CrimProf Blog

Insurance Executives Convicted Monday

From NPR.com: Five former insurance executives, including a top official from AIG and a former CEO of insurance giant General Re, were convicted on federal charges Monday. Prosecutors say they schemed to improperly inflate AIG's financial numbers. Listen. . . [Mark Godsey]

CrimProf David Paciocco Discusses the Paper Work Behind White Collar Cases

University of Ottawa CrimProf David Paciocco recently discussed the tedious tasks that coincide with White Collar investigations

CrimProf Paciocco said the nature of white-collar crimes requires investigators to sift through piles of documents and numbers, making it very difficult for them to put the case together.

He discussed this topic in light of a recent case in which a missing Canadian investment broker has been charged with fraud, five years after dozens of his clients lost the retirement savings they had invested with him.

An arrest warrant has been issued for Bruce Elmore, who has disappeared, but was charged on March 14 despite his absence, the RCMP told CBC Tuesday. Now the bankruptcy trustee who investigated the case and some of the victims are raising questions about the way the RCMP handled the case, asking why they were not informed about the charges. Rest of Article. . . [Mark Godsey]

Prosecutor Screw Up Costs U.S. $100 Million

From MSNBC.com:  WASHINGTON - Poorly written Justice Department documents cost the federal government more than $100 million in what was supposed to have been the crowning moment of the biggest tax prosecution ever.  Walter Anderson, the telecommunications entrepreneur who admitted hiding hundreds of millions of dollars from the IRS and District of Columbia tax collectors, was sentenced Tuesday to nine years in prison and ordered to repay about $23 million to the city.  But U.S. District Judge Paul Friedman said he couldn’t order Anderson to repay the federal government $100 million to $175 million because the Justice Department’s binding plea agreement with Anderson listed the wrong statute.  Rest of story...

The Difficulty of Prosecuting Voter Fraud

From NPR.com: Allegations of voter fraud are not only difficult to prove, they're likely to prompt bipartisan debate.

And how voter fraud complaints were handled is one the issues emerging from the growing furor over the firing of eight U.S. attorneys.

Some of the attorneys who were dismissed were accused of failing to aggressively pursue Republican complaints of voter fraud. The White House concedes it passed along such complaints to the Attorney General's office.

John McKay, the former U.S. attorney in Seattle, said he was accused of mishandling voter fraud when he interviewed at the White House for a federal judgeship. The specific question: why he had mishandled the investigations into voter fraud connected to Washington's very close 2004 gubernatorial election. That election was won by a Democrat. Listen. . . [Mark Godsey]

Feds Restrain White Collar Investigations

The Justice Department has placed new restraints on federal prosecutors conducting corporate investigations, easing tactics adopted in the wake of the Enron collapse, reports the New York Times. Under the changes, outlined in a memo from a deputy attorney general, federal prosecutors will no longer have blanket authority to ask routinely that a company under investigation waive the confidentiality of its legal communications or risk being indicted. Instead, they will need written approval for waivers from the deputy attorney general, and can make such requests only rarely.

Another change prohibits prosecutors from considering, when weighing whether to seek the indictment of a company, whether it is paying the legal fees of an employee caught up in the inquiry. Experts says the changes make it easier for corporations to defend themselves. The revised guidelines follow criticism that the tactics used in recent years against companies like the drug maker Bristol-Myers Squibb and the accounting firm KPMG were coercive and unconstitutional. they are being made at a time when companies are seeking — and receiving — greater protection from criminal and regulatory scrutiny.  Story...  [Mark Godsey]

White Collar Sentencing: Where's the Parity?

From Forbes.com: "It’s easy to become perplexed at the massively disparate consequences laid down on former Enron finance chief Andy Fastow versus that of Bernie Ebbers, former chief executive of WorldCom. Both committed massive frauds where countless shareholders and employees lost billions, yet one will be able to take his son to get his driver’s license, while the other will likely die an old man behind bars. Whether you are bullish or bearish on prison penalties, this doesn’t make sense, does it? Should there not be some semblance of parity?"  Closer examination here discusses the method behind the two prison sentences. [Michele Berry]

The Upside of White Collar Prison....

...unlimited networking possibilities with other like-minded folk.  [Mark Godsey]

McGruff Says, "Take a Byte out of Cybercrime"

McGruff, the beloved crime dog has a new mission: he's taking a 'byte' out of cybercrime.  He still strongly urges children not to talk to strangers or eat unwrapped candy, but now, McGruff has expanded his mission.  Yesterday, the National Crime Prevention Council (NCPC), the organization behind the McGruff face, in conjunction with the Chief Marketing Officer Council, formally launched Take a Bite Out of Cyber Crime, a campaign to promote awareness of the risks of cybercrime for individuals and small businesses.  According to the NCPC, only 20% of all computers have the protection needed against the many computer threats lurking out there.  Partners in the campaign include Intel, McAfee, VeriSign, USA Today, CNET.com, and Comcast. Here is McGruff's site to read more about the campaign. [Michele Berry]

Fraudulent Conduct is Still the Trend in the Corporate World

From Taipeitimes.com: What do AT&T, Boeing, Com-verse Technology, Prudential Financial, Medtronic, Schering-Plough and Tenet Healthcare have in common?

In recent months, they have all been charged with fraudulent conduct by the US Justice Department's Corporate Fraud Task Force, or with serious misconduct by government prosecutors.

Among other charges, the companies were accused of deceptive stock trading, improper billing, falsification of drug prices, kickbacks to doctors and the creation of a "secret stock options slush fund."

The total cost of their misconduct in fines and effective penalties to shareholders? A cool US$2.6 billion. Rest of Article. . . [Mark Godsey]

Baseball Steroid Probe Reporters May Have to Testify Afterall

The grand jury leaks in the baseball doping probe, (the BALCO case), previously blogged on here, make news again.  This time, two San Francisco Chronicle reporters are appealing a judge's order to tell a federal grand jury who leaked them secret testimony from Barry Bonds, Jason Giambi, and other baseball players caught up in the steroid probe.  The reporters quoted from Bonds' grand jury testimony in violation of Criminal Procedure Rule 6e, the rule forbidding improper disclosure of grand jury materials.  So government officials, BALCO defendants, and their attorneys all could face perjury and obstruction of justice charges for violating Criminal Procedure Rule 6(e) which forbids improper disclosure of grand jury materials. [Michele Berry]

White Collar Crime: Publicity Up, Prosecutions Down

So interest in white collar crime may be up, but white collar prosecutions have decreased 27% since 9/11.  The NYPost blames the decline on bureaucratic structure and budget priorities--the responsibility for developing white collar cases is "split between the SEC, which does the investigating, and the DOJ, which decides whether to prosecute."  But this piece from Dealbreaker discusses the political climate behind the decline in white collar prosecutions and stabs at the Bush Administration for lack of interest in bringing criminal charges against corporate executives and Wall Street. Commentary from Dealbreaker... [Michele Berry]

Medical Identity Theft on the Rise

Stealing insurance information to get free medical treatment.  More than 500,000 have been victimized so far.  Story.  [Mark Godsey]

Business/Civil Rights/Bar Coalition Wins Sentencing Victory

"An unusual coalition of business, civil rights and bar organizations scored a significant victory last week when the U.S. Sentencing Commission voted unanimously to delete language in the sentencing guidelines that encouraged government prosecutors to require waivers of the attorney-client privilege and work-product protections in order for corporations to qualify for leniency in sentencing." More from the National Law Journal. . . [Mark Godsey]

2nd Cir: Overturns White Collar Conviction for Flawed Jury Instructions

On Monday, the US Court of Appeals for the Second Circuit overturned the conviction of Frank P. Quattrone, a former technology investment banker at Credit Suisse First Boston.  The court ruled that the judge presiding over the case gave the jury erroneous instructions and ordered a retrial of Quattrone under a different judge than the one who originally presided over the case.

The jury had convicted Quattrone of obstruction of justice for encouraging the destruction of documents that were being sought by a grand jury and the Securities and Exchange Commission. In writing for the court, Judge Richard C. Wesley said the original judge, Judge Owen's, instructions regarding the requisite mens rea were flawed.  The instructions did not require jurors to determine that Quattrone knew the documents he was asking associates to destroy were the same ones being sought by investigators.  Instead of requiring Quattrone's specific knowledge, it "left a barebones strict liability case." More. . . [Mark Godsey]

Quattrone Gets New Trial

The Second Circuit reversed his conviction.  ConglomerateBlog's take here. [Jack Chin]

St. Thomas U's Fraud Update Webpage

Here.   News, cases, links, etc.

NACDL Hosts White Collar Crime Conference Call TODAY at Noon EST

Join NACDL for a FREE CLE White Collar Crime Conference Call Friday, March 10th at 12:00 p.m. eastern time to discuss attorney-client privilege waivers. Speakers include NACDL white collar crime committee co-chair Barry Pollack and committee vice chair Ross Garber.

NACDL will not apply for pre-approved CLE credit for this call, however, you may be eligible for up to one(1) hour of CLE credit in some states where self-filing is allowed. [Mark Godsey]

NACDL/Association of Corporate Counsel Joint Survey on Attorney Client Privilege

The National Association of Criminal Defense Lawyers and the Association of Corporate Counsel's recently joined forced to survey in-house counsel and NACDL members about the attorney-client privilege. Highlights of the survey include:

--Nearly 75 percent of both inside and outside counsel agree that a “culture of waiver” has evolved in which government agencies expect a company under investigation to waive legal privileges.

--In the past five years, approximately 30 percent of in-house counsel and 51 percent of outside counsel confirmed that the government expected waiver in order to engage in bargaining or be eligible for more lenient treatment.

--Nearly three-quarters of outside counsel said that the expectation of privilege waiver was communicated rather than implied. Of those, 26 percent said that waiver was requested as a direct and specific statement that waiver was a condition precedent for cooperation.

Here is the full article from NACDL. [Mark Godsey]

Insurance Fraud Claim Charged Under RICO

An unusual application of the Racketeer Influenced and Corrupt Organizations Act (RICO) will go forward following a Manhattan judge's denial of an insurance company's motion to dismiss. The Tennessee-based insurance giant UnumProvident Corp., which has already paid $23 million in settlement agreements with individual states over the past year, has been accused of developing an elaborate network of conspirators to avoid paying claims. To establish a claim under RICO, which has both civil and criminal components, a plaintiff must show that a defendant violated at least two of 35 enumerated crimes within a 10-year period. The crimes--such as mail fraud, wire fraud, sports bribery and obstruction of justice--are generally associated with organized crime, and carry harsh penalties, including triple damages and prison sentences of up to 20 years. The case is Weisel v. Provident Life, 600759/05. More from the New York Law Journal. . . [Mark Godsey]

How to Approach a Federal Prosecutor

"When a corporation or executive is facing potential criminal charges, what's the best approach to take with an investigating prosecutor? According to Assistant U.S. Attorney Howard Sklamberg, many defense attorneys take the wrong one. That's unfortunate, because in white-collar investigations, unlike other criminal investigations, defense lawyers can affect how a prosecutor treats a client before an indictment has been returned. Sklamberg gives some advice for successful attorney proffers." More from Legal Times. . . [Mark Godsey]

Enron Jury Chosen & Sworn-in

10 women and 6 men have been selected and sworn-in to be the 12 jurors and 4 alternates in the trial of former Enron Corp. chiefs Kenneth Lay and Jeffrey Skilling, accused in a massive fraud and conspiracy scandal. Story. . . [Mark Godsey]

Cybercriminals = Profit-driven Techies Who Think Big

In its 2005 Global Business Security Index Report, IBM explained that the environment of cyber-crime has shifted from general virus outbreaks, to more targeted and damaging profit-seeking ventures directed at companies rather than individuals.

From Security Focus: "Cybercrime is moving from broad ego-driven outbreaks to much smaller targeted attacks aimed at stealing sensitive data or extorting money from companies, IBM stated in its 2005 Global Business Security Index Report released on Monday. The company, however, saw a major increase in the number of targeted attacks, which generally are not well covered by the media. Between two and three targeted attacks were intercepted each week in 2005, according to a summary of the IBM report." [Mark Godsey]

Enron Guilty Plea Expected

From NPR All Things Considered, December 27, 2005 · Enron's former chief accounting officer, Richard Causey, is expected to enter a guilty plea Wednesday rather than stand trial. That could be bad news for the energy corporation's former chairman, Kenneth Lay, and its ex-chief executive officer, Jeffrey Skilling. The Houston Chronicle's John Roper has details of the case.  Listen here.  [Mark Godsey]

Searchspace Technology's Anti Money Laundering Solution

From ComputerBusiness Review online: Following an extensive due diligence process, the American Bankers Association has endorsed Searchspace's Anti Money Laundering solution, software designed to tackle financial crime across markets. UK-based Searchspace currently monitors nearly 500 million accounts a day working with regional, national and global banks. The software monitors every transaction for unusual activity, immediately notifying compliance staff about those that may require further investigation and providing them with automated administration of cases found. [Mark Godsey]

Canada a Haven for White Collar Criminals, eh?

According to Bank of Canada's Governor David Dodge, "Economic crime erodes the faith of Canadians and foreign investors in the integrity of our financial systems, our currency, our governments, our businesses, and our products." Why? The lack of a united law enforcement effort and public perception of unsafe markets. [Mark Godsey]

Corporate Crime on the Upswing

Story here.   But stats may be result of greater detection efforts in recent years.  [Mark Godsey]

Corporate Fraud Mostly Detected by Luck

Despite tough regulations aimed at improving corporate governance, financial fraud is still on the rise around the world, and most is still detected by chance, a study from auditing firm PriceWaterhouseCoopers (PWC) showed on Tuesday. Globally, the number of companies that reported financial fraud increased 22 percent in the last two years, according to the PWC study, which conducted 3,634 interviews with corporate officers in 34 countries...For the roughly one-third which said they could quantify the cost of the fraud, the total losses exceeded $2 billion, or an average of $1.7 million per company...The survey showed that the most common methods of finding out about financial fraud were still accidental, like calls to hotlines or tips from whistle-blowers." Full story from NYTimes.com. . . [Mark Godsey]

U.S. Abandons Prosecution of Arthur Andersen

From NACDL.com: "The Justice Department [on Tuesday] abandoned its prosecution of Arthur Andersen LLP, walking away from one of the signature cases in its drive to eradicate corporate fraud. The announcement came six months after the U.S. Supreme Court tossed the accounting firm's 2002 conviction on obstruction-of-justice charges related to its work for client Enron Corp. In a 9 to 0 decision, the court ruled that the jury instructions were so broad that jurors could have found Andersen guilty even if officials did not intend to break the law and impede a looming investigation.

Andersen's indictment sent clients scrambling for the exits and quickly led the firm to shut its doors -- at a cost of 28,000 jobs in the United States...Andersen came under intense scrutiny in 2002 amid disclosures that the firm had shredded tons of Enron-related documents as investigators probed accounting troubles at the Houston energy trader. Several jurors said they voted to convict Andersen based on evidence that an in-house lawyer had tampered with language in a memo about Enron.

The controversy served as a catalyst for a series of significant changes to the accounting industry, which had been largely self-regulated for more than 70 years. Congress imposed new criminal penalties on auditors who destroyed or tampered with work papers. It also created an independent oversight board to monitor the work of accounting firms and inspect their operations.

"It was a wake-up call," said Donald T. Nicolaisen, who served as the chief accountant at the Securities and Exchange Commission until last month. "I believe that wake-up call has been largely heeded. . . . It has been a period of very dramatic change, and mostly good change."...Critics of the government's aggressive efforts to crack down on business wrongdoing say the Andersen decision is the latest signal that prosecutors have overreached in an effort to boost investor confidence and calm the markets." More from the Washington Post. . . [Mark Godsey]

"Business is Booming for White Collar Criminal Defense Bar"

From Law.com: (The National Law Journal): "Business is booming for the white-collar criminal defense bar. Corporate officials -- both the legitimately worried as well as the unnecessarily paranoid -- see themselves as possible criminal targets and are lawyering up. What's spurring this significant ramp-up in corporate defense work? A major shift in the federal government's approach to corporate crime, says one white-collar criminal defense lawyer...

It all stems from the government's practice of considering indictments not just against individuals but also against companies, he said. Companies can avoid or defer prosecution by handing over to the government any findings from their internal investigations or implicating wrongdoers. That Justice Department policy was in effect earlier but was underscored in 2003 in the so-called Thompson memo, issued by then-Deputy Attorney General Larry D. Thompson...

In theory, creating conflicts between a company and its allegedly criminal officials helps the government get to the facts of a case faster. In practice, it has been a boon for defenders. "It's absolutely a criminal defense lawyers' employment initiative," said Stephanie A. Martz, director of the White Collar Crime Project at the National Association of Criminal Defense Lawyers. "Definitely, this is a boom time right now."

Even so, many white-collar defenders decry the Justice Department's cooperation program. "The fact that business is good doesn't mean that it's either pleasant or healthy for the system," said Joseph F. Savage Jr., a former prosecutor and member of the white-collar defense team at Goodwin Procter in Boston.

"When I first started [defense work], the government would go after people, not typically the company," he said. "Now it's a given the company is in the mix."

The Thompson memo says that indicting corporations for wrongdoing "enables the government to address and be a force for positive change of corporate culture, alter corporate behavior, and prevent, discover, and punish white collar crime."  The memo adds that in gauging the extent of a corporation's cooperation, the prosecutor may consider the company's willingness "to identify the culprits within the corporation, including senior executives; to make witnesses available; to disclose the complete results of its internal investigation; and to waive attorney-client and work product protection."...

Prosecutors use cooperation pressure as a "very powerful tool," said Mary Jo White, chairwoman of New York-based Debevoise & Plimpton's 200-plus-lawyer litigation practice... But coercing a company to cooperate by waiving a privilege under threat of indictment is "being asked for too routinely and too often," White said. "Prosecutors shouldn't be saying, 'Waive the privilege or else be indicted.'" Story... [Mark Godsey]

Russia: Moscow Police Smoke Counterfeit Cigarette Ring

From Mosnews.com: "The Moscow police department for combating economic crime has broken up the activities of a large organized crime group engaged in manufacturing counterfeit cigarettes of well-known global brands and selling them in Russia and Western European countries." Story... [Mark Godsey]

Blog Watch: White Collar CrimeProf Blog in the NYTimes

From NYTimes.com: "Should white-collar criminals receive harsher sentences than street thugs or drug peddlers?...Ellen S. Podgor of the White Collar Crime Prof Blog doesn't think so...While deterrence may work for common criminals, "the SHAME in the community is by far the harshest punishment felt by the white-collar offender," Ms. Podgor writes.

Maybe. But given the shamelessness with which these crimes were committed, relying on shame as a deterrent seems inadequate, somehow. The Tyco execs were taken to state prison, not the relatively comfortable federal system. Brooks Holland, a lawyer, ruminates on Prawsfblog whether prison conditions should be a consideration in sentencing. His take is that most judges wouldn't buy it." Story... [Mark Godsey]

Berkeley LawProf Comments on Sentencing for White-Collar Criminals

From NYTimes.com: In the post-Enron world, debate is ensuing about how much prison time is enough for white collar criminals, and how much is too much.  "No lawyer is suggesting that white-collar criminals not serve time. Rather, lawyers and jurists are asking what the appropriate sentence is for white-collar crimes relative to punishments for other crimes in a post-Enron world.

Jonathan Simon, a professor of law [and associate dean] at the University of California, Berkeley, said: 'The most obvious comparison for the emerging attitude toward white-collar criminals is the harsh punishment we give to people involved in the drug trade. But both represent increasingly irrational and inhumane levels of punishment.'  Noting that he considered Mr. Ebbers's sentence 'draconian,' he added that '25 years is more than most people would get for rape or a nonaggravated murder.'"

Along these lines, others have noted that 25 to 30 year sentences for chairmen and CEO's like Ebbers, the former Chairman of WorldCom, are tantamount to life sentences.  "'[W]hite-collar workers are extraordinarily sensitive to threats since their whole socialization and environment encourage calculation of future benefit and cost,'" so whether lenghty sentences are necessary to provide a deterrent effect is questionable.  Professor Simon suggests that "'it would be far more effective to impose a lot of short sentences on a wider group of offenders rather than the example model of harshly punishing a few celebrity cases while most potential offenders know that they are unlikely ever to be caught and punished.'" Story here... [Mark Godsey]

Quoted CrimProfs: John Strait and Peter Henning Comment on KPMG's Resistance to Investigation by the Senate

Wayne State's Peter J. Henning and Seattle University's John Strait are quoted in this story about the accouting firm KPMG's resistance to a Senate subcommittee's investigation into "four questionable tax shelters created and sold by KPMG that earned the firm $124 million in fees, but cost the Treasury, according to Senate investigators, at least $1.4 billion in unpaid taxes." 

According to emails and documents KPMG tax executives pushed the tax shelters off to clients.  But when questioned about this allegation by the Senate subcommittee, KPMG execs "were evasive."  Since the hearings, KPMG has settled with "the Justice Department over the creation and sale of the arcane tax shelters, which the Internal Revenue Service contends helped wealthy investors illegally hide billions of dollars in taxable income. The agreement, which is expected to be announced tomorrow, calls for the firm to pay $456 million and accept an outside monitor of its operations. Former partners separately may face criminal charges."

CrimProf Peter J. Henning commented, "KPMG viewed its conduct as above reproach, in a sense viewing itself as smarter than the I.R.S. and Department of Justice by developing these creative tax shelters."...

"It's a very high-risk strategy to start out stonewalling," said CrimProf John A. Strait..."when KPMG came under scrutiny, it chose to fight. And it did so after the collapses of Enron and WorldCom, at a time when the tide of corporate history was turning decisively in favor of corporate accountability and government regulators." Story here... [Mark Godsey]

China to Enact Anti-Money Laundering Legislation

From ChinaDaily.com: "China is speeding up legislation of its first anti-money laundering law, the draft of which will be submitted to the National People's Congress, China's top legislature, for review this year....An official with PBC, China's central Bank, said the law will probably expand the scope of application into the other major areas of "upstream crimes" the sources of illicit money in money laundering.  The existing Criminal Law only extends to money laundering involving drug trafficking, organized crime gangs, terrorism and smuggling. Once extended the law is likely to include the crimes of embezzlement and bribery. The report also said the PBC is drafting regulations to tackle money laundering in the securities and insurance industries." Story... [Mark Godsey]

SCOTUS To Hear Oral Argument in Arthur Anderson Case Today

Today the Supreme Court will hear oral argument in the Arthur Anderson case.  Question presented: Whether Arthur Andersen LLP's conviction for witness tampering under 18 U.S.C. § 1512(b) must be reversed because the jury instructions upheld by the 5th Circuit misinterpreted the elements of the offense, in conflict with decisions of the Supreme Court and the Courts of Appeals for the 1st, 3rd, and D.C. Circuits.  Story and details of case here.  [Mark Godsey]

Trial Underway for Enron Tech Execs

From NPR:  "A trial for five former executives of Enron's Internet technology division begins Monday in Houston. They are charged with artificially inflating stock prices in 1999 by lying about the company's broadband Internet network's capabilities and benefiting from selling their own stocks."  Listen to the NPR story here.  [Mark Godsey]

Breaking News: WorldCom's Ebbers Convicted on All Counts

Forbes.com story quoting me here.  WhiteCollarCrimeProf's post is here. [Jack Chin]

Georgia State CrimProf Ellen Podgor Comments on Martha Stewart

Martha Stewart refers to her prison time as "life affirming and life altering."  Stewart, who spent much of her prison time focusing on sentencing guideline-reform, claims she has truly changed.  Georgia State CrimProf Ellen Podgor, who recently authored Arthur Andersen, LLP and Martha Stewart: Should Materiality be an Element of Obstruction of Justice?, explained to the AP that Stewart probably is changed because the stigma of prison time affects white collar criminals much more than other criminals, and causes white collar criminals to genuinely reflect on their poor judgments that landed them with hard time.  A prison term ''is mind altering. I don't think it's just for the press what's being said (by Stewart about being changed)'' said Podgor.  On the other hand, noting the public's increased interest in Stewarts products and the increasing price of Martha Stewart Living Omnimedia Inc. stock, Podgor differentiated Stewart's case from other white collar criminals: ''[T]he stigma, society's stigma, that is the greatest penalty faced by white-collar criminals...is not happening here."  So as Stewart begins her 5 months of house arrest, only time will tell if her prison time affected her as it does most white collar criminals.  Fred Shapiro, a lawyer who served time for bank fraud in Philadelphia in the 1990s, and went back to prison for a separate episode of white-collar crime 10 years later commented, ''Everyone says they've changed after they've left prison, but...[c]haracter is who you are when no one is looking...[o]nly she will know if she has changed.'' More... [Mark Godsey]

Criminal Investigation of GE's Military Helicopter Production

AP reports on a worker at a Kentucky GE plant's testimony before a federal grand jury, alleging that helicopter parts were being shipped in spite of being below specifications.  The Department of Defense Criminal Invetigation Service confirmed that an investigation had been ongoing at the plant since 2000; a GE spokesman said the company was cooperating and conducting its own internal investigation. The allegations are all the more disturbing given the heavy use of helicopters in Iraq and the ensuing casualties.  [Jack Chin]

Scrushy Trial Begins: First Test for Sarbanes-Oxley Act

From Law.com: 

Richard Scrushy's trial on corporate fraud charges opened Tuesday with a prosecutor telling jurors the fired HealthSouth CEO was the driving force behind a conspiracy to overstate earnings in the rehabilitation giant by about $2.7 billion. With underlings generating bogus financial statements to make it appear HealthSouth Corp. was meeting Wall Street forecasts from 1996 through 2002, a prosecutor argued, Scrushy sold about $150 million worth of his own HealthSouth stock and spent more than $200 million on a lavish lifestyle. All the while, Scrushy was getting private reports on the company's true financial condition, but he never told investors what was going on, U.S. Attorney Alice Martin told jurors in opening statements. "They pumped up the profits, and he hid it from the public," Martin said. She described Scrushy as "a very hands-on leader" who personally selected top aides and tried to sway their statements to federal agents once an investigation began. "The evidence will show that Richard Scrushy as chief executive officer gave phony numbers to the public," Martin said.  Richard Scrushy's trial on corporate fraud charges opened Tuesday with a prosecutor telling jurors the fired HealthSouth CEO was the driving force behind a conspiracy to overstate earnings in the rehabilitation giant by about $2.7 billion.  With underlings generating bogus financial statements to make it appear HealthSouth Corp. was meeting Wall Street forecasts from 1996 through 2002, a prosecutor argued, Scrushy sold about $150 million worth of his own HealthSouth stock and spent more than $200 million on a lavish lifestyle.

The case is significant because it marks the first test of the 2002 Sarbanes-Oxley Act, which requires top executives of public corporations to vouch for the financial reports of their companies.  The former CEO challenged the new corporate fraud law in November last year, but U.S. District Judge Karon O. Bowdre rejected the challenge. Bowdre had disagreed with Scrushy's argument that the act is unconstitutionally vague and should not be part of the indictment accusing him of a massive fraud at HealthSouth.

Story . . .  [Mark Godsey]

WorldCom and Tyco Fraud Trials to Begin

The trial of former WorldCom CEO Bernard Ebbers starts today in federal court in New York City.  He is charged with one of largest frauds in U.S. history, topping $11 billion. Details. . .   Listen to NPR story here.  Also, jury selection has begun in the retrial of Dennis Kozlowski and Mark Swartz, formerly of Tyco International. Their first trial in Mahattan state court resulted in a mistrial when one juror held out for acquittal.  Details . . .  Listen to NPR story here.  [Mark Godsey]

Tax Convictions Up

TaxProf Blog has a post showing that tax convictions went up 75% in 2004 compared to 2003.  [Mark Godsey]

Breaking Case News: CEO's False Statement About College Degree Not Material

The Fourth Circuit recently held in Greenhouse v. MCG Capital Corp., 03-2318, available here, that a CEO's false statement in a publicly filed document that he had obtained a college degree is not a misprepresentation about a material fact under 10b-5.  Although Judge Roger L. Gregory called the false statement "indefensible," he ruled that it was not likely to cause reasonable investors to devalue the stock when viewed against the total mix of true information available about the company and thus was not material.  Full BNA story here.  [Mark Godsey]

Record Sentence for Computer Crime Handed Down to Lowes Hacker

Law.com reports:  "One of three Michigan men who hacked into the national computer system of Lowe's hardware stores and tried to steal customers' credit card information was sentenced Wednesday to nine years in federal prison.  The government said it is the longest prison term ever handed down in a computer crime case in the United States. "  More . . .  [Mark Godsey]

"Big Brother" for Financial Crimes?

The NY Times reports that the U.S. government has begun experimenting with a new computer system that "allows investigators to match financial transactions against a list of some 250,000 people and firms with suspected ties to terrorist financing, drug trafficking, money laundering and other financial crimes."  The program gives investigators what amounts to an enormous "global watch list" to track possible financial crimes at American border crossings, banks and other financial institutions.

The program provides yet another indication of the wide-ranging efforts by American officials to look for new technological tools in fighting terrorism and other international crime. But it also raises privacy and civil liberties questions because domestic security officials are relying on a private overseas firm to provide a voluminous list of people and companies that it considers to represent a "high risk" of committing financial crimes, based on an assortment of public records and data.  "There's a real risk in a situation like this because there's really no accountability," said Marc Rotenberg, executive director of the Electronic Privacy Information Center, an advocacy group based in Washington devoted to privacy issues. "People can find themselves on a watch list incorrectly, and the consequences can be very serious."  More. . .   [Mark Godsey]