Thursday, November 30, 2006
With Democrats taking control of the House and Senate in the recent elections, the change in power means more than just a shift in jobs on Capitol Hill. It will also be an opportunity for Democrats to investigate the real and perceived problems of the Bush Administration, which means everyone called before a committee to testify is going to need a lawyer. Washington, D.C. powerhouse law firm Covington & Burling issued a memorandum (here) on November 16 alerting its clients and others to possible avenues of Congressional inquiry that may require, naturally, expert representation by experienced counsel.
The memo notes the following three areas as likely to draw investigative interest:
- Perceived Beneficiaries of Bush Administration and Congressional Initiatives
- Companies Connected to Alleged Bush Administration Failures or Abuses, and Companies and Industries Perceived to Have Close Ties to the Administration
- Corporate Accountability Redux
The memo is particularly blunt about what the second area will entail: "Companies that played a role in what are perceived as Bush Administration failures or abuses also likely will be targets for congressional investigators. Examples include companies involved in the Iraq redevelopment effort, telecommunication and Internet companies that responded to warrantless wiretap orders, and companies that provided services to Katrina victims. These lines of inquiry offer the 'triple play' of embarrassing the Administration, uncovering potential corporate abuses, and highlighting the prior Congress’s abdication of its oversight responsibilities." (emphasis added) There's nothing like a "triple play" to ensure that white collar practice groups remain busy. (ph)
The cases come up all the time: the trusted financial person turns out to be a crook stealing from the company. Today's edition comes from the Eastern District of Virginia, where the U.S. Attorney's Office announced (here) the guilty plea of Carl Ragland, the former controller of C&F Mortgage Corp., a subsidiary of Citizens & Farmers Bank. The take in this one is particularly large, with an embezzlement of $2.2 million since 2003, including wire transfers of over $1.2 million in 2005 alone. According to the press release, Ragland used his new-found wealth "for his personal enrichment, [including] the purchase [of] real estate, automobiles, vacations and other personal expenses." The question is always the same: was anyone checking on the controller and asking where the money was going? (ph)
One usually thinks of disclosure rules for public officials as a means to get information out in the open so all can see who is providing gifts, and how much they are worth. The Texas Ethics Commission, however, is taking a bit more restrictive view of what has to be disclosed about a gift. A staff advisory opinion approved by the Commission in a 5-3 vote, which is discussed in an AP article (here), only requires the official to disclose what was received, but not the gift's value. Under this approach, a disclosure of receiving a "check" is sufficient without listing the amount. The opinion relates to a case in which a member of the State Employees Retirement Board who had served as treasurer for former Representative Tom DeLay's campaign only disclosed the receipt of a "check" from a Republican donor, which was to help him offset legal fees related to an investigation of the DeLay campaign. The check was for $50,000, a very nice gift. If the Texas Ethics Commission's opinion stands up, then future disclosures might just say "cash," "boat" or "car" with nothing more. (ph)
Embezzling from one employer is bad enough, but some people just can't seem to stop themselves even when they get a new job. Eric Hurt entered a guilty plea in August 2006 to fraud charges related to embezzling over $110,000 while he worked at the Hoboken Housing Agency from 2001 to 2004 by writing 34 checks to himself (see earlier post here). While awaiting sentencing on that charge, the government determined that Hurt also embezzled anywhere from $120,000 to $200,000 for his next employer, the Brooklyn Day Montessori School, where he was business manager from 2005 to 2006. According to a press release (here) issued by the U.S. Attorney's Office for the District of New Jersey, "he issued salary and bonus payments to himself from the school well in excess of his authorized salary; made unauthorized wire transfers of money from a school bank account to himself; and used the school’s ATM card to make unauthorized cash withdrawals from a school bank account for his personal benefit." I wonder what kind of reference he got from the Hoboken Housing Authority before he took the school job. Needless to say, a second embezzlement won't help when Hurt is finally sentenced. (ph)
Wednesday, November 29, 2006
Yet another corruption prosecution hits Philadelphia, this time Mayor James Street's older brother, Milton, who has been charged with fraud and tax evasion. Over the past year, the city's former Treasurer and a member of the City Council were convicted on corruption-related charges. The indictment (here) alleges that Milton Street, described as a "food vendor," used his purported access to his brother to obtain consulting arrangements for thousands of dollars from companies with contracts at the Philadelphia airport. According to the indictment, Milton Street "began hiring himself out as a highly-paid consultant to area businesses who believed that defendant STREET could help them obtain business with the City of Philadelphia." One of the alleged contracts involved $30,000-per-month payments.
An AP story (here) quotes Milton Street stating, "I think, honestly, that I stayed in bounds (of the law) . . . Now, I have to tell you, I am the worst record-keeper in the history of the modern man." Sounds like the beginnings of an "honest-but-disorganized businessman" defense. Mayor Street is not implicated in any of the alleged violations. With Donovan McNabb out for quite a while recovering from knee surgery and the Sixers buoyed only by playing in the incredibly weak Atlantic Division, these are tough times in Philly. (ph)
Tuesday, November 28, 2006
Greg Farrell, USA Today's article - White Collar Crime Prosecutors in a Slump takes some baseball shots at prosecutors in the US Attorneys Office in Manhattan. They declined to respond, as they should, and for that they deserve credit.
But calling recent happenings in their office a sign of a "losing streak" does deserve some response. For one - prosecutors never lose. As true "ministers of justice" their job is not to convict, but merely to present the evidence fairly to the jury for them to properly evaluate. And when the evidence is not there, having them dismiss or not pursue a case is the "right" thing to do.
- dropping the Quattrone case - Outstanding is the way it should be described. Perhaps they erred in bringing this case initially, but they certainly cannot be criticized for not wasting taxpayer dollars on not proceeding with yet another trial that focuses on an email exchange.
- dropping cases against specialists - clearly the right thing to do when the evidence warrants that they should not proceed.
Prosecutors should not be faulted when they act as "ministers of justice." This umpire is calling a foul here.
The ABA Net has a piece praising its efforts in enforcing the attorney-client privilege despite a DOJ policy in the corporate sphere - a provision within the Thompson Memo. See also what Professor Alan Childress of the Legal Profession Blog says in this interesting post on the present status of the Thompson Memo. But the key will be to hear what Larry Thompson will say when he speaks at the Heritage Foundation this coming Thursday (see here). This blog will be covering that event.
What are the possibilities here -
Thompson could hold firm on his Memo and advocate for continuation of waiving the attorney-client privilege.
Larry Thompson, a man of the highest of professional standards, could easily say that the provision in this memo was to encourage corporate cooperation, but that it was never intended to be used the way the DOJ presently uses it. It is important to remember here that the waivers coming from the Memo come predominantly in deferred prosecution agreements. Many of these agreements are post-the-Thompson stay at DOJ.
Even without Larry Thompson taking a stance on his memo, it will be nice to hear his reflection on what was intended and whether some things that happened here were unintended consequences.
The trial of plaintiff class action firm Milberg Weiss on conspiracy, RICO, and fraud charges is set to begin in January 2008. At a scheduling conference with U.S. District Judge John Walter, prosecutors said that the government may add charges against the firm, which could involve fraudulent billings by experts. If new charges are added, that could postpone the trial even further, making it more difficult for Milberg Weiss to remain in business with the threat of a possible criminal conviction. It is not clear at this point whether the government has any cooperating witnesses providing information about questionable payments to experts. The investigation has been dragging on for over six years now, and unless the payments occurred within the past five years there may be statute of limitations problems, except if it is part of a larger RICO or conspiracy charge. A Los Angeles Times article (here) discusses the status of the case. (ph)
Monday, November 27, 2006
A press release of the Middle District of Alabama reports on the sentences received by the cooperators in the Siegelman/Scrushy trial. It states that:
"Businessman Clayton Lamar “Lanny” Young received 24 months imprisonment and a fine of $25,000 for two counts of conspiracy and one count of filing a false tax return for his role in a wide-ranging scheme to corrupt state government through Siegelman. Nicholas Bailey, who was Siegelman’s assistant and a former head of a state development office, received 18 months imprisonment for his role in the scheme involving one count of conspiracy and one count of filing a false tax return."
The court is presently dealing with post-trial motions being made by Siegelman and Scrushy. (see here)
According to a press release of the United States Attorney for the District of Kansas, "[t]wo former sales representatives for a food brokerage in Kansas City, Kan., were sentenced Monday for their parts in a conspiracy to defraud some of the nation’s largest manufacturers including Tropicana and Con Agra Frozen Foods." They had been accused of "submit[ting] false paperwork to food manufacturers seeking payment for lost or damaged merchandise" and also "issu[ing] store credits to store managers for items they removed and then submit[ting] a request to the food manufacturers for checks to cover the cost of the items."
This brings to three the number of individuals being sentenced in this scam, with all receiving five years probation. Sentencing is set for two other individuals with related charges.
It used to be that counterfeit "Beanie Babies" were the subject of government prosecutions, but the latest seems to be ""Yu-Gi-Oh" Trading Cards. Fraud Update here has a press release from the Central District of California that reports on a plea to trafficking counterfeit. The item attempted to be sold was "counterfeit 'Yu-Gi-Oh' playing cards that would have been worth more than $1 million if they were legitimate." The defendant had a substantial problem in his sale in that the buyers were undercover federal officers. Thus, it is not surprising to see a plea entered here.
Upcoming Event of the Heritage Foundation RSVP here.
The Future of the Attorney-Client Relationship in White-Collar Prosecutions
|Date:||November 30, 2006|
|Time:||11:00 a.m. to 12:00 p.m.|
The Honorable George J. Terwilliger III
With Introductory Remarks by
Director, Practice Groups,
The Federalist Society
Brian W. Walsh
Senior Legal Research Fellow,
The Heritage Foundation
Saturday, November 25, 2006
Rule 6(e) is important as it sets forth the importance of grand jury secrecy. And according to an article by Josh Gerstein of the New York Sun here, the secrecy may have been violated in a recent government case. The article provides details on a court's recent ruling finding a prima facie case that government officials may have violated grand jury secrecy. This means the ball is in the government's court to show otherwise. For more details see here.
Norman L. Reimer has been named the new executive director of the National Association of Criminal Defense Lawyers (NACDL). "Reimer is a partner in Gould Reimer Walsh Goffin Cohn LLP, a six member firm that specializes in criminal defense, immigration and civil rights litigation. He is a "past president of the New York County Lawyers Association." See more here.
Perhaps better described as the "Recoup Ken Lay's Money Because He Had the Temerity to Die on Us Act," the text of S. 4055 (here) provides that restitution can be ordered for any case pending on July 1, 2006, in which the defendant died before sentencing and appeal. First proposed by the Department of Justice in August 2006, Senators Feinstein and Sessions introduced the bill during the lame duck session after the November mid-term elections, and at this point the bill is unlikely to pass unless it is attached to a more pressing piece of legislation. A more likely scenario is that it will be reintroduced in the next session beginning in January 2007. The basic thrust of the legislation is:
`(a) General Rule- Notwithstanding any other provision of law, the death of a defendant who has been convicted of a Federal criminal offense shall not be the basis for abating or otherwise invalidating a plea of guilty or nolo contendere accepted, a verdict returned, a sentence announced, or a judgment entered prior to the death of that defendant, or for dismissing or otherwise invalidating the indictment, information, or complaint on which such a plea, verdict, sentence, or judgment is based, except as provided in this section.
We shall see how far the proposal goes in the legislative process. (ph)
Another internal investigation of options back-dating, another executive decides not to cooperate, and another resignation -- something of a broken record on this topic. This time, it is Quest Software, Inc. announcing the resignation of a senior executive who decided not to meet with the special committee of the board of directors conducting an internal investigation of the options issuance practices, thus ending his job with the company. According to its 8-K (here):
On November 18, 2006, the Board of Directors of Quest Software, Inc. (the “Company”), upon the recommendation of the Special Committee formed to investigate the Company’s historical stock option grant practices and related accounting, unanimously accepted the resignation, effective immediately, of M. Brinkley Morse, Senior Vice President, Corporate Development of the Company. Prior to his resignation, Mr. Morse’s counsel had informed the Special Committee that Mr. Morse declined to be interviewed by the Special Committee as part of its investigation.
As discussed in an earlier post "What Happens When the Former CEO Skips a Meeting with the Internal Investigators" on this topic, such a refusal can lead to a quick resignation from the board. The pressure on companies to demonstrate their cooperation is almost overwhelming these days. According to the Wall Street Journal's options-timing investigations scorecard (here), Quest Software has not received a grand jury subpoena from a U.S. Attorney's Office . . . yet. Look for one to arrive fairly soon. (ph)
While our primary focus is on the United States, instances of white collar crime can occur anywhere money flows and businesses fight for a competitive advantage. A Wall Street Journal article (here) discusses pending investigations in Germany of Siemens AG and Daimler-Chrysler AG related to potentially illegal payments. The Siemens investigation involves a fraud that involving over $200 million, and German police searched a number of the company's offices and seized over 36,000 documents. Searches are becoming more common in U.S. white collar crime investigations, although the German authorities also arrested six employees, something that tends not to happen here until charges have been filed. As one would expect to hear in an American corporate crime investigation, Siemens stated that it is cooperating with investigators. The Daimler-Chrysler case involves possible violations of the FCPA for bribes paid from allegedly secret bank accounts.
An AP story (here) discusses a report issued by China's National Audit Office that over $900 million in government pension funds have been misused or stolen. China is reputed to impose severe penalties for corruption, including the possibility of a death sentence, which is a bit more extreme than the punishments imposed in the U.S. and elsewhere. (ph)
Friday, November 24, 2006
The Second Circuit, in an unpublished summary order (available below), upheld the conviction of E. Kirk Shelton, the former vice chairman of Cendant, on conspiracy, wire fraud, securities fraud, and false statement to the SEC counts. Shelton was convicted in 2004 in a trial in which his co-defendant, former Cendant CEO Walter Forbes, had a mistrial declared because of jury deadlock. Forbes was recently convicted in a third trial in the matter. The case arose out of a large-scale accounting fraud at CUC International before it merged with HFS to form Cendant in 1997. Shelton received a ten-year sentence, and he had been free on bond pending appeal. He will likely have to report to the Bureau of Prisons to begin his term in the next four to six weeks.
The Second Circuit rejected Shelton's argument that the district court improperly gave an "ostrich instruction" to prove the conspiracy and fraud counts. The appellate court noted that the evidence at trial included testimony from a co-conspirator that while reviewing a document about using reserves to meet quarterly earnings targets Shelton tore it up and said, "I guess I never saw that document." The Second Circuit also upheld the sentence over Shelton's objection that the district court improperly enhanced his sentence for having a leadership role in the offense, arguing that he could not have consciously avoided knowledge for an ostrich instruction and been a leader of the fraud. The court found that there was sufficient evidence to support the enhancement. The fact that the Second Circuit affirmed in a short (six pages), unpublished opinion indicates that it is even less likely an appeal to the Supreme Court will be granted, if Shelton ever tries to pursue one.
Shelton's troubles are not over, even with a substantial jail sentence looming. The government has filed a civil suit challenging Shelton's transfer of approximately $37 million in assets to family members and what prosecutors allege are "straw" companies to hide assets after the fraud came to light. Cendant is also seeking repayment of $22 million it advanced to Shelton for his attorney's fees that he likely agreed to repay if found guilty of a crime that harmed the company. Working through the collateral consequences of the conviction will likely take years, from a case that began over five years ago. A USA Today article (here) discusses the case. (ph)
Options back-dating investigations have ensnared over 125 companies so far, and it looks like things are coming to a head at on-line job search company Monster Worldwide, Inc., when it announced the termination of its general counsel for cause. The company issued a press release (here) on Wednesday, November 22, stating that "the Company’s Board of Directors has terminated Myron Olesnyckyj, the Company’s former Senior Vice President, General Counsel and Secretary, for cause. Mr. Olesnyckyj was suspended from his position on September 19, 2006. The Board’s action was taken with the concurrence of the Special Committee of independent directors reviewing the Company’s historical stock option grant practices." As discussed in an earlier post (here), Monster's former CEO, Andrew McKelvey, resigned from the board of directors after his lawyer decided not to allow him to meet with the law firm conducting the internal investigation of the timing of options grants. McKelvey's lawyer said that the meeting could not take place because he was recently hired and not prepared to have his client meet, but the firing of Olesnyckyj may well indicate that back-dating of options might not have been a result of negligence or a misunderstanding of the issuance process. The U.S. Attorney's Office for the Southern District of New York subpoenaed the company back in June for documents related to its options practices, and this office hasn't gotten into the game yet with an indictment, unlike the U.S. Attorneys in San Francisco and Brooklyn. Prosecutors in Manhattan are sure to take a close look at the results of Monster's internal investigation. (ph)