Saturday, June 3, 2006

White Collar Sentencing

Professor Doug Berman in his wonderful sentencing blog describes here a recent decision of  District Judge Jed Rakoff.  He states that "a corporate president who faced a life sentence under the guidelines after a fraud conviction 'because shareholder value fell by more than $260 million [SEE BELOW] after the fraud scheme was disclosed,' received an extraordinary break yesterday when sentenced to less than four years' imprisonment." Professor Berman describes on his blog, the case of former Impath Inc. President Richard Adelson. (he cites also to an article on this case here)

Are white collar offenders getting the biggest breaks in this post-Booker world?  Some may think this case and other "variances" in sentencing indicate that white collar offenders are getting the big "breaks."  But what is quantified also is that white collar offenders, at least those in the fraud/theft category have had increased sentences in recent years.  According to the Report on the Impact of United States v. Booker on Federal Sentencing, United States Sentencing Commission 71 (March 2006) the average sentence pre-Protect Act for the category theft and fraud under United States Sentencing Guideline 2B1.1 was sixteen months. This increased to twenty months post-Protect Act and twenty-three months post-Booker. Report on the Impact of United States v. Booker on Federal Sentencing, United States Sentencing Commission 71 (March 2006).  The report attributes two factors to this increase: First, the fact that "statutory and guideline penalties increased for many fraud offenses as a result of the Commission’s Economic Crime Package of 2001, the 2002 Sarbanes-Oxley Act and other recent legislation." And second the increased number of prosecutions (although the Trac Report may indicate a somewhat different story here).  Perhaps another factor may be inflation, which will increase the amount of loss and thus the sentence issued by a court.

A second aspect to consider here is whether white collar offender sentences are being questioned by judges in this post-Booker to a greater degree than other sentences.  Should this send a signal to the Congress that these sentences need to be reevaluated? In the desire to crackdown on white collar crime, did Congress go a bit too far.

(esp)

Addendum - In reviewing the AP story here it appears that the prosecution claimed the loss to be as stated above, but that Judge Rakoff found otherwise.  The story notes that the court also  "fined [the accused] $1.2 million and ordered [ ] pay[ment of] $50 million in restitution."  The restitution finding says it all. 

June 3, 2006 in Sentencing | Permalink | Comments (0) | TrackBack (0)

Quattrone Mounts Another Hurdle

Former technology investment banker Frank Quattrone ended 2005 as a convicted felon waiting for the Second Circuit to rule on the appeal of his conviction on three counts of obstruction of justice and witness tampering; he had also been barred by the NASD from the securities industry.  Things have gotten better since then.  First, the appellate court reversed the convictions due to faulty jury instructions.  Then, the SEC overturned the NASD's lifetime ban on Quattrone that was based on his assertion of the Fifth Amendment when required to testify before a hearing panel investigating his role in distributing shares in "hot" initial public offerings (IPO).  The Commission determined that a ban based solely on asserting the self-incrimination privilege was improper when Quattrone raised colorable claims whether that was constitutionally permissible.  Now, the NASD has dropped its regulatory complaint regarding the IPO distributions completely, according to an AP story (here). 

The SEC and grand jury investigations of the distribution of IPO shares triggered the underlying obstruction charges, but no criminal or SEC action was ever taken regarding that conduct.  With the NASD complaint now gone, it would seem that there is a good argument that the obstruction charges should not be retried.  The basis for those charges was always open to significant question as a potential securities fraud.  Quattrone used shares in IPOs brought to market by his firm, Credit Suisse First Boston (CSFB), to reward CEOs and executives at other firms with whom CSFB did business or hoped to do business in the future.  As the options-timing investigations that have emerged in the past month show, corporate executives are not shy about lining their pockets.  The issue in Quattrone's case, however, is whether there was anything fraudulent in what he did, as opposed to what the executives did in taking a personal reward for picking the corporation's investment bank.  In effect, Quattrone was the ice cream man handing out treats, while it was the executives who spent someone else's money who got the cones.  It's not clear what is wrong with selling your services to a willing, if personally greedy, buyer.

Quattrone's criminal case has been assigned to a new district judge, and he has retained new lawyers.  Along the same lines, the government has new attorneys on the case.  Will it all go away? (ph)

June 3, 2006 in Civil Enforcement, Securities | Permalink | Comments (1) | TrackBack (0)

What Does the Speech or Debate Clause Protect?

One product of the contretemps arising from the search of Louisiana Representative William Jefferson's office is the question about what protection the Constitution provides in Article I, Sec. 6, the Speech or Debate Clause.  The protection is different from most any other afforded an individual in a criminal prosecution, and this case may well renew a debate over the protection that has not been seen since the 1970s.  What does the Speech or Debate Clause protect: the individual Congressman by providing an immunity, the Legislative Branch, or is it an evidentiary privilege affecting what can be used in a criminal prosecution?  Resolution of that issue may be important for deciding the acceptability of the Department of Justice's proposal to have a "filter team" of government attorneys, working with Representative Jefferson's counsel, review all the documents and files seized to determine what is protected by the Constitution (see earlier post here).

The Supreme Court has described the Clause as creating an evidentiary privilege that prevents the government from using the legislative acts of a Congressman against that person in a proceeding.  In United States v. Gillock, 445 U.S. 360 (1980), the Supreme Court stated, "The Framers viewed the speech or debate privilege as fundamental to the system of checks and balances."  In that case, the Court rejected a state legislator's claim that a similar evidentiary privilege be recognized for state elected officials because it was unnecessary under the Constitution or principles of comity.  As a privilege, that would appear to make the documents held by a Congressman that relate to legislative acts protected, perhaps in the same way the attorney-client privilege protects the content of communications.  That would seem to support Representative Jefferson's claim that the Executive Branch should not be permitted to peruse records that it cannot use, and the search was therefore unconstitutional. 

In United States v. Helstoski, 442 U.S. 477 (1979), however, the Court viewed the Speech or Debate Clause as only limiting the evidence that can be used at trial, and not as a form of protection for the content of documents related to the legislative process.  The Court stated, "As to what restrictions the Clause places on the admission of evidence, our concern is not with the 'specificity' of the reference. Instead, our concern is whether there is mention of a legislative act. To effectuate the intent of the Clause, the Court has construed it to protect other 'legislative acts' such as utterances in committee hearings and reports."  This statement would appear to support permitting the DoJ to search for records, and only restrict the subsequent use at trial of any evidence that might relate to legislative acts.

In Gravel v. United States, 408 U.S. 606 (1972), a Senator argued that the Speech or Debate Clause could be the basis for quashing a grand jury subpoena to the Senator's aide for testimony related to a legislative act.  While the Court found that the conduct in question -- the publication of portions of the Pentagon Papers in the Congressional Record and arrangement for private publication of then-secret documents -- was not a legislative act subject to the Clause, it did not reject the possibility that a subpoena for such material could require a court to quash a subpoena.  The opinion describes the goal of the protection for the Legislative Branch:

The Speech or Debate Clause was designed to assure a co-equal branch of the government wide freedom of speech, debate, and deliberation without intimidation or threats from the Executive Branch. It thus protects Members against prosecutions that directly impinge upon or threaten the legislative process. We have no doubt that Senator Gravel may not be made to answer-either in terms of questions or in terms of defending himself from prosecution-for the events that occurred at the subcommittee meeting.

Which way does Gravel cut?  The separation of powers basis for the Clause would argue in favor of finding that a search can be as much of an intrusion on a co-equal branch as the filing of charges, and limiting the Constitutional protection to just a basis to dismiss charges or limit evidence at trial would not be much protection at all.  Interestingly, a claim to dismiss charges on Speech or Debate Clause grounds is one of only three pre-trial orders expressly recognized as permitting an immediate appeal by a defendant under the "collateral order" doctrine, similar to the protection from double jeopardy. That means the trial itself, and not just a conviction, is the real harm because the Congressman's legislative function has been interfered with by the Executive Branch.  Yet, Gravel reflects the language of the Clause, which states that "for any Speech or Debate in either House, they [members of Congress] shall not be questioned in any other Place."  A search is not a matter of questioning a Congressman, and the Supreme Court has held that the Fifth Amendment privilege against self-incrimination does not apply to searches because they do not involve any testimonial communication. 

Does a search simply fall outside the Speech or Debate Clause, so that the offer of a "filter team" by the DoJ is really simply an effort to maintain good public relations but not constitutionally required?  As has been noted, this is the first time a Congressman's office has been searched, so we are on very new ground.  Figuring out what the Speech and Debate Clause protects will be the first order of business if a resolution is not worked out during the 45-day cooling-off period ordered by the President.  (ph)

June 3, 2006 in Corruption, Investigations, Privileges | Permalink | Comments (1) | TrackBack (0)

Friday, June 2, 2006

Judge Denies Most of Libby's Document Requests

U.S. District Judge Reggie Walton issued an opinion and order (available below) denying for the most part the requests for production of documents by I. Lewis Libby.  The court did order the government to turn over any documents related to efforts by Libby to rebut the charges leveled by former Ambassador Joseph Wilson, including "any documentation of discussions the defendant had concerning Ambassador Joseph Wilson, his trip to Niger, or Valerie Plame Wilson with any news reporters or other government officials that were conducted in an attempt to achieve this objective . . . ."  Judge Walton rejected the defendant's broader demands for all documents from the State Department, CIA, Executive Office of the President, and National Security Council related to Ambassador Wilson's trip to Niger that triggered this entire controversy.  The court held that these documents do not meet the requirement of materiality under Federal Rule of Criminal Procedure 16(a)(1)(E), which governs pretrial discovery in federal prosecutions.  The opinion states:

[T]he fact that other governmental officials may have known before July 14, 2003, that Ms. Wilson worked for the CIA is completely immaterial unless that information was shared with either the defendant, [Judith] Miller, [Timothy] Russert, or [Matthew] Cooper. Moreover, the only use that could be made with the vast majority of the requested documents that fall within the seven categories would be to challenge the accuracy of Ambassador Wilson’s comments about the validity of President Bush’s statement about Saddam Hussein and Niger in his January 28, 2003 State of the Union address. And, as previously discussed, documents and information which may have bearing on the accuracy or inaccuracy of the President’s statement on that topic, why the United States invaded Iraq, and the circumstances surrounding Ambassador Wilson’s trip to Niger and his reported findings are wholly immaterial to this case.

The court also rejected Libby's request for documents related to the declassification of the 2002 National Intelligence Estimate (NIE) that the Vice President directed Libby to discuss with New York Times reporter Judith Miller.  Judge Walton relied on the Special Counsel's assertion that it would not raise the propriety of the NIE disclosure in finding that these documents were similarly immaterial to the defense at trial. 

The district court's decision resolves, at least for the moment, the defense demands for a broad swath of documents covering a number of different Executive Branch offices that could well have bogged down the case.  Don't think, however, that the discovery fights are finished, or even close to being done -- I suspect the classified information issues are still being fought out.  (ph)

Download libby_motion_to_compel_order_june_2_2006.pdf

June 2, 2006 in Plame Investigation | Permalink | Comments (0) | TrackBack (0)

Vinson & Elkins Pays the Piper $30 Million

Houston-based law firm Vinson & Elkins agreed to pay $30 million to settle claims filed by its former client Enron over the firm's legal advice on various transactions that later turned out to a bit problematic when they came to light, causing the company to declare bankruptcy.  The firm achieved significant notoriety after Enron's collapse when its investigation of Sherron Watkins' claims of accounting fraud delivered a clean bill of health to the company.  The firm was criticized for accepting the assignment because of the restrictions placed on the investigation by Enron, then one of its largest clients, and the conclusion that Watkins' claims were little more than a public relations problem turned out to be wrong.  The liability claims by Enron were not based solely to the investigation sparked by Watkins, although V&E's report would have been an important piece of evidence if the case had gone to trial.  An AP story (here) quotes Harry Reasoner, the firm's managing partner from 1992 to 2001, discussing the settlement: "V&E met its professional obligations in its representation of Enron, and we could have demonstrated that at trial. Vinson & Elkins decided to settle the matter in order to avoid the burdens of protracted litigation." (ph)

June 2, 2006 in Enron | Permalink | Comments (0) | TrackBack (0)

Pennsylvania Senate Aides Charged with Obstruction for Trying to Wipe E-Mails

Two aides in the Pennsylvania Senate's Democratic Computer Service's unit have been indicted for trying to wipe out a number of e-mails sent and received by powerful state Senator Vince Fumo, who represents a district in South Philadelphia.  Criminal complaints were filed against Mark Eister and Leonard Luchko charging conspiracy and obstruction of justice, and an attached affidavit (available here) by an FBI agent details numerous e-mails that were deleted allegedly at their direction from various computers and servers after an investigation began of the Senator's relationship with a  non-profit "organization" that has been identified as Citizens Alliance.  That organization received millions of dollars in funding from a local utility, and the FBI investigation sought to determine whether Senator Fumo received secret benefits from the non-profit.  An earlier Third Circuit opinion determined that the crime-fraud exception to the attorney-client privilege did not protect communications between an attorney and the Citizens Alliance's executive director because of the subsequent removal of e-mails (see earlier post here).  The agent's affidavit notes that in a number of instances only one copy of an e-mail could be recovered from different computer servers, showing once again how hard it is even for professionals to wipe out all traces of electronic correspondence.  A Philadelphia Daily News article (here) discusses the investigations of Senator Fumo.

The obstruction charge is based on 18 U.S.C. Sec. 1519, a provision adopted as part of the Sarbanes-Oxley Act in 2002 to make it easier to prosecute those who destroy documents in advance of the receipt of a government subpoena -- the Arthur Andersen law that could not have been applied to that firm under the Ex Post Facto Clause.  The law states:

Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.

The statute is potentially quite broad because it reaches conduct designed to obstruct even an as-yet unopened investigation, so long as the government can prove the defendant acted in "contemplation of any such matter or case."  Note also the substantial statutory penalty attached to this provision: 20 years. 

Another aspect of the investigation that raises an interesting parallel to the recent search of Representative William Jefferson's office in the Rayburn House Office Building is the fact that the FBI searched Senator Fumo's Philadephia district office.  Unlike members of the United States Congress, however, the Speech or Debate Clause does not provide any protection to state legislators, as the Supreme Court made clear in United States v. Gillock, 445 U.S. 160 (1980).  The Court stated:

[I]n those areas where the Constitution grants the Federal Government the power to act, the Supremacy Clause dictates that federal enactments will prevail over competing state exercises of power. Thus, under our federal structure, we do not have the struggles for power between the federal and state systems such as inspired the need for the Speech or Debate Clause as a restraint on the Federal Executive to protect federal legislators.

Apart from the separation of powers doctrine, it is also suggested that principles of comity require the extension of a speech or debate type privilege to state legislators in federal criminal prosecutions. However, as we have noted, federal interference in the state legislative process is not on the same constitutional footing with the interference of one branch of the Federal Government in the affairs of a coequal branch.

While the search of Representative Jefferson's office triggered a confrontation between the Legislative and Executive Branches, searches by federal agents of state legislators do not raise any Constitutional issues related to the protection of that part of a state's government.  Such investigations certainly raise sensitive issues regarding the use of federal power that may interfere with the work of those elected to state office. (ph -- thanks to Stephanie Martz for sending this along)

June 2, 2006 in Corruption, Investigations, Obstruction, Prosecutions | Permalink | Comments (0) | TrackBack (1)

Journalists Subpoenaed in the Bonds Perjury Investigation

A New York Times article (here) discusses a motion to quash grand jury subpoenas issued to the two San Francisco Chronicle journalists who broke the story about the grand jury testimony of San Francisco Giants slugger Barry Bonds in the Balco (Bay Area Laboratory Cooperative) steroids investigation.  The journalists are co-authors of the book Game of Shadows that contains a number of detailsdescribing alleged steroid use by Bonds.  The Times article discusses the affidavit submitted by Mark Corallo, former Department of Justice spokesman for Attorney General Ashcroft, blasting the issuance to subpoenas to journalists for information about confidential sources absent a significant need related to national security or a threat of harm to innocent third-parties.

While most of the attention has been on the issue of the propriety of journalist subpoenas, the fact that federal prosecutors have taken such a dramatic step may indicate that the Bonds investigation is in its final stages.  Subpoenaing journalists to track down confidential sources who may be eyewitnesses to possible steroid use by Bonds seems to show that, to this point, the government does not have enough independent evidence to make a perjury case.  Bonds denied having knowingly used steroids before the grand jury in 2003, and prosecutors would have to prove the falsity of those statements and not merely that they were not completely truthful.  The grand jury has heard from Bonds' personal physician and a Giants team trainer, but it is unlikely that they would have direct evidence of any steroids use.  Bonds' personal trainer, Greg Anderson, may have testified about what Bonds put into his body, but having pled guilty in the Balco case, Anderson's testimony may not be sufficiently credible to warrant a perjury prosecution.  Similarly, a former supposed girlfriend of Bonds would have similar issues if she were a government witness. 

Issuing subpoenas to journalists looks like a last -- and possibly desperate -- step to build the perjury case.  Whether the government can obtain what it wants remains to be seen. (ph)

June 2, 2006 in Grand Jury, Investigations, Perjury | Permalink | Comments (0) | TrackBack (0)

Thursday, June 1, 2006

Jury Reaches Split Verdict in First Enron Broadband Retrial

The jury in the lesser-known Enron Broadband retrial reached a split verdict, convicting one defendant and acquitting the other on conspiracy, false accounting entry, and wire fraud charges.  The first trial, which involved five executives of the Enron unit that was supposed to be the company's foothold in the then-burgeoning dot-com world, ended in the acquittal of defendants on some counts and a hung jury on others.  Prosecutors from the Enron Task Force then split the case into three parts, and the first retrial involved Kevin Howard, the unit's finance chief who was convicted on all five counts, and Michael Krautz, its accounting officer who was acquitted (indictment here).  The charges revolved around the "Project Braveheart" transaction -- they had such cute names for their accounting legerdemain at Enron -- that the government alleged was designed to pump up the Broadband unit's earnings through the "sale" of its future earnings.  The Braveheart transaction was part of a broader effort in 2000 and 2001 to help Enron meet its earnings targets and mask problems at the company, an issue that was key to the convictions of former CEOs Ken Lay and Jeffrey Skilling just a week earlier.  While the first Broadband trial took three months, the government went with a slimmed-down version the second time that only took a month to present, largely avoiding the mind-numbing details and technical jargon that nearly left the first jury comatose.

Interestingly, the two Enron trials took place in adjoining courtrooms in Houston, and the juries in the two cases deliberated next to each other.  U.S. District Judge Vanessa Gilmore rejected a defense request to poll the jury about whether they were aware of the verdict in the Lay/Skilling trial, although it is hard to believe that they did not notice the frenzy that verdict triggered on May 25.  That will likely be one of the appellate issues raised by Howard.

Howard's likely sentence is hard to predict because, just like the sentencing of Lay and Skilling, a key issue will be loss, but here the calculation is much more complicated.  The Enron Broadband unit was a small slice of a much larger company, and the effect of the transactions at issue on the company and its investors will be hard to estimate.  The case is similar to the Enron Nigerian Barge trial, which involved a single transaction designed to help Enron's year-end earnings, and the prosecution of Jamie Olis for an earnings-related tax deal at Dynegy, an Enron competitor.  Olis awaits resentencing after initially receiving a 24-year prison term, while the Nigerian Barge defendants received sentences from over two years to fours years.  The violations outlined in the indictment all occurred before November 1, 2001, when the Federal Sentencing Guidelines provisions for economic crimes were increased, so Howard may receive a small benefit from a lower Guidelines sentencing calculation, if Judge Gilmore relies on them in fashioning the sentence.  Sentencing is set for September 11, 2006, the same day as Lay and Skilling if the schedule holds.

There are two more indictments yet to be tried involving Broadband executives, and the Houston Chronicle has an excellent summary of the defendants and charges (here) .  An AP story (here) discusses the verdict in the first retrial. (ph -- thanks to Tom Kirkendall for pointing out the correct U.S. Distict Judge who presided at the trial)

June 1, 2006 in Enron, Fraud, Verdict | Permalink | Comments (0) | TrackBack (0)

Is White Collar Crime Down?

The Syracuse Trac Reporting here on DOJ statistics reports this month that the number of white collar filings for the month is down over the previous month.(see here).  And looking over five years "the data show[s] that the prosecutions are down 31.3 percent from levels reported in 2001."

The report provides the offenses most often charged, areas of the country prosecuting the most white collar cases, and also the members of the bench handling the greatest number of these cases.  Judges: to see if you made the top ten, click here.

But the report does raise some questions, and the authors duly note the DOJ definition of white collar crime here.  The DOJ interpretation of what is a white collar crime will probably differ from many.  DOJ omits from its definition, as it has for a good number of years, several categories of prosecutions.  These include corruption cases and regulatory offenses like environmental crimes.   But oddly enough (see here), the local USA's may not be agreeing with this categorization.  For example, the USA for the Northern District of California states right on the website for this district:

White Collar Crime: The White Collar Crime Section is responsible for prosecuting a wide range of complex cases, including public corruption (such as bribery, kickback schemes, and theft of government funds) health care fraud, financial institutions fraud, bankruptcy fraud and mail and wire fraud. Civil rights cases are also monitored, evaluated and prosecuted by the section. Environmental cases are prosecuted under the Clean Water Act, Clean Air Act and other federal environmental statutes. The section also prosecutes cases involving the protection of wildlife and Food and Drug Administration cases concerning the safety of the nation's food supply.

(esp)

June 1, 2006 in Think Tank Reports | Permalink | Comments (0) | TrackBack (0)

Ohio Republican Fundraiser Pleads Guilty to Three Charges

As expected (see earlier post here), Ohio Republican fundraiser Tom Noe entered a guilty plea to three federal charges related to his contributions to the Bush-Cheney campaign in 2004.  Noe was indicted in 2005 on conspiracy, causing a false statement to be filed with the Federal Election Commission, and making illegal campaign contributions, and plead guilty to each count.  According to a press release issued by the U.S. Attorney's Office for the Northern District of Ohio (here):

Noe admitted that in October 2003, he made contributions to Bush-Cheney ’04, Inc., over and above the limit established by the Federal Election Campaign Act (FECA). Noe admitted disguising these contributions by recruiting and providing money to friends and associates who then used Noe’s money to make contributions in their own names. Noe contributed $45,400 of his own money through 24 such conduits. To avoid suspicion, he gave several conduits checks in amounts slightly less than the maximum allowable amount and instructed several conduits to falsely characterize his payments to them as loans.

Noe still faces state charges arising from investments in rare coins on behalf of the state worker's compensation fund that resulted in over $1 million missing, and he will be tried for theft.  An AP story (here) states that prosecutors will recommend that Noe be sentenced to approximately two years in prison on the federal charges. (ph)

June 1, 2006 in Corruption, Prosecutions | Permalink | Comments (0) | TrackBack (0)

Nine Plead Guilty to Padding Newspaper Circulation Figures

Nine former employees and contractors entered guilty pleas to conspiracy to commit mail fraud for reporting inflated circulation numbers to the Audit Bureau of Circulations (ABC) that were then used to set advertising rates for two newspapers.  The newspapers involved are Newsday, which is primarily in Long Island, and Hoy, a Spanish-language paper distributed throughout the U.S.  A press release issued by the U.S. Attorney's Office for the Eastern District of New York (here) describes the role of ABC as conducting "annual audits of circulation numbers that publishers certify bi-annually and functions as an industry watchdog to insure the integrity of data that publishers provide to advertisers. Membership in ABC earns publishers credibility with advertisers, who rely on ABC-audited paid circulation data to decide whether to place advertisements in a publication and to negotiate advertising rates. In general, advertisers pay higher advertising rates to publishers whose paid circulation numbers exceed those of its competitors."  The press release described the scheme: "From approximately 2000 and continuing through 2004, Newsday circulation executives and managers repeatedly manipulated paid circulation numbers to make it appear as if more newspapers were being sold than was in fact the case, then forwarded the inflated data to ABC for dissemination to publishers . . . The fraudulent conduct at Hoy involved many of the same techniques and several of the same participants as at Newsday." 

The SEC filed an administrative Cease-and-Desist Order (here) against the Tribune Company, the owner of Newsday and Hoy, prohibiting future violations of the financial reporting provisions of the federal securities laws because its quarterly and annual filings included the inflated circulation figures.  There was no sanction imposed as part of the administrative proceeding. (ph) 

June 1, 2006 in Fraud, Prosecutions | Permalink | Comments (1) | TrackBack (0)

Wednesday, May 31, 2006

The Government's "Filter Team"

According to the Washington Post here,  DOJ is offering a "filter team" "to be made up of an FBI agent and two Justice Department lawyers not part of the investigation."  The idea would be that Jefferson would go through these materials with the team and then he could assert to a court what items might be "privileged."

There is one basic problem here.  The "team,"  albeit not directly involved in this case, is still a government team.  It is nice of the government to offer members of their team as part of the "filter team,"  but shouldn't the team be appointed by the Court?  It is not like the items in question are in jeopardy of being destroyed.  Might this be a good time for the court to intervene and either peruse the materials him or herself, or appoint someone not associated who can review the items and decide if the items violate privilege.  More importantly, might this be a good time to hear from Jefferson's lawyers so that a court can decide if the search was warranted here.  One commenter to another blog entry here argues that the court already had the chance to review the search as the court approved the issuing of the search warrant.  The problem here is that it was issued the warrant without any objection, because no one was given notice of the search. It was premised solely on what the FBI presented. If this had been a subpoena, the court would have heard from both sides in the objection and not just the DOJ.

(esp)

May 31, 2006 in Investigations | Permalink | Comments (8) | TrackBack (7)

Massachusetts U.S. Attorney Jumps Into the Options-Timing Investigation

There are now four U.S. Attorney's Offices looking into the timing of stock options granted to senior executives with the issuance of a grand jury subpoena from the District of Massachusetts to Sycamore Networks, Inc., a Chelmsford, Mass., company.  According to an 8-K filed on May 30 (here):

In addition to the previously reported investigation by the Securities and Exchange Commission (the “SEC”) of the practices of Sycamore Networks, Inc. (the “Company”) related to certain stock option grants, the Company is also cooperating with the U.S. Attorney’s Office for the District of Massachusetts (“U.S. Attorney's Office”) in its investigation of the Company’s stock option practices. On May 26, 2006, the U.S. Attorney's Office issued a grand jury subpoena to the Company requesting that the Company produce documents relating to stock option grants. The Company is cooperating, and will continue to cooperate, with the SEC and the U.S. Attorney's Office in their investigations.

The U.S. Attorney's Offices for the Southern and Eastern Districts of New York, i.e. Manhattan and Brooklyn, have taken the lead by subpoenaing over a dozen companies between them, while the U.S. Attorney's Office for the Northern District of California issued a subpoena to Altera Corp. related to its options grant practices (see press release here).  It remains unclear whether there is a coordinated investigation by the U.S. Attorney's Offices, although the companies subpoenaed in Massachusetts and California are within the districts, while the New York investigations are nationwide.  The SEC is also conducting investigations of the companies that have received grand jury subpoenas, so there is likely at least some coordination through that agency, although there are important limitations on how closely the civil and criminal investigators can work together.  Of particular concern, after two district court decisions in the past year dismissing criminal charges, will be how the SEC deals with witnesses who may also be the targets of grand jury investigations.

The Wall Street Journal has a very helpful chart (here) detailing the companies that so far have disclosed governmental and internal investigations of possible options-timing issues.  The investigations have already resulted in the dismissal of a few senior executives related to the probes, including the firing of the general counsel at McAfee discussed in an earlier post (here).  With the U.S. Attorneys in New York, Boston, and San Francisco conducting investigations, can the offices in Chicago and Los Angeles be too far behind?  Moreover, look for the SEC investigations, most of which have been identified as "informal" to this point, to move into the "formal" category in the near future, which will trigger a wave of civil subpoenas. (ph)

May 31, 2006 in Grand Jury, Investigations, Securities | Permalink | Comments (0) | TrackBack (0)

Tuesday, May 30, 2006

Upcoming Conferences

Starting tomorrow in Miami is the Fifteenth National ABA Criminal Justice Section's Sentencing Conference, also sponsored by the Federal Bar Association and the United States Sentencing Commission. For details, see here.

On Thursday and Friday, Conglomerate Blog here will host an online symposium called, Conglomerate Forum: Enron.  The symposium will "explore issues relating to the use of criminal law as a corporate governance mechanism in the wake of last week's guilty verdicts against Ken Lay and Jeff Skilling."

(esp)

May 30, 2006 in Enron, Scholarship, Sentencing | Permalink | Comments (0) | TrackBack (0)

Get Rid of the Lawyer

According to the Wall Street Journal here, McAfee has "fired its general counsel after an internal review of stock-options granting practices."  And this isn't the first person to go among several companies that are being scrutinized by the government over stock options. 

Are stock option improprieties going to be the new government target and priority in the corporate arena? And will the companies all be immediately cooperating with the government?  Do individuals within the companies need to be aware that should a company come under scrutiny, they will no longer be protected by their employer? 

(esp) 

May 30, 2006 in Investigations | Permalink | Comments (0) | TrackBack (0)

Monday, May 29, 2006

If It Were Your Office . . .

According to the Washington Post here, Senate Majority Leader Bill Frist is "okay" with the search of Rep. William Jefferson's office. But would he be "okay" if it were his office?  Would he be "okay" if someone from the executive came into his office and took documents or materials because they believed a crime had been committed. Yes, the search warrant requires probable cause, but it does not allow the individual the right to go into court and request that the search warrant be quashed prior to the government obtaining the items in question. And if the officer acts in "good faith" even if later proved to be incorrect (Leon), the items obtained from the search may be allowed into court.

Would Sen. Frist be "okay" if the FBI decided to procure all evidence coming from the Abramoff case by entering legislative offices and not using the subpoena duces tecum?  And will he be "okay" if the searches start occurring immediately before elections, and maybe when a different Attorney General is in office? 

Everyone is innocent until the government proves them guilty beyond a reasonable doubt.  And making sure that the executive does not intimidate or interfere with the legislative branch is also important.  It doesn't mean that individuals who commit crimes are not prosecuted, it just means that with vast prosecutorial power it is important to protect the tripartite process.  President Bush's resolution to seal the items is a good solution to allow the defense the opportunity to present their case to court and force the prosecution to respond as to why the choice of a search was necessary here.

(esp)

May 29, 2006 in Investigations | Permalink | Comments (2) | TrackBack (3)

On to the Sentencing

Clearly a topic of discussion is the upcoming sentencing of Ken Lay and Jeff Skilling.  Co-blogger Professor Peter Henning provides interesting points here.  Professor Doug Berman also has some thoughts here and here. This will clearly be a topic of upcoming conversation. 

But what are Ken Lay and Jeff Skilling thinking right now?  And what are those close to them thinking right now?  Probably many just don't care and want these two men given a maximum sentence.  But what purpose will that sentence serve?  Will it stop future criminality (deterrence)?  Could we achieve that deterrence with far lesser sentences than everyone seems to be predicting?  Is the criminal justice system just going to become a retributive machine to answer to the public outcry?

(esp)

May 29, 2006 in Enron | Permalink | Comments (3) | TrackBack (0)

The Legacy of Enron

Throughout legal history, scandals have come and gone, and there have been white collar prosecutions to match them - just ask Michael Milken.

The recent white collar prosecutions, however, have been different. The types and number of charges have increased, and the penalties have become enormous - often the equivalent of life sentences. It is also apparent that prosecutions have not been limited to the individuals actually committing the heart of the criminality within a company. The government has chosen to go above the individuals who are committing the actual frauds, and in some cases give these CFOs and lower level managers the plea deals, in order to prosecute the CEOs - the managers who oversee the company.

Back when Park, the CEO of a national food chain was held criminally liable for a violation of the Federal Food, Drug, and Cosmetic Act, the fine was $250.00 and there was no prison time. But the criminal conduct, charges, and sentences have come a long way since then.

Was this all necessary to put a halt to individual criminal conduct occurring within corporations? Or could this criminal conduct have been stopped in a better way?

For one, having a better oversight structure in place should assist in putting a stop to criminal conduct. It would also help if the legislators drafted the laws clearer so that everyone knew what was legal and acceptable business conduct and what crossed the line into criminality. We all know what murder is, but how many can actually understand what constitutes mail or wire fraud. Perhaps business schools need to include a professional responsibility class (all ABA law schools are required to have them).

But will the legacy of Enron be that the government over-reacted in an effort to eradicate corporate misconduct. Will the legacy be that it is necessary to stop criminality before it happens, as opposed to reacting after the fact. Would pensions have been saved if there were adequate controls in place to begin with, as opposed to using punishment as the means for achieving compliance. And more importantly, are we so busy prosecuting the past conduct resulting from cases like Skilling/Lay that we are missing what is happening with hedge funds, identity thefts, and new forms of computer criminality?

But for one juror on the Lay/Skilling case, the trial's legacy may be felt everytime a dog appears, as according to Business Week Magazine here, a juror adopted a bichon frisé puppy during the trial, and calls the dog - "Enron."

(esp)

May 29, 2006 in Enron | Permalink | Comments (1) | TrackBack (7)