Monday, June 20, 2005

More on Rigas' Sentences- A Different Perspective

Many were concerned with the Court's decision in Booker and what effect it might have in white collar cases.  These individuals can sleep easy tonight as the sentences issued today, to father and son Rigas, far exceed many we saw in pre-guidelines years.  These sentences of 15 and 20 years send a clear message that the so-called advisory role of the guidelines will not be letting those convicted of white collar offenses off the hook easy.

Others, however,  may not sleep so easy tonight knowing that an 80 year old man is facing 15 a years in prison and his son 20 years.  They will be asking themselves: Are we safer in society by sending these two men away for this number of years?   Now lets see - - 20 years is the same amount of time the government agreed to allow John Walker Lindh to plead to for the crime of "supplying services to the Taliban." (Lindh plea agreement).

(esp)

June 20, 2005 in Sentencing | Permalink | TrackBack (0)

Sentencing of John and Timothy Rigas

Adelphia Communications founder and former CEO John Rigas received a 15-year term of imprisonment, while his son Timothy received a 20-year sentence, both of which are substantially below the 215-year term sought by the government under the Federal Sentencing Guidelines.  Nevertheless, John, who is 80 years old, received what is effectively a life-term because he will have to serve at least 12 years in an FCI.  U.S. District Judge Leonard Sand is reported to have said he would have imposed a longer sentence on the elder Rigas, but took into consideration his age and health, factors that judges now have greater flexibility to consider since the decision in Booker. The judge also will allow John to seek an early release after he has served two years of his term if he is suffering from a terminal illness and is believed to be within three months of his death.  Timothy's sentence is also quite substantial, among the highest received by a first-time white collar offender (leaving aside Jamie Olis, who received a 24 year term), although at 49 years of age, Judge Sand did not give him what amounts to a life term that his father received. Timothy is reported to have said at the sentencing, "Our intentions were good.  The results were not."  More than a few Adelphia Communications investors might disagree with him.  The Rigases are set to report to the federal Bureau of Prisons on Sept. 19, although they are likely to seek bail pending appeal. An AP story (here) discusses the sentencings. (ph)

June 20, 2005 in Sentencing | Permalink | TrackBack (0)

A Cornucopia of Corporate Crime Issues

The issues related to the investigation and prosecution of corporate misconduct are front and center today.  The Wall Street Journal has a front-page article (here) about the focus on corporate crime by federal prosecutors, including the expanding use of deferred prosecution agreements that avoid the pitfalls of an Arthur Andersen scenario (a corporate death sentence, in effect) while still imposing a measure of punishment coupled with an enforceable agreement for corporate reform.  Of course, the focus on corporate crime isn't really all that new, if one recalls the S&L crisis of the late 1980s and early 1990s, the overseas bribery scandals of the 1970s that led to the FCPA, and for those who passed their 20th Century U.S. History class, the Progressive Era featured corporate corruption and the dangers of trusts as important legislative and prosecutorial goals.  The Supreme Court recognized corporate criminal liability in New York Central in 1909 in a case involving freight rates, so this has been an issue for nearly a century.

On the topic of deferred prosecutions, the Journal has another article (here) about how Christopher Christie, the U.S. Attorney for the District of New Jersey, hammered out the agreement with Bristol-Myers Squibb that gives his office a hand in the continuing operation of the company's compliance efforts.  The article also notes that one of the beneficiaries of the agreement is Christie's law school alma mater, Seton Hall, which will receive funds to set up a chair in business ethics and corporate governance (see earlier post here).  Will Bristol-Myers get a tax deduction for its gift to the law school, and will the chair be named for the company (assuming the "Bristol-Myers Squibb Chair in Business Ethics and Corporate Governance" is not an oxymoron)?

On the investigatory front, the U.S. Attorney's Office for the Southern District of New York joined in the finite insurance investigation melee with subpoenas to additional insurance companies that wrote the types of policies that are also the focus of the AIG-General Re case.  New York Attorney General Eliot Spitzer and the SEC have sent separate subpoenas to a number of insurance companies already.  Those receiving federal grand jury subpoenas include St. Paul Travelers (Form 8-K here) and Ace Ltd. (Form 8-K here), a Bermuda reinsurer whose CEO is the last remaining Greenberg (Evan) heading a public company -- his father, Maurice, resigned from AIG in the midst of the government's investigation and his brother, Jeffrey, was forced out of Marsh & McLennan last year by Spitzer's demand for his removal.  It would not be a surprise to see more guilty pleas from former General Re executives (two have already), and perhaps some from the AIG side of the transaction, in the next few weeks.  The companies themselves have avoided criminal charges so far (Spitzer's office filed a civil fraud suit against AIG and Greenberg recently), and it would not be a surprise if AIG entered into a deferred prosecution agreement of its own with the Department of Justice.  General Re is a subsidiary of Berkshire Hathaway, and Warren Buffett's sterling reputation may allow it to avoid having to walk the deferred prosecution plank. (ph)

                                                                                       

UPDATE (6/20): I neglected to include KPMG LLP in the tour of corporate crime -- the firm is a limited liability partnership, but we'll ignore the corporate formalities for the moment.  The firm has been under investigation by the Department of Justice for its tax shelters that have since been declared abusive that were used by corporate executives and others to avoid large tax liabilities on capital gains.  The DoJ is seriously considering filing criminal charges, and on Thursday, June 17, KPMG issued a statement (here) that includes the following admission: "KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred." The firm's statement stresses that it no longer provides tax shelters -- not a tough decision to make in the current environment-- and has undertaken significant changes in its business practices. That statement is not something you read before a firm has been charged with a crime or enters into a settlement/deferred prosecution agreement, and KPMG is clearly seeking a deferred prosecution agreement to avoid being hung with a criminal charge that could cost it licenses to practice in the various states.  The government is obviously concerned with the Andersen effect from an indictment of an accounting firm, and I suspect will not risk reducing the field to the Big 3.  Still, the pressure on both sides is enormous, and another example of the importance of criminal liability for business organizations. (ph)

June 20, 2005 in Grand Jury, Investigations, Prosecutions, Prosecutors, Securities | Permalink | TrackBack (0)

Were the Tyco Jurors "Just Sadly Mistaken"?

Charles Stillman, the lead defense lawyer for former Tyco CFO Mark Swartz, said after the guilty verdict for his client that the jurors "are just sadly mistaken."  An article in the Wall Street Journal (here) includes statements made by two jurors who said that the testimony of Swartz and former CEO Dennis Kozlowski was not credible, and that Kozlowski came across as a liar.  Both jurors focused on Kozlowski's testimony regarding an art purchase with Tyco funds from an art dealer.  Kozlowski testified that it was just a coincidence that he and the dealer were in London at the same time and he happened to bump into her while window-shopping there, and then plunked down the company's money to buy the paintings.  More generally, the jurors had trouble with the testimony of both defendants regarding the loan forgiveness that resulted in multi-million dollar benefits that were not reported on their taxes, something Kozlowski said he "cannot explain."

On the larger question of whether a client in a white collar case should testify, the answer is (as always): it depends.  Drawing a conclusion from cases like Kozlowski/Swartz or Bernie Ebbers, in which the defendants testified and were convicted, can be counterbalanced by cases such as Martha Stewart (no testimony, conviction) and Mark Belnick, Tyco's former general counsel charged with crimes similar to those against Kozlowski and Swartz (testified, acquitted).  Lawyers will always be second-guessed about the decision to testify if the client is convicted.  When the jurors decide a defendant is being less than truthful, or even a liar, then the question is who is (sadly) mistaken. (ph)

June 20, 2005 in Fraud, Prosecutions, Verdict | Permalink | TrackBack (0)

Scrushy- How Long is Too Long?

Ebbers and Kozlowski have had a resolution of their cases, although most likely one they are not pleased with, as both were found guilty.  Adelphia Communications executives John and Timothy Rigas are set for sentencing today.  And the jury is still out for Richard Scrushy. 

How long should a judge keep a jury out, especially when they have indicated their inability to reach a verdict, been given an Allen charge, and silence is all that comes out of the jury room.  It has been a good many days since any notes were sent out from the jury room. Will they decide when they resume their deliberations on Monday, day 17?  See here.  Or will they continue to deliberate?  And if so, when does a judge decide that holding these individuals in the jury room will not resolve the case? Or is it that you just hold them until a verdict is reached? 

(esp)

June 20, 2005 in HealthSouth | Permalink | TrackBack (0)

Wine Fraud Can Be Wire Fraud

When you have a wine fraud, how do you charge the crime.  In the case of the United States Attorney's Office for the Central District of California, the case becomes a wire fraud and other charges.  According to a recent press release of the of this office, a Colorado wine merchant will be pleading guilty to "two counts of mail fraud, four counts of wire fraud, and one count of conducting an unlawful monetary transaction."  The press release states that the defendant "admits that from early 2000 through January 2003 he operated a fraudulent scheme that purported to sell clients wine and wine futures."

(esp)

June 20, 2005 in Fraud, Prosecutions | Permalink | TrackBack (0)

Sunday, June 19, 2005

How Will it Play to the Jury

Kurt Eichenwald of the NYTimes, has a wonderful article here titled, "Big Paychecks Are Exhibit A at C.E.O. Trials."  He states, "the Kozlowski verdict demonstrates that, at a criminal trial, high pay scales can serve as the government's Exhibit A of the defendant's potential knowledge of wrongdoing." 

What is particularly interesting about this statement is how CEOs need to now consider a principle I call "how will it play to the jury."   

But it isn't only the paycheck that they need to consider.  Statements they make to co-workers, emails they write to directors and financial advisers, and comments they make to the press, may be played back before individuals who are unfamiliar with the corporate world and the intricacies of business.  This is the evidence upon which the jury often infers intent of the accused. And what may be common language in the business world of a corporation may sound like fraudulent activity to an outsider who is unskilled in the business world.

Criminal defense lawyers have long considered the "how will it play to the jury" in dealing with clients.  Often realizing that their clients will be convicted, they measure their words knowing that this client may be the first in line asking the government to give them a deal to testify against the attorney.  Not that there isn't attorney misconduct out there, but how the words play on a tape to a jury adds a dimension that may make innocent conduct seem criminal to an outsider.

What is particularly fascinating about this NYTimes article is the application of the principle - "how will it play to the jury" to corporate executives who are now on trial.  My advice to corporate executives is not to limit the "how will it play to a jury" only to their compensation, but also to their daily practices within the organization. 

This is not a message advocating the hiding of illegality, as hopefully a company will not tolerate this form of conduct.  This is a message to those in positions of power at a corporation to remember that someone may be listening, and the conversation may be testimony that a jury will one day hear.

Frightening?  Yes.  But the reality is that this is the way things are today.  So deal with it, or change it.

(esp)

June 19, 2005 in Prosecutions | Permalink | TrackBack (0)

Civil Resolution in Environmental Case

Many cases are resolved by the government civilly.  In some cases it is because the element needed to proceed criminally is not present. That is the government may not have acted willfully. It is possible in some cases that Congress only permitted civil penalties, as opposed to criminal sanctions.  In other cases it is because a satisfactory resolution is reached, that is the government is willing to accept a civil settlement as opposed to proceeding criminally. 

This past week a civil resolution was reached on an environment case between the government and Volkswagon.  In a press release of DOJ it is reported that 

"The U.S. Department of Justice and the U.S. Environmental Protection Agency (EPA) today announced a Clean Air Act settlement with Volkswagen of America, Inc. Under the agreement, filed with the U.S. District Court for the District of Columbia, Volkswagen will pay $1.1 million to resolve its failure to promptly notify and correct a defective oxygen sensor affecting at least 326,000 of their 1999, 2000 and 2001 Golfs, Jettas, and New Beetles. This is the largest civil penalty to date for this type of violation."

Civil penalties of this nature are not automatic.  As noted in the press release:

"In addition to paying the civil penalty, pursuant to the consent decree lodged today, Volkswagen will also improve its emissions defect investigation and reporting system to ensure future compliance.

The proposed consent decree is subject to a 30-day public comment period and final court approval"

(esp)

June 19, 2005 in Civil Enforcement, Environment | Permalink | TrackBack (1)