Saturday, November 12, 2005
According to an AP report (CNN.com) here, it looks like the attorneys representing Tom DeLay have asked the prosecutor to provide internal documents related to the charging of DeLay. The idea of a prosecutor providing internal work product documents may seem odd, but the question here may be whether some or all of that documentation contains exculpatory material - exculpatory to the defense. To prove that a prosecutor has acted vindictively sufficient to justify a dismissal of the charges in most places requires a showing that the prosecutor acted intentionally. In many cases the defense may think this to be the case, but is denied the ability to prove specific vindictiveness because of the inability to obtain the appropriate documentation. It is a tough road that the defense has in trying to prove improprieties in the process.
Friday, November 11, 2005
Despite most people voting for no retrial in the unofficial Houston Chronicle poll that appeared online following the first Enron broadband trial, (see here) the government has decided to proceed. They have, however, re-indicted the individuals and made it a significantly leaner case. According to CNN (Reuters) here, the Government decided to re-indict the Broadband Five, separating them into three trials with 31 counts instead of 170. One of the benefits of being the government is that when you don't win the first time you can change strategy to try and be more successful at the next go-around. But the questions remains whether this will be met with defense objections.
The United States Attorneys' Offices for the Southern and Eastern Districts of New York entered into a "non-prosecution agreement" with Bank of New York. This "non-prosecution" agreement calls for the Bank of New York "to pay $38 million in penalties and victim compensation." (Press Release here). Of this amount $26 million will be paid to the US and 12 million will be restitution to victims. The press release of the US Attorney's Office for the Eastern District of New York states that:
"The SDNY investigation uncovered a scheme, which was facilitated by a corrupt BNY vice president, involving the unlicensed transmission of billions of dollars originating in Russia through BNY accounts in the United States to third-party transferees around the world.
"The EDNY investigation uncovered a scheme involving the submission by a BNY commercial customer of fraudulent loan applications that were supported by sham escrow agreements executed by a corrupt BNY branch manager, and that resulted in millions of dollars in losses to victim banks throughout the United States."
In addition to the money that will be paid by Bank of New York as a part of the "non-prosecution agreement," the press release notes that "BNY also waived the attorney-client and work-product privileges to assist the investigations, adopted remedial measures, and made available numerous witnesses for government interviews."
Deferred/Non-prosecution agreements with the government seem to be containing more and more provisions providing for the waiver of attorney-client privilege and work product doctrine. One has to wonder if any executives within a corporation or business are still talking with the corporation's attorney. After all, why should they - as confidentiality seems to no longer exist.
The former CEO of Refco, Inc., Phillip R. Bennett, was indicted today. (See Wall Street Jrl here; NYTimes here) The indictment charges him with Count I - Conspiracy to Commit Securities Fraud, Wire Fraud, and to Make False Filings With the SEC; Count II - Securities Fraud; Count III - False Filing With the SEC-Exchange Act; Counts IV & V - False Filing With the SEC - Securities Act; and Counts VI, VIII, VIII - Wire Fraud. The indictment also contains a forfeiture allegation.
The essence of the alleged conspiracy charge is that:
"Bennett, ...together with others. . . sought to hide from, among others, Refco's auditors and investors, losses sustained by Refco through its own and its customers' trading in the financial markets. To that end, Bennett transferred losses from Refco to a company controlled by Bennett, directed a repeated series of transactions designed to conceal those losses at year - and quarter-end from Refco's auditors and others, and caused Refco to make false and fraudulent public filings with the United States Securities and Exchange Commission ("SEC").This fraudulent scheme culminated in the August 2005 initial public offering of stock ("IPO") in Refco, Inc., in which the public purchased approximately $583 million of Refco common stock based on a false and fraudulent registration statement."
Thursday, November 10, 2005
Michigan Attorney General Mike Cox, a Republican, announced at a press conference that he had an affair prior to his election in 2002 (Cox remains married to his wife), and accused Geoffrey Fieger, who is seeking the Democratic nomination for AG in the 2006 election, of trying to extort him by threatening to leak the affair to the press. Fieger is best-known from his time serving as the lawyer for Dr. Jack Kevorkian in the 1990s when Kevorkian assisted people with terminal or debilitating conditions to commit suicide. Fieger was the 1998 Democratic nominee for governor, losing badly to Gov. John Engler in that race.
The matter is much more than just a petty extortion, however, because Cox's office is investigating Fieger for possible violations of the Michigan campaign contribution laws for making anonymous donations of over $450,000 in 2004 to defeat a Republican member of the Michigan Supreme Court who was running to retain his position on the court (Michigan judges are nominated by the parties and are elected to their positions). Prosecutors have searched a PR firm that bought advertisements against the justice, and Fieger's law firm bank account records have been subpoenaed. Fieger's main practice involves plaintiff tort suits, and the Michigan Supreme Court has been less than receptive to such cases in the past few years, overturning several large verdicts in cases in which his firm represented the plaintiff.
Fieger angrily rejected Cox's claim, but the Oakland County (Mich.) prosecutor is investigating possible extortion. To make matters even more complicated, country prosecutors are also elected in partisan elections, and the Oakland prosecutor is a Republican. According to a Detroit News article (here), prosecutors have two tapes that relate to the possible extortion of Cox, including one of a meeting in which Fieger participated. Cox discussed the investigation of Fieger at his press conference, something prosecutors usually avoid, especially when their conduct may be an issue in the case.
Sex, money, and tapes . . . not the usual combination in a white collar crime case. (ph)
General Motors announced that it would have to restate its earnings for 2001, and possibly other years, because of problems with its accounting for certain credits from its suppliers. The SEC has been investigating GM and Delphi Corp., its former supplier subsidiary spun off from the company that recently declared bankruptcy, about their accounting for the credits. It appears the companies took inconsistent positions on the accounting for the credits, which had the effect -- not surprisingly -- of increasing GM's income and decreasing Delphi's expenses. Go figure. This isn't the only SEC investigation of GM, which is also one of the subjects of an inquiry into its accounting for pension and health care benefits, including whether the company manipulated its assumptions on those costs to -- once again -- increase its income and lower its pension expenses. A Wall Street Journal story (here) discusses the pension accounting investigation.
GM filed an 8-K (here) describing the current restatement:
[T]he review to date indicates that GM erroneously recognized some supplier credits as income in the year in which they were received rather than in the future periods to which they were attributable. Based on the information to date, GM currently estimates that its net income from continuing operations for 2001 was overstated by approximately $300 million to $400 million (or about 25% to 35%) due to this error. Accordingly, although the final restatement amounts have not yet been determined, GM has determined to restate its financial statements for 2001, and the restatement is expected to be material to the financial statements previously reported for that year. GM will also restate financial statements for periods subsequent to 2001 that may be affected by the erroneous accounting. However, the effect of any such restatement in subsequent periods is expected to be immaterial to those financial statements.
Investor Kirk Kerkorian, who has bought up a bit less than 10% of GM's shares this year, can't be very happy with this latest development as the company's stock has lost almost of third of its value in the past few months. That may be the least of the General's problems at the moment, however. (ph)
An AP story (here) relates that Rep. Tom Davis, chairman of the House Government Reform Committee, is threatening to subpoena the White House and various federal agencies as part of an investigation of the response to Hurricane Katrina. Another AP story (here) states that Speaker of the House Dennis Hastert and Senate Majority Leader Bill Frist are circulating a draft letter calling for an investigation of the leak of information about alleged secret prisons holding terrorists -- no word whether they will investigate the use of the prisons, but that's probably not nearly as important as the leak. Finally, the Government Reform Committee announced that it will release a report on Nov. 10 regarding the testimony of former Baltimore Oriole Rafael Palmeiro, who testified before the Committee in March 2005 and categorically denied ever taking steroids, and then was suspended by major league baseball four months later for taking a particularly strong steroid (Committee press release here). Thank goodness Congress is watching out for us. (ph)
The U.S. Attorney's Office for the Northern District of Texas announced the conviction of three defendants in a large-scale mortgage fraud scheme that targeted Countrywide Home Loans, a national mortgage lender. The three defendants, Tam Nguyen, Xuyen Nguyen, and Myna Tran, were convicted of conspiracy, mail and wire fraud related to a scheme involving 18 properties in which the defendants used inflated appraisals and straw borrowers to siphon mortgage funds. According to a press release (here):
All of these transactions had the same unique fingerprint for the crime – all Countrywide loans, all houses have fraudulent appraisals doubling the fair market value of the houses, all have straw borrowers recruited usually from Seattle, Washington, who were flown in by Xuyen Nguyen to sign the fraudulent paperwork, and all have a flurry of money laundering cashier check activity after the transaction is closed where the money is funneled to various participants.
Insurance giant American International Group, Inc. announced that, for the second time this year, it will restate its results from prior years and delay the filing of its 10-Q report, although this time only for five days. AIG had to restate results for prior years due to improper accounting for certain reinsurance transactions, among other things, after an extensive internal investigation that led to the retirement of Maurice Greenberg as chairman and CEO in March 2005. The latest restatement is related to continuing internal control weaknesses, as described in a company press release (here):
The most significant errors identified relate to the previously disclosed material weaknesses in internal controls surrounding accounting for derivatives and related assets and liabilities under FAS 133, reconciliation of certain balance sheet accounts and income tax accounting. AIG continues to believe its hedging activities have been and remain economically effective, but do not qualify for hedge accounting treatment. AIG's remediation of the material weaknesses in internal controls disclosed in its 2004 Form 10-K is continuing and further remediation developments will be described in future filings with the Securities and Exchange Commission. AIG estimates that the errors identified in the third quarter of 2005 resulted in an understatement of previously reported consolidated retained earnings at June 30, 2005 of approximately $500 million. The effect on net income in prior periods may be positive or negative in a particular period and will vary in amount from period to period. Due to the significance of these corrections, AIG will restate its financial statements for the years ended December 31, 2004, 2003 and 2002, along with affected Selected Consolidated Financial Data for 2001 and 2000 and quarterly financial information for 2004 and the first two quarters of 2005. AIG's prior financial statements for those periods should therefore no longer be relied upon.
I suspect the securities fraud and shareholder derivative suits filed in the wake of AIG's revelation of significant financial reporting issues earlier in 2005 will be amended shortly to reflect this latest round of accounting woes at the company. (ph)
Wednesday, November 9, 2005
The St Pete Times here has again reported on the events at SOCom. This time the indictment has charges of wire fraud, bribery and conspiracy to defraud the United States and the indicted is a former Army colonel. The St Pete Times notes that "SOCom, which oversees the nation's elite commandos, has been at the forefront of the war on terror."
This is frightening. The men and women at the "forefront of the war on terror" have trouble following the law? Obviously, the accused is innocent until proven guilty, but one has to wonder about what is happening at SOCom. The latest indictment is of an individual with a background (West Point) that one would think would not lend itself to being caught up in this type of criminality. Irrespective of the individual's guilt or innocence, one has to wonder if the problem here is the organization, and the culture that has been created for these individuals to work within. For the sake of the men and women serving our country, the St Pete Times needs to continue coverage as they are providing necessary transparency to this situation. It is important that those on the frontlines receive the best equipment and best resources.
Professor Doug Berman's wonderful post here on white collar sentences tells of an "insurance analyst receiving a below-guideline sentence for his role in an insider-trading scheme." Yes, some white collar sentences may receive below guideline preference, but that is in large part because the sentencing guidelines for many of these offenses are beyond reality. When a white collar offender, who cannot again commit this form of crime and is no threat to society, is given a sentence that is greater than someone who has the potential to continue to hurt people in society, there needs to be a re-evaluation of the sentencing process.
Lawyer fees have long been an area of concern, and not merely to the client who is paying the bill. From cases involving forfeiture of attorney fees, to cases of attorneys needing to file Form 8300 for the receipt of over $10,000 in cash, lawyers have struggled in white collar cases to protect their hard- earned money.
For clients and their friends, the way the money is "assembled" can also be problematic. "Scooter" Libby is finding this out as the NYTimes reports here on the fund he has created to assist in the collection of legal fees. Will people be paying money to placate Libby, and will Patrick Fitzgerald want the names of contributors? And if the money does not get used (hypothetically, if perhaps the case is dismissed early on), who gets to keep the money?
Now that there appears to be a judge in the case against Tom DeLay, the question will be whether the venue is proper. Can Tom DeLay obtain his "fair" day in court in the present venue, or need it be moved to a Republican County? See Houston Chronicle here.
Tuesday, November 8, 2005
St. Pete Times (AP) reports here that a former VP at Wal-Mart has plead guilty to wire fraud. Interestingly, this individual reported to a former vice chair at Wal Mart who according to this news report is "under investigation." For further background on this investigation, check out posts here, here, here, and here.
Although Richard Scrushy was found not guilty with respect to charges that had been brought against him by the government for his activities with HealthSouth, the trial of Hannibal "Sonny" Crumpler, a former financial executive at HealthSouth, is just beginning. Opening statements gave the following clues as to what appears will be the key trial issues forthcoming in this case - - whether the accused was "hoodwinked by the conspirators at HealthSouth" (see AP story here) and whether the credibility of the witnesses can withstand cross-examination.
Monday, November 7, 2005
Ohio Representative Bob Ney has been subpoenaed to provide documents to a grand jury in Washington, D.C., investigating lobbyist Jack Abramoff, who has already been indicted in Florida on fraud charges. Abramoff has been the subject of an investigation by the Senate Indian Affairs Committee for his work on behalf of tribes on gambling issues, and his tribal clients paid for a golfing trip to Scotland for then House Majority Leader Tom DeLay and Rep. Ney in 2002 that may be involved in the grand jury investigation. Rep. Ney has pledged to cooperate fully in the investigation, although the issue will come to a head if prosecutors seek his testimony. Unlike a document subpoena, which can only be resisted on narrow Fifth Amendment grounds, testimony presents a much greater risk of incrimination that can trigger a Fifth Amendment privilege claim. Any inquiry into Rep. Ney's conduct on behalf of Abramoff will have to steer clear of the Speech or Debate Clause, a very delicate issue when a Congressman's actions that relate to the legislative process are the subject of an investigation. A story from The Hill (here) discusses the subpoena to Rep. Ney. (ph)
John Torkelsen worked extensively as an expert witness in class action suits brought by the Milberg Weiss firm, and his recent guilty plea to fraud charges has raised questions whether he will cooperate in the government's investigation of the firm's lawyers for making secret payments to named plaintiffs and perhaps others. Torkelsen pled guilty to making a false statement to the Small Business Administration in connection with a loan application, and prosecutors agreed to recommend a 70-month sentence. An article in The Recorder (available on Law.Com here) indicates that there is no specific reference to Torkelsen cooperating in any federal investigations, but that does not necessarily exclude the possibility that he will cooperate in the probe by a Los Angeles grand jury into the conduct of Milberg Weiss and one of its former partners, William Lerach, who split off from the firm in 2004. Torkelsen's plea hearing before U.S. District Judge Reggie Walton took place right before the arraignment of I. Lewis Libby in the same courtroom.
One indictment has already been returned in the case, naming a former named plaintiff in a number of Milberg Weiss cases who allegedly received undisclosed payments. None of the cases were filed after the mid-1990s, however, when Congress changed the procedures for appointment of the lead plaintiff and primary counsel in federal securities law class actions in the Private Securities Litigation Reform Act. If Torkelsen is cooperating, his contribution will have to come quickly because the statute of limitations is ticking away, unless the government has already obtained an indictment and it has been sealed for some reason. (ph)
U.S. District Judge Sim Lake denied a defense request for summaries of witness interviews and copies of the grand jury testimony of certain witnesses on the ground that they contain Brady material, according to a Houston Chronicle story (here). Most trial courts view pre-trial requests for Brady material as premature, although the judges will usually insist that the government affirm its commitment to provide all exculpatory information, a procedure that provides little comfort to defense counsel but realistically is all that can be expected at this point in the proceeding.
Kenneth Tomlinson, whose tenure as chairman of the Corporation for Public Broadcasting was controversial, resigned from the CPB's board recently after a critical inspector general's report, and now is under investigation for possible criminal violations. A New York Times story (here) states that the investigation focuses on the use of federal funds for personal expenses, and the hiring of ghost or unqualified employees. As a federal enterprise, directors and officers of the CPB are subject to the federal anti-corruption statutes. (ph)
Sunday, November 6, 2005
On Tuesday, Philadelphia voters will consider the following ballot initiative:
Shall the Philadelphia Home Rule Charter be amended to require Council approval of certain City leases, contracts and concessions, to empower Council to address public confidence in the integrity of the City's contracting process by requiring certain disclosures and by providing whether persons who have made certain campaign contributions are ineligible for such contracts and for City financial assistance, and to empower Council to regulate the process by which non-competitively bid (no-bid) contracts are awarded?
The city has garnered more than its fair share of publicity recently regarding municipal corruption, including the conviction of its former treasurer (Corey Kemp) and charges against a city council member (Rick Mariano) whose indictment broke a fourteen-year drought in which no council member had been charged with a crime. Critics of the city government point to the fact that there appears to be a culture of "pay-to-play" in which those who want contracts are expected to contribute. A local watchdog group called the Committee of Seventy, which was formed over 100 years ago to fight corruption, is pushing for adoption of the Charter amendment. Of course, requiring the City Council to approve leases, contracts and concessions will not necessarily end the atmosphere of corruption if it only moves the link between contracts and contributions to a different forum. An AP story (here) discusses the proposed amendment. (ph)