an attorney and client, but only if all of the following conditions are met:
• The client retained the attorney to provide legal advice (i.e., there must be an attorney-client relationship)
• And thereafter the client communicated with the attorney on a confidential basis
• The privilege has not been waived

To be protected under the attorney-client privilege, a communication must be made to obtain legal advice, but it is not necessary that the communication take place after a lawsuit has been filed.

Also, to qualify for the privilege, there must be intent to keep the communications confidential (i.e., the communications must not be disclosed to third parties such as vendors, customers, auditors, or governmental officials).
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The common law consists of the usages and customs of a society as interpreted by the judiciary; it often is referred to as "judge-made" law. As opposed to legislative statutes or codes, the common law is developed on a case-by-case basis. That is, the common law is a system of legal principles developed by judges through decisions made in courts. Common law originated as a legal system in England, and some of the principles established hundreds of years ago in court decisions remain influential to contemporary legal issues. Today, common law systems exist in the United Kingdom, the United States, India, Australia, and many other countries that were once part of the British Empire or were influenced by such legal systems.

An additional feature of the common law system is the precedential value of court decisions. In common law systems, judges, particularly at the appellate level, often set out the reasons for their decisions in a written opinion. These written decisions serve to guide judges in deciding similar cases. Decisions that establish particular legal principles are called "precedent." Under the doctrine of "stare decisis," lower courts are bound to follow the precedents of higher courts until or unless the rule of law established is overturned by a higher court or the legislature.
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There are two basic types of admissible evidence: direct evidence and circumstantial evidence. Direct evidence is evidence that tends to prove or disprove a fact in issue directly, such as eyewitness testimony or a confession. Circumstantial evidence is evidence that tends to prove or disprove facts in issue indirectly, by inference.
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There are three basic forms, as distinguished from types, of evidence: testimonial, real, and demonstrative. A photograph can be either demonstrative evidence or real evidence. Real evidence describes physical objects that played a part in the issues being litigated. The term includes both documentary evidence—such as canceled checks, invoices, ledgers, and letters—as well as other types of physical evidence. Demonstrative evidence is a tangible item that illustrates some material proposition (e.g., a map, a chart, or a summary).

Accordingly, a photograph can be real evidence if it was part of the underlying event, or it can be demonstrative evidence if it was created specifically for the trial.
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In most cases, appeals from decisions of the U.S. District Courts are heard in the U.S. Court of Appeals for the "Circuit," which covers a particular geographic area. The United States has 13 appellate courts. There are 11 numbered judicial circuits, plus the District of Columbia, all of which are defined by a geographic area. There is also the U.S. Court of Appeals for the Federal Circuit, which has nationwide jurisdiction over appeals involving certain subject matters. The U.S. Supreme Court is the highest appellate court in the federal system and may hear certain appeals from state courts, particularly on constitutional grounds.

Each federal district, not each court of appeals, is assigned a chief prosecutor.



See pages 2.114-2.115 in the Fraud Examiner's Manual
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The protection offered by the work product doctrine extends to not only information and documents prepared by a party or the party's attorneys, but also by the consultants and examiners hired by the attorneys. For instance, communications with the attorney and any work or analysis done by an expert with whom the attorney has consulted is protected as work product, although that privilege protection will be waived if the expert is called to testify as an expert witness at trial.
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Rule 702 of the Federal Rules of Evidence provides that the judge must make three determinations before allowing an expert to testify before the jury:
• Is the person qualified as an expert witness?
• Will the expertise of the witness assist the jury in understanding the evidence or determining a fact at issue? In other words, is the testimony relevant to the facts of the case?
• Is the testimony reliable?
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Most U.S. states use a three- or four-tier court system. Lower-level trial courts are responsible for trying misdemeanors and holding preliminary hearings for felony cases. Responsibilities of other courts in the U.S. court system are detailed below.
• Lower-level trial courts try misdemeanors and hold preliminary hearings for felony cases, as well as civil disputes below a certain dollar amount (e.g., $10,000 or less).
• Higher-level trial courts (sometimes called superior courts) try felony cases, as well as civil disputes above a certain amount (e.g., $10,000 or more).
• Appellate courts review trial court decisions.
• Superior appellate courts, or supreme courts, review lower appellate court decisions.
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It is critical never to underestimate the expertise of the opposing counsel. Often, opposing counsel will be underplaying its understanding of the issues to lull the witness into a sense of security. This can lead the witness into a difficult situation. Opposing counsel's golden rule is to cross-examine only if it would benefit the case. In asking questions of the witness, opposing counsel will generally ask either short questions in plain words or will ask leading questions. Usually counsel knows the answers to the questions.
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Sometimes testimony may be excluded because of the best-evidence rule, which prohibits a party from testifying about the contents of a document without producing the document itself. This rule, however, only applies when an original or copy is being used to prove the contents of a writing, and it does not demand that a party produce the very best evidence to prove a fact in dispute.

Also known as the original-writing rule, the best-evidence rule provides that when a witness testifies about the contents of a document, at least a fair copy of the original must be available for inspection. If there is no original, a copy of the proven authentic document will do, but the court must be assured that the copies are reliable and accurate. If the document is lost—no original, no copies—the judge will have to be convinced that there is good reason to forgo the exhibit and admit the testimony.
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Appellate courts do not try cases, and an appellate court will not reverse a conviction unless it finds an error that affected the "substantial rights" of a party; "harmless error," which supposedly does not affect the jury's decision, is tolerated.

If an appellate court finds that a new trial is necessary, it will send the case back to the trial court that decided the appealed issue.
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Most U.S. states use a three- or four-tier court system.
• Low-level trial courts try misdemeanors and hold preliminary hearings for felony cases, as well as civil disputes below a certain dollar amount (e.g., $10,000 or less).
• Higher-level trial courts (sometimes called superior courts) try felony cases, as well as civil disputes above a certain amount (e.g., $10,000 or more).
• Appellate courts review trial court decisions. While appellate courts may review issues of law and mixed issues of fact and law, they do not try cases and are not responsible for discovering facts. New trials and issues that require new factual findings will generally be sent back to the trial court that decided the appealed issue.
• Superior appellate courts, or supreme courts, review lower appellate court decisions.

In this case, the appellate state court would send the trial or findings back to the higher-level trial court, which was the trial court that decided the appealed issue.
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The rules for appeal differ in civil and criminal court. Either party in a civil case may appeal a judgment.

Because of the Fifth Amendment's double jeopardy provisions, only a convicted defendant in a criminal case can appeal a verdict. The government cannot appeal an acquittal on the merits of the case. The prosecution may, however, appeal adverse pretrial rulings on the admissibility of evidence and certain other matters that may temporarily terminate a prosecution (but do not result in a decision on the merits in favor of the defendant).
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Under Rule 703, an expert may base an opinion on:
• Firsthand observations
• Facts, data, or opinions presented at trial
• Facts, data, or opinions conveyed outside of court

Under Rule 703, experts can rely on inadmissible hearsay or other inadmissible evidence as long as it is the type reasonably relied upon by experts in the particular field—a determination that is left to the discretion of the trial judge. This rule allows an expert to employ data usually used by experts in the field, though the data itself may not be admissible. For example, an expert may rely on a table of interest rates taken from a Department of Commerce publication even if the table is not admissible. Similarly, an accountant serving as an expert witness may rely on private sources in forming an opinion if such sources normally are relied upon by accountants.
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Work product protection applies only to documents and things prepared in anticipation of litigation or for trial. Documents and tangible things prepared in the course of an in-house or other pre-litigation investigation, even if at the direction of an attorney, may not be privileged if they were not prepared in anticipation of litigation. Just because there is a possibility of future litigation does not mean that the investigation is in anticipation thereof. Litigation must be actually planned and the work for which protection is sought must have been undertaken for the specific purpose of preparing for that litigation. However, if the work to be protected was done in anticipation of litigation, then it does not matter in most jurisdictions that no lawsuit has been filed yet.
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Testifying expert witnesses give opinion testimony when specialized knowledge is needed to help the jury understand evidence or determine a fact in issue. Unlike fact (or lay) witnesses, expert witnesses may express opinions or draw conclusions in their testimony.
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Before December 1, 2010, draft reports—preliminary reports that attorneys requested from experts hired to testify—were discoverable. Such preliminary reports would often reflect the parties' mental impressions of the case, which might reveal sensitive information. As a result, attorneys would usually hire one "consulting expert" (a nontestifying expert witness whose draft report was not discoverable) and later retain a testifying expert witness. Of course, this process ended up costing more time and money than hiring just one expert. Therefore, Rule 26 was amended to make draft reports protected under the work product doctrine.

The amendments to Rule 26 also extended work product protection to most communications between experts and attorneys relating to the report. However, there are a few exceptions to this protection. The following communications are not protected by Rule 26(b)(4):
• Communications relating to compensation for the expert's study or testimony
• Communications that identify facts or data that the party's attorney provided and the expert considered in forming the opinions
• Communications that identify assumptions that the party's attorney provided and that the expert relied on in forming the opinions
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The attorney-client privilege is not absolute; it is subject to waiver. Because the attorney-client privilege does not protect communications disclosed to outside parties, the privilege will be waived if confidential communications are disclosed to a third party whose role has little to do with the client's pursuit of legal representation.

Generally, waiver occurs when the client, who holds the privilege, voluntarily discloses (or consents to or encourages someone else disclosing) any significant part of the privileged communications. Although the client holds the privilege, the privilege can also be waived by the client's attorney or a third party (someone who is neither the attorney nor the client).

Although the attorney-client privilege only applies to confidential communications between an attorney and his client, the privilege extends to communications with third-party consultants hired to help provide legal advice to the client (e.g., fraud examiners, accountants, bankers, or other expert). Thus, waiver does not occur when an attorney shares privileged information with an outside consultant hired in a role that concerns the client's pursuit of legal representation and when the communication was made for the purpose of effectuating legal representation for the client. But when privy to privileged information, such consultants can waive the client's privilege.
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In the United States, there are two main categories of law: substantive law and procedural law. Substantive law is comprised of the basic laws of rights and duties (contract law, tort law, criminal law, etc.) as opposed to procedural law, which involves rules governing pleadings, evidence, jurisdiction, and so on. If someone says an act is "against the law," he means substantive law, which includes statutes and ordinances at every level; common law, or case law, from all the various courts; and state and federal constitutions. The mail fraud statute is a criminal statute; therefore, it is most properly characterized as substantive law.
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Direct examination is the initial questioning of a witness by the side that called the witness. Most of the time, direct examination is a nonconfrontational questioning aimed at exposing the facts and issues of the case. Because experts are hired for their opinions, they are not subject to the usual restrictions about statements of judgment.

Expert witnesses present their findings in various ways, such as narratives, hypotheticals, specialized materials, and special exhibits. Experts are commonly asked to answer narrative questions, which are all but forbidden to lay witnesses. Narrative questions are broad, open-ended questions that allow experts to present their opinions in their own words with minimal prompting from the lawyer. Fraud cases, with their divergent paths of activity and intrigue, can require complex summarizing for the facts to make any sense. The average group of jurors has never considered how someone could manipulate store inventories to drive up the company's stock price and then make millions on the phony surge. The expert witness in cases dealing with such issues often will begin testimony by recounting the narrative background of a case, the tests and experiments that were performed during the investigation, and a summary of the findings based on his professional expertise.

On direct examination, an attorney wants to ask questions that the expert is comfortable answering, so compound (two-part) and hostile questions do not generally occur in this process. Additionally, it is generally objectionable for leading questions to be asked during direct examination of the expert (e.g., "The results were negative, weren't they?").
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The Fifth Amendment privilege can be asserted in any proceeding, civil or criminal, administrative or judicial, investigatory, or adjudicatory.

Criminal and civil actions for fraud may proceed simultaneously even though such "parallel proceedings" present a dilemma for the defendant. For example, a defendant lawfully may assert his Fifth Amendment right against self-incrimination to avoid answering questions or producing certain documents in the criminal investigation. But he may not do so in the corresponding civil case without suffering the possibility of sanctions that can include the dismissal of affirmative defenses or the striking of testimony. Additionally, if a defendant takes the stand in a civil case and testifies on his own behalf, he cannot later invoke the Fifth Amendment and refuse to answer questions concerning the same subject matter on cross-examination. If he does, the judge may order that his testimony on direct examination be stricken from the record.
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Although the work undertaken by a fraud examiner may be protected by the work product doctrine, to receive protection, the work must be done in anticipation of litigation and at the attorney's direction. Here, even if Black's work was done at the attorney's direction, her work was not prepared in anticipation of litigation because no litigation was actually planned.
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Jurisdiction is the power of a court to hear and decide a given case; it refers to the subject matter or persons over which lawful authority may be exercised by a court. A probate court, for instance, only has jurisdiction to hear cases related to wills and other probate matters. Lower trial courts (e.g., a justice of the peace court) may only have jurisdiction to hear matters under a certain dollar amount (e.g., cases with less than $5,000 in controversy).

Venue is technically an element of jurisdiction. It refers to the physical location where the lawsuit is to be tried. A trial court in Dallas County, Texas, for example, can only hear cases that have some connection with either parties or events that occurred in that county.
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In general, the judge and jury serve important roles during a trial. In the trial setting, the jury finds the facts and the judge applies the law and rules on evidence. The judge also generally moderates the proceeding to ensure a fair trial. If, however, a jury is waived by the defendant and government, the judge decides both the facts and the law in what is called a bench trial.

Appeals involve questions of law or questions involving both law and fact. Most questions of law are decided by precedent; that is, prior court decisions of equal or higher authority that have considered similar cases.
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Almost every country can be classified as having either a common law or a civil law judicial system, and knowing the differences between the two is essential to understanding how legal and judicial processes work in foreign jurisdictions.

Civil law systems apply laws from an accepted set of codified principles or compiled statutes. Individual cases are then decided in accordance with these basic tenets. Under a civil law system, judges or judicial administrators are bound only by the civil code and not by the previous decisions of other courts. In deciding legal issues, a civil law judge applies the various codified principles to each case.
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There are three basic forms, as distinguished from types, of evidence: testimonial, real, and demonstrative. Testimonial evidence refers to the oral statements made by witnesses under oath. Real evidence refers to physical objects that played a part in the issues being litigated. Demonstrative evidence is a tangible item that illustrates some material proposition (e.g., a map, a chart, or a summary).
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Because of the Fifth Amendment's double jeopardy provisions, only a convicted defendant in a criminal case can appeal a verdict. The government cannot appeal an acquittal on the merits of the case. The prosecution may, however, appeal adverse pretrial rulings on the admissibility of evidence and certain other matters that may temporarily terminate a prosecution (but do not result in a decision on the merits in favor of the defendant). Either party in a civil case may appeal a judgment.
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The attorney-client privilege is not absolute; it is subject to waiver. Because the attorney-client privilege does not protect communications disclosed to outside parties, the privilege will be waived if confidential communications are disclosed to a third party whose role has little to do with the client's pursuit of legal representation.

Generally, waiver occurs when the client, who holds the privilege, voluntarily discloses (or consents to or encourages someone else disclosing) any significant part of the privileged communications. Although the client holds the privilege, the privilege can also be waived by the client's attorney or a third party (someone who is neither the attorney nor the client).
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Under Rule 703, experts can rely on inadmissible hearsay or other inadmissible evidence as long as it is the type reasonably relied upon by experts in the particular field—a determination that is left to the discretion of the trial judge. This rule allows an expert to employ data usually used by experts in the field, though the data itself may not be admissible. For example, an expert may rely on a table of interest rates taken from a Department of Commerce publication even if the table is not admissible. Similarly, an accountant serving as an expert witness may rely on private sources in forming an opinion if such sources normally are relied upon by accountants.
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Because of the Fifth Amendment's double jeopardy provisions, only a convicted defendant in a criminal case can appeal a verdict. The government cannot appeal an acquittal on the merits. If a statute authorizes the prosecution to appeal, such an appeal is constitutional only if the appellate court can decide the appeal without subjecting the defendant to a second trial. The prosecution may, however, appeal adverse pretrial rulings on the admissibility of evidence and certain other matters that can terminate a prosecution temporarily (but do not result in a decision on the merits in favor of the defendant). Either party in a civil case may appeal a judgment.
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There are two basic kinds of testimony. The first is lay testimony (sometimes called factual testimony), where witnesses testify about what they have experienced firsthand and their factual observations. The second kind is expert testimony, where a person who, by reason of education, training, skill, or experience, is qualified to render an expert opinion concerning certain issues at hand. A lay witness (or fact witness) is anyone who provides nonexpert testimony. Note, however, that an expert witness might also provide lay testimony.

Typically, a fraud examiner who worked on a case will be capable of providing lay testimony based on observations made during the investigation. When a trial involves issues that are complex or unfamiliar to most people, as is common in incidents of fraud, expert testimony is appropriate to help the judge and jury understand these issues.
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In Daubert v. Merrell Dow Pharmaceuticals, Inc., the Supreme Court set forth the following nonexclusive list of factors to assess reliability:
• Whether the expert's theory or technique can be or has been tested
• Whether the expert's theory or technique has been subjected to peer review and publication
• Whether the expert's theory or technique enjoys general acceptance within the relevant scientific community
• Whether there are standards governing the method used by the expert
• Whether the expert's technique has a high error rate
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The primary reason for maintaining the chain of custody on an item of evidence is to establish that the evidence has not been altered or changed. If evidence is subject to change over time, or is susceptible to alteration, the offering party may need to establish that the evidence has not been altered or changed from the time it was collected through its production in court. This is done by establishing a chain of custody. The chain of custody is both a process and a document that memorializes 1) who has had possession of an object and 2) what they have done with it.
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Jurisdiction is the power of a court to hear and decide a given case; it refers to the subject matter or persons over which lawful authority may be exercised by a court. A probate court, for instance, only has jurisdiction to hear cases related to wills and other probate matters. Lower trial courts (e.g., a justice of the peace court) may only have jurisdiction to hear matters under a certain dollar amount (e.g., cases with less than $5,000 in controversy).

Determining the proper court requires a three-part test. First, does the court hear cases of the type in question? For example, if a plaintiff brings a civil complaint claiming $500,000 in damages, the plaintiff needs a court that hears civil complaints of that magnitude. Second, does the court have the authority to exercise its power over a particular defendant or piece of property? For instance, a plaintiff can sue a Nebraska company in a Nebraska state court because state courts have personal jurisdiction over all enterprises that do business in that state. Third, does the claim arise within the court's venue? Venue is an element of jurisdiction. It refers to the physical location where the lawsuit is to be tried. A trial court in Dallas County, Texas, for example, can only hear cases that have some connection with either parties or events that occurred in that county.
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Parallel proceedings are simultaneous criminal and civil actions against the same defendant that are based upon a single set of facts. The general rule is that criminal and civil actions for fraud may proceed simultaneously even though such "parallel proceedings" present a dilemma for the defendant. For example, a defendant lawfully may assert his Fifth Amendment right against self-incrimination to avoid answering questions or producing certain documents in the criminal investigation. He may not do so in the corresponding civil case, however, without suffering the possibility of sanctions that can include the dismissal of affirmative defenses or the striking of testimony.

Generally, courts have not been sympathetic to the defendant's dilemma and have allowed civil discovery to proceed even though criminal charges are pending.
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At the most basic level, evidence must be established as reliable or authentic. Thus, to be admissible at trial, evidence, other than testimonial evidence, must be properly authenticated; that is, the party offering the evidence item must produce some evidence (e.g., testimony from a person with firsthand knowledge) to show it is, in fact, what the party says it is and to show it is in the same condition from the moment it was seized until it is used in court. If a piece of real evidence cannot be authenticated, the evidence will not be admitted even if it is plainly relevant.

The most likely methods of authenticating computerized records are:
• Testimony from a witness with personal knowledge (e.g., an authenticating witness attests to the process by which the computerized records are created, acquired, maintained, and preserved)
• Circumstantial evidence of distinctive characteristics (e.g., a person's business habit is consistent with the document)
• Certified copies of business records (e.g., computerized records are accompanied by custodian's written certification)
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Under Rule 702 of the Federal Rules of Evidence, a witness qualified as an expert by "knowledge, skill, experience, training or education" may testify in the form of an opinion or otherwise to "scientific, technical or other specialized knowledge" if such testimony will "assist the trier of fact to understand the evidence or to determine the fact in issue." The determination of whether a witness is qualified as an expert or whether expert testimony is needed is left to the discretion of the trial judge. There is no particular educational requirement for expert testimony; a witness with no formal education may be qualified based on training or experience.
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In common law systems, there are laws established by court decisions (called the common law). The common law consists of the usages and customs of a society as interpreted by the judiciary; it often is referred to as "judge-made" law. An additional feature of the common law system is the precedential value of court decisions. In common law systems, judges, particularly at the appellate level, often set out the reasons for their decisions in a written opinion. These written decisions serve to guide judges in deciding similar cases. Decisions that establish particular legal principles are called "precedent." Under the doctrine of "stare decisis," lower courts are bound to follow the precedents of higher courts until or unless the rule of law established is overturned by a higher court or the legislature.
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Opposing counsel might attempt to take psychological control of a witness by:
• Using physical presence to intimidate
• Making nonstop eye contact
• Challenging space of the witness
• Asking questions at a fast pace to confuse the witness
• Not allowing the witness to explain or deviate from the exact question

It is not the witness's job to argue with or challenge opposing counsel. The witness should simply try to get through the cross-examination in the most professional way possible. If opposing counsel uses blatantly unfair practices, the jury will take note and such practices may hurt the opposing side's case. In no circumstances should the witness argue with opposing counsel. The counsel who called the witness is tasked with objecting to questioning that is improper, so the witness should continue with answering the questions until an objection is made, and then follow the court's directions.
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To be admissible as evidence at trial, exhibits must be relevant. In addition, at the most basic level, evidence must also be established as reliable or authentic. Thus, evidence, other than testimonial evidence, must be properly authenticated; that is, the party offering the evidence item must produce some evidence (e.g., testimony from a person with firsthand knowledge) to show it is, in fact, what the party says it is and to show it is in the same condition from the moment it was seized until it is used in court. If a piece of real evidence cannot be authenticated, the evidence will not be admitted even if it is plainly relevant.
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Rule 26 of the Federal Rules of Civil Procedure requires certain disclosures concerning people who might be used as expert witnesses at trial. The rule applies to experts who have been retained specifically for a given case, and it includes employees of a party if part of the employees' duties involves giving expert testimony. A written report must be produced for each expert witness. The report must be prepared and signed by the witness and must include the following:
• A complete statement of all opinions to be expressed and the basis and reasons for such opinions
• The data or other information considered by the witness in forming the opinion
• Any exhibits to be used as a summary of or in support for the opinions
• The qualifications of the witness, including a list of all publications authored by the witness within the preceding ten years
• The compensation to be paid for the witness's study and testimony
• A listing of any other case in which the witness has testified as an expert at trial or by deposition within the preceding four years
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Certain standards for Certified Fraud Examiners are found in the Code of Professional Ethics. Specifically, Certified Fraud Examiners are prohibited from expressing opinions as to the guilt or innocence of any person or party. This is not to say that the witness cannot testify to the badges, hallmarks, or characteristics of fraud found in the case. It also does not mean that the Certified Fraud Examiner cannot testify that, based on the evidence, he believes that the accused might have committed the offense. But the ultimate guilt or innocence of any person or party is the sole responsibility of the judge and jury. The Certified Fraud Examiner typically will not be permitted to testify to the ultimate fact questions.
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There are two sources of substantive law: statutory law and common law. Statutory law includes statutes passed by the federal or state legislatures (and regulations passed by administrative bodies). The common law consists of the usages and customs of a society as interpreted by the judiciary; it often is referred to as "judge-made" law. Criminal law is statutory, while civil actions can be based on either statutory or common law.
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Most U.S. states use a three- or four-tier court system.
• Lower-level trial courts try misdemeanors and hold preliminary hearings for felony cases, as well as civil disputes below a certain dollar amount (e.g., $10,000 or less).
• Higher-level trial courts (sometimes called superior courts) try felony cases, as well as civil disputes above a certain amount (e.g., $10,000 or more).
• Appellate courts review trial court decisions.
• Superior appellate courts, or supreme courts, review lower appellate court decisions.

Appellate and supreme courts generally do not hold trials; instead, they review trial court rulings and decisions. The amount in controversy in this case makes the case more suited for a higher-level trial court than a lower-level trial court.
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Harris is providing expert advice at trial, making him an expert witness. Testifying expert witnesses give opinion testimony when specialized knowledge is needed to help the jury understand evidence or determine a fact in issue. Unlike fact (or lay) witnesses, expert witnesses may express opinions or draw conclusions in their testimony.
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Almost every country can be classified as having either a common law or a civil law judicial system, and knowing the differences between the two is essential to understanding how legal and judicial processes work in foreign jurisdictions.

In common law systems, there are laws established by court decisions (called the common law). As opposed to legislative statutes, the common law is developed on a case-by-case basis. That is, the common law is a system of legal principles developed by judges through decisions made in courts. It consists of the usages and customs of a society as interpreted by the judiciary, and it is often referred to as "judge-made" law. Common law originated as a legal system in England, and some of the principles established hundreds of years ago in court decisions remain influential to contemporary legal issues. Today, common law systems exist in the United Kingdom, the United States, India, Australia, and many other countries that were once part of the British Empire or were influenced by such legal systems.

In common law countries, there are two sources of substantive law: statutory law and common law. Statutory law includes statutes passed by the federal or state legislatures (and regulations passed by administrative bodies). Criminal law is statutory, while civil actions can be based on either statutory or common law.
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Parallel proceedings are simultaneous criminal and civil actions against the same defendant that are based upon a single set of facts. The general rule is that criminal and civil actions for fraud may proceed simultaneously even though such "parallel proceedings" present a dilemma for the defendant. For example, a defendant lawfully may assert his Fifth Amendment right against self-incrimination to avoid answering questions or producing certain documents in the criminal investigation. He may not do so in the corresponding civil case, however, without suffering the possibility of sanctions that can include the dismissal of affirmative defenses or the striking of testimony.
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Evidence that the accused has committed other crimes is not usually admissible to prove that the defendant is generally a bad person, and therefore is likely to have committed the crime with which he is charged. But such evidence may be admitted to show something else, such as proof of motive, opportunity, or intent to commit an act.
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Expert witnesses present their findings in various ways, such as narrative questions, hypotheticals, specialized materials, and special exhibits. Experts are commonly asked to answer narrative questions, which are all but forbidden to lay witnesses. Narrative questions are broad, open-ended questions that allow experts to present their opinions in their own words with minimal prompting from the lawyer. Expert witnesses also are allowed to demonstrate their findings by using hypotheticals, which are fictional situations, analogous to the act in question, that clarify and highlight particular aspects of the dispute. But to be effective, hypotheticals must be constructed exquisitely.
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Generally, witnesses should never give away or volunteer free information during cross-examination. During the answer, it often might be extremely difficult to avoid getting trapped in various assumptions, "what if" scenarios, and generalities presented by counsel during cross-examination. Opposing counsel might also pose overly complex questions in an attempt to convolute the witness's responses. If this occurs, the witness should retrench by asking for the question to be rephrased in smaller components.
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The federal court system uses a three-tier model.
• U.S. District Courts conduct trials on criminal charges and civil complaints under federal law.
• Courts of Appeals, including the Court of Military Appeals, review trial court decisions.
• The U.S. Supreme Court reviews lower court decisions. It is sometimes called the court of last resort.

Each federal district has a chief prosecutor, a political appointee, known as the United States Attorney, and a staff of prosecutors, known as Assistant United States Attorneys. Almost all cases are prosecuted by assistants. Criminal cases at the local level are prosecuted by the district attorney's office or the attorney general's office.

In most cases, appeals from decisions of the U.S. District Courts are heard in the U.S. Court of Appeals for the "Circuit," which covers a particular geographic area. The United States has 13 Courts of Appeals. There are 11 numbered judicial circuits, plus the District of Columbia, all of which are defined by a geographic area. There is also the U.S. Court of Appeals for the Federal Circuit, which has nationwide jurisdiction over appeals involving certain subject matters. The U.S. Supreme Court is the highest appellate court in the federal system and may hear certain appeals from state courts, particularly on constitutional grounds.
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The attorney-client privilege is not absolute; it is subject to waiver. Because the attorney-client privilege does not protect communications disclosed to outside parties, the privilege will be waived if confidential communications are disclosed to a third party whose role has little to do with the client's pursuit of legal representation.

Generally, waiver occurs when the client, who holds the privilege, voluntarily discloses (or consents to or encourages someone else disclosing) any significant part of the privileged communications. Although the client holds the privilege, the privilege can also be waived by the attorney or a third party (someone who is neither the attorney nor the client).

Often, privilege is lost in this way when the client, the attorney, or a third party carelessly discloses confidential communications to an outside third party.
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In the federal system, an appeal to the U.S. Supreme Court is accomplished by applying for a "writ of certiorari." Relatively few appeals are granted. Usually they involve an important question of constitutional law, or they may be used to resolve a split or disagreement on a point of law among the circuits or on issues which have considerable significance to the judicial system.

If the U.S. Supreme Court denies a petition for a writ of certiorari (a request to hear a case on appeal), then the decision of the lower court is final.
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Each federal district has a chief prosecutor, a political appointee, known as the United States Attorney, and a staff of prosecutors, known as Assistant United States Attorneys. Almost all cases are prosecuted by assistants. Criminal cases at the state and local level are prosecuted by the District Attorney's office or the Attorney General's office.
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An expert's final report is not protected by the attorney work product doctrine and is discoverable.

Federal Rule of Civil Procedure 26 was amended to extend work product privilege to draft reports—preliminary reports that attorneys requested from experts hired to testify. Such preliminary reports would often reflect the parties' mental impressions of the case, which might reveal sensitive information. Before the amendment, attorneys would usually hire one "consulting expert" (a nontestifying expert witness whose draft report was not discoverable) and later retain a testifying expert witness. Of course, this process ended up costing more time and money than hiring just one expert.
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Rule 703 says that an expert may testify based on facts that are disclosed at or before the hearing in which the expert testifies. The facts need not themselves be admissible in evidence if they are of "a type reasonably relied upon by experts in a particular field." This rule allows an expert to employ data usually used by experts in the field, though the data itself may not be admissible. For example, an expert may rely on a table of interest rates taken from a Department of Commerce publication even if the table is not admissible. Similarly, an accountant serving as an expert witness may rely on private sources in forming an opinion if such sources normally are relied upon by accountants. If the accountant has been declared an expert witness, he may use any trustworthy data source in forming an opinion. The Federal Rule provides that if the facts or data are of a type reasonably relied upon by experts in the particular field in forming opinions, they need not be admissible in evidence.
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Rule 26 of the Federal Rules of Civil Procedure requires certain disclosures concerning people who might be used as expert witnesses at trial. The rule applies to experts who have been retained specifically for a given case, and it includes employees of a party if part of the employees' duties involves giving expert testimony. A written report must be produced for each expert witness. The report must be prepared and signed by the witness and must include the following:
• A complete statement of all opinions to be expressed and the basis and reasons for such opinions
• The data or other information considered by the witness in forming the opinion
• Any exhibits to be used as a summary of or in support for the opinions
• The qualifications of the witness, including a list of all publications authored by the witness within the preceding ten years
• The compensation to be paid for the witness's study and testimony
• A listing of any other case in which the witness has testified as an expert at trial or by deposition within the preceding four years
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The federal discovery rules were amended in 2010 to further extend the work product doctrine over many communications between attorneys and experts, such as fraud examiners. For example, communications regarding the expert's or attorney's impressions of the case are designed to be protected work product. However, there are a few exceptions to this protection. The following communications are not protected by Rule 26(b)(4):
• Communications relating to compensation for the expert's study or testimony
• Communications that identify facts or data that the party's attorney provided and the expert considered in forming the opinions
• Communications that identify assumptions that the party's attorney provided and that the expert relied on in forming the opinions
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Certain standards for Certified Fraud Examiners are found in the Code of Professional Ethics. Specifically, Certified Fraud Examiners are prohibited from expressing opinions as to the guilt or innocence of any person or party. This is not to say that the witness cannot testify to the badges or hallmarks or characteristics of fraud found in the case. It also does not mean that the Certified Fraud Examiner cannot testify that, based on the evidence, he believes that the accused may have committed the offense. But the ultimate guilt or innocence of any person or party is the sole responsibility of the judge and jury. The Certified Fraud Examiner typically will not be permitted to testify to the ultimate fact questions.
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The federal court system uses a three-tier model.
• U.S. District Courts conduct trials on criminal charges and civil complaints under federal law.
• Courts of Appeals, including the Court of Military Appeals, review trial court decisions.
• The U.S. Supreme Court reviews lower court decisions. It is sometimes called the court of last resort.

A superior court is another name for a higher-level state trial court in some jurisdictions.
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If called by the prosecution, fraud examiners might testify to their findings, and if called by the defense, they might testify regarding opinions expressed by the prosecution's expert—to create doubt in the jury's mind about the credibility or weight to be given to that expert. Expert witnesses are sometimes called upon to give an opinion different from that reached by an equally credible expert on the other side. This might be due to different interpretations of the facts of the case. In some instances, given equally plausible alternatives, the case might be decided on whichever side has the most credible expert witness.
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If called by the prosecution, fraud examiners might testify to their findings, and if called by the defense, they might testify regarding opinions expressed by the prosecution's expert—to create doubt in the jury's mind about the credibility or weight to be given to that expert. Expert witnesses are sometimes called upon to give an opinion different from that reached by an equally credible expert on the other side. This might be due to different interpretations of the facts of the case. In some instances, given equally plausible alternatives, the case might be decided on whichever side has the most credible expert witness.
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Procedural law sets out the rules of the legal system and the procedures to be followed in hearing a grievance—this means deadlines, filing requirements, steps to follow in bringing a claim, rules of evidence, and so on. Substantive law sets the terms of any dispute; procedural law dictates how a legal dispute is handled.
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Cross-examination refers to the questioning of one side's witness by the opposing side, and it is truly the highlight of the adversarial court system. Cross-examination is geared to allow opposing counsel either to clarify or to make points at the witness's expense. Questions during cross-examination might concern anything that might refute or embarrass the witness. During cross-examination, the witness's credibility will constantly be called into question.

First, opposing counsel will seek to diminish the importance of the testimony just presented. Second, opposing counsel will seek to have the witness testify in support of the opposing position by providing a series of assumptions. Third, opposing counsel will attack the witness's report or expert opinion (as applicable) itself to show the inadequacies, thereby discrediting the opinion, the report, and the witness. The opposing counsel can attack or question anything that has been said or entered into court. This includes notes, working papers, affidavits, will-says, reports, and preliminary trial or discovery transcripts. Often, cross-examination creates an atmosphere of confrontation and contradiction.

Opposing counsel will generally not ask a question to which it does not already know the answer.
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Impeachment is the practice of bringing out matters that attack a witness's credibility. There are numerous ways an attorney might impeach a witness, but the most common ways include efforts to show that the witness:
• Is influenced by bias or self-interest
• Has an impaired ability to observe
• Made prior inconsistent statements
• Has been convicted of a felony
• Has a reputation for untruthfulness
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If evidence is subject to change over time, or is susceptible to alteration, the offering party may need to establish that the evidence has not been altered or changed from the time it was collected through its production in court. This is done by establishing a chain of custody. The chain of custody is both a process and a document that memorializes 1) who has had possession of an object and 2) what they have done with it; it is simply a means of establishing that there has not been a material change or alteration to a piece of evidence.
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Almost every country can be classified as having either a common law or a civil law judicial system, and knowing the differences between the two is essential to understanding how legal and judicial processes work in foreign jurisdictions.

Civil law systems apply laws from an accepted set of codified principles or compiled statutes. Individual cases are then decided in accordance with these basic tenets. Under a civil law system, judges or judicial administrators are bound only by the civil code and not by the previous decisions of other courts. In deciding legal issues, a civil law judge applies the various codified principles to each case.
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Under Rule 702 of the Federal Rules of Evidence, a witness qualified as an expert by "knowledge, skill, experience, training or education" may testify in the form of an opinion or otherwise to "scientific, technical or other specialized knowledge" if such testimony will "assist the trier of fact to understand the evidence or to determine the fact in issue." Note that the standard is that the testimony will assist the jury, not whether it is relevant to any issue.
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Qualification of the expert is not the only hurdle an expert must pass. Federal Rule of Evidence 702 states that before allowing an expert to testify before the jury, the judge must make three determinations:
• Is the person qualified as an expert witness?
• Will the expertise of the witness assist the jury in understanding the evidence or determining a fact at issue?
• Is the testimony reliable?
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Expert reports in all civil actions in federal court must comply with Rule 26 of the Federal Rules of Civil Procedure. Rule 26 states that testifying experts must prepare a written report and make certain disclosures about their opinions and supporting grounds. Specifically, the expert report, which must be prepared and signed by the expert witness, must include the following:
• A complete statement of all expert opinions to be expressed and the basis and reasons for such opinions
• The facts or data considered by the witness in forming the opinion
• Any exhibits to be used as support for or as a summary of the opinions
• The qualifications of the expert witness
• All publications authored by the expert in the preceding ten years
• A list of all other cases in which the expert has testified as an expert at trial or at deposition within the preceding four years
• The expert's compensation for his review and testimony
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Sometimes testimony may be excluded because of the best-evidence rule, which prohibits a party from testifying about the contents of a document without producing the document itself. This rule, however, only applies when an original or copy is being used to prove the contents of a writing, and it does not demand that a party produce the very best evidence to prove a fact in dispute.

Also known as the original-writing rule, the best-evidence rule provides that when a witness testifies about the contents of a document, at least a fair copy of the original must be available for inspection. If there is no original, a copy of the proven authentic document will do, but the court must be assured that the copies are reliable and accurate. If the document is lost—no original, no copies—the judge will have to be convinced that there is good reason to forgo the exhibit and admit the testimony.
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Direct examination is the initial questioning of a witness by the side that called the witness. Most of the time, direct examination is a nonconfrontational questioning aimed at exposing the facts and issues of the case. During direct examination, expert witnesses present their findings in various ways, such as narratives, hypotheticals, specialized materials, and special exhibits. Experts are commonly asked to answer narrative questions, which are all but forbidden to lay witnesses. Narrative questions are broad, open-ended questions that allow experts to present their opinions in their own words with minimal prompting from the lawyer. Fraud cases, with their divergent paths of activity and intrigue, can require complex summarizing for the facts to make any sense. The average group of jurors has never considered how someone could manipulate store inventories to drive up the company's stock price and then make millions on the phony surge. The expert witness in cases dealing with such issues often will begin testimony by recounting the narrative background of a case, the tests and experiments that were performed during the investigation, and a summary of the findings based on his professional expertise.

For example, during a direct examination, counsel for the party presenting the expert witness would likely ask open questions such as "Could you please tell us about the background of this case?" or "What procedures did you perform in your examination?"

In contrast, a cross-examining attorney needs to control the flow of testimony and would not likely ask an expert witness a narrative question.
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Certain standards for Certified Fraud Examiners are found in the ACFE Code of Professional Ethics. Specifically, Certified Fraud Examiners are prohibited from expressing opinions as to the guilt or innocence of any person or party. This is not to say that the witness cannot testify to the badges, hallmarks, or characteristics of fraud found in the case. It also does not mean that the Certified Fraud Examiner cannot testify that, based on the evidence, he believes that the accused may have committed the offense. But the ultimate guilt or innocence of any person or party is the sole responsibility of the judge and jury. The Certified Fraud Examiner typically will not be permitted to testify to the ultimate fact questions.
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The general rule of evidence provides that all relevant evidence is admissible. Rule 401 of the Federal Rules of Evidence defines relevant evidence as evidence "having any tendency to make the existence of any fact that is of consequence to determination of the action more probable or less probable than it would be without the evidence." In other words, relevant evidence is evidence that tends to prove or disprove a fact in issue. The facts in issue vary according to the case, but generally can be said to be those that tend to prove the essential elements of the offense or claim, as well as related matters such as motive, opportunity, identity of the parties, and credibility.
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Counsel may employ various methods to discredit a witness or to diminish the importance of a witness's testimony. Myopic vision entails getting the expert witness to admit excessive time being spent in the investigation of the matter, and then selecting an area to highlight in which the witness is unsure or has not done much work. This area might not be central to the issues in the case or to conclusions reached. Then, the opposing counsel will make a large issue of it and prove that the witness's vision is myopic in that the work was limited in extent or scope, and as such, substandard.
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The Constitution is the supreme law of the land. It supersedes decisions made by lesser bodies, and even acts of the U.S. Congress. The legislature may not properly pass, the executive branch enforce, nor the judiciary uphold any law or action that violates its provisions.
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Substantive law is comprised of the basic laws of rights and duties (contract law, tort law, criminal law, etc.), as opposed to procedural law, which involves rules governing pleadings, evidence, jurisdiction, etc. If someone says an act is "against the law," he means substantive law. This includes statutes and ordinances at every level; common law, or case law, from all the various courts; and state and federal constitutions.
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Impeachment is the practice of bringing out matters that attack a witness's credibility. There are numerous ways an attorney might impeach a witness, but the most common ways include efforts to show that the witness:
• Is influenced by bias or self-interest
• Has an impaired ability to observe
• Made prior inconsistent statements
• Has been convicted of a felony
• Has a reputation for untruthfulness

A witness's credibility may be challenged, though not automatically impeached, by showing that the witness has been convicted of a felony crime. Under Rule 609 of the Federal Rules of Evidence, evidence that a witness has been convicted of a crime may be offered to attack the witness's character for truthfulness if the crime was punishable by death or imprisonment in excess of one year, or if the crime, regardless of the punishment, involved dishonesty or a false statement. Here, the driving while intoxicated crime is not admissible because it is a misdemeanor and does not relate to a reputation of untruthfulness.
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Direct evidence is evidence that tends to prove or disprove a fact in issue directly, such as eyewitness testimony or a confession. The testimony of someone who saw the defendant committing the crime would be considered direct evidence in a misappropriation trial. Alternatively, witness testimony about a suspicious situation in which the defendant was involved would be considered circumstantial evidence, as would testimony that a defendant deposited $2,000 into his account on the same day that $2,000 was stolen. Circumstantial evidence is evidence that tends to prove or disprove facts in issue indirectly, by inference.
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Counsel may employ various methods to discredit an expert witness or to diminish the importance of his testimony. The sounding board cross-examination method uses the witness as a sounding board to reacquaint the jury with the favorable aspects of opposing counsel's theory. This technique often uses the "Is it not true?" and "Would you agree with me?" approach. Constant, nonstop agreement is used to browbeat the witness. In the eyes of the judge and jury, agreement with various questions raised by the opposing counsel also might be assumed to be general concurrence with the opposing counsel. This often is a very valuable psychological tool.
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Most U.S. states use a three- or four-tier court system.
• Lower-level trial courts try misdemeanors and hold preliminary hearings for felony cases, as well as civil disputes below a certain dollar amount (e.g., $10,000 or less).
• Higher-level trial courts (sometimes called superior courts) try felony cases, as well as civil disputes above a certain amount (e.g., $10,000 or more).
• Appellate courts review trial court decisions.
• Superior appellate courts, or supreme courts, review lower appellate court decisions.

A higher-level trial court would be responsible for trying civil disputes above a certain amount. Superior appellate courts generally do not hold trials; instead, they review lower appellate court decisions.
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Rule 703 of the Federal Rules of Evidence says that an expert may testify based on facts that are disclosed at or before the hearing in which the expert testifies. The facts need not themselves be admissible in evidence as long as they are of "a type reasonably relied upon by experts in a particular field." This rule allows an expert to employ data usually used by experts in the field, though the data itself may not be admissible. For example, an expert may rely on a table of interest rates taken from a Department of Commerce publication even if the table is not admissible. Similarly, an accountant serving as an expert witness may rely on private sources in forming an opinion if such sources normally are relied upon by accountants.
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Under Rule 403 of the Federal Rules of Evidence, relevant evidence may be excluded if it is unduly prejudicial, threatens to confuse or mislead the jury, threatens to cause unnecessary delay or waste of time, or is merely cumulative.
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An appellate court will not reverse a conviction unless it finds an error that affected the "substantial rights" of a party; "harmless error," which supposedly does not affect the jury's decision, is tolerated. So, if an appellate court finds that there was a harmless error in a lower court case, it will uphold the conviction.
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The Constitution is the supreme law of the land. It supersedes decisions made by lesser bodies, and even acts of the U.S. Congress. The legislature may not properly pass, the executive branch enforce, nor the judiciary uphold any law or action that violates its provisions.

Note that states have their own constitutions and rights under them. Often, state constitutions provide some of the same protections included in the U.S. Constitution. The states may offer additional protections beyond the U.S. Constitution, but the minimum protections of the latter may not be diminished by the states.
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The purpose of authentication is to show that the evidence is what it purports to be. That is, authentication serves to ensure that documentary and physical evidence is proven to be genuine and not a forgery.
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At the most basic level, evidence must be established as reliable or authentic. Thus, to be admissible at trial, evidence, other than testimonial evidence, must be properly authenticated; that is, the party offering the evidence item must produce some evidence (e.g., testimony from a person with firsthand knowledge) to show it is, in fact, what the party says it is and to show it is in the same condition from the moment it was seized until it is used in court. If a piece of real evidence cannot be authenticated, the evidence will not be admitted even if it is plainly relevant.
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In common law countries like the United States and the United Kingdom, there are two sources of substantive law: statutory law and common law. Statutory law includes statutes passed by the federal or state legislatures (and regulations passed by administrative bodies). The common law consists of the usages and customs of a society as interpreted by the judiciary; it often is referred to as "judge-made" law.
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Direct examination is the initial questioning of a witness by the side that called the witness. Most of the time, direct examination is a nonconfrontational questioning aimed at exposing the facts and issues of the case. During direct examination, expert witnesses present their findings in various ways, such as narratives, hypotheticals, specialized materials, and special exhibits. Experts are commonly asked to answer narrative questions, which are all but forbidden to lay witnesses. Narrative questions are broad, open-ended questions that allow experts to present their opinions in their own words with minimal prompting from the lawyer. Fraud cases, with their divergent paths of activity and intrigue, can require complex summarizing for the facts to make any sense. The average group of jurors has never considered how someone could manipulate store inventories to drive up the company's stock price and then make millions on the phony surge. The expert witness in cases dealing with such issues often will begin testimony by recounting the narrative background of a case, the tests and experiments that were performed during the investigation, and a summary of the findings based on his professional expertise.

For example, during a direct examination, counsel for the party presenting the expert witness would likely ask open questions such as "Could you please tell us about the background of this case?" or "What procedures did you perform in your examination?"

In contrast, a cross-examining attorney needs to control the flow of testimony and would not likely ask an expert witness a narrative question. Instead, cross-examining attorneys often attempt to ask leading questions, where the answer is suggested in the question. They might also ask questions that would call for the expert to go beyond the proper scope of his testimony.
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After the trial court enters its decision, a party may file an appeal with a higher court. Appeals involve questions of law or questions involving both law and fact. Most questions of law are decided by precedent—that is, prior court decisions of equal or higher authority that have considered similar cases.
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There are two basic kinds of testimony. The first is lay testimony (sometimes called factual testimony), where witnesses testify about what they have experienced firsthand and their factual observations. The second kind is expert testimony, where a person who, by reason of education, training, skill, or experience, is qualified to render an expert opinion concerning certain issues at hand. A lay witness (or fact witness) is anyone who provides nonexpert testimony. Note, however, that an expert witness might also provide lay testimony.

Typically, a fraud examiner who worked on a case will be capable of providing lay testimony based on observations made during the investigation. When a trial involves issues that are complex or unfamiliar to most people, as is common in incidents of fraud, expert testimony is appropriate to help the judge and jury understand these issues.
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Before allowing an expert to testify before the jury, the judge must make three determinations: (1) Is the person qualified as a witness? (2) Will the expertise of the witness assist the jury in understanding the evidence or determining a fact at issue? (3) Is the testimony reliable? The evaluation process mainly centers around the candidate's formal education and work experience—whether that includes 30 years in law enforcement or 10 years in a large accounting firm. But credentials also cover the candidate's: awards and honors; licensing or certification; technical training; published books and journal articles; and positions in professional associations, societies, and/or organizations. The important thing to remember is that a person can be qualified as an expert based on either special training or experience. Although professional designations are considered in evaluating credentials as an expert witness, the determination of whether someone is an "expert" is made on a case-by-case basis. Therefore, a professional designation does not automatically qualify someone as an expert for purposes of testifying in court.
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