Saturday, January 7, 2006

Former Wal-Mart Executive Likely to Plead Guilty to Fraud and Tax Charges

The saga of Thomas Coughlin, former vice chairman of Wall-Mart and hunting buddy of company founder Sam Walton, appears to be coming to a close with reports that he will enter a guilty plea to wire fraud and tax evasion charges.  The issue first flared in March 2005, when Coughlin was removed from the board and his retirement benefits terminated by the company when an internal investigation revealed that over a number of years Coughlin had engaged in a number of relatively small personal transactions that were billed to Wall-Mart as business expenses, totaling upwards of $500,000.  The purchases included Wall-Mart gift cards, hunting equipment and rifles, and even a personal computer for Coughlin's son.  A plea by Wall-Mart vice president Robert Hey, who reported to Coughlin, detailed the fraud and referenced an unidentified Wall-Mart executive as the recipient of the benefits, so it was only a matter of time before Coughlin was indicted.

When the story first broke, Coughlin claimed that the transactions related to a secret anti-union campaign he conducted on behalf of Wall-Mart, a plausible story given the company's reputation in that area (among others these days).  While a plea deal does not preclude Coughlin from asserting that position, it will require him to affirm that he defrauded Wall-Mart and that the benefits constituted personal income that should have been reported.  It will be difficult to assert at sentencing that his conduct was for the benefit of the company.  A Washington Post story (here) discusses the potential plea agreement. 

A case like this highlights a point seen in a number of white collar crime prosecutions when a high-level, and well-paid, executive or professional engages in misconduct that involves seemingly trivial amounts.  Is it worth it?  Wall-Mart's 2004 proxy statement (here) discloses that for 2004 Coughlin earned $983,894 in salary, an incentive payment of $2.8 million, a restricted stock award of $2 million, and other compensation (i.e., perks not including the ones he stole) of $252,082, which in addition to his ownership of 948,832 shares, which are worth over $40 million.  The annual dividends on his stock holdings alone probably exceed the amount of the fraud he will admit, so in the end it's not the money.  Instead, I think it is a sense of entitlement, and a belief that one is not doing anything wrong because the person is not a criminal like those people who rob a 7-11.  We all believe we're ethical and honest, although sometimes it takes a little extra convincing to get out the door in the morning. (ph)

January 7, 2006 in Fraud, Investigations | Permalink | Comments (0) | TrackBack (2)

Friday, January 6, 2006

Rhode Island Hospital and Three Executives Charged in Corruption Prosecution

Roger Williams Medical Center in Providence, Rhode Island, and thee executives were charged in a 38-count indictment with secretly paying state Senator John Celona $260,000 in order to advance the medical center's interests in the state legislature.  The individual defendants are Robert Urciuoli, the chief executive of the medical center (currently on leave), Frances Driscoll, a former senior vice president for public relations, and Peter Sangermano, Jr., president of an assisted-living facility called the Village at Elmhurst that is affiliated with Roger Williams. A press release issued by the U.S. Attorney's Office for the District of Rhode Island (here) states:

[T]he conspirators devised a ruse to have Roger Williams Medical Center pay Celona as a consultant for the Village at Elmhurst so Roger Williams could use him to influence legislation. Celona’s ostensible duties were to trumpet services available to seniors at the Villages at Elmhurst but, according to the indictment, he was actually being paid by Roger Williams Medical Center and his job was to advance its agenda in the General Assembly.  The indictment alleges that, between 1998 and 2004, Roger Williams paid Celona approximately $260,000 in consultant fees and, in return, Celona took steps to kill bills deemed harmful to Roger Williams and to advance legislation that Urciuoli and Driscoll considered favorable. Celona allegedly stifled bills in committees and pressured other legislators to back off bills that ran counter to Roger Williams’ agenda.

Among the evidence recounted in the indictment is an allegation that "at Urciuoli’s direction, Celona pressured medical insurance companies to increase their reimbursements to Roger Williams for health care services.  After a meeting with an insurance company executive in 2001, Celona allegedly sent an e-mail message to Urciuoli stating, 'I hope I didn’t lay it on... too much yesterday.' Urciuoli allegedly responded that the insurance official 'deserved to get cranked around.' "

This indictment of a corporation, particularly a non-profit, on corruption charges is uncommon.  While organizations can be involved in bribery and the like, such as the Sun-Diamond agricultural cooperative that was prosecuted for giving unlawful gratuities to then-Secretary of Agriculture Mike Espy in the early 1990s, the payments are usually unauthorized and, by their very nature, kept secret from the company.   Roger Williams, which was founded in 1878, issued a statement that it intended to fight the charges.

Celona entered a guilty plea in August 2005 to three counts of mail fraud/right of honest services, and has cooperated in the investigation.  An AP story (here) notes that in addition to accepting payments from Roger Williams, Celona also admitted to taking money from CVS and Blue Cross & Blue Shield of Rhode Island to protect their interests in the state legislature.  Neither company nor any of their employees have been charged with a crime. (ph)

                                                                                       

UPDATE: A copy of the indictment is available below, courtesy of a Rhode Island reader.

Download roger_williams_medical_center_indictment1.pdf

January 6, 2006 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Cert Granted to Consider Whether Denial of Counsel of Choice Requires Automatic Reversal

The Supreme Court granted certiorari in United States v. Gonzalez-Lopez, 399 F.3d 924 (8th Cir. 2005), an Eighth Circuit decision holding that the improper denial of the right to counsel of choice by the district court required automatic reversal of the conviction without determining prejudice to the defendant.  The district court found that defendant Gonzalez-Lopez's preferred attorney, who was from California, had engaged in unethical conduct by contacting Gonzalez-Lopez without his then-attorney's permission in violation of the professional conduct rules (Rule 4.2 to be exact).  When the California attorney sought admission pro hac vice to represent Gonzalez-Lopez (whose original attorney had withdrawn, not surprisingly), the district court refused to permit the attorney to appear because of the perceived ethical violation.  In a separate opinion (403 F.3d 558 (8th Cir. 2005)) issued the same day, the Eighth Circuit held that the attorney did not violate the ethics rules by contacting Gonzalez-Lopez because the attorney was not representing any other clients in the matter.  In the main case, now before the Supreme Court, the Eighth Circuit found that the refusal to admit the attorney pro hac vice violated the Sixth Amendment right to counsel of choice, and reversed the conviction without requiring proof of prejudice:

We join the majority of circuit courts and hold the denial of a criminal defendant's Sixth Amendment right to be represented by the attorney he selected results in automatic reversal of the conviction. The denial of the right to counsel of one's choice does not fit in the category of cases reflecting a "trial error" which takes place "during the presentation of evidence to the jury" and can therefore be "quantitatively assessed in the context of other evidence presented." * * * Instead, the denial of the right to counsel of choice clearly belongs in the class of fundamental constitutional errors which reflect a defect in the framework of the trial mechanism and "defy analysis by 'harmless error standards.' " [quoting Arizona v. Fulminante]

The Solicitor General's Office sought review, and this case will allow the Court to play out its muddied position on "structural error" in the context of the Sixth Amendment right to counsel.  Because disqualification motions arise in a number of criminal cases,ranging from drug prosecutions (such as that in Gonzalez-Lopez) to white collar crime cases, the Court's decision will be important across the board.  The relevant documents in the case are available on the Scotus Blog (here). (ph)

January 6, 2006 in Defense Counsel | Permalink | Comments (0) | TrackBack (0)

Stewart and Bacanovic Convictions Upheld

The Second Circuit upheld the convictions of Martha Stewart and Peter Bacanovic on conspiracy, false statement, perjury (Bacanovic only), and obstruction of an agency investigation charges in a published opinion (available on Findlaw here).  The opinion is long -- 74 pages -- and goes into a fair amount of detail about the government's evidence because many of the legal issues relate to the weight of the evidence.  After looking through it, it appears to me that the court deals with a number of discrete issues that are largely unremarkable, and only the first two issues in the opinion appear to be a potential basis for a Supreme Court appeal (assuming either defendant wishes to pursue a further appeal at this point).

The first issue the Second Circuit deals with concerns the application of the Supreme Court's 2004 decision in Crawford v. Washington, 541 U.S. 36 (2004), to a Confrontation Clause claim regarding the admission of statements by Stewart and Bacanovic in their interviews with the SEC and FBI as evidence against the other.  The Court issued Crawford a short time after the jury verdict in the case, so the issue is reviewed only for "plain error," which is a very difficult standard for defendants to meet.  For those whose eyes glaze over at the mere mention of the Confrontation Clause, suffice to say that Crawford does not permit the government to introduce out-of-court statements that are "testimonial," and Stewart and Bacanovic argued that the introduction of their statements violated the Confrontation Clause because they were made to government officials, and hence "testimonial" in nature.  After Crawford, such statements cannot be introduced against another defendant without a chance to cross-examine the declarant (recall that neither Stewart nor Bacanovic testified).  Crawford has caused a great deal of uncertainty about its application by not defining what is a "testimonial" statement, which is one reason why it could be an issue that might draw the Supreme Court's attention.  The Second Circuit dealt with the defense argument in this way:

Here, Defendants do not have the temerity to argue that somehow Crawford precludes the government’s proof of the Defendants’ false portions of their statements because they were provided in a testimonial setting. Crawford expressly confirmed that the categorical exclusion of out-of-court statements that were not subject to contemporaneous cross-examination does not extend to evidence offered for purposes other than to establish the truth of the matter asserted. * * * Defendants object that certain truthful portions of their statements made during the course of the agreed-upon obstruction must be excluded because they are "testimonial." On the facts of this case, where the object of the conspiracy is to obstruct an investigation that is engaged in obtaining those testimonial statements of the conspirators, that objection must fail. * * *

As noted, the admissibility of such totally false statements, made in the course and in furtherance of the conspiracy, suffers no Sixth Amendment bar under Crawford. The truthful portions of statements in furtherance of the conspiracy, albeit spoken in a testimonial setting, are intended to make the false portions believable and the obstruction effective. Thus, the truthful portions are offered, not for the narrow purpose of proving merely the truth of those portions, but for the far more significant purpose of showing each conspirator’s attempt to lend credence to the entire testimonial presentation and thereby obstruct justice. It would be unacceptably ironic to permit the truthfulness of a portion of a testimonial presentation to provide a basis for keeping from a jury a conspirator’s attempt to use that truthful portion to obstruct law enforcement officers in their effort to learn the complete truth. 

In other words, good effort, but it just can't work that way.

The second issue concerns the false testimony of Lawrence Stewart, the Chief Forensic Scientist at the Secret Service laboratory who testified about the ink used in a notation in Bacanovic's broker book about selling Stewart's ImClone shares "@60."  Lawrence Stewart was later prosecuted and acquitted of perjury charges related to his testimony, and Stewart and Bacanovic argued that the government's use of perjured testimony violated their due process rights.  False testimony in the government's case-in-chief is highly suspect, but the jury returned a not guilty verdict on the charge related to the false testimony.  In light of that, the Second Circuit held:

Lawrence’s testimony did not influence the verdict on the counts of conviction. It pertained exclusively to Bacanovic’s "@60" worksheet and was used by the Government to support its position that the $60 stop-loss agreement was an after-the-fact fabrication. The jury acquitted Defendants of all of the counts and specifications relating to the existence of the agreement. Because the Government failed to persuade the jury to convict on the only counts to which Lawrence’s testimony related, that testimony cannot be considered capable of materially affecting the verdict on the counts to which it had no relevance.

The other issues relate to juror misconduct, the failure to give a jury charge for the defendants related to insider trading, evidentiary rulings excluding evidence of the legality of Stewart's sale of ImClone stock, and challenges by Bacanovic to his convictions (e.g., the "two-witness" rule for perjury).  The issues are largely non-controversial, and the court's resolution of them is unlikely to be the basis for a Supreme Court appeal because they involve judgment calls by the district court in areas in which the trial judge has fairly wide discretion. 

While the Stewart case has received an a great deal of media attention, the appellate opinion affirming the convictions shows that the legal issues are rather mundane, and certainly not of great legal importance except perhaps the Crawford and witness perjury questions.  (ph)

                                                                                             

UPDATE: Doug Berman has an interesting post (here) on the Sentencing Law & Policy blog on the pace of appellate review in non-capital cases like this one. (ph)

January 6, 2006 in Judicial Opinions, Martha Stewart, Obstruction, Perjury | Permalink | Comments (2) | TrackBack (0)

Thursday, January 5, 2006

Former Dynegy Executives Receive Lighter Sentences

Former Dynegy Corp. executives Bill Gene Foster and Helen Sharkey, who entered guilty pleas and testified against Jamie Olis, another executive at the company, received sentences well below the government's recommendation for their part in an accounting fraud.  The three were involved in a program called Project Alpha that inflated Dynegy's earnings by $300 million.  The government recommended a 30-month sentence for Foster and 18 months for Sharkey, but U.S. District Judge Sim Lake sentenced them to 15 months and 1 month, respectively.  Olis, who fought the charges but was convicted, originally received a 24-year sentence that was later reversed by the Fifth Circuit because of an improper calculation of the loss attributable to the criminal conduct.  Olis' sentencing hearing has been delayed until late January to permit the judge to consider the loss issue, which will be the primary determinant of the sentence.  As Doug Berman points out in a post on the Sentencing Law & Policy blog (here), the lower sentences for Foster and Sharkey bode well for Olis because the government is seeking a 15-year sentence for him, but the court does not appear to be as receptive to the sentencing recommendations of the prosecutor. 

Sharkey's sentence may be something of an aberration because she recently gave birth to twins.  The 15-month sentence for Sharkey, who was senior to Olis at Dynegy, may indicate at least a floor on Olis' sentence, and it would not surprise me to see a sentence in the 36 to 54 month range.  The defense has submitted information that argues for a loss of zero, while the government argues for a loss calculation of between $20 and $50 million. After Booker, sentencing has become much more of a guessing game, particularly in white collar crime cases where the amount of the loss is subject to such widely divergent claims. A Houston Chronicle story (here) discusses the sentencings. (ph)

January 5, 2006 in Sentencing | Permalink | Comments (1) | TrackBack (2)

Looking for DeLay-Abramoff Connections

Not to be forgotten in all the hoopla about the guilty pleas of lobbyist Jack Abramoff is the pending case against Rep. Tom DeLay for money laundering and conspiracy in Texas.  Travis County DA Ronnie Earle, who filed the charges against Rep. DeLay, is now pursuing information related to a $500,000 contribution from the National Republican Congressional Committee (NRCC) to the U.S. Family Network.  The money purportedly came from Abramoff, and the founder of the nonprofit is Jack Buckham, a former chief of staff to Rep. DeLay.  DA Earle has subpoenaed, among others, Buckham and Sally Vastola, the executive director of the NRCC.  Showing the high esteem in which Earle is held by Republicans in Washington, D.C., an AP story (here) quotes a spokesman for the NRCC as stating, "I'm going to call Roswell (N.M.) and warn them that Ronnie Earle is on the witch hunt for the Martians they have there."  I'm not sure if a Texas district attorney would have jurisdiction over Martians, but then I'm not all that familiar with Texas law.  It does show, however, that wherever Abramoff's money went, someone is sure to follow the trail. (ph)

January 5, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Sen. Clinton's Campaign Committee Fined $35,000

The AP reports (here) that a fundraising committee for Senator Hillary Clinton will pay a $35,000 fine for not properly reporting expenses related to a fundraising event in Los Angeles in 2000.  The filings with the Federal Election Commission related to the event, which involved appearances by a number of Hollywood stars, eventually led to the indictment of David Rosen, formerly Clinton's national finance director, who was acquitted in 2005 of making false statements to the FEC.  (ph)

January 5, 2006 in Civil Enforcement | Permalink | Comments (0) | TrackBack (0)

SEC Announces Principles for Imposing Penalties on Companies

SEC Chairman Christopher Cox has cobbled together a set of principles (here) regarding when the Commission will impose civil penalties on companies ("issuers") who run afoul of the federal securities laws.  Like any pronouncement of guidelines that will apply in a wide variety of cases, they are vague to the point of providing little more than a direction to "do no harm" or "don't do anything stupid."  That said, the Commission outlined two general considerations in deciding whether to seek a fine:

The presence or absence of a direct benefit to the corporation as a result of the violation. The fact that a corporation itself has received a direct and material benefit from the offense, for example through reduced expenses or increased revenues, weighs in support of the imposition of a corporate penalty. If the corporation is in any other way unjustly enriched, this similarly weighs in support of the imposition of a corporate penalty. Within this parameter, the strongest case for the imposition of a corporate penalty is one in which the shareholders of the corporation have received an improper benefit as a result of the violation; the weakest case is one in which the current shareholders of the corporation are the principal victims of the securities law violation.

The degree to which the penalty will recompense or further harm the injured shareholders. Because the protection of innocent investors is a principal objective of the securities laws, the imposition of a penalty on the corporation itself carries with it the risk that shareholders who are innocent of the violation will nonetheless bear the burden of the penalty. In some cases, however, the penalty itself may be used as a source of funds to recompense the injury suffered by victims of the securities law violations. The presence of an opportunity to use the penalty as a meaningful source of compensation to injured shareholders is a factor in support of its imposition. The likelihood a corporate penalty will unfairly injure investors, the corporation, or third parties weighs against its use as a sanction.

The key question for corporate lawyers is the role cooperation will play in the decision whether to impose a fine, and how much cooperation is necessary to avoid or at least limit any monetary payment.  After outlining its two primary considerations, the release discusses a number of other points, such as intent and pervasiveness of the violations, until finally it reaches the concluding factor:

Extent of cooperation with Commission and other law enforcement. Effective compliance with the securities laws depends upon vigilant supervision, monitoring, and reporting of violations. When securities law violations are discovered, it is incumbent upon management to report them to the Commission and to other appropriate law enforcement authorities. The degree to which a corporation has self reported an offense, or otherwise cooperated with the investigation and remediation of the offense, is a factor that the Commission will consider in determining the propriety of a corporate penalty.

Does last mean least?  Don't be misled by the order of these considerations because cooperation will be the first thing that comes to mind in the Division of Enforcement when it makes it negotiates with counsel over a settlement or makes a recommendation to the Commission.  How much cooperation is enough?  Remember, this is the agency that resisted defining insider trading for years, and even now its definitions in Rule 10b-5-1 and 10b-5-2 are so broad as to encompass almost any type of trading while in possession of material nonpublic information.  So don't look for much more than a general description of the benefits cooperation could bring ("life is a fountain"), and decisions in particular cases will have to provide the general parameters of what is sufficient cooperation. (ph)

January 5, 2006 in Civil Enforcement, Securities | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 4, 2006

Scrushy Ordered to Repay $47.8 Million in Bonuses

You can't keep track of all the litigation related to HealthSouth and its former CEO, Richard Scrushy, without a crib sheet these days.  In addition to the federal corruption charges against Scrushy (and former Alabama Governor Don Siegelman), the SEC's securities fraud suit against him related to the accounting problems at the company, a breach of contract action between Scrushy and Healthsouth related to his dismissal as CEO in 2003, and a pair of libel actions againsts the Birmingham News and a radio talk show host, a Jefferson County (AL) judge has found against Scrushy in a shareholder derivative action.  The judge found that Scrushy was unjustly enriched in receiving $47.8 million in bonuses from the company based on meeting certain profit targets due to the accounting fraud that inflated HealthSouth's earnings from 1997 through 2003.  An AP story (here) notes that the judge found Scrushy was liable to return the bonuses regardless of whether he knew about the fraud because he did not deserve them.  Needless to say, this one is likely to be appealed, joining the other cases as they fill up the federal and state courts in Alabama. (ph)

January 4, 2006 in HealthSouth | Permalink | Comments (0) | TrackBack (0)

Abramoff Pleads Guilty to Florida Charges, and the Politicians Jump Ship

Lobbyist Jack Abramoff entered a guilty plea in U.S. District Court for the Southern District of Florida to pending conspiracy and wire fraud charges related to his purchase of the SunCruz gambling ships, his second acknowledgment of criminal conduct in two days.  Because the conduct took place before 2002, the maximum penalty for each is five years, and his sentence will coincide with the one he receives for the corruption and tax evasion charges to which he pled guilty in Washington, D.C.  A copy of the plea agreement is available on Findlaw (here).  With Abramoff's acknowledgment of guilt, and the speculation regarding who he may try to implicate, a number of politicians have returned his donations or said they will donate them to charity.  That includes President Bush, whose campaign committee will donate $6,000 to the American Heart Association -- but not the $100,000 Abramoff helped to raise through donations by others as a "Pioneer" in the 2004 campaign -- and former House Majority Leader Tom DeLay, who received $57,000.  It seems that those who willingly accepted Abramoff's largess are trying to put as much distance as possible between themselves and his group of lobbyists.  An AP story (here) discusses the reaction of politicians who received Abramoff campaign contributions. (ph)

January 4, 2006 in Corruption, Fraud | Permalink | Comments (0) | TrackBack (0)

McAfee Settles SEC Channel Stuffing Securities Fraud Suit

McAfee, Inc., then known as Network Associates, settled an SEC securities fraud action (complaint here) alleging that the company engaged in "channel stuffing" to report inflated sales and income from 1998 to 2000 -- wasn't that the height of the internet bubble, if memory serves?  McAfee agreed to pay a $50 million civil penalty and to use an outside monitor to ensure that it properly accounts for its sales. The SEC has already sued three former Network Associates officers in connection with the fraudulent accounting, two of whom -- the former CFO and controller -- were charged with criminal violations. According to the SEC's Litigation Release (here):

McAfee defrauded investors into believing that it had legitimately met or exceeded its revenue projections and Wall Street earnings estimates during the 1998 through 2000 period. In reality, however, McAfee had used a variety of undisclosed ploys during the period to aggressively oversell its products to distributors in amounts that far exceeded the public’s demand for the products. While engaging in this “channel stuffing,” McAfee improperly recorded the sales to distributors as revenue. McAfee offered its distributors lucrative sales incentives that included deep price discounts and rebates in an effort to persuade the distributors to continue to buy and stockpile McAfee products. McAfee also secretly paid distributors millions of dollars to hold the excess inventory, rather than return it to McAfee for a refund and consequent reduction in McAfee’s revenues. In other instances, McAfee used an undisclosed, wholly-owned subsidiary, Net Tools, Inc., to repurchase inventory that McAfee had oversold to its distributors. All of these actions were inconsistent with Generally Accepted Accounting Principles and led to McAfee’s October 2003 restatement of its financial results for 1997 through 2003.

And we all believed companies with price/earnings ratios over 100 were good buys in 2000.  Maybe not. (ph)

January 4, 2006 in Civil Enforcement, Fraud, Securities | Permalink | Comments (0) | TrackBack (0)

ABN AMRO Gets Whacked Again

For the second time in less than a month, Dutch bank giant ABN AMRO entered into a civil settlement with the federal government over internal failures at the bank.  Earlier, the bank settled charges related to its internal controls for money laundering with suspect Russian companies and individuals and agreed to pay an $80 million civil penalty (earlier post here). This time, misconduct in failing to properly review loan documentation at its mortgage unit will cost the company approximately $41 million in penalties and foregone FHA loss claims.  According to a HUD press release (here):

In 2003, HUD discovered underwriting deficiencies and improper conduct by an ABN employee. After the matter was brought to the company's attention, ABN launched an internal investigation and discovered that, in direct violation of FHA rules, a number of its employees falsely certified that two ABN underwriters had reviewed more than 28,000 loans prior to FHA endorsement when, in fact, they had not.

As a result, ABN has agreed to pay the U.S. Government $16.85 million and will not submit hundreds of defaulted loans to HUD, saving the FHA insurance fund an estimated $24.35 million in losses. The total value of the settlement agreement announced today is estimated to be more than $41 million.

(ph)

January 4, 2006 in Civil Enforcement | Permalink | Comments (0) | TrackBack (0)

Using Skilling's SEC Testimony Against Him

The Wall Street Journal reports (here) that former Enron CEO Jeffrey Skilling and the prosecutors are fighting over whether the transcript of a deposition of Skilling by the SEC can be introduced at trial to show that Skilling was less than truthful in his answers regarding the reasons for a large sale of Enron stock.  On Sept. 17, 2001, Skilling sold 500,000 shares of Enron, which came approximately a month after he resigned from the company and only a few months before it collapsed into bankruptcy.  According to the transcript, Skilling testified on Dec. 6, 2001, that "[t]here was no other reason other than September 11th that I sold the stock . . . Oh, I agonized over it, absolutely agonized over it."   The government asserts that Skilling did not reveal that on Sept. 6 he had contacted a brokerage firm to inquire about selling 200,000 shares, and that his explanation for the later sale as being solely motivated by Sept. 11 terrorist attacks was not correct because he knew about problems at Enron.  While the government has charged Skilling with insider trading for these transactions, including the Sept. 17 sale, the transcript goes to a different issue regarding his truthfulness, and is an attempt by the government to impeach Skilling in its case-in-chief if the evidence is admissible.

The defense has raised an issue regarding parallel proceedings that also cropped up in the trial of former HealthSouth CEO Richard Scrushy.  In that case, the government charged Scrushy with perjury based on statements he made at an SEC deposition shortly before the fraud at the company came to light, but during a period when the prosecutors and the SEC's Division of Enforcement were coordinating their investigations.  Judge Karon Bowdre ultimately ruled that the failure to warn Scrushy that he was a target of the government's criminal investigation was a violation of his due process rights by departing from the "proper administration of justice," which is the same position being advanced by Skilling to keep the transcript out at his trial.  U.S. v. Scrushy, 366 F.Supp.2d 1164 (N.D. Ala. 2005).  What makes Skilling's case different is that the SEC deposition appears to have taken place before the formation of the Enron Task Force, and the degree of involvement of the criminal prosecutors in the SEC investigation may be less than in the Scrushy case, in which the prosecutor asked the SEC to move the location of the deposition to make it easier to pursue perjury charges. 

The decision in Scrushy may be sui generis, but any time there is a parallel proceeding involving both criminal and civil regulatory investigations, the issue of prosecutorial overreaching will be raised by defendants and the Scrushy  opinion cited as precedent.  Whether Skilling can succeed in his motion will depend on whether U.S. District Judge Sim Lake views any involvement by prosecutors in the SEC investigation as crossing over into misuse of the civil investigative function to sandbag a witness into testifying. 

Does the government's motion show a new direction in the prosecution?  It should be noted that the allegation that Skilling did not testify truthfully was made in response to a defense motion filed in December, before former co-defendant Richard Causey entered into a plea agreement.  I suspect the government's intention all along has been to use Skilling's testimony, preferably in its case-in-chief, as evidence that he never disclosed his knowledge of problems at the company to show his fraudulent intent in selling the shares based on material nonpublic information.   In proving intent, a defendant's own words will be among the best evidence, so it's not surprising that the government views the depositions as important.  In that regard, it has now set forth its rationale for using the evidence, and that rationale should not come as a great surprise to the defense.

                                                                                          

UPDATE: At a hearing on Jan. 4, U.S. District Judge Sim Lake denied Skilling's motion to prohibit the prosecution from using his SEC deposition at trial. An AP story (here) discusses the hearing. (ph)

January 4, 2006 in Enron | Permalink | Comments (1) | TrackBack (0)

Tuesday, January 3, 2006

Next Up in the Abramoff Investigation

With former lobbyist Jack Abramoff entering a guilty plea to corruption and tax evasion charges in Washington, D.C., attention now turns to who will be next in the Department of Justice's burgeoning investigation.  In addition to "Representative #1" -- already identified as Ohio Rep. Bob Ney in the earlier criminal information of Abramoff partner Michael Scanlon -- a former chief of staff for Rep. Ney is also identified in the criminal charges, this time with the moniker "Staffer B," as having potentially violated 18 U.S.C. Sec. 207 for contacting the Congressman on behalf of Abramoff prior to the expiration of the one-year bar on such contacts.  Neil Volz served as chief of staff for Rep. Ney before being hired by Abramoff (see Raw Story article here).  If Volz were to cooperate in the government's investigation, I suspect it will only be a matter of time before Rep. Ney -- who has already been informed he is a target of the grand jury investigation -- is indicted or enters into a plea agreement of his own.  While Rep. Ney's attorney continues to assert that Abramoff duped his client, each new plea agreement gets a step closer to the Congressman. 

Interestingly, the 18th Congressional District represented by Rep. Ney elected former House Administration Committee Chairman Wayne Hays for over twenty years until his "relationship" with Elizabeth Ray on his Committee staff came to light in 1974, leading to his resignation.  It's that whole "circle of life" thing, I guess.  A Chicago Tribune story (here) catalogs a number of scandals in Ohio politics in the past few decades, including those from the 18th District. (ph)

January 3, 2006 in Corruption, Investigations | Permalink | Comments (0) | TrackBack (0)

Not the Quickest Disclosure

Alliance Gaming Corp., a Las Vegas company that manufacturers -- surprise -- machines used for gambling (what my mother called the one-armed bandits, but it's so much more sophisticated today, except for the bandit part) disclosed in its very late 10-K (here) filed at the end of the day on Friday, Dec. 30, that an informal SEC investigation of the company's disclosures had been bumped up to a formal investigation. The sharp eye of Footnoted.Org, a blog devoted to the interesting items buried in the SEC filings of public companies, found the change in status of the investigation, and noted the rather slow timing of the disclosure (see post here).  Alliance Gaming is a defendant in a putative securities fraud class action arising from "revised earnings guidance, declines in the stock price, and sales of stock by insiders," and the SEC investigation concerns the same issues.  According to Alliance Gaming's disclosure: "In February 2005, the SEC initiated an informal inquiry and requested documents and information regarding matters related to the allegations in the class actions and similar matters. In August 2005, the SEC notified the Company that its investigation had entered a formal phase, and has requested additional information from the Company covering the same general areas that were addressed in the informal inquiry. Management is cooperating fully with the SEC in this matter."  Gee, only four months to tell investors that the investigation is serious enough that the SEC has authorized the Division of Enforcement to issues civil subpoenas to gather information.  Can you say "material" anyone? (ph)

January 3, 2006 in Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Abramoff Pleads - Who is Next?

No surprises in the Abramoff Plea today.  The Information has three charges - conspiracy, mail fraud, and tax evasion. (See Information here- CNN)  It is thirteen (13) pages, and includes a range of different activities. 

Probably what everyone wants to know is - what names are mentioned in this Information; and is there any indication of who might be the next to fall; and will all the dominoes fall here?

Obviously Scanlon's name is mentioned, but he has already pleaded guilty to conspiracy. (see here

In the conspiracy count (a section 371 charge) one finds mention of a "Wireless Company,"  "Staffer A," "Staffer B," and "Representative # 1." (I was taught if you have a #1 you need to have a #2, but I don't see #2 mentioned in this Information). The mail fraud count is not a "money or property" charge, but rather uses the "honest services" provision of 1346, and it mentions "Representative # 1." (If the Supreme Court one of these days finds section 1346 to be vague -- after all, what is honest services-- will Abramoff have waived his rights to contest this issue because he has plead guilty?) And the final charge, tax evasion, is premised on section 7201.

This being an Information, as opposed to an Indictment, allows the prosecution and defense to better control the possible sentence in this case.  The Wall Street Journal reports here, that the sentence is ten(10) years, although the Washington Post notes here that it carries a sentence of thirty years (30), but the cooperation reduces it to ten (10) years.  And the restitution to be paid in this case should certainly assist the government's deficit.

So far we have Adam Kiden pleading guilty, and also Scanlon, and now Jack Abramoff.    The government's pattern is to get the lower levels talking and to move up the ladder.  It reminds me of building a snowperson (called it a snowman back then).   You keep rolling it across the ground and it picks up more snow until it gets very large.  This is likely to be a  VERY big snowperson.

(esp)

January 3, 2006 in Corruption, Fraud, News, Prosecutions, Settlement, Tax | Permalink | Comments (0) | TrackBack (0)

Wall Street Journal Starts a Law Blog

The Wall Street Journal has joined the fun with a blog devoted to law and legal topics, written by Peter Lattman (here).  It looks like it will cover all parts of the legal world, and with the Journal's resources it should be a good place to get information and links to their stories.  (ph)

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

Sports Stars + Robbery

Being a famous athlete brings acclaim and widespread public recognition, which is surely not a good thing if the person turns to robbery.  Former Ohio State running back Maurice Clarett surrendered to police in Columbus, Ohio, after being charged with two counts of robbery related to an incident early New Year's Day behind a nightclub in which he allegedly demanded money from two patrons of the club and gestured to a handgun in his waistband.  Needless to say, everyone recognized him, including the club owner who broker up the incident.  An AP story (here) discusses the charges against Clarett.  In another incident shortly after Christmas, former major league baseball player Jeff Reardon, a long-time relief pitcher, robbed a jewelry store in Florida by handing the clerk a note that he was armed and then leaving with cash.  Reardon quickly turned himself in, and he has been suffering from depression since the death of his son in 2004.  No one was hurt in either incident, but robbery is a sure means to end up on the wrong side of the criminal justice system in a hurry, even for a former sports star.  An AP story (here) discusses Reardon's arrest. (ph)

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

Monday, January 2, 2006

Jamie Olis - This is Your Week

Jamie Olis, the former Dynergy exec who initially received a sentence of 24+ years -- a sentence that was reversed and remanded by the Fifth Circuit, now faces resentencing this coming Thursday.  Professor Doug Berman's superb sentencing blog here provides links to the briefs and also some thoughtful analysis that hopefully will guide the judge in this re-sentencing decision.

(esp)

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

Sunday, January 1, 2006

Who Did You Say Is Investigating?

Yes, the DOJ appears to have opened an investigation into the leak of NSA tapping telephones without a warrant. (see post here).  But according to the New York Times here, James Comey, who was acting as the AG, in temporary replacement for John Ashcroft who was out ill, refused to sign the order.  And who went to Ashcroft in the hospital -- the current AG Alberto Gonzalez. 

So let me see if I understand this -- The present AG is investigating who leaked something that he was directly involved in making happen, and what he did may not have been proper. 

Am I the only one having a problem understanding why this is not a conflict?

(esp) 

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