November 1999

White-Collar Crime
By Kathryn Keneally


    Kathryn Keneally specializes in white-collar crime, tax controversy, and commercial litigation. In practice in New York City, she is a member of the U.S. Sentencing Commission Practitioners’ Advisory Group. She is vice-chairperson of the ABA Tax Section’s Civil and Criminal Tax Penalties Committee. She is a member of The Champion Advisory Board.
The Line Between a Bargain and Extortion


Please consider a few hypotheticals: An employee has suffered some wrong at the work place. She consults with an attorney, who explains the grounds on which she can bring an action, and the cost of doing so. The employer has much deeper pockets, and can endure a long battle. The employee, however, has some additional information concerning possible criminal wrongdoing by the employer. Perhaps the alleged wrongdoing is related to the employee’s cause of action, or perhaps it is somewhat peripheral. Maybe the employee can meet the burden of proof standards, or maybe it is a more speculative allegation. Regardless, there is at least some reason to believe that the employer may prefer not to see the allegations aired in civil litigation. The attorney telephones the employer’s legal department for a candid chat. The call is followed by a draft complaint, which weaves hints of the criminal allegations into the pleadings. A clear message is delivered that a settlement is the preferred course.

The government commences parallel grand jury and civil administrative investigations into the activities of a corporation and several of its principals and employees. A civil class action follows. Discovery battles are engaged on all fronts. Because the criminal investigation poses the greatest risk to the survival of the company and to the futures of the individuals, defense counsel make extensive proffers to the prosecutors, seeking to persuade the government not to press criminal charges. Finally, the telephone call comes, delivering the desired message. The prosecutors will recommend termination of the criminal investigation without indictments. However, the government also wants a resolution of the administrative proceedings, and proposes substantial civil fines and penalties. Of course, acceptance of the recommendation to terminate the criminal investigation is subject to layers of approval, and the message is delivered that approval may more likely be forthcoming if some restitution is made to the victims.

The owner of a small business arrives at work one day to be greeted by a number of federal agents in the process of removing boxes of documents from his office and other locations on his business premises. He is presented with a search warrant. Several days later, his attorney has a meeting with the prosecutor. Both attorneys express a desire for a quick resolution. The prosecutor explains that the target of the investigation is not the small business owner, but rather one of his suppliers. He is but one of many suspected of engaging in criminal activity. The prosecutor wants a guilty plea and cooperation. Time is of the essence, because there are several others who are situated similarly, and the first to cooperate will be of the most value, and qualify for the most persuasive Section 5K1.1 letter.1

In each of these hypotheticals, the attorney for the party facing potential criminal exposure may well see an opportunity. The chance to resolve a potential civil action on a confidential basis, without risking the bad publicity and other attention that certain allegations may bring, or the chance to negotiate a reduced sentence or to avoid criminal liability entirely, may indeed even be sought by defense counsel in the process of sensitive negotiations. At times, a client may welcome, or even seek, the chance to solve a problem by paying money, so as to avoid the more dire consequences of a criminal conviction.

We should admit, however, that sometimes, the dialogue that flows from hypotheticals such as these feels a little closer to the line. Sometimes it feels a little less like an opportunity and a little more like something worse. Perhaps the corporate client not only protests its innocence, but does so convincingly, and yet cannot withstand the publicity and expense of an investigation and criminal allegations. Perhaps the defendant whose cooperation is sought has a strong, personal aversion to acting as a cooperator, or perhaps he has nothing useful to share and asks why someone closer to the wrongful acts and more culpable than he may nonetheless be in a position to receive better treatment.

The philosophical fray of these hypotheticals is part of the background against which we practice criminal defense law. Against this background, consideration should be given to a highly publicized prosecution, two summers ago, for extortion, and the recent reversal of the convictions by the Second Circuit.

Second Circuit Reviews and Reverses a High-Profile,
Controversial Extortion Conviction
In United States v. Jackson,2 the United States brought prosecution against Autumn Jackson, (a young woman who claimed to be the daughter of the comedian/actor Bill Cosby), and two of her business colleagues, charging violations of the federal extortion statute,3 the Travel Act,4 and conspiracy to commit extortion.5

It was undisputed that Cosby and Jackson’s mother had, as the Second Circuit phrased it, “a brief extramarital affair.”6 It was also undisputed that Jackson had been told throughout her life that Cosby was her father. The court summarized how Cosby had provided “substantial sums of money” and other items of support to Jackson’s mother.7

Cosby also created a trust fund to provide for Jackson’s education and support when she was attending college; the payments were terminated, however, when she dropped out of school.8 There was apparently no dispute, however, that Cosby consistently denied, to both Jackson’s mother and to her, that he was her father, and her birth certificate listed someone other than Cosby.9 The court duly observed that Cosby had “funded the college educations for some 300 persons outside of his own immediate family.”10 Nonetheless, it was apparent that Cosby’s payments to Jackson’s mother were calculated to purchase a degree of privacy and discretion, for as the court reported, the payments were “typically ... traveler’s checks or cashier’s checks issued in the name of an employee rather than in his own name.”11

Several months after the payments for Jackson’s education and support had terminated, Jackson made several telephone calls to Cosby. Apparently, she got his attention and secured a return telephone call by leaving the message that “Autumn Cosby” was calling. She described to him a project for a children’s television show that she was working on, and she also told him that she was homeless, and asked for a loan of $2100. Apparently, Cosby declined, but offered her more money if she returned to school.12

Jackson then made a series of telephone calls to business associates of Cosby, suggesting that she had information damaging to his reputation. With the aide of a colleague in connection with the television development project, she composed a letter describing herself as the daughter of a “CBS megastar,” who had been left “penniless, and homeless.” She sent this letter to CBS, Cosby’s sponsors, business colleagues, and to the President and Vice President of the United States.13

Next, Jackson and her colleague contacted a tabloid newspaper, and negotiated a proposed contract, pursuant to which the newspaper would purchase the rights to the story of Jackson’s relationship with Cosby for $25,000. Jackson did not sign the contract, however. Rather, she forwarded it to Cosby’s attorney, with a letter stating: “Enclosed you will find a copy of a contract that someone is offering monies for my story, which is the only property that I have to sell in order to survive.”14

Cosby’s attorney was no stranger to Jackson; he and his firm had administered both a trust fund from which Jackson’s mother had been paid for a period of time, and the trust fund that had paid for Jackson’s education and support.15 The attorney telephoned Jackson, and inquired as to how much money she wanted to settle the matter. She responded that she wanted $40 million. Cosby’s attorney rejected the proposal, and subsequently reported the discussion to his client.16 Cosby’s response was to have his attorneys telephone Jackson’s mother, in an attempt to first have her entreat her daughter to cease her activities,17 and secondly then to contact the FBI.18

Under the direction of the FBI, Cosby’s lawyer contacted Jackson and her colleagues in Los Angeles. The attorney negotiated a settlement figure with Jackson, reaching agreement to $24 million, 25 percent of which was to be paid to her business colleague and advisor. The attorney then proposed that Jackson meet him in his offices in New York to sign a written agreement and to receive the checks.

Jackson and her colleague traveled to New York, and met at the attorney’s office. They reviewed an agreement, which included provisions stating that Jackson would terminate her discussions with the tabloid newspaper and would refrain from providing any information concerning Cosby to any third party. The attorney left the room, ostensibly to get the checks, and FBI agents entered and arrested Jackson and her colleague.19

Jury Charge Equated Any Threat to Reputation with Extortion
Consider the situation from Jackson’s viewpoint: She believed herself to be Cosby’s daughter. She knew that he had provided support for her mother and for her. It was clear that he valued discretion, and indeed that he had arranged his financial relationship with her mother to maintain his secrecy. She was struggling financially. She knew that her story had value, and that forbearance from telling her story also had value. She negotiated with Cosby’s attorney, who had previously been instrumental providing funds to her mother and to her. The attorney drafted an agreement, which on its face recited that she was to forbear from selling her story.

The jury, however, was not asked to consider the mitigating aspects of Jackson’s story. The federal extortion statute, Section 875(d) of Title 18, states that a person who, “with intent to extort from any person . . . any money or other thing of value, transmits in interstate or foreign commerce any communication containing any threat to injure the property or reputation of the addressee or of another” has violated the statute. The trial court instructed the jury that “to extort means to obtain money or a thing of value from another by use of threats to reputation.”20

The trial court rejected a defense request to charge that the government must prove that the use of threats was “wrongful.” Specifically, the defense sought to define “wrongful” as requiring proof “first, that the defendant had no claim or right to the money or property he or she sought or attempted to obtain, and, second, that the defendant knew that he or she had no lawful claim or right to the money or property he or she sought or attempted to obtain.”21

Instead, the trial court effectively foreclosed the defense, charging: “[I]t makes no difference whether the defendant was actually owed any money by Bill Cosby or thought he or she was. This is because the law does not permit someone to obtain money or a thing of value by threatening to injure another’s reputation.”22

The government and the trial court apparently felt on solid ground in this instruction in terms of Second Circuit case law, albeit somewhat historic. In the 1942 decision in United States v. Pignatelli,23 the defendant had demanded $500,000 to refrain from publishing in a book that a relative was falsely using the title of “Prince.” The trial court excluded evidence that the defendant had the sole right to the title, and his argument that his demand for money was made in good faith to settle a pending dispute. On appeal, the court held that “[t]hreats to damage another’s reputation are no proper means for determining a controversy.”24

Second Circuit Found Only Wrongful Threats Are Crimes
In Jackson, however, the Second Circuit found that the law could not abide the logical ramifications of either the “categorical language of Pignatelli,” or the trial court’s jury charge.25 The court concluded that even the absence of the word “wrongful” from the statutory language could not support an extortion conviction in the absence of proof of an element of “wrongfulness,” stating that “plainly, not all threats to engage in speech that will have the effect of damaging another person’s reputation, even if a forbearance from speaking is conditioned on the payment of money, are wrongful.”26

The court then turned to determining the distinction between a wrongful threat and a noncriminal threat. The key, the court determined, is not the mere act of “employing fear of economic loss or damage to reputation,” but also the “objective of the party” in doing so.27 The court further noted that “it is material whether the defendant had a claim of right to the money demanded.”28 By this analysis, the court appears to have created a heightened intent element for violations of Section 875(d).

The court then proceeded to impose a “nexus” requirement between the claim of right and the threat to reputation. Thus the Second Circuit held that, “[w]here a threat of harm to a person’s reputation seeks money or property to which the threatener does not have, and cannot reasonably believe she has, a claim of right, or where the threat has no nexus to a plausible claim of right, the threat is inherently wrongful and its transmission in interstate commerce is prohibited by § 875(d).”29

The court described “inherently” wrongful threats as those “[w]here there is no plausible claim of right and the only leverage to force the payment of money resides in the threat, where actual disclosure would be counterproductive, and where compliance with the threatener’s demands provides no assurance against additional demands based on renewed threats of disclosure.”30 The court gave as an example of a legal threat the case of a purchaser of a defective product who proposes to file complaints with consumer protection agencies or contact consumer-friendly media should the manufacturer not remedy the defect.31 The court gave as an example of a threat to disclose sexual indiscretion as an inherently wrongful threat lacking nexus to a claim of right.32

The court concluded that the charge as given to the jury “erroneously allowed the jury to find defendants guilty . . . on the premise that any and every threat to reputation in order to obtain money is inherently wrongful,” and accordingly reversed the convictions.33 Applying its newly crafted nexus requirement, however, the court offered in dicta that “[t]he evidence at trial was plainly sufficient to support verdicts of guilty had the jury been properly instructed.”34 The court noted that, at age 22, Jackson’s demand for $40 million was hardly a plausible claim for support, and if she followed through on her threat to disclose, that she would lose any leverage to collect money from Cosby, and that if he capitulated, he had no guarantee that there would not be future threats.

Second Circuit Opinion Does Not Resolve Real World Issues
The prosecution of Autumn Jackson was more troubling than the Second Circuit was willing to admit. There is certainly a crudeness in the facts, as summarized by the court, as to the manner in which Jackson and her colleagues stated their demands. There is a sense, which permeates the Second Circuit opinion, that the demands of $40 million and then $24 million have an aura of extortion in excess of mere bargain. Had Jackson retained an attorney from the outset, perhaps the negotiations with Cosby and his counsel may have been handled with more finesse. Perhaps she may have settled for a sum more in line with the value of her forbearance of her right to publicize her story. As the Second Circuit recognized, Cosby gained little from the proposed agreement with Jackson; she could indeed have later demanded even more money by merely threatening to expose the prior agreement. Clever attorneys, however, could have found a means to make Jackson’s future silence more palatable, as they clearly had done in her mother’s case.

The Second Circuit’s reversal of the convictions, and its holding that the mere threat to reputation is not an inherent act of extortion, is a significant step in setting right the confusion caused by the prosecution. However, the Second Circuit’s requirement of a nexus between the claim of right and the threat, while presenting a certain facile appeal, itself strains logic in the real world. Take simply the example of sexual indiscretion, the threatened disclosure of which was offered by the Second Circuit as inherently wrongful, and consider whether — in a given context — a reasonably-minded jury might see a nexus to a claim of right. Recent events are rife with value being placed on the rights to the stories of the sexual partners of myriad public figures, from a princess to a president. Can it be fairly said that there is no nexus to a claim of right to the value of forbearing from telling the story? Perhaps the sexual indiscretion occurred at the workplace. Does its potential revelation have no place in negotiations to settle a lawsuit, which may or may not relate to the sexual activity but in any case will result in its disclosure?

Consider, indeed, that Cosby had for years provided payments to Jackson’s mother, while taking care to minimize the risk that the payments be traced back to him.

When there is risk that truth will be disclosed, and confidentiality is negotiated, the line between extortion, bribery, and the opportunity merely to obtain a desired benefit of a reasonable bargain, can be a thin and shifting one indeed. Rare should be the case where criminal prosecution is used to test these philosophical limits.


Notes
1. U.S.S.G. § 5K1.1; see United States v. Singleton, 165 F.3d 1297 (10th Cir.), cert. denied, 119 S. Ct. 2371 (1999).
2. 180 F.3d 55, 1999 U.S. App. LEXIS 11906 (2d Cir. June 9, 1999). At the time that this column was written, page citations to the reported decision were not available. Accordingly only page citations to the decision as reported by LEXIS have been included.
3. 18 U.S.C. § 875(d).
4.18 U.S.C. § 1952(a)(3).
5. 18 U.S.C. § 371. The indictment also included charges of aiding and abetting in connection with the substantive offenses. 18 U.S.C. § 2.
6. 1999 U.S. App. LEXIS 11906 at *3.
7. Id. at *4-5.
8. Id. at *5-6.
9. Id. at *4-6.
10. Id. at *5.
11. Id. at *4. The court made clear that the payments were not the result of Cosby’s generosity or spontaneity, noting that over the course of many years, Jackson’s mother “repeatedly telephoned [Cosby] saying that she needed money, and in the course of the conversations she would usually reiterate her claim that Cosby was Jackson’s father and state that she did not want to embarrass Cosby’s wife.” Id.
12. Id. at *6-8.
13. Id. at *10-11.
14. Id. at *11-13.
15. Id. at *4-6.
16. Id. at *13-15.
17. The evidence at trial included a telephone call between Jackson’s mother and a co-defendant, recorded by the co-defendant. Given that Jackson’s mother had been the recipient of confidential payments from Cosby over the years, her advice to her daughter’s colleague deserves consideration: “‘Autumn for some reason has painted herself into a corner. . . . Um, and said if they don’t give her an exorbitant amount of money, that she’s going to go to the tabloids with her story, and the talk shows. . . . She’s also told them that she has an unsigned . . . contract with Globe magazine to tell her story. Now that’s extortion when you do it like that. . . .” Id. at *16 (emphasis added).
18. Id. at *16.
19. Id. at *17-18. A third participant, who allegedly attended meetings at which plans were discussed concerning the efforts to get Cosby to provide funds to Jackson, and whose credit card was used to pay for the tickets for the trip from Los Angeles to New York, was also convicted on the conspiracy and Travel Act charges, although acquitted on the extortion charge. A fourth participant in the planning cooperated with the government.
20. Id. at *24.
21. Id. at *22-23.
22. Id. at *24.
23. 25 F.2d 643 (2d Cir.), cert. denied, 316 U.S. 680 (1942).
24. Id. at *27-28.
25. 1999 U.S. App. LEXIS 11906 at *28.
26. Id.
27. Id. at *40.
28. Id.
29. Id. at *42.
30. Id. at *41-41.
31. Id. at *28, *40.
32. Id. at *40-41.
33. Id. at 44. The court also found that the error permeated the jury charges on the Travel Act and conspiracy counts, and reversed the convictions on those grounds as well. Id. at 44-47.
34. Id. at 43.
35. 149 F.3d 1198 (1998), rev’d en banc, 1999 U.S. App. LEXIS 15134 (D.C. Cir. July 9, 1999).



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