Why a Federal Investigation Should Scare Kitzhaber

Tuesday, February 17, 2015

Annie Ellison, GoLocalPDX Reporter

The coming years will be strenuous, uncertain, and expensive for outgoing Oregon Governor John Kitzhaber, whether he is indicted by a federal grand jury or not, legal experts say.

Kitzhaber, 67, will leave office Wednesday, but the state and federal criminal investigations he faces will stay with him.

A comprehensive federal subpoena issued to the state’s Department of Administrative Services Friday calls for all paper and electronic information, records and documents relating to Kitzhaber and his fiancee, Cylvia Hayes, dating back to Jan. 1, 2009.

“It’s obviously very serious,” said Scott Coffina, former Associate White House Counsel and now a partner with Philadelphia firm Drinker, Biddle and Reath. “Anybody that’s facing a grand jury investigation, with the news surrounding [Kitzhaber and Hayes], should absolutely be worried,” Coffina said.

Slides Below: Feds Probe Kitzhaber and Hayes: 10 Things to Know

The scope of the subpoena is vast, with reach into 11 state departments, seven non-profit agencies that awarded Hayes contracts between 2009 and 2014, and the files of 17 additional state staff. Read the full subpoena here.

This could take years

U.S. Attorney Amanda Marshall issued the Grand Jury subpoena Feb. 13, giving the department until March 10, 2015 to supply the records.

“This is going to take a long time,” said Coffina. Based on the massive volume of records investigators have requested, the probe could drag on for years, he said.

“They kind of wade through that for sometimes months, sometimes years,” said Tom Hagemann, a former prosecutor turned white collar criminal defense attorney and partner at Gardere Wynne Sewell in Houston, TX.

Kitzhaber’s legal costs could run hundreds of thousands of dollars before a grand jury reaches a decision on whether or not to indict him. If he goes to trial, the costs would increase significantly. “A million dollars frankly is not even a large number in a serious federal investigation,” said Hagemann, who has successfully defended multiple clients under federal probes.

By comparison, Rhode Island hospital executive Robert Urciuoli, convicted of bribing a state senator, spent $2.15 million in legal defense fees over 30 months.

“The numbers can run up real fast, you work really hard on this side of the street to keep up with the government’s investigation,” said Hagemann.

Federal investigators, unlike their state counterparts, have unlimited resources available to them, making a legal defense, however expensive, all the more urgent.

Kitzhaber retained high-profile Portland criminal defender Janet Hoffman, in addition to Oregon power broker Jim McDermott, who he hired initially for the Oregon Ethics Commission. That review is now on hiatus, as the criminal investigations take precedence. However, the grand jury subpoena grants the FBI access to all of the ethics commissions’ materials.

“You roll your sleeves up and get after it, try to get ahead of the government,” Hagemann said.

Difficult to Hire

Lawyers in high profile criminal cases that involve a public official will sometimes offer a reduced fee for their services. The trade-off, according to Hagemann, is dollars in exchange for a fascinating investigation and recognition for the attorney.

It is unclear whether Hoffman, or Hayes’ criminal attorney Whitney Boise, are making accommodations for the outgoing governor and First Lady. Neither responded to media requests Monday.

Coffina said in addition to mounting legal defense fees, Kitzhaber and Hayes must face diminished job prospects, which include board appointments, contracts and paid speaking engagements. Unpredictable availability due to the investigation, and a cloud of legal doubt, could be equally paralysing for Kitzhaber and Hayes, Coffina said.

“It’s going to hinder their ability to make a living, organizations will be reluctant to get involved with them,” said Coffina. “It’s very hard to hire them.”

Possible charges

Last month, Coffina, Hagemann, and other top attorneys speculated on whether federal investigators might be examining Hayes for mail fraud, wire fraud, or honest services fraud, after the Willamette Week reported Jan. 9 that she was being looked at by the FBI.

Typically, a federal subpoena will list the statutes being investigated on the first page. However, the Feb. 13 document does not list any federal statutes. Coffina argues investigators are likely looking at fraud or public corruption statutes.

“This brings us back to wire fraud, mail fraud, and conspiracy,” he said.

The scope of the subpoena focuses on agencies Hayes was hired by, including Demos, Resource Media, Energy Foundation, Rural Development Initiative, Clean Economy Development Center, Waste to Energy, and Oregon Business Council.

Criminal defense attorney Scott Coffina. Photo: Drinker, Biddle and Reath

The release of any and all records related to initiatives and projects Hayes’ firm, 3E Strategies, was paid to work on -- ranging from Bhutan’s Gross National Happiness Lab to a central Oregon golf course -- has been ordered.

“Subpoenas are always very broad in the beginning, they want to capture anything they can,” Coffina said.

Likely to win?

Ultimately, it will be up to a 23-person grand jury to decide whether to indict Kitzhaber or Hayes

“The feds don’t tend to indict cases they’re not likely to win,” Hagemann said. However, the former prosecutor, who was part of massive corruption investigation into the Los Angeles Sheriff’s Department, maintains that federal investigators will probe cases not necessarily expecting to win them.

Attorney Joe Bertocchi, who served as an Assistant U.S. Attorney investigating and prosecuting federal criminal cases in Chicago, argues prosecutors in cities that have historically faced more corruption have a more difficult time convincing a grand jury to indict.

“In Chicago, prosecutors have to overcome cynicism that comes come from all these years of corruption, people think it’s just the way things are,” Bertocchi said.

However, in Oregon, where public corruption is considerably less widespread, a grand jury may be quicker to indict Kitzhaber, based on the scarcity of controversy in the state, he said.

Kitzhaber’s office has not commented publicly since releasing a statement Friday, Dec. 13, announcing his resignation. Wednesday, Secretary of State Kate Brown will be sworn in as Oregon’s next governor.

Related Slideshow: Feds Probe Kitzhaber and Hayes: 10 Things to Know

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It Could Cost Millions

Defense fees for a federal investigation will rack up quickly, more so if the investigation turns into a trial.

“The fees can be exuberant. You can’t do one of these cases for less than half a million dollars,” Solomon Wisenberg, a defense lawyer from Washington D.C. said.

These cases can cost around $2 million in legal fees, according to Wisenberg.

For example Robert Urciuoli, convicted in 2008 for federal charges of conspiracy and fraud in a case involving a former Rhode Island state senator, had $2.15 million for legal expenses.

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FBI Resources

The FBI may have years of records to comb through, but they have the resources to do so—much more than a state criminal investigation would.

A federal investigation is given millions of dollars and a vast supply of manpower. Attorneys say the feds also have more expertise and experience in handling corruption investigations.

If there is something to be found, the FBI has the tools and time to look for it.

Photo: FBI Headquarters in D.C.

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8.

FBI Undercover Investigation a Possibility

Although a subpoena was delivered on Feb. 13, it does not mean the FBI has just started looking into Kitzhaber and Hayes. Joel Bertocchi, a white-collar criminal defense attorney in Chicago, said federal investigations often involve an undercover stage in the beginning.

Special agents are often recording information and meeting with people long before subpoenas are issued.

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Mail Fraud, Wire Fraud and Corruption

Experts agree Kitzhaber and Hayes are most likely being investigated for breaking federal statutes of mail and wire fraud, as well as corruption.

Because Hayes may have used government resources for her personal gain, such as not disclosing conflicts of interest while using government phones or email services for her paid contracts and speaking appointments, it would fall under those statues.

Federal statutes have a broader reach of power than state statutes, according to Wisenberg, giving more options for prosecution.

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11 State Departments Subpoenaed

In the subpoena from the U.S. Department of Justice to the Oregon Department of Administrative Services, a number of state departments were listed.

The following eleven departments are believed to have documents or records that are of interest to the investigation:

-The Office of the Governor

-Government Ethics Commission

-Housing and Community Services Department

-Oregon Department of Justice

-Department of State Lands

-Oregon Department of Revenue

-Department of Administrative Services

-Business Development/Business Oregon

-Department of Community Colleges and Workforce Development

-Department of Energy

-Department of Environmental Quality

Photo: Oregon's Department of Administrative Services was served a comprehensive subpoena into outgoing Governor Kitzhaber and his fiancee, Cylvia Hayes.

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Hayes’ Contracts are the Focus of the Subpoena

Records pertaining to Kitzhaber and Hayes, as well as a number of other individuals are listed on the federal subpoena. However, it appears Hayes’ contracts and dealings with energy groups are the focus of the investigation.

Federal investigators are requesting records involving private companies Hayes and 3E Strategies conducted business with, such as Demos and Clean Economy Development Center, as well as government projects Hayes was involved with.

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4.

Feds Focus on Cases They Can Win

If the federal government is moving forward with the investigation, it most likely means they have a strong case.

Like most prosecutors, Bertocchi said federal investigators focus on cases they know they can win.

“I don’t think anybody, unless they were nuts, would seek to charge a recently-sitting governor,” Bertocchi said. “It doesn’t mean they can’t lose, but you have to take them seriously.”

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A Grand Jury Will Decide to Indict Kitzhaber and Hayes

The documents and wittiness gathered by the FBI’s investigation will be presented to a grand jury of 23 Oregonians in a United States District Court.

Proceedings and information from the grand jury are supposed to be kept secret, but Bertocchi said sometimes the information is leaked.

After hearing the evidence, the grand jury will decided whether or not to indict Kitzhaber and Hayes and bring formal charges.

The grand jury will start procedings on March 10, 2015.

Photo: "The Jury" by John Morgan via Wikimedia CC.

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Federal Investigations Tend to Favor the Prosecution

Federal investigations tend to favor the side of the prosecution, according to Wisenberg.

The history of corruption in a state can also impact the jury. Bertocchi said in Chicago, where political corruption is a common theme, juries are more cynical and less likely to give guilty verdicts.

However, it might be the opposite in a state like Oregon, where big-time political corruption is more unusual, Bertocchi said. It is more likley the defense will have more convicing to do.

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It Could Drag on for Years

Even though the grand jury begins hearing evidence in less than a month, the final outcome could be years away. Tom Hagemann, who served as Assistant U.S. Attorney in Los Angeles, said a very document-intensive case like Kitzhaber and Hayes' could drag on.

If criminal investigations and proceedings do last years, it will make it difficult for Kitzhaber and Hayes to move on with their lives, or find a steady job.