Saturday, January 8, 2005

Limited Funding for Former Enron Executive Defense Costs

A settlement of claims by Enron shareholders and securities purchasers announced yesterday includes an interesting provision that will affect, among others, Ken Lay and Jeffrey Skilling as they prepare for a long-term criminal trial later this year.  As reported in an article in the Houston Chronicle (Jan. 7), the $200 million available from Enron's Directors & Officers insurance policy will be apportioned to pay a part of the settlement, and $13 million will be set aside to pay the defense costs of Enron executives.  According to the story, "Of the $200 million in insurance available for the settlements, $13 million was set aside for the continuing defense of defendants that did not settle, which includes individuals like former Enron Chairman Ken Lay and former CEO Jeff Skilling. That set-aside was needed to assure they would not block the settlement. Of the remaining insurance proceeds, $155 million goes to former Enron shareholders, and $32 million goes to the Enron bankruptcy estate to be distributed to Enron's creditors."

Corporations usually agree to indemnify their directors and officers for the costs of defending against civil, criminal, and administrative actions, and D&O insurance is universal among public companies.  The policies have been used to pay at least a portion of the costs of the defense of various officers and directors in recent high profile trials, including Dennis Kozlowski (Tyco), and Martha Stewart has sought payment of at least some of her defense costs related to the securities fraud charge that was dismissed during her trial. Given the complexity of the charges against Lay and Skilling, and the probable length of the trial, it is unlikely $13 million will cover a significant portion of their legal bills. Each has substantial personal resources, although even if there is an acquittal, it is unlikely they could recover the costs from the shell of Enron or in a Hyde Amendment claim. (ph)

January 8, 2005 in Defense Counsel, Enron | Permalink | TrackBack (0)

SEC Starts Informal Inquiry into TASER

TASER International, Inc. announced on Jan. 7 that is has received a letter of inquiry from the SEC regarding the company's public announcements regarding the safety of its products and a recent order from Davidson's Inc.  The company's press release states:

"We are confident our statements are supported by the safety studies of our products," said Rick Smith, CEO of TASER International, Inc. "We are in the process of compiling the information requested by the SEC and look forward to working with them as we have with other independent entities interested in the safety of TASER devices such as the United States Department of Defense, the Home Office of the United Kingdom and other governmental agencies in the United States and abroad. Our public statements about the safety of TASER devices are consistent with those of medical experts that we have consulted, or in the case of the Department of Defense, were reviewed and approved prior to release by the very agencies that have commissioned the research."

The safety issue appears to involve whether the company's earlier public announcements were accurate or complete, an issue that is also being investigated by the SEC concerning Merck and its knowledge about problems with the pain relief drug Vioxx that it recently withdrew from the market. TASER's statement is already staking out the position that its disclosures were complete and truthful. The purchase order issue appears to be more of an accounting concern, and may involve the timing of revenue recognition or even channel-stuffing (get your green eyeshades for this one).

An informal inquiry is an SEC request for information, and at this point the Division of Enforcement does not have subpoena power so the company's response is voluntary, although few if any companies refuse to cooperate.  If the Commission staff runs into any roadblocks in obtaining information, or if it appears that the company is being less-than-forthcoming, then it will seek (and almost always receive) authority from the full Commission to issue civil subpoenas.  Once an inquiry becomes formal, it takes on a life of its own and it is hard to predict how it will end. (ph)

                                                                               

UPDATE (Jan. 8): An article in the New York Times quotes an internal TASER document regarding the large sale at the end of the quarter:

An internal company document suggests, meanwhile, that Taser was struggling to meet its sales goals at the end of 2004. The document shows that in another sale, a distributor bought $700,000 in Tasers and accessories on Dec. 30, the last business day of the fourth quarter, about 3 percent of the sales that Taser expected for the quarter.

"Hope this will help out!!!!!" the distributor noted in the purchase order, which was provided by a person who will profit if Taser's shares fall.

The sale was to a distributor who would sell the company's weapons to civilians, a market that is quite small (almost nonexistent) and would not appear to support such a larger order on the last day of the fiscal year--in other words, channel stuffing or even a fraudulent sale if there was no payment for the goods.  The information in the New York Times article comes from a source that is shorting TASER's stock--i.e. betting it will decline--and any number of investigations have been triggered by the "shorts" seeking to undermine a company's share price. (ph)

January 8, 2005 in Investigations, Securities | Permalink | TrackBack (0)

Are the Phillies Really That Bad?

On Thursday, Jan. 6, a federal court jury in Philadelphia convicted Allan Carlson of 52 counts of computer fraud and 27 counts of identity theft related to a series of spam e-mails that contained long rants about how poorly the Philadelphia Phillies were managed (no doubt including former manager Larry Bowa, who was fired at the end of the season).  According to a press release issued by the U.S. Attorney's Office for the Eastern District of Pennsylvania:

U.S. Attorney Patrick L. Meehan announced today that a jury convicted Allan Eric Carlson of hacking into computers of people in this country and in Canada and from them launching spam e-mail messages designed to flood the e-mail servers of Philadelphia Newspapers, Inc. the Philadelphia Phillies, Knight-Ridder, espnmag.com, foxsports.com, and the sportingnews.com. Carlson would hack into computers of individuals who had left their computers on and unsecured. From those computers, he would launch spam e-mail attacks, usually long rants about the Philadelphia Phillies management. When he did this he would fake or “spoof” the return addresses of reporters and the Philadelphia Daily News, the Philadelphia Inquirer, espnmag.com, foxsports.com, and the sportingnews.com. He also used the e-mail addresses of two executives at Knight-Ridder and business e-mail boxes at the Phillies. This resulted in the return of thousands of e-mails to the persons whose e-mail addresses were spoofed.

Let's hope the Eagles don't collapse in the NFC title game for the fourth year in a row this month. (ph)

January 8, 2005 in Computer Crime | Permalink | TrackBack (0)

Friday, January 7, 2005

Cert Granted in Arthur Andersen Appeal

The Supreme Court granted cert today in Arthur Andersen v. United States (order list here). See also SCOTUS blog for a discussion of the nine cases in which the Court granted cert today.  The question presented is: "Must Arthur Andersen's conviction for witness tampering under 18 U.S.C. 1512(b) be reversed because the jury instructions misinterpreted the 'corrupt persuasion' and 'official proceeding' elements of the offense?"  The definitions of those terms are notoriously vague (i.e. broad) and the case gives the Court a chance to give a little bit more guidance in the area.  That said, a decision favorable to Andersen could trigger a congressional response.  We will try to post the briefs as soon as possible after they are filed. (ph)

January 7, 2005 in Arthur Andersen | Permalink | TrackBack (1)

Monsanto Settles FCPA Complaint

On Jan. 6, the Monsanto Company settled an SEC complaint that it made payments to Indonesian officials in violation of the Foreign Corrupt Practices Act and agreed to pay a $500,000 fine.  According to the SEC's Litigation Release:

[A] senior Monsanto manager, based in the United States, authorized and directed an Indonesian consulting firm to make an illegal payment totaling $50,000 to a senior Indonesian Ministry of Environment official ("the senior Environment Official"). The bribe was made to influence the senior Environment Official to repeal an unfavorable decree that was likely to have an adverse effect on Monsanto's business. Although the payment was made, the unfavorable decree was not repealed. The Commission further charged that the senior Monsanto manager devised a scheme whereby false invoices were submitted to Monsanto and the senior Monsanto manager approved the invoices for payment.

The Commission further charged that the company failed to maintain proper books and records related to "$700,000 of illegal or questionable payments made to at least 140 current and former Indonesian government officials and their family members. The approximate $700,000 was derived from a bogus product registration scheme undertaken by two Indonesian entities owned or controlled by Monsanto." The company also entered into a deferred prosecution agreement with the Department of Justice under which it agreed to pay a $1 million fine and hire an "independent compliance consultant." (Monsanto press release here) (ph)

January 7, 2005 in Civil Enforcement, FCPA | Permalink | TrackBack (0)

Former Marsh & McLennan Broker Pleads Guilty

New York Attorney General Eliot Spitzer's investigation of bid-rigging in the insurance industry has resulted in a guilty plea by Robert Stearns, a former Marsh & McLennan Corp. broker. According to a press release issued by Spitzer's office (Jan. 6), "In his guilty plea, the Marsh executive admitted that during a period from 2002 to 2004, he instructed insurance companies to submit noncompetitive bids for insurance business, and conveyed these bids to Marsh clients under false and fraudulent pretenses. These noncompetitive bids allowed Marsh to control the market, to protect incumbent insurance carriers when their business was up for renewal, and to maximize Marsh's profits."  The criminal complaint alleges that Stearns engaged in a scheme to defraud, which is different from the civil antitrust allegations leveled against the company in October 2004, although they arise out of the same practices.  This is the first guilty plea by a Marsh Mac insider, and we can expect the usual approach of building a case from the bottom--or perhaps the middle--up as high as the facts can take the investigation.  This is probably the first of a series of criminal charges against individuals. (ph)

January 7, 2005 in Fraud | Permalink | TrackBack (0)

Blogs from the Academy

The co-editor of this blog, Prof. Ellen Podgor, reports the following from a session at the Association of American Law Schools annual meeting in San Francisco about blogging:

At the Association of American Law Schools (AALS) annual Criminal Justice Luncheon, bloggers Jack Chin, Mark Godsey (of the CrimProf Blog), and Doug Berman (Sentencing Law and Policy blog) spoke about blogging. Discussed were the hopes that teaching blogs such as these could provide assistance to professors in staying current on cases, scholarship, and news items. Doug Berman, for example, spoke about how he started blogging as a result of trying to link and assemble items for his students.  The Sentencing Blog gained national recognition when the Blakely case was decided by the Supreme Court. Professor Berman also talked about finding the vision of the blog.  For example, determining how far a blogger should go to define terms and explain matters to the audience.  Finding the "voice" of the blog may be something that each blog will decide on its own.  One of the audience questions focused on the time spent in handling a blog.  Professor Berman, for example, spends about 3-4 hours a day keeping up his blog. (esp)

The blogs are certainly different.  For example, unlike the CrimProf blog, with only a couple exceptions we have not posted any graphics.  For me, that's because the one time I tried to include a picture, it took me almost ten minutes to make it look right, and even then it was on the wrong side of the text.  Typing is about as cutting edge as I get.  Thanks for looking at the text, and any suggestions on postings or other thoughts are most welcome. (ph)    

January 7, 2005 in About This Blog | Permalink | TrackBack (2)

Thursday, January 6, 2005

Ebbers Advances the "Honest-but-Ignorant CEO" Defense, Too

In the Jan. 5 post "The 'Honest-but-Ignorant' CEO Defense" that discusses the likely defense that will be offered by Ken Lay (Enron) and Richard Scrushy (HealthSouth), I neglected to include Bernie Ebbers to the list of former CEOs who will argue that they relied on subordinates to handle accounting issues.  Ebbers, the former CEO of WorldCom (now MCI after the largest bankruptcy in history), is scheduled to go on trial in the Southern District of New York on Jan. 19, when jury selection starts, for securities fraud related to the company's improper capitalization of expenses (now doesn't that get the juices flowing).  An article in the Wall Street Journal (Jan. 6) about the settlement of a civil securities fraud action by 10 former WorldCom outside directors also discusses the pending Ebbers trial.  According to the article, "Mr. Ebbers, 63 years old, is expected to argue that he was never an accounting expert, and that he relied in good faith on those who were, including former Chief Financial Officer Scott Sullivan, who has pleaded guilty to fraud."

One aspect of the Ebbers trial that will be interesting is that, according to earlier reports, Ebbers completely avoided using e-mail to communicate with others in the company, which denies the government a source of information that has been a boon to its corporate fraud and obstruction of justice cases the past few years (e.g. Arthur Andersen, Frank Quattrone).  Ebbers apparently refused to review written materials and only communicated orally with subordinates, not even using voice-mail.  The usual paper trail in a fraud case may be missing here, and the trial could come down to whether the jury believes Sullivan or Ebbers.  Ignorance without a paper trail may be bliss. (ph)

January 6, 2005 in Prosecutions, Securities | Permalink | TrackBack (1)

Plea Deal in Healthcare Fraud Case

A high-profile prosecution of a hospital, its former CEO, and an associate administrator got a jolt when the associate administrator, Mina Nazaryan, agreed to plead guilty on Jan. 5 as the trial is in its second month (see AP story).  Nazaryan was charged with demanding kickbacks from three doctors for arranging employment for them at the hospital.  The hospital, the Alvarado Hospital Medical Center near San Diego, is owned by Tenet Healthcare Corp. and is charged with paying doctors kickbacks disguised as relocation payments to have the doctors refer patients to the hospital.  The hospital and former CEO will continue to defend against the charges.  Tenet issued a statement asserting: "Nazaryan’s plea is hers alone. It will not affect our decision to vigorously defend the hospital and its chief executive officer. As we have said before, Tenet believes that its physician relocation policies were appropriate and legal under federal laws and regulations.”  A guilty verdict against the hospital would likely trigger substantial civil penalties in addition to the criminal fine, including the possibility that it would be debarred from participating in the Medicare/Medicaid program, which could result in it going out of business.(ph)

January 6, 2005 in Fraud | Permalink | TrackBack (0)

Protecting Internal Investigation Reports

There has been a major fight between McKesson Corp. and counsel for shareholder plaintiffs suing the company for securities fraud and various state law fiduciary duty violations over the contents of the company's internal investigation report.  The plaintiffs won the right to review the report in a California Court of Appeals decision, McKesson HBOC v. Superior Court, 115 Cal.App.4th 1229 (2003), which held that the company lost the right to claim the attorney-client privilege and work product protection because it turned over the report to federal prosecutors to avoid an indictment of the company.

The latest round in the fight will take place in the U.S. District Court in San Francisco, where former McKesson CFO Richard Hawkins is about to go on trial before Judge Martin Jenkins for securities fraud related to improper accounting that was the subject of the internal investigation.  An article on Law.com (Jan. 5) reports that McKesson has requested that the trial be closed to the public--i.e. the shareholder plaintiffs counsel--for any discussion of the internal investigation report.  The article states:

Hawkins' former employer, which is not a party to the criminal case, wants to close Jenkins' courtroom if witnesses discuss a controversial internal investigation. McKesson hired Skadden, Arps, Slate, Meagher & Flom to conduct the inquiry after allegations of corporate wrongdoing surfaced in 1999.

The Ninth Circuit has not yet ruled on the privilege waiver claim.  Hawkins' attorneys have received a copy of the report, and any exculpatory or impeachment information contained in it will certainly be used by his defense counsel.  It will be interesting to see if the judge takes this rather unique (even radical?) approach to protecting the privilege of a non-party as balanced against the public trial right.  The motion is scheduled to be argued on Thursday, Jan. 6. (ph) 

January 6, 2005 in Judicial Opinions, Prosecutions, Securities | Permalink | TrackBack (0)

Tracing the Rebate Checks from Brokers

An article in the Wall Street Journal (Jan. 6) discusses a new phase in the SEC's ongoing investigation of conflicts of interest in the capital markets.  According to the article:

The Securities and Exchange Commission has launched a broad examination of whether managers of big mutual funds and hedge funds are pocketing rebates on stock-trading commissions that should be directed back to investors, people familiar with the matter say.

The investigation goes beyond so-called "soft dollar" arrangements under which a broker will provide benefits--such as stock research--for free in exchange for the hedge fund or mutual fund placing its trades through the firm.  While questionable, soft dollar transactions ostensibly provide a benefit to the investors because the fund otherwise would have to pay for what the broker is providing.  In the case of research, the question is whether it is any good, but that's another issue. This investigation is similar to the SEC's review of brokerage firms who accepted payments from mutual funds to push those funds to investors without disclosing the payments; Edward D. Jones & Co. recently settled such a case and paid $75 into a settlement fund to compensate investors steered into the funds (see Edward D. Jones & Co. SEC Settlement).

The SEC's investigation is part of a new approach taken by the Division of Enforcement to look at broader industry practices rather than simply responding to a particular violation or company disclosure.  Whether the investigation will result in any enforcement actions is not known at this time, but whenever there is "free money" available, there is bound to be an abuse. (ph)

January 6, 2005 in Civil Enforcement, Securities | Permalink | TrackBack (0)

Wednesday, January 5, 2005

The "Honest-but-Ignorant" CEO Defense

A front-page article in the Wall Street Journal (Jan. 5) gives a nice overview of the government's prosecution of Ken Lay, the twice-former CEO of Enron.  According to the article, and any number of statements by Lay, his defense at trial will be that he was ignorant of the wrongdoing occurring at Enron, and that any misstatements he made were the result of being deceived by subordinates and not done intentionally.  As the article notes:

Yet despite Mr. Lay's alleged misstatements, and the plentiful evidence that fraud pervaded Enron, it may not be easy for prosecutors to convict him. Some of the statements prosecutors have focused on are suspect on their face, such as when Mr. Lay in October 2001 apparently misstated the reason for a billion-dollar hit to Enron's balance sheet. But others -- such as giving a rosy assessment in the month before a quarterly earnings report and calling Enron stock a bargain -- are much like the utterances routinely made by hundreds of corporate executives.

Lay has a website (www.kenlayinfo.com) that advances his position as an honest, upstanding member of the community, and it includes an attack on the government for its investigation of his wife, Linda, related to sales of Enron's stock by a family charitable foundation for which she is the president.  The "honest-but-ignorant" defense is similar to what Richard Scrushy has advanced to defend against fraud charges involving HealthSouth when he was CEO.  Scrushy asserts he was mislead by, among others, all five CFOs that the company has had since it was formed (see Jan. 4 post "Will Scrushy Testify?"). 

The "pure heart/empty head" defense (or, "I'm an idiot") does not deny the misconduct, but instead seeks to avoid liability by showing that the government's proof of intent is not sufficient to convict.  The defense (or one of its many variants) is quite common in white collar crime cases.  Whether it is successful or not is another question.  A. Alfred Taubman offered the defense against price-fixing charges when he was Chairman of Sothebys, and after conviction served approximately 10 months in a federal correctional institution.  In another case, United States v. Gellene, 182 F.3d 578 (7th Cir. 1999), the defendant (an experienced bankruptcy lawyer) testified that his apparently false statements during a bankruptcy proceeding were not made with the requisite intent and "[h]e called these conclusions 'bad judgment' and 'stupid, but not criminal.'" It is often difficult for successful professionals to argue that they got to such high positions based on ignorance, but certainly not impossible even though it requires confessing to one's own failings. (ph)

January 5, 2005 in Fraud, Prosecutions | Permalink | TrackBack (1)

Split Verdict in Cendant Prosecution

The securities fraud, mail/wire fraud, and conspiracy trial of former Cendant CEO Walter Forbes and former vice-chairman Kirk Shelton ended in a split verdict on Jan. 4: Shelton guilty on all 12 counts, and a hung jury on the charges against Forbes.  According to a New York Times story (Jan. 5),the jury deliberated for 33 days after hearing testimony for seven months.  The case involved complex accounting issues related to inflated revenues, proper accounting of expenses, etc.  Even with the length of the trial, 33 days to deliberate seems like a very long time, and it was not doubt excruciating for all involved.  No word yet from the U.S. Attorney's Office in New Jersey whether it will seek to retry Forbes, but given his high position in the company, the company's settlement of shareholder lawsuits for $2.85 billion--the largest payment ever from a fraud case--and the possibility that Shelton might cooperate with the government in a retrial, it is more likely that there will be a second trial absent a plea bargain. (ph)

January 5, 2005 in Fraud, Prosecutions, Securities | Permalink | TrackBack (0)

SEC Files Civil Fraud Charges Against TV Azteca and Officers

A post here on Nov. 22 (Lawyer Reporting of Corporate Misconduct) discussed the role of two U.S. law firms that advised their client, TV Azteca, regarding the company's disclosure obligations under the federal securities laws and, when the corporate client refused to make the disclosures, the lawyers resigned.  The SEC has now charged TV Azteca, a Mexican corporation whose shares are traded on the New York Stock Exchange, and three current and former officers, Ricardo Salinas Pliego, Pedro Padilla Longoria, and Luis Echarte Fernandez, with violating Section 10(b) and Rule 10b-5 for its failure to disclose material information and for making false disclosures.  The SEC's Litigation Release states:

The SEC alleges in its Complaint that the defendants engaged in an elaborate scheme to conceal Salinas's role in a series of transactions through which he personally profited by $109 million. The SEC complaint also alleges that Salinas and Padilla sold millions of dollars of TV Azteca stock while Salinas's self-dealing remained undisclosed to the market place.

The SEC's complaint further notes how the resignation of TV Azteca's counsel (and subsequent publicity about it in a New York Times article) affected the company's disclosure:

The Commission further alleged in its Complaint that after the resignation of TV Azteca's U.S. legal counsel and a Dec. 24, 2003, New York Times article concerning the matter, Echarte sent an email to Salinas and Padilla, stating, "The damage is done and the situation that we didn't want to explain openly is now in the hands of the public." Shortly thereafter, on Jan. 9, 2004, TV Azteca issued a press release confirming that Salinas indirectly owned half of Codisco.

Maybe the Sarbanes-Oxley Act isn't so bad after all. (ph)

January 5, 2005 in Legal Ethics, Securities | Permalink | TrackBack (0)

Former Federated Department Stores CEO Charged with Perjury

New York Attorney General Eliot Spitzer's office announced on Jan. 4 that it had secured the indictment of former Federated Department Stores CEO James Zimmerman for perjury during a deposition conducted by the AG's office into possible antitrust violations in the distribution of tableware in New York City stores.  According to a press release issued by Spitzer's office:

Zimmerman intentionally offered false testimony in a sworn statement on April 9, 2004. Specifically, Zimmerman was asked whether he had called Sir Anthony O'Reilly, the Chairman of the Board of Waterford, Wedgewood, PLC, to dissuade him from selling Waterford products through Bed Bath & Beyond or to otherwise encourage him to pull out of the negotiations to do so.

Zimmerman repeatedly told the assistant attorney general taking the deposition that he had never discussed Bed Bath & Beyond in any way with anyone at Waterford, including O'Reilly. According to the indictment, Zimmerman knew that these denials were untrue.

(ph)

January 5, 2005 in Prosecutions | Permalink | TrackBack (0)

Tuesday, January 4, 2005

Former FBI Agent Testifies in His Own Defense

One of our earliest posts (Nov. 2 here) discussed the beginning of the securities fraud and market manipulation trial of Anthony Elgindy and former FBI Agent Jeffrey Royer.  Among other things, Royer is accused of feeding confidential information to Elgindy about companies being investigated by the FBI and SEC, which Elgindy used to short the stock of the companies and, allegedly, to extort money from others under the threat of publicizing the investigations, which would negatively affect their shares.  An article in the New York Times (Jan. 4) discusses Royer's cross-examination, in which he defended his disclosure of the information to Elgindy as a means of cultivating a source who could provide information about corporate fraud.  The article states:

"I was interested in getting information back," said Mr. Royer, who was soft-spoken at first but grew more feisty as prosecutors continued with their cross-examination. He said he had no idea that Mr. Elgindy would use the information to sell stocks short, which involves borrowing shares in the hope that their price will fall.

Mr. Royer said that he thought that Mr. Elgindy's network of contacts in the investment world could provide the F.B.I. with useful information, and that he showed Mr. Elgindy some confidential e-mail messages and other documents related to companies under investigation as a way of winning trust.

"By sharing information, I would allow law enforcement and regulatory authorities to shut down companies that scammed the general public. That is what I planned to do."

Other government witnesses, including FBI agents, have testified that Royer gained access to password-protected files and disclosed the information to Elgindy, and that Royer said he planned to work for Elgindy when he resigned from the FBI in 2001.  It will be interesting to see if Royer's explanation for his actions convinces the jury because he largely admits to disclosing secret information to Elgindy. It does not appear that Elgindy will testify. (ph)

January 4, 2005 in Fraud, Prosecutions, Securities | Permalink | TrackBack (0)

Channel Stuffing at Krispy Kreme?

An AP article (Jan. 4) discusses a shareholder lawsuit accusing Krispy Kreme and its management of engaging in the age-old accounting practice known as channel stuffing, in which a company sends out large amounts of its wares at the end of the quarter to increase its revenue for that period.  With Krispy Kreme as the defendant in the private lawsuit and already involved in an SEC investigation, one can only imagine the puns that will be baked-up for this story (ding!).  (ph)

January 4, 2005 in Securities | Permalink | TrackBack (0)

Jenkens & Gilchrist to Pay Even More to Settle Tax Shelter Claims

An article in the New York Times (Dec. 4) states that the law firm Jenkens & Gilchrist will pay approximately $81 million to settle claims by clients who received advice about using tax shelters that were late invalidated by the IRS.  A preliminary agreement reached in April 2004 set the settlement amount at $75 million, and the article states "that Jenkens & Gilchrist increased its offer after the clients who filed the lawsuit obtained additional information about the case."  What might that information have been? (ph)

January 4, 2005 in Tax | Permalink | TrackBack (0)

Will Scrushy Testify?

Will Richard Scrushy testify during his upcoming criminal fraud trial?  That question is likely to be among the most important ones Scrushy's defense team will have to help him decide as he prepares for trial.  Particularly in high profile criminal cases, the defendant's failure to testify can come back to haunt him or her when the defense is one of innocence and not just the lack of intent. A recent article by FindLaw Columnist Julie Hilden (available on CNN.com--Dec. 28) questions the decision by Scott Peterson not to testify at his murder trial.  The same author argued in a different article (here) that Martha Stewart and her attorney (Robert Morvillo) made the right decision in not having her testify. The answer, of course, is that each trial (and defendant) is different, so the judgment in one case cannot be generalized.  That said, jurors are frequently heard to comment on the defendant's failure to testify as having been harmful to the defense case, especially when the defense is one of innocence.

According to a story in the Birmingham News (Jan. 2), Scrushy stated in an interview, "I am innocent . . . I am innocent and ready for the trial." Scrushy advanced the same position last year during the civil trial regarding the SEC's request for a freeze of his assets, but he did not testify at that time on the advice of his attorney.  At the criminal trial, however, the pressure will be much greater for him to testify, especially when so many former HealthSouth officers--including all five former CFOs--have entered guilty pleas and could be called to testify against Scrushy.  It will be interesting to see whether the defense announces its intentions regarding whether Scrushy will testify when the opening statements are made, currently scheduled to begin on Jan. 18. (ph)

January 4, 2005 in Prosecutions | Permalink | TrackBack (0)

Monday, January 3, 2005

Interrogating Defense Lawyers in Russia

Here's a scary thought: Defense counsel are called before prosecutors and perhaps even threatened with prosecution if they do not answer questions about their clients who are involved in a criminal investigation.  A story in the Wall Street Journal (Jan. 3) discusses the use of that tactic by Russian prosecutors, particularly in connection with the ongoing investigation and prosecution of OAO Yukos, the large oil company that is being slowly dismantled for alleged tax evasion.  According to the article:

In recent months, the arrests and interrogations of Yukos lawyers have fueled fears that those who defend politically unpopular clients could themselves become targets. Two senior Yukos legal officers fled Russia this fall to escape criminal prosecution, while a lower-ranking colleague who stayed, Svetlana Bakhmina, was arrested last month. Another Yukos legal consultant, Elena Agranovskaya, was detained a day later. Prosecutors also have launched sweeping searches and interrogations of other Yukos lawyers and middle managers.

More worrying still is the tendency of prosecutors to call in lawyers for questioning on cases they are working on -- a move that is forbidden under Russian law. "It's absolutely unacceptable to question lawyers as witnesses in their clients' cases," says Genri Reznik, head of the Moscow Chamber of Lawyers. "It's a clear violation of an attorney's rights." While attorneys can't be coerced into providing information, the prospect of arrest is so intimidating that they often comply with the summons for questioning.

Prosecutors in this country will on occasion subpoena a defense lawyer to appear before a grand jury to learn about the payment of fees, client identity, and even communications if they government can establish the crime-fraud exception to the attorney-client privilege. Subpoenas to attorneys usually are the subject of extensive litigation, and it is a time-consuming task for the government in most cases. This is nothing compared to the approach of the Russian prosecutors, however.  (ph)

January 3, 2005 in International | Permalink | TrackBack (0)