Monday, May 8, 2006

Skilling/Lay Trial - Defense Rests

The defense ended its presentation of witnesses in the Skilling/Lay trial followed by courthouse step comments on their inability to present some witnesses that they wanted the jury to hear.  According to the Houston Chronicle here, Skilling's attorney Dan Petrocelli was unhappy that witnesses had not testified for the defense out of fear of being indicted by the government.  It is rare that the defense receives the immunity grants provided to the prosecution.

The Wall Street has a wrap-up of the trial here.  The court denied the defense motion for acquittal and a written order on some issues is expected later today.

Closing arguments are set to begin next Monday.  What is likely to happen during the next few days is for the parties and judge to determine the jury instructions that will be read to the jury.  Typically a court starts with a set group of instructions, oftentimes instructions that all agree upon, standard pattern instructions. From there the disagreements will become issues that are likely to be appellate issues if any of the parties are convicted. 

A crucial issue on the instructions will be whether the court decides to give an instruction on willful blindness (see Professor Peter Hennings prior post here).  I would add one item to that post. The defense presented a case saying that Ken Lay did not do the acts, but rather it was the work of Andrew Fastow.  The government's case has been premised on the defendant allegedly being untruthful. They have presented a case that is not focused on the presentation of intricate numbers and accounting practices that sometimes are used in white collar cases.  Should the prosecution be allowed a jury instruction such as this when their case has built the intent upon the statements that the defendant allegedly made to the public and employees at Enron as opposed to inferring from these statements that the defendant had knowledge of what was going on in the company?  Should willful blindness be allowed when the government has not presented a case of an ostrich hiding its head in the sand, but rather a case that the ostrich was out there on a soapbox deliberately telling lies to people.   

(esp)

May 8, 2006 in Enron | Permalink | Comments (0) | TrackBack (0)

Sunday, May 7, 2006

Hearing on Thompson Memo (Attorney Fee Question for KPMG Defendants) is Today

The KPMG defendants have a hearing today that may at last expose the government's use of the Thompson Memo to secure cooperation from companies to the detriment of its individuals. (see Order here) Whether the government can influence a company not to pay individual attorney fees is at the heart of the discussion. For a list of some of the prior posts on the KPMG Defendants Case, see the following posts-

KPMG Defendants Receive Support - here (includes amicus brief)

KPMG Defendants Receive Unfavorable Ruling - here

KPMG Tax Shelter Mega Trial - here

The Prosecution Side in the KPMG Case- here

The Thin Line Between Tax Planning and Tax Fraud: The KPMG Individual Conspiracy Indictment - here (includes Indictment)

Nine Indicted for Conspiracy Related to KPMG Tax Shelters- here

Attorney -Client Privilege Issue and KPMG - here

More Indictments Are Coming KPMG - here

Does the Push Against Organizations Paying Attorney's Fees for Employees Violate Their Constitutional Rights? - here

Is the KPMG Tax Partner Indictment That Bad? - here

Three KPMG Accountants Sanctioned for Fabricating Audit Workpapers - here

Ten More Indicted in KPGM Case - here

Bail Denied in a White Collar Case - here

(esp)

May 7, 2006 in Defense Counsel, Investigations, News, Privileges, Prosecutions, Prosecutors, Settlement | Permalink | Comments (0) | TrackBack (7)

Medco - Another Company to Bow to the Government?

According to the Wall Street Journal here it sounds like Medco will be entering into either a deferred or non-prosecution agreement with the government. The cost to the company appears to be "a pretax charge of $163 million."  Although the article tells us that the agreement, which is not final, will likely not include any company "admission of liability or wrongdoing,"  it does not state what concessions may have been made by Medco.  Will Medco be agreeing to cooperate in a government investigation of individuals? Has the company agreed to waive all attorney-client privilege? Will the company be able to pay the attorney fees of employees if individuals face investigation?  Obviously in light of recent deferred and non-prosecution agreements coming out the DOJ, these questions need to be asked. 

(esp)

May 7, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

The Lowest of Crimes - Gets Three Years

According to a press release here of the US Attorneys Office for the Western District of Washington, an individual was sentenced to three years in prison and three years supervised release for the following conduct:

"According to court filings, for more than 20 years [  ] assumed hundreds of false identities, many from deceased children, to write bad checks. Investigations had been opened concerning his check kiting scheme in Washington, Oregon, and New Mexico. [   ] used counterfeit or otherwise falsely obtained birth certificates to obtain IDs such as drivers licenses. [   ] traveled the west obtaining identification documents and writing bad checks in Washington, Oregon, Nevada, Colorado, New Mexico, Utah, North Carolina, and Montana. Prosecutors say they have been able to identify more than $183,000 in bad checks – and that represents just a portion of the fraud over the last 20 years."

Is this sentence proportional to what was initially given to Jamie Olis?

(esp)

May 7, 2006 in Fraud, Prosecutions, Sentencing | Permalink | Comments (0) | TrackBack (0)

The Emails - DeLay

The Washington Post has an AP story here reporting that prosecutors have emails that demonstrate knowledge on the part of DeLay's office regarding the financing of the controversial golf trip. (see here).  reading this story one may frown at the accounting practices being used here. 

(esp)

May 7, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Options Timing Probe Turns Criminal, So Will the Privilege Waivers Start Flowing?

The probe into whether corporate executives backdated documents to permit stock options grants to have a lower exercise (or strike) price, thus increasing the value of the options for them, has now turned criminal with the disclosure by Comverse Technology, Inc. that it has received a federal grand jury subpoena.  The company's CEO, CFO, and Executive VP all resigned over the issue, and near the very end of an 8-K (here) it rather blandly notes, "On May 2, 2006 the Company received a subpoena from the United States Attorney's Office for the Eastern District of New York in connection with the issuance of stock option grants between 1995 and the present. The Company intends to fully cooperate with the United States Attorney in responding to this subpoena."  It's not clear why the Brooklyn U.S. Attorney's Office has started an investigation rather than the Southern District, but that is likely a turf battle we won't learn much about.

Another company also disclosed that two of its senior executive resigned over backdating documents related to options grants.  Power Integrations Inc. announced (here) that its chairman (and former CEO) and CFO resigned after an internal investigation revealed the following:

The special committee has reached a preliminary conclusion that the actual dates of measurement for certain past stock option grants differed from the recorded grant dates for such awards. As a result, the company expects to record additional non-cash charges for stock-based compensation expenses in prior periods. Based on the special committee's preliminary conclusion, the company expects that such non-cash charges will be material and that the company may need to restate its historical financial statements for each of the fiscal years 1999 through 2004, and for the first three quarters of the fiscal year ended December 31, 2005.

A significant topic in the white collar crime world lately has been the issue of waiver of the attorney-client privilege and work product protection related to a corporation's internal investigation.  Comverse Technology asserts that it will cooperate fully, and it is likely that federal prosecutors will seek (or demand?) a waiver of the confidentiality protections during the course of the investigation.  The question will be how soon the request comes, if it hasn't been made already.  The Thompson Memo remains an important consideration in any corporate investigation, and with all indications that the options timing situation is now a criminal probe, the waivers may start flowing shortly.  It will be interesting to see if any company refuses because it has determined that there was no wrongdoing and therefore no need to cooperate in the investigation beyond responding to grand jury subpoenas.

Regarding the substance of the investigation, the interesting issue will be whether the conduct itself is a violation of the antifraud provisions of the federal securities laws.  While backdating documents is likely a violation of the recordkeeping requirements, it may be a stretch to say that timing an options grant to make them more valuable is a scheme to defraud when the grant itself is authorized by the company and the effect of the conduct is to lower the tax deduction the corporation can claim.  The timing issue likely will require companies to restate their financial statements, but the amounts are likely to be relatively small so that an argument could be made that it is immaterial.  It is surely more than a little unseemly for well-compensated executives to play a timing game to increase their compensation through stock options, and likely a breach of their state law fiduciary duty, but whether it is a securities fraud remains to be seen.  (ph)

May 7, 2006 in Fraud, Investigations | Permalink | Comments (1) | TrackBack (0)