Thursday, August 17, 2006

Will Prosecutors Really Oppose Lay's Motion to Abate the Conviction and Indictment?

With the court granting the motion to permit Ken Lay's widow, Linda, to appear on behalf of his estate, her attorneys have filed a motion to abate the conviction and indictment so that there will be no official record of him having been prosecuted for crimes related to Enron.  The scope of the abatement doctrine in the Fifth Circuit is clear from that court's en banc decision in United States v. Estate of Parsons, 367 F.3d 409 (5th Cir. 2004), which held that "the appeal does not just disappear, and the case is not merely dismissed. Instead, everything associated with the case is extinguished, leaving the defendant as if he had never been indicted or convicted." (citations omitted)  With a case so clearly on point, what is amazing is that the brief covers three pages (motion available below).

But perhaps even more amazing is a statement accompanying the motion that the Enron Task Force "will oppose the motion."  It's not clear what grounds the government can advance to oppose the request of Lay's estate when the Fifth Circuit's case law is so clear on the issue of abatement.  It may be that the government wants to preserve the conviction for the purpose of pursuing the criminal asset forfeiture, although as noted in an earlier post (here), prosecutors have now asked that co-defendant Jeffrey Skilling be held liable for the full amount of the forfeiture, including Lay's portion.  A criminal forfeiture proceeding is against the individual, while a civil forfeiture is directed against the tainted property and proceeds (in rem), and is a more difficult case to win, especially with an innocent owner defense available.  As I've come to learn, courtesy of Prof. Gerry Beyer of the Wills, Trusts, and Estates Law Prof Blog, Texas is a community property state so Linda Lay has a 50% ownership interest in all community property, and the government is unlikely to be able to reach her portion unless it can show her involvement in the underlying criminal conduct.

In the end, it's not clear what the government would gain in opposing a motion that is clearly governed by recent circuit case law.  It may be that the effect of the abatement doctrine is to create a windfall for Lay's heirs, and the desire to recover assets may be so strong that one might be able to make a passable appeal to equity in not giving complete effect to the doctrine.  The fact that an argument makes it past the laugh test does not mean it's a good one, though. (ph)

Download laymotiontovacateconviction.pdf

August 17, 2006 in Enron | Permalink | Comments (1) | TrackBack (0)

Was Anybody Looking Over His Shoulder

Embezzlement is sometimes as easy as opening up a can of beer on a hot summer day, at least from the description of some cases.  A press release (here) from the U.S. Attorney's Office for the District of New Jersey sure makes it sound like it was easy for an accounting manager at the Hoboken Housing Authority to steal over $110,000.   According to the press release, Eric Hurt admitted that "he embezzled the funds – in 34 checks written to himself – between about August 2001 and February 2004. To conceal the embezzlement, Hurt admitted that he falsely reported to the Housing Authority that the payees on the checks were various vendors doing business with the Housing Authority by entering them that way in the general operating fund check register."  Not even a false name or a dummy corporation with a bank account he controlled, just a false entry in the check register.  They're called internal controls for a reason, and once again they seem to be ignored, no doubt because Mr. Hurt was a trustworthy sort of person. (ph)

August 17, 2006 in Fraud | Permalink | Comments (0) | TrackBack (5)

Liquidmetal in Hot Water Over Accounting

Liquidmetal Technologies, Inc., disclosed that it had received a grand jury subpoena for documents related to the company's accounting.  A press release (here) states: "The documents being sought include accounting records, documents relating to the Company’s relationship with Growell Metal of Korea, and documents and records relating to transactions in Company stock by officers and directors. The Company has been advised that the materials sought are pertinent to a grand jury investigation recently initiated in the Middle District of Florida by the U.S. Department of Justice, Criminal Division, Fraud Section concerning alleged accounting improprieties by the Company, among other things."  While the press release is vague -- naturally -- it may be that the overseas transactions involve possible Foreign Corrupt Practices Act violations, particularly when the Fraud Section conducts the investigation.  The issues related to transactions in company stock could indicate possible insider trading questions, but again it's not clear where the government is going.  (ph)

August 17, 2006 in Fraud, Grand Jury, Investigations | Permalink | Comments (1) | TrackBack (0)

Wednesday, August 16, 2006

Reporters Ordered to Testify About Leaks in Balco Grand Jury Investigation

Two reporters for the San Francisco Chronicle, Mark Fainaru-Wada and Lance Williams, have been ordered to testify before a federal grand jury about the leak of the grand jury testimony of major league baseball players who testified in 2003 about receiving steroids from Balco (Bay Area Laboratory Co-operative).  Among those whose testimony reached the reporters is San Francisco Giants slugger Barry Bonds, who stated to the grand jury that he did not knowingly use steroids provided by his personal trainer who also worked at Balco.  Bonds is now the target of a separate grand jury investigation into possible perjury, and the Department of Justice has also been investigating the leak for well over a year.  Fainaru-Wada and Williams published the book Game of Shadows that asserted Bonds used steroids for a number of years, which apparently triggered baseball's investigation of steroid use and may have stimulated the perjury investigation.

U.S. District Judge Jeffrey White issued an opinion (In re Grand Jury Subpoenas to Mark Fainaru-Wada and Lance Williams available below) rejecting the reporters' assertion of a journalist privilege to maintain the confidentiality of sources, and found that the grand jury subpoenas were not "unreasonable or oppressive" under Federal Rule of Criminal Procedure 17(c).  The decision to enforce the subpoenas is consistent with the decisions reached in the Special Counsel's investigation of the leak of Valerie Plame's identity as a CIA agent in which former New York Times reporter Judith Miller spent almost three months in jail on a civil contempt before I. Lewis Libby released her from the promise of confidentiality.  See In re Grand Jury Subpoena, Judith Miller, 438 F.3d 1141 (D.C. Cir. 2006).  Among those filing affidavits in support of the two reporters were former baseball commissioner Fay Vincent and well-known journalist and author Carl Bernstein.

The reporters are unlikely to testify before the grand jury and could end up in jail for civil contempt, a fate that has already befallen Bonds' former personal trainer, Greg Anderson, who refused to testify in the perjury investigation.  While Judith Miller's source released her from the confidentiality agreement, that is probably less likely to occur here because of the substantial legal risks that person (or persons) faces.  The leak of grand jury material is punishable as a criminal contempt under Rule 6(e)(7).  Moreover, during the government's investigation, it appears that all parties to the Balco case with access to the leaked grand jury testimony have stated they did not disclose it, so revealing the source of the information could well open that person up to additional charges of perjury, obstruction of justice, and making a false statement (Sec. 1001).  The two reporters may be in jail for quite a while if the case is being investigated by the new grand jury empaneled in July in the Bonds perjury investigation because the civil contempt lasts for the panel's term, which could be until January 2008 (assuming it's not extended another six months).  (ph)

Download order_denying_motion_to_quash_subpoenas_fainaruwada.pdf

August 16, 2006 in Grand Jury, Investigations, Privileges | Permalink | Comments (1) | TrackBack (5)

Tuesday, August 15, 2006

Attorney Sentenced to 33 Months for Obstruction

A DOJ press release here reports on an attorney in Puerto Rico receiving a sentence of 33 months imprisonment for an obstruction of justice conviction. The press release states that the defendant was sentenced "for his involvement in a conspiracy to obstruct justice and obstruction of justice in connection with federal investigations by the U.S. General Services Administration, Office of Inspector General (GSA-OIG), and a federal grand jury into a kickback scheme to defraud Tricon Restaurants International. Tricon, which was recently purchased by Encanto Restaurants, owns and operates fast food restaurants in Puerto Rico."  The press release further states:

"The indictment charged that Guardiola attempted to conceal the true nature of the kickback payments by attempting to persuade witnesses to provide false information about the kickback payments to the grand jury and the GSA-OIG. The indictment also charged that Guardiola drafted a phony services contract to conceal the true nature of the kickback payments."

This case comes out of the Antitrust Division.  Two individuals have plead guilty and await sentencing related to this case, and one other "convicted at trial of the same charge" was "sentenced to serve 12 months and one day in jail and two years of supervised release." 

(esp)

August 15, 2006 in Defense Counsel, Obstruction, Sentencing | Permalink | Comments (0) | TrackBack (3)

"Prosecutorial Overreaching"

Professors Christine Hurt and Joan Hemingway are having an interesting conversation over at Conglomerate Blog here.  To some extent what is happening in the criminal/business area has happened for many a year outside this context.  For one, the role of the grand jury has been in need of reform. ( see NACDL Reform Project here). What is fascinating is the increased discussion of issues once the white collar/business individuals are subject to what others may have faced for many a year.

(esp)

August 15, 2006 in Scholarship | Permalink | Comments (1) | TrackBack (6)

If in Israel, Can Kobi Alexander Be Extradited to the US?

If it turns out that Kobi Alexander is in Israel, the issue may be whether he can be extradited back to the United States.  (see post here) According to the Wall Street Jrl here, Robert Morvillo,  Alexander's attorney, is stating that he has no idea of the whereabouts of his client. Morvillo states that his client is an Israeli citizen which may make extradition difficult. 

Eddie Antar  (Crazy Eddie Inc.'s founder) was extradited from Israel to the United States in January of 1993. He had tried to seek asylum in Israel, but failed after three years. (See Philadelphia Inquirer Jan. 11, 1993, at A1)  Alexander, however, may be an Israeli citizen and as such there may be different laws applicable here. Israel, like some European countries (See Baltimore Sun, Oct. 23, 1997, at 2A), has rules that permit the home country of the individual to prosecute the accused as opposed to extraditing them. Thus, Alexander, as an Israeli, may be subject to prosecution in Israel.  If this applies, this would not be the first time that Israel prosecuted an individual for a crime in the United States. Samuel Sheinbein left the United States for Israel.  He eventually entered a plea in Israel related to a homicide occurring in Maryland and was sentenced and imprisoned in Israel. 

Kobi Alexander's case may present additional issues: does it make a difference whether the crime is also a crime in Israel, and is this alleged conduct a crime in Israel?

(esp)      

August 15, 2006 in Fraud | Permalink | Comments (2) | TrackBack (0)

Monday, August 14, 2006

Joint and Several Liability & Jeff Skilling

Although Ken Lay's estate may end up escaping liability to the government (see post here), Jeff Skilling may be penalized because of Lay's death.  According to CNN here and Houston Chronicle here, the government is seeking $183 million in restitution from Skilling which represents a portion that would have been paid by Ken Lay, were he alive. 

Individuals charged with a federal conspiracy can also be charged with the individual crimes of co-conspirators if the crimes were in futherance of the conspiracy and forseeable.  Courts often give this instruction, known as a Pinkerton instruction, in federal cases. The question now becomes whether restitution should be jointly liable, implicating Jeff Skilling for the total amount. 

An argument for the government is that one who engages in a conspiracy takes the risk of the acts committed by their co-conspirator and therefore they should be held liable.  A defense response is that Skilling is basically being punished additionally just because Lay did not live.

(esp) 

August 14, 2006 in Enron | Permalink | Comments (1) | TrackBack (1)

Spellissy Sentencing & Ability to Remain Free on Bond

Former SOCOM official, Tom Spellissy, given 15 months for conspiracy, had a strong background to present at his sentencing hearing.  (see Tampa Tribune story here). The judge cited his military background as a basis for the reduction of the sentence. (See Tampa Tribune here) Interestingly, however, according to the Tampa Tribune's story of the accused statements made at sentencing, he did not appear to express remorse. He did, however, show how the conviction "killed" him. (See also AP here).  This is yet another example of how the mere conviction of a white collar offender serves as an enormous punishment. 

Additionally, Spellissy will not have to go immediately to prison.  Unlike former Mayor Campbell in Atlanta, the judge decided that Spellissy can remain on bond until the completion of this appeal. (see St Pete Times here)  Is there consistency in when an individual must commence their sentence immediately and when they can wait?  Should there be?  It does seem like white collar cases have a better chance of having the individual remain on bond.  But this may be a factor of the ability of the attorney to present interesting issues on appeal because of the complexity of many white collar crimes, the fact that there might be less of a flight risk with the white collar offender, and perhaps less likelihood of harm, especially when the offender is no longer in a position of power.

(esp)

August 14, 2006 in Sentencing | Permalink | Comments (1) | TrackBack (0)

Spellissy Gets 15 Months in Prison

According to the Tampa Tribune here, former SOCOM official, Tom Spellissy, received a sentence of 15 months in prison and a fine. For background on this case, see here. Stay tuned for upcoming commentary on this sentence. 

(esp)

August 14, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Voice Samples in a White Collar Case

One might find voice samples being requested by the government in street crime cases, especially ones where the accused is thought to have made a threatening telephone call or a statement at the scene of the crime.  But in a white collar case? 

Yes, AP reports here that a judge has allowed the government to obtain voice samples from three individuals charged in the "theft of trade secrets from The Coca-Cola Co." case. This case originates when Pepsi turned over evidence to Coca-Cola that someone was trying to sell them alleged trade secrets.

In the case of United States v. Dionisio, 410 U.S. 1 (1973), the Supreme Court held that requiring a grand jury witness to produce voice exemplars would not violate constitutional rights under the Fourth and Fifth Amendments.

(esp)

August 14, 2006 in Investigations, Privileges, Prosecutions | Permalink | Comments (0) | TrackBack (1)

Sunday, August 13, 2006

More on KPMG - Stein et al and Thompson Memo

Attorneys Stephen W. Grafman and William F. Boyer have a superb piece in the National Law Journal here discussing Judge Kaplan's recent decision in the KPMG related case.  They argue that the opinion does not go far enough and that dismissal of the government's case is in order.

Many have been critical of the Thompson Memo.  The question now is whether the government is hearing the message.  More importantly, in light of Judge Kaplan's decision, the ABA response, and so many criticisms levied against the government, will DOJ continue to use the memo.  That is, will DOJ continue to place future prosecutions in jeopardy by allowing this document to stand on the record.  As long as the Thompson Memo exists, there is the possibility of it being used, being interpreted to require, or being a convincing work that companies will feel compelled to follow in order to escape prosecution.

The results here could be devastating for prosecutors.  The company could escape prosecution, the individuals case may get destroyed by the memo's existence, and everyone may walk out free and clear.  As a taxpayer, I am not sure this benefits our pocketbooks.  Might it just be wiser for the government to issue a new memo, call this one quits, and move onto something a bit more acceptable to the legal community. Might it be the best way to assure that prosecutions do not fail.

(esp) 

August 13, 2006 | Permalink | Comments (2) | TrackBack (1)

Abramoff Dominos Falling

According to the Washington Post here, yet another person is pleading guilty after being implicated by testimony given by Jack Abramoff. Roger G. Stillwell, a former Interior Department employee plead guilty after receiving gifts such as sports and concert tickets. The Washington Post's web page here  provides a listing of the guilty pleas entered to date resulting from Jack Abramoff's guilty plea and cooperation.

The Jack Abramoff plea agreement has been extraordinary for the government. As a polished individual, one with close ties and knowledge to insiders, he has the ability to be used as a threat beyond the typical witness to those who are targets of a government investigation.  It is not surprising that we are not seeing indictments followed by trials, and are seeing indictments followed by plea agreements coming from Abramoff's testimony.

(esp)

August 13, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)

Weekend News Stories

Is it that white collar crime is increasing?  Is it that the press is reporting more white collar related stories?  Is it that prosecutors are prosecuting more white collar crimes?  From a term coined by Edwin Sutherland in 1939, "white collar crime" has certainly become a common theme these days.  Just looking at some of the white collar related stories in this weekend's newspapers across the country present evidence of this -

Washington Post (AP) here -Religion-Related Fraud Getting Worse

Washington Post here - 12 File to Oppose Rep. Jefferson

Lexington Herald here - Insider Trading Case Dropped (discussing federal prosecutors dropping an insider trading case upon receipt of new evidence)

Lexington Herald here - Judge: Fletcher Cannot Be Tried (discussing the state court's holding that the Kentucky Governor cannot be prosecuted on 3 criminal misdemeanor charges until the state legislature either impeaches him or he is voted out of office)

Indianapolis Star here - Con Artists Tailor Pitch to Elderly

LATimes here - Juicy Details in Option Scandal (discussing stock option backdating scandal and former Comverse Technology Inc. executives)

NYTimes here - Secrets in the Pipeline (discussing "private investment in public equity" issues)

Boston Herald here - Testimony 'Irreconcilable': Perjury Charge Eyed  (discussing prosecutors considering perjury charges against a state representative)

(esp)

August 13, 2006 in News | Permalink | Comments (0) | TrackBack (4)

Saturday, August 12, 2006

A Lawyer is not an Ostrich

When a lawyer claims that he or she was unaware that something is against the law, they may have a tougher time in maintaining their ignorance. If they cross the line, they can be facing jail time.

The August 11th ABA E-Journal Report here has a superb story on the recent decision of the Third Circuit Court of Appeals in  United States v. Flores here where an attorney was sentenced to 32 months imprisonment following convictions for conspiracy to commit money laundering, money laundering, and conspiracy to structure a currency transaction.

Perhaps the most telling evidence against the attorney is noted in the court's statement that, "Flores received a letter from the Republic National Bank explaining what 'structured' transactions are and why they are illegal, and informing him that 'when an account receives a large incoming wire and immediately sends an outgoing wire or wires for approximately the same amount, without apparent commercial justification, it mirrors the activity of an account opened by money launderers';"

(esp) (w/ a hat tip to my colleague Professor Clark Furlow)

August 12, 2006 in Defense Counsel, Judicial Opinions | Permalink | Comments (0) | TrackBack (2)

Five Doctors Indicted in Georgia For Internet Drug Prescriptions

Five doctors and two others were Indicted in the Northern District of Georgia.  According to a press release of the U.S. Attorney for the Northern District of Georgia here, two of the individuals were owners of a business that is:

"based in Marietta, Georgia. These business sought customers who would request specific controlled substances and prescription drugs. The businesses forwarded these requests to doctors who would click electronic prescriptions causing the drugs to be sent to the customers. The doctors allegedly never met the customers, nor would they typically even speak to the customers over the telephone. Thus, customers were able to obtain controlled substances and prescription drugs without any genuine medical need and outside of a legitimate doctor-patient relationship."

(esp)

August 12, 2006 in Computer Crime | Permalink | Comments (0) | TrackBack (1)

Brocade Executives Indicted

As expected, a grand jury indicted former Brocade Communications CEO Gregory Reyes and former human resources VP Stephanie Jensen, supplanting the securities fraud complaint issued on July 20.  Reyes is indicted on twelve charges and Jensen on eight, comprised of conspiracy, securities fraud, mail fraud, false entries in the company's books, and four counts of making false statements to the company's accountants (Reyes is the only defendant on these).  The factual allegations in the indictment (available below) do not vary much from the earlier complaint, and the securities fraud charges under Section 10(b) and Rule 10b-5 simply recite the language of those provisions and allege both a scheme to defraud and causing Brocade to file false Form 10-Ks with the SEC.  The mail fraud charge alleges both the traditional money/property form of fraud and also an alleged deprivation of the right of honest services owed to Brocade by both defendants.  Once again, the issue of intent will be the key to the fraud charges because neither Reyes nor Jensen profited directly from the backdating of the options grants and they were authorized to issue the options to the new hires, albeit without falsifying records.  Each is charged with a narrower books-and-records violation, which may be easier for prosecutors to establish.

One thing I noticed in the indictment is that it is dated "July 20, 2006" on the last page where the foreman signed it as a "True Bill," although it was not filed until August 10.  I had wondered why prosecutors used a criminal complaint earlier rather than a grand jury indictment, which would have obviated the need for a hearing on the propriety of the complaint that was held before a magistrate on August 9.  A complaint is judged by a different standard than a grand jury indictment, although the threshold for an acceptable complaint is still rather low.  I suspect that the prosecutors hoped to have the grand jury return the indictment on Thursday, July 20, but for whatever reason it could not be completed in time.  Rather than let the moment pass, they filed the complaint and now, three weeks later -- this is obviously a "Thursday" grand jury, and could even be the same one that is hearing the Barry Bonds perjury investigation -- the indictment was ready for a vote.  A previously scheduled preliminary hearing to review the basis for the securities fraud charge in the complaint is now out the window because a grand jury indictment is based on probable cause, so the case will proceed from here into the discovery phase.  Look for the defense to file a motion to dismiss and for a bill of particulars to get the government to identify the victim(s) of the alleged violations and its basis for inferring criminal intent, among other things. (ph)

Download reyes_jensen_indictment.pdf

August 12, 2006 in Fraud, Prosecutions, Securities | Permalink | Comments (0) | TrackBack (1)

Former Wal-Mart Executive Sentenced to Home Confinement

Former Wal-Mart executive Tom Coughlin, who was with the company from its founding by Sam Walton and served most recently as vice-chairman of the board of directors, received a 27-month term of home confinement after pleading guilty to defrauding the company and tax evasion.  Coughlin admitted to taking gift cards for use at company stores and submitting bogus invoices to pay for personal expenses, totaling over $300,000.  Wal-Mart initiated the prosecution when it turned over information to the U.S. Attorney's Office that it developed in an internal investigation.  Among the items purchased with one gift card was a cooler and two cases of beer.  Coughlin's salary for his last three years he worked at Wal-Mart totaled approximately $2.9 million, and when he left the company he owned almost 700,000 shares (see 2005 Proxy here), which at the current price would be worth approximately $30 million.  What is missing in this type of case is an explanation for why one would put so much at risk for an amount less than the annual dividend on Coughlin's shares.

Although the Sentencing Guidelines called for a prison term of over two years, and prosecutors recommended six to twelve months in prison, U.S. District Judge Robert Dawson accepted the testimony from Coughlin's doctor that various illnesses made him too fragile to serve a prison term because he was "57 going on 87."  Defense counsel's sentencing submission is available below and includes a summary of a number of letters submitted on Coughlin's behalf.  Coughlin also must pay almost $411,000 in restitution to Wal-Mart and the IRS.   A Reuters story (here) discusses the sentencing. (ph)

Download coughlin_sentencing_letter.doc

August 12, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (2)

Friday, August 11, 2006

Where the Heck is Kobi Alexander?

Former Comverse Technology CEO Kobi Alexander was charged with conspiracy along with two other senior executives, but has not been located at this point.  While a Department of Justice press release (here) notes that two brokerage accounts with $45 million of Alexander's assets have been frozen, it appears that he transferred over $57 million to accounts in Israel in what the government asserts was a money laundering scheme "in an effort to conceal the funds from U.S. authorities."  The FBI has declared Alexander a fugitive, and is conducting a worldwide search.

There is certainly a good possibility that Alexander is in Israel, so it may be difficult to extradite him to the United States.  An article in the Israeli newspaper Ha'aretz (here) quotes a local attorney who states that the extradition treaty between the countries dates back to 1963 and the alleged fraud from the options timing may not be a covered offense allowing for Alexander's return.  Should Alexander return to the United States to face the charge, expect to see some fairly onerous conditions if bail is granted, which is probably unlikely.  If Alexander shows up in a country that will not extradite him, then we may have a new Marc Rich, who fled to Switzerland in the face of tax evasion charges in the early 1980s. (ph)

August 11, 2006 in Fraud, Prosecutions, Securities | Permalink | Comments (3) | TrackBack (0)

Another $1 Million in Cash Will Keep Lord Black Free on Bail

Federal prosecutors in Chicago and Lord Conrad Black have been involved in a nasty dispute over whether his financial disclosure in connection with the bail application was complete and truthful.   The U.S. Attorney's Office requested that U.S. District Judge Amy St. Eve revoke Black's $20 million bond and send him to jail pending a trial scheduled for 2007, a long time to stay in the pokey.  Judge St. Eve determined that Black had misrepresented his assets, but denied the request to revoke the bond and instead ordered him to put up an additional $1 million in cash.  The bond is already secured by property with an estimated value of $30 million, but  the additional liquid assets should give the court some comfort that Black will continue to show up for court appearances.  A Reuters story (here) notes that Black's attorney said his client would put up the additional funds -- I hope the check clears. (ph)

August 11, 2006 in Prosecutions | Permalink | Comments (0) | TrackBack (0)