June 18, 2005
Another Two Cents on the Kozlowski/Swartz Guilty Verdict
I figured I'd throw in my two cents (and I'm rounding up on the value) about the convictions of former Tyco CEO Dennis Kozlowski and CFO Mark Swartz. First, a question I heard on two news programs as I was flipping the channels was, "How will this verdict affect the Scrushy prosecution?" Not one iota, I hope. I doubt that the jurors in Birmingham, who have been locked up with each other going on four weeks, will somehow take their cue from the decision of twelve Manhattanites and return a guilty verdict -- or even a not guilty verdict to prove that they are not like all those nasty New Yorkers. While the Kozlowski case may have a "broader meaning" along with the Scrushy prosecution -- both men were CEOs with healthy egos, even for that group -- the conviction in the case has little to do with other pending prosecutions. One case it could have an impact on, at least conceivably, is the Enron conspiracy trial (Lay, Skilling, and Causey) scheduled for next January. This conviction, along with the sentencings of John and Timothy Rigas next week and Bernie Ebbers next month, could move one of the defendants in Houston to switch sides, especially if the sentences are substantial. A 5K1.1 motion, even in an advisory Sentencing Guidelines world, could be mighty enticing.
Second, one interesting point about the retrial is that the conventional wisdom is a retrial favors the defendant because defense counsel gets a preview of the government's case. That may be true in street crime cases, in which the limited discovery and use of confidential informants can result in real surprises at trial. I don't think that is so much the case in a white collar prosecution, where the basic transactions are set forth in the indictment and the documentary evidence is (usually) available to the defendant, who must wade through the morass of documents obtained by the grand jury or in a broad search of a business (especially computer files). The cases are more about interpreting the reams of documents and sparring over how to interpret regular business records. A key piece of evidence against Kozlowski was the W-2 that did not include $25 million in compensation, and whether he happened to notice it (it's a common mistake, one I make with alarming regularity). That document was known to both sides long in advance, and its importance was not somehow highlighted at the first trial. Indeed, the benefit of the retrial in this case appears to be to the government, which changed its focus from the more salacious aspects of the Kozlowski reign at Tyco (e.g. the Sardinian party with David providing libations) to a narrower presentation that focused on the accounting issues. The government made its case in about 25% less time (13 weeks as opposed to 18 weeks in the first trial), and kept the accounting and reporting issues front-and-center. Going technical is usually a recipe for disaster (see the Enron Broadband Services prosecution for an example of mind-numbing detail), but in this case the Manhattan D.A.'s office concentrated on what was truly important.
Finally, the defense lawyers' reaction, with the usual statments about being stunned by the verdict. The first trial appeared to end with an 11-1 vote in favor of conviction, before problems related to possible threats made to the holdout juror brought the deliberations to a quick end. This jury returned a guilty verdict on 21 out of 22 counts. You've got to put the best face on the conviction, but does anyone really believe these statements? The case moves to the next stage, regardless of the obligatory sound bites from both sides ("equal justice" proclaimed by Morganthau) that make the lawyers sound like shills. Sentencing is set for Aug. 2, although I doubt whether the court will be able to keep to such a tight schedule, what with vacations and other complications. (ph -- and don't ask for change)
Determining the Reasonableness of an Upward Departure in a Fraud Case
The Sixth Circuit's decision in U.S. v. Meeker (here) involves an upward departure by the district court for a fraudulent scheme by an investment adviser who took advantage of long-time clients. Meeker had operated a tax service when he began soliciting clients to invest in conservative securities, gathering approximately $5.1 million. Rather than invest the money, Meeker spent it on gambling, some bad investments, and an attempt to keep his business afloat -- as described by Meeker, he began to "rob Peter to pay Paul." Meeker eventually entered a guilty plea to mail fraud and interstate transportation of stolen property, and under the Sentencing Guidelines his offense (with a loss of $3.8 million) put his sentence at 51-63 months. Right before the sentencing, U.S. District Judge David McKeague notified the parties that he planned to consider an upward departure based on the defendant's conduct that threatened the solvency of his victims and caused them great emotional distress. The judge imposed an 84-month term of imprisonment, based on approximately 30 letters he received from the victims describing the financial ruin Meeker's scheme caused them -- 26 of which were not disclosed to the defendant.
Under the Sixth Circuit's approach to Booker plain error in U.S. v. Barnett, the case will be remanded to the district court for resentencing. Along the way, the Sixth Circuit discussed whether an upward departure to an 84-month prison term fell outside the range of reasonable sentences -- the new appellate standard of review -- in comparable white collar crime cases. The court stated:
The sentence imposed by the district court in the present case is also in line with sentences imposed for similar crimes within our circuit. Like Meeker, the defendant in United States v. Benskin, 926 F.2d 562, 563 (6th Cir. 1991), employed a fraudulent investment scheme that "preyed on private citizens, not corporate investors" and resulted in losses of over $3 million. Benskin received a 70-month sentence for mail fraud and a consecutive 60-month sentence for securities fraud. The PSR had recommended a Guidelines range of 27 to 33 months for the latter count, but the court departed upward and sentenced him to 60 months, nearly doubling the Guidelines range. Id. at 564 (sentencing the defendant to a total term of imprisonment of 130 months). Similarly, in United States v. Dobish, 102 F.3d 760 (6th Cir. 1996), the defendant employed a fraudulent investment scheme over a ten-year period to defraud victims, including members of his own family, of over $1 million dollars. The defendant pled guilty to mail fraud, and the PSR set a Guidelines range of 37 to 46 months in prison. Id. at 761-62. Finding that the defendant had inflicted "nonmonetary harm and serious psychological injury" in "jeopardizing the victims’ solvency," the court departed upward four offense levels and sentenced the defendant to 60 months—the maximum sentence he could receive under the statute that he was charged with violating. Id. at 762.
Comparable sentences have been imposed by other circuits under similar circumstances. See, e.g., United States v. Jarvis , 258 F.3d 235, 240 (3d Cir. 2001) (upholding an upward departure under § 2F1.1, Application Note 11 where the defendant’s "victims will be forced to live their retirement years in destitution"); United States v. Hogan, 121 F.3d 370, 373 (8th Cir. 1997) (affirming the district court’s upward departure where the defendant’s victims "were at or near retirement age, relying on small, fixed incomes in conjunction with their investments"). In contrast, Meeker does not cite any authority for his claim that the sentence he received was excessive. The district court may therefore wish to consider a similar upward departure on remand, with the knowledge that such a sentence is unlikely to run afoul of Booker’s reasonableness requirement. Booker, 125 S. Ct. at 766 (setting forth a "‘reasonableness’ standard of review" for sentences imposed under the advisory Guidelines system).
If ever there was a case in which a Booker remand appears to be an exercise in futility, this is the one. The judge departed upward to impose a higher sentence, and there is little likelihood that he would give a lower sentence having been freed from the mandatory nature of the Sentencing Guidelines -- there would appear to be a chance that he might go even higher. Except . . . there's always a kicker, and the interesting one here relates to the agreement in the Senate that avoided the so-called "nuclear option" to get appellate court nominees approved. Among those whose nominations had been blocked by the fillibuster threat was none other than U.S. District Judge David McKeague, and he has since been approved by a 96-0 vote on June 9 (roll call vote here). The Judge was sworn in as a member of the Sixth Circuit on June 13, so depending on who Meeker draws on the U.S. District Court for the Western District of Michigan, he may have a shot at a lower sentence. For example, Chief Judge Bell has been known to go a little bit on the light side in white collar cases (see the decision in U.S. v. Crouse, 145 F.3d 786 (6th Cir. 1998)). Then again, will a district court judge want to lower a sentence imposed by a colleague on the same court who has been elevated to the court of appeals? (ph)
UPDATE (6/20): Peter Goldberger pointed out to me that Judge McKeague may sit by designation on the Booker resentencing consideration, in which case I think Meeker's chances of getting a lower sentence, as the old saying goes, are between slim and none, and Slim just left town. Then again, it's worth a try.
Bayly Seeks Reconsideration of the 5th Circuit's Bail Denial
Former Merrill Lynch investment banker Daniel Bayly, convicted in the Enron Nigerian Barge Trial, has sought reconsideration by the Fifth Circuit of its earlier decision to deny him bail pending appeal of his conviction, for which he received a 30-month term of imprisonment. Tom Kirkendall's Houston's Clear Thinker blog has a post about Bayly's request for reconsideration (here) that Tom finds compelling, along with a link to the defense brief, which argues:
The fundamental errors in this case begin with the government's novel and unduly creative use of an "honest services" theory in connection with the wire fraud statute. See 18 U.S.C. §§ 1343, 1346. As Bayly's motion for release shows, the honest services charge in this case permitted a criminal conviction for conduct -- the accelerated booking of gain -- that was undertaken primarily on behalf of the alleged victim (Enron), which knew every aspect of the transaction, and not for the self-interest of the alleged conspirators (see Bayly motion at 16-20). No court ever has sanctioned such a broad application of the honest services statute -- especially where, as here, no bribe or gratuity was provided to, nor were there any undisclosed conflicts of interest as to, the employees of the putative victim (Id. at 19-20). As in Andersen, the Enron Task Force in this case secured a conviction through application of an entirely unprecedented theory in a hotly-contested area of the law. . . The government does not dispute that, if our view of the limits of Section 1346 prevails, all three counts of conviction must be set aside. (footnote omitted).
After the Supreme Court's reversal in Arthur Andersen, which was a stinging rebuke of the Fifth Circuit, that court may be more amenable to appeals in white collar cases when the government seeks to push the envelope. Unfortunately, whether the same solicitousness will spill over to a bail decision, particularly a motion to reconsider an earlier denial of the request for bail, is a much closer question, and I suspect the court will not view Andersen as changing the analysis of the availability of bail after a conviction. (ph)
June 17, 2005
Perspective on the Kozlowski/Swartz Verdicts
This was without doubt a big victory for the office of Robert Morgenthau. Morgenthau, who was elected District Attorney of Manhattan in 1974, is in the midst of a hotly contested election against Leslie Crocker Snyder (see here). What does this verdict mean?
1. With 22 of 23 counts being guilty, this is not a questionable verdict. Despite the long time the jury deliberated, it would appear to be a strong verdict against the defendants.
2. Morgenthau issued a public statement saying in part that, "[t]his verdict is an endorsement of the principle of equal justice under the law; crimes committed in corporate offices will be treated according to the same standards as other crimes. No one is above the law - all crimes must be prosecuted vigorously and those responsible will be held accountable."
3. The prosecution took a different approach in this trial, presenting a leaner trial without all the extraneous items. Simple is almost always best. This was not the shower curtain show trial. See here and here.
4. Although the maximum sentences are 15 to 30 years, it appears unlikely that the defendants would receive a sentence such as this.
5. This is the second trial, as a result of a prior mistrial, and in this trial Dennis Kozlowski took the witness stand.
6. The trial took many months and therefore was costly to taxpayers.
7. The case is far from over as there will now likely be appeals. Again a further cost to taxpayers.
8.Was this form of deterrence necessary, or could civil sanctions have sent a sufficient message? - - You misuse our funds, we take away yours.
Guilty - Kozlowski and Swartz
The Wall Street Journal reports here that the jury has found Dennis Kozlowski and Mark Swartz guilty of "grand larceny, conspiracy, securities fraud and eight of nine counts of falsifying business records." See also stories of CNN here and Atl. Jrl Const. AP story here.
More comments later.
DC Trial of Teacher's Union Officials
In the capitol, a white collar trial started concerning an alleged embezzlement by former DC Teacher's Union officials. The Washington Times reports here that "[t]he three are accused of misappropriating nearly $5 million in union dues from the late 1990s to 2002 along with" another individual. This other person has plead guilty and is expected to testify during the trial against the three on trial.
The Washington Post reports here that the defense will likely include the following: I "wasn't aware of it", I "wasn't involved," and I was just a "low level employee."
(esp) (w/ thanks to Joe Parsons)
The government going after the newspaper? Not quite. But DOJ did indict three individuals for their alleged role in defrauding newspaper advertisers.
A press release of the Eastern District of New York reports here "the arrest of three former employees of Newsday and Hoy, subsidiary companies owned and operated by the Tribune Company, for their participation in multiple schemes to overstate paid circulation data in order to induce advertisers to pay millions of dollars in inflated prices for advertising fees between 2002 and 2004." (see also NYTimes story here). In a footnote the press release of DOJ notes that "[i]n October 2004, the Tribune established a reserve fund of more than $90 million to cover settlements for overcharging hundreds of its advertisers through the fraudulent schemes described below."
Applause go to the Tribune Company for stepping forward and covering the costs to victims by problems that may have occurred within their company. It sounds like this was a cost they needed to cover, and this is likely to step up internal controls within the company. But one also has to wonder if the indicted individuals received any benefit for their alleged activities, or whether the benefit was solely to the company. From the press release this mail fraud case does not sound like a situation of a company selling out their employees in order to avoid prosecution (something that seems to be happening a lot these days).
Cianci Resentencing a Non-Event
The resentencing of former Providence, RI, Mayor Vincent (Buddy) Cianci turned out to be a non-event, as Doug Berman notes on the Sentencing Law & Policy blog (here). Cianci was convicted in June 2002 on RICO and corruption charges, and sentenced to a 64-month term of imprisonment, but after Booker the First Circuit remanded the case for the judge to reconsider in light of the now-advisory nature of the Guidelines. U.S. District Judge Ernest Torres did not disturb the sentence and followed the Guidelines. Judge Torres did reduce by seven months the sentence of one of Cianci's co-defendants, Frank Corrente, who was the chief of admininstration under Cianci, but did not change the sentence of another defendant, Richard Autiello. (ph)
June 16, 2005
Tobacco - What is Happening at DOJ?
The NYTimes reports here on some of the happenings in DOJ on the tobacco case of the government. Although the complaint uses RICO, it uses the civil provisions of RICO. It sounds like the Office of Professional Responsibility is investigating the matter.
What is the Office of Professional Responsibility? Well, their web page says:
"The Office of Professional Responsibility, which reports directly to the Attorney General, is responsible for investigating allegations of misconduct involving Department attorneys, investigators, or law enforcement personnel, where the allegations relate to the exercise of the authority of an attorney to investigate, litigate, or provide legal advice."
The most recent report on this website is 2001. (see here).
Where Have All the Accounting Firms Gone
Will we one day be singing the song - Where have all the accounting firms (flowers) gone? Or will a settlement be forthcoming in the latest investigation by DOJ of KPMG. Certainly the risks are enormous for both sides -- KPMG doesn't want to end up like Andersen, and the government doesn't want more grief for the aftermath of their failed prosecution of Andersen.
KPMG issued a statement today "in regard to the ongoing Department of Justice investigation into certain tax services previously offered by KPMG." The news release here includes the following statement:
"We remain in discussions with the Department of Justice and continue to cooperate fully in its investigation. KPMG looks forward to a resolution that recognizes the significant reforms the firm has already made in response to this matter while appropriately sanctioning the firm for this wrongdoing."
For more details, see the Wall Street Jrl here.
Can Waiting for a Jury Verdict Be Cruel & Unusual Punishment
The 8th Amendment prohibits cruel and unusual punishment. But can waiting for a jury verdict ever reach that level?
Probably not, but it must seem that way to some defendants, especially those who right now have timeless days of waiting. Jury deliberations in the trial of Dennis Kozlowski and Mark Swartz have gone on for 9 days. (see Wall Street Journal here) In the case of Richard Scrushy, the deliberations have not gone all week, and often for shorter days- but total to 15 days. (see Wall Street Journal here).
The complicated nature of these white collar cases may warrant longer deliberations. After all, a discussion of 4 months of testimony and exhibits takes time.
But what about the accused who waits, and yes, their family and friends who suffer with them? If found guilty, they will wish this time of freedom went on for longer. They will cherish the moments they had together, absent walls of incarceration. And if found guilty, the suffering to them is perhaps inconsequential in comparison to what harm or damage they caused to others. Its easy here to say - they deserve it!
But what if they are found not guilty? Can they chalk this up to a life experience that makes you rethink what is really important in life, or is there no way to recoup the years lost by this experience.
Addendum - We will not be seeing a verdict today in the Scrushy trial, as they will not be deliberating. See Birmingham, Alabama News here.
June 15, 2005
Bristol-Myers Squibb Agrees, 2 Execs Get Indicted, and Seton Hall Gets A Chair
A DOJ News Release reports that:
"Bristol-Myers Squibb Company (BMS) has agreed to pay an additional $300 million in restitution and undertake a series of corporate reforms as part of an agreement with the government to defer prosecution on a charge of conspiring to commit securities fraud for the company's failure to disclose its 'channel-stuffing' activities in 2000 and 2001"
Copy of Deferred Prosecution Agreement here.
Copy of Complaint here.
In the same announcement, however, we see two employees being indicted. In this case "a former senior vice president and chief financial officer" and "former executive vice president" and "president of its Worldwide Medicines Group."
So what kind of deal did the company secure? The deferred prosecution agreement includes usual terms like an agreement to:
"Cooperate fully with the U.S. Attorney's Office in its ongoing investigation;"
But it also has some other terms, that may not be as common, namely:
"Requiring BMS to endow a chair at Seton Hall University Law School dedicated to the teaching of business ethics and corporate governance, which position shall include conducting at least one seminar on business ethics and corporate governance annually that members of BMS' executive and management staff may attend, as well as other corporate executives."
Student Convicted in Computer Crime Case
A University of Texas student was convicted for computer hacking into his school's system. A press release for the U.S. Attorney's Office for the Western District of Texas states:
"After deliberating for approximately five hours beginning this afternoon, the jury found that in January, February and April 2002, Phillips attempted to breach the security of hundreds of computer systems including the University of Texas’ web-based computer system. University officials and others detected Phillips’ actions and University officials subsequently warned him not to further attempt to breach any computer security system. On January 30, 2003, Phillips created a new computer program to breach the security of or "hack into" a protected University of Texas computer system that he did not have authorized access to in order to discover the names and social security numbers of individuals in the UT computer system. He subsequently used this computer program to steal over 37,000 names and social security numbers of individuals in the University of Texas computers via the TXCLASS system. In doing this, he caused massive failures that shut down the TXCLASS computer system as well as the UT system’s web-based server and all of its applications. Previously, in 2002, Phillips was successful in stealing approximately 8,000 names and Social Security numbers from the University’s system. As a result of these damages, the University suffered losses of approximately $122,000 and another $60,000 in losses was incurred by UT to warn individuals whose names and social security numbers were stolen by Phillips about potential identity theft."
An article in the Chronicle of Higher Education here (subscription required) paints a somewhat different picture in noting that the student stated,
"It just wasn't in my mind-set that this kind of thing was going to have this sweeping effect. I was just doing my programming."
Mens rea was also an issue in the first appellate reported computer crimes case. Although not a hacking case, the case of United States v. Morris had the issue of whether the intent element was met when the accused did not intend to cause damage. The Second Circuit interpreted the statute finding the defendant criminally liable.
Students need to be made aware of the ramifications of using their computer skills in ways that violate the law. Perhaps the best punishment that could be issued here would be to have this individual lecture on college campuses on what can happen when you fail to follow the law in using your computer.
Convictions in Second Philadelphia Corruption Trial
A second corruption trial in Philadelphia arising out the FBI bugging of Mayor Street and those with close ties to him resulted in a guilty verdict on most charges for the principal defendant, Imam Shamsud-din Ali, and businessman John Johnson, and an acquittal for attorney John Christmas, a former aid to the Mayor's chief of staff. Last month, former City Treasurer Corey Kemp and four other defendants were convicted of corruption and perjury charges. The government charged the Imam, a prominent Muslim cleric and long-time supporter of the Mayor, with RICO and fraud counts related to fraudulent schemes to obtain money from government programs that went to his personal use; Johnson was charged with extortion and attempted extortion related to one of the schemes. Interestingly, Christmas was the only defendant to testify at trial, and the only one acquitted of all counts. A Philadelphia Inquirer story (here) discusses the verdicts. (ph)
Bank of America Agrees to Pay $1.5 Million Civil Penalty for Failure to Preserve E-Mails
E-mails have played an important role in a number of cases, from the prosecutions of Frank Quattrone and Arthur Andersen to the broker analysts conflict-of-interest settlement. Brokers are required to maintain e-mails for three years, and Bank of America agreed to settle an SEC administrative proceeding finding that the company (through two investment adviser arms, Banc of America Investment Services and BACAP Distributors) failed to preserve e-mails from January 2001 through February 2004. According to the Cease-and-Desist Order (here):
In administering the software system that allowed for retention of electronic mail communications, Respondents failed to ensure that the software system captured all electronic mail for the required employees and associated persons. For example, when Respondents hired new employees, or transferred employees to a location with a different computer server, Respondents often did not take steps to ensure that the electronic mail retention software captured the electronic mail of the newly hired or transferred employee. As a result, Respondents failed to retain electronic mail communications of a significant number of employees and associated persons during the relevant time period. Although Respondents knew that the software system had not retained electronic mail communications for all required employees and associated persons, Respondents did not adequately address the deficiencies in their administration of the software system to ensure retention of electronic mail communications prior to February 2004.
Bank of America paid a $10 million fine in March 2004 for failing to produce documents and e-mail to the SEC in an investigation of possible illegal trading at the firm (order here), and the current proceeding arises out of problems with obtaining e-mail that first arose in an SEC investigation. Preserving e-mails is vital for companies these days -- just ask Morgan Stanley about the problems a failure to produce them can cause, to the tune of an $850 million punitive damages award. (ph)
Australian Law Firms Searched
Mark Godsey at Crimprof has a post here of a story from the Austrialian titled, "Law Firms Raided in Tax Fraud Blitz," telling how several prominent law firms in Austrialia were searched in an investigation into an alleged international tax fraud scheme.
JP Morgan Joins the Enron Settlement Bandwagon
As expected (see earlier post here), J.P. Morgan Chase & Co. entered into a settlement in the Enron securities fraud class action by agreeing to pay $2.2 billion, which tops the $2 billion paid by Citigroup last week. Together with its settlement in the WorldCom class action earlier this year, J.P. Morgan has now paid $4.2 billion to extricate itself from the private securities fraud suits this year. [Update: Thanks to Bruce Carton for helping me keep my Morgans straight.]
Among the remaining defendants in the Enron suit with some pretty deep pockets are Merrill Lynch, Credit Suisse First Boston, Barclays, and Royal Bank of Scotland. Individual defendants in the securities fraud action include former Enron CEOs Ken Lay and Jeff Skilling, who are scheduled to go on trial in January 2006 in the criminal prosecution, so they certainly have much more important business to deal with at this time. An AP story (here) discusses the J.P. Morgan settlement.
Former MassMutual CEO Subject of State Criminal Investigation
The Wall Street Journal reports (here) that former MassMutual Financial Group CEO Robert O'Connell, fired by the company last week for "willful malfeasance" related to self-dealing and other alleged improprieties, is now the subject of a criminal investigation by Massachusetts Attorney General Thomas Reilly. O'Connell denies that he acted improperly, but a criminal investigation will make it much more difficult for him to respond to the termination if he chooses to fight it. As a mutual insurance company, MassMutual is subject to regulation by the states, and it is not a publicly traded company so the SEC does not have direct jurisdiction over it, although its Oppenheimer Funds unit and other investment adviser subsidiaries are subject to the federal securities laws. As an insurance company, it is more likely the U.S. Attorney's Office will defer to the state prosecutors unless there are improprieties outside Massachusetts that might create jurisdictional or evidence-gathering problems for state investigators. (ph)
June 14, 2005
SEC Bumps Up OfficeMax Case to Formal Investigation
OfficeMax announced that the SEC notified the company that an informal investigation into its accounting practices related to vendor payments has now become a formal investigation (press release here). OfficeMax disclosed in December 2004 that it was conducting an internal investigation "into claims by a vendor to its retail business that certain employees acted inappropriately in requesting promotional payments and in falsifying supporting documentation for approximately $3.3 million in claims billed to the vendor by OfficeMax during 2003 and 2004." (See 8-K here) In February 2005, its CEO, Christopher Milliken, resigned because of an expanding internal investigation that raised questions about the proper accounting for other vendor payments. While the internal investigation has been completed, the SEC's upgrade of the investigation means that the Division of Enforcement staff now has subpoena power to compel the production of documents and witnesses.
The issuance of a formal order is often a signal that the Commission staff views the case as one requiring the availability of broader compulsory powers so that it can obtain financial records and other evidence to complete the investigation and usually means it will take longer to complete. In this case, the SEC may be looking at other vendor payments and possible transfers of funds through financial institutions, which require a subpoena under the Right to Financial Privacy Act before customer information can be disclosed. (ph)
Desperate Housewives Meets the Executive Suite
The Wall Street Journal (here) has an article entitled "Scorned Spouses Can Wreak Havoc With Mates' Careers" that discusses the recent firing of Robert O'Connell as CEO of MassMutual Financial Group for "willful malfeasance" after an investigation triggered by a report from his wife that O'Connell was having an affair with another executive at the company. O'Connell's termination was not due to the alleged affair, which was never confirmed (although around the time of O'Connell's termination, the executive also left MassMutual), but because of misuse of a retirement account to enrich himself improperly, among other allegations. This past March, Boeing CEO Harry Stonecipher was forced out of the company because he was having an affair with another executive at the company that included some rather graphic e-mails (see earlier post here). Former General Electric CEO Jack Welch's highly publicized affair and subsequent divorce proceeding resulted in the company settling an SEC administrative proceeding (here) in October 2004 regarding its failure to adequately disclose perks provided as part of Welch's retirement package. Sex certainly sells, and is anyone really surprised that when affairs take place in the executive suite they can affect the operation of a company? While an affair in a company can be divisive, the Journal article also discusses a claim by a former client of a law firm that a partner of a firm had an affair with his wife while representing his company. That is much more likely to be an ethical violation and a breach of the lawyer's fiduciary duty. A wandering eye can wreak much havoc. (ph)