Saturday, August 6, 2005

FCPA Investigations Hit DaimlerChrysler and Oil Companies

Investigations of possible violations of the Foreign Corrupt Practices Act are hitting major international companies.  DaimlerChrysler has been under investigation since August 2004 for possible bribes paid by its Mercedes division, an investigation triggered by a lawsuit filed by an accountant for the company who claimed he was fired because he tried to blow the whistle on secret accounts used to pay foreign officials (see New York Times story here).  The payments were out of Germany, where Mercedes operates, which had long resisted efforts to extend the FCPA.  Because DaimlerChrysler's shares are listed on the New York Stock Exchange, it is subject to SEC disclosure rules and the FCPA. 

The investigation now includes the Department of Justice, and according to the company's most recent earnings release (here): "In connection with its internal investigation, DaimlerChrysler has identified certain of these accounts, transactions and related payments in connection with certain foreign business activity that are the subject of special scrutiny and that have been disclosed to the SEC and the DOJ. The internal investigation is ongoing and DaimlerChrysler has not yet reached any definitive conclusions as to whether, or to what extent, these transactions and payments may constitute violations of applicable laws."  Of course, it's not the company's conclusion on the legality of the transactions that controls the situation, and it would certainly not be surprising to see a settlement of criminal and civil FCPA claims in the near future.

On a different front, the public filings of Amerada Hess (here) and Devon Energy (here) disclose -- buried deep within their 10-Qs, of course -- that the SEC has bumped up its inquiry into payments related to oil projects in Equatorial Guinea to a formal investigation.  A story in USA Today (here) indicates that oil giants ExxonMobil, ChevronTexaco, and Marathon Oil are also involved in the SEC investigation.  Interestingly, the genesis of the FCPA investigation was the money laundering and bank secrecy investigation of Riggs Bank, which had a number of accounts for foreign leaders, including Equatorial Guinea's leaders and their family members, that were suspected of being used to hide corrupt payments.  Riggs has since been acquired by PNC Financial, but investigations often take on a life of their own, as noted in the USA Today story that a former Riggs officer responsible for the Equatorial Guinea accounts is the target of a grand jury investigation (ph)

August 6, 2005 in FCPA | Permalink | TrackBack (1)

Does This Sound Like Insider Trading?

The SEC filed an emergency action in the U.S. District Court for the Southern District of New York (it's favorite jurisdiction) to freeze an account that traded in call options in Reebok stock in the two days before the company announced that it would be acquired by Adidas in a friendly takeover, which caused Reebok to rise approximately 30%.  According to the Commission's Litigation Release (here), an account in the name of Sonja Anticevic, who lives in Croatia, purchased 1,997 out-of-the-money Reebok call options on Aug. 1 and 2 at a cost of approximately $130,000.  On Aug. 3, after the Adidas-Reebok announcement hit the market, the account sold out its options position for a profit of approximately $2.04 million.  That is a 1,500% gain on a two-day investment, and I won't even try to figure out what that is annualized, but  be assured that ponzi schemes have promised a whole lot less.  Needless to say, this type of trading gets the SEC's attention in a hurry, mainly because the options market makers are out a whole lot of money and demand some measure of protection.

The Commission received a temporary restraining order (here) preventing the proceeds from being transferred out of the account after the broker received an order to wire $870,000 into an account in Salzburg, Austria.  Adidas is headquartered in southern Germany, only a couple hours drive from Salzburg, so it would not be surprising if a leak about the deal came from that side of the deal.  If form holds, the Commission will seek to have Ms. Anticevic or any other claimant to the account appear at a deposition in the United States, thereby submitting to the jurisdiction of the U.S. Courts and, more ominously, risk having FBI or Postal Inspectors waiting with an arrest warrant.  That prospect is usually enough to result in a default judgment and forfeiture of the proceeds, which can be returned to the options market makers. (ph)

August 6, 2005 in Insider Trading | Permalink | TrackBack (0)

Will KPMG Dodge the Indictment Bullet?

It appears that KPMG will avoid a criminal indictment for its sale of tax shelters as prosecutors are seeking a settlement with the firm that will likely involve a civil penalty and perhaps a deferred prosecution agreement that allows the firm to avoid the fate of Arthur Andersen.  A Bloomberg story (here) indicates that the Andersen effect has been a significant concern for prosecutors and securities regulators, who would face a world with the Big Three for public accounting. 

A settlement by the firm would not affect the individual partners, and an AP story (here) indicates that up to 20 former tax partners may face criminal charges related to the tax shelters.  KPMG has already stated that some of its employees violated the law in a June 16, 2005 release (here) that states: "KPMG takes full responsibility for the unlawful conduct by former KPMG partners during that period, and we deeply regret that it occurred."  Interestingly, KPMG has been backpedaling from that statement, at least somewhat, according to a Wall Street Journal article (here) about a law suit in Florida in which the firm responded to a discovery request about the "unlawful conduct" by "KPMG partners" by asserting that those terms are "vague and ambiguous."  Reminds me of the response by a President in a deposition: "It depends what you mean by 'is'?"  A settlement with the DOJ will certainly allow KPMG to survive, but it is not an end to the litigation. (ph)

See also WebCPA here.  (esp)(w/ thanks to jrp)

August 6, 2005 in Prosecutions, Tax | Permalink | TrackBack (0)

SEC Sends Notice to Fidelity Trader of Possible Securities Fraud Suit

The former head of stock trading at Fidelity Investments, Scott DeSano, has joined the firm in receiving a notice from the SEC's Enforcement Division that it intends to recommend to the full Commission that a civil securities fraud suit be filed related to his acceptance of gifts from brokerage firms.  DeSano was highly regarded for helping drive down Fidelity's stock commission costs, but was reassigned to a different positin when the the SEC investigation came to light.  The SEC's investigation of conflicts of interest has led to a stricter enforcement atmosphere regarding Wall Street gift-giving practices that were once viewed as a perk.  A CNN article (here) discusses the SEC's Wells Notice to DeSano. (ph)

August 6, 2005 in Civil Enforcement, Securities | Permalink | TrackBack (0)

Friday, August 5, 2005

No Time for Other Former WorldCom Accounting Manager

Troy Norman, who also plead guilty and cooperated with the government, received no jail time.  The Wall Street Jrl reports here that although Betty Vinson received five months in jail and five months of house arrest, Judge Barbara Jones did not give Troy Norman a like sentence.  The Assistant United States Attorney apparently argued for the lesser sentence premised on Norman's attempt to resign his position with the company.

People in need of the employment to support their families, people who may be more timid and less likely to stand up to authority, need to be aware that these extenuating circumstances may not be factored into a sentence recommendation of the government.  It may be a bottom line type of approach -  did you try to get out when you were asked to do something criminal,and if so, you get a better benefit than if you did not try and went along with the criminal activity. Your role in the eventual criminality may also play a factor in the sentence given. My only concern here is whether more timid individuals, those who tend to go along with the commands and activities of others- especially higher-ups, may receive more severe sentences as a result of this approach being taken.  Maybe they should?

(esp)

August 5, 2005 in Sentencing, WorldCom | Permalink | TrackBack (0)

Employees Carry This Decision With You

Every employee should carry a copy of a newspaper article telling the sentence of Betty Vinson a former WorldCom worker. (see BBC article here) She entered the numbers on the books, albeit at the direction of her superiors. It was wrong, but when you work for someone you assume that you have to do as they say to keep your position.  Saving your job is never worth doing something illegal, especially something that may land you in jail down the road.  Following orders will not be an effective defense here.  So show your employer the newspaper article of Betty Vinson getting 5 months in jail and say - no way!

(esp)

August 5, 2005 in WorldCom | Permalink | TrackBack (1)

Prelude to Sullivan Sentence

Today Betty Vinson and Troy Normand are being sentenced. These two individuals worked in the accounting department for Buford Yates (set for sentencing on August 9th) at WorldCom. (see post here) The Wall Street Journal reports here on the sentence of Vinson. The low sentence is not surprising in light of the role this individual played and the cooperation provided. The sentencing of Troy Normand is set for 2 P.M. today.   

These sentences are a prelude to the Scott Sullivan sentencing that is scheduled for August 11th.  Sullivan was the key witness that assisted the government in obtaining the conviction against Bernard Ebbers. The government asked for low sentences in these cases because of the defendants' cooperation in the trial of Bernard Ebbers.  Ebbers received a sentence of 25 years. 

It is important for the government to have cooperators receive low sentences as a message that cooperation can reduce a sentence significantly and thus others will come forward and cooperate to get high-ups. It is the essence of the 5K1.1 motion that the government files asking the court for a lower sentence based on the cooperation provided by the defendant. But what about defendants who have nothing to offer the government, or defendants that believe they are innocent and take the route of trial?  Do these defendants suffer unjustly because of their circumstances or their availing themselves of their constitutional right to a jury trial?

(esp)

August 5, 2005 in Sentencing | Permalink | TrackBack (0)

Enron Broadband Trial - Retry?

The government has to make a decision of what to do with regard to the Enron Broadband trial, a trial that ended in not guilty and hung jury verdicts (see post here).  Should they retry the case or dismiss?  The public is speaking on the Houston Chronicle website poll here (although clearly not a scientific poll).  Today it shows 91% voting for no retrial - a strong message to the government?  Obviously the government should not be looking at unscientific polls in making their decisions, but then again is it warranted to spend more taxpayers dollars on this case? Stay tuned.

(esp)

August 5, 2005 in Enron | Permalink | TrackBack (0)

Lobbyists Charged

On May 4, 2005, Lawrence Franklin, a defense department analyst, was arrested. (see here for background on this case) The indictment against him, unsealed on June 13, 2005, charged him with "communicat[ing] national defense information to persons not entitled to receive it," and conspiracy.  Two individuals, who were lobbyists, have now been added to this case.

The New York Times reports here that two former lobbyists for the American Israel Public Affairs Committee (AIPAC) have been indicted for conspiracy to "communicate national defense information." One the individuals, Steven J. Rosen, is also charged with "unlawfully, knowingly and willfully aid[ing] and abet[ting] Franklin in the communication, delivery and transmission of said document, writing and note." (See indictment). With Attorney Plato Cacheris representing Franklin, and Attorney Abbe Lowell representing Steven J. Rosen, this is definitely a case to follow. The Washington Post provides more details and comments from defense counsel here.

The press release of the US Attorney for the Eastern District of Virginia states here:

"The indictment alleges that beginning in April of 1999, Rosen, the Director of Foreign Policy Issues for the American Israel Public Affairs Committee (AIPAC) in Washington, D.C., and Weissman, the Senior Middle East Analyst in the Foreign Policy Issues Department at AIPAC, in an effort to influence persons within and outside the United States government, would use their contacts within the United States government, including Franklin, with whom they first met in February 2003, to gather sensitive United States government information, including classified information relating to the national defense, for subsequent unlawful communication, delivery and transmission to persons not entitled to receive it, including members of the media and foreign government officials."

(esp)

August 5, 2005 in Prosecutions | Permalink | TrackBack (0)

SEALS Conference

The blog reports here on the "Corporate and Securities Fraud Update" panel discussion held at the Southeastern Association of Law Schools Conference (SEALS). There was also a Sentencing Panel that examined the afternath of Booker/Blakely. The panel examined new developments in sentencing post- Blakely and how these developments affect federal and state sentencing procedure for both the prosecution and defense. The panel discussion was moderated by Professor Cynthia Jones of American Univeristy, Washington College of Law. The panelists were:

Deborah Young (Samford, Cumberland School of Law), who after providing a history of the guideline caselaw, examined how district courts were applying the Booker decision six months later. She covered a wide spectrum of cases including those of Judges Cassell and Gertner, noting the thoughtfulness of many of the opinions being written.  She covered three areas with disparity including issues related to burden of proof and consideration of acquitted conduct.  She asked amd discussed the question - "Are district court judges more satisfied?"

Ron Wright (Wake Forest) focused on the reaction of state legislatures.  He grouped the different state responses and looked at the different responses being taken by state legislatures.

Janet Hoeffel (Tulane) examined the aftermath of Blakely from the perspective of the role of the jury. She also considered issues related to plea bargaining in the aftermath of the Supreme Court decisions and considered the effect of vague aggravators being used.

Although this panel was not focused on white collar crime, the issues presented here may affect the development of the law in this area. 

(esp)

August 5, 2005 in Sentencing | Permalink | TrackBack (0)

Driving DaimlerChrysler

The Wall Street Journal has an article here titled, "U.S. Probes Allegations Of Bribery at DaimlerChrysler."  The issue appears to be whether the Mercedes unit engaged in activities that might be prohibited by the Foreign Corrupt Practices Act FCPA). 

According to the company web page, sales in the Mercedes division are up (see here).  Business Week looks closely at DaimlerChrysler here.

(esp)

August 5, 2005 in International, Investigations | Permalink | TrackBack (0)

Thursday, August 4, 2005

Busted for Yoga

CNN reports here that Martha Stewart has agreed to extend her house arrest for an extra three weeks.  The CNN story states that, "[t]he New York Post reported over the weekend that Stewart, ...may have violated the rules of her probation by riding around her suburban New York estate on a Kawasaki Mule four-wheel drive vehicle and dropping in on a nearby yoga class."

Martha must have gotten used to fitness classes while being housed at Camp Cupcake. And after all, prison is a place to reform and educate.  And Martha must have just been following that education that she learned when she was incarcerated.   

We should all feel safer knowing that Martha will be spending an extra three weeks on house arrest.

(esp)

August 4, 2005 in Martha Stewart | Permalink | TrackBack (2)

NY Stockbroker pleads

Big spending, a lavish home, and defrauding high profile victims is a sure recipe for being indicted.  And when the evidence is the kind that will not play well to a jury, especially in New York, it is not surprising to see a plea being entered.

AP reports here of a plea being entered by a New York stockbroker who had a lot cards stacked against him.  When initially indicted, back in December of 2004, the Manhattan DA's office press release stated that stock broker Calvin R. Darden, Jr. was being indicted "for  stealing $4.177 million dollars from three Wall Street firms and an investor."  Sentencing is set for the beginning of November.

(esp)

August 4, 2005 in Prosecutions | Permalink | TrackBack (0)

Cooperation Buys Probation for Former HealthSouth Exec

Often when the government is investigating a company or individual, they uncover criminal conduct that may be outside the focus of their initial investigation.  The question arises - what do you do with this evidence?  These extraneous criminal charges sometimes serve as the basis for the government securing cooperation agreements with individuals who will provide information related to the main investigation.

The Wall Street Journal (AP) reports here that a former HealthSouth executive received a sentence of probation and a $500 fine for a conviction on a false statement to the FBI "about [a] bribe, which was uncovered during an investigation into the huge fraud that nearly bankrupted the rehabilitation and medical-services chain."  The false statement was for "lying about a plan to pay a $1 million bribe in return for a $50 million deal to run a hospital linked to Saudi Arabia's royal family."

(esp)

August 4, 2005 in HealthSouth | Permalink | TrackBack (0)

Spitzer Raking in Pleas

N.Y. Attorney General Eliot Spitzer is building a pretty impressive file of pleas in the ever continuing investigation of the insurance industry.  Bloomberg News reports here in the New York Times that the latest pleas are "[t]wo former insurance brokers at the Marsh & McLennan Companies and a former underwriter at Zurich Financial Services."   Although the pleas are to felonies, if cooperation is provided to the NY AG's office the charges may be reduced to misdemeanors.  It is amazing what cooperation can buy these days.

(esp)

August 4, 2005 in Prosecutions | Permalink | TrackBack (0)

Wednesday, August 3, 2005

Cendant Exec Sentenced to Ten

After a seventh month trial and 33 day deliberation (see here and here), former Vice Chairman of Cendant, E. Kirk Shelton, was sentenced today to 10 years in prison.  The Wall Street Journal (AP) also notes here that the judge ordered him "to pay almost $3.3 billion in restitution, including an initial payment of $15 million by October, and monthly payments of $2,000 per month once he is out of prison."  Shelton was convicted of 12 counts. 

(esp)

August 3, 2005 in Sentencing | Permalink | TrackBack (0)

CIA Leak Case - Are We Going in Circles?

We left off here, asking, - where is this investigation heading? 

John Dean looks squarely at Rove here, and speaks about his thoughts and in one instance a comparison to Watergate. 

Then the New York Times here titles its article, "2 Aides to Rove Testify in CIA Leak Inquiry."

Then you have columnist Novak and a CIA operative not seeing quite eye to eye in prior discussions here.  Did some of this actually come from a simple "Who's Who?"

Grand jury secrecy is a strange thing, it keeps the public from the transparency of the judicial system that they so desire. It allows for the media to go in so many different directions.  But the bottom line is that no one really knows what goes on behind the closed doors except the prosecutor, grand jurors, and the court stenographer - and luckily none of them are talking. Remember - white collar cases sometimes move a lot slower than the street crime cases.  They are a breed unto themselves. So the fact that things are still fairly quiet is not alarming.

(esp)

August 3, 2005 in Media | Permalink | TrackBack (0)

Plea in Fen-Phen Fraud Case

Fen-Phen, a weight loss drug, was removed from the market in 1997. (See here).  As one might suspect, it was followed by lawsuits to compensate those injured, and a class action settlement. (see here). 

A recent sentencing in Mississippi concerns fraud related to this settlement. A DOJ Press Release states here that, "[a] Mississippi woman has been sentenced to 31 months in prison for her role in falsifying prescription documents on behalf of others in order to obtain funds from a settlement fund established for injuries caused by the so-called 'fen-phen' drugs."  The press release states that the defendant "participated in the scheme to file false prescription documents on behalf of others in order to obtain funds from a $400 million settlement fund established following a suit against American Home Products, the maker of the diet drugs Redux and Pondomin, for injuries caused by fen-phen. Johnson was also ordered to pay $750,000 in restitution."

(esp)

August 3, 2005 in Fraud | Permalink | TrackBack (0)

Tuesday, August 2, 2005

Major Settlement in Enron Case

The Canadian Imperial Bank of Commerce (CIBC) reports here in a press release that it has reached an agreement "in principle to settle the Enron class action litigation entitled Newby v. Enron Corp., brought on behalf of Enron security purchasers."  The lawsuit was pending in federal court in Houston. The press release states in part:

"Under the terms of the settlement, CIBC will pay U.S. $2.4 billion to the settlement class. Plaintiffs' attorneys' fees will be paid out of the settlement. The settlement does not include any admission of wrongdoing by CIBC. CIBC stated that it agreed to the settlement solely to eliminate the uncertainties, burden and expense of further protracted litigation. The class action settlement must be approved by the Board of Regents of the University of California, the lead plaintiff in the case, before it is submitted to the United States District Court for the Southern District of Texas."

The Wall Street Journal includes a quote from an attorney in this matter noting that "$2.4 billion, [is] the largest amount to date" of any settlement reached in the Enron matter.  This amount, along with the other settlements to date, do not reach the billions of dollars lost by investors. See here.

(esp)

August 2, 2005 in Enron | Permalink | TrackBack (0)

Kozlowski and Swartz Remain Free Pending Sentencing Hearing

The sentencing of Dennis Kozlowski and Mark Swartz has been officially set for September 19th.  At a hearing today, a New York State court judge considered whether these two individuals should remain free on bail pending the upcoming sentencing. The court rejected the prosecutor's argument that the two remained a flight risk and in so doing rejected the State's motion to incarcerate these two individuals immediately.  (For details see Wall Street Jrl here)

(esp)

August 2, 2005 in Sentencing | Permalink | TrackBack (0)