Wednesday, April 13, 2005

Scrushy - Three Less to Deal With

Yesterday, the court eliminated three of the charges faced by Scrushy, the perjury counts.  But this may be insignificant in that Scrushy still faces 55 counts including hefty penalty charges like securities fraud and money laundering. Is this why the Justice Department is not upset about this ruling?  (See Wall Street Journal)  Or is it because they are glad to just move on with the trial?

In some respects it is better for the government to have this ruling now, prior to significant evidence coming in on the perjury counts.  If there were more evidence on these now dismissed counts, then the defense might have a stronger case, if Scrushy were convicted, in claiming that his convictions were tainted by the improper evidence.  ("spillover effect").  Having the counts eliminated now removes what could be a significant appellate argument  should a conviction occur.

The government's 19 page response here, on the defense motion regarding improper cooperation between the SEC and the DOJ, was telling in that it seemed to ignore the defense request for an evidentiary hearing. Although some may consider this court ruling significant and something that may have impact on other similar cases (see quote from Professor Pam Bucy in the Wall Street Journal), this may also be a very narrow ruling that is fact specific.   This may not be a situation that a judge is saying that the SEC and DOJ can't communicate, but rather a situation of the DOJ first telling the court that there was no cooperation and later the court hearing from a witness that there was such cooperation. (See the defense motion here).  We await the Court's ruling to fully access this issue. But in the interim, the trial moves on and Scrushy still has ample allegations to contend with.  See more here.

(esp)

April 13, 2005 in HealthSouth | Permalink | TrackBack (0)

Do You Trust Your Wife?

In The Shawshank Redemption, prisoner Andy Dufresne overhears sadistic Captain Hadley complaining about having to pay taxes on lottery winnings and asks the Captain, "Do you trust your wife?"  After nearly being thrown off a roof, Dufresne explains how Hadley can avoid taxes by giving the winnings to his wife, assuming he trusts her.  On March 11, just three days before resigning as CEO of AIG, Maurice Greenberg gave his wife Corinne 41,399,802 shares of AIG stock, worth approximately $2.2 billion (SEC Form 4 here and explanatory rider here).  Greenberg has since resigned as chairman of AIG's board, although he remains in control of two off-shore companies that own a substantial block of AIG shares.  There has not been any statement of the reasons for gift, and the usual reasons for transferring shares (estate planning, diversification, etc.) would not apply to a spousal gift of the shares, as best I can tell.  Is the transfer designed to keep the shares away from claimants in the civil securities fraud and derivative cases that abound, or perhaps even a criminal case? Needless to say, I haven't gotten my wife anything nearly this expensive in quite a while.

Greenberg met yesterday with government investigators from four agencies (NY Attorney General, SEC, DOJ, and NY Insurance Commission) and invoked his Fifth Amendment privilege over 100 times (see NY Times story here).  While the usual practice in criminal cases is to permit a blanket assertion of the privilege without requiring the witness to appear, in civil cases the government can use the person's refusal to answer as evidence (albeit not conclusive proof) of a violation by permitting a jury to draw an inference that the person's answer would have been incriminating regarding the subject of the question.  If the question is not asked, then no inference about its subject matter can be drawn.  Assertion of the Fifth Amendment at this point does not prevent Greenberg from testifying down the road.  In asserting the Fifth Amendment, Greenberg is reported to have stated that the he needed more time to prepare for the deposition under oath.  While it is not the "privilege to get more time to prepare," it is unlikely the government could challenge the assertion of the Fifth Amendment, especially because the presence of the DOJ investigators at the deposition clearly indicates a criminal component to the case. (ph)

April 13, 2005 in Investigations, Securities | Permalink | TrackBack (0)

Tuesday, April 12, 2005

Major Indictments in NY - Stock Traders

David Kelley, United States Attorney for the Southern District of New York, announced today nine indictments against 15 different specialists who worked for five different firms.  The Wall Street Journal has a video of Kelley explaining the indictments (including a chart and description of the acts involved) here.  More later, for now, here are the stories in CNN, NYTImes, and Jurist

(esp)

April 12, 2005 in Insider Trading, Prosecutions, Securities | Permalink | TrackBack (0)

Sentencing- Is this a Government Fix?

Looks like someone thought they could pull off a Booker fix without anyone noticing.  Thanks to Doug Berman's wonderful blog here, and the NACDL website here, as well as so many others - it is being noticed. Both of these websites provide full details of what someone (is it DOJ?) is trying to make happen.  And looking at the details of what is being proposed in this "fix" it is apparent that someone is trying to remove discretion from the judiciary and place it back in the hands of the prosecution (gosh, would the DOJ really do something like this?).  To give a flavor of some of the proposed changes, the NACDL website reports that the "fix":

  • Prohibits courts from relying upon virtually every conceivable ground (35) for a below-range sentence ("downward departure") -- except to calculate a guidelines range or impose a sentence at or above the bottom of that range.
  • Prohibits courts from sentencing below the applicable guidelines range based on defendant cooperation except upon motion of the government

Checking out the NACDL website here and also see the impressive letter here signed by a long list of former US Attorneys and others (former Attorney General Griffin Bell, former assistant attorney general Jo Ann Harris, and it goes on). 

What is particularly bothersome here, is that this Booker fix is being aired without the opportunity of meaningful input by the judiciary, academics, practitioners, and others. That's just plain wrong and hopefully Congress will not buy into this.

(esp)

April 12, 2005 in Sentencing | Permalink | TrackBack (0)

Reply Brief of the United States in Arthur Andersen

The government's reply brief in Arthur Andersen v. United States is here.  In summary, the Solicitor General argues:

The lower courts correctly defined the term "corruptly" in Section 1512(b) as "having an improper purpose" "to subvert, undermine, or impede the fact-finding ability of an official proceeding." The lower courts’ definition is consistent with the purpose-based definition long given to the identical term in the general obstruction-of-justice statute, 18 U.S.C. 1503, on which Section 1512 was based; in other obstruction-of-justice statutes; and in other federal criminal statutes more generally.

Andersen is the last argument scheduled on the Court's calendar for the 2004 Term, scheduled for Wednesday, April 27, and is the only case being heard that day. (ph)

April 12, 2005 in Arthur Andersen | Permalink | TrackBack (0)

Greenberg, Buffet, and AIG

Well there were no surprises yesterday (see post here)  - the press tells that Greenberg will be silent; Buffett on the other hand talked, but said little. (NYTimesWall Street Jrl)  And if they are asking Buffett about a telephone call from Nov. 2000, then one can certainly imagine why Greenberg chose to take the 5th. (some of us with a lot less on our plates in comparison to these men, can't remember what they ate for dinner 3 weeks ago, nonetheless a telephone conversation over 4 years ago.) So where is Spitzer going, who are the targets, who are the witnesses, and what does Spitzer hope to achieve with this investigation? Stay tuned . . .

(esp)

April 12, 2005 in Investigations | Permalink | TrackBack (0)

Monday, April 11, 2005

LexisNexis Sponsors Law Professor Blogs Network

Lexislogo200We are thrilled to announce that LexisNexis has agreed to sponsor all of the blogs in our Law Professor Blogs Network:

LexisNexis shares our vision for expanding the network into other areas of law, so please email us if you would be interested in finding out more about starting a blog as part of our network.

April 11, 2005 in About This Blog | Permalink

Martha Stewart Loses Round One on Sentence Reduction Issue

We posted here that Martha Stewart's attorneys had filed to reduce her sentence in light of the Booker decision. CNN reports today that the district court will not be reducing Stewart's sentence.  As such she will need to continue the home confinement and continue to wear an ankle bracelet, and we are not talking about the fashionable kind of bracelet but rather a government monitoring device. 

Stewart, like many others who are or were incarcerated, or on home confinement, are having their cases re-examined in light of Booker.  And most, like Martha Stewart, are finding that this new decision is not changing their sentence. This does not preclude these issues being re-examined by the appellate tribunal.  The problem here is that it is unlikely that the appellate court  will rule much in advance of the finishing of her sentence to home confinement.   This case is also another indication that Booker will not have the dramatic effect that some anticipated it would have. The bottom line is that the sentence stays the same.

(esp)

April 11, 2005 in Martha Stewart | Permalink | TrackBack (0)

Scrushy Motion Raises Old Issue In a New Light?

In the April 9th post there is a discussion of the a new motion filed by the defense in the trial of Richard Scrushy.  The motion is here (Download Motion.pdf ) and the response is here (Download Response.pdf).

Although the motion is titled to exclude the deposition and tape recorded conversations, the prayer for relief merely asks for an evidentiary hearing on the issue. The court previously ruled against defense counsel on this issue and rejected the exclusion of the tapes, but the defense is raising this issue again in light of Neil Seiden's testimony at trial – testimony that the defense argues shows that "there was cooperation between" the SEC and DOJ in the taking of the deposition. The defense also argues that there is an ethics rule 4.2 (Alabama Rules) violation by using someone sent by the government to tape record the conversations. (shades of the Thornburg Memo days).

Admittedly there is a long line of cases that allow for parallel investigations between the SEC and DOJ (although the leading decision, Dresser was not a Supreme Court decision). But there is a more interesting aspect that is found in the government response. The government claims that there is no factual basis for the defendant's argument. This is interesting because the defense motion’s prayer is not asking the court to summarily suppress the evidence. The defense motion is merely asking for an evidentiary hearing on the issue.

If given an evidentiary hearing, the question could become whether the defense could show that the civil action was brought "solely to obtain evidence for its criminal prosecution," "or without notice to the defendants that it contemplated a criminal action." (Dresser) Perhaps difficult if one came before the other.

The real question may be whether the judge ought to give defense counsel a hearing here. Obviously this trial has been fraught with numerous delays and perhaps this motion might be seen as just that - another delay. But why is the government so vehemently against the motion (19 page response to a 7 page motion). If there really is nothing to the motion, then wouldn't they be better off having the hearing to protect the record from an appellate issue should the defendant be convicted.

(esp)

April 11, 2005 in HealthSouth | Permalink | TrackBack (6)

S.C. Johnson & Son, Inc. a Good Place to Work!

It looks like a fraud investigation is being conducted by the US Attorneys Office in Milwaukee and the focus is on what a former employee of S.C. Johnson may have done. The investigation is about an "alleged multimillion-dollar mail- and wire-fraud scheme involving rigged trucking contracts by a longtime executive of consumer-products company S.C. Johnson & Son Inc."  The bottom line is whether this corporate exec was receiving compensation above and beyond what was permitted by the corporation.    (see more in the Wall Street Journal here)

To the consumer the bottom line may be whether products such as "Pledge" went up in price because someone in the company might have been getting some kickbacks. 

Several things to consider here:

1. Should the government be investigating an alleged internal fraud within a company?  The company started an internal investigation and some may argue that it should be left to this civil arena.   Let the market drive the price.

2. But does the government need to protect the consumer when a company may have failed to be cognizant of internal fraud occurring within?  Is that much at least owed to the market and to shareholders?

3. The company in this case was ranked #7 on the Fortune best places to work. (see announcement) How will this affect that ranking, and should it?  The company also emphasizes social responsibility. (see here)   Does this say that no matter how hard a company tries, they may not be able to control all the employees?

(esp)

April 11, 2005 in Investigations | Permalink | TrackBack (0)

Spitzer At It Again - This Time Drugs

Looks like McKesson may be traveling east in the upcoming weeks. And so too may other drug companies be having their attorneys heading out to New York (or securing counsel in NY to handle possible upcoming matters).  According to a Wall Street Journal article here, several major drug companies have received subpoenas from Spitzer's office.  And it looks like the NY Attorney General is looking at counterfeit drugs that may be entering the market illegally through a secondary market.

Perhaps this is the next project that AG Spitzer will be taking - to clean up the drug industry. And it does not appear that he is looking at drugs as usually seen in state courts - e.g. cocaine, marijuana. The big question is whether Spitzer will move from the insurance industry to the drug industry.  See more in the NYTimes here.

It is pretty frightening to think that drugs in the marketplace might not be the real thing.  But why is Spitzer the one looking at this?

(esp)   

April 11, 2005 in Investigations | Permalink | TrackBack (0)

Dep of Greenberg a "GO"?

It looks like Spitzer is going to force Maurice Greenberg, former CEO of AIG, to either testify or take the 5th.  (see Wall Street Jrl here) And it seems like no continuances are in store for him. Our posts here, here, here show the growing pressure on individuals associated with AIG.  And here  we raised the issue of what Greenberg should do- talk or walk. We noted that Robert Morvillo, Greenberg's attorney, formerly represented Martha Stewart.  And we asked -- what would she advise here in light of her experiences?  Greenberg has one advantage, that others from AIG may not have had; and that is that he is no longer with the company, so a threat of a job loss won't mean anything. 

When someone believes they have nothing to hide it is tough to take the 5th Amendment.  But sometimes, especially when the documents are numerous, a misstep in memory may be devastating.  So what will Greenberg do? Later today will tell more.....

(esp)

April 11, 2005 in Investigations | Permalink | TrackBack (0)

Ponzi Schemes - Historical Perspective

The NYTimes has a book review of a new book by Mitchell Zuckoff, called "Ponzi's Scheme."  The review by David Margolick  is titled, "His Last Name is Scheme" and it sounds like the book is an indepth history of Charles Ponzi.

(esp)

April 11, 2005 in Scholarship | Permalink | TrackBack (0)

Environmental Settlement

Mobil Exploration & Producing U.S. Inc. has agreed to settle with the DOJ and EPA on clean air act violations.  The DOJ press release states that:

"The company will pay a $350,000 penalty and spend about $500,000 on operation improvements to control air pollution at its oil field.

"Mobil will also spend $99,849 on a public health project that will provide X-ray equipment, an X-ray processor and a pulmonary function testing machine to the Montezuma Creek Community Health Center in Montezuma Creek, Utah."

The government had filed a complaint in the US District Court of Utah alleging "that Mobil operated unpermitted equipment, exceeded air pollution emission limits for sulfur dioxide and volatile organic compounds, failed to monitor its main flare and equipment leaks, and failed to notify the EPA that the company was demolishing its gas plant that may have contained asbestos."

(esp)

April 11, 2005 in Environment | Permalink | TrackBack (0)

Sunday, April 10, 2005

SOX Scholarship

The Buffalo Criminal Law Review has a new issue devoted to white collar crime scholarship. To start the discussion of this new scholarship it seems most appropriate to note the piece by my co-blogger, Peter Henning. Peter's piece on the Sarbanes-Oxley Act is titled, "Sarbanes Oxley Act Section 307 and Corporate Counsel: Who Better to Prevent Corporate Crime?" The article's cite is 8 Buffalo Crim. L. Rev. 101 (2004) and you can download the article from SSRN at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=642561

The abstract of the article is also available at that site, but to give a highlight.....

"The flaw in the SEC's proposed rule was that it coupled "noisy" with "withdrawal." Lawyers are not "gatekeepers" in the same way accountants have a duty to the investing public to ensure that a company conveys accurate information. . . .The Article argues that the SEC should adopt the withdrawal portion of the noisy withdrawal rule, and that withdrawal should be mandatory for both outside counsel and in-house lawyers when they become aware of corporate misconduct and the corporation refuses to take adequate remedial measures. . . ."

The rest of the articles in Vol. 8, No. 1, are as follows:

      Sara Sun Beale & Adam G. Safwat, What Developments in Western Europe Tell Us about American Critiques of Corporate Criminal Liability
      Katheen F. Brickey, Enron's Legacy
      Pamela H. Bucy, "Carrots and Sticks": Post-Enron Regulatory Initiatives
      Stuart P. Green, The Concept of White Collar Crime in Law and Legal Theory
      Roland Hefendehl, Enron, WorldCom, and the Consequences: Business Criminal Law Between Doctrinal Requirements and the Hopes of Crime Policy
      Geraldine Szott Moohr, Prosecutorial Power in an Adversarial System: Lessons from Current White Collar Cases and the Inquisitorial Model
      Bernd Schünemann, The Sarbanes-Oxley Act of 2002: A German Perspective

      (esp)

April 10, 2005 in Scholarship | Permalink | TrackBack (0)

AIG- It Touches Many

Yes, more on AIG - get used to it - - this is not likely to end soon. 

But what is the effect of investigations like this one, on those around the company, even those who may not be involved in any illegal activity.  The NYTimes presents a fascinating piece this a.m. by Timothy L. O'Brien titled, "The Oracle of Omaha's Last Riddle," that focuses on Warren  Buffett.  Buffett, a proponent of corporate integrity is a witness on some AIG matters.  And the issue will be whether his name will become tainted merely because he is a witness. An interesting question, not really covered in the article, is how does a witness who may have no criminal culpability deal with investigations into basically the same matter by several different entities - in this case -   the Justice Department, the Securities and Exchange Commission and the New York AG (Spitzer).  One observation is that it will cost a lot of money - that is in attorney fees.

(esp)

April 10, 2005 in Investigations | Permalink | TrackBack (0)