Saturday, November 19, 2005
Michael Scanlon, a former aide to Rep. Tom DeLay whose public relations firm worked closely with lobbyist Jack Abramoff, is named in a criminal information of conspiracy to defraud Indian tribes that were Abramoff's clients by making secret payments to Abramoff from fees paid by the tribes. The information also notes that Scanlon and "Lobbyist A" provided a number of things of value to "Representative No. 1" related to passing legislation that would assist the tribal clients. An AP story (here) states that an attorney for Ohio Rep. Bob Ney has acknowledged that he is the Representative discussed in the information, but that the Congressman is a "victim" who was "misled" by Scanlon and Lobbyist A. Somehow, it's a little hard to view an elected official who permits himself to be wined, dined, and showered with gifts as a "victim," but then this is Capitol Hill, where poor Congressman are always being preyed upon by lobbyists.
The government's filing of a single-count information usually indicates that the defendant is cooperating in the investigation, and a hearing is set for Nov. 21 at which Scanlon is likely to enter a guilty plea. While Rep. Ney's attorney denies that his client is a target of the investigation, the fall-out from Abramoff's lobbying seems to be spreading. (ph)
A Los Angeles Times story (here) about the government's ongoing investigation of possible kickbacks paid by plaintiff securities class action firm Milberg Weiss to lead plaintiffs in class action cases notes that leading partners Melvyn Weiss and David Bershad, along with now-former partner William Lerach, are targets of the investigation. The Times story discusses a 1995 class action, filed right before the PSLRA became effective, that may involve kickbacks to the lead plaintiffs, and that some participants in the case have been granted immunity, reportedly including Alan Schulman, a former Milberg Weiss partner who was lead counsel on the case.
It is not a great surprise that Lerach and Weiss are targets of the investigation because of their leading positions at the firm and heavy involvement in the plaintiffs class action bar. The statute of limitations issue remains a potential roadblock to a successful prosecution, however, because the adoption of the PSLRA in 1995 changed the rules for securities fraud class actions dramatically. The class action case being investigated settled in 1998, and any payments before the end of 2000 would fall outside the limitations period, although a conspiracy charge might be possible if there were overt acts in 2001 or later. The Legal Ethics Forum has an interesting post (here) on the investigation. (ph)
The Connecticut Chief State's Attorney announced that an attorney who stole hundreds of thousands of dollars from estates for which she had been appointed the conservatrix by the probate court. will serve five years after agreeing to enter a guilty plea to embezzlement. In a familiar story, attorney Elizabeth Zembko took money from the estates and used it to support her lifestyle and to buy gifts for family and friends. According to a press release (here), Zembko surrendered her law license in 2004, and an investigation revealed improper transfers from a number of estates. (ph)
Friday, November 18, 2005
The government has charged Robert Stein, a former comproller for the South Central Region of the Coalition Provisional Authority in Iraq, with accepting gifts from Philip Bloom in exchange for steering contracts to three of Bloom's companies for reconstruction work in Iraq. According to the government charges, Stein and his wife bought cars, jewelry, and real estate with funds provided by Bloom. Stein pled guilty to bank fraud in 1996 and was sentenced to an eight-month term of imprisonment. How a person with that record can be given responsibility for disbursing funds is a bit hard to justify, but it is proabably a difficult job to recruit qualified candidates willing to serve in Iraq. A CNN.Com story (here) discusses the charges against Stein. (ph)
Lord Conrad Black, the former CEO and controlling shareholder of media company Hollinger International, Inc., which has since been broken up, was charged along with three former executives of the firm with mail and wire fraud. Two of the other defendants, Peter Atkinson and Mark Kipnis, are attorneys (Atkinson in Canada), and the third, Jack Boultbee, is a Canadian accountant. A press release issued by the U.S. Attorney's Office for the Northern District of Illinois (here) describes the charges as follows:
[The] 11-count indictment alleges two new fraud schemes in addition to realleging a separate scheme first alleged in an indictment in August that the defendants fraudulently diverted more than $32 million from the U.S.-based Hollinger newspaper holding company through a complex series of self-dealing transactions. The first new scheme alleges that the defendants fraudulently diverted an additional $51.8 million in 2000 from Hollinger International’s multi-billion-dollar sale of assets to CanWest Global Communications Corp. Both of these schemes allege that the defendants engaged in a series of either secret or false and misleading transactions involving sales of various newspaper publishing groups in the United States and Canada. These allegedly fraudulent sales were designed to enrich the defendants by funneling payments disguised as non-competition fees, and, in the CanWest transaction, payment of a "management agreement break-up fee" either to a now-bankrupt corporate co-defendant they controlled or to themselves individually, at the expense of Hollinger’s public shareholders and corporate assets.
The second new scheme alleges that Black and one of his co-defendants fraudulently misused corporate perks, including a company jet for a vacation by Black and his wife in the South Pacific, two Park Avenue Apartments in New York City, and corporate funds to throw a lavish birthday party for Black’s wife.
In September, Black's former second-in-command, David Radler, entered a guilty plea to fraud charges and agreed to cooperate in the government's investigation of Black and Hollinger. The charges from that scheme are also alleged in the indictment against Black and the three others. Arrest warrants have been issued for Black, Boultbee, and Atkinson, and the government stated that it would seek their extradition if they do not surrender voluntarily. An AP story (here) quotes Black's attorney as stating that his client is innocent of the charges. It looks like there may be another corporate fraud trial to keep our attention, in case we were getting bored. (ph)
UPDATE: A copy of the indictment is available from Findlaw here. (ph)
The SEC announced the filing of an amended complaint (here) against Amerindo Investment Advisors and its founders, Alberto Vilar and Gary Tanaka, alleging a scheme to defraud investors in two off-shore funds and in Guaranteed Fixed Rate Deposit Accounts. The Commission Litigation Release (here) describes the additional fraud:
Amerindo, Vilar, Tanaka and other affiliated entities, including Techno Raquia, defrauded individuals and entities who invested in GFRDAs. Vilar and Tanaka, as well as other Amerindo employees, solicited clients to invest funds in GFRDAs, a product in which Amerindo guaranteed that investors would earn a fixed rate of return per year on their investment, and would receive their principal at maturity. Amerindo represented to investors that it would invest the majority of their funds in short-term debt instruments and invest the remaining portion of their funds in equities. After individuals and entities invested funds in the GFRDAs, however, Vilar, Tanaka and Amerindo failed to invest the funds in accordance with the representations to investors. Rather, Vilar and Tanaka largely invested in equity securities, such as emerging technology and biotechnology stocks. Moreover, especially during the post-2000 bear market, these equity investments did not perform well and Amerindo was often unable to pay GFRDA investors their promised returns, or to return investors' principal at maturity. Consequently, when investors sought to redeem their GFRDAs, Amerindo generally either refused to honor redemption requests, or redeemed the GFRDAs with other investors' funds taken from unrelated brokerage accounts in, for example, the name of AMI, ATGF and/or ATGF II.
Additionally, the amended complaint alleges that Vilar, Tanaka and Amerindo defrauded investors who invested in two offshore hedge funds, ATGF and ATGF II. According to offering circulars, ATGF and ATGF II planned to invest in emerging growth companies. Rather than using investor funds solely to invest in such companies' securities, however, Tanaka directed ATGF and ATGF II to transfer investor funds from the funds' brokerage accounts to other accounts for Vilar's and Tanaka's own business and personal benefit.
Vilar and Tanaka were arrest in May 2005 on securities fraud charges related to siphoning funds from an account of an Amerindo investor, and Vilar was forced to spend almost three weeks in jail when he could not meet the bail requirements to be released. Both men are awaiting trial on the criminal charges in addition to the SEC civil enforcement action. (ph)
Nate Gray, a former Cleveland businessman and confidant of former Cleveland mayor Mike White, received a 15-year prison sentence for his conviction on corruption and tax charges. The case arose from a broad corruption investigation involving officials in Cleveland, East Cleveland, Houston, and New Orleas. A press release issued by the U.S. Attorney's Office for the Northern District of Ohio (here) notes that officials from East Cleveland, Cleveland, and Houston have been convicted or entered guilty pleas to charges. (ph)
The U.S. Attrorney's Office for the Nothern District of Texas announced the conviction of two owners of a durable medical equipment (DME) company and one doctor for medicare fraud. The defendants were Chuck Ogba, his younger brother, Iffy Ogba, and Dr. Patrick Antoon. According to a press release (here):
Chuck Ogba owned and operated his DME, Universal Health Services, Inc. Chuck Ogba hired recruiters to find and locate Medicare beneficiaries for scooters or power wheelchairs. Medicare covered the expense of the above medial equipment for the elderly and the disabled. Chuck Ogba, Iffy Ogba, and employees on behalf of Universal, paid $200 cash to medical doctors like Dr. Antoon to sign and certify that the medical equipment provided by Chuck Ogba was medically necessary. Once Chuck and Iffy Ogba received the certificates signed by the doctors, called certificates of medical necessity (CMN), Universal would always bill Medicare for the reimbursement of a K0011 power wheelchair and list of accessories. Chuck and Iffy Ogba, through Universal, would provide to the Medicare patient a K0011 power wheelchair, or another less expensive piece of equipment such as a scooter, and in some cases, nothing at all. Under this illegal arrangement, Universal billed Medicare in excess $12,000,000.00.
Dr. Antoon was one of several doctors in Arkansas who accepted illegal kickback payments from Universal in exchange for signed CMNs. Dr. Antoon received $200 for each patient that Medicare reimbursed to Universal for the cost of a K0011 power wheelchair and accessories. By virtue of his acceptance of illegal kickbacks, Dr. Antoon allowed Chuck Ogba, Iffy Ogba, and Universal to cause significant harm to Medicare, which is funded in part by taxpayer payroll contributions.
Thursday, November 17, 2005
The New York Times reports (here) that Philip Bloom has been charged with conspiracy, wire fraud, interstate transportation of stolen property, and conspiracy to launder money related to payments made to two coconspirators and their wives to obtain reconstruction contracts in Iraq. Bloom controls three companies that have $3.5 million in contracts awarded by the Coalition Provisional Authority, and is accused of making payments of up to $200,000 to the two unidentified coconspirators and others in the C.P.A. The article quotes the criminal complaint filed in the U.S. District Court for the District of Columbia as involving contracts related to "the renovation of the Karbala Public Library; demolition work related to, and construction of, the Al Hillah Police Academy; the upgrading of security of the Al Hillah Police Academy, and the construction of the Regional Tribal Democracy Center." (ph)
To say that Washington Post reporter Bob Woodward's revelation that he received information about Valerie Plame's status as a covert CIA agent came out of the blue would be an understatement. For I. Lewis Libby, the question is whether this information is helpful to his defense. There has been speculation that Libby would work to undermine the credibility of Time reporter Matt Cooper and NBC media personality Tim Russert by noting the barrage of information available about Plame at the time of his alleged disclosures. Woodward's revelation that he received the information from an administration source may allow the defense to focus on the confusion surrounding the information leak, and raise questions whether there even was a leak or whether it was something of such wide knowledge that Libby would not have even paid attention to it as something about which he would later have to lie.
To the "dedicated-but-overworked-public-servant" defense can be added the lack of any motive to lie, and perhaps even a question whether the lie was material. Special Counsel Fitzgerald's indictment makes much of its timeline of Libby's acquisition of knowledge about Plame from government sources, but the fact that others leaked the information creates confusion that could allow the defense to argue that the prosecution has its facts wrong. While the indictment concerns whether Libby lied, the focus remains on the leak, and Libby need only raise a reasonable doubt.
Woodward has indicated that he cannot reveal his source because of a confidentiality agreement. If Libby wants to explore Woodward's knowledge of Plame, he may well run into the same privilege claim as the Special Prosecutor did with Matt Cooper and Judith Miller, but without the benefit of a threatened contempt to coerce disclosure. An AP story (here) discusses Woodward's revelation. (ph)
An earlier post (here) discussed the allegations by Michigan Attorney General Mike Cox that Geoffrey Fieger, a prominent local attorney who has announced his candidacy for the Democratic nomination to oppose Cox in next year's election, tried to blackmail him about an affair the still-married Cox had with a co-worker a few years ago. Cox's office has been investigating Fieger for campaign contribution violations related to payments by Fieger for commercials against Michigan Supreme Court Justice Stephen Markman, who was running in a confirmation election in 2004. According to Cox, Fieger used an attorney, Lee O'Brien, to serve as the go-between to get the campaign contributions investigation terminated. Cox reported the alleged blackmail to David Gorcyca, the local Oakland County prosecutor.
Gorcyca announced that his office would not file charges against Fieger and O'Brien, although Gorcyca stated that he was convinced they engaged in a conspiracy to blackmail Cox. According to a Detroit News story (here), Gorcyca stated, "We didn't have enough to charge . . . Neither Mr. Fieger or Mr. O'Brien should claim victory, act virtuous or gloat." The political aspects of the case make for quite a tangled web. Aside from the Cox-Fieger relationship (if you can call it that), Cox's political action committee contributed approximately $34,000 to Justice Markman's campaign in 2004, and the Attorney General's office recently hired Markman's wife. Fieger has called upon the U.S. Attorney's Office to investigate, but Justice Markman is a former U.S. Attorney for the Eastern District of Michigan who hired many of the attorneys in that office, so the current U.S. Attorney has recused the office from the case.
While Gorcyca has announced that he will refer the matter to the Michigan Attorney Grievance Commission for an ethics investigation, it is troubling that a prosecutor would announce his belief that two people are guilty of criminal conduct and then state that charges could not be proven in court so the case will not proceed. As distasteful as Fieger's conduct often is, no one deserves to be announced as having committed a crime and then left without the means to combat such an allegation. A prosecutor's personal belief is expressed in criminal charges, or the matter is dropped. A directive not to gloat or act virtuous is hardly one that the prosecutor can, or should, issue. (ph)
Just to show that Philadelphia does not have a corner on the municipal corruption market -- only NFL trauma-dramas -- Detroit City Councilman Alonzo Bates was indicted on charges related to ghost employees and tax evasion. According to a federal indictment, Bates had four ghost employees on his city council office payroll who did no work on behalf of the city, including the mother of his son, his girlfiend's daughter, and a gardener who did work at his home and a rental property Bates owns. The government also accused Bates of not paying income taxes on almost $400,000 that he earned while a member of the council. Bates was defeated in a reelection bid and will be leaving office shortly. He is the second Detroit City Council member indicted on corruption charges in the past two years, although the other council member died before trial. A Detroit News story (here) discusses the indictment. (ph)
In a market manipulation case, the D.C. Circuit held that the SEC had not established that a series of matched trades by the defendants were conducted with the requisite scienter for a Section 10(b)/Rule 10b-5 finding of market manipulation, and that the substantial monetary penalties imposed on the defendants for other disclosure violations were unsupported. In Rockies Fund Inc. v. SEC (here), the court of appeals reviewed a Commission order finding violations by three directors of The Rockies Fund, a business development company, for sales of securities of a company in the Fund's portfolio. The SEC imposed civil money penalties of $160,000 each on two directors and $500,000 on one director. In rejecting the substantial penalites, the D.C. Circuit stated:
The monetary sanctions imposed by the SEC amount to the harshest available—third-tier sanctions. To impose third-tier sanctions, the SEC must show that the violations "involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement" and "directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the" violations. 15 U.S.C. § 80a-9(d)(2)(c). The SEC found that this standard applied but did not even cursorily explain either element. One could say the entire opinion, charitably read, provides the analysis for the first prong. As to the second prong, however, the SEC gives no explanation of how petitioners’ conduct either resulted in or created a significant risk of substantial loss to others. Neither does it give support for a finding of pecuniary gain. In sum, the SEC’s analysis was not just superficial; it was nonexistent. Accordingly, because the SEC did not explain its reasoning, we hold that the SEC arbitrarily and capriciously imposed third-tier sanctions on the petitioners.
Wednesday, November 16, 2005
Patterson-UTI Energy, Inc., the drilling rig company, announced earlier that an internal investigation had uncovered an embezzlement of up to $70 million from the company through bogus asset purchases. The company's CFO, Jody Nelson, had resigned just a week before that announcement for "personal reasons," which triggered all sorts of speculation about his involvement in the siphoning of company funds. The SEC has now identified Nelson as the person responsible for the embezzlement in filing an emergency freeze action in the U.S. District Court for the Northern District of Texas (Lubbock). According to the Commission Litigation Release (here):
[T]he SEC alleged that Nelson, who resides in Dallas, Texas, orchestrated a massive phony-invoice scheme to embezzle more than $69 million from Patterson-UTI over five years. The SEC also named as relief defendants five Nelson-controlled companies alleged to have received proceeds from the scheme: XIT Land & Energy, Inc. ("XIT"), Chisum Travel Center, Ltd., Z8 Properties, Ltd., Three Stars Aviation, LLC, and Chisum Coach, Ltd.
The SEC's complaint alleges that Nelson created false invoices that caused Patterson-UTI to pay millions of dollars to XIT, a company he secretly controlled that was not a legitimate Patterson-UTI vendor. To accomplish his scheme, Nelson circumvented Patterson-UTI internal controls by, among other things, forging another company official's initials on payment documents. According to the complaint, Nelson finally confessed to Patterson-UTI on November 9 that he embezzled approximately $29 million, but company records show that he actually stole $69,434,342 from January 2001 through October 2005. To hide his scheme, Nelson, among other things, made false written representations to Patterson-UTI's independent auditor about the accuracy of the company's financial statements and signed false public certifications attesting to the truthfulness of the company's quarterly and annual SEC reports.
No word yet on a criminal charge, but the outline of the claims in the SEC complaint makes a prosecution almost inevitable, and the question is whether Nelson is cooperating with the U.S. Attorney's Office in its investigation. (ph)
Check out the Washington Post here this a.m. as we now add Bob Woodward to the mix as it seems he also knew of Plame's CIA identity. Mind you he won't tell us where he found out - "an official casually told him." And he admits that he first is coming forward with this information only after Libby is indicted. His statement is here. The source won't let him tell the name publicly, but the source went to the Special Prosecutor. Woodward's final sentence of his statement is perhaps the most interesting - it says, "It was the first times (sic?) in 35 years as a reporter that I have been asked to provide information to a grand jury." Mind you the special prosecutor must have accommodated Woodward as he did not appear live in front of the grand jury, but rather by deposition at a law office.
It sounds like the web is growing and getting pretty tangled. Will Special Prosecutor Fitzgerald be able to handle the way things happen in D.C.?
A key difference between white collar cases and many of the cases involving alleged street crimes is the treatment of the accused pre-trial. Where an accused in a street crime case may be denied bail, it is truly rare that an individual accused of a white collar offense has bail issues.
It is thus surprising to read at Yahoo News (AP) here that a judge denied bail to an ex-KPMG executive. Fearing that the accused would flee as he was facing a possible long prison term, the court ordered this individual held.
Tuesday, November 15, 2005
According to the Washington Post here, Dow Jones went to court seeking some of the documents in the Libby case. It seems that Special Prosecutor Patrick Fitzgerld wants a protective order from some of these documents being released to the media.
It is likely that issues of balancing the public's right to know versus insuring the defendant a fair trial, continuing an ongoing investigation, and protecting the secrecy of grand jury material may be some of the issues at stake here.
Defense counsel is entitled to receive immediately all exculpatory material or what is commonly referred to as Brady material. Ultimately, when and if the case goes to trial, the defense is also entitled to receive Jencks material, or any prior statements made by a witness. According to statute and a federal rule of criminal procedure, Jencks material does not have to be turned over to the defense until after the witness has testified. In reality, most prosecutors provide Jencks material to defense counsel prior to trial so that the trial does not need to be placed on hold while defense counsel reads and further investigates the defense case based upon the Jencks material that is just received.
Prosecutors often, as they should, provide all discovery material to defense well before trial. The benefit of defense counsel receiving this material pre-trial is that upon seeing the prosecution's case it may be more likely that a plea agreement will avoid the necessity of the cost of trial. It is also a question of basic fairness. Shouldn't defense counsel have the same ability to prepare for trial the prosecution has had in the many months that it has been investigating its case?
But giving discovery material to the media is another matter. What if this were an ongoing investigation and someone is still providing information to the government - - would that individual be protected? Would the government be able to continue to obtain information from someone once their identity is disclosed?
But on the other side, will defense counsel be able to properly prepare for trial under the constraints of a protective order? When police want information, they often use the press to publicize the matter. Police have the ability to put bulletins out to the public seeking information on an alleged crime. Shouldn't defense counsel have this same ability? If the defense want more information on events, shouldn't they also have the right to use the media? But if that's the case, wouldn't it be defense counsel arguing against this protective order as opposed to Dow Jones?
Obviously the defense counsel needs to receive discovery material to properly prepare for trial, but when does the public's right to know prevail over prosecutorial needs in a continuing investigation? Defense counsel often struggles with prosecutors to obtain all the discovery material they need to prepare for trial. Perhaps now the media will understand the difficulties faced by defense counsel in their preparation for trial.
A scientist was sentenced "for defrauding the United States in connection with research grants he applied for and received for his company as well as for tax evasion." The US Attorney for New Jersey issued a press release here that also describes a civil settlement in this matter for $1.4 million.
A press release here of the US Attorney's Office for the Eastern District of Michigan tells that a "Dearborn man pleaded guilty [ ] to bank fraud." The release notes that "[t]he fraud stems from a credit card scheme that resulted in a loss to multiple victims of approximately $90,000."
In California, the US Attorney for the Central District of California reports here that "[a] Florida man was sentenced today to 155 months in prison for running a fraud scheme in which he promoted a fraudulent investment program to members of the Seventh-day Adventist Church and collected more than $6.5 million from over 250 victims."
The US Attorney for the Eastern District of California tells here of two individuals pleading guilty to bank fraud and attempted bank fraud. Prosecuted federally, this case included one individual who "made purchases" "at 'Babies R Us' and 'Lowe's' . . . using stolen checks while pretending to be the true account holder."
The US Attorney for Connecticut reports here of a plea of guilty to securities fraud and conspiracy charges. The alleged scheme is reported to have "defrauded investors from around the country, including several from Connecticut, of more than 2.5 million dollars."
The US Attorney for the Southern District of Miami reports here of a plea for "a conspiracy to transport and sell in interstate commerce various prescription medical devices, knowing the devices to have been stolen, converted, or taken by fraud and to impede and obstruct the lawful and legitimate functions of the FDA in enforcing federal laws and regulations applicable to prescription medical devices."
Are you looking for some model deferred prosecution agreements? Check out the National Association of Criminal Defense Lawyers (NACDL) white collar crime website here. You will find posted eight (8) different deferred prosecution agreements.
(esp) (disclosing that she co-chairs the NACDL white collar crime committee)
Monday, November 14, 2005
If someone were to tell you that white collar crime prosecutions are down, your response might be the same as mine -- which was -- NO WAY! According to Trac Reports here in discussing white collar prosecutions it stated that DOJ:
"documented a decline of about ten percent from FY 2003 to FY 2004. Estimates for 2005 indicate that the decline is continuing."
The problem is not the Trac Reporting System, a wonderful resource of Syracuse University (blog author notes that she received a BS from this institution), but rather how DOJ is categorizing white collar crime. It seems that white collar crime includes antitrust and fraud, but fails to include corruption as well as a host of other criminal activity that clearly is white collar in nature.
So what isn't considered white collar crime by the DOJ - see here - the list includes environmental offenses, bribery, federal corruption, procurement corruption, state and local corruption, immigration violations, money laundering (how many white collar cases tack on money laundering :) ), OSHA violations, and copyright violations. Oddly enough, every white collar crime casebook seems to include at least some of these categories. And if you go to a typical website of a United States Attorney, many of these items are considered white collar crime. For example, the United States Attorney's Office for the Northern District of California describes its efforts against white collar crime here as follows:
"The White Collar Crime Section is responsible for prosecuting a wide range of complex cases, including public corruption (such as bribery, kickback schemes, and theft of government funds) health care fraud, financial institutions fraud, bankruptcy fraud and mail and wire fraud. Civil rights cases are also monitored, evaluated and prosecuted by the section. Environmental cases are prosecuted under the Clean Water Act, Clean Air Act and other federal environmental statutes. The section also prosecutes cases involving the protection of wildlife and Food and Drug Administration cases concerning the safety of the nation's food supply."
Maybe white collar prosecutions really are down, but it might be more palatable if the statistics were a bit clearer. So why would DOJ "cook the books" to show a decrease in white collar crime prosecutions? I can think of no possible reason. Could this be a situation of the cook not knowing what is in the books?