Saturday, October 8, 2005

More Charges for John Rigas

John Rigas, who was sentenced to 15 years in jail (see post here), now has new charges.   According to CNN Money (Reuters) here - this time it is tax evasion.  Rigas is 80 years old.

(esp)

October 8, 2005 in Prosecutions | Permalink | TrackBack (0)

Letter to the Editor

Capitol Weekly reports here a new kind of scheme - writing letters to the editor under different pen names. To make matters worse, the letters sometimes supported each other and were authored by a political consultant.  Not a bad way of securing support for ones position.  But it presents a problem in California as it is a misdemeanor to send false letters to newspapers.

(esp)

October 8, 2005 in Media | Permalink | TrackBack (0)

Friday, October 7, 2005

SEC Injunctions and Footnote 14 in Smyth

Bruce Carton on the Securities Litigation Watch blog has an interesting post (here) about the Eleventh Circuit's dictum in SEC v. Smyth (here) that calls into question the Commission's use of broad "sin no more" injunctions in settled cases.  In Smyth, which concerned whether the defendant was entitled to a hearing on the amount of disgorgement in a securities fraud case, the panel included a footnote at the end of the opinion stating that the broad injunction entered by the district court (to which the defendant had agreed) would be unenforceable because it lacked sufficient specificity regarding what conduct was being prohibited by the court order.  The SEC filed a brief requesting that the panel remove the footnote because the issue of the scope of the injunction was not before the court, and therefore not argued by either party, and the analysis is incorrect (the Commission brief is available below).  The effect of footnote 14 in Smyth would be to require the SEC to draft its injunctions with a bit more precision by identifying the types of misconduct that are prohibited under the broad anti-fraud provisions of the federal securities laws.

I suspect the Eleventh Circuit will agree with the SEC's request and remove the footnote from the final published version of the case.  The panel's statement is so clearly dictum, and the unfairness of calling into question an important regulatory tool of a federal agency without even a hint that it was an issue in the case, will likely impel the court to drop the discussion.  Whether or not the Commission's brief is right that the footnote is wrong substantively, a proposition on which there can be much disagreement, the fact that the court provided what is effectively an advisory opinion without giving the SEC the benefit of an opportunity to argue its position is not something that appellate courts should do, regardless of the merits of the statement.

The interesting question will be whether the footnote propels the SEC to change is approach to broad injunctions in settled cases even if the final published opinion in Smyth does not contain footnote 14.  The Commission is on notice that at least one group of judges perceive a problem, and the securities bar is certainly aware of it and may press the issue in other cases.  Dictum or not, the Eleventh Circuit may have started a change in the drafting of injunctions even if it can make the footnote disappear.  (ph)

Download smyth_sec_brief.pdf

October 7, 2005 in Judicial Opinions, Securities | Permalink | TrackBack (1)

Will Rove Make a Final Pitch to Avoid an Indictment?

The AP reports (here) that special prosecutor Patrick Fitzgerald has accepted Bush aide Karl Rove's offer to testify a fourth time before the grand jury investigating the leak of the identity of CIA operative Valerie Plame.  While Rove made the offer back in July, which is when Time reporter Matthew Cooper testified before the grand jury about his conversations with Rove regarding Plame, Fitzgerald only accepted the offer last Friday, the day that New York Times reporter Judith Miller finally testified before the grand jury.  Is there a contradiction in there that Rove (or Fitzgerald) wants to clarify?

More ominously, it appears that Fitzgerald's acceptance of the offer did not provide any assurance that Rove will not be indicted.  Rove's attorney, Robert Luskin, had emphasized repeatedly that Rove has not received a "target letter" from prosecutors, but the absence of a letter does not mean that the special prosecutor's office does not have targets, and Rove may have been notified orally of his status in the investigation.  Moreover, these letters usually are sent in the final stages of an investigation and "invite" the person to testify before the grand jury (without their attorney being present, of course) despite the prosecutor's statement that there is substantial evidence of the person's involvement in criminal activity.  As part of the "dance" between prosecutors and defense counsel, the target letter can serve a useful purpose to move along negotiations toward a resolution of the case, but in this situation is it unlikely that Fitzgerald's office needs to issue such a letter for that purpose when an oral notification would be sufficient.  The targets of the investigation, including other senior administration officials, may well know where they stand, so assertions regarding the lack of official notification of target status are mostly a smokescreen.

Why would Rove agree to testify before a grand jury that may well be asked to return an indictment against him?  Assertion of the Fifth Amendment at this point, after three prior trips to the grand jury, would be equally dangerous for someone in a position like Rove's because it would be tantamount to an admission of guilt. Look what happens in business when a corporate officer refuses to testify or cooperate in an investigation, and while the President softened his position earlier this year by stating that anyone convicted of a crime would lose his position in the administration, taking the Fifth would create enormous pressure to dismiss the person.  Unlike most cases, in which it is almost foolhardy to appear before the grand jury when there is a reasonable chance it will be asked to indict the witness, in political cases the need to avoid an indictment is particularly strong.  Those in the political arena often have good communication skills, so they think they can persuade a grand jury not to indict.  Thinking back almost twenty years, then-Virginia Senator Chuck Robb appeared before a grand jury investigating him for corruption, and shortly thereafter the grand jury returned a "no bill" and refused to indict him.  While it is a gamble to appear before a grand jury, it may be one worth taking in this case if there is at least the chance of heading off an indictment. If the indictment is inevitable, then the harm is not that great for a person who has appeared three times already. (ph)

October 7, 2005 in Grand Jury, Investigations | Permalink | TrackBack (0)

FCPA Indictment for Bribery of Azerbaijan Officials

The U.S. Attorney's Office for the Southern District of New York announced the indictment of three men for allegedly paying millions of dollars in bribes to officials in Azerbaijan to gain control of that country's oil company, which was in the process of being privatized. One of the defendants, David Pinkerton, works for American International Group Inc. in its private equity group and was responsible for overseeing AIG's investments in Azerbaijan.  According to the government's press release (here), Pinkerton and two other defendants, Viktor Kozeny and Frederic Bourke, paid over $11 million in 1998 to gain control of the State Oil Company of the Azerbaijan Republic ("SOCAR"):

The Indictment charges that KOZENY, acting on his own behalf and as an agent of BOURKE, PINKERTON, and other members of the investment consortium, made a series of corrupt payments and promises to pay to a senior official of the Government of Azerbaijan (the "Senior Azeri Official"); a senior official of SOCAR (the "SOCAR Official"); and two senior officials of the State Property Committee or "SPC" (the "SPC Officials"), the agency that was responsible for administering the privatization program.

(ph)

October 7, 2005 in FCPA | Permalink | TrackBack (0)

Thursday, October 6, 2005

Attacking the KPMG Prosecution

The Wall Street Journal (here) has gone on the attack against the government's prosecution of the former KPMG partners for conspiracy in an editorial comparing the case to Alice in Wonderland -- although comparing anything having to do with the tax code to the world behind the looking glass somehow denigrates Lewis Carroll.  One aspect of this type of case that is troubling is KPMG's decision to not pay the legal fees of its former partners as a means to demonstrate its cooperation with the prosecutors to earn the deferred prosecution agreement.  How does paying for a lawyer show a lack of cooperation? (ph)

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

How Fitzgerald Got Miller to Testify -- And How Much Should We Know

When New York Times reporter Judith Miller testified before the grand jury investigating the leak of the identity of CIA operative Valerie Plame, she ended three months of confinement for civil contempt once she received assurances from her source that he truly waived any confidentiality agreement they had.  Special counsel Patrick Fitzgerald appears to have played the key role in prodding I. Lewis Libby,  Vice President Cheney's chief of staff and one of Miller's sources, to reaffirm his waiver.  Fitzgerald sent a letter to Libby's lawyer, Joseph Tate, dated Sept. 12, outlining his position that if Libby truly wished to release Miller from the confidentiality agreement -- and thereby provide the key to her jail cell -- he could do so with the assurance that any action he took in this regard would not be viewed as obstruction of justice.  Fitzgerald's letter, which is now publicly available here, provides a detailed review of Libby's involvement in the investigation, including specific references to interviews and grand jury appearances.  Although the letter was most likely meant to be kept private, I wonder whether the reference to a witness's appearance before the grand jury violates the secrecy provision of Rule 6(e), even if that information was already known through disclosures by Libby (and Tate).  The Rule does not contain a "public disclosure" exception to the strict secrecy requirement.

The letter is also interesting because of its extensive references to press reports on the positions of Libby and Miller regarding the waiver and their status in the grand jury investigation.  Like most everything else in Washington, this appears to be an example of discussion by leak, e.g. "sources close to the investigation" and the like.  Once again, if any of the information came from Fitzgerald's office, there is a risk of a Rule 6(e) violation, which could spawn yet another investigation. It would be hard to avoid the irony of an investigation into leaks about an investigation into leaks.   Of course, the publication of Fitzgerald's letter shows how much this case involves use of the media as a conduit of information in support of one's position.  (ph)

October 6, 2005 in Grand Jury, Investigations | Permalink | TrackBack (0)

The Government's "Sauce for the Gander" Argument in the Enron Conspiracy Trial

The street fight in the Enron conspiracy prosecution continues, according to a Wall Street Journal article (here).  After the defense alleged that prosecutors acted improperly by discouraging potential defense witnesses from meeting with defense counsel, U.S. District Judge Sim Lake sent a letter to counsel for 38 former Enron employees (many of whom were identified by the government as unindicted coconspirators) that provided assurances that the government would not retaliate if any agreed to meet with the lawyers for Ken Lay, Jeffrey Skilling, and Richard Causey.  In support of their motion alleging prosecutorial misconduct, the defendants filed under seal affidavits from six defense lawyers purportedly outlining misconduct by prosecutors in threatening witnesses if they met with counsel for the Enron defendants.  Now, the government has asked the court to unseal the six declarations because the claims are prejudicial to the government's case by raising claims of prosecutorial misconduct that the government contends are baseless. 

The government seems to view the defense claims as part of an effort to condition the jury pool to view the defendants favorably, although its request to unseal the documents does not appear to provide much benefit to the government other than showing it is willing to fight back on every front.  A Houston Chronicle article (here) discusses another front in the battle as the defense seeks to have the judge give the jury pool an extensive questionnaire that includes asking about their favorite television show, among other things.  Does liking SpongeBob SquarePants reveal much? (ph)

October 6, 2005 in Enron | Permalink | TrackBack (0)

Unknown Purchasers Are Out $2.7 Million

In March 2004, the SEC filed a civil injunctive action against unknown purchasers of InVision Technologies, Inc. call options shortly before the company announced that it had agreed to be acquired by General Electric.  The option purchases were through accounts at a Swiss private bank, and the purchases were executed through UBS, a global securities firm.  Not surprisingly, the identity of the actual purchasers was not disclosed, and the SEC moved quickly to freeze the proceeds of the transaction before the money left the country.  The unknown purchasers bought over 4500 out-of-the-money short term call options in the week before the announcement, and had total profits of approximately $2.7 million (although not all the call  options were sold, and likely expired unexercised).  Such a transaction is sure to get the SEC's attention, and the Enforcement Division filed a TRO action to freeze the accounts the day after the announcement of the deal.  According to the SEC's most recent Litigation Release (here), the U.S. District Court for the Southern District of New York issued an injunction forfeiting the proceeds of the transactions and enjoining the unknown purchasers from future violations of the securities laws.  This is not an injunction likely to be enforced in the future given the fact that no one decided to show up in the United States to put in a claim for the money, which would trigger an immediate arrest by the FBI or Postal Inspectors on insider trading charges.  Funny how those unknown purchasers never quite seem to show their faces, but at least they thought they could get away with a big killing in the market. (ph)

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

DaimlerChrysler CEO's Wife Nabbed for Hosting Party with Underage Drinking

Somehow, things are just different in the United States when it comes to teenage alcohol use.  The wife of Dieter Zetsche, the incoming CEO of DaimlerChrysler, entered a guilty plea for hosting a party at their home at which the police found 20 underage people with alcohol (all of whom were also ticketed).  Gisela Zetsche admitted buying alcohol for the nineteenth birthday party of a person living with the family for the summer, and the police found two kegs of beer, margarita mix, and empty liquor bottles when called to the house after complaints about things being thrown at passing vehicles.  She was fined $500 and ordered to pay $2,500 in court costs.  Not the best way to end your stay in America.  An AP story (here) discusses the prosecution. (ph)

October 6, 2005 in Prosecutions | Permalink | TrackBack (0)

Wednesday, October 5, 2005

How Many Grand Juries Does It Take to Indict Tom DeLay?

This isn't a joke, and it isn't a light bulb question, it is the unfortunate reality.  According to an AP story on ABC News (here) it seems that one of the grand juries looking at a case involving Tom DeLay did not indict him. In total it looks like there were 3 grand juries and 2 issued indictments.  It is most likely that the conduct being looked at by these different grand juries was not the same conduct, so an indictment by one does not preclude a no bill by another.  Perhaps the most telling part, however, is  why was it necessary to have 3 separate grand juries regarding DeLay.  (esp)

October 5, 2005 in Prosecutors | Permalink | TrackBack (0)

Why Was DeLay Reindicted?

If you are asking why was Former House Majority Leader Tom DeLay re-indicted, the answer may he found in the Dallas Morning News here

Tom DeLay was initially indicted in a case that was premised on an extension of the statute of limitations by agreement of the parties (see here).  He was then re-indicted for the crime of money laundering and conspiracy to commit money laundering. (see here). 

It seems the agreement to extend the statute may not have been an agreement that the defense considered to be binding.When DeLay went to withdraw the extension of the statute of limitations, the only choice the defense had was to step back while the prosecutor started punching.  And without doubt, one could easily expect the first punch to be the issuing of new indictments. The question here is why didn't the prosecutors initially charge the new counts?  What led prosecutors to hold back on these charges and come out swinging now? 

(esp)   

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

Former Governor Ryan's Trial

The Chicago Tribune reports here that prosecutors have removed a key witness from the witness list in the trial of former Gov. Ryan.

(esp)

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

Katrina Internet Fraud Case

There have been several fraud cases filed resulting from alleged Katrina scams. In both Houston and Atlanta there have been cases involving allegations of the filing of false claims with FEMA. (see here and here). 

The St. Pete Times reports of a case of a Floridian being charged with fraud via the internet for allegedly using the Katrina storm to obtain money over the web for his own benefit when the money sought was to be used to assist hurricane victims. (see here).  This case uses the wire fraud statute as the basis for the charges.

(esp)

October 5, 2005 in Fraud | Permalink | TrackBack (0)

Tuesday, October 4, 2005

DeLay Indicted Again

Tom DeLay has been indicted again.  Interestingly it was after the defense presented a motion to dismiss the case.  Yahoo News (AP) reports here that the new indictment includes charges of money laundering and conspiracy to commit money laundering.   Prosecutorial misconduct is tough to prove, so DeLay may have a tough time if that is route he wishes to take. 

(esp)

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

Looks Like NO Bail for Kozlowski and Swartz

The sentences in the federal system under the guidelines may in some cases be tougher than the NYState system, but the placement and privileges can assist the individual convicted of a crime. 

Bernard Ebbers remains free on bail, although this is not the case in all federal cases (Jamie Olis remains in prison awaiting his long overdue decision from the federal appeals court). 

New York State prisons are considered tougher.  A white collar offender, with a long sentence, can be placed with convicted felons who are incarcerated because they are a danger to society.  Attica, a place that Kozlowski and Swartz may be sent to, is not quite the same as some of the lower level federal prisons (although with long sentences the federal placement will not be a camp cupcake).  To make matters worse, Kozlowski and Swartz are on their way to Attica or a similar type place as the NYState Court of Appeals Appellate Division of the NY Supreme Court has denied their request for bail. (see more in CNN Money here).

(esp) (thanks to a sharp-eyed reader for pointing out which court denied bail)

October 4, 2005 in WorldCom | Permalink | TrackBack (0)

More Tax Prosecutions

We reported here on a number of press releases issued by DOJ that related to tax matters.  It looks like this trend will not be letting up soon. The two latest DOJ Press Releases here are also tax matters:

#518: 10-03-05 JUSTICE DEPARTMENT SEEKS TO HALT TAX-FRAUD SCHEME TARGETED AT IMMIGRANTS FROM BOSNIA

  • #517: 10-03-05 JUSTICE DEPARTMENT SUES UTAH FAMILY TO HALT ALLEGED TAX-FRAUD SCHEME
  • (esp)

    October 4, 2005 in Tax | Permalink | TrackBack (0)

    Monday, October 3, 2005

    The Civil Side

    Many white collar cases have a civil side to them that often operates as a parallel proceeding to the criminal action.  With administrative agencies such as the SEC and IRS bringing civil actions that focus on conduct similar to that covered in the criminal matter, the white collar defense attorney needs to coordinate many aspects to the criminal case.  It comes down to thinking about the case globally.

    An example of this is seen this week.  Despite being found not guilty of criminal charges, Richard Scrushy, former CEO of HealthSouth, still has a civil action hanging over his head.   According to the Mercury News (AP) here Scrushy is trying to have the civil SEC action against him dismissed. With a briefing schedule that goes through November 14 on the dismissal motion, it may be a awhile before we know the court's position on this matter.

    (esp)

    October 3, 2005 in Civil Enforcement, HealthSouth | Permalink | TrackBack (0)

    What Now, Mr. Fitzgerald?

    With the testimony of New York Times reporter Judith Miller complete, at least with regard to her communications with Vice President Cheney's chief of staff, I. Lewis Libby, special prosecutor Patrick Fitzgerald's investigation looks largely complete.  The grand jury is scheduled to complete its 18-month term at the end of October, although it can be extended by six-months if there is sufficient necessity -- and Chief Judge Thomas Hogan is unlikely to deny such a request.  Nevertheless, the gist of Miller's testimony was most likely known by the special prosecutor's staff in advance, so Fitzgerald ought to be able to make decisions about whether to seek charges within the next month or so, and if necessary have the grand jury return any indictment before it expires.

    A Washington Post article (here) speculates that Fitzgerald's staff may be considering a conspiracy charge against senior administration officials who sought to have the identity  and covert role of Valerie Plame disclosed in order to discredit her husband, Joseph Wilson.  If the officials plotted to leak her position as a covert agent, which is a crime, then they could be found guilty of a conspiracy even if no official can be shown specifically to have disclosed the information about Plame to a particular reporter.  The information came from someone, and if an elaborate subterfuge was used to leak it, then it is possible to bring a conspiracy charge.  There would be significant problems with such a prosecution, starting with proving the intent of the administration officials and a criminal agreement.  Vague assertions of a motive to discredit Wilson would not, in themselves, prove the agreement necessary for a conspiracy charge.  The fact that different reporters, speaking to different officials, learned similar information is hardly proof of a conspiracy, particularly in an environment in which reporters compete to obtain information and then try to confirm it with multiple sources. 

    Conspiracy theories are always fun for speculation, but as the basis for a criminal charge against public officials accused of forming a secret cabal to manipulate the press, it seems like a bit of a stretch.  Then again, if anyone who was part of such a "conspiracy" came forward with some information (beyond speculation) about an agreement to have Plame's identity as a CIA covert agent made public, then Fitzgerald would have an important building block for any conspiracy prosecution: someone who was part of the agreement who can explain its operation.  The investigation appears to have reached its denouement, and now the tough decisions have to be made. (ph)

    October 3, 2005 in Grand Jury, Investigations | Permalink | TrackBack (0)

    The Investigation of Senator Frist's Stock Sales

    The investigation of Senate Majority Leader Bill Frist is moving forward quickly, although as with many such investigations, it is likely to move into an extended quiet period once the documents are delivered and testimony is taken.  On Sept. 29, HCA disclosed (here) that the SEC had issued a formal order of investigation, which means the Enforcement Division staff has subpoena power to compel the production of documents and testimony from witnesses.  The staff is likely to seek testimony from a number of individuals at HCA because of the large volume of stock sales during the period before the negative earnings announcement.  With the number of attorneys involved, it will probably take months rather than weeks to get through the depositions.

    A Washington Post article (here) discusses e-mails involving the decision-making process for the sale of Senator Frist's HCA stock from the so-called "blind trusts" that held the shares.  It appears that Senator Frist first raised the possibility of selling the shares in late April with his counsel and accountant, and the process took until late June to complete.  That makes it more difficult to establish a link between the sales and any possible tipping about the earnings problems at HCA, although the company's disclosure was not the result of a single event, such as a buy-out offer or other specific decision.  Earnings shortfalls don't occur over night, and it is not impossible that information started to leak out from HCA about potential problems much earlier in the quarter.  An interesting question would be whether a person who makes a tentative decision to sell stock, and then learns inside information that would impel such a sale, violates Rule 10b-5 by trading while in possession of the information.  This raises issues about the materiality of the information and to what extent the information has be a cause of the decision to trade.

    Senator Frist has brought in the first-team to represent him in the SEC and U.S. Attorney investigations of his HCA stock transactions: former Enforcement Division director Bill McLucas of Wilmer Cutler.  Unfortunately for the Majority Leader, the investigation is unlikely to be resolved quickly. (ph)

    October 3, 2005 in Insider Trading, Investigations | Permalink | TrackBack (0)