Saturday, September 3, 2005

The Lowest of Schemes

As predicted here fraudulent schemes are arising from the Katrina tragedy. Cathy Cox, Secretary of State for the State of Georgia, notes here  that people should "be wary of phony hurricane relief emails and web sites that have popped up in several states this week." Her press release states that:

"[t]he FTC has received multiple reports of individuals using fake Hurricane Katrina donation web sites to steal money, capture user names and passwords, and install spyware or Trojan software on computers. The websites/domains in question include: katrinahelp.com, katrinarelief.com, and katrinacleanup.com."

It's a sad day when people who wish to assist others have to worry about the way they provide assistance. Individuals who  commit these crimes commit the lowest form of white collar crime -stealing from those in need.

(esp)

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

Dole Continues to Support Judith Miller

It has been surprisingly quiet lately with respect to the jailing of New York Times reporter Judith Miller for her failure to reveal confidential sources, sources which by the way she never used in an article. Today's New York Times, however, reminds us of her incarceration, with a story describing Bob Dole's support of this newsperson.  See here.

(esp)

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

Friday, September 2, 2005

CATO Institute Program

An upcoming Cato Institute Program includes a session on overcriminalization, a hot topic in white collar crime.  The details of this program can be found here.

The Cato Institute's Center for Constitutional Studies

presents a symposium

The Supreme Court: Past and Prologue
A look at the October 2004 and October 2005 Terms


to celebrate
Constitution Day

and the publication of the fourth volume of the annual
Cato Supreme Court Review

Wednesday, September 14, 2005

September 2, 2005 in News | Permalink | TrackBack (0)

MIlitary Escorts

In a DOJ post here, it tells of several former and current members of the military and law enforcement who were acting as military escorts to drug traffickers.  What they failed to realize was that the delivery of the drugs was going to federal agents.  Operation Lively Green initially had 17 defendants who plead guilty, and now there are another 16 pleading. What perhaps is interesting here is the choice of charge being bribery and extortion conspiracy.

(esp)

September 2, 2005 in Prosecutions | Permalink | TrackBack (0)

Government Will Not Prosecute MCI

MCI can breath a sigh of relief with the announcement by U.S. Attorney David Kelley of the Southern District of New York that the company will not be prosecuted for the accounting fraud that led to its collapse into bankruptcy in 2002.  The U.S. Attorney's Office noted that all of the employees with any involvement in the fraud have been terminated, and the convictions of former CEO Bernie Ebbers and CFO Scott Sullivan, among others, means the main perpetrators have been prosecuted and will serve time in jail.  The announcement is not surprising in light of the fact that most companies forced into bankruptcy by fraudulent accounting have not been charged criminally (e.g. Enron, Adelphia Communications) because there is so little to gain from a prosecution.  The government's decision does, however, make things easier for the proposed Verizon takeover of MCI, with the vote on the transaction scheduled for Oct. 6.  This will be one less item the companies have to discuss in the voluminous merger documents. An AP story (here) discusses the government's announcement. (ph)

September 2, 2005 in Prosecutions, WorldCom | Permalink | TrackBack (0)

Chris Webber Pays $100,000 Fine

Former University of Michigan and NBA basketball star Chris Webber completed the punishment for his criminal contempt by paying a $100,000 fine, in addition to the 300 hours of community service he did over the past two summers.  Webber was indicted in 2002 on perjury charges for lying to a grand jury about receiving funds from a Michigan booster who was later charged with money laundering.  The booster died shortly before Webber's trial, and in July 2003 he entered a guilty plea to criminal contempt, with the perjury charge being dropped.  U.S. District Judge Nancy Edmunds initially reserved imposing a final sentence, and ordered Webber to complete the community service and return two years later.  Judge Edmunds then determined that Webber's contempt would be a misdemeanor, and imposed the maximum fine allowable for such a violation.  According to a report in the Detroit News (here), Webber left the courtroom and went upstairs to the clerk's office, where he wrote a $100,000 check.  Webber is in the midst of a seven-year contract that pays him a bit more than $20 million per year, so the fine probably did not have a serious effect on his cash flow.

One interesting aspect of the sentencing was Judge Edmunds' rejection of a request by the University for restitution of its attorney's fees related to the NCAA and grand jury investigations of its basketball program and the costs of Webber's scholarship.  The school forfeited all the victories during the Fab Five era and returned money it received from its two Final Four appearances because Webber was ineligible for receiving money from the booster; even worse, the banners from those appearances have been removed from the team's arena.  The judge stated that the University would have to pursue a civil case against Webber because the restitution provisions do not provide for such payments based on the crime of conviction.  It's unlikely that Michigan will want to reopen the wounds from that era, although Webber may share a bit of his NBA boodle with the school to make up for its costs. (ph)

September 2, 2005 in Perjury | Permalink | TrackBack (0)

Thursday, September 1, 2005

Give/Get Assist to Lawyers Who Are Katrina Victims

Lawyers in Louisiana need assistance as a result of the devastation caused by Katrina.  Sources inform us that 1/3 of the Louisiana lawyers have lost their offices.  The National Association of Criminal Defense Lawyers (NACDL) has instituted a help needed/help available bulletin board for people to provide shelter, office space, supplies, case supervision, etc. to criminal lawyers in need to help to repair the Bayou legal infrastructure.  It is located at:   www.nacdl.org/relief   The user name is Katrina  katrinarelief and the password is Help. help There is also an online place to donate funds to assist criminal defense attorneys from this area.

Addedum: The official NACDL email , now available states:

Dear NACDL Member:

Hurricane Katrina has brought devastation to vast areas of Louisiana, Mississippi, and Alabama, and the lives and livelihood of hundreds of thousands of people have been affected.  Among them are hundreds of NACDL members and other defense lawyers whose law practices have come to a standstill, and it is unclear how soon they will be able to recover. 

Today we have established a new Katrina Disaster Bulletin Board for affected members to communicate with their NACDL colleagues, so that if they need assistance of any kind, our members in the affected areas can post messages and NACDL members nationwide can respond.  The new Bulletin Board appears on our Web site at www.nacdl.org/relief  This will be the place where members can offer assistance, where those in need can learn about the assistance being offered, and where we can match-up those in need with those who are able to assist.  To access the site, either enter your NACDL user name and password, or enter "Katrina" "katrinarelief" as the user name and "Help" "help" as the password.

Also, we have designated Alison Sterling of the NACDL staff as our Katrina Disaster Relief Coordinator.  Her job for the next several months will be to field phone calls and e-mail messages from members in LA, AL, and MS and elsewhere, and to serve as a clearinghouse for offers of help and requests for assistance.  She will also be monitoring the new Katrina Disaster Bulletin Board and serve as a conduit for communications among members.  Further, Alison will have information available about relief efforts and organizations that are providing humanitarian assistance on-the-ground.  Her phone number is 202-872-8600 x248 and her e-mail is alison@nacdl.org   

By way of this e-mail, we are asking our membership to post offers of assistance on the new Bulletin Board.  This could include (1) providing housing and shelter for any members and their families in need;  (2) assisting affected members with temporary office space;  (3) providing short-term employment for affected lawyers;  (4) providing short-term case oversight; and (5) donating office equipment and supplies, telephones and cellphones, calling cards, etc. once conditions improve and these supplies can be delivered to them.  Again, please post your messages on the new Bulletin Board located at www.nacdl.org/relief   If you are unable to post to the Bulletin Board, please contact Alison Sterling: 202-872-8600 x248 and her e-mail is alison@nacdl.org   

In the meantime, we encourage all NACDL members to make tax-deductible contributions to the Foundation for Criminal Justice and its Katrina Disaster Relief Fund.  Please click here to make a contribution online:  http://www.nacdl.org/public.nsf/FoundationGiving?openform    NACDL has just donated $5,000 to this fund -- and we hope all NACDL members will do likewise.  Indeed, if each member were to contribute a minimum of $100, we would raise more than $1.2 million.  Once we have a better understanding of the needs of our members, we will provide cash grants and loans to help defense lawyers get back on their feet.  Please donate today.

In addition, we encourage you to give generously to the various humanitarian agencies that are on-the-ground helping in the rescue and relief efforts.  These agencies are helping the victims of Katrina.  Please click here to learn how you can donate to these organizations.  Donations will provide clean water, food, and shelter to the victims.  Please make a generous contribution today. 

NACDL will also provide links to Web sites of affected local organizations that are part of the defense and criminal justice community as they begin the process of recovery and return to normal operations.  Please check our Web site periodically as we update this information in the coming weeks and months. 

Barbara E. Bergman                Ralph Grunewald
NACDL President                NACDL Executive Director

(esp)

September 1, 2005 in News | Permalink | TrackBack (0)

District Court Dismisses SEC Suit Against Siebel Systems for Violating Regulation FD

Judge George Daniels of the U.S. District Court for the Southern District of New York dismissed the SEC's law suit accusing Siebel Systems, Inc. of violating the fair disclosure rules (Regulation FD) for failure to state a claim (opinion here).  The Commission accused the company of making selective disclosure to participants at an industry conference that was not otherwise publicly available when the company's CFO stated that its business was "good" and "better" and its order pipeline was "building" and "growing."  Judge Daniels rejected the SEC's position that these statements disclosed information not otherwise publicly available to investors.  As an initial matter, the judge considered the entirety of the company's public statements, and not just selective portions as the SEC said should be done because those were the only statements included in its complaint. 

The judge went on to criticize the SEC's parsing of the language of the company's statements, noting that "the SEC has scrutinized, at an extremely heightened level, every particular word used in a statement, including the tense of the verbs and the general syntax of each sentence.  No support for such an approach can be found in Regulation FD  . . . Such an approach places an unreasonable burden on a company's management and spokespersons to become linguistic experts . . . ."  In determining whether a Regulation FD violation has occurred, Judge Daniels summarized the test: "As long as the private statement conveys the same material information that the public statement publicly conveyed, Regulation FD is not implicated, and hence no greater form of disclosure, pursuant to the regulation, is required."  It sure sounds like a common sense test, looking at the information publicly available and whether the substance is reflected in the private statements, and not just whether the words used are identical or can be sliced and diced to show a modest difference. The SEC's suit is the first major test of the scope of Regulation FD, so while the provision and the opinion do not set forth simple rules, Judge Daniels has signaled that the regulation should be understood within the context of a market in which a great deal of information is available to investors rather than viewing the statements in a vacuum. (ph)

September 1, 2005 in Securities | Permalink | TrackBack (0)

Katrina Will Also Spawn Fraudulent Schemes

As if the human suffering caused by Hurricane Katrina is not enough, the disaster will be a catalyst for any number of different fraudulent schemes that take advantage of those seeking to contribute to the relief efforts, offer investors a chance to get in on the ground floor of new "investment opportunities," and allow false or inflated insurance claims.  An article from Reuters (here) notes that spam e-mails have already gone out touting penny stocks that will take advantage of the disruption in the energy markets and rebuilding programs.  If past relief efforts are any guide, fake charities will be set up to take money and goods with no intention of providing any help.  The property-casualty Insurance companies generally approach these types of disasters with a "pay first, investigate later" method of operation, which is probably the best way to handle the situation but it opens the companies up to fraud.  (ph)

September 1, 2005 in Fraud | Permalink | TrackBack (0)

Boies Family Conflicts

The Wall Street Journal reports (here) that a document-management company, Amici LLC, that did work on behalf of Tyco and Qwest Communications is owned in part by members of the family of lawyer David Boies, whose firm (Boies, Schiller & Flexner) is counsel to the companies.  The firm resigned earlier this week as special counsel to Adelphia Communications because Boies did not disclose his family's ownership interest in Amici, which Adelphia used in its bankruptcy to manage the documents needed in various law suits and investigations.  Adelphia paid Amici between $5 and $10 million to store and manage documents on behalf of the company. 

Boies disclosed that Amici has done work for six to eight other clients of Boies Schiller, and acknowledged that he should have disclosed the connection between his family, including his children, and the company doing business for his clients.  To make matters worse, at least from an appearance point of view, is that one of the founders of Amici is William Duker, a lawyer who pled guilty in 1997 for inflating legal bills submitted to the FDIC and Resolution Trust Corp. as part of litigation against Michael Milken for which the lead counsel was -- you probably guess it already -- David Boies (who was not implicated in Duker's misconduct).

Paul McGreal on the Corporate Compliance Prof blog has an interesting post (here) noting the different professional rules Boies (and his firm) may have violated in this matter.  Another interesting aspect is that Boies testified at the retrial of former Tyco CEO Dennis Kozlowski and CFO Mark Swartz about his conversations with them.  The prosecution of Kozlowski and Swartz centered on their inadequate disclosure of the large sums they received as compensation from the company, and the jury convicted them of grand larceny based, at least in small part, on Boies' testimony.  How does a champion of corporate governance and full disclosure (leaving aside his representation of former AIG CEO Maurice Greenberg) miss such an obvious potential conflict of interest when recommending Amici's services to Tyco? (ph)

                                                                                           

UPDATE: Check out this post by Bruce MacEwen on the Adam Smith, Esq. blog (here), who concludes much more eloquently than I:

Simply another example of "What was he thinking?"  That, to be sure, but I recount this for another reason.  Boies' choice not to disclose—and anyone of his intellect and rigor made, at some point, that conscious choice—reveals a hubris that those at the top of their game can fall victim to.  At the very least, he acted with "vast carelessness," in F. Scott Fitzgerald's felicitous phrase (referring to the very rich).

(ph)

September 1, 2005 in Legal Ethics | Permalink | TrackBack (0)

Sorting Out the Bayou Securities Mess

The mess at Bayou Securities just keeps getting murkier.  The Arizona Attorney General seized $101 million from a Wachovia Bank account because it appeared to be part of a larger fraud, and that looks like a lucky break for investors in Bayou's hedge funds who might get a little money back, although not any time soon.  A Wall Street Journal article (here) notes that the funds seized by Arizona appear to be part of a series of withdrawals of $160 million from Bayou's Citibank accounts that traveled to accounts in Germany, London, Hong Kong, and then back to the U.S.  Once the Arizona AG moved on the money, Bayou founder Samuel Israel III filed a claim to the money in state court, asserting ownership of it on behalf of Bayou Fund LLC, a hedge fund he helped manage. 

Mr. Israel told investors that the hedge fund would be closing in July because of his impending divorce, but shortly after that announcement one of the fund's investors went to the firm's Connecticut office and discovered a purported suicide note written by the firm's chief operating officer, Daniel Marino (no, not the former Dolphins quarterback) asserting that the hedge fund was largely fraudulent.  Thankfully, Marino did not commit suicide, and the veracity of the note is no doubt under investigation by federal and state authorities looking into Bayou's finances.  Israel has not communicated with investors since his July announcement.

Now, Israel's Arizona counsel has filed a motion to withdraw from the case because of "ethical considerations and concerns" and that his client may not have been forthcoming about "material information," in addition to the client's failure to pay fees.  I suspect that's a nice way of saying the client may have used the lawyer as part of a fraud.  Look for the investigators to pursue a crime-fraud claim to obtain information from the attorney about his communications with Israel and others at Bayou, on the ground that the $101 million was part of a larger scheme to defraud and Israel's claim was an attempt to get control of the money for his own purposes.  This one won't get any less complicated until someone decides to cooperate and give investigators a roadmap to where to find the money, if there is any other than the Arizona kitty.  At one point, Bayou claimed to manage $440 million, but it's unlikely there is anything near that amount available.  As the law suits pile up, and criminal cases get put together, investors should not hold their breath waiting for any return of their investment. (ph)

September 1, 2005 in Fraud, Investigations, Legal Ethics | Permalink | TrackBack (0)

Calculating Loss in a Loan Case

Even with the Federal Sentencing Guidelines now advisory, an issue that continues to vex courts is calculating the loss in cases arising from false statements related to loans.  Is the loss the total amount of the loan, what the assets would have been worth at the time of the false statement, the defendant's intended loss, or some mixture of all three?  An interesting opinion from the Seventh Circuit in United States v. Berheide (here) tries to come to grips with some of these issues in a situation involving a defendant's false statement to get the bank to forbear calling his loan.  If the underlying business securing the loan was worthless, then how did his false statement harm the bank when it wasn't going to get anything any, and didn't advance any more money on the loan?  Gee, isn't math fun.  The district court simply used the total loan amount as the loss, and in a show of great courage, the appellate court remands the case to the district court to recalculate the loss because the loan amount could not be the proper figure. (ph)

September 1, 2005 in Fraud, Judicial Opinions, Sentencing | Permalink | TrackBack (1)

Wednesday, August 31, 2005

State Prosecutor Indicts Two in Election Fraud Case

Ray Beckerman, on the Ohio Election Fraud website here links to a Cleveland Plain Dealer article titled "2 Election Officials Indicted in Recount" that discusses the recent indictment of two election officials from Cuyahoga County, Ohio who were indicted "on charges of not handling ballots correctly during the recount of the 2004 presidential election." The case is being brought by a state prosecutor.

(esp)

August 31, 2005 in Fraud | Permalink | TrackBack (0)

More KPMG Documents

Additional items have been posted by Professor Paul Caron on the tax blog (here) includingthe statements of  AG Gonzales, IRS Commissioner Everson, KPMG Statement, and a copy of the Press Conference Transcript between Gonzalez, Everson and USA Kelly.

(esp)

August 31, 2005 | Permalink | TrackBack (0)

Katrina News

Tulane and Loyola Law School Communities - Professor Pamela Metzger has set up the following website - http://metzgerlevittfamily.typepad.com/new_orleans_where_are_you/

She and Professor Katherine Maris Mattes of Tulane are also using their blog as a hub - http://lawprofessors.typepad.com/clinic_prof/2005/08/after_katrina.html

To all in the storm area - we send our thoughts and best wishes. 

August 31, 2005 in News | Permalink | TrackBack (0)

Pleas in Spitzer's Office

Attorney General Spitzer's Office is in the news again.  This time the New York Times is reporting on guilty pleas being entered by two former executives of Security Trust Company. (here)   According to a press release issued by the New York Attorney General's Office here, "the former Chief Executive Officer and the former President of an Arizona based trust company have pleaded guilty to state criminal charges in connection with the ongoing investigation of illegal trading practices in the mutual fund industry." The pleas were to "second degree grand larceny, a class C felony, and to a violation of the Martin Act."  (description of the Martin Act can be found here on the Corp. Law Blog).  These two cases bring Spitzer's total to "nine [  ] pleas since the investigation of illegal trading in the mutual fund industry..."

(esp)

August 31, 2005 in Sentencing | Permalink | TrackBack (0)

More on Kentucky Pardons

Discussed here is Kentucky Governor Ernie Fletcher's pardon of some "former and current aides."  Margy Love, former pardon attorney for DOJ and author of a resource guide (Relief From The Collateral Consequences Of A Criminal Conviction: A State-By-State Resource Guide) comments on these pardon's as follows:

"To me, the most outrageous thing about the Fletcher pardons is that he has otherwise been extraordinarily stingy with his power.  As of last March he had granted no pardons at all to ordinary people in his entire time in office, and he doesn't even grant restoration of rights very frequently..  Keep in mind that in Kentucky a pardon is the ONLY way for convicted persons to get their civil rights back: it is now one of only four states that do not restore the right to vote automatically to at least some offenders.   My research for the Resource Guide (posted on the SP website) showed that in the past few years more than 1000 applications for restoration of voting rights have been received each year by the Kentucky Pardon Board, and that the Board forwards over 90% of these applications to the governor with a favorable recommendation.  But Governor Fletcher issued only about 100 “partial pardons” to restore voting rights in his first year in office (compared to 637 issued by his predecessor in his first year in office).  I was informed by Gov. Fletcher's staff in March 2005 that after 15 months  in office the governor had not yet formulated a pardon policy or procedure, had not decided whether to consult the Parole Board (as his predecessors had done), and had issued no full pardons. . . ."

(esp)

August 31, 2005 in Investigations | Permalink | TrackBack (0)

Who is Entitled to the Money?

The Wall Street Journal here reports that "Arizona state authorities [ ] seized more than $101 million in assets from a bank account that may have held money from Bayou Management LLC, a hedge-fund management firm currently under investigation for fraud." The question now becomes, who is entitled to this money?  The choices include Bayou as well as investors.   It doesn't look like there will be a check in the mail to anyone until some of these issues are resolved.

(esp)

August 31, 2005 in Investigations | Permalink | TrackBack (0)

Tuesday, August 30, 2005

Attorney-Client Privilege Issue and KPMG

One controversial area between defense attorneys and the DOJ has been the attorney-client privilege issue.  It has been a subject of resolutions of the ABA and the NACDL. (see posts here and here).  One aspect of concern has been the government's requirement that the corporation or company waive the privilege in cases where there is a deferred prosecution agreement.  The KPMG agreement here has some interesting language in this regard.  The agreement provides as follows: 

"8. KPMG agrees that its continuing cooperation with the Office's investigation shall include, but not be limited to, the following:

.   .   .   (e) Not asserting, in relation to the Office, any claim of privilege (including but not limited to the attorney-client privilege and the work product protection) as to any documents, records, information, or testimony requested by the Office related to its investigation, provided that:

(I) not withstanding the provisions of this subparagraph (e), KPMG may assert the attorney-client privilege, work product protection, or other privileges with respect to (A) privileged communications between KPMG and its counsel that post-date February 1, 2004 and that concern the Office’s investigation, (B) privileged communications between KPMG and Skadden, Arps, Slate, Meagher & Flom LLP, concerning the IRS’s promoter penalty audit, or (C) any private civil litigation; and

(II) by producing privileged materials pursuant to this subparagraph (e) KPMG does not intend to waive the protection of the attorney-client privilege, work product protection, or any other applicable privilege as to third parties.”

(esp)

August 30, 2005 in Settlement | Permalink | TrackBack (0)

KPMG will pay 456 Million, Is it An Odd Number?

How did the DOJ and KPMG come to the number of 456 million?  Although it may seem like an odd number, the source of this amount is specifically laid out in the agreement. (see here)

1. "a fine consisting of disgorgement of 128,000,000 of fees received by KPMG from the activities described in the Statement of Facts"

2. "restitution to the IRS of $228,000,000 for...."

3. "100,000,000 to settle the IRS's promoter penalty examination of KPMG....."

(esp)

August 30, 2005 in Settlement | Permalink | TrackBack (0)