Scherzer Blog

What is the difference between an expunged criminal record and a sealed record?

The words “expunged” and “sealed” often are used interchangeably. A ”sealed” record means that the record is hidden from the general public. An “expunged” record means that the record has been destroyed. In most states, arrests and convictions for serious, violent felonies usually cannot be expunged or sealed.

Each state has its own rules and laws for expungement, and some states label expungement as “expunction,” “removal,” or “destruction” (of criminal records.) But the record may not completely disappear and may be available to law enforcement and the federal government. In most states, for adults, arrest and conviction records are not automatically expunged or sealed after a period of years. For juveniles, court and arrest records are sealed automatically once the juvenile is arrested and a trial or “adjudication” begins.

The rules and laws for the sealing of criminal records also vary from jurisdiction to jurisdiction. In most instances, a court order to unseal a record is required. Some states order the records to be destroyed after they have been sealed. Further, once a record is sealed, in certain states, the contents/crime are legally considered never to have occurred and are not acknowledged by the state.

In most states, but with some exceptions, after a record is sealed or expunged, the subject may truthfully state that he/she has never been arrested, charged, or accused of a crime. However, as noted above, the federal government does not have to honor an expungement and an expungement of a conviction does not relieve a person from having to disclose it on an application for public office or on certain professional license applications.

July 21st, 2010|Educational Series|

Decoding criminal records in the UK

In the UK, a criminal record is technically any conviction in a court of criminal offence. However, many motor vehicle offences are not deemed as crimes for criminal record purposes, since such offences carry fixed penalties and are not considered criminal convictions. Offences that are prosecuted by local authorities are sometimes classified as criminal offences, although they are unlikely to be in the Police National Computer (the “PNC”). Even if an individual has accepted a “police caution” as an alternative to prosecution, this would count as a criminal conviction.

The Criminal Records Bureau standard and enhanced disclosures contain information about convictions, cautions, reprimands, and warnings retained in the PNC and the equivalent systems in Scotland and Northern Ireland. For the purposes of CRB disclosures, a caution, reprimand, or warning that has been entered into the PNC will constitute a criminal record.

Criminal convictions also are labeled as “spent” and “unspent.” A “spent” conviction is removed from public records, meaning that the defendant has served time and passed through a rehabilitation period. Until then, the conviction is “unspent.” Some convictions, such as crimes with a prison sentence of more than 2.5 years, remain “unspent” indefinitely, regardless of the elapsed time. For convicted minors under 18 years of age, the “unspent” period is cut in half.

During the “unspent” time, the conviction must be disclosed when applying for jobs and on other applications. And for certain jobs such as law enforcement, some roles in the financial services sector, prison services, health services, private security, and for work with children, the elderly, and disabled, “spent” convictions also must be disclosed.

July 20th, 2010|Criminal Activity, Educational Series, International|

Regional religiosity and financial scandals

A July 2, 2010 article in the Nashville Business Journal and other publications reported that a study by accounting faculty members Sean McQuire, Thomas Omer and Nathan Sharp at the Mays Business School of Texas A&M University revealed that the more religious the state, the less chance there is of financial malfeasance. The researchers concluded that for every 10% increase in the population’s religiosity, the odds that a firm headquartered there will be sued over accounting issues decreases by 49%. According to a Gallop poll of residents who said that religion was important to them, Mississippi, at 86% was number one, followed by Alabama at 84%. New York was last, at 44%.

The study also found that small and medium-sized firms tend to use religion as a self-regulating mechanism in the absence of more formal external monitoring. Sharp cautioned that the study is more a measure of an overall accounting approach among multiple firms of various sizes in the Bible Belt and cannot predict massive frauds such as those at Birmingham-based HealthSouth Corp., Clinton, Miss.-based WorldCom and Houston-based Enron. “We would view them as anomalies,” Sharp said. “We focused on smaller, systemic aggressive accounting occurring as almost a part of doing business. On average, when you hold everything constant, accounting practices are less aggressive in areas with high religiosity.” Sharp added that the study did not account for people using religion itself as a means to defraud.

July 19th, 2010|Criminal Activity, Educational Series, Fraud, Research|

Challenging the constitutionality of the Public Company Accounting Oversight Board (PCAOB)

The U.S. Supreme Court, on June 28, 2010, issued its decision in the constitutional lawsuit that challenged the PCAOB, affirming in part and reversing in part the judgment of the Court of Appeals in favor of the PCAOB. The case, Free Enterprise Fund vs. Public Company Accounting Oversight Board, was brought on behalf of a Nevada accounting firm, Beckstead & Watts, which challenged the constitutionality of the law after objecting to the PCAOB’s inspection findings. The Free Enterprise Fund, a group opposed to government regulation, has lost the case twice before, in district and appeals courts.

The PCAOB Web site (http://pcaobus.org/Pages/default.aspx) posted the following: “The Supreme Court held that the Sarbanes-Oxley Act’s provisions making PCAOB Board members removable by the Securities and Exchange Commission (SEC) only for good cause were inconsistent with the Constitution’s separation of powers. Because the Court severed these provisions from the Act, however, no legislation is necessary to bring the Board’s structure within constitutional requirements. The consequence of the Court’s decision is that PCAOB Board members will be removable by the SEC at will, rather than only for good cause. All other aspects of the SEC’s oversight, the structure of the PCAOB and its programs are otherwise unaffected by the Court’s decision. Accordingly, all PCAOB programs will continue to operate as usual, including registration, inspection, enforcement, and standard-setting activities.”

July 18th, 2010|Educational Series, Judgment|

More on fake Web sites

Bogus company Web sites mimicking government entities and promising easy money SECare sprouting in record numbers. In March, the SEC issued warnings to investors about a fraudulent Web site set up by a company named International SecurityInvestor Protection Corporation (ISIPC) which claimed that $1.3 billion in Madoff money has been found in Malaysia and urged Madoff victims to submit personal information to verify that they are on the restitution list. The site copied most of the content and design of the Securities Investor Protection Corporation Web site, and provided links to several legitimate government entities such as the United Nations, the International Monetary Fund, the World Bank and the IBA, falsely touting their sponsorship. (The SIPC is a non-profit organization created by Congress in 1970 toprotect customers in the event of a brokerage failure, acting as a trustee or working with independent court-appointed trustees to recover funds).

Two months after the ISIPC made its debut, the SEC posted an alert that a Web site for an entity calling itself the “US Securities and Equities Administration” was attempting to dupe investors by claiming that funds were being held by the U.S. government on their behalf, and asking for upfront fees to collect the funds.

One of the easiest ways to spot government-related online scams is to look at the Web site and e-mail addresses. No U.S. government agency has a Web site or e-mail address that ends in anything other than “.gov”, “.mil”, or “fed.us”.

July 15th, 2010|Educational Series|

Do you know how to spot online scams?

To educate consumers about online scams, the Federal Trade Commission (FTC) set up a Web site for Esteemed Lending Services, an online company that looks reliable and reputable, and promises easy advance-fee loans to anyone. But the company and the site are fictitious, designed to tip you off to the signs of loan scams. The FTC also has other “phony sites” for scam awareness for products such as diet aids (FatFoe) and made-up diabetes treatment (Glucobate.) Remember that as part of our investigation strategies for business transactions, SI includes Web site reviews to detect incredulities, too-good-to-be-true statements, boasts of unrealistic investment returns, and even wording that is unfitting for the particular industry.

July 14th, 2010|Educational Series, Fraud|

Can a person be denied a job or be terminated because of a bankruptcy filing?

Section 525 of the Bankruptcy Code provides two slightly different standards for government applicants and employees, and for private employers. The bankruptcy discrimination statute for government employees

[s.525(a)] states that:

[The government] may not…deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

Section [s.525(b)] applies to private employers, and states that:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

July 13th, 2010|Bankruptcy, Educational Series, Legislation|

What is a qui tam lawsuit?

A qui tam is a provision of the Federal False Claims Act that allows private citizens, also known as whistleblowers or relators, to bring a lawsuit in the name of the U.S. Government against entities or persons suspected of fraud in the use of government funds. The qui tam plaintiff, if successful in the suit, is entitled to a percentage of the funds recouped by the government, which generally is between 15 to 30% of the recovered amount. Qui tam verdicts and settlements can reach into billions of dollars. In the fiscal year ending September 30, 2009, the Justice Department recovered $2.4 billion in false claims cases, and posted total recoveries of more than $24 billion since 1986.

July 9th, 2010|Educational Series, Legislation|

What is pretexting and can it be used in background investigations?

Pretexting is the practice of obtaining someone’s personal information under false pretenses, and it is against federal law. In addition to the Federal Trade Commission Act which generally prohibits pretexting for sensitive personal information, under the Gramm-Leach-Bliley Act passed in 1999, it is illegal for anyone to:

use false, fictitious or fraudulent statements to obtain customer information from a financial institution or directly from a customer of a financial institution;
use false, fictitious, fraudulent, forged, counterfeit, lost, or stolen documents to obtain customer information from a financial institution or directly from a customer of a financial institution;
ask another person to obtain someone’s customer information using false, fictitious or fraudulent statements or using false, fictitious, fraudulent, forged, counterfeit, lost, or stolen documents.

July 9th, 2010|Educational Series, Employment Decisions|

Why is it important to search criminal records under the company’s name along with its principals?

Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. The most common criminal cases are filed for regulatory causes, but other charges also may be brought depending on the severity of the crime and the adequacy of the civil and administrative enforcement actions, among many considerations.

On a related note, several months ago, we posted a case study from our files about one of the biggest payroll-tax frauds in U.S. history. The $200 million fraud led to the subject company’s Chapter 11 bankruptcy filing and its subsequent federal indictment. The company’s former CEO, who was considered the mastermind of the fraud, was sentenced to 22 years in prison in 2008. Prosecutors in the case argued that a guilty plea from the company itself also was needed to deter similar crimes by other companies. However, the court ruled that, among other regards, this would lead to unnecessary costs of a trial and damage the legal claims contained in the bankruptcy.

July 2nd, 2010|Bankruptcy, Educational Series|