January 26, 2005
Scrushy Trial Begins: First Test for Sarbanes-Oxley Act
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]
January 19, 2005
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]
January 12, 2005
Tax Convictions Up
TaxProf Blog has a post showing that tax convictions went up 75% in 2004 compared to 2003. [Mark Godsey]
January 06, 2005
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]
December 16, 2004
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]
December 13, 2004
"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]