Saturday, January 1, 2005

As We Enter 2005 -What to Expect

2005 may be another year with white collar issues in the news.  CNN notes some of what to expect in 2005 in an article titled, "The Return of the $6,000  Shower Curtain."   Some of the things they include, as well as others to expect this year are:

1. First up is the trial of Richard Scrushy that starts in early January.

2. Oral argument in Martha Stewart's case, and perhaps a decision from the Second Circuit. Martha Stewart will finish serving her sentence and the question will be what role will she play in helping with reforms for women in prison.

3. The Arthur Andersen LLP. Petition for Certiorari before the Supreme Court will be accepted or denied.

4. "Ex-WorldCom CEO Bernard Ebbers Jr. will face charges in New York federal court. . ." (CNN)

5.  "Tyco International honchos Dennis Kozlowski and Mark Swartz are due to answer for the second time [on] criminal changes . . ." (CNN)

6.  And yes, maybe some movement on cases involving Enron related individuals, like Ken Lay. 

And a lot more. . .

Wishing everyone a happy, healthy, and peaceful new year!


January 1, 2005 in Arthur Andersen, Martha Stewart, News, Prosecutions | Permalink

Friday, December 31, 2004

Lawmakers May Ease on their Ethics Rules

Today's Washington Post (also on Yahoo News) reports in a story titled, "House to Consider Relaxing Its Rules, that "House Republican leaders are urging members to alter one of the chamber's fundamental ethics rules, which would make it harder for lawmakers to discipline a colleague."

Some of the additional changes include: "allow[ing] either party to stop the House ethics committee from investigating a complaint against a member" and "relax[ing] a restriction on relatives of lawmakers accepting foreign and domestic trips from groups interested in legislation before the House."

This is an odd development, especially for a legislative body that is passing new laws to crack down on improper business practices. If this passes, will this legislative body be saying that there are two standards - one for businesses and another for those in the political realm?

(ph-source of information; esp-commentary)


December 31, 2004 in News | Permalink

More on HealthSouth

HealthSouth is back in the news today.

First because as reported by the New York Times in a story titled, "Trial of Ex-Chief of HealthSouth is Set to Open"  that "[y]esterday, in a separate proceeding, the management of HealthSouth agreed to pay the government $325 million plus interest to settle claims that the company had inflated its Medicare bills."  According to an AP story in the Wall Street Journal, "[t]he payment includes an initial amount of $75 million and the balance to be paid quarterly over three years."

Second because the trial is about to open in Birmingham, Alabama. The NYTimes quotes Professor Pam Bucy (Alabama) as saying that "Mr. Scrushy's lawyers might argue that their client delegated authority to his chief financial officer and other staff members and 'was unaware that they were inflating the earnings numbers of the company.'" Professor Bucy, a professor at University of Alabama authored the book "Health Care Fraud (Law Journal Seminars Press 1996)."

What will be the effect of the this settlement on the upcoming trial? 


December 31, 2004 in Fraud, Media, News, Prosecutions | Permalink

Thursday, December 30, 2004

Librarian Fraud

The December 6th post spoke of a librarian accused of fraud.  The post noted how librarians and libraries are special, something that  John Ashcroft found out when he tried to enter their turf with the Patriot Act.  (Reports)

Well it looks like some librarians may be losing that "protected class" status. The Beacon Journal (AP) reports in an article titled, "Former Library Employee Pleads Guilty to Selling Ancient Texts," that "[a] former Kenyon College library supervisor has admitted stealing more than $50,000 in rare books from the school and selling them, including a 476-year-old astronomy text."  It seems that this individual, a "night supervisor at the library" "persuaded custodians and other library workers to let him into the area" where rare books were kept.  This probably became a federal case, as opposed to it being a state case, because some of the items were sold over the internet. (per Beacon Jrl AP story).   

Yes, even libraries need to protect themselves from internal fraud.  This is a far cry from being a case of an overdue book.

(esp) (With thanks to Joe Hodnicki for sending us the Beacon Jrl story).

December 30, 2004 in Fraud, News | Permalink

A New Indictment Related to HealthSouth Just Days Before the Scrushy Trial Begins

A key HealthSouth Corp. prosecution is soon to begin. According to a Media Advisory of the U.S. Courts, "[o]pening statements in U.S. v. Richard Scrushy are scheduled to begin Tuesday, January 18 at 9:00 a.m in . . . Birmingham, Alabama. A 58-count indictment charges the former CEO of HealthSouth Corp. with securities fraud, among other crimes." But with just days to go before starting this trial, prosecutors have not stopped indicting people.

Bloomberg News (per the NY Times)  reports this a.m. in an article titled "Fraud Indictment in HealthSouth Case," that " [a] former controller of HealthSouth, Hannibal Sonny Crumpler, was indicted by a grand jury yesterday, accused of participating in a $2.7 billion fraud at the company, according to a federal prosecutor." According to this article the indictment has charges of mail, wire, and securities fraud.  Crumpler's attorney, Michael Abbott responds that his client" never knowingly engaged or participated in any fraud relating to the HealthSouth investigation."

With the trial of Scrushy so close to opening,  one has to wonder several things about this new indictment.  Is it something that arose as a result of the government preparation for trial or just part of their continuing investigation into HealthSouth? Is the government hoping to obtain a new witness for the trial? Is the government hoping to keep this individual from testifying for the defense?   The indictment of a new individual just days before a major trial can in some instances present a challenge to the defense. Whether that will be the case here remains to be seen.


December 30, 2004 in Fraud, Media, News | Permalink

Wednesday, December 29, 2004

Government's Brief in Martha Stewart Case

The November 3rd post has  Martha Stewart's Brief in her Appeal to the Second Circuit Court of Appeals.  On December 24 is posted her Reply Brief. Now, at last, a copy of the Government's Brief in the Martha Stewart case. It is a LONG  brief -  247 pages to be exact and the argument portion of the brief does not start until page 40.  There are nine points - which are outlined below:   


POINT I—The District Court’s Evidentiary Rulings Should Be Affirmed

POINT II—The District Court Properly Instructed The Jury

POINT III—The Admission Of Each Defendant’s Statements To Investigators Against The Other Did Not Violate The Confrontation Clause

POINT IV—Bacanovic Was Not Entitled To A Severance

POINT V—Sufficient Evidence Supported The Jury’s Conviction Of Bacanovic On Count Two And The Jury Was Properly Instructed

POINT VI—The Jury Was Properly Instructed On Application Of The Two-Witness Rule

POINT VII—There Were No Grounds For An Evidentiary Hearing Into Alleged Juror Misconduct

POINT VIII—There Is No Reasonable Likelihood That Lawrence Stewart’s Perjury Affected The Judgment Of The Jury

POINT IX—The Potential Effect Of Blakely v. Washington On The Defendants’ Sentences



December 29, 2004 in Martha Stewart | Permalink

Government Interviews with BALCO Officers

On Dec.28, U.S. District Judge Susan Illston issued an order in the BALCO (Bay Area Laboratory Co-operative) case denying defense motions to dismiss and granting an evidentiary hearing on a motion to suppress.  The evidentiary hearing will be on the issue of whether statements obtained by the government investigators while executing a search warrant at BALCO's office were taken in violation of Miranda because the questioning constituted a custodial interrogation.  A common tactic during the execution of search warrants in investigations that involve business organizations (corporations, partnerships, LLCs and LLPs) is to have agents ask employees on the scene whether they would be willing to answer questions.  The government usually tries to ensure that the interviews are voluntary, and generally avoids giving the Miranda warning because it can serve to discourage responses.  Many defense lawyers advise their business clients to send all non-essential employees home and to notify counsel, who will be the only person to speak with the agents conducting the search.

Judge Illston ordered the hearing because of the conflicting assertions of the government and defendants regarding the atmosphere surrounding the interviews.  The District Court's order states:

Defendants contend that their statements were made while they were in custody. Defendants assert that the agents’ manner of entrance into the business, combined with the agents’ forcing defendants to sit in the lobby with their hands on their knees, gave defendants the reasonable belief that they were not free to leave. When Joyce Valente stood up to help an agent locate a key to a storage area, the agent yelled at her to sit down. James Valente Decl. at ¶ 7. Hours later, when Joyce Valente’s interview ended, she was told that she could leave, but that her husband could not. Id. at ¶ 14. Conte alleges that he was surrounded by armed agents at all times. Conte Decl. at ¶ 8.

Although the suppression of the interviews would likely harm the government's case, Victor Conte's statements on a recent 20/20 program admitting that he provided steroids to various athletes may be sufficient to convict him.  (ph)

December 29, 2004 in Prosecutions | Permalink | TrackBack (0)

Tuesday, December 28, 2004

Rowland, Stewart, and White Collar Crime

Co-blogger Peter Henning has an op-ed piece in this a.m.'s Hartford Courant titled, "Would You Risk Your Career For Small Change."  He states, that "We often see white collar crimes in which prominent individuals risk their livelihood and reputation for seemingly trivial amounts."  He points out some of the differences from white collar and street offenders.   

Our opinions on Martha Stewart, however, differ.  Where Professor Peter Henning states that "she will be forever known as a felon who lied to the government," I say that her appeal is pending, so lets hold on that judgment. And even if the conviction stands, will she be forever known as he describes, or as someone who has accomplished so much for homemakers throughout the world.  More importantly, will she become known for being someone who helps with reforms on the incarceration of  women?  The feds spent a good bit of taxpayer time and money on this prosecution, and the question in the future may be- was it worth it?


December 28, 2004 in Arthur Andersen, Investigations, Martha Stewart, Media, Prosecutions | Permalink

Allied Capital Corp in the News

In an article in today's Wall Street Journal titled, "Allied Capital is Focus of Probe," reporter David Armstrong reports that the "Corp. said the U.S. Attorney for the District of Columbia is conducting a criminal investigation of the company."  The article discusses the effect on the company of this investigation (or perhaps disclosure of this investigation) - that being the stock is down.

The article notes that, "[t]he company said it received letters on Dec. 22 from the U.S. Attorney requesting the preservation and production of information related to Allied and one of its subsidiaries, Business Loan Express."  The reason for this letter is to put a company on notice of an impending investigation so that documents are not destroyed.  Notices like this can also serve as a basis for meeting an element  of an obstruction of justice charge (knowledge of a pending judicial proceeding), should a company not comply with the government request not to destroy documents. The benefit of sending such a notice is that most companies are not likely to violate the law when they are advised that they are under investigation.  Cases of obstruction are problematic when the company claims they did not know they were under investigation and yet documents may have been destroyed, especially when destroyed as part of a routine document retention policy.  A  notice such as the one sent by the government in this case avoids these types of problems.


December 28, 2004 in Investigations | Permalink

Monday, December 27, 2004

No Gift From Spitzer?

In the post of December 26th we noted that the NYTimes was reporting that Spitzer might turn over investigations to the feds.  Well, looks like Spitzer says NO! In an article in todays Wall Street Journal, titled "Spitzer Affirms Tough Tactics Are Here to Stay" it states that "[a] spokesman for Mr. Spitzer said, '[t]here was confusion about a pretty obvious statement Mr. Spitzer made, which is that the SEC is re-energized.'"  The NYTimes correction says that the article "left an incorrect impression that he had spoken of ceding existing investigations to federal regulators -- as opposed to recognizing a reinvigorated federal role in new investigations." Did Spitzer give a holiday gift and now its being returned, or was there no gift to begin with?

P.S. A Spitzer advertisement comes up when you do a search on the NYTimes correction and new article.  Obviously linked to the name.


December 27, 2004 in Investigations, Media, News | Permalink

Government Corruption - DOJ Priority

In a recent AP story titled "Feds Take Aim at Government Corruption," reporter Lolita C. Baldor notes that "[f]ormer Connecticut Gov. John G. Rowland's guilty plea Thursday to a felony charge makes him only the latest in what is a steadily growing number of federal corruption prosecutions focusing on government officials."  According to this article, it is not a question of government corruption increasing, but rather a situation of DOJ placing a higher priority on this type of prosecution.  Interestingly, the article also speaks to public officials wanting more training on the line between what is proper and what is unethical.

When it comes to white collar offenses, the line between legality and illegality is sometimes "blurred" as noted by Professors Kenneth Mann (Tel Aviv) and John Coffee  (Columbia) in articles they have written about the line between civil and criminal improprieties.  Prosecutorial discretion often controls what will remain an ethics violation and what will be subject to criminal prosecution. Irrespective of whether it is an ethics violation or criminal conduct, it is wrong and it is particularly important to educate public officials so that they do not engage in improper conduct.


December 27, 2004 in Corruption, News | Permalink

Sunday, December 26, 2004

Friedman's in the Press

According to an article titled, "Jeweler's Problems Multiply," in Sunday's Atlanta Journal Constitution,  "Friedman's has become a petri dish of corporate afflictions, almost all of which became public only in the last 18 months."

Matt Kempner, the reporter on this article tells about a few state attorney generals that have filed civil actions against this company and he also states that "[t]he Securities and Exchange Commission and the Department of Justice are investigating accounting issues and fraud allegations." Freidman's, Inc. company profile on Yahoo Finance  notes that recently there has been a "departure of two or its top executives."

On December 22nd, Yahoo Finance had a press release titled "Friedman's Comments on Civil Actions Filed by States' Attorneys General" stating that "the Company does not condone any improper practices alleged in the complaints. Friedman's further noted that the Company believes that the transactions challenged primarily arose years ago and stated that the Company has in place measures designed to monitor and assure compliance with Company policy concerning credit insurance sales practices."

When companies have  state and federal authorities looking into their internal affairs, it can be overwhelming to the company. This is especially true when more than one state decides to proceed with an investigation or civil action.   Although this can happen with investigations of street crimes, it becomes a more pronounced issue for companies that may have businesses, offices, or distributors throughout the United States.


December 26, 2004 in Investigations, News | Permalink

Spitzer's Holiday Gift?

The NY Times reports in an article titled, "Spitzer, in a Shift, Will Yield Inquiries to U.S. Regulators" that Attorney General Eliot Spitzer has decided to let federal regulators handle future investigations of possible violations of federal agency regulations.  The article sends the message that Spitzer's high profile prosecutions of "investment banks, mutual funds and insurance companies" are over. 

Why?  Well the NYTimes reports that Spitzer said, "[h]e was concerned that 50 different investigations would balkanize regulations, and added that once-lax federal agencies had become more aggressive about rooting out fraud and wrongdoing."

Spitzer has been a tough prosecutor, going after the insurance industry with unusual force.  The Atlanta Jrl. Consitution in an article of Nov. 30th titled, "Wall Street's Crusading Sheriff," reports how Spitzer recently "urged a Senate committee to scrutinize the insurance industry, calling it a 'Pandora's box that should be opened.'"


Addendum.  See NYTimes Correction.

December 26, 2004 in News, Prosecutions, Prosecutors | Permalink