Friday, April 22, 2005

Hynix Semiconductor Pleads Guilty to Price Fixing

Hynix Semiconductor Inc., a South Korean manufacturer of dynamic random access memory (DRAM), agreed to plead guilty to a single count of conspiring to violate the Sherman Act by fixing prices with other manufacturers.  The plea agreement requires the company to pay a $185 million fine, which is the third largest criminal antitrust fine ever; and the company agreed to cooperate in the government's continuing investigation.  This is the second company to have entered a guilty plea as part of the price-fixing conspiracy, with Infineon Technologies AG also pleading guilty in Oct. 2004 and agreeing to pay a $165 million fine; four Infineon executives also entered guilty pleas.  According to the Department of Justice press release (here) engaged in the conspiracy by:

Participating in meetings, conversations, and communications in the United States and elsewhere to discuss the prices of DRAM to be sold to certain customers; Agreeing, during those meetings, conversations, and communications, to charge prices of DRAM at certain levels to be sold to certain customers; Issuing price quotations in accordance with the agreements reached; and Exchanging information on sales of DRAM to certain customers, for the purpose of monitoring and enforcing adherence to the agreed-upon prices.

Hynix and Infineon were the third and fourth largest DRAM manufacturers in the world in 2004, with Samsung and Micron the top two companies (see article in EETimes here about DRAM manufacturing rankings).  JURIST has coverage on the plea agreement and investigation here. (ph)

April 22, 2005 in Prosecutions | Permalink | TrackBack (0)

Another Hobbs Act Decision Rejects Commerce Clause Challenge

The Eleventh Circuit reiterated its position that the broad commerce element for a Hobbs Act violation only requires a minimal effect on interstate commerce and not a "substantial" effect in United States v. Verbitskaya (here).  The court rejected a claim that the Supreme Court's federalism decisions in Lopez and Morrison changed the broad interpretation of the Hobbs Act, in much the same way that the Third Circuit rejected that argument in United States v. Urban (see earlier post here).  As the Eleventh Circuit noted rather pithily: "Extortion of money obtained in interstate commerce affects interstate commerce."  It's pretty hard to earn money any other way. While the cases involve different types of extortion (use of force in Verbitskaya, "under color of official right" in Urban), the outcome remains the same regarding the broad scope of the commerce element. (ph)

April 22, 2005 in Judicial Opinions | Permalink | TrackBack (0)

Medicare Fraud Indictment for Inflated Durable Medical Equipment Billings

Abuses involving durable medical equipment (DME) have been among the most pervasive types of health care fraud prosecuted by the federal government.  A grand jury in Philadelphia indicted David Mazer, who operated the Women's Medical Group, on 12 counts of health care fraud and 18 counts of wire fraud for providing cheaper or less complex DME and then billed Medicare for more expensive or complex items (indictment here).  Mazer's company is alleged to have contacted potential recipients by purchasing telephone lists and then conducting cold-calling to entice elderly Medicare Plan B participants to request the DME through their doctors.  (ph)

April 22, 2005 in Fraud, Prosecutions | Permalink | TrackBack (0)

Thursday, April 21, 2005

Defendants Sentenced in Enron Barge Trial

Two Merrill Lynch executives, Daniel Bayly and James Brown, were sentenced for their roles in the Enron Nigerian barge trial in which Enron agreed to sell the barges to Merrill and then repurchase them later, essentially a financing deal rather than a true sale, in order to inflate Enron's earnings for at the end of the year.  This was the first of the Enron-related trials, and the jury determined the loss caused by the transaction was $13.7 million -- a procedure adopted by some federal courts before the Supreme Court's decision in Booker made such jury fact-finding unnecessary.

U.S. District Judge Ewing Werlein sentenced Bayly to 30 months imprisonment, below the Sentencing Guidelines range even after the judge determined the loss caused by the fraud was $1.4 million, based on Merrill's gain on the transaction.  The Pre-Sentence Report recommended a 14 year prison term, based on the larger jury-based loss and other sentencing enhancements. Brown received a 46-month prison term.  In addition to the conspiracy/wire fraud charges, Brown was also convicted of perjury and obstruction, and the jury determined he played a leadership role in the offense. (See Bloomberg story here)

In sentencing Bayly, Judge Werlein stated how impressed he was by the defendant's reputation: "I may have never had a defendant before me who had a more glowing and extraordinary record of being a good citizen . . . The ignominy of a conviction and sentence by one who commits a crime of this type is quite different than one that could be tolerated by people who committed (other types of offenses)."

Sentencing Law & Policy has an interesting post (here) continuing an earlier discussion about whether Booker will result in lighter sentences in white collar crime cases.  In an earlier post (here), I discussed whether judges will favor white collar defendants who are more like themselves, with long-term charitable and family ties in the community.  Two items in Judge Werlein's sentence are of interest, based on the Houston Chronicle story (here) discussing the sentence: the judge noted Bayly's "boy scout" reputation and opined that white collar defendants cannot tolerate long prison terms and are sufficiently deterred by shorter sentences.

"Boy scout" reputations are certainly not unknown among white collar offenders, and are more likely to be the norm.  The collateral consequences of a prison term, including loss of livelihood, reputation in the community, licenses, etc. are exacerbated when the person has so much more to lose than the typical defendant in a street crime case, even the ones that come up in federal court involving drugs and weapons.  Are these sufficient to justify lower sentences, so that a "reasonable" sentence in a white collar crime case will be less than that for a person who is a felon in possession or is a lower-level drug dealer in a large narcotics organization?  Unfortunately, the message from a sentencing like Bayly's to Congress may be that judges will gradually move toward consistently lower sentences for white collar defendants who have the ability (and means) to present themselves in the best possible light to a judge who is naturally sympathetic to someone similar to himself or herself. The congressional overreaction is H.R. 1528, which would prohibit as least some of the grounds cited by Judge Werlein as the basis for a downward departure from the Guidelines (leaving aside the loss calculation).

That said, 30 months is not a short sentence, and Bayly could be barred from the securities industry by the SEC for his role in the barge transaction. This is a substantial punishment. (ph)

                                                                              

UPDATE (4/21): A USA Today story (here) gives some additional details about the sentencing of James Brown that were not available when I posted earlier.  The PSR recommended a 33 year prison term, and even with the judge's lower fraud loss calculation the sentence certainly looks like a downward departure. An additional basis identified by Judge Werlein for giving Bayly and Brown lower sentences was his comparison with the sentence Andrew Fastow is expected to get for his cooperation, which is capped at ten years.  Whether that is a fair basis for comparison is a different matter.  Fastow cooperated while Bayly and Brown (among others) did not, although I have not always found that to be entirely persuasive. 

One statement by Brown did catch my eye.  He said at the sentencing: "Since I was indicted, I have been branded a liar and a criminal; I could no longer make a living in my chosen profession."  Regarding the first part, being convicted of perjury, obstruction of justice and wire fraud tends to have that effect on a person.  That he can no longer pursue his chosen profession is true of most people convicted of crimes, particularly professionals. I have a hard time seeing how either of those circumstances should affect a sentence, and I doubt that they did.  (ph)

                                                                     

UPDATE (4/22): For an interesting discussion of Bayly's sentencing hearing by Tom Kirkendall, an attorney who was present, check his blog Houston's Clear Thinkers here.

April 21, 2005 in Enron, Sentencing | Permalink | TrackBack (0)

Podiatrist Receives 51 Months for Medicare Fraud

The old Wall Street adage that "bulls and bears make money but pigs get slaughtered" certainly applies to doctors who abuse the medicare system.  The U.S. Attorney's Office for the Central DIstrict of California issued a press release (here) discussing the 51 month sentence given to Mark Little, a podiatrist in Orange County, who was convicted for submitting over $800,000 of fraudulent bills for procedures that were never performed on patients.  According to the press release:

The evidence presented at trial showed that Little used the names and Medicare beneficiary numbers belonging to a few of his elderly patients to create and submit bogus claims for services that were never performed. Specifically, Little submitted claims for daily or almost-daily surgical procedures and casting on these same patients for months, sometimes years, at a time.

The investigation into Little began when a Medicare beneficiary reviewed her Medicare statement and noticed that Little had billed Medicare for more than 70 procedures he had never performed. That beneficiary called Medicare's hotline number to complain. In its investigation, Medicare noticed the same type of daily or almost-daily billing for Little's top-ten highest billed patients. When these patients were interviewed, they stated that they only saw Little once every two weeks or once a month, and then they only received toenail clippings.

Among podiatrists in Orange County, Little submitted the largest amount of claims to Medicare, even though he had far fewer patients then the next highest-billing podiatrists. In fact, Little's ten highest-billed patients generated approximately $800,000 in Medicare claims and accounted for 90 percent of his total Medicare income.

(ph)

April 21, 2005 in Fraud, Sentencing | Permalink | TrackBack (0)

Third Circuit Rejects Commerce Clause Challenge to Hobbs Act Convictions

The Third Circuit issued an opinion in United States v. Urban (here) upholding the convictions of a number of  former Philadelphia plumbing inspectors who were convicted of violating the Hobbs Act and RICO related to small cash payments (generally from $5 to $20) they received from plumbers to expedite inspections on construction jobs -- "grease" payments.  The government's evidence to prove the effect on interstate commerce for the Hobbs Act convictions was the "diminution of assets theory" under which the government shows the victim has less money for other economic activity because of the bribe payments.  Specifically, the defendants argued that the jury instruction, which only required the government to show a "potential" effect on interstate commerce from the diminution of assets, violates the Commerce Clause analysis of the Supreme Court in Lopez, Morrison, and Jones, which require a closer connection between the criminal conduct and an actual effect on interstate commerce. the Third Circuit rejected that argument, stating:

There thus appears to be little doubt that our precedent supports the District Court’s use of "potential" effect and its formulation of the depletion of assets theory in the jury instructions . . . But as we have repeatedly noted, the government need only prove that Hobbs Act extortion potentially affected commerce. Our “potential” effect reading of the Hobbs Act explains our continued adherence to the depletion of assets theory, because it is beyond cavil that the depletion of assets of a person engaged in interstate commerce has at least a “potential” effect on that person’s engagement in interstate commerce. Indeed, had the District Court instructed the jury that, notwithstanding proof of depletion of assets of plumbers engaged in interstate commerce, it could nonetheless acquit if it credited those plumbers’ conclusory testimony that their payments to Appellants did not affect their ability to purchase supplies made out-of-state, it would have misstated the law of this Circuit – extortion which depletes the assets of persons or businesses engaged in interstate commerce is, as a matter of law, a Hobbs Act violation.

The commerce element in the Hobbs Act is as broad as Congress's constitutional authority to regulate interstate commerce, and does not require proof of any interstate transportation, use of a means of interstate commerce, or the like.  The challenges to this broad exercise of the Commerce Clause power in the Hobbs Act have usually come in robbery prosecutions in which the defendant engages in a series of petty robberies and is prosecuted under the "diminution of assets theory" because only money is taken.  Commerce element challenges are less common in the corruption/"under color of official right" cases because the amounts are usually much greater, so that the effect on interstate commerce is easily identified.  In Urban, the amounts were quite small -- pocket change really -- and spread among a number of plumbers and construction projects so that the effect on individual victims was much harder to demonstrate.  Nevertheless, the "diminution of assets" theory -- which requires little proof beyond showing that money changed hands -- is alive and well in Third Circuit (and elsewhere). (ph)

April 21, 2005 in Corruption, Judicial Opinions | Permalink | TrackBack (0)

DC Circuit Denies Rehearing En Banc in Tobacco RICO Cases

The DC Circuit refused the government's petition for a rehearing en banc of the panel's decision on Feb. 4 that threw out the government's request that the tobacco company defendants be ordered to disgorge $280 billion in profits from their alleged RICO enterprise.  An excellent post on the SCOTUS Blog has a thorough review of the case (here), with the trial continuing in District Court at Day 95.  (ph)

April 21, 2005 in RICO | Permalink | TrackBack (0)

Wednesday, April 20, 2005

Seventh Circuit's View on Obstruction of Justice Enhancement After Booker

The Seventh Circuit issued an opinion in United States v. Miller (here) that deals, in a footnote, with the question whether a judge can impose the Obstruction of Justice enhancement based on the defendant's perjury at trial without a specific jury finding on that issue.  The defendant denied in his testimony that he knew the bag he delivered contained Ecstasy, yet the jury convicted him of conspiracy and distribution.  Although the court remanded the sentence to the district court, it paused to discuss the Obstruction enhancement:

To indicate our resolution of issues presented on the present appeal, however, we would note that the district court did not clearly err in finding that Miller perjured himself by testifying that he did not know that the bag he delivered to Detective Mahone contained Ecstasy, since it could have refused to credit Miller’s testimony in light of his admissions. Moreover, both the offenses of conspiracy and distribution incorporate a scienter element that Miller’s testimony was intended to negate, and the jury’s verdict directly establishes that it disbelieved his testimony, since it was required to find scienter in order to convict Miller. Under Booker, therefore, it could certainly be argued that there was no constitutional error in applying the enhancement for obstruction of justice because the jury by its verdict established that perjury had been committed. In any event, there was a statutory error since the district court, in applying the enhancement, erroneously believed that the Guideline was mandatory, not advisory. Although no objection was raised at trial, the government has conceded that the application of the assessment was error, whether constitutional or statutory. (But the context of the government concession indicated that it applied to the constitutional question).

The Seventh Circuit approach indicates that, at least when the jury's verdict implicitly rejects the defendant's denial of an element of the crime, then an Obstruction of Justice enhancement would be reasonable under Booker.  That approach would require the trial court to interpret the scope of the jury's verdict, and seems to support, at least implicitly, the argument that the Obstruction/Perjury enhancement requires some jury finding, even if not an explicit one regarding perjury. (ph)

April 20, 2005 in Sentencing | Permalink | TrackBack (0)

The Scrushy Defense Begins

The government rested its case against Richard Scrushy yesterday, with the judge granting the government's request to drop two charges (earlier post here).  One mail fraud charge alleged the wrong recipient, and for one money laundering charge involving Scrushy's purchase of four Persian rugs the seller had destroyed the paperwork -- one wonders how the government could have included counts without checking who received the mailing or having secured the documentary evidence before seeking the indictment.  The defense is scheduled to begin today at 1:30, assuming U.S. District Judge Bowdre does not grant the defense's Rule 29 motion to grant a judgment of acquittal on all counts.  There is certainly a possibility that the judge will dismiss some charges, although I think it is unlikely that the core securities fraud/false certification counts will be dropped. 

Once the defense begins, the key question is whether Scrushy will testify.  Given the parade of witnesses against him, including the five Guilty CFOs, I believe he will have to testify to establish his "honest but ignorant CEO" defense.  The evasiveness of former WorldCom CEO Bernie Ebbers in his cross-examination should be a lesson to the defense team on how to prepare Scrushy for his testimony. An AP story (here) discusses the conclusion of the government's case. (ph) 

April 20, 2005 in HealthSouth | Permalink | TrackBack (0)

KPMG Settles SEC Securities Fraud Action Related to Xerox Audit

Big Four accounting firm KPMG settled the SEC civil fraud action related to its auditing work on behalf of Xerox Corp. in the late 1990s by agreeing to the entry of a cease-and-desist order, the payment of a civil penalty of $10 million, and to disgorge its fees from the Xerox engagement of $9.8 million plus interest -- a total payment of $22.475 million.  The SEC's Litigation Release (here) describes KPMG's role in the Xerox accounting fraud:

[F]rom 1997 through 2000, KPMG permitted Xerox to manipulate its accounting practices to close a $3 billion "gap" between actual operating results and results reported to the investing public. During this period, Xerox used topside accounting actions at the end of financial reporting periods to increase equipment revenue and earnings through the improper acceleration of revenue from long term leases of Xerox copiers and through manipulation of excess or "cookie jar" reserves. Most of Xerox's topside accounting actions violated generally accepted accounting principles (GAAP) and all of them inflated and distorted Xerox's performance but were not disclosed to investors. These undisclosed actions overstated Xerox's true equipment revenues by at least $3 billion and overstated its true earnings by approximately $1.5 billion during the four-year period.

The SEC earlier settled its case with Xerox, with a similar $10 million civil penalty, and with six Xerox executives, including former CEO Paul Allaire, with total payments (penalties, disgorgement, and interest) of $22 million.  The Commission also sued five former KPMG audit partners for their role in the Xerox accounting fraud, and that case continues (see Litigation Release here). KPMG ran afoul of the SEC last year in a settlement involving accounting at Gemstar-TV Guide International. (ph)

April 20, 2005 in Civil Enforcement, Securities | Permalink | TrackBack (0)

Supreme Court Issues Opinion in Dura Pharmaceuticals on Pleading Loss Causation

The Supreme Court issued its opinion yesterday in Dura Pharmaceuticals v. Broudo, unanimously reversing the Ninth Circuit and requiring something more than notice pleading on the issue of loss causation -- no great surprise there.  An excellent post on The 10b-5 Daily (Lyle Roberts of Wilson Sonsini) thoroughly discusses the case.  We white collar types continue to await the Court's decision in Paquantino v. United States on the scope of the mail fraud statute when the victim is a foreign government being deprived of taxes, which was argued Nov. 9.  In addition, for those with an interest in international criminal law, Small v. United States concerning the effect of a foreign conviction remains undecided and was argued on Nov. 3.  See Ellen Podgor's earlier post here on what may be holding up the decisions in these cases. (ph)

April 20, 2005 in Securities | Permalink | TrackBack (0)

Lawyer Sentenced to 170 Months in Prison for Defrauding Clients

Nikolai Tehin, an attorney in San Francisco for over 30 years, was convicted last October of six counts of mail fraud and nine counts of money laundering for stealing settlement funds his law firm, Tehin + Partners, received on behalf of clients (indictment here).  He has received a sentence of 170 months, a very substantial term of imprisonment in a white collar crime case.  A press release (here) issued by the U.S. Attorney's Office for the Northern District of California described Tehin's conduct as akin to a ponzi scheme in which he used funds for his personal expenses and then took money from later settlements to repay clients whose case settled earlier.  In one case in which Tehin represented low-income, mostly Latino plaintiffs complaining about their living conditions -- the Vintage Ranch case -- a $2 million settlement was siphoned away.  According to the press release:

In early 2001, Mr. Tehin settled the Vintage Ranch lawsuit for $2 million. After attorney's fees and costs, the clients were entitled to approximately $1.3 million.  However, within just two months of receiving the final settlement check in the case, Tehin had actually stolen and spent the entire $2 million on unauthorized personal and business expenses before any of the Vintage Ranch plaintiffs received any of their settlement funds.

For many months following the settlement, Mr. Tehin's Vintage Ranch clients complained repeatedly about how long it was taking for them to be paid.  Ultimately, tensions increased to the point where nearly a dozen of the unpaid clients marched in front of Mr. Tehin's office building, in San Francisco's Financial District, holding signs with slogans such as: "Taking Money from the Poor, Shame on You Nick Tehin and Pam Stevens" and "Bank Records Don't Lie, You Took Our Client Trust Fund."

When the Vintage Ranch clients did ultimately receive their money, they were paid not with their own settlement funds, but with funds belonging to other clients of Tehin + Partners.

Other clients from whom Tehin stole settlement money included two medical malpractice victims and two claimants in a will contest.  (ph)

                                                                              

UPDATE (4/20): There is a good article about the prosecution of Tehin on Law.Com (here), including a comment by his lawyer that this is the longest sentence one of his clients has received in a federal prosecution (I assume he does not do many large-scale drug cases).  Among those who requested a long sentence is the director of Legal Aid of Marin, which retained Tehin to represent the clients in the Vintage Ranch case discussed above.

April 20, 2005 in Fraud, Legal Ethics, Sentencing | Permalink | TrackBack (2)

SEC Sues Former Accounting Firm Employee and Three Tippees for Insider Trading

The SEC sued Alina Welt, a former benefits analyst with two accounting firms for insider trading based on tips she gave to her husband, Andrew, about companies that were involved in merger activity.  Andrew traded on the material nonpublic information and also tipped his brother, Bruce, and a friend, Bruce Hirschhorn.  The defendants made over $400,000 from their trading in Renex Corp., Travel Services International, Inc., Intermedia Communications, Inc., Digex, Inc. and Sensormatic Electronics Corp. In addition to disgorging their profits, the defendants agreed to pay civil penalties of approximately $1.2 million, including a penalty of $393, 669 by Alina and Andrew Welt.  Whether it be a bull or bear market, insider trading just never seems to go away -- the allure of "free money." (ph)

April 20, 2005 in Insider Trading | Permalink | TrackBack (0)

Tuesday, April 19, 2005

Scrushy Charges Dropping?

But minutes ago, a post here described the court's elimination of three perjury counts against Richard Scrushy, former CEO of HealthSouth.  But even more is happening today as the government is now requesting that the court drop two mail fraud counts against the accused. (See AP story here in Wall Street Jrl).  If granted it will bring the number of charges against the defendant to 52 (will the closing argument use analogies like -"we are dealing with a full deck").   

The government appears to want these two charges dropped because documents they intended to use to prove these allegations are no longer available.  Did the government lose the evidence, fail to retain it, and when did they find this out? 

So why drop the charges, as opposed to just letting the jury return a not guilty or letting the court dismiss the charges at the end of the government's case? 

Perhaps it is good faith on the part of the government, and if so this is admirable to see in a case that has suffered such controversy.  But it can also be that the government needs them out of the way as quickly as possible to avoid later claims of a spillover effect coming from improper charges.  The last thing the government wants if Scrushy is convicted, is a defense appellate argument that the charges allowed improper evidence that tainted the rest of the trial.    Then again it could be that the government can't take a chance that the defense will move to dismiss these unproved counts. 

Keeping them as charges can work both ways for the defense. 

(1) On one hand they can be used to show how absurd the government charging process is - the closing argument might be something like - they threw spaghetti at the wall and just hoped something might stick.  The defense motive may also be that some of their relevant evidence relates to these charges and it is necessary to keep them in play to present that evidence. 

(2) Alternatively, the defense cannot take a chance at failing to move to dismiss unproved charges at the close of the government case.  What happens if the prosecution should be successful on these charges?  There is also the fear of the compromise jury - -   the jury that wants to give something to the defense and something to the prosecution.  Giving away charges that could have been eliminated without jury resolution may take away a favorable card in the defense hand.

In the end, if the evidence isn't there, the charges need to go, and it is good to see the government making the first move to make this happen.

(esp)

April 19, 2005 in HealthSouth | Permalink | TrackBack (0)

Scrushy - It May Be A Flip Flop, but it Sure is Forceful!

Amazing, is the best way to describe what is occurring in the Scrushy trial.  First the judge dismisses the 3 perjury counts, then reinstates them after a notice of appeal by the government and says they will be dismissed at the appropriate time.  The Order is below.  Some thoughts on all this:

1. The judge's change in the order is necessary.  You can't dismiss the counts just because you are prohibiting the use of the deposition.  The govt. has to be given the chance to present other evidence if they have it.  Assuming they do not have other evidence of the perjury counts (as will inevitably be the case here) then a judge can dismiss when the govt. has finished presenting all its evidence in their case in chief.  But you can't dismiss the counts without first giving them the chance to present something else.  Thus, it's likely that the dismissal will happen,  but the timing was not initially correct and the correction was necessary.

2. Why is the government's notice of appeal only as to the dismissal of the counts?  Will there be a notice and appeal of the court's ruling on not allowing the deposition into evidence? 

3.  The court's order is what I would call - forceful.  This judge is not going to tolerate game playing by the government.   The court is not saying that the SEC and DOJ cannot share evidence.  The court explicitly says that "a defendant cannot succeed on a theory of a 'perjury trap' when the questions relate to a legitimate, parallel investigation"   The difference in this case is that the court is finding the conduct here to be illegitimate.  And one finds explicit items within the Order to support this conclusion.

4.  The most fascinating part of the order is footnote 6.  This footnote states that:

"The Government submitted for in camera review the email exchange between Department of Justice counsel and its Professional Responsibility Advisory Office.  Although such officer authorized the contacts at issue, the court expressly makes no determination of their propriety." 

This part of the Order is dealing with whether there has been Rule 4.2 violation (the old Thornberg Memo issue).  The court does not grant defendant's motion on this issue. But what was in the email exchange that caused the Professional Responsibility Advisory Office to side with the government?  One has to wonder whether it included the essence of the first part of the court's order? That is, did the government ask permission of their professional responsibility office to ask questions of the defendant using a civil proceeding in order to obtain evidence for a criminal trial? 

If a person is being questioned by the government and they are a target of an investigation than under internal policy of the DOJ, they should be provided with a target letter.  Was Scrushy provided a target letter before he testified?  Was he not given a target letter because this was supposedly a civil proceeding and not a criminal one? Either way, this is not something a defendant can enforce in court, but is something that the Office of Professional Responsibility (OPR) can review and internally control.  What really happened here?

(esp)

Download order.pdf

April 19, 2005 in HealthSouth | Permalink | TrackBack (0)

The Latest in Operation Roaming Charge

The government issued a press release today here, describing the latest happenings in Operation Roaming Charge.  Operation Roaming Charge is a national/international government operation focused on telemarketing fraud schemes.  Back in October 2004, the DOJ stated here that 135 individuals worldwide had been arrested as a result of this Operation.  They noted that:

"The ongoing action, known as Operation Roaming Charge, began on Jan. 1, 2004, and involved unprecedented coordination at the national and international levels to combat telemarketing fraud schemes. The schemes uncovered in this operation include every major category of telemarketing fraud: bogus lottery, prize and sweepstakes schemes; offers of nonexistent investments; bogus offers of 'pre-approved' credit cards or credit-card protection; employment and business opportunity swindles; tax fraud schemes; and 'recovery room' schemes, in which criminals pretend to be members of law enforcement agencies who can help telemarketing fraud victims recover some of their losses if they pay bogus 'fees.'"

Today's DOJ press release states that:

"The Justice Department announced today that a federal court in Las Vegas has barred five Nevada men linked to a defunct telemarketing firm-the Las Vegas-based National Audit Defense Network (NADN)-from selling tax fraud schemes and preparing income tax returns for others. The court barred NADN’s former president, Weston Coolidge, of Las Vegas; its former general manager, Alan Rodrigues of Henderson; and Lee Panelli, Jeff Klingenberg, and Ric Klingenberg, all Las Vegas residents. The court also enjoined a related company, ALR, Inc., doing business as Success Matrix Group, from committing the same conduct. "

These actions are an outgrowth of Operation Roaming Charge. 

(esp)

April 19, 2005 in News | Permalink | TrackBack (0)

Defense Attorneys Look at Winning the White Collar Case

The National Association of Criminal Defense Lawyers (NACDL) had a white collar track for those attending the spring seminar.  Speaking on Friday of last week were a host of white collar criminal defense attorneys, including Abbe David Lowell, Jane Barrett, Tracy Minor, and John Keker. 

One fascinating presentation was given by Steve Peters.  Although titled, "Honest Services in Corporate America: The Federal Investigation of Qwest Communications International," the honest services law was not the focus of the discussion until near the end of the presentation.  The front part of the presentation was focused on the powerpoints and evidence used in his recent trial.  He described what has been called the "distraction defense." 

Attorney Peters focused on the specific events of each day in the defendant's life that corresponded to the dates the government was using in its indictment. He placed these personal events on a screen using powerpoints with adobe.   The result was a convincing presentation that the accused could not possibly have the mens rea to commit the crimes in question.   Not only did each powerpoint bring forth enormous sympathy for the accused, but it also showed how it was unlikely that this person would be focused on fraudulent acts at a place of business when so many significant events were occurring in his personal life.

The specific facts of this case made this defense appropriate.  But the presentation of this defense was what was particularly effective.  The use of technology served an important role in explaining the defense position to the jury.

(esp)

April 19, 2005 in Defense Counsel | Permalink | TrackBack (0)

Monday, April 18, 2005

Ebbers Seeks a New Trial

Lawyers for Bernie Ebbers filed a motion on Friday for a new trial under Federal Rule of Criminal Procedure 33.  According to a report in the Wall Street Journal (here), Ebbers asserts that the court's refusal to grant immunity to three witnesses -- all former executives of WorldCom -- denied him a fair trial.  He also argues that the jury instruction on conscious disregard for the securities fraud counts was in error.

The immunity issue is usually a non-starter because the court does not have statutory authority to grant it without a government request, and will not grant it on its own independent authority absent evidence of government misconduct in refusing to authorize immunity.  Regarding the second ground, given that the judge decided to give the intent instruction once already, it is unlikely the court will second-guess itself now, especially when the so-called "ostrich instruction" is widely accepted in the circuits if there is evidence that the defendant refused to pursue information in light of the circumstances.  The defense motion is the usual step in the appellate process. (ph)

April 18, 2005 in WorldCom | Permalink | TrackBack (0)

Enron Broadband Fraud Trial Starts Today

The prosecution of five former executives of Enron's broadband services unit (EBS) for securities fraud, conspiracy, and money laundering gets under way today in Houston.  That unit tried to set up a trading market for broadband similar to the much larger energy trading unit at Enron, and for a while EBS gave Enron the cachet of being an internet company.  The broadband market never took off, and EBS shut down when Enron collapsed.  The defendants are Joe Hirko, former co-CEO of EBS, Scott Yeager, Rex Shelby, Kevin Howard, and Michael Krautz (indictment here).  Two other former executives entered guilty pleas and will testify for the government.  Jury selection begins today before U.S. District Judge Vanessa Gilmore, and an article in the Houston Chronicle (here) discusses the start of the trial.

(ph)

April 18, 2005 in Enron, Fraud, Prosecutions | Permalink | TrackBack (0)

Coke Gets Slapped on the Wrist for Channel Stuffing

The Coca-Cola Company agreed to a cease-and-desist order from the SEC regarding channel stuffing by the company from 1997 through 1999.  According to the Administrative Order (here) issued today, Coke used its Japanese subsidiary (Coca-Cola (Japan) Co. -- CCJC) to pump up its syrup sales as volume began to diminish in 1996 in the following way:

At or near the end of each reporting period between 1997 and 1999, Coca-Cola, through its officers and employees implemented a "channel stuffing" practice in Japan known as "gallon pushing." In connection with this practice, CCJC asked bottlers in Japan to make additional purchases of concentrate for the purpose of generating revenue to meet both annual business plan and earnings targets. The income generated by gallon pushing in Japan was the difference between Coca-Cola meeting or missing analysts’ consensus or modified consensus earnings estimates for 8 out of 12 quarters from 1997 through 1999.

The channel stuffing resulted in the issuance of misleading financial statements for two year.  The Order essentially requires the company to continue to follow revenue recognition policies instituted in 2000, with no fine or other remedial requirements. More importantly for Coke, the Department of Justice dropped its criminal inquiry into the accouting issues (see company press release here). (ph)

April 18, 2005 in Civil Enforcement, Securities | Permalink | TrackBack (0)