Friday, November 25, 2005

Keeping Dave Duncan Away From the Enron Defendants

In addition to the government's motion to dismiss the obstruction of justice charge (with prejudice) against Arthur Andersen, the Enron Task Force is not opposing a motion by former Andersen audit partner Dave Duncan to withdraw his plea agreement to an obstruction of justice charge.  Duncan's position is that he admitted to the same crime that Andersen was convicted of, and the Supreme Court's reversal of the conviction in that case means he too did not admit to the requisite intent for an obstruction conviction.

While the government's position on Duncan's motion appears to be consistent with the Andersen dismissal, a Bloomberg report (in the New York Times here) hints at another possible reason for permitting Duncan to withdraw his guilty plea.  The article speculates that, by withdrawing the plea, Duncan can refuse to cooperate with the defense lawyers in the Enron conspiracy prosecution because he will once again be exposed to possible prosecution for his conduct while at Andersen, and therefore could assert the Fifth Amendment if called as a defense witness. 

While the government also will not be able to call Duncan as a witness, the effect of Duncan's availability on its case may be insignificant.  The government already has Duncan's statements (and perhaps grand jury testimony if he appeared before that body), and if he recounted statements made by members of the conspiracy that allegedly included Ken Lay, Jeffrey Skilling, or (in particular) Richard Causey, Enron's former chief accounting officer, then those may be admissible as coconspirator statements.  Under Federal Rule of Evidence 801(d), statements by one conspirator made during the course of and in furtherance of a conspiracy are admissible against other members of the conspiracy as substantive evidence and not subject to the hearsay rule.  Any recitation of statements by conspirators could be admissible, even without Duncan being available to testify.  If the defense sought to call Duncan, he would assert his Fifth Amendment privilege and refuse.  This may be one instance in which the district court, already concerned about allegations that the Enron Task Force has discouraged witnesses from cooperating with defense lawyers, could give serious consideration to requiring the government to grant Duncan immunity from prosecution to make him available to the defense.

Another potential benefit to Duncan's plea withdrawal and the restoration of his Fifth Amendment privilege is that he cannot be called by the defense to testify about Andrew Fastow, Enron's former CFO and the likely star witness in the government's case.  Duncan had significant interaction with Fastow, and to the extent the defense will seek to undermine his recollections and credibility, Duncan could be a good source of information for such impeachment material.  If Duncan is beyond the reach of the defense, then it may cut off an avenue of attack on Fastow. 

I'm not much of a conspiracy theorist, but this is one time when the withdrawal of a guilty plea, something the government usually opposes quite strenuously, may have an upside for the prosecutors. (ph)

November 25, 2005 in Enron | Permalink | Comments (0) | TrackBack (3)

Lawyer Charged with Leading Insurance Fraud Ring

California Insurance Commissioner John Garamendi announced charges against Bernard Laufer, a lawyer in Huntington Park (CA), and 22 others for faking auto accidents and filing insurance claims that cost up to $3 million.  A press release by the Department of Insurance (here) describes the scheme:

During the course of the resulting probe, investigators found evidence of as many as 70 “swoop and squat” type staged collisions allegedly caused by the group, most targeting SUVs or commercial trucks. Such an operation typically involves two cars driven by suspects who box in a victim’s car on a freeway, causing a collision. The scam participants then file fraudulent insurance claims for alleged injuries. Although none of the victims was seriously injured, the financial consequences forced at least one victim to close his business after his company truck was totaled in a collision.

(ph)

November 25, 2005 in Fraud | Permalink | Comments (0) | TrackBack (0)

Thursday, November 24, 2005

Happy Thanksgiving

Amidst all the talk of investigations, indictments, convictions and acquittals, sentencings, and the like, it's easy to forget how much we have to be thankful for.  In the past year of doing this blog, we've met lots of new people and formed cyber-friendships with readers and bloggers.  For what it's worth, here are a few sites that are always worthwhile visiting (in no particular order) even if you don't always agree with the posts:

Of course, we have to thank our beloved leader -- and emerging media star -- Paul Caron, and the true power behind the throne, Joe Hodnicki, who keep the whole Law Professor Blogs network running and expanding on the way to world domination.

Have a safe and happy Thanksgiving!

ph & esp

November 24, 2005 in About This Blog | Permalink | Comments (1) | TrackBack (0)

Wednesday, November 23, 2005

Michael Rigas Faces Jail Time

According to CNN (here), Michael Rigas, the former COO of  Adelphia Communications, plead guilty to signing a false statement in an agreement that recommends a sentence of 6-12 months. The founder and former CEO of Adelphia Communications, John Rigas, previously received a 15-year term of imprisonment, while his son Timothy received a 20-year sentence (see posts here and here).  Both are facing new charges of tax evasion (see here).

(esp)

November 23, 2005 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Government Announces That It Will Not Re-Prosecute Andersen

Arthur Andersen, LLP, prosecuted and initially convicted for the alleged crime of obstruction of justice, had its conviction overturned by the US Supreme Court.  CNN reports here that The Department of Justice has now announced that it would not re-prosecute the company. Unfortunately, this turn of events does not assist the many employees who lost their jobs when the government indicted this company.  What three lessons can be learned here -

1. That the government prosecutorial power carries enormous weight, and DOJ needs to recognize its power and use it wisely.

2. That  innocent until proven guilty does not always work in our judicial system; especially when an appellate or supreme tribunal may overturn a conviction and the ramifications of the initial guilt still remain.

3. That using obstruction of justice as a shortcut, as opposed to investigating and prosecuting underlying conduct is not always the easiest avenue to pursue, especially in the long run.

(esp)

November 23, 2005 in Arthur Andersen | Permalink | Comments (0) | TrackBack (1)

Tom DeLay is Learning that Justice Moves Slowly

Tom DeLay is having his first lesson on speed in the courts and the slow judicial process. According to the Wall St Jrl. here, DeLay will have to file written arguments on his Motion to Dismiss and the court will then rule on the motion. Dick DeGuerin, Delay's attorney, is stressing the importance of speed here because of the accused's leadership post.

One can't help but wonder how long this process would take if this were not a private attorney like the esteemed Dick DeGuerin and if this were not a white collar case. 

What if this were an individual sitting in prison unable to make the bond who has been assigned pauper defense counsel? Perhaps they would not be able to go to work because of their incarceration, would not be able to support their family, and they might even lose their source of livelihood in the process. (see here - National Association of Criminal Defense Lawyers Indigent Defense page, also Bill Rankin's stories on Indigent Defense in Georgia in the Atlanta Jrl. Constitution) In some states they could be sitting a long time before their case were heard, even on a motion to dismiss. 

Perhaps an important lesson that Tom DeLay can learn from this experience is that the slow movement of justice can be devastating to those who are accused of crimes.  Those accused of white collar offenses may have an advantage in speeding up the judicial system process.

While everyone speaks to the need of making sure white collar sentences are similar to sentences of those facing non-white collar cases, the front end of the system is being overlooked.  That being - the charging process, the ability to secure legal counsel, and the ability to move the case through the system quickly.

Perhaps in Texas, DeLay's case will move with the same speed as those with indigent counsel, but that can not be said for all cases across the United States.  Hopefully, this legislator will learn an important lesson from this experience.

(esp)

November 23, 2005 in Prosecutions | Permalink | Comments (1) | TrackBack (0)

Investigating Abramoff

An interesting aspect of the plea agreement that Michael Scanlon entered into with the government (available here on Findlaw) is the fact that the U.S. Attorney's Office for the Southern District of Florida signed off along with DOJ's Public Integrity and Fraud Sections, which have been investigating lobbyist Jack Abramoff's dealings with Congress.  Abramoff was indicted in that district earlier on bank fraud charges, and by agreeing to cooperate with the government's investigation, Scanlon may be providing information that will be useful in the Florida prosecution beyond the Washington DC lobbying activites in which he and Abramoff engaged.  The "factual basis" for Scanlon's plea to a single count of conspiracy recites a laundry list of benefits provided to "Representative #1," who has been identified as Rep. Bob Ney, to assist "Lobbyist A" -- Abramoff -- in advancing the interests of the various Indian tribes Abramoff represented on casino issues.  With the Southern District of Florida coordinating its case with Main Justice, the pressure on Abramoff has increased significantly, and the indictment in Florida may become the least of his problems. (ph)

November 23, 2005 in Investigations | Permalink | Comments (0) | TrackBack (0)

Sentences in Piracy Cases

For those who are afraid that the Booker case will cause white collar offenders to be placed on the streets, as opposed to being behind bars, the Eighth Circuit's ruling in a software piracy case should put those fears to rest.  Professor Doug Berman in his superb sentencing blog here discusses the court's recent opinion in the case of United States v. Susel.  In discussing the court's affirming of a 51 month prison sentence of "an employee of a software manufacturer who 'stole copyrighted software from his workplace, sold the software on eBay, and delivered the software to purchasers through the United States mail," Professor Berman states that:

"Because the defendant in Susel does not seem like a major software pirate, I cannot help but ponder whether his sentence of 51 months' imprisonment complies with the statutory mandate in 3553(a) that the district judge 'impose a sentence sufficient, but not greater than necessary, to comply with the purposes [of punishment] set forth in' the Sentencing Reform Act.  Also, what of the statutory obligation, detailed in 3553(a)(6), to 'avoid unwarranted sentence disparities among defendants with similar records who have been found guilty of similar conduct'?"

Also this week, a Manhattan man received a sentence of 37 months for "selling and distributing pirated software valued at over $1 million." (See DOJ Press release here) (see Center for Economic Crimes -Fraud Update here) Although a much lesser sentence for the same basic crime, the government is pleased with this severe sentence. Michael Garcia, the United States Attorney for the Southern District of NY, stated:

"This lengthy sentence should serve as a warning to those in the manufacture and sale of pirated  computer software, as well other forms of criminal copyright infringement.  Intellectual property theft is a serious crime that victimizes companies large and small, as well as their employees and shareholders."

(esp)

November 23, 2005 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Tuesday, November 22, 2005

Spitzer Back-Peddling

Special Prosecutor Fitzgerald may not be the only one back-peddling.  It seems that Eliot Spitzer has had to re-evaluate some of his cases.  Most recently he has decided to drop fraud charges against an individual associated with Canadian Imperial Bank of Commerce. (see Wall St J here)  Spitzer had previously decided not to proceed against a Bank of America broker after a trial found the broker not guilty on most of the counts and hung on four counts.  It is important for a prosecutor to re-evaluate his or her case, especially after a hung jury.  With limited tax dollars it is important that prosecutors use these resources wisely.

(esp)

November 22, 2005 | Permalink | Comments (0) | TrackBack (0)

Scanlon Pleads Guilty

As discussed here, the filing of a one count information against Michael Scanlon was an indication of a forthcoming plea.  So it was no surprise to see the NYTimes reporting here that Scanlon plead guilty to one count - conspiracy.  It appears likely that we will be seeing Scanlon cooperating with the government's investigation. (See also Bloomberg here). Although it is possible for the government to charge only person who was a party to a conspiracy and leave others to be unindicted co-conspirators, this plea seems to indictae otherwise.  The Hill notes here that the plea provides that Scanlon pay $19.7 million in restitution.  Scanlon was represented by Plato Cacheris. (see also Wall Street Jrl here).

(esp)

November 22, 2005 in News | Permalink | Comments (0) | TrackBack (0)

Bob Woodward: Would You Buy the Book?

Listening to Bob Woodward on Larry King Live makes one wonder what has happened in the journalism world.  It seems ironic that a newspaper person, someone who is supposed to provide transparency for the public, fails to come forward with information that is clearly important to a criminal investigation.  Information here that is likely to be exculpatory to the defendant (Attorney Ted Wells is pleased that Woodward has come forward with this information).  Will this raise the reasonable doubt the defense needs (see post here) for an acquittal of Libby?  Will we learn of Woodward's source? Will this information be helpful to Special Prosecutor Fitzgerald so that he can get to the bottom of this leak case?

The NYTimes states here that "his source alerted Mr. Fitzgerald that he had talked to Mr. Woodward after Mr. Fitzgerald secured an indictment of Mr. Libby."  (see prior post here also) Is this just a situation of new information, or is someone trying to sabotage an investigation? The question is not only why Woodward did not come forward, but also why the source failed to provide this information to the prosecutor prior to Libby's indictment? One can certainly understand why we have no "Good Samaritans" coming forward.

(esp)

November 22, 2005 in Plame Investigation | Permalink | Comments (0) | TrackBack (0)

Former Govenor Ryan's Trial

Former Illinois Governor Ryan (see post here) was probably not too pleased with some of the testimony coming out in his trial.  According to CNN here, "Phil Gramm testified [ ] that he never approved thousands of dollars in consulting payments" to  the former governor's "daughters and staff in return for Ryan's endorsement."  The charges against Ryan include, "false statements, mail fraud (premised on intangible rights), Hobbs Act, RICO and tax."

(esp)

November 22, 2005 in Corruption | Permalink | Comments (0) | TrackBack (1)

Monday, November 21, 2005

The Enron Battles Continue

The claim by defendants Ken Lay, Jeffrey Skilling, and Richard Causey that prosecutors from the Enron Task Force have been intimidating potential witnesses into not cooperating with defense counsel will receive a hearing before U.S. District Judge Sim Lake.  The judge has called two Houston defense lawyers, Bob Sussman and Wendall Odom, and four former Enron executives, including one who entered a guilty plea to tax evasion, to testify regarding their interactions with the Task Force.  Daniel Petrocelli, Skilling's lawyer, told that judge that only five out of 100 potential witnesses have been willing to meet with defense counsel.  Some wags would point out that 5% is a pretty high number when given the choice whether to meet with a lawyer or not, but that's not the point.  Like many claims of prosecutorial misconduct, this one will be very difficult to establish, and it is unlikely the judge will grant the defense request to dismiss the charges.  Whether Judge Lake will order prosecutors to seek immunity for any witnesses is a close question, and the hearing may well affect that decision. A Houston Chronicle story (here) discusses the upcoming hearing.

On a different front, defense lawyers have asked the Fifth Circuit to remove a reference to Enron having "cooked the books" in the opinion reversing the sentence of former Dynegy executive Jamie Olis (United States v. Olis, issued Oct. 31).  The offending statement occurs on page 15 of the slip opinion, in the section finding that the district court's fraud loss calculation was flawed that contrasts the effect of Olis' conduct on Dynegy's stock price with what happened at WorldCom and Enron: "The final type of case, most analogous to the one before us, concerns fraudulent transactions that 'cook the books' and prop up a company’s stock but do not, aside from the exceptional Enron or WorldCom situation, render the company worthless."

A Houston Chronicle story (here) quotes from a letter sent by defense counsel for the three defendants to the Fifth Circuit: "It is the defendants' position, and they believe the evidence will show at their soon-to-begin criminal trial, that the books were not cooked at Enron, that its stock was not inflated through fraudulent means, and that the company's collapse was not caused by the alleged fraud."  Could this be the beginning of the "market-destroyed-a-great-company" defense?  A tough one to advance, given the admissions of a number of individuals that Enron's accounting did not reflect reality, but it is certainly worth arguing that the fraud was not the only cause of the company's demise.  (ph).

November 21, 2005 in Enron | Permalink | Comments (0) | TrackBack (0)

How Long Does It Take to Commit a White Collar Crime?

A New York Times article (here) on the front page of the Business Section discusses the current situation of Daniel Bayly, a former senior Merrill Lynch executive who was convicted (along with four others) in the Enron Nigerian Barge trial in 2004.  Bayly is in a federal prison serving a 30-month term, and the article discusses his situation and the broad support he has received from a number of former Merrill Lynch CEOs (although not current management).  The subheadline of the article in the print version caught my attention: "A 5-Minute Phone Conversation, a 30-Month Prison Term."  The conversation at the heart of the government's fraud case involved a discussion between Merrill Lynch bankers and Enron CFO Andrew Fastow in which Fastow gave assurances that Merrill Lynch would not be at risk in the transaction.  The parties structured the deal to permit Enron to report earnings on the "sale" of the barges when, as found by the jury, that was not its real economic purpose, and the transaction permitted Enron to misstate its earnings. 

The subheadline caused me to wonder how long it takes to commit a white collar crime.  Many economic and corruption offenses involve conduct over weeks, months, even years, and often involve a series of small steps that, taken together, can culminate in criminal violations.  That does not mean, however, that a five-minute telephone call can't be the basis for a significant crime.  Many street crimes occur in a much shorter period of time, and there's no reason why white collar offenses need to take longer.  The key to white collar crimes is the intent of the participants, and it may be that a single conversation (or a few short discussions over a limited period) might make it more difficult to infer the requisite intent, but a single meeting can be the key to a crime.  The fact that one or more participants do not recall the meeting or conference call as significant does not mean it was not, and it may be that one's perception of what is important (or problematic) will change when the entire scenario comes clear.  Enron did not collapse due to the Nigerian Barge transaction, and the amounts were comparatively small, although even a penny a share is important to a company struggling to meet Wall Street's expectations. 

It may be that Bayly and the other Merrill Lynch executives were made into scapegoats for a company that was fundamentally flawed, and their business decisions were bad, but not criminal (see Tom Kirkendall's post on the Houston's Clear Thinkers blog here on the prosecution).  But the short amount of time it took to make a decision does not mean that it was not part of a crime, and the fact that a person did not wake up in the morning with a plan to engage in fraud or corruption does not mean that the result of small decisions can have very significant consequences. Just a thought. (ph)

November 21, 2005 in Fraud, Prosecutions | Permalink | Comments (1) | TrackBack (0)

Government Seeks Access to Baseball Players' Steroid Tests

As part of its investigation of the Bay Area Laboratory Co-Operative (BALCO), the government seized the 2003 urine samples of hundreds of major league baseball players pursuant to a search warrant for the laboratory responsible for testing the samples.  An AP story (here) notes that the government has appealed the district court's decision barring the government from using the samples because they were outside the warrant, which only authorized the seizure of ten samples.  With the BALCO case largely finished, with only one remaining defendant who has pled not guilty, why does the government continue to fight this issue?  Maybe it wants to double-check Rafael Palmeiro's sample. (ph)

November 21, 2005 in Investigations | Permalink | Comments (0) | TrackBack (1)

Nursing Home Operator and Its CEO Charged With Fraud for Failure to Care for Patients

The U.S. Attorney's Office for the Eastern District of Missouri announced the indictment of American Healthcare Management Inc. and its CEO, Robert Wachter, on conspiracy and Medicare/Medicaid fraud for failing to provide adequate care to residents of three nursing homes operated by the company.  A press release (here) states:

The indictment alleges that due to lack of staffing at these facilities, numerous residents of the three nursing homes suffered from dehydration and malnutrition, went for extended periods of time without cleaning or bathing, and contracted bed sores that would have been preventable with proper care. The indictment also alleges instances of patients walking away from facilities and physical abuse by staff members. An 88-year old resident, who was totally dependent on Claywest for care, sat for hours at a time in her own waste, and in the two weeks before her death, nursing staff found ants crawling all over her body. Additionally, the indictment alleges that a 78-year old patient was beaten by an employee and later died as a result of his injuries.

(ph)

November 21, 2005 in Fraud | Permalink | Comments (0) | TrackBack (0)

Sunday, November 20, 2005

New Grand Jury in Leak Case

Special Prosecutor Fitzgerald has moved forward in the leak investigation, but according to AP here,this time it will be with a new grand jury. In the meantime denials will probably be surfacing, with claims by officials that they are not Woodward's source.  For example, Secretary of State Condoleezza Rice issued a statement as reported in the NYTimes here that she is not the source in the leak investigation.

(esp)

November 20, 2005 in Plame Investigation | Permalink | Comments (0) | TrackBack (0)

Saturday, November 19, 2005

Abramoff Partner Charged with Conspiracy

Michael Scanlon, a former aide to Rep. Tom DeLay whose public relations firm worked closely with lobbyist Jack Abramoff, is named in a criminal information of conspiracy to defraud Indian tribes that were Abramoff's clients by making secret payments to Abramoff from fees paid by the tribes.  The information also notes that Scanlon and "Lobbyist A" provided a number of things of value to "Representative No. 1" related to passing legislation that would assist the tribal clients.  An AP story (here) states that an attorney for Ohio Rep. Bob Ney has acknowledged that he is the Representative discussed in the information, but that the Congressman is a "victim" who was "misled" by Scanlon and Lobbyist A.  Somehow, it's a little hard to view an elected official who permits himself to be wined, dined, and showered with gifts as a "victim," but then this is Capitol Hill, where poor Congressman are always being preyed upon by lobbyists.

The government's filing of a single-count information usually indicates that the defendant is cooperating in the investigation, and a hearing is set for Nov. 21 at which Scanlon is likely to enter a guilty plea.  While Rep. Ney's attorney denies that his client is a target of the investigation, the fall-out from Abramoff's lobbying seems to be spreading. (ph)

November 19, 2005 in Fraud | Permalink | Comments (0) | TrackBack (0)

Targets Identified in Milberg Weiss Probe

A Los Angeles Times story (here) about the government's ongoing investigation of possible kickbacks paid by plaintiff securities class action firm Milberg Weiss to lead plaintiffs in class action cases notes that leading partners Melvyn Weiss and David Bershad, along with now-former partner William Lerach, are targets of the investigation.  The Times story discusses a 1995 class action, filed right before the PSLRA became effective, that may involve kickbacks to the lead plaintiffs, and that some participants in the case have been granted immunity, reportedly including Alan Schulman, a former Milberg Weiss partner who was lead counsel on the case. 

It is not a great surprise that Lerach and Weiss are targets of the investigation because of their leading positions at the firm and heavy involvement in the plaintiffs class action bar.  The statute of limitations issue remains a potential roadblock to a successful prosecution, however, because the adoption of the PSLRA in 1995 changed the rules for securities fraud class actions dramatically.  The class action case being investigated settled in 1998, and any payments before the end of 2000 would fall outside the limitations period, although a conspiracy charge might be possible if there were overt acts in 2001 or later.  The Legal Ethics Forum has an interesting post (here) on the investigation.  (ph)

November 19, 2005 in Grand Jury, Investigations, Legal Ethics | Permalink | Comments (0) | TrackBack (0)

Connecticut Attorney Will Serve Five Years for Stealing From Estates

The Connecticut Chief State's Attorney announced that an attorney who stole hundreds of thousands of dollars from estates for which she had been appointed the conservatrix by the probate court. will serve five years after agreeing to enter a guilty plea to embezzlement.  In a familiar story, attorney Elizabeth Zembko took money from the estates and used it to support her lifestyle and to buy gifts for family and friends.  According to a press release (here), Zembko surrendered her law license in 2004, and an investigation revealed improper transfers from a number of estates. (ph)

November 19, 2005 in Fraud | Permalink | Comments (0) | TrackBack (1)