Saturday, December 10, 2005

Is Rep. Ney Next?

A Washington Post story (here) about the plea agreement reached by Adam Kidan, a co-defendant of lobbyist Jack Abramoff in a fraud case, quotes Kidan's attorney stating that his client is ready to testify against both Abramoff and Ohio Rep. Bob Ney.  The Post story notes even more ominously that federal prosecutors have informed Rep. Ney that he is a target of the government's investigation of bribery. One of the items mentioned in the plea agreement of Abramoff partner Michael Scanlon was an item Rep. Ney placed in the Congressional Record in March 2000 that relates to the transaction in Florida for which Abramoff and Kidan were indicted.  While the government could face some Speech or Debate problems in a prosecution of a Congressman related to his official House duties, prosecutors may be able to make a case without ever referring to official business based on the testimony of participants in discussions and the timing of various payments and gifts.  Will Rep. Ney join now-former Rep. Randy "Duke" Cunningham on the list of those accused of bribery? (ph)

December 10, 2005 in Corruption | Permalink | Comments (0) | TrackBack (0)

Former HealthSouth CFO Receives Five Year Sentence -- Did He Tell the Truth?

The fifth and last former HealthSouth CFO who entered a guilty plea, William Owens, received the longest sentence by far of any executive when U.S. District Judge Sharon Blackburn imposed a five-year prison term.  The other former CFOs received sentences that ranged from probation to three months, including one who was resentenced to a week when the Eleventh Circuit found that the sentencing judge had not adequately articulated the reason for a downward departure.

One interesting question was whether the court would find that Owens' testimony against former CEO Richard Scrushy at his fraud trial was credible.  The defense had portrayed Owens as the ringleader of the fraud, and that he kept Scrushy in the dark about the massive, long-term effort to inflate revenues and earnings, while Owens testified that Scrushy was the one who orchestrated the fraud.  While the jury apparently did not believe Owens, Judge Blackburn said at the sentencing, "That person in my view escaped justice . . . I personally believe you told the truth in Mr. Scrushy's trial."  Needless to say, Scrushy's lawyers have a rather different view on the matter.

One troubling aspect of the sentencing of the former HealthSouth CFOs, all of whom admitted wrongdoing, were the widely disparate sentences they received.  While Owens may have been more responsible than the others due to his tenure during the height of the accounting fraud, it is hard to reconcile a five-year sentence for one executive that is twenty times longer than any other CFO received when all cooperated.  The government sought an eight-year term for Owens, so in that regard the judge imposed a lighter sentence than could have been given.  A story (here) discusses the sentencing. (ph)

December 10, 2005 in HealthSouth, Sentencing | Permalink | Comments (0) | TrackBack (0)

The Nuclear Option for Healthcare Fraud

The Office of the Inspector General (OIG) of the Department of Health and Human Services has proposed what is, in effect, the nuclear option by issuing a notice that it will seek to bar a hospital from participating in all federal health care programs, most importantly medicare and medicaid.  Such an exclusion would effectively put the hospital out of business, and this is the first time the OIG has proposed such a sanction against a hospital.  The civil charges involve South Shore Hospital and Medical Center in Miami (now called South Beach Community Hospital), which settled a False Claims Act case in 2002 by paying over $900,000 and agreeing to a Corporate Integrity Agreement (CIA) that it is now accused of violating.  According to the OIG press release (here):

South Shore repeatedly failed to timely submit complete and accurate implementation and annual reports, and failed to implement all of the Independent Review Organization requirements of the CIA, which called for particular types of cost reporting reviews and engagement procedures. South Shore also failed to notify OIG, as required, of its sale to new owners, who are also subject to the terms of the CIA.

The hospital has 30 days to respond to the OIG notice, and according to a story in the Miami Herald (here) management was taken by surprise by the government's proposed action and will seek to resolve the problem.  While the hospital has a troubled history, including a bond default, the OIG may be using the case to send a message to hospitals nationwide that it will take recidivism more seriously as it tries to combat healthcare fraud. (ph -- thanks to Delia Johnson for passing along the information)

December 10, 2005 in Civil Enforcement, Fraud | Permalink | Comments (0) | TrackBack (1)

Attorney Convicted of Money Laundering

Georgia attorney R. Scott Cunningham was convicted of two counts of money laundering related to use of his client trust account to transfer funds from a client's advanced-fee loan scheme.  While the jury acquitted Cunningham on 39 other money laundering charges, that is hardly anything to be proud of, and the conviction (which also includes a conspiracy charge) will certainly end Cunningham's legal career.  A Rome News story (here) discusses the conviction. (ph)

December 10, 2005 in Money Laundering | Permalink | Comments (3) | TrackBack (0)

Friday, December 9, 2005

Abramoff Co-Defendant to Plead Guilty

Adam Kidan, who was indicted along with lobbyist Jack Abramoff on conspiracy and fraud charges related to a $147 million loan to purchase a casino ship company, is scheduled for a change of plea hearing on Dec. 15 in Miami.  If Kidan cooperates with the government's investigation, which appears very likely, then the pressure on Abramoff goes up yet another notch.  Recently, one of Abramoff's former lobbying partners, Michael Scanlon, entered a guilty plea to a conspiracy charge that sets forth in extensive detail questionable payments and gifts from Abramoff -- identified as Lobbyist A -- to Ohio Congressman Bob Ney -- identified as Representative #1.  The Southern District of Florida case involves rather significant potential losses, which could trigger a substantial prison sentence if Abramoff were convicted.  With each plea agreement, Abramoff's ability to fight the actual and potential charges becomes more difficult as his closest business associates provide the government with information that will be used against him.  A story (here) discusses the Kidan's potential plea. (ph)

December 9, 2005 in Fraud | Permalink | Comments (0) | TrackBack (0)

A Step Down for "Duke" Cunningham

An article in the San Diego Union-Tribune (here) discusses how former Rep. Randy "Duke" Cunningham's life will change when he is sentenced on Feb. 27 after pleading guilty to accepting bribes from two defense contractors.  Cunningham may receive a substantial term of imprisonment because he admitted to accepting approximately $2.4 million in bribes, although his sentence could be reduced based on his cooperation with prosecutors in their investigation.  As is the norm in these types of stories, the change from powerful Congressman (or executive) to federal prisoner can be stark, and the "Club Fed" moniker does not change the fact that these people are in a prison in which their life is regulated in ways they were not used to in their prior position. An earlier post (here) discussed the top five "nicest" federal prisons, none of which are in California. 

The Union-Tribune story notes, with more than a little irony, that Cunningham was a co-sponsor of the "No Frills Prison Act" in 1995 that would have banned certain "amenities" from federal prisons, including TVs in cells and R-rated movies.  The bill never made it into law, which may provide some small solace to Cunningham and his fellow prisoners, wherever he ends up. (ph)

December 9, 2005 in Corruption | Permalink | Comments (0) | TrackBack (0)

Mistrial Declared in Fraud Trial of Duke Energy Trader

The trial of former Duke Energy trader Timothy Kramer ended with a hung jury on the 12 remaining charges of fraud related to the alleged submission of inflated prices for power and gas trades by the company in 2001 and 2002.  Earlier, Kramer and fellow trader Todd Reid were acquitted of charges, with the jury returning a not guilty verdict on all counts against Reid and seven of the charges against Kramer.  The court gave the government until Jan. 10 to decide whether to retry Kramer on the 12 counts.  A Houston Chronicle story (here) discusses the verdict. (ph)

December 9, 2005 in Fraud, Prosecutions, Verdict | Permalink | Comments (0) | TrackBack (0)

Thursday, December 8, 2005

Which Time Were You Lying?

A Houston Chronicle story (here) discusses two affidavits signed by former Enron CFO Andrew Fastow asserting that he and his wife properly accounted on their taxes for payments received from Michael Kopper, another Enron financial executive, related to the special purposes entities they controlled.  The affidavits, recently unsealed by the district court in Houston, were drafted after Fastow and his wife, Lea, were indicted, and apparently were going to be part of the defense to the charges that the money was a gift.  Lea Fastow ultimately pled guilty to a false tax return count and served a little less than one year for the offense, while Andrew Fastow's guilty plea includes an agreement to serve a ten-year prison term. The affidavits will certainly be used for impeachment by the defense for former Enron CEOs Ken Lay and Jeffrey Skilling, and former chief accounting officer Richard Causey, in the conspiracy trial slated to begin in January 2006.  What defense lawyer doesn't want to ask the ultimate question of the government's star witness: "Which time were you lying, Mr. Fastow, then or now?" (ph)

December 8, 2005 in Enron | Permalink | Comments (0) | TrackBack (1)

Rep. DeLay Requests Quick Trial on Money Laundering Charge Only

After Judge Priest dismissed one of the three counts against Rep. Tom DeLay (see earlier post here), he has now requested that a severance of the two remaining counts of money laundering and conspiracy so he can go to trial quickly on just the money laundering count.  Rep. DeLay and two aides were charged with illegally transferring corporate campaign contributions in 2002 to avoid limitations on such contributions under Texas law.  An AP story (here) asserts that if a not guilty verdict were returned on the substantive money laundering count then the conspiracy charge could be moot.  Under Texas law, however, conspiracy is a  separate crime from the object offense (see Farrington v. State,  489 S.W. 607, 609 (Tx. Ct. Crim. App. 1973)), so a not guilty verdict on the money laundering charge would not necessarily preclude a subsequent trial for conspiracy.  It may be that a not guilty verdict in the first trial would call into question the viability of the conspiracy charge, and could even constitute collateral estoppel (if you're flashing back to law school, that haunting vision will pass). 

Rep. DeLay clearly hopes to end the case quickly and definitively, but the trial court may not be willing to split the prosecution in half at the cost of having to conduct two trials involving the same evidence, witnesses, etc.  Even though the conspiracy and money laundering charges are separate, there is a substantial overlap that usually calls for a single trial.  It may be that Rep. DeLay is also seeking a separate trial from his subordinates, which would facilitate a lack-of-knowledge defense on his part. (ph)

December 8, 2005 in Money Laundering, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Enhancing a Tax Protester's Sentence for Terrorism

Doug Berman on the venerable Sentencing Law & Policy blog has an interesting post (here) about the application of the terrorism enhancement to a tax protester case (U.S. v. Dowell here).  The defendants were members of a "constitutional law group" -- no doubt pondering the usual issues related to the propriety of the admission of Ohio to statehood and the sovereignty of Texas -- who broke into the IRS office in Colorado Springs and set it on fire.  As Doug notes, the Tenth Circuit undertook the unusual procedure of ignoring the government's concession that the district court's application of the terrorism enhancement under the Federal Sentencing Guidelines violated Booker by embarking on an "independent review" of the record and upholding the enhancement on the ground that the jury's verdict supported the enhancement.  The court then affirmed the 360-month sentence imposed by the district court.  Another interesting point in the opinion is a brief footnote near the beginning that the court granted defense counsel's request to withdraw.  The court does not reference Anders, and I suspect that the client was problematic and perhaps even rather uncooperative, which would not be a surprise given the nature of the offense and offender. (ph)

December 8, 2005 in Sentencing, Tax | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 7, 2005

It's A New Beginning for Patrick Fitzgerald

Prosecutor Patrick Fitzgerald began with a new grand today, according to the NYTimes here. Having a new grand jury in a white collar investigation is not unusual as the investigations can be long and very document intensive. And the newspapers are following every step they possibly can, considering that the grand jury is secret.  The Washington Post has a lengthy story on Karl Rove's attorney, Robert Luskin here.  One wonders in reading the story if the reporter was the superb writer or the person being written about was just feeding him everything to make it come out so fascinating. 


December 7, 2005 in Grand Jury | Permalink | Comments (0) | TrackBack (0)

Katrina Fraud

It is no surprise to see the Wall Street Jrl reporting here that Katrina fraud investigations hit the 1,000 mark. It seems like there has been a continuing list of press releases from US Attorneys offices throughout the country have been related to Katrina frauds.  Just this week we see releases from the FBI here and DOJ here (see Fraud Update).  The DOJ has also made it a top priority, and one has to give credit to the quick establishment of a Hurricane Katrina Fraud Task Force. (see here).  The following is a list of all of our prior posts related to Katrina Frauds:

Hurricane Katrina Fraud Task Force Update

Major Katrina Fraud

More Hurricane Relief Fraud

Katrina Internet Fraud Case

Response to Katrina Fraud

The Katrina Scams Are Here 

The Lowest of Schemes

Katrina Will Also Spawn Fraudulent Schemes


December 7, 2005 in Fraud | Permalink | Comments (1) | TrackBack (0)

What Happens When the Judge Becomes the Defendant

Fraud Update here links to a press release of DOJ's Tax Division here regarding the sentencing of  what they call a "Tax Scam Promoter."  A husband and wife were sentenced "to 43 months in prison followed by three years of supervised release and 24 months in prison followed by three years of supervised release in connection with a tax evasion scheme." 

What is somewhat different about this case is that one of the defendants is "a former municipal court judge."  The press release states that "[a]t an earlier court hearing, a videotape was played showing [the accused] appearing at [  ] seminars wearing judicial robes and portraying himself as a former judge and an expert on tax law."

It is all well and good to give seminars on the law, but not quite these kind of seminars.  The defendants

"admitted that they provided opinion letters, materials and documentation that claimed, among other things, that taxpayers could lawfully stop filing income tax returns and stop their employers from withholding income taxes from their wages. This claim was based upon the long-rejected notion that the Sixteenth Amendment to the Constitution had not been legally ratified."


December 7, 2005 in Tax | Permalink | Comments (0) | TrackBack (0)

Not Guilty for Duke Energy Trading Exec

The Houston Chronicle reports here on the acquittal of a Duke Energy trading exec who had been charged with "illegally manipulating the company's gas and power trades."  The Houston's Clear Thinkers Blog here reports details and commentary on this acquittal and the continuing deliberations on another individual related to Duke Energy.


December 7, 2005 in Enron, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Tuesday, December 6, 2005

No Surprises in DeLay Ruling

It is not surprising that the judge tossed out the charges related to the conspiracy to commit a violation of the Texas election laws in the case pending against Tom DeLay.  Although judges seldom will toss out charges in an indictment pre-trial, when the basis of the motion to dismiss is on a legal ground - as opposed to a factual ground - such a decision can be warranted.

In this case the prosecution had an innovative argument in that they claimed that the conspiracy charge could relate to conduct prior to the enactment of the specific underlying offense.  Conspiracy, without doubt, is one of those crimes that is extremely useful for prosecutors.  Judge Learned Hand called it "that darling of the modern prosecutor's nursery."   But we do have an ex post facto clause as part of our constitutional rights, and that clause prohibits indicting someone for something that is not a crime at the time of the offense. The underlying policy rationale being that people should be put on notice that something is a crime before they are punished for the conduct.

Had this been in a case in the federal system and the basis for the conspiracy was under title 18 section 371, and was not premised upon a specific offense but rather on a conspiracy to defraud, the prosecution might have had a better argument. Section 371, the generic federal conspiracy statute provides prosecutors with two choices in proceeding: 1) a case premised upon a specific offense, or 2) case premised generally on a conspiracy to defraud the government. Because a specific offense is not required for such a prosecution, there is only the need to determine whether the underlying conduct defrauded the federal government. (Professor Abe Goldstein, Yale, has a superb article - truly a classic - on this subject). Obviously it would require a federal defrauding as opposed to a state one.

So that leaves Tom DeLay with money laundering charges. (See Indictment here). And perhaps it also leaves him with yet another experience about how the judicial process works. Here he learns why the conspiracy to defraud statute in the federal system needs to be reigned in to make certain that prosecutors do not have too much discretion in bringing cases such as these. He also learns how people lose their jobs merely on an allegation of criminality as opposed to an actual conviction. As previously noted here, if Tom DeLay did not have means to secure counsel, would he still be sitting in jail awaiting his trial with a public defender (not meant to say public defenders are not superb, as most are wonderful lawyers, but rather the system they are forced to work within do not always allow for the "luxuries" (and "necessities" - Gideon) that Tom DeLay might have here).  For stories on this recent ruling see Wall St Jrl here, NYTimes here, and Houston Chronicle here.


December 6, 2005 in Prosecutions | Permalink | Comments (2) | TrackBack (0)

Yet Another Real Estate Fraud

Fraud Update here alerts us to a Press Release of the USA for the Western District of Missouri (has anyone else noticed that there are no press releases under December in the main DOJ website, although there are some if one looks at the specific agencies).  The jury convicted "a real estate entrepreneur" "for orchestrating a property flipping scheme and mortgage fraud conspiracy."  The defendant was said to have "prepared and provided material false, fraudulent and misleading loan applications and other documents regarding the loans," and "created a phony trust to conceal the fact that he was flipping property." Id.


December 6, 2005 in Fraud | Permalink | Comments (1) | TrackBack (0)

Collateral Consequences of Indictment

Collateral Consequences in the white collar area often include the possible loss of license (e.g., doctors, lawyers, stockbrokers, etc), debarment from receiving government contracts (e.g. military contracts), or exclusion from receiving government payments (e.g. health care fraud).  Tom DeLay's case represents yet another collateral consequence (this one occurring pre-indictment) - - loss of his key position within the legislature. 

Sometimes the indictment is sufficient to suffer these consequences.  In the case of Richard Scrushy, a finding of not guilty did not restore his position with HealthSouth. Most recently, Scrushy announced that he will leave the HealthSouth board (see Wall St. Jrl here).  Clearly the ramifications of an indictment, even when not guilty, can be devastating to the individual charged. 

Likewise, a finding of not guilty is a statement that a person is not guilty of criminal conduct.  Civil ramifications and the civil standard are different, and individuals who may be found not guilty can often still be faced with civil penalties, civil lawsuits, etc.


December 6, 2005 in HealthSouth, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Monday, December 5, 2005

Think Before You Write That E-Mail -- Part Deux

An earlier post (here) discussed an e-mail sent by a lawyer to his law firm partners describing his likely malpractice in representing a client, and I noted that this is not the type of thing to commit to writing.  Here's another example of what not to write down, and, more importantly, not to recommend to a client.  Tennessee attorney Scott Pratt was arrested for contempt of court and being investigated for attempting to suborn perjury by his client, and the evidence includes the following e-mail to his client, Meredith Grant, about her testimony in the upcoming DUI trial: "[T]hey won't have anyone there to testify how much you had to drink. You won't be charged with perjury. I've never seen them charge anyone with perjury, and everybody lies in criminal cases, including the cops. If you want to tell the truth, then we'll just plead guilty and you can get your jail time over with."  Grant provided the judge in her case with copies of two e-mails from Pratt, which led to his arrest and the pending investigation by the Tennessee Bureau of Investigation.  Not only is the recommended course of conduct completely unethical and illegal, but it is beyond stupid to put it in writing -- especially to a client, who may view the attorney's advice as a bargaining chip in her own case.  Remember what your mother always told you: Just because everyone else is doing it doesn't make it right. A story on (here) discusses the case, and this story is also highlighted on the CrimLaw blog (here). (ph)

December 5, 2005 in Perjury | Permalink | Comments (1) | TrackBack (1)

How Often Is Bar Talk the Subject of a Grand Jury Investigation?

A Washington Post story (here) discusses the conversation between Time reporter Viveca Novak and Robert Luskin, Karl Rove's attorney, regarding Rove's contacts with fellow Time reporter Matt Cooper about the role of Valerie Plame as a CIA operative.  It seems that Novak and Luskin met over drinks, and in response to Luskin's statement (boast?) that Rove had no exposure to the Special Counsel's investigation, Novak asserted that she'd heard Rove discussed with Cooper the information about Plame.  Rove had testified once before the grand jury and given a statement to the FBI in which he denied having leaked information to any reporters about Plame and indeed had learned of her status from a reporter.  After speaking with Novak and reviewing Rove's e-mails, Luskin determined that Rove had indeed spoken with Cooper about Plame. 

Novak is scheduled to testify before the grand jury investigating the Plame leak, and will discuss the conversation with Luskin.  The heads-up to Luskin may have saved Rove from being indicted for perjury because he returned to the grand jury after the Luskin-Novak meeting and corrected his prior statements.  Whether Rove's later recall of his discussions with Cooper will also help him avoid a Sec. 1001 charge for making a false statement to the FBI is another matter, but he certainly has a basis for a "dedicated-but-overworked-public-servant" defense that would permit him to argue that he has been (mostly) truthful.  The appropriateness of a reporter meeting an attorney for drinks and swapping gossip about a pending investigation -- or perhaps trying to draw information out about the attorney's client by disclosing information about sources -- is another issue, but not one usually subject to any criminal sanction.  (ph). 

December 5, 2005 in Plame Investigation | Permalink | Comments (0) | TrackBack (0)

Olis Resentencing Set for Jan. 5

The resentencing of former Dynegy Inc. executive Jamie Olis will take place on Jan. 5, along with new proceedings for his former bosses, Helen Sharkey and Gene Foster, who entered guilty pleas and testified against Olis.  The Fifth Circuit upheld Olis' conviction but remanded for resentencing because it found that the district court did not properly calculate the loss when it determined that the underlying fraudulent conduct was the sole cause of a drop in Dynegy's stock price when the accounting problems were revealed without factoring in other potential causes of the decline.  Based on the improperly high loss figure, Olis received a 24 year sentence, which would have meant serving over 20 years in prison.  U.S. District Judge Sim Lake denied a request by Olis to be released pending the resentencing, and the judge asserted at a hearing that Olis "has a number of years to serve even under the most liberal interpretation of laws," which indicates that the court is likely to find that the accounting fraud caused a significant loss.  A Houston Chronicle story (here) discusses the Olis resentencing hearing. (ph)

December 5, 2005 in Sentencing | Permalink | Comments (0) | TrackBack (0)