Saturday, July 16, 2005

How Do You Count White Collar Crimes?

An op-ed in the New York Times by Stacy Horn (here) laments the lack of statistics on white collar crimes, specifically that there's no way to track the number of crimes that occur without looking just at the number of charges filed or persons convicted.  Unlike murders or property crimes, for which there are numerous statistics regarding incidence, location, recidivism, and the likelihood of the crime being solved, there really are none for white collar crime.  Horn argues that there should be a greater emphasis on gathering such statistics to understand the extent (or lack thereof?) of white collar crimes. 

The problem, of course, is that "white collar crime" is not a simply defined offense, and covers a wide range of conduct that may be sanctioned criminally or be subject to civil penalties.  More importantly, it is often difficult to determine whether such a crime has even taken place, so there is no way to track "clearance rates" for white collar crimes.  While it is often easy to determine that a murder or larceny has taken place, is the person walking out of the bank with a check for $100,000 a good customer or a someone who defrauded the bank -- actually, they're often both.  If that person is running out of the bank with a bag full of money and leaps into a waiting car that screeches away, you know a crime has taken place.  For white collar crimes, you can't know it when you see it, unlike pornography (and maybe not even there, too).

Christine Hurt on the Conglomerate Blog has an excellent post (here) dissecting Horn's article, and among the points she makes is the following:

[H]ow does one compile statistics on a crime that we only know is committed if an investigation uncovers it?  This conundrum is similar to attempting to compile statistics on unreported crime.  We know a murder has been committed because we either have a body or a missing person.  How do we know that white collar crime has been committed?  Unfortunately, there are those who point the finger every time the stock price goes down or a financial forecast is not met.  So, do we compile crime statistics by watching the stock ticker?  Should we have corporate coroners who can examine every stock downturn to ensure that the stock is on a "natural" decline?

It sure sounds like a proposal for lawyer and accountant full employment.  (ph)

July 16, 2005 in News | Permalink | TrackBack (0)

Greenberg Challenges AIG's Restatement

Former American International Group CEO Maurice Greenberg told a group of current and former company executives that the accounting for at least one of the transactions that was the subject of a recent restatement was done properly, based on advice from the company's lawyers and auditors.  Greenberg spoke at a meeting of the shareholders of C.V. Starr & Co., the Bermuda company used as a vehicle to compensate AIG senior executives that controls (as of March 31) approximately 12% of AIG's shares.  As part of its restatement, the company said it needed to account for payments to AIG executives from C.V. Starr differently, a position that Greenberg disputes.  A Reuters story (here) also notes that Greenberg said at the meeting that he had put together "white papers" on the accounting for other transactions under scrutiny by the various state and federal agencies investigating AIG (and others), and will  meet with regulators to provide them with his side of the accounting story. 

Greenberg, no doubt working with his lawyers, appears to be taking the offensive to try to head off any criminal or SEC civil claims against him.  New York Attorney General Eliot  Spitzer's office (along with the Superintendent of Insurance Howard Mills's office) has already filed a civil suit (here) against Greenberg and former AIG CFO Howard Smith, but that is a comparatively mild threat compared to a criminal case brought by the Department of Justice, and probably less threatening than an SEC securities fraud case. (ph)

July 16, 2005 in AIG | Permalink | TrackBack (2)

Wal-Mart Accuses Second Executive of Participating in Fraud

Wal-Mart terminated the retirement benefits of former executive  Thomas Coughlin this past March and removed him from the board of directors for what the company described as a series of fraudulent billings and other misappropriations (including the use of giftcards for personal purchases) that totaled up to $500,000.  The company has now accused a second executive, Jared Bowen, of helping Coughlin cover-up the fraud through false invoices.  Bowen was fired this past March, and he filed a whistleblower complaint with the Department of Labor under the Sarbanes-Oxley Act claiming that he lost his job because he reported Coughlin's misconduct.  In a recent filing in the DOL case, Wal-Mart asserts that Bowen engaged in a "brazen deceit" by assisting Coughlin.  Moreover, demonstrating a "take no prisoners" approach, the company also accuses Bowen of submitting falsified college transcripts when he was hired in 1996.  A grand jury in Arkansas is investigating Coughlin, and it is likely that Bowen's involvement in the allegedly falsified invoices and giftcard transactions will be scrutinized.  A New York Times story (here) discusses Wal-Mart's response to Bowen's claims.  (ph)

July 16, 2005 in Fraud, Grand Jury, Investigations | Permalink | TrackBack (0)

Three BALCO Defendants Enter Guilty Pleas, While One Gets Cold Feet

Three of the four defendants in the BALCO steroid manufacturing case entered guilty pleas today (see earlier post here).  Victor Conte, Greg Anderson (former personal trainer for Barry Bonds), and James Valente appeared before U.S. District Court Judge Susan Illston and affirmed their guilt to drug distribution and, for Conte, money laundering charges.  A fourth defendant, Remi Korchemny, decided not to go forward with a plea because, according to an AP story (on ESPN.com here), he got "cold feet" about admitting his guilt while waiting in the courtroom for a plea agreement to be completed in another unrelated drug case.  Anderson stated "Yes" in response to the judge's question whether he distributed steroids to athletes. 

Judge Illston will hold a sentencing hearing for the three on Oct. 18 to finally accept the pleas and sentence them.  While the guilty pleas mean that a number of well-known athletes, including Bond and New York Yankee Jason Giambi, will not have to testify, the specter of a continuing investigation for perjury lingers for any athlete who denied in the grand jury receiving steroids from BALCO. (ph)

July 16, 2005 in Celebrities, Prosecutions | Permalink | TrackBack (0)

Phillies Fan Who Spammed Complaints About the Team Sentenced to Four Year Prison Term

Eric Carlson was angry about how poorly the Phillies were playing -- no great shock with Larry Bowa as the manager.  While Carlson no doubt acted like others fans by booing vociferously at games (including Santa Claus and the Easter Bunny), he also decided to hack into computers to send a large volume of e-mails protesting the team's dismal performance.  Earlier this year he was convicted on 79 counts of computer fraud and identity theft, and received a four year term of imprisonment.  According to a press release issued by the U.S. Attorney's Office for the Eastern District of Pennsylvania (here):

Carlson was a dissatisfied Philadelphia Phillies fan and to convey his dissatisfaction to the world, hacked into computers belonging to many individuals and from them launched hundreds of thousands of spam e-mails complaining about the Phillies. When he launched these e-mails, he faked, or “spoofed,” the “From” line of the e-mail, using the e-mail addresses of writers at the Philadelphia Daily News and the Philadelphia Inquirer. He also used e-mail addresses belonging to the Philadelphia Phillies and writers at The Sporting News, Fox Sports, ESPN, and officials at Knight Ridder, the parent company of the Inquirer and Daily News. This made it appear as if the e-mails had come from these writers. The testimony at the trial showed that because many of the e-mail addresses that Carlson sent his messages to were no longer valid, tens of thousands of e-mails were “returned” to the e-mail boxes of the persons whose addresses were spoofed.

Fours years is a substantial sentence for a white collar crime.  Carlson might be able to take some small solace in the fact that the Phillies have been playing better lately, although any true fan will tell you that it won't last.  Just ask Gene Mauch.  (ph)

July 16, 2005 in Computer Crime, Sentencing | Permalink | TrackBack (0)

Friday, July 15, 2005

BALCO Founder to Plead

We reported here that things were not looking good for Victor Conte, founder of BALCO (Bay Area Laboratory Co-Operative).  So it is not surprising to see the Wall Street Jrl reporting here that Victor Conte will be entering a plea. He is scheduled to plead guilty today to "steroid distribution and money laundering."  Stay tuned.

(esp)

________________________________________________________

UPDATE (7/15): A report in the San Francisco Chronicle (here) states that Conte's plea deal will have him serve four months in prison and an additional four months of home confinement, assuming U.S. District Judge Susan Illston accepts the plea and proposed sentence.  Conte largely convicted himself this past December when he gave an interview to 20/20 stating that he manufactured and distributed steroids to a number of athletes, so the plea is no great surprise (see earlier post here).  The Chronicle report also indicates that fellow defendant Greg Anderson is considering a plea agreement that will require him to serve three months in prison; Anderson was the personal trainer for Barry Bonds.  The interesting question now, if the plea agreements go through, is whether either Conte or Anderson will provide information that could be used against any of the athletes who testified before the grand jury about their use of steroids provided by BALCO.  Bonds, for instance, claims that he did not know he was receiving steroids from Anderson, and former Olympic sprinter Marion Jones denied ever using steroids, despite Conte's claims to the contrary.  Then again, for the U.S. Attorney's Office, would you want to build your case around Victor Conte? (ph)

July 15, 2005 in Prosecutions | Permalink | TrackBack (0)

More Cooperation in Enron Investigation

DOJ reports here that "Christopher Calger, a former Enron vice president, has pleaded guilty to a charge of conspiracy to commit wire fraud."  According to this press report, this is the 16th conviction of the Enron Task Force. According to the DOJ press release, it states in part that:

"The information and plea documents signed by Calger state that he was a vice president in charge of the West Power Origination group of Enron North America (ENA). In that capacity, he supervised employees who negotiated the sale of an ENA project known as Coyote Springs II (CS2) to a subsidiary of Avista Corp. The CS2 project consisted of an equity interest in a power plant, a construction contract to build the plant, and a turbine to be placed in the plant. Calger admitted that he and others engaged in a scheme to recognize earnings prematurely and improperly. Specifically, Enron’s auditors would not allow Enron to recognize immediate gain on the turbine sale unless that sale occurred at least two weeks before the equity sale in the plant (the “equity interest”) and the signing of the construction contract."

Perhaps one beneficial side-effect to the recent "lock-em-up for life" approach being taken by the courts in white collar cases, is that more individuals may wish to cooperate with the government in return for reduced sentences.  Not that this might have been a motivation in this recent plea, the timing is interesting to note here. The negative side for the government will likely be that defense counsel will now have sharper cross-examinations against the co-operators in asking these individuals questions about what penalties they may have faced if they failed to plead and assist the government.

(esp)   

July 15, 2005 in Enron | Permalink | TrackBack (0)

Mayor Pleads in Tax Case-Attorney Going to Trial

The DOJ reports here that the former mayor of Monroe County, Florida plead guilty to tax perjury. The attorney for Monroe County, added to the indictment in this case, is set for trial.

The press release states in part that "John L. “Jack” London, 67, of Key West, Florida, pleaded guilty to one count of tax perjury. . .  On May 19, 2005, London’s indictment was superseded to add as a defendant Monroe County Attorney . . . on charges of conspiring to obstruct and tamper with witnesses involved in the grand jury investigation of London."  According to the press release, the plea involved the "following facts":

"That in 1997 London received $29,000, while serving as a Monroe County Commissioner, from a consultant who had been hired by a real estate developer to assist with obtaining building permits from the Monroe Board of County Commissioners; and that London used the money to satisfy an outstanding lien against a residential property he owned in Cork, Ireland. In 2002 and 2003, when confronted by agents with the FBI about his receipt of the $29,000, London misled the investigators regarding the origin of the funds."

The attorney, also charged in this case, is alleged to have "acted as a conduit between London and another individual to concoct a false story" for presentation to a grand jury. As one might suspect, the individual pleading is set to be sentenced after the date of the attorney's trial, which "is scheduled to begin on September 26, 2005."

(esp)

July 15, 2005 in Prosecutions, Tax | Permalink | TrackBack (0)

Thursday, July 14, 2005

Sentencing White Collar Offenders

With the sentencing of white collar offenders on the rise, it is no surprise to see the media presenting analysis on this topic.  Here are some of the articles on the Ebbers and other sentencing of those accused of white collar offenses.

Wall Street Jrl.(Ebbers is Sentenced to 25 Years for $11Billion WorldCom Fraud) (here)

Washington Post (What Does 25 Years Do?) (here)

Atlanta Jrl Constitution (Ex CEO Given 25 Year Term) (here)

Business Week (The Message in Ebbers Sentence) (here)

Forbes (Commentary) (here)

New York Times (here)

LATimes (here)

(esp)

July 14, 2005 in Sentencing | Permalink | TrackBack (0)

Ex-Qwest Exec Pleads

DOJ is certainly not letting up on its crackdown in the white collar crime area.  The latest comes in the form of a plea entered by Robin Szeliga, a former CFO of Qwest Communications International Inc .  AP reports here that the plea was "to a single count of insider trading." 

What is significant about this plea is that it provides the government with someone who will assist them in pursuing their investigation. Robin Szeliga stood in a role comparable to Scott Sullivan, a key witness against Bernard Ebbers in his recent trial. Having the CFO testify worked in the Ebbers trial, so the question will be whether it will be as effective for the government in pursuing individuals at Qwest.

While Executive VP at Qwest, Robin Szeliga, testified before the House Comm. on Energy and Commerce at a hearing on "Capacity Swaps by Global Crossing and Qwest: Sham Transactions Designed to Boost Revenues?" (see here). See also SEC Release of March 2005. (here).

(esp)

July 14, 2005 in Prosecutions | Permalink | TrackBack (0)

Rigases to Remain Free Pending Appeal

Former Adelphia Communications executives John and Timothy Rigas, sentenced last month to 15 and 20 years, respectively, will be allowed to remain free on bail pending appeals of their convictions.  Judge Leonard Sand, who presided over the trial, found that they presented at least one issue in their appeal that has a reasonable chance of succeeding, regarding whether the government should have been required to call an expert witness to testify about accounting matters at the company.  Although the statutory presumption is against bail pending appeal, the judge found that the Rigases pose not threat to the community and are not a flight risk, and because they have a viable appellate claim they should not be required to report to begin their sentences.  For 80-year-old John Rigas, this is a significant victory because of the length of time the appeal can take and his health problems.

Interestingly, Judge Sand also recused himself from the retrial of Michael Rigas, John's son (and Timothy's brother), whose second trial is currently set to begin in October; the jury hung on the charges against him arising from the fraud at Adelphia.  Media reports at the end of the first trial indicated that the jury was split 9-3 in favor of acquittal for Michael on securities fraud charges, but the government is pressing ahead.

An AP story (here) discusses Judge Sand's decision on bail and recusal. (ph)

July 14, 2005 in Fraud, Prosecutions, Sentencing | Permalink | TrackBack (0)

Don't Play With Politics

Business Week (AP) reports here a sentence issued pursuant to a plea in which Fermin Cuza, former executive from Mattel, the toy maker, pleaded guilty to one count of submitting false statements to the Federal Election Commission and in return was sentenced to a fine of $500 and probation. More extensive civil fines had previously been paid.  The list of recipients of the political donations reads like a who's who of both Democrats and Republicans, although AP reports that these politicians were unaware that Mattel was the source of these funds.

A second individual previously pleaded guilty in what the Department of Justice  described in a press release here as this individual  "admitt[ing] that between March 1997 and November 2000, he and Cuza made $102,214 in contributions to 31 separate federal campaign committees. In turn, the responsible official of each committee submitted reports to the FEC that falsely characterized the contributions as being funded by the individuals listed when in fact the contributions were funded through Mattel’s general treasury funds." 

(esp) (with thanks to Neal Sonnett).

July 14, 2005 in Sentencing | Permalink | TrackBack (0)

Wednesday, July 13, 2005

Government Dismisses Scrushy Appeal

According to the Birmingham Business Journal (here ) the government has dismissed its appeal of the three perjury counts that had been struck down by the district court at trial. Judge Bowdre dismissed these three counts noting that "[t]he Government represented on the record to the court that it has no evidence of perjury apart from Mr. Scrushy's S.E.C. deposition. As a result, the perjury counts, Counts 30, 31, and 32, of the Superseding Indictment based on that testimony will be dismissed at the appropriate time." 

To pursue a case without merit would clearly be improper and the double Jeopardy clause of the Constitution raised serious questions about the government's appeal (see here).

Doing the right thing can sometimes be difficult, but the government has clearly done this today in the case of Richard Scrushy.  Applause to Prosecutor Alice Martin for not only dismissing the appeal, but for changing her mind publicly.  It is difficult to have stood before the public and advocated a position of proceeding with the appeal in this case, and then turn around and dismiss the matter. The lesson she teaches all here is that prosecutors need to be flexible in positions that they take.  Oftentimes they need to rethink their actions after they have examined and studied the issues fully.

(esp)

July 13, 2005 in HealthSouth | Permalink | TrackBack (0)

25 years for Ebbers

The court issued a sentence of 25 years for Bernard Ebbers, the former chief executive of WorldCom Inc. (see here).  The Wall Street Journal notes that the judge cited his health and "charitable work" as reasons for the reduced sentence. 

Reduced?   Like the sentences for the two Rigas defendants and Jamie Olis, this sentence is setting a new trend in sentencing of white collar offenders.  The trend is basically - - lock-em-up for the rest of their lives. 

Reaction:

1. Do you feel safer knowing that Ebbers will be in prison for 25 years (unless he is successful in his appeal) and John Walker Lindh received a lower sentence for "supplying services to the Taliban" (see here)?   

2.  Do you give any credence to concerns of AG Gonzales of a “drift toward lower sentences” resulting in the loss of a “critical law enforcement tool.”  (see here)?

3. Has anyone bothered to notice that the white collar offenders are not recidivists? (see here)

The bottom line - this sentence represents a new trend in this country - a trend that fails to follow long studied sentencing theory of deterrence and rehabilitation.  It is good to see a crackdown on white collar crime, but folks lets be rational in how it is done.   

(esp)

                                                                                                               

Update (7/13): Should Charitable Work and Contributions Matter?

U.S. District Judge Barbara Jones noted in sentencing Bernie Ebbers that the Sentencing Guidelines called for a sentence of 30 years, but she gave a small downward departure for his charitable work and health condition in giving a 25 year sentence, which will require him to serve over 20 years in a Federal Correctional Institution.  A Wall Street Journal article (here) notes that the judge will recommend that he serve his term in the FCI in Yazoo City, Miss., a minimum security prison (information here) north of Jackson, Miss.  The Journal also has a link (here) to letters submitted by supporters of Ebbers, many of which discuss his charitable contributions to (among others) Mississippi College and his local Baptist church, where he once taught Sunday school.  Should generosity with one's time and money be sufficient to lower a sentence?  The Sentencing Guidelines state that "[m]ilitary, civic, charitable, or public services; employment-related contributions; and similar prior good works are not ordinarily relevant in determining whether a sentence should be outside the applicable guideline range." (Sec. 5H1.11) 

I have found it a bit troubling that white collar defendants rely on their work on behalf of local charities, churches, and schools as a ground to reduce a criminal sentence.  Don't people have a civic, moral, or religious obligation to be generous with their time and money?  Charitable works may show the person is not a threat to society, but it does not necessarily reflect on the seriousness of the crime or the punishment that is fair.  In U.S. v. Serafini, 233 F.3d 758 (3d Cir. 2000), a state legislator convicted of perjury before a grand jury investigating potential bribery received a three-level downward departure based on his "extraordinary" charitable works that included seeking financing for a medical practice and mentoring a college student who had been seriously injured.  I have a hard time accepting the position that a person who has the time and financial resources -- and perhaps a political motivation -- to contribute to the community while also engaged in criminal conduct should be able to argue for a reduced sentence based on that charity.  A public official who will lie to a grand jury commits a serious crime, and that person's charitable works does not lessen the harm done. 

Did Ebbers act outside the "ordinary" range to warrant a reduction? Given the minimal reduction in the sentence granted by Judge Jones, its is doubtful she was swayed very much by the many letters on Ebbers' behalf extolling his honesty and commitment to the community.  His sentence is certainly on the high side, but is not one that I think is outside a fair range, based on the effect of the accounting fraud at WorldCom.  The judge may have given the modest reduction to forestall an appeal based on the reasonableness of her sentence, the standard under the new Booker regime for federal sentences, so that the reference to charitable contribution and his medical condition is more of a sop than anything else. 

The judge ordered Ebbers to report to prison on Oct. 12, and the next issue will be whether Judge Jones or the Second Circuit will grant bail pending appeal, postponing the start of the prison term.  Given the denial of Ebbers' new trial motion, I think it's unlikely Judge Jones will allow him to remain free beyond that date, barring some major change in Ebbers' physical condition. (ph)

July 13, 2005 in WorldCom | Permalink | TrackBack (2)

Quattrone Appeal Argued Before the Second Circuit

The appeal by former CSFB investment banker Frank Quattrone of his obstruction and witness tampering convictions was argued before a panel of the Second Circuit on July 12, and reports indicate that the judges have substantial concerns about the jury instructions given by U.S. District Judge Richard Owen and possible prosecutorial misconduct.  Quattrone was convicted largely on the basis of an e-mail he forwarded to other CSFB bankers reminding them to "clean up" their files while the SEC was undertaking an investigation of the firm related to its investment banking and IPO share distribution activities. A New York Times article (here) indicates that Circuit Judge Richard Wesley said to David Anders, the lead prosecutor on the case, ""Every good trial lawyer seems to push the envelope . . . You really blew the side of the envelope out, didn't you?"  I suspect that's a rhetorical question, and certainly not an easy one to answer on the fly. 

The judge's instructions on the obstruction counts, particularly the requirement to find a "corrupt" intent, will be subject to particular scrutiny because of the reversal of the Arthur Andersen conviction by the Supreme Court on essentially the same ground.  Each count of the indictment (here) requires proof that Quattrone acted corruptly, a notoriously difficult term for courts to define properly in jury instructions.  Unlike the Andersen trial, however, was the jury's assessment of Quattrone's credibility (or lack thereof) that may lend some support to the verdict because appellate court's are reluctant to overturn a verdict based on a jury's determination of the veracity of a witness, particularly the defendant whose state of mind is the key question -- recall that Quattrone testified in both trials (the first ended in a mistrial due to jury deadlock).  If the conviction is reversed due to faulty jury instructions, the government will likely have to confront the question of whether to try Quattrone a third time. (ph)

July 13, 2005 in Obstruction, Prosecutions | Permalink | TrackBack (0)

RenaissanceRe Executive Forced Out For Not Accepting an SEC Subpoena

The usual practice in corporations caught up in the investigation of "finite insurance" (i.e. earnings and reserve management products) is that if an executive asserts the Fifth Amendment, then the person is terminated.  This has happened to a number of (now former) AIG executives, and would have happened to former CEO Maurice Greenberg is he had not resigned first.  The pressure on corporations to demonstrate their cooperation moved a step higher -- or lower, depending on your point of view --- with RenaissanceRe Holdings' announcement that a senior executive was forced to resign because he refused to accept voluntary service of an SEC subpoena in the investigation.  The company, which is incorporated in Bermuda and its shares are traded on the NYSE, issued the following statement (here in its Form 8-K filing):

RenaissanceRe . . . announced today that it had received and accepted the resignation of Michael W. Cash, Senior Vice President - Specialty Reinsurance. The resignation follows the refusal of Mr. Cash, who is a Bermudian citizen, voluntarily to accept service of a subpoena from the Securities and Exchange Commission calling for his testimony in its investigation into the restatement of the Company's financial statements. As previously announced, the Company is cooperating with the government authorities in their investigations, and Mr. Cash's action was inconsistent with that policy of cooperation.

As a Bermudan citizen, stationed at the company's headquarters in Pembroke, Bermuda, Cash is outside the SEC's jurisdiction to enforce its subpoenas.  Under 15 U.S.C. Sec. 78u(c) (here), the Commission has the following compulsory authority (assuming a formal order of investigation has been issued) if a person refuses to comply with a subpoena:

In case of contumacy by, or refusal to obey a subpena issued to, any person, the Commission may invoke the aid of any court of the United States within the jurisdiction of which such investigation or proceeding is carried on, or where such person resides or carries on business, in requiring the attendance and testimony of witnesses and the production of books, papers, correspondence, memoranda, and other records. And such court may issue an order requiring such person to appear before the Commission or member or officer designated by the Commission, there to produce records, if so ordered, or to give testimony touching the matter under investigation or in question; and any failure to obey such order of the court may be punished by such court as a contempt thereof.

So long as Cash stays outside the United States, thereby avoiding the jurisdiction of a federal court, the SEC could not serve and enforce its subpoena.  The alternative method to compel a person to testify is to invoke the authority of the Bermuda Monetary Authority, but the SEC does not have a memorandum of understanding with that agency and Bermuda is not a signatory to any of the multilateral agreements on using compulsory authority to obtain records and testimony for a foreign securities regulator.  That's why the Commission sought to have Cash accept the subpoena voluntarily, and his refusal triggered (in effect) his termination from the company.  Note that Cash has not invoked the Fifth Amendment, but took the prior step of exercising his right to refuse to appear voluntarily (so to speak) before a foreign regulator to testify under oath.  The pressure on companies to cooperate is certainly building.

For those interested in the SEC's policy on corporate cooperation, there is an interesting post on the Corporate Compliance Blog (here) discussing the issue as it relates to the Seaboard Report, which is the Commission's equivalent to the Thompson Memorandum on charging business organizations. (ph)

July 13, 2005 in Investigations, Securities | Permalink | TrackBack (0)

Tuesday, July 12, 2005

Guys - Say Something - Someone is in Jail

The media  (e.g., NYTimes here and Wall Street Jrl here) are discussing the failure of President Bush and White House spokesperson Scott McClellan to answer questions regarding whether Karl Rove will be fired.   As noted here we are suddenly hearing doublespeak like "I will be glad to talk about it at the appropriate time." 

While it may be true that this is an ongoing investigation, the bottom line is that a woman remains in jail because her source is not giving her the go-ahead to speak.  If that source turns out to be Karl Rove, or some other member of the administration, then why aren't they stepping forward and allowing her to testify before the grand jury. 

Sources for the press are important.  They have in the past provided information that helped to rid the government of corruption (e.g. "deep throat").  But sources who are giving the press information, not for a public interest, but rather for a political motive and perhaps committing a crime or violating a security clearance in the process, creates concerns. 

It is understandable that a press person needs to protect all sources to continue the flow of information.  It is not, however, understandable why the source is not stepping forward to allow Judith Miller to speak and leave jail. The bottom line right now is not what the White House has to say, but rather what Judith Miller's protected source has to say.   It is clearly an "appropriate time" for someone to speak.

(esp)

July 12, 2005 in Media | Permalink | TrackBack (0)

Ebbers Request for New Trial Denied

Bernard Ebbers request for a new trial was denied today, according to AP here (Tampa).  This not only clears the way for his sentencing set for Wed. of this week, but also sets the groundwork for the appeal. 

The appeal is likely to include two issues from the trial.  One is that the defense was not permitted to offer defense witness immunity to three witnesses.  The prosecution can easily offer immunity and obtain testimony from witnesses they would like to have testify.  Although the immunity is "use" as opposed to "transactional" immunity, it allows the prosecution to compel a witness to testify when the government would like the witness to take the stand.  Obviously, should the witness not tell the truth while on the stand, the government has the added ammunition of perjury charges. 

In contrast, the defense seldom has the same ability to offer witnesses immunity and oftentimes the testimony they would like to bring forth into a court can be more limited.  This appeal will likely present this disparity and also the significance of the constitutional provision of compulsory process when witnesses refuse to testify and take the Fifth Amendment. Other issues, such as an issue related to mens rea, is also likely to be raised on appeal in this case.

(esp) 

July 12, 2005 in WorldCom | Permalink | TrackBack (1)

Update on Enron Related Cases

Some Enron Related Updates:

Trial of Ken Lay and Jeff Skilling is set to start in January 2006. Ken Lay's website here provides copies of his motions as filed by his attorneys.  The most recent of July 1st here moves for the dismissal of counts 38 -41premised upon the vagueness of Federal Reserve Board Regulation X.  It argues a due process violation as a result of this vagueness.  This may be a particularly good issue as the existing law of vagueness is ripe for Court review.

CNN reports here that pension claims are at 356.25 million.  An agreement, subject to court approval, will allow for some payouts to retirees.   

The Wall Street Journal reported here that Lea Fastow ("wife of former Enron Corp. finance chief Andrew Fastow") finished her prison term leaving a halfway house "shortly after midnight." (It always amazes me how prison facilities let women out in the middle in the night - that's OK for Lea Fastow who has someone to meet her, but what about the women who do not have someone there and who live in areas where it is cold and do not have proper clothing- check out Professor Myrna Raeder'swonderful article in the Spring 2005 issue of Criminal Justice Magazine titled, "A Primer on Gender Related Issues of Women Offenders"  for a discussion on some of the issues faced by women offenders.)

Some other Enron Related Documents here.

Attorney General Gonzales is not overseeing the Enron matters, having recused himself.  This means that the Enron Task Force does not report to him.  See here. (Forbes.com)

(esp)

July 12, 2005 in Enron | Permalink | TrackBack (0)

Former McKesson CFO Found Not Guilty of Securities Fraud

Former McKesson CFO Richard Hawkins was found not guilty by U.S. District Court Judge Martin Jenkins in an opinion (here) issued on July 11 that is the result of a one month bench trial that ended in February.  The charges arose from an accounting fraud that took place during and after the completion of a merger between McKesson and HBOC, and the government's main witnesses were Albert Bergonzi, former CEO of HBOC, and David Held, former CFO of HBOC.  The judge found neither witness credible and viewed their testimony with "greater caution" because of each entered into guilty pleas and would receive lighter sentences.  The judge stated with regard to Bergonzi:

Mr. Bergonzi has admitted that he began committing fraud, by backdating contracts and using side letters, sometime in 1998, long before the merger with McKesson. He pled guilty to conspiracy to commit securities fraud and securities fraud on October 16, 2003. As part of his plea agreement, the Government agreed to request, on Mr. Bergonzi’s behalf, a downward departure from the sentencing guidelines in exchange for Mr. Bergonzi’s substantial assistance in the investigation and prosecution of others. Accordingly, the Court examines Mr. Bergonzi’s  testimony with greater caution than that of other witnesses.

Judge Jenkins accepted the testimony of Hawkins that he was not aware of the various side agreements that were a practice of HBOC but were not accounted for properly, resulting in material misstatements in the merged company's financial statements. 

The verdict is interesting for two reasons.  First, the government acceded to the defense request to try the case before the court rather than a jury because of the complex accounting issues involved.  While the standard view is that jury's cannot handle complex accounting issues, trying the case to the court is not necessarily a panacea for the government.  Second, and perhaps more important for future prosecutions of senior corporate executives, the use of cooperating witnesses can backfire on the government, particularly when they are at or above the level of the defendant.  The judge flatly rejected the testimony of Bergonzi and Held, and found their cooperation agreements to be a strong reason to view them as less-than-credible witnesses.  Once again, the standard view is that a judge would understand the nature of a cooperation agreement and plea bargain, while a jury could be swayed to disregard the testimony of such witnesses.

The acquittal of Hawkins shows that while cooperating witnesses are necessary in most white collar prosecutions, there is a real peril in relying on them to make the case without good documentary evidence.  Such cases can result in convictions, as demonstrated in the Ebbers trial, but even there the jury found that the main prosecution witness (former WorldCom CFO Scott Sullivan) was not completely credible, but then neither was Ebbers' testimony.  The results of cases like Scrushy and Hawkins may be to lead the government to play down its reliance on witnesses (e.g. Andrew Fastow) who have cut plea bargains for lighter sentences and play up -- to the extent possible -- the documentary proof, if it's there.  If you don't have the paper, you may not have a case.

An article from The Recorder (available on Law.Com here) discusses the Hawkins verdict and notes that two more HBOC executives, former HBOC chairman Charles McCall and HBOC general counsel Jay Lapine, are awaiting trial on similar charges.  Having the two main cooperating witnesses deemed not credible certainly doesn't bode well for the government in those cases. (ph)

July 12, 2005 in Fraud, Securities, Verdict | Permalink | TrackBack (0)