Tuesday, April 26, 2005
The internal investigation of American International Group Inc. keeps turning up more problems, according to a New York Times article (here). Although the internal investigation is not yet complete, and the regulators and prosecutors are far from wrapping up their many probes, there is evidence that AIG's internal controls were easily evaded, and the company hid its control of at least two off-shore reinsurance companies, identified as Union Excess (Barbados) and Richmond Re (Bermuda). The company has until May 2 to file its annual report, which has already been delayed from mid-March and could be put off even further, although there would be a remote risk of delisting from the New York Stock Exchange if the delay becomes much greater. Speculation about the size of the charges arising from the various accounting problems uncovered has ranged as high as $8 billion from earlier estimates of $2.7 billion. The heat on former AIG executives to cooperate in the government's criminal and civil investigations is sure to increase once the internal review is completed and the regulators and prosecutors take center stage. (ph)
Arthur Andersen LLP appears to be nearing the end of its run as a litigant, perhaps its final acts as a legal entity. Tomorrow, the Supreme Court concludes its oral argument schedule for the 2004 Term with Arthur Andersen v. United States (earlier post here). The Andersen Reply Brief filed last week is available here, and the fight concerns the proper interpretation of "corruptly" under 18 U.S.C. Sec 1512. Today, Andersen was the final defendant to settle in the WorldCom securities fraud class action litigation that has resulted in payments by investment banks and Worldcom's former directors of over $6 billion (earlier post here). According to a Wall St. Journal article (here), Andersen agreed to pay $65 million, plus 20% of any funds paid out to its U.S. partners after the partnership is finally wound up. No indication in the settlement documents how much that could be, and there is a chance it could be a multiple of zero. Even a reversal of the criminal conviction, which would probably be the end of the criminal case because the government is unlikely to retry the organization, will not bring Andersen back. A sad end to a once-great name, at one time the best of the Big Eight accounting firms for those who remember back that far. (ph)
The National Association of Criminal Defense Lawyers (NACDL) recently conducted a survey that demonstrates that the attorney-client is definitely under attack. The results of the survey can be found on the NACDL website here.
The results are shocking to say the least. For example, one revelation of this survey is that " 87 percent of lawyers said that attorney-client privilege or work-product has recently been challenged; a shocking 25 percent by federal prosecutors, 15 percent by federal regulators, and 16 percent by an opposing party in civil litigation."
The executive summary of the survey also demonstrated that
"More than 47 percent of outside counsel surveyed indicated that their clients had personally experienced an erosion in the protections offered by the privilege and work product doctrine after Enron. These respondents were asked to describe their experiences; approximately 130 text responses were received. An overwhelming number of respondents—approximately 85 percent—reported that DOJ and the SEC frequently require "discussions" of waiver as part of "settlement" negotiations—in other words, in deciding whether to charge a company, accept a plea, or settle civilly. Lawyers reported: (1) that the results of internal investigations are routinely demanded; (2) that individuals are less forthcoming as a result; (3) that indemnification for legal bills and joint defense agreements are a thing of the past; and (4) that the climate is such that waiver is often offered before it is requested—at the cost of individual employees. "
This survey demonstrates the devastating effect of the erosion of the attorney-client privilege in the white collar context.
An attorney has contacted this blog looking for input on this topic:
Have you had a case where the government gave federal "use" immunity to a witness, who happens to be an attorney, and then proceeded to turn the testimony of the witness over to a bar disciplinary committee? Is it fair play?
1. Should the government be required to notify the attorney-witness of this possibility prior to their testifying?
2. Does it make a difference that the immunity is being offered in a different forum?
3. Does it make a difference if it is the same DOJ attorney giving the immunity and then submitting the testimony to the bar?
4. Should attorneys be skeptical about client attorneys testifying as grand jury witnesses if their conduct, although not criminal, may have ethical implications to their licenses?
Any thoughts that can be shared with others? - email@example.com
Maybe it is just that working on this blog has caused me to pay more attention to convictions, sentencings, etc., but does it seem that more lawyers are getting sent to jail? Here are two more who will enjoy time in FCI's:
(1) Stephen Alexander, an attorney and former major of Azusa, CA, was convicted of filing a false tax return for failing to report $200,000 of income (USAO press release here).
(2) Robert Claire of Boca Raton, FL, was sentenced to a 36-month term of imprisonment for embezzling $1.65 million from the estate of a client to prop up a company he operated, which of course eventually collapsed (USAO press release here).
Monday, April 25, 2005
The so-called "Booker-fix" found in HR 1528 is not going unnoticed. Doug Berman in his extraordinary sentencing blog has been discussing it at length including his mention of the United States Sentencing Commission opposition here.
But more are speaking out in opposition to this bill. The ABA has sent a list of pointers expressing opposition to the bill (Download hr1528_bullet_points.pdf) You have a long list of former United States Attorneys who signed a letter expressing opposition ( Download hr1528_former_usadoj.pdf ), and also now a list of influential business people expressing opposition (Download business_letter_re_hr_1528_1.pdf). The individuals from the business community state in part:
"the federal criminal laws exert substantial influence over the nation’s economy and the conduct of U.S. commerce. Congress certainly recognized this through passing legislation such as Sarbanes-Oxley to encourage certain kinds of corporate executive behavior and discourage inappropriate and illegal behaviors. Before you begin any effort to re-legislate criminal sentencing, we strongly urge you to take the time and steps necessary to gather data from the business community regarding the current sentencing system and its ability to influence meaningfully the corporate behaviors that the Sentencing Guidelines are intended to affect. We suggest that as a part of that process, you should receive expert input from a wide range of sources, including the business community, regarding the likely impact of any new proposal."
And signing this letter to Sensenbrenner and Conyors are far from the typical groups one finds in opposition to sentencing issues. They are:
U.S. Chamber of Commerce, National Petrochemical and Refiners Association, Association of Corporate Counsel, American Chemistry Council, Business Civil Liberties, Inc. and the Corporate Environmental Enforcement Council.
It sounds like Congress should listen.
AP just reported that the San Diego Mayor is going to step down. The timing is perhaps curious as a federal investigation is going on there. One has to wonder whether 1) someone is fingering him; 2) he is talking about others; 3) information is implicating him; or 4) whether the former judge is sick of having to deal with all the issues surrounding the city. Or just maybe it has nothing to do with the federal probe. Only time will tell. (see AP wires on Newsday for details).
Head of the DOJ Criminal Division, Christopher Wray, is leaving the Department of Justice to return to the law firm of King and Spaulding. According to the Atlanta Journal Constitution, Chris Wray was the youngest chief of the Justice Department's criminal division since the Kennedy administration. According to his DOJ bio:
"Christopher A. Wray was nominated by President George W. Bush on June 9, 2003, and confirmed by the U.S. Senate on September 11, 2003, as the 33rd Assistant Attorney General in charge of the Criminal Division. Prior to leading the Division, he was appointed by Attorney General John Ashcroft as the Principal Associate Deputy Attorney General in September 2001. Chris served as Deputy Attorney General Larry Thompson's ranking deputy, having joined the Department as Associate Deputy Attorney General in May 2001. From 1997 to 2001, Chris was an Assistant U.S. Attorney for the Northern District of Georgia in its Criminal Division. As a prosecutor in Atlanta, Chris handled a variety of federal cases and investigations, including securities fraud, public corruption, racketeering, murder-for-hire, arson, bank robbery, gun trafficking, counterfeiting, immigration, and others. Before joining the U.S. Attorney's Office, Chris practiced law in the Atlanta, Georgia office of King & Spalding, where he focused on white collar crime, complex civil litigation, and internal corporate investigations. He also served as a law clerk to Judge J. Michael Luttig of the U.S. Court of Appeals for the Fourth Circuit from 1992 to 1993. Chris graduated cum laude from Yale University in 1989 and received his law degree in 1992 from Yale Law School, where he served as Executive Editor of the Yale Law Journal."
Chris Wray will become the head of "special matters" at King and Spaulding. (see more in the Atlanta Jrl Constitution here).
The NYTimes reports here that David N. Kelley will be leaving as US Attorney for the Southern District of New York. It was this office and his administration that prosecuted cases such Martha Stewart, Bernard Ebbers, and Lynne Stewart.
Doug Berman on Sentencing Law & Policy has some interesting thoughts here (he has invited comments) on the conflicting plain error approaches of the circuit courts regarding sentences handed down before Booker in which defense lawyers did not have their crystal balls properly aligned to anticipate how to preserve a sentencing objection. Doug writes:
In some sense, the future development of plain error serves as an interesting test case for the true importance of national sentencing uniformity relative to other goals and interests. Federal defendants are, because of the different circuit plain error rules, clearly receiving unequal justice in the wake of Booker. But, though the consequences of unequal justice may be quite significant for individual defendants, the consequences may not be so profound for the entire system to merit Supreme Court correction. (It is interesting to speculate whether and how other institutions, such as Congress or the US Sentencing Commission, might intervene to clean up the plain error mess. But this would be pure academic speculation because, to my knowledge, neither body is inclined to address this issue in any way.)
In one sense, lamenting inconsistent plain error rulings is like complaining about the weather -- everyone does it because it's so unpredictable. The four-step test for plain error adopted by the Supreme Court in Olano and Johnson gives circuit courts two outs, if you will, to avoid granting a remedy: the error must affect "substantial rights," an undefined category, and that error must affect the "fairness, integrity, or public reputation of judicial proceedings," which strikes me as something akin to the Chancellor's boot. If you read enough plain error cases -- which is like plunging sharp needles into your eyes after a while -- one thing that becomes apparent is the aversion of circuit courts to granting new trials for errors that, while significant, should have been noticed and addressed much earlier in the process. It is as if the defendant is punished for the sins of counsel who did not call the error to the lower court's attention earlier, and appellate court's just don't like to grant a drastic remedy in that situation except in egregious cases (how's that for a clear standard).
What makes the sentencing cases different, and one reason why the hard line taken by the Eleventh Circuit is so problematic, is that the remedy is quite modest compared to the usual case requiring a new trial. The new sentencing proceeding could be as simple as a one line order from the district court: "Upon due consideration of all relevant evidence and circumstances, the prior sentence is affirmed." No need even for the defendant to be present, and perhaps not even a round of briefing from the two sides. Unlike other changes in constitutional interpretation that can result in convictions being overturned, Booker's revolutionary aspects are much more important for the future while the effect on past cases is not particularly drastic, at least with regard to requiring extensive new judicial proceedings. (ph)
Arthur Andersen's appeal of its obstruction of justice conviction in the Supreme Court will be argued this week, and as discussed in this excellent post on the SCOTUS Blog (here), the first team will be speaking to the court: Maureen Mahoney from Latham & Watkins and Michael Dreeben from the Solicitor General's office. SCOTUS Blog notes the rhetoric of the parties in their briefs:
At bottom, though, the rhetoric the parties employ tells the whole story. Andersen characterizes its conviction as an example of creative government lawyering that, if allowed to stand, will criminalize “common conduct undertaken without any consciousness of wrongdoing.” The government, in stark contrast, portrays Andersen’s response to Enron’s downfall as a unique and calculated attempt to convince its “employees to lay waste to vast troves of documents when a government investigation [was] viewed as highly probable.”
A good article from Legal Times, available on Law.Com (here), discusses the view of corporate counsel on the case.
My predictive abilities are worse than a coin toss, but I doubt there will be a unanimous opinion from the Court because the lower courts have struggled to explain "corruptly" in any coherent fashion. It is a term that defies any easy definition, and often opinions discussing the term say little more than "corruptly means to act corruptly." (ph)
Sunday, April 24, 2005
CNN reports here that the US Probation Department plans to investigate whether Martha Stewart violated her "house arrest" by attending a Time Magazine dinner in which she was honored. Several things are noted here:
1. What more can an individual do who is on probation/house arrest then seek approval of places they think they should attend as work related? According to the CNN article, Martha Stewart did that here.
2. Why is someone having the probation department investigate her attendance? Don't they have better things to do with their time? Or is someone unhappy that Martha Stewart is getting so much favorable press despite the conviction on the government charges?
3. This is a perfect example of how white collar individuals are different. What is considered "work-related" to some may not be to others. In the corporate setting, a person's name may be the trade name that serves as the goodwill for the company. Does Martha Stewart need to be "seen" and "heard from" to let people know that the company is surviving fine despite the conviction setback?
4. Would Martha Stewart just be better off staying at home until the house arrest period is over? Because of the high-profile nature of this case, the fact that some people are unhappy that she continues to get favorable press, maybe she would be better off just staying clear until the time period runs. It is obvious that people are scrutinizing every move she makes, so maybe this is a good time to lay low.
Addendum: Also see the comments of Doug Berman on his Sentencing Blog here.
The Washington Post presents a very compelling article here on who paidd for Rep. Tom DeLay's trip in 2000 to Scotland and England. They even seem to have the documentation in that the article states,
"The documents obtained by The Washington Post, including receipts for his hotel stays in Scotland and London and billings for his golfing during the trip at the famed St. Andrews course in Scotland, substantiate for the first time that some of DeLay's expenses on the trip were billed to charge cards used by the two lobbyists."
Several interesting things here:
1) Why is a newspaper doing the investigation as opposed to the law enforcement or others; and if others are investigating why is it taking so long - the alleged year is 2000?
2) Are we talking possible ethics violations, or could criminal charges be considered here? 18 USC 1346, the "intangible right of honest services," permits mail and wire fraud charges merely on a material, intentional, deprivation of honest services that uses an "interstate carrier," the mails, or the wires. It's an absurd statute that permits prosecutors incredible breadth to charge conduct that might normally not be considered criminal - conduct that is merely unethical. Although, some judges have appropriately dismissed prosecutorial charges that have been premised on mere unethical behavior.
3) The Washington Post states regarding DeLay that, "[h]e has also said he had no way of knowing that any lobbyist might have financially supported the trip, either directly or through reimbursements to the nonprofit organization." The "ignorant CEO defense"?
4) If it had occurred in NY would Spitzer be investigating it?
Three major trials are forthcoming in Georgia, all premised on alleged public corruption activity. The first is scheduled to start this coming Monday. The trial of Robin Williams, "Republican state lawmaker" is first up, followed by Charles Walker "Democratic state House member and senator" and then Linda Schrenko former "Republican state superintendent .... and unsuccessful candidate for governor." Reporter James Salzer provides an overview of these three upcoming trials here in the Atlanta Journal Constitution.