Tuesday, May 23, 2006

Another Amici Brief for KPMG Defendants

Another brief has been filed in support of the defendants in the KPMG case.   This amici brief is filed jointly by the New York Council of Defense Lawyers and the National Association of Criminal Defense Lawyers. In the Amici's Statement of Interest one finds the following language:

"The NYCDL and NACDL are vitally interested in the issues before this Court. It is a central premise of the Sixth Amendment that an individual is entitled to counsel in facing serious charges presented by the Government. The ability of an accused to subject the prosecution’s proof to adversarial testing by skilled counsel is the very hallmark of a free society, providing the essential safeguard that permits the government to zealously prosecute cases secure in the knowledge that any verdict that is subsequently obtained is both procedurally and substantively fair under the Fifth and Sixth Amendments. In this case, the prosecution does not assert an interest in ensuring the most skilled counsel to test its proof, but the opposite: it has acted to stack the adversarial deck to weaken the hand of the defense in order to strengthen its own. That interest is anathema to the founding principles of this society and should not be sanctioned by this Court."

The brief can be found here - Download us_v. Stein brief -Amici.pdf

May 23, 2006 in Defense Counsel, Legal Ethics | Permalink | Comments (0) | TrackBack (2)

The Latest on Jamie Olis - Stay in Jail Pending Re-sentencing

Jamie Olis will continue to wait in jail for resentencing following a Fifth Circuit remand post- Booker.  Professor Doug Berman, on the Sentencing Blog here, reports on the appellate court's denial of bail pending the sentencing rehearing.  The decision can be found here.

The court rejects use of subsection (a) in 18 U.S.C. § 3143, despite the fact that the accused might fit the standard of being one who "is not likely to flee or pose a danger to the safety of any other person or the community." Since his conviction has been affirmed, and this is only a "pending resentencing," The court states, " [t]he reasons for releasing a convicted defendant prior to sentencing — such as his getting his affairs in order — do not apply to incarcerated defendant whose conviction has been affirmed." The court also states that "[a]pplying subsection (a) in this instance would lead to an absurd result: Olis would be temporarily released, only to return to prison for the remainder of his sentence. " The court also rejects subsection (b).

Although this may appear to be a setback for Jamie Olis, it actually may prove helpful at the time of his re-sentencing.  With more time in prison, and more time passed, it may place him in a better position - that is if a judge is willing to go beyond examination solely of the loss factor.


May 23, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (2)

Lawyer Pleads Guilty to Passing Payments to Representative Plaintiff in Milberg Weiss Prosecution

Los Angeles lawyer Richard Purtich entered into a plea bargain with federal prosecutors and will cooperate in the prosecution of Milberg Weiss and two of its name partners for allegedly making secret payments to representative plaintiffs in class action cases in which the law firm served as counsel to the class.  The indictment identifies three representatives plaintiffs -- Howard Vogel, Seymour Lazar, and Steven Cooperman -- as the recipients of the payments, and Purtich admits that he served as the conduit for payments to Cooperman.  According to an article in The Recorder (here), Purtich stated that he passed along $3.5 million to Cooperman from 1993 to 1996, and that the funds were not referral fees, a key aspect of Milberg Weiss's defense to the charges (see earlier post here).

Interestingly, the crime Purtich admitted committing was a tax charge and not fraud.  Cooperman pled guilty to a 1999 insurance fraud a few years ago, and during that investigation Purtich testified before a grand jury.  The Recorder article claims that Purtich may have had some exposure to a perjury charge arising from that testimony, which may be contradicted by what Cooperman admitted in his plea.  While the tax charge may not trigger disbarment for Purtich, his grand jury testimony will certainly be fodder for the defense cross-examination at trial.  To this point, the government's key witnesses in the case appear to be Vogel, Cooperman, and Purtich, along with some Milberg Weiss partners who are supposed to have received immunity.  Whether the government will have any "untainted" witnesses, i.e. people without deals, remains to be seen.  Look for words like "liar" and "scam artist" to be thrown around the courtroom should the case get to trial. (ph)

May 23, 2006 in Fraud, Legal Ethics, Prosecutions, Tax | Permalink | Comments (1) | TrackBack (1)

Seven Former NCFE Executives Indicted in Alleged Billion Dollar Fraud

The U.S. Attorney's Office for the Southern District of Ohio announced the indictment of seven former senior executives at National Century Financial Enterprises (NCFE), at one time among the largest financing companies for health care providers.  When NCFE fell into bankruptcy in November 2002, it had securitized approximately $3 billion in health care receivables that it purchased and then repackaged for sale to investors on the secondary market.  Among the defendants are the former CEO, CFO, and COO (that's a lot of chiefs) of the company, along with the head of its securitization office.  The 60-count indictment (here) charges conspiracy, securities fraud, mail/wire fraud, money laundering, and money laundering conspiracy, along with forfeiture counts seeking $1.9 billion from the defendants.  Three other mid-level NCFE executives entered guilty pleas in 2003 and 2004.  According to the press release (here) issued by the USAO:

The Dublin, Ohio based company bought medical accounts receivable from health care providers around the country, then financed the purchases by selling securities in the form of notes to large institutional investors outside Ohio. In their promotional materials, NCFE billed themselves as the “nation’s leading supplier of working capital to the medical industry.” The company collapsed in November 2002.

According to the indictment, National Century operated as a financial service holding company. Through its subsidiary corporations, such as NPF VI and NPF XII, the company bought accounts receivable from hospitals, nursing homes and other health care providers and medical concerns. The subsidiaries would issue health care receivables securitization program notes. National Century employees would sell these securities in private placements, promoting them as conservative and safe investments.

According to the indictment, NCFE executives diverted the money into other companies they owned, used some of the money for operating expenses for NCFE, and provided unsecured advances and loans to clients, third parties and others.

The indictment alleges that the defendants conspired to conceal cash shortages from investors and trustees by using carefully timed transfers of funds back and forth between companies. In one such instance, on January 2, 2002, the defendants ordered $148 million moved into one of their subsidiaries so the investments would appear sound. The next day, they moved the $148 million back to create the same appearance for another subsidiary.

Since the bankruptcy, approximately $1.1 billion has been recovered, leaving investors and others with approximately $1.9 billion in losses.  If any of the defendants are convicted and the loss is determined to be anywhere close to that amount, then that person will be looking at a substantial term of imprisonment, in the range of the 25-year sentence given to former WorldCom CEO Bernie Ebbers. (ph)

May 23, 2006 in Fraud, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Dueling Grand Jury Investigations

The grand jury subpoenas to companies with suspiciously-timed stock option grants to their senior executives seem to be coming fast and furious, and from two different districts separated only by the East River.  The U.S. Attorney's Office for the Eastern District of New York launched the first subpoena, to Comverse Technology, and then went quiet while the Southern District of New York unleashed a set of subpoenas on May 17 to companies such as Vitesse Semiconduct and UnitedHealth.  Now comes word that additional companies have received grand jury subpoenas from one or the other district: KLA-Tencor (apparently SDNY); Brooks Automation (EDNY); F5 Networks (EDNY); Juniper Networks (EDNY) (see Wall Street Journal story here).  Are the two districts competing over the investigation of companies that have options-timing issues, or is it a matter of dividing a potentially very large field so that one office is not overwhelmed by the truckloads of documents that should be arriving shortly from each corporation that has promised full cooperation? (ph)

May 23, 2006 in Fraud, Grand Jury, Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Following Groucho Marx's Suggestion

Groucho Marx said that he once sent a message stating, "Please accept my resignation.  I don't want to belong to any club that will accept me as a member."  A Wall Street Journal story (here) certainly raises this issue in regard to the efforts of Andrew Wiederhorn, CEO of Fog Cutter Capital and convicted felon, to be readmitted to the Multnomah Athletic Club in Portland, Oregon, which kicked him out in August 2004 when he entered prison.  Wiederhorn served a 15-month sentence after pleading guilty to tax and pension fraud charges (unrelated to Fog Cutter), and was released in November 2005.  During his stay in federal prison, Wiederhorn continued to serve the company as Chief Strategic Officer and even received a $5.5 million bonus in 2004 along with his salary, although not while he was in the federal system (see earlier post here).  Fog Cutter's proxy statement (here) described his hiatus from the company in this way: "Mr. Wiederhorn resumed his role as Chairman of the Board and Chief Executive Officer in November 2005, after returning to active service with us from a leave of absence in October 2005 during which he served as Chief Strategic Officer. He previously served as Chief Executive Officer from our formation to June 2004, and served as Co-Chief Executive Officer from June 2004 to August 2004."

The Journal describes the rather testy fight between the club, which is the most prestigious in Portland, and Wiederhorn.  According to the article:

Just before his sentence started in August 2004, Mr. Wiederhorn received a certified letter from the club. It stipulated that unless he agreed to resign his membership and never set foot on the premises again, the club would "automatically invoke procedure GBP 2, House Committee Investigation." Mr. Wiederhorn refused, and following an investigation, the club kicked him out.

Apparently the club does not view his "leave of absence" in quite the same light as Fog Cutter, which is controlled by Wiederhorn and his wife, who together own over 50% of its shares.  Mrs. Wiederhorn and her children remain among the 20,000 members of the Multnomah Athletic Club. (ph)

May 23, 2006 in Celebrities | Permalink | Comments (0) | TrackBack (0)

Monday, May 22, 2006

Legislature v. Executive = Judicial Decision

With the recent FBI search of the legislative office of William J. Jefferson (D. La.) and now the Washington Post reporting here in an article titled "FBI Says Jefferson Was Filmed Taking Cash," several more (see prior post here) questions arise:

  • If this had been via a grand jury subpoena there would be no disclosure of the details of the items secured or the testimony received.  By selecting to proceed with a search, probable cause is necessary and therefore the filing of an affidavit for the search warrant.  It is this affidavit that is being used by the newspapers to talk about the congressman allegedly being filmed receiving cash. Does the selection of a search warrant as opposed to a subpoena give the government an edge in being able to display their case to the media?
  • If the government had proceeded via a grand jury then it would be subject to 6(e) secrecy.  "Rule 6(e)(2) of the Federal Rules of Criminal Procedure sets forth the general secrecy requirements of federal grand jury proceedings.  It provides that the grand jurors, grand jury personnel, government attorneys, and personnel assisting government attorneys may not disclose 'a matter occurring before the grand jury.'" Podgor & Israel, White Collar Crime in a Nutshell 2d 246 (1993). Yet, here in the press we see that what the "FBI Says" is being disclosed. Do we have an abuse of prosecutorial discretion when the government selects to proceed with a search as opposed to the grand jury process that would have been secret and would have precluded the FBI from making public statements, even when the statements may be through the filing of their documents?
  • The fact that the government decided to search, thus precluding the legislative member the opportunity to go into court and contest the matter (he would have been able to file a motion to quash the subpoena), infringe on the separation of powers?  Should the executive (FBI and DOJ) have the right to search the offices of a member of Congress?  Separation of powers is an important principle to make certain that each branch of the government can function independently of another, and without being in fear of another branch.The "Speech and Debate" clause explicitly protects some activities of members of Congress. (For an excellent article on the contours of the Speech and Debate Clause see Robert J. Reinstein & Harvey J. Silverglate, Legislative Privilege and the Separation of Powers, 86 Harvard Law Review 1113 (1973)) Has the government crossed the line in searching the "office" of a member of Congress?  Or is this scenario different because it involves possible personal activities that maybe outside the job function of a member of Congress?  But if we allow searches like this, will the executive next be wiretapping the offices of members of congress?  And who will be making the decision as to when this is proper or not?
  • Many of these questions did not arise when the home of the congressman was searched, as the line  between personal and job-related activities is clearer.  But with the entry into his office - the line between separation of the executive and legislative becomes blurred. On the other hand, the possibility of items being placed in the legislative office to avoid review is bothersome. So it all comes down to whether a search is ever appropriate when it is a legislative office.  Should the legislative member have the opportunity to appear in court and move to quash prior to the government entering the premises with a search warrant?  If this is the case, then prosecutors would have to use subpoenas instead of searches. Maybe that is the best route to protect the line between the legislature and executive.  Why was that not done here?  Was there a legitimate fear here that warranted a search?  Stay tuned....


May 22, 2006 in Corruption, Investigations | Permalink | Comments (0) | TrackBack (0)

Corruption Cases Are "In"

If it seems like a more than usual number of corruption cases lately, there may be some truth to this.  It seems that a recent FBI focus has been on corruption.   According to the NYTimes here there are more than 2000 corruption investigations ongoing.  The FBI states that corruption is the number two priority, second only to terrorism. (see here) The indictments have included "front-pagers" like Abramoff and Cunningham.  But there are many less known individuals who have been caught in the recent targeting of corruption activities.  For example, a recent press release here tells of "R. Alexander Acosta, United States Attorney for the Southern District of Florida and Jonathan I. Solomon, Special Agent in Charge, Federal Bureau of Investigation,"  announcing that an individual was being charged "with fraud and corruption relating to his official duties as a City of West Palm Beach Commissioner."  Oftentimes mail fraud or wire fraud are the charges used in these corruption cases.

May 22, 2006 in Corruption | Permalink | Comments (0) | TrackBack (0)

What Happened to Jamie Olis?

Bill Olis, father of Jamie Olis, reminds us that it has been two years since Jamie Olis entered federal prison. Olis, former "Senior Director of Tax Planning and International (and later, Vice President of Finance) at Dynegy," has been in the Houston federal detention center awaiting re-sentencing following a 5th Circuit appellate decision remanding the case for re-sentencing. (see here)  Olis initially received a sentence of 24 + years.  The appellate court in the Olis case stated that "[b]ecause the district court's approach to the loss calculation did not take into account the impact of extrinsic factors on Dynegy's stock price decline, Olis is entitled to re-sentencing on this factor, subject to the principles" discussed within the opinion.  Although co-defendants were re-sentenced months ago, there has been no word on the sentence of Olis.


May 22, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Saturday, May 20, 2006

Can the Executive Search an Office of the Legislative Branch?

Can the FBI, in investigating a member of the legislative branch, search his or her legislative office? 

This question may be real, and may depend on what the third branch of government may have said or will say with regards to this search.  According to the NYTimes here, the FBI has "raided" the office of William J. Jefferson (D. La.).

Searches used to be rare in white collar investigations.  If the government wanted documents, they would use a subpoena duces tecum to procure the documents for grand jury review. In recent years, however, there appear to be more instances of searches being used in white collar cases.  Searches have an element of surprise that can be very effective in scaring the individuals being investigated.  More importantly, searches are used when the government believes that documents or evidence might be destroyed.  The bottom line, however, is that the government has the discretion to choose when they will use a subpoena and when they will search.  This time it appears that they decided to search.

Addendum -  Searches are also public.  Whether  a witness is subpoenaed or documents produced may not necessarily make the newspapers.  In contrast, searches are open.  Searches require probable cause and thus, approval.  Subpoenas do not require judicial approval. When a subpoena is issued, the recipient has time to go to court and make a motion to quash the subpoena if they believe it is not justified.  That notice is not provided with a search and the motions come after the fact when someone is later saying that the evidence from the search should be suppressed (excluded from being used in court).  So other questions that remain are: what was the basis of this search, who approved it, and what specifically was the FBI seeking?  And yes, of course, why such a drastic step of using a search as opposed to a subpoena?

See also Washington Post here.


May 20, 2006 in Corruption, Investigations | Permalink | Comments (2) | TrackBack (1)

Internet Music Piracy Sentencing

With so many high-profile white collar indictments and trials, the ones that don't make the front page can sometimes be lost.  Yet, in the white collar world, internet crimes and particularly internet piracy remain hot topics.

The first indictments from Operation Fastlink came in July 2005 (see here) and now we are seeing the pleas and sentencing of some. (see here)  According to a DOJ Press release, the "first members of pre-release music piracy groups from Operation FastLink were sentenced . . .  for their involvement with Internet music piracy groups." Although one individual had previously received a sentence of "15 months in prison,"  the new sentences were "six months in prison/six months home confinement" and "six months home confinement."

The DOJ press release states that:

"These are the first federal criminal sentences for members of pre-release music groups from Operation FastLink, an ongoing federal crackdown against the organized piracy groups responsible for most of the initial illegal distribution of copyrighted movies, software, games and music on the Internet. Operation FastLink has resulted, to date, more than 120 search warrants executed in 12 countries; the confiscation of hundreds of computers and illegal online distribution hubs; and the removal of more than $50 million worth of illegally-copied copyrighted software, games, movies and music from illicit distribution channels. As of today, Operation FastLink has yielded felony convictions for 30 individuals."


May 20, 2006 in Computer Crime, International, Sentencing | Permalink | Comments (0) | TrackBack (0)

Trapped - By John Hasnas

Professor John Hasnas (Georgetown-Business School) has a book out called, "Trapped: When Acting Ethically is Against the Law." Published by the CATO Institute, the title says it all.  A review of the book by Erica Little can be found here.


May 20, 2006 in Scholarship | Permalink | Comments (0) | TrackBack (0)

Is It Fraud or Dishonesty in the Milberg Weiss Prosecution

The indictment (here) of Milberg Weiss and two of its name partners, Steven Schulman and David Bershad, strikes me as involving a basic distinction in how the two sides will approach the case.  For the government, this appears to be a case about honesty, or the lack thereof, by attorneys required to present information to the court about the fees being received in a class action and the need for representative plaintiffs to limit their compensation to that approved by the court.  The key charges are the mail fraud counts involving the right of honest services against the Milberg Weiss defendants.  The conspiracy, RICO conspiracy, and money laundering charges all revolve around proving that the payments -- or kickbacks in the government's parlance -- to the representative plaintiffs were improper and hidden from view because everyone knew that their disclosure would cost the law firm (and representative plaintiff) its lucrative role in the class action.  While the mail fraud charges also allege that the defendants obtained money or property from the victims, identified as the members of the class, that will be a very difficult theory of criminal liability to establish.  Milberg Weiss did not receive anything that was not negotiated with its opponent, who usually had no incentive to pay more money to the law firm, and a state or federal judge who, at least on the record, stated that the settlement was fair to both sides and the attorney's fees a fair reflection of the work put into the case and the risk undertaken.  Two sets of eyes scrutinized the settlement, so it is hard to say that Milberg Weiss deprived the class members of anything by sneaking something past them. 

For honest services, however, the issue focuses more on the role of the fiduciary, and the fulfillment of the obligation of trust to ensure that the client's interests are put first and all procedures are scrupulously followed.  For the government, its allegations of secret payments and disguised transactions are not grounded on a theory of theft from the victims, but instead that the law firm and three identified representative plaintiffs colluded to keep their double-dealing secret.  Each received a benefit from the collusion, and the class members lost the benefit of its counsel and lead plaintiff protecting their interests.  As a case about honesty, the prosecution may have some traction.

For Milberg Weiss, the issue (and challenge) will be to make this a case about loss, and whether there was any ill-gotten gain to the law firm.  The crime of fraud evolved from larceny, and in the English common law the crime was known as larceny by trick.  For a larceny, the defendant must take and carry away the property of the victim, so that the gain and loss are congruent.  For Milberg Weiss, the question is probably quite simple: prove what we took from the victim.  The answer is that the class members are probably no worse off than if the alleged secret payments had never been made, at least in the sense that any settlement would have involved a payment to a law firm.  What the firm chooses to do with its money is not the business of the class members, or perhaps even the court, for that matter. 

So, which one is it?  The mail fraud statute permits the government to charge a scheme to deprive of the right of honest services, a notoriously slippery concept, particularly in private fraud prosecutions.  For public corruption cases, the loss is easily identified because the public and its representative government lose the benefit of the honest services of its servants, elected or appointed.  In the private relationship context, it becomes harder to identify whether there has been a violation when the case involves something other than a diversion of assets or other type of naked self-indulgence at a cost to the victim.  The mail fraud charges, and the related offenses that build off of them, likely will survive a motion to dismiss, although the defendants will take their best shot.  At trial, the question may well come down to one of whose viewpoint the jury adopts: is this a case of dishonesty, or is it a case of theft in which the victim really never lost anything and the defendants didn't get more than what a judge and opponent said they deserved.  It should prove to be a very interesting case. (ph)

May 20, 2006 in Fraud, Legal Ethics, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Trying the Lay Bank Fraud Case Like You're Double-Parked

While I suspect federal judges have particularly nice reserved spaces in most courthouse garages, U.S. District Judge Sim Lake seems to be hearing the evidence of the alleged bank fraud and false filings with a financial institution of Ken Lay as if he were double-parked in front of a fire hydrant.  As recounted by the Houston Chronicle TrialWatch blog (here), the judge has commented favorably on the unavailability of a government witness due to recent surgery, urged both sides to skip detailed questioning, listened to a scant 15 minutes of opening argument from each party, and bemoaned the fact that a more long-winded prosecutor would be questioning a witness.  Has the judge already made up his mind? 

The charges involve some rather technical disclosure regulations related to extensions of credit involving the application of Reg U, and the issues are not nearly as explosive as the conspiracy and securities fraud charges in the recently concluded trial that is now with the jury.  I think it is very unlikely that Lay will testify, not just because of the rather negative experience in the first trial but also because his defense is largely a technical one that these forms were so complicated and unimportant to the bank that he did not have the requisite intent.  That's certainly not something one would want to testify about.  One sideshow has been the focus on the use of an autopen to sign "Kenneth L. Lay" to at least some of the documents.  Does that make a difference when the issues are knowledge of falsity and intent to defraud?  It is unlikely, particularly in a bench trial, that the use of a machine to sign a document will be relevant, but then it seems the judge needs something to keep him interested.  The trial will likely conclude after another day or two, and the defense may not even call any witnesses.  At least everyone will be spared the reputation witnesses. (ph)

May 20, 2006 in Enron, Fraud, Prosecutions | Permalink | Comments (1) | TrackBack (0)

Friday, May 19, 2006

The Privilege Waiver as the Price of Admission to a Deferred Prosecution Agreement

The indictment of Milberg Weiss may well be a turning point in the government's pursuit of organizations through the use of criminal charges, particularly regarding issues related to the waiver of the attorney-client privilege.  On of the cornerstones of the attorney-client relationship is the privileged status of the communications, and the professional responsibility rules impose an even broader duty on attorneys to maintain the confidentiality of client-related information even if it does not meet the requirements of the privilege.  If Milberg Weiss' side of the story is to be believed, the government demanded perhaps the broadest possible waiver of the privilege by seeking all information generated in connection with the government's investigation of the firm from the time the first subpoena launched in 2002.  Other cases involving privilege waivers have usually focused on information generated in an internal investigation that would be protected by the organization's privilege, but not going to legal advice related to the government's investigation.  The line may be a fine one, but at least other deferred prosecution agreements have viewed the communications between lawyer and client regarding the response to the government as privileged. 

The investigation of a law firm involves unique issues that do not arise in other corporate crime prosecutions.  The vast majority of a law firm's files and other records will be case-related, and hence privileged (and also protected as work product).  To the extent that the alleged wrongdoing at Milberg Weiss involved its dealings with clients, there are two levels of confidentiality: the firm's attorney-client privilege, and the privilege arising from its role as an attorney for its clients.  While the firm can waive its own privilege, it cannot waive the privilege on behalf of a client without that client's permission.  If the government sought a waiver of all privilege claims related to the cases at issue in the indictment, then Milberg Weiss could not comply with such a request without having the permission of its clients. 

If a broad attorney-client privilege waiver is the price of admission to negotiating a deferred prosecution agreement, then it may be that the negotiations between the law firm and prosecutors were doomed from the start.  The prosecution of Milberg Weiss will likely involve a number of firsts, among them the fact that the privilege waiver has become the key step for prosecutors and a deal-breaker in the end. (ph)

May 19, 2006 in Fraud, Legal Ethics, Privileges, Prosecutions | Permalink | Comments (0) | TrackBack (3)

The List of Grand Jury Subpoena Recipients in the Options Pricing Probe Keeps Growing

Add three more companies to the list of those that have received grand jury subpoenas from the Southern District of New York probing the pricing of stock options granted to senior executives, including the veracity of documents for the awards.  The subpoenas, all delivered on Wednesday, May 17, were received by Affiliated Computer Services, Inc. (8-K here), Caremark Rx, Inc. (press release here), and SafeNet, Inc. (press release here).   Each company also disclosed receiving an inquiry from the SEC as part of its informal investigation -- which will go formal sometime soon, I expect -- and each states that it will cooperate in the investigation.  UnitedHealth and Vitesse Semiconductor also received subpoenas on that day (see post here), and no doubt there will be more companies disclosing the receipt of grand jury subpoenas, with the disclosures likely to come late Friday afternoon after the markets close.  It is not clear whether the SEC requests for information were received at the same time as the grand jury subpoenas, but the Commission and the Southern District of New York have a long history of close cooperation so these investigations most likely are being coordinated.  A Wall Street Journal story (here) discusses the expanding investigation. (ph)

May 19, 2006 in Fraud, Grand Jury, Investigations, Securities | Permalink | Comments (0) | TrackBack (3)

Thursday, May 18, 2006

Well, I Guess Mom Died 22 Years Ago

Dana Price entereda guilty plea to defrauding the federal Office of Personnel Management of over $700,000 by not reporting her mother's death in 1983.  The mother had been receiving survivor benefits based on her husband's service in the U.S. government, but that should have ended upon her death in September 1983.  Dana, however, continued to received the checks, and contacted OPM to make changes in where the benefits would be send.  According to the U.S. Attorney for the District of Maryland's blog (here):

On January 9, 1989, Dana Price wrote a letter to OPM using her mother’s address and social security number, and signed it as Joan Price. She requested that OPM “send my checks to my home rather than directly deposit them into my checking account.” In 1993, Dana Price submitted a form to OPM using her mother’s name and address. In 1995, she again certified Joan’ Price’s name and address in a letter to OPM. The OPM form Dana Price signed contained a specific section that was to be filled out if the annuitant had died.

It was not until 2005 that the government figured out that the mother was dead, after Price received improper payments of $728,175.32.  The guilty plea was entered two days after Mother's Day. (ph)

May 18, 2006 in Fraud | Permalink | Comments (1) | TrackBack (0)

Milberg Weiss and Two Partners Indicted

Leading plaintiff securities class action firm Milberg Weiss and two of its name partners, Steven Schulman and David Bershad, were indicted on mail fraud, conspiracy, and RICO conspiracy charges in the Central District of California (indictment below).  The defendants were added in a superseding indictment to the earlier prosecution of Seymour Lazar and another attorney related to alleged payments by Milberg Weiss to Lazar when he (and members of his family) served as a representative plaintiffs in a variety of class action suits in which the law firm served as lead counsel.  The indictment sets forth payments to three different plaintiffs, including Howard Vogel, who entered into a guilty plea in April 2006 related to making false statements in federal court that he had not received any payments for serving as the representative plaintiff while admitting to receiving money from Schulman and Bershad.  The new indictment adds the lawyers and firm as participants in an alleged general conspiracy and the scheme to defraud.  Interestingly, Milberg Weiss is not named in the RICO conspiracy count, instead serving as the so-called RICO enterprise operated by Schulman, Bershad, and Lazar.  As a technical pleading matter, an organization cannot be both the enterprise and the defendant under Sec. 1962(c), and for a conspiracy under Sec. 1962(d) to violate that provision, so Milberg Weiss could not be charged in this count under the government's theory.  The indictment also seeks forfeiture of assets from the defendants, including the law firm.

This case certainly marks a new phase in the use of criminal laws against business organizations.  I am not aware of a law firm of this size being charged in a criminal case.  In the early 1990s, Kaye Scholer settled civil charges related to its representation of Charles Keating and Lincoln Savings & Loan, but as a civil matter that did not implicate the same concerns as a criminal prosecution.  Milberg Weiss issued a statement (available below) asserting that the government's demands during plea negotiations made it impossible to reach an agreement.  The firm states:

The firm has held intense negotiations with government officials in Los Angeles and Washington over the past six months in an effort to avoid this unjust result. The government’s insistence that the firm waive attorney-client privileges as a condition to avoiding indictment is in derogation of one of the bedrock principles of American law and extended to parties the firm did not control. Governmental insistence on such broad waivers has been criticized by the American Bar Association and the U.S. Chamber of Commerce, and is currently being reviewed by Congress. The prosecutors also insisted that the firm make unfounded statements accusing its own partners of crimes and otherwise become an agent for the government. Unfortunately, the prosecutors insisted on indicting the firm unless it made these impossible concessions.

A key issue will be whether the law firm can survive a criminal indictment, and issue considered in an earlier post (here).  (ph)

Download milberg_weiss_indictment.pdf

Download milberg_weiss_statement.pdf

May 18, 2006 in Fraud, Legal Ethics, Prosecutions, RICO | Permalink | Comments (0) | TrackBack (1)

Southern District Jumps Into Options Pricing Investigation

The U.S. Attorney's Office for the Southern District of New York has issued grand jury subpoenas to Unitedhealth Group and Vitesse Semiconductor concerning the timing of options grants to senior executives and allegations that documents were backdated to allow the options to be issued at a lower price to enhance their value.  Unitedhealth announced the subpoena in a press release (here), and a Wall Street Journal story (here) discusses the subpoenas.  A grand jury in the Eastern District of New York has already subpoenaed Comverse Technology related to options timing issues at that company (see earlier post here), and it's not clear at this point whether the U.S. Attorney's Offices will be conducting a coordinated investigation. The SEC has already begun an informal investigation of a number of companies related to their options grants, and that investigation is likely to become a formal one, if it hasn't already happened, followed by the issuance of subpoenas.  Companies will be facing parallel investigations, along with the usual host of shareholder lawsuits.

Vitesse Semiconductor also announced that it had terminated its CEO, CFO, and executive vice president, who had earlier been placed on leave, and the company faces a delisting of its stock by NASDAQ because it has not been able to file its quarterly report.  More ominously for the former executives and the company is the disclosure that the internal investigation has raised questions about revenue recognition, and that its financial statements should not be relied on.  This raises an interesting question whether the options grants were linked to possible accounting violations designed to make the company look better and thereby enhance the value of the options, something that the grand jury will likely review.  An AP story (here) discusses the termination of the Vitesse Semiconductor officers. The various investigations are likely to expand rather quickly over the next few weeks. (ph)

May 18, 2006 in Fraud, Grand Jury, Investigations, Securities | Permalink | Comments (0) | TrackBack (1)

Wednesday, May 17, 2006

Enron Jury Instructed

Some white collar attorneys have come to a realization this week - and that is that different places in the United States proceed differently when it comes to the reading of jury instructions. In the trial of Skilling/Lay, reports say that instructions were given prior to the closing arguments.  This differs sharply with some jurisdictions that give the instructions after the closing arguments. 

So the question is whether it is better to have instructions before or after the closing argument?   

For the prosecution it means using language in the final closing that may come directly from the instruction and emphasizing the important phrases in the rebuttal.  For the defense it may mean having the jury aware of the law before even starting the closing arguments. 

But there really are two problems with this analysis.  The first is that the instructions are usually incomprehensible to a jury.  We use jury instructions to teach law students, and I am confident that many of them would tell you that this stuff isn't easy.   Second is whether there should be uniformity here.  It is always amazing how the DOJ continues to desire uniformity on the final phase - the sentencing, but fails to object to the lack of uniformity for other parts of the trial.


May 17, 2006 in Enron | Permalink | Comments (0) | TrackBack (0)