Seeking a Bulwark Against Vengeance. Or at Least a Speedbump.

“Revenge is a kind of wild justice; which the more man’s nature runs to, the more ought law to weed it out.” Francis Bacon, On Revenge, 1625

As we look ahead to Trump 2.0, with the pungent scent of revenge in the air—recall that Trump said he would not just seek retribution, he would be retribution—many have contemplated what politically-driven investigations and prosecutions may come, and what can possibly stop them. Trump has made clear his disdain for the Justice Department’s tradition of independence from White House influence, and his desire for an Attorney General more loyal and pliant than those from his first regnum.

He has been more than transparent about his targets: his predecessor (Obama), his successor (Biden), his latest opponent (Harris), the prosecutors who pursued him (Smith, Bragg, James, and Willis), and the judges presiding over his recent trials (Merchan and Engoron). At other times, he has demanded or threatened criminal cases against companies or executives who offended him, from Amazon, to Google, to Mark Zuckerberg.

Perhaps it is simply campaign bluster, rather than operational policy. Otherwise, it is not hard to imagine the hounds of law being unleashed upon others who speak ill of the once and future king, or who promote social values—diversity, environmental protection, and the like—that are now out of favor.

So what are the guardrails?

Federal Agency Policy

Sure, DOJ policy is pretty explicit when it comes to politically-driven law enforcement. Per the Justice Manual:

The legal judgments of the Department of Justice must be impartial and insulated from political influence.  It is imperative that the Department’s investigatory and prosecutorial powers be exercised free from partisan consideration.  It is a fundamental duty of every employee of the Department to ensure that these principles are upheld in all of the Department’s legal endeavors.

In fact, the Manual has an entire chapter setting out the rules and limits on interactions DOJ has with the White House and Congress, although I expect that section may be due for some editing.

But the Justice Manual, like similar internal policies of other federal enforcement agencies like the SEC, grants no rights to defendants, and is not enforceable in court. It is up to government attorneys to adhere to those restrictions, and Inspector Generals or agency ethics watchdogs to enforce them. And ultimately, all of them answer to the Attorney General or other agency head, who answers to . . .

So not much hope in agency policy.

Selective Prosecution

What about the doctrine of selective prosecution, an outgrowth of the 14th Amendment’s Equal Protection Clause, which the Supreme Court has recognized since 1886’s Yick Wo v. Hopkins, and which prohibits the government from taking enforcement action against someone merely because they exercise a constitutionally-protected right such as free speech?

Don’t count on that one, either.

Since the Supreme Court’s 1996 decision in U.S. v. Armstrong, selective prosecution motions have been nearly impossible to win. A defendant making the claim must show that (1) the defendant was “singled out for prosecution among others similarly situated”; and (2) the prosecution was motivated by a discriminatory purpose. As to the first element, even when the defendant points to similar persons who were not charged, it is almost always possible to distinguish the details of their conduct, the strength of the evidence against them, and a number of other factors. As to the second, the defendant has to provide “meaningful independent evidence” of improper motive, generally without the benefit of discovery into the issue.

In recent years, a string of high-profile defendants have alleged selective prosecution without success. Trump himself raised the defense in the January 6 criminal case, and was rebuffed. Not long before, Hunter Biden struck out with the same argument, as did Roger Stone and Paul Manafort before him. In 2017, AT&T argued that DOJ had sued to block its merger with Time Warner because Trump was angry about negative coverage by CNN, a Time Warner company. It went nowhere.

Of course, hard cases make bad law, and egregious ones sometimes make new law. Given Trump’s predilection for announcing his retaliatory motives in vivid (and capitalized) prose, it is possible that a judge might find even the Armstrong standard met. But history provides no real guide.

Judges and Juries

There is, of course, the judicial process itself. Even Elon Musk, Trump’s new extraordinary consigliere, would struggle to find a way around the Fifth, Sixth, and Seventh Amendments’ guarantees of jury trials and other basic procedural rights. Under last year’s Jarkesy v. SEC, agencies can no longer use in-house administrative tribunals to pursue penalties for civil violations, and the federal rules of both civil and criminal procedure, as well as the rules of evidence, are likely not going anywhere soon.

Depending on your perspective (Trump would disagree), this has worked at least some of the time to screen out entirely meritless, ginned-up cases. While grand juries will famously indict a ham sandwich, one of them in Washington apparently decided that a case Trump sought against former FBI Deputy Director Andrew McCabe was less than kosher, and refused to indict him. A trial jury acquitted Democratic lawyer Michael Sussmann in a case brought be Special Counsel John Durham, who Trump had appointed and urged to pursue those involved in the investigation of Russia’s involvement in the first Trump campaign.

But the incoming crew likely has a game plan for that as well. Conservative organizations challenging Biden policies have found a warm welcome in certain jurisdictions—such as the Amarillo outpost of the Northern District of Texas, as well as the Fifth Circuit more generally—and have learned to steer cases in that direction. A Trump DOJ could well seek reasons to file criminal charges or civil enforcement cases in those courts, rather than in D.C. or New York, with their less hospitable benches and jury pools.

Lawyers to the Rescue?

Or perhaps the legal profession itself could provide a firewall? Political appointees can give the orders, but ultimately, it is an Assistant U.S. Attorney or an SEC enforcement counsel with his or her name on pleadings and bar license on the line. State bar rules prohibit attorneys from bringing baseless claims, and in many cases specifically bar prosecutors from pursuing charges without probable cause. As Rudy Giuliani and other champions of the “Stop the Steal” litigation campaign came to learn, Trump’s pardon power does not extend to disbarment or suspension proceedings. Could line attorneys, fearing more for their long-term livelihood than their current jobs, push back against directions to pursue meritless cases?

We may find out. There is a reason Henry VI’s Dick the Butcher proposed to “kill all the lawyers” as a means to promote revolutionary chaos. Perhaps the bar will rise to its finest hour and take a stand for the rule of law.

I’m crossing my fingers, but not holding my breath.

Tales from the Other Side

Anticipation of an experience can become the main event in itself, leaving only anticlimax to follow. This was the most visceral takeaway from my recent testimony as an expert in a federal criminal trial--my first trip ever to the witness stand after two decades of asking the questions.

It was a scant three months ago when I posted about the possible upshot of Diaz v. United States, in which the Supreme Court blessed the practice of having an expert witness in a criminal trial testify about the knowledge that "most" people in the defendant's position would tend to have. Both I and Justices Jackson and Gorsuch (not in that exact order) posited that the ruling would encourage a new era of "standard mens rea" experts opining on whether a generic person in the same situation as the defendant would know, or intend, or be willful as to some critical fact in the case.

Then I was asked to do just that, or something like it.

The U.S. Attorney's Office for the Central District of California--where I once prosecuted kickback cases--charged the owner of an substance use treatment facility with violating the Eliminating Kickbacks in Recovery Act (EKRA) by paying several marketers (or "body brokers," in the government's vernacular) to help find patients for the facility. EKRA is a fairly new, awkwardly-written, and somewhat confusing law that regulates how addiction-treatment providers may and may not pay for sales and marketing services. Do it the right way, and you're fine. Do it another way, and you may go to jail.

I have represented providers investigated for potential violations of EKRA and other kickback laws. More importantly, I have advised providers on how they can arrange to pay sales and marketing staff or contractors for their services without running afoul of the law. As anyone who has done the same can attest, it's not easy. EKRA was designed to mimic the much-older Anti-Kickback Statute, but it has important differences, and was written in such a rush that some of its provisions make little sense. Others are ambiguous. Only four courts so far have provided interpretations of the statute, and the federal government has not issued any guidance--preferring instead to simply prosecute those it thinks have crossed the line.

So I was called to explain the above, and opine that it would have been difficult for someone in the defendant's position to know whether the compensation arrangement he had made with outside marketers was permissible. Of that I was quite confident.

But as the big day approached, I was increasingly thinking about the very notion of testifying at all. From my first year of practice some twenty years ago, I have sat with designated witnesses, both the fact and expert varieties, to talk them through the do's and don’ts of deposition or trial testimony. My perspective, of course, was always of the person writing, asking, or objecting to the questions, and not of the one on the firing line. I could see what worked and what did not, but I could not speak to how it actually felt to be under the spotlight, with my own words instantly become evidence rather than just argument.

After all that, I have to admit: it was uneventful. I got off easy: my direct testimony consisted mainly in describing my own experience, talking about EKRA, and explaining my above thesis. Cross-examination--the bane and dread of most witnesses--was a mere three questions, all predictable.

Still, I came away with a few thoughts about what preparation is most effective, particularly for experts:

• Listen to the question and answer only that question. It's not a presidential debate--everyone notices when you don't answer the question. And when you act more as an advocate that a source of requested information. Don't spin or argue. Just respond.

  
  

• Keep answers short where appropriate. If the lawyer asks for a longer explanation, give one. But if it's a simple question with a short answer, just give that.

  
  

• Stay in your lane. You were asked to give only certain opinions. The judge may have cut that list down. Acknowledge what you are and are not testifying about, and stick to the approved subject.

  
  

• Keep it simple, genius. Your professional bona fides will have been spelled out for the jury. But try to explain the concepts in plain English, and only those that need to be explained. Analogies are helpful.

  
  

• Don't look at jury unless invited to. Some lawyers tell witnesses, especially experts, to respond to every question by turning to the jury first, rather than responding to the questioner. I've always thought that looks artificial and coached. The feeling is the same up on the stand. If the questioner asks you to say something directly to the jury, fine. Otherwise, act like you would in an ordinary conversation: answer the person who asked you.

Hate the Players, or the Game?

Imagine you have an expensive watch. Someone steals the watch, and sells it to a pawn shop. This pawn shop is kind of notorious in town for its chain-smoking owner with his un-ironic mullet and his "no questions asked" policy, and petty thieves often go there to cash in their loot. Eventually, the watch turns up on the wrist of someone who bought it from the pawn shop. Can you sue the shop and its owner?

Binance runs the world's largest cryptocurrency exchange. In November 2023, Binance and its founder Changpeng Zhao ("CZ") pled guilty to federal criminal charges of violating the Bank Secrecy Act by failing to maintain an effective anti-money laundering program, conducting and conspiring to conduct an unlicensed money transmitting business, and violating U.S. economic sanctions law. The gist of the charges was that Binance created a platform that allowed various evil-doers--criminals, terrorists, people trying to evade U.S. sanctions--to move cryptocurrency around in ways that made it easier to hide  funds that came from illegal activity, but CZ did not put in place the required compliance processes to catch and stop such money laundering. As part of the plea, Binance and CZ admitted as much.

On August 16, 2024, a group of plaintiffs filed what they hope will be a class action lawsuit against Binance and CZ, asserting claims under the RICO statute. In essence, the plaintiffs claim that they were ripped off by criminals who defrauded them or hacked their accounts and stole their cryptocurrency. According to the plaintiffs, the criminals then moved the stolen crypto into Binance and used the exchange to conduct transactions to hide the money. Like the Justice Department--and the defendants themselves--the plaintiffs say that the company's Bank Secrecy Act violations allowed this to happen. Thus, the plaintiffs argue, both Binance and CZ are liable for the plaintiffs' losses under RICO, which applies to such violations.

This is not the first such suit against Mr. Z and his creation. In February, a 75-year-old Texan victimized in a "pig-butchering" scheme by a Cambodian online gang brought a similar--though much smaller--RICO case against both Binance and its founder based on essentially the same theory, and citing the same plea agreement.

A slam dunk, right? Easy money, fish in a barrel, a no-brainer, no? Well, no. It's actually kind of a brainer, at least as the RICO claims go.

Causation in RICO Cases

While the federal government can enforce any RICO violation, private plaintiffs have less leeway. To pursue civil RICO claims against a defendant, a plaintiff must first allege and then prove both that it has suffered harm to its "business or property" and that the harm occurred "by reason of" the defendant's racketeering activity. "By reason of" means the plaintiff must show two kinds of causation. First, it must show that the harm would not have occurred "but for" the racketeering. Second, it must show that the racketeering was the "proximate"--or direct--cause of the harm.

Proximate causation is a famously fuzzy concept that first-year law students learn about through a case that involves a train, a lady, and an explosion. Judges sometimes use it to eighty-six cases that they find just a bit too squirrely. In the Binance cases, the plaintiffs' task is to explain how the company's failure to follow certain rules for scrutinizing customers led directly to the plaintiffs losing their property.

The leading RICO causation case is Hemi Group v. City of New York. A New Mexico company sold cigarettes online to New Yorkers, but failed to disclose certain information on its customers as required by law, which prevented the city from collecting sales taxes from those customers. The city claimed the company's actions amounted to a pattern of fraud and brought a RICO case for the loss of the tax revenue. The Supreme Court held that the connection between the company's actions and the city's loss of tax revenue was too "remote" and "indirect" to meet the proximate causation requirement; the harm was actually caused by the customers who didn't pay the tax, rather than the company that failed to give the city the means to enforce it.

The issue was addressed in a recent decision involving a RICO claim against a different crypto-trade facilitator. A group of plaintiffs filed a putative class action in Delaware against a group of companies that built and maintained the Nomad Bridge, a blockchain system that allowed users to exchange different types of digital assets. A flaw in the system enabled hackers to drain $186 million in such assets from Nomad Bridge's users. As in the Binance case, the alleged racketeering activity involved, in part, operating an unlicensed money transmitting business. In April 2024, however, the court dismissed the RICO claim, finding that the losses were "too remote" from the mere act of operating without a proper license.

Causation and Binance

In the Binance case, the fight will be similar, and perhaps harder for the plaintiffs. The complaint does not allege that Binance or CZ were part of the fraud or theft that originally deprived the victims of their crypto assets, and thus the racketeering conduct is not mail or wire fraud, as in most civil RICO cases. Instead, the plaintiffs assert two basic theories as to how Binance had caused their losses:

1. The availability of Binance as a platform to launder stolen crypto, where anti-money laundering laws were not followed, encouraged the thieves to steal the victims' crypto in the first place.

2. By enabling the laundering, Binance prevented the victims or law enforcement from tracking down and recovering the stolen crypto.

The flaws in these theories are apparent. As to the first, it requires a fair amount of speculation to conclude that the criminals would not have stolen the crypto if Binance had complied with the Bank Secrecy Act. Other crypto exchanges, and other mechanisms for moving and concealing crypto, are and would continue to be available even if Binance did not exist. The second theory requires one to assume that the stolen assets would have been found and recovered if Binance had followed the rules--again, notwithstanding the availability of other means to hide the assets. It is thus not clear that the claims would even clear the "but for" causation test.

Even if they could, the proximate causation requirement would loom large. As in Hemi Group and the Nomad Bridge case, the court may conclude that because someone other than the defendants--here, the thieves themselves--is the actual, direct cause of the losses, the downstream effect of Binance's exchange is too indirect or remote to satisfy RICO's "by reason of" standard. As the Supreme Court put it, “[t]he general tendency of the law, in regard to damages at least, is not to go beyond the first step.”

Too Clever by Half, or Not Clever Enough?

I give credit where credit is due: the recent complaints' use of Bank Secrecy Act violations as a basis for a RICO claim is somewhat novel, makes good use of the tailwinds that the Binance/CZ guilty pleas provide, and avoids the limitations of a racketeering theory based on mail or wire fraud, which is becoming harder to plead and prove as the Supreme Court has narrowed the scope of those statutes. But it may also show the limitations of using RICO to pursue the supporting cast of the criminal world, rather than the star players.

One more thing: Query whether there would be a viable claim under California Penal Code § 496(c), which allows victims of theft to bring lawsuits for RICO-style treble damages against "every person who . . . receives any property that has been stolen . . . knowing the property to be so stolen, or who conceals, sells, withholds, or aids in concealing, selling, or withholding any property from the owner, knowing the property to be so stolen . . . " Fights over knowledge aside, both our apocryphal pawn shop owner and the crypo champions at Binance might be reasonable targets for such a claim.

Either way, those considering similar claims against crypto exchanges--and those who might be on the receiving end of them--may want to keep an eye on the forthcoming motion to dismiss in this one.