|October 15, 1999
The Honorable Albert Gore, Jr.
Vice President of the United States
and President of the Senate
The Honorable J. Dennis Hastert
Speaker of the House of Representatives
Washington, D.C. 20510-6250
Dear Mr. Vice President and Mr. Speaker:
This is my fifth Annual Report to Congress pursuant to 28 U.S.C.
' 595(a)(2). This office brought criminal charges
against nineteen defendants, resulting in eight guilty pleas, six guilty verdicts, one
adjudication of guilt pursuant to a nolo contendre plea, one pretrial diversion,
and five not-guilty verdicts. We also reached two civil settlements and referred to other
agencies four matters that resulted in public dispositions. In total, these cases secured
penalties and fines for the United States Treasury of $9,975,100 and restitution totaling
We have completed our investigations and are currently attending to
appellate and other post-verdict matters while drafting the final report and preparing for
the archiving process. All that presently remains before submission of our final report is
resolution of four post-conviction matters. One appeal has been decided by the D.C.
Circuit, but the defendant has stated an intention to file a petition for writ of
certiorari to the Supreme Court. Another appeal has been dismissed by the D.C. Circuit,
but the defendants have filed a petition for rehearing. In a third case, all appeals are
concluded but the defendant has not yet been sentenced. In the final case, all appeals are
concluded and the defendant has been sentenced, but there still
remain issues for resolution. This report will update the matters handled by this office
since my last report in April 1999 and will discuss continuing office wind-down
THE INVESTIGATION SINCE APRIL 26, 1999
This office has completed its investigation. Its final prosecution,
that of Alphonso Michael Espy, was brought to a close in November 1998 when the jury
acquitted Espy of all charges. What remains for this office is the completion of
post-trial matters, preparation of the final report, review of attorneys= fees applications, and other
As of my last report on April 26, 1999, this office has actively
participated in four appellate matters. We received a Supreme Court decision in United
States v. Sun-Diamond Growers of California, No. 98-131, on April 27, 1999. We
received two decisions from the United States Court of Appeals for the District of
Columbia Circuit, namely, United States v. Schaffer, Nos. 98-3123 & 98-3126 on
July 23, 1999, and United States v. Blackley, No. 98-3036 on January 26, 1999, and
the D.C. Circuit denied petitions for rehearing in both cases. We also successfully moved
for dismissal of our last calendered appellate matter, United States v. Five M Farming
Enterprises, Inc. et al. These matters are discussed below.
a. United States v. Ronald H.
The last two reports advised you of the disposition of this case
against Secretary Espy=s former Chief of Staff. On December 1, 1997, a jury convicted Ronald H. Blackley
of three counts of making false statements relating to his receipt of $22,025 in 1993 from
prohibited sources (Mississippi agribusiness interests), after he became Secretary Espy=s Chief of Staff at USDA.
Blackley made false statements on his 1993 Public Financial Disclosure Report by failing
to disclose his receipt of the payments, and he subsequently lied to federal agents about
these matters. On March 18, 1998, the trial court departed upward from the Sentencing
Guidelines and sentenced Blackley to 27 months in jail, and 3 years supervised release.
Blackley appealed his conviction essentially on three grounds B that the prosecution was
beyond my jurisdiction, that the indictment failed to advise him adequately of the nature
of the charges against him, and that the trial court failed to give a specific instruction
to the jury on one element of the charged crime. On January 26, 1999, a three-judge panel
of the United States Court of Appeals for the District of Columbia Circuit affirmed the
three-count conviction and 27 month sentence. On March 31, 1999, the D.C. Circuit denied
petition for rehearing and suggestion for rehearing en banc.
On June 28, 1999, Blackley filed a petition to the Supreme Court for a
writ of certiorari, reasserting each of the three grounds of his appeal. On July 28, 1999,
this office filed a brief in opposition with the Supreme Court. The Supreme Court denied
petition on October 4, 1999. The only issue we currently foresee remaining for resolution
is the issuance of a surrender order from the District Court.
b. United States v. Sun-Diamond
Growers of California
In September 1996, a jury convicted Sun-Diamond of three felonies (one
count of illegal gratuities and two counts of wire fraud) and five misdemeanor Federal
Election Campaign Act (FECA) counts (one illegal corporate political contribution count
and four illegal conduit contribution counts). On May 13, 1997, the trial court sentenced
Sun-Diamond to five years probation, with special conditions, and a $1,500,000 fine. On
June 2, 1997, Sun-Diamond paid the $1,500,000 fine.
Sun-Diamond appealed its conviction to the D.C. Circuit. On March 20,
1998, the D.C. Circuit, while affirming the conviction on the mail fraud and illegal
campaign contribution counts, reversed the gratuities conviction because it found a jury
instruction to be improper. In its decision, the D.C. Circuit adopted an interpretation of
the gratuities statute that would permit regulated entities to give gratuities to gain the
generalized goodwill of federal officials. This interpretation conflicted with decisions
of the Second, Third, Fifth and Ninth Circuits.
On July 21, 1998, we petitioned the Supreme Court for certiorari,
arguing that the D.C. Circuit's restrictive interpretation of the gratuities statute was
not required by the language of that statute and would make it difficult, at best, to
prosecute persons or entities for bestowing largesse on federal officials in the District
of Columbia before an official takes a particular action. The Supreme Court granted
certiorari on November 2, 1998 and heard oral argument on March 2, 1999.
On April 27, 1999, the Supreme Court affirmed the D.C. Circuit=s reversal of the gratuities
conviction. The Court held that the language of the statute, when read within context of
the broader statutory scheme of criminal and ethical regulations governing public
acceptance of gifts, requires proof of a link between a thing of value conferred upon a
public official and a specific official act for or because of which it was given.
In the wake of the Supreme Court=s decision, I had to decide
whether to retry Sun-Diamond on the one gratuity count. While my office felt confident
that we possessed sufficient evidence to obtain a conviction under the standard
established by the Supreme Court, the retrial and subsequent appeal would substantially
lengthen the duration of this office at continued expense to the tax payers. Since
Sun-Diamond's convictions on the seven remaining counts were unaffected by the reversal of
the gratuity count, I concluded it was not in the interests of justice to retry the case
and, accordingly, we dismissed the gratuity count against Sun-Diamond.
On September 3, 1999, the District Court resentenced Sun-Diamond on the
seven remaining counts on which Sun-Diamond stood convicted, which were unaffected by the
reversal. The Court resentenced Sun-Diamond to pay a total fine of only $36,000, which was
grossly disproportionate to the original fine of $1.5 million. It is difficult to
comprehend how the Court could conclude that the fine on the single gratuities count could
effectively account for a $1,464,000 difference ($1.5M - $36K = 1.46M), but the Court
purported to follow the Sentencing Guidelines. When Sun-Diamond was originally sentenced
on May 13, 1997, pursuant to the guidelines, the Judge apportioned the $1,500,000 fine as
$400,000 on Count 1 (gratuitiescount),
$300,000 on each of Counts 3 and 4 (wire fraud counts), and
$100,000 on each of Counts 5, 6, 7, 8 and 9.
At the resentencing, the trial court purported to resentence
Sun-Diamond in accordance with the Sentencing Guidelines. We disagreed and advanced three
arguments which supported a fine of at least $1.1 million.
First, we argued that, as to Counts Five through Nine, which charged
violations of the Federal Election Campaign Act, the Sentencing Commission had not
published specific or analogous guidelines for election crimes. Therefore, the Court had
the authority and obligation to sentence Sun-Diamond on each of those five counts under 18
3553(a)(2), which provides that the sentence should be adequate to serve the basic
functions of sentencing B punishment, deterrence, rehabilitation, and protection. Thus, the only limit to
discretion in setting the fine would be the statutory maximum of $200,000 per count or
$1,000,000 total. As noted infra, a fine in this amount was supported by the
Department of Justice. While there was no appellate court precedent, we provided the Court
with other District Court cases that had accepted plea agreements in which the parties
stipulated that there is not a sufficiently analogous guideline for FECA violations and
that the Court may sentence up to $200,000 per FECA violation. One of those cases, United
States v. Lake, was a companion case to Sun-Diamond and before the same District Court
Judge, who there recognized that there was not a sufficiently analogous guideline for FECA
violations. Another case, United States v. Sun-Land Products, involved a subsidiary
of Sun-Diamond that similarly made illegal campaign contributions and pleaded guilty to
the FECA violations. Sun-Land Products' violations were discovered by this office during
its investigation of Sun-Diamond and turned over to the Department of Justice for
prosecution in the Northern District of California. In that prosecution, Sun-Land
Products, which was represented by Sun-Diamond's counsel, agreed
"that the United States Sentencing Guidelines do not contain
provisions directly applicable or sufficiently analogous to the specific misdemeanor
violations of Title 2
. . .
' 3553(b) should control in
this matter. The government and the defendant, therefore, agree to recommend that
sentencing should be rendered by the Court pursuant to 18 U.S.C. '' 3553 and 3571 and that the
fine imposed total $400,000, [$200,000 per count] which is the statutory maximum set forth
in 18 U.S.C. '
that the provisions of 18 U.S.C.
Finally, we furnished the Court a letter from the Department of Justice
stating that FECA violations are not covered by the Sentencing Guidelines and that the
"appropriate penalty for a corporate defendant . . . should be $200,000 per count.
The Court rejected each of these arguments and instead applied the
Sentencing Guideline for simple fraud to the FECA as well as the wire-fraud counts. That
guideline produced a $36,000 fine.
Second, we argued that the sentence should be adjusted upward because
fraud involved a misrepresentation that Sun-Diamond was acting on behalf of a charitable
organization, the Joint Center for Political and Economic Studies. The District Court,
without any explanation, simply stated the evidence did not support this argument.
Finally, we argued that the Court should depart upward because
Sun-Diamond had engaged in giving unlawful gratuities to the Secretary of Agriculture as
alleged in Count One. Under the Supreme Court=s decision in United States v. Watts, 117 S. Ct.
633 (1997), a sentencing court may consider conduct of which a defendant has been
acquitted so long as the court finds by a preponderance of the evidence that the acquitted
conduct was proved. The Sentencing Guidelines encourage upward departures where a
corporate defendant, in connection with the crime, provided either a bribe or a gratuity
to a public official. We argued that the evidence clearly established that Sun-Diamond
gave Secretary Espy gratuities for official acts, and that Sun-Diamond's conviction was
overturned not for lack of evidence -- but because of a faulty jury instruction.
Therefore, an upward departure was appropriate. The Court disagreed, finding without
elaboration that the Afacts did not support the requested upward departure.@
Sun-Diamond had been required to pay its $1.5 million fine in June 1997
while it appealed its conviction. Immediately after resentencing, Sun-Diamond claimed that
it was entitled to a return of $1,464,000 plus interest in the amount of
$202,610.49. We did not oppose the return of $1,464,000 of its original fine, but did
oppose payment of any interest, as the Supreme Court has held that absent a statute
authorizing interest, a private party is not entitled to an award of interest against the
United States. Library of Congress v. Shaw, 478 U.S. 310, 314-17 (1986). The
District Court has not yet ruled on this issue and it is outstanding.
This office firmly believes that the $36,000 fine imposed upon
Sun-Diamond fails to account for the seriousness of the five FECA offenses for which the
company was convicted. Recently, Senators Thompson and Lieberman introduced an amendment
to S. 1593, the McCain-Feingold campaign finance reform bill, to strengthen the Federal
Election Campaign Act in several respects, including, inter alia, directing the
Sentencing Commission to promulgate a sentencing guideline to cover FECA offenses. We
believe passage of this amendment would close a variety of loopholes in the existing
campaign finance laws, and significantly aid the government's efforts in enforcing these
laws. We therefore strongly urge the enactment of the proposed amendment.
c. United States v. Jack L. Williams
and Archibald R. Schaffer, III
On June 26, 1998, a District of Columbia jury returned a verdict of
guilty against Archibald R. Schaffer, III (Schaffer), Tyson Foods= Director of
Media, Public, and Governmental Affairs, on two counts of giving illegal gratuities to
Secretary Espy B a $2,556 gratuity in connection with the Tyson birthday party in
violation of the Meat Inspection Act of 1907 (22 U.S.C. ' 622)
and a $6,000 gratuity for four tickets to a Presidential inaugural dinner in violation of
the gratuities statute (18 U.S.C. ' 201(c)). On September 21, 1998, the trial court granted
Schaffer=s post-verdict motion for judgment of acquittal and set aside the jury=s verdict.
The Government appealed the trial court=s ruling, and Schaffer cross-appealed, asserting that if his
conviction was reinstated he was entitled to a new trial.
On July 23, 1999, the D.C. Circuit reinstated Schaffer=s conviction
on the Meat Inspection Act count and affirmed the judgment of acquittal on the gratuity
count. The Court denied Schaffer=s cross-appeal. On September 3, 1999, defendant Schaffer filed a
petition for rehearing, arguing that the Circuit=s ruling on the Meat Inspection Act count
was based on mistakes of fact and ignored the Supreme Court=s decision in
United States v. Sun-Diamond, and that the error complained of in Schaffer=s
cross-appeal was not harmless error as the Circuit concluded. The D.C. Circuit denied
Schaffer=s request for rehearing on September 21, 1999. Schaffer has stated that he will
petition the Supreme Court for a writ of certiorari.
On August 5, 1999, this office moved the D.C. Circuit for expedited
issuance of the mandate so that sentencing of defendant Schaffer could proceed without
awaiting exhaustion of all subsequent appellate efforts. The Court granted that motion
over Schaffer=s opposition on August 26, 1999. The District Court scheduled
sentencing for November 9, 1999.
States v. Five M Farming Enterprises, Inc., et al.
Pursuant to a plea agreement with this office, Five M Farming
Enterprises (Five M) and its principal, Brook Keith Mitchell, Sr., (Mitchell) pleaded
guilty on November 13, 1996, to conspiracy to defraud the USDA by making false and
fraudulent statements to obtain more than $700,000 in farm deficiency payments (crop
subsidies) from 1992 through 1995, making false statements to the USDA, and submitting
false entries in books and records. As a condition of the defendants= plea agreement, a third defendant, Brook
Keith Mitchell, Jr., was placed on a one-year pretrial diversion program.
On March 8, 1999, the trial court sentenced Five M and Brook Keith
Mitchell, Sr. to pay full restitution in the amount of $776,860 to the USDA, and each to
the three years probation. Shortly thereafter, the defendants appealed their convictions,
asserting that this office lacked the authority to prosecute them for their offenses. We
moved to dismiss the defendant=s appeal arguing, inter alia, that the defendants waived their challenge
to our prosecutorial authority by entering unconditional guilty pleas. By order dated
August 19, 1999, the D.C. Circuit granted our motion and dismissed the defendants= appeal. On October 4, 1999,
the defendants filed in the D.C. Circuit a petition for rehearing and suggestion for
rehearing en banc.
ADMINISTRATIVE AND FINANCIAL REPORT
The Independent Counsel Reauthorization Act of 1994 requires me to
conduct all activities Awith due regard for expenses@ and Aauthorize
only reasonable and lawful expenditures.@ 28 U.S.C. '' 594(l)(1)(A)(i) and (ii). I have made every reasonable
effort to comply with this requirement. We chose office space in Alexandria, Virginia,
where our cost per square foot is significantly less than that for comparable space in the
District; we have continually maintained a system of financial controls, internal to this
office and with personnel from the Administrative Office of the United States Courts, that
are effective in assuring that costs are reasonable and proper. The General Accounting
Office=s Audit Report covering my office=s expenditures through March 31, 1998
verifies accomplishment of this objective. To promote this goal, the staff I hired and
retained to administer office operations were known to me, had experience with Independent
Counsel operations, administration and financial management, and/or were familiar with the
relevant federal laws and regulations.
Upon the completion of the Espy trial, we moved promptly to
reduce staff size. The number of attorneys has decreased from nine full-time and five
active part-time to two full-time and one part-time assisting with appellate work, the
Final Report and related matters. There no longer are any agents detailed to this office
from any agency, compared to seven agents and one on-call accountant at the end of last
year. I have downsized the administrative and support staff to the minimum needed for
completion of the Final Report and final shutdown: (i) the Administrative Officer; (ii)
the Executive Staff Assistant who maintains the filing system and is responsible for
archiving; (iii) my Confidential Assistant/Press Officer; (iv) the Information Systems
Administrator; (v) one Paralegal; (vi) one Legal Secretary; and (vii) the Property
Manager. Members of my staff are participating in an ad hoc working group with the
National Archives in order to facilitate and expedite the archiving process which normally
is undertaken after the final report is filed and the attorneys= fees issues
COMMENTS AND CONCERNS
Earlier reports to Congress discussed matters of legislative concern.
In this report, other than to note our strong support for the proposed amendment offered
by Senators Thompson and Lieberman to S. 1593, the McCain-Feingold campaign finance
reform bill, I have not expressed additional comments and concerns. They will be included
in my Final Report.
My office has fulfilled its statutory mandate to Afully investigate and
allegations that Secretary Espy accepted gifts from entities with business before the
USDA, "and all related matters." I stand confidently behind each and every
decision to prosecute, decline prosecution, and refer matters to other agencies. These
decisions were made by a collective group of very experienced present and former federal
prosecutors after a thorough consideration of the facts uncovered by our investigation,
the DOJ procedures and policies, the applicable statutes, and the law. Although we were
disappointed that not all the prosecutions resulted in convictions, I am proud of the
achievements of this office and believe we fully and faithfully carried out the role of an
Independent Counsel. The American public can feel confident that this investigation of a
high-level member of the Executive branch was pursued vigorously and thoroughly, and that
all prosecutorial decisions resulting from that investigation were made without favoritism
Donald C. Smaltz