Tuesday, June 14, 2005

Is Scrushy Using an "O.J. Defense"?

Cynthia Tucker, an editorial writer with the Atlanta Journal-Constitution, has a provocative column (here) entitled Scrushy Tries O.J. Defense.  She asserts that Scrushy's defense is designed to "try to pass yourself off as a black man who is the victim of government persecution."  According to Tucker, "Strange as it may seem, the strategy may be working."  Racial issues related to juries are certainly in the news today, with the Supreme Court's decision in Miller-El v. Dretke (here) that reinvigorates the Batson analysis of peremptory challenges based on race or sex.  The Scrushy jury had a quiet day of deliberations on Monday after taking a long break last week, and the leisurely pace of the deliberations has certainly stretched things out (see AJC story here, with a quote from blog co-editor Ellen Podgor on the jury's schedule).  While one would expect some resolution of the case -- even a hung jury -- sometime soon now that deliberations have stretched into a fourth week, there's no way to know whether the Allen charge has started to move them toward a verdict.  Perhaps this jury is like a watched pot.  (ph)

June 14, 2005 in HealthSouth | Permalink | TrackBack (1)

Can Anyone Figure Out Krispy Kreme's Financials?

Krispy Kreme doughnuts remain a sinful pleasure, but the company's financial statements are turning into pure torture for investors as the corporation again delayed filing its quarterly report.  Krispy Kreme Doughnuts Inc. has not filed a quarterly report since the period ending July 31, 2004, and in April it delayed filing its annual report.  In an NT 10-Q filing (here), the company states that "because there are ongoing analyses related to the proper application of generally accepted accounting principles to certain transactions which occurred in fiscal 2005 and earlier years. Until such analyses are complete, the Company is unable to finalize its financial statements for the first quarter of fiscal 2006."  Krispy Kreme has significant problems related to its accounting for certain franchisee transactions, and is the subject of an SEC formal investigation.  The question with the Commission is a matter of when-- not if -- the enforcement action will come, and how much of a civil penalty it will have to pay to settle.  If the accounting issues involve intentional misstatements, then it becomes a question whether there are any criminal charges against corporate officers being cooked up (I just couldn't resist!). 

Krispy Kreme's disclosure also informed investors that "[r]esults for the first quarter of fiscal 2006 were adversely affected by significant sales declines compared to the first quarter of fiscal 2005. For the quarter ended May 1, 2005, systemwide and Company average weekly sales per factory store decreased approximately 21% and 25%, respectively, compared to the first quarter of fiscal 2005, which ended May 2, 2004."  The shareholder lawsuits filed last year when Krispy Kreme blamed its declining sales on low-carb diets will only get worse with these continuing declines in its sales. (ph)

June 14, 2005 in Civil Enforcement, Fraud, Investigations, Securities | Permalink | TrackBack (0)

Monday, June 13, 2005

Census of Law Professor Bloggers

This morning's PrawfsBlawg has an interesting census of the current law professor blogging population.  They report that 103 law professors currently blog; we have 24 law professors who blog as part of our Law Professor Blogs Network.

PrawfsBlawg notes that of the 103 law professor bloggers, 80.6% (83) are male and 19.4% (20) are female.  The comparable numbers for the 24 members of the Law Professor Blogs Network:  62.5% (15) male and 37.5% (9) female.

Here are the law schools with the most law professor bloggers:

Law Schools with Most Law Prof Bloggers

School

Number of Bloggers

San Diego

7

Cincinnati

4

George Mason

4

Ohio State

4

UCLA

4

George Washington

4

Stanford

4

St. Thomas

4

Chapman

4

June 13, 2005 | Permalink

Sentencing of John and Timothy Rigas Finally Set for June 20 (oops)

The sentencing of former Adelphia Communications executives John and Timothy Rigas will finally take place today June 20 before U.S. District Judge Leonard Sand.  The father-and-son executives at Adelphia were convicted of multiple counts of securities fraud, bank fraud, and conspiracy in July 2004 related to the misuse of corporate assets for their own personal benefit and failure to disclose accounting irregularities; Michael Rigas, another of John's sons who worked at the company, was acquitted on the conspiracy count but the jury hung on the other charges, and he is slated to be retried in October.  Sentencing had originally been set for January 5, and has been postponed repeatedly until now.  A Wall Street Journal article (here) states that the government has requested a 215-year -- that's right, "year" not "month" -- sentence for the two defendants.  John's attorney has requested probation or home confinement, while Timothy's lawyer has asked for a six-month term. 

i wonder whether such extreme requests are really helpful to the clients of either side.  A 215-year term of imprisonment is simply ludicrous, even if it is a technically defensible application of the Sentencing Guidelines.  At the same time, the fraud at Adelphia, which caused the company to collapse while the Rigas family lined its pockets, is sufficiently serious that home confinement or a six-month prison sentence is hardly likely.  Neither side provides much assistance to Judge Sand by staking out such positions, and the advisory nature of the Guidelines means he need not adhere to the government's position even if it were supportable factually.  Defense counsel owe an obligation to their clients to seek the best possible result; the same certainly cannot be said for the U.S. Attorney's Office.  As soon as the sentence is reported I will update this post. (ph)

                                                                                    

UPDATE: That will teach me not to pay attention.  The judge postponed the sentencing last week to Monday, June 20.  Same thing next week, too. (ph)

June 13, 2005 in Fraud, Sentencing | Permalink | TrackBack (1)

More on the Recent Pardons

For those interested in the recent pardons granted by President Bush (see earlier post here), Doug Berman has posted some very interesting comments by Margaret Love on the Sentencing Law & Policy blog (here) discussing trends in the use of the pardon power.  Ms. Love spent 20 years in the DOJ, and from 1990 to 1997 she served as the Pardon Attorney in the Department, so she knows this process as well as anyone.

June 13, 2005 in News | Permalink | TrackBack (0)

Wal-Mart Steps Up Its Campaign Against a Former Executive

Wal-Mart removed Thomas Coughlin, a recently retired long-time executive, from its board in March after discovering that he allegedly obtained improper reimbursements for expenses from the company in an amount up to $500,000.  Coughlin, a long-time friend (and hunting buddy) of Wal-Mart founder Sam Walton, asserted that the reimbursements were really for secret payments he made to union officials to gather information about union organizing activity at the company, which is notoriously hostile to unions.  Prior to his removal from the board, Wal-Mart had given Coughlin a substantial retirement package when he left his executive position.  Now, the company announced on June 10 that it is rescinding the retirmement package and other stock options and deferred compensation because Coughlin failed to provide any evidence to support his assertions regarding the reimbursement of expenses for opposing union organizers (see letter to Coughlin's counsel (here). Wal-Mart's 8-K (here) states:

During the Company’s internal investigation, Mr. Coughlin maintained that his use of corporate money and property was related to what Mr. Coughlin described as “union activity” for which he was obtaining “reimbursement.” Mr. Coughlin declined, however, to provide the Company with any details of the alleged “union activity” or the alleged “reimbursements.”

In the Company’s ongoing internal investigation, the Company found no evidence supporting Mr. Coughlin’s “union activity reimbursement” explanation. The Company delivered a letter to Mr. Coughlin’s attorney on April 19, 2005, requesting that Mr. Coughlin come forward with “any documents or other information that would support his contention that the questioned transactions were ‘reimbursements’ for monies Mr. Coughlin spent in connection with union activities.” To date, Mr. Coughlin has not furnished any such information to the Company.

At the recommendation of the Company’s Legal Department and with the advice of outside counsel, on June 10, 2005, the [Compensation, Nominating, and Governance Committee of the Board] authorized management of the Company to take appropriate action to rescind the Retirement Agreement and to take other appropriate legal action in connection therewith. The grounds for rescission are based on Mr. Coughlin’s violation of his fiduciary duties to the Company and the concealment and failure to disclose to management that, for a period of several years and continuing until at least December 2004, Mr. Coughlin had been engaged in a scheme to misappropriate corporate funds and property for his own personal benefit.

Wal-Mart disclosed when it removed Coughlin from the board that it had notified the U.S. Attorney's Office of the alleged misappropriation, and this move certainly ups the ante.  A Wall Street Journal article (here) estimates that the stock options and salary at issue in the $12 million range, so look for Coughlin to fight this quite vigorously, although he's in a difficult position because the ongoing grand jury investigation will make it hard to initiate litigation and subject himself to a deposition. I don't expect that the company will be paying his legal expenses in this matter, which probably will be the subject of even more litigation, no doubt.  (ph)

June 13, 2005 in Fraud, Investigations | Permalink | TrackBack (0)

Delphi Rounds Up the Usual Suspects

Delphi Automotive seems to be establishing a tradition of finding a new accounting problem during its internal investigation and then firing a couple executives.  In an 8-K filing (here), the company asserts that it plans to file its long-delayed financial reports by June 30, and its auditors have discovered problems in the reporting of sales of accounts receivable and factoring transactions.  The company stated:

[T]he Audit Committee concluded that the Company did not accurately disclose to credit ratings agencies, analysts or the Board of Directors the amount of sales of accounts receivable or factoring arrangements from the date of its separation from General Motors until year-end 2004. The Company believes these sales were properly accounted for under U.S. GAAP and therefore these findings should not impact amounts set forth in the Company’s consolidated financial statements. Deloitte & Touche LLP is in the process of auditing the accounting for these factoring arrangements. There were, however, inaccuracies in previously disclosed non-GAAP measures of Delphi’s net liquidity. Following its review, the Audit Committee accepted the resignations of the Company’s current Treasurer, Pam Geller and John Blahnik, its former Vice President of Treasury, Mergers & Acquisitions.

Delphi has already fired CFO Alan Dawes, among others, and CEO J.T. Battenberg announced his retirement shortly before the accounting problems were disclosed -- for reasons entirely unrelated to the financial reporting problems, so Delphi stated.  The SEC and DOJ are investigating, and once the internal investigation is complete look for developments on that front.  The way the company is going through executive, be careful if you're near Delphi's headquarters in Troy, Michigan, you may be hired in its accounting office. (ph)

June 13, 2005 in Fraud, Investigations | Permalink | TrackBack (0)

Did Prosecutors Try to Intimidate a Defense Witness at the Enron Broadband Services Trial?

The prosecution of five former Enron Broadband Services executives sometimes seems like the old saw about being an anesthesiologist: it's 59 minutes of boredom and one minute of pure terror.  The Enron Task Force's one minute may have come on June 10, when a defense witness, Lawrence Ciscon, asserted that prosecutors called his attorney three times in the past week to reiterate that Ciscon is a "target" of the investigation, although no charges have been filed at this point.  Ciscon said that he voluntarily spoke with FBI agents in 2003 before being informed he was a target, but has since declined to speak with the government (anyone want to take a guess why?).  Tom Kirkendall in the Houston's Clear Thinker blog has the following discussion of the testimony on this topic (here):

The sparks began to fly when the prosecution attempted during cross-examination to impeach Mr. Ciscon's favorable testimony for the defendants that had been elicited during his direct examination. On cross, the prosecution had Mr. Ciscon confirm that prosecutors had advised him that he was a target of the Task Force's ongoing criminal investigation, thereby implying that Mr. Ciscon was testifying in favor of the Broadband defendants to save his own skin.

On re-direct examination, Mr. Ciscon confirmed that prosecutors had recently made three telephone calls to his attorney to "remind" Mr. Ciscon that he remained a target of the Task Force's criminal investigation. Defense counsel then asked Mr. Ciscon whether he considered those calls to his attorney as a "warning" not to testify? Mr. Ciscon replied that he did not consider the calls as merely a warning, but a "threat" by the Task Force prosecutors.

After that explosive testimony, the prosecution on re-cross-examination had Mr. Ciscon confirm that the prosecution's calls had all been to his attorney and that he had not talked directly with the prosecutors. Then, in a questionable move that simply highlighted the prosecution's thinly-veiled threat to Mr. Ciscon, the prosecution requested that Judge Gilmore strike Mr. Ciscon's testimony about the calls as inadmissible hearsay testimony.

Judge Gilmore -- who favored the prosecution during the early stages of the trial, but appears to be warming to the defense recently -- quickly denied the prosecution's request and pointed out that the government had waived any objection to Mr. Ciscon's testimony on the subject. The jurors watched the entire episode with rapt attention.

While the testimony may be little more than a sideshow, it certainly put the prosecutors in a very bad light, and lends credence to the defense claim that the government is more interested in a conviction than with ensuring a fair trial. A Houston Chronicle story (here) also discusses the testimony. (ph)

June 13, 2005 in Enron, Prosecutors | Permalink | TrackBack (0)

Sunday, June 12, 2005

WLF Program on Andersen

The Washington Legal Foundation has a program here that examines the Arthur Andersen decision.   The program is moderated by the Hon. Richard Thornburgh who asks an initial question with regard to this decision  as to whether is it a "bump in the road or a sea change" in white collar prosecutions. 

The program offers commentary from:

1. Gary Grindler (King & Spaulding) who notes that DOJ needs to consider collateral consequences; 

2.Robert Weiner (Arnold & Porter), who authored the National Association of Criminal Defense Lawyers (NACDL) amicus brief in this case, discusses the impact of this decision on attorneys;

3.Ronald W. Peppe II, Vice President Law & Technology, Association of Corporate Counsel, who brings out the fact that so many documents today are not hard documents, but rather electronic. 

The program covers the topic of how the Andersen decision may influence 1519 cases (Sarbanes Oxley).

(esp)

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

Overreaching By Prosecutors

The NYTimes has a story here, that speaks to prosecutions in white collar cases, specifically those by Spitzer's office (although Arthur Andersen is lumped into the picture).  It is a critical piece talking about overreaching by prosecutors.

But is this something new? Is the use of the criminal system, in cases that perhaps should proceed through a civil system, or not at all, just happening now? Or is it just happening more in the open now in cases with a higher profile?

In our casebook, Israel, Podgor, Borman, & Henning, White Collar Crime: Law & Practice 2d (West 2003), we discuss the case of United v. Brown, 79 F.3d 1550 (11th Cir. 1996), where the Eleventh Circuit Court of Appeals reversed a conviction stating, "the fraud statutes do not cover all behavior which strays from the ideal; Congress has not yet criminalized all sharp conduct, manipulative acts, or unethical transactions."

Where is the appropriate line between proceeding with a criminal action and using regulatory action?   And should that line be different if it is a coporation versus it being an individual?  The casebook provides examples from history of corporations that in some cases reached civil agreements with the government, and in others cases ended with guilty pleas to criminal charges. (p. 66-71).

(esp)

June 12, 2005 in Prosecutions | Permalink | TrackBack (0)