Tuesday, May 24, 2005

Former Wal-Mart Executive Files Whistleblower Complaint Over Termination

Jared Bowen, a former vice-president at Wal-Mart, has filed a whistleblower complaint with the Department of Labor over his termination by the company in late March, which he claims was in retaliation for disclosing expense-account abuses by former executive and board member Thomas Coughlin.  The company reported to the U.S. Attorney in March that Coughlin had submitted false invoices for up to $500,000, and there is a grand jury investigation of Coughlin.  Just to complicate matters, Coughlin's attorney has hinted that the funds were used to make secret payments to union officials for information about organizing drives involving Wal-Mart employees (see earlier post here).  Bowen asserts that he reported two instances of improper billing by Coughlin, but was terminated because he failed to report a third instance of misconduct involving Coughlin and that there was a "loss of confidence" in him. 

Section 806 of the Sarbanes-Oxley Act created protections for employees of publicly-traded companies who report misconduct involving fraud (18 U.S.C. Sec.1514A here).  The provision provides the following remedies:

(1) IN GENERAL- An employee prevailing in any action under subsection (b)(1) shall be entitled to all relief necessary to make the employee whole.

(2) COMPENSATORY DAMAGES- Relief for any action under paragraph (1) shall include--

(A) reinstatement with the same seniority status that the employee would have had, but for the discrimination;

(B) the amount of back pay, with interest; and

(C) compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorney fees.

(ph)

May 24, 2005 in Civil Enforcement, Fraud, Investigations, Statutes | Permalink | TrackBack (0)

An Independent Counsel Probe Mimics the Energizer Bunny

Who among us really misses the independent counsel statute?  An earlier post (here) discussed a D.C. Circuit case involving a former lower-level administrator at the White House who got caught up in the travel office investigation, a minor sideshow in the Whitewater investigation, and sought attorneys fees under the statute.  At least that investigation has ended, but it seems that the IC investigation of former HUD Secretary Henry Cisneros remains alive,  and with continuing support from Congress it may keep going, and going . . .  According to an AP story (here), a move to terminate funding for the investigation was killed in a closed-door Senate negotiation, which allows Independent Counsel David Barrett to remain on an investigation in which the initial target (Cisneros) entered a guilty plea to a misdemeanor in 1999 (he paid a $10,000 fine) and was pardoned in 2001, arising from lying to the FBI about payments made to a mistress.  Barrett estimates that it will take at least another ten months, and possibly longer, to complete the investigation and issue a report.  How has it taken so long, you might ask?  Well, the Wall Street Journal had reported back in 2000 that Barrett expanded his investigation to cover possible obstruction by the IRS and DOJ of the Cisneros investigation at the instigation of the Clinton White House, but not much has been heard recently (see National Review article here).

Barrett was appointed on May 24, 1995, so this is his tenth birthday, which I suspect is the record for the longest continuous service as an Independent Counsel -- he's been on the job longer than my youngest daughter has been around.  While being the Cal Ripken of the IC crowd is something to be proud of, one wonders how much longer the investigation will remain open, especially after the government's expenditures on it have exceeded $21 million and not much seems to have come out over the past couple years.  Nevertheless, Robert Novak had an article earlier this month (here) proclaiming that Barrett's report contains blockbuster information about IRS efforts to obstruct the Cisneros investigation, something likely to draw a yawn from most. (ph)

May 24, 2005 in Corruption, Government Reports, Investigations | Permalink | TrackBack (0)

Boies at the Center of Two Cases

David Boies, one of the best known litigators in the country (Bill Gates and Gen. William Westmoreland are among his former opponents), is involved in two high-profile corporate crime cases, but in different roles.  In the prosecution in New York Supreme Court of former Tyco CEO Dennis Kozlowski and CFO Mark Schwartz, Boies testified on behalf of the government about the lack of documentation for $37 million in loans to the two defendants that were foregiven by the company.  Boies and his law firm, Boies, Schiller & Flexner, conducted the internal investigation of Tyco's finances after Kozlowski was fired as CEO.  A Wall Street Journal story (here) discusses the closing arguments in the retrial, including the comment by Schwartz's attorney describing Boies as the "$45 million man" for the fees charged to conduct the internal investigation.

On of Boies' current clients is former AIG CEO Maurice Greenberg, who is at the center of the government's investigation of improper accounting for reinsurance transactions and other problems at AIG.  Greenberg asserted the Fifth Amendment rather than testify before federal and state investigators, and is likely the prime target of the criminal investigations, although it is an open question still whether he will be charged with any crimes.  Look for Boies to take a leading role in arguing that his client made reasonable accounting decisions, a point already made by Greenberg in a letter to AIG's board after it disclosed the conclusions of an internal investigation that included statements regarding former management, i.e. Greenberg among others (see earlier post here). Boies is sure to have had a hand in the drafting of that missive, and in shaping Greenberg's response to the various government investigations. (ph)

May 24, 2005 in Celebrities, Defense Counsel | Permalink | TrackBack (0)

Corruption Inquiry Into Spokane Mayor Will Be Conducted By U.S. Attorney for Western District of Washigton

A brief announcement (here) from the U.S. Attorney's Office for the Western District of Washington states that the office will conduct the investigation of controversial Spokane Mayor Jim West after the Eastern District USAO recused itself from the case.  The investigation concerns possible violations of federal anti-corruption laws by West for offering city jobs and appointments to young men he met in on-line chat rooms.  An article in the Spokane Spokesman-Review (here) discusses the investigation, including the appointment of one person to the city's Human Rights Commission who had a relationship with West. (ph)

May 24, 2005 in Corruption, Investigations, Prosecutions | Permalink | TrackBack (1)

Monday, May 23, 2005

Movie Review

Christine Hurt on the Conglomerate blog (a very worthwhile read) has a review (here) of the movie Enron: The Smartest Guys in the Room, along with an interesting commentary interchange with John Steele (including reference to Body Heat, perhaps the only movie that hinges on the Rule Against Perpetuities).

May 23, 2005 in Media | Permalink | TrackBack (0)

Prosecutor Pleads Guilty to Identity Theft

Former Washtenaw (Michigan) Assistant County Prosecutor Charles Carpenter entered a no contest plea to identity theft related to obtaining a credit card in his disabled mother's name and stealing money from her.  Carpenter, who had been charged originally with five felonies before the plea, joined the prosecutor's office in 2000 after moving to Michigan from Tennessee, where he also worked as a prosecutor.  Carpenter was sentenced to two years probation and switched to being an inactive member of the Michigan bar, although that will not prevent the imposition of sanctions -- possibly disbarment -- by the Michigan Attorney Disciplinary Board.  An article in the Ann Arbor News (here) discusses the case. 

May 23, 2005 in Fraud, Prosecutions, Prosecutors | Permalink | TrackBack (0)

Another One Rides the Fifth Amendment Bus

Former General Re CEO Ronald Ferguson asserted his Fifth Amendment privilege rather than testify in the SEC and DOJ investigation of AIG-General Re reinsurance transactions, and promptly lost his consulting contract with Berkshire Hathaway.  Ferguson was CEO of General Re when Berkshire Hathaway acquired the company in 1998, and left that position in 2001 when the company suffered substantial underwriting losses.  A press release issued by Berkshire Hathaway (here) states that Ferguson had been subpoenaed to testify in the investigation. He now joins, among others, former AIG CEO Maurice Greenberg and former AIG CFO Howard Smith as one of the senior executives to have invoked the Fifth Amendment to resist answering questions in the investigation.  As discussed in an earlier post (here), New York Attorney General Eliot Spitzer's office is conducting a grand jury investigation that has already heard from one AIG executive, Joseph Umansky.  The pace is quickening as another one rides the Fifth Amendment privilege bus. (ph)

May 23, 2005 in Fraud, Investigations, Securities | Permalink | TrackBack (0)

NASD Funds Study About Why Investment Scams Target the Elderly

A story in the North County Times (San Diego) discusses the NASD's funding of a study to analyze why the elderly are the targets of investment scams.  George  Chamberlin sums it up (here): "I could have saved these guys a lot of money. The reason the elderly are targeted for investment scams is the same reason that Willie Sutton said he robbed banks: That's where the money is."  I'm always leery of criticizing studies based just on the title, and there is certainly value in determining whether there are particular schemes or pitches that work well on the elderly.  That said, scam artists focus on the elderly because of particular vulnerabilities of many of them, such as isolation and a lack of access to unbiased financial (and legal) advice; pressures from living on a fixed income in the face of increasing costs (especially medical and prescription costs), a lack of investing experience, and susceptibility to high-pressure sales tactics.  These traits are not exclusive to the elderly, and many scams also target immigrants and religious groups (the latter particularly fall prey to appeals based on trust of a fellow church member).  The elderly are like banks because they do have assets, and as the baby boomers age, the schemes targeting those near retirement age and the newly-retired will only increase.  Let's hope the NASD is investing its research dollars well. (ph)

May 23, 2005 in Fraud, Government Reports | Permalink | TrackBack (0)

Lawyer Representing Former Executive in Criminal Case Removed for Conflict Arising From Prior Representation of Corporation

Former Westar Energy executive Douglas Lake, who will be retried along with former Westar CEO David Wittig, lost a member of his defense when the U.S. District Court Judge Julie Robinson disqualified Nick Badgerow on conflict of interest grounds.  Badgerow represented Westar in 2003 in litigation that came up in the first criminal trial, which involves various fraud and conspiracy charges related to alleged looting of corporate assets by Wittig and Lake.  Although Badgerow claimed there was no conflict, and Lake waived any conflict arising from the prior representation (see earlier post here), the court agreed with the government and found that there was a sufficient potential conflict to require Badgerow's removal. An article in the Business Journal of Kansas City (here) discusses the disqualification.

May 23, 2005 in Legal Ethics, Prosecutions | Permalink | TrackBack (0)

Sunday, May 22, 2005

Everything in Birmingham, Alabama Isn't Scrushy

While the jury will continue to deliberate on the charges pending against Richard Scrushy, after questioning the judge as to what happens if they all can't agree (see AP in Birmingham News here), another case has concluded.  This case involved charges against two former HealthSouth employees and the verdict was Not Guilty.   

The case against these two former HealthSouth executives included charges under the Foreign Corrupt Practices Act (FCPA) and related to a contract in Saudi Arabia.  The "not guilty" verdict was found despite the testimony of two individuals who testified under terms of a plea agreement they entered. (see here). 

Reporter Michael Tomberlin of the Birmingham News reports  that the "jury determined the money paid . . . could have been due to a legitimate consulting contract, as the defense had argued."   

The FCPA includes several affirmative defenses that allow the defense to present arguments such as the payments being legal in the country where made, or that the payments were "reasonable and bona fide expenditure[s]."

(esp)

May 22, 2005 in HealthSouth | Permalink | TrackBack (0)

Keep Politics Out Of Courts

The trial of fundraiser David Rosen (fundraiser for Hillary Clinton) has not been going very well for the government.  According to the NYTimes, here, the  judge is considering tossing out one of the counts in the case. The other counts sound like they also have significant issues for the government. One has to wonder how well the government investigated this case prior to bringing it before the court. (Could politics have played a factor here?  see our post here, and one website post has even lowered to criticizing the judge here).

The essence of the case is that Rosen is alleged to have failed to report the appropriate amounts of the fundraiser on election reports.  The problem for the government is, that it seems these may have been the amounts that Rosen was told by other individuals.  Rosen may have also had nothing to do with one of the election filings. There are also possible venue issues here.  The indictment and our previous comments on the case are here.

(esp)

May 22, 2005 in Prosecutions | Permalink | TrackBack (1)