Tuesday, January 31, 2006

Opening Statements - Lay & Skilling Case

It was opening statements in the Lay and Skilling case today.  It looks like the government will focus on a theme of "the defendants lied" - a smart approach to avoid getting bogged down in this being a white collar paper trial with financial intricacies.  The defense is making its points with comments like - he may have been responsible for the bankruptcy - but not for any crimes. See Peter Lattman's Wall Street Journal Blog here, Tom Kirkendall's Houston Clear Thinkers here, and of course the Houston Chronicle blog here for detailed comments on the opening statement.  But I wasn't sure if it was the Houston Chronicle bloggers and/or the the actual openings that were filled with the sports references. I couldn't help but think how in legal education we find in feminist literature that some professors make assumptions about people being attuned to the sports world in analogies used in the classroom. Catherine Weiss and Louise Melling, The Legal Education of Twenty Women, in the Stanford Law Review 1299, 1337 (May 1988) note the following comment in their article: "Men presume that everyone understands a sports analogy. I would never presume to use a knitting analogy." (Although, I too, use plenty of sports analogies on this blog).

(esp)

January 31, 2006 in Enron | Permalink | Comments (0) | TrackBack (0)

President Bush - State of the Union

One does not find any reference to white collar crime in President Bush's State of the Union address.  He states here that "violent crime rates have fallen to their lowest levels since the 1970's." (NYTimes). And white collar crime?  Is it that there isn't time to cover everything in this speech? 

(esp)

January 31, 2006 in News | Permalink | Comments (1) | TrackBack (0)

Wal-Mart Exec Pleads

Looks like former Wal-Mart executive Tom Coughlin entered a guilty plea. (see AP here).  The plea will be to wire fraud and tax charges. Peter Lattman over at The Wall Street Journal blog here tells of a statement issued by Couglin's attorneys, William Taylor and Blair Brown of Washington D.C.’s Zuckerman Spaeder.  For background on this case see here.

(esp)

January 31, 2006 in Fraud | Permalink | Comments (0) | TrackBack (0)

The Attorney Client Privilege Issue

The attorney-client privilege waiver issue has been a hot topic in the corporate arena with corporations being asked to provide these waivers to secure a deferred prosecution agreement. (see posts here and here)  Back in September, the Sentencing Commission announced that one of its priorities would be to re-examine this provision and what follows is their request for comment. (see federal regulations here):

12. CHAPTER EIGHT - PRIVILEGE WAIVER

Issue for Comment: The Commission has been asked to reconsider a portion of its 2004 amendments to Chapter Eight, the Organizational Sentencing Guidelines, namely, a single sentence of commentary at §8C2.5(g). Section 8C2.5 provides for the calculation of the culpability score for defendant organizations, and subsection (g) provides for graduated decreases in the culpability score if a defendant organization has self-reported, cooperated with the authorities, and accepted responsibility. In 2004, the Commission added the following sentence to the commentary:

Waiver of attorney-client privilege and of work product protections is not a prerequisite to a reduction in culpability score under subdivisions (1) and (2) of subsection (g) [Self-Reporting, Cooperation, and Acceptance of Responsibility] unless such waiver is necessary in order to provide timely and thorough disclosure of all pertinent information known to the organization.

In the Reason for Amendment (see Supplement to Appendix C (Amendment 673)), the Commission stated that it expects such waivers will be required on a limited basis, consistent with statements of the Department of Justice in the United States Attorneys’ Bulletin, November 124 2003, Volume 51, Number 6, pp. 1 and 8.

In light of requests to modify or remove this language submitted to the Commission in the past year, the Commission listed as one of its priorities for the current amendment cycle, the "review and possible amendment" of the waiver language in Application Note 12. At its public meeting on November 15, 2005, the Commission heard testimony from five representatives on behalf of various organizations (the American Bar Association, the Association of Corporate Counsel, National Association of Manufacturers, the Chemistry Council, the Chamber of Commerce, the National Association of Criminal Defense Lawyers, and former officials of the Department of Justice) about what they perceived as the unintended but potentially deleterious effects on the criminal justice process of this commentary language.

Accordingly, the Commission solicits comment on the following: (1) whether this commentary language is having unintended consequences; (2) if so, how specifically has it adversely affected the application of the sentencing guidelines and the administration of justice; (3) whether this commentary language should be deleted or amended; and (4) if it should be amended, in what manner.

(esp) (see also Wall Street Journal here)

January 31, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Monday, January 30, 2006

Skilling and Lay - Selecting a Jury

It is becoming fairly common for judges to use jury questionnaires to screen for potential bias or other factors that warrant removing a person from the jury, so it was not surprising to see it used here in the trial of Ken Lay and Jeff Skilling.  What perhaps is incredible is the speed in which a jury was picked.  One would think that it might take some time to find and properly screen people from hometown Houston.  After all, it is important to find people who have no connection with Enron and also individuals who have not formed an opinion on this case.  Perhaps the worst scenario is to try the case for a couple of months and then find the need to dismiss jurors who may have been truthful in the answers on their forms, but unaware of all circumstances that needed to be disclosed.

Full details on the trial are being provided by the Houston Chronicle Enron Blogwatch, which reports here that the panel of "16 includes 10 women and six men. The first 12, the most likely jury is four men and eight women."

Tom Kirkendall's Houston Clear Thinkers Blog, reports here of the anticipated long day tomorrow - a 9 A.M. start with the prosecution getting two hours to do their opening and each defendant getting two hours.

(esp)

January 30, 2006 in Enron | Permalink | Comments (1) | TrackBack (0)

Round One- Bill Campbell Trial

Although Round One is not over, so far it sounds like the prosecution may be leading this round of the Bill Campbell trial.  The Atlanta Journal Constitution reports here that a witness who lived in Campbell's  home testified to seeing the passing of money to Campbell. This type of direct evidence could be difficult testimony for the defense to contend with at closing argument.  But cross-examination may show otherwise.  Judges typically instruct jurors at the end of the trial that they judge the credibility of the witnesses who testify and that their bias in testifying can be used in that determination. Stay tuned. 

(esp) 

January 30, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Oral Argument in Ebbers Case

Bernie Ebbers has a lot riding on his appeal as he received a sentence of 25 years. (see here)  He has been permitted to be free pending his appeal, and in large part this is because of the significant issues raised in this appeal. (see here).  A panel of the second circuit, in oral argument, heard Reid Weingarten, Ebber's attorney, argue that defense witness immunity should have been provided in this case. (see here)

Although the prosecution has ample opportunity to obtain immunity for its witnesses, the defense usually is not provided with this benefit.  It is a major disadvantage that the defense has in a criminal case.  While prosecutors can offer plea deals and witness immunity and then use the individuals against an accused, the defense has to find witnesses who are not intimidated by fear of future prosecutorial action, like being indicted.   

CNN (Reuters) (here) also notes that the issue of "conscious avoidance" of knowledge of the fraud at WorldCom and court instructions regarding the mens rea of the crime were discussed at the oral argument. (See here) Should the jury have been allowed to consider the "ostrich" defense? Finally, as one might imagine, the court asked about the high sentence received by Ebbers. (CNN Reuters here)

It is interesting to see these issues being discussed just as Ken Lay's and Jeffrey Skilling's trial begins.  Like Ebbers, Lay and Skilling also may have problems presenting some of their witnesses as a result of these individuals being fearful of prosecutorial retribution.  And like Ebbers, a key issue for Lay and Skilling will be whether they can be held criminally liable for acts in which they may not have been a major or minor participant.  Where is the line between actual knowledge and avoiding knowledge?  For Ebbers the question is surely whether avoiding knowledge should be a sufficient standard for someone receiving a 25 year sentence.

(esp)

January 30, 2006 in WorldCom | Permalink | Comments (1) | TrackBack (3)

Sunday, January 29, 2006

Enron Playbill

The Enron Trial of Ken Lay and Jeffrey Skilling opens today.  And it is likely that this trial, although perhaps at times it will be a sleeper, may be the biggest corporate trial of the year, and perhaps the decade. Like many of the recent trials, it places two top corporate executives on trial for criminal actions occurring on their watch.  Their participation in those actions and their knowledge of those actions are likely to be the focal point of contention throughout the trial.  How much knowledge does a CEO need to have in order to be considered a participant in the criminal activity? And how much knowledge did Ken Lay and Jeffrey Skilling have regarding the improper and criminal activities occurring at Enron?

Prosecution Strengths - 

  • The venue -  Trying this case in hometown Houston will certainly be a plus for the prosecution team.
  • The loss suffered by so many - The amount of loss to so many people will be a strong point for the prosecution case.
  • The number of key witnesses who have flipped and will be available for the prosecution- this will likely offer key evidence that can support the prosecution's case.
  • The charges - conspiracy and fraud are fairly easy for the prosecution to prove.

The Defense Strengths -

  • Complexity of the case - This case requires the prosecution to explain to the jury accounting mechanics that even with superb graphics may be difficult for the typical layperson to understand.
  • Some may believe that all the guilty people flipped and thus, only the innocent ones remain.
  • The essence of the illegality rested with other individuals - e.g., Fastow.
  • How can a CEO know everything going on in the company?

Unknown Factor -

  • Normally an accused says little before trial.  Here, however, we have ample statements and all proclaim innocence. How will this play to a jury?

The NYTimes has a wonderful playbill of the upcoming trial of Ken Lay and Jeffrey Skilling. (here) It provides a synopsis of the 10 Enron players here and one even has a short video of the upcoming scenes.

Tom Kirkendall of Houston Clearthinkers discusses an anticipated key evidentiary issue. (here)

Ken Lay's Website here has been quiet since January 20th.

(esp)

Addendum - Washington Post story here.

January 29, 2006 in Enron | Permalink | Comments (0) | TrackBack (3)

Roger Williams Medical Center Agrees to Deferred Prosecution Agreement

The Roger Williams Medical Center in Providence, Rhode Island, entered into a deferred prosecution agreement (document available below) with the U.S. Attorney's Office to settle corruption charges.  The hospital was charged, along with its former CEO and two officers (one of whom worked for a subsidiary), with funneling money to a Rhode Island state Senator to protect its interests by disguising the source and reason for the payments.  The state Senator, John Celona, has already entered a guilty plea, and the hospital originally asserted that it was not guilty.  Since the indictment in early January, however, pressure has grown to settle the case (see earlier post here), and the hospital terminated the indicted CEO and resumed negotiations with federal prosecutors that resulted in the deferred prosecution agreement.

Under the agreement, the Medical Center admits that its officers engaged in criminal conduct, and agreed to cooperate in the government's prosecution.  The hospital also agreed to provide $4 million in free health care to the poor over and above what it already provides over the next two years.  The free health care is the substitute for a fine that a for-profit corporation would be expected to pay as part of a deferred prosecution agreement. Similar to other such agreements, the Medical Center will waive its work product protection and the attorney-client privilege related to the underlying conduct, and appoint an ethics compliance officer to ensure proper procedures are followed.  For the hospital, in addition to getting out from under the criminal charges, the Department of Justice also agreed not to recommend that it be debarred from federal health care programs (Medicare and Medicaid) for its conduct.  The Medical Center is already the subject of a Corporate Integrity Agreement with the Department of Health and Human Services, and if the current charges had triggered a debarment from the federal health programs, that would likely cause it to shut down.  A Providence Journal story (here) discusses the deferred prosecution agreement. (ph -- thanks to a Rhode Island reader for passing along the deferred prosecution agreement)

Download roger_williams_deferred_sentence_agreement.pdf

January 29, 2006 in Corruption | Permalink | Comments (1) | TrackBack (0)

Saturday, January 28, 2006

ChoicePoint Reaches Settlement With FTC

ChoicePoint reached a settlement with the FTC in which it will pay 15 million dollars, although according to the St Pete Times (AP) here, the SEC may still be investigating activity related to the sale of company shares by individuals associated with the company "after the company learned of the data breach but before it was made public."   

The company issued a statement that notes it has now implemented changes including the "creation of an independent chief credentialing, compliance and privacy officer." (here)  To correct myths circulating concerning the data breach, the company also has a Q and A explaining matters. (see here)

The Stipulated Final Judgment here provides that  the agreement for "Civil Penalties, Permanent Injunction and Other Equitable Relief" "resolve[s] all matters in dispute in this action without trial or adjudication of any issue or fact herein and without Defendant admitting the truth of, or liability for, any of the matters alleged in the Complaint."

(esp)

January 28, 2006 in Settlement | Permalink | Comments (0) | TrackBack (0)

What's Happening at Guidant

According to Forbes (AP) here, an attorney who represents some individuals in a suit against Guidant has been ordered by DOJ to turn over some of his notes obtained in preparing his case the company.

(esp)

January 28, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Friday, January 27, 2006

Is the Fourth Time the Charm for Martin Armstrong to Get Out of Jail?

Martin Armstrong was charged with a multimillion dollar securities fraud through his firm, Princeton Economics International Ltd., back in 1999. U.S. District Court Judge Richard Owen ordered Armstrong to turn over certain assets and evidence that a receiver for the firm alleged he was hiding, and when Armstrong said he did not have the items, the judge sent him to jail for civil contempt.  That was in January 2000, and there Armstrong remains -- in the Metropolitan Correctional Center in New York City -- until he turns over the items and, in the metaphorical  language of civil contempt, unlocks the keys to his jail cell.  Armstrong has protested that he cannot comply because he does not have the items, but Judge Owen has concluded that Armstrong is not telling the truth, and refuses to budge on the civil contempt.  Three times Armstrong has appealed to the Second Circuit to release him, and three times the court of appeals has refused to overturn the district judge's order or grant habeas corpus.  On Jan. 24, Armstrong's attorney, Thomas Sjoblom, argued that the long-running civil contempt was beyond the district court's inherent authority, marking Armstrong's fourth trip to the court of appeals.  Sjoblom represented Richard Scrushy in successfully resisting the SEC's attempt to freeze his assets before his indictment in the HealthSouth case, but he ran into some tough questioning from the panel, according to an article in the New York Law Journal (available on Law.Com here).  If there is one thing judges are hesitant to accept, it is an argument about seeking to limit the judiciary's inherent authority to punish a contempt.  Nevertheless, six years is a long time to languish in jail, especially when Armstrong still faces the securities fraud charges that triggered the whole fight in the first place.  If at first you don't succeed, try at least three more times. (ph)

January 27, 2006 in Prosecutions | Permalink | Comments (2) | TrackBack (0)

Maybe This Is Why No One Pays Attention to Lectures

Former Georgetown University Medical Center employee Adriana Santamaria and her sister, Maria Cabrales, were sentenced to 20 and 15 months, respectively, for defrauding the Center and federal health programs of over $580,000.  Santamaria was responsible for the financial affairs of the Department of Microbiology and Immunology, including the disbursements for research grants administered through the department.  Among other ways in which Santamaria siphoned money from the med center was by paying her sister Maria and her husband honoraria for scientific lectures that never took place, as described in the U.S. Attorney's Office's press release (here):

According to the government's evidence, between May 1998 and October 2001, the two defendants, Adriana Santamaria and Maria Cabrales, conspired to obtain money from the Department by fraud through a variety of schemes. In one such scheme, Santamaria submitted authorization for the payment of honoraria in the names of Cabrales and her husband for scientific lectures they never gave nor had any capacity to give. Santamaria had no authority to engage lecturers on behalf of the Principals, let alone the services of her relatives, who were in no way qualified to speak on any subjects related to the fields of microbiology and immunology. Upon payment, Santamaria and Cabrales would deposit the Department checks in accounts in the names of Cabrales and her husband. In turn, Cabrales would pay Santamaria by check a share of the proceeds. In sum, Santamaria submitted 37 fraudulent expense authorization forms to the Georgetown Accounts Payable Department, resulting in a total of $290,000 in honoraria paid in the names of Cabrales and her husband for lectures never, in fact, given. In return, during the same period of time, Santamaria received $69,052.31 from the Allfirst joint accounts of Cabrales and her husband.

One would think that 37 payments for non-existent lectures would have been noticed by someone, but then who pays attention to those things anyway, it's the coffee and doughnuts that are the main attraction. (ph -- thanks to Delia Johnson for passing this along).

January 27, 2006 in Fraud, Sentencing | Permalink | Comments (0) | TrackBack (1)

The Katrina Frauds Keep Washing Up

The Glenn Frey song "Smugglers' Blues" talked about "the lure of easy money," and that certainly seems to be the case with those seeking to profit from the federal outlays in the wake of Hurricane Katrina.  In Oregon, the U.S. Attorney's Office announced (here) the indictment of six individuals for receipt of stolen government property for falsely filing with FEMA for $2,000 Katrina disaster assistance grants or $2,358 rental assistance grants:

Federal investigators have determined that checks were issued by FEMA payable to Portland residents named in these indictments based on false representations that the defendants were displaced by Hurricane Katrina. The indictments in these cases each allege that the defendant received a FEMA disaster assistance check knowing it was stolen. Each defendant is charged with one count of Receipt of Stolen Government Property.

In Conroe, Texas, Edward Good was arrested on state charges, and turned out to have seven unemployment relief debit cards, none in his name.  According to a press release (here) from the U.S. Attorney's Office for the Southern District of Texas, this is the first such scheme involving Disaster Unemployment Assistance (DUA):

DUA provides financial assistance to individuals whose employment or self-employment was lost or interrupted as a direct result of a major disaster declared by the President of the United States. On August 29, 2005, President Bush declared a major disaster for Louisiana as a result of Hurricane Katrina. The Louisiana Department of Labor administers the DUA program for the State of Louisiana. Funding for the DUA program comes directly from federal funds provided by the Federal Emergency Management Agency (FEMA). DUA benefits are available to individuals beginning after the date the major disaster began and for up to 26 weeks after the disaster declaration, as long as their unemployment continues to be a result of the major disaster. The maximum benefit amount is $98 per week for 26 weeks for a total possible benefit of $2,548.

The complaint alleges that Good lived in Marrero, Louisiana, until Hurricane Katrina struck and prompted his evacuation to the Conroe, Texas, area. Good first filed for DUA with the State of Louisiana in his own name and received a debit card within a few days. Thereafter, it is alleged that Good began a scheme that involved paying Conroe-area residents in cash or in drugs to obtain their identification information, which he then used to file for DUA benefits in their names listing a false prior place of employment in Louisiana. The Conroe-area residents were not Hurricane Katrina evacuees. Good would have the debit cards mailed to him and then personally use the cards bearing the names of these non-evacuees.

All that easy Katrina money has a mighty strong attraction.  (ph)

January 27, 2006 in Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Milberg Weiss Dangles Money in Front of Lawyers

Well-known plaintiffs class action law firm Milberg Weiss is the lead counsel in a settlement with KPMG regarding the tax shelters sold to individuals that the accounting firm has admitted were bogus.  The settlement calls for KPMG to pay $225 million to the taxpayers who bought the shelters, from which the attorneys will receive $30 million.  A Wall Street Journal article (here) discusses an offer by Milberg Weiss to attorneys for tax shelter purchasers who have opted out of the class that they can receive a portion of the attorney's fees, conditioned, of course, on their clients joining the settlement.  When the settlement, which has not yet been approved by the federal district court, was first disclosed in 2005, lawyers for some of the tax shelter purchasers asserted that it was collusive and undervalued the potential claims against KPMG.  Milberg Weiss has pushed forward, but a significant number of class members -- over 20% -- have opted out, which means that the settlement may not cover enough potential claims to make it worthwhile to KPMG, which would still have to litigate with a number of the remaining plaintiffs.

An interesting question is whether it is ethical the offer the attorneys for those who have opted out of the settlement a portion of the fee pool.  It is always good to see that Milberg Weiss has retained the services of a law professor well-versed in the field of legal ethics to advise on the fee-sharing issue, and Professor Roy Simon from Hofstra is quoted in the Journal article as supporting the fee offer.  The question for those attorneys who advise clients to opt into the settlement and accept a portion of the fees will be whether they had a conflict of interest by putting their interests in obtaining fees ahead of the client's goal of securing the largest award possible.  I suspect the issue of timing will be key.  For example, if an attorney recommends joining the Milberg Weiss-negotiated settlement after being offered a portion of the fee pool, and if later cases turn out to involve substantially higher awards to individual plaintiffs who purchased tax shelters, then those clients may argue that the conflict tainted the lawyer's advice and constituted a breach of the lawyer's fiduciary duty.  All the disclosure in the world may not cure a situation in which the lawyer looks to be putting his or her own fee before the client's best interest, and it is not a claim in which you want to be on the receiving end.  Even assuming Milberg Weiss' offer passes muster under Rule 1.5 for sharing fees among lawyers, and the lawyers disclose to their clients the amount they expect to receive, it may be a situation fraught with too much danger from the potentially serious conflict of interest the offer poses.  As always, the admonition voiced at the end of roll call on Hill Street Blues certainly applies here: "Let's be careful out there." (ph)

January 27, 2006 in Legal Ethics, Tax | Permalink | Comments (0) | TrackBack (0)

Thursday, January 26, 2006

Former Inso General Counsel Sentenced to a Year-and-a-Day for Perjury

Being a general counsel for a corporation is getting to be almost as precarious as being a chief financial officer (see post below).  Bruce Hill, who was the general counsel for Inso Corp., was convicted in June 2005 of one count of perjury for lying to the SEC in its investigation of accounting fraud at the company.  The jury deadlocked on securities fraud and conspiracy counts of the indictment, and after sentencing the government dismissed those charges.  Hill received a sentence of a year-and-a-day for the perjury conviction.  The effect of giving him the extra day actually reduces his sentence because he is then eligible for good time credits that can reduce his sentence by 15%, so he will only have to serve a bit over ten months. According to a press release from the U.S. Attorney's Office for the District of Massachusetts (here):

Evidence presented during the month-long trial proved that at the end of September 1998, Inso Corporation, Inc. arranged a sham transaction whereby a Malaysian software distributor signed a purchase order for roughly $3 million upon assurances that Inso would actually sell the software to another customer within a few days or weeks.

At the end of 1998, HILL, who was the Vice President, Secretary, and General Counsel of Inso, played a pivotal role in arranging a series of deals that were designed to create the appearance that the Malaysian software distributor had paid Inso $3 million for software products that Inso had reported as sold during the third quarter of 1998. In sworn testimony before the SEC, HILL disavowed any knowledge about the preparation of a fraudulent certificate which purported to reflect approval by Inso's Board of Directors of the issuance of approximately $4 million in letters of credit that were used to create the appearance that Inso received $3 million in payment for the reported third quarter sale. At trial, the United States presented evidence that HILL had personally directed the preparation of the fraudulent certificate and approved its signing.

Share prices for Inso's stock tumbled in February 1999, when the company publicly announced that it would need to restate its revenues from the first three quarters of 1998. The company is no longer publicly traded.

Interestingly, that factual recitation relates to the counts on which the jury did not convict Hill, but the press release adds that "United States District Judge Douglas P. Woodlock [] noted his finding that – based on a preponderance of the evidence – HILL did conspire to commit fraud in connection with the reporting of revenues . . . ."  After Booker, there has been some doubt regarding the applicability of the preponderance of the evidence standard for sentencing factors beyond the offense of conviction.  The sentence may well have been influenced by the judge's finding of Hill's participation in the fraud, despite the inability of the jury to find him guilty of securities fraud and other counts beyond a reasonable doubt.  At the same time, a conviction for perjury by a lawyer in a government investigation, particularly by the general counsel of the corporation, is a situation that would often trigger a higher sentence.  The sentence will likely be yet another issue on appeal in the case. (ph)

January 26, 2006 in Perjury, Sentencing | Permalink | Comments (1) | TrackBack (0)

Internet Pharmacy's General Counsel Indicted

Daniel Adkins was the general counsel for Xpress Pharmacy Direct, an internet prescription drug supplier that was shut down in May 2005 by federal authorities for illegally filling over 72,000 prescriptions for pain killers and other controlled substances.  The company's founder, Chris Smith, was indicted in August 2005 and remains in custody.  Adkins is charged with helping Smith to hide assets after learning about the government investigation, and for contacting drug suppliers and assuring them that Xpress Pharmacy Direct was a legitimate business authorized to dispense the medications.  An AP story (here) quotes Adkins' attorney as stating that the government's allegations "are simply not true." (ph)

January 26, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (1)

A Shot of Botulism to Turn Back the Years?

Two doctors in Florida, Chad Livdahl and Zahra Karim, received substantial prison terms for distributing a botulism toxin as a substitute for botox to more than two hundred doctors.  Livdahl and Karim each entered guilty pleas in November 2005, and were sentenced to nine and six years, respectively, although Karim will serve a shorter term because she will be transferred to Canada, where she is from. Livdahl and Karim marketed the botulism through their company, Toxin Research International (catchy name), and earned over $1.7 million. In addition, former University of Kentucky ophthalmologist Robert Baker was sentenced to 180 days of home confinement for writing a testimonial about the botulism that was used in marketing brochures. Somehow, using botulism to get rid of crows feet and wrinkles seems a bit counter-intuitive, but then I'm not a doctor. A CNN.Com story (here) discusses the sentencings. (ph)

January 26, 2006 in Fraud, Sentencing | Permalink | Comments (0) | TrackBack (0)

Lay and Skilling Seek a Delay in the Start of Their Trial

Enron conspiracy defendants Ken Lay and Jeffrey Skilling have petitioned the Fifth Circuit for an order delaying their trial so that the appellate court can consider their appeal of District Judge Sim Lake's denial of their motion for a change of venue.  On Monday, Judge Lake denied again the defense request to move the trial from Houston to another district due to the widespread negative publicity about Enron and their alleged role in the collapse of the company.  I think the likelihood of the Fifth Circuit ordering a change of venue, or delaying the proceeding to consider the request, is somewhere between slim and none.  Federal Rule of Criminal Procedure 21(a) (here) authorizes the district court to order a change of venue due to prejudice under the following standard: "Upon the defendant's motion, the court must transfer the proceeding against that defendant to another district if the court is satisfied that so great a prejudice against the defendant exists in the transferring district that the defendant cannot obtain a fair and impartial trial there." 

It is not just any prejudice, but prejudice "so great" that a "fair and impartial trial" cannot take place, a very high threshold for the defense to meet.  Judge Lake has sent out an extensive questionnaire to the jury pool to ferret out potential prejudice, and the actual voir dire has not taken place to determine whether jurors have been tainted by the pretrial publicity and the effects of Enron's collapse on the local economy.  The defense argument is largely supposition at this point, and the Fifth Circuit is unlikely to intervene before any voir dire and determination of actual prejudice.  Moreover, because the defendants have a decent chance at an acquittal, given the nature of the case, the court of appeals will probably take into account the fact that a not guilty verdict would obviate any need to deal with the issue further.  The Fifth Circuit can take a pass on this issue until forced to confront it after a guilty verdict, if there even is one.  A Houston Chronicle story (here) discusses the defense motion to postpone the trial. (ph)

January 26, 2006 in Enron | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 25, 2006

Three Jenkens & Gilchrist Lawyers in the Cross-Hairs for Tax Shelter Sales

While prosecutors in New York are dealing with the first skirmishes in the 19-defendant KPMG tax shelter prosecution, they are also looking at the enablers of the shelter sales by investigating three tax lawyers from Jenkens & Gilchrist.  The lawyers, Paul Daugerdas, Erwin Mayer, and Donna Guerin, provided opinion letters used to support the tax shelters sold by KMPG to a number of wealthy individuals.  A New York Times article (here) states that a grand jury in the Southern District of New York is investigating the opinion letters provided by the firm that most likely will focus on whether they were simply cookie-cutter documents that were not adequately supported while designed to mislead the IRS on the appropriateness of the tax treatment of income and capital gains.  The Times article notes that Daugerdas earned $93 million in fees in from 1999 to 2003 from the issuance of the letters, while Mayer earned $28 million and Guerin $4 million over the same period.  Jenkens & Gilchrist received $267 million in fees from the tax shelter business, although not all of that was generated by the issuance of the opinion letters.  The firm has already agreed to an $81 million settlement with individuals who purchased tax shelters from KPMG supported by the firm's opinion letters (see earlier post here).  In addition, Daugerdas and Meyer are no longer with the firm and Guerin is no long an equity partner.  It will be interesting to see if any of the lawyers will agree to cooperate with the government and agree to testify in the pending KPMG tax shelter prosecution. (ph)

January 25, 2006 in Grand Jury, Investigations, Tax | Permalink | Comments (1) | TrackBack (0)