The Fed’s Endgame for Operation Varsity Blues (Legal Analysis)

The Fed’s Endgame for Operation Varsity Blues (Legal Analysis)

Operation Varsity Blues, the sweeping college admissions fraud dominating news headlines is unlike any public bribery and fraud case we’ve ever seen.

The case’s unusual structure stands out for the way federal prosecutors used their powers to aggressively go after what would traditionally have been lower level criminals: parents paying bribes.

In typical federal cases, nailing the leader and bringing down the crime ring would be the end of it. Federal fraud cases typically progress from the bottom up, using smaller fish to implicate big fish. But here, the Feds flipped the structure upside down and made some unusual prosecution choices:

1. Instead of working up the crime ladder, they started at the top by “flipping” the leader to cooperate and work their way down.
2. William Rick Singer, the college admission consultant ring-leader, was given leniency to help the Feds build cases against his clients.
3. Prosecutors charged defendants with Federal racketeering statutes — which are notoriously difficult to prove. Most white-collar cases involve easier to prove fraud charges.

William Singer pleaded guilty March 12, 2019 to operating a $25 million college admission fraud scheme. (Reuters)

So Why The Unusual Prosecution Strategy?

The case’s unusual choices and structure gives clues to the Fed’s objective and endgame. It must have been clear early on that the case would create enormous public outrage and debate.

The case involved people endowed with enormous public trust: University officials, public figures, testing proctors and sports coaches. The Justice Department appears to have strategically decided to prosecute this case for maximum media publicity and deterrence effect.

In other words, maximum deterrence is the endgame.

300 FBI AGENTS AND A TEAM OF TOP FEDERAL PROSECUTORS

Operation Varsity Blues began in May 2018 when the FBI stumbled across a tip from the subject of an unrelated securities fraud case. The massive investigation was given high department priority and involved more than 300 FBI agents and a team of Department of Justice prosecutors.

The case is the largest college admission scam ever prosecuted. Parents, as far back as 2011, paid an admission consultant a combined $25 million to help students cheat on admissions tests and get them recruited as athletes when they were not.

Universities implicated in the scam included Stanford, Georgetown, UCLA, USC, University of San Diego, University of Texas and Yale. Although none of the universities are accused of wrongdoing except for an admissions officer at USC.

THESE TYPES OF CASES ARE VERY DIFFICULT TO INVESTIGATE AND PROSECUTE

Prosecutors must prove both the criminal act and criminal intent of the parents, university officials and others involved. There are many legal defenses to criminal charges and every element must be proved beyond a reasonable doubt to convict. Recorded calls made with Singer’s cooperation are likely to be critical to the case and proving the hardest element: criminal intent of the parties.

https://www.youtube.com/embed/epZeq_SJ6cI?wmode=opaque&enablejsapi=1

Why is Felicity Huffman Charged With a Federal Felony?

The bribes in the scheme ranged from $100,000 to $6.5 million. Yet Huffman and actor William H. Macy are only alleged to have paid $15,000 so their child could participate in a scheme to boost her test scores, which is typically way below what would trigger a federal felony fraud charge.

This arguably excessive charge demonstrates that the Justice Department strategy is maximum deterrence effect. What more effective way is there gain enormous media coverage than making a very public example of a famous Hollywood actress?

CONSEQUENCES TO THOSE ACCUSED HAVE BEEN FAST AND FURIOUS SO FAR

More than 750 parents used Singer’s services, but only 33 have been charged so far. A flurry of subpoenas have been issued and investigations are ongoing. It will take a while to know what the final consequences of Operation Varsity Blues will be. But early consequences for parents charged has been fast and furious:

• Actress Lori Loughlin has been dropped by Hallmark’s parent company Crown Media for her roles in the shows When Calls the Heart and Garage Sale Mysteries. Netflix sources also confirm Loughlin’s beloved character Aunt Becky has been dropped from Fuller House.
• Olivia Jade Giannulli will not return to USC. Major beauty brands Sephora, Estee Lauder and Tresemme have each said they will no longer work with the social influencer with 1.4 million instagram followers and 1.9 million youtube subscribers.
• Legal titan Gordon Caplan has been placed on leave by his law firm Willkie Farr & Gallagher and removed from their website. Caplan was co-chairman of the powerhouse law firm and has practiced 25 years without any published discipline. He is likely to face bar investigation and potential disbarment.
• Private equity powerhouse Bill McGlashan has been placed on administrative leave by his private equity firm TPG Capital. McGlashan both founded and runs both the $13.2 billion TPG Growth and The Rise Fund, a large social and environmental impact fund.
• Manuel Henriquez, the founder of Hercules Growth Technology Capital is already out as Chairman and CEO of HGTC, an NYSE listed firm managing over $8.5 billion in capital.
• Michelle Janavs and Former Pimco CEO Douglas Hodge have resigned from their posts as Trustees for Sage Hill School, the Newport Beach prep school.

FBI SAYS INVESTIGATION ONGOING AND ADDITIONAL CHARGES MAY BE FILED

“Make no mistake, this is not a case when parents were acting in the best interest of their children,” said Joseph Bonavolonta, the FBI’ special agent in charge of the Boston office. “…they flaunted their wealth and set their children up with the best education money could buy, literally. Their actions were, without a doubt, insidious, selfish and shameful.”

The FBI announced that the investigation is ongoing and more charges may be filed. So far prosecutors have not charged any of the students, although they are still considering that option.

“Today’s arrests should be a warning to others. You cannot pay to play, you can’t lie and cheat to get ahead because you will get caught,” Bonavolonta said. “The investigation continues and we will continue to find and stop those who aren’t playing by the rules.”

READ MORE:

• Justice Department Full Announcement on Operation Varsity Blues — March 12, 2019
• Affidavit Explaining Evidence Collected by FBI — March 11, 2019
• Full Indictment for Racketeering Conspiracy — March 5, 2019
• U.S. Wire Fraud Charges v. Yale women’s soccer coach Rudolph Meredith
• U.S. Racketeering, Money Laundering, Fraud, Obstruction of Justice, Money Laundering and RICO Allegations Against William Rick Singer — March 5, 2019

Tsion Chudnovsky is a Los Angeles criminal defense attorney and founder of Chudnovsky Law.