Chapter 18

Legal Follow-Up
Discussion Questions
1. State courts are organized with a series of lower trial courts that hear misdemeanors and
small felonies (such as housing courts, small claims courts, probate courts, criminal courts,
traffic courts, county or municipal courts, juvenile courts, and domestic relation courts); higher
trial courts for larger felonies (circuit courts or superior courts); intermediate appellate or
reviewing courts; and the highest level appellate or supreme courts.
2. Federal courts are organized with a series of initial courts, including U.S. Administrative
Agency Courts, U.S. District Courts, U.S. Tax Courts, U.S. Bankruptcy Courts, and U.S.
Magistrates; an intermediate series of appellate courts, including the twelve Circuit Courts and
the U.S. Court of Appeals for International Trade and Claims Court issues; and the highest level
appellate or U.S. Supreme Court.
3. The difference between civil and criminal trials is that a criminal trial is held for the purpose
of righting a public wrong or offenses against society and usually involves the defendant paying
fines or serving jail time, while civil trials are held for the purpose of righting a private wrong.
Civil trials are usually held to recover monetary damages suffered because of the actions of
another party, and they usually result in monetary judgments being paid, but no one pays fines or
serves jail time.
4. There are four identifiable stages in civil litigation: investigation and pleadings, including
contacting an attorney and filing a complaint; discovery, where evidence is searched for; motion
practice and negotiation, where parties file motions with judges to obtain additional information,
seek to get the complaint dismissed, and even negotiate a settlement; and the trial and appeal.
5. An interrogatory is a series of written questions that specifically identifies information
needed from the opposing party. The interrogatory is filed with the court, and, normally, the other
side must answer within thirty days. Interrogatories usually ask questions about personnel,
documents, and the nature of the organization, although any questions can be asked.
6. A deposition is testimony taken under oath before the trial begins. In a deposition, the
opposing sides attorney asks fact and expert witnesses questions.
7. Depositions help attorneys see how witnesses react to questioning, obtain admissions, or
provide information that can perjure a witness.
8. A fraud investigator may benefit by attending the depositions of opposing experts because
their depositions may reveal information and opinions that are not accurately reflected in the
experts written report or work papers. A fraud investigators technical knowledge of the areas of

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testimony can help ensure that the deposition reveals all of the opposing experts opinions and
the methodologies and supporting information used in reaching those opinions.
9. The criminal litigation process involves filing criminal charges, arresting and charging the
defendant, arraignment, discovery, pretrial motions, and the trial and appeals.
10. Discovery is the legal process by which each partys attorneys try to find all information
about the other sides case before the trial begins. Discovery is the most time-consuming and
expensive part of litigation and can include production requests, interrogatories, requests for
admission, subpoenas, and depositions.
11. Fraud examiners are used as expert witnesses in many ways. Most often, they are used to
discuss elements of the fraud, identify and discuss fraud symptoms, and provide evidence about
fraud motivations.
12. The purpose of having a fraud investigator or other expert witness testify in a trial is to aid
the jury in understanding technical issues involved.
13. The chapter provided a lengthy list of dos and donts about being an expert witness. The
most important of these are probably being independent and honest, being well prepared, and
listening carefully to all questions asked of you at trials and depositions. A good expert has only
his or her reputation to sell, and anything that enhances that reputation is a good thing to do.
14. An expert witness can testify about the nature of the fraud, the damages suffered in the fraud,
the negligence of the victim in allowing the fraud to happen, and standards that were violated.
15. During deposition, the expert should take a defensive posture. Answer only those questions
that are asked; never volunteer anything beyond. Before answering, give time to the attorneys on
your side to object to the questions on the basis of relevance, foundation, or some reasonable
basis of objection.
True/False
1.

False: Most fraud cases are tried in state courts.

2.

False: Bankruptcy cases are heard in federal bankruptcy courts.

3.

True

4.

True

5.

True

6.

True

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7.

False: To be successful, the plaintiff in a civil case must only prove his or her case by the
preponderance of the evidence.

8.

False: Discovery is the legal process by which each partys attorneys try to find all
information about the other sides case before the trial begins.

9.

True

10. True
11. False: A request for admission asks the opposing party to admit designated facts relevant to
litigation.
12. True
13. True
14. True
15. False: The defendant cannot choose. Lower courts are for misdemeanors and smaller cases,
usually below $10,000. Higher courts try felonies and more serious cases, usually above
$10,000.
16. False: An individual can be prosecuted both civilly and criminally.
17. True
Multiple Choice
1.

2.

3.

4.

5.

6.

7.

8.

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9.

10. b
11. a
12. d
13. a
Short Cases
Case 1.
The two main reasons why Mr. Pringles is probably not worried are as follows:
1. Mr. Bill did not follow correct legal procedureit is important first to approach an attorney
in a situation like this. Also, Mr. Bill should have legally gathered careful evidence at work that
would better explain and tie Mr. Pringles to the fraud.
2. Mr. Bill has violated the breaking and entering law and has violated the Fourth
Amendmentit was illegal for Mr. Bill to enter Mr. Pringles personal residence without having
government approval, and to gain government approval, there must be sufficient evidence to
suspect that the person is guilty of a crime. Even then, the government is subject to reasonable
searches and seizures.
Case 2.
1. You would seek criminal action against this employee because securities fraud deals with a
public offense. A public offense deals with offenses against society as a whole. You may seek
civil remedies as well.
2. This case would be assigned to a U.S. district court because securities fraud is a federal
offense, and fraud cases involving federal laws or statutes are usually tried in a U.S. district
court. However, the New York Stock Exchange tries many of its cases before arbitration panels.
Therefore, this case may not be heard in a U.S. district court after all.
Case 3.
This case is either at the Discovery phase or Motion Practice and Negotiation phase.
Because allegations have been made, we can assume that the initial pleading has been filed. Now
both parties are trying to gather as much information as they can to make their case. Each party
might also be trying to file a motion for summary judgment or negotiating the case without going

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to trial. We know that the case has not been settled, so it is not in the Settlement Negotiations
phase yet.
As a postscript to this problem, both the COO and the CEO (in a second trial) were convicted of
fraud. Most of the others plea bargained with prosecutors and assisted the prosecutors.
Case 4.
Some of the services that a fraud expert can provide in most fraud investigations include:
1. InvestigationWhen allegations of fraud are initially made many things are unknown
and must be determined. Often the Board of Directors will hire a law firm and the law firm
will hire fraud examiners to help discover facts related to the fraud. A fraud investigator will
help to ascertain the facts and gain an understanding of what has happened and who is at
fault.
2. Legal follow-upIn a fraud case both the defendant and the prosecution will likely
involve fraud examiners in the legal action that takes place. They both will probably use
fraud experts in the trial, helping in the depositions of witnesses, explaining complicated
ideas, and giving their expert opinions.
3. The victim of a fraud will generally want to put controls in place to prevent a similar
event from happening again. A fraud expert can help identify control weaknesses and
problems and suggest ways to prevent the problem from reoccurring.
Case 5.
In order for Mr. Simpson to be convicted in a criminal case, he had to be determined guilty
beyond a reasonable doubt. The jury in the criminal case determined that a reasonable doubt
existed as to Mr. Simpsons commission of the murder. In the civil case, however, the jury felt
that Nicoles family had a better case than Mr. Simpsons, thereby awarding them the
compensation. This case shows that it is much more difficult to convict someone in a criminal
case than it is to win a judgment against someone in a civil trial.
Case 6.
One alternative would be to allow the clerk to go unpunished or merely to transfer him to another
department. The advantages to this action are that the cost, hassle, and potential negative
publicity of prosecution would be avoided, especially since it is unlikely that the store will
recover all of its losses from the fraud. The disadvantages of this option are that the clerk would
go essentially unpunished and would be free to steal again. This action would also do nothing to
discourage other employees from committing fraud and might even cause other employees to
believe that nothing serious happens when you are dishonest.

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A second option would be to prosecute the fraud civilly or criminally. While it is unlikely that all
of the losses associated with the fraud would be recovered, the long-term benefits could
outweigh the costs. Prosecution would discourage both the clerk and other employees from
committing fraud in the future and establish a precedent that dishonesty is not tolerated. Among
the disadvantages to this option are that the stores relationship with the uncle who is a manager
might be damaged, and other problems could be incurred.
A third, less dramatic option might be simply to terminate the clerk. While probably not as
effective as prosecution for deterring future fraud, termination would establish an acceptable
precedent and probably maintain a cordial relationship with the uncle.
Case 7.
1. XYZs next course of action would probably be to appeal the decision handed down by the
court. With a judgment of this magnitude, the chances of the appeals court holding up such a
large decision are quite slim.
2. If you suspect that the bank statements have been altered, you can issue a request for
admission to question the other party, or you can subpoena the actual bank statements from the
bank. Usually, however, you only get copies, not original documents.
Case 8.
Most important, as an expert witness you will study the facts of the case as discovered during the
discovery period. You will study relevant documents, perhaps even suggesting that the
prosecution gather further documentation and information that will assist you in preparing your
opinions. For example, you will want to be certain that all documents pertaining to the
questioned accounts are in order. You will probably read all depositions of fact witnesses. You
will also likely look for other evidence about top managements lifestyles, work habits, and
attitudes. Your goal is to understand as much about the case as possible and then to support the
case with your relevant experience and knowledge of similar frauds. After studying the facts, you
should form your opinions about the fraud. These opinions must agree with the facts and with
your relevant experience, because during the deposition and trial, the defense will try hard to
discredit your opinions and expertise. You can further assist the prosecution by helping them to
guide their case and their questions to focus on the most important facts.
Case 9.
The first stage of the civil litigation is investigation and pleadings. ABC will file an initial
pleading that explains the alleged violation of the law and the monetary expenses or damages
sought. Bobby Jones will then file a motion or a response to the pleading.

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After these are filed, they will enter into the discovery stage, where each sides attorneys will try
to find out information about the other sides case. This is usually the most difficult and longest
stage of litigation. During discovery, attorneys will obtain information through subpoenas,
interrogatories, requests for admission, and depositions.
The next stage is motion practice and negotiation. This occurs during discovery, when both
parties seek rulings from the trial judge. The parties may also seek a settlement out of court, and
the case is resolved.
The final stage is the trial and appeal. If, up to this point, the case is not closed by motion or
settlement, it will go to trial. Before the trial, both parties involved will agree on terms and rules
of the trial. Usually, a jury trial will be held, where a judge will determine issues of the law. Both
parties will present their case, and the judge will charge the jury to apply the law in reaching its
verdict. After a judgment is issued, there is a time period where either party may appeal part or
all of the judgment. Appeals generally relate to matters of the law, not facts of the case.
Case 10.
No, John probably does not have grounds for an appeal. In this case, John is hoping to appeal the
verdict because there was inappropriate evidence introduced into the case. But, Johns rights
were not violated, and the search on Johns computer that produced the evidence was legal.
Searches of business by employers or investigators hired by employers do not violate the Fourth
Amendment rights and do not require probable cause. If an employer turns over evidence to
the government, they can use the evidence to prosecute defendants without obtaining a search
warrant.
Case 11.
OHS may be in violation of the Fourth Amendment for two reasons. First, OHS does not have a
written policy allowing searches of lockers and does not have a history of searching lockers.
Second, OHS is acting at the request of the government. In order for an employee to sue an
employer for the violation of a constitutional right, 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 their own employees. There are no bright-line rules regarding when an
investigation can be considered to involve state action. However, the following examples could
be considered to involve state action.

Investigations conducted by a private company but at the suggestion of the state or

federal authorities (as in the case above).
Investigation started by a private company that later is taken over by or expanded by
state or federal authorities.
Joint investigations with or aided by state or federal authorities.
Investigations conducted by a private company are required by state or federal law.

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Searches or interrogations conducted by outside investigators who are off-duty state,

local, or federal authorities.

Case 12.
1. Mr. Oaks might confess and repay all the money without having to go to court. But even if
he does not confess, trials are expensive. If the fraud is large, the media will cover the
proceedings, which will often show negative publicity about the company. Also, the damages
committed by Mr. Oaks might be impossible to recover by Turley Bank, leaving the case with the
only purpose of punishing Mr. Oaks.
2. Court is very expensive and time consuming. Before the trial begins, the bank knows how
much evidence it has, and it knows how much of a settlement it can receive from Mr. Oaks. By
settling out of court, the bank will probably still recover much of the settlement without going
through the expenses of court.
3. At this point, Mr. Oaks knows how much evidence the bank has and what will be the likely
settlement. In order to avoid publicity, time, and the expense of the trial, Mr. Oaks may plea
bargain before the trial begins.
Case 13.
1. Some of the things the expert witness did well include:
a. Was well composed and confident
b. Asked for a break when he realized he was getting tired.
c. Was not concerned when the opposing counsel scored points.
2. Some of the things the expert witness did not do so well include:
a. Argued with opposing counsel.
b. Lost his temper.
c. Did not answer with simple yes or no answers.
Case 14.
1.

Possible answers include:

Is a body of sixteen to twenty-three people.
Selected from the community.
Listen to evidence presented by witnesses and prosecutors.
Can consider any evidence, even that which would not be admissible at trial.
At least twelve grand jurors must agree for an indictment to be issued.

2.
249

Possible answers include:

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3.
a.

Do not lose your temper or become angry or antagonistic; recognize that it is opposing
counsels job to attempt to discredit you.
Do not be concerned if opposing counsel scores points.
Do not quibble unduly or become argumentative with opposing counsel.
Do not respond evasively or ambiguously to questions, no matter how difficult that
might be.
Be extra careful if opposing counsel takes on a friendly air.
Do not become hostile if opposing counsel tries to bully you.
Resist responding with simple yes or no answers that may be misleading without
some qualification.
Do your best to recognize signals, such as careless answers, that you may be getting
tired or losing your competitive edge.
Do not allow opposing counsel to entice you into coming up with answers to questions
addressing matters outside your area of expertise.
Maintain the position you took in your direct testimony.
Do not allow opposing counsel to con you into an advocacy role.

A deposition is a testimony taken before trial begins.

b. A deposition can be a powerful tool in the hands of a skilled attorney because they can see
how a witness reacts to questions, and they can get a witness to commit to a particular position at
deposition that can prevent him or her from suddenly recalling a matter favorably during the
trial.
c.

The other three stages of the civil litigation process that cases usually go through are:
Investigation and Pleadings.
Motion and Negotiation.
Trials and Appeals.

Extensive Case
1. All fraud perpetrators have rationalizations that help to convince them that their dishonest
acts are tolerable. In the case of John Rigas, the following two explanations may have been
his rationalizations.

First, Rigas gave a lot of service to the community. He used his (or his companys)
money to help those in need. Rigas gave millions in charitable contributions, bought
homes for those who could not afford them, and flew people on his private planes to
receive medical treatment. He probably rationalized his actions by concluding that it
was acceptable to misuse company funds if he was using it to benefit others. The
textbook states that we rationalize dishonesty by our desire to make other people feel
good.

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Adelphia was a family owned business. Rigas was its founder and nursed it as it grew
to become a publicly traded communications giant. No doubt he felt that the companys
revenue was a product of his own hard work and sacrifice and that he was entitled to its
use. To him and his family, their efforts deserved greater compensation.

2. The following are common rationalizations made by perpetrators of fraud:

The organization owes it to me.

I am only borrowing the money I will pay it back.
Nobody will get hurt.
I deserve more.
Its for a good purpose.
Well fix the books as soon as we get over this financial difficulty.
My reputation is more important than my integrity.

3. In family businesses there is a tendency to consider company money as a personal asset.

Also, employees (family members) are so familiar with and trusting of each other that fraudulent
activity can often go unsuspected.
4. This case was prosecuted criminally and in 2005, John Rigas and his son, Timothy Rigas,
were sentenced to 15 and 20 years in prison, respectively. John was 80 at the time and Timothy
was 49. The two were ordered to report to prison in August 2007. Given Johns ailing health (he
had heart surgery in 1999 and was reported to have bladder cancer in 2007), this prison term is
effectively a death sentence. Over the last few years, the SEC has tried to set the standard that
fraud will not be tolerated in public companies.
The Adelphia fraud has also led to numerous civil cases. For example, John Rigas claims he
never intended to defraud Adelphia and the cash advances were loans he would repay. He said he
relied on auditors at Deloitte & Touche and lawyers at the Pittsburgh firm Buchanan Ingersoll,
now Buchanan Ingersoll & Rooney. Deloitte agreed to pay $50 million to settle a civil lawsuit by
the U.S. Securities and Exchange Commission and $210 million to settle with Adelphia
investors. Deloitte, Adelphia and the Rigases have sued each other and face a civil trial in 2007
in state court in Philadelphia over who bears responsibility for the fraud. Investors also are suing
Buchanan.
5. You would pay attention to the majority of presence on the board of directors, family
dominance, the cash management system, that the company used $4 million of company funds to
buy personal shares of Adelphia stock for the family, the standard of living of the Rigas, the
Rigas entities, the off-sheet balance loans, as well as the violations of RICO act, fiduciary duties,
etc.
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1. This deposition was conducted in the Securities and Exchange Commission, Los Angeles
Office.
2. The three individuals representing the SEC are Andrew J. Dunbar, Nicolas Morgan, and
Martin J. Murphy.
3. These three most likely are lawyers. The chapter reads, only attorneys can ask questions at
depositions (p. 595). Is this page reference still valid? My chapter isnt paginated.
4. This statement means that the witness has been subpoenaed, or commanded to appear before
the court.
5. The two exhibits presented in this deposition are Exhibit 29: List of Banks and Brokerage
Firms and Exhibit 30: Position Statement.
6. Clearly the deposition turned to the particulars of Mr. Slatkins banking activities (copies of
checks, wire transfers, etc.), which is why the SEC employed more exhibits in the second part of
the deposition than the first.
7. The examiners are being paricular in their questions because it is possible that defendants
might alter documents before submitting them, as the chapter points out. The SEC lawyers are
trying to determine the validity of the documents produced.
8. According to Mr. Dunbar, This is an investigationto determine if there have been any
violations of certain provisions of the federal securities laws (pp. 3-18).
9. Mr. Boltz asks Mr. Slatkin clarifying questions and makes clarifying statements that prompt
Mr. Slatkins answers. His intention is to make sure that not only is the witness answering
truthfully but also that his answers are being correctly understood.
10. Mr. Boltz seems to believe his client is under investigation for illegally accepting
compensation from clients.
11. Mr. Boltz is extremely confident (p. 10).
a. When asked how he can be certain that NAA Financial is good for the money,
he responds with, Oh well, hes been dealing with them for (a very, very long
time).
b. Mr. Boltzs method of verification is absolutely not legitimate.
c. Yes, he acts as though he has made personal contact.
d. Mitchell Axiall is Mr. Boltzsprincipal NAA contact.

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12. From this Web site, we learn that NAA Financial never existed. We also learn that Michel
(Mitchell) Axiall is a ficticious character whose role Jacobs assumed.
Debates
1.
Position 1 (Civil Court Remedies) A typical response may include:
When companies pursue remedies in civil court, usually the fraud cases are settled before the
case goes to trial. The purpose of a civil lawsuit is to compensate for harm done to the
organization. To be successful, the company only has to prove its case by the preponderance of
the evidence, which means they only have to tilt the judge or jury toward their side in order to
win. If the company wins, monetary restitution will be awarded. Civil complaints can be filed
against both the employee and the payer of the kickbacks.
Position 2 (Criminal Prosecution) A typical response may include:
The criminal prosecution system is the only way to put the fraud perpetrator in jail. The criminal
justice system includes more protections for the rights of the defendant, including the protections
that arise from the Fourth, Fifth, and Sixth Amendments. Officers of the court and local law
enforcement must be involved in order to prosecute the perpetrator criminally. It is much more
difficult to prove a fraud case criminally because the case must be proven beyond a reasonable
doubt. Law enforcement and officers of the court must follow proper procedures as they gather
evidence, or else the evidence may become inadmissible in court. Criminal prosecution,
however, is the best way to deter future fraudulent activity by this perpetrator and by other
employees who will be watching to see what happens to this dishonest employee.
2. Daren could decide that the information represents only possible fraudulent activity, and not
consider it something worth testifying to the court about. He could also think that he has been
brought to this case in order to protect the defendant; thus, he might think he is not responsible
for bringing forth incriminating data. Daren could approach the defendants attorney and share
the information he has discovered. The attorney will likely not call him as a witness in this case,
but Daren faces the issue of reporting his findings to the prosecution. Daren also faces the issue
of not reporting his discovery to the attorney and simply reporting his findings on the witness
stand during examination. The main issue Daren faces is whether to reveal the new information.
If Daren believes the information is serious enough, at a minimum he should resign from the
case. You could have the class debate whether he should reveal the new information or even
resign from the case.
Stop and Think Questions
1. Because depositions are often taken in an atmosphere a little more informal than in a
courtroom, witnesses may naturally tend toward being informal in their deposition comments.

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This can be a mistake. A deposition is a powerful tool in the hands of a skilled attorney. If a
witness is not prepared for the deposition, the attorney may be able to obtain admissions or errors
not possible at trial. The attorney may also get a witness to commit to a particular position at
deposition that can prevent him or her from suddenly recalling a favorable matter at trial.
Because of this, defensive witnesses are very cautious of comments they make in a deposition
so as to not have it hurt them during a trial. They often answer with simple yes or no
answers so they dont say anything that they are not certain of or that may be misunderstood.
Also, by not elaborating, the witness does not reveal to the opposing party what he or she thinks
the key points are in the trial. During a trial, witnesses still must prepare adequately and think
about comments they make, but they may speak more freely or offensively. At this point, the
witness will attempt to make key points to the trial even if the question is only tangentially
related to the point. The position a witness takes during a trial will not be used after the trial is
over.
2. Several reasons exist why opposing sides would cooperate during the discovery stage of the
legal process. First, to some extent, parties must comply with certain motions that require them
to provide documents or other information to the opposing party which requests the information.
Second, having a common understanding of the evidence and information that will be brought to
trial will not only allow the separate parties to prepare accordingly, but it also allows for a
smoother legal process in the sense that major surprises will not be concealed that may delay or
overly complicate the trial proceedings. Obviously, information regarding the entire case of a
party is not disclosed, but by cooperating with each other about information regarding major
issues, both parties can adequately prepare for the trial.

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